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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

10-K
(Mark One)

(Mark One)

☒

☑

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

For the fiscal year ended December 31, 2019
or

For the fiscal year ended December 31, 2016

OR

☐

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

For the transition period from              to            

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

Penn National Gaming, Inc.

(Exact name of registrant as specified in its charter)

0-24206
PENN NATIONAL GAMING, INC.

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

23‑2234473

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

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

19610
(Zip Code)

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

825 Berkshire Blvd., Suite 200
Wyomissing,Pennsylvania19610
(610) 373-2400
Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.01 par value $0.01 per share

PENN

The NASDAQ

Stock Market LLC

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

(Title of Class)

None

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

o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  oNo ☒

þ

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 ☒þ No ☐

o

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

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

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b‑212b-2 of the Exchange Act:

Act.

Large accelerated filer ☒

☑

Accelerated filer ☐

Non‑accelerated☐

Non-accelerated filer ☐
(Do not check if a
smaller reporting company)

☐

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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). Yes ☐ No ☒

þ

As of June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter),2019, the aggregate market value of the voting common stock held by non‑affiliatesnon-affiliates of the registrant was approximately $1.06$2.2 billion. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the NASDAQ Global Select Market on June 30, 2016.

The28, 2019. As of February 21, 2020, the number of shares of the registrant’s common stock outstanding as of February 15, 2017 was 90,885,007.

116,864,066.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive 2020 proxy statement, for its 2017 annual meetinganticipated to be filed with the Securities and Exchange Commission within 120 days after the end of shareholdersthe registrant’s fiscal year, are incorporated by reference into Part III.

III of this Form 10-K.



PENN NATIONAL GAMING, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Business
1
Item 1A. Risk Factors
10
Item 1B. Unresolved Staff Comments
24
Item 2. Properties
25
Item 3. Legal Proceedings
26
Item 4. Mine Safety Disclosures
26
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
26
Item 6. Selected Financial Data
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
50
Item 8. Financial Statements and Supplementary Data
51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
101
Item 9A. Controls and Procedures
101
Item 9B. Other Information
103
PART III
Item 10. Directors, Executive Officers and Corporate Governance
103
Item 11. Executive Compensation
103
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
103
Item 13. Certain Relationships and Related Transactions, and Director Independence
103
Item 14. Principal Accountant Fees and Services
103
PART IV
Item 15. Exhibits, Financial Statement Schedules
103
Item 16. Form 10-K Summary
104
Signatures

Table of Contents


PART I
TABLE OF CONTENTS

Page

PART I

ITEM 1.

BUSINESS

1 

ITEM 1A.

RISK FACTORS

16 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

33 

ITEM 2.

PROPERTIES

33 

ITEM 3.

LEGAL PROCEEDINGS

36 

ITEM 4.

MINE SAFETY DISCLOSURES

37 

PART II

ITEM 5.

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

38 

ITEM 6.

SELECTED FINANCIAL DATA

39 

ITEM 7.

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

41 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

71 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

72 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

127 

ITEM 9A.

CONTROLS AND PROCEDURES

127 

ITEM 9B.

OTHER INFORMATION

131 

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

131 

ITEM 11.

EXECUTIVE COMPENSATION

131 

ITEM 12.

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

131 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

131 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

131 

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

132 

ITEM 16.

SUMMARY INFORMATION

132 

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Overview

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IMPORTANT FACTORS REGARDING FORWARD‑LOOKING STATEMENTS

This document includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are included throughout the document, including the section entitled “Risk Factors,” and relate to our business strategy, our prospects and our financial position. These statements can be identified by the use of forward‑looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should” or “anticipates” or the negative or other variation of these or similar words, or by discussions of future events, strategies or risks and uncertainties. Specifically, forward‑looking statements may include, among others, statements concerning:

·

our expectations of future results of operations or financial condition;

·

our expectations for our operating properties or our development projects;

·

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

·

the impact of our geographic diversification;

·

our expectations with regard to the impact of competition;

·

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

·

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

·

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

·

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

·

our expectations regarding economic and consumer conditions; and

·

our expectations for the continued availability and cost of capital.

Although Penn National Gaming, Inc. (“Penn”) and, together with its subsidiaries, (together with Penn, collectively, the “Company”) believe that the expectations reflected in such forward‑looking statements are reasonable, they are inherently subject to risks, uncertainties and assumptions about our subsidiaries and us.  There can be no assurance that actual results will not differ materially from our expectations, and accordingly, our forward‑looking statements are qualified in their entirety by reference to the factors described below and in the information incorporated by reference herein. Meaningful factors that could cause actual results to differ materially from the forward‑looking statements include, without limitation, risks related to the following:

·

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

·

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

·

our ability to obtain timely regulatory approvals required to own, develop and/or operate our facilities, or other delays, approvals or impediments to completing our planned acquisitions or projects, such as

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construction factors, including delays, unexpected remediation costs, local opposition, organized labor, and increased cost of labor and materials;

·

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

·

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

·

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

·

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

·

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

·

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

·

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

·

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

·

our expectations for the continued availability and cost of capital;

·

the impact of weather;

·

the outcome of pending legal proceedings;

·

changes in accounting standards;

·

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

·

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

·

with respect to the recently opened Hollywood Casino Jamul-San Diego, particular risks associated with the repayment and/or subordination of project loans, sovereign immunity, local opposition (including several pending lawsuits), access, regional competition and the impact of property performance and/or our loan agreements that may limit the ability to generate meaningful recurring fees from this management contract;

·

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

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·

with respect to our social and other interactive gaming endeavors, including our recent acquisition of Rocket Speed, Inc. (f/k/a Rocket Games, Inc. (“Rocket Speed”)), risks related to the social gaming industry, employee retention, cyber-security, data privacy, intellectual property and legal and regulatory challenges, increasing competition as well as our ability to successfully develop innovative new games that attract and retain a significant number of players in order to grow our revenues and earnings;

·

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

·

other factors included under the heading “Risk Factors” in this offering memorandum or discussed in our filings with the U.S. Securities and Exchange Commission.

All subsequent written and oral forward‑looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document. We undertake no obligation to publicly update or revise any forward‑looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the forward‑looking events discussed in this document may not occur.

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PART I

ITEM 1.  BUSINESS

Overview

We areis a leading, geographically diversified, multi‑jurisdictionalmulti-jurisdictional owner and manager of gaming and racing facilitiesproperties and video gaming terminal operations with a focus on slot machine entertainment. The Company was incorporated(“VGT”) operations. We currently offer live sports betting at our properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company became a publicly traded company. In 1997, we began our transition from a pari‑mutuel company to a diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions, greenfield projects, and property expansions. We along with our joint venture partner, opened Hollywood Casino at Kansas Speedway in February 2012.  In addition, in November 2012, we acquired Harrah’s St. Louis, which we subsequently rebranded as Hollywood Casino St Louis.  In Ohio, we have opened four new gaming properties over the last five years.  In 2015, we opened Plainridge Park Casino,operate an integrated racing and slots-only gaming facility in Plainville, Massachusetts in June, completed the acquisition of our first Las Vegas strip asset, Tropicana Hotel and Casino in Las Vegas, Nevada in August, and acquired Illinois Gaming Investors LLC (d/b/a Prairie State Gaming), one of the largest video gaming terminal route operators in Illinois, in September.

In addition, we developed and now manage Hollywood Casino Jamul-San Diego on the Jamul Indian Village land in trust near San Diego, California, which opened on October 10, 2016.  In 2016, our subsidiary, Prairie State Gaming, acquired two small video gaming terminal route operators in Illinois.  Finally, we recently implemented our interactive gaming strategy(“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive Ventures”Interactive”), which recently launched an online casino (“iCasino”) which included launchingin Pennsylvania through our HollywoodCasino.com Play4Fun social gaming platform and entered into multi-year agreements with Scientific Gamesleading sports betting operators for online sports betting and iGaming market access across our HollywoodSlots.com mobile socialportfolio of properties. Our MYCHOICE® customer loyalty program currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. References in this Annual Report on Form 10-K, to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.

As of December 31, 2019, we owned, managed, or had ownership interests in 41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in the “Triple Net Leases” section below and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“GLPI”), a real estate investment trust (“REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2020.
In February 2020, we closed on our investment in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment and media platform, pursuant to a stock purchase agreement with OpenWager. OnBarstool Sports and stockholders of Barstool Sports, in which we purchased approximately 36% of the common stock of Barstool Sports for a purchase price of approximately $163 million. The purchase price consisted of approximately $135 million in cash and $28 million in shares of non-voting convertible preferred stock. Furthermore, three years after the closing of the transaction (or earlier at our election), we will increase our ownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial investment. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). We also have the option to bring in another partner who would acquire a portion of our share of Barstool Sports. Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iCasino products. We expect to launch our online sports gaming app called Barstool Sports in August 2020 and anticipate that this transaction will facilitate the Company’s omni-channel growth.
In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI” and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the Master Leases, the Greektown Lease and the Meadows Lease (as defined in the “Triple Net Leases” section below), the “Triple Net Leases”).
In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”). In conjunction with the Pinnacle Acquisition, the Company divested the membership interests of certain Pinnacle subsidiaries, which operated the casinos known as Ameristar St. Charles, Ameristar Kansas City, Belterra Resort and Belterra Park (referred to collectively as the “Divested Properties”), to Boyd Gaming Corporation (NYSE: BYD). Additionally, as a part of the transaction, GLPI acquired the real estate assets associated with Plainridge Park Casino and concurrently leased back such assets to the Company (the “Plainridge Park Casino Sale-Leaseback”). In connection with the sale of the Divested Properties and the Plainridge Park Casino Sale-Leaseback, the Pinnacle Master Lease, which was assumed by the Company concurrent with the closing of the Pinnacle Acquisition, was amended. The Pinnacle Acquisition added 12 gaming properties to our portfolio.
In May 2017, we completed the acquisitions of 1st Jackpot Casino (f/k/a Bally’s Casino Tunica) and Resorts Casino Tunica (which ceased operations in June 2019). In August 2016, we enhanced our social gaming offerings with the acquisition of Rocket Speed, Inc. (formerly known as Rocket Games, Inc. (“Rocket Speed”)), a leading developer of social casino games.

In June 2015, we opened Plainridge Park Casino in Plainville, Massachusetts, and in August 2015, we completed the acquisition of Tropicana Las Vegas. In September


2015, we acquired Illinois Gaming Investors LLC (d/b/a Prairie State Gaming) (“Prairie State Gaming”), one of the largest VGT route operators in Illinois, which has since acquired four small VGT route operators based in Illinois.
We believe that our portfolio of assets provides us the benefit of a geographically diversifiedgeographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties, particularly in attractiveproperties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional markets.

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


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

Spin‑Off of Real Estate Assets through a Real Estate Investment Trust

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

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

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Master Lease

As of December 31, 2016, the Company leased from GLPI real property assets associated with eighteen of the Company’s gaming and related facilities used in the Company’s operations. The following summaryoperations are subject to either the Penn Master Lease or the Pinnacle Master Lease. In addition, three of the Master Lease is qualifiedgaming facilities used in its entirety by reference to the Master Lease and subsequent amendments, each of which has been filed with the Securities and Exchange Commission. It was determined that the Master Lease did not meet the requirements of a normal leaseback under ASC 840 due to prohibited forms of continuing involvement and is therefore accounted for as a financing obligation.

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

In April 2014, we entered into an amendment to the Master Lease in order to revise certain provisions relating to our Sioux City property. In accordance with that amendment, upon the cessation of gaming operations at Argosy Casino Sioux City on July 30, 2014, due to the termination of its gaming license, the annual payment to GLPI was reduced by $6.2 million. Additionally, the Company finalized its calculation of the coverage ratio in accordance with the appropriate provisions of the Master Lease to determine if an annual base payment escalator is due. The calculation of the escalator resulted in an increase to our annual payment of $4.5 million, $5.0 million and $3.2 million for the years ended December 31, 2016, 2015, and 2014 respectively.

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

At the Company’s option,

The following summaries of the Master Leasesare qualified in their entirety by reference to either the Penn Master Lease may be extended for upor the Pinnacle Master Lease, as applicable, and subsequent amendments, all of which are incorporated by reference in the exhibits to this Annual Report on Form 10-K.
Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four five‑yearsubsequent, five-year renewal terms beyond the initial fifteen‑year term,periods on the same terms and conditions.conditions, exercisable at the Company’s option. If we elect to renew the term of the Penn Master Lease, the renewal will be effective as to all but not less than all, of the leased propertyreal estate assets then subject to the Penn Master Lease, provided thatsubject to limitations on the final renewal option shall only be exercisableterm with respect to certain of the barge‑based facilities—i.e.barge-based facilities.
Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), facilities where barges serve as foundations upon which buildings are constructed to serve as gaming or related facilities or serve ancillary purposes such as access platforms or shear barges to protect a gaming facility from floating debris—following an independent third party expert’s revieworiginally effective April 28, 2016. Concurrent with the closing of the total useful lifePinnacle Acquisition on October 15, 2018, the Company entered into an amendment to the Pinnacle Master Lease to, among other things, (i) remove Ameristar St. Charles, Ameristar Kansas City and Belterra Resort, and (ii) add Plainridge Park Casino. Pursuant to the Pinnacle Master Lease, the Company leases real estate assets associated with 12 of the applicable barged‑based facility measuredgaming facilities used in its operations from GLPI. Upon assumption of the beginningPinnacle Master Lease, as amended, there were 7.5 years remaining of the initial term. If the final five‑yearten-year term, with five subsequent, five-year renewal term would not cause the aggregate term to exceed 80% of the useful life of such facility, the facility shall be included in the five‑year renewal. In the event that a five‑year renewal of such facility would cause it to exceed 80% of the estimated useful life, such facility shall be included in the renewal for the period of time equal to but not exceeding 80% of the estimated useful life.

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

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Segment Information

Our Chief Executive Officer and President, who isperiods exercisable at the Company’s Chief Operating Decision Maker (“CODM”) as that term is defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, “Segment Reporting” (“ASC 280”), measuresoption.

Meadows Lease, Margaritaville Lease and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations. During the second quarter of 2016, the Company changed its three reportable segments from East/Midwest, West and Southern Plains to Northeast, South/West, and Midwest inGreektown Lease
In connection with the addition ofPinnacle Acquisition, the Company assumed a new regional vice president and a realignment of responsibilities within our segments. This realignment changed the manner in which information is provided to the CODM and therefore how performance is assessed and resources are allocated to the business. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8—Financial Statements and Supplementary Data—Note 15—Segment Information” for performance information regarding our segments, includingtriple net revenues, income from operations and total assets.

The Northeast reportable segment consistslease of the following properties: Hollywoodreal estate assets used in the operations of Meadows Racetrack and Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, which opened(the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on August 28, 2014, Hollywood Gamingthe same terms and conditions, exercisable at Mahoning Valley Race Course, which opened on September 17, 2014, and Plainridge Park Casino, which opened in June 2015. It also includes the Company’s Casino Rama management service contract.

The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, and Tropicana Las Vegas, which was acquiredoption.

As discussed above, in August 2015, as well as the Hollywood Casino Jamul-San Diego project with the Jamul Tribe, which opened on October 10, 2016, which we operate under a management contract.

The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, whichseparate acquisitions, the Company acquiredentered into the Margaritaville Lease with VICI for the real estate assets used in September 2015,the operations of Margaritaville and includesthe Greektown Lease with VICI for the real estate assets used in the operations of Greektown. Both the Margaritaville Lease and the Greektown Lease have initial terms of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway. On July 30, 2014, the Company closed Argosy Casino Sioux City.

option.


Operating Properties
The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including the recently acquired Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents 0.8% of net revenues and 0.4% of income from operations for the year ended December 31, 2016, and its total assets represent 2.2% of the Company’s total assets at December 31, 2016.

Properties

Penn National Gaming, Inc. owns, operates, or has ownership interests in gaming and racing facilities and video gaming terminal operations with a focus on slot machine entertainment. As of December 31, 2016, we operated twenty‑seven facilities in the following seventeen jurisdictions: Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, California, and Ontario. The Company, on August 25, 2015, acquired Tropicana Las Vegas on the Las Vegas Strip for $357.7 million.

3

Table of Contents

In Illinois, the Company acquired Prairie State Gaming, a video gaming terminal operator, on September 1, 2015. The Company, along with its joint venture partner, opened Hollywood Casino at Kansas Speedway on February 3, 2012. In Ohio, the Company opened four new gaming properties over the last five years, including: Hollywood Casino Toledo on May 29, 2012, Hollywood Casino Columbus on October 8, 2012, Hollywood Gaming at Dayton Raceway on August 28, 2014, and Hollywood Gaming at Mahoning Valley Race Course on September 17, 2014. In addition, on November 2, 2012, the Company acquired Harrah’s St. Louis, which we subsequently rebranded as Hollywood Casino St. Louis.

The real estate of the Master Lease properties describedtable below was contributed to GLPI as part of the Spin‑Off; however, Penn continues to operate the leased gaming facilities. The following table summarizes certain features of the Master Lease properties operated and managed by us as of December 31, 2016:

Master Lease Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Approx.

    

 

    

 

    

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

Square

 

Gaming

 

Table

 

Hotel

 

 

 

Location

 

Type of Facility

 

Footage(1)

 

Machines

 

Games(2)

 

Rooms

 

Hollywood Casino at Charles Town Races

 

Charles Town, WV

 

Land‑based gaming/Thoroughbred racing

 

511,249

 

2,527

 

86

 

153

 

Hollywood Casino Lawrenceburg

 

Lawrenceburg, IN

 

Dockside gaming

 

634,000

 

1,758

 

62

 

295

 

Hollywood Casino Toledo

 

Toledo, OH

 

Land‑based gaming

 

285,335

 

2,044

 

59

 

—

 

Hollywood Casino Columbus

 

Columbus, OH

 

Land‑based gaming

 

354,075

 

2,249

 

70

 

—

 

Hollywood Gaming at Dayton Raceway

 

Dayton, OH

 

Land‑based gaming/Harness racing

 

191,037

 

1,005

 

—

 

—

 

Hollywood Gaming at Mahoning Valley Race Course

 

Youngstown, OH

 

Land‑based gaming/Thoroughbred racing

 

177,448

 

986

 

—

 

—

 

Hollywood Casino St. Louis

 

Maryland Heights, MO

 

Dockside gaming

 

645,270

 

2,000

 

63

 

502

 

Hollywood Casino at Penn National Race Course

 

Grantville, PA

 

Land‑based gaming/Thoroughbred racing

 

451,758

 

2,389

 

56

 

—

 

M Resort

 

Henderson, NV

 

Land‑based gaming

 

910,173

 

1,320

 

40

 

390

 

Argosy Casino Riverside

 

Riverside, MO

 

Dockside gaming

 

450,397

 

1,513

 

38

 

258

 

Hollywood Casino Gulf Coast

 

Bay St. Louis, MS

 

Land‑based gaming

 

425,920

 

1,096

 

18

 

291

 

Hollywood Casino Tunica

 

Tunica, MS

 

Dockside gaming

 

315,831

 

1,040

 

17

 

494

 

Hollywood Casino Aurora

 

Aurora, IL

 

Dockside gaming

 

222,189

 

1,100

 

21

 

—

 

Boomtown Biloxi

 

Biloxi, MS

 

Dockside gaming

 

134,800

 

897

 

14

 

—

 

Hollywood Casino Joliet

 

Joliet, IL

 

Dockside gaming

 

322,446

 

1,100

 

18

 

100

 

Hollywood Casino Bangor

 

Bangor, ME

 

Land‑based gaming/Harness racing

 

257,085

 

778

 

14

 

152

 

Argosy Casino Alton(3)

 

Alton, IL

 

Dockside gaming

 

124,569

 

827

 

12

 

—

 

Zia Park Casino

 

Hobbs, NM

 

Land‑based gaming/Thoroughbred racing

 

193,645

 

750

 

—

 

154

 

Total

 

 

 

 

 

6,607,227

 

25,379

 

588

 

2,789

 

(1)

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

(2)

Excludes poker tables.

(3)

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

4

Table of Contents

The following table summarizes certain features of the properties that are not subject to the Master Lease and are owned, and operated or managed by us as of December 31, 2016:

Other Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Approx.

    

 

    

 

    

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

Square

 

Gaming

 

Table

 

Hotel

 

 

 

Location

 

Type of Facility

 

Footage(1)

 

Machines

 

Games(2)

 

Rooms

 

Owned Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

Hollywood Casino at Kansas Speedway(3)

 

Kansas City, KS

 

Land‑based gaming

 

244,791

 

2,000

 

41

 

—

 

Freehold Raceway(4)

 

Freehold, NJ

 

Standardbred racing

 

132,865

 

—

 

—

 

—

 

Sanford‑Orlando Kennel Club

 

Longwood, FL

 

Greyhound racing

 

58,940

 

—

 

—

 

—

 

Plainridge Park Casino(5)

 

Plainville, MA

 

Land‑based gaming/Harness racing

 

196,473

 

1,250

 

—

 

—

 

Sam Houston Race Park(6)

 

Houston, TX

 

Thoroughbred racing

 

283,383

 

—

 

—

 

—

 

Valley Race Park(6)

 

Harlingen, TX

 

Greyhound racing

 

118,216

 

—

 

—

 

—

 

Tropicana Las Vegas(7)

 

Las Vegas, NV

 

Land‑based gaming

 

1,183,984

 

671

 

35

 

1,470

 

Managed Property:

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino Rama(8)

 

Orillia, Ontario

 

Land‑based gaming

 

864,047

 

2,543

 

98

 

289

 

Hollywood Casino Jamul - San Diego (9)

 

San Diego, CA

 

Land‑based gaming

 

195,913

 

1,731

 

40

 

—

 

VGT‑route Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Prairie State Gaming

 

Illinois

 

Land‑based gaming

 

N/A

 

1,437

 

—

 

—

 

Total

 

 

 

 

 

3,278,612

 

9,632

 

214

 

1,759

 

2019, by reportable segment (all area and capacity metrics are approximate):
 Location Real Estate Assets Lease or Ownership Structure Type of Facility Gaming Square Footage Gaming Machines 
Table Games (1)
 Hotel Rooms
Northeast segment (2)
             
Ameristar East ChicagoEast Chicago, IN Pinnacle Master Lease Dockside gaming 70,000 1,790 85 288
Greektown Casino-HotelDetroit, MI Greektown Lease Land-based gaming 100,000 2,601 62 400
Hollywood Casino BangorBangor, ME Penn Master Lease Land-based gaming/racing 31,750 726 14 152
Hollywood Casino at Charles Town RacesCharles Town, WV Penn Master Lease Land-based gaming/racing 115,000 2,292 74 153
Hollywood Casino ColumbusColumbus, OH Penn Master Lease Land-based gaming 168,000 2,082 70 —
Hollywood Casino Lawrenceburg (3)
Lawrenceburg, IN Penn Master Lease Dockside gaming 146,500 1,521 58 463
Hollywood Casino at Penn National Race CourseGrantville, PA Penn Master Lease Land-based gaming/racing 99,500 2,002 79 —
Hollywood Casino ToledoToledo, OH Penn Master Lease Land-based gaming 125,000 2,041 69 —
Hollywood Gaming at Dayton RacewayDayton, OH Penn Master Lease Land-based gaming/racing 33,500 1,045 — —
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OH Penn Master Lease Land-based gaming/racing 50,000 1,102 — —
Marquee by Penn (4)
Pennsylvania N/A Land-based gaming N/A 75 — —
Meadows Racetrack and CasinoWashington, PA Meadows Lease Land-based gaming/racing 131,000 2,506 88 —
Plainridge Park CasinoPlainville, MA Pinnacle Master Lease Land-based gaming/racing 50,000 1,250 — —
              
South segment             
1st Jackpot Casino
Tunica, MS Penn Master Lease Dockside gaming 40,000 840 14 —
Ameristar VicksburgVicksburg, MS Pinnacle Master Lease Dockside gaming 70,000 1,212 27 148
Boomtown BiloxiBiloxi, MS Penn Master Lease Dockside gaming 35,500 653 19 —
Boomtown Bossier CityBossier City, LA Pinnacle Master Lease Dockside gaming 30,000 726 16 187
Boomtown New OrleansNew Orleans, LA Pinnacle Master Lease Dockside gaming 30,000 1,156 31 150
Hollywood Casino Gulf CoastBay St. Louis, MS Penn Master Lease Land-based gaming 51,000 926 20 291
Hollywood Casino TunicaTunica, MS Penn Master Lease Dockside gaming 54,000 955 11 494
L’Auberge Baton RougeBaton Rouge, LA Pinnacle Master Lease Dockside gaming 71,500 1,406 49 205
L’Auberge Lake CharlesLake Charles, LA Pinnacle Master Lease Dockside gaming 70,000 1,522 71 995
Margaritaville Resort CasinoBossier City, LA Margaritaville Lease Dockside gaming 30,000 1,221 50 395
              
West segment             
Ameristar Black HawkBlack Hawk, CO Pinnacle Master Lease Land-based gaming 56,000 1,240 40 536
Cactus Petes and HorseshuJackpot, NV Pinnacle Master Lease Land-based gaming 29,000 754 24 416
M ResortHenderson, NV Penn Master Lease Land-based gaming 96,000 1,089 40 390
Tropicana Las VegasLas Vegas, NV Owned Land-based gaming 72,000 640 27 1,470
Zia Park CasinoHobbs, NM Penn Master Lease Land-based gaming/racing 18,000 732 — 154
              
Midwest segment             
Ameristar Council Bluffs (5)
Council Bluffs, IA Pinnacle Master Lease Dockside gaming 35,000 1,526 25 444
Argosy Casino Alton (6)
Alton, IL Penn Master Lease Dockside gaming 23,000 741 12 —
Argosy Casino RiversideRiverside, MO Penn Master Lease Dockside gaming 56,000 1,299 42 258
Hollywood Casino AuroraAurora, IL Penn Master Lease Dockside gaming 53,000 1,000 27 —
Hollywood Casino JolietJoliet, IL Penn Master Lease Dockside gaming 50,000 1,100 26 100
Hollywood Casino at Kansas Speedway (7)
Kansas City, KS Owned - JV Land-based gaming 95,000 2,000 41 —
Hollywood Casino St. LouisMaryland Heights, MO Penn Master Lease Dockside gaming 120,000 2,017 63 502
Prairie State Gaming (4)
Illinois N/A Land-based gaming N/A 1,904 — —
River City CasinoSt. Louis, MO Pinnacle Master Lease Dockside gaming 90,000 1,945 53 200
       
 
 
 
Other             
Freehold Raceway (8)
Freehold, NJ Owned - JV Standardbred racing — — — —
Retama Park Racetrack (9)
Selma, TX None - Managed Thoroughbred racing — — — —
Sam Houston Race Park (10)
Houston, TX Owned - JV Thoroughbred racing — — — —
Sanford-Orlando Kennel ClubLongwood, FL Owned Greyhound racing — — — —
Valley Race Park (10)
Harlingen, TX Owned - JV Greyhound racing — — — —
       2,395,250 49,637 1,327 8,791

(1)

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

(2)

Excludes poker tables.

tables

(3)

(2)

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

(3)Includes 168 rooms at our hotel and event center located less than a mile from the gaming facility.
(4)VGT route operations
(5)Includes 284 rooms operated by a third party and located on land leased by us and subleased to such third party.
(6)The riverboat is owned by us and not subject to the Penn Master Lease.
(7)Pursuant to a joint venture with International Speedway Corporation (“International Speedway”).

(4)

(8)

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

(5)

(9)

Opened on June 24, 2015.

Pursuant to a management contract with Retama Development Corporation

(6)

(10)

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

(7)

Acquired on August 25, 2015.

(8)

Pursuant to a management contract.

(9)

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

Northeast Segment

5

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

Greektown Casino-Hotel is located in the Greektown district of Detroit, Michigan, and is one of four casino hotels in the Detroit-Windsor area. In addition to slot machines, table games and poker tables, Greektown Casino-Hotel features a 30-story hotel, 14,000 square feet of convention and banquet space, and several food and beverage options from casual to fine dining. Further, the property includes a parking structure accommodating 3,400 vehicles.

Table of Contents

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

Northeast Properties

Hollywood Casino Bangor features gaming amenities; including slot machines, table games and poker tables; a hotel with 5,100 square feet of meeting and multipurpose space; a buffet; a casual dining restaurant; a small entertainment stage; and a four-story parking garage. Bangor Raceway, which is adjacent to the property, is located at Charles Town Races

historic Bass Park and includes a one-half mile standardbred racetrack and a 12,000 square foot grandstand capable of seating 3,500 patrons.

Hollywood Casino at Charles Town Races is located in Charles Town, West Virginia, within approximately an hour drive of the Baltimore, Maryland and Washington, D.C. markets. In addition to slot machines, table games and poker tables, Hollywood Casino at Charles Town Races features 511,249 of property square footage with 2,527 gaming machines, 86 table games and 20 poker tables andincludes a 153‑room hotel. Hollywood Casino at Charles Town Races also features various dining options, including a high‑end steakhouse, asportsbook for live sports bar and entertainment lounge, as well as an Asian themed restaurant.betting. The complex also features live thoroughbred racing at a 3/4‑mile all‑weather3/4-mile all-weather lighted thoroughbred racetrack with a 3,000‑seat3,000-seat grandstand, two parking garages for 5,7815,800 vehicles and simulcast wagering and dining.

wagering. Hollywood Casino at Penn National Race Course

Charles Town Races dining options include a high-end steakhouse, a sports bar and entertainment lounge, and an Asian-themed restaurant.

Hollywood Casino Columbus is a Hollywood-themed casino featuring slot machines, table games and 34 poker tables. Hollywood Casino Columbus also includes multiple food and beverage outlets, an entertainment lounge, and structured and surface parking for 4,600 spaces.
Hollywood Casino Lawrenceburg is located along the Ohio River in Lawrenceburg, Indiana, approximately 15 miles west of Cincinnati, Ohio. In addition to slot machines, table games, and poker tables, the Hollywood-themed casino riverboat includes a hotel; a sportsbook; dining options; including a restaurant, bar, nightclub, sports bar, and two cafés; and meeting space. We own and operate a hotel and event center, which was constructed by the City of Lawrenceburg Department of Redevelopment, located within one mile from Hollywood Casino Lawrenceburg. The hotel and event center includes 18,000 square feet of multipurpose space and 19,500 square feet of ballroom and meeting space.
Hollywood Casino at Penn National Race Course is located in Grantville, Pennsylvania, which is 15 miles northeast of Harrisburg. Hollywood Casino at Penn National Race Course features 451,758 of property square footage with 2,389 slot machines, 56 table games and 16 poker tables. TheHarrisburg, Pennsylvania. This gaming facility also includes an entertainment bar and lounge, a sports bar, a buffet, a high‑endhigh-end steakhouse and various casual dining options, as well as sports betting and a simulcast facility and viewing area for live racing. The facility has ample parking, including a five‑story self‑parkingfive-story self-parking garage, with capacity for approximately 2,200 cars, and approximately 1,500 surface parking spaces for self and valet parking. The property includes a one‑mile all‑weatherone-mile all-weather lighted thoroughbred racetrack and a 7/8‑mile7/8-mile turf track. TheIn addition, the property also includes approximately 393 acres that are available for future expansion or development.

Hollywood Casino Toledo

offers off-track wagering (“OTW”) at separate facilities located in York, Pennsylvania and Lancaster, Pennsylvania.

Hollywood Casino Toledo is located in Toledo, Ohio and opened on May 29, 2012. Hollywood Casino Toledo is a Hollywood‑themedHollywood-themed casino featuring 285,335 of property square footage with 2,044 slot machines, 59 table games and 19 poker tables. Hollywood Casino Toledo also includes multiple food and beverage outlets, an entertainment lounge, and structured and surface parking for approximately 3,300 spaces.

Hollywood Casino Columbus

Hollywood Casino Columbus is located in Columbus, Ohio and opened on October 8, 2012. Hollywood Casino Columbus is a Hollywood‑themed casino featuring 354,075 of property square footage with 2,249 slot machines, 70 table games and 36 poker tables. Hollywood Casino Columbus also includes multiple food and beverage outlets, an entertainment lounge, and structured and surface parking for 4,616 spaces.

Hollywood Gaming at Dayton Raceway

Hollywood Gaming at Dayton Raceway is located in Dayton, Ohio and opened on August 28, 2014. Hollywood Gaming at Dayton Raceway is a Hollywood‑themed facilityHollywood-themed property featuring 191,037 of property square footage with 1,005 video lottery terminals (“VLTs”) and a 5/8‑mile5/8-mile standardbred racetrack. Hollywood Gaming at Dayton Raceway also includes various restaurants, bars, surface parking for 1,8061,800 spaces and other amenities.

Hollywood Gaming at Mahoning Valley Race Course


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

6

Table of Contents

177,448 of property square footage with 986 video lottery terminals VLTs and a one‑mileone-mile thoroughbred racetrack. Hollywood Gaming at Mahoning Valley Race Course also includes various restaurants, bars, surface parking with 1,2541,250 spaces and other amenities.

Hollywood

Marquee by Penn is our licensed VGT route operator with a network of 15 truck stop establishments in Pennsylvania.
Meadows Racetrack and Casino Bangor

Hollywood Casino Bangor, which is located in Bangor, Maine, includes 257,085Washington, Pennsylvania, approximately 25 miles south of property square footage with 778 slot machines, 14 table gamesPittsburgh, Pennsylvania. In addition to gaming amenities, Meadows Racetrack and four poker tables. Hollywood Casino Bangor’s amenities includeoffers a 152‑room hotel with 5,119 square feet of meeting and multipurpose space, three eateries,sportsbook for live sports betting, several dining options, including a buffet, a snack barsteakhouse, food court and a casual dining restaurant,bar. In addition, the property features an events and banquet center, a small entertainment stage,simulcast betting parlor, a harness racetrack and a four‑story parking garage with 1,500 spaces. Bangor Raceway, which is adjacent to thebowling alley. The property is locatedalso offers OTW at historic Bass Park and includes a one‑half mile standardbred racetrack and grandstand to seat 3,500 patrons.

Plainridge Park Casino

separate facility in Pittsburgh.

Plainridge Park Casino which opened on June 24, 2015, is located 20 miles southwest of the Boston beltway just off interstate 95 in Plainville, Massachusetts. Plainridge Park features 196,473 of property square footage with 1,250In addition to gaming devices.offerings, Plainridge Park Casino offersfeatures various restaurants, bars, 1,6201,600 structured and surface parking spaces, and other amenities. Plainridge Park Casino also includes a 5/8‑mile5/8-mile live harness racing facility with approximate 55,000 square foot, two storya two-story clubhouse for simulcast operations, special events, and live racing viewing.

viewing, which is 55,000 square feet.

South Segment
1st Jackpot Casino, Rama

Through CHC Casinos Canada Limited (“CHC Casinos”)the closest Tunica-area casino to downtown Memphis, Tennessee, features slot machines, table games, a steakhouse, a buffet, a café, our indirectly wholly‑owned subsidiary, we manage Casino Rama, a full service gamingsportsbook and a live entertainment facility, on behalf ofvenue.

Ameristar Vicksburg, which is the Ontario Lottery and Gaming Corporation (“OLGC”), an agency of the Province of Ontario. Casino Ramalargest dockside casino in central Mississippi, is located onalong the landsMississippi River approximately 45 miles west of the Rama First Nation, approximately 90 miles north of Toronto. The property has 864,047 of property square footage with 2,543 gaming machines, 98 table games and 12 poker tables.Mississippi’s largest city, Jackson. In addition to gaming amenities, the property includesfeatures a 5,000‑seathotel, multiple dining facilities, a club lounge, a sportsbook, a live entertainment facility, a 289‑room hotelvenue, and 3,459 surface parking spaces.

The Development1,800 square feet of meeting and Operating Agreement, which we refer to as the management service contract for Casino Rama, sets out the duties, rights and obligations of CHC Casinos and our indirectly wholly‑owned subsidiary, CRC Holdings, Inc. The compensation under the management service agreement is a base fee equal to 2.0% of gross revenues of the casino and an incentive fee equal to 5.0% of the casino’s net operating profit.

In June 2014, we signed an agreement to extend the Casino Rama Agreement on a month‑to‑month basis with a 60‑day notice period for up to a maximum period of forty‑eight months, ending September 30, 2018. The OLGC is exploring bids for new operating contracts and privatization in Ontario, including at Casino Rama.  As a result, there is no assurance on whether and how long the OLGC will continue to engage us to manage the property.

South/West Properties

M Resort

The M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated on approximately 90 acres on the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features 910,173 of property square footage with 1,320event space.

Boomtown Biloxi offers slot machines and 40 table games. The M Resortgames as well as a buffet, a sports bar and grill, a Fat Tuesday, a noodle bar, a sportsbook and a recreational vehicle (“RV”) park. Boomtown Biloxi also features a 3,600 square foot event center and board room and has 1,450 surface parking spaces.
Boomtown Bossier City features a hotel adjoining a dockside riverboat casino located less than one mile from the Louisiana Boardwalk. It also offers 390 guest roomsseveral dining options, ranging from a high-end steakhouse to casual dining restaurants, including a buffet, and suites, six restaurants and six destination bars, more than 60,0001,500 square feet of meeting and conference space, a 4,700 space parking facility, a spa and fitness center and a 100,000 square foot events piazza.

space.

7

Table of Contents

Zia Park Casino

Zia Park Casino Boomtown New Orleans is located in Hobbs,the West Bank area across the Mississippi River and approximately 15 minutes from the French Quarter of New Mexico and includes a casino, as well as an adjoining racetrack. The property includes 193,645 of property square footage with 750 slot machines and two restaurants. The property has a one‑mile quarter/thoroughbred racetrack, with live racing from September to December, and a year‑round simulcast parlor. In August 2014, we opened a new hotel, which includes 148 rooms, six suites, a business center, exercise/fitness facilities and a breakfast venue.

Hollywood Casino Tunica

Hollywood Casino Tunica is located in Tunica, Mississippi. This single‑level property features 315,831 of property square footage with 1,040 slot machines, 17 table games and six poker tables. Hollywood Casino Tunica also has a 494‑room hotel and 123‑space recreational vehicle park. Entertainment amenities include a steakhouse, a buffet, a grill, an entertainment lounge, a premium players’ club, a themed bar facility, an indoor pool and showroom as well as banquet and meeting facilities.Orleans, Louisiana. In addition Hollywood Casino Tunica offers surface parking with 1,635 spaces.

Hollywood Casino Gulf Coast

to gaming amenities, it also features a five-story hotel, a fitness center, four restaurants, a 500-seat entertainment venue, and over 14,000 square feet of meeting and conference space.

Hollywood Casino Gulf Coast (formerly Hollywood Casino Bay St. Louis), which is located in Bay St. Louis, Mississippi, features 425,920 of property square footage with 1,096 slot machines, 18 table games, and five poker tables. The waterfront Hollywood Hotel features 291 rooms,includes a 10,000 square foot ballroom, and nine separate meeting rooms offering more than 14,000 square feet of meeting space. Hollywood Casino Gulf Coast offers live concerts and various entertainment on weekends. The property also features The Bridges golf course, an 18‑hole championship golf course. Hollywood Casino Gulf Coast hasa sportsbook, and various dining facilities, including a steakhouse, a buffet, a grill and a clubhouse lounge as well as an entertainment bar. Other amenities include a recreational vehicleRV park with 100 spaces and a gift shop, lazy river, spa, and pool cabanas.

Boomtown Biloxi

Boomtown Biloxi

Hollywood Casino Tunica features gaming offerings, a hotel and a 123-space RV park. Entertainment amenities include a steakhouse, a buffet, a grill, an entertainment lounge, a premium players’ club, a themed bar, a sportsbook, an indoor pool, and showroom as well as banquet and meeting facilities. In addition, Hollywood Casino Tunica offers surface parking with more than 1,600 spaces.
L’Auberge Baton Rouge is located approximately ten miles southeast of downtown Baton Rouge, Louisiana. L’Auberge Baton Rouge offers a fully-integrated casino entertainment experience. It also features a 12-story hotel, a fitness center, four dining outlets, a music bar, and 13,000 square feet of meeting and event space.
L’Auberge Lake Charles offers one of the closest full-scale casino hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively. L’Auberge Lake Charles features six dining outlets, a golf course, a full-service spa, retail shopping, two bars, and more than 26,000 square feet of meeting and event space.

Margaritaville Resort Casino is one of the premier gaming, lodging, dining and entertainment experiences in Northern Louisiana. The property provides an island-style theme and includes a 15,000 square foot 1,000-seat theater, 9,500 square feet of meeting space, and 1,500 parking spaces.
West Segment
Ameristar Black Hawk is located in Biloxi, Mississippithe center of the Black Hawk gaming district, approximately 40 miles west of Denver, Colorado. In addition to gaming amenities, the resort features a hotel, a full-service day spa, a fitness center, several dining outlets, a live entertainment bar, a 1,500 space parking structure, and offers 134,80015,000 square feet of property square footage with 897meeting and event space.
Cactus Petes and Horseshu (collectively, “the Jackpot Properties”) are located just south of the Idaho border in Jackpot, Nevada. The Jackpot Properties collectively feature two hotels, four dining options, a 4,000 seat amphitheater, a showroom, a live entertainment lounge, and meeting and event facilities.
M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated at the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features slot machines, table games and 14 table games. It features a buffet,sportsbook. M Resort also offers a steakhouse,hotel, seven restaurants and six destination bars, more than 60,000 square feet of meeting and conference space, a 24‑hour grill,4,700 space parking structure, a noodle barspa and an recreational vehicle park with 50 spaces. Boomtown Biloxi also has 1,450 surface parking spaces.

fitness center, a Topgolf Swing Suite, and a 100,000 square foot event center.

Tropicana Las Vegas

The Company acquired Tropicana Las Vegas on August 25, 2015. Tropicana Las Vegas, ,located on the strip in Las Vegas, Nevada, is situated on an approximate 35‑acre land parcel at the corner of Tropicana Boulevard and Las Vegas Boulevard. TheIn addition to gaming, the resort features 1,183,984 of property square footage with 671 slot machines and 35 table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, three full serviceshotel, a sportsbook kiosk, four full-service restaurants, a brunch buffet, a food court, a 1,100‑seat1,100-seat performance theater, a 300‑seat300-seat comedy club, over 100,000 square feet of exhibition and meeting space, a five‑acrefive-acre tropical beach event area and spa, and 2,0952,100 parking spaces.

Hollywood

Zia Park Casino Jamul-San Diego

Hollywoodincludes slot machines, two restaurants, and a one-mile quarter/thoroughbred racetrack, with live racing from September to December, and a year-round simulcast parlor. In addition, Zia Park Casino Jamul – San Diego features a hotel, which includes six suites, a business center, exercise/fitness facility and a breakfast venue.

Midwest Segment
Ameristar Council Bluffs is located across the Missouri River from Omaha, Nebraska and includes the largest riverboat in Iowa. In addition to gaming amenities, the property also features a three-story gaminghotel, a fitness center, four dining facilities, a sports bar, and entertainment facility featuring approximately 200,000a 5,000 square feet with 1,731 slot machines, 40 live table games, multiple restaurants, barsof convention and lounges and a partially enclosed parking structure with over 1,800 spaces.  The facility opened to the public on October 10, 2016.  The Company currently provides a portion of the financing to the Jamul Tribe in connection with the project including additional commitments for future construction spending and, following the opening, now manages the casino.

meeting space.

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Midwest Properties

Hollywood Casino Aurora

Hollywood Casino Aurora, part of the Chicagoland market, is located in Aurora, Illinois, the second largest city in Illinois, approximately 35 miles west of Chicago. This single‑level dockside casino provides 222,189 of property square footage with 1,100 slot machines, 21 gaming tables and six poker tables. The facility features a steakhouse with a private dining room, a VIP lounge for premium players, a casino bar with video poker, a buffet, and a deli. Hollywood Casino Aurora also has a surface parking lot, two parking garages with approximately 1,500 parking spaces, and a gift shop.

Hollywood Casino Joliet

Hollywood Casino Joliet, part of the Chicagoland market, is located on the Des Plaines River in Joliet, Illinois, approximately 40 miles southwest of Chicago. This barge‑based casino provides two levels with 1,100 slot machines, 26 table games and three poker tables. The land‑based pavilion includes a steakhouse, a buffet and a sports bar. The casino barge includes a deli and VIP lounge. The complex also includes a 100‑room hotel, a 1,100 space parking garage, surface parking areas with approximately 1,500 spaces and an 80‑space recreational vehicle park. In total, the facility includes 322,446 of property square footage.

Argosy Casino Alton

Argosy Casino Alton is located on the Mississippi River in Alton, Illinois, approximately 20 miles northeast of downtown St. Louis. Argosy Casino Alton is a three‑deck gaming facilitythree-deck riverboat featuring 124,569 of property square footage with 827 slot machines and 12 table games. Argosy Casino Alton includes an entertainment pavilion and features a 214‑seatlarge buffet venue, a restaurant, a deli and a 475‑seat475-seat main showroom. The facility also includes surface parking areas with 1,3411,350 spaces.

Argosy Casino Riverside

Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown Kansas City in Riverside, Missouri. TheCity. In addition to gaming amenities, this Mediterranean-themed property features 450,397 of property square footage with 1,513 slot machines and 38 table games. This Mediterranean‑themed casino anda nine-story hotel, features a nine‑story, 258‑room hotel and spa, an entertainment facility featuring various food and beverage areas, including a buffet, a steakhouse, a deli, a coffee bar, a Mexican restaurant, a VIP lounge and a sports/entertainment lounge and 19,000 square feet of banquet/conference facilities. Argosy Casino Riverside also has parking for approximately 3,000 vehicles, including a 1,250 space parking garage.

Hollywood Casino Lawrenceburg

Aurora is located in Aurora, Illinois, the second largest city in Illinois, approximately 35 miles west of Chicago. This single-level dockside casino offers guests with gaming amenities, including a poker room. The facility features a steakhouse with a private dining room, a VIP lounge for premium players, a casino bar with video poker, a buffet, and a deli. Hollywood Casino LawrenceburgAurora also has a surface parking lot, two parking garages with 1,500 parking spaces, and a gift shop.

Hollywood Casino Joliet is located on the OhioDes Plaines River in Lawrenceburg, Indiana,Joliet, Illinois, approximately 1540 miles westsouthwest of Cincinnati. The Hollywood‑themedChicago. This barge-based casino riverboat has 634,000 square feetprovides guests with two levels of property square footage with 1,758 slot machines, 62 table games and 19 poker tables. Hollywood Casino Lawrenceburg also includes a 295‑room hotel,gaming experience as well as a restaurant, bar, nightclub,deli and a VIP lounge. The land-based pavilion includes a steakhouse, a buffet and a sports bar, two cafes and meeting space.

bar. The City of Lawrenceburg Department of Redevelopment constructedcomplex also includes a hotel, and event center located less than a mile away from our Hollywood Casino Lawrenceburg property. Effective in January 2015, by contractual agreement, the hotel and event center is owned and operated by a subsidiary of the Company. The hotel and event center includes 168 rooms, approximately 18,0004,600 square feet of multipurposemeeting space, a 1,100 space parking garage, surface parking areas with 1,500 spaces and 19,500 square feet of ballroom and meeting space.

an 80-space RV park.

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Hollywood Casino at Kansas Speedway

Hollywood Casino at Kansas Speedway,, our 50% joint venture with International Speedway, is located in Kansas City, Kansas and opened on February 3, 2012. The facility features 244,791 of property square footage with 2,000 slot machines, 41 table games and 12 poker tables. Hollywood Casino at Kansas Speedway offers a variety of dining and entertainment facilities, a meeting room, and has a 1,253 space1,250-space parking structure.

Hollywood Casino St. Louis


Hollywood Casino St. Louis is located adjacent to the Missouri River in Maryland Heights, Missouri, directly off I‑70I-70 and approximately 22 miles northwest of downtown St. Louis, Missouri. The facility is situated on approximately 248 acres along the Missouri River and features 645,270 of property square footage with 2,000 slot machines, 63 table games, 20 poker tables, a 502 guestroom hotel, nine dining and entertainment venues and structured and surface parking with approximately 4,600 spaces. At the end of 2013, we completed the transition of the property to our Hollywood Casino brand name.

Prairie State Gaming

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

Prairie State Gaming ais our licensed video gaming terminalVGT route operator in Illinois on September 1, 2015. Prairie State Gaming’s operations now include more than 1,437 video gaming terminals across a network of approximately 317over 400 bar andand/or retail gaming establishments in seven distinct geographic areas throughout Illinois.

Other Properties

Sanford‑Orlando Kennel Club

Sanford‑Orlando Kennel Club

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

over 10,000 square feet of conference space.

Other
Freehold Raceway

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

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

Retama Park Racetrack. We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack. In addition, we own 1.0% of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack. Additionally, we own a 75.5% interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.
Sam Houston Race Park and Valley Race Park

Park. Our joint venture with MAXXAM owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park, in Harlingen, Texas, and holds a license for a planned racetrack in Manor, Texas, just outside of Austin. Sam Houston Race Park, which is located 15 miles northwest from downtown Houston along Beltway 8. Sam Houston Race Park8, hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as hosts various special events, private parties and meetings, concerts and national touring festivals throughout the year. Valley Race Park features 118,21691,000 of property square footage as a dog racing and simulcasting facility.

Sanford-Orlando Kennel Club. Sanford-Orlando Kennel Club is a 1/4-mile greyhound facility. The facility has capacity for 6,500 patrons, with seating for 4,000 and surface parking for 2,500 vehicles. The facility conducts year-round greyhound racing and greyhound, thoroughbred, and harness racing simulcasts.
Penn Interactive
Penn Interactive is our iGaming division, which recently launched an iCasino in Pennsylvania through our HollywoodCasino.com gaming platform and includes the operations of Absolute Games, LLC (“Absolute Games”), a developer and operator of social bingo games. In addition, Penn Interactive recently entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Pursuant to these agreements, such sports betting operators have commenced operations in Indiana, Pennsylvania and West Virginia. Penn Interactive also operates our internally-branded retail sportsbooks currently located in Harlingen, Texas.

Off‑track Wagering Facilities

Our off‑track wagering facilities (“OTWs”) and racetracks provide areas for viewing import simulcast races of thoroughbred and standardbred horse racing, televised sporting events, placing pari‑mutuel wagers and dining. We operate two OTWs inIndiana, Iowa, Mississippi, Pennsylvania and throughWest Virginia. We anticipate opening retail sportsbooks at our joint ventureproperties in Pennwood,Colorado, Illinois and Michigan as soon as we own 50% of a leased OTW in Toms

receive all necessary regulatory approvals.

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Trademarks

River, New Jersey. In addition, in accordance with an operating agreement with Pennwood, the Company constructed an OTW in Gloucester Township, New Jersey, which opened in July 2014. Per the operating agreement, this OTW is operated by us; however, Pennwood has the option to purchase the OTW once the Company has received its total investment as defined in the operating agreement.

Trademarks

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

As partUSPTO.

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

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

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

Effective as of November 1, 2015, the Company entered into a Trademark License Agreement with GLPI, pursuant to which the Company licenses certain trademarks to GLPI for use in connection with the Hollywood Casino Baton Rouge and Hollywood Casino Perryville facilities, which were contributed to GLPI in the Spin-Off.

property.


Competition

The gaming industry is characterized by aan increasingly high degree of competition among a large number of operators,participants operating from physical locations and/or through online or mobile platforms, including destination casinos, riverboat casinos,casinos; dockside casinos, land‑based casinos,casinos; land-based casinos; video lottery, videolottery; iGaming; sports betting; gaming terminals (VGTs) at taverns in certain states, such as Illinois,Illinois; gaming at truck stop establishments in certain states, such as wellLouisiana and Pennsylvania; historical horse racing in certain states, such as the potential legalization of VGTs in PennsylvaniaArkansas, Kentucky and other states,Virginia; sweepstakes and poker machines not located in casinos,casinos; fantasy sports; Native American gaming, emerging varieties of Internet and fantasy sports gaming, the potential for increased sports bettinggaming; and other forms of gaming in the U.S. In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including: shopping;including shopping, athletic events;events, television and movies;movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken into trust for the benefit of certain Native Americans in the U.S. and First Nations in Canada. Other jurisdictions, including states adjacent to states in which we currently have facilities (such as in Ohio, Massachusetts, and Maryland),properties, have recently legalized, implemented and expanded or have plans to license additional gaming facilities in the near future.gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations. New, relocated or

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operations (including VGTs, skill games, sports betting and iGaming). Competition is discussed in further detail within Table“Item 1A. Risk Factors,” of Contents

expanded operations by other companies will increasethis Annual Report on Form 10-K and a discussion of the impact of competition foron our gamingresults of operations and could have a material adverse impactcash flows is included within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report on us. Finally, the imposition of smoking bans and/or higher gaming tax rates have a significant impact on our properties’ ability to compete with facilities in nearby jurisdictions.

Our racing operations face significant competition for wagering dollars from other racetracksForm 10-K.


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

Northeast.  Hollywood Casino at Charles Town Races has been and will continue to be negatively impacted by competition in the Baltimore, Maryland market, which includes Maryland Live! and Horseshoe Casino Baltimore. Maryland Live!, a casino complex at the Arundel Mills mall in Anne Arundel, Maryland, opened on June 6, 2012 with approximately 3,200 slot machines. Maryland Live! significantly increased its slot machine offerings by mid‑September 2012 to approximately 4,750 slot machines, opened table games on April 11, 2013, and opened a 52 table poker room in late August 2013. Horseshoe Casino Baltimore opened at the end of August 2014 with 2,500 video lottery terminals and more than 100 table games. In December 2013, the sixth casino license for Maryland in Prince George’s County was granted to MGM. In December 2016, MGM National Harbor casino and resort opened featuring 3,300 slot machines and 124 table games and is anticipated to adversely impact our financial results, as it will create additional competition for Hollywood Casino at Charles Town Races.

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

In addition, legislators in Kentucky regularly consider new gaming legislation. The commencement of gaming in Kentucky would negatively impact certain of our existing properties in the Northeast segment. Finally, Pennsylvania is considering the potential legalization of gaming at bars and taverns as well as internet gaming, fantasy sports and online Lottery games.

South/West.  Our South/West segment contains our M Resort property, Tropicana Las Vegas property, that we acquired on August 25, 2015, and Hollywood Casino Jamul- San Diego, which we operate under our management contract with the Jamul Tribe. M Resort and Tropicana Las Vegas compete directly with other Las Vegas hotels, resorts, and casinos, including those located on the Las Vegas Strip, on the basis of overall atmosphere, range of amenities, level of service, price, location, entertainment offered, convention and meeting facilities, shopping and restaurant facilities, theme, and size. In addition, a substantial number of customers are drawn from geographic areas outside of Las Vegas,

Issues

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particularly California and Arizona. Specifically, in California, we expect Hollywood Casino Jamul – San Diego to continue to experience significant competition (including increased promotional efforts) from nearby casinos operated on Native American lands, which could negatively impact their results as well as the Las Vegas market.  There is potential for new gaming licenses in southern Mississippi that may impact our operations in Biloxi and Bay St. Louis.

Midwest.  In Illinois, there have been perennial gaming expansion proposals introduced in the legislature, which we expect to continue. Additionally, in July 2011, the Illinois Supreme Court, in a unanimous ruling, cleared the way for the 2009 Illinois Video Gaming Act to go forward, which authorized a limited number of video gaming terminals (VGTs) in licensed bars and taverns across Illinois, subject to host community approval. In October 2012, video gambling in Illinois was officially launched with the first locations being allowed to operate VGTs. Currently, there are over 22,000 terminals at numerous locations throughout the state, which has had a negative impact on our casinos near or in Illinois. In September 2015, we purchased Prairie State Gaming, which is a licensed VGT operator in Illinois, whose operations now include more than 1,400 video gaming terminals. Illinois also continues to discuss the viability of gaming expansion in the state through a potential combination of additional riverboat operations, land-based casinos and slots at racetracks.  In addition, legislators in Indiana are currently considering VGT legislation. The commencement of gaming in Indiana or the expansion of gaming in Illinois would negatively impact certain of our existing properties in the Midwest segment. In the Mississippi Gulf Coast market, a casino in D’Iberville, Mississippi opened on December 9, 2015, which will likely have an adverse effect on the financial results of our Boomtown Biloxi property.  In addition, there is a proposal to reopen a race track with slot machines at the Woodlands in Wyandotte County which could have an adverse effect on the financial results of Hollywood Casino at Kansas Speedway.

In Ohio, voters passed a referendum in 2009 to allow four land‑based casinos in four cities, one of which was in downtown Cincinnati, which is the primary feeder market for our Hollywood Casino Lawrenceburg property. The Cincinnati casino opened on March 4, 2013 and has had and will likely continue to have an adverse impact on Hollywood Casino Lawrenceburg. However, this referendum also resulted in the Company operating two of the four land‑based casinos. We opened Hollywood Casino Toledo on May 29, 2012 and Hollywood Casino Columbus on October 8, 2012. Additionally, the State of Ohio approved the placement of video lottery terminals at the state’s seven racetracks. On June 1, 2012, a new racino at Scioto Downs in Columbus, Ohio opened, which has had a negative impact on Hollywood Casino Lawrenceburg’s financial results and competes aggressively in the same market as Hollywood Casino Columbus. In addition, a racino at Miami Valley Gaming (formerly known as Lebanon Raceway) opened in mid‑December 2013, and a racino at Belterra Park (formerly known as River Downs) opened in May 2014. Both of these racinos compete with Hollywood Casino Lawrenceburg. Conversely, we have opened our own racinos in Ohio, with Hollywood Gaming at Dayton Raceway opening on August 28, 2014 and Hollywood Gaming at Mahoning Valley Race Course opening on September 17, 2014. As a result, in a relatively short period of time, Ohio has gone from having no gaming facilities to having four casinos and seven video lottery terminal facilities. In addition, we continue to fight illegal gaming operations, such as internet sweepstakes.

U.S. and Foreign Revenues

Our net revenues in the U.S. for 2016, 2015, and 2014 were approximately $3,023.2 million, $2,828.1 million, and $2,578.8 million, respectively. Our revenues from operations in Canada for 2016, 2015, and 2014 were approximately $11.2 million, $10.3 million, and $11.7 million, respectively.

Management

On October 19, 2016, the Company was notified by Saul V. Reibstein, the Company’s Executive Vice President, Finance, Chief Financial Officer and Treasurer, of his intention to retire at the end of 2016.  William J. Fair, the Executive Vice President, Chief Development Officer, has been appointed to succeed Mr. Reibstein as Executive Vice President, Chief Financial Officer and Treasurer, effective January 1, 2017.  Mr. Reibstein entered into a transition services agreement for the period ending December 31, 2017 to assist with the transition.

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The persons listed below represent executive officers of the Company.

Name

Age

Position

Timothy J. Wilmott

58

President and Chief Executive Officer

Jay Snowden

40

Executive Vice President and Chief Operating Officer

William J. Fair

54

Executive Vice President, Chief Financial Officer, and Treasurer

Carl Sottosanti

52

Executive Vice President, General Counsel, and Secretary

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

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

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

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

Governmental Regulations

The gaming and racing industries are highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our facilitiesproperties is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions. AFor a more detailed

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description of the statutes and regulations to which we are subject, is contained in see Exhibit 99.1, “Description of Government Regulations,” to this Annual Report on Form 10‑K,10-K, which is incorporated herein by reference.

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, health care, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our financial condition, results of operations and cash flows.
Information about our Executive Officers
The persons serving as our executive officers and their positions with us are as follows:
NAMEAGEPOSITION WITH THE COMPANY
Jay Snowden43President and Chief Executive Officer
William J. Fair57Executive Vice President and Chief Financial Officer
Carl Sottosanti55Executive Vice President, General Counsel and Secretary
Jay Snowden.  In August 2019, Mr. Snowden was appointed to the Board of Directors and became our President and Chief Executive Officer in January 2020. Mr. Snowden joined the Company in October 2011 as Senior Vice President-Regional Operations, became our Chief Operating Officer in January 2014, and was our President and Chief Operating Officer from March 2017 through December 2019, where he was responsible for overseeing all of our operating results.

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

William J. Fair.  Mr. Fair joined us in January 2014 as Senior Vice President and Chief Development Officer and became our Executive Vice President and Chief Financial Officer in January 2017. Previously, Mr. Fair worked in development leadership positions for Universal Studios and Disney Development. Most recently, Mr. Fair was the President and Chief Executive Officer of the American Skiing Company, where he had oversight of ten ski mountain resorts which included ski operations, nine hotels, condominium operations, food and beverage operations, retail and rental operations, real estate brokerage and development. Mr. Fair will continue to serve as our Executive Vice President and Chief Financial Officer until March 3, 2020.

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

Employees and Labor Relations

As of December 31, 2016,2019, we had 18,808 full‑approximately 28,300 full-time and part‑timepart-time employees.

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

At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles Town Races also renewed an agreement with the breeders that expires on June 30, 2017. Additionally, the pari‑mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month‑to‑month basis.

The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January2019, we had 31 2018. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract is currently being negotiated. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.

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

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

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

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

Across certain of the Company’s properties, Seafarers Entertainment and Allied Trade Union (“SEATU”) represents approximately 1,711 of the Company’s employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.

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SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton, Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018; the remainder of the SEATU agreements have expiration dates in 2018 and beyond.

At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents approximately 176 employees under a collective bargaining agreement which expires on March 31, 2019. At Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and the United Steel Workers represents approximately 1,361 employees under a collective bargaining agreement which ends on November 15, 2019.

On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which had seven existing collective bargaining agreements with the following unions: (1) Culinary & Bartenders (with a wage/reopener in 2017; expires on May 31, 2018), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical Workers (expires on February 28, 2017), (4) International Alliance of Theatrical Stage Employees (expires on December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7) Teamsters (front and back of the house, both expire on March 31, 2018).

The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego, which the Company opened on October 10, 2016.  Unite Here! International Union and Local 30 represents employees in stewarding, facilities, accounting, food and beverage, and operations classifications, and the partiescovering approximately 5,900 employees. Seven collective bargaining agreements are scheduled to begin negotiating their first collective bargaining agreementexpire in 2017.

In addition, at some of the Company’s properties, the Security Police2020, and Fire Professionals of America, the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local 1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel Workers represent certain of the Company’s employees underwe are currently renegotiating three collective bargaining agreements that expire at various times between February 2017expired in 2019. Although we believe that we have good employee relations, there can be no assurance that we will be able to extend or enter into replacement agreements. If we are able to extend or enter into replacement agreements, there can be no assurance as to whether the terms will be on comparable terms to the existing agreements.


Available Information
We were incorporated in Pennsylvania in 1982 as PNRC Corp. and September 2025. None of these additional unions represent more than 79 of the Company’s employees.

Available Information

adopted our current name in 1994, when we became a publicly traded company. For more information about us, visit our website at www.pngaming.com.www.pngaming.com. The contents of our website are not part of this Annual Report on Form 10‑K.10-K. Our electronic filings with the U.S. Securities and Exchange Commission (“SEC”) (including all Annual Reports on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q,10-Q, and Current Reports on Form 8‑K,8-K, and any amendments to these reports), including the exhibits, are available free of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

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


Important Factors Regarding Forward-Looking Statements
This document includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are included throughout the document, including within “Item 1A. RISK FACTORSRisk Factors,” and relate to our business strategy, our prospects and our financial position. These statements can be identified by the use of forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “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 may include, among others, statements concerning: our expectations of future financial condition and results of operations, including our ability to reduce our debt; expectations for our properties, our development projects, or our iGaming initiatives, including the expected openings of our Pennsylvania Category 4 casino projects; the timing, cost and expected impact of planned capital expenditures on our results of operations; our expectations regarding the development of interactive gaming technology; our expectations with regard to the impact of competition; our expectations with regard to acquisitions, potential divestitures and development opportunities, as well as the integration of and synergies related to any companies we have acquired or may acquire; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new businesses and partners; our expectations with regard to the impact of competition in online sports betting, iGaming and retail sportsbooks as well as the potential impact of this business line on our existing businesses; the potential benefits and challenges of the investment in Barstool Sports, including the benefits for the Company’s online and retail sports betting and iCasino products, the expected financial returns from the transaction with Barstool Sports; the performance of our 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 at the federal, state or local level with regard to online sports betting, iGaming and retail sportsbooks and the impact of any such actions; and our expectations regarding economic and consumer conditions. As a result, actual results may vary materially from expectations.
Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business, there can be no assurance that actual results will not differ materially from our expectations. Meaningful factors that could cause actual results to differ from expectations include, but are not limited to, risks related to the following: the assumptions included in our financial guidance; the ability of our operating teams to drive revenue and margins; the impact of significant competition from other gaming and entertainment operations; our ability to obtain timely regulatory approvals required to own, develop and/or operate our properties, or other delays, approvals or impediments to completing our planned acquisitions or projects, construction factors, including delays, and increased costs; the passage of state, federal or local legislation (including referenda) that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent

to the jurisdictions in which we do or seek to do business (such as a smoking ban at any of our properties or the award of additional gaming licenses proximate to our properties, as recently occurred with Illinois and Pennsylvania legislation); the effects of local and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the gaming and lodging industries in particular; the activities of our competitors (commercial and tribal) and the rapid emergence of new competitors (traditional, internet, social, sweepstakes based and VGTs in bars and truck stops); the costs and risks involved in the pursuit of such opportunities and our ability to complete the acquisition or development of, and achieve the expected returns from, such opportunities; our expectations for the continued availability and cost of capital; the impact of weather, including flooding, hurricanes and tornadoes; 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); with respect to our iGaming and sports betting endeavors, the impact of significant competition from other companies for online sports betting, iGaming and retail sportsbooks; the Company may not be able to achieve the expected financial returns related to the Barstool Sports transaction; our ability to obtain timely regulatory approvals required to own, develop and/or operate sportsbooks may be delayed and there may be impediments and increased costs to launching the online betting, iGaming and retail sportsbooks, including delays, and increased costs, intellectual property and legal and regulatory challenges, as well as our ability to successfully develop innovative products that attract and retain a significant number of players in order to grow our revenues and earnings, our ability to establish key partnerships, our ability to generate meaningful returns and the risks inherent in any new business; the passage of state, federal or local legislation (including referenda) that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent to the jurisdictions in which we do or seek to do business; with respect to our proposed Pennsylvania Category 4 casinos in York and Berks counties, risks relating to construction and our ability to achieve our expected budgets, timelines and investment returns, including the ultimate location of other gaming facilities in the Commonwealth of Pennsylvania; and the ability to realize the anticipated financial results and synergies as a result of such acquisitions, potential adverse reactions or changes to business or employee relationships, including those resulting from the transactions; and other factors included in “Item 1A. Risk Factors,” of this Annual Report on Form 10-K or discussed in our filings with the U.S. Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur.

ITEM 1A.RISK FACTORS
Risks Related to Our Business

We face significant competition from other gaming and entertainment operations.

The gaming industry is characterized by an increasingly high degree of competition among a large number of participants operating from physical locations and/or through online or mobile platforms, including destination casinos, riverboat casinos,casinos; dockside casinos, land‑based casinos,casinos; land-based casinos; video lottery,lottery; iGaming; sports betting; gaming at taverns in certain states, such as IllinoisIllinois; gaming at truck stop establishments in certain states, such as wellLouisiana and Pennsylvania; historical horse racing in certain states, such as the potential legalization in IndianaArkansas, Kentucky and Pennsylvania,Virginia; sweepstakes and poker machines not located in casinos, , the potential for increased sports betting andcasinos; fantasy sports,sports; Native American gaminggaming; and other forms of gaming in the U.S. Furthermore, competition from internet lotteries, sweepstakes, illegal slot machines and otherskill games, fantasy sports and internet wagering

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

cash flows.

In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including: shopping;including shopping, athletic events;events, television and movies; concerts;movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken into trust for the benefit of certain Native Americans in the U.S. and Canada. Other jurisdictions, including states adjacent to states in which we currently have facilities (such as in Ohio and Maryland),properties, have recently legalized, implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming

licenses or permit the expansion or relocation of existing gaming operations.operations (including VGTs, skill games, sports betting and iGaming). Voters and state legislatures may seek to supplement traditional tax revenue sources of state governments by authorizing or expanding gaming in the states that we operate in or the states that are adjacent to or near our existing properties. New, relocated or expanded operations by other persons could increase competition for our gaming operations and could have a material adverse impact on us.

We face intense competition in the markets in which we operate.
Gaming competition is intense in most of the markets where we operate. Recently, there has been additional significant competition in our markets as a result of the upgrading or expansion of facilitiesproperties by existing market participants, the entrance of new gaming participants into a market or legislative changes.changes permitting additional forms of gaming. As competing properties and new markets are opened,open, our operating results of operations may be negatively impacted. For example, the recent openings of MGM Springfield in Western Massachusetts in August 2018; Tiverton Casino Hotel in Tiverton, Rhode Island, in September 2018; Encore Boston Harbor in Eastern Massachusetts in June 2019; and the new casinoshotel tower at Twin River Casino Hotel in Lincoln, Rhode Island, which opened in October 2018; have negatively impacted our Plainridge Park Casino. In addition, a new tribal casino in Nebraska opened in November 2018, which competes with Ameristar Council Bluffs, and racinos  have opened  recently  that  competethe launch of historical racing machines in the same market as our Lawrenceburg property, namely the opening  of Belterra  ParkVirginia in May 2014,2019 has impacted our own Dayton facility in August  2014, and Horseshoe Casino in Cincinnati  in March  2013; there  is significantly increased competition to our Charles  Town property  from the casino complex at the Arundel  Mills mall in Anne  Arundel,  Maryland,  the opening  of Maryland  Live! and Horseshoe Casino Baltimore  in Baltimore,  Maryland  in 2014 and the opening  of MGM  National  Harbor casino in Prince George’s County, Maryland  in December 2016, which also competes  to a lesser extent  with Hollywood Casino at Penn  National Race Course; the opening  of our joint venture  casino project  in Kansas in February 2012, which impacted  Argosy Casino Riverside; andCharles Town Races property. There is also the potential opening  of afor another new tribal casino in Taunton, Massachusetts (the construction is currently on hold following a recent judicial ruling in favor of the Taunton property owners who contended that the federal government erred in placing reservation land in trust for the Mashpee Wampanoag tribe)  and the expected openings  of MGM Springfield  in Western Massachusetts in late 2018 and Wynn Everett  in Eastern  Massachusetts in mid-2019 are anticipated to negatively impact  our Plainridge  Park  Casino.  .
Hollywood Casino Aurora, and Hollywood Casino Joliet, and Ameristar East Chicago have also been negatively impacted by the proliferation of VGTs at numerous locations throughout the state of Illinois, which are in the vicinity of our operations.operations, as well as expanded land-based casinos within the state of Illinois. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions. There is potentialPennsylvania also enacted legislation in October 2017 to significantly expand gaming in the state that causes additional competition for Hollywood Casino at Penn National Race Course, Hollywood Gaming at Mahoning Valley Race Course, and Meadows Racetrack and Casino. In addition, Indiana legislators approved a bill that allows new gaming licensescasinos in southern Mississippi that may impact our operations in Biloxi and Bay St. Louis.Gary, Indiana, which will provide more proximate competition to Ameristar East Chicago. We expect each existing or future market in which we participate to be highly competitive.  The competitive position of each of our casino properties is discussed in detail in the subsection entitled “Competition” of this Annual Report on Form 10-K.

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

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

We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets.markets, such as the entry into the Michigan market with the acquisition of Greektown in May 2019. The integration of more

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

Management of new properties, especially in new geographic areas (such as our 2015 opening in Plainville, Massachusetts and our 2016 opening in San Diego County, California),business lines may require that we increase our management resources.resources or divert the attention of our current management. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions or development projects. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.

Our ability to achieve our objectives in connection with any acquisition we may consummate may be highly dependent on, among other things, our ability to retain the senior level property management teams of such acquisition candidates. If, for any

reason, we are unable to retain these management teams following such acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions could be materially adversely affected.

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

Weoperations and cash flows.

In the event we make another acquisition, we may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing, certain of our acquisitions.

such acquisition.

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

operations and cash flows.

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

properties.

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

operations and cash flows.

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We are required to payutilize a significant portion of our cash flows as financingflow from operations to make our rent payments under the Master Lease,our Triple Net Leases, which could adversely affect our ability to fund our operations and growth and limit our ability to react to competitive and economic changes.

We are required to pay more than halfutilize a significant portion of our cash flow from operations to GLPImake our rent payments pursuant to and subject to the terms and conditions of theour Master Lease.Leases with GLPI, our Meadows Lease with GLPI, and our Margaritaville Lease and Greektown Lease with VICI (as defined previously as our “Triple Net Leases”). As a result of this commitment,these commitments, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the Master LeaseTriple Net Leases may:

·

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

·

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

·

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

·

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

·

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

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

operations and cash flows.

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

operations and cash flows.

We lease 1834 of the gaming and racing facilities we operate pursuant to the Master Lease.Triple Net Leases. The Master Lease providesTriple Net Leases provide that GLPIour REIT Landlords may terminate the leaseeach such Lease for a number of reasons, including, subject to applicable cure periods, the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of the Master Leaseany of our Triple Net Leases could result in a default under our debt agreements and could have a material adverse effect on our business, financial position orcondition, results of operations.operations and cash flows. Moreover, since as a lessee, we do not completely control the land and improvements underlying our operations, GLPI as lessorand our landlords under the Triple Net Leases could take certain actions to disrupt our rights in the facilities leased under the Master Lease whichTriple Net Leases that are beyond our control. If GLPIone of our landlords chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations couldwould be adversely affected. There can also be no assurance that we will be able to comply with our obligations under the Master LeaseTriple Net Leases in the future. In addition, if GLPIone of our landlords has financial, operational, regulatory

or other challenges, there can be no assurance that GLPIthe landlord will be able to comply with its obligations under its agreements with us.

The Master Lease is commonly known as a triple‑

Under triple net lease. Accordingly,leases, in addition to rent, we are required to pay, among other things, the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We are responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the benefits received in exchange for such

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costs shall in part accrue to GLPIthe landlords as ownerowners of the associated facilities. In addition, if some of our leased facilities should prove to be unprofitable, we could remain obligated for lease payments and other obligations under the Master LeaseTriple Net Leases even if we decided to withdraw from those locations. We could incur special charges relating to the closing of such facilities, including lease termination costs, impairment charges and other special charges that would reduce our net income and could have a material adverse effect on our business, financial condition, and results of operations.

operations and cash flows.

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

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

We face extensive regulation from gaming authorities, which could have a material adverse effect on us.
As owners and other regulatory authorities.

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

operations and cash flows.

We have demonstrated suitability to obtain and have obtained all governmental licenses, registrations, permits and approvals necessary for us to operate our existing gaming and pari-mutuel facilities. Weproperties. There can givebe no assurance to you that we will be able to retain those existing licenses or demonstrate suitability to obtain any new licenses, registrations, permits or approvals. For example, in Iowa, where licenses are jointly issued to a casino operator and a local charitable organization, the Iowa Racing and Gaming Commission denied the renewal of our license while negotiations were ongoing with our local charitable organization partner to enter into a new agreement, resulting in us having to close the Argosy Casino Sioux City in July, 2014. In addition, the loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for a license in another jurisdiction. As we expand our gaming operations in our existing jurisdictions or to new areas, we may have to meet additional suitability requirements and obtain additional licenses, registrations, permits and approvals from gaming authorities in these jurisdictions. The approval process can be time-consuming and costly, and we cannot be sure that we will be successful.

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

Gaming authorities in the U.S. generally can require that any beneficial owner of our securities file an application for a finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to file a suitability application, the owner must generally apply for a finding of suitability within 30 days or at an earlier time prescribed by the gaming authority. The gaming authority has the power to investigate such an owner’s suitability

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and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner may be required by law to dispose of our securities.

Potential changes

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

Certain public and private issuances of securities and other transactions that we are party to also require the approval of some state regulatory authorities.
Changes in legislation and regulation of our operations.business could have an adverse effect on our financial condition, results of operations and cash flows.
Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change and could impose additional operating, financial, competitive or other burdens on the way we conduct our business.

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

For example, in January 2019, legal counsel for the U.S. Department of Justice (“DOJ”) issued a legal opinion on the Interstate Wire Act of 1961 (“Wire Act”), which stated that the Wire Act bans any form of online gambling if it crosses state lines and reversed a 2011 DOJ legal opinion that stated that the Wire Act only applied to interstate sports betting. The passagevalidity of the Smoke Free Illinois2019 DOJ legal opinion and the conflicting interpretations of the Wire Act which became effective January 1, 2008by DOJ is presently the subject of ongoing litigation.

State and banslocal smoking restrictions have and may continue to negatively affect our business.
Legislation in various forms to ban indoor tobacco smoking in casinos,public places has adversely affected revenuesbeen enacted or introduced in many states and operatinglocal jurisdictions, including several of the jurisdictions in which we operate. We believe the smoking restrictions have significantly impacted business volumes.
For example, in November 2018, voters in St. Louis County approved a ballot referendum that requires Hollywood Casino St. Louis and River City Casino to make at least 50% of their gaming floor smoke free. This smoking restriction has had an adverse impact on our financial condition, results of operations and cash flows at our Illinois properties. casinos in St. Louis County. Additionally, in August 2017, the East Baton Rouge Metropolitan Council approved a smoking ban in casinos and bars that took effect in June 2018. This smoking ban has had and is expected to continue to have an adverse effect on our business at L’Auberge Baton Rouge.
In Pennsylvania, we are currently only permitted to allowhave smoking on only up to 50% of the gaming floorfloors of our Grantville facilityMeadows Racetrack and Casino and Hollywood Casino at Penn National Race Course properties; and smoking is banned in all other indoor areas. Additionally, onin July 1, 2012, a state statute in Indiana became effective that imposes a state widestatewide smoking ban in specified businesses, buildings, public places and other specified locations. The statute specifically exempts riverboat casinos and all other gaming facilitiesproperties in Indiana from the smoking ban. However, the statute allows local government to enact a more restrictive smoking ban than the state statute and also leaves in place any more restrictive local legislation that exists as of the effective date of the statute. To date, our facilityproperties in East Chicago and Lawrenceburg, Indiana, isare not subject to any such local legislation.
If additional smoking bansrestrictions are enacted within jurisdictions where we operate or seek to do business, our businessfinancial condition, results of operations and cash flows could be adversely affected.

Taxation and fees.

Material increases to our taxes or the adoption of new taxes could have a material adverse effect on our future financial results.
We believe that the prospect of significant revenue is one of the primary reasons that jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant revenue basedrevenue-based taxes and fees in addition to normal federal, state local and provinciallocal income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time,time-to-time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes, property taxes and/or property taxes.by authorizing additional gaming properties each subject to payment of a new license fee. It is not possible to determine

with certainty the likelihood of changes in taxsuch laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flows. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.

Complianceresults, especially in light of our significant fixed rent payments.

In gaming jurisdictions in which we operate, state and local governments raise considerable revenues from taxes based on casino revenues and operations. We also pay property taxes, admission taxes, occupancy taxes, sales and use taxes, payroll taxes, franchise taxes and income taxes. Our profitability depends on generating enough revenues to pay gaming taxes and other largely variable expenses, such as payroll and marketing, as well as largely fixed expenses, such as rental payments to our landlords, property taxes and interest expense. From time-to-time, state and local governments have increased gaming taxes and such increases can significantly impact the profitability of gaming operations. For example, in October 2017, Pennsylvania increased gaming taxes, which adversely impacted our properties in Pennsylvania.
We cannot assure you that governments in jurisdictions in which we operate, or the federal government, will not enact legislation that increases gaming tax rates. Global economic pressures have reduced the revenues of state governments from traditional tax sources, which may cause state legislatures or the federal government to be more inclined to increase gaming tax rates.
We are required to comply with other laws.extensive non-gaming laws and regulations.
We are also subject to a variety of other rules and regulations, including zoning, environmental, construction and land‑useland-use laws and regulations governing the serving of alcoholic beverages. If we are not in compliance with these laws, it could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flows. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti‑moneyanti-money laundering regulations. Any violation of anti‑moneyanti-money laundering laws or regulations, or any accusations of money laundering or regulatory investigations into possible money laundering activities, by any of our properties, employees or customers could have a material adverse effect on our financial condition, results of operations and cash flows.

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We have certain properties that generate a significant percentage of our net revenues.

For the year ended December 31, 2016,2019, we generated 14.8%, 11.3%, and 13.6% of our facilityrevenues from our properties within the states of Louisiana, Missouri, and Ohio, respectively. Additionally, we generated 6.8% of our revenues from our property in Charles Town, West Virginia generated approximately 13% of our net revenues.Virginia. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of this facility. The operations at this facilityour properties in Louisiana, Missouri, Ohio, and any of our other facilitiesWest Virginia. Our properties could be adversely affected by numerous factors, including those described in these “Risk Factors” as well as more specifically those described below:

·

risks related to local and regional economic and competitive conditions, such as a decline in the number of visitors to a facility, a downturn in the overall economy in the market, a decrease in consumer spending on gaming activities in the market or an increase in competition within and outside the state in which each property is located (for example, the effect on our Charles Town and, to a lesser extent, Grantville casinos due to the casino complex at the Arundel Mills mall in Anne Arundel, Maryland, the opening of Maryland Live! and Horseshoe Casino Baltimore in Baltimore, Maryland in August 2014 and the opening of the MGM National Harbor casino in Prince George’s County, Maryland in December 2016);

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

·

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

·

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

·

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

·

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

In addition, although to a lesser extent than our facilityproperties in Charles Town,Louisiana, Missouri, Ohio, and West Virginia, we anticipate meaningful contributions from Hollywood Casino at Penn National Race CourseAmeristar Black Hawk, Greektown, and Hollywood Casino St. Louis and, following the relocation of our two racetracksproperties in Ohio in the third quarter of 2014, we now generate a significant amount of net revenue in the State of Ohio, in which we operate four gaming facilities.Pennsylvania. Therefore, our results will be dependent on the regional economies and competitive landscapes at these locations as well.

We may continue to experience impairments of our goodwill and other intangible assets and could potentially experience impairment of our long-lived assets, which could adversely affect our financial condition and results of operations.
In recent years, we have recognized a substantial amount of goodwill, gaming licenses and trademarks, in connection with the Pinnacle Acquisition and the acquisitions of Margaritaville and Greektown. We test goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. A significant amount of judgment is involved in performing fair value estimates

for goodwill and other intangible assets since the results are based on estimated future cash flows and assumptions, such as discount rates, expected competition and capital expenditures, among other factors. We base our fair value estimates on projected financial information, which we believe to be reasonable. However, actual results may differ from those projections. As a result of our 2019 annual impairment test, we recognized impairments on our goodwill, gaming licenses and trademarks, of $88.0 million, $62.6 million and $20.0 million, respectively. In the future, we may need to recognize additional amounts of impairment on our goodwill, gaming licenses and trademarks, particularly with regards to the Pinnacle Acquisition and the acquisitions of Margaritaville and Greektown, which could adversely affect our financial condition and results of operations.
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our financial condition.

condition and results of operations.

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

We depend on our key personnel.

Weoperations and cash flows.

Our operations are highlylargely dependent on the servicesskill and experience of our executive management teamand key personnel. The loss of management and other key personnel could significantly harm our business, and we may not be able to effectively replace members of management who have left our company, particularly as we enter new channels of iGaming.
Our success and our competitive position are largely dependent upon, among other things, the efforts and skills of our senior executives and management team. In 2013, in connectionAlthough we enter into employment agreements with the Spin‑Off, we experienced some turnover, including the resignationcertain of Peter M. Carlino from his position as our Chief Executive Officer (although he retained his position as Chairman of the Board). We have promoted various individuals (including our current CEOsenior executives and COO) as well as hired executives from outside the gaming industry to fill these positions. Our ability to attract and retain key personnel, is affectedwe cannot guarantee that these individuals will remain employed by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability

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to compete effectively against other gaming companies and our growth prospects. The loss ofus. If we lose the services of any members of our senior management team couldor other key personnel, our business may be significantly impaired. We cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel.

We expect to experience strong competition in hiring and retaining qualified property and corporate management personnel, including competition from numerous Native American gaming casinos that are not subject to the same taxation regimes as we are and therefore may be willing and able to pay higher rates of compensation. From time-to-time, we expect to have a material adverse effect onnumber of vacancies in key corporate and property management positions. If we are unable to successfully recruit and retain qualified management personnel at our business,properties, iGaming division, or at our corporate level, our financial condition, and results of operations.

operations and cash flows could be adversely affected.

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

operations and cash flows.

The operations of our facilitiesproperties are subject to disruptions or reduced patronage as a result of severe weather conditions, natural disasters, acts or threats of terrorism, concerns about contagious diseases, and other casualty events. Because many of our gaming operations are located on or adjacent to bodies of water, these facilitiesproperties are subject to risks in addition to those associated with land‑basedland-based casinos, including loss of service due to casualty, forces of nature, mechanical failure, extended or extraordinary maintenance, flood, hurricane or other severe weather conditions. For example, after Hurricane Katrina in 2005, two of our properties in Mississippi were closed for almost one year. Many of our casinos operate in areas which are subject to periodic flooding that has caused us to experience decreased attendance and increased operating expenses. Any flood or other severe weather condition could lead to the loss of use of a casino facility for an extended period. For instance, on May 31, 2013, Hollywood Casino St. Louis sustained damage as a result of a tornado and was forced to close for approximately fourteen hours. Hollywood Casino Toledo was closed for brief periods in 2014, 2015 and 2016 due to harsh winter conditions. Most recently, we closedconditions and Argosy Casino Alton was closed for several days in December 2015, and January 2016, May 2017 and May 2019, due to flooding. In 2016, L’Auberge Lake Charles and L’Auberge Baton Rouge were both negatively impacted by lost business volume due to severe rain and flooding. In 2017, visitation to Boomtown New Orleans, L’Auberge Lake Charles and L’Auberge Baton Rouge was negatively impacted by Hurricanes Harvey and Nate. Most recently, adverse winter weather and severe flooding in the first half of 2019 negatively impacted visitation at several of our properties in the Midwest.
Even if adverse weather conditions do not require the closure of our facilities,properties, those conditions make it more difficult for our customers to reach our properties for an extended period of time, which can have an adverse impact on our financial condition and results of operations.

Casualty events such as, the tragic shootings that occurred on the Las Vegas Strip on October 1, 2017 that affect tourism also impact our business. Following this tragedy, operations at Tropicana Las Vegas were adversely affected.


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

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

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

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

In the event that any of the third-parties we rely on for power experiences a disruption in its ability to provide such services to us (whether due to technological difficulties or power problems), this may result in a material disruption at the casinos that we operate and have a material effect on our financial condition, results of operations and cash flows.

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

We increasingly rely on information technology and other systems, including our own systems and those of service providers and third parties, to manage our business and employee data and maintain and transmit customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. Our collection of such data is subject to extensive regulation by private

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

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

operations and cash flows.

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

Our operations in several jurisdictions depend on land leases and/or management and development agreements with third parties and local governments. If we, or if GLPI or VICI in the case of leases pursuant to which we are the sub-lessee, are unable to renew these leases and agreements on satisfactory terms as they expire or if disputes arise regarding the terms of these agreements, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition, and results of operations. For example, in the Province of Ontario, through CHC Casinos, our indirectly wholly owned subsidiary, we manage Casino Rama, a full service gaming and entertainment facility, on behalf of the OLGC, an agency of the Province of Ontario. In June 2014, we signed an agreement to extend the management agreement for Casino Rama on a month-to-month basis with a 60-day notice period for up to a maximum period of forty-eight months. The OLGC is exploring bids for new operating contracts and privatization in Ontario, including at Casino Rama.  As a result, there is no assurance how long the OLGC will continue to engage us to manage the property.

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

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

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

Our agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course (“HCPNRC”) expires on January 31, 2017.   An agreement with LIUNA Local 108 for on-track and OTWs pari-mutuel clerks at HCPNRC was ratified for three years ending in February 2017.

Our agreement with the Maine Harness Horsemen Association at Bangor Raceway is in effect through the conclusion of the 2018 racing season. In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered

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

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

A deterioration of our relationship with the Jamul Tribe or the performance of the facility could ultimately result in termination of the management and branding services agreement at Hollywood Casino Jamul-San Diego and prevent or significantly impede recovery of our investment therein or in any future development projects.

Good personal and professional relationships with the Jamul Tribe and its officials are critical to our gaming operations and activities in San Diego County, including our ability to perform and maintain our existing management agreement, as well as other agreements. As a sovereign nation, the Jamul Tribe establishes its own governmental systems under which tribal officials or bodies representing the Jamul Tribe may be replaced by appointment or election or become subject to policy changes. Replacements of tribal officials or administrations, changes in policies to which the Jamul Tribe are subject, or other factors that may lead to the deterioration of our relationship with the Jamul Tribe may lead to termination of our management and branding services agreements with the Jamul Tribe, which may have an adverse effect on the future results of our operations.

In addition, we have made, and may continue to hold substantial loans to the Jamul Tribe for the construction, development, equipment and operations of the Hollywood Casino Jamul-San Diego. Our subsidiary, San Diego Gaming Ventures, LLC (“SDGV”), provided a $98 million term loan C facility to the project (and up to an additional $15 million of delayed draw term loan C commitments to fund certain roadway improvement costs related to the project). If, by October 10, 2017, the casino has not achieved a senior secured net leverage ratio equal to or less than 5.0x, then all or a portion of the term loan C facility will become subordinated to the other $362 million of the project’s credit facilities to the extent necessary such that, after giving effect to such subordination, such senior secured net leverage ratio is 5.0x.  Based on current business conditions in 2017, we expect that the majority or all of our Term C Loan will become subordinated and that we will not earn any fees under our management contract in 2017.  In addition, the rights of SDGV and our rights to receive management and intellectual property license fees are subordinated to the claims of the lenders under the project’s credit facilities and are subject to certain conditions contained in the project’s credit facilities. Furthermore, as a condition to the availability of the project’s credit facilities, we provided a limited completion guarantee, in favor of the administrative agent under the project’s credit facilities, to provide up to $15 million of additional loans related to the construction and opening of the casino, as well as certain post-opening construction costs. Of these loans, $10 million may be funded as part of the term loan C facility, while any additional loans would be subordinated loans. Our only material recourse for collection of indebtedness from the Jamul Tribe or for money damages for breach or wrongful termination of a management, development, consulting or financing agreement is from positive cash flow, if any, from casino operations.

flows.

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

We regularly expend capital to construct, maintain and renovate our properties to remain competitive, maintain the value and brand standards of our properties and comply with applicable laws and regulations. Our ability to realize the expected returns on our capital investments is dependent on a number of factors, including, general economic conditions; changes to

construction plans and specifications; delays in obtaining or inability to obtain necessary permits, licenses and approvals; disputes with contractors; disruptions to our business caused by construction; and other unanticipated circumstances or cost increases.

While we believe that the overall budgets for our planned capital expenditures including the initial phase of improvements at Tropicana Las Vegas, are reasonable, these costs are estimates and the actual costs may be higher than expected. In addition, we can provide no assurance that these investments will be sufficient or that we will realize our expected returns on our capital investments, or any returns at all. A failure to realize our expected returns on capital investments could materially adversely affect our business, financial condition, and results of operations.

operations and cash flows.

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

A majority of our revenues are attributable to slot machines and related systems operated by us at our gaming facilities.properties. It is important, for competitive reasons, that we offer the most popular and up to date slot machine games with the latest technology to our customers.

A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few select companies, and there has been extensive recent consolidation activity within the gaming equipment sector in recent years, including the recent acquisitions of Multimedia Games, Inc. by Everi Holdings, Inc. (formerly known as Global Cash Access,Access), Bally Technologies, Inc. by Scientific Games Corporation, International Gaming Technologies by GTECH Holdings(which had acquired SHFL Entertainment, Inc.) and previous acquisitions of WMS Industries Inc. by Scientific Games Corporation which closed in October 2013, and the acquisition of SHFL Entertainment, Inc.International Game Technology by Bally Technologies, Inc. which closed in November 2013.

GTECH Holdings.

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

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

We restated certain of our previously issued financial statements, which may lead to additional risks and uncertainties, including regulatory investigations, shareholder litigation, loss of investor confidence and negative impacts on our stock price.

In the first quarter of 2016, we completed a restatement of certain of our prior period financial statements. The restatement corrected certain errors in our previously filed financial statements, including errors related to the accounting of certain complex lease transactions. We cannot be certain that the measures we have taken since we completed the restatement will ensure that restatements will not occur in the future. Our recently completed restatement and any future restatement may raise reputational issues for our business and may result in a loss of investor and partner confidence in us and have a negative impact on our stock price. In addition, we may be subject to regulatory investigations and shareholder litigation as a result of the restatement. Any such investigation or litigation, regardless of outcome, may

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consume a significant amount of our internal resources, including the time and attention of our management. The loss of investor and partner confidence in us or the commencement of a regulatory investigation or litigation as a result of the restatement could have a material adverse effect on our business, financial position or results of operations.

We have recently announced several initiativesexpanded our sports betting operations. There can be no assurance that we will be able to compete effectively or that we will be successful and generate sufficient returns on our investment.

In May 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992 (“PASPA”) as unconstitutional. Prior to the Court’s ruling, PASPA banned sports betting in most U.S. States. In light of the Court’s ruling, certain of the jurisdictions in which we operate legalized intra-state sports wagering and established extensive state licensing and regulatory requirements governing any such intra-state sports wagering, including the payment of license fees and additional taxes by operators. In the second half of 2018, we began accepting wagers on sporting events at Penn National Race Course and our properties in Mississippi and West Virginia; and, in 2019, at Meadows Racetrack and Casino and our properties in Indiana and Iowa. We were already accepting wagers on sporting events in our properties in Nevada. We are also in the social gaming space,process of completing the regulatory application process to offer sports wagering in Colorado, Illinois and Michigan. We continue to engage with state lawmakers in other jurisdictions in which we already operate to advocate for the passage of laws legalizing sports betting within the jurisdiction with reasonable tax rates and license fees, similar to legislation enacted in West Virginia, Mississippi and Nevada. Any further expansion of our sports betting operations is a new line of business for usdependent on potential legislation in these other jurisdictions.
Our sports betting operations will compete in a rapidly evolving and highly competitive market.market against an increasing number of competitors. In order to augment our revenues, we have acquired an approximate 36% interest in Barstool Sports and have the sole right to utilize its brand for all of our online and retail sports betting for up to 40 years. In addition, we have entered into certain market access agreements with certain other sports betting operators, including DraftKings, PointsBet, The Stars Group and the Score and may enter into agreements with additional strategic partners (such as Barstool Sports) and other third-party vendors and we may not be able to do so on terms that are favorable to us. The success of our proposed sports betting operations is dependent on a number of additional factors that are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United States; our ability to gain market share in a newly developing market; the timeliness and the technological and popular viability of our products, our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able to compete effectively or that our new initiativesexpansion will be successful.

We have recently announced several initiatives in the social gaming space, including the recent acquisition of Rocket Speed,successful and expect to continue to invest in and market social gaming and other mobile gaming platforms to our customers in casinos and beyond and to explore other acquisitions in the space. Social gaming is a new line of business for us, which makes it difficult to assess its future prospects. Our products will compete in a rapidly evolving and highly competitive market against an increasing number of competitors, including Playtika, Churchill Downs, Zynga and slot manufacturers. Given the open nature of the development and distribution of games for electronic devices, our business will also compete with developers and distributors who are able to create and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. We have limited experience operating in this rapidly evolving marketplace and may not be able to compete effectively.

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

Our social gaming initiatives will result in increased operating expense and increased time and attention from our management. In addition, we may be particularly dependent on key personnel in our interactive business unit. We believe our social games will be complementary to our current operations and offer additional avenues of access and interaction for our customers.  While, we do not expect our initial social gaming applications to be available for real money gaming in the near future, the social gaming business depends on developing and publishing games that consumers will download and spend time and money on consistently.  We continue to invest in research and development, analytics and marketing to attract and retain customers for our social games. Our success depends, in part, on unpredictable factors beyond our control, including consumer preferences, competing games and other forms of entertainment, and the emergence of new platforms. Our inability to ultimately monetize our investment in social gaming initiatives could have a material adverse effectgenerate sufficient returns on our business and results of operations.

investment.


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

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

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services through their platforms. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.

In recent years, we announced several initiatives within the social gaming/interactive space, which has been a new line of business for us in a rapidly evolving and highly competitive market. There can be no assurance that we will be able to compete effectively or that our initiatives will be successful.
In recent years, we announced several initiatives in the social gaming space, including the acquisitions of Absolute Games in May 2018 and Rocket Speed in August 2016, and expect to continue to invest in and market social gaming and other mobile gaming platforms to our customers in casinos and beyond and to explore other acquisitions in the space. Social gaming remains a new and growing line of business for us, which makes it difficult to assess its future prospects. Our products will compete in a rapidly evolving and highly competitive market against an increasing number of competitors, including Playtika, Zynga and slot manufacturers. Given the open nature of the development and distribution of games for electronic devices, our business will also compete with developers and distributors who are able to create and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. We have limited experience operating in this rapidly evolving marketplace and may not be able to compete effectively.
In addition, our ability to be successful with our social gaming platform is dependent on numerous factors beyond our control that affect the social and mobile gaming industry and the online gaming industry in the United States, including the legalization and expansion of online real money gaming in the United States beyond the states where it is currently permitted; changes to the policies of social gaming distribution channels, including Apple and Google; changes in consumer demographics and public tastes and preferences; changing laws and regulations affecting social and mobile games; the reaction of regulatory bodies to social gaming initiatives by holders of gaming licenses; the availability and popularity of other forms of entertainment; any challenges to the intellectual property rights underlying our games; any advances in technology that we are unable to timely implement; and outages and disruptions of our online services that may harm our business.
Our iGaming initiatives will result in increased operating expense and increased time and attention from our management. In addition, we may be particularly dependent on key personnel in our iGaming business unit. We believe our interactive initiatives are largely complementary to our current operations and offer additional avenues of access and interaction for our customers, and, the interactive business depends on developing and publishing games that consumers will download and spend time and money on consistently. We continue to invest in research and development, analytics and marketing to attract and retain customers for our games. Our success depends, in part, on unpredictable factors beyond our control, including consumer preferences, the viability and popularity of our apps and products, competing games and other forms of entertainment, and the emergence of new platforms. Our inability to ultimately monetize our investment in social gaming/interactive initiatives could have a material adverse effect on our business, financial condition and results of operations.
The success of our VGT operations in Illinois is dependent on our ability to renew our contracts and expand the business.

On

In September 1, 2015, we completed ourthe acquisition of Prairie State Gaming, one of the largest VGT operators in Illinois.Illinois and subsequently have completed several smaller acquisitions of VGT operators in the state. We face competition from other VGT operators, as well as from casinos, hotels, taverns and other entertainment venues. Our ability to compete successfully in this new line of business depends on our ability to retain existing customers and secure new establishments, both of which are dependent on the level of service and variety of products that we are able to offer to our customers. VGT contracts are renewable at the option of the owner of the applicable bar and retail gaming establishments and, as our contracts expire, we will be subject to competition for renewals. In addition, VGT operations in Illinois are subject to approval by local municipalities, and therefore our ability to retain and expand our VGT business depends, in part, on such approvals. In addition, there is a risk that the market for VGTs in Illinois could become oversaturated. If we are unable to retain our existing customers or their results suffer

as a result of competition or because the market becomes oversaturated or if certain municipalities in Illinois elect to prohibit VGTs, our businessfinancial condition, results of operations and operationscash flows could be adversely impacted.

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

As a result of the completed Spin-Off, we were the first gaming operator that leases the majority of its properties from a single lessor under a master lease arrangement. As a result, it is difficult to predict whether and to what extent our relationship with GLPI, including any actual or perceived conflicts of interest on the part of our overlapping directors, will affect our relationships with suppliers, customers, regulators and our ability to compete with other gaming operators that are not subject to a master lease arrangement with a single lessor.

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

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

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

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

We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or

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

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

Compliance

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

Changingretain casino guests.

The riverboats on which we operate must comply with certain federal and state laws and regulations relatingwith respect to corporate governanceboat design, on-board facilities, equipment, personnel and public disclosure, including SEC regulations, GAAP, and NASDAQ Global Select Market rules, are creating uncertainty for companies. These changing laws and regulations are subject to varying interpretations in many cases due to their lack of specificity, recent issuance and/or lack of guidance. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. In addition, further regulation of financial institutions and public companies is possible. This could result in continuing uncertainty and higher costs regarding compliance matters. Due to our commitment to maintain high standards of compliance with laws and public disclosure, our efforts to comply with evolving laws, regulations and standards have resulted in and are likely to continue to result in increased general and administrative expense.safety. In addition, we are required to have third parties periodically inspect and certify all of our casino barges for stability and single compartment flooding integrity. The casino barges on which we operate also must meet local fire safety standards. We would incur additional costs if any of the gaming facilities on which we operate were not in compliance with one or more of these regulations.

We are also subject to different parties’ interpretationa variety of our compliance with these newother federal, state and changinglocal laws and regulations. A failure to comply with any of these laws or regulations, could have a materially adverse effect on us. For instance, if our gaming authorities, the SEC, our independent auditors or our shareholders and potential shareholders conclude that our compliance with the regulations is unsatisfactory, this may result in a negative public perception of us, subject us to increased regulatory scrutiny, monetary penalties or otherwise adversely affect us. 

Risks Related to the Spin‑Off

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

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

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

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

Under the tax matters agreement that GLPI entered intocompliance with us, GLPI generally is required to indemnify us against any tax resulting from the Spin‑Off to the extent that such tax resulted from (1) an acquisition of allthese laws and regulations or a portion of the equity securities or assets of GLPI, whether by merger or otherwise, (2) other actions or failures to act by GLPI, or (3) any of GLPI’s representations or undertakings being incorrect or violated. GLPI’s indemnification obligations to Penn and its subsidiaries, officers and directors will not be limited by any maximum amount. If GLPI is required to indemnify Penn or such other persons under the circumstance set forth in the tax matters agreement, GLPI may be subject to substantial liabilities and there can be no assurance that GLPI will be able to satisfy such indemnification obligations.

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

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

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

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

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

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

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Among other things, the court could require our shareholders to return to us some or all of the shares of our common stock issued in the distribution or require us to fund liabilities of other companies involved in the restructuring transactions for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.

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

If we and GLPI are treated by the IRS as being under common control, the IRS will be authorized to reallocate income and deductions between us and GLPI to reflect arm’s length terms. If the IRS were to successfully establish that rents paid by us to GLPI are excessive, (1) we would be denied a deduction for the excessive portion and (2) we would be subject to a substantial penalty, on the portion deemed excessive, each of whichit could have a material adverse effect on our business, financial position orcondition, results of operations.operations and cash flows.

Climate change, climate change regulations and greenhouse effects may adversely impact our operations and markets.
There is a growing political and scientific consensus that greenhouse gas (“GHG”) emissions continue to alter the composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate.
We may become subject to legislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators and regulators, stockholders and nongovernmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. Many states have announced or adopted programs to stabilize and reduce GHG emissions and in the past federal legislation have been proposed in Congress. If such legislation is enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply with the limitations. Unless and until legislation is enacted and its terms are known, we cannot reasonably or reliably estimate its impact on our financial condition, operating performance or ability to compete. Further, regulation of GHG emissions may limit our guests’ ability to travel to our properties as a result of increased fuel costs or restrictions on transport related emissions. Climate change could have a material adverse effect on our financial condition, results of operations and cash flow. We have described the risks to us associated with extreme weather events in the risk factors above.
We depend on agreements with our horsemen and pari-mutuel clerks.
The Federal Interstate Horseracing Act of 1978, as amended, and state law in certain of the states where we operate pari-mutuel wagering require that, in order to simulcast races, we have certain agreements with the horse owners and trainers at our West Virginia and Pennsylvania racetracks. In addition, West Virginia requires applicants seeking to renew their gaming license to demonstrate they have an agreement regarding the proceeds of the gaming machines with a representative of a majority of (i) the horse owners and trainers, (ii) the pari-mutuel clerks, and (iii) the horse breeders.
In jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an agreement with the horsemen at a track, we may not be permitted to conduct live racing and to export and import simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed. In addition, our shareholders would be deemed to have received a distribution that was then contributedannual simulcast export agreements are subject to the capitalhorsemen’s approval under the Federal Interstate Horseracing Act of GLPI.

1978, as amended. Some simulcast import agreements require horsemen approval depending on state law. If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on our financial condition, results of operations and cash flows.

Risks Related to our Investment in Barstool Sports
We may be unable to realize the anticipated benefits and financial returns of our investment in Barstool Sports.
We may not be able to achieve the expected benefits or financial returns of our investment in Barstool Sports due to fees, costs, taxes, delays or disruptions in connection with our roll out of our online and retail sportsbooks and iCasino products. In addition, there can be no assurance that the Barstool Sports audience will engage in sports betting and iCasino products to the extent that we expect. If additional states do not legalize sports betting, or legalize sports betting with unreasonable tax rates or license fees, this would affect our ability to expand our sports betting operations. Any of the factors above could prevent us from receiving the expected returns of our investment in Barstool Sports, cause the market price of our common stock to decline, and have a material adverse effect on our financial condition, results of operations and cash flows.
Our investment in and partnership with Barstool Sports may result in potential adverse reactions or changes to our business or regulatory relationships.
Our relationships with state gaming regulators and business partners could be adversely affected as a result of our affiliation with Barstool Sports. Gaming regulators may not have extensive experience in the digital media industry, which may present unique challenges in regulating our business. In addition, our business partners may react negatively to actual or perceived competitive threats from our affiliation with Barstool Sports.
The success of the Barstool Sports business depends on its ability to attract and retain qualified personnel.
Barstool Sports is dependent upon its ability to attract and retain senior management and key personnel, including content creators, bloggers and marketing personnel. It may be increasingly difficult to attract and retain such personnel after the consummation of the pending transaction. A shortage in the availability of the requisite qualified personnel would limit the

ability of Barstool Sports to grow, to increase sales, and promote our products and services, including retail and online casinos and sportsbooks.
Risks Related to Our Indebtedness and Capital Structure

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

As of December 31, 2019, we had indebtedness of $2,419.0 million, including $140.0 million outstanding borrowings under our Revolving Credit Facility and $1,789.8 million in outstanding term loans. In addition, we are required to make significant annual lease payments to our REIT Landlords pursuant to the Triple Net Leases, which we currently expect will be between approximately $901 million and $905 million for the year ended December 31, 2019.
We incurredhave a substantial amount of indebtedness as well as aand significant fixed annual lease payment to GLPI, in connection withpayments under the Spin‑Off and in connection with our 2015 acquisition of Tropicana Las Vegas.Triple Net Leases. Our substantial indebtedness and additional fixed costs viaunder our Master Lease obligationobligations could have important consequences to our financial health. For example, it could:

·

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

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

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

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

·

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

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

·

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

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

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

limit our ability to participate in multiple or large development projects, including mergers and acquisitions, absent additional third party financing;
increase our vulnerability to general or regional adverse economic and industry conditions or a downturn in our business;

Tablerequire us to dedicate a substantial portion of Contents

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

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

place us at a competitive disadvantage compared to our competitors that are not as highly leveraged;
limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds; and
result in an event of default if we fail to satisfy our obligations under our indebtedness or fail to comply with the financial and other restrictive covenants contained in our debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.
In addition, the interest rates of our Senior Secured Credit Facilities are tied to the London Interbank Offered Rate, or LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021 (“FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021, which may impact our Revolving Credit Facility. It is not possible to predict the effect the FCA Announcement, any discontinuation, modification or other reforms to LIBOR or the establishment of alternative reference rates may have on us, but could include an increase in the cost of our variable rate indebtedness. We continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate.
Any of the above listed factors could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flows. The terms of theour debt incurred in connection with the Spin‑Off do not, and any future debt may not, fully prohibit us from incurring additional debt, including debt related to facilitiesproperties we develop or acquire. If new debt is added to our current debt levels, the related risks that we now face could intensify.

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

While we intend to finance expansion and renovation projects with existing cash, cash flow from operations and borrowings under our senior secured credit facility,Senior Secured Credit Facilities, we may require additional financing to support our continued growth. However, depending on then currentthen-current economic or capital market conditions, our access to capital may not be available on terms acceptable to us or at all. Further, if adverse regional and national economic conditions persist or worsen, we could experience decreased revenues from our operations attributable to decreases in consumer spending levels and could fail to satisfy the financial and other restrictive covenants to which we are subject under our existing indebtedness. Finally, our borrowing costs under our senior secured credit facility are tied to LIBOR. We currently have no hedges in place to mitigate the impact of higher LIBOR rates and as such significant increases in LIBOR could have a negative impact on our results of operations.


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

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

Following our January 2017 refinancing which is described in Item 8 in Footnote 20 “Subsequent Events”, theoperations and cash flows.

The capacity under our revolving credit facility,Revolving Credit Facility, which expires in 2022, has increased to $700 million via a bank group that2023, is comprised of 12 large financial institutions with the top six institutions providing approximately 71% of the facility.$700.0 million. If a large percentage of our lenders were to file for bankruptcy or otherwise default on their obligations to us, we could experience decreased levels of liquidity which could have a detrimental impact on our operations. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our senior secured credit facility.

Senior Secured Credit Facilities.

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

Our senior secured credit facility requiresSenior Secured Credit Facilities require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage, senior secured net leverage and total net leverage ratios. In addition, our credit facility restricts,Senior Secured Credit Facilities restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, repay certain other indebtedness or amend debt instruments, pay dividends, create liens on our assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates or otherwise restrict corporate activities. In addition, the indenture governing our senior unsecured notes restricts, among other things, our ability to incur additional indebtedness (excluding certain indebtedness under our

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credit facility) Senior Secured Credit Facilities), issue certain preferred stock, pay dividends or distributions on our capital stock or repurchase our capital stock, make certain investments, create liens on our assets to secure certain debt, enter into transactions with affiliates, merge or consolidate with another company, transfer and sell assets and designate our subsidiaries as unrestricted subsidiaries. A failure to comply with the restrictions contained in the documentation governing any of our indebtedness, termination of the Master LeaseTriple Net Leases (subject to certain exceptions) or the occurrence of certain defaults under the Master LeaseTriple Net Leases could lead to an event of default thereunder that could result in an acceleration of such indebtedness. Such acceleration would likely constitute an event of default under our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.

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

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

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Risks Related to the Spin-Off
If the Spin-Off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we could be subject to significant tax liabilities.
We received a private letter ruling (the “IRS Ruling”) from the IRS substantially to the effect that, among other things, the Spin-Off, together with certain related transactions, will qualify as a transaction that is generally tax-free for U.S. federal

income tax purposes under Sections 355 and/or 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”). The IRS Ruling does not address certain requirements for tax-free treatment of the Spin-Off under Section 355, and we received from our tax advisors a tax opinion substantially to the effect that, with respect to such requirements on which the IRS will not rule, such requirements will be satisfied. The IRS Ruling, and the tax opinions that we received from our tax advisors, relied on and will rely on, among other things, certain representations, assumptions and undertakings, including those relating to the past and future conduct of GLPI’s business, and the IRS Ruling and the opinions would not be valid if such representations, assumptions and undertakings were incorrect in any material respect.
Notwithstanding the IRS Ruling and the tax opinions, the IRS could determine the Spin-Off should be treated as a taxable transaction for U.S. federal income tax purposes if it determines any of the representations, assumptions or undertakings that were included in the request for the IRS Ruling are false or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the IRS Ruling. If the Spin-Off fails to qualify for tax-free treatment, in general, we would be subject to tax as if we had sold the GLPI common stock in a taxable sale for its fair market value.
Under the tax matters agreement that GLPI entered into with us, GLPI generally is required to indemnify us against any tax resulting from the Spin-Off to the extent that such tax resulted from (1) an acquisition of all or a portion of the equity securities or assets of GLPI, whether by merger or otherwise, (2) other actions or failures to act by GLPI, or (3) any of GLPI’s representations or undertakings being incorrect or violated. GLPI’s indemnification obligations to Penn and its subsidiaries, officers and directors will not be limited by any maximum amount. If GLPI is required to indemnify Penn or such other persons under the circumstance set forth in the tax matters agreement, GLPI may be subject to substantial liabilities and there can be no assurance that GLPI will be able to satisfy such indemnification obligations. On September 27, 2017, the IRS finalized the audit examination of the 2013 U.S. federal income tax return with no adjustments related to the Spin-Off including the tax-free treatment. Although the 2013 examination is finalized, the statute of limitation was extended to June 30, 2018.
In connection with the Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the separation and distribution agreement, GLPI has agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that GLPI agreed to retain, and there can be no assurance that GLPI will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from GLPI any amounts for which we are held liable, we may be temporarily required to bear these losses while seeking recovery from GLPI.
A court could deem the distribution in the Spin-Off to be a fraudulent conveyance and void the transaction or impose substantial liabilities upon us.
If the transaction is challenged by a third-party, a court could deem the distribution of GLPI common shares or certain internal restructuring transactions undertaken by us in connection with the Spin-Off to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Among other things, the court could require our shareholders to return to us some or all of the shares of our common stock issued in the distribution or require us to fund liabilities of other companies involved in the restructuring transactions for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.
If we and GLPI are treated by the IRS as being under common control, both we and GLPI could experience adverse tax consequences.
If we and GLPI are treated by the IRS as being under common control, the IRS will be authorized to reallocate income and deductions between us and GLPI to reflect arm’s length terms. If the IRS were to successfully establish that rents paid by us to GLPI are excessive, we would be (i) denied a deduction for the excessive portion and (ii) subject to a penalty on the portion deemed excessive, each of which could have a material adverse effect on our financial condition, results of operations and cash flows. Also, our shareholders would be deemed to have received a distribution that was then contributed to the capital of GLPI.

ITEM 1B.UNRESOLVED STAFF COMMENTS
None.

ITEM 2.  


ITEM 2.PROPERTIES
As detailed in Item 1. Business, “Operating Properties,”

the majority of our facilities are subject to leases of the underlying real estate assets, which, among other things, includes the land underlying the facility and the buildings used in the operations of the casino and the hotel, if applicable. The following describes ourthe principal real estate associated with our properties by segment:

Northeast

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

 Location Description of Owned Real Property Acreage of Land Description of Leased Real Property Acreage of Land
Northeast segment         
Ameristar East ChicagoEast Chicago, IN — — Land, buildings, boat 22
Greektown Casino-HotelDetroit, MI — — Land, buildings 8
Hollywood Casino BangorBangor, ME — — Land, racetrack, buildings 44
Hollywood Casino at Charles Town RacesCharles Town and Ranson, WV — — Land, racetrack, buildings 299
Hollywood Casino ColumbusColumbus, OH — — Land, buildings 116
Hollywood Casino LawrenceburgLawrenceburg, IN Land, buildings 3 Land, buildings, boat 105
Hollywood Casino at Penn National Race CourseGrantville, PA — — 
Land (1), racetrack, buildings
 574
Hollywood Casino ToledoToledo, OH — — Land, buildings 42
Hollywood Gaming at Dayton RacewayDayton, OH — — Land, racetrack, buildings 120
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OH — — Land, racetrack, buildings 193
Meadows Racetrack and CasinoWashington, PA — — Land, racetrack, buildings 156
Plainridge Park CasinoPlainville, MA — — Land, racetrack, buildings 88
          
South segment         
1st Jackpot Casino
Tunica, MS — — 
Land (2), buildings, boat
 147
Ameristar VicksburgVicksburg, MS — — Land, buildings, boat 74
Boomtown BiloxiBiloxi, MS — — 
Land (3), buildings, boat
 26
Boomtown Bossier CityBossier City, LA — — Land, buildings, boat 22
Boomtown New OrleansNew Orleans, LA — — Land, buildings, boat 54
Hollywood Casino Gulf CoastBay St. Louis, MS — — Land, buildings 579
Hollywood Casino TunicaTunica, MS — — Land, buildings, boat 68
L’Auberge Baton RougeBaton Rouge, LA Undeveloped land 478 Land, buildings, barge 99
L’Auberge Lake CharlesLake Charles, LA Undeveloped land 54 Land, buildings, barge 235
Margaritaville Resort CasinoBossier City, LA — — Land, buildings, barge 34
Resorts Casino Tunica (4)
Tunica, MS — — Land, buildings, boat 87
          
West segment         
Ameristar Black HawkBlack Hawk, CO — — Land, buildings 104
Cactus Petes and HorseshuJackpot, NV — — Land, buildings 80
M ResortHenderson, NV — — Land, buildings 84
Tropicana Las VegasLas Vegas, NV Land, buildings 35 — —
Zia Park CasinoHobbs, NM — — Land, racetrack, buildings 317
          
Midwest segment         
Ameristar Council BluffsCouncil Bluffs, IA — — Land, buildings, boat 59
Argosy Casino AltonAlton, IL Boat — Land, buildings 4
Argosy Casino RiversideRiverside, MO — — 
Land (5), buildings, barge
 45
Hollywood Casino AuroraAurora, IL — — Land, buildings, barge 2
Hollywood Casino JolietJoliet, IL — — Land, buildings, barge 276
Hollywood Casino at Kansas SpeedwayKansas City, KS Land, buildings 101 — —
Hollywood Casino St. LouisMaryland Heights, MO — — Land, buildings, barge 221
River City CasinoSt. Louis, MO — — 
Land (6), buildings, barge
 83
          
Other         
Freehold RacewayFreehold, NJ Land, racetrack, buildings 51 — —
 Cherry Hill, NJ Undeveloped land 10 — —
Retama Park Racetrack (7)
Selma, TX Undeveloped land 28 — —
Sam Houston Race ParkHouston, TX Land, racetrack, buildings 168 — —
Sanford-Orlando Kennel ClubLongwood, FL Land, racetrack, buildings 26 — —
Valley Race ParkHarlingen, TX Land, racetrack, buildings 71 — —
     1,025   4,467
(1)Of which, 393 acres is undeveloped land surrounding Hollywood Casino at Penn National Race Course
(2)Of which, 53 acres is wetlands.
(3)Of which, 3 acres is subject to the Penn Master Lease.

(4)Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease.
(5)Of which, 38 acres is subject to the Penn Master Lease.
(6)Of which, 24 acres is land surrounding River City Casino reserved for community and recreational facilities.
(7)The land, racetrack, and buildings used in the operations of Retama Park Racetrack are owned by the City of Selma, Texas. We own undeveloped land adjacent to the Retama Park Racetrack.
We lease approximately 300 acres onoffice and warehouse space in various parcels in Charles Town and Ranson, West Virginia of which approximately 155 acres comprise Hollywood Casino at Charles Town Races. The facility includes a 153‑room hotel and a 3/4‑mile all‑weather lighted thoroughbred racetrack, a training track, two parking garages, an employee parking lot, an enclosed grandstand/clubhouse and housing facilities for over 1,300 horses.

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

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

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

Hollywood Gaming at Dayton Raceway.  We lease approximately 118 acres on the site of an abandoned Delphi Automotive plant in Dayton, Ohio, where we relocated Raceway Park and opened a new gaming facility on August 28, 2014. The facility includes a 5/8‑mile standardbred racetrack and surface parking.

Hollywood Gaming at Mahoning Valley Race Course.  We lease approximately 193 acres in Austintown, Ohio, where we relocated Beulah Park and opened a new gaming facility on September 17, 2014. The facility includes a one‑mile thoroughbred racetrack and surface parking.

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

Plainridge Park Casino.  We own an approximate 90‑acre site in Plainville, Massachusetts, where we opened Plainridge Park Casino on June 24, 2015. The property includes the casino as well as structured and surface parking. The facility also includes a 5/8‑mile live harness racing track, and a two story clubhouse.

Casino Rama.  We do not own any of the land located at or near the casino or Casino Rama’s facilities and equipment. The OLGC has a long‑term ground lease with an affiliate of the Rama First Nation, for the land on which Casino Rama is situated. Under the Agreement, CHC Casinos and CRC Holdings, Inc. have been granted full access to Casino Rama during the term of the Agreement to perform the management services under the Agreement. The Casino Rama facilities are located on approximately 61 acres.

South/West

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

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

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

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

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

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

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

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

Midwest

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

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

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

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

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

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

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

Prairie State Gaming.  The Company acquired Prairie State Gaming, a licensed video gaming terminal operator in Illinois, on September 1, 2015. Prairie State Gaming’s operations include more than 1,424 video gaming terminals across a network of approximately 317 bar and retail gaming establishments in seven distinct geographic areas throughout Illinois.

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Other

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

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

Sam Houston Race Park and Valley Race Park.  Through our joint venture with MAXXAM, we own approximately 168 acres at Sam Houston Race Park and approximately 71 acres at Valley Race Park. Sam Houston Race Park includes a one‑mile dirt track and a 7/8‑mile turf track as well as a 226,000 square foot grandstand and pavilion centre. Valley Race Park features 118,216 of property square footage as a dog racing and simulcasting facility located in Harlingen, Texas.

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

operating properties, including 52,116 square

Approx. Size

Location

(Square Ft.)

Owned/Leased

Date Opened

York, PA

25,590

Leased

March 1995

Lancaster, PA

24,000

Leased

July 1996

Clementon, NJ

15,000

Leased

July 2014

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

Corporate.  We lease 49,116 square feet of executive office and warehouse space for buildings in Wyomissing, Pennsylvania and 3,370Pennsylvania; 86,542 square feet of office space for our shared services center in Las Vegas, Nevada; 7,787 square feet of executive office space in Conshohocken, Pennsylvania; 5,740 square feet of office space in Henderson, Nevada; and approximately 1,000 square feet of office space in Philadelphia, Pennsylvania.

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 3.LEGAL PROCEEDINGS
The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, development agreements and other matters arising in the ordinary course of business. Although the Company maintains what it believes to be adequate insurance coverage to mitigate the risk of loss pertaining to covered matters, legal and administrative proceedings can be costly, time-consuming and unpredictable. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s consolidatedits results of operations, financial position or resultscash flows.

ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Ticker Symbol and Holders of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.

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

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, with the acquisition of Tropicana Las Vegas and its associated entities (“Tropicana Las Vegas”) on August 24, 2015, the Company assumed litigation arising from the Bankruptcy Chapter 11 reorganization (“Tropicana Bankruptcy”) of

Record

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Tropicana Las Vegas’ former affiliate, Tropicana Entertainment Holdings, LLC (“TEH”).  In this Bankruptcy proceeding, there was an unresolved dispute whereby TEH claimed that Tropicana Las Vegas was responsible for the payment of certain professional fees and expenses incurred in the Tropicana Bankruptcy.  On May 23, 2016, an agreement was reached to settle the dispute for $3.1 million.  The settlement agreement was approved by the bankruptcy court on June 23, 2016, and payment was made in July 2016.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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PART II

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

Range of Market Price

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

 

 

 

 

 

 

 

 

 

    

High

    

Low

 

2016

 

 

 

 

 

 

 

First Quarter

 

$

16.69

 

$

12.81

 

Second Quarter

 

 

17.32

 

 

13.59

 

Third Quarter

 

 

15.07

 

 

12.72

 

Fourth Quarter

 

 

14.62

 

 

11.98

 

2015

 

 

 

 

 

 

 

First Quarter

 

$

16.84

 

$

13.19

 

Second Quarter

 

 

18.66

 

 

14.82

 

Third Quarter

 

 

19.50

 

 

16.04

 

Fourth Quarter

 

 

18.80

 

 

14.83

 

The closing sale price per share of our common stock on the NASDAQ Global Select Market on February 15, 2017 was $14.41.  As of February 15, 2017,21, 2020, there were approximately 4491,756 holders of record of our common stock.

Dividend Policy

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

Stock

Sales of Unregistered Equity Securities
We did not issue or sell any unregistered equity securities during the years ended December 31, 2019, 2018, and 2017.
Share Repurchase

Program

On January 9, 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized to repurchase up to $200.0 million of the Company’s common stock, which expires on December 31, 2020. During the year ended December 31, 2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $24.9 million at an average price of $19.55 per share. All repurchased shares were retired. We did not repurchase any shares of our common stock induring the fourth quarter of 2016.  As previously disclosed in our Current Report on Form 8-K filed on February 3, 2017, our Board of Directors authorized a $100 million share repurchase program which can be executed over a two year period.

2019.


ITEM 6.SELECTED FINANCIAL DATA

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ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial and operating datainformation for the five‑year period ended December 31, 2016 isyears 2015 through 2019 was derived from our consolidated financial statements that have been audited by Ernst & Young LLP, an independent registered public accounting firm.Consolidated Financial Statements. The selected consolidated financial and operating datainformation below should be read in conjunction with our consolidated financial statements and notes thereto, “Management’s“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2016

 

2015(1)

 

2014(2)

 

2013(3)

 

2012(4)

 

 

 

(in thousands, except per share data)

 

Income statement data:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Net revenues

 

$

3,034,380

 

$

2,838,358

 

$

2,590,527

 

$

2,777,886

 

$

2,688,822

 

Total operating expenses

 

 

2,491,364

 

 

2,370,512

 

 

2,333,339

 

 

3,201,754

 

 

2,291,366

 

Income (loss) from continuing operations

 

 

543,016

 

 

467,846

 

 

257,188

 

 

(423,868)

 

 

397,456

 

Total other expenses

 

 

(422,399)

 

 

(411,236)

 

 

(410,491)

 

 

(202,509)

 

 

(72,429)

 

Income (loss) from continuing operations before income taxes

 

 

120,617

 

 

56,610

 

 

(153,303)

 

 

(626,377)

 

 

325,027

 

Income tax (benefit) provision

 

 

11,307

 

 

55,924

 

 

30,519

 

 

(33,580)

 

 

137,449

 

Net income (loss) from continuing operations including noncontrolling interests

 

 

109,310

 

 

686

 

 

(183,822)

 

 

(592,797)

 

 

187,578

 

Net income from discontinued operations net of tax

 

$

 —

 

$

 —

 

$

 —

 

$

11,545

 

$

22,919

 

Net income (loss) attributable to the shareholders of Penn

 

$

109,310

 

$

686

 

$

(183,822)

 

$

(581,252)

 

$

210,497

 

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share from continuing operations

 

$

1.21

 

$

0.01

 

$

(2.34)

 

$

(7.59)

 

$

1.98

 

Diluted earnings (loss) per common share from continuing operations

 

$

1.19

 

$

0.01

 

$

(2.34)

 

$

(7.59)

 

$

1.81

 

Basic earnings per common share from discontinued operations

 

 

N/A

 

 

N/A

 

$

N/A

 

$

0.15

 

$

0.24

 

Diluted earnings per common share from discontinued operations

 

 

N/A

 

 

N/A

 

$

N/A

 

$

0.15

 

$

0.22

 

Weighted shares outstanding—Basic(5)

 

 

82,929

 

 

80,003

 

 

78,425

 

 

78,111

 

 

76,345

 

Weighted shares outstanding—Diluted(5)

 

 

91,407

 

 

90,904

 

 

78,425

 

 

78,111

 

 

103,804

 

Other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

404,823

 

$

398,982

 

$

262,223

 

$

453,767

 

$

507,189

 

Net cash used in investing activities

 

 

(79,288)

 

 

(781,005)

 

 

(375,536)

 

 

(180,357)

 

 

(1,188,487)

 

Net cash (used in) provided by financing activities

 

 

(333,034)

 

 

410,359

 

 

28,991

 

 

(240,882)

 

 

703,325

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

266,742

 

 

303,404

 

 

233,407

 

Interest expense

 

 

459,243

 

 

443,127

 

 

425,114

 

 

159,897

 

 

82,124

 

Capital expenditures

 

 

97,245

 

 

199,240

 

 

228,145

 

 

196,600

 

 

467,795

 

Balance sheet data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

229,510

 

$

237,009

 

$

208,673

 

$

292,995

 

$

260,467

 

Total assets

 

 

4,974,484

 

 

5,138,752

 

 

4,624,551

 

 

4,467,587

 

 

5,619,383

 

Total financing obligation

 

 

3,514,080

 

 

3,564,628

 

 

3,611,513

 

 

3,534,809

 

 

 —

 

Total debt(6)

 

 

1,415,534

 

 

1,710,959

 

 

1,241,430

 

 

1,044,995

 

 

2,719,508

 

Shareholders’ (deficit) equity

 

 

(543,320)

 

 

(678,043)

 

 

(708,014)

 

 

(550,852)

 

 

2,241,590

 

Consolidated Financial Statements and related notes thereto.

39

 For the year ended December 31,
(in millions, except per share data)
2019 (1)
 
2018 (2)
 
2017 (3)
 2016 
2015 (4)
Income statement data:         
Revenues (5)
$5,301.4
 $3,587.9
 $3,148.0
 $3,034.4
 $2,838.3
Total operating expenses4,729.5
 2,953.8
 2,702.3
 2,491.4
 2,370.5
Operating income571.9
 634.1
 445.7
 543.0
 467.8
Total other expenses(485.8) (544.2) (470.8) (422.4) (411.2)
Income (loss) before income taxes86.1
 89.9
 (25.1) 120.6
 56.6
Income tax benefit (expense)(43.0) 3.6
 498.5
 (11.3) (55.9)
Net income$43.1
 $93.5
 $473.4
 $109.3
 $0.7
Per share data:         
Earnings per common share—Basic$0.38
 $0.96
 $5.21
 $1.21
 $0.01
Earnings per common share—Diluted$0.37
 $0.93
 $5.07
 $1.19
 $0.01
Weighted-average shares outstanding—Basic115.7
 97.1
 90.9
 82.9
 80.0
Weighted-average shares outstanding—Diluted117.8
 100.3
 93.4
 91.4
 90.9
Other data:         
Depreciation and amortization$414.2
 $269.0
 $267.1
 $271.2
 $259.5
Interest expense, net$534.2
 $538.4
 $463.2
 $435.1
 $431.6
Project and maintenance capital expenditures$190.6
 $92.6
 $99.3
 $97.2
 $199.2
Cash flows provided by (used in):         
Operating activities$703.9
 $352.8
 $477.8
 $408.0
 $417.4
Investing activities$(607.5) $(1,423.1) $(221.6) $(79.3) $(781.0)
Financing activities$(122.4) $1,272.1
 $(207.0) $(339.9) $395.5
Balance sheet data—As of December 31:         
Cash, cash equivalents and restricted cash$455.2
 $481.2
 $279.4
 $230.2
 $241.5
Total assets (6)
$14,194.5
 $10,961.0
 $5,234.8
 $4,974.5
 $5,138.8
Total lease liabilities (6)
$4,800.6
 $—
 $—
 $—
 $—
Total financing obligations (6)
$4,142.7
 $7,148.4
 $3,538.8
 $3,514.1
 $3,564.6
Total debt$2,385.1
 $2,412.2
 $1,250.2
 $1,415.5
 $1,711.0
Stockholders’ equity (deficit) (6)
$1,851.9
 $731.2
 $(73.1) $(543.3) $(678.0)

Table of Contents

(1)

Includes the full year impact of the Pinnacle Acquisition and the acquisitions of Margaritaville in January 2019 and Greektown in May 2019. During the year ended December 31, 2019, we recorded impairment losses on our goodwill and other intangible assets of $170.6 million. During the year ended December 31, 2019, interest expense associated with the Penn Master Lease decreased by $181.2 million as a result of the adoption of ASC 842 (as defined in footnote (6) below), interest expense associated with the Pinnacle Master Lease increased by $126.0 million, and interest expense incurred on long-term debt increased by $50.8 million.

For

(2)Includes the impact of the acquisition of Pinnacle in October 2018. In addition, we incurred $95.0 million in costs, primarily associated with the Pinnacle Acquisition, a $21.0 million loss on early extinguishment of debt, and a $34.3 million long-lived asset impairment charge. During the year ended December 31, 2018, we recorded $63.0 million of interest expense associated with the Pinnacle Master Lease.
(3)During the year ended December 31, 2017, we recorded impairment losses on our goodwill and other intangible assets of $18.0 million and a provision for loan losses and unfunded loan commitments of $89.8 million. In addition, during the year ended December 31, 2017, we released $741.9 million of our deferred tax valuation allowance and recorded a $261.3 million write-down of our deferred tax assets due to the reduction of the corporate tax rate from 35% to 21%.
(4)During the year ended December 31, 2015, the Companywe recorded impairment losses on our other intangible assets impairment charges of $40.0 million related to the write‑offwrite-off of our Plainridge Park Casino gaming license and a partial write‑downwrite-down of the gaming license at Hollywood Gaming at Dayton Raceway due toRaceway.
(5)On January 1, 2018, the Company adopted Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), using a reduction in the long term earnings forecast at both of these locations.

(2)

During the fourth quarter of 2014, we recorded goodwill and other intangible assets impairment charges of $155.3 millionmodified retrospective approach, which did not require that prior years presented be restated as we determined that a portion of the valuedate of our goodwill and other intangible assets was impaired due to our outlookinitial application. The adoption of continued challenging regional gaming conditions which persisted in 2014 at certain properties in our Midwest segment, as well as forASC 606 did not materially impact the write‑offcomparability of a trademark intangible asset inany of the South/West segment. During the second quarter of 2014,selected financial information above.

(6)
On January 1, 2019, the Company adopted ASC Topic 842, “Leases” (“ASC 842”), using a modified retrospective approach, which did not require that prior years presented be restated. Upon adoption of ASC 842, among other items, we reduced property and equipment, net, by $1,571.7 million, recorded an impairment chargeright-of-use assets and corresponding lease liabilities of $4.6$4,030.8 million, reduced the financing obligations by $2,954.1 million, and a recorded a cumulative-effect adjustment to write‑down certain idle assets to their estimated salvage value. Interest expenseretained earnings of $1,085.7 million. See Note 3, “New Accounting Pronouncements,” of the accompanying Consolidated Financial Statements for more information on the Master Lease financing obligation, which became effective November 1, 2013, was $379.2 million for the year ended December 31, 2014.

(3)

We recorded impairment charges of $724.2 million, which included the impact of the spin‑off, during the year ended December 31, 2013. In addition, as a resultadoption of a new gaming license being awarded for the development of an additional casino in Sioux City, Iowa to another applicant in April 2013, we recorded an impairment charge of $71.8 million for Argosy Casino Sioux City during the year ended December 31, 2013. Additionally, in conjunction with the relocation of our two racetracks in Ohio, we recorded an impairment charge of $2.2 million during the year ended December 31, 2013. Furthermore, for 2013, we incurred a $61.7 million loss on the early extinguishment of debt, transaction costs associated with the Spin‑Off of $39.5 million, and interest expense on the Master Lease financing obligation of $62.1 million. Finally, we recorded a valuation allowance in the fourth quarter of 2013 of which $90.3 million was recorded as income tax provision and $599.9 million was recorded as part of the Spin‑Off transaction.  See Note 12—“Income Taxes” for additional details.

ASC 842.

(4)

ITEM 7.

During the year ended December 31, 2012, we incurred non‑deductible lobbying costs of $45.1 million associated with our unsuccessful efforts to oppose an expansion of gaming in the State of Maryland and transaction costs associated with the Spin‑Off of $7.1 million.

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

(5)

Since we reported a loss from operations for the years ended December 31, 2014 and 2013, we were required to use basic weighted‑average common shares outstanding, rather than diluted weighted‑average common shares outstanding, when calculating diluted loss per share for those periods.

(6)

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

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, our Consolidated Financial Statements and the notes thereto, included in this Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission.

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EXECUTIVE OVERVIEW

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

Our Operations

We areBusiness

Penn National Gaming, Inc., together with its subsidiaries, is a leading, geographically diversified, multi‑jurisdictionalmulti-jurisdictional owner and manager of gaming and racing facilitiesproperties and video gaming terminal (“VGT”) operations. The Company was incorporatedWe currently offer live sports betting at our properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company became a publicly traded company. In 1997, we began our transition from a pari‑mutuel company to a diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions, greenfield projects, and property expansions. We along with our joint venture partner, opened Hollywood Casino at Kansas Speedway in February 2012. In Ohio, we have opened four new gaming properties over the last five years, including: Hollywood Casino Toledo in May 2012, Hollywood Casino Columbus in October 2012, Hollywood Gaming at Dayton Raceway in August 2014, and Hollywood Gaming at Mahoning Valley Race Course in September 2014. In addition, in November 2012, we acquired Harrah’s St Louis, which we subsequently rebranded as Hollywood Casino St Louis. In June 2015, we opened Plainridge Park Casinooperate an integrated racing and slots‑only gaming facility in Plainville, Massachusetts. In August 2015 we completed the acquisition of our first Las Vegas strip asset, Tropicana Hotel and Casino in Las Vegas, Nevada. In September 2015 we completed our acquisition of Prairie State Gaming, one of the largest video gaming terminal route operators in Illinois.

In addition, we are now managing and providing branding for Hollywood Casino Jamul-San Diego on the Jamul Indian Village land in trust near San Diego, California, which opened on October 10, 2016.  In 2016, our subsidiary, Prairie State Gaming acquired two small video gaming terminal route operators in Illinois.  Finally, we recently implemented our interactive gaming strategy(“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which included launchingrecently launched an online casino (“iCasino”) in Pennsylvania through our HollywoodCasino.com Play4Fun social gaming platform and entered into multi-year agreements with Scientific Gamesleading sports betting operators for online sports betting and iGaming market access across our HollywoodSlots.com mobile social gaming platformportfolio of properties. Our MYCHOICE® customer loyalty program currently has over 20 million members and provides such members with OpenWager.  On August 1, 2016, we enhanced our social gaming offerings throughvarious benefits, including complimentary goods and/or services. References herein to “Penn National,” the acquisition of Rocket Speed, a leading developer of social casino games.

“Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.

As of December 31, 2016,2019, we owned, managed, or had ownership interests in twenty‑seven facilities41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia,Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and Ontario, Canada. On July 30, 2014, the Company closed its facilityPinnacle Master Lease (as such terms are defined in Sioux City, Iowa.the “Liquidity and Capital Resources” section below 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, Beulah Park and Raceway Parkwe are currently developing two Category 4 satellite gaming casinos in Ohio were closed as the racetracks were relocated toPennsylvania: Hollywood Gaming at Mahoning Valley Race CourseCasino York and Hollywood Gaming at Dayton Raceway, respectively,Casino Morgantown, both of which openedare expected to commence operations by the end of 2020.
In February 2020, we closed on our investment in the third quarter of 2014.  On January 8, July 31,Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment and September 4, 2016, we sold Raceway Park in Toledo, Ohio, Rosecroft Raceway in Prince George’s county, Maryland and Beulah Park in Grove City, Ohio, respectively.

The vast majority of our revenue is gaming revenue, derived primarily from gaming on slot machines (which represented approximately 87% and 86% of our gaming revenue in 2016 and 2015, respectively) andmedia platform, pursuant to a lesser extent, table games,stock purchase agreement with Barstool Sports and stockholders of Barstool Sports, in which is highly dependent uponwe purchased approximately 36% of the volumecommon stock of Barstool Sports for a purchase price of approximately $163 million. The purchase price consisted of approximately $135 million in cash and spending levels$28 million in shares of customersnon-voting convertible preferred stock. Furthermore, three years after the closing of the transaction (or earlier at our properties. Other revenues are derived fromelection), we will increase our management service fees from Casino Ramaownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial investment. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and Hollywood Casino Jamul – San Diego, our hotel, dining, retail, admissions, program sales, concessionsthe 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 certain other ancillary activities, and our racing operations. Our racinga floor of 2.25 times the annualized revenue includesof Barstool Sports, all subject to various adjustments). We also have the option to bring in another partner who would acquire a portion of our share of pari‑mutuel wagering on live races after paymentBarstool Sports. Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of amounts returnedour online and retail sports betting and iCasino products. We expect to launch our online sports gaming app called Barstool Sports in August 2020 and anticipate that this transaction will facilitate the Company’s omni-channel growth.

In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI” and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”), and in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the Master Leases, the Greektown Lease and the Meadows Lease (as defined in “Liquidity and Capital Resources” below), the “Triple Net Leases”).
In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”). In conjunction with the Pinnacle Acquisition, the Company divested the membership interests of certain Pinnacle subsidiaries, which operated the casinos known as winning wagers, our shareAmeristar St. Charles, Ameristar Kansas City, Belterra Resort and Belterra Park (referred to collectively as the “Divested Properties”), to Boyd Gaming Corporation (NYSE: BYD) (“Boyd”). Additionally, as a part of wagering from importthe transaction, GLPI acquired the real estate assets associated with Plainridge Park Casino and export simulcasting, and our share of wagering from our off‑track wagering facilities.

Key performance indicators related to gaming revenue are slot handle and table game drop (volume indicators) and “win” or “hold” percentage. Our typical property slot hold percentage is in the range of 6% to 10% of slot handle, and our typical table game win percentage is in the range of 14% to 26% of table game drop.

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Slot handle is the gross amount wagered for the period cited. The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals relatedconcurrently leased back such assets to the anticipated payoutCompany (the “Plainridge Park Casino Sale-Leaseback”). In connection with the sale of progressive jackpots. Our slot hold percentages have consistently been in the 6% to 10% range overDivested Properties and the past several years. GivenPlainridge Park Casino Sale-Leaseback, the stability in our slot hold percentages, we have not experienced significant impacts to earnings from changes in these percentages.

For table games, customers usually purchase cash chips atPinnacle Master Lease, which was assumed by the Company concurrent with the closing of the Pinnacle Acquisition, was


amended. The Pinnacle Acquisition added twelve gaming tables. The cash and markers (extensions of credit granted to certain credit worthy customers) are deposited in the gaming table’s drop box. Table game win is the amount of drop that is retained and recorded as casino 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 win percentages are fairly stable as the majority of these markets do not regularly experience high‑end play, which can lead to volatility in win percentages. Therefore, changes in table game win percentages do not typically have a material impactproperties to our earnings.

Our properties generate significant operating cash flow, since mostholdings and has provided us with greater operational scale and geographic diversity.

In May 2017, we completed the acquisitions of 1st Jackpot Casino (f/k/a Bally’s Casino Tunica) and Resorts Casino Tunica (which ceased operations in June 2019).
We believe that our revenue is cash‑based from slot machines, table games, and pari‑mutuel wagering. Our business is capital intensive, and we rely onportfolio of assets provides us the benefit of geographically-diversified cash flow from our propertiesoperations. We expect to generate operating cash to satisfy our obligations under the Master Lease, repay debt, fund maintenance capital expenditures, fund new capital projects at existing properties and provide excess cash for future development and acquisitions.

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

Segment Information

The Company’s Chief Executive Officer and President, who is the Company’s Chief Operating Decision Maker (“CODM”) as that term is defined in ASC 280, “Segment Reporting” (“ASC 280”), measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations. During the second quarter of 2016, the Company changed its three reportable segments from East/Midwest, West and Southern Plains to Northeast, South/West, and Midwest in connection with the addition of a new regional vice president and a realignment of responsibilities within our segments.  This realignment changed the manner in which information is provided to the CODM and therefore how performance is assessed and resources are allocated to the business.

The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, which opened on August 28, 2014, Hollywood Gaming at Mahoning Valley Race Course, which opened on September 17, 2014, and Plainridge Park Casino, which opened on June 24, 2015. It also includes the Company’s Casino Rama management service contract.

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

The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on September 1, 2015, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway. On July 30, 2014, the Company closed Argosy Casino Sioux City.

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

Operating and Competitive Environment
Most of an operating segment under ASC 280, but is quantitatively notour properties operate in mature, competitive markets. Consequently, we expect a significant amount of our future growth to the Company’s operationscome from new growth opportunities, such as it represents 0.8%retail and online gaming and sports betting; entrance into new jurisdictions; expansions of net revenues and 0.4%gaming in existing jurisdictions; improvements/expansions of income from operations for the year ended December 31, 2016.

In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and is especially relevant in evaluating large, long lived casino 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. The Company defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of contingent purchase price, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA.

Executive Summary

As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth in recent years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. The expansion of recently constructed gaming facilities continues to impact the overall domestic gaming industry as well as our operating results in certain markets.  Our ability to succeed in this environment will be predicated on operating our existing facilities efficientlyproperties; and offering our customers additionalstrategic acquisitions of gaming experiences through our omni-channel distribution strategy.  We will also need to continue to expand our customer database through accretive acquisitions and capitalizing on organic growth opportunities in our recent facility openings and business lines.

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

Historically, the Company has been reliant on certain key

As reported by most jurisdictions, regional gaming markets (for example, its results from Hollywood Casino at Charles Town Races and Hollywood Casino Lawrenceburg). Overindustry trends have shown little revenue growth the pastlast several years the Company has diversified its operations via developmentas numerous jurisdictions now permit gaming or have expanded their gaming offerings. The proliferation of new facilitiesgaming properties continues to impact the overall domestic gaming industry as well as our results of operations in certain markets. However, the current economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, has resulted in a stable operating environment in recent years. Our ability to continue to succeed in this environment will be predicated on operating our existing properties efficiently, realizing revenue and cost synergies from recent acquisitions, and anticipates further diversifying its reliance on specific properties as weoffering our customers additional gaming experiences through our omni-channel distribution strategy. We seek to continue to expand our VGTcustomer database through accretive acquisitions or investments, such as Barstool Sports, and capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines.
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, operations.online and retail sports betting, gaming at taverns, gaming at truck stop establishments, sweepstakes and poker machines not located in casinos, the potential for increased fantasy sports, Native American gaming, and other forms of gaming in the U.S. More specifically, due to recent legislation to expand gaming in and around Illinois, Indiana, Massachusetts and Pennsylvania, several of our properties within our Northeast segment and some of our properties within our Midwest segment have been and will continue to be negatively impacted by new or increased competition. See the “Segment comparison of the years ended December 31, 2019, 2018 and 2017” 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, we expectdecreases in discretionary consumer spending have historically been brought about by weakened general economic conditions such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs. In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our recently opened facilityproperties, 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 92%, 92% and 87% of our gaming revenue in Plainville, Massachusetts2019, 2018 and 2017, respectively) and, to a lesser extent, table games and sports

betting. Aside from gaming revenue, our revenues are derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other ancillary activities, and our expansion intoracing 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 socialrange of approximately 7% to 9% of slot handle, and our typical table game hold percentage is in the range of approximately 16% to 25% 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 businesswins and retaillosses, 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 markettables. The cash and markers (extensions of credit granted to certain credit worthy customers) are deposited in Illinois,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 as the majority of these markets do not regularly experience high-end play, which can lead to volatility in hold percentages. Therefore, changes in table game hold percentages do not typically have a material impact to our results of operations.
Our properties generate significant operating cash flow since thesemost 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, repay debt, fund maintenance capital expenditures, fund new capital projects at existing properties and provide excess cash for future development and acquisitions. Additional information regarding our capital projects is discussed in the “Liquidity and Capital Resources” section below.
Reportable Segments
We view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment. We consider our combined VGT operations, by state, to be separate operating segments. We aggregate our operating segments into four reportable segments: Northeast, South, West and Midwest. For a listing of our gaming properties and VGT operations included in each reportable segment, see Note 2, “Significant Accounting Policies,” in the notes to our Consolidated Financial Statements.

RESULTS OF OPERATIONS
The following table highlights our revenues, net income, 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 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 not partnon-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section below for the definitions of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR, and Adjusted EBITDAR margin; as well as a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDAR and related margins.
 For the year ended December 31,
(dollars in millions)2019 2018 2017
Revenues:     
Northeast segment$2,399.9
 $1,891.5
 $1,756.6
South segment1,118.9
 394.4
 224.3
West segment642.5
 437.9
 380.4
Midwest segment1,094.5
 823.7
 735.0
Other (1)
47.5
 40.4
 51.7
Intersegment eliminations (2)
(1.9) —
��—
Total$5,301.4
 $3,587.9
 $3,148.0
      
Net income$43.1
 $93.5
 $473.4
      
Adjusted EBITDAR:     
Northeast segment$720.8
 $583.8
 $549.3
South segment369.8
 118.9
 62.6
West segment198.8
 114.3
 72.7
Midwest segment403.6
 294.3
 249.7
Other (1)
(87.8) (68.1) (55.2)
Total (3)
1,605.2
 1,043.2
 879.1
Rent expense associated with triple net operating leases (4)
(366.4) (3.8) —
Adjusted EBITDA (5)
$1,238.8
 $1,039.4
 $879.1
      
Net income margin0.8% 2.6% 15.0%
Adjusted EBITDAR margin (6)
30.3% 29.1% 27.9%
Adjusted EBITDA margin (7)
23.4% 29.0% 27.9%
(1)The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, and iGaming; our management contract for Retama Park Racetrack; and our live and televised poker tournament series that operates under the trademark, Heartland Poker Tour (“HPT”). 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.
(2)Represents the elimination of intersegment revenues associated with Penn Interactive and HPT.
(3)
The total is a mathematical calculation derived from the sum of the reportable segments (as well as the Other category and intersegment eliminations). As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR is presented on a consolidated basis outside the financial statements solely as a valuation metric. Adjusted EBITDAR increased for the year ended December 31, 2019, as compared to the prior year, principally due to the acquisitions of Pinnacle, Margaritaville, and Greektown, which contributed a combined $695.0 million. Adjusted EBITDAR increased for the year ended December 31, 2018, as compared to the prior year, principally due to the acquisition of Pinnacle, which contributed $113.2 million.
(4)Solely comprised of rent expense associated with the operating lease components contained within the Master Leases (primarily land), the Margaritaville Lease, the Greektown Lease, and the Meadows Lease (referred to collectively as our “triple net operating

leases”). The finance lease components contained within the Master Leases (primarily buildings) result in interest expense, as opposed to rent expense.
(5)Adjusted EBITDA increased for the year ended December 31, 2019, as compared to the prior year, due to the acquisitions of Pinnacle, Margaritaville, and Greektown, which contributed a combined $534.9 million, offset by rent expense associated with the Penn Master Lease of $206.3 million. Adjusted EBITDA increased for the year ended December 31, 2018, as compared to the prior year, due to the acquisition of Pinnacle, which contributed $109.4 million. Upon adoption of Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“ASC 842”) on January 1, 2019, certain components (primarily land) of the Penn Master Lease were classified as operating leases (recorded to rent expense) rather than financing obligations (recorded to interest expense) in the prior years. As rent expense is a normal, recurring cash operating expense, it is included within the calculation of Adjusted EBITDA.
(6)
As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric.
(7)Adjusted EBITDA margin decreased for the year ended December 31, 2019, as compared to the prior year, due to the adoption of ASC 842 (see footnote (5) above). Adjusted EBITDA margin increased for the year ended December 31, 2018, as compared to the prior year, principally due to the acquisition of Pinnacle.

Consolidated comparison of the years ended December 31, 2019, 2018 and 2017
Revenues
The following table presents our consolidated revenues:
 For the year ended December 31, $ Change % Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Revenues (1)
             
Gaming$4,268.7
 $2,894.9
 $2,692.0
 $1,373.8
 $202.9
 47.5 % 7.5 %
Food, beverage, hotel and other1,032.7
 629.7
 601.7
 403.0
 28.0
 64.0 % 4.7 %
Management service and license fees—
 6.0
 11.7
 (6.0) (5.7) (100.0)% (48.7)%
Reimbursable management costs—
 57.3
 26.1
 (57.3) 31.2
 (100.0)% 119.5 %

5,301.4
 3,587.9
 3,331.5
 1,713.5
 256.4
 47.8 % 7.7 %
Less: Promotional allowances—
 —
 (183.5) —
 183.5
 — (100.0)%
Total revenues$5,301.4
 $3,587.9
 $3,148.0
 $1,713.5
 $439.9
 47.8 % 14.0 %
(1)The adoption of ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) as of January 1, 2018 using the modified retrospective transition approach impacted the year-over-year comparability of gaming revenues; food, beverage, hotel and other revenues; reimbursable management costs; and promotional allowances; but had minimal impact on total revenues. For the year ended December 31, 2017, the retail value of accommodations, food and beverage, hotel and other services furnished to our customers without charge was included in gross revenues, then deducted as promotional allowances in determining net revenues.
Gaming revenues and food, beverage, hotel and other revenues for the year ended December 31, 2019 benefited from the first full year of operations of Pinnacle, which was acquired on October 15, 2018, resulting in increases of $1,117.2 million and $317.0 million, respectively, and the acquisitions of Margaritaville on January 1, 2019, and Greektown on May 23, 2019, which contributed a combined $286.0 million and $67.5 million, respectively. In addition, gaming, food, beverage, hotel and other revenues benefited from strong year-over-year performances at all of our Ohio properties, resulting in an increase of $23.5 million. These increases were offset by a decrease in gaming, food, beverage, hotel and other revenues at Plainridge Park Casino of $19.7 million, which was negatively impacted by an increase in competition, and a decrease in gaming, food, beverage, hotel and other revenues at Resorts Casino Tunica, which we closed on June 30, 2019.
Gaming revenues and food, beverage, hotel and other revenues for the year ended December 31, 2018 benefited from the Pinnacle Acquisition, which contributed $303.6 million and $82.0 million, respectively. In addition, gaming, food, beverage, hotel and other revenues benefited from strong year-over-year performances at all of our Ohio properties, resulting in an increase of $18.5 million; and Prairie State Gaming, where gaming, food, beverage, hotel and other revenues increased by $15.1 million; and a full year of operations of 1st Jackpot Casino and Resorts Casino Tunica, which were acquired on May 1, 2017 and resulted in an increase of $22.3 million.
Management service and license fees and reimbursable management costs relate to our previous management contract with Casino Rama, which is located in Ontario, Canada. Reimbursable management costs also relates to our previous management contract with Hollywood Casino-Jamul San Diego, which is located on the Jamul Tribe’s trust land in San Diego, California. The decreases in management service and license fees for the years ended December 31, 2019 and December 31, 2018, as compared to the prior years, are due to the fact that our management contract with Casino Rama terminated in July

2018. The decrease in reimbursable management costs for the year ended December 31, 2019, as compared to the prior year, is due to the termination of our Casino Rama management contract as well as the fact that our management contract with Hollywood Casino-Jamul San Diego terminated in May 2018. The increase in reimbursable management costs for the year ended December 31, 2018, as compared to the prior year, is a result of the adoption of ASC 606 on January 1, 2018, which required us to record reimbursable management costs on a gross basis as opposed to a net basis.
In comparing the year ended December 31, 2018 to the prior year, adoption of ASC 606 had the effect of decreasing gaming revenues and food, beverage, hotel and other revenues by $206.1 million and $69.4 million, respectively, and increasing reimbursable management costs by $46.8 million, of which $236.8 million related to promotional allowances, resulting in a net impact on total revenues of an increase of $8.1 million. See “Segment comparison of the years ended December 31, 2019, 2018 and 2017” below for more detailed explanations of the fluctuations in total revenues.
Operating expenses
The following table presents our consolidated operating expenses:
 For the year ended December 31, $ Change % Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Operating expenses             
Gaming$2,281.8
 $1,551.4
 $1,365.0
 $730.4
 $186.4
 47.1 % 13.7%
Food, beverage, hotel and other672.7
 439.3
 421.8
 233.4
 17.5
 53.1 % 4.1%
General and administrative1,187.7
 618.9
 514.5
 568.8
 104.4
 91.9 % 20.3%
Reimbursable management costs—
 57.3
 26.1
 (57.3) 31.2
 (100.0)% 119.5%
Depreciation and amortization414.2
 269.0
 267.1
 145.2
 1.9
 54.0 % 0.7%
Impairment losses173.1
 34.9
 18.0
 138.2
 16.9
 396.0 % 93.9%
Provision for (recoveries on) loan loss and unfunded loan commitments—
 (17.0) 89.8
 17.0
 (106.8) (100.0)% N/M
Total operating expenses$4,729.5
 $2,953.8
 $2,702.3
 $1,775.7
 $251.5
 60.1 % 9.3%
N/M - Not meaningful
Gaming expenses consist primarily of salaries and wages associated with our gaming operations and gaming taxes. Food, beverage, hotel and other expenses consist principally of salaries and wages and costs of goods sold associated with our food, beverage, hotel, retail, racing, and other operations. Gaming, food, beverage, hotel and other expenses for the year ended December 31, 2019 increased year over year primarily as a result of the acquisitions of Pinnacle, Margaritaville, and Greektown, which increased gaming expenses by a combined $726.0 million and food, beverage, hotel and other expenses by a combined $242.8 million.
Gaming, food, beverage, hotel and other expenses for the year ended December 31, 2018 increased year over year primarily as a result of the Pinnacle Acquisition, which increased gaming expenses by $162.6 million and food, beverage, hotel and other expenses by $56.9 million. The adoption of ASC 606 had the effect of decreasing food, beverage, hotel and other expenses by $37.3 million.
General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include lobbying expenses, gains and losses on disposal of assets, changes in the fair value of our contingent purchase price obligations, expense associated with cash-settled stock-based awards (including changes in fair value thereto) and rent expense associated with our triple net operating leases.
General and administrative expenses for the year ended December 31, 2019 increased year-over-year primarily as a result of a $362.6 million increase in the rent expense associated with our triple net operating leases, a $229.8 million increase in general and administrative expenses associated with the acquired Pinnacle properties as well as the acquisitions of Margaritaville and Greektown, and a $20.4 million increase in the expense recognized on the Company’s cash-settled stock-based awards, which is primarily the result of an increase in the fair value of the awards year-over-year. These increases were offset by a decrease in pre-opening and acquisition costs of $72.7 million, which was principally driven by severance and professional service fees incurred in the prior year from the Pinnacle Acquisition.

General and administrative expenses for the year ended December 31, 2018 increased year-over-year primarily as a result of an increase in pre-opening and acquisition costs of $85.3 million, which principally related to the Pinnacle Acquisition, and $62.3 million of general and administrative expenses associated with the acquired Pinnacle properties. These increases were partially offset by a $28.6 million decrease in the expense recognized on the Company’s cash-settled stock-based awards, which was primarily the result of a decrease in the fair value of the awards year-over-year.
Reimbursable management costs relate to operating costs of Casino Rama and Hollywood Casino-Jamul San Diego. The decrease for the year ended December 31, 2019, as compared to the prior year, is due to the terminations of our Casino Rama and Hollywood Casino-Jamul San Diego management contracts in July 2018 and May 2018, respectively. The increase for the year ended December 31, 2018, as compared to the prior year, is the result of the adoption of ASC 606 on January 1, 2018, which required the Company to record reimbursable management costs on a gross basis as opposed to a net basis, resulting in the recognition of $46.8 million of reimbursable management costs for the year ended December 31, 2018.
Depreciation and amortization for the year ended December 31, 2019 increased year over year due primarily to an increase of $118.8 million pertaining to the acquired Pinnacle properties and the acquisitions of Margaritaville and Greektown, which contributed a combined $17.1 million to the year ended December 31, 2019, partially offset by a $3.6 million decrease in amortization expense at Penn Interactive. In addition, the year ended December 31, 2019 includes $7.9 million of amortization on finance lease right-of-use assets. Depreciation and amortization for the year ended December 31, 2018 increased year over year due to the Pinnacle Acquisition, which contributed $38.6 million, partially offset by decreases at the majority of our existing properties due to assets becoming fully depreciated and a decrease in amortization expense at Penn Interactive.
Impairment losses for the year ended December 31, 2019 primarily relate to impairments taken on our goodwill and other intangible assets of $88.0 million and $82.6 million, respectively, as a result of our annual impairment assessment. Impairment losses for the year ended December 31, 2018 primarily related to an impairment on the property and equipment of Resorts Casino Tunica of $34.3 million, principally relating to the real estate assets subject to the Penn Master Lease. Impairment losses for the year ended December 31, 2017 related to an impairment taken on our goodwill of $18.0 million relating to Tropicana Las Vegas and Sanford-Orlando Kennel Club.
Recoveries on loan loss and unfunded loan commitments for the year ended December 31, 2018 related to the sale of the Company’s outstanding rights and obligations under its previous term loan C facility, including future unfunded commitments, with Jamul Indian Village Development Corporation (“JIVDC”), resulting in a recovery of $17.0 million. Provision for loan loss and unfunded loan commitments for the year ended December 31, 2017 related to a provision recorded of $64.0 million pertaining to the previous term loan C facility, a reserve for unfunded loan commitments of $22.0 million, and a charge of $3.8 million related to certain advances made to the JIVDC.

Other income (expenses)
The following table presents our consolidated other income (expenses):
 For the year ended December 31, $ Change % Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Other income (expenses)             
Interest expense, net$(534.2) $(538.4) $(463.2) $4.2
 $(75.2) (0.8)% 16.2 %
Income from unconsolidated affiliates$28.4
 $22.3
 $18.7
 $6.1
 $3.6
 27.4 % 19.3 %
Loss on early extinguishment of debt$—
 $(21.0) $(24.0) $21.0
 $3.0
 (100.0)% (12.5)%
Income tax benefit (expense)$(43.0) $3.6
 $498.5
 $(46.6) $(494.9) N/M (99.3)%
Other$20.0
 $(7.1) $(2.3) $27.1
 $(4.8) N/M 208.7 %
N/M - Not meaningful
Interest expense, netdecreased for the year ended December 31, 2019, as compared to the prior year, due to the adoption of ASC 842, which resulted in certain components (primarily land) of the Penn Master Lease to be classified as operating leases (recorded to rent expense) rather than financing obligations (recorded to interest expense) in the prior year (resulting in a decrease in interest expense associated with the Penn Master Lease of $181.2 million). This decrease was largely offset by a $126.0 million increase in interest expense associated with the Pinnacle Master Lease and an increase of $50.8 million associated with our long-term debt, pertaining to the fact that the Company had more long-term debt outstanding during the year ended December 31, 2019 as such do notcompared to the prior year, which was primarily the result of financing our acquisitions.

Interest expense, net increased for the year ended December 31, 2018, as compared to the prior year, primarily due to the Pinnacle Master Lease, which contributed $63.0 million to the year ended December 31, 2018. Interest expense associated with the Penn Master Lease also increased as a result of the inclusion of 1st Jackpot Casino and Resorts Casino Tunica beginning May 2017 and the incurrence of rent escalators. Lastly, interest expense incurred on long-term debt increased by $7.1 million, pertaining to the fact that the Company had more long-term debt outstanding during the year ended December 31, 2018 as compared to the prior year, which was primarily the result of financing the Pinnacle Acquisition.
Income from unconsolidated affiliatesrelates principally to our joint venture in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway. The increase for the year ended December 31, 2019, as compared to the prior year, was principally attributable to Kansas Entertainment reaching a settlement pertaining to prior years’ property tax assessments, which will result in credits to be applied against future property tax assessments. The increase for the year ended December 31, 2018 as compared to the prior year was attributable to improved operating results of Hollywood Casino at Kansas Speedway.
Loss on early extinguishment of debtfor the year ended December 31, 2018 related to the write-offs of previously unamortized debt issuance costs in connection with principal prepayments on our Term Loan B Facility (as defined in “Liquidity and Capital Resources” below) which was repaid in full during the fourth quarter of 2018. Loss on early extinguishment of debt for the year ended December 31, 2017 related to the early redemption of our $300.0 million 5.875% senior subordinated notes, principally pertaining to a premium paid upon redemption. There were no principal prepayments of our long-term debt during the year ended December 31, 2019.
Income tax benefit (expense) increased by $46.6 million for the year ended December 31, 2019, as compared to the prior year, and decreased by $494.9 million for the year ended December 31, 2018, as compared to the prior year. Our effective tax rate was 49.9% for the year ended December 31, 2019, as compared to (4.0)% for the year ended December 31, 2018 and 1,990.6% for the year ended December 31, 2017. The Company’s effective tax rate for the year ended December 31, 2019 was higher than the federal statutory tax rate of 21% primarily driven by the effect of the non-deductible goodwill impairment charge, non-deductible officers’ compensation, and higher state taxable income from operations. Our effective tax rate for the year ended December 31, 2018 was lower than the federal statutory tax rate primarily due to the release of a partial valuation allowance on our capital loss carryforward that we recognized in the amount of $22.4 million from the Plainridge Park Casino Sale-Leaseback. The Company’s effective tax rate for the year ended December 31, 2017 was higher than the federal statutory tax rate due principally to the effects of the Tax Act (as defined and discussed below) and the release of our federal valuation allowance of $741.9 million (see Note 13, “Income Taxes,” in the notes to our Consolidated Financial Statements).
For the year ended December 31, 2017, we recorded a provisional amount for certain enactment-date effects of the Tax Cuts and Jobs Act (the “Tax Act”), resulting in a net charge of $266.0 million included as income tax expense within the Consolidated Statements of Income consisting of three components: (i) a $261.3 million charge due to the revaluation of the net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian subsidiary (which we will pay interest-free over eight years) and (iii) a $2.1 million foreign withholding tax charge due to the new favorable U.S. treatment of foreign dividends whereby we have any financing obligation.

changed our indefinite reinvestment assertion. During the year ended December 31, 2018, we finalized our assessment of the effects of the Tax Act, resulting in a $1.2 million increase to the provisional amount.

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

43

Other includes miscellaneous income and expense items. The amount for the year ended December 31, 2019 principally relates to an unrealized holding gain of $19.9 million on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio. The amount for the year ended December 31, 2018 principally related to costs associated with the debt refinancing in connection with the Pinnacle Acquisition and foreign currency translation losses related to our Casino Rama management contract, which was reclassified from accumulated other comprehensive loss upon termination of the contract. For the year ended December 31, 2017, in connection with the repayment of the 2013 Senior Secured Credit Facilities (as defined in “Liquidity and Capital Resources” below), we recorded $1.7 million in refinancing costs.


Segment comparison of the years ended December 31, 2019, 2018 and 2017
Northeast Segment

 For the year ended December 31, $ Change % / bps Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Revenues (1):
             
Gaming$2,117.1
 $1,644.2
 $1,583.9
 $472.9
 $60.3
 28.8 % 3.8 %
Food, beverage, hotel and other282.8
 194.6
 223.2
 88.2
 (28.6) 45.3 % (12.8)%
Management service and licensing fees—
 5.9
 11.6
 (5.9) (5.7) (100.0)% (49.1)%
Reimbursable management costs—
 46.8
 —
 (46.8) 46.8
 (100.0)% N/C
 2,399.9
 1,891.5
 1,818.7
 508.4
 72.8
 26.9 % 4.0 %
Less: Promotional allowances—
 —
 (62.1) —
 62.1
 — (100.0)%
Total revenues$2,399.9
 $1,891.5
 $1,756.6
 $508.4
 $134.9
 26.9 % 7.7 %
              
Adjusted EBITDAR$720.8
 $583.8
 $549.3
 $137.0
 $34.5
 23.5 % 6.3 %
Adjusted EBITDAR margin30.0% 30.9% 31.3%     (90) bps (40) bps
N/C - Not calculable
(1)See footnote (1) to the consolidated revenues table above.

Table of Contents

Financial Highlights:

We reported netThe Northeast segment’s total revenues and incomeAdjusted EBITDAR for the year ended December 31, 2019 benefited from the first full year of operations of $3,034.4Ameristar East Chicago and Meadows Racetrack and Casino (“Meadows”), which were acquired in the Pinnacle Acquisition, resulting in increases year-over-year of $362.6 million and $543.0$82.2 million, respectively, and the acquisition of Greektown in May 2019, which contributed $195.9 million and $56.8 million, respectively.

Northeast segment operating results for the year ended December 31, 2019 also benefited from strong year-over-year performances at all of our Ohio properties, which all individually grew Adjusted EBITDAR margin and, collectively, increased total revenues by $23.5 million and Adjusted EBITDAR by $14.1 million. Increased competition, primarily Encore Boston Harbor in Eastern Massachusetts, which opened in June 2019, and to a lesser extent, MGM Springfield in Western Massachusetts, which opened in August 2018 and Tiverton Casino in Tiverton, Rhode Island, which is near the border of Massachusetts and opened in September 2018, negatively impacted Plainridge Park Casino, where total revenues decreased by $19.7 million and Adjusted EBITDAR decreased by $9.1 million. Contraction in Northeast segment Adjusted EBITDAR margin was primarily due to the new competition impacting Plainridge Park Casino and the addition of Meadows, where gaming taxes are unfavorable as compared to the majority of other jurisdictions included in this segment.
The Northeast segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2018 benefited from the acquisitions of Ameristar East Chicago and Meadows in October 2018, which contributed a combined $99.1 million of revenues and $17.6 million of Adjusted EBITDAR. Northeast segment operating results also benefited from strong year-over-year performances at all of our Ohio properties, which all individually grew Adjusted EBITDAR margin and, collectively, increased total revenues by $18.5 million and Adjusted EBITDAR by $16.7 million. Management service and licensing fees decreased due to the fact that the Casino Rama management contract was terminated in July 2018. Contraction in Northeast segment Adjusted EBITDAR margin was primarily due to the addition of Meadows, where gaming taxes are unfavorable as compared to the majority of other jurisdictions included in this segment.
In comparing the year ended December 31, 2018 to the prior year, the adoption of ASC 606 had the effect of decreasing gaming revenues and food, beverage, hotel and other revenues by $54.8 million and $47.5 million, respectively, and increasing reimbursable management costs, which related to Casino Rama, by $46.8 million, of which $70.7 million related to promotional allowances, resulting in a net impact on Northeast segment total revenues of an increase of $15.2 million.

South Segment
 For the year ended December 31, $ Change % / bps Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Revenues (1):
             
Gaming$831.1
 $302.9
 $203.0
 $528.2
 $99.9
 174.4% 49.2 %
Food, beverage, hotel and other287.8
 91.5
 52.1
 196.3
 39.4
 214.5% 75.6 %
 1,118.9
 394.4
 255.1
 724.5
 139.3
 183.7% 54.6 %
Less: Promotional allowances—
 —
 (30.8) —
 30.8
 — (100.0)%
Total revenues$1,118.9
 $394.4
 $224.3
 $724.5
 $170.1
 183.7% 75.8 %
              
Adjusted EBITDAR$369.8
 $118.9
 $62.6
 $250.9
 $56.3
 211.0% 89.9 %
Adjusted EBITDAR margin33.1% 30.1% 27.9%     300 bps 220 bps
(1)See footnote (1) to the consolidated revenues table above.
The South segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2019 benefited from the first full year of operations of Ameristar Vicksburg, Boomtown Bossier City, Boomtown New Orleans, L’Auberge Baton Rouge and L’Auberge Lake Charles, which were acquired in the Pinnacle Acquisition, resulting in increases of $572.3 million and $195.3 million, respectively, and the acquisition of Margaritaville in January 2019, which contributed $157.6 million and $51.7 million, respectively. The closure of Resorts Casino Tunica negatively impacted South segment total revenues by $12.7 million. Cost synergies generated from the Pinnacle Acquisition as well as operational efficiencies resulted in expansion in South segment Adjusted EBITDAR margin.
The South segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2018 benefited from the acquisitions of Ameristar Vicksburg, Boomtown Bossier City, Boomtown New Orleans, L’Auberge Baton Rouge and L’Auberge Lake Charles in October 2018, which contributed a combined $151.6 million of revenues and $45.8 million of Adjusted EBITDAR. In addition, as a result of the timing of the acquisitions of 1st Jackpot Casino and Resorts Casino Tunica, which occurred in May 2017, total revenues and Adjusted EBITDAR had increases of $22.3 million and $9.0 million, respectively. Primarily as a result of operational efficiencies, South segment Adjusted EBITDAR margin expanded.
In comparing the year ended December 31, 2018 to the prior year, the adoption of ASC 606 had the effect of decreasing gaming revenues and food, beverage, hotel and other revenues by $53.4 million and $2.1 million, of which $55.3 million related to promotional allowances, resulting in a net impact on South segment total revenues of a decrease of $0.2 million.
West Segment
 For the year ended December 31, $ Change % / bps Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Revenues (1):
             
Gaming$374.3
 $228.0
 $219.7
 $146.3
 $8.3
 64.2 % 3.8 %
Food, beverage, hotel and other268.2
 199.4
 177.4
 68.8
 22.0
 34.5 % 12.4 %
Reimbursable management costs—
 10.5
 26.1
 (10.5) (15.6) (100.0)% (59.8)%
 642.5
 437.9
 423.2
 204.6
 14.7
 46.7 % 3.5 %
Less: Promotional allowances—
 —
 (42.8) —
 42.8
 — (100.0)%
Total revenues$642.5
 $437.9
 $380.4
 $204.6
 $57.5
 46.7 % 15.1 %
              
Adjusted EBITDAR$198.8
 $114.3
 $72.7
 $84.5
 $41.6
 73.9 % 57.2 %
Adjusted EBITDAR margin30.9% 26.1% 19.1%     480 bps 700 bps
(1)See footnote (1) to the consolidated revenues table above.
The West segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2019 benefited from the first full year of operations of Ameristar Black Hawk and the Jackpot Properties, which were acquired in the Pinnacle Acquisition, resulting in increases of $206.9 million and $84.2 million, respectively. The West segment operating results also benefited from strong year-over-year performance of Zia Park Casino, which experienced gaming volume growth while achieving operational

efficiencies. Adjusted EBITDAR margin of the West segment grew significantly, primarily as a result of the additions of Ameristar Black Hawk and the Jackpot Properties.
We expect that a large renovation and expansion at Monarch Casino, in Black Hawk, Colorado, which includes a 500-room hotel and a parking garage and is expected to be substantially complete in the first or second quarter of 2020, may initially have an adverse impact on the operating results of Ameristar Black Hawk due to the increased competition.
The West segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2018 benefited from the acquisitions of Ameristar Black Hawk and the Jackpot Properties in October 2018, which contributed a combined $53.8 million of revenues and $20.8 million of Adjusted EBITDAR. The West segment operating results also benefited from strong year-over-year performance of Tropicana Las Vegas, which experienced gaming volume growth while achieving operational efficiencies. Reimbursable management costs decreased due to the fact that the management contract with Hollywood Casino-Jamul San Diego terminated in May 2018. Adjusted EBITDAR margin of the West segment grew significantly, primarily as a result of the additions of Ameristar Black Hawk and the Jackpot Properties as well as the gaming volume growth at Tropicana Las Vegas.
In comparing the year ended December 31, 2018 to the prior year, the adoption of ASC 606 had the effect of decreasing gaming revenues and food, beverage, hotel and other revenues by $52.1 million and $8.3 million, respectively, of which $57.4 million related to promotional allowances, resulting in a net impact on West segment total revenues of a decrease of $3.0 million.
Midwest Segment
 For the year ended December 31, $ Change % / bps Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Revenues (1):
             
Gaming$938.1
 $719.8
 $685.4
 $218.3
 $34.4
 30.3% 5.0 %
Food, beverage, hotel and other156.4
 103.9
 96.8
 52.5
 7.1
 50.5% 7.3 %
 1,094.5
 823.7
 782.2
 270.8
 41.5
 32.9% 5.3 %
Less: Promotional allowances—
 —
 (47.2) —
 47.2
 — (100.0)%
Total revenues$1,094.5
 $823.7
 $735.0
 $270.8
 $88.7
 32.9% 12.1 %
              
Adjusted EBITDAR$403.6
 $294.3
 $249.7
 $109.3
 $44.6
 37.1% 17.9 %
Adjusted EBITDAR margin36.9% 35.7% 34.0%     120 bps 170 bps
(1)See footnote (1) to the consolidated revenues table above.
The Midwest segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2019 benefited from the first full year of operations of River City Casino and Ameristar Council Bluffs, which were acquired in the Pinnacle Acquisition, resulting in increases of $291.3 million and $111.3 million, respectively. Adverse winter weather during the first quarter of 2019 and severe flooding during the second quarter of 2019 negatively impacted visitation at several of our properties within the Midwest segment, resulting in year-over-year declines in total revenues and Adjusted EBITDAR at the majority of our existing properties for the year ended December 31, 2019. Despite challenges presented by the adverse weather and flooding, a focus on cost containment, operational efficiencies, and the additions of Ameristar Council Bluffs and River City Casino resulted in an increase in Adjusted EBITDAR margin.
The Midwest segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2018 benefited from the acquisitions of River City Casino and Ameristar Council Bluffs in October 2018, which contributed $81.1 million and $28.8 million, respectively. In addition, the Midwest segment operating results benefited from strong year-over-year performances of Argosy Casino Riverside and Prairie State Gaming, where gaming volumes increased and total revenues increased by $18.5 million collectively. Additionally, operational efficiencies at Hollywood Casino St. Louis helped contribute to the year-over-year increase in Midwest segment Adjusted EBITDAR. The expansion in Adjusted EBITDAR margin was largely driven by the performances of Argosy Casino Riverside, Prairie State Gaming and Hollywood Casino St. Louis.
In comparing the year ended December 31, 2018 to the prior year, the adoption of ASC 606 had the effect of decreasing gaming revenues and food, beverage, hotel and other revenues by $45.8 million and $5.7 million, respectively, of which $52.7 million related to promotional allowances, resulting in a net impact on Midwest segment total revenues of an increase of $1.2 million.

Other
Total revenues and Adjusted EBITDAR of the Other category were $47.5 million and $(87.8) million, respectively, for the year ended December 31, 2016, compared to net2019. Total revenues and income from operations of $2,838.4increased by $7.1 million and $467.8 million, respectively, for the corresponding period in the prior year. The major factors affecting our results for the year ended December 31, 2016,2019, principally as compared toa result of Penn Interactive, which began operating live sports betting at retail sportsbooks at our properties in Indiana, Iowa, and Pennsylvania, as well as an iCasino in Pennsylvania, during the third quarter of 2019. Adjusted EBITDAR decreased by $19.7 million for the year ended December 31, 2015, were:

2019, principally as a result of an increase in corporate overhead costs, largely attributable to payroll and other general and administrative costs associated with the Pinnacle Acquisition.
Total revenues and Adjusted EBITDAR of the Other category were $40.4 million and $(68.1) million, respectively, for the year ended December 31, 2018, representing year-over-year decreases of $11.3 million and $12.9 million, respectively, principally as a result of Penn Interactive operating results and an increase in corporate overhead costs, largely attributable to payroll and other general and administrative costs associated with the Pinnacle Acquisition.

Non-GAAP Financial Measures
Use and Definitions
In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR and Adjusted EBITDAR margin as non-GAAP financial measures. These non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. Each of these non-GAAP financial measures is not calculated in the 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; impairment losses; insurance recoveries and deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets, the difference between budget and actual expense for cash-settled stock-based awards; pre-opening and acquisition costs; and other income or expenses. Adjusted EBITDA is inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our joint venture in Kansas Entertainment. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases. 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 Adjusted 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 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, 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 year ended December 31,
(dollars in millions)2019 2018 2017
Net income$43.1
 $93.5
 $473.4
Income tax expense (benefit)43.0
 (3.6) (498.5)
Loss on early extinguishment of debt—
 21.0
 24.0
Income from unconsolidated affiliates(28.4) (22.3) (18.7)
Interest expense, net534.2
 538.4
 463.2
Other expense (income)(20.0) 7.1
 2.3
Operating income571.9
 634.1
 445.7
Stock-based compensation (1)
14.9
 12.0
 7.8
Cash-settled stock-based award variance (1)(2)
0.8
 (19.6) 23.4
Loss on disposal of assets (1)
5.5
 3.2
 0.2
Contingent purchase price (1)
7.0
 0.5
 (6.8)
Pre-opening and acquisition costs (1)
22.3
 95.0
 9.7
Depreciation and amortization414.2
 269.0
 267.1
Impairment losses173.1
 34.9
 18.0
Provision for (recoveries on) loan loss and unfunded loan commitments—
 (17.0) 89.8
Insurance recoveries, net of deductible charges (1)
(3.0) (0.1) (0.3)
Income from unconsolidated affiliates28.4
 22.3
 18.7
Non-operating items for Kansas JV (3)
3.7
 5.1
 5.8
Adjusted EBITDA1,238.8
 1,039.4
 879.1
Rent expense associated with triple net operating leases (1)
366.4
 3.8
 —
Adjusted EBITDAR$1,605.2
 $1,043.2
 $879.1
      
Net income margin0.8% 2.6% 15.0%
Adjusted EBITDA margin23.4% 29.0% 27.9%
Adjusted EBITDAR margin30.3% 29.1% 27.9%

·

(1)

These items are included in “General and administrative” within the Company’s Consolidated Statements of Income.

No impairment losses for

(2)Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company’s common stock. As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards. During the year ended December 31, 2016, compared2019, the price of the Company’s common stock increased, which resulted in an unfavorable variance to $40.0 million forbudget. During the year ended December 31, 2015.

2018, the price of the Company’s common stock decreased, which resulted in a favorable variance to budget.

·

(3)

Income from operations for the year ended December 31, 2015 included $17.4 millionConsists principally of favorable property tax settlements.

·

The opening of Plainridge Park Casino on June 24, 2015 in our Northeast segment, which generated net revenues of $170.8 million and $100.0 million for the years ended December 31, 2016 and 2015, respectively.

·

The acquisition of Tropicana Las Vegas on August 25, 2015 in our South/West segment, which generated net revenues of $117.4 million and $39.7 million for the years ended December 31, 2016 and 2015, respectively.

·

The acquisition of Prairie State Gaming on September 1, 2015 in our Midwest segment, which generated net revenues of $62.3 million and $17.7 million for the years ended December 31, 2016 and 2015, respectively.

·

The acquisition of Rocket Speed on August 1, 2016 in our Other segment, which generated net revenues of $17.3 million for the five months ended December 31, 2016.

·

The continued competition in our Northeast segment for Hollywood Casino Lawrenceburg, namely the March 2013 opening of Horseshoe Casino in Cincinnati, Ohio, as well as to a lesser extent the openings of a racino at Miami Valley Gaming in mid‑December 2013, a racino at Belterra Park in May 2014, and our own Dayton facility in late August 2014.

·

Increased competition in our Northeast segment from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore, which opened at the end of August 2014 and MGM National Harbor, which opened in December 2016.

·

Higher depreciation and amortization expenseassociated with the operations of $11.8 million for the year ended December 31, 2016, as compared to the corresponding period in the prior year.

·

We had net income of $109.3 million and $0.7 million for the years ended December 31, 2016 and 2015, respectively, primarily due to the variances discussed above, as well as increased interest income, partially offset by increased interest expense primarily due to higher borrowings on our Term Loan A and our revolver.

44

Table of Contents

Segment Developments:

The following are recent developments that have had or will have an impact on us by segments:

Northeast

·

Hollywood Casino at Charles Town Races faced increased competitionKansas Speedway.



LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity and capital resources have been and will continue to be cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities. Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, acquisitions or investments, funding of construction for development projects, and our compliance with covenants contained under our debt agreements.
 For the year ended December 31, $ Change % Change
(dollars in millions)2019 2018 2017 2019 vs. 2018 2018 vs. 2017 2019 vs. 2018 2018 vs. 2017
Net cash provided by operating activities$703.9
 $352.8
 $477.8
 $351.1
 $(125.0) 99.5 % (26.2)%
Net cash used in investing activities$(607.5) $(1,423.1) $(221.6) $815.6
 $(1,201.5) (57.3)% 542.2 %
Net cash provided by (used in) financing activities$(122.4) $1,272.1
 $(207.0) $(1,394.5) $1,479.1
 N/M N/M
N/M - Not meaningful
Operating Cash Flow
The increase in net cash provided by operating activities of $351.1 million for the year ended December 31, 2019, as compared to the prior year, is primarily due to an increase in cash receipts from customers, offset by increases in cash paid to suppliers and vendors and cash paid to employees, all driven primarily by the acquisitions of Pinnacle, Margaritaville, and Greektown. In addition, during the year ended December 31, 2019, we received an upfront payment of $12.5 million pursuant to a multi-year agreement with a sports betting operator for online sports betting and iGaming market access. Furthermore, net cash provided by operating activities was impacted by year-over-year increases in rent and interest payments made under our Triple Net Leases of $342.0 million, principally due to the Pinnacle Master Lease, and in interest payments made on long-term debt of $54.4 million, primarily due to the debt refinancing in October 2018, which increased our total long-term debt.
The decrease in net cash provided by operating activities of $125.0 million for the year ended December 31, 2018, as compared to the prior year, was primarily due to an increase in interest payments made under the Master Leases of $66.1 million, associated largely with the Pinnacle Master Lease; an increase in interest payments made on long-term debt of $11.5 million, primarily due to the debt refinancing in October 2018, which increased our total long-term debt; and an increase in income tax paid of $67.5 million. Offsetting these items was a net increase in cash provided by operating activities due to the Pinnacle Acquisition.
Investing Cash Flow
Net cash used in investing activities for the year ended December 31, 2019 primarily consisted of the acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash acquired, and $190.6 million in capital expenditures, which principally consisted of maintenance capital expenditures (see below). As a part of the acquisitions of Margaritaville and Greektown, the Company entered into sale-leaseback transactions with VICI in the amounts of $261.1 million and $700.0 million, respectively, which had no net impact on net cash used in investing activities for the year ended December 31, 2019. In addition, during the year ended December 31, 2019, we paid $10.0 million for online and retail sports betting licenses in Pennsylvania. Capital expenditures increased year-over-year principally due to the Pinnacle Acquisition, which added twelve gaming properties.
Net cash used in investing activities for the year ended December 31, 2018 primarily included the Pinnacle Acquisition of $1,945.2 million, net of cash acquired, offset partially by the cash received for the sale of the Divested Properties of $661.7 million. In addition, during the year ended December 31, 2018, we spent $92.6 million on capital expenditures, which principally consisted of maintenance capital expenditures, purchased two separate Category 4 gaming licenses in York County, Pennsylvania for $50.1 million and Berks County, Pennsylvania for $7.5 million, and purchased iCasino and sports betting licenses in Pennsylvania for $20.0 million.
Net cash used in investing activities for the year ended December 31, 2017 primarily consisted of acquisitions of 1st Jackpot Casino and Resorts Casino Tunica in the amount of $127.7 million and capital expenditures of $99.3 million, which principally consisted of maintenance capital expenditures.

Capital Expenditures
Capital expenditures are accounted for as either project capital (new or expansions) or maintenance (replacement) capital expenditures. Cash provided by operating activities as well as cash available under our Revolving Credit Facility funded our capital expenditures for the years ended December 31, 2019, 2018 and 2017.
The following table summarizes our project capital expenditures for the years ended December 31, 2019, 2018 and 2017, by segment:
 For the year ended December 31,
(in millions)2019 2018 2017
Northeast$25.1
 $0.1
 $0.3
West—
 2.5
 24.8
Other—
 0.3
 —
Total$25.1
 $2.9
 $25.1
During the year ended December 31, 2019, we spent $4.1 million and $21.0 million on our Hollywood Casino York and Hollywood Casino Morgantown development projects, respectively. Hollywood Casino York, which is located in the York Galleria Mall in Springettsbury Township, will represent an overall capital investment of approximately $120 million inclusive of the gaming license. Hollywood Casino Morgantown is being built on a previously vacant 36-acre site in Caernarvon Township with a capital investment of approximately $111 million inclusive of the gaming license. We anticipate that both of these projects will be complete by the end of 2020.
During the year ended December 31, 2017, we made enhancements to Tropicana Las Vegas, including adding a celebrity chef restaurant, the Robert Irvine Public House, which opened on July 27, 2017.
The following table summarizes our expected capital expenditures for the year ending December 31, 2020 by segment:
(in millions)Project Maintenance
Northeast$125.8
 $64.3
South—
 28.3
West—
 16.1
Midwest—
 32.6
Other—
 57.2
Total$125.8
 $198.5
Financing Cash Flow
Net cash used by financing activities for the year ended December 31, 2019 consisted principally of net repayments of long-term debt of $18.6 million despite the borrowing associated with the acquisition of Greektown, $51.6 million of principal payments on our financing obligations, $6.2 million of principal payments on our finance leases, and $24.9 million in payments related to the repurchase of common stock.
Net cash provided by financing activities for the year ended December 31, 2018 was largely driven by $1,149.8 million of net borrowings of long-term debt and $250.0 million in cash received from the Plainridge Park Casino Sale-Leaseback, offset by $67.4 million of principal payments on our financing obligations and $50.0 million in payments related to the repurchase of common stock. The net borrowings of long-term debt is primarily due to the refinancing of our debt in conjunction with the Pinnacle Acquisition and the acquisition of Margaritaville on January 1, 2019.
Net cash used in financing activities for the year ended December 31, 2017 was largely driven by $162.1 million of net repayments of long-term debt, $57.8 million of principal payments on our financing obligations, $24.8 million in payments related to the repurchase of our common stock, $19.6 million of contingent purchase price payments, and the repayment of a loan used to acquire a previously-leased corporate airplane in the amount of $20.8 million, offset by $82.6 million in cash received from the sale of the real estate assets of 1st Jackpot Casino and Resorts Casino Tunica to GLPI.

Senior Secured Credit Facilities
As of December 31, 2019, our Senior Secured Credit Facilities (as defined below) had a gross outstanding balance of $1,929.8 million, consisting of a $672.3 million Term Loan A Facility, a $1,117.5 million Term Loan B-1 Facility (as such terms are defined below), and a Revolving Credit Facility, which had $140.0 million drawn as of December 31, 2019. Additionally, as of December 31, 2019 and 2018, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $30.0 million in both periods, resulting in $530.0 million and $558.0 million of available borrowing capacity under the Revolving Credit Facility, respectively.
On October 30, 2013, the Company entered into a credit agreement (the “2013 Credit Agreement”) providing for: (i) a five-year $500.0 million revolving credit facility (the “2013 Revolving Credit Facility”), (ii) a five-year $500.0 million term loan A facility (the “2013 Term Loan A Facility”) and (iii) a seven-year $250.0 million term loan B facility (the “2013 Term Loan B Facility” and collectively with the 2013 Revolving Credit Facility and the 2013 Term Loan A Facility, the “2013 Senior Secured Credit Facilities”).
On April 28, 2015, the Company entered into an agreement to amend its 2013 Credit Agreement (the “Amended 2013 Credit Agreement”). In August 2015, the Amended 2013 Credit Agreement went into effect, which increased the capacity under the 2013 Revolving Credit Facility to $633.2 million and increased the 2013 Term Loan A Facility to $646.7 million. The Amended 2013 Credit Agreement did not impact the 2013 Term Loan B Facility.
On January 19, 2017, the Company entered into an agreement to amend and restate its Amended 2013 Credit Agreement (the “2017 Credit Agreement”), which provided for: (i) a five-year $700.0 million revolving credit facility (the “Revolving Credit Facility”), a five-year $300.0 million term loan A facility (the “Term Loan A Facility”), and a seven-year $500.0 million Term Loan B facility (the “Term Loan B Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”).
On October 15, 2018, in connection with the Pinnacle Acquisition, we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the 2017 Credit Agreement (the “Amended 2017 Credit Agreement”). The Incremental Joinder provided for an additional $430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $1,128.8 million of loans as a new tranche having new terms (the “Term Loan B-1 Facility”). The proceeds resulting from the Incremental Joinder were used; together with cash on hand and proceeds received from (i) newly-issued shares of the Company’s common stock, (ii) the sale of the Divested Properties, (iii) the Plainridge Park Casino Sale-Leaseback, and (iv) the sale of the real estate assets associated with Belterra Park; to (a) acquire all of the issued and outstanding equity interests of Pinnacle, (b) repay in full Pinnacle’s existing senior secured credit facilities at the time of the acquisition, (c) redeem, repurchase, defease or satisfy and discharge in full Pinnacle’s outstanding 5.625% senior notes due 2024, (d) repay in full the Company’s outstanding borrowings under its Term Loan B Facility at the time of the acquisition, and (e) pay fees, costs and expenses associated with the foregoing. With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility.
The final maturity dates for the Term Loan A Facility and Term Loan B-1 Facility are October 19, 2023 and October 15, 2025, respectively. The applicable margin for the Term Loan A Facility ranges from 1.25% to 3.00% per annum for LIBOR loans and 0.25% to 2.00% per annum for base rate loans, in each case depending on the Consolidated Total Net Leverage Ratio (as defined in the Amended 2017 Credit Agreement) as of the most recent fiscal quarter. The applicable margin for the Term Loan B-1 Facility is 2.25% per annum for LIBOR loans and 1.25% per annum for base rate loans. The Term Loan B-1 Facility is subject to a LIBOR “floor” of 0.75%. Prior to extinguishment, the applicable margin for the Term Loan B Facility was 2.50% per annum for LIBOR loans and 1.50% per annum for base rate loans. In addition, we pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate that ranges from 0.20% to 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.
The payment and performance of obligations under the Senior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property, such as gaming licenses) of the Company. 
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.
The Company used a portion of the proceeds from the issuance of the 5.625% Notes to retire all of its $300.0 million aggregate principal amount of 5.875% senior subordinated notes due 2021 and, along with loans funded under the 2017 Credit Agreement, repay amounts outstanding under its Amended 2013 Credit Agreement, including to fund related transaction fees and expenses. The remaining proceeds from the issuance of the 5.625% Notes were used for general corporate purposes.
Triple Net Leases
The majority of the real estate assets used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease. Subsequent to the adoption of ASC 842, the Company’s Master Leases are accounted for as either operating leases, finance leases, or determined to continue to be financing obligations. Prior to the adoption of ASC 842, all components contained within the Master Leases were accounted for as financing obligations. In addition, three of the gaming facilities used in our operations are subject to individual triple net leases. As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Margaritaville Lease, the Greektown Lease and the Meadows Lease, collectively, as our Triple Net Leases.
Under our Triple Net Leases, in addition to lease payments for the real estate assets, we are required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option.
The payment structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Penn Master Lease) of 1.8:1, and a component that is based on the performance of the properties, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all properties under the Penn Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo in excess of a contractual baseline and subject to a rent floor specific to Hollywood Casino Toledo. As a result of the annual escalator, the fixed component of rent increased by $5.5 million, $5.4 million and $2.4 million effective as of November 1, 2019, 2018 and 2017, respectively. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023.
Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), originally effective April 28, 2016. Concurrent with the closing of the Pinnacle Acquisition on October 15, 2018, the Company entered into an amendment to the Pinnacle Master Lease to, among other things, (i) remove Ameristar St. Charles, Ameristar Kansas City and Belterra Resort and (ii) add Plainridge Park Casino, whose real estate assets were sold to GLPI and concurrently leased back to the Company for a fixed annual rent of $25.0 million. Further, the rent payment under the Pinnacle Master Lease was increased by a fixed annual amount of $13.9 million to adjust the rent to reflect current market conditions. Reflecting this amendment, the Company leases real estate assets associated with twelve of the gaming facilities used in the Company’s operations from GLPI.
Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. The payment structure under the Pinnacle Master Lease includes a fixed component, which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Pinnacle Master Lease) of 1.8:1, and a component that is based on the performance of the properties, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of all properties under the Pinnacle Master Lease compared to a contractual baseline during the preceding two years (“Pinnacle

Percentage Rent”). As a result of the annual escalator, effective as of May 1, 2019, the fixed component of rent increased by $1.0 million. The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2020.
Meadows Lease, Margaritaville Lease, and Greektown Lease
In connection with the Pinnacle Acquisition, we assumed a triple net lease of the real estate assets used in the operations of Meadows (the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4% of the average annual net revenues of the property during the trailing two-year period. As a result of the annual escalator, effective as of October 1, 2019, the Meadows Base Rent increased by $0.8 million. The next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020.
In connection with the acquisition of Margaritaville, we entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville. The Margaritaville Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Margaritaville Lease includes a fixed component (“Margaritaville Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the facility compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”). The first Margaritaville Percentage Rent reset is scheduled to occur on February 1, 2021. On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator. Under the amendment, the Margaritaville Base Rent is subject to an annual escalator of up to 2% subject to a minimum ratio of net revenue to rent of 6.1:1.
In connection with the acquisition of Greektown, we entered into the Greektown Lease with VICI for the real estate assets used in the operations of Greektown. The Greektown Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Greektown Lease includes a fixed component (“Greektown Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the facility compared to a contractual baseline during the preceding two years (“Greektown Percentage Rent”). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021.
Payments to our REIT Landlords under Triple Net Leases
Total payments made to our REIT Landlords, GLPI and VICI, were as follows:
 For the year ended December 31,
(in millions)2019 2018 2017
Penn Master Lease$457.9
 $461.5
 $455.4
Pinnacle Master Lease328.6
 70.3
 —
Meadows Lease26.4
 5.6
 —
Margaritaville Lease23.1
 —
 —
Greektown Lease33.8
 —
 —
Total$869.8
 $537.4
 $455.4
Other Long-Term Obligations
Ohio Relocation Fees
As of December 31, 2019 and 2018, other long-term obligations included $76.4 million and $91.3 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course, which opened in August 2014 and September 2014, respectively. In June 2013, we finalized the terms of our

memorandum of understanding with the State of Ohio, which included an agreement for us to pay a relocation fee in return for being able to relocate our existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening Dayton and Mahoning Valley, each relocation fee was recorded at the present value of the contractual obligation, which was calculated as $75.0 million based on the 5.0% discount rate included in the agreement. Each relocation fee is payable as follows: $7.5 million upon opening and eighteen semi-annual payments of $4.8 million beginning one year after opening.
Event Center
As of December 31, 2019 and 2018, other long-term obligations included $12.6 million and $13.2 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.
Share Repurchase Programs
On February 3, 2017, the Company announced a share repurchase program pursuant to which the Board of Directors authorized to repurchase up to $100.0 million of the Company’s common stock, which expired on February 1, 2019. During the years ended December 31, 2018 and 2017, the Company repurchased 2,299,498 and 1,264,149 shares, respectively, of its common stock in open market transactions for $50.0 million at an average price of $21.74 per share and $24.8 million at an average price of $19.59 per share, respectively.
On January 9, 2019, the Company announced a new share repurchase program pursuant to which the Board of Directors authorized to repurchase up to $200.0 million of the Company’s common stock. The new share repurchase program covers an authorization period of two years, expiring on December 31, 2020. During the year ended December 31, 2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $24.9 million at an average price of $19.55 per share.
Covenants
Our Senior Secured Credit Facilities and 5.625% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including the Maximum Consolidated Total Net Leverage Ratio, Maximum Consolidated Senior Secured Net Leverage Ratio and Minimum Interest Coverage Ratio (as such terms are defined in our Amended 2017 Credit Agreement) as well as the Fixed Charge Coverage Ratio (as defined in the indenture governing our 5.625% Notes). In addition, our Senior Secured Credit Facilities and 5.625% Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. As of December 31, 2019, the Company was in compliance with all required financial covenants.  
Outlook
Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Senior Secured Credit 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, we cannot be certain that our business will generate sufficient cash flow from operations; that the U.S. economy will continue to grow in 2020; that our anticipated earnings projections will be realized; that we will achieve the expected synergies from our acquisitions, principally Pinnacle; or that future borrowings will be available under our Senior Secured Credit Facilities or otherwise will be available in the credit markets to enable us to service our indebtedness or to make anticipated capital expenditures. In addition, we expect a majority of our future growth to come from acquisitions of gaming properties; further investment in retail sportsbooks, online sports betting, and iGaming; greenfield projects; jurisdictional expansions; and property expansion in under-penetrated markets. If we consummate significant acquisitions in the future, undertake any significant property expansions, or make additional investments in Barstool Sports, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See “Risk Factors—Risks Related to Our Capital Structure” within “Item 1A. Risk Factors,” of this Annual Report on Form 10-K for a discussion of the risks related to our capital structure. 

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

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Cash Obligations
As of December 31, 2019, there was $530.0 million available for borrowing under our Revolving Credit Facilities. The following table presents our contractual cash obligations as of December 31, 2019:
   Payments Due By Period
(in millions)Total 2020 2021-2022 2023-2024 2025 and After
Senior Secured Credit Facilities         
Principal$1,929.8
 $46.7
 $146.5
 $675.6
 $1,061.0
Interest (1)
347.1
 71.7
 137.7
 103.9
 33.8
5.625% Notes         
Principal400.0
 —
 —
 —
 400.0
Interest168.8
 22.5
 45.0
 45.0
 56.3
Purchase obligations126.4
 70.4
 29.1
 11.6
 15.3
Capital expenditure commitments (2)
54.1
 54.1
 —
 —
 —
Operating leases (3)
10,160.1
 424.0
 804.3
 778.5
 8,153.3
Finance leases (3)
496.0
 21.7
 43.3
 37.5
 393.5
Financing obligations (3)
11,114.5
 374.7
 734.6
 734.6
 9,270.6
Ohio relocation fees (4)
122.5
 31.2
 62.4
 28.9
 —
Other liabilities reflected within our Consolidated Balance Sheets (5)
26.4
 1.9
 3.1
 2.6
 18.8
Total$24,945.7
 $1,118.9
 $2,006.0
 $2,418.2
 $19,402.6
(1)The interest rates are estimated using the forward LIBOR curves plus the applicable spread as of December 31, 2019. The contractual amounts to be paid on our variable rate obligations are affected by changes in market interest rates and changes in our spreads, which are based on our leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid.
(2)We anticipate spending $324.3 million for future capital expenditures over the next year, of which we are contractually committed to spend $54.1 million as of December 31, 2019. Pursuant to each of our Triple Net Leases, we are obligated to spend a minimum of 1% of annual net revenues, in the aggregate under each lease, on the maintenance of such facilities.
(3)
See Note 11, “Leases,” in the notes to our Consolidated Financial Statements.
(4)
In addition to the Ohio Relocation Fees discussed in Note 10, “Long-term Debt,” in the notes to our Consolidated Financial Statements, the Company agreed to pay $110.0 million (of which $36.0 million remains to be paid) to the State of Ohio over ten years in return for certain clarifications from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore, which opened atState of Ohio with respect to various financial matters and limits on competition within the endten-year time period.
(5)Excludes the liability for unrecognized tax benefits of August 2014 and MGM National Harbor, which opened in December 2016.

·

On February 28, 2014,$37.2 million, as we cannot reasonably estimate the Massachusetts Gaming Commission awardedperiod of cash settlement with the Company a Category Two slots‑only gaming license for its planned Plainridge Park Casino in Plainville, Massachusetts. On June 24, 2015, the Company opened the facility, which features live harness racing and simulcasting, along with 1,250 gaming devices, various dining and entertainment options, structured and surface parking, and a two story clubhouse with approximately 55,000 square feet.

·

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

South/West

·

On October 10, 2016, we opened and began to manage Hollywood Casino Jamul – San Diego on the Jamul Tribe’s trust land in San Diego County, California. The facility is a staterespective taxing authorities. Additionally, it does not include an estimate of the art development project which includespayments associated with our contingent purchase price obligations of $17.5 million as it is not a three-story gaming and entertainment facilityfixed obligation.

Other Commercial Commitments
The following table presents our material commercial commitments as of December 31, 2019:
   Payments Due By Period
(in millions)Total 2020 2021-2022 2023-2024 2025 and After
Letters of credit (1)
$30.0
 $30.0
 $—
 $—
 $—
Total$30.0
 $30.0
 $—
 $—
 $—
(1)The available balance under our Revolving Credit Facilities is reduced by outstanding letters of approximately 200,000 square feet featuring 1,731 slot machines, 40 live table games, multiple restaurants, bars and lounges and a partially enclosed parking structure with over 1,800 spaces. We currently provide a portion of the financing to the Jamul Tribe in connection with the project and, following the opening, we manage and provide branding for the casino in exchange for a management fee equal to 30% of the casino’s pretax income, a licensing fee of 2% of gross revenues for the Hollywood Casino brand, as well as interest on loans provided by the Company in connection with the project.

credit.

·

In August 2015 we completed the acquisition of Tropicana Las Vegas Hotel and Casino for $360 million. The Tropicana Las Vegas Hotel and Casino is situated on 35 acres of land located on the Las Vegas Strip with 1,470 remodeled guest rooms and suites, a 50,000 square foot casino gaming floor featuring 617 slot and video poker machines and 35 table games including blackjack, mini‑baccarat, craps and roulette, three full‑service restaurants, a 1,200 seat performance theater, a 300 seat comedy club, a nightclub, beach club and 2,095 parking spaces. During the second quarter of 2016, we refreshed the gaming floor with new slot machines and launched our Marquee Rewards player loyalty program at the Tropicana Las Vegas. Additionally, we continue to evaluate additional improvements at the property which may include additional food, beverage, retail and entertainment and other non-gaming amenities and enhancements, including the chef Robert Irvine restaurant announced last year which will open in the summer of 2017.

Midwest

·

On July 30, 2014, Argosy Casino Sioux City ceased its operations.


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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

TableFor information on new accounting pronouncements and the impact of Contentsthese pronouncements on our Consolidated Financial Statements, see Note 3, “New Accounting Pronouncements,”

in the notes to our Consolidated Financial Statements.


·

On September 1, 2015, we acquired a leading Illinois video gaming terminal (“VGT”) operator, Prairie State Gaming (“PSG”). As one of the largest and most respected VGT route operators in Illinois, PSG’s operations include more than 1,424 terminals across a network of 317 bars and retail gaming establishments throughout Illinois. In addition, during the fourth quarter of 2016, we acquired two small video gaming terminal route operators in Illinois.

CRITICAL ACCOUNTING ESTIMATES

·

Hollywood Casino Lawrenceburg continuesThe preparation of the Consolidated Financial Statements in accordance with GAAP requires us to face significant competition since the opening of a casino in Cincinnati, Ohio in March 2013, as well as the more recent openings of a racino at Belterra Park in May 2014 and our own Dayton, Ohio facility in late August 2014.

Critical Accounting Estimates

We make certain judgments and use certain estimates and assumptions when applying accounting principles in the preparationjudgments that are subject to an inherent degree of our consolidated financial statements.uncertainty. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. We have identified the accounting for long‑lived assets, goodwillThe development and other intangible assets, income taxes and contingent purchase price obligations asselection of critical accounting estimates, as they areand the most important torelated disclosures, have been reviewed with the Audit Committee of our financial statement presentation and require difficult, subjective and complex judgments.

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

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

Long‑lived assets

At December 31, 2016, we had a net property and equipment balance of $2,820.4 million within our consolidated balance sheet, representing 56.7% of total assets. We depreciate property and equipment on a straight‑line basis over their estimated useful lives. The estimated useful lives are determined based on the nature of the assets as well as our current operating strategy. We review the carrying value of our property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by us in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. For purposes of recognizing and measuring impairment in accordance with ASC 360, “Property, Plant, and Equipment,” assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying value of property and equipment, we must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non‑cash component of operating income.

flows.

Goodwill and other intangible assets

At

As of December 31, 2016,2019, the Company had $989.7$1,270.7 million in goodwill and $435.5$2,026.5 million in other intangible assets within its consolidated balance sheet,Consolidated Balance Sheet, representing 19.9%9.0% and 8.8%14.3% of total assets, respectively, resulting fromrespectively. The Company’s goodwill and other intangible assets are primarily the Company’s acquisitionresult of otheracquisitions of businesses and paymentpayments for gaming licenses. Two issues arise with respect to these

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These intangible assets that require significant management estimates and judgment:judgment pertaining to: (i) the valuation in connection with the initial purchase price allocation;allocations and (ii) the ongoing evaluation for impairment.

In connection with ourthe Company’s acquisitions, valuations are completed to determine the allocation of the purchase prices.price. The factors considered in the valuations include data gathered as a result of ourthe Company’s due diligence in connection with the acquisitions, projections for future operations, and data obtained from third‑ partythird-party valuation specialists, as deemed appropriate. Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if indicators of impairment exist, in two steps. In step 1 ofexist.
For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated usingan income approach, in which a discounted cash flow (“DCF”) model which is then comparedutilized, and a market-based approach using guideline public company multiples of earnings before interest, taxes, depreciation, and amortization from the Company’s peer group are utilized in order to estimate the fair market value of the Company’s reporting units. In determining the carrying value of each reporting unit including the allocation of the carrying value of certain consolidated obligations that benefit individual reporting units. The Company adjusts the carrying valueamount of each reporting unit that utilizes property that isreal estate assets subject to the Master Lease by an allocation of a pro‑rataTriple Net Leases, if and as applicable, (i) the Company allocates each reporting unit their pro-rata portion of the GLPIright-of-use (“ROU”) assets, lease liabilities, and/or financing obligationobligations, and (ii) pushes down the carrying amount of the property and equipment subject to such leases. In general, as it pertains to the Master Leases, such amounts are allocated based on the reporting unit’s estimated fair valueprojected Adjusted EBITDA as a percentage of the aggregate estimated fair valueAdjusted EBITDA of all reporting units that utilize property that is subject to either of the Master Lease.Leases, as applicable. The Company compares the fair value of its reporting units to the carrying amounts. If the carrying amount of athe reporting unit exceeds itsthe fair value, in step 1 of the impairment test, then step 2 of the impairment test is performed to determine the implied fair value of goodwill for that reporting unit. If the implied fair value of goodwill is less than the goodwill allocated for that reporting unit, an impairment is recognized. In the event a reporting unit has a negative carrying amount, the Company first performs a qualitative evaluationrecorded equal to determine if it is more likely than not that a goodwill impairment exists, and if so, it performs a step 2 of the impairment test to measure the amount of the impairment charge, if any.

In accordance with ASC 350, “Intangibles‑Goodwill and Other,”excess (not to exceed the Company considers itsamount of goodwill allocated to the reporting unit).

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

The Company assessedeach year.

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

assumptions:

·

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

·

TheoreticalEstimated construction costs and duration;

·

Pre‑opening expenses;Pre-opening costs; and

·

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

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

Projected revenues;
Selection of an appropriate royalty rate to apply to projected revenues; and
Discounting that reflects the level of risk associated with the after-tax revenue stream associated with the trademark.
The evaluation of goodwill and indefinite‑lifeindefinite-lived intangible assets requires the use of estimates about future operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite‑livedindefinite-lived intangible assets. WeThe Company must make various assumptions and estimates in performing ourits impairment testing. The implied

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fair value includes estimates of future cash flows (including an allocation of the Company’s projected financing obligation payments to its reporting units)under any applicable Triple Net Lease) that are based on consistently applied, reasonable and supportable assumptions which represent ourthe Company’s best estimates of the cash flows expected to result from the use of the assets including their eventual disposition. Changes in estimates, increases in ourthe Company’s cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from ourthe Company’s estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory and economic climates, recent operating information and budgets of the various properties where we conductit conducts operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting our properties.

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

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

Consistent with prior years, the Company’s annual goodwill and other indefinite‑life intangible assets impairment test is performed on October 1st of each year.

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

For the year ended December 31, 2014, the Company recorded goodwill and other intangible assets impairment charges of $155.3 million, as of the valuation date of October 1, 2014, as it determined that a portion of the value of its goodwill and other intangible assets was impaired due to the Company’s outlook of continued challenging regional gaming conditions at certain properties which persisted in 2014 in its Midwest segment, as well as for the write‑off of a trademark intangible asset in the South/West segment. The impairment charges by segment were as follows: Midwest, $153.9 million and South/West, $1.4 million.

Consistent with prior years, we believe at this time all of our reporting units with goodwill and other intangible assets are at risk to have impairment charges in future periods regardless of the margin by which the current fair value of our reporting units exceed their carrying value and that such margin cannot and should not be relied upon to predict which properties are most at risk for future impairment charges. This is because the revenue and earning streams in our industry can vary significantly based on various circumstances, which in many cases are outside of the Company’s control, and as such are extremely difficult to predict and quantify. We have disclosed several of these circumstances in the “Risk Factors” section of this Annual Report on Form 10‑K. For instance, changes in legislation that approves gaming in nearby jurisdictions, further expansion of gaming in jurisdictions where we currently operate, new state

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legislation that requires the implementation of smoking bans at our casinos or any other events outside of our control that make the customer experience less desirable.

Once an impairment of goodwill or other indefinite‑life intangible assets has been recorded, it cannot be reversed. Because our goodwill and indefinite‑life intangible assets are not amortized, there may be volatility in reported income because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite‑ life are amortized on a straight‑line basis over their estimated useful lives or related service contract. We review the carrying value of our intangible assets that have a definite‑life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of the intangible assets that have a definite‑life exceed their fair value, an impairment loss is recognized.

The Company’s remaining goodwill and other intangible assets by reporting unit at December 31, 2016 is shown below (in thousands):

 

 

 

 

 

 

 

 

 

    

 

 

    

Other Intangible

 

Reporting Unit

 

Goodwill

 

Assets

 

Hollywood Casino St. Louis

 

$

205,783

 

$

58,418

 

Hollywood Casino Aurora

 

 

207,207

 

 

-  

 

Argosy Casino Riverside

 

 

154,332

 

 

4,964

 

Zia Park Casino

 

 

142,359

 

 

 —

 

Hollywood Gaming at Dayton Raceway

 

 

15,339

 

 

110,436

 

Hollywood Gaming at Mahoning Valley Race Course

 

 

 —

 

 

125,000

 

Penn Interactive Ventures

 

 

67,164

 

 

29,555

 

Hollywood Casino at Penn National Race Course

 

 

1,497

 

 

67,607

 

Prairie State Gaming

 

 

33,515

 

 

29,822

 

Hollywood Casino Lawrenceburg

 

 

63,189

 

 

 —

 

Hollywood Casino Tunica

 

 

44,042

 

 

 —

 

Boomtown Biloxi

 

 

22,365

 

 

 —

 

Argosy Casino Alton

 

 

9,863

 

 

8,284

 

Tropicana Las Vegas

 

 

14,821

 

 

 —

 

Others

 

 

8,209

 

 

1,408

 

Total

 

$

989,685

 

$

435,494

 

Income taxes

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

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

In connection with the failed spin‑off‑leaseback, the Company recorded real property assets and a financing obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013, which resulted in a substantial increase

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to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny should be given to deferred tax assets of an entity with cumulative pre‑tax losses during the most recent three years and is widely considered significant negative evidence that is objective and verifiable and therefore, difficult to overcome. As a result, the Company recorded a full valuation allowance against its net deferred tax assets, excluding the reversal of deferred tax liabilities related to indefinite‑lived assets.  As of December 31, 2016, we continued to maintain a full valuation allowance as our three year cumulative income position was only $23.9 million.  We believe that sustained evidence of profitability is required to reverse our significant valuation allowance given the lengthy time period required to realize our asset.  As such, we intend to continue to maintain a full valuation allowance on our net deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.

Contingent Purchase Price

At December 31, 2016, the Company had contingent purchase price obligations of $14.5 million and $33.8 million in other current liabilities and other noncurrent liabilities, respectively, within its consolidated balance sheet related to its acquisition of Rocket Speed and Plainridge Racecourse.  The Company utilizes significant estimates to calculate the fair value of its contingent purchase price obligations. These estimates use subjective assumptions such as, but not limited to, projections of future earnings, discount rate and volatility rate.  See Note 5 for additional information related to our acquisitions of Rocket Speed and Plainridge Racecourse.

The table below illustrates the impact on the Company’s contingent purchase price obligations based on changes to these assumptions as of December 31, 2016.

Increase/(Decrease)

(in millions)

If projected earnings target changed by

Up 5%

$

5.85

Down 5%

$

(3.13)

If the discount rate changed by

Up 1%

$

(0.87)

Down 1%

$

0.92

If volatility rate changed by

Up 10%

$

(1.46)

Down 10%

$

1.68

Results of Operations

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

·

Most of our properties operate in mature competitive markets. As a result, we expect a significant amount of our future growth to come from prudent acquisitions of gaming properties (such as our August 2015 acquisition of Tropicana Las Vegas Hotel and Casino), jurisdictional expansions (such as our June 2015 opening of a slots‑only gaming facility in Massachusetts, our October 10, 2016 opening of a Hollywood Casino branded gaming facility on the Jamul Indian Village land in trust which we now manage, the September 2014 opening of Hollywood Gaming at Mahoning Valley Race Course and the August 2014 opening of Hollywood Gaming at Dayton Raceway), expansions of gaming in existing jurisdictions (such as the introduction of table games in July 2010 at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, and at Hollywood Casino Bangor in March 2012),

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expansions/improvements of existing properties (such as Tropicana Las Vegas) and new growth opportunities (such as our acquisition of Prairie State Gaming, a leading video lottery terminal operator in Illinois, and our entry into the interactive and social gaming space through Penn Interactive Ventures, including our recent acquisition of Rocket Speed).

·

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

·

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

·

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

·

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

·

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

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The consolidated results of operations for the years ended December 31, 2016, 2015 and 2014 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

2016

 

2015

 

2014

 

 

 

(in thousands)

 

Revenues:

    

 

    

    

 

    

    

 

    

 

Gaming

 

$

2,606,262

 

$

2,497,497

 

$

2,297,175

 

Food, beverage, hotel and other

 

 

575,434

 

 

485,534

 

 

432,021

 

Management service fee and licensing fees

 

 

11,348

 

 

10,314

 

 

11,650

 

Reimbursable management costs

 

 

15,997

 

 

 —

 

 

 —

 

Revenues

 

 

3,209,041

 

 

2,993,345

 

 

2,740,846

 

Less promotional allowances

 

 

(174,661)

 

 

(154,987)

 

 

(150,319)

 

Net revenues

 

 

3,034,380

 

 

2,838,358

 

 

2,590,527

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

1,334,980

 

 

1,271,679

 

 

1,146,159

 

Food, beverage, hotel and other

 

 

406,871

 

 

349,897

 

 

319,792

 

General and administrative

 

 

463,028

 

 

449,433

 

 

446,436

 

Reimbursable management costs

 

 

15,997

 

 

 —

 

 

 —

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

266,742

 

Impairment losses

 

 

 —

 

 

40,042

 

 

159,884

 

Insurance recoveries, net of deductible charges

 

 

(726)

 

 

 —

 

 

(5,674)

 

Total operating expenses

 

 

2,491,364

 

 

2,370,512

 

 

2,333,339

 

Income (loss) from continuing operations

 

$

543,016

 

$

467,846

 

$

257,188

 

Certain information regarding our results of operations by segment for the years ended December 31, 2016, 2015 and 2014 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

Income (loss) from Operations

 

Year ended December 31,

 

2016

 

2015

 

2014

 

2016

 

2015

 

2014

 

 

 

 

(in thousands)

 

Northeast

    

$

1,568,514

    

$

1,505,838

    

$

1,275,651

    

$

397,524

    

$

328,567

    

$

297,674

 

South/West

 

 

546,608

 

 

478,128

 

 

441,718

 

 

92,629

 

 

102,380

 

 

101,156

 

Midwest

 

 

877,567

 

 

833,455

 

 

848,868

 

 

223,180

 

 

225,526

 

 

37,362

 

Other

 

 

41,691

 

 

20,937

 

 

24,290

 

 

(170,317)

 

 

(188,627)

 

 

(179,004)

 

Total

 

$

3,034,380

 

$

2,838,358

 

$

2,590,527

 

$

543,016

 

$

467,846

 

$

257,188

 

Revenues

Revenues for the years ended December 31, 2016, 2015 and 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

 

Year Ended December 31,

 

2016

 

2015

 

Variance

 

Variance

 

 

Gaming

 

$

2,606,262

 

 

2,497,497

 

$

108,765

 

4.4

%

 

Food, beverage, hotel and other

 

 

575,434

 

 

485,534

 

 

89,900

 

18.5

%

 

Management service and licensing fees

 

 

11,348

 

 

10,314

 

 

1,034

 

10.0

%

 

Reimbursable management costs

 

 

15,997

 

 

 —

 

 

15,997

 

N/A

%

 

Revenues

 

 

3,209,041

 

 

2,993,345

 

 

215,696

 

7.2

%

 

Less promotional allowances

 

 

(174,661)

 

 

(154,987)

 

 

(19,674)

 

12.7

%

 

Net revenues

 

$

3,034,380

 

$

2,838,358

 

$

196,022

 

6.9

%

 

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Percentage

 

 

Year Ended December 31,

 

2015

 

2014

 

Variance

 

Variance

 

 

Gaming

 

$

2,497,497

 

 

2,297,175

 

$

200,322

 

8.7

%

 

Food, beverage, hotel and other

 

 

485,534

 

 

432,021

 

 

53,513

 

12.4

%

 

Management service and licensing fees

 

 

10,314

 

 

11,650

 

 

(1,336)

 

(11.5)

%

 

Revenues

 

 

2,993,345

 

 

2,740,846

 

 

252,499

 

9.2

%

 

Less promotional allowances

 

 

(154,987)

 

 

(150,319)

 

 

(4,668)

 

3.1

%

 

Net revenues

 

$

2,838,358

 

$

2,590,527

 

$

247,831

 

9.6

%

 

In our business, revenue is driven by discretionary consumer spending. The expansion of newly constructed gaming facilities has increased competition in many regional markets (including at some of our key facilities). As reported by most jurisdictions, regional gaming industry trends began softening midway through 2016, primarily in our unrated player category.

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

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

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

Gaming revenue

2016 Compared with 2015

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

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

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

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

2015 Compared with 2014

Gaming revenue increased by $200.3 million, or 8.7%, to $2,497.5 million in 2015, primarily due to the variances explained below.

Gaming revenue for our Northeast segment increased by $218.1 million in 2015, primarily due to the opening of Plainridge Park Casino on June 24, 2015, which generated $88.0 million of gaming revenue, a full year of operations Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway, which generated increased gaming revenue of $63.5 million and $58.6 million, respectively, for the year ended December 31, 2015. These increases were partially offset by decreased gaming revenue at Hollywood Casino at Charles Town Races primarily due to increased competition from the Baltimore Maryland market, which includes Maryland Live! and Horseshoe Casino Baltimore, which opened at the end of August 2014.

Gaming revenue for our Midwest segment decreased by $21.3 million in 2015, primarily due to decreased gaming revenue at Argosy Casino Sioux City of $25.5 million due to its closure on July 30, 2014, decreased gaming revenue at Hollywood Casino Lawrenceburg primarily due to the continued impact of competition in Ohio, namely the opening of a casino in Cincinnati in March 2013 and the openings of a racino at Belterra Park in May 2014 and our own Dayton, Ohio facility in August 2014, and decreased gaming revenues at Hollywood Casino Aurora, primarily due to competition. These decreases were partially by offset increased gaming revenues from the acquisition of Prairie State Gaming on September 1, 2015 and increased gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside.

Gaming revenue for our South/West segment increased by $3.5 million in 2015, primarily due to the acquisition of Tropicana Las Vegas on August 25, 2015, partially offset by decreased gaming revenues at Hollywood Casino Gulf Coast and Boomtown Biloxi primarily due to competition.

Food, beverage, hotel and other revenue

2016 Compared with 2015

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

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

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

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

2015 Compared with 2014

Food, beverage, hotel and other revenue increased by $53.5 million, or 12.4%, to $485.5 million in 2015 primarily due to the variances explained below.

Food, beverage, hotel and other revenue for our South/West segment increased by $33.4 million in 2015, primarily due to increased food, beverage and other revenue from the acquisition of Tropicana Las Vegas on August 25, 2015, which had food beverage and other revenue of $30.2 million for the year ended December 31, 2015.

Food, beverage, hotel and other revenue for our Northeast segment increased by $18.6 million in 2015, primarily due to increased food, beverage, hotel and other revenue from the opening of Plainridge Park Casino on June 24, 2015, which had food, beverage and other revenue of $5.4 million for the year ended December 31, 2015, and a full year of operations at Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway, which together had increased food, beverage and other revenue of $12.6 million for the year ended December 31, 2015.

Promotional allowances

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

2016 Compared with 2015

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

2015 Compared with 2014

Promotional allowances increased by $4.7 million, or 3.1%, to $155.0 million in 2015, primarily due to increased promotional allowances from the acquisition of Tropicana Las Vegas on August 25, 2015.

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Operating Expenses

Operating expenses for the years ended December 31, 2016, 2015 and 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2016

 

2015

 

Variance

 

Variance

 

Gaming

 

$

1,334,980

 

$

1,271,679

 

$

63,301

 

5.0

%  

Food, beverage, hotel and other

 

 

406,871

 

 

349,897

 

 

56,974

 

16.3

%  

General and administrative

 

 

463,028

 

 

449,433

 

 

13,595

 

3.0

%  

Reimbursable management costs

 

 

15,997

 

 

 —

 

 

15,997

 

N/A

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

11,753

 

4.5

%  

Impairment losses

 

 

 —

 

 

40,042

 

 

(40,042)

 

(100.0)

%  

Insurance recoveries, net of deductible charges

 

 

(726)

 

 

 —

 

 

(726)

 

N/A

 

Total operating expenses

 

$

2,491,364

 

$

2,370,512

 

$

120,852

 

5.1

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2015

 

2014

 

Variance

 

Variance

 

Gaming

 

$

1,271,679

 

$

1,146,159

 

$

125,520

 

11.0

%  

Food, beverage, hotel and other

 

 

349,897

 

 

319,792

 

 

30,105

 

9.4

%  

General and administrative

 

 

449,433

 

 

446,436

 

 

2,997

 

0.7

%  

Depreciation and amortization

 

 

259,461

 

 

266,742

 

 

(7,281)

 

(2.7)

%  

Impairment losses

 

 

40,042

 

 

159,884

 

 

(119,842)

 

(75.0)

%  

Insurance recoveries, net of deductible charges

 

 

 —

 

 

(5,674)

 

 

5,674

 

(100.0)

%  

Total operating expenses

 

$

2,370,512

 

$

2,333,339

 

$

37,173

 

1.6

%  

Gaming expense

2016 Compared with 2015

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

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

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

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

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2015 Compared with 2014

Gaming expense increased by $125.5 million, or 11.0%, to $1,271.7 million in 2015, primarily due to the variances explained below.

Gaming expense for our Northeast segment increased by $122.5 million in 2015, primarily due to the opening of Plainridge Park Casino on June 24, 2015 and a full year of operations for Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway.

Gaming expense for our South/West segment increased by $4.1 million in 2015, primarily due to the acquisition of Tropicana Las Vegas on August 25, 2015 and an overall increase in gaming taxes resulting from increased taxable gaming revenue at M Resort, partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Boomtown Biloxi and Zia Park Casino.

Gaming expense for our Midwest segment decreased by $2.0 million in 2015, primarily due to the closure of Argosy Casino Sioux City on July 30, 2014 and an overall decrease in gaming taxes resulting from decreased taxable gaming revenue as mentioned above at Hollywood Casino Lawrenceburg, Hollywood Casino Aurora and Argosy Casino Alton, partially offset by the acquisition of Prairie State Gaming on September 1, 2015 and an overall increase in gaming taxes resulting from increased taxable gaming revenue at Hollywood Casino St. Louis, Argosy Casino Riverside and Hollywood Casino Joliet.

Food, beverage, hotel and other expense

2016 Compared with 2015

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

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

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

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

2015 Compared with 2014

Food, beverage, hotel and other expense increased by $30.1 million, or 9.4%, to $349.9 million in 2015, primarily due to the variances explained below.

Food, beverage, hotel and other expense for our Northeast segment increased by $13.4 million in 2015, primarily due to increased food, beverage and other expense from the opening of Plainridge Park Casino on June 24, 2015 and a full year of operations for Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway.

Food, beverage, hotel and other expense for our South/West segment increased by $18.9 million in 2015, primarily due to the acquisition of Tropicana Las Vegas on August 25, 2015 and increased food, beverage, hotel and

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other expense at Zia Park Casino, partially offset by decreased food, beverage, hotel and other expense at Hollywood Casino Gulf Coast and Boomtown Biloxi.

General and administrative expense

General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include lobbying expenses.

2016 Compared with 2015

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

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

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

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

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

2015 Compared with 2014

General and administrative expenses increased by $3.0 million, or 0.7%, to $449.4 million in 2015, primarily due to the variances explained below.

General and administrative expenses for our Midwest segment decreased by $27.6 million in 2015, primarily due to favorable property tax settlements of $17.4 million, closure of Argosy Casino Sioux City on July 30, 2014, as well as cost containment measures at Hollywood Casino Aurora.

General and administrative expenses for our Northeast segment increased by $17.0 million in 2015, primarily due to the opening of Plainridge Park Casino on June 24, 2015 and a full year of operations at Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway, partially offset by a favorable $5.4 million adjustment in the fair value of the contingent purchase price for Plainridge Racecourse.

General and administrative expenses for Other increased by $6.2 million in 2015, primarily due to higher cash‑settled stock‑based compensation charges of $13.3 million mainly due to stock price increases for Penn and GLPI common stock during 2015 compared to stock price declines in 2014, partially offset by lower lobbying expenses of $7.2 million due to the Massachusetts campaign in 2014.

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General and administrative expenses for our South/West segment increased by $7.3 million in 2015, primarily due to the acquisition of Tropicana Las Vegas on August 25, 2015, partially offset by decreased expenses at Hollywood Casino Gulf Coast and Boomtown Biloxi as a result of cost containment measures.

Depreciation and amortization expense

2016 Compared with 2015

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

2015 Compared with 2014

Depreciation and amortization expense decreased by $7.3 million, or 2.7%, to $259.5 million in 2015, primarily due to the closure of Argosy Casino Sioux City on July 30, 2014, which had $10.1 million of depreciation expense in the year ended December 31, 2014. Additionally, we recorded lower depreciation expense at Hollywood Casino Lawrenceburg primarily due to assets purchased for the 2009 expansion being fully depreciated in July 2014 and lower depreciation expense at Hollywood Casino at Penn National Race Course primarily due to assets purchased for the 2008 opening being fully depreciated in February 2015, which were partially offset by the opening of Plainridge Park Casino on June 24, 2015, acquisition of Tropicana Las Vegas on August 25, 2015, and a full year of operations at Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway.

Impairment losses

For the year ended December 31, 2016, the Company did not record any goodwill or other intangible asset impairment charges.

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

During the three months ended December 31, 2014, the Company recorded goodwill and other intangible assets impairment charges of $155.3 million, respectively, as it determined that a portion of the value of its goodwill and other intangible assets was impaired due to the Company’s outlook of continued challenging regional gaming conditions which persisted in 2014 at certain properties in its Midwest segment, as well as for the write‑off of a trademark intangible asset in the South/West segment. The impairment charges by segment were as follows: Midwest, $153.9 million and South/West, $1.4 million. During the three months ended June 30, 2014, the Company recorded an impairment charge of $4.6 million in the Midwest segment to write‑down certain idle assets to an estimated salvage value.

Insurance recoveries, net of deductible charges

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

Insurance recoveries for the year ended December 31, 2014 were related to an insurance gain in our Midwest segment of $5.7 million for the 2013 tornado damage at Hollywood Casino St. Louis.

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Other income (expenses)

Other income (expenses) for the years ended December 31, 2016, 2015 and 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2016

 

2015

 

Variance

 

Variance

 

Interest expense

 

$

(459,243)

 

 

(443,127)

 

$

(16,116)

 

3.6

%

Interest income

 

 

24,186

 

 

11,531

 

 

12,655

 

109.7

%

Income from unconsolidated affiliates

 

 

14,337

 

 

14,488

 

 

(151)

 

(1.0)

%

Other

 

 

(1,679)

 

 

5,872

 

 

(7,551)

 

(128.6)

%

Total other expenses

 

$

(422,399)

 

$

(411,236)

 

$

(11,163)

 

2.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2015

 

2014

 

Variance

 

Variance

 

Interest expense

 

$

(443,127)

 

$

(425,114)

 

$

(18,013)

 

4.2

%

Interest income

 

 

11,531

 

 

3,730

 

 

7,801

 

209.1

%

Income from unconsolidated affiliates

 

 

14,488

 

 

7,949

 

 

6,539

 

82.3

%

Other

 

 

5,872

 

 

2,944

 

 

2,928

 

99.5

%

Total other expenses

 

$

(411,236)

 

$

(410,491)

 

$

(745)

 

0.2

%

Interest expense

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

Interest expense increased by $18.0 million, or 4.2%, to $443.1 million in 2015, due to $6.6 million for the accretion of the relocation fees associated with our two racinos in Ohio, both of which opened in the third quarter of 2014, and higher borrowings on the Term Loan A portion of the senior secured credit facility for the year ended December 31, 2015, compared to prior year.

Interest income

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

Interest income increased by $7.8 million, or 209.1%, to $11.5 million in 2015, primarily due to higher interest accrued on the loan to the Jamul Tribe (see Note 5 to the consolidated financial statements for further details).

Income from unconsolidated affiliates

Income from unconsolidated affiliates increased by $6.5 million, or 82.3%, to $14.5 million in 2015, primarily due to increased earnings related to our joint venture in Kansas Entertainment primarily due to improvements in its margins compared to the prior year.

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Other

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

Other changed by $2.9 million, or 99.5%, to $5.9 million in 2015 compared to 2014 primarily due to increased foreign currency translation gains for the year ended December 31, 2015.

Taxes

Our income tax expense from continuing operations was $11.3 million for the year ended December 31, 2016, compared to an income tax expense of $55.9 million in the prior year period. Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 9.4% for the year ended December 31, 2016, as compared to 98.9% for the year ended December 31, 2015. The Company’s effective tax rate in the current year is lower than the federal statutory tax rate of 35% due to the effect of permanent items such as non deductible goodwill amortization and the Tropicana Bankruptcy settlement, decreases in reserves for unrecognized tax benefits due to the U.S./Canadian competent authority settlement and statute of limitation expires and the decrease in our valuation allowance during the year compared to the corresponding period in the prior year. Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 98.8% for the year ended December 31, 2015, as compared to a tax benefit of 19.9% for the year ended December 31, 2014. Our low levels of pre‑tax earnings has magnified the impact on our effective tax rate from non‑deductible expenses such as lobbying, increases in reserves for uncertain tax positions, changes in our valuation allowance and a decrease in the non‑deductible portion of our goodwill and other intangible assets impairment charges during the year ended December 31, 2015 compared to the corresponding period in the prior year.

Our effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and the level of our tax credits. Additionally, our effective tax rate is significantly impacted by non‑deductible impairment charges and changes in our deferred tax assets that result from principal reductions in our GLPI financing obligation since the Company has recorded a valuation allowance on its deferred tax assets. Certain of these and other factors, including our history and projections of pre‑tax earnings, are taken into account in assessing our ability to realize our net deferred tax assets.

Adjusted EBITDA

In addition to GAAP financial measures, adjusted EBITDA is used by management as an important measure of the Company’s operating performance. We define adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino projects because 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 also present adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In addition, gaming companies have historically reported adjusted EBITDA as a supplement to financial measures in accordance with

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GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino properties. However, adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a widely used measure of performance in the gaming industry, is used in the valuation of gaming companies, and that it is considered by many to be a key indicator of the Company’s operating results. Management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA. It should also be noted that other gaming companies that report adjusted EBITDA information may calculate this metric in a different manner than the Company and therefore, comparability may be limited.

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

The reconciliation of the Company’s income (loss) from operations per GAAP to adjusted EBITDA, as well as the Company’s net income (loss) per GAAP to adjusted EBITDA, for the years ended December 31, 2016, 2015 and 2014 was as follows:

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

2016

 

2015

 

2014

 

 

 

(in thousands)

 

Net income (loss)

    

$

109,310

    

$

686

    

$

(183,822)

 

Income tax provision

 

 

11,307

 

 

55,924

 

 

30,519

 

Other

 

 

1,679

 

 

(5,872)

 

 

(2,944)

 

Income from unconsolidated affiliates

 

 

(14,337)

 

 

(14,488)

 

 

(7,949)

 

Interest income

 

 

(24,186)

 

 

(11,531)

 

 

(3,730)

 

Interest expense

 

 

459,243

 

 

443,127

 

 

425,114

 

Income from operations

 

$

543,016

 

$

467,846

 

$

257,188

 

(Gain) loss on disposal of assets

 

 

(2,471)

 

 

1,286

 

 

738

 

Insurance recoveries, net of deductible charges

 

 

(726)

 

 

 —

 

 

(5,674)

 

Impairment losses

 

 

 —

 

 

40,042

 

 

159,884

 

Charge for stock compensation

 

 

6,871

 

 

8,223

 

 

10,666

 

Contingent purchase price

 

 

1,277

 

 

(5,374)

 

 

689

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

266,742

 

Income from unconsolidated affiliates

 

 

14,337

 

 

14,488

 

 

7,949

 

Non operating items for Kansas JV(1)

 

 

10,311

 

 

10,377

 

 

11,809

 

Adjusted EBITDA

 

$

843,829

 

$

796,349

 

$

709,991

 

(1)

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

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The reconciliation of each segment’s (loss) income from operations to adjusted EBITDA for the years ended December 31, 2016, 2015 and 2014 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

    

 

 

    

 

 

 

Year Ended December 31, 2016

 

Northeast

 

South/West

 

Midwest

 

Other (1)

 

Total

 

Income (loss) from operations

 

$

397,524

 

$

92,629

 

$

223,180

 

$

(170,317)

 

$

543,016

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

6,871

 

 

6,871

 

Insurance recoveries, net of deductible charges

 

 

 —

 

 

 —

 

 

(726)

 

 

 —

 

 

(726)

 

Depreciation and amortization

 

 

92,373

 

 

35,831

 

 

38,210

 

 

104,800

 

 

271,214

 

Contingent purchase price

 

 

(1,277)

 

 

 —

 

 

6

 

 

2,548

 

 

1,277

 

Loss (gain) on disposal of assets

 

 

450

 

 

109

 

 

334

 

 

(3,364)

 

 

(2,471)

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

15,960

 

 

(1,623)

 

 

14,337

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

10,311

 

 

 —

 

 

10,311

 

Adjusted EBITDA

 

$

489,070

 

$

128,569

 

$

287,275

 

$

(61,085)

 

$

843,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

    

 

 

    

 

 

 

Year Ended December 31, 2015

 

Northeast

 

South/West

 

Midwest

 

Other (1)

 

Total

 

Income (loss) from operations

 

$

328,567

 

$

102,380

 

$

225,526

 

$

(188,627)

 

$

467,846

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

8,223

 

 

8,223

 

Impairment losses

 

 

40,042

 

 

 —

 

 

 —

 

 

 —

 

 

40,042

 

Depreciation and amortization

 

 

93,299

 

 

25,793

 

 

39,917

 

 

100,452

 

 

259,461

 

Contingent purchase price

 

 

(5,374)

 

 

 —

 

 

 —

 

 

 —

 

 

(5,374)

 

Loss on disposal of assets

 

 

65

 

 

677

 

 

208

 

 

336

 

 

1,286

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

15,289

 

 

(801)

 

 

14,488

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

10,377

 

 

 —

 

 

10,377

 

Adjusted EBITDA

 

$

456,599

 

$

128,850

 

$

291,317

 

$

(80,417)

 

$

796,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

    

 

 

    

 

 

 

Year ended December 31, 2014

 

Northeast

 

South/West

 

Midwest

 

Other

 

Total

 

Income (loss) from operations

 

$

297,674

 

 

101,156

 

 

37,362

 

 

(179,004)

 

$

257,188

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

10,666

 

 

10,666

 

Impairment losses

 

 

 —

 

 

1,420

 

 

158,464

 

 

 —

 

 

159,884

 

Insurance recoveries, net of deductible charges

 

 

 —

 

 

 —

 

 

(5,674)

 

 

 —

 

 

(5,674)

 

Depreciation and amortization

 

 

87,018

 

 

19,493

 

 

61,389

 

 

98,842

 

 

266,742

 

Contingent purchase price

 

 

689

 

 

 —

 

 

 —

 

 

 —

 

 

689

 

Loss (gain) on disposal of assets

 

 

54

 

 

183

 

 

523

 

 

(22)

 

 

738

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

51

 

 

10,669

 

 

(2,771)

 

 

7,949

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

11,809

 

 

 —

 

 

11,809

 

Adjusted EBITDA

 

$

385,435

 

$

122,303

 

$

274,542

 

$

(72,289)

 

$

709,991

 

2016 Compared to 2015

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

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

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

2015 Compared to 2014

Adjusted EBITDA for our Northeast segment increased by $71.2 million, or 18.5%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014, primarily due to the opening of Plainridge Park Casino on June 24, 2015, a full year of operations for Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway, which together increased adjusted EBITDA by 67.0 million, improved results from Hollywood Casino Columbus and Hollywood Casino Toledo, all of which were partially offset by decreased adjusted EBITDA at Hollywood Casino at Charles Town primarily due to competition discussed above.

Adjusted EBITDA for our Midwest segment increased by $16.8 million, or 6.1%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014, primarily due to increased EBITDA at Hollywood St. Louis which was largely attributable to a $15.4 million property tax credit, the acquisition of Prairie State Gaming on September 1, 2015 and a property tax refund received in the first quarter of 2015 for $2.0 million, all of which were partially offset by decreased adjusted EBITDA at Hollywood Casino Lawrenceburg primarily due to competition discussed above and the closure of Argosy Casino Sioux City on July 30, 2014.

Adjusted EBITDA for our South/West segment increased by $6.5 million, or 5.4%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014, primarily due to improved results at M Resort, Hollywood Casino Gulf Coast, Hollywood Casino Tunica, and Boomtown Biloxi and the acquisition of Tropicana Las Vegas on August 25, 2015, partially offset by decreased adjusted EBITDA at Zia Park Casino as low oil prices have affected the economy in this area.

Adjusted EBITDA for Other declined by $8.1 million, or 11.2%, for the year ended December 31, 2015, as compared to the year ended December 31, 2014, primarily due to increased corporate overhead costs 12.6 million, primarily due to higher cash‑settled stock‑based compensation charges of $13.3 million mainly due to stock price increases for Penn and GLPI common stock during 2015 compared to stock price declines in 2014, as well as increased bonus accruals, all of which was partially offset by lower lobbying costs of $7.2 million due to the Massachusetts campaign in 2014.

Liquidity and Capital Resources

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

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Net cash provided by operating activities was $404.8 million, $399.0 million, and $262.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in net cash provided by operating activities of $5.8 million for the year ended December 31, 2016, compared to the corresponding period in the prior year, was comprised primarily of an increase in cash receipts from customers of $183.0 million, offset by an increase in cash paid to suppliers and vendors of $121.5 million and an increase in cash paid to employees of $60.0 million. The increase in cash receipts collected from our customers, cash paid to suppliers and vendors, and cash paid to employees for the year ended December 31, 2016 compared to the prior year was primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, Prairie State Gaming, which was acquired on September 1, 2015, and Rocket Speed, Inc., which was acquired on August 1, 2016.

Net cash used in investing activities totaled $79.3 million, $781.0 million, and $375.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. The decrease in net cash used in investing activities of $701.7 million for the year ended December 31, 2016, compared to the corresponding period in the prior year, was primarily due to $273.9 million received from the refinancing of loans to the Jamul Tribe, lower business acquisition costs in the current year of $363.3 million, primarily due to the acquisition of Tropicana Las Vegas and Prairie State Gaming in 2015, partially offset by the acquisition of Rocket Speed, Inc. in 2016, lower project capital expenditures of $117.8 million, and $24.0 million spent in the prior year for the purchase of a subordinated promissory note from the previous developer of the Jamul project.  All of which were partially offset by a $78.5 million increase in funds advanced to the Jamul Tribe prior to the refinancing. 

Net cash (used in) provided by financing activities totaled $(333.0) million, $410.4 million, and $29.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. The decrease in net cash provided by financing activities of $743.4 million for the year ended December 31, 2016, compared to the prior year, was primarily due to lower net borrowings on our long‑term debt of $439.3 million, higher principal payments on long‑term obligations of $292.5 million, which was primarily due to the Jamul Tribe refinancing and higher payments on other long-term obligations of $10.5 million.

Capital Expenditures

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

The following table summarizes our project capital expenditures by segment for the year ended December 31, 2016:

Actual(1)

(in millions)

Northeast (2)

$

5.3

South/West (3)

13.4

Midwest

 —

Other

 —

Total

$

18.7

(1)

Excludes licensing and relocation fees and is net of reimbursements.

(2)

Capital expenditures from our Northeast segment are related to the construction cost of Plainridge Park Casino which opened June 24, 2015 and renovation costs of the H Lounge at Hollywood Casino at Penn National Race Course.

(3)

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

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Tropicana Las Vegas was acquired on August 25, 2015 for $360 million. During 2016, the Company reconfigured the gaming floor with updated slot machines, altered game placements and refined the table game mix. In 2017, we will be making further enhancements to the facility as previously announced with a focus on improving the food and beverage offerings, including the partnership announced last year with celebrity chef Robert Irvine, who will open his first signature restaurant in Las Vegas at Tropicana in the summer of 2017. Additionally, in April 2016, we integrated the property into our Marquee Rewards player loyalty program enabling our regional gaming customers to redeem their loyalty reward points at the facility.

During the year ended December 31, 2016, we spent $78.5 million on maintenance capital expenditures, with $25.4 million at our Northeast segment, $17.0 million at our South/West segment, $30.9 million at our Midwest segment, and $5.2 million for Other.  The majority of the maintenance capital expenditures were for slot machines and slot machine equipment.

Cash generated from operations and cash available under the revolving credit facility portion of our senior secured credit facility funded our capital projects and maintenance capital expenditures in 2016.

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

Total for 2017 (1)

(in millions)

Northeast

$

0.2

South/West(2)

30.6

Midwest (3)

5.9

Total

$

36.7

(1)

Excludes licensing and relocation fees.

(2)

Expected capital expenditures in 2017 for our South/West segment is for improvements at the Tropicana Las Vegas.

(3)

Expected capital expenditures in 2017 for our Midwest segment is primarily for hotel renovations at Hollywood Casino St. Louis.

Jamul Tribe

Advances to the Jamul Tribe, which totaled $92.1 million and $197.7 million at December 31, 2016 and 2015, are accounted for as a loan on the consolidated balance sheet and as such are not included in the capital expenditures table presented above.

In the fourth quarter of 2016, we participated in the Jamul Tribe’s refinancing of its obligations, which resulted in the Company receiving approximately $274 million in net cash proceeds.  We are continuing to provide a portion of the project’s financing, including a Term C Loan facility of up to $108 million and a Term C Loan delayed draw commitment of up to $15 million.  These loans are due in 2022 and are priced at LIBOR plus 8.50% with a 1% LIBOR floor.  The Company has also agreed to fund up the $5 million of subordinated debt to cover incremental project costs at a higher interest rate.   See Note 5 for additional details.

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Debt

Senior Secured Credit Facility

On October 30, 2013, the Company entered into a new senior secured credit facility. This facility consists of a five year $500 million revolver, a five year $500 million Term Loan A facility, and a seven year $250 million Term Loan B facility. The Term Loan A facility was priced at LIBOR plus a spread (ranging from 2.75% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor. In connection with the repayment of the previous senior secured credit facility, the Company recorded a $21.5 million loss on the early extinguishment of debt for the year ended December 31, 2013 related to debt issuance costs write‑offs and the write‑off of the discount on the Term Loan B facility of the previous senior secured credit facility.

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

The Company’s senior secured credit facility had a gross outstanding balance of $976.8 million at December 31, 2016, consisting of a $543.3 million Term Loan A facility, a $242.5 million Term Loan B facility, and $191.0 million outstanding on the revolving credit facility. This compares with a $1,259.7 million gross outstanding balance at December 31, 2015 which consisted of a $592.7 million Term Loan A facility, a $245.0 million Term Loan B facility and $422.0 million outstanding on the revolving credit facility. Additionally, at December 31, 2016 and 2015, the Company was contingently obligated under letters of credit issued pursuant to the senior secured credit facility with face amounts aggregating $23.0 million and $23.4 million, respectively, resulting in $419.1 million and $187.7 million of available borrowing capacity as of December 31, 2016 and 2015, respectively, under the revolving credit facility.

The payment and performance of obligations under the senior secured credit facility are guaranteed by a lien on and security interest in substantially all of the cash, equity and personal property (other than excluded property such as gaming licenses) of the Company and its subsidiaries.  In January 2017, the Company completed a refinancing and used the proceeds to payoff its existing senior secured credit facility.  See Note 20 “Subsequent Events” for more information.

5.875% Senior Unsecured Notes

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

The Company used the proceeds of the 2013 senior secured credit facility, the 5.875% Notes, and cash on hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its previously

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issued 83/4% Notes and the related consent solicitation to make certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay related fees and expenses and for working capital purposes. 

In January 2017, the Company completed an offering of $400 million 5.625% senior unsecured notes that mature on January 19, 2027, and used the proceeds to payoff its existing senior unsecured notes.  See Note 20 “Subsequent Events” for more information.

Financing obligation with GLPI

The Company’s Master Lease with GLPI that became effective November 1, 2013 was accounted for as a financing obligation and totaled $3.51 billion and $3.56 billion at December 31, 2016 and 2015, respectively. The Company assumed a term of 35 years as it was determined that the lease term should include all option periods since renewal was reasonably assured given the high percentage of earnings from the Master Lease properties operations to the Company and the lack of alternative economically feasible leasing options for such real estate. The future minimum lease payments at lease inception were discounted at 9.7% which represented the Company’s estimated incremental borrowing rate over the term of the lease. The financing obligation decreased by $50.5 million for the year ended December 31, 2016 compared to the prior year due to principal payment reductions. Interest expense recognized for the year ended December 31, 2016 and 2015 totaled $391.7 million and $390.1 million, respectively.

Other Long‑Term Obligations

Other long term obligations at December 31, 2016 and 2015 of $154.1 million and $147.0 million, respectively, included $118.9 million and $131.7 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.  At December 31, 2016 and 2015, $14.4 million and $15.3 million, respectively, related to the repayment obligation of a hotel and event center located near Hollywood Casino Lawrenceburg and $20.8 million related to a corporate airplane loan; all of which are more fully described below.

In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility and eighteen semi‑annual payments of $4.8 million beginning one year from the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $6.2 million and $6.7 million for the year ended December 31, 2016 and 2015, respectively.

The City of Lawrenceburg Department of Redevelopment completed construction of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg. Effective in mid‑January 2015, by contractual agreement, a repayment obligation for the hotel and event center was assumed by a wholly‑owned subsidiary of the Company in the amount of $15.3 million, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property. The Company is obligated to make annual payments on the loan of approximately $1 million for twenty years beginning January 2016. This obligation is accreted to interest expense at its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for the years ended December 31, 2016.

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

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Covenants

The Company’s senior secured credit facility and senior unsecured notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge coverage, interest coverage, senior leverage and total leverage ratios. In addition, the Company’s senior secured credit facility and senior unsecured notes restrict, among other things, its ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

At December 31, 2016, the Company was in compliance with all required financial covenants.

Outlook

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

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

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Commitments and Contingencies

Contractual Cash Obligations

At December 31, 2016, there was approximately $419.1 million available for borrowing under our revolving credit facility. The following table presents our contractual cash obligations at December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due By Period

 

 

 

Total

 

2017

 

2018-2019

 

2020-2021

 

2022 and After

 

 

 

(in thousands)

 

Senior secured credit facility

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Principal (1)

 

$

976,845

 

$

68,360

 

$

673,485

 

$

235,000

 

$

 —

 

Interest (2)

 

 

94,596

 

 

42,025

 

 

44,348

 

 

8,223

 

 

 —

 

5.875% senior unsecured notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal (1)

 

 

300,000

 

 

 —

 

 

 —

 

 

300,000

 

 

 —

 

Interest

 

 

88,125

 

 

17,625

 

 

35,250

 

 

35,250

 

 

 —

 

Purchase obligations

 

 

57,349

 

 

33,453

 

 

17,167

 

 

4,804

 

 

1,925

 

Capital expenditure commitments (3)

 

 

11,043

 

 

11,043

 

 

 —

 

 

 —

 

 

 —

 

Capital leases

 

 

1,851

 

 

1,613

 

 

238

 

 

 —

 

 

 —

 

Financing obligation to GLPI (4)

 

 

10,458,650

 

 

389,496

 

 

703,535

 

 

649,638

 

 

8,715,981

 

Operating leases

 

 

28,280

 

 

5,366

 

 

6,772

 

 

2,183

 

 

13,959

 

Ohio Payments (5)

 

 

218,181

 

 

29,224

 

 

66,449

 

 

62,448

 

 

60,060

 

Other liabilities reflected in the Company’s consolidated balance sheets (6)

 

 

14,179

 

 

14,179

 

 

 —

 

 

 —

 

 

 —

 

Total

 

$

12,249,099

 

$

612,384

 

$

1,547,244

 

$

1,297,546

 

$

8,791,925

 

(1)

The Company refinanced this indebtedness in January 2017.  See Note 20 “Subsequent Events” for more information.

(2)

The interest rates associated with the variable rate components of our senior secured credit facility are estimated, based on the forward LIBOR curves plus the current spread based on our current levels of indebtedness over LIBOR as of December 31, 2016. The contractual amounts to be paid on our variable rate obligations are affected by changes in market interest rates and changes in our spreads which are based on our leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid.

(3)

The Company anticipates spending approximately $36.7 million for future construction projects over the next year, of which the Company has been contractually committed to spend approximately $11.0 million at year‑end.

(4)

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

(5)

The Company agreed to pay $110 million (of which $70.0 million remains to be paid) to the State of Ohio over ten years in return for certain clarifications from the State of Ohio with respect to various financial matters and limits on competition within the ten year time period. This amount also includes the remaining portion of the relocation fees to be paid associated with our two new facilities in Dayton and Mahoning Valley, Ohio (See Note 9 and Note 11 to the consolidated financial statements).

(6)

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

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payments associated with our contingent purchase price obligations, as these amounts will be determined based on the future performance of Plainridge Park Casino and Rocket Speed.  See Note 3 “Summary of Significant Accounting Policies” for more information on our player loyalty programs.

Other Commercial Commitments

The following table presents our material commercial commitments as of December 31, 2016 for the following future periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Committed

 

2017

 

2018-2019

 

2020-2021

 

2022 and After

 

 

 

(in thousands)

 

Letters of Credit(1)

    

$

23,015

    

$

23,015

    

$

 —

    

$

 —

    

$

 —

 

Total

 

$

23,015

 

$

23,015

 

$

 —

 

$

 —

 

$

 —

 

(1)

The available balance under the revolving credit portion of our senior secured credit facility is reduced by outstanding letters of credit.

New Accounting Pronouncements

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 4 “New Accounting Pronouncements” in the Notes to the Consolidated Financial Statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information at December 31, 2016 about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts maturing during the year and the related weighted‑average interest rates by maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged by maturity date and the weighted‑average interest rates are based on implied forward LIBOR rates at December 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

2017

 

2018

 

2019

 

2020

 

2021

 

Thereafter

 

Total

 

12/31/2016

 

 

 

(in thousands)

 

Long‑term debt:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Fixed rate (1)

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

300,000

 

$

 —

 

$

300,000

 

$

312,000

 

Average interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.88

%  

 

 

 

 

 

 

Variable rate (1)

 

$

68,360

 

$

670,985

 

$

2,500

 

$

235,000

 

$

 —

 

$

 —

 

$

976,845

 

$

976,092

 

Average interest rate(2)

 

 

4.36

%  

 

4.41

%  

 

4.94

%  

 

4.61

%  

 

 —

%  

 

 —

%  

 

 

 

 

 

 

(1)

The Company refinanced this indebtedness in January 2017.  See Note 20 “Subsequent Events” for more information.

(2)

Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable‑rate borrowing.

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of

Penn National Gaming, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Penn National Gaming, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' deficit and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Penn National Gaming, Inc. and Subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Penn National Gaming, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

February 24, 2017

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Penn National Gaming, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2016

    

2015

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

229,510

 

$

237,009

 

Receivables, net of allowance for doubtful accounts of $3,180 and $2,428 at December 31, 2016 and December 31, 2015, respectively

 

 

61,855

 

 

45,186

 

Prepaid expenses

 

 

59,707

 

 

76,784

 

Other current assets

 

 

48,193

 

 

13,497

 

Total current assets

 

 

399,265

 

 

372,476

 

Property and equipment, net

 

 

2,820,383

 

 

2,980,068

 

Other assets

 

 

 

 

 

 

 

Investment in and advances to unconsolidated affiliates

 

 

156,176

 

 

168,149

 

Goodwill

 

 

989,685

 

 

911,942

 

Other intangible assets, net

 

 

435,494

 

 

391,442

 

Advances to the Jamul Tribe

 

 

91,401

 

 

197,722

 

Other assets

 

 

82,080

 

 

116,953

 

Total other assets

 

 

1,754,836

 

 

1,786,208

 

Total assets

 

$

4,974,484

 

$

5,138,752

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current portion of financing obligation to GLPI

 

$

56,595

 

$

50,548

 

Current maturities of long-term debt

 

 

85,595

 

 

92,108

 

Accounts payable

 

 

35,091

 

 

72,816

 

Accrued expenses

 

 

101,906

 

 

93,666

 

Accrued interest

 

 

6,345

 

 

7,091

 

Accrued salaries and wages

 

 

92,238

 

 

98,671

 

Gaming, pari-mutuel, property, and other taxes

 

 

60,384

 

 

57,486

 

Insurance financing

 

 

2,636

 

 

3,125

 

Other current liabilities

 

 

95,526

 

 

82,263

 

Total current liabilities

 

 

536,316

 

 

557,774

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Long-term financing obligation to GLPI, net of current portion

 

 

3,457,485

 

 

3,514,080

 

Long-term debt, net of current maturities and debt issuance costs

 

 

1,329,939

 

 

1,618,851

 

Deferred income taxes

 

 

126,924

 

 

107,921

 

Noncurrent tax liabilities

 

 

26,791

 

 

 —

 

Other noncurrent liabilities

 

 

40,349

 

 

18,169

 

Total long-term liabilities

 

 

4,981,488

 

 

5,259,021

 

 

 

 

 

 

 

 

 

Shareholders’ deficit

 

 

 

 

 

 

 

Series B Preferred stock ($.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at  December 31, 2016 and 2015)

 

 

 —

 

 

—

 

Series C Preferred stock ($.01 par value, 18,500 shares authorized, no shares and 8,624 shares issued and outstanding at December 31, 2016 and 2015, respectively)

 

 

 —

 

 

—

 

Common stock ($.01 par value, 200,000,000 shares authorized, 93,289,701 and 83,056,668 shares issued, and 91,122,308 and 80,889,275 shares outstanding at December 31, 2016 and 2015, respectively)

 

 

932

 

 

830

 

Treasury stock, at cost (2,167,393 shares held at December 31, 2016 and 2015)

 

 

(28,414)

 

 

(28,414)

 

Additional paid-in capital

 

 

1,014,119

 

 

988,686

 

Retained deficit

 

 

(1,525,281)

 

 

(1,634,591)

 

Accumulated other comprehensive loss

 

 

(4,676)

 

 

(4,554)

 

Total shareholders’ deficit

 

 

(543,320)

 

 

(678,043)

 

Total liabilities and shareholders’ deficit

 

$

4,974,484

 

$

5,138,752

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

Revenues

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

2,606,262

 

$

2,497,497

 

$

2,297,175

 

Food, beverage, hotel and other

 

 

575,434

 

 

485,534

 

 

432,021

 

Management service and licensing fees

 

 

11,348

 

 

10,314

 

 

11,650

 

    Reimbursable management costs

 

 

15,997

 

 

 —

 

 

 —

 

Revenues

 

 

3,209,041

 

 

2,993,345

 

 

2,740,846

 

Less promotional allowances

 

 

(174,661)

 

 

(154,987)

 

 

(150,319)

 

Net revenues

 

 

3,034,380

 

 

2,838,358

 

 

2,590,527

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

1,334,980

 

 

1,271,679

 

 

1,146,159

 

Food, beverage, hotel and other

 

 

406,871

 

 

349,897

 

 

319,792

 

General and administrative

 

 

463,028

 

 

449,433

 

 

446,436

 

    Reimbursable management costs

 

 

15,997

 

 

 —

 

 

 —

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

266,742

 

Impairment losses

 

 

 —

 

 

40,042

 

 

159,884

 

Insurance recoveries, net of deductible charges

 

 

(726)

 

 

 —

 

 

(5,674)

 

Total operating expenses

 

 

2,491,364

 

 

2,370,512

 

 

2,333,339

 

Income from operations

 

 

543,016

 

 

467,846

 

 

257,188

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(459,243)

 

 

(443,127)

 

 

(425,114)

 

Interest income

 

 

24,186

 

 

11,531

 

 

3,730

 

Income from unconsolidated affiliates

 

 

14,337

 

 

14,488

 

 

7,949

 

Other

 

 

(1,679)

 

 

5,872

 

 

2,944

 

Total other expenses

 

 

(422,399)

 

 

(411,236)

 

 

(410,491)

 

Income (loss) from operations before income taxes

 

 

120,617

 

 

56,610

 

 

(153,303)

 

Income tax provision

 

 

11,307

 

 

55,924

 

 

30,519

 

Net income (loss)

 

$

109,310

 

$

686

 

$

(183,822)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

1.21

 

$

0.01

 

$

(2.34)

 

Diluted earnings (loss) per common share

 

$

1.19

 

$

0.01

 

$

(2.34)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

 

82,929

 

 

80,003

 

 

78,425

 

Weighted average diluted shares outstanding

 

 

91,407

 

 

90,904

 

 

78,425

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

Net income (loss)

 

$

109,310

 

$

686

 

$

(183,822)

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment during the period

 

 

(122)

 

 

(3,272)

 

 

(1,665)

 

Other comprehensive loss

 

 

(122)

 

 

(3,272)

 

 

(1,665)

 

Comprehensive income (loss)

 

$

109,188

 

$

(2,586)

 

$

(185,487)

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Deficit

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Shares

    

Amount

 

Shares

    

Amount

 

Stock

 

Capital

 

Deficit

 

Income (Loss)

 

Deficit

 

Balance, December 31, 2013

 

8,624

 

$

 -

 

77,788,393

 

$

799

 

$

(28,414)

 

$

925,335

 

$

(1,448,955)

 

$

383

 

$

(550,852)

 

Share-based compensation arrangements, net of tax benefits of $10,360

 

 -

 

 

 -

 

1,373,424

 

 

14

 

 

 -

 

 

30,811

 

 

 -

 

 

 -

 

 

30,825

 

Impact of Spin-Off to Gaming and Leisure Properties, Inc.

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,500)

 

 

 -

 

 

(2,500)

 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,665)

 

 

(1,665)

 

Net loss

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(183,822)

 

 

 -

 

 

(183,822)

 

Balance, December 31, 2014

 

8,624

 

 

 -

 

79,161,817

 

 

813

 

 

(28,414)

 

 

956,146

 

 

(1,635,277)

 

 

(1,282)

 

 

(708,014)

 

Share-based compensation arrangements, net of tax benefits of $14,826

 

 -

 

 

 -

 

1,727,458

 

 

17

 

 

 -

 

 

32,540

 

 

 -

 

 

 -

 

 

32,557

 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,272)

 

 

(3,272)

 

Net income

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

686

 

 

 -

 

 

686

 

Balance, December 31, 2015

 

8,624

 

 

 -

 

80,889,275

 

 

830

 

 

(28,414)

 

 

988,686

 

 

(1,634,591)

 

 

(4,554)

 

 

(678,043)

 

Share-based compensation arrangements, net of tax benefits of $6,896

 

 -

 

 

 -

 

1,609,033

 

 

16

 

 

 -

 

 

25,519

 

 

 -

 

 

 -

 

 

25,535

 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(122)

 

 

(122)

 

Conversion of preferred stock

 

(8,624)

 

 

 -

 

8,624,000

 

 

86

 

 

 -

 

 

(86)

 

 

 -

 

 

 -

 

 

 -

 

Net income

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

109,310

 

 

 -

 

 

109,310

 

Balance, December 31, 2016

 

 -

 

$

 -

 

91,122,308

 

$

932

 

$

(28,414)

 

$

1,014,119

 

$

(1,525,281)

 

$

(4,676)

 

$

(543,320)

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

    

2016

    

2015

    

2014

 

Operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

109,310

 

$

686

 

$

(183,822)

 

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

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

266,742

 

Amortization of items charged to interest expense and interest income

 

 

7,200

 

 

6,599

 

 

6,040

 

Change in fair values of contingent purchase price

 

 

1,277

 

 

(5,374)

 

 

689

 

(Gain) loss on sale of property and equipment and assets held for sale

 

 

(2,471)

 

 

1,286

 

 

738

 

Income from unconsolidated affiliates

 

 

(14,337)

 

 

(14,488)

 

 

(7,949)

 

Distributions from unconsolidated affiliates

 

 

26,300

 

 

28,150

 

 

23,000

 

Deferred income taxes

 

 

8,736

 

 

57,236

 

 

2,908

 

Charge for stock-based compensation

 

 

6,871

 

 

8,223

 

 

10,666

 

Impairment losses and write downs

 

 

 —

 

 

40,042

 

 

163,184

 

(Increase) decrease, net of businesses acquired

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,911)

 

 

710

 

 

10,046

 

Prepaid expenses and other current assets

 

 

(485)

 

 

10,345

 

 

(13,305)

 

Other assets

 

 

(4,879)

 

 

4,363

 

 

141

 

(Decrease) increase, net of businesses acquired

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

(7,500)

 

 

2,113

 

 

2,028

 

Accrued expenses

 

 

1,519

 

 

7,243

 

 

(19,512)

 

Accrued interest

 

 

(746)

 

 

1,910

 

 

136

 

Accrued salaries and wages

 

 

(6,721)

 

 

8,454

 

 

(2,530)

 

Gaming, pari-mutuel, property and other taxes

 

 

3,379

 

 

3,933

 

 

(44)

 

Income taxes

 

 

19,112

 

 

(13,383)

 

 

5,193

 

Other current and noncurrent liabilities

 

 

(7,045)

 

 

(8,527)

 

 

(2,126)

 

Net cash provided by operating activities

 

 

404,823

 

 

398,982

 

 

262,223

 

Investing activities

 

 

 

 

 

 

 

 

 

 

Project capital expenditures, net of reimbursements

 

 

(18,740)

 

 

(136,548)

 

 

(144,707)

 

Maintenance capital expenditures

 

 

(78,505)

 

 

(62,692)

 

 

(83,438)

 

Advances to Jamul Tribe

 

 

(184,193)

 

 

(105,658)

 

 

(47,093)

 

Funds advanced to Jamul Tribe in connection with their refinancing

 

 

(98,000)

 

 

 —

 

 

 —

 

Reimbursement of advances with Jamul Tribe

 

 

341,864

 

 

 —

 

 

 —

 

Acquisition of land

 

 

(3,065)

 

 

 —

 

 

 —

 

Repayment/(Purchase) of note from the previous developer of the Jamul project

 

 

30,000

 

 

(24,000)

 

 

 —

 

Proceeds from sale of property and equipment and assets held for sale

 

 

18,210

 

 

561

 

 

1,665

 

Investment in joint ventures

 

 

 —

 

 

(2,555)

 

 

(1,285)

 

Decrease in cash in escrow

 

 

 —

 

 

 —

 

 

18,000

 

Acquisitions of businesses, gaming and other licenses, net of cash acquired

 

 

(86,859)

 

 

(450,113)

 

 

(118,678)

 

Net cash used in investing activities

 

 

(79,288)

 

 

(781,005)

 

 

(375,536)

 

Financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from exercise of options

 

 

11,601

 

 

9,399

 

 

9,799

 

Principal payments on financing obligation with GLPI

 

 

(50,548)

 

 

(46,885)

 

 

(42,222)

 

Proceeds from issuance of long-term debt, net of issuance costs

 

 

122,747

 

 

562,076

 

 

104,935

 

Principal payments on long-term debt

 

 

(407,662)

 

 

(115,195)

 

 

(49,541)

 

Payments of other long-term obligations

 

 

(13,772)

 

 

(3,307)

 

 

(15,000)

 

Payments of contingent purchase price

 

 

(1,807)

 

 

 —

 

 

 —

 

Proceeds from insurance financing

 

 

13,119

 

 

4,720

 

 

28,888

 

Payments on insurance financing

 

 

(13,608)

 

 

(15,275)

 

 

(18,228)

 

Tax benefit from stock options exercised

 

 

6,896

 

 

14,826

 

 

10,360

 

Net cash (used in) provided by financing activities

 

 

(333,034)

 

 

410,359

 

 

28,991

 

Net (decrease) increase in cash and cash equivalents

 

 

(7,499)

 

 

28,336

 

 

(84,322)

 

Cash and cash equivalents at beginning of year

 

 

237,009

 

 

208,673

 

 

292,995

 

Cash and cash equivalents at end of year

 

$

229,510

 

$

237,009

 

$

208,673

 

Supplemental disclosure

 

 

 

 

 

 

 

 

 

 

Interest expense paid, net of amounts capitalized

 

$

452,842

 

$

434,175

 

$

418,544

 

Income taxes (refunds received)/taxes paid

 

$

(11,412)

 

$

5,116

 

$

23,185

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash investing activities

 

 

 

 

 

 

 

 

 

 

Accrued capital expenditures

 

$

6,749

 

$

5,890

 

$

19,741

 

Accrued advances to Jamul Tribe

 

$

6,962

 

$

39,625

 

$

7,978

 

See accompanying notes to the consolidated financial statements.

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Non-cash transactions: In conjunction with the purchase price of Rocket Speed on August 1, 2016, the Company increased its acquired assets and other current and noncurrent liabilities by $34.4 million for the fair value of the contingent purchase price consideration at the time of acquisition.  The remaining portion of the purchase price was paid in cash.

In January 2015, a repayment obligation for a hotel and event center near Hollywood Casino Lawrenceburg was assumed by a subsidiary of the Company, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment. This non-cash transaction increased property and equipment, net and total debt by $15.3 million. See Note 9 for further detail.

For the year ended December 31, 2014, the Company recognized an increase to the financing obligation and real property assets of $118.9 million related to the remaining real estate construction costs that were funded by Gaming and Leisure Properties, Inc. for the Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course facilities which opened in the third quarter of 2014.  In addition during this same period, the Company recognized an increase to other intangible assets and debt of $150.0 million related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning (see Note 9). Lastly, the Company increased other intangible assets and accrued expenses for $50.0 million related to the unpaid gaming license fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.  In conjunction with the purchase of Plainridge Racecourse in April 2014, the Company increased its acquired assets and other noncurrent liabilities by $18.5 million for the fair value of the contingent purchase price consideration at the time of acquisition. The remaining portion of the purchase price was paid in cash.

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Penn National Gaming, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.Business and Basis of Presentation

Penn National Gaming, Inc. (“Penn”) and together with its subsidiaries (collectively, the “Company”) is a geographically diversified, multi-jurisdictional owner and manager of gaming and racing facilities and video gaming terminal operations with a focus on slot machine entertainment. The Company was incorporated in Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company became a publicly traded company. In 1997, the Company began its transition from a pari-mutuel company to a diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions, greenfield projects, and property expansions. We, along with our joint venture partner, opened Hollywood Casino at Kansas Speedway in February 2012.  In Ohio, the Company opened four new gaming properties, including: Hollywood Casino Toledo in May 2012, Hollywood Casino Columbus in October 2012, Hollywood Gaming at Dayton Raceway in August 2014, and Hollywood Gaming at Mahoning Valley Race Course in September 2014.  In addition, in November 2012, the Company acquired Harrah’s St Louis, which was subsequently rebranded as Hollywood Casino St Louis. In 2015, the Company opened Plainridge Park Casino, an integrated racing and slots-only gaming facility in Plainville, Massachusetts, in June, completed the acquisition of our first Las Vegas strip asset, Tropicana Hotel and Casino in Las Vegas, Nevada in August, and acquired Illinois Gaming Investors, LLC (d/b/a Prairie State Gaming), one of the largest video gaming terminal route operators in Illinois, in September.

In addition, we are now managing Hollywood Casino Jamul-San Diego on the Jamul Indian Village land in trust near San Diego, California, which opened on October 10, 2016. In 2016, Prairie State Gaming also acquired two small video gaming terminal route operators in Illinois.  Finally, the Company recently implemented our interactive gaming strategy through our subsidiary, Penn Interactive Ventures, which included launching our HollywoodCasino.com Play4Fun social gaming platform with Scientific Games and our HollywoodSlots.com mobile social gaming platform with OpenWager.  On August 1, 2016, we completed our acquisition of Rocket Speed, a leading developer of social casino games.  

As of December 31, 2016, the Company owned, managed, or had ownership interests in twenty‑seven facilities in the following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario, Canada. On July 30, 2014, the Company closed its facility in Sioux City, Iowa.  In addition, Beulah Park and Raceway Park in Ohio were closed, as the racetracks were relocated to Hollywood Gaming at Mahoning Valley Race Course and Hollywood Gaming at Dayton Raceway, respectively, both of which opened in the third quarter of 2014.  On January 8, July 31, and September 4, 2016, the Company sold Raceway Park in Toledo, Ohio, Rosecroft Raceway in Prince George’s county, Maryland and Beulah Park in Grove City, Ohio, respectively.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.

2.Principles of Consolidation

The consolidated financial statements include the accounts of Penn and its subsidiaries. Investment in and advances to unconsolidated affiliates, that do not meet the consolidation criteria of the authoritative guidance for voting interest, controlling interest or variable interest entities (“VIEs”), are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.

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3.Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all cash balances and highly‑liquid investments with original maturities of three months or less to be cash and cash equivalents.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, and accounts receivable. 

The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short‑term money market and tax‑free bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and overnight repurchase agreements that exceed federally‑insured limits.

Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers only following credit checks and investigations of creditworthiness. Marker balances issued to approved casino customers were $4.4 million at December 31, 2016, compared to $4.7 million at December 31, 2015.

The Company’s receivables of $61.9 million and $45.2 million at December 31, 2016 and 2015, respectively, primarily consist of $5.0 million and $5.2 million, respectively, due from the West Virginia Lottery for gaming revenue settlements and capital reinvestment projects at Hollywood Casino at Charles Town Races, $11.8 million and $5.4 million, respectively, for reimbursement of expenses paid on behalf of Casino Rama and Hollywood Casino Jamul – San Diego, $4.0 million and $5.1 million, respectively, for racing settlements due from simulcasting at Hollywood Casino at Penn National Race Course, $3.4 million and $3.2 million, respectively, for reimbursement of payroll expenses paid on behalf of the Company’s joint venture in Kansas, $10.8 million and $5.5 million, respectively, for cash, credit card and other advances to customers, $3.2 million due from platform providers (Apple, Google, Amazon, Facebook) for social casino game revenues, and markers issued to customers mentioned above.

Accounts are written off when management determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is determined to reduce the Company’s receivables to their carrying value, which approximates fair value. The allowance is estimated based on historical collection experience, specific review of individual customer accounts, and current economic and business conditions. Historically, the Company has not incurred any significant credit‑related losses.

See Note 5 for a discussion of the credit risk associated with our advances to the Jamul Tribe.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.

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Depreciation of property and equipment is recorded using the straight‑ line method over the following estimated useful lives:

Land improvements

15

years

Building and improvements

5 to 31

years

Furniture, fixtures, and equipment

3 to 31

years

All costs funded by Penn considered to be an improvement to the real property assets owned by GLPI under the Master Lease are recorded as leasehold improvements.  Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term.

The estimated useful lives are determined based on the nature of the assets as well as the Company’s current operating strategy.

The Company reviews the carrying value of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. For purposes of recognizing and measuring impairment in accordance with Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment,” assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non‑cash component of operating income.

Goodwill and Other Intangible Assets

At December 31, 2016, the Company had $989.7 million in goodwill and $435.5 million in other intangible assets within its consolidated balance sheet, respectively, resulting from the Company’s acquisition of other businesses and payment for gaming licenses. Two issues arise with respect to these assets that require significant management estimates and judgment: (i) the valuation in connection with the initial purchase price allocation; and (ii) the ongoing evaluation for impairment.

In connection with the Company’s acquisitions, valuations are completed to determine the allocation of the purchase prices. The factors considered in the valuations include data gathered as a result of the Company’s due diligence in connection with the acquisitions, projections for future operations, and data obtained from third-party valuation specialists as deemed appropriate. Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if indicators of impairment exist, in two steps. In step 1 of the impairment test, the current fair value of each reporting unit is estimated using a discounted cash flow model which is then compared to the carrying value of each reporting unit. The Company adjusts the carrying value of each reporting unit that utilizes property that is subject to the Master Lease by an allocation of a pro-rata portion of the GLPI financing obligation based on the reporting unit’s estimated fair value as a percentage of the aggregate estimated fair value of all reporting units that utilize property that is subject to the Master Lease. If the carrying amount of a reporting unit exceeds its fair value in step 1 of the impairment test, then step 2 of the impairment test is performed to determine the implied fair value of goodwill for that reporting unit. If the implied fair value of goodwill is less than the goodwill allocated for that reporting unit, an impairment is recognized.  In the event a reporting unit has a negative carrying amount, the Company first performs a qualitative evaluation to determine if it is more likely than not that a goodwill impairment exists, and if so, it performs a step 2 of the impairment test to measure the amount of the impairment charge, if any.

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In accordance with ASC 350, “Intangibles‑Goodwill and Other,” the Company considers its gaming licenses and certain other intangible assets as indefinite‑life intangible assets that do not require amortization based on the Company’s future expectations to operate its gaming facilities indefinitely (notwithstanding our experience in 2014 in Iowa which the Company concluded was an isolated incident and the first time in the Company’s history a gaming regulator has taken an action which could cause it to lose its gaming license) as well as its historical experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite‑life intangible assets exceed their fair value, an impairment loss is recognized. The Company completes its testing of its intangible assets prior to assessing the realizability of its goodwill.

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

·

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

·

Theoretical construction costs and duration;

·

Pre‑opening expenses; and

·

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

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

Forecasted cash flows (based on the Company’s annual operating plan as determined in the fourth quarter) can be significantly impacted by the local economy in which its reporting units operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions where the Company’s reporting units currently operate can result in opportunities for the Company to expand its operations. However, it also has the impact of increasing competition for the Company’s established properties which generally will have a negative effect on those locations’ profitability once competitors become established as a certain

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level of cannibalization occurs absent an overall increase in customer visitations. Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.

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

Once an impairment of goodwill or other indefinite‑life intangible assetsasset has been recorded, it cannot be reversed. BecauseSince the Company’s goodwill and indefinite‑lifeother indefinite-lived intangible assets are not amortized, there may be volatility in reported net income or loss because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite‑definite life are amortized on a straight‑linestraight-line basis over their estimated useful lives or related service contract. The Company reviews the carrying valueamount of its amortizing intangible assets that have a definite‑life for possible impairment whenever events or changes in circumstances indicate that their carrying valueamount may not be recoverable. If the carrying amount of the amortizing intangible assets that have a definite‑life exceed their fair value, an impairment loss is recognized.

Failed Spin-Off-Leaseback Financing Obligation

The Company’s spin-off of real property assets

Revenue and corresponding Master Lease Agreement with GLPIearnings streams within our industry can vary significantly based on November 1, 2013 did not meet allvarious circumstances, which in many cases are outside of the requirementsCompany’s control, and as such are difficult to predict and quantify. We have disclosed several of these circumstances in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Circumstances include, for sale-leaseback accounting treatment under Accounting Standards Codification (ASC) 840 “Leases” and therefore is accounted for as a financing obligation rather than a distributioninstance, changes in legislation that approves gaming in nearby jurisdictions, further expansion of assets followed by an operating lease.  Specifically,gaming in jurisdictions where we currently operate, new state legislation that requires the Master Lease contains provisionsimplementation of smoking restrictions at our casinos or any other events outside of our control that would indicatemake the Company has prohibited forms of continuing involvement in the leased assets which are not a normal leaseback.  customer experience less desirable.
As a result of our 2019 annual impairment test, we recognized impairments on our goodwill, gaming licenses and trademarks, of $88.0 million, $62.6 million and $20.0 million, respectively. See Note 8, “Goodwill and Other Intangible Assets,” in the failed spin-off-leaseback accounting, the Company calculated a financing obligation at the inceptionnotes to our Consolidated Financial Statements. Goodwill of the Master Lease based on thereporting units and gaming licenses and trademarks of properties recently acquired or impaired are particularly at-risk for future minimum lease payments discounted at 9.70%.  The discount rate represents the estimated incremental borrowing rate over the lease term of 35 years, which included renewal options that were reasonably assured of being exercisedimpairment given the high percentage of the Company’s earningsfact that are derived from the Master Lease properties operations to the Company and the lack of alternative economically feasible leasing options for such real estate.  The minimum lease paymentsthey are recorded as interest expense and in part as a payment of principal reducing the financing obligation.  Contingent rentals are recorded as additional interest expense.  The real property assets in the transaction remain on the consolidated balance sheets and continue to be depreciated over the remaining useful lives.

Debt Issuance Costs

Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness.  These costs are classified as a direct reduction of long-term debt on the Company’s consolidated balance sheets in accordance with guidance issued in April 2015 by the FASB to simplify the presentation of debt issuance costs in the balance sheet.

Self-Insurance Reserves

The Company is self-insured for employee health coverage, general liability and workers compensation up to certain stop loss amounts.  The Company uses a reserve method for each reported claim plus an allowance for claims incurred but not yet reported to a fully developed claims reserve method based on an actuarial computation of ultimate liability.  Self-insurance reserves are included in accrued expenses on our consolidated balance sheets.

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Contingent Purchase Price

The consideration for the Company’s acquisitions often includes future payments that are contingent upon the occurrence of a particular event. The Company records an obligation for such contingent payments at fair value at the acquisition date.

The Company revalues its contingent consideration obligations each reporting period. Changes in the fair valueas of the contingent consideration obligation are recognized indate of acquisition or impairment. As of October 1, 2019, the Company’s consolidated statements of operations as a component of general and administrative expense.  Changes in the fair valuedate of the contingent purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount rate and changes in the assumed probabilities of successful achievement of certain financial targets.

Other Comprehensive Income

The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income,” which establishes standards formost recent annual impairment test, the reporting units with goodwill and presentationthe gaming licenses and trademarks associated with our properties with less than a substantial cushion, including a sensitivity analysis of comprehensive income in the consolidated financial statements. The Company presents comprehensive income in two separate but consecutive statements. Forimpact on the years ended December 31, 2016, 2015 and 2014, the only componentrecorded amount of accumulated other comprehensive income was foreign currency translation adjustments.

impairment losses, were as follows:


     Increase in the Recorded Amount of Impairment Loss as a Result of:
(dollars in millions)Carrying Amount Cushion 
Discount Rate
+100 bps
 Terminal Growth Rate -50 bps
Goodwill       
Hollywood Casino Aurora$161.1
 —% $14.0
 $5.9
Margaritaville Resort Casino$40.5
 12.8% $—
 $—
        
Gaming licenses       
Ameristar East Chicago$115.5
 —% $17.0
 $6.5
Boomtown Bossier City$16.0
 —% $3.5
 $1.5
Boomtown New Orleans$101.5
 0.5% $14.0
 $5.5
L’Auberge Lake Charles$304.0
 22.5% $—
 $—
Meadows Racetrack and Casino$158.5
 —% $21.0
 $8.0
River City Casino$226.5
 0.9% $28.0
 $10.0
        
Trademarks       
Ameristar Black Hawk$39.0
 6.4% $2.0
 $—
Ameristar Council Bluffs$32.5
 —% $3.5
 $1.0
Ameristar East Chicago$22.0
 6.8% $1.0
 $—
Ameristar Vicksburg$19.0
 —% $2.0
 $0.5
Boomtown Bossier City$5.0
 —% $0.5
 $0.5
L’Auberge Baton Rouge$20.0
 —% $2.0
 $0.5
Meadows Racetrack and Casino$30.0
 —% $3.0
 $0.5
Income Taxes

The Company accounts for income taxes in accordance with

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

The realizability of the net deferred tax assets is evaluated each reporting period by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. Pursuant to ASC 740, in evaluating the more-likely-than-not standard, we consider all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes. During the third quarter of 2017, we determined that a valuation allowance was no longer required against our federal net deferred tax assets for the portion that was expected to be realized upon the achievement of the “more-likely-than-not” standard. As such, we released $741.9 million of our total valuation allowance during the year ended December 31, 2017.


ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest rate on borrowings under our Senior Secured Credit Facilities. As of December 31, 2019, the Company’s Senior Secured Credit Facilities had a gross outstanding balance of $1,929.8 million, consisting of a $672.3 million Term Loan A Facility, a $1,117.5 million Term Loan B-1 Facility, and a Revolving Credit Facility, which had $140.0 million drawn as of December 31, 2019.
The table below provides information as of December 31, 2019 about our long-term debt obligations that are sensitive to changes in interest rates, including the notional amounts maturing during the twelve month period presented and the related weighted-average interest rates by maturity dates.
(dollars in millions)2020 2021 2022 2023 2024 Thereafter Total Fair Value
Fixed rate$—
 $—
 $—
 $—
 $—
 $400.0
 $400.0
 $426.0
Average interest rate

 

 

 

 

 5.625%    
Variable rate$46.7
 $64.4
 $82.1
 $664.3
 $11.3
 $1,061.0
 $1,929.8
 $1,930.6
Average interest rate (1)
3.65% 3.66% 3.67% 3.70% 3.98% 4.04%    
(1)Estimated rate, reflective of forward LIBOR December 31, 2019 plus the spread over LIBOR applicable to variable-rate borrowing.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Penn National Gaming, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Penn National Gaming, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the financial statements, effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach. 
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Gaming License - Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company’s gaming license indefinite-lived intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. The Company assesses the fair value of its gaming licenses using the Greenfield Method under the income approach, which estimates the fair value using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing casino. The key inputs in determining the fair value, among others, include projected revenue and operating cash flows

discounted to reflect the level of risk associated with receiving future cash flows attributable to the licenses. Total gaming licenses were $1,681.9 million as of December 31, 2019, of which $115.5 million, $101.5 million, $304.0 million, $158.5 million and $226.5 million was allocated to Ameristar East Chicago, Boomtown New Orleans, L’Auberge Lake Charles, Meadows Racetrack and Casino, and River City Casino (the “properties”), respectively.
Auditing the fair value of the properties’ gaming licenses involved a high degree of subjectivity in evaluating whether management’s estimates and assumptions of projected revenue and operating cash flows and the selection of the discount rates used to derive the fair value were reasonable, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts of future revenue and operating cash flows and the determination of the discount rates used by management to estimate the fair value of the properties’ gaming licenses included the following, among others:
We tested the effectiveness of controls over determining the fair value of gaming licenses, including those over the forecasts of future revenue and operating cash flows and the selection of the discount rates.
We evaluated management’s ability to accurately forecast future revenues and operating cash flows by comparing actual results to management’s historical forecasts.
We evaluated the reasonableness of management’s revenue and operating cash flow forecasts by comparing the forecasts to:
◦Historical results
◦Internal communications to management and the Board of Directors
◦Forecasted information included in the Company’s press release as well as in analyst and industry reports for the Company and certain of its peer companies
◦The impact of changes in the regulatory environment on management’s projections.
With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
◦Testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculations.
◦Developing a range of independent estimates and comparing those to the discount rates selected by management.
Adoption of Accounting Standards Codification Topic 842, “Leases” (“ASC 842”) for Master Leases - Refer to Notes 2, 3 and 11 to the financial statements (also see ASC 842 explanatory paragraph above)
Critical Audit Matter Description
On January 1, 2019, the Company adopted ASC 842 and recorded a cumulative-effect adjustment to retained earnings of $1,085.7 million. Under the provisions of ASC 842, the Company was required to evaluate its existing sale-leaseback transactions to determine whether a sale had occurred, and if a sale had occurred, to determine the classification (operating or finance) of each component contained within each of its Master Leases.
The Company assessed each Master Lease component and determined certain land components to be operating leases and certain building components to be financing obligations. The assessment of the classification of each component resulted in the (1) derecognition of certain property and equipment and financing obligations, (2) recognition of an operating lease liability and an operating lease right-of-use (“ROU”) asset for the operating leases, and (3) continued recognition of the financing obligation utilizing the original assumptions as of the date the Company entered into or acquired each Master Lease. The Company also was required to evaluate the components contained within the build-to-suit arrangements, which resulted in the Dayton and Mahoning Valley lease components being classified as finance leases.
The significant complexity of the adoption of ASC 842, which resulted in a material adjustment to opening retained earnings, required significant auditor judgment with respect to evaluating the determination of lease classifications, interpretation of build-to-suit accounting guidance, and assessment of sale lease back accounting, including the need to involve professionals in our firm with expertise in lease accounting.

How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the adoption of ASC 842 for its Master Leases included the following, among others:
We tested the effectiveness of internal controls over the adoption of ASC 842, inclusive of controls over the evaluation of lease classifications and accounting conclusions.
With the assistance of professionals in our firm with expertise in lease accounting, we evaluated the appropriateness of the accounting conclusions, including;
◦Lease classification
◦Build to suit and sale lease back transactions.
We evaluated the financial statement impact of (i) the derecognition of the existing financing obligation and the carrying amount of the property and equipment that resulted in a cumulative-effect adjustment to retained earnings, (ii) the recognition of an operating lease liability and an operating lease ROU asset primarily pertaining to the land component, and (iii) the recognition of a ROU asset and financing lease liability relating to certain leases which were previously considered build-to-suit leases.
We tested the leasing components contained within each of the Master Leases that were determined to continue to represent financing obligations (consisting primarily of the building components) at the adoption date, which resulted in the (i) continued recognition of the leased assets in “Property and equipment, net” within the financial statements and (ii) continued recognition of the financing obligation.
We tested the accuracy and completeness of contract terms and key assumptions utilized in key accounting determinations through comparison to the underlying lease contracts and supporting documentation.

/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 27, 2020
We have served as the Company’s auditor since 2017.


PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,
 (in millions, except share and per share data)2019 2018
Assets   
Current assets   
Cash and cash equivalents$437.4
 $479.6
Receivables, net of allowance for doubtful accounts of $7.7 and $3.288.7
 106.8
Prepaid expenses76.7
 63.0
Other current assets40.0
 28.2
Total current assets642.8
 677.6
Property and equipment, net5,120.2
 6,868.8
Investment in and advances to unconsolidated affiliates128.3
 128.5
Goodwill1,270.7
 1,228.4
Other intangible assets, net2,026.5
 1,856.9
Deferred income taxes—
 80.6
Operating lease right-of-use assets4,613.3
 —
Finance lease right-of-use assets224.0
 —
Other assets168.7
 120.2
Total assets$14,194.5
 $10,961.0
    
Liabilities   
Current liabilities   
Accounts payable$40.3
 $30.5
Current maturities of long-term debt62.9
 62.1
Current portion of financing obligations40.5
 67.8
Current portion of operating lease liabilities124.1
 —
Current portion of finance lease liabilities6.5
 —
Accrued expenses and other current liabilities631.3
 578.0
Total current liabilities905.6
 738.4
Long-term debt, net of current maturities and debt issuance costs2,322.2
 2,350.1
Long-term portion of financing obligations4,102.2
 7,080.6
Long-term portion of operating lease liabilities4,450.6
 —
Long-term portion of finance lease liabilities219.4
 —
Deferred income taxes244.6
 —
Other long-term liabilities98.0
 60.7
Total liabilities12,342.6
 10,229.8
Commitments and contingencies (Note 12)

 

Stockholders’ equity   
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)—
 —
Common stock ($0.01 par value, 200,000,000 shares authorized, 118,125,652 and 118,855,201 shares issued, and 115,958,259 and 116,687,808 shares outstanding)1.2
 1.2
Treasury stock, at cost, (2,167,393 shares held in both periods)(28.4) (28.4)
Additional paid-in capital1,718.3
 1,726.4
Retained earnings (accumulated deficit)161.6
 (968.0)
Total Penn National stockholders’ equity1,852.7
 731.2
Non-controlling interest(0.8) —
Total stockholders’ equity1,851.9
 731.2
Total liabilities and stockholders’ equity$14,194.5
 $10,961.0
See accompanying notes to the Consolidated Financial Statements.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 For the year ended December 31,
 (in millions, except per share data)2019 2018 2017
Revenues     
Gaming$4,268.7
 $2,894.9
 $2,692.0
Food, beverage, hotel and other1,032.7
 629.7
 601.7
Management service and license fees—
 6.0
 11.7
Reimbursable management costs—
 57.3
 26.1
 5,301.4
 3,587.9
 3,331.5
Less: Promotional allowance—
 —
 (183.5)
Total revenues5,301.4
 3,587.9
 3,148.0
Operating expenses     
Gaming2,281.8
 1,551.4
 1,365.0
Food, beverage, hotel and other672.7
 439.3
 421.8
General and administrative1,187.7
 618.9
 514.5
Reimbursable management costs—
 57.3
 26.1
Depreciation and amortization414.2
 269.0
 267.1
Impairment losses173.1
 34.9
 18.0
Provision for (recoveries on) loan loss and unfunded loan commitments—
 (17.0) 89.8
Total operating expenses4,729.5
 2,953.8
 2,702.3
Operating income571.9
 634.1
 445.7
Other income (expenses)     
Interest expense, net(534.2) (538.4) (463.2)
Income from unconsolidated affiliates28.4
 22.3
 18.7
Loss on early extinguishment of debt—
 (21.0) (24.0)
Other20.0
 (7.1) (2.3)
Total other expenses(485.8) (544.2) (470.8)
Income (loss) before income taxes86.1
 89.9
 (25.1)
Income tax benefit (expense)(43.0) 3.6
 498.5
Net income43.1
 93.5
 473.4
Less: Net loss attributable to non-controlling interest0.8
 —
 —
Net income attributable to Penn National$43.9
 $93.5
 $473.4
      
Earnings per common share     
Basic earnings per common share$0.38
 $0.96
 $5.21
Diluted earnings per common share$0.37
 $0.93
 $5.07
      
Weighted-average basic shares outstanding115.7
 97.1
 90.9
Weighted-average diluted shares outstanding117.8
 100.3
 93.4
See accompanying notes to the Consolidated Financial Statements.


PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 For the year ended December 31,
(in millions)2019 2018 2017
Net income$43.1
 $93.5
 $473.4
Other comprehensive income, net of tax:     
Foreign currency translation adjustment during the period—
 —
 3.2
Other comprehensive income—
 —
 3.2
Total comprehensive income43.1
 93.5
 476.6
Less: Comprehensive loss attributable to non-controlling interest0.8
 —
 —
Comprehensive income attributable to Penn National$43.9
 $93.5
 $476.6
See accompanying notes to the Consolidated Financial Statements.



PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
 Preferred Stock Common Stock Treasury
Stock		 
Additional
Paid-In
Capital
 
Retained Earnings (Accum-
ulated Deficit)
 
Accum-
ulated
Other
Compre-
hensive
Loss
 Total Penn National Stock-holders’
Equity (Deficit)		 Non-Controlling Interest Total
Stock-holders’ Equity (Deficit)
(in millions, except share data)Shares Amount Shares Amount       
Balance as of January 1, 2017—
 $—
 91,122,308
 $0.9
 $(28.4) $1,014.1
 $(1,525.3) $(4.7) $(543.4) $—
 $(543.4)
Share-based compensation arrangements—
 —
 1,367,083
 —
 —
 18.3
 —
 —
 18.3
 —
 18.3
Foreign currency translation adjustment—
 —
 —
 —
 —
 —
 —
 3.2
 3.2
 —
 3.2
Share repurchases—
 —
 (1,264,149) —
 —
 (24.8) —
 —
 (24.8) —
 (24.8)
Net income—
 —
 —
 —
 —
 —
 473.4
 —
 473.4
 —
 473.4
Balance as of December 31, 2017—
 —
 91,225,242
 0.9
 (28.4) 1,007.6
 (1,051.9) (1.5) (73.3) —
 (73.3)
Share-based compensation arrangements—
 —
 1,466,625
 —
 —
 19.4
 —
 —
 19.4
 —
 19.4
Pinnacle Acquisition—
 —
 26,295,439
 0.3
 —
 749.4
 —
 —
 749.7
 —
 749.7
Reclassification of accumulated other comprehensive loss to earnings upon termination of management contract—
 —
 —
 —
 —
 —
 —
 1.5
 1.5
 —
 1.5
Cumulative-effect adjustment upon adoption of ASC 606—
 —
 —
 —
 —
 —
 (9.6) —
 (9.6) —
 (9.6)
Share repurchases—
 —
 (2,299,498) —
 —
 (50.0) —
 —
 (50.0) —
 (50.0)
Net income—
 —
 —
 —
 —
 —
 93.5
 —
 93.5
 —
 93.5
Balance as of December 31, 2018—
 —
 116,687,808
 1.2
 (28.4) 1,726.4
 (968.0) —
 731.2
 —
 731.2
Share-based compensation arrangements—
 —
 542,274
 —
 —
 16.8
 —
 —
 16.8
 —
 16.8
Cumulative-effect adjustment upon adoption of ASC 842—
 —
 —
 —
 —
 —
 1,085.7
 —
 1,085.7
 —
 1,085.7
Share repurchases—
 —
 (1,271,823) —
 —
 (24.9) —
 —
 (24.9) —
 (24.9)
Net income (loss)—
 —
 —
 —
 —
 —
 43.9
 —
 43.9
 (0.8) 43.1
Balance as of December 31, 2019—
 $—
 115,958,259
 $1.2
 $(28.4) $1,718.3
 $161.6
 $—
 $1,852.7
 $(0.8) $1,851.9
See accompanying notes to the Consolidated Financial Statements.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 31,
(in millions)2019 2018 2017
Operating activities     
Net income$43.1
 $93.5
 $473.4
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization414.2
 269.0
 267.1
Amortization of items charged to interest expense7.7
 6.4
 7.0
Noncash operating lease expense100.4
 —
 —
Change in fair value of contingent purchase price7.0
 0.5
 (6.8)
Holding gain on equity securities(19.9) —
 —
Loss on sale or disposal of property and equipment5.5
 3.2
 0.2
Income from unconsolidated affiliates(28.4) (22.3) (18.7)
Return on investment from unconsolidated affiliates29.0
 27.0
 26.5
Deferred income taxes21.1
 (26.7) (517.9)
Stock-based compensation14.9
 12.0
 7.8
Impairment losses173.1
 34.9
 18.0
Provision for (recoveries on) loan loss and unfunded loan commitments—
 (17.0) 89.8
Reclassification of accumulated other comprehensive loss to earnings upon termination of management contract—
 1.5
 —
Loss on early extinguishment of debt—
 21.0
 24.0
Changes in operating assets and liabilities, net of businesses acquired     
Accounts receivable27.0
 (1.8) (9.2)
Prepaid expenses and other current assets9.7
 13.3
 (7.3)
Other assets(2.3) 1.5
 2.4
Accounts payable4.4
 (6.1) (0.4)
Accrued expenses(3.9) (47.0) 55.2
Income taxes(7.2) (3.3) 20.4
Operating lease liabilities(139.1) —
 —
Other current and long-term liabilities47.6
 (6.8) 46.3
Net cash provided by operating activities703.9
 352.8
 477.8
Investing activities     
Project capital expenditures(25.1) (2.9) (25.1)
Maintenance capital expenditures(165.5) (89.7) (74.2)
Consideration paid for acquisitions of businesses, net of cash acquired(1,359.4) (1,945.2) (127.7)
Proceeds from sale-and-leaseback transactions in conjunction with acquisitions961.1
 —
 —
Cash received for the sale of the Divested Properties and Belterra Park—
 661.7
 —
Consideration paid for gaming licenses and other intangible assets(11.7) (81.6) (1.6)
Acquisition of equity securities(5.1) —
 —
Additional contributions from (to) joint ventures(0.4) 18.9
 (0.5)
Proceeds from sale of loan—
 15.2
 —
Receipts applied against nonaccrual loan—
 0.5
 8.2
Other(1.4) —
 (0.7)
Net cash used in investing activities(607.5) (1,423.1) (221.6)
      
      
      
      

 For the year ended December 31,
(in millions)2019 2018 2017
Financing activities     
Proceeds from revolving credit facility412.0
 201.0
 256.4
Repayments on revolving credit facility(384.0) (89.0) (447.4)
Proceeds from issuance of long-term debt—
 1,558.9
 1,200.0
Principal payments on long-term debt(46.6) (482.5) (1,127.5)
Prepayment penalties and modification payments incurred with debt refinancing—
 (11.3) (18.0)
Debt issuance costs and debt discount—
 (27.3) (25.6)
Payments of other long-term obligations(15.4) (15.7) (35.4)
Principal payments on financing obligations(51.6) (67.4) (57.8)
Principal payments on finance leases(6.2) —
 —
Proceeds from the sale of real estate assets in conjunction with acquisitions—
 250.0
 82.6
Proceeds from exercise of options1.9
 7.4
 10.4
Repurchase of common stock(24.9) (50.0) (24.8)
Payments of contingent purchase price(3.9) (4.1) (19.6)
Proceeds from insurance financing16.1
 13.1
 11.9
Payments on insurance financing(19.4) (11.0) (12.2)
Other(0.4) —
 —
Net cash provided by (used in) financing activities(122.4) 1,272.1
 (207.0)
Change in cash, cash equivalents, and restricted cash(26.0) 201.8
 49.2
Cash, cash equivalents and restricted cash at the beginning of the year481.2
 279.4
 230.2
Cash, cash equivalents and restricted cash at the end of the year$455.2
 $481.2
 $279.4
 For the year ended December 31,
(in millions)2019 2018 2017
Reconciliation of cash, cash equivalents and restricted cash:     
Cash and cash equivalents$437.4
 $479.6
 $277.9
Restricted cash included in Other current assets15.5
 —
 —
Restricted cash included in Other assets2.3
 1.6
 1.5
Total cash, cash equivalents and restricted cash$455.2
 $481.2
 $279.4
      
Supplemental disclosure:     
Cash paid for interest, net of amounts capitalized$528.1
 $530.4
 $452.8
Cash payments (refunds) related to income taxes, net$21.8
 $24.4
 $(43.1)
      
Non-cash investing activities:     
Commencement of operating leases$713.5
 $—
 $—
Commencement of finance leases$4.6
 $—
 $—
Accrued capital expenditures$12.6
 $7.7
 $1.9
Acquisition of equity securities$16.1
 $—
 $—
Accrued advances to Jamul Tribe$—
 $—
 $2.5
See accompanying notes to the Consolidated Financial Statements.


PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Basis of Presentation
Organization: Penn National Gaming, Inc., together with its subsidiaries, is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties and video gaming terminal (“VGT”) operations. We currently offer live sports betting at our properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia. We operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which recently launched an online casino in Pennsylvania through our HollywoodCasino.com gaming platform and entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Our MYCHOICE® customer loyalty program (the “mychoice program”) provides its members with various benefits, including complimentary goods and/or services. References herein to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
As of December 31, 2019, we owned, managed, or had ownership interests in 41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in Note 11, “Leases,” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“GLPI”), a real estate investment trust (“REIT”).
In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI” and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the Master Leases, the Greektown Lease and the Meadows Lease (as defined in Note 3, “New Accounting Pronouncements”), the “Triple Net Leases”). In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”), which added 12 gaming properties to our holdings. For more information on our acquisitions, see Note 5, “Acquisitions and Other Investments.”
Basis of Presentation: The Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

Note 2—Significant Accounting Policies
Principles of Consolidation: The Consolidated Financial Statements include the accounts of Penn National Gaming, Inc. and its subsidiaries. Investments in and advances to unconsolidated affiliates that do not meet the consolidation criteria of the authoritative guidance for voting interest entities (“VOEs”) or variable interest entities (“VIEs”) are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of 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 Consolidated Financial Statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by us include, among other things, the useful lives for depreciable and amortizable assets, the allowance for doubtful accounts receivable, income tax provisions, the evaluation of the future realization of deferred tax assets, determining the adequacy of reserves for self-insured liabilities, the liabilities associated with our mychoice program, the initial measurements of financing obligations associated with the Master Leases, projected cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and other intangible assets, projected cash flows in assessing the initial valuation of intangible assets in conjunction with acquisitions, the initial selection of useful lives for depreciable and amortizable assets in conjunction with acquisitions, contingencies and litigation, and stock-based compensation expense. Actual results may differ from those estimates.

Segment Information: We view each of our gaming and racing properties as an operating segment with the exception of our 2 properties in Jackpot, Nevada, which we view as 1 operating segment. We consider our combined VGT operations, by state, to be separate operating segments. See Note 17, “Segment Information,” for further information. For financial reporting purposes, we aggregate our operating segments into the following 4 reportable segments:
LocationReal Estate Assets Lease or Ownership Structure
Northeast segment
Ameristar East ChicagoEast Chicago, IndianaPinnacle Master Lease
Greektown Casino-Hotel(1)
Detroit, MichiganGreektown Lease
Hollywood Casino BangorBangor, MainePenn Master Lease
Hollywood Casino at Charles Town RacesCharles Town, West VirginiaPenn Master Lease
Hollywood Casino ColumbusColumbus, OhioPenn Master Lease
Hollywood Casino LawrenceburgLawrenceburg, IndianaPenn Master Lease
Hollywood Casino at Penn National Race CourseGrantville, PennsylvaniaPenn Master Lease
Hollywood Casino ToledoToledo, OhioPenn Master Lease
Hollywood Gaming at Dayton RacewayDayton, OhioPenn Master Lease
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OhioPenn Master Lease
Marquee by Penn (2)
PennsylvaniaN/A
Meadows Racetrack and CasinoWashington, PennsylvaniaMeadows Lease
Plainridge Park CasinoPlainville, MassachusettsPinnacle Master Lease
South segment (3)
1st Jackpot Casino
Tunica, MississippiPenn Master Lease
Ameristar VicksburgVicksburg, MississippiPinnacle Master Lease
Boomtown BiloxiBiloxi, MississippiPenn Master Lease
Boomtown Bossier CityBossier City, LouisianaPinnacle Master Lease
Boomtown New OrleansNew Orleans, LouisianaPinnacle Master Lease
Hollywood Casino Gulf CoastBay St. Louis, MississippiPenn Master Lease
Hollywood Casino TunicaTunica, MississippiPenn Master Lease
L’Auberge Baton RougeBaton Rouge, LouisianaPinnacle Master Lease
L’Auberge Lake CharlesLake Charles, LouisianaPinnacle Master Lease
Margaritaville Resort Casino(4)
Bossier City, LouisianaMargaritaville Lease
West segment
Ameristar Black HawkBlack Hawk, ColoradoPinnacle Master Lease
Cactus Petes and HorseshuJackpot, NevadaPinnacle Master Lease
M ResortHenderson, NevadaPenn Master Lease
Tropicana Las VegasLas Vegas, NevadaOwned
Zia Park CasinoHobbs, New MexicoPenn Master Lease
Midwest segment
Ameristar Council BluffsCouncil Bluffs, IowaPinnacle Master Lease
Argosy Casino Alton (5)
Alton, IllinoisPenn Master Lease
Argosy Casino RiversideRiverside, MissouriPenn Master Lease
Hollywood Casino AuroraAurora, IllinoisPenn Master Lease
Hollywood Casino JolietJoliet, IllinoisPenn Master Lease
Hollywood Casino at Kansas Speedway (6)
Kansas City, KansasOwned - JV
Hollywood Casino St. LouisMaryland Heights, MissouriPenn Master Lease
Prairie State Gaming (2)
IllinoisN/A
River City CasinoSt. Louis, MissouriPinnacle Master Lease
(1)Acquired on May 23, 2019
(2)VGT route operations
(3)Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease.
(4)Acquired on January 1, 2019
(5)The riverboat is owned by us and not subject to the Penn Master Lease.
(6)Pursuant to a joint venture (“JV”) with International Speedway Corporation (“International Speedway”) and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway.

Cash and Cash Equivalents: The Company considers all cash balances and highly-liquid investments with original maturities of three months or less at the date of purchase to be cash and cash equivalents.
Concentration of Credit Risk: Financial instruments that subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers only following investigations of creditworthiness.
The Company’s receivables as of December 31, 2019 and 2018 primarily consisted of the following:
 December 31,
(in millions)2019 2018
Markers issued to customers$22.9
 $17.2
Credit card receivables and other advances to customers16.5
 20.9
Receivables from ATM and cash kiosk transactions14.4
 19.2
Hotel and banquet receivables6.5
 8.1
Racing settlements6.6

6.1
Receivables due from platform providers for social casino games3.3

2.3
Other26.2

36.2
Allowance for doubtful accounts(7.7) (3.2)
Accounts receivable, net$88.7
 $106.8

 Accounts are written off when management determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is determined to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on historical collection experience, specific review of individual customer accounts, and current economic and business conditions. Historically, the Company has not incurred any significant credit-related losses.
Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation. Capital expenditures are accounted for as either project capital or maintenance (replacement) capital expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost-effective to repair. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.
The estimated useful lives of property and equipment are determined based on the nature of the assets as well as the Company’s current operating strategy. Depreciation of property and equipment is recorded using the straight-line method over the shorter of the estimated useful life of the asset or the related lease term, if any, as follows:
Years
Land improvements15
Buildings and improvements5 to 31
Vessels10 to 35
Furniture, fixtures and equipment3 to 31

All costs funded by the Company considered to be an improvement to the real estate assets subject to any of our Triple Net Leases are recorded as leasehold improvements. Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term.
The Company reviews the carrying amount of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by the Company in

performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other regulatory and economic factors. For purposes of recognizing and measuring impairment, assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying amount of property and equipment, we must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non-cash component of operating income. See Note 7, “Property and Equipment.”
Goodwill and Other Intangible Assets: Goodwill represents the future economic benefits of a business combination measured as the excess of the purchase price over the fair value of net assets acquired and has been allocated to our reporting units. Goodwill is tested annually, or more frequently if indicators of impairment exist. For the quantitative goodwill impairment test, an income approach, in which a discounted cash flow (“DCF”) model is utilized, and a market-based approach using guideline public company multiples of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) from the Company’s peer group are utilized in order to estimate the fair market value of the Company’s reporting units. In determining the carrying amount of each reporting unit that utilizes real estate assets subject to the Triple Net Leases, if and as applicable, (i) the Company allocates each reporting unit their pro-rata portion of the right-of-use (“ROU”) assets, lease liabilities, and/or financing obligations, and (ii) pushes down the carrying amount of the property and equipment subject to such leases. The Company compares the fair value of its reporting units to the carrying amounts. If the carrying amount of the reporting unit exceeds the fair value, an impairment is recorded equal to the amount of the excess (not to exceed the amount of goodwill allocated to the reporting unit).
We consider our gaming licenses, trademarks, and certain other intangible assets to be indefinite-lived based on our future expectations to operate our gaming properties indefinitely as well as our historical experience in renewing these intangible assets at minimal cost with various state commissions. Indefinite-lived intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment is recognized. The Company completes its testing of its indefinite-lived intangible assets prior to assessing the realizability of its goodwill.
The Company assesses the fair value of its gaming licenses using the Greenfield Method under the income approach, which estimates the fair value using a DCF model assuming the Company built a casino with similar utility to that of the existing casino. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. The Company assesses the fair value of its trademarks using the relief-from-royalty method under the income approach. The principle behind this method is that the value of the trademark is equal to the present value of the after-tax royalty savings attributable to the owned trademark.
Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1st of each year. Once an impairment of goodwill or other intangible asset has been recorded, it cannot be reversed. Other intangible assets that have a definite-life are amortized on a straight-line basis over their estimated useful lives or related service contract. The Company reviews the carrying amount of its amortizing intangible assets for possible impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the carrying amount of the amortizing intangible assets exceed their fair value, an impairment loss is recognized. See Note 8, “Goodwill and Other Intangible Assets.”
Equity Securities: The Company’s equity securities (including warrants) are measured at fair value each reporting period with unrealized holding gains and losses included in current period earnings. During the year ended December 31, 2019, the Company recognized a holding gain of $19.9 million related to equity securities held as of December 31, 2019, which is included in “Other,” as reported in “Other income (expenses)” within our Consolidated Statements of Income.
Financing Obligations: Subsequent to the adoption of Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“ASC 842”) on January 1, 2019, certain of the components contained within our Master Leases (primarily buildings) are accounted for as financing obligations, rather than leases. Prior to the adoption of ASC 842, our Master Leases, in their entirety, were accounted for as financing obligations. See Note 3, “New Accounting Pronouncements,” for a discussion of the impact of ASC 842 on our Consolidated Financial Statements.
On November 1, 2013, the Company spun-off its real estate assets into GLPI (the “Spin-Off”) and entered into the Penn Master Lease. This transaction did not meet all of the requirements for sale-leaseback accounting treatment under ASC Topic 840, “Leases,” (“ASC 840”); specifically, the Penn Master Lease contains provisions that indicate the Company has prohibited forms of continuing involvement in the leased assets, which are not a normal leaseback. Accordingly, at lease inception, we calculated a financing obligation based on the future minimum lease payments discounted at our estimated incremental borrowing rate at lease inception over the lease term of 35 years, which was determined to be 9.7%. The lease term included

renewal options that were reasonably assured of being exercised and the funded construction of certain leased assets in development at the commencement of the Penn Master Lease.
On October 15, 2018, in connection with the Pinnacle Acquisition, we assumed the Pinnacle Master Lease. Within a business combination, an arrangement that previously did not meet all of the requirements for sale-leaseback accounting treatment (and is accounted for as a financing obligation by the acquiree) retains its classification as a financing obligation on the acquiring entity’s consolidated balance sheets at the business combination date. As of the date of acquisition, we calculated the financing obligation based on the future minimum lease payments discounted at a rate determined to be fair value at the business combination date, which was determined to be 7.3%, over the remaining lease term of 32.5 years. The remaining lease term included renewal options that were reasonably assured of being exercised. Furthermore, in conjunction with the Pinnacle Acquisition, GLPI acquired the real estate assets associated with Plainridge Park Casino and leased back such assets to the Company pursuant to an amendment to the Pinnacle Master Lease (the “Plainridge Park Casino Sale-Leaseback”). The effective yield used to determine the financing obligation associated with the Plainridge Park Casino Sale-Leaseback was 9.6%.
Subsequent to the adoption of ASC 842, minimum lease payments under our Master Lease are allocated between components that continue to be financing obligations (primarily buildings) and operating lease components (primarily land). Minimum lease payments related to financing obligations are recorded to interest expense and, in part, as repayments of principal reducing the associated financing obligations. Contingent payments are recorded as interest expense as incurred. The real estate assets subject to the Master Leases and which are accounted for as failed sales, are included in “Property and equipment, net” within the Company’s Consolidated Balance Sheets and are depreciated over the shorter of their remaining useful lives or lease term. Principal payments associated with financing obligations are presented as financing cash outflows and interest payments associated with financing obligations are presented as operating cash outflows within our Consolidated Statements of Cash Flows. For more information, see Note 7, “Property and Equipment,” and Note 11, “Leases.”
Operating and Finance Leases: The Company determines if a contract is or contains a leasing element at contract inception or the date in which a modification of an existing contract occurs. In order for a contract to be considered a lease, the contract must transfer the right to control the use of an identified asset for a period of time in exchange for consideration. Control is determined to have occurred if the lessee has the right to (i) obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and (ii) direct the use of the identified asset.
Upon adoption of ASC 842, we elected the following policies: (a) to account for lease and non-lease components as a single component for all classes of underlying assets and (b) to not recognize short-term leases (i.e., leases that are less than 12 months and do not contain purchase options) within the Consolidated Balance Sheets, with the expense related to these short-term leases recorded in total operating expenses within the Consolidated Statements of Income.
The Company has leasing arrangements that contain both lease and non-lease components. We account for both the lease and non-lease components as a single component for all classes of underlying assets. In determining the present value of lease payments at lease commencement date, the Company utilizes its incremental borrowing rate based on the information available, unless the rate implicit in the lease is readily determinable. The liability for operating and finance leases is based on the present value of future lease payments. Operating lease expenses are recorded as rent expense, which is included within general and administrative expense, within the Consolidated Statements of Income and presented as operating cash outflows within the Consolidated Statements of Cash Flows. Finance lease expenses are recorded as amortization expense, which is included within depreciation and amortization expense within the Consolidated Statements of Income and interest expense over the lease term. Principal payments associated with finance leases are presented as financing cash outflows and interest payments associated with finance leases are presented as operating cash outflows within our Consolidated Statements of Cash Flows.
Debt Discount and Debt Issuance Costs: Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. These costs are classified as a direct reduction of long-term debt within the Company’s Consolidated Balance Sheets.
Self-Insurance Reserves: The Company is self-insured for employee health coverage, general liability and workers’ compensation up to certain stop-loss amounts (for general liability and workers’ compensation). We use a reserve method for each reported claim plus an allowance for claims incurred but not yet reported to a fully-developed claims reserve method based on an actuarial computation of ultimate liability. Self-insurance reserves are included in “Accrued expenses and other current liabilities” within the Company’s Consolidated Balance Sheets.
Contingent Purchase Price: The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. We record an obligation for such contingent payments at fair value as of the acquisition date. We revalue our contingent purchase price obligations each reporting period. Changes in the fair value of

the contingent purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount rate and changes in the assumed probabilities of successful achievement of certain financial targets. The changes in the fair value of contingent purchase price are recognized within our Consolidated Statements of Income as a component of “General and administrative” expense.
Income Taxes: Under ASC Topic 740, “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. The Company considers all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining more-likely-than-not the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.

ASC 740 also creates a single model to address uncertainty in tax positions and clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise’s financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

See Note 13, “Income Taxes.”

Revenue RecognitionRecognition: Our revenue from contracts with customers consists of gaming wagers, food and Promotional Allowances

Gamingbeverage transactions, retail transactions, hotel room sales, racing wagers, sports betting wagers, and management services related to the management of external casinos and reimbursable costs associated with management contracts. In May 2018, our management contract was terminated for Hollywood Casino-Jamul San Diego, which is located in San Diego, California. In addition, our management contract was terminated for Casino Rama, which is located in Ontario, Canada, in July 2018. See Note 4, “Revenue Disaggregation,” for information on our revenue consists mainly of slotby type and video lotterygeographic location.

The transaction price for a gaming machine revenue as well as to a lesser extent table game and poker revenue. Gaming revenuewagering contract is the aggregate net difference between gaming wins and losses, with liabilities recognizednot the total amount wagered. The transaction price for funds deposited by customers before gaming play occurs,food and beverage, hotel and retail contracts is the net amount collected from the customer for "ticket-in, ticket-out" couponssuch goods and services. Sales tax and other taxes collected on behalf of governmental authorities are accounted for on the net basis and are not included in revenues or expenses. The transaction price for our racing operations, inclusive of live racing events conducted at our racing facilities and our import and export arrangements, is the customers' possession,commission received from the pari-mutuel pool less contractual fees and for accrualsobligations primarily consisting of purse funding requirements, simulcasting fees, tote fees and certain pari-mutuel taxes that are directly related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increases. Table game revenue is the aggregate of table drop adjusted

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racing operations. The transaction price for the change in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens and outstanding markers (credit instruments) that are removed from the live gaming tables.

Food, beverage, hotel and other revenue, including racing revenue, is recognized as services are performed. Racing revenue includes the Company’s share of pari-mutuel wagering on live races after payment of amounts returned as winning wagers, its share of wagering from import and export simulcasting, and its share of wagering from its off-track wagering facilities (“OTWs’).

Revenue from our former management service contracts was the amount collected for Casino Rama and Hollywood Casino Jamul – San Diego are based upon contracted terms and are recognized when services are performed and collection is reasonably assured.

The Company records revenues generated from its management service contract and licensing contract with the Jamul Tribe, as well as interest income associated with advances to the Jamul Triberendered in accordance with ASC 605-25 “Multiple Element Arrangements.”the contractual terms. The fair value of each arrangement element is based on the separate standalone sellingtransaction price determined by either vendor-specific objective evidence (“VSOE”), if available, or third-party evidence ("TPE") if VSOE is not available.  We concluded revenues generated with respect to each element contained within the arrangement is representative of the separate standalone selling price which is reflective of fair value.

Revenues include reimbursable costs associated with the Company’s management contract with Jamul Indian Village of California (the “Jamul Tribe”), which represent amounts received or due pursuant to the Company’s management agreement for the reimbursement of expenses, primarily payroll costs, incurred on their behalf. The Company recognizes the reimbursable costs associated with this contract as revenueour former management contracts was the gross amount of the reimbursable expenditure, which primarily consisted of payroll costs incurred by the Company for the benefit of the managed entity. Since the Company was the controlling entity to the arrangement, the reimbursement was recorded on a gross basis with an offsetting amount charged to operating expenseexpense.

Gaming revenue contracts involve two performance obligations for those customers earning points under our mychoice program and a single performance obligation for customers that do not participate in the mychoice program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as opposed to an individual wagering contract. For purposes of allocating the transaction price in a gaming contract between the wagering performance obligation and the obligation associated with the loyalty points earned, we allocate an amount to the loyalty point contract liability based on the standalone selling price (“SSP”) of the points earned, which is determined by the value of a point that can be redeemed for slot play and complimentaries; such as, food and beverage at our restaurants, lodging at our hotels and products offered at our retail stores, less estimated breakage. The allocated revenue for gaming wagers is recognized when the wagering occurs as all such wagers settle immediately. The liability associated with the loyalty points is deferred and recognized as revenue when the customer redeems the loyalty points for slot play and complimentaries and such goods and services are delivered to the customer.
Food and beverage, hotel and retail services have been determined to be separate, standalone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food and beverage or retail product. Cancellation fees for hotel and

meeting space services are recognized upon cancellation by the customer and are included in food, beverage, hotel and other revenue.
Racing revenue contracts, inclusive of our (i) host racing facilities, (ii) import arrangements that permit us to simulcast in live racing events occurring at other racetracks, and (iii) export arrangements that permit our live racing events to be simulcast at other racetracks, provide access to and the processing of wagers into the pari-mutuel pool. The Company has concluded it is not the primary obligor for these costs.

Revenuescontrolling entity to the arrangement, but rather functions as an agent to the pari-mutuel pool. Commissions earned from the pari-mutuel pool less contractual fees and obligations are recognized on a net of certain sales incentives in accordance with ASC 605-50, “Revenue Recognition—Customer Paymentsbasis, which is included within food, beverage, hotel and Incentives.”other revenues.

Management services have been determined to be separate, standalone performance obligations and the transaction price for such contracts was recorded as services were performed. The Company recorded revenues on a monthly basis calculated by applying the contractual rate called for in the contracts.
Penn Interactive generates in-app purchase and advertising revenues from free-to-play social casino games, which can be downloaded to mobile phones and tablets from digital storefronts. Players can purchase virtual playing credits within our social casino games, which allows for increased playing opportunities and functionality. Penn Interactive records certain sales incentivesdeferred revenue from the sale of virtual playing credits and points earnedrecognizes this revenue over the average redemption period of the credits, which is approximately three days. Advertising revenues are recognized in point-loyalty programs asthe period when the advertising impression, click or install delivery occurs. Penn Interactive also generates revenue through revenue-sharing arrangements with third-party content providers whereby revenues are recognized on a reduction of revenue.

The retail value of accommodations, foodnet basis since Penn Interactive is not the controlling entity in the arrangement.

Complimentaries associated with Gaming Contracts
Food and beverage, hotel, and other services furnished to guests without charge is included in grosspatrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food and beverage, hotel, and other revenues, and then deductedat their estimated SSPs with an offset recorded as promotional allowances.a reduction to gaming revenues. The estimated cost of providing such promotional allowancescomplimentary goods and services to patrons as an inducement to gamble as well as for the fulfillment of our loyalty point obligation is primarily included in food, beverage, hotel, and other expense.

The amounts included in promotional allowances for the years ended December 31, 2016, 2015expenses. Revenues recorded to food and 2014 arebeverage, hotel, and other and offset to gaming revenues were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

Rooms

 

$

39,352

 

$

34,708

 

$

33,513

 

Food and beverage

 

 

126,438

 

 

111,144

 

 

106,908

 

Other

 

 

8,871

 

 

9,135

 

 

9,898

 

Total promotional allowances

 

$

174,661

 

$

154,987

 

$

150,319

 

The estimated cost of providing such complimentary services for the years ended December 31, 2016, 2015 and 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

Rooms

 

$

5,291

 

$

4,199

 

$

3,664

 

Food and beverage

 

 

48,497

 

 

44,012

 

 

44,325

 

Other

 

 

3,518

 

 

3,582

 

 

3,635

 

Total cost of complimentary services

 

$

57,306

 

$

51,793

 

$

51,624

 

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 For the year ended December 31,
(in millions)2019 2018
Food and beverage$261.4
 $137.2
Hotel159.6
 60.8
Other17.6
 8.1
Total complimentaries associated with gaming contracts$438.6
 $206.1

Player Loyalty Programs

Customer-related Liabilities

The Company has a nationwide branding initiativethree general types of liabilities related to contracts with customers: (i) the obligation associated with our mychoice program (loyalty points and loyalty tier status benefits), (ii) advance payments on goods and services yet to be provided and for unpaid wagers, and (iii) deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access.
Our mychoice program called Marquee Rewards.  Marquee Rewards allows customersmembers to utilize their reward membership cards to earn loyalty points that are redeemable for slot play and complementaries.  Complimentaries are usually in the form of monetary discountscomplimentaries, such as food and other rewards which generally can only be redeemedbeverage at our restaurant, hotel,restaurants, lodging at our hotels and products offered at our retail and spa facilities.  These points expire on a monthly basis after six months of inactivity. Customers earn points for their playstores across the vast majority of our properties. In addition, members of the mychoice program earn credit toward tier status, which entitles them to receive certain other benefits, such as gifts.
The Company accounts for the obligation associated with our mychoice program utilizing a deferred revenue model, which defers revenue at the point in time when the loyalty points and tier status benefits are earned by our customers. Deferred revenue associated with the mychoice program is recognized at the point-in-time when the loyalty points are redeemed by our customers or at the point-in-time when our customers receive the tier status benefits. The obligation associated with our mychoice program is based on the estimated SSP of the loyalty points and the tier status benefits earned after factoring in the likelihood of redemption. The obligation associated with our mychoice program, which is included in “Accrued expenses and other current liabilities” within our Consolidated Balance Sheets, was $36.2 million and $39.9 million as of December 31, 2019 and 2018, respectively, and consisted principally of the obligation associated with the loyalty points. Our loyalty point obligations are generally settled within six months of 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) outstanding tickets generated by slot machine play or pari-mutuel wagering, (iv) outstanding chip liabilities, (v) unclaimed jackpots, and (vi) gift cards redeemable at our properties. Advance payments on goods and services are recognized as revenue when the good or service is transferred to the customer. Unpaid wagers primarily relate to the Company’s casinosobligation to settle outstanding slot tickets, pari-mutuel racing tickets and can concurrently redeem them at our casinos. 

gaming chips with customers and generally represent obligations stemming from prior wagering events, of which revenue was previously recognized. The Company’s player loyalty liability recorded within accrued expensesadvance payments on the consolidated balance sheets was $14.2goods and services yet to be provided and for unpaid wagers were $42.2 million and $13.8$34.3 million atas of December 31, 20162019 and 2015,2018, respectively, of which $0.6 million and $0.7 million were classified as long-term, respectively. These liabilitiesThe current portion and long-term portion of our advance payments on goods and services yet to be provided and for unpaid wagers are based on expected redemption ratesincluded in “Accrued expenses and other current liabilities” and “Other long-term liabilities” within our Consolidated Balance Sheets, respectively.

During the estimated coststhird quarter of 2019, Penn Interactive entered into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across the Company’s portfolio, of which we received cash and equity securities, including ordinary shares and warrants, specific to 3 operator agreements. During the fourth quarter of 2019, certain of the services or merchandise to be provided.  These assumptions are periodically evaluatedoperations contemplated by comparing historical redemption experiencethese agreements commenced, resulting in the recognition of $0.6 million of revenue during the year ended December 31, 2019. Deferred revenue associated with third-party sports betting operators for online sports betting and projected trends. 

related iGaming market access as of December 31, 2019 was $43.6 million, which is included in “Other long-term liabilities” within our Consolidated Balance Sheets.

Gaming and Racing Taxes

The Company isTaxes: We are subject to gaming and pari‑mutuelpari-mutuel taxes based on gross gaming revenue and pari‑mutuelpari-mutuel revenue in the jurisdictions in which it operates.we operate. The Company primarily recognizes gaming and pari‑mutuelpari-mutuel tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where or in which wagering occurs. In certain states in which the Company operates, gaming taxes are based on graduated rates. The Company records gaming tax expense at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied prospectively in the determination of gaming tax expense in future interim periods. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, these expenses, which arewere recorded primarily withinin gaming expense inwithin the consolidated statementsConsolidated Statements of operations,Income, were $962.7$1,590.0 million, $921.6$1,102.3 million, and $821.1$983.3 million, respectively.

Payments related to the Master Lease

As

Stock-Based Compensation: The cost of December 31, 2016, the Company financed with GLPI real property assets associated with eighteenemployee services received in exchange for an award of the Company’s gaming and related facilities used in the Company’s operations.

The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed component, a portion of which is subject to an annual escalator of up to 2% if certain coverage ratio thresholds are met, and a component thatequity instruments is based on the performancegrant-date fair value of the facilities,award and the expense is recognized ratably over the requisite service period. The Company accounts for forfeitures in the period in which they occur based on actual amounts. The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model, which requires us to make assumptions, including the expected term, which is prospectively adjusted, subject tobased on the contractual term of the stock option and historical exercise data of the Company’s employees; the risk-free interest rate, which is based on the U.S. Treasury spot rate with a floor of zero (i) every five years by an amountterm equal to 4%the expected term assumed at the grant date; the expected volatility, which is estimated based on the historical volatility of the average change to net revenues of all facilities underCompany’s stock price over the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) duringexpected term assumed at the preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month. In addition, with the openings of Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course in the third quarter of 2014, the Company’s annual payments related to the Master Lease increased by approximately $19 million, which approximates ten percent of the real estate construction costs paid for by GLPI related to these facilities.

In April 2014, an amendment to the Master Lease was entered into in order to revise certain provisions relating to the Sioux City property.  In accordance with the amendment, upon the cessation of gaming operations at Argosy Casino Sioux City on July 30, 2014 due to the termination of its gaming license, the annual payment to GLPI was reduced by $6.2 million. Additionally, the Company finalized its calculation of the coverage ratio in accordance with the appropriate provisions of the Master Lease to determine if an annual base payment escalator is due.  The calculation of the escalator resulted in an increase to the Company’s annual payment of $4.5 million, $5.0 million and $3.2 million starting on November 1, 2016, 2015 and 2014, respectively.

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The Master Lease is commonly known as a triple-net lease. Accordingly, in addition to the required payments to GLPI, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased propertiesgrant date; and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. At the Company’s option, the Master Lease may be extended for up to four five‑year renewal terms beyond the initial fifteen‑year term, on the same terms and conditions.

Total payments made to GLPI under the Master Lease were $442.3 million, $437.0 million and $421.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

expected dividend yield, which is 0 since we have not historically paid dividends. See Note 15, “Stock-based Compensation.”

Earnings Per Share

The Company calculatesShare: Basic earnings per share (“EPS”) in accordance with ASC 260, “Earnings Per Share” (“ASC 260”). Basic EPS is computed by dividing net income applicableattributable to common stockPenn National by the weighted‑averageweighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution for all potentially‑dilutivepotentially-dilutive securities such as stock options and unvested restricted shares.

During 2016,stock awards. See Note 16, “Earnings per Share.”

Application of Business Combination Accounting: We utilize the Company’s 8,624 outstanding sharesacquisition method of Series C Preferred Stock were sold by the holders of these securities, and therefore automatically converted to 8,624,000 shares of common stock under previously agreed upon terms.  As a result there are no longer any outstanding shares of Series C Preferred Stock as of December 31, 2016.  At December 31, 2015 and 2014, the Company had outstanding 8,624 shares of Series C Preferred Stock. The Company determined that the preferred stock qualified as a participating security as defined in ASC 260 since these securities participate in dividends with the Company’s common stock. In accordance with ASC 260, a company is required to use the two‑class method when computing EPS when a company has a security that qualifies as a “participating security.” The two‑class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is included in the computation of basic EPS using the two‑class method. Under the two‑class method, basic EPS for the Company’s common stock is computed by dividing net income applicable to common stock by the weighted‑average common shares outstanding during the period. Diluted EPS for the Company’s common stock is computed using the more dilutive of the two‑class method or the if-converted method.

Since the Company’s preferred shareholders are not obligated to fund the losses of the Company nor is the contractual principal of the Series C Preferred Stock reduced as a result of losses incurred by the Company, no allocation of the Company’s undistributed losses resulting from the net loss for the years ended December 31, 2014 is required. As such, since the Company reported a net loss for the years ended December 31, 2014, it was required by ASC 260 to use basic weighted-average common shares outstanding which totaled 78.4 million for those respective periods, rather than diluted weighted-average common shares outstanding, when calculating diluted EPS.

The following table sets forth the allocation of net income for the year ended December 31, 2016 and 2015 under the two class method:

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

 

 

 

(in thousands)

 

Net income

 

$

109,310

 

$

686

 

Net income applicable to preferred stock

 

 

8,662

 

 

67

 

Net income applicable to common stock

 

$

100,648

 

$

619

 

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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 year ended December 31, 2016 and 2015:

 

 

 

 

 

 

Year ended December 31,

    

2016

 

2015

 

 

 

(in thousands)

 

Determination of shares:

 

 

 

 

 

Weighted-average common shares outstanding

 

82,929

 

80,003

 

Assumed conversion of dilutive employee stock-based awards

 

1,299

 

2,217

 

Assumed conversion of restricted stock

 

42

 

60

 

Diluted weighted-average common share outstanding before participating security

 

84,270

 

82,280

 

Assumed conversion of preferred stock

 

7,137

 

8,624

 

Diluted weighted-average common shares outstanding

 

91,407

 

90,904

 

Options to purchase 3,036,819 shares, 1,635,929 shares and 6,633,622 shares were outstanding during the years ended December 31, 2016, 2015 and 2014, respectively, but were not included in the computation of diluted EPS because they were antidilutive.

The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the year ended December 31, 2016 and 2015 (in thousands, except per share data):

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

 

2015

 

Calculation of basic EPS:

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

100,648

 

$

619

 

Weighted-average common shares outstanding

 

 

82,929

 

 

80,003

 

Basic EPS

 

$

1.21

 

$

0.01

 

Calculation of diluted EPS using two class method:

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

100,648

 

$

619

 

Diluted weighted-average common shares outstanding before participating security

 

 

84,270

 

 

82,280

 

Diluted EPS

 

$

1.19

 

$

0.01

 

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 was estimated at the date of grant using the Black‑Scholes option‑pricing model, which requires management to make certain assumptions. The risk‑free interest rate was based on the U.S. Treasury spot rate with a term equal to the expected life assumed at the date of grant. Expected volatility was estimated based on the historical volatility of the Company’s stock price over a period of 5.40 years, in order to match the expected life of the options at the grant date. Historically, at the grant date, there has been no expected dividend yield assumption since the Company has not paid any cash dividends on its common stock since its initial public offering in May 1994 and since the Company intends to retain all of its earnings to finance the development of its business for the foreseeable future. The weighted‑average expected life was based on the contractual term of the stock option and expected employee exercise dates, which was based on the historical and expected exercise behavior of the Company’s employees.

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The following are the weighted‑average assumptions used in the Black‑Scholes option‑pricing model for the years ended December 31, 2016, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

2016

    

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.20

%  

1.54

%

1.68

%

 

Expected volatility

 

31.23

%  

36.68

%

44.80

%

 

Dividend yield

 

 —

 

-

 

-

 

 

Weighted-average expected life (years)

 

5.40

 

5.45

 

5.45

 

 

See Note 14 for a discussion on the impact of the Spin‑Off on the Company’s stock‑based equity awards.

Segment Information

The Company’s Chief Executive Officer and President, who is the Company’s Chief Operating Decision Maker (“CODM”) as that term is defined in ASC 280, “Segment Reporting” (“ASC 280”), measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations. During the second quarter of 2016, the Company changed its three reportable segments from East/Midwest, West and Southern Plains to Northeast, South/West, and Midwest in connection with the addition of a new regional vice president and a realignment of responsibilities within our segments.  This realignment changed the manner in which information is provided to the CODM and therefore how performance is assessed and resources are allocated to the business.

The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, which opened on August 28, 2014, Hollywood Gaming at Mahoning Valley Race Course, which opened on September 17, 2014, and Plainridge Park Casino, which opened on June 24, 2015. It also includes the Company’s Casino Rama management service contract.

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

The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on September 1, 2015, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway. On July 30, 2014, the Company closed Argosy Casino Sioux City.

The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, Penn Interactive Ventures, the Company’s wholly-owned subsidiary which represents its social online gaming initiatives, including the recently acquired Rocket Speed, meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents 0.8% of net revenues and 0.4% of income from operations for the year ended December 31, 2016.

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In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and is especially relevant in evaluating large, long lived casino 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. The Company defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of contingent purchase price, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA.

The prior year amounts were reclassified to conform to the Company’s new reporting structureaccounting in accordance with ASC 280.Topic 805, “Business Combinations,” which requires us to allocate the purchase price to tangible and identifiable intangible assets based on their fair values. The excess of the purchase price over the fair value ascribed to tangible and identifiable intangible assets is recorded as goodwill. If the fair value ascribed to tangible and identifiable intangible assets changes during the measurement period (due to additional information being available and related Company analysis), the measurement period adjustment is recognized in the reporting period in which the adjustment amount is determined and offset against goodwill. The measurement period for our acquisitions are no more than one year in duration. See Note 15 for further information with respect to the Company’s segments.

Statements of Cash Flows

5, “Acquisitions and Other Investments.”

Voting Interest Entities and Variable Interest Entities: The Company consolidates all subsidiaries or other entities in which it has presented the consolidated statements of cash flowsa controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the indirect method, which involvesVOE model or the reconciliation of net (loss) income to net cash flow from operating activities.

Acquisitions

The Company accounts for its acquisitions in accordance with ASC 805, “Business Combinations.” The results of operations of acquisitions are included inVIE model. Under the consolidatedVOE model, controlling financial statements from their respective dates of acquisition.

Variable Interest Entities

In accordance with the authoritative guidance of ASC 810, “Consolidation” (“ASC 810”), the Company consolidates a VIE if the Companyinterest is the primary beneficiary,generally defined as a majority ownership of voting rights. Under the party that has bothVIE model, controlling financial interest is defined as (i) the power to direct the activities that most significantly impact the VIE’s economic performance of the entity and (ii) the obligation to


absorb losses of or the right to receive benefits from the VIEentity that could potentially be significant to the VIE. A variable interest isentity. For those entities that qualify as a contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets exclusive of variable interests. To determine whether a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regardingprimary beneficiary is generally defined as the nature, size and form of its involvement withparty who has a controlling financial interest in the VIE. The Company assesses whether it isconsolidates the primary beneficiary of a VIE or the holder of a significant variable interest in a VIE on an on-going basis for each such interest.

Certain Risksfinancial position and Uncertainties

The Company faces intense gaming competition in most of the markets where its properties operate. Certain states are currently considering or implementing legislation to legalize or expand gaming. Such legislation presents potential opportunities for the Company to establish new properties; however, this also presents potential competitive threats to the Company’s existing properties. For example, the Company’s facility in Charles Town, West Virginia generated approximately 10% or more of our net revenues has faced new sources of significant competition. Namely, Hollywood Casino at Charles Town Races faced increased competition from the Baltimore, Maryland market, which

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includes Maryland Live!, Horseshoe Casino Baltimore, which opened at the end of August 2014, and most recently, MGM National Harbor, which opened in December 2016.

The Company’s operations are dependent on its continued licensing by state gaming commissions. The loss of a license, in any jurisdiction in which the Company operates, could have a material adverse effect on future results of operations.

The Company is dependent on each gaming property’s local market for a significant number of its patrons and revenues. If economic conditions in these areas deteriorate or additional gaming licenses are awarded in these markets, the Company’s results of operations couldof every VOE in which it has a controlling financial interest and VIEs in which it is considered to be adversely affected.

The Company is dependent on the economy of the U.S.primary beneficiary. See Note 6, “Investments in general, and any deterioration in the national economic, energy, credit and capital markets could have a material adverse effect on future results of operations.

The Company is dependent upon a stable gaming and admission tax structure in the locations that it operates in. Any change in the tax structure could have a material adverse affect on future results of operations.

4.NewAdvances to Unconsolidated Affiliates.”


Note 3—New Accounting Pronouncements

Accounting Pronouncements Implemented in 2016

In September 2015,2019

On January 1, 2019, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805) -SimplifyingCompany adopted ASC 842, and all the Accounting for Measurement Period Adjustments.” This accounting standard seeksrelated amendments (the “new lease standard”) using the modified retrospective method with an effective date of January 1, 2019 (the “adoption date”) and a cumulative-effect adjustment to simplifyretained earnings. The core principle of ASC 842 is that a lessee should recognize on the balance sheet the lease assets and lease liabilities that arise from all lease arrangements with terms greater than 12 months. The comparative information has not been restated and continues to be reported under the accounting relatedstandards in effect for those periods. As part of the adoption, the Company elected to business combinations. Priorutilize the package of practical expedients included in this guidance, which permitted the Company to not reassess (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) the initial direct costs for existing leases.
Master Leases
The most significant impact of the adoption of the new lease standard relates to the issuanceaccounting for our Master Leases with GLPI. Under previous GAAP, as contained within ASC 840, the Company concluded that (i) the Penn Master Lease and (ii) the Pinnacle Master Lease to each be a failed sale-leaseback transaction resulting in (a) the land and building assets associated with the Master Leases to be recognized in “Property and equipment, net” within the Consolidated Balance Sheets, (b) the recognition of thisa financing obligation, with the associated interest recorded to “Interest expense, net” within the Consolidated Statements of Income, and (c) the contingent rentals to be recorded as additional interest expense. Under the provisions of the new lease standard, US GAAPthe Company was required to evaluate its existing sale-leaseback transactions with GLPI to determine whether a retrospective adjustment for provisional amounts recognized duringsale had occurred, and if a sale had occurred, to determine the measurement periods when facts and circumstancesclassification (operating or finance) of each component contained within each of the Master Leases.
Lease components contained within each of the Master Leases that existedwere determined to be operating leases (consisting primarily of the land components) at the measurementadoption date if known, would have affectedresulted in (i) the derecognition of the existing financing obligation and the carrying amount of the property and equipment with an adjustment to the opening balance of retained earnings and (ii) the recognition of an operating lease liability and an operating lease ROU asset.
Lease components contained within each of the Master Leases that were determined to continue to be financing obligations (consisting primarily of the building components) at the adoption date resulted in (i) the continued recognition of the leased assets in “Property and equipment, net” within our Consolidated Balance Sheets and (ii) the continued recognition of the financing obligation utilizing assumptions as determined (a) at the lease commencement date with respect to the Penn Master Lease or (b) at the acquisition date with respect to the Pinnacle Master Lease.
Our Hollywood Casino at Dayton Raceway and Hollywood Casino at Mahoning Valley Race Course (“Dayton and Mahoning Valley”) properties included within the Penn Master Lease were previously accounted for under build-to-suit guidance pursuant to ASC 840. The Company was required to evaluate the components contained within the build-to-suit arrangements and determine the classification (operating or finance) under the provisions of the new lease standard at the adoption date. The Dayton and Mahoning Valley lease components were determined to be finance leases, which resulted in (i) the recognition of a finance lease ROU asset (recorded to depreciation and amortization expense over the lease term), (ii) a corresponding finance lease liability (recorded to interest expense over the lease term), and (iii) a write-off of the previous (a) carrying amount of the property and equipment and (b) financing obligation recorded with an adjustment to the opening balance of retained earnings at the adoption date.
Operating Leases, inclusive of the Meadows Lease
The adoption of the new lease standard required us to recognize ROU assets and lease liabilities that had not previously been recorded within the Consolidated Balance Sheets. Upon adoption, the lease liability for operating leases was based on the present value of future lease payments and the ROU asset for operating leases was based on the operating lease liability adjusted for the reclassification of certain balance sheet amounts, such as deferred rent. Under ASC 842, deferred and prepaid rent are no longer presented separately. Leases that are short-term in nature are not recognized as ROU assets within the

Consolidated Balance Sheets, but are recognized as an expense (recorded within total operating expenses) within the Consolidated Statements of Income.
The impact of the adoption of the new lease standard on our Consolidated Balance Sheets at January 1, 2019 was as follows (only financial statement line items impacted are presented):
   Impacts of:    
(in millions)As Reported as of December 31, 2018 
Financing Obligations - Master Leases (1)
 
Finance Leases
- Dayton and Mahoning Valley
 
Operating Leases - Master Leases (2)
 
Operating Lease - Meadows (3)
 Other Operating Leases - Non-Master Leases As Adjusted for ASC 842 Increase/(Decrease)
Assets               
Current assets               
Prepaid expenses$63.0
 $—
 $—
 $—
 $—
 $(1.0) $62.0
 $(1.0)
Total current assets$677.6
 $—
 $—
 $—
 $—
 $(1.0) $676.6
 $(1.0)
Property and equipment, net (4)
$6,868.8
 $—
 $(164.3) $(1,407.4) $—
 $—
 $5,297.1
 $(1,571.7)
Goodwill$1,228.4
 $5.5
 $—
 $—
 $—
 $—
 $1,233.9
 $5.5
Operating lease right-of-use assets (5)
$—
 $—
 $—
 $3,541.2
 $112.8
 $152.5
 $3,806.5
 $3,806.5
Finance lease right-of-use assets (6)
$—
 $—
 $224.5
 $—
 $—
 $—
 $224.5
 $224.5
Total assets$10,961.0
 $5.5
 $60.2
 $2,133.8
 $112.8
 $151.5
 $13,424.8
 $2,463.8
                
Liabilities               
Current liabilities               
Current portion of financing obligations (7)
$67.8
 $—
 $(1.5) $(16.2) $—
 $—
 $50.1
 $(17.7)
Current portion of operating lease liabilities (5)
$—
 $—
 $—
 $72.9
 $20.5
 $8.9
 $102.3
 $102.3
Current portion of finance lease liabilities (6)
$—
 $—
 $5.8
 $—
 $—
 $—
 $5.8
 $5.8
Accrued expenses and other current liabilities$578.0
 $—
 $—
 $—
 $—
 $(0.5) $577.5
 $(0.5)
Total current liabilities$738.4
 $—
 $4.3
 $56.7
 $20.5
 $8.4
 $828.3
 $89.9
Long-term portion of financing obligations (7)
$7,080.6
 $5.5
 $(181.3) $(2,760.6) $—
 $—
 $4,144.2
 $(2,936.4)
Long-term portion of operating lease liabilities (5)
$—
 $—
 $—
 $3,467.1
 $92.3
 $145.0
 $3,704.4
 $3,704.4
Long-term portion of finance lease liabilities (6)
$—
 $—
 $218.3
 $—
 $—
 $—
 $218.3
 $218.3
Deferred income taxes (8)
$—
 $—
 $4.3
 $299.5
 $—
 $—
 $303.8
 $303.8
Other long-term liabilities$60.7
 $—
 $—
 $—
 $—
 $(1.9) $58.8
 $(1.9)
Total liabilities$10,229.8
 $5.5
 $45.6
 $1,062.7
 $112.8
 $151.5
 $11,607.9
 $1,378.1
Stockholders’ equity               
Retained earnings (accumulated deficit)$(968.0) $—
 $14.6
 $1,071.1
 $—
 $—
 $117.7
 $1,085.7
Total Penn National stockholders’ equity$731.2
 $—
 $14.6
 $1,071.1
 $—
 $—
 $1,816.9
 $1,085.7
Total stockholders’ equity$731.2
 $—
 $14.6
 $1,071.1
 $—
 $—
 $1,816.9
 $1,085.7
Total liabilities and stockholders’ equity$10,961.0
 $5.5
 $60.2
 $2,133.8
 $112.8
 $151.5
 $13,424.8
 $2,463.8
(1)
During the first quarter of 2019, the Company identified an adjustment to the purchase price allocation associated with the Pinnacle Acquisition. The purchase price adjustment increased the financing obligation upon the adoption of the new lease standard, resulting in an increase to goodwill (see Note 5, “Acquisitions and Other Investments”).
(2)Represents components contained within each of the Master Leases determined to be operating leases (primarily land).
(3)Represents the triple net lease with GLPI for the real estate assets used in the operations of Meadows Racetrack and Casino (the “Meadows Lease”).
(4)Represents the (i) derecognition of the carrying amount of the property and equipment, net, associated with land components contained within our Master Leases determined to be operating leases upon the adoption of the new lease standard; and (ii) derecognition of the carrying amount of the property and equipment, net, associated with land and building components associated with Dayton and Mahoning Valley determined to be finance leases upon the adoption of the new lease standard.
(5)Operating lease ROU assets represent (i) the land components contained within the Master Leases determined to be operating leases upon the adoption of the new lease standard; and (ii) with respect to other Operating Leases, represent (a) the Meadows Lease, which was acquired by the Company in conjunction with the acquisition of Pinnacle; (b) ground and levee leases with landlords, which were not assumed by GLPI and remain an obligation of the Company; and (c) buildings and equipment not associated with our Master Leases. For leases where the rate implicit in the lease was not readily determinable, we used our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We utilized the incremental borrowing rate on the adoption date for operating leases that commenced prior to that date. The operating lease liability is based on the net present value of future lease payments.
(6)Amounts primarily represent finance leases associated with Dayton and Mahoning Valley, which are included in the Penn Master Lease, that under ASC 840 utilized specific build-to-suit guidance. The adoption of the new lease standard required the Company to evaluate the components under current guidance contained within the new lease standard, which resulted in all components being classified as finance leases. Finance leases result in (i) the recognition of a finance lease ROU asset amortized over the lease term and (ii) a corresponding finance lease liability (recorded to interest expense over the lease term). We utilized our incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. The finance lease liability is based on the net present value of future lease payments.
(7)Represents components associated with our Master Leases that remain financing obligations (primarily buildings). The financing obligation at the adoption date was calculated utilizing previous assumptions as determined (a) at the lease commencement date with respect to the Penn Master Lease and (b) at the acquisition date with respect to the Pinnacle Master Lease.
(8)
Represents the tax impacts related to the adoption of the new lease standard. See Note 13, “Income Taxes.”

Accounting Pronouncements to be Implemented in 2020
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”), which sets forth a “current expected credit loss” (referred to as “CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of the accounts initially recognized. This standard eliminates the requirement for retrospective adjustmentscredit losses on financial assets measured at amortized cost and requires adjustmentsapplies to the consolidated financial statements as needed in current period earnings for the full effect of changes.  The new guidancesome off-balance sheet credit exposures. ASU 2016-13 is effective for fiscal years and forbeginning after December 15, 2019, including interim periods within those fiscal years, after December 15, 2015.  The adoption of this pronouncement did not have a material impact to the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis,” consisting of new consolidation guidance which modifies the analysis that a reporting entityand must perform to determine whether it should consolidate certain types of legal entities. The main provisions of the new guidance includes modifying the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, the evaluation of fees paid to a decision maker or a service provider as a variable interest, and the effect of fee arrangements and related parties on the primary beneficiary determination, as well as provides a scope exception for certain investment funds. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the new guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the new guidance retrospectively. The adoption of this pronouncement had no impact to the Company’s consolidated financial statements.

New Accounting Pronouncements to be Implemented

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting.”  The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.  Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.  The new guidance is effective for fiscal years, and for interim periods within those fiscal

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years, beginning after December 15, 2016.  Early adoption is permitted for any organization in any interim or annual period.  Management will adopt this change in accounting principle in 2017.

In March 2016, the FASB issued ASU No. 2016-07, "Investments – Equity Method and Joint Ventures (Topic 323) - Simplifying the Transition to the Equity Method of Accounting." This new guidance eliminates the requirement to apply the equity method of accounting, upon obtaining significant influence, as if it was applied to the investment from inception. Instead, at the date significant influence is obtained, companies should add the cost of the additional interest acquired to the current basis of the investment and apply the equity method prospectively. If an available-for-sale security becomes eligible for the equity method of accounting, any unrealized gains or losses within accumulated other comprehensive income should be recognized within earnings on the date the investment becomes qualified for use of the equity method. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate a material impact from this new guidance.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Clarification of Certain Cash Receipts and Cash Payments.”  The amendments are intended to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments provide guidance on the following specific cash flow issues: (a) debt prepayment or debt extinguishment costs; (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (c) contingent consideration payments made after a business combination; (d) proceeds from the settlement of insurance claims; (e) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (f) distributions received from equity method investees; (g) beneficial interest in securitization transactions; and (h) separately identifiable cash flows and application of the predominance principle.  The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017.  Early adoption is permitted, including adoption in an interim period.  An entity that elects early adoption must adopt all of the amendments in the same period.  The Company is currently assessing the impact that the adoption of these amendments will have on our consolidated statements of cash flows and related disclosures.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory.” The new guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to an outside party. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. The new guidance requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the first reporting period of adoption. The Company is currently assessing the impact that the adoption of this new guidance will have on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which impacts virtually all aspects of an entity’s revenue recognition. The core principle of Topic 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of the standard by one year which results in the new standard being effective for the Company at the beginning of its first quarter of fiscal year 2018. In addition, during March, April and May 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, respectively, which clarified the guidance on certain items such as reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability and presentation of sales taxes. Management has not yet completed itsis effective. Although we are still finalizing our assessment of the impact of the new standard on the Company’s consolidated financial statements.  Although the Company is currently

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assessing the impact that the adoption of the new standard will have on its consolidated financial statements and related disclosures,ASU 2016-13, which is effective January 1, 2020, we do believe that one area it will result in changes to is our accounting for loyalty points that are earned by our customers. The Company’s Marquee Rewards program allows customers, who are members and utilize their rewards membership card to earn promotional points that are redeemable for slot play and complimentaries. The accumulated points can be redeemed for food and beverages at our restaurants, and products offered at our retail stores across the vast majority of Penn’s casino properties. The estimated liability for unredeemed points is currently accrued based on expected redemption rates and the estimated costs of the services or merchandise to be provided.  Under the new standard, we will need to defer the full retail value of the complimentaries until the future revenue transaction occurs.  Although the exact amount of the increase to our point liabilities has not yet been determined, we do not anticipateexpect it willto have a significantmaterial impact on our earnings.  Additionally, at this time, we expect to adopt Topic 606 using the modified retrospective method on January 1, 2018.  The Company is continuing to evaluate the new guidance both internally and through following the industry working group and plans to provide additional information at a future date.

Consolidated Financial Statements.

In February 2016,August 2018, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). Under the new guidance, customers will require, among other items, lessees to recognizeapply the same criteria for capitalizing implementation costs as they would for an arrangement that has a right-of-use asset andsoftware license. This will result in certain implementation costs being capitalized; the associated amortization charge will, however, be recorded as an operating expense. Under the previous guidance, costs incurred when implementing a lease liability for most leases. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of revenue and expense recognized and expectedcloud computing arrangement deemed to be recognized from existing contracts. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. The new guidanceservice contract are recorded as an operating expense when incurred. ASU 2018-15 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.  Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.  However, the Company has numerous operating leases which, under the new standard, will need to be reported as an asset and a liability on our balance sheet.  The precise amount of this asset and liability will be determined based on the leases that exist at the Company on the date of adoption.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) : Clarifying the Definition of a Business,” in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently assessing the impact that the adoption of this new guidance will have on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This new guidance removed step two of the goodwill impairment test and specifies that an entity will recognize an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value. The new guidance is effective for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities can choose to adopt the new guidance prospectively to eligible costs incurred on or after the date the guidance is first applied or retrospectively. We have elected to adopt the net guidance on a prospective basis. Although we are still finalizing our assessment of the impact of the adoption of ASU 2018-15, which is effective January 1, 2020, we currently do not expect it to have a material impact on our Consolidated Financial Statements.

Accounting Pronouncements to be Implemented in 2021
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intends to simplify the guidance by removing certain exceptions to the general principles and clarifying or amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Although we are currently evaluating the impact of the adoption of ASU 2019-12, we do not expect it to have a material impact on our Consolidated Financial Statements.

Note 4—Revenue Disaggregation
We generate revenues at our owned, managed, or operated properties principally by providing the following types of services: (i) gaming, (ii) food and beverage, (iii) hotel, (iv) racing, (v) reimbursable management costs and (vi) other. Other revenues is principally comprised of ancillary gaming-related activities, such as commissions received on ATM transactions, and iGaming. In addition, we assess our revenues based on geographic location of the related properties, which is consistent with early adoption permittedour reportable segments (see Note 17, “Segment Information,” for further information). Our revenue disaggregation by type of revenue and geographic location was as follows:
 For the year ended December 31, 2019
(in millions)Northeast South West Midwest Other 
Intersegment Eliminations (1)
 Total
Revenues:             
Gaming$2,117.1
 $831.1
 $374.3
 $938.1
 $8.8
 $(0.7) $4,268.7
Food and beverage155.1
 154.1
 116.7
 84.7
 1.4
 —
 512.0
Hotel43.5
 98.2
 125.9
 43.4
 —
 —
 311.0
Racing25.1
 —
 0.6
 —
 5.6
 —
 31.3
Other59.1
 35.5
 25.0
 28.3
 31.7
 (1.2) 178.4
Total revenues$2,399.9
 $1,118.9
 $642.5
 $1,094.5
 $47.5
 $(1.9) $5,301.4
(1)Represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by Penn Interactive, and our live and televised poker tournament series that operates under the trademark, Heartland Poker Tour (“HPT”).
 For the year ended December 31, 2018
(in millions)Northeast South West Midwest Other Total
Revenues:           
Gaming$1,644.2
 $302.9
 $228.0
 $719.8
 $—
 $2,894.9
Food and beverage109.6
 56.6
 89.6
 57.9
 1.1
 314.8
Hotel23.2
 23.3
 90.8
 26.3
 —
 163.6
Racing20.3
 —
 0.6
 —
 5.9
 26.8
Reimbursable management costs46.8
 —
 10.5
 —
 —
 57.3
Other47.4
 11.6
 18.4
 19.7
 33.4
 130.5
Total revenues$1,891.5
 $394.4
 $437.9
 $823.7
 $40.4
 $3,587.9
 For the year ended December 31, 2017
(in millions)Northeast South West Midwest Other Total
Revenues:           
Gaming$1,583.9
 $203.0
 $219.7
 $685.4
 $—
 $2,692.0
Food and beverage115.0
 35.5
 82.4
 58.4
 1.1
 292.4
Hotel21.5
 10.3
 76.1
 22.0
 —
 129.9
Racing49.6
 —
 2.3
 —
 10.8
 62.7
Reimbursable management costs—
 —
 26.1
 —
 —
 26.1
Other48.7
 6.3
 16.6
 16.4
 40.4
 128.4
 1,818.7
 255.1
 423.2
 782.2
 52.3
 3,331.5
Less: Promotional allowances(62.1) (30.8) (42.8) (47.2) (0.6) (183.5)
Total revenues$1,756.6
 $224.3
 $380.4
 $735.0
 $51.7
 $3,148.0


Note 5—Acquisitions and Other Investments
Greektown Casino-Hotel
On May 23, 2019, the Company acquired all of the membership interests of Greektown Holdings, L.L.C., for a net purchase price of $320.3 million, after working capital and other adjustments, pursuant to a transaction agreement among the Company, VICI Properties L.P., a wholly-owned subsidiary of VICI, and Greektown Mothership LLC. In connection with the

acquisition, the real estate assets relating to Greektown were acquired by a subsidiary of VICI for an aggregate sales price of $700.0 million and the Company entered into the Greektown Lease, which has an initial annual rent of $55.6 million and an initial term of 15 years, with 4 five-year renewal options. The acquisition of the operations was financed through a combination of cash on hand and incremental borrowings under the Company’s Revolving Credit Facility (as defined in Note 10, “Long-term Debt”).
The Company is in the process of finalizing the assumptions that derive the fair value of certain assets acquired and liabilities assumed. Therefore, the allocation of the purchase price is preliminary and subject to change. During the year ended December 31, 2019, subsequent to the date of acquisition, we made the following adjustments to the preliminary purchase price:
(in millions)
Estimated fair value, as previously reported (1)
 Measurement period adjustments Estimated fair value, as adjusted
Cash and cash equivalents$31.1
 $—
 $31.1
Receivables, prepaid expenses, and other current assets15.7
 (1.2) 14.5
Property and equipment32.3
 (3.9) 28.4
Goodwill (2)
61.7
 5.7
 67.4
Other intangible assets     
Gaming license166.4
 —
 166.4
Trademark24.4
 —
 24.4
Customer relationships3.3
 —
 3.3
Operating lease right-of-use assets516.1
 —
 516.1
Finance lease right-of-use assets4.1
 —
 4.1
Other assets0.2
 (0.2) —
Total assets$855.3
 $0.4
 $855.7
      
Accounts payable, accrued expenses and other current liabilities$14.8
 $0.4
 15.2
Operating lease liabilities516.1
 —
 516.1
Finance lease liabilities4.1
 —
 4.1
Total liabilities535.0
 0.4
 535.4
Net assets acquired$320.3
 $—
 $320.3
(1)Amounts were initially reported within the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2019, filed with the SEC on August 8, 2019.
(2)The goodwill has been assigned to our Northeast segment. The entire $67.4 million goodwill amount is deductible for tax purposes.
The Company used the income, market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations, furniture and other equipment). We determined that the land and buildings subject to the Greektown Lease, which was entered into at the time of the acquisition, represented operating lease ROU assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.
Acquired identifiable intangible assets consist of a gaming license and a trademark, which are both indefinite-lived intangible assets, and customer relationships, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license using the Greenfield Method under the income approach; (ii) the trademark using the relief-from-royalty method under the income approach; and (iii) customer relationships (rated player databases) using the with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies. See Note 2, “Significant Accounting Policies,” for more information.
The following table includes the financial results of Greektown since the acquisition date, which is included within our Consolidated Statement of Income for the year ended December 31, 2019:

(in millions)Period from May 23, 2019 through December 31, 2019
Revenues$195.9
Net income$10.9

Margaritaville Resort Casino
On January 1, 2019, the Company acquired the operations of Margaritaville for a net purchase price of $122.9 million, after working capital and other adjustments, pursuant to (i) an agreement and plan of merger (the “Margaritaville Merger Agreement”) among the Company, VICI, Bossier Casino Venture (HoldCo), Inc. (“Holdco”), and Silver Slipper Gaming, LLC, and (ii) a membership interest purchase agreement (the “MIPA”) among VICI and the Company.
Pursuant to the Margaritaville Merger Agreement, a subsidiary of VICI merged with and into Holdco with Holdco surviving the merger as a wholly-owned subsidiary of VICI (the “Merger”) and owner of the real estate assets relating to Margaritaville. Pursuant to the MIPA, immediately following the consummation of the Merger, HoldCo sold its interests in its sole direct subsidiary and owner of the Margaritaville operating assets, to the Company. In connection with the acquisition, the real estate assets used in the operations of Margaritaville were acquired by VICI for $261.1 million and the Company entered into the Margaritaville Lease, which has an initial annual rent of $23.2 million and an initial term of 15 years, with 4 five-year renewal options. The acquisition of the operations was financed through incremental borrowings under the Company’s Revolving Credit Facility.
During the fourth quarter of 2019, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill. During the year ended December 31, 2019, prior to its finalization, we made the following adjustments to the preliminary purchase price allocation:
(in millions)
Estimated fair value, as previously reported (1)
 Measurement period adjustments Fair value, as finalized
Cash and cash equivalents$10.7
 $—
 $10.7
Receivables, prepaid expenses, and other current assets7.1
 (0.1) 7.0
Property and equipment21.7
 (1.0) 20.7
Goodwill (2)
39.5
 4.7
 44.2
Other intangible assets     
Gaming license48.1
 —
 48.1
Customer relationships2.3
 —
 2.3
Operating lease right-of-use assets196.2
 —
 196.2
Total assets$325.6
 $3.6
 $329.2
      
Accounts payable, accrued expenses and other current liabilities$9.5
 $0.6
 $10.1
Operating lease liabilities196.2
 —
 196.2
Total liabilities205.7
 0.6
 206.3
Net assets acquired$119.9
 $3.0
 $122.9
(1)Amounts were initially reported within the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2019, filed with the SEC on May 8, 2019.
(2)The goodwill has been assigned to our South segment. The entire $44.2 million goodwill amount is deductible for tax purposes.
The Company used the income, market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations, furniture and other equipment). We determined that the land and buildings subject to the Margaritaville Lease, which was entered into at the time of the acquisition, represented operating lease ROU assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.

Acquired identifiable intangible assets consist of a gaming license, which is an indefinite-lived intangible asset, and a customer relationship, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license using the Greenfield Method under the income approach and (ii) the customer relationships using the with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies. See Note 2, “Significant Accounting Policies,” for more information.
The following table includes the financial results of Margaritaville since the acquisition date, which is included within our Consolidated Statement of Income for the year ended December 31, 2019:
(in millions)For the year ended December 31, 2019
Revenues$157.6
Net income$13.7

Pinnacle Acquisition
On October 15, 2018, the Company acquired all of the outstanding shares of Pinnacle, for a total purchase price of $2,816.2 million, which consisted of (i) a cash payment of $20.00 per share of Pinnacle common stock, totaling $1,252.2 million; (ii) issuance of Penn National common stock in the amount of $749.7 million; and (iii) the retirement of $814.3 million of Pinnacle debt obligations. In conjunction with the Pinnacle Acquisition, the Company divested the membership interests of certain Pinnacle subsidiaries, which operated the casinos known as Ameristar St. Charles, Ameristar Kansas City, Belterra Resort and Belterra Park (referred to collectively as the “Divested Properties”), to Boyd Gaming Corporation (NYSE: BYD). Additionally, as a part of the transaction, (i) GLPI acquired the real estate assets associated with Plainridge Park Casino, and concurrently leased back such assets to the Company. In connection with the sale of the Divested Properties and the Plainridge Park Casino Sale-Leaseback, the Pinnacle Master Lease, which was assumed by the Company concurrent with the closing of the Pinnacle Acquisition, was amended. The Pinnacle Acquisition added 12 gaming properties to our holdings and provides us with greater operational scale and geographic diversity. For more information on the Pinnacle Master Lease and related amendment, see Note 11, “Leases.”
During the third quarter of 2019, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill. During the year ended December 31, 2019, prior to its finalization, we made the following adjustments to the preliminary purchase price allocation:
(in millions)
Estimated fair value, as previously reported (1)
 Measurement period adjustments Fair value, as finalized
Cash and restricted cash$124.2
 $—
 $124.2
Assets held for sale667.0
 0.5
 667.5
Other current assets80.6
 0.5
 81.1
Property and equipment - non-Pinnacle Master Lease318.9
 (0.3) 318.6
Property and equipment - Pinnacle Master Lease (2)
3,984.1
 (29.2) 3,954.9
Goodwill (3)
219.5
 18.7
 238.2
Other intangible assets     
Gaming licenses1,046.0
 21.6
 1,067.6
Trademarks298.0
 —
 298.0
Customer relationships22.4
 —
 22.4
Other long-term assets38.9
 —
 38.9
Total assets$6,799.6
 $11.8
 $6,811.4
      
Long-term financing obligation, including current portion (4)
$3,427.0
 $5.5
 $3,432.5
Other current liabilities200.6
 5.5
 206.1
Deferred tax liabilities339.2
 0.8
 340.0
Other long-term liabilities16.6
 —
 16.6
Total liabilities3,983.4
 11.8
 3,995.2
Net assets acquired$2,816.2
 $—
 $2,816.2
(1)Amounts were initially reported within the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.

(2)Includes buildings, boats, vessels, barges, and implied land and land use rights. Land use rights represent the intangible value of the Company’s ability to utilize and access land associated with long term ground lease agreements that give the Company the exclusive rights to operate the casino gaming facilities associated with such agreements.
(3)
See Note 8, “Goodwill and Other Intangible Assets,” for details on the impact to each reportable segment.
(4)Long-term financing obligation, including current portion represents the financing obligation associated with Pinnacle Master Lease, as amended.
Pro Forma Financial Information - Greektown, Margaritaville, and Pinnacle
The following table includes unaudited pro forma consolidated financial information assuming our acquisitions of Greektown and Margaritaville had occurred as of January 1, 2018 and Pinnacle had occurred as of January 1, 2017. The pro forma financial information does not represent the anticipated future results of the combined company. The pro forma amounts include the historical operating results of Penn National, Greektown, Margaritaville, and Pinnacle, prior to the acquisition, with adjustments directly attributable to the acquisitions, inclusive of adjustments for acquisition costs. The below pro forma results do not include any adjustments related to synergies.
 For the year ended December 31,
(in millions)2019 2018 2017
Revenues$5,434.9
 $5,552.2
 $5,036.6
Net income (loss)$64.9
 $101.9
 $(38.0)

1st Jackpot Casino and Resorts Casino Tunica
 On May 1, 2017, the Company is evaluating this new guidanceacquired the operations of 1st Jackpot Casino and intendsResorts Casino Tunica, for a net purchase price of $47.0 million. In connection with the acquisitions, the real estate assets relating to early adopt1st Jackpot Casino and Resorts Casino Tunica were acquired by GLPI for an aggregate sales price of $82.6 million and included in the new guidance in 2017.

5.Acquisitions and Other Recent Business Ventures

Penn Master Lease. Resorts Casino Tunica ceased operations on June 30, 2019.

Rocket Speed Inc.

On

In August 1, 2016, the CompanyPenn Interactive acquired 100% of the outstanding equity securities of social casino game developer, Rocket Speed, Inc. (f/k/a Rocket Games, Inc., (“Rocket Speed”)), for initial cash consideration of $60.5 million subject to customary working capital adjustments. The Stock Purchase Agreement includesstock purchase agreement included contingent consideration payments over the next two years that will bewere based on a multiple of 6.25 times Rocket Games’ then-trailing twelve months of earnings before interest, taxes, depreciation and amortization,then trailing-twelve-months EBITDA, subject to a cap of $110$110.0 million. Up to $10$10.0 million of the contingent consideration ispurchase price was accounted for as compensation as it iswas tied to continued employment over a two yeartwo-year period. The acquisition was funded by Penn with cash on hand and revolving commitments under the

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Company’s senior secured credit facility.  The preliminary fair value of the contingent purchase price was estimated to be $34.4 million at the acquisition date based on an income approach by applying an option pricing method to the Company’s internal earning projections using a Monte Carlo simulation.  This acquisition complements Penn’s interactive gaming strategy through its wholly-owned subsidiarydate.

In September 2017, Penn Interactive Venturesreached an agreement with the former shareholders of Rocket Speed to buy out the remaining contingent purchase price, which resulted in a benefit of $22.2 million, which is included in the Other category. The preliminary purchase price allocation is detailed in the table below (in thousands).  Current assets includes $4.1 millionwithin “General and administrative” within our Consolidated Statements of cash acquired.

Following the preliminary fair values reported in the Company’s 10-Q for the period ended September 30, 2016, additional analysis was performed on our initial contingent purchase price liability.  This resulted in an adjustment to our contingent purchase price at the acquisition date of $21.6 million to $34.4 million.  Additionally, acquisition date fair values for goodwill, intangible assets and deferred tax liabilities also decreased by $14.5 million, $8.0 million and $1.7 million, respectively, as compared to the provisional amounts previously reported at September 30, 2016, as a result of measurement period adjustments from obtaining final information underlying the identified intangible assets.  The Company shortened the useful life assumptions for certain of its intangible assets which, in connection with the decrease in fair values of intangibles, would have resulted in $0.9 million of additional amortization expense for the two months ended September 30, 2016, that was recorded in the three months ended December 31, 2016.

August 1, 2016

Current assets

$
7,738

Fixed assets

235

Goodwill

67,164

Other intangible assets

35,383

Other assets

73

Total assets

$
110,593

Current liabilities

$
5,350

Deferred taxes

10,268

Other liabilities

100

Total liabilities

15,718

Cash paid

60,489

Contingent purchase price

34,386

Total consideration transferred

$
110,593

Developed technology intangible

$
17,969

User base intangible

11,563

Non-compete agreements intangible

5,851

Other intangible assets

$
35,383

The developed technology intangible represents the intellectual property embodied by the developed, completed gaming apps of the Rocket Speed as of the acquisition date.  The Company used a multiple period excess earnings model under the income approach to estimate the fair value for this intangible asset and are amortizing the asset over four years on an accelerated basis.  The user base intangible asset represents the estimated value of the acquired customer database. The Company used a replacement cost method to estimate the fair value for this intangible asset and are amortizing it on an accelerated basis over two years.  Non-compete agreements limit specific employees from competing in related businesses.  The Company used a with-and-without method under the income approach to estimate the fair value for this intangible asset and will amortize it over four years consistent with the length of the agreements.

The acquisition of Rocket Speed resulted in an increase the the Company’s reported net revenues of $17.3

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millionIncome for the year ended December 31, 2016.  Additionally, prior to the acquisition date, the Company incurred transactions costs of $1.0 million, which were reported in general and administrative expenses for the year ended December 31, 2016.

Slot Kings and Bell Gaming

On October 3, 2016 and November 1, 2016, the Company acquired 100% of Slot Kings, LLC and Bell Gaming, LLC for $17.1 million and $10.8 million, respectively, in all cash transactions.  The transactions were funded by revolving commitments under the Company’s amended senior secured credit facility.  The results of Slot Kings and Bell Gaming have been included in the Company’s consolidated financial statements since the acquisition dates.  The Company’s preliminary purchase price allocations included $10.5 million in goodwill and $16.6 million in other intangible assets related to acquired customer contracts, as a result of these transactions.  The goodwill recognized for these two transactions is deductible for tax purposes.  The acquisitions of Slot Kings and Bell Gaming did not materially impact the 2016 consolidated results of operations.

Tropicana Las Vegas

On August 25, 2015, the Company acquired 100% of Tropicana Las Vegas Hotel and Casino in Las Vegas, Nevada from Trilliant Gaming Nevada, Inc. for the purchase price of $357.7 million.  The purchase price for this cash transaction was funded by revolving commitments under the Company’s existing senior secured credit facility and approximately $280 million of incremental commitments under an amended senior secured credit facility.  The results of the Tropicana Las Vegas facility have been included in the Company’s consolidated financial statements since the acquisition date. The preliminary purchase price allocation is detailed in the table below (in thousands). Current assets includes $8.0 million of cash acquired.

Tropicana Las Vegas, located on the strip in Las Vegas, Nevada, is situated on a 35-acre land parcel at the corner of Tropicana Boulevard and Las Vegas Boulevard. The resort features 1,183,984 of property square footage with 775 slot machines and 36 table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, three full services restaurants, a food court, a 1,200-seat performance theater, a 300-seat comedy club, over 100,000 square feet of exhibition and meeting space, and a five-acre tropical beach event area and spa.  The Company believes this acquisition fulfilled our strategic objective of obtaining a presence on the Las Vegas Strip.

August 25, 2015

Current assets

$
15,966

Property and equipment, net

365,492

Goodwill

14,821

Other assets

4,553

Total assets

$
400,832

Current liabilities

$
25,755

Other liabilities

17,417

Total liabilities

43,172

Cash paid / total consideration transferred

357,660

Prairie State Gaming

On September 1, 2015, the Company acquired 100% of Prairie State Gaming from The Robert H. Miller Trust and Illinois Funding, LLC in an all cash transaction.  The transaction was funded by revolving commitments under the

2017.

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Company’s amended senior secured credit facility.  The results of Prairie State Gaming have been included in the Company’s consolidated financial statements since the acquisition date. The Company recorded $22.9 million and $15.7 million in goodwill and other intangible assets, respectively, from this transaction.

Prairie State Gaming is one of the largest slot-route operators in Illinois with operations that included, at the time of acquisition, more than 1,100 video gaming terminals across a network of 270 bar and retail gaming establishments throughout Illinois.  The Company intends to leverage our gaming experience, relationships, and purchasing power to improve PSG’s performance and expand its network.

The unaudited pro forma financial information for the periods set forth below gives effect to the 2015 acquisitions described above as if they had occurred as of January 1, 2015.  This incorporates the impacts on depreciation and amortization expense resulting from the Company’s purchase accounting adjustments to the acquired assets and liabilities. The pro forma results for the 2016 acquisitions are not materially different than reported results.  The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (in thousands):

Pro Forma Financial Information (Unaudited)

Year ended December 31,

2015

Net Revenues

$

3,154,848

Income from continuing operations

540,992

The acquisitions of Tropicana Las Vegas Hotel and Casino and Prairie State Gaming resulted in an increase to the Company’s reported net revenues of $57.3 million and a decrease of $3.0 million to income from continuing operations for the year ended December 31, 2015.  Additionally, prior to the acquisition dates, the Company incurred transaction costs of $1.9 million, which were reported in general and administrative expenses for the year ended December 31, 2015.

Jamul Indian Village

On Development Corporation

In April 5, 2013, the Company announced that, subject to final National Indian Gaming Commission approval, it and the Jamul Tribe, hada federally recognized Indian Tribe holding a government-to-government relationship with the U.S., entered into definitive agreements to assist the Jamul Tribe in the development of a Hollywood Casino‑brandedCasino-branded casino on the Jamul Tribe’s trust land in San Diego County, California. TheIn addition, the definitive agreements were entered into to: (i) secure the development, management, and branding services of the Company to assist the Jamul Tribe during the pre‑development and entitlement phase of the project; (ii)a related loan commitment letter set forth the terms and conditions under which the Company willwould provide a loan or loans to the Jamul TribeIndian Village Development Corporation (the “JIVDC”) to fund certain development costs; and (iii) create an exclusive arrangement betweencosts. Following the parties.

The Jamul Tribe is a federally recognized Indian Tribe holding a government-to-government relationship with the U.S. through the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent powers of self-government. The Jamul Tribe is the beneficial owner of approximately six acres of reservation land located within the exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe (the “Property”).  The Jamul Tribe exercises jurisdiction over the Property pursuant to its powers of self-government and consistent with the resolutions and ordinances of the Jamul Tribe.  The arrangement between the Jamul Tribe andopening, the Company providesalso managed the Jamul Tribe with the expertise, knowledge and capacity of a proven developer and operator of gaming facilities and provides the Company with the exclusive right to administer and oversee planning, designing, development, construction management, and coordination during the development and construction of the project as well as the management of a gaming facility on the Property.

The Company considered whether the arrangement with the Jamul Tribe represents a variable interest that should be accounted for pursuant to the VIE subsections of ASC 810. The Company noted that the scope and scope

property.

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exceptions of ASC 810-10-15-12(e) states that a reporting entity shall not consolidate a government organization or financing entity established by a government organization (other than certain financing entities established to circumvent the provisions of the VIE subsections of ASC 810).  Based on the status of the Tribe as a government organization, the Company concluded its arrangement with the Jamul Tribe is not within the scope defined by ASC 810.

Hollywood Casino Jamul – San Diego is a three-story gaming and entertainment facility of approximately 200,000 square feet featuring 1,731 slot machines, 40 live table games, multiple restaurants, bars and lounges and a partially enclosed parking structure with over 1,800 spaces.  In mid-January 2014, the Company announced the commencement of construction activities at the site.  The facility opened to the public on October 10, 2016. The Company currently provides a portion of the financing to the Jamul Tribe in connection with the project and, following the opening, now manages and provides branding for the casino.

The Company is accounting for the development agreement and related loan commitment letter with the Jamul Tribe as a loan (the “Loan”) with accrued interest in accordance with ASC 310, “Receivables.”  The Loan represented advances made by the Company to the Jamul Tribe for the development and construction of a gaming facility for the Jamul Tribe on reservation land.  As such, the Jamul Tribe owns the casino and its related assets and liabilities. Repayment of funds advanced to the Jamul Tribe is primarily predicated on cash flows from the operations of the facility.  San Diego Gaming Ventures, LLC (a wholly-owned subsidiary of the Company) is a separate legal entity and, following completion of the project and subsequent commencement of gaming operations on the Property, is the Penn entity that receives management and licensing fees from the Jamul Tribe. The Company’s Loan with the Jamul Tribe totaled $197.7 million and $62.0 million, which includes accrued interest of $13.9 million, and $3.3 million, at December 31, 2015 and 2014, respectively.

Additionally, in December 2015, the Company entered into an agreement to purchase a $60 million subordinated note from the previous developer of the Jamul Indian Village project for $24 million.  Interest on this subordinated Note, as of the effective date and at all times thereafter until the Loans has been paid in full, shall accrue as follows: as of the effective date, no interest shall accrue initially; at the opening date, interest shall accrue at a simple fixed rate of 4.25% per annum.  The subordinated Note is subordinated to the Loan, and payments on the subordinated Note may only be made after all necessary payments are made on the Loan subject to certain limitations.  The Company recorded the subordinated Note at its acquisition price of $24 million, which was considered to be its fair value. The Company has concluded that the $24 million carrying value, which is recorded within other assets on the consolidated balance sheet at December 31, 2015, represents the expected cash flows to be received. As described below, this subordinated note was repaid in connection with the Jamul Tribe refinancing of its existing indebtedness and the Company received a $6 million premium which is being accounted for as an origination fee on our new loan with the Tribe.

On October 20, 2016, the Jamul TribeJIVDC obtained long termlong-term secured financing, consisting of a revolving andcredit facility, a term loan B facility and a term loan C facility (the “Term Loan C Facility” and collectively with the revolving credit facilities (thefacility and the term loan B facility, the “Credit Facilities”) totaling approximately $460 million. The Company was the lender under the Term Loan C Facility in the amount of $98.0 million.

As of December 31, 2017, the JIVDC breached one of the financial covenants contained within the Credit Facilities, allresulting in default. Consequently, the Company performed an analysis of the expected future cash flows it would receive based on forecasted operations of the property, discounted at the Term Loan C Facility’s effective interest rate, as well as any concessions it would grant to the JIVDC. As a result of such analysis, the Company recorded a charge of $86.0 million for the year ended December 31, 2017, of which are due in 2022, consist$64.0 million pertained to the Term Loan C Facility and $22.0 million was a reserve

for unfunded loan commitments. In addition, the Company recorded charges of a $5$3.8 million revolving credit facility, a $340 million term loan B facilityrelated to certain advances made to the JIVDC.
In February 2018, the Company and a $98 million term loan C facility.  The revolving credit facility was provided by various commercial banks; the term loan B facility is held by an affiliate of Och-Ziff Real Estate; and the term loan C facility is held by the Company.  The Company will also provide up to an additional $15 million of delayed draw term loan C commitments to fund certain roadway improvement costs.  The various Credit Facilities rank pari passu with each other.  However, if, on the first anniversary of the opening of Hollywood Casino Jamul – San Diego (the “Casino”), the Jamul Tribe has not achieved a senior secured net leverage ratio equal to or less than 5.0 to 1.0, then all or a portion of the term loan C facility will become subordinated to the other Credit Facilities to the extent necessary suchmutually agreed that after giving effect to such conversion, such senior secured net leverage ratio is 5.0 to 1.0.  The rights of the Company to receive managementwould no longer manage the property nor provide branding and license fees are subordinated todevelopment services as of May 28, 2018. On May 25, 2018, the claims ofCompany entered into a purchase agreement with the lenderssenior lender under the Credit Facilities and are subjectfor the property to certain conditions contained in the Credit Facilities.  The Company’s Loan with the Jamul Tribe totaled $92.1 million (net of unamortized loan origination fee of $5.9 million and inclusive of a current portion of $0.7 million in other current assets) at December 31, 2016.

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The Company was repaid on October 20, 2016, a net amount of approximately $274 million (consisting of reimbursements totaling approximately $372 million less funds advanced of $98 million)sell them all of the advances toCompany’s outstanding rights and obligations under the Jamul Tribe forTerm Loan C Facility and the development and construction of the property as well as previously purchased Jamul Tribal debt. The Company used these funds to reduce borrowings under its revolving credit facility. 

JIVDC commitments. As a condition to the availability of the Credit Facilities,result, the Company provided a limited completion guarantee, in favorreceived cash proceeds of $15.2 million from the administrative agent under the Credit Facilities, to provide up to $15 millionsale and was relieved of additional loans related to the constructionall rights and opening of the Casino, as well as certain post opening construction costs.  Of these loans, $10 million may be funded under the Credit Facilities as part of the term loan C facility, while any additional loans would be subordinated loans. The term loan C facility bears interest at LIBOR plus 8.50% with a 1% LIBOR floor (or, at the Jamul Tribe’s election, a base rate determined by reference to the prime rate, the federal funds effective rate or LIBOR, as applicable, plus 7.50%), and the subordinated loans will bear interest at 14.0% (with 12.0% to be paid in cash and 2.0% to be paid-in-kind).

As mentioned previously, the Company is accounting for its loan in accordance with ASC 310, “Receivables”.  Although Hollywood Casino Jamul opened to strong business and earnings volumes in October 2016, which met our expectations, results began to soften earlier and with a steeper dropoff than anticipated.  Based on the actual performance of the facility and projections for the first half of 2017, the Company believes the Tribe is likely to be in technical default of certain financial covenant requirementsobligations with respect to debt to earnings ratios at June 30, 2017, in the absence of a waiver being obtained prior to such date.  As a result, we have concluded our Jamul loan is impaired at December 31, 2016.  A loan is considered impaired when, based on current information, events and projections, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when contractually due under the termsJIVDC. The sale of the loan agreement.  Impairment is measured by the present valueresulted in a recovery of expected future cash flows discounted at the loan’s effective interest rate.  An allowance for loan losses would be established in the event the carrying value exceeds the present value calculation previously described.

The Company performed a comprehensive reviewand unfunded loan commitments of various possible future cash flow projections for the facility that were benchmarked against recent openings in the Company’s regional operations.  The expected cash flows were then discounted at the loans original interest rate in accordance with ASC 310 which was in excess of our loan’s carrying value of $92.1 million at December 31, 2016 and as such no reserve was required.  The unpaid principal balance of our loan at December 31, 2016 was $98.0 million. 

Plainridge Racecourse Acquisition

In September 2013, the Company entered into an option and purchase agreement to purchase Plainridge Racecourse in Massachusetts, with the sellers having no involvement in the business or operations from that date forward.  The Company subsequently began to operate Plainridge Racecourse effective January 1, 2014 pursuant to a temporary operations agreement. On February 28, 2014, the Massachusetts Gaming Commission awarded the Company a Category Two slots-only gaming license, and in early March 2014, the Company exercised its option to purchase Plainridge Racecourse. This acquisition reflects the continuing efforts of the Company to expand its gaming operations through the development of new gaming properties. The fixed portion of the purchase price was paid on April 11, 2014.  The option and purchase agreement also contained contingent purchase price consideration that is calculated based on the actual earnings of the gaming operations over the first ten years of gaming operations, which commenced on June 24, 2015.  The first payment was made 60 days after the completion of the first four full fiscal quarters of operation, and subsequent payments will be made every year for nine years after the first payment. The fair value of this liability was determined to be $10.7 million, $13.8 million, and $19.2 million at December 31, 2016, 2015 and 2014, respectively, based on an income approach from the Company’s internal earning projections and was discounted at a rate consistent with the risk a third party market participant would require holding the identical instrument as an asset. This liability is included in other current and other non-current liabilities on the consolidated balance sheet.  At each reporting period, the Company assesses the fair value of this obligation and changes in its value are recorded in earnings.  The amount included in general and administrative expense related to the change in fair value of this obligation was a credit of $1.3

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million and $5.4 million and a charge of $0.7$17.0 million for the yearsyear ended December 31, 2016, 2015 and 2014, respectively. In August 2016, the first payment of $1.8 million was made for the contingent purchase price.

Plainridge Park Casino, which opened on June 24, 2015, is located 20 miles southwest of the Boston beltway just off interstate 952018.


Note 6—Investments in Plainville, Massachusetts. Plainridge Park Casino features 196,473 of property square footage with 1,250 gaming devices. Plainridge Park Casino offers various restaurants, bars, 1,620 structured and surface parking spaces, and other amenities. Plainridge Park Casino also includes a 5/8-mile live harness racing facility with approximate 55,000 square foot, two story clubhouse for simulcast operations and live racing viewing.

6.Investment In and Advances to Unconsolidated Affiliates

As of December 31, 2016, investment2019 and 2018, investments in and advances to unconsolidated affiliates primarily includedconsisted of the Company’s 50% investmentinterest in Kansas Entertainment, which is a joint ventureJV with International Speedway Corporation (“International Speedway”),that owns Hollywood Casino at Kansas Speedway, its 50% interest in Freehold Raceway, and its 50% joint ventureJV with MAXXAM, Inc. (“MAXXAM”) that owns, and operates racetracks in Texas.These investments are more fully described below.

its JV with Greenwood Limited Jersey, Inc. (“Greenwood”).

Kansas Joint Venture

The Company has a 50%

As of December 31, 2019 and 2018, our investment in Kansas Entertainment which owns the Hollywood Casino at Kansas Speedway. Hollywood Casino at Kansas Speedway is a Hollywood-themed facility, which features 244,791 of property square footage with 2,000 slot machines, 41 table games and 12 poker tables, a 1,253 space parking structure, as well as a variety of dining and entertainment facilities. As of December 31, 2016 and 2015, the Company’s investment balance was $93.8$90.8 million and $103.6$89.4 million, respectively. During the years ended December 31, 2016, 2015,2019, 2018 and 2014,2017, the Company received distributions from Kansas Entertainment totaling $25.8$29.0 million, $27.2$27.0 million and $23.0$26.0 million, respectively, which the Company deemed to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment.

The Company

As of the years ended December 31, 2019 and 2018, we determined that Kansas Entertainment qualifieddoes not qualify as a VIE at December 31, 2016 and 2015. TheVIE. Using the guidance for entities that are not VIEs, the Company determined that it did not consolidate its investmenthave a controlling financial interest in Kansas Entertainment at,the JV as of and for the years ended December 31, 20162019 and 2015, as the Company determined that it did not qualify as the primary beneficiary of Kansas Entertainment at, and for the years ended December 31, 2016 and 2015,2018, primarily as it did not have the ability to direct the activities of Kansas Entertainmentthe JV that most significantly impacted Kansas Entertainment’sthe JV’s economic performance without the approvalinput of International Speedway. In addition,Therefore, the Company determined that International Speedway had substantive participating rightsdid not consolidate its investment in Kansas Entertainment at,the JV as of and for the years ended December 31, 20162019 and 2015.

2018.

For the year ended December 31, 2016, the Company’s2019, our investment in Kansas Entertainment met the requirements of S-X Rule 4-08(g) to provide summarized financial information. The following table provides summarybalance sheet and income statement information for Kansas Entertainment as required under S-X Rule 1-02(bb) for the comparative periods inthat are included within our Consolidated Financial Statements:
 December 31,
(in millions)2019 2018
Current assets$21.5
 $18.3
Long-term assets$159.2
 $161.0
Current liabilities$13.5
 $15.1
 For the year ended December 31,
(in millions)2019 2018 2017
Revenues$162.3
 $159.0
 $155.7
Operating expenses101.3
 110.4
 114.7
Operating income61.0
 48.6
 41.0
Net income$61.0
 $48.6
 $41.0
      
Net income attributable to Penn National$30.5
 $24.3
 $20.5
In addition, for the Company’s consolidated balance sheets and consolidatedyear ended December 31, 2019, we determined that it was required to provide audited financial statements of operations (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2016

    

2015

    

2014

Current assets

 

$

16,638

 

$

16,550

 

$

21,978

Noncurrent assets

 

$

176,050

 

$

195,010

 

$

213,386

Current liabilities

 

$

15,351

 

$

14,544

 

$

14,626

Kansas Entertainment. The audited financial statements of Kansas Entertainment for the years ended June 30, 2019, 2018 and 2017 are provided as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2019.

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Texas and New Jersey Joint Ventures

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2016

    

2015

    

2014

Net revenues

 

$

152,926

 

$

153,407

 

$

143,390

Operating expenses

 

 

121,006

 

 

122,828

 

 

122,051

Income from operations

 

 

31,920

 

 

30,579

 

 

21,339

Net income

 

$

31,920

 

$

30,579

 

$

21,339

 

 

 

 

 

 

 

 

 

 

Net income attributable to Penn

 

$

15,960

 

$

15,290

 

$

10,670

Texas Joint Venture

The Company has a 50% interest in a joint ventureJV with MAXXAM, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a planned racetrack in Austin, Texas. Sam Houston Race Park hosts thoroughbred and quarter horsequarter-horse racing and offers daily simulcast operations, and Valley Race Park features dog racing and simulcasting.

In addition, through a separate arrangement, the Company has a 50% interest in a JV with Greenwood, which owns and operates Freehold Raceway, in Freehold, New Jersey. The Companyproperty features a half-mile standardbred racetrack and a grandstand. 

As of December 31, 2019 and 2018, we determined that theneither our Texas joint venture did notJV nor our New Jersey JV qualify as a VIE at December 31, 2016 and 2015.VIE. Using the guidance for entities that are not VIEs, in both cases, the Company determined that it did not have a controlling financial interest in either of the joint venture at,JVs as of and for the years ended December 31, 20162019 and 2015,2018, primarily as it did not have the ability to direct the activities of either of the joint ventureJVs that most significantly impacted the joint venture’sJVs’ economic performance without the input of MAXXAM.MAXXAM or Greenwood, respectively. Therefore, the Company did not consolidate either of its investment in the joint venture at,JVs as of and for the years ended December 31, 20162019 and 2015.

New Jersey Joint Venture

Through its joint venture with Greenwood Limited Jersey, Inc. (“Greenwood”), the Company owns 50% of Freehold Raceway, located in Freehold, New Jersey. The property features a half-mile standardbred race track2018.

Note 7—Property and a  grandstand.

The Company determined that the New Jersey joint venture did not qualify as a VIE at December 31, 2016 and 2015. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the joint venture at, and for the years ended December 31, 2016 and 2015, primarily as it did not have the ability to direct the activities of the joint venture that most significantly impacted the joint venture’s economic performance without the input of Greenwood. Therefore, the Company did not consolidate its investment in the joint venture at, and for the years ended December 31, 2016 and 2015.

Equipment

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7.Property and Equipment

Property and equipment, net, consistsconsisted of the following:

 

 

 

 

 

 

 

 

December 31,

    

December 31,

 

 

2016

 

2015

 

December 31,

 

(in thousands)

 

 

 

 

 

 

 

 

Property and equipment - non-master lease

 

 

 

 

 

 

 

(in millions)2019 2018
Property and equipment - Not Subject to Master Leases   

Land and improvements

 

$

294,590

 

$

288,910

 

$353.2
 $344.0

Building and improvements

 

 

404,158

 

 

396,497

 

Building, vessels and improvements420.4
 343.0

Furniture, fixtures and equipment

 

 

1,355,615

 

 

1,303,153

 

1,598.3
 1,565.8

Leasehold improvements

 

 

118,940

 

 

129,012

 

183.6
 152.9

Construction in progress

 

 

16,375

 

 

9,175

 

59.3
 25.5

 

 

2,189,678

 

 

2,126,747

 

2,614.8
 2,431.2

Less Accumulated depreciation

 

 

(1,224,596)

 

 

(1,093,115)

 

Less: Accumulated depreciation(1,548.3) (1,400.2)

 

 

965,082

 

 

1,033,632

 

1,066.5
 1,031.0

Property and equipment - master lease

 

 

 

 

 

 

 

Land and improvements

 

 

382,246

 

 

382,246

 

Building and improvements

 

 

2,219,018

 

 

2,219,018

 

Property and equipment - Subject to Master Leases   
Land and improvements (1)
1,525.9
 2,971.0
Building, vessels and improvements (1)
3,664.6
 3,845.0

 

 

2,601,264

 

 

2,601,264

 

5,190.5
 6,816.0

Less accumulated depreciation

 

 

(745,963)

 

 

(654,828)

 

Less: Accumulated depreciation(1,136.8) (978.2)

 

 

1,855,301

 

 

1,946,436

 

4,053.7
 5,837.8

Property and equipment, net

 

$

2,820,383

 

$

2,980,068

 

$5,120.2
 $6,868.8

Property and equipment, net decreased by $159.7 million primarily due to depreciation
(1)
Upon adoption of ASC 842, approximately $1.4 billion of land was derecognized and replaced with operating lease ROU assets based on the present value of future lease payments and $180.4 million of building and improvements, gross, was derecognized and replaced with finance lease ROU assets based on the present value of future lease payments. See Note 3, “New Accounting Pronouncements.”

Depreciation expense partially offset by maintenance capital expenditures and improvements at Tropicana Las Vegas duringwas as follows:
 For the year ended December 31,
(in millions)2019 2018 2017
Depreciation expense (1)
$381.6
 $251.9
 $248.2
(1)Of such amounts, $158.9 million, $112.1 million, and $92.4 million, respectively, pertained to real estate assets subject to either of our Master Leases.
During the twelve monthsyear ended December 31, 2016.

Depreciation expense, for2018, we recorded $34.3 million of impairment on the property and equipment as well as capital leases, totaled $261.9 million, $258.9 million, and $255.4 million in 2016, 2015 and 2014. Depreciation expense onassociated with Resorts Casino Tunica, principally relating to the real estate assets subject to the Penn Master Lease, assetswhich is included in “Impairment losses” within our Consolidated Statements of Income. The charge was $91.1 million, $92.4 millionthe result of an impairment assessment performed after reviewing the financial results and $89.8 million for the years ended December 31, 2016, 2015, and 2014 respectively. Interest capitalized in connection with major construction projects was $0.1 million, $1.8 million, and $0.9 million in 2016, 2015 and 2014, respectively.

During the years ended December 31, 2016 and 2015, the Company recorded no long-lived asset impairment charges. During the second quarterprojected results of 2014, the Company recorded a long-lived asset impairment chargethis property, which had been impacted by nearby competition. We subsequently ceased operations of $4.6 million to write-down certain idle assets to their estimated salvage value.

Resorts Casino Tunica on June 30, 2019.

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8.GoodwillNote 8—Goodwill and Other Intangible Assets

A reconciliation of goodwill and accumulated goodwill impairment losses, by reportable segment, is as follows:
(in millions)Northeast South West Midwest Other Total
Balance as of January 1, 2018           
Goodwill, gross$792.0
 $136.9
 $159.0
 $1,046.7
 $155.3
 $2,289.9
Accumulated goodwill impairment losses(707.6) (34.6) (16.6) (435.3) (87.7) (1,281.8)
Goodwill, net84.4
 102.3
 142.4
 611.4
 67.6
 1,008.1
Goodwill acquired during year56.4
 48.3
 51.4
 63.4
 0.8
 220.3
Balance as of December 31, 2018           
Goodwill, gross848.4
 185.2
 210.4
 1,110.1
 156.1
 2,510.2
Accumulated goodwill impairment losses(707.6) (34.6) (16.6) (435.3) (87.7) (1,281.8)
Goodwill, net140.8
 150.6
 193.8
 674.8
 68.4
 1,228.4
Goodwill acquired during year67.4
 44.2
 —
 —
 —
 111.6
Impairment losses during year(10.3) (17.4) —
 (60.3) —
 (88.0)
Other (1)
(1.5) 7.2
 6.4
 6.6
 —
 18.7
Balance as of December 31, 2019           
Goodwill, gross914.3
 236.6
 216.8
 1,116.7
 156.1
 2,640.5
Accumulated goodwill impairment losses(717.9) (52.0) (16.6) (495.6) (87.7) (1,369.8)
Goodwill, net$196.4
 $184.6
 $200.2
 $621.1
 $68.4
 $1,270.7
(1)
Amounts relate to adjustments made to the preliminary purchase price allocation of Pinnacle during the year ended December 31, 2019, prior to it being finalized, as described in Note 5, “Acquisitions and Other Investments”
2019 Annual Assessment for Impairment
As a result of our 2019 annual assessment for impairment, we recognized impairments on our goodwill, gaming licenses, and trademarks, of $88.0 million, $62.6 million, and $20.0 million, respectively. The impairments of goodwill were largely driven by increases in the carrying amount of certain of our reporting units as a result of decreases in the allocated amount of the financing obligation to such reporting units, which was driven by the adoption of ASC 842. The impairments of gaming licenses and trademarks were largely driven by reductions in the long-term projections for certain of our properties where competition has increased due to expansion of gaming legislation, primarily within the Northeast segment. The estimated fair values of the reporting units were determined through a combination of a DCF 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 DCF models, which utilized Level 3 inputs.
As noted in the table above, the goodwill impairments pertained to our Northeast, South and Midwest segments, in the amounts of $10.3 million, $17.4 million and $60.3 million, respectively. The gaming license impairments pertained to our Northeast and South segments in the amounts of $55.1 million and $7.5 million, respectively. The trademark impairments pertained to our Northeast, South and Midwest segments, in the amounts of $11.5 million, $6.5 million and $2.0 million, respectively.
2018 Annual Assessment for Impairment
During the year ended December 31, 2018, the Company completed its 2018 annual assessment for impairment, which did not result in any impairment charges to goodwill or other intangible assets.
2017 Annual and Interim Assessments for Impairment
During the third quarter of 2017, the Company identified an indicator of impairment on its goodwill as a result of a reversal of a significant deferred tax valuation allowance, which caused increases in the carrying amounts of certain of our reporting units. As a result of an interim assessment for impairment, one of our reporting units within the West segment was fully impaired, resulting in an impairment charge of $14.8 million, and the goodwill at Sanford-Orlando Kennel Club, which is included in the Other category, was partially impaired, resulting in an impairment charge of $3.2 million. The estimated fair values of the reporting units were determined by using DCF models, which utilized Level 3 inputs.

During the year ended December 31, 2017, subsequent to the interim assessment discussed above, the Company completed its 2017 annual assessment for impairment, which did not result in any impairment charges to goodwill or other intangible assets.
The aforementioned impairments are included in “Impairment losses” within our Consolidated Statements of Income. See Note 18, “Fair Value Measurements,” for quantitative information about the significant unobservable inputs used in the fair value measurements of other intangible assets.
As of October 1, 2019, the date of the most recent annual impairment test, 3 reporting units had negative carrying amounts. The amount of goodwill at these reporting units was as follows (in thousands)millions):

Balance at December 31, 2014 :

Goodwill

$

Northeast segment 
Hollywood Casino at Charles Town Races$8.7
Plainridge Park Casino$6.3
Midwest segment 
Ameristar Council Bluffs$36.2

2,137,749

Accumulated goodwill impairment losses

(1,263,565)

Goodwill, net

$

874,184

Goodwill acquired

37,758

Balance at December 31, 2015 :

Goodwill

$

2,175,507

Accumulated goodwill impairment losses

(1,263,565)

Goodwill, net

$

911,942

Goodwill acquired

77,743

Balance at December 31, 2016:

Goodwill

$

2,253,250

Accumulated goodwill impairment losses

(1,263,565)

Goodwill, net

$

989,685

Indefinite‑life intangible assets consist primarily of gaming licenses. The table below presents the gross carrying value,amount, accumulated amortization, and net book valuecarrying amount of each major class of other intangible assets at December 31, 2016 and 2015:

assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

December 31, 2015

 

 

 

(in thousands)

 

 

    

Gross

    

 

 

    

 

 

    

Gross

    

 

 

    

 

 

 

 

 

Carrying

 

Accumulated

 

Net Book

 

Carrying

 

Accumulated

 

Net Book

 

 

 

Value

 

Amortization

 

Value

 

Value

 

Amortization

 

Value

 

Indefinite-life intangible assets

 

$

375,405

 

$

 —

 

$

375,405

 

$

375,405

 

$

 —

 

$

375,405

 

Other intangible assets

 

 

125,584

 

 

65,495

 

 

60,089

 

 

72,223

 

 

56,186

 

 

16,037

 

Total

 

$

500,989

 

$

65,495

 

$

435,494

 

$

447,628

 

$

56,186

 

$

391,442

 

Total other intangible assets increased by $44.1 million for

 December 31, 2019 December 31, 2018
(in millions)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Indefinite-lived intangible assets           
Gaming licenses$1,681.9
 $—
 $1,681.9
 $1,498.3
 $—
 $1,498.3
Trademarks302.4
 —
 302.4
 298.0
 —
 298.0
Other0.7
 —
 0.7
 0.7
 —
 0.7
Amortizing intangible assets           
Customer relationships104.4
 (69.0) 35.4
 98.8
 (51.5) 47.3
Other36.1
 (30.0) 6.1
 61.9
 (49.3) 12.6
Total other intangible assets$2,125.5
 $(99.0) $2,026.5
 $1,957.7
 $(100.8) $1,856.9
During the year ended December 31, 2016 primarily due to $52.02019, we paid $10.0 million of definite-lived other intangible assets related to Rocket Speedfor online and Illinois slot operator acquisitionsretail sports betting licenses in 2016 partially offset by amortization forPennsylvania and during the year ended December 31, 2016.  Other intangible assets2018, we purchased two Category 4 gaming licenses to operate up to 750 slot machines and initially up to 30 table games, under each license, in York County, Pennsylvania for $50.1 million and in Berks County, Pennsylvania for $7.5 million, and iGaming and sports betting licenses in Pennsylvania for $20.0 million, all of which have a weighted average remaining amortization period of 5.8 years.

In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Austintown, respectively.  Upon opening of these facilities in 2014, the relocation fee for each new racino was recorded at the present value of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement and was capitalizedbeen classified as an indefinite-lived intangible asset (See Note 9 for further details on the obligation). In addition, the gaming license fee of $50 million for each Ohio racino has been paid ($25 million for each facility in 2014, and $25 million for each facility in 2015).

For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million, as of the valuation date of October 1, 2015 (the date of our annual impairment test),assets.

Amortization expense related to the write-off of our Plainridge Park Casino gaming license and a partial write-down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.

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For the year ended December 31, 2014, the Company recorded goodwill and other intangible assets impairment charges of $80.8 million and $74.5 million, respectively, as of valuation date of October 1, 2014 (the date of our annual impairment test), as we determined that a portion of the value of our goodwill and otheramortizing intangible assets was impaired due to the Company’s outlook of continued challenging regional gaming conditions at certain properties which persisted in 2014 in its Midwest segment, as well as for the write off of a trademark intangible asset in the South/West segment.

The Company’s intangible asset amortization expense was $9.3$24.7 million, $0.5$17.1 million, and $11.4$18.9 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively.

The following table presents expected intangible assetthe estimated amortization expense based on existingour amortizing intangible assets atas of December 31, 20162019 (in thousands)millions):

 

 

 

 

2017

    

$

18,142

 

2018

 

 

11,844

 

2019

 

 

7,660

 

Years ending December 31: 

2020

 

 

5,233

 

$19.7

2021

 

 

3,331

 

5.8
20223.9
20233.6
20243.6

Thereafter

 

 

13,879

 

4.9

Total

 

$

60,089

 

$41.5

The Company’s remaining goodwill



Note 9—Accrued Expenses and Other Current Liabilities
Accrued expenses and other intangible assets by reporting unit at December 31, 2016 is shown below (in thousands):

 

 

 

 

 

 

 

 

 

    

 

 

    

Other Intangible

 

Reporting Unit

 

Goodwill

 

Assets

 

Hollywood Casino St. Louis

 

$

205,783

 

$

58,418

 

Hollywood Casino Aurora

 

 

207,207

 

 

-  

 

Argosy Casino Riverside

 

 

154,332

 

 

4,964

 

Zia Park Casino

 

 

142,359

 

 

 —

 

Hollywood Gaming at Dayton Raceway

 

 

15,339

 

 

110,436

 

Hollywood Gaming at Mahoning Valley Race Course

 

 

 —

 

 

125,000

 

Penn Interactive Ventures

 

 

67,164

 

 

29,555

 

Hollywood Casino at Penn National Race Course

 

 

1,497

 

 

67,607

 

Prairie State Gaming

 

 

33,515

 

 

29,822

 

Hollywood Casino Lawrenceburg

 

 

63,189

 

 

 —

 

Hollywood Casino Tunica

 

 

44,042

 

 

 —

 

Boomtown Biloxi

 

 

22,365

 

 

 —

 

Argosy Casino Alton

 

 

9,863

 

 

8,284

 

Tropicana Las Vegas

 

 

14,821

 

 

 —

 

Others

 

 

8,209

 

 

1,408

 

Total

 

$

989,685

 

$

435,494

 

current liabilities consisted of the following:

103

 December 31,
(in millions)2019 2018
Accrued salaries and wages$142.1
 $139.2
Accrued gaming, pari-mutuel, property, and other taxes103.3
 105.8
Accrued interest13.0
 15.8
Other accrued expenses (1)
225.8
 204.6
Other current liabilities (2)
147.1
 112.6
Accrued expenses and other current liabilities$631.3
 $578.0
(1)
Amounts include $38.3 million and $33.8 million, respectively, pertaining to the Company’s accrued progressive jackpot liability. Additionally, amounts include the obligation associated with our mychoice program and the current portion of advance payments on goods and services yet to be provided and for unpaid wagers, which are discussed in Note 2, “Significant Accounting Policies.”
(2)Amounts include $80.1 million and $64.1 million, respectively, pertaining to the Company’s non-qualified deferred compensation plan that covers most management and other highly-compensated employees.

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9.Long‑termNote 10—Long-term Debt

Long‑term

Long-term debt, net of current maturities, iswas as follows:

 

 

 

 

 

 

 

 

 

 

December 31,

    

December 31,

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Senior secured credit facility

 

$

976,845

 

$

1,259,740

 

$300 million 5.875 % senior unsecured notes due November 1, 2021

 

 

300,000

 

 

300,000

 

Other long-term obligations

 

 

154,084

 

 

146,992

 

Capital leases

 

 

1,760

 

 

28,466

 

 

 

 

1,432,689

 

 

1,735,198

 

Less current maturities of long-term debt

 

 

(85,595)

 

 

(92,108)

 

Less net discounts

 

 

(620)

 

 

(686)

 

Less debt issuance costs, net of accumulated amortization of $20.5 million and $13.3 million, respectively

 

 

(16,535)

 

 

(23,553)

 

 

 

$

1,329,939

 

$

1,618,851

 

 December 31,
(in millions)2019 2018
Senior Secured Credit Facilities:   
Revolving Credit Facility due 2023$140.0
 $112.0
Term Loan A Facility due 2023672.3
 707.7
Term Loan B-1 Facility due 20251,117.5
 1,128.7
5.625% Notes due 2027400.0
 400.0
Other long-term obligations89.2
 104.6
Capital leases (1)
—
 0.4
 2,419.0
 2,453.4
Less: Current maturities of long-term debt(62.9) (62.1)
Less: Debt discount(2.4) (2.8)
Less: Debt issuance costs(31.5) (38.4)
 $2,322.2
 $2,350.1

(1)Reclassified to finance lease liabilities upon the adoption of ASC 842.
The following is a schedule of future minimum repayments of long-term debt as of December 31, 20162019 (in thousands)millions):

 

 

 

 

2017

    

$

85,504

 

2018

 

 

687,552

 

2019

 

 

19,773

 

Year ending December 31: 

2020

 

 

253,059

 

$62.9

2021

 

 

330,912

 

81.4
202299.9
2023683.1
202421.3

Thereafter

 

 

55,889

 

1,470.4

Total minimum payments

 

$

1,432,689

 

$2,419.0


Senior Secured Credit Facility

Facilities

On October 30, 2013, the Company entered into a new senior secured credit facility. The new senior securedagreement (the “2013 Credit Agreement”) providing for: (i) a five-year $500.0 million revolving credit facility consists of(the “2013 Revolving Credit Facility”), (ii) a five year $500five-year $500.0 million revolver, a five year $500 millionterm loan A facility (the “2013 Term Loan A Facility”) and (iii) a seven-year $250.0 million term loan B facility and a seven year $250 million(the “2013 Term

Loan B facility. TheFacility” and collectively with the 2013 Revolving Credit Facility and the 2013 Term Loan A facility was priced at LIBOR plus a spread (ranging from 2.75% to 1.25%) based onFacility, the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor. In connection with the repayment of the previous senior secured credit facility, the Company recorded a $21.5 million loss on the early extinguishment of debt for the year ended December 31, 2013 related to debt issuance costs write‑offs and the write‑off of the discount on the Term Loan B facility of the previous senior secured credit facility.

“2013 Senior Secured Credit Facilities”).

On April 28, 2015, the Company entered into an agreement to amend its senior secured credit facility.2013 Credit Agreement (the “Amended 2013 Credit Agreement”). In August 2015, the amendment to the senior secured credit facilityAmended 2013 Credit Agreement went into effect, increasingwhich increased the capacity under an existing five year revolver from $500 millionthe 2013 Revolving Credit Facility to $633.2 million and increased the existing five year $500 million2013 Term Loan A facility by $146.7Facility to $646.7 million. The seven year $250Amended 2013 Credit Agreement did not impact the 2013 Term Loan B Facility. 
On January 19, 2017, the Company entered into an agreement to amend and restate its Amended 2013 Credit Agreement (the “2017 Credit Agreement”), which provided for: (i) a five-year $700.0 million revolving credit facility (the “Revolving Credit Facility”), a five-year $300.0 million term loan A facility (the “Term Loan A Facility”), and a seven-year $500.0 million Term Loan B facility remained unchanged. 

(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 Pinnacle Acquisition, we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the 2017 Credit Agreement (the “Amended 2017 Credit Agreement”). The Incremental Joinder provided for an additional $430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $1,128.8 million of loans as a new tranche having new terms (the “Term Loan B-1 Facility”). The proceeds resulting from the Incremental Joinder were used; together with cash on hand and proceeds received from (i) newly-issued shares of the Company’s common stock, (ii) the sale of the Divested Properties, (iii) the Plainridge Park Casino Sale-Leaseback, and (iv) the sale of the real estate assets associated with Belterra Park; to (a) acquire all of the issued and outstanding equity interests of Pinnacle, (b) repay in full Pinnacle’s existing senior secured credit facility had a grossfacilities at the time of the acquisition, (c) redeem, repurchase, defease or satisfy and discharge in full Pinnacle’s outstanding balance5.625% senior notes due 2024, (d) repay in full the Company’s outstanding borrowings under its Term Loan B Facility at the time of $976.8 million at December 31, 2016, consistingthe acquisition, and (e) pay fees, costs and expenses associated with the foregoing. With the exception of a $543.3 millionextending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility.
The final maturity dates for the Term Loan A facility,Facility and Term Loan B-1 Facility are October 19, 2023 and October 15, 2025, respectively. The applicable margin for the Term Loan A Facility ranges from 1.25% to 3.00% per annum for LIBOR loans and 0.25% to 2.00% per annum for base rate loans, in each case depending on the Consolidated Total Net Leverage Ratio (as defined in the Amended 2017 Credit Agreement) as of the most recent fiscal quarter. The applicable margin for the Term Loan B-1 Facility is 2.25% per annum for LIBOR loans and 1.25% per annum for base rate loans. The Term Loan B-1 Facility is subject to a $242.5 millionLIBOR “floor” of 0.75%. Prior to extinguishment, the applicable margin for the Term Loan B facility,Facility was 2.50% per annum for LIBOR loans and $191.0 million outstanding1.50% per annum for base rate loans. In addition, we pay a commitment fee on the revolving credit facility. This compares withunused portion of the commitments under the Revolving Credit Facility at a $1,259.7 million gross outstanding balance atrate that ranges from 0.20% to 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.
As of December 31, 2015 which consisted of a $592.7 million Term Loan A facility, a $245.0 million Term Loan B facility

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2019 and $422.0 million outstanding on the revolving credit facility. Additionally, at December 31, 2016 and 2015,2018, the Company was contingently obligatedhad conditional obligations under letters of credit issued pursuant to the senior secured credit facilitySenior Secured Credit Facilities with face amounts aggregating $23.0$30.0 million in both periods, resulting in $530.0 million and $23.4 million, respectively, resulting in $419.1 million and $187.7$558.0 million of available borrowing capacity as ofunder the Revolving Credit Facility, respectively.

For the year ended December 31, 20162018, in connection with the debt financing transactions relating to the Pinnacle Acquisition and 2015, respectively, underprincipal repayments on the revolving credit facility.

Term Loan B Facility, the Company recorded $5.5 million in refinancing costs and a $21.0 million loss on early extinguishment of debt, related to refinancing costs on the extinguishment of the Term Loan B Facility and the write-off of debt issuance costs and the discount on the Term Loan B Facility. For the year ended December 31, 2017, in connection with the repayment of the 2013 Senior Secured Credit Facilities, the Company recorded $1.7 million in refinancing costs and a $2.3 million loss on early extinguishment of debt, related to the write-off of debt issuance costs and the discount on the 2013 Term Loan B Facility. The refinancing costs are included in “Other,” as reported in “Other income (expenses)” within our Consolidated Statements of Income.

The payment and performance of obligations under the senior secured credit facilitySenior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property, such as gaming licenses) of the Company and its subsidiaries.  In January 2017, the Company completed a refinancing and used the proceeds to payoff its existing senior secured credit facility.  See Note 20 “Subsequent Events” for more information.

5.875%Company.  

5.625% Senior Unsecured Notes

On October 30, 2013,January 19, 2017, the Company completed an offering of $300$400.0 million 5.875%aggregate principal amount of 5.625% senior unsecured notes that mature on November 1, 2021January 15, 2027 (the “5.875%“5.625% Notes”) at a price of par. Interest on the 5.875%5.625% Notes is payable on May 1January 15th and November 1July 15th of each year. The 5.875% Notes are senior unsecured obligations of the Company. The 5.875%5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary‑guaranteedsubsidiary-guaranteed debt securities. The Company may redeem the 5.875%5.625% Notes at any time and from time to time, on or after November 1, 2016,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 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a “make‑whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays 105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.

5.625% Notes.

The Company used a portion of the proceeds from the issuance of the new senior secured credit facility, new5.625% Notes to retire its existing 5.875% Notes (as defined below) and, cash on hand, toalong with loans funded under the 2017 Credit Agreement, repay amounts outstanding under its previous senior secured credit facility,Amended 2013 Credit Agreement, including to fund related transaction fees and expenses. The remaining proceeds from the cash tender offer to purchase any andissuance of the 5.625% Notes were used for general corporate purposes.
Redemption of 5.875% Senior Subordinated Notes
During the year ended December 31, 2017, the Company redeemed all of its previously issued 83/4% Notes and the related consent solicitation to make certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay related fees and expenses and for working capital purposes.

$300.0 million 5.875% senior subordinated notes (“5.875% Notes”), which were due in 2021. In January 2017,connection with this redemption, the Company completed an offeringrecorded a $21.1 million loss on early extinguishment of $400 million 5.625% senior unsecured notes that mature on January 19, 2027, and used the proceeds to payoff its existing senior unsecured notes.  See Note 20 “Subsequent Events” for more information.

Other Long‑Term Obligations

Other long term obligations at December 31, 2016 and 2015 of $154.1 million and $147.0 million, respectively, included $118.9 million and $131.7 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.  At December 31, 2016 and 2015, $14.4 million and $15.3 million, respectively, related to the repayment obligation of a hotel and event center located near Hollywood Casino Lawrenceburg and $20.8 million related to a corporate airplane loan; all of which are more fully described below. 

Ohio Relocation Fees

In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value of the

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contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $6.2 million and $6.7 milliondebt for the year ended December 31, 2016 and 2015, respectively.

Event Center

The City of Lawrenceburg Department of Redevelopment completed construction of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg. Effective in mid-January 2015, by contractual agreement, a repayment obligation for2017 related to the hotel and event center was assumed by a wholly-owned subsidiarydifference between the reacquisition price of the Company in the amount of $15.3 million, which5.875% Notes and their carrying amount.

Interest expense, net
Interest expense, net, was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property.  The Company is obligated to make annual payments on the loan of approximately $1 million for twenty years beginning January 2016. This obligation is accreted to interest expense at its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for the years ended December 31, 2016as follows:
 For the year ended December 31,
(in millions)2019 2018 2017
Interest expense$(535.9) $(539.4) $(467.0)
Interest income1.4
 1.0
 3.6
Capitalized interest0.3
 —
 0.2
Interest expense, net$(534.2) $(538.4) $(463.2)
Covenants
Our Senior Secured Credit Facilities and 2015.

Corporate Airplane Loan

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

Covenants

The Company’s senior secured credit facility and senior unsecured notes5.625% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge coverage, interest coverage, senior leverage and total leverage ratios.tests. In addition, the Company’s senior secured credit facilityour Senior Secured Credit Facilities and senior unsecured notes5.625% Notes restrict, among other things, itsour ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

At As of December 31, 2016,2019, the Company was in compliance with all required financial covenants.

10.Master Lease Financing Obligation

The Company’s lease obligation with GLPI that is described in Note 3

Other Long-Term Obligations
Ohio Relocation Fees
As of December 31, 2019 and 2018, other long-term obligations included $76.4 million and $91.3 million, respectively, related to the consolidated financial statements is accountedrelocation fees for asDayton and Mahoning Valley, which opened in August 2014 and September 2014, respectively. In June 2013, we finalized the terms of our memorandum of understanding with the State of Ohio, which included an agreement for us to pay a financing obligation. Therelocation fee in return for being able to relocate our existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening Dayton and Mahoning Valley, each relocation fee was recorded at the present value of the contractual obligation, which was calculated at the inception of the transactionas $75.0 million based on the future minimum lease5.0% discount rate included in the agreement. Each relocation fee is payable as follows: $7.5 million upon opening and 18 semi-annual payments discountedof $4.8 million beginning one year after opening. This obligation is accreted to interest expense at 9.70%, which represented the Company’s estimated incremental borrowing rate at lease inception over the lease term, including renewal options, that were reasonably assuredan effective yield of being exercised and the funded construction of certain leased real estate assets5.0%. The amount included in development at the date of the Spin-Off. Total paymentsinterest expense related to GLPI under the Master Lease were $442.3this obligation was $4.1 million, $437.0$4.8 million and $421.4$5.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Event Center
As of December 31, 2019 and 2018, other long-term obligations included $12.6 million and $13.2 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, 2015the 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%. The amount included in interest expense related to this obligation was $0.4 million for each of the years ended December 31, 2019, 2018 and 2014, respectively,2017.

Note 11—Leases
Lessee
Master Leases
Upon adoption of the new lease standard, components contained within the Master Leases were determined to be either (i) operating leases, (ii) finance leases, or (iii) financing obligations. Changes to future lease payments under the Master Leases (i.e., when future escalators become known or future variable rent resets occur), which are discussed below, require the Company to either (i) increase both the ROU assets and corresponding lease liabilities with respect to operating and finance leases or (ii) record the incremental variable payment associated with the financing obligation to interest expense.
Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with 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 Penn Master Lease includes a fixed component, a portion of which $391.7is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Penn Master Lease) of 1.8:1, and a component that is based on the performance of the properties, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all properties under the Penn Master Lease (other than Hollywood Casino Columbus (“Columbus”) and Hollywood Casino Toledo (“Toledo”)) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo (see below). As a result of the annual escalator, the fixed component of rent increased by $5.5 million, $390.1$5.4 million and $379.2$2.4 million respectively,effective as of November 1, 2019, 2018 and 2017, respectively. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023.
As a result of the annual escalator effective November 1, 2019, an additional ROU asset and corresponding lease liability of $34.4 million were recognized associated with operating lease components and an additional ROU asset and corresponding lease liability of $3.1 million were recognized associated with finance lease components.
The acquisition of Greektown on May 23, 2019 activated a competition clause within the Penn Master Lease, which introduced a rent floor specific to Toledo. As a result, an additional ROU asset and corresponding lease liability of $151.2 million were recognized associated with operating lease components. Lease payments resulting from the rent floor associated with components determined to continue to be financing obligations are included in “Interest expense, net” within our Consolidated Statements of Income.
Monthly rent associated with Columbus and monthly rent in excess of the Toledo rent floor are considered contingent rent. Expense related to operating lease components associated with Columbus and Toledo are included in “General and administrative” within our Consolidated Statements of Income and the variable expense related to the financing obligation component is included in “Interest expense, net” within our Consolidated Statements of Income. The entire variable expense related to prior years was included in “Interest expense, net” pursuant to the failed sale-leaseback accounting treatment under ASC 840. Total monthly variable expenses were as interest expense.follows:
 For the year ended December 31,
(in millions)2019 2018 2017
Variable expenses included in “General and administrative”$16.4
 $—
 $—
Variable expenses included in “Interest expense, net”16.1
 48.9
 46.8
Total variable expenses$32.5
 $48.9
 $46.8

Pinnacle Master Lease
In connection with the Pinnacle Acquisition, we assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations. Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years

remaining of the initial ten-year term, with 5 subsequent, five-year renewal periods, on the same terms and conditions, exercisable at the Company’s option. The interestCompany has determined that the lease term is 32.5 years.
The payment structure under the Pinnacle Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Pinnacle Master Lease) of 1.8:1, and a component that is based on the performance of the properties, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues compared to a contractual baseline during the preceding two years (“Pinnacle Percentage Rent”). As a result of the annual escalator, the fixed component of rent increased by $1.0 million effective as of May 1, 2019. The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2020.
As a result of the annual escalator, an additional ROU asset and corresponding lease liability of $3.8 million were recognized associated with operating lease components of the Pinnacle Master Lease.
Operating Leases
The Company’s operating leases consist mainly of (i) the Meadows Lease with GLPI, (ii) the Margaritaville Lease with VICI, (iii) the Greektown Lease with VICI, (iv) ground and levee leases to landlords which were not assumed by our REIT Landlords and remain an obligation of the Company, and (v) 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.
Meadows Lease, Margaritaville Lease, and Greektown Lease
In connection with the Pinnacle Acquisition, we assumed the Meadows Lease, originally effective September 9, 2016. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with 3 subsequent, five-year renewal options followed by 1 four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4.0% of the average annual net revenues of the property during the trailing two-year period. As a result of the annual escalator, which was determined to be $0.8 million, effective October 1, 2019, an additional operating ROU asset and corresponding operating lease liability of $4.3 million were recognized. The next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020.
The Margaritaville Lease has an initial term of 15 years, with 4 subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Margaritaville Lease includes a fixed component (“Margaritaville Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”). The first Margaritaville Percentage Rent reset is scheduled to occur on February 1, 2021. On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator. Under the amendment, the Margaritaville Base Rent is subject to an annual escalator of up to 2% subject to a minimum ratio of net revenue to rent of 6.1:1.
The Greektown Lease has an initial term of 15 years, with 4 subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Greektown Lease includes a fixed component (“Greektown Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (“Greektown Percentage Rent”). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021.

Information related to lease term and discount rate was as follows:
December 31, 2019
Weighted-Average Remaining Lease Term
Operating leases27.6 years
Finance leases28.6 years
Financing obligations30.4 years
Weighted-Average Discount Rate
Operating leases6.7%
Finance leases6.8%
Financing obligations8.1%
The components of lease expense recognizedwere as follows:
 Classification  
(in millions)Gaming Expense Food, Beverage, Hotel and Other Expense General and Administrative Interest Expense, net Depreciation and Amortization Total for the year ended December 31, 2019
Operating Lease Costs           
Rent expense associated with triple net leases classified as operating leases (1)
$—
 $—
 $366.4
 $—
 $—
 $366.4
Operating lease cost (2)
0.4
 0.5
 16.6
 —
 —
 17.5
Short-term lease cost53.8
 1.3
 1.5
 —
 —
 56.6
Variable lease cost (2)
2.8
 —
 1.1
 —
 —
 3.9
Total$57.0
 $1.8
 $385.6
 $—
 $—
 $444.4
            
Finance Lease Costs           
Interest expense (3)
$—
 $—
 $—
 $15.4
 $—
 $15.4
Amortization expense (3)
—
 —
 —
 —
 7.9
 7.9
Total$—
 $—
 $—
 $15.4
 $7.9
 $23.3
            
Financing Obligation Costs           
Interest expense (4)
$—
 $—
 $—
 $394.1
 $—
 $394.1
(1)Pertains to the components contained within the Master Leases (primarily land) determined to be operating leases, the Meadows Lease, the Margaritaville Lease, and the Greektown Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land) (see table above).
(2)Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.
(3)Primarily pertains to the Dayton and Mahoning Valley finance leases.
(4)Pertains to the components contained within the Master Leases (primarily buildings) determined to continue to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings) (see table above).
Total rent expense under all operating lease agreements pursuant to the accounting treatment under ASC 840 was $58.1 million and $45.4 million for the years ended December 31, 2016, 20152018 and 2014 includes $43.8 million, $43.5 million and $40.9 million, respectively from contingent payments associated with the monthly variable components for Hollywood Casino Columbus and Hollywood Casino Toledo.

2017, respectively.

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The future minimum paymentsSupplemental cash flow information related to the Master Leaseleases was as follows:

(in millions)For the year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities 
Operating cash flows from finance leases$15.4
Operating cash flows from operating leases$403.6
Financing cash flows from finance leases$6.2


The following is a maturity analysis of our operating leases, finance leases and financing obligation with GLPI, atobligations as of December 31, 2016 are as follows (in thousands):

2019:

 

 

 

 

 

2017

    

$

389,496

 

2018

 

 

378,716

 

2019

 

 

324,819

 

2020

 

 

324,819

 

2021

 

 

324,819

 

Thereafter

 

 

8,715,981

 

Total minimum payments

 

 

10,458,650

 

Less amounts representing interest at 9.70%

 

 

(7,332,321)

 

Plus residual values

 

 

387,751

 

Present value of future minimum payments

 

 

3,514,080

 

Less current portion of financing obligation

 

 

(56,595)

 

Long-term portion of financing obligation

 

$

3,457,485

 

(in millions)Operating Leases Finance Leases Financing Obligations
Years ending December 31:     
2020$424.0
 $21.7
 $374.7
2021403.7
 21.7
 367.3
2022400.6
 21.6
 367.3
2023397.5
 20.8
 367.3
2024381.0
 16.7
 367.3
Thereafter8,153.3
 393.5
 9,270.6
Total lease payments10,160.1
 496.0
 11,114.5
Less: Imputed interest(5,585.4) (270.1) (6,971.8)
Present value of future lease payments4,574.7
 225.9
 4,142.7
Less: Current portion of lease obligations(124.1) (6.5) (40.5)
Long-term portion of lease obligations$4,450.6
 $219.4
 $4,102.2

11.Commitments and Contingencies

Litigation

Bankruptcy Litigation

As described in the Company’s Annual Report on Form 10-K for

During the year ended December 31, 2015, with2019, total payments made under the acquisitionTriple Net Leases were $869.8 million. During the year ended December 31, 2018, total payments made under the Master Leases and Meadows Lease were $537.4 million. During the year ended December 31, 2017, total payments made under the Penn Master Lease were $455.4 million.
Lessor
The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our Consolidated Statements of Tropicana Las VegasIncome. For the years ended December 31, 2019, 2018, and its associated entities (“Tropicana Las Vegas”) on August 24, 2015,2017, the Company assumed litigation arising fromrecognized $311.0 million, $163.6 million, and $129.9 million, of lessor revenues related to the Bankruptcy Chapter 11 reorganization (“Tropicana Bankruptcy”)rental of Tropicana Las Vegas’ former affiliate, Tropicana Entertainment Holdings, LLC (“TEH”).  In this Bankruptcy proceeding, there was an unresolved dispute whereby TEH claimed that Tropicana Las Vegas was responsible for the paymenthotel rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature. The cost and accumulated depreciation of certain professional feesproperty and expenses incurredequipment associated with hotel rooms is included in the Tropicana Bankruptcy.  On May 23, 2016, an agreement was reached to settle the dispute for $3.1 million.  The settlement agreement was approved by the bankruptcy court on June 23, 2016,“Property and payment was made in July 2016.

equipment, net” within our Consolidated Balance Sheets.


Note 12—Commitments and Contingencies
Litigation
The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, development agreements and other matters arising in the ordinary course of business. Although the Company maintains what it believes is adequate insurance coverage to mitigate the risk of loss pertaining to covered matters, legal and administrative proceedings can be costly, time-consuming and unpredictable. The Company believes that it has meritorious defenses, claims and/or counter-claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.
Although no assurance can be given, the Company does not believe that the final outcome of these matters, including costs to defend itself in such matters, will have a material adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations.Consolidated Financial Statements. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.

Legal proceedings could result

Location Share Agreements
Prairie State Gaming (“PSG”) enters into location share agreements with bar and retail establishments in costs, settlements, damages,Illinois. These agreements are contracts which allow PSG to place VGTs in the bar or rulings that materially impactretail establishment in exchange for a percentage of the Company’s consolidated financial condition or operating results. The Company believes that it has meritorious defenses, claims and/or counter‑claimsvariable revenue generated by the VGTs. PSG holds the gaming license with respect to these proceedings,the state of Illinois and intends to vigorously defend itself or pursue its claims.

Operating Lease Commitments

The Companythe location share percentage is liable under numerous operating leases for various assets, including but not limited to automobiles, and other equipment. The majoritydetermined by the state of these lease arrangements are cancelable within 30 days.  Total rental

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expense under all operating lease agreements was $40.3 million, $37.9 million, and $33.3 million forIllinois. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the total location share payments made by PSG, which are recorded within our Consolidated Statements of Income as gaming expenses, were $33.1 million, $34.7 million, and $29.7 million, respectively.

The future minimum lease commitments relating to the base lease rent portion of noncancelable operating leases at December 31, 2016 are as follows (in thousands):

 

 

 

 

Year ending December 31,

    

Total

2017

 

$

5,366

2018

 

 

4,379

2019

 

 

2,393

2020

 

 

1,184

2021

 

 

999

Thereafter

 

 

13,959

Total

 

$

28,280

Capital Expenditure Commitments

The Company’s current construction program for 2017 includes capital expenditures of approximately $36.7 million, of which the Company was contractually committed to spend approximately $11.0 million at December 31, 2016.

Purchase obligations

Obligations

The Company has obligations to purchase various goods and services totaling $57.3$126.4 million atas of December 31, 2016,2019, of which $33.5$70.4 million will be incurred in 2017.

2020.

Capital Expenditure Commitments
Pursuant to each of our Triple Net Leases, we are obligated to spend a minimum of 1% of annual net revenues, in the aggregate under each lease, on the maintenance of such facilities.
Employee Benefit Plans

The Company maintains a qualified retirement plan under the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended, which covers all eligible employees.employees (the “Penn 401(k) Plan”). The planPenn 401(k) Plan enables participating employees to defer a portion of their salary in a retirement fund to be administered by the Company. The Company makes a discretionary match contribution, where applicable, of 50% of employees’ elective salary deferrals, up to a maximum of 6% of eligible employee compensation. The matching contributions forto the qualified retirement planPenn 401(k) Plan for the years ended December 31, 2016, 20152019, 2018 and 20142017 were $5.3$11.7 million, $5.0$6.5 million, and $4.7$6.0 million, respectively.

The Company also has

We maintain a defined contribution plan, the Charles Town Races Future Service Retirement Plan, covering substantially all of its union employees at Hollywood Casino at Charles Town Races. Hollywood Casino at Charles Town Races makes annual contributions to this plan for the eligible union employees and to the Penn National Gaming, Inc. 401(k) Plan for the eligible non‑union employees for an amount equal to the amount accrued for retirement expense, which is calculated as 0.25% of the daily mutual handle, 1.0% of net video lottery revenue up to a base and, after the base is met, it reverts to 0.5% and 0.84% of table and poker revenue, respectively. The contributions for the two plans at Hollywood Casino at Charles Town Races for the years ended December 31, 2016, 2015 and 2014 were $2.8 million, $2.9 million, and $3.0 million, respectively.

The Company maintains a non‑qualifiednon-qualified deferred compensation plan (the “EDC Plan”) that covers most management and other highly‑compensatedhighly-compensated employees. This planThe EDC Plan was effective beginning March 1, 2001. The planEDC Plan allows the participants to defer, on a pre‑taxpre-tax basis, a portion of their base annual salary and/or their annual bonus and earn tax‑deferredtax-deferred earnings on these deferrals. The planEDC Plan also provides for matching Company contributions that vest over a five‑yearfive-year period. The Company has established a Trust,trust, and transfers to the Trust,trust, on a periodic basis, an amount necessary to provide for its respective future liabilities with respect to participant deferral and Company contribution amounts. The Company’s matching contributions for the non‑qualified deferred compensation planEDC Plan for the years ended December 31, 2016, 20152019, 2018 and 2014

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2017 were $2.3 million, $2.3 million, and $2.2 million, $2.0 million, and $1.9 million, respectively. The Company’sOur deferred compensation liability, which wasis included in “Accrued expenses and other current liabilitiesliabilities” within the consolidated balance sheets,Consolidated Balance Sheets, was $59.4$80.1 million and $52.7$64.1 million atas of December 31, 20162019 and 2015,2018, respectively.

Labor Agreements

The Company is

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

At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles Town Races also renewed an agreement with the breeders that expires on June 30, 2017. Additionally, the pari‑mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union As of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month‑to‑month basis.

The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January2019, we had 31 2018. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract is currently being negotiated. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.

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

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

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

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

Across certain of the Company’s properties, SEATU represents approximately 1,711 of the Company’s employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.

SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton, Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018; the remainder of the SEATU agreements have expiration dates in 2018 and beyond.

At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents approximately 176 employees under a collective bargaining agreement which expires on March 31, 2019. At Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and the United Steel

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Workers represents approximately 1,361 employees under a collective bargaining agreement which ends on November 15, 2019.

On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which had seven existing collective bargaining agreements with the following unions: (1) Culinary & Bartenders (with a wage/reopener in 2017; expires on May 31, 2018.), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical Workers (expires on February 28, 2017), (4) International Alliance of Theatrical Stage Employees (expires on December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7) Teamsters (front and back of the house, both expire on March 31, 2018).

The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego, which the Company opened on October 10, 2016.  Unite Here! International Union and Local 30 represents employees in stewarding, facilities, accounting, food and beverage, and operations classifications, and the partiescovering approximately 5,900 employees. NaN collective bargaining agreements are scheduled to begin negotiating their first collective bargaining agreementexpire in 2017

In addition, at some of the Company’s properties, the Security Police2020, and Fire Professionals of America, the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local 1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel Workers represent certain of the Company’s employees underwe are currently renegotiating 3 collective bargaining agreements that expire at various times between February 2017 and September 2025. None of these additional unions represent more than 79 of the Company’s employees.

If the Company fails to maintain operative agreements with the horsemen at a track, it will not be permitted to conduct live racing and export and import simulcasting at that track and OTWs and,expired in West Virginia, the Company will not be permitted to operate its gaming machines and table games unless the state intervenes or changes the statute. In addition, the Company’s simulcasting agreements are subject to the horsemen’s approval. If the Company fails to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on its business, financial condition and results of operations. Except for the closure of the facilities at Penn National Race Course and its OTWs from February 16, 1999 to March 24, 1999 due to a horsemen’s strike, and a few days at other times and locations, the Company has been able to maintain the necessary agreements. There can be no assurance that the Company will be able to maintain the required agreements.

12.Income2019.

Note 13—Income Taxes

The following table summarizes the tax effects of temporary differences between the financial statementConsolidated Financial Statements carrying valueamount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use ofrealize our existing deferred tax assets.  In connection with the failed spin-off-leaseback, the Company continued to record real property assets and a financing obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013, which resulted in a substantial increase to our net deferred tax assets of $599.9 million.  ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre-tax losses during the three most recent three years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude that a valuation allowance is not warranted. As with all key factors, a cumulative loss is simply one component and is not a bright line test that is in itself determinative of the need for a valuation allowance.   Despite the fact we have experienced cumulative losses since the Spin-Off transaction, we returned to a near break-even three year cumulative pretax income position in the amount of $23.9 million as of December 31, 2016.  As a result of evaluating all available evidence, the Company intends to continue to maintain a full valuation allowance on its net deferred tax assets, excluding the reversal of deferred tax

assets.

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liabilities related to indefinite-lived assets, until there is sufficient objectively verifiable positive evidence to support the realization of all or some portion of these deferred tax assets.

The components of the Company’s deferred tax assets and liabilities arewere as follows:

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

 

 

 

(in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

 

Stock-based compensation expense

 

$

17,773

 

$

36,243

 

Accrued expenses

 

 

64,175

 

 

59,196

 

Intangibles

 

 

 —

 

 

11,590

 

Financing obligation to GLPI

 

 

1,359,193

 

 

1,374,268

 

Unrecognized tax benefits

 

 

9,377

 

 

9,858

 

Net operating losses and tax credit carryforwards

 

 

78,021

 

 

81,109

 

Gross deferred tax assets

 

 

1,528,539

 

 

1,572,264

 

Less valuation allowance

 

 

(828,501)

 

 

(844,258)

 

Net deferred tax assets

 

 

700,038

 

 

728,006

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Property, plant and equipment, non-master lease

 

 

(69,151)

 

 

(80,930)

 

Property, plant and equipment, master lease

 

 

(717,602)

 

 

(750,407)

 

Investments in unconsolidated affiliates

 

 

(1,383)

 

 

(3,024)

 

Accumulated other comprehensive gain

 

 

 —

 

 

(1,566)

 

Undistributed foreign earnings

 

 

(8,596)

 

 

 —

 

Intangibles

 

 

(30,230)

 

 

 —

 

Net deferred tax liabilities

 

 

(826,962)

 

 

(835,927)

 

Noncurrent deferred tax liabilities, net

 

$

(126,924)

 

$

(107,921)

 

 December 31,
(in millions)2019 2018
Deferred tax assets:   
Stock-based compensation expense$11.7
 $9.0
Accrued expenses37.6
 42.9
Financing obligations associated with the Master Leases1,097.6
 1,919.7
Unrecognized tax benefits7.7
 6.7
Investments in and advances to unconsolidated affiliates—
 3.6
Net operating losses, interest limitation and tax credit carryforwards87.6
 122.8
Gross deferred tax assets1,242.2
 2,104.7
Less: Valuation allowance(54.2) (89.5)
Net deferred tax assets1,188.0
 2,015.2
Deferred tax liabilities:   
Property and equipment, not subject to the Master Leases(53.1) (47.3)
Property and equipment, subject to the Master Leases(1,088.9) (1,599.9)
Investments in and advances to unconsolidated affiliates(2.9) —
Undistributed foreign earnings(0.4) (0.4)
Intangible assets(287.3) (287.0)
Net deferred tax liabilities(1,432.6) (1,934.6)
Long-term deferred tax assets (liabilities), net$(244.6) $80.6


Upon adoption of the new lease standard on January 1, 2019, we recorded a $739.2 million decrease in net deferred tax assets associated with our financing obligations and $435.4 million decrease in net deferred tax liabilities associated with property and equipment that is subject to our Master Leases. The net amount of these two adjustments was recorded as a decrease to stockholders’ equity (see Note 3, “New Accounting Pronouncements”).
The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation allowance and by adjusting the amount of the allowance, if necessary. The Company gives appropriate consideration to all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.

In September 2016, we accepted a settlement with the U.S. and Canada competent authorities resolving a transfer pricing issue that arose under audit

As of tax years 2004 – 2009 as well as the anticipated adjustments for tax years 2010 – 2014.  In general, it’s the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations.  We consider the earnings of our Canadian subsidiary to be indefinitely re-invested outside the U.S. on the basis of our internal projections showing future domestic cash generation will be sufficient to meet future domestic cash needs.  Separate from the earnings of our Canadian operations, due to a triggering event from the recent settlement,December 31, 2019, the Company has recordedsignificant three-year cumulative pretax income of $150.9 million, supporting the position that a provisionfederal valuation allowance is not necessary except for the taxvaluation allowance recorded on federal capital loss carryforwards. The Company continues to maintain a valuation allowance of $54.2 million as of December 31, 2019 primarily related to certain state filing groups where we continue to be in a three-year cumulative pretax loss position.
During the year ended December 31, 2018, we released a partial valuation allowance on a capital loss carryforward in the amount of $22.4 million that offset the capital gain realized on the dividendPlainridge Park Casino Sale-Leaseback. This reversal is reflected in our income tax benefit within the Consolidated Statements of Income.
During the third quarter of 2017, we determined that a valuation allowance was no longer required against our federal and the Canadian withholding taxes of approximately $7.4 million and $0.8 million, respectivelystate net deferred tax assets for the anticipated amount we intendportion that will be realized. The most significant evidence that led to repatriate.  Apart from this settlement,the reversal of our valuation allowance as of the aforementioned period included, (i) the achievement and sustained growth in our three-year cumulative pretax earnings, (ii) substantial pretax income in seven of the last eight quarters with the only loss reported eight quarters ago, and (iii) the lack of significant goodwill and other intangible asset impairment losses expected in 2017. During the fourth quarter of 2017, there were no other taxes calculatedmaterial changes to our core business operations that altered our prior interim conclusion to release the valuation allowance against the federal and state net deferred tax assets for those undistributed foreign earningsthe portion that are intendedis more-likely-than-not to be indefinitely reinvested outsiderealized. As such, we released $741.9 million of our total valuation allowance for the U.S.  which totaled $21.5 million atyear ended December 31, 2016.

2017 due to the positive evidence outweighing the negative evidence thereby allowing us to achieve the more-likely-than-not realization standard.


Overall, our valuation allowance decreased year-over-year by a net amount of $35.3 million, primarily due to the adoption of the new lease standard as of January 1, 2019, and was recorded as an increase to stockholders’ equity. The impact of the new lease standard was partially offset by an increase in the valuation allowance for state net operating loss carryforwards.
Following the ownership changechanges of the Tropicana Las Vegas, the Company has a$120.3 million of total gross federal net operating loss carry-forwards and general business credit carryforwards in the amount of $171.6 million for the year ended December 31, 2016, whichthat will expire on various dates from 20292020 through 2034.  These2035. The Company acquired federal net operating loss carryforwards from the Pinnacle Acquisition, which were fully utilized as of December 31, 2019. All acquired tax attributes are subject to limitations under the Internal Revenue Code and underlying Treasury Regulations, however, we believe it is more likely than not

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more-likely-than-not that the benefit from these tax attributes will not be realized.  In the recognition of this risk, we have provided a full valuation allowance on the deferred tax assets related to these net operating and general business credit carryforwards.  In the event our assumptions change, which allows the Company to realize these acquired tax attributes, the benefits related to any reversal of the valuation allowance on the deferred tax assets as of December 31, 2016, will be recognized as a reduction of income tax expense.

For state income tax reporting, the Company hasas of December 31, 2019, we had gross state net operating loss carry-forwardscarryforwards aggregating approximately $220.9$766.2 million available to reduce future state income taxes, primarily for the Commonwealth of Pennsylvania and the States of Colorado, Iowa, Louisiana, Missouri, New Mexico Maine and Ohio localities as of December 31, 2016.localities. The tax benefit associated with these net operating loss carry-forwards is approximately $10.4carryforwards was $52.2 million. Due to statutorily limited operating loss carry-forwardscarryforwards and income and loss projections in the applicable jurisdictions, a full valuation allowance has been recorded to reflect the net operating losses which are not presently expected to be realized.realized in the amount of $36.4 million. If not used, substantially all the carry-forwardscarryforwards will expire at various dates from December 31, 2017 to2020 through December 31, 2036.

Also, certain subsidiaries have accumulated gross state2039.

The domestic and federal net operating loss carry-forwards aggregating approximately $1.5 billion for which no benefit has been recorded as they are attributable to uncertain tax positions and excess tax benefits from stock option deductions. The unrecognized tax benefits as of December 31, 2016 attributable to these net operating losses was approximately $86.1 million. Due to the uncertain tax position and excess tax benefits from stock option deductions, these net operating losses are not included asforeign components of deferred tax assets as of December 31, 2016. In the event of any benefit from realization of these net operating losses, $13.9 million would be treated as an increase to equity, and the remainder would be treated as a reduction of tax expense. If not used, substantially all the carry-forwards will expire at various dates from December 31, 2017 to December 31, 2036.

Additionally, included in the Company’s full valuation allowance is $0.2 million for federal capital losses that will expire if not used via the realization of capital gains by December 31, 2018.  Overall the Company’s valuation allowance at December 31, 2016 decreased from December 31, 2015 by a net amount of $15.8 million primarily due to the acquired deferred tax liabilities related to Rocket Speed of $10.3 million and other realized deferred tax assets during the year of $5.5 million. 

The provision forincome (loss) before income taxes charged to operations for the years ended December 31, 2016, 20152019, 2018 and 2014 was2017 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

 

 

(in thousands)

 

Current tax (benefit) expense

 

 

 

 

 

 

 

 

 

 

Federal

 

$

8,721

 

$

(5,158)

 

$

14,275

 

State

 

 

3,489

 

 

133

 

 

5,821

 

Foreign

 

 

(9,639)

 

 

3,713

 

 

7,515

 

Total current

 

 

2,571

 

 

(1,312)

 

 

27,611

 

Deferred tax expense

 

 

 

 

 

 

 

 

 

 

Federal

 

 

5,457

 

 

51,817

 

 

2,357

 

State

 

 

3,279

 

 

5,419

 

 

551

 

Total deferred

 

 

8,736

 

 

57,236

 

 

2,908

 

Total income tax provision

 

$

11,307

 

$

55,924

 

$

30,519

 

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Table
 For the year ended December 31,
(in millions)2019 2018 2017
Domestic$85.5
 $89.6
 $(29.6)
Foreign0.6
 0.3
 4.5
Total$86.1
 $89.9
 $(25.1)

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income tax benefit (expense) for the years ended December 31, 2019, 2018 and 2017 were as follows: 

 For the year ended December 31,
(in millions)2019 2018 2017
Current tax benefit (expense)     
Federal$(12.5) $(15.3) $(16.3)
State(9.2) (6.4) (6.1)
Foreign(0.2) (1.4) 3.0
Total current(21.9) (23.1) (19.4)
Deferred tax benefit (expense)     
Federal(16.7) 14.6
 480.7
State(4.4) 10.9
 39.3
Foreign—
 1.2
 (2.1)
Total deferred(21.1) 26.7
 517.9
Total income tax benefit (expense)$(43.0) $3.6
 $498.5

On December 22, 2017, the President of the United States signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which most notably, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. For the year ended December 31, 2017, we recorded a provisional amount for certain enactment-date effects of the Tax Act, resulting in a net charge of $266.0 million included as income tax expense within the Consolidated Statements of Income consisting of three components: (i) a $261.3 million charge due to the revaluation of the net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian subsidiary (which we will pay interest-free over eight years) and (iii) a $2.1 million foreign withholding tax charge due to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment assertion. During the year ended December 31, 2018, we finalized our assessment of the effects of the Tax Act, resulting in a $1.2 million increase to the provisional amount, which increased the effective tax rate by 1.3%.

The following table reconciles the statutory federal income tax rate to the actual effective income tax rate, and related amounts of income tax benefit (expense), for 2016, 2015the years ended December 31, 2019, 2018 and 2014:

2017:

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

Percent of pretax income

 

 

 

 

 

 

 

Federal taxes

 

35.0

%  

35.0

%  

35.0

%

State and local income taxes

 

1.2

%  

6.1

%  

1.6

%

Permanent differences

 

(0.6)

%  

5.8

%  

(20.9)

%

Foreign

 

(8.5)

%  

5.2

%  

(2.2)

%

Valuation allowance

 

(17.1)

%  

55.3

%  

(31.1)

%

Other miscellaneous items

 

(0.6)

%  

(8.6)

%  

(2.3)

%

 

 

9.4

%  

98.8

%  

(19.9)

%

 For the year ended December 31,
 2019 2018 2017
(in millions, except tax rates)Percent Amount Percent Amount Percent Amount
Percent and amount of pretax income           
Federal statutory rate21.0% $(18.1) 21.0 % $(18.9) 35.0 % $8.8
State and local income taxes, net of federal benefits9.9
 (8.5) (6.2) 5.6
 6.3
 1.6
Nondeductible expenses4.0
 (3.5) 6.9
 (6.2) (16.0) (4.0)
Goodwill impairment losses14.4
 (12.4) —
 —
 (20.5) (5.1)
Compensation0.3
 (0.3) (3.8) 3.4
 29.5
 7.4
Contingent liability settlement—
 —
 —
 —
 22.9
 5.7
Foreign0.1
 (0.1) (0.1) 0.1
 11.3
 2.8
Valuation allowance—
 —
 (20.3) 18.3
 2,962.3
 741.9
Tax Act - deferred rate change—
 —
 —
 —
 (1,043.5) (261.3)
Other0.2
 (0.1) (1.5) 1.3
 3.3
 0.7
Total effective tax rate and income tax benefit (expense)49.9% $(43.0) (4.0)% $3.6
 1,990.6 % $498.5

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2016

    

2015

    

2014

 

 

 

(in thousands)

 

Amount of pretax income

 

 

 

 

 

 

 

 

 

 

Federal taxes

 

$

42,216

 

$

19,814

 

$

(53,656)

 

State and local income taxes

 

 

1,498

 

 

3,435

 

 

(2,470)

 

Permanent differences

 

 

(690)

 

 

3,276

 

 

32,019

 

Foreign

 

 

(10,268)

 

 

2,955

 

 

3,337

 

Valuation allowance

 

 

(20,675)

 

 

31,288

 

 

47,703

 

Other miscellaneous items

 

 

(774)

 

 

(4,844)

 

 

3,586

 

 

 

$

11,307

 

$

55,924

 

$

30,519

 

A reconciliation of the beginning and ending amount for the liability foramounts of unrecognized tax benefits is as follows:

Unrecognized

tax benefits

(in thousands)

Unrecognized tax benefits

$

44,477

Cumulative advance deposits on account

(37,441)

Balance at December 31, 2014

$

7,036

Additions based on current year positions

561

Additions based on prior year positions

6,371

Decreases due to settlements and/or reduction in reserves

(4,743)

Currency translation adjustments

(9,097)

Settlement payments

(4,000)

Unrecognized tax benefits

33,569

Cumulative advance deposits on account

(31,371)

Balance at December 31, 2015

$

2,198

Additions based on current year positions

 -

Additions based on prior year positions

3,749

Decreases due to settlements and/or reduction in reserves

(9,091)

Currency translation adjustments

2,565

Settlement payments

(4,000)

Unrecognized tax benefits balance at December 31, 2016

$

26,792

The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. The Company will continue to classify any income tax‑related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of operations.

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(in millions)Unrecognized tax benefits
Unrecognized tax benefits as of January 1, 2017$26.8
Additions based on current year positions2.9
Additions based on prior year positions2.8
Decreases due to settlements and/or reduction in reserves(1.3)
Currency translation adjustments(0.1)
Settlement payments(0.2)
Unrecognized tax benefits as of December 31, 201730.9
Additions based on prior year positions0.8
Decreases due to settlements and/or reduction in reserves(2.0)
Unrecognized tax benefits as of December 31, 201829.7
Additions based on prior year positions6.5
Decreases due to settlements and/or reduction in reserves(0.2)
Unrecognized tax benefits as of December 31, 2019$36.0

As previously mentioned, we reached a settlement with the U.S. and Canadian competent authorities resolving a transfer pricing item.  This settlement resulted in a $10.3 million benefit to the tax provision due to the release of the uncertain tax position previously established for the treatment of the Casino Rama management fee received from our non-U.S. subsidiary.  In addition, we estimate receiving within the next twelve months $12.0 million and $23.0 million cash refund from U.S. and Canada (inclusive of advances on account), respectively, which is classified in other current assets.  As part of the settlement, tax years 2004 through 2014 are under review by both the Internal Revenue Service and Canada Revenue Agency for the sole purpose of processing the agreed upon refunds.

During the year ended December 31, 2016, the Company recorded no2019, we did 0t record any new tax reserves, and accrued interest or penalties related to current year uncertain tax positions. In regards toRegarding prior year tax positions, the Companywe recorded $3.7$7.1 million of tax reserves and accrued interest and reversed $4.9 million and $4.2$0.2 million of previously recorded tax reserves and accrued interest respectively, for uncertain tax positions that have settledare anticipated to settle and/or closed. Theclose within the next 12 months. As of December 31, 2019 and 2018, unrecognized tax benefits, inclusive of $26.8accruals for income tax related penalties and interest, of $37.2 million is classifiedand $30.4 million, respectively, were included in other noncurrent tax liabilities.“Other long-term liabilities” within the Company’s Consolidated Balance Sheets. Overall, the Company recorded a net tax benefitexpense of $9.0$2.8 million in connection with its uncertain tax positions for the year ended December 31, 2016.

Included in the2019.

The liability for unrecognized tax benefits atas of December 31, 20162019 and 2015 were $9.42018 included $29.4 million and $10.0$23.6 million, respectively, of tax positions that, if reversed, may notwould affect the effective tax rate as a result of the Company’s full valuation allowance.

Included in the liability for unrecognized tax benefits at December 31, 2016 and 2015 were $1.7 million and $3.0 million gain of currency translation related to foreign currency tax positions and the settlement receivable on account, respectively.

rate. During the years ended December 31, 20162019, 2018 and 2015, the Company2017, we recognized approximately $0.3$0.1 million, $0.5 million and $1.4$1.7 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, theThe Company had no reductions in previously accrued interest and penalties of $3.5 million, net of deferred taxes. These accruals are includedfor the year ended December 31, 2019. We classify any income tax related penalties and interest accrued related to unrecognized tax benefits in noncurrent“Income tax liabilities and prepaid expensesbenefit (expense)” within the consolidated balance sheets at December 31, 2016 and 2015, respectively.

Consolidated Statements of Income.

The Company is currently in various stages of the examination process in connection with its open audits. Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects that its ASC 740 liabilities will not significantly change over the next twelve months.

As of December 31, 2016,2019, the Company is subject to U.S. federal


income tax examinations for the tax years 2013, 2014,2015, 2016, 2017 and 2015.2018. In addition, the Company iswe are subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which the Company operates.

Atwe operate. As of December 31, 20162019 and 2015, prepaid expenses within the consolidated balance sheets included2018, prepaid income taxes of $30.1$22.2 million and $48.9$14.9 million, respectively. The Company anticipates receiving federal income tax refunds of $26.9 millionrespectively, were included in “Prepaid expenses” within the next twelve months as a result of a net operating loss carryback, general business credit carryback and a prior year overpayment.

13.Shareholders’Company’s Consolidated Balance Sheets.


Note 14—Stockholders’ Equity

Preferred Equity Investment

Share Repurchase Program
On June 15, 2007,January 9, 2019, the Company announced that it had entered into a merger agreement that, atshare repurchase program pursuant to which the effective timeBoard of Directors authorized to repurchase up to $200.0 million of the transactions contemplated thereby, would have resulted in the Company’s shareholders receiving $67.00 per share. Specifically, the Company, PNG Acquisition Company Inc. (“Parent”) and PNG Merger Sub Inc., a wholly‑owned subsidiary of Parent (“Merger Sub”), announced that they had entered into an Agreement and Plan of

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Merger, dated as of June 15, 2007 (the “Merger Agreement”), that provided, among other things, for Merger Sub to be merged with and into the Company, as a result ofcommon stock, which the Company would have continued as the surviving corporation and would have become a wholly‑owned subsidiary of Parent. Parent is indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) and Centerbridge Partners, L.P. (“Centerbridge”).

On July 3, 2008, the Company entered into an agreement with certain affiliates of Fortress and Centerbridge, terminating the Merger Agreement. In connection with the termination of the Merger Agreement, certain affiliates of Fortress and Centerbridge agreed to pay the Company a total of $1.475 billion, consisting of a nonrefundable $225 million cash termination fee and a $1.25 billion, zero coupon, preferred equity investment (the “Investment”). On October 30, 2008, the Company closed the sale of the Investment and issued 12,500 shares of the Series B Preferred Stock.expires on December 31, 2020. During the year ended December 31, 2010,2019, the Company repurchased 2251,271,823 shares of Series B Preferred Stockits common stock in open market transactions for $11.2 million.

As part$24.9 million at an average price of the Spin‑Off,$19.55 per share. All repurchased shares were retired.

On February 3, 2017, the Company entered into an agreement (the “Exchange Agreement”) with FIF V PFD LLC, an affiliateannounced a share repurchase program pursuant to which the Board of Fortress, providing for the exchange of sharesDirectors authorized to repurchase up to $100.0 million of the Company’s Series B Preferred Stock for shares of a new class of preferred stock, Series C Preferred Stock, in contemplation of the Spin‑Off.

The Exchange Agreement provided Fortress with the right to exchange its 9,750 shares of Series B Preferred Stock for fractional shares of Series C Preferred Stock at an exchange ratio that treated each such fractional share (and therefore each share of common stock, into which such fractional share was convertible) as worth $67 per share, which was the “ceiling price” at which the shares of Series B Preferred Stock were redeemable by the Company at maturity. Any shares of Series B Preferred Stock that were not exchanged for shares of Series C Preferred Stock prior to the second business day before October 16, 2013, the record date established for the distribution of GLPI common stock in the Spin‑Off, were automatically exchanged for shares of Series C Preferred Stockexpired on such date. Subsequently, the Company had the right to purchase from Fortress, prior to the record date for the Spin‑Off, a number of shares of Series C Preferred Stock, at a price of $67 per fractional share of Series C Preferred Stock, such that, immediately following the consummation of the Spin‑Off, Fortress would not own more than 9.9% of GLPI’s common stock.

On October 11, 2013, the Company completed its exchange and repurchase transactions with Fortress and repurchased all of the 2,300 shares of Series B Preferred Stock held by Centerbridge at par and issued to the affiliate of Fortress 14,553 shares of non-voting Series C Preferred Stock in order to redeem all of the previously outstanding shares of Series B Preferred Stock. The Company then repurchased 5,929 shares of Series C Preferred Stock from Fortress. Additionally, in February 2013, the Company repurchased 225 shares of Series B Preferred Stock from WF Investment Holdings, LLC at a slight discount to par. In these transactions, the Company paid a total of $649.5 million, which was primarily funded by borrowings under the revolving credit facility, to the affiliates of Fortress, Centerbridge and WF Investment Holdings, LLC, As a result of these transactions, there are currently no outstanding shares of Series B Preferred Stock and Fortress held 8,624 shares of Series C Preferred Stock at December 31, 2015 and 2014.

1, 2019. During 2016, Fortress sold all 8,624 shares of Series C Preferred Stock, which converted upon sale into 8,624,000 shares of common stock under previously agreed upon terms. As a result, no shares of Series C Preferred Stock are outstanding at December 31, 2016.

The following table below discloses the changes in each class of the Company’s preferred stock for the year ended December 31, 2016. No changes in the Company’s preferred stock occurred in the years ended December 31, 20152018 and 2014.

Series C

Preferred Stock

Shares outstanding at December 31, 2015

8,624

Conversion of Series C Preferred Stock to Common Stock

(8,624)

Shares outstanding at December 31, 2016

 —

2017, the Company repurchased 2,299,498 and 1,264,149 shares, respectively, of its common stock in open market transactions for $50.0 million at an average price of $21.74 per share and $24.8 million at an average price of $19.59 per share, respectively. All repurchased shares were retired.

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Preferred Stock

The Company previously issued 2 series of preferred stock, Series B and Series C, each with a par value of $0.01 per share. As of December 31, 2019 and 2018, there were 1,000,000 and 18,500 shares authorized of our Series B and Series C preferred stock, respectively. There were 0 shares outstanding of either Series B or Series C preferred stock as of December 31, 2019 and 2018.

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14.Stock‑Based

Note 15—Stock-Based Compensation

On April 16, 2003,

2018 Long Term Incentive Compensation Plan
In June 2018, the Company’s Board of Directors adopted andshareholders approved the 20032018 Long Term Incentive Compensation Plan (the “2003“2018 Plan”). On May 22, 2003, the Company’s shareholders approved the 2003 Plan. The 2003 Plan was effective June 1, 2003 and permitted the grant of options to purchase common stock and other market‑based and performance‑based awards. Up to 12,000,000 shares of common stock were available for awards under the 2003 Plan. The 2003 Plan provided for the granting of both incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock options,, which do not so qualify. The exercise price per share may be no less than (i) 100% of the fair market value of the common stock on the date an option is granted for incentive stock options and (ii) 85% of the fair market value of the common stock on the date an option is granted for nonqualified stock options. However the shares which remained available for issuance under such plan as of November 12, 2008 are no longer available for issuance and all future equity awards will be pursuant to the 2008 Long Term Incentive Compensation Plan (the “2008 Plan”) described below.

On August 20, 2008, the Company’s Board of Directors adopted and approved the 2008 Plan. On November 12, 2008, the Company’s shareholders approved the 2008 Plan. The 2008 Plan permits the Company to issue stock options (incentive and/or non‑qualified)non-qualified), stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), phantom stock units (“PSUs”) and other equity and cash awards to employees. Non‑ employeeNon-employee directors are eligible to receive all such awards, other than incentive stock options. On June 9, 2011,Pursuant to the 2018 Plan, 12,700,000 shares of the Company’s shareholders approved an amendment to the 2008 Plan to increase the aggregate number of shares of common stock that may be issued by 2,350,000 to 9,250,000, and on June 12, 2014 the Company’s shareholders approved an amendment to increase the aggregate number of shares of common stock that may be issued from 9,250,000 to 16,350,000. Awards of stock options and stock appreciation rights will be counted against the 16,350,000 limit as one share of common stockare reserved for each share granted. However, each share awarded in the form of restricted stock, or any other full value stock award, will be counted as issuing 2.44 shares of common stock forissuance. For purposes of determining the number of shares available for issuance under the plan.2018 Plan, stock options and SARs count against the 12,700,000 limit as 1 share of common stock for each share granted and restricted stock or any other full value stock award count as issuing 2.30 shares of common stock for each share granted. Any awards that are not settled in shares of common stock shallare not countcounted against thisthe limit. AtAs of December 31, 2016,2019, there were 3,856,137 options8,417,411 shares available for future grants under the 2018 Plan.

2008 Long Term Incentive Compensation Plan
In November 2008, the Company’s shareholders approved the 2008 Long Term Incentive Compensation Plan (the “2008 Plan”), which permitted the Company to issue stock options (incentive and/or non-qualified), SARs, RSAs, PSUs and other equity and cash awards to employees. Non-employee directors were eligible to receive all such awards, other than incentive stock options. Upon approval of the 2018 Plan, awards were no longer available to be granted under the 2008 Plan.

However, the 2008 Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired.

Stock-based Compensation Expense
Stock-based compensation expense, which pertains principally to our stock options and RSAs, for the years ended December 31, 2019, 2018 and 2017 totaled $14.9 million, $12.0 million and $7.8 million, respectively, and is included within the Consolidated Statements of Income under “General and administrative.”
Stock Options
Stock options that expire between April 1, 2020 and October 1, 2029 have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $11.61 to $32.90 per share. All options were granted at the fair market value of the common stock on the grant date (as defined in the respective plan document) and have

contractual lives ranging from two to ten years. The Company issues new authorized common shares to satisfy stock option exercises.
The following table contains information about our stock options:
 
Number of Option
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average Remaining Contractual
Term (in years)
 
Aggregate
Intrinsic Value
(in millions)
Outstanding as of January 1, 20195,869,211
 $15.14
    
Granted2,436,811
 $19.24
    
Exercised(230,644) $14.32
    
Forfeited(257,942) $19.44
    
Outstanding as of December 31, 20197,817,436
 $16.30
 4.84 $75.1
Exercisable as of December 31, 20194,071,052
 $13.62
 2.49 $49.2
The weighted-average grant-date fair value of options granted during the years ended December 31, 2019, 2018 and 2017 was $6.39, $9.88 and $4.48, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $2.0 million, $28.7 million and $15.8 million, respectively. The total fair value of stock options that vested during the years ended December 31, 2019, 2018 and 2017 was $6.2 million, $5.9 million and $6.4 million, respectively.
The following table summarizes information about our outstanding stock options as of December 31, 2019:
 Exercise Price Range Total
 $11.61 to
$16.93		 $17.77 to
$25.05		 $30.74 to
$32.90		 $11.61 to
$32.90
Outstanding options       
Number outstanding4,842,725
 2,368,886
 605,825
 7,817,436
Weighted-average remaining contractual term (in years)2.66
 9.27
 4.95
 4.84
Weighted-average exercise price$13.06
 $19.23
 $30.75
 $16.30
Exercisable options       
Number outstanding3,901,333
 10,584
 159,135
 4,071,052
Weighted-average exercise price$12.91
 $18.62
 $30.75
 $13.62
As of December 31, 2019, the unamortized compensation costs not yet recognized related to stock options granted totaled $16.9 million and the weighted-average period over which the costs are expected to be recognized was 2.9 years.
The following are the weighted-average assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2019, 2018 and 2017:
 For the year ended December 31,
 2019 2018 2017
Risk-free interest rate2.00% 2.26% 1.97%
Expected volatility32.90% 30.80% 30.66%
Dividend yield—
 —
 —
Weighted-average expected life (in years)5.30
 5.30
 5.30

Restricted Stock Awards
As noted above, the Company grants RSAs to our employees and certain non-employee directors. In addition, the Company issues its named executive officers (“NEOs”) and other key executives RSAs with performance conditions (we refer to our RSAs with performance conditions as “PSAs”), which are discussed in further detail below.

Performance Share Programs
The Company’s Performance Share Programs (as defined below) were adopted in order to provide our NEOs and certain other key executives with stock-based compensation tied directly to the Company’s performance, which further aligns their interests with those of shareholders and provides compensation only if the designated performance goals are met for the applicable performance periods.
On February 9, 2016,14, 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, which, for awards made in 2019, provided for the issuance of 278,780 PSAs, at target, to be granted in one-third increments.
On February 6, 2018, our Compensation Committee adopted a performance share program (the “2018 Performance Share Program”) pursuant to the 2018 Plan, which provided for the issuance of 197,727 PSAs, at target, to be granted in one-third increments.
On February 9, 2016, our Compensation Committee adopted a performance share program (the “2016 Performance Share Program” and collectively with the Performance Share Program (theII and the 2018 Performance Share Program, the “Performance Share Program”Programs”) pursuant to the 2008 Plan, which contains performance‑based vestingprovided for a meaningful portionthe issuance of restricted stock awards. The189,085 PSAs, at target, to be granted in one-third increments. In addition, the 2016 Performance Share Program was adopted to provide key executives with equity‑based compensation tied directly to Company performance to further align their interests with those of shareholders, and to provide compensation only if the designated performance goal is metprovided for the applicable performance period. The Company’s named executive officers and other key executives are eligibleissuance of 172,245 PSAs, at target, on February 17, 2017, to participatebe granted in one-third increments.
PSAs issued pursuant to the Performance Share Program.  An aggregatePrograms consist of 189,085 performance shares were awarded on February 9, 2016, with each award having a three-year award period consisting of three3 one-year performance periods andover a three-year service period. The performance goal for each performance period willawards have the potential to be an adjusted EBITDA goal established for each one-year performance period.  The awards will potentially be earned at between 0% and 150% of the number of shares awarded in one-third incrementsgranted depending on achievement of the annual performance goals, but remain subject to vesting for the full three-year service term.

At December 31, 2016,period.

The performance goal as it pertains to the first and second performance periods of the awards granted under the Performance Share Program II is based on a combination of EBITDA, adjusted for certain items, principally payments made to our REIT landlords (“EBITDA, targetas adjusted”); and run-rate cost synergies from the Pinnacle Acquisition. The performance goal for the second and third tranchesperformance period is based on EBITDA, as adjusted. The performance goals for each of the one-year performance periods of the awards have not yet been establishedgranted under the 2018 Performance Share Program and therefore the Company concluded a grant date has not occurred under ASC 718.  Stock based compensation expense will be measured for the first tranche2016 Performance Share Program are based on EBITDA, as adjusted. Awards are not considered granted, for accounting purposes, under the fair value ofPerformance Share Programs until the restricted stock awards using Penn’s closing stock price since all key terms for this specific tranche weretargets are established and mutually understood by the Company and the individuals receiving the awards.  At each reporting period, accuralsPSAs.
The grant date fair value of stock based compenstation expense areour RSAs is based on the probable outcomemost recent closing stock price of the Company’s shares of common stock. The stock-based compensation expense is recognized over the remaining service period at the time of grant, adjusted for the Company’s expectation of the achievement of the performance condition.

In connection with the Spin-Off of GLPI, the Company’s employee stock options and cash-settled stock appreciation rights (“SARs”) were converted into two awards, an award in Penn with an adjusted exercise price and an

conditions.

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award in GLPI. The number of options and SARs and the exercise price of each converted award were adjusted to preserve the same intrinsic value of the awards that existed immediately prior to the Spin-Off. As such, no incremental compensation expense was recorded as a result of this conversion. In addition, holders of outstanding restricted stock awards and cash-settled phantom stock unit awards (“PSUs”) received an additional share of restricted stock or PSUs in GLPI common stock at the Spin-Off so that the intrinsic value of these awards were equivalent to those that existed immediately prior to the Spin-Off. The unrecognized compensation costs associated with GLPI restricted stock awards, GLPI PSUs, GLPI stock options and GLPI SARs held by Penn employees will continue to be recognized on the Company’s financial statements over the awards remaining vesting periods.

The unrecognized compensation costs associated with GLPI restricted stock awards, GLPI PSUs, GLPI stock options and GLPI SARs held by former Penn employees (including but not limited to the Company’s former Chief Executive Officer, Chief Financial Officer, and Senior Vice President of Corporate Development) who are now employed by GLPI effective November 1, 2013, will be recorded on GLPI’s financial statements.

Stock options that expire between March 19, 2017 and July 18, 2023, have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $6.76 to $18.61 per share. All options were granted at the fair market value of the common stock on the date the options were granted and have contractual lives ranging from 7 to 10 years. The Company issues new authorized common shares to satisfy stock option exercises as well as restricted stock lapses.

The following table contains information on stock options issued under the plans for the year endedour RSAs:

 With Performance Conditions Without Performance Conditions
 
Number of 
Shares
 Weighted- Average Grant Date Fair Value 
Number of 
Shares
 Weighted- Average Grant Date Fair Value
Nonvested as of January 1, 2019351,472
 $22.10
 207,349
 $25.55
Granted253,609
 $23.55
 175,795
 $19.44
Vested(193,799) $19.36
 (35,758) $18.05
Forfeited(15,920) $22.60
 (48,907) $23.71
Nonvested as of December 31, 2019395,362
 $24.35
 298,479
 $23.15
As of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted-

    

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

 

Number of Option

 

Weighted-Average

 

Contractual

 

Intrinsic Value

 

 

 

 Shares

 

Exercise Price

 

Term (in years)

 

(in thousands)

 

Outstanding at December 31, 2015

 

6,381,576

 

$

9.97

 

 

 

 

 

 

Granted

 

1,573,651

 

 

12.92

 

 

 

 

 

 

Exercised

 

(1,526,226)

 

 

7.77

 

 

 

 

 

 

Canceled

 

(102,408)

 

 

13.76

 

 

 

 

 

 

Outstanding at December 31, 2016

 

6,326,593

 

$

11.17

 

3.93

 

$

16,988,875

 

2019, the unamortized compensation costs not yet recognized related to RSAs totaled $7.9 million and the weighted-average period over which the costs are expected to be recognized is 1.9 years. The weighted‑average grant‑datetotal fair value of options grantedRSAs that vested during the years ended December 31, 20162019, 2018 and 2015 were $3.97 and $4.85, respectively.

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016, 2015, and 20142017 was $10.3$5.5 million, $19.5$0.9 million and $8.2$1.0 million, respectively.

At December 31, 2016, there were 3,110,050 shares that were exercisable, with a weighted‑average exercise price of $9.34, a weighted‑average remaining contractual term of 2.37 years, and an aggregate intrinsic value of $13.9 million.

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Phantom Stock Units

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The following table summarizes information about stock options outstanding at December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise Price Range

 

Total

 

 

    

$6.76 to

    

$11.12 to

    

$16.59 to

    

$6.76 to

 

 

 

$10.26

 

$15.45

 

$18.61

 

$18.61

 

Outstanding options

 

 

 

 

 

 

 

 

 

 

 

 

 

Number outstanding

 

 

2,229,210

 

 

4,026,349

 

 

71,034

 

 

6,326,593

 

Weighted-average remaining contractual life (years)

 

 

1.55

 

 

5.22

 

 

5.73

 

 

3.93

 

Weighted-average exercise price

 

$

8.10

 

$

12.76

 

$

17.26

 

$

11.17

 

Exercisable options

 

 

 

 

 

 

 

 

 

 

 

 

 

Number outstanding

 

 

1,805,807

 

 

1,288,869

 

 

15,374

 

 

3,110,050

 

Weighted-average exercise price

 

$

9.53

 

$

13.06

 

$

17.86

 

$

11.03

 

The following table contains information on restricted stock awards issued under the plans for the year ended December 31, 2016:

Number of Award

Shares

Outstanding at December 31, 2015

126,996

Awarded

113,766

Released

(50,860)

Canceled

(14,016)

Outstanding at December 31, 2016

175,886

Stock-based compensation expenses for the years ended December 31, 2016, 2015 and 2014 totaled $6.9 million, $8.2 million and $10.7 million, respectively, and are included within the consolidated statements of operations under general and administrative expense.

At December 31, 2016, 2015 and 2014, the total compensation cost related to nonvested awards not yet recognized equaled $11.6 million, $11.2 million and $10.9 million, respectively, including $9.9 million, $8.8 million and $7.3 million for stock options, respectively, and $1.7 million, $2.4 million and $3.6 million for restricted stock, respectively. This cost is expected to be recognized over the remaining vesting periods, which will not exceed four years.

The Company’sOur PSUs, which vest over a period of three to four years, entitle employees and directors to receive cash based on the fair value of the Company’s common stock on the vesting date. The PSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period in accordance with ASC 718-30, “Compensation—Stock Compensation, Awards Classified as Liabilities.”period. The Company has a liability, which is included in accrued salaries“Accrued expenses and wagesother current liabilities” within the consolidated balance sheets,


Consolidated Balance Sheets, associated with its PSUs of $5.6$3.3 million and $7.8$1.7 million atas of December 31, 20162019 and 2015,2018, respectively.

For PSUs held by Penn employees and directors of the Company, there was $6.6$3.3 million of total unrecognized compensation cost atas of December 31, 20162019 that will be recognized over the grantsawards remaining weighted averageweighted-average vesting period of 1.371.6 years. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the Company recognized $8.5$4.1 million, $14.1$1.1 million, and $8.3$11.9 million of compensation expense associated with these awards, respectively. The reason forCompensation expense associated with our PSUs is recorded in “General and administrative” within the decrease was primarily due to a decrease in the stock priceConsolidated Statements of Penn common stockIncome. We paid $2.5 million, $4.2 million, and $12.7 million during 2016.  Amounts paid by the Company for the years ended December 31, 2016, 2015,2019, 2018 and 2014 on these2017, respectively, pertaining to our cash-settled awards totaled $10.7 million, $14.5 million, and $6.9 million, respectively.

For the Company’s SARs, thePSUs.

Stock Appreciation Rights
The fair value of the SARs is calculated during each reporting period and estimated using the Black-Scholes option pricing model based on the various inputs discussed in Note 3. The Company’smodel. Our SARs,

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which vest over a period of four years, are accounted for as liability awards since they will be settled in cash. TheAccordingly, the Company has a liability, which is included in accrued salaries“Accrued expenses and wagesother current liabilities” within the consolidated balance sheets,Consolidated Balance Sheets, associated with its SARs of $7.3$14.4 million and $8.0$6.8 million atas of December 31, 20162019 and 2015,2018, respectively.

For SARs held by Penn employees of the Company, there was $4.5$9.6 million of total unrecognized compensation cost atas of December 31, 20162019 that will be recognized over the awards remaining weighted averageweighted-average vesting period of 2.452.6 years. For the years ended December 31, 2016 and 2015, the Company recognized $2.4 million and $5.1 million of compensation expense associated with these awards. For the year ended December 31, 2014,2019, the Company recognized $2.9compensation expense of $10.7 million of compensation benefits associated with these awards. The reason for the decrease was primarily dueas compared to a decrease in the stock pricereduction to compensation expense of Penn common stock during 2016. Amounts paid by the Company$6.7 million and compensation expense of $21.9 million for the years ended December 31, 2016, 20152018 and 2014 on2017, respectively, associated with these cash-settled awards totaled $3.3awards. Compensation expense associated with our SARs is recorded in “General and administrative” within the Consolidated Statements of Income. We paid $3.5 million, $3.4$10.5 million and $2.2$6.2 million respectively.

during the years ended December 31, 2019, 2018 and 2017, respectively, pertaining to our cash-settled SARs.

119


Note 16—Earnings per Share
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 years ended December 31, 2019, 2018 and 2017:

Table
 For the year ended December 31,
(in millions)2019 2018 2017
Determination of shares:     
Weighted-average common shares outstanding115.7
 97.1
 90.9
Assumed conversion of dilutive stock options1.8
 3.0
 2.4
Assumed conversion of dilutive restricted stock awards0.3
 0.2
 0.1
Diluted weighted-average common shares outstanding117.8
 100.3
 93.4


Options to purchase 2,353,307, 656,588, and 51,803 shares were outstanding during the years ended December 31, 2019, 2018 and 2017, respectively, but were not included in the computation of Contents

diluted EPS because they were antidilutive.

15.SegmentThe following table presents the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2019, 2018 and 2017:

 For the year ended December 31,
(in millions, except per share data)2019 2018 2017
Calculation of basic EPS:     
Net income applicable to common stock$43.9
 $93.5
 $473.4
Weighted-average common shares outstanding115.7
 97.1
 90.9
Basic EPS$0.38
 $0.96
 $5.21
Calculation of diluted EPS:     
Net income applicable to common stock43.9
 93.5
 473.4
Diluted weighted-average common shares outstanding117.8
 100.3
 93.4
Diluted EPS$0.37
 $0.93
 $5.07


Note 17—Segment Information

During the second quarter of 2016, the Company changed its three

We have aggregated our operating segments into 4 reportable segments from East/Midwest,based on the similar characteristics of the operating segments within the regions in which they operate: Northeast, South, West and Southern PlainsMidwest. The Other category is included in the following tables in order to Northeast, South/West, and Midwest in connection withreconcile the additionsegment information to the consolidated information.
The Company utilizes Adjusted EBITDAR (as defined below) as its measure of a new regional vice president and a realignment of responsibilities within the Company’s segments.  Segment information for prior periods has been restated for comparability.segment profit or loss. The following tables (in thousands) present certain information with respecttable highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a consolidated basis to the Company’s segments. Intersegment revenues between the Company’s segments were not material in any of the periods presented below.  The income (loss) from operations by segment presented below does not include allocations for corporate overhead costs or expenses associated with utilizing property subject to the Master Lease.

Net income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2016

    

Northeast

    

South/West

    

Midwest

    

Other (1)

    

Total

 

Income (loss) from operations

 

$

397,524

 

$

92,629

 

$

223,180

 

$

(170,317)

 

$

543,016

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

6,871

 

 

6,871

 

Insurance recoveries

 

 

 —

 

 

 —

 

 

(726)

 

 

 —

 

 

(726)

 

Depreciation and amortization

 

 

92,373

 

 

35,831

 

 

38,210

 

 

104,800

 

 

271,214

 

Contingent purchase price

 

 

(1,277)

 

 

 —

 

 

6

 

 

2,548

 

 

1,277

 

Loss (gain) on disposal of assets

 

 

450

 

 

109

 

 

334

 

 

(3,364)

 

 

(2,471)

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

15,960

 

 

(1,623)

 

 

14,337

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

10,311

 

 

 —

 

 

10,311

 

Adjusted EBITDA

 

$

489,070

 

$

128,569

 

$

287,275

 

$

(61,085)

 

$

843,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

328,567

 

$

102,380

 

$

225,526

 

$

(188,627)

 

$

467,846

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

8,223

 

 

8,223

 

Impairment losses

 

 

40,042

 

 

 —

 

 

 —

 

 

 —

 

 

40,042

 

Depreciation and amortization

 

 

93,299

 

 

25,793

 

 

39,917

 

 

100,452

 

 

259,461

 

Contingent purchase price

 

 

(5,374)

 

 

 —

 

 

 —

 

 

 —

 

 

(5,374)

 

Loss on disposal of assets

 

 

65

 

 

677

 

 

208

 

 

336

 

 

1,286

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

15,289

 

 

(801)

 

 

14,488

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

10,377

 

 

 —

 

 

10,377

 

Adjusted EBITDA

 

$

456,599

 

$

128,850

 

$

291,317

 

$

(80,417)

 

$

796,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

297,674

 

$

101,156

 

$

37,362

 

$

(179,004)

 

$

257,188

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

10,666

 

 

10,666

 

Impairment losses

 

 

 —

 

 

1,420

 

 

158,464

 

 

 —

 

 

159,884

 

Insurance recoveries

 

 

 —

 

 

 —

 

 

(5,674)

 

 

 —

 

 

(5,674)

 

Depreciation and amortization

 

 

87,018

 

 

19,493

 

 

61,389

 

 

98,842

 

 

266,742

 

Contingent purchase price

 

 

689

 

 

 —

 

 

 —

 

 

 —

 

 

689

 

Loss (gain) on disposal of assets

 

 

54

 

 

183

 

 

523

 

 

(22)

 

 

738

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

51

 

 

10,669

 

 

(2,771)

 

 

7,949

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

11,809

 

 

 —

 

 

11,809

 

Adjusted EBITDA

 

$

385,435

 

$

122,303

 

$

274,542

 

$

(72,289)

 

$

709,991

 

120

 For the year ended December 31,
(in millions)2019 2018 2017
Revenues:     
Northeast segment$2,399.9
 $1,891.5
 $1,756.6
South segment1,118.9
 394.4
 224.3
West segment642.5
 437.9
 380.4
Midwest segment1,094.5
 823.7
 735.0
Other (1)
47.5
 40.4
 51.7
Intersegment eliminations (2)
(1.9) —
 —
Total$5,301.4
 $3,587.9
 $3,148.0
      
Adjusted EBITDAR (3):
     
Northeast segment$720.8
 $583.8
 $549.3
South segment369.8
 118.9
 62.6
West segment198.8
 114.3
 72.7
Midwest segment403.6
 294.3
 249.7
Other (1)
(87.8) (68.1) (55.2)
Total (3)
1,605.2
 1,043.2
 879.1
      
Other operating benefits (costs) and other income (expenses):     
Rent expense associated with triple net operating leases (4)
(366.4) (3.8) —
Stock-based compensation(14.9) (12.0) (7.8)
Cash-settled stock-based awards variance(0.8) 19.6
 (23.4)
Loss on disposal of assets(5.5) (3.2) (0.2)
Contingent purchase price(7.0) (0.5) 6.8
Pre-opening and acquisition costs(22.3) (95.0) (9.7)
Depreciation and amortization(414.2) (269.0) (267.1)
Impairment losses(173.1) (34.9) (18.0)
Recoveries on (provision for) loan loss and unfunded loan commitments—
 17.0
 (89.8)
Insurance recoveries, net of deductible charges3.0
 0.1
 0.3
Non-operating items for Kansas JV(3.7) (5.1) (5.8)
Interest expense, net(534.2) (538.4) (463.2)
Loss on early extinguishment of debt—
 (21.0) (24.0)
Other20.0
 (7.1) (2.3)
Income before income taxes86.1
 89.9
 (25.1)
Income tax benefit (expense)(43.0) 3.6
 498.5
Net income$43.1
 $93.5
 $473.4

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Northeast

 

South/West

 

Midwest

 

Other (1)

 

Total

 

 

 

(in thousands)

 

Year ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

1,568,514

 

$

546,608

 

$

877,567

 

$

41,691

 

$

3,034,380

 

Capital expenditures

 

 

30,677

 

 

30,458

 

 

30,921

 

 

5,189

 

 

97,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

1,505,838

 

$

478,128

 

$

833,455

 

$

20,937

 

$

2,838,358

 

Capital expenditures

 

 

155,413

 

 

16,805

 

 

22,679

 

 

4,343

 

 

199,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

1,275,651

 

$

441,718

 

$

848,868

 

$

24,290

 

$

2,590,527

 

Capital expenditures

 

 

140,047

 

 

40,140

 

 

41,991

 

 

5,967

 

 

228,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet at December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

861,951

 

 

840,076

 

 

1,103,231

 

 

2,169,226

 

 

4,974,484

 

Investment in and advances to unconsolidated affiliates

 

 

76

 

 

 —

 

 

93,768

 

 

62,332

 

 

156,176

 

Goodwill and other intangible assets, net

 

 

324,285

 

 

224,719

 

 

775,377

 

 

100,798

 

 

1,425,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet at December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

918,292

 

 

968,152

 

 

1,091,514

 

 

2,160,794

 

 

5,138,752

 

Investment in and advances to unconsolidated affiliates

 

 

84

 

 

 —

 

 

103,608

 

 

64,457

 

 

168,149

 

Goodwill and other intangible assets, net

 

 

324,285

 

 

224,746

 

 

750,127

 

 

4,226

 

 

1,303,384

 

(1)

Includes depreciation expense associated with the real property assets under the Master Lease with GLPI.  In addition, total assets include these assets.  The interest expense associated with the financing obligation is reflected in the other category.  Net revenues and income (loss) from unconsolidated affiliates relate toOther category consists of the Company’s stand-alone racing operations, namely Rosecroft Raceway, which the Company sold on July 31, 2016, Sanford OrlandoSanford-Orlando Kennel Club and the Company’s TexasJV interests in Sam Houston Race Park, Valley Race Park, and New Jersey joint venturesFreehold Raceway. The Other category also includes Penn Interactive; which operates social gaming, our internally-branded retail sportsbooks, and iGaming; our management contract for Retama Park Racetrack; and HPT. 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.
(2)Represents the elimination of intersegment revenues associated with Penn Interactive and HPT.
(3)We define Adjusted EBITDAR as earnings before interest expense, net; income taxes; depreciation and amortization; rent expense associated with triple net operating leases (see Note 6footnote (4) below); stock-based compensation; debt extinguishment and financing charges; impairment charges; insurance recoveries and deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets; the difference between budget and actual expense for cash-settled stock-based awards; pre-opening and acquisition costs; and other income or expenses. Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our JV in Kansas Entertainment.
(4)The Company’s triple net operating leases include certain components of the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease, and the Greektown Lease.
 For the year ended December 31,
(in millions)2019 2018 2017
Capital expenditures:     
Northeast segment$96.2
 $38.9
 $26.3
South segment29.8
 10.6
 6.3
West segment21.2
 12.8
 35.7
Midwest segment32.7
 25.3
 26.2
Other10.7
 5.0
 4.8
Total capital expenditures$190.6
 $92.6
 $99.3
(in millions)Northeast South West Midwest Other Total
As of December 31, 2019           
Investment in and advances to unconsolidated affiliates$0.1
 $—
 $—
 $90.9
 $37.3
 $128.3
Total assets (1)
$2,273.7
 $1,397.0
 $752.1
 $1,412.2
 $8,359.5
 $14,194.5
            
As of December 31, 2018          
Investment in and advances to unconsolidated affiliates$0.1
 $—
 $—
 $89.4
 $39.0
 $128.5
Total assets (2)
$1,330.2
 $1,082.3
 $755.7
 $1,411.5
 $6,381.3
 $10,961.0
            
As of December 31, 2017           
Investment in and advances to unconsolidated affiliates$0.1
 $—
 $—
 $88.3
 $60.5
 $148.9
Total assets (2)
$921.0
 $169.3
 $625.0
 $970.8
 $2,548.7
 $5,234.8
(1)As of December 31, 2019, total assets of the Other category includes the real estate assets subject to the consolidated financial statements)Master Leases, which do not have gaming operations.  are either classified as property and equipment, operating lease ROU assets, or finance lease ROU assets, depending on whether the underlying component of the Master Leases was determined to be an operating lease, a finance lease, or continue to be financing obligations, upon adoption of ASC 842.
(2)As of December 31, 2018 and 2017, total assets of the Other alsocategory includes the recently created Penn Interactive Ventures,real estate assets subject to the Master Leases, which is a wholly-owned subsidiary that is pursuing the Company’s interactive gaming strategyare classified as property and its recent acquisition of Rocket Speed.

equipment.


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16.Summarized Quarterly Data (Unaudited)

The following table summarizes the quarterly results of operations for the years ended December 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarter

 

 

    

First

    

Second

    

Third (1)

    

Fourth (2)

 

 

 

(in thousands, except per share data)

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

756,451

 

$

769,422

 

$

765,597

 

$

742,910

 

Income from operations

 

 

140,531

 

 

149,337

 

 

139,300

 

 

113,848

 

Net income

 

 

23,708

 

 

34,035

 

 

46,535

 

 

5,032

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.26

 

$

0.38

 

$

0.52

 

$

0.06

 

Diluted earnings per common share

 

$

0.26

 

$

0.37

 

$

0.51

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarter

 

 

 

First

    

Second

    

Third (3)

    

Fourth

 

 

 

(in thousands, except per share data)

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

664,138

 

$

700,956

 

$

739,297

 

$

733,967

 

Income from operations

 

 

111,689

 

 

123,361

 

 

142,172

 

 

90,624

 

Net income (loss)

 

 

1,869

 

 

2,983

 

 

4,900

 

 

(9,066)

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

0.02

 

$

0.03

 

$

0.06

 

$

(0.11)

 

Diluted earnings (loss) per common share

 

$

0.02

 

$

0.03

 

$

0.05

 

$

(0.11)

 

(1)

On August 1, 2016 the Company acquired Rocket Speed, Inc.

(2)

On October 3, 2016 and November 1, 2016 the Company acquired Slot Kings, LLC and Bell Gaming, LLC, respectively.

(3)

On August 25, 2015 and September 1, 2015 the Company acquired Tropicana Las Vegas and Prairie State Gaming, LLC, respectively.

During the fourth quarter of 2015, the Company recorded other intangible assets impairment charges of $40.0 million related to the write-off of its Plainridge Park Casino gaming license and a partial write-down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.  In addition, the three months ended December 31, 2015 included favorable property tax settlements of approximately $16.8 million.

17.Related Party Transactions

The Company currently leases executive office buildings in Wyomissing, Pennsylvania from affiliates of its Chairman of the Board of Directors. Rent expense for the years ended December 31, 2016, 2015 and 2014 amounted to $1.2 million, $1.2 million, and $1.1 million, respectively. The leases for the office space all expire in May 2019. The future minimum lease commitments relating to these leases at December 31, 2016 are $2.9 million.

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18.FairNote 18—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:

estimate. The fair value of the Company’s trade accounts receivable and payables approximates the carrying amounts.


Cash and cash equivalents

Cash Equivalents

The fair value of the Company’s cash and cash equivalents approximates thetheir carrying value of the Company’s cash and cash equivalents,amount, due to the short maturity of the cash equivalents.

Advances to Jamul Tribe

Equity Securities
As of December 31, 2019, we held $40.5 million in equity securities, including ordinary shares and warrants, which are reported as “Other assets” in our Consolidated Balance Sheet. As discussed in Note 2, “Significant Accounting Policies,” these equity securities are the result of Penn Interactive entering into multi-year agreements with third-party sports betting operators for online sports betting and related iGaming market access across our portfolio during the third quarter of 2019.
The fair value of the Company’s advancesequity 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 Jamul Tribe was based on market interest rates for similarly rated observable instruments.  Although we determined that these inputs fell within Level 2 ofordinary shares, and a Black-Scholes option pricing model with respect to the fair value hierarchy, the probability of the Company’s loan being subordinatedwarrants. The DLOM is based on internal projectionsthe remaining term of the cash flowsrelevant lock-up periods and the volatility associated with the underlying equity securities. The Black-Scholes option pricing model utilizes the exercise price of the facilitywarrants, 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 isholds a Level 3 measurement.  Therefore,nominal interest in the Company concludedracing 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 this instrument should be classified as a Level 3 measurementmay arise if gaming under the existing racing license becomes legal in Texas in the future.
As of December 31, 2019 and 2018, PRP held $15.1 million and $16.9 million, respectively, in promissory notes issued by RDC and $6.7 million and $7.5 million, respectively, in local government corporation bonds issued by RDC, at amortized cost. The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack. As of December 31, 2019 and 2018, the promissory notes and the local government corporation bonds, which have long-term contractual maturities, are included in “Other assets” within our Consolidated Balance Sheets.
During the year ended December 31, 2019, principally due to the high probabilitylack of legislative progress and on-going negative operating results of Retama Park Racetrack, we recorded an other-than-temporary impairment on the promissory notes and the local government corporation bonds totaling $2.5 million, which is included in “Impairment losses” within our Consolidated Statements of Income.
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 loan being subordinated.  See Note 5 for further details.

land associated with Retama Park Racetrack, which are classified as Level 2 inputs.

Long-term debt

Debt

The fair value of the Company’sour Term Loan A Facility, Term Loan B-1 Facility and B components of its senior secured credit facility and senior unsecured notes5.625% Notes is estimated based on quoted prices in active markets and is classified as such is a Level 1 measurement. The fair value of the remainder of the Company’s senior secured credit facilityour Revolving Credit Facility approximates its carrying valueamount as it is revolving, variable rate debt, andwhich we also classify as such is a Level 21 measurement.

Other long termlong-term obligations atas of December 31, 2016 include2019 and 2018 included the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley, Race Course,which are discussed in Note 10, “Long-term Debt,” and the repayment obligation of athe hotel and event center located near Hollywood Casino Lawrenceburg. The fair valuevalues of these long-term obligations are estimated based on rates consistent with the relocation feesCompany’s credit rating for Hollywood Gaming at Dayton Racewaycomparable terms and Hollywood Gaming at Mahoning Valley Race Course approximates its carrying value as the discount rate of 5.0% approximates the market rate of similar debt instruments and are classified as such is a Level 2 measurement.  Finally, the fair value of the repayment obligation for the hotel and event center is estimated based on a rate consistent with comparable municipal bonds and as such is a Level 2 measurement.   

measurements.

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Other Liabilities

Other liabilities atas of December 31, 2016, include the2019 and 2018 principally consists of contingent purchase price consideration related to Plainridge Park Casino and Absolute Games, LLC, which was acquired by Penn Interactive during the second quarter of 2018. The Plainridge Park Casino contingent purchase price is calculated based on earnings of Plainridge Racecoursethe gaming operations over the first ten years of operations, which commenced in June 2015. As of December 31, 2019 and Rocket Speed.2018, we were contractually obligated to

make 6 and 7 additional annual payments, respectively. The Absolute Games, LLC, contingent purchase price is calculated based on earnings over the first two years of operations after the acquisition. As of December 31, 2019, we were contractually obligated to make 1 additional payment, corresponding to the second year of operations after the acquisition, which will become payable in the third quarter of 2020. The fair value of the Company’s contingent purchase price consideration related to its Plainridge Racecourse acquisition isthese liabilities, which are both estimated based on an income approach using a discounted cash flowDCF model and have been classified as such is a Level 3 measurement.  The fair valuemeasurements, are included within our Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the timing of the Company’s contingent purchase price consideration related to its Rocket Speed acquisition is estimated by applying an option pricing method using a Monte Carlo simulation which is a quantitative technique that estimates the distribution of an outcome variable that depends on probabilistic input variables and as such is a Level 3 measurement.  At each reporting period, the Company assesses the fair value of this obligation and changes in its value are recorded in earnings. The amount included in general and administrative expenses related to the change in fair value of these obligations was a charge of $1.3 million for the year ended December 31, 2016 compared to a reduction of $5.4 million for the year ended December 31, 2015 and a charge of $0.7 million for the year ended December 31, 2014.

next payment.

The carrying amounts and estimated fair values by input level of the Company’s financial instruments during the years ended December 31, 2016 and 2015 arewere as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

229,510

 

$

229,510

 

$

229,510

 

$

 —

 

$

 —

 

Advances to Jamul Tribe

 

 

92,100

 

 

98,000

 

 

 —

 

 

 —

 

 

98,000

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facility

 

 

962,703

 

 

976,092

 

 

785,092

 

 

191,000

 

 

 —

 

Senior unsecured notes

 

 

296,895

 

 

312,000

 

 

312,000

 

 

 —

 

 

 —

 

Other long-term obligations

 

 

154,084

 

 

152,132

 

 

 —

 

 

152,132

 

 

 —

 

Other liabilities

 

 

48,244

 

 

48,244

 

 

 —

 

 

 —

 

 

48,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

237,009

 

$

237,009

 

$

237,009

 

$

 —

 

$

 —

 

Advances to Jamul Tribe

 

 

197,722

 

 

197,722

 

 

 —

 

 

 —

 

 

197,722

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facility

 

 

1,239,049

 

 

1,251,975

 

 

829,975

 

 

422,000

 

 

 —

 

Senior unsecured notes

 

 

296,252

 

 

291,000

 

 

291,000

 

 

 —

 

 

 —

 

Other long-term obligations

 

 

146,992

 

 

147,358

 

 

 —

 

 

147,358

 

 

 —

 

Other liabilities

 

 

13,815

 

 

13,815

 

 

 —

 

 

 —

 

 

13,815

 

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Table of Contents

 December 31, 2019
(in millions)Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:         
Cash and cash equivalents$437.4
 $437.4
 $437.4
 $—
 $—
Equity securities$40.5
 $40.5
 $—
 $40.5
 $—
Held-to-maturity securities$6.7
 $6.7
 $—
 $6.7
 $—
Promissory notes$15.1
 $15.1
 $—
 $15.1
 $—
Financial liabilities:         
Long-term debt         
Senior Secured Credit Facilities$1,896.5
 $1,930.6
 $1,930.6
 $—
 $—
5.625% Notes$399.4
 $426.0
 $426.0
 $—
 $—
Other long-term obligations$89.2
 $89.7
 $—
 $89.7
 $—
Other liabilities$20.3
 $20.3
 $—
 $2.8
 $17.5

 December 31, 2018
(in millions)Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:         
Cash and cash equivalents$479.6
 $479.6
 $479.6
 $—
 $—
Held-to-maturity securities$7.5
 $7.9
 $—
 $7.9
 $—
Promissory notes$16.9
 $17.4
 $—
 $17.4
 $—
Financial liabilities:         
Long-term debt         
Senior Secured Credit Facilities$1,907.9
 $1,886.3
 $1,886.3
 $—
 $—
5.625% Notes$399.3
 $360.0
 $360.0
 $—
 $—
Other long-term obligations$104.6
 $96.3
 $—
 $96.3
 $—
Other liabilities$21.9
 $21.8
 $—
 $2.8
 $19.0



The following table summarizes the changes in fair value of the Company’sour Level 3 liabilities (in thousands):

measured on a recurring basis:
 Other Liabilities
(in millions)Contingent Purchase Price
Balance as of January 1, 2017$48.2
Additions0.9
Payments(19.6)
Included in earnings (1)
(6.8)
Balance as of December 31, 201722.7
Payments(4.2)
Included in earnings (1)
0.5
Balance as of December 31, 201819.0
Payments(8.5)
Included in earnings (1)
7.0
Balance as of December 31, 2019$17.5

(1)

The expense is included in “General and administrative” within our Consolidated Statements of Income.
The following table sets forth the assets measured at fair value on a non-recurring basis during the years ended December 31, 2019 and 2018:
(in millions)Valuation Date Valuation Technique Level 1 Level 2 Level 3 Total Balance 
Total 
Reduction in
Fair Value
Recorded
Goodwill10/1/2019 Discounted cash flow and market approach $—
 $—
 $161.1
 $161.1
 $(88.0)
Gaming licenses10/1/2019 Discounted cash flow $—
 $—
 $290.0
 $290.0
 $(62.6)
Trademarks10/1/2019 Discounted cash flow $—
 $—
 $87.5
 $87.5
 $(20.0)
Property and equipment (1)
12/31/2018 Cost and market approach $—
 $—
 $—
 $—
 $(34.3)

Twelve Months Ended 

December 31, 2016 and 2015

Liabilities

Contingent

Purchase Price

Balance at January 1, 2015

$

(1)
The fair value, which was concluded to be zero, of our property and equipment associated with Resorts Casino Tunica was determined using Level 2 inputs. See Note 7, “Property and Equipment” for more information.
19,189

Included in earnings

(5,374)

Balance at December 31, 2015

$

13,815

Additions

34,945

Payments

(1,793)

Included in earnings

1,277

Balance at December 31, 2016

$

48,244

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities:

liabilities on a recurring basis as of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation

 

Unobservable

 

 

 

 

 

 

 

    

Technique

    

Input

    

Discount Rate

 

 

Volatility Rate

 

Contingent purchase price - Plainridge

 

Discounted cash flow

 

Discount rate

 

8.30

%

 

N/A

%

Contingent purchase price - Rocket Speed

 

Option pricing method

 

Discount rate, Volatility rate

 

11.50

%

 

87.32

%

Valuation TechniqueUnobservable InputDiscount Rate
Plainridge Park Casino contingent purchase priceDiscounted cash flowDiscount rate5.63%



As discussed in Note 8, “Goodwill and Other Intangible Assets,” we recorded impairments on our gaming licenses and trademarks, which are indefinite-lived intangible assets, as a result of our 2019 annual assessment for impairment. The following table sets forthpresents quantitative information about the assets measured at fair value on a non-recurring basis during the year ended December 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

    

 

 

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Reduction in

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Fair Value

 

 

 

Balance

 

 

 

 

 

 

 

December 31,

 

Recorded during

 

 

 

Sheet

 

 

 

 

 

 

 

 

 

 

2015

 

the year ended

 

 

    

Location

    

Level 1

    

Level 2

    

Level 3

    

Total

    

December 31, 2015,

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

Other intangible assets

 

$

 —

 

$

 —

 

$

110,436

 

$

110,436

 

$

(40,042)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(40,042)

 

Goodwill and intangible assets

The valuation techniquesignificant unobservable inputs used to measure the fair value of goodwill and intangible assets was the income approach. See Note 3 for a description of the inputs and the information used to develop the inputs in calculating the fair value measurements of goodwill and indefinite-lifeother indefinite-lived intangible assets.

For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million, as of the valuation date below:

(in millions)Fair Value Valuation Technique Unobservable Input Range or Amount
As of October 1, 2019       
Gaming licenses$290.0
 Discounted cash flow Discount rate 10.5% - 11.25%
     Long-term revenue growth rate 2.0%
Trademarks$87.5
 Discounted cash flow Discount rate 10.5% - 11.25%
     Long-term revenue growth rate 2.0%
     Pretax royalty rate 1.0% - 2.0%



Note 19—Related Party Transactions
The Company currently leases executive office buildings in Wyomissing, Pennsylvania from affiliates of October 1, 2015, related to the write-off of our Plainridge Park Casino gaming license and a partial write-downits Chairman Emeritus of the gaming license at Hollywood Gaming at Dayton Raceway dueBoard of Directors. Rent expense for the years ended December 31, 2019, 2018 and 2017 was $1.2 million, $1.3 million and $1.2 million, respectively. Certain of the leases for the office space expired in May 2019, but have been extended on a month-to-month basis; the remaining long-term lease for the office space expires in August 2024. The future minimum lease commitments relating to a reduction in the long term earnings forecast at both of these locations.

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19.Insurance Recoveries and Deductibles

Argosy Casino Alton

Argosy Casino Alton closed on the eveningleases as of December 28, 2015 and did not reopen until31, 2019 were $1.8 million.


Note 20—Summarized Quarterly Data (Unaudited)
The following table summarizes the evening of January 3, 2016 due flooding in the surrounding area.  The main bridge to the property also remained closed through January 13, 2016.  As a result, the company received $0.7 million in insurance proceeds for business interruption in 2016.

20.Subsequent Events

Refinancing Transactions

 On January 19, 2017, the Company issued $400.0 million of 5.625% senior notes due 2027 (the “5.625% Notes”) and entered into $1,500.0 million of amended credit facilities, comprised of a $300.0 million Term Loan A Facility with a maturity of five years, a $500.0 million Term Loan B Facility with a maturity of seven years and a $700.0 million revolving credit facility with a maturity of five years (the “Amended Credit Facilities”).

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

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

 The 5.625% Notes mature on January 15, 2027 at a price of par.  Interest on the 5.625% Notes is payable on January 15 and July 15 of each year.  The 5.625% Notes are senior unsecured obligations of the Company.  The 5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary-guaranteed debt securities.  The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the 5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture governing the 5.625% Notes.  In addition, prior to January 15, 2020, the Company may redeem the Notes with an amount equal to the net proceeds from one or more equity offerings, at a redemption price equal to 105.625% of the principal amount of the Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date, so long as at least 60% of the aggregate principal amount of the notes originally issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the related equity offering.

 In connection with the Refinancing Transactions, the Company incurred $25.2 million of debt extinguishment and financing charges (inclusive of the $13.2 million call premium on the 5.875% Notes) which will be recorded in other expenses on our consolidated statementquarterly results of operations for the three months ending Marchyears ended December 31, 2017.

Share Repurchase Program

On2019 and 2018:

 Fiscal Quarter
(in millions, except per share data)First Second Third 
Fourth (1)
2019       
Revenues$1,282.6
 $1,323.1
 $1,354.5
 $1,341.2
Operating income$182.4
 $198.4
 $179.8
 $11.3
Net income (loss)$41.0
 $51.3
 $43.7
 $(92.9)
Earnings (loss) per common share:       
Basic earnings (loss) per common share$0.35
 $0.44
 $0.38
 $(0.80)
Diluted earnings (loss) per common share$0.35
 $0.44
 $0.38
 $(0.80)
        
 Fiscal Quarter
(in millions, except per share data)First 
Second (2)
 Third 
Fourth (3)
2018       
Revenues$816.1
 $826.9
 $789.7
 $1,155.3
Operating income$172.1
 $181.8
 $155.8
 $124.4
Net income (loss)$45.4
 $54.0
 $36.1
 $(42.0)
Earnings (loss) per common share:       
Basic earnings (loss) per common share$0.50
 $0.59
 $0.39
 $(0.37)
Diluted earnings (loss) per common share$0.48
 $0.57
 $0.38
 $(0.37)
(1)
During the fourth quarter of 2019, we recorded $170.6 million of impairment on our goodwill and other intangible assets. See Note 8, “Goodwill and Other Intangible Assets,” for further details.
(2)
During the second quarter of 2018, the Company recorded a recovery of loan losses and unfunded loan commitments of $17.0 million relating to the JIVDC. See Note 5, “Acquisitions and Other Investments,” for further details.
(3)
During the fourth quarter of 2018, we acquired Pinnacle, which resulted in the incurrence of $74.7 million in pre-opening and acquisition costs. See Note 5, “Acquisitions and Other Investments,” for further details. In addition, we recorded a $34.3 million impairment of long-lived assets. See Note 7, “Property and Equipment,” for further details. Lastly, we recorded a $17.2 million loss on early extinguishment of debt. See Note 10, “Long-term Debt,” for more details.

Note 21—Subsequent Events
In February 3, 2017,2020, we closed on our Boardinvestment in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment and media platform, pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Directors authorizedBarstool Sports (the “Sellers”), in which we purchased approximately 36% of the common stock, par value $0.0001 per share, of Barstool Sports (“Barstool Sports Common Stock”) for a $100purchase price of approximately $163.0 million. The purchase price consisted of approximately $135.0 million in cash and $28.0 million in shares of non-voting convertible preferred stock of the Company (the “Penn Preferred Stock”). 1/1,000th of a share repurchase programof the Penn Preferred Stock will be convertible into one share of common stock, par value $0.01 per share, of the Company (“Penn Common Stock”), and the Penn Preferred Stock will be entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock based on the number of shares of Penn Common Stock into which can be executed over a two year period.

such Penn Preferred Stock could convert.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

ITEM 9A.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a‑15(e)13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2016.

2019, which is the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019 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. 

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a‑ 15(f)13a-15(f) and 15d‑15(f)15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting, and concluded that it was effective as of December 31, 2016.2019. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework).

The

On May 23, 2019, the Company completed its acquisitions of Rocket Speed, Inc., Slot Kings, LLC and Bell Gaming, LLC on August 1, 2016, October 3, 2016 and November 1, 2016, respectively.acquired Greektown Casino-Hotel (“Greektown”). Since the Company has not yet fully incorporated the internal controls and procedures of Rocket Speed, Slot Kings and Bell GamingGreektown into the Company’s internal control over financial reporting, management excluded Rocket Speed, Slot Kings and Bell GamingGreektown from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016.  Collectively, these three acquisitions2019. This acquisition constituted approximately 3%6% of the Company’s total consolidated assets and approximately 1%4% of the Company’s consolidated net revenues as of and for the year ended December 31, 2016,2019, respectively.

Ernst

Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2019.
Deloitte & YoungTouche LLP, the Company’s independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-KConsolidated Financial Statements for the year ended December 31, 2019, issued an attestation report on the Company’s internal control over financial reporting which immediately follows this report.

Remediation of Prior Material Weaknesses in Internal Control Over Financial Reporting

Our management previously identified and disclosed material weaknesses in internal control over financial reporting related to maintaining effective controls and procedures over the evaluation and accounting of certain complex and non-routine transactions including lease transactions. Specifically, we did not maintain a sufficient complement of personnel, including third party consultants, with an appropriate level of knowledge and experience to challenge our application of GAAP commensurate with the nature and complexity of certain of our transactions, to prevent or detect and correct material misstatements in a timely manner. In addition, we did not maintain effective controls and procedures over the calculation of impairment charges for goodwill and indefinite‑lived intangible assets. Specifically, our review controls were not designed with a sufficient level of precision and executed by personnel, with appropriate level of experience to detect material errors in the methodologies used and in the calculation of the impairment charges that were recognized in our consolidated financial statements.  A material weakness is a deficiency, or a combination of

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deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As a result of these material weaknesses in the Company’s internal control over financial reporting, management had concluded that, as of December 31, 2015, the Company’s internal control over financial reporting was not effective based on the criteria set forth in the 2013 COSO Framework.

The Company has been actively engaged in the implementation of remediation efforts to address the material weaknesses including the design and operation of additional internal controls over financial reporting. The status of the Company’s remediation efforts was periodically reviewed with the Audit Committee during 2016 at which time the committee was advised of significant accounting transactions that occurred and key decisions reached by management of the Company.

During 2016, management of the Company took the following actions to remediate the material weaknesses:

·

Initiated and implemented various compensating controls over the proper application of GAAP to complex and non-routine transactions, which included:

o

the involvement of third party consultants with relevant knowledge and experience to assist the Company with the identification and evaluation of the accounting for highly technical accounting matters

o

formalizing a preparation and review process to apply consistently to each non-routine and complex transaction

o

significant non-routine transactions were documented via a memorandum and supporting documentation is maintained by the accounting department for review by our Chief Financial Officer and Corporate Controller.

o

hiring a Director of Technical Accounting, a newly created position within the Corporate Accounting Department.

·

Designed and implemented enhanced controls over the accounting for goodwill and indefinite-lived intangible impairment measurement, including:

o

additional assistance from third party valuation specialists

o

formalizing the preparation and review process to separate resources capable of focusing on specific components of the analysis (e.g. budgeting/forecasting, income taxes, etc.)

Changes in Internal Control Over Financial Reporting

The remediation of the prior material weaknesses in internal control over financial reporting described above was a change

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f)13a-15(f) and 15d‑15(f)15d-15(f)) that occurred during the fiscal quarter ended December 31, 2016,2019, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors and Shareholders of

Penn National Gaming, Inc.

Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Penn National Gaming, Inc. and Subsidiaries

We have audited Penn National Gaming, Inc. and Subsidiaries’ internal control over financial reportingsubsidiaries (the “Company”) as of December 31, 2016,2019, based on criteria established in Internal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)(COSO). Penn National Gaming, Inc.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and Subsidiaries’for the year ended December 31, 2019, of the Company and our report dated February 27, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Greektown Casino-Hotel which was acquired on May 23, 2019 and whose financial statements constitute approximately 6% of the Company’s total consolidated assets and approximately 4% of the Company’s total consolidated net revenues as of and for the year ended December 31, 2019. Accordingly, our audit did not include the internal control over financial reporting at Greektown Casino-Hotel.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Rocket Speed (“Rocket”), Slot Kings, and Bell Gaming, which are included in the 2016 consolidated financial statements of Penn National Gaming, Inc. and Subsidiaries and collectively constituted approximately 3% of the Company’s total assets as of December 31, 2016, and approximately 1% of the Company’s net revenues from the acquisition date through December 31, 2016.  Our audit of internal control over financial reporting of Penn National Gaming, Inc. and Subsidiaries also did not include an evaluation of the internal control over financial reporting of Rocket, Slot Kings, and Bell Gaming.

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In our opinion, Penn National Gaming, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Penn National Gaming, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' deficit and cash flows for each of the three years in the period ended December 31, 2016 of Penn National Gaming, Inc. and Subsidiaries and our report dated February 24, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania
February 24, 2017

27, 2020


ITEM 9B.OTHER INFORMATION
None.

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ITEM 9B.  OTHER INFORMATION

None

PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The remaining information required by this item concerning directors and corporate governance is hereby incorporated by reference to the Company’s definitive proxy statement for its 2016 Annual Meeting of Shareholders (the “2017“2020 Proxy Statement”), to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2016,2019, pursuant to Regulation 14A under the Securities Act. Information required by this item concerning executive officers is included in Part I of this Annual Report on Form 10‑K.

ITEM 11.  EXECUTIVE COMPENSATION10-K.


ITEM 11.EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the 20172020 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The information required by this item is hereby incorporated by reference to the 20172020 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is hereby incorporated by reference to the 20172020 Proxy Statement.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES


ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the 20172020 Proxy Statement.

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PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) 1 and 2.

1.

Financial Statements and Financial Statement Schedules. Statements.

The following is a list of the Consolidated Financial Statements of the Company and its subsidiaries and supplementary data filed as part ofincluded herein under Item 8 hereof:

of Part II of this report, “Financial Statements and Supplementary Data”:

Page
Report of Independent Registered Public Accounting Firm

51

Consolidated Balance Sheets as of December 31, 20162019 and 2015

2018
54

Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2016, 20152019, 2018 and 2014

2017
55

Consolidated Statements of Changes in Shareholders’ EquityComprehensive Income for the years ended December 31, 2016, 20152019, 2018 and 2014

2017
56

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2019, 2018 and 2017
57

Consolidated Statements of Cash Flows for the years ended December 31, 2016, 20152019, 2018 and 2014

2017
58

Notes to Consolidated Financial Statements
60

2.Financial Statement Schedules.
All other schedules arehave been omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.


3.

Exhibits, Including Those Incorporated by Reference.

The exhibits to this Report are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of this annual report on Form 10‑K.

10-K.

ITEM 16.  SUMMARY INFORMATION

ITEM 16.FORM 10-K SUMMARY
We have elected not to disclose the optional summary information.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PENN NATIONAL GAMING, INC.

By:

/s/ Timothy J. Wilmott

Timothy J. Wilmott

Chief Executive Officer and President

Dated: February 24, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Timothy J. Wilmott

Chief Executive Officer, President and Director (Principal Executive Officer)

February 24, 2017

Timothy J. Wilmott

/s/ WILLIAM J. FAIR

Executive Vice President Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

February 24, 2017

William J. Fair

/s/ Peter M. Carlino

Chairman of the Board

February 24, 2017

Peter M. Carlino

/s/ David A. Handler

Director

February 24, 2017

David A. Handler

/s/ John M. Jacquemin

Director

February 24, 2017

John M. Jacquemin

/s/ Harold Cramer

Director

February 24, 2017

Harold Cramer

/s/ Ronald J. Naples

Director

February 24, 2017

Ronald J. Naples

/s/ Barbara Z. Shattuck Kohn

Director

February 24, 2017

Barbara Z. Shattuck Kohn

/s/ Jane Scaccetti

Director

February 24, 2017

Jane Scaccetti

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EXHIBIT INDEX

Exhibit

Exhibit
NumberDescription of Exhibit

3.1(a)

2.1††


Agreement and Plan of Merger by and among Pinnacle Entertainment, Inc., Penn National Gaming, Inc. and Franchise Merger Sub, Inc., dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206)
2.2††
Membership Interest Purchase Agreement by and among Boyd Gaming Corporation, Boyd TCIV, LLC, Penn National Gaming, Inc., Pinnacle Entertainment, Inc. and Pinnacle MLS, LLC, dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206)
2.3††
Consent Agreement by and among Gaming and Leisure Properties, Inc., Gold Merger Sub, LLC, PA Meadows, LLC, WTA II, Inc., CCR Pennsylvania Racing, Inc., Penn National Gaming, Inc., PNK Development 33, LLC, Pinnacle Entertainment, Inc. and Pinnacle MLS, LLC, dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206)
2.4††
Master Lease Commitment and Rent Allocation Agreement by and among Boyd Gaming Corporation, Boyd TCIV, LLC, Penn National Gaming, Inc., Gaming and Leisure Properties, Inc. and Gold Merger Sub, LLC, dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206)
2.5††
Purchase Agreement by and between Plainville Gaming and Redevelopment, LLC, Penn National Gaming, Inc. and Gold Merger Sub, LLC, dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206)
2.6††
Purchase Agreement by and between Penn National Gaming, Inc., Gold Merger Sub, LLC, and upon their execution and delivery of the joinder, PNK (Ohio), LLC and Pinnacle Entertainment, Inc., dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.6 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206)
2.7††
Agreement and Plan of Merger dated as of June 18, 2018, among VICI Properties Inc., Riverview Merger Sub Inc., Penn Tenant II, LLC, Penn National Gaming, Inc., Bossier Casino Venture (HoldCo), Inc. and Silver Slipper Gaming, LLC is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 19, 2018. (SEC File No. 000-24206)
2.8††
Transaction Agreement, dated as of November 13, 2018, among Penn Tenant III, LLC, VICI Properties L.P., and Greektown Mothership LLC is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 14, 2018. (SEC File No. 000-24206)
2.9††
Stock Purchase Agreement by and among Penn National Gaming, Inc., Barstool Sports, Inc., TCG XII, LLC, TCG Digital Spots, LLC and the Individuals Set Forth on Schedule A, dated as of January 28, 2020 is hereby incorporated by reference to the Company’s Current Report on Form 8-K filed on January 29, 2020. (SEC File No. 000-24206)
3.1
Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on October 15, 1996. (Incorporated1996, as amended by reference to Exhibit 3.1 to the Company’s registration statement on Form S‑3, File No. 333‑63780, dated June 25, 2001).

3.1(b)

Articles of AmendmentAmendments to the Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on November 13, 1996. (Incorporated by reference to Exhibit 3.2 to the Company’s registration statement on Form S‑3, File No. 333‑63780, dated June 25, 2001).

3.1(c)

Articles of Amendment to the Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on1996, July 23, 2001. (Incorporated by reference to Exhibit 3.4 to the Company’s annual report on Form 10‑K for the fiscal year ended December 31, 2001).

3.1(d)

Articles of Amendment to the Amended2001 and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on December 28, 2007. (Incorporated by reference to Exhibit 3.1 to2007 and the Company’s current report on Form 8‑K, filed on January 2, 2008).

3.1(e)

Statement with Respect to Shares of Series C Convertible Preferred Stock of Penn National Gaming, Inc. dated as of January 17, 2013. (Incorporated2013, is hereby incorporated by reference to Exhibit 4.13.1 to the Company’s current reportAnnual Report on Form 8‑ K, filed on January 18, 2013).

10-K for the fiscal year ended December 31, 2018. (SEC File No. 000-24206)

3.2 

Third

Exhibit
NumberDescription of Exhibit
3.2
Fourth Amended and Restated Bylaws of Penn National Gaming, Inc., as amended on December 10, 2014 (IncorporatedMay 28, 2019, is hereby incorporated by reference to Exhibit 3.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on December 11, 2014).

May 31, 2019. (SEC File No. 000-24206)
4.1 

4.1
Specimen copycertificate for shares of Common Stock, Certificate. (Incorporatedpar value of $.01 per share, for Penn National Gaming, Inc. is hereby incorporated by reference to Exhibit 3.6 to the Company’s quarterly reportQuarterly Report on Form 10‑Q10-Q for the quarterquarterly period ended June 30, 2003).

2003. (SEC File No. 000-24206)
4.2 

4.2
Indenture, dated as of October 30, 2013January 19, 2017 between Penn National Gaming, Inc. and Wells Fargo Bank, N.A., as Trustee, relating to the 5.875%5.625% Senior Notes due 2021. (Incorporated2027 is hereby incorporated by reference to Exhibit 4.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on November 4, 2013).

January 20, 2017. (SEC File No. 000-24206)
4.3 

4.3
Form of Note for 5.875%5.625% Senior Notes due 2021. (Incorporated2027 is hereby incorporated by reference to Exhibit 4.2 to the Company’s current reportCurrent Report on Form 8‑K, filed on November 4, 2013).

4.4 

Investor Rights Agreement, dated as of July 3, 2008, by and among Penn National Gaming, Inc., FIF V PFD LLC, Centerbridge Capital Partners, L.P., DB Investment Partners, Inc. and Wachovia Investment Holdings, LLC. (Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8‑K, filed on July 9, 2008).

4.5(a)

Supplementary Investor Rights Agreement, dated as of January 16, 2013, by and between Penn National Gaming, Inc. and FIF V PFD LLC. (Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8‑K, filed on January 18, 2013).

4.6(a)

Indenture, dated as of January 19, 2017, between Penn National Gaming, Inc. and Wells Fargo Bank, National Association as Trustee. (Incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8‑K,8-K filed on January 20, 2017).

2017. (SEC File No. 000-24206)

4.6(b)

Form of Note for 5.625% Senior Notes due 2021. (Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8‑K, filed on January 20, 2017).

Table of Contents

Exhibit

4.4*


Description of Exhibit

Securities.
9.1 

9.1***
Form of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J. Carlino, David E. Carlino, Susan F. Harrington, Anne de Lourdes Irwin, Robert M. Carlino, Stephen P. Carlino and Rosina E. Carlino Gilbert. (IncorporatedGilbert is hereby incorporated by reference to the Company’s registration statementRegistration Statement on Form S‑1, File No. 33‑77758,S-1, dated May 26, 1994).

1994. (SEC File No. 33-77758)

10.1#

10.1†
Penn National Gaming, Inc. Deferred Compensation Plan (the “Plan”), as amended. (Incorporatedamended and restated effective April 4, 2013, as amended by that First Amendment, Second Amendment, Third Amendment and Fourth Amendment to the Plan, effective November 1, 2013, October 1, 2015, January 1, 2017 and January 1, 2017, respectively, is hereby incorporated by reference to Exhibit 10.27 to the Company’s annual reportAnnual Report on Form 10‑K10-K for the fiscal year ended December 31, 2006).

2018. (SEC File No. 000-24206)

10.1(a)#

First Amendment to the Penn National Gaming, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10‑Q for the quarter ended June 30, 2016).

10.1(b)#

10.2†


Second Amendment to the Penn National Gaming, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10‑Q for the quarter ended June 30, 2016).

10.2#

Penn National Gaming, Inc. 2003 Long Term Incentive Compensation Plan. (Incorporated by reference to Appendix A of the Company’s Proxy Statement dated April 22, 2003 filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended).

10.3#

Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended. (Incorporatedamended is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportQuarterly Report on Form 8‑K, filed on June 13, 2014).

10-Q for the quarterly period ended March 31, 2017. (SEC File No. 000-24206)

10.4#

10.2(a)†
Form of Non‑QualifiedNon-Qualified Stock Option Certificate for the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan. (IncorporatedPlan is hereby incorporated by reference to Exhibit 10.33 to the Company’s annual reportAnnual Report on Form 10‑K10-K for the fiscal year ended December 31, 2008).

2008. (SEC File No. 000-24206)

10.5#

10.2(b)†
Form of Restricted Stock Award for the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan. (IncorporatedPlan is hereby incorporated by reference to Exhibit 10.32 to the Company’s annual reportAnnual Report on Form 10‑K10-K for the fiscal year ended December 31, 2009).

2009. (SEC File No. 000-24206)

10.6#

10.2(c)†
Form of Notice of Award of Phantom Stock Unit Award for Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan. (IncorporatedPlan is hereby incorporated by reference to Exhibit 10.32 to the Company’s annual reportAnnual Report on Form 10‑K10-K for the fiscal year ended December 31, 2009).

2010. (SEC File No. 000-24206)

10.7#

10.2(d)†
Form of Stock Appreciation Rights for the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan. (IncorporatedPlan is hereby incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly report ended March 31, 2014. (SEC File No. 000-24206)
10.2(e)†
Penn National Gaming, Inc. Performance Share Program under the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10‑Q8-K filed on February 11, 2016). (SEC File No. 000-24206)
10.2(e)(i)†
Form of Performance Shares Award Certificate for Performance Share Program under the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017. (SEC File No. 000-24206)
10.2(e)(ii)†
Form of Notice of Restricted Stock for Performance Share Program under the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014).

2017. (SEC File No. 000-24206)

10.8#

Exhibit
NumberDescription of Exhibit
10.3†
Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2018. (SEC File No. 000-24206)
10.3(a)*
Amendment to Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, dated December 27, 2019.
10.3(b)†
Form of Non-Qualified Stock Option Certificate for the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(c)†
Form of Notice of Award of Restricted Stock for the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(d)†
Form of Notice of Award of Phantom Stock Units for the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(e)†
Form of Notice of Stock Appreciation Right Award for the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(f)†
Penn National Gaming, Inc. Performance Share Program under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(f)(i)†
Form of Performance Share Program Restricted Stock Award Certificate under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(f)(ii)†
Form of Notice of Award of Restricted Stock for Performance Share Program under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-8 filed on August 8, 2018. (SEC File No. 000-24206)
10.3(g)
Penn National Gaming, Inc. Performance Share Program II under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 21, 2019. (SEC File No. 000-24206)
10.3(g)(i)†
Form of Combination Award Certificate for the Penn National Gaming, Inc. Performance Share Program II under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended, is hereby incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 21, 2019. (SEC File No. 000-24206)
10.3(h)*†
Form of Electronic Non-Qualified Stock Option Award Agreement under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended.
10.3(i)*†
Form of Electronic Restricted Stock Award Agreement (2020) under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended.
10.3(j)*†
Form of Electronic Phantom Stock Unit Award Agreement (cash settled) (2020) under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended.
10.3(k)*†
Form of Electronic Phantom Stock Unit Award Agreement (stock settled) (2020) under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended.
10.3(l)*†
Form of Electronic Stock Appreciation Right Award Agreement (2020) under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended.

Exhibit
NumberDescription of Exhibit
10.3(m)*†
Form of Electronic Restricted Stock Unit Award Agreement (2020) under the Penn National Gaming, Inc. 2018 Long Term Incentive Compensation Plan, as amended.
10.4†
Executive Agreement, dated June 1, 2016August 28, 2018 and effective as of June 13, 2016,2018, by and between Penn National Gaming, Inc. and Timothy J. Wilmott. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8 K, filed on June 3, 2016.)

10.9#

Executive Agreement, dated June 1, 2016 and effective as of June 13, 2016, by and between Penn National Gaming, Inc. and Jay A. Snowden. (Wilmott is hereby Incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on June 3, 2016.)

August 29, 2018. (SEC File No. 000-24206)

10.10(a)#

Employment

10.5†
Executive Agreement, dated November 25, 2013July 30, 2019, between Penn National Gaming, Inc. and Saul V. Reibstein. (IncorporatedJay A. Snowden is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on November 25, 2013).

August 1, 2019. (SEC File No. 000-24206)

10.10(b)#

Transition Services

10.6†
Executive Agreement dated as of October 19, 2016, by and between Penn National Gaming, Inc. and Saul V. Reibstein (IncorporatedWilliam J. Fair entered into on September 24, 2019 is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 26, 2019. (SEC File No. 000-24206)
10.6(a)†
First Amendment to Executive Agreement, dated January 23, 2020, between Penn National Gaming, Inc. and William J. Fair is hereby incorporated by reference to Exhibit 10.2 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on October 20, 2016).

January 24, 2020. (SEC File No. 000-24206)

Table of Contents

Exhibit

Description of Exhibit

10.11#

10.7†


Executive Agreement, dated as of October 19, 2016, by and between Penn National Gaming, Inc. and William J. Fair. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8‑K, filed on October 20, 2016.)

10.12#

Executive Agreement, dated June 1, 2016December 10, 2018 and effective as of JuneDecember 13, 2016,2018, by and between Penn National Gaming, Inc. and Carl Sottosanti. (IncorporatedSottosanti is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on June 3, 2016.)

December 13, 2018. (SEC File No. 000-24206)

10.13#

10.8†
Executive Agreement, dated as of January 29, 2019 and effective as of October 15, 2018, by and between Penn National Gaming, Inc. Performance Share Program. (Incorporatedand Christine LaBombard is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on February 11, 2016).

January 31, 2019. (SEC File No. 000-24206)

10.14#

Form of Performance Shares Award Certificate for the Penn National Gaming, Inc. 2008 Long Term Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8‑K, filed on February 11, 2016).

10.15 10.9†


Exchange

Executive Agreement, dated as of January 16, 2013, by and22, 2020, between Penn National Gaming, Inc. and FIF V PFD LLC. (IncorporatedDavid Williams is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on January 18, 2013).

24, 2020. (SEC File No. 000-24206)
10.16 

Separation

10.10*
Lease Agreement, dated March 31, 1995 between Wyomissing Professional Center III, LP and Distribution Agreement by and between Penn National Gaming, Inc., as amended by certain amendments dated April 15, 1997, October 30, 1997, April 23, 1998, November 16, 1999, August 21, 2000, April 5, 2005, November 20, 2007, and Gaming and Leisure Properties, Inc. dated November 1, 2013. (Incorporated by reference to Exhibit 2.1 to the Company’s current report on Form 8‑K, filed on November 7, 2013).

May 25, 2012, respectively.
10.17 

Tax Matters Agreement between Penn National Gaming, Inc. and Gaming and Leisure Properties, Inc. dated as of November 1, 2013. (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8‑K, filed on November 7, 2013).

10.18 10.11*


Employee Matters Agreement dated November 1, 2013 between Penn National Gaming, Inc. and Gaming and Leisure Properties, Inc. (Incorporated by reference to Exhibit 10.4 to the Company’s current report on Form 8‑K, filed on November 7, 2013).

10.19 

Master Lease between GLP Capital L.P. and Penn Tenant LLC dated November 1, 2013. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8‑K, filed on November 7, 2013).

10.20(a)

First Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10‑Q for the quarter ended March 31, 2014).

10.20(b)

Second Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10‑Q for the quarter ended June 30, 2014).

10.20(c)

Third Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10‑Q for the quarter ended September 30, 2016).

10.21 

Lease dated January 25,30, 2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporatedas amended by reference to Exhibit 10.12 to the Company’s annual report on Form 10‑K for the fiscal year ended December 31, 2004).

10.21(a)

Commencement Agreement,certain amendments dated May 21,23, 2002, in connection with Lease dated January 25, 2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.12(a) to the Company’s annual report on Form 10‑K for the fiscal year ended December 31, 2004).

Table of Contents

Exhibit

Description of Exhibit

10.21(b)

First Lease Amendment, dated December 4, 2002, to Lease dated January 29, 2003, October 19, 2010, May 25, 2002 between Wyomissing Professional Center II, LP2012, and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.12(b) to the Company’s annual report on Form 10‑K for the fiscal year ended December 31, 2004).

September 1, 2017, respectively.
10.22 

Lease dated August 22, 2003 between The Corporate Campus at Spring Ridge 1250, L.P. and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.13 to the Company’s annual report on Form 10‑K for the fiscal year ended December 31, 2004).

10.23 10.12*


Amended and Restated Lease dated April 5, 2005 between Wyomissing Professional Center III, Limited Partnership and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8‑K, filed on April 8, 2005).

10.24 

Lease dated April 5, 2005 between Wyomissing Professional Center, Inc. and Penn National Gaming, Inc. for portion ofas amended by certain amendments dated April 20, 2006 and May 25, 2012, respectively.

10.13††
Master Lease between GLP Capital L.P. and Penn Tenant LLC dated November 1, 2013 (“Penn Master Lease”) is hereby incorporated by reference to Exhibit 10.1 to the Wyomissing Corporate Office. (IncorporatedCompany’s Current Report on Form 8-K, filed on November 7, 2013. (SEC File No. 000-24206)
10.13(a)
First Amendment to the Master Lease is hereby incorporated by reference to Exhibit 10.2 to the Company’s current reportQuarterly Report on Form 8‑K, filed on April 8, 2005)10-Q for the quarterly period ended March 31, 2014).

(SEC File No. 000-24206)
10.25 

Credit Agreement, dated October 30, 2013, by and among

10.13(b)
Second Amendment to the Penn National Gaming, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, the L/C Lenders Party thereto, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P. Morgan Securities LLC, and Fifth Third Bank, as Joint Bookrunners for the Revolving Facility and the Term A Facility, J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and UBS Securities LLC, as Joint Bookrunners for the Term B Facility and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P. Morgan Securities LLC, Fifth Third Bank, Wells Fargo Securities, LLC, UBS Securities LLC, Credit Agricole Corporate and Investment Bank, Goldman Sachs Bank USA, Manufactures & Traders Trust Company, Nomura Securities International, Inc. RBS Securities Inc. and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers, Bank of America, N.A., as Administrative Agent and Collateral Agent and U.S. Bank N.A., as Documentation Agent. (IncorporatedMaster Lease is hereby incorporated by reference to Exhibit 10.210.4 to the Company’s current reportQuarterly Report on Form 8‑K, filed on November 4, 2013).

10-Q for the quarterly period ended June 30, 2014. (SEC File No. 000-24206)

10.25(a)

First

10.13(c)
Third Amendment and Incremental Joinder Agreement,to the Penn Master Lease is hereby incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016. (SEC File No. 000-24206)

Exhibit
NumberDescription of Exhibit
10.13(d)
Fourth Amendment to the Penn Master Lease is hereby incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017. (SEC File No. 000-24206)
10.13(e)
Fifth Amendment to the Penn Master Lease is hereby incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018. (SEC File No. 000-24206)
10.13(f)
Sixth Amendment to the Penn Master Lease is hereby incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended on September 30, 2018. (SEC File No. 000-24206)
10.13(g)
Seventh Amendment to the Penn Master Lease is hereby incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended on September 30, 2018. (SEC File No. 000-24206)
10.13(h)
Eighth Amendment to the Penn Master Lease is hereby incorporated by reference to Exhibit 10.28(h) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. (SEC File No. 000-24206)
10.14††


Master Lease, dated April 28, 2015, with certain subsidiaries2016, by and between PNK Entertainment, Inc. and Pinnacle Entertainment, Inc. (“PNK Master Lease”) is hereby incorporated by reference to Exhibit 2.2 to Pinnacle Entertainment, Inc.’s Current Report on Form 8-K filed on April 28, 2016. (SEC File No. 001-37666)
10.14(a)
First Amendment to PNK Master Lease, dated August 29, 2016, by and between Pinnacle MLS, LLC and Gold Merger Sub, LLC is hereby incorporated by reference to Exhibit 2.3 to Pinnacle Entertainment, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016. (SEC File No. 001-37666)
10.14(b)
Second Amendment to PNK Master Lease, dated October 25, 2016, by and between Pinnacle MLS, LLC and Gold Merger Sub, LLC is hereby incorporated by reference to Exhibit 2.4 to Pinnacle Entertainment, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016. (SEC File No. 001-37666)
10.14(c)
Third Amendment to PNK Master Lease, dated March 24, 2017, by and between Pinnacle MLS, LLC and Gold Merger Sub, LLC is hereby incorporated by reference to Exhibit 10.1 to Pinnacle Entertainment, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017. (SEC File No. 001-37666)
10.14(d)††


Fourth Amendment to PNK Master Lease, dated as of October 15, 2018, by and between Pinnacle MLS, LLC and Gold Merger Sub, LLC is hereby incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 15, 2018. (SEC File No. 000-24206)
10.15
Guarantee of PNK Master Lease, dated as of October 15, 2018, by Penn National Gaming, Inc. party thereto as guarantors and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and letter of credit issuer. (Incorporatedis hereby incorporated by reference to Exhibit 10.210.7 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on April 29, 2015).

October 15, 2018. (SEC File No. 000-24206)

10.25(b)

10.16
Second Amendment and Refinancing Agreement, dated as of January 19, 2017, by and among Penn National Gaming, Inc., as borrower, the guarantors party thereto, the lenders party thereto, Bank of America, N.A., as swingline lender, Bank of America, N.A., as administrative agent and Bank of America, N.A., as collateral agent. (Incorporatedagent, is hereby incorporated by reference to Exhibit 10.2 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on January 20, 2017).

2017. (SEC File No. 000-24206)
10.26 

10.17
Amended and Restated Credit Agreement, dated as of January 19, 2017, 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, Bank of America, N.A., as collateral agent and the other parties thereto. (Incorporatedthereto, is hereby incorporated by reference to Exhibit 10.3 to the Company’s current reportCurrent Report on Form 8‑K,8-K, filed on January 20, 2017).

2017. (SEC File No. 000-24206)

Table of Contents


Exhibit

Exhibit
NumberDescription of Exhibit

10.27 10.18


Riverboat Gaming Development

First Amendment to Amended and Restated Credit Agreement between the City of Lawrenceburg, Indiana and Indiana Gaming Company, L.P. dated as of April 13, 1994,February 23, 2018, among Penn, certain subsidiaries of Penn party thereto as amended by Amendment Number One to Riverboat Development Agreement between the Cityguarantors, each consenting lender and Bank of Lawrenceburg, IndianaAmerica, N.A., as letter of credit lender, swingline lender, administrative agent and Indiana Gaming Company L.P., dated as of December 28, 1995. (Incorporated by reference to Argosy Gaming Company’s annual report on Form 10‑K for the fiscal year ended December 31, 1995).

10.28(a)

Second Amendment to Riverboat Gaming Development Agreement between City of Lawrenceburg, Indiana, and the Indiana Gaming Company, L.P. dated August 20, 1996. (Incorporatedcollateral agent is hereby incorporated by reference to Exhibit 10.23(a)10.1 to the Company’s annual reportCurrent Report on Form 10‑K for the fiscal year ended December 31, 2005).

8-K filed on February 28, 2018. (SEC File No. 000-24206)

10.28(b)

Third Amendment to Riverboat

10.19††


Incremental Joinder Agreement No. 1, dated as of October 15, 2018 by and among Penn National Gaming, Development Agreement between CityInc., certain subsidiaries of Lawrenceburg, Indiana,Penn National Gaming, Inc. party thereto as guarantors, Bank of America, N.A., as letter of credit lender, swingline lender, administrative agent and collateral agent and the Indiana Gaming Company, L.P. dated June 24, 2004. (Incorporatedlenders party thereto is hereby incorporated by reference to Exhibit 10.2 of Argosy Gaming10.1 to the Company’s quarterly reportCurrent Report on Form 10‑Q for the quarter ended September 30, 2004).

8-K filed on October 15, 2018. (SEC File No. 000-24206)
10.29 

10.20
Lottery Gaming Facility Management Contract dated August 25, 2009 between the Kansas Lottery and Kansas Entertainment, LLC. (IncorporatedLLC is hereby incorporated by reference to Exhibit 99.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on February 19, 2010).

2010. (SEC File No. 000-24206)
10.30 

Development Agreement

10.21
Commercial Lease dated as of September 8, 20099, 1996 by and between the Unified GovernmentState of Wyandotte County/Kansas City, KansasLouisiana, State Land Office and Kansas Entertainment, LLC. (IncorporatedPNK (Bossier City), Inc. (f/k/a Casino Magic of Louisiana, Corp.) is hereby incorporated by reference to Exhibit 99.210.23 to the Company’s current reportAmendment No. 4 to Registration Statement on Form 8‑K,10 filed on February 19, 2010).

March 17, 2016. (SEC File No. 001-37666)
10.31 

10.22
Second Amended and Restated Excursion Boat Sponsorship and Operations Agreement, dated April 7, 2006 byNovember 18, 2004, between Iowa West Racing Association and between PNGI Charles Town Gaming Limited Liability Company and the West Virginia Union of Mutuel Clerks, Local 553, Service Employees International Union, AFL—CIO. (Incorporated by reference to exhibit 10.1 to the Company’s current report on Form 8‑K, filed on April 24, 2006).

10.32 

Agreement dated February 20, 2009 between PNGI Charles Town Gaming Limited Liability Company and Charles Town HBPA,Ameristar Casino Council Bluffs, Inc. (Incorporatedis hereby incorporated by reference to Exhibit 10.1610.25 to the Company’s annual reportPinnacle Entertainment, Inc.’s Amendment No. 4 to Registration Statement on Form 10‑K10 filed on March 17, 2016. (SEC File No. 001-37666)

10.22(a)
Amendment to Second Amended and Restated Excursion Boat Sponsorship and Operations Agreement, dated February 16, 2010, between Iowa West Racing Association and Ameristar Casino Council Bluffs, Inc. is hereby incorporated by reference to Exhibit 10.26 to Pinnacle Entertainment, Inc.’s Amendment No. 4 to Registration Statement on Form 10 filed on March 17, 2016. (SEC File No. 001-37666)
10.22(b)
Second Amendment to Second Amended and Restated Excursion Boat Sponsorship and Operations Agreement, dated May 16, 2017, between Iowa West Racing Association and Ameristar Casino Council Bluffs, LLC is hereby incorporated by reference to Exhibit 10.33 to Pinnacle Entertainment, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008).

2017. (SEC File No. 001-37666)
10.33 

10.23††
Membership Interest Purchase Agreement and Plandated as of June 18, 2018, among VICI Properties Inc., Riverview Merger dated April 28, 2015, bySub Inc., Penn Tenant II, LLC and among Penn National Gaming, Inc., Tropicana Las Vegas Hotel and Casino, Inc., LV Merger Sub, Inc. and Trilliant Gaming Nevada Inc. (Incorporated is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8‑K,8-K filed on April 29, 2015).

June 19, 2018. (SEC File No. 000-24206)
10.34 

Stock Purchase Agreement, dated July 28, 2016, by and among Rocket Games, Inc., the sellers party thereto, Shareholder Representative Services LLC, as the representative of the sellers, and Penn Interactive Ventures, LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8 K, filed on August 3, 2016.)

10.35 21.1*


Revolving Credit and Term Loan Agreement, dated as of October 20, 2016, by and among the Jamul Indian Village Development Corporation, as borrower, the Jamul Indian Village of California, the Administrative Agent, the financial institutions from time to time party thereto in the capacity of lenders and the other agents and arrangers party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8 K, filed on October 20, 2016).

21.1*

Subsidiaries of the Registrant.

23.1*

23.1*
Consent of ErnstDeloitte & YoungTouche LLP, Independent Registered Public Accounting Firm.

31.1*

23.2*
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
31.1*
CEO Certification pursuant to rule 13a‑14(a)13a-14(a) or 15d‑14(a)15d-14(a) of the Securities Exchange Act of 1934.

31.2*

31.2*
CFO Certification pursuant to rule 13a‑14(a)13a-14(a) or 15d‑14(a)15d-14(a) of the Securities Exchange Act of 1934.

Table of Contents

Exhibit

Description of Exhibit

32.1*

*


CEO Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes‑ Oxley Act of 2002.

32.2*

32.2**
CFO Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes‑ Oxley Act of 2002.

99.1*

99.1*
Description of Governmental Regulation.

101 

Interactive data files pursuant to Rule 405 of Regulation S‑T: (i) the Consolidated Balance Sheets at December 31, 2016 and 2015, (ii) the Consolidated

99.2*
Kansas Entertainment, LLC Financial Statements of Operations for the years ended December 31, 2016, 2015Years Ended June 30, 2019, 2018 and 2014, (iii) the Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2016, 2015 and 2014, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 and (vi) the notes to the Consolidated Financial Statements, tagged as blocks of text.

2017.

#

Compensation plans and arrangements for executives and others.

Exhibit
NumberDescription of Exhibit
101.INS
Inline 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. 
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Inline XBRL File (included in Exhibit 101)
*
Filed herewith.
**
Furnished herewith.
***
Paper filing.
†
Management contract or compensatory plan or arrangement.
††
Annexes, schedules and/or exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Penn National Gaming, Inc. 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 Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

*

Filed herewith.

PENN NATIONAL GAMING, INC.
Dated:February 27, 2020By:  /s/ Jay A. Snowden
Jay A. Snowden
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SignatureTitleDate
/s/ Jay A. Snowden
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 27, 2020
Jay A. Snowden
/s/ William J. FairExecutive Vice President Finance and Chief Financial Officer (Principal Financial Officer)February 27, 2020
William J. Fair
/s/ Christine LaBombard
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
February 27, 2020
Christine LaBombard
/s/ David A. HandlerDirector, Chairman of the BoardFebruary 27, 2020
David A. Handler
/s/ John M. JacqueminDirectorFebruary 27, 2020
John M. Jacquemin
/s/ Ronald J. NaplesDirectorFebruary 27, 2020
Ronald J. Naples
/s/ Saul V. ReibsteinDirectorFebruary 27, 2020
Saul V. Reibstein
/s/ Barbara Z. Shattuck KohnDirectorFebruary 27, 2020
Barbara Z. Shattuck Kohn
/s/ Jane ScaccettiDirectorFebruary 27, 2020
Jane Scaccetti

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