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| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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Penn National Gaming, Inc.
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-2234473 | |
| (State or other jurisdiction of |
| (I.R.S. Employer |
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Registrant’s telephone number, including area code: (610) 373‑2400
| Title of each class | Trading symbol | Name of each exchange on which registered |
Common Stock, $0.01 par value | PENN | The NASDAQ Stock Market LLC |
(Title of Class)
None
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. ◻
Large accelerated filer ☒Accelerated filer ◻Non-accelerated filer ◻(Do not check if a smaller reporting company)
Smaller reporting company ◻Emerging growth company ◻
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
The28, 2019. As of February 21, 2020, the number of shares of the registrant’s common stock outstanding as of February 15, 2018 was 91,674,552.
116,864,066.
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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. In addition, forward-looking statements in this document include information regarding our proposed acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), the potential effects of the pending acquisition on our business and operations prior to the consummation thereof, the effects on Penn National Gaming, Inc. (“Penn”) and its subsidiaries (together with Penn, collectively, the “Company”) if the acquisition is not consummated and information regarding the combined operations and business of the Company and Pinnacle following the acquisition, if consummated. Specifically, forward‑looking statements may include, among others, statements concerning:
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Although the Company believes that the expectations reflected in such forward‑looking statements are reasonable, they are inherently subject to risks, uncertainties and assumptions about our subsidiaries and us. There can be no assurance that actual results will not differ materially from our expectations, 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:
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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
4
events discussed in this document may not occur.
Overview
Penn National Gaming, Inc. (“Penn”) and together with its subsidiaries, (collectively, the “Company,” “we,” “our”or “us”) is 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. For example, in 2015, we opened Plainridge Park Casino,We 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 (“Tropicana Las Vegas”) in Las Vegas, Nevada in August, and acquired Illinois Gaming Investors LLC (d/b/a Prairie State Gaming, (“Prairie State Gaming”) one of the largest video gaming terminal route operators in Illinois, in September.
In 2016, our subsidiary, Prairie State Gaming, acquired two small video gaming terminal route operators in Illinois. We have also recently implemented 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 portfolio 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.
Anticipated Acquisition of Pinnacle
On December 17, 2017, the Company entered into an agreement to acquire Pinnacle Entertainment, Inc., a leading regional gaming operator. This transaction,Illinois, which is expected to closehas since acquired four small VGT route operators based in the second half of 2018 (subject to receipt of all required regulatory approvals and the satisfaction of other conditions to closing), is expected to add eleven more properties to our holdings and to provide greater operational scale and geographic diversity.
Illinois.
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.
Master Lease
On November 1, 2013, the Company completed its plan to separate its gaming operating assets from its real property assets by creating a newly formed, publicly traded real estate investment trust (“REIT”), known as Gaming and Leisure Properties, Inc. (“GLPI”), through a tax free spin‑off (the “Spin‑Off”).
5
As a result of the Spin‑Off, GLPI owns substantially all of Penn’s former real property assets as of such date and leases back those assets (other than Hollywood Casino Baton Rouge and Hollywood Casino Perryville, the “TRS Properties”) to Penn for use by its subsidiaries, under a “triple net” master lease agreement (the “Master Lease”) (which has a fifteen‑year initial term that can be extended at Penn’s option for up to four five‑year renewal terms). Penn continues to operate the leased gaming facilities and holds the gaming licenses associated with these facilities. The TRS Properties were transferred to GLPI in connection with the Spin-Off and the financial results from these properties were included in discontinued operations for 2013.
As of December 31, 2017, the Company leased from GLPI real property assets associated with twenty of the Company’s gaming and related facilities used in the Company’s operations. The following 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 U.S. Securities and Exchange Commission. It was determined that the Master Lease did not meet the requirements of a normal leaseback under Accounting Standards Codification (“ASC”) 840 “Leases” due to prohibited forms of continuing involvement and is therefore accounted for as a financing obligation.
The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed component, a portion of which 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.
On May 1, 2017, following the acquisition of RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for the gaming operations of 1st Jackpot and Resorts in Tunica, Mississippi, an amendment to the Master Lease was entered into in order to add the two additional facilities. The Company is operating both of these casino properties and it leases the underlying real estate associated with these two businesses from GLPI with a total initial annual payment of $9.0 million subject to the provisions included in the terms of the Master Lease. The transaction increased the Company’s Master Lease financing obligation by $82.6 million on the acquisition date, which represents the purchase price GLPI paid for the underlying real estate assets.
The Master Lease is commonly known as a triple‑net lease. Accordingly, in addition to financing obligation payments,assets, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); 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,
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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. Iften-year term, with five subsequent, five-year renewal periods exercisable at the final five‑year renewal term would not causeCompany’s option.
We do not have the ability to terminate our obligations under the Master Lease prior to its expiration without GLPI’s consent. If the Master Lease is terminated prior to its expiration other than with GLPI’s consent, we may be liable for damages and incur charges such as continued lease payments through the end of the lease term and maintenance costs for the leased property.
Segment Information
The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), as that term is defined in ASC 280 “Segment Reporting”, measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations.
The Northeast reportable segment consists of the following properties: HollywoodMeadows Racetrack and Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, and Plainridge Park Casino. It also includes the Company’s Casino Rama management service contract.
The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, 1st Jackpot and Resorts which were acquired on May 1, 2017, as well as our management contract with Hollywood Casino Jamul-San Diego. In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.
The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on(the “Meadows Lease”), originally effective September 1, 2015, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.
The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31,9, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less than 2% of the Company’s total assets at December 31, 2017.
In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and believes it is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such
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projects. The Company defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicatorlandlord. Upon assumption of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measureMeadows Lease, there were eight years remaining of liquidity, or as any other measure of performance determined in accordancethe initial ten-year term, with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxesthree subsequent, five-year renewal options followed by one four-year renewal option on the same terms and debt principal repayments, which are not reflected in adjusted EBITDA.
See Note 15 to the consolidated financial statements for further information with respect toconditions, exercisable at the Company’s segments.
Properties
Penn National Gaming, Inc. owns, operates, or has ownership interestsoption.
Thethe Greektown Lease with VICI for the real estate assets used in the operations of Greektown. Both the MasterMargaritaville Lease properties describedand the Greektown Lease have initial terms of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.
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Master Lease Properties
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| Property |
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| Square |
| Gaming |
| Table |
| Hotel |
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| Location |
| Type of Facility |
| Footage(1) |
| Machines |
| Games(2) |
| Rooms |
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Hollywood Casino at Charles Town Races |
| Charles Town, WV |
| Land‑based gaming/Thoroughbred racing |
| 511,249 |
| 2,391 |
| 73 |
| 153 |
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Hollywood Casino Lawrenceburg |
| Lawrenceburg, IN |
| Dockside gaming |
| 634,000 |
| 1,711 |
| 63 |
| 295 |
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Hollywood Casino Toledo |
| Toledo, OH |
| Land‑based gaming |
| 285,335 |
| 2,043 |
| 51 |
| — |
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Hollywood Casino Columbus |
| Columbus, OH |
| Land‑based gaming |
| 354,075 |
| 2,237 |
| 64 |
| — |
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Hollywood Gaming at Dayton Raceway |
| Dayton, OH |
| Land‑based gaming/Harness racing |
| 191,037 |
| 1,015 |
| — |
| — |
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Hollywood Gaming at Mahoning Valley Race Course |
| Youngstown, OH |
| Land‑based gaming/Thoroughbred racing |
| 177,448 |
| 1,036 |
| — |
| — |
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Hollywood Casino St. Louis |
| Maryland Heights, MO |
| Dockside gaming |
| 645,270 |
| 2,003 |
| 63 |
| 502 |
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Hollywood Casino at Penn National Race Course |
| Grantville, PA |
| Land‑based gaming/Thoroughbred racing |
| 451,758 |
| 2,319 |
| 54 |
| — |
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M Resort |
| Henderson, NV |
| Land‑based gaming |
| 910,173 |
| 1,180 |
| 40 |
| 390 |
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Argosy Casino Riverside |
| Riverside, MO |
| Dockside gaming |
| 450,397 |
| 1,479 |
| 42 |
| 258 |
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Hollywood Casino Gulf Coast |
| Bay St. Louis, MS |
| Land‑based gaming |
| 425,920 |
| 1,016 |
| 21 |
| 291 |
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Hollywood Casino Tunica |
| Tunica, MS |
| Dockside gaming |
| 315,831 |
| 1,020 |
| 17 |
| 494 |
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1st Jackpot Casino (formerly known as Bally's Casino Tunica) |
| Tunica, MS |
| Dockside gaming |
| 78,941 |
| 900 |
| 16 |
| — |
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Resorts Casino Tunica |
| Tunica, MS |
| Dockside gaming |
| 319,823 |
| 805 |
| 7 |
| 201 |
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Hollywood Casino Aurora |
| Aurora, IL |
| Dockside gaming |
| 222,189 |
| 1,066 |
| 27 |
| — |
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Boomtown Biloxi |
| Biloxi, MS |
| Dockside gaming |
| 134,800 |
| 783 |
| 14 |
| — |
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Hollywood Casino Joliet |
| Joliet, IL |
| Dockside gaming |
| 322,446 |
| 1,100 |
| 18 |
| 100 |
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Hollywood Casino Bangor |
| Bangor, ME |
| Land‑based gaming/Harness racing |
| 257,085 |
| 739 |
| 14 |
| 152 |
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Argosy Casino Alton(3) |
| Alton, IL |
| Dockside gaming |
| 124,569 |
| 796 |
| 12 |
| — |
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Zia Park Casino |
| Hobbs, NM |
| Land‑based gaming/Thoroughbred racing |
| 193,645 |
| 734 |
| — |
| 154 |
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Total |
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| 7,005,991 |
| 26,373 |
| 596 |
| 2,990 |
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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, 2017:
Other Properties
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| Property |
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| Square |
| Gaming |
| Table |
| Hotel |
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| Location |
| Type of Facility |
| Footage(1) |
| Machines |
| Games(2) |
| Rooms |
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Owned Properties: |
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Hollywood Casino at Kansas Speedway(3) |
| Kansas City, KS |
| Land‑based gaming |
| 244,791 |
| 2,000 |
| 41 |
| — |
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Freehold Raceway(4) |
| Freehold, NJ |
| Standardbred racing |
| 132,865 |
| — |
| — |
| — |
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Sanford‑Orlando Kennel Club |
| Longwood, FL |
| Greyhound racing |
| 58,940 |
| — |
| — |
| — |
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Plainridge Park Casino |
| Plainville, MA |
| Land‑based gaming/Harness racing |
| 196,473 |
| 1,249 |
| — |
| — |
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Sam Houston Race Park(5) |
| Houston, TX |
| Thoroughbred racing |
| 283,383 |
| — |
| — |
| — |
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Valley Race Park(5) |
| Harlingen, TX |
| Greyhound racing |
| 91,000 |
| — |
| — |
| — |
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Tropicana Las Vegas |
| Las Vegas, NV |
| Land‑based gaming |
| 1,183,984 |
| 655 |
| 35 |
| 1,470 |
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Managed Property: |
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Casino Rama(6) |
| Orillia, Ontario |
| Land‑based gaming |
| 864,047 |
| 2,523 |
| 101 |
| 289 |
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Hollywood Casino Jamul - San Diego (7) |
| San Diego, CA |
| Land‑based gaming |
| 195,913 |
| 1,730 |
| 40 |
| — |
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VGT‑route Operations: |
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Prairie State Gaming |
| Illinois |
| Land‑based gaming |
| N/A |
| 1,715 |
| — |
| — |
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Total |
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| 3,251,396 |
| 9,872 |
| 217 |
| 1,759 |
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| 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 Chicago | East Chicago, IN | Pinnacle Master Lease | Dockside gaming | 70,000 | 1,790 | 85 | 288 | ||||||
| Greektown Casino-Hotel | Detroit, MI | Greektown Lease | Land-based gaming | 100,000 | 2,601 | 62 | 400 | ||||||
| Hollywood Casino Bangor | Bangor, ME | Penn Master Lease | Land-based gaming/racing | 31,750 | 726 | 14 | 152 | ||||||
| Hollywood Casino at Charles Town Races | Charles Town, WV | Penn Master Lease | Land-based gaming/racing | 115,000 | 2,292 | 74 | 153 | ||||||
| Hollywood Casino Columbus | Columbus, 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 Course | Grantville, PA | Penn Master Lease | Land-based gaming/racing | 99,500 | 2,002 | 79 | — | ||||||
| Hollywood Casino Toledo | Toledo, OH | Penn Master Lease | Land-based gaming | 125,000 | 2,041 | 69 | — | ||||||
| Hollywood Gaming at Dayton Raceway | Dayton, OH | Penn Master Lease | Land-based gaming/racing | 33,500 | 1,045 | — | — | ||||||
| Hollywood Gaming at Mahoning Valley Race Course | Youngstown, 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 Casino | Washington, PA | Meadows Lease | Land-based gaming/racing | 131,000 | 2,506 | 88 | — | ||||||
| Plainridge Park Casino | Plainville, 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 Vicksburg | Vicksburg, MS | Pinnacle Master Lease | Dockside gaming | 70,000 | 1,212 | 27 | 148 | ||||||
| Boomtown Biloxi | Biloxi, MS | Penn Master Lease | Dockside gaming | 35,500 | 653 | 19 | — | ||||||
| Boomtown Bossier City | Bossier City, LA | Pinnacle Master Lease | Dockside gaming | 30,000 | 726 | 16 | 187 | ||||||
| Boomtown New Orleans | New Orleans, LA | Pinnacle Master Lease | Dockside gaming | 30,000 | 1,156 | 31 | 150 | ||||||
| Hollywood Casino Gulf Coast | Bay St. Louis, MS | Penn Master Lease | Land-based gaming | 51,000 | 926 | 20 | 291 | ||||||
| Hollywood Casino Tunica | Tunica, MS | Penn Master Lease | Dockside gaming | 54,000 | 955 | 11 | 494 | ||||||
| L’Auberge Baton Rouge | Baton Rouge, LA | Pinnacle Master Lease | Dockside gaming | 71,500 | 1,406 | 49 | 205 | ||||||
| L’Auberge Lake Charles | Lake Charles, LA | Pinnacle Master Lease | Dockside gaming | 70,000 | 1,522 | 71 | 995 | ||||||
| Margaritaville Resort Casino | Bossier City, LA | Margaritaville Lease | Dockside gaming | 30,000 | 1,221 | 50 | 395 | ||||||
| West segment | |||||||||||||
| Ameristar Black Hawk | Black Hawk, CO | Pinnacle Master Lease | Land-based gaming | 56,000 | 1,240 | 40 | 536 | ||||||
| Cactus Petes and Horseshu | Jackpot, NV | Pinnacle Master Lease | Land-based gaming | 29,000 | 754 | 24 | 416 | ||||||
| M Resort | Henderson, NV | Penn Master Lease | Land-based gaming | 96,000 | 1,089 | 40 | 390 | ||||||
| Tropicana Las Vegas | Las Vegas, NV | Owned | Land-based gaming | 72,000 | 640 | 27 | 1,470 | ||||||
| Zia Park Casino | Hobbs, 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 Riverside | Riverside, MO | Penn Master Lease | Dockside gaming | 56,000 | 1,299 | 42 | 258 | ||||||
| Hollywood Casino Aurora | Aurora, IL | Penn Master Lease | Dockside gaming | 53,000 | 1,000 | 27 | — | ||||||
| Hollywood Casino Joliet | Joliet, 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. Louis | Maryland 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 Casino | St. 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 Club | Longwood, FL | Owned | Greyhound racing | — | — | — | — | ||||||
Valley Race Park (10) | Harlingen, TX | Owned - JV | Greyhound racing | — | — | — | — | ||||||
| 2,395,250 | 49,637 | 1,327 | 8,791 | ||||||||||
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| Excludes poker |
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| (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”) |
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| (8) | Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc. |
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| (9) | Pursuant to a management contract with Retama Development Corporation |
| (10) | Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”) |
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As mentioned above, we organize the properties we operate, manage and own, as applicable, into three segments, Northeast, South/West and Midwest. Below is a description of each of our properties by segment.
Northeast Properties
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.
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 Toledo
offers off-track wagering (“OTW”) at separate facilities located in York, Pennsylvania and Lancaster, Pennsylvania.
Hollywood Casino Columbus
Hollywood Casino Columbus is located in Columbus, Ohio and opened on October 8, 2012. Hollywood Casino Columbus is a Hollywood‑themed casino featuring 354,075 of property square footage with 2,237 slot machines, 64 table games and 36 poker tables. Hollywood Casino Columbus also includes multiple food and beverage outlets, an entertainment lounge, and structured and surface parking for 4,616 spaces.
Hollywood Gaming at Dayton Raceway
Hollywood Gaming at Mahoning Valley Race Course
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177,448 of property square footage with 1,036 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
Hollywood Casino Bangor, which
Plainridge Park Casino
separate facility in Pittsburgh.
Casino Rama
Through CHC Casinos Canada Limited (“CHC Casinos”), our indirectly wholly‑owned subsidiary, we manage Casino Rama, a full service gaming and entertainment facility, on behalf of the Ontario Lottery and Gaming Corporation (“OLG”), an agency of the Province of Ontario. Casino Ramaviewing, which is located on the lands of the Rama First Nation, approximately 90 miles north of Toronto. The property has 864,047 of property55,000 square footage with 2,523 gaming machines, 101 table games and 10 poker tables. In addition, the property includes a 5,000‑seat entertainment facility, a 289‑room hotel and 3,422 surface parking spaces.
The Development and Operating Agreement, which we refer to as the management service contract for Casino Rama, sets out the duties, rights and obligations of CHC Casinos and our indirectly wholly‑owned subsidiary, CRC Holdings, Inc. The compensation under the management service agreement is a base fee equal to 2.0% of gross revenues of the casino and an incentive fee equal to 5.0% of the casino’s net operating profit.
In June 2014, we signed an agreement to extend the Casino Rama Agreement on a month‑to‑month basis with a 60‑day notice period for up to a maximum period of forty‑eight months, ending September 30, 2018. The OLG is exploring bids for new operating contracts and privatization in Ontario, including at Casino Rama. As a result, we expect our management contract with the OLG to end shortly after June 30, 2018.
South/West Properties
M Resort
The M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated on approximately 90 acres on the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features 910,173 of property square footage with 1,180 slot machines and 40 table games. The M Resort also offers 390 guest rooms and suites, seven restaurants and six destination bars, more than 60,000 square feet of meeting and conference space, a 4,700 space parking facility, a spa and fitness center and a 100,000 square foot events piazza.
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Zia Park Casino
Zia Park Casino is located in Hobbs, New Mexico and includes a casino, as well as an adjoining racetrack. The property includes 193,645 of property square footage with 734 slot machines and two restaurants. The property has a one‑mile quarter/thoroughbred racetrack, with live racing from September to December, and a year‑round simulcast parlor. In August 2014, we opened a new hotel, which includes 148 rooms, six suites, a business center, exercise/fitness facilities and a breakfast venue.
Hollywood Casino Tunica
Hollywood Casino Tunica is located in Tunica, Mississippi. This single‑level property features 315,831 of property square footage with 1,020 slot machines, 17 table games and six poker tables. Hollywood Casino Tunica also has a 494‑room hotel and 123‑space recreational vehicle park. Entertainment amenities include a steakhouse, a buffet, a grill, an entertainment lounge, a premium players’ club, a themed bar facility, an indoor pool and showroom as well as banquet and meeting facilities. In addition, Hollywood Casino Tunica offers surface parking with 1,635 spaces.
1st1st Jackpot Casino, (formerly known as Bally’s Casino Tunica)
1st Jackpot Casino, the closest Tunica-area casino to downtown Memphis, Tennessee, features 78,941 of property square footage with 900 slot machines, and 16 table games, along with a steakhouse, a buffet, restaurant, 24-houra café, a sportsbook and a live entertainment venue.
Resorts Casino Tunica
Resorts Casino Tunica,
Hollywood Casino Gulf Coast
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 Biloxi
Boomtown Biloxi
fitness center, a Topgolf Swing Suite, and a 100,000 square foot event center.
The Company acquired Tropicana Las Vegas on August 25, 2015. Tropicana Las Vegas,
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1,100-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
Hollywood
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 1,066 slot machines, 27 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, 18 table games and three poker tables. The land‑based pavilion includes a steakhouse, a buffet and a sports bar. The casino barge includes a deli and VIP lounge. The complex also includes a 100‑room hotel, a 1,100 space parking garage, surface parking areas with approximately 1,500 spaces and an 80‑space recreational vehicle park. In total, the facility includes 322,446 of property square footage.
Argosy Casino Alton
meeting space.
Argosy Casino Riverside
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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.
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.
Hollywood Casino at Kansas Speedway,
Hollywood Casino St. Louis
Prairie State Gaming
The Company acquired Illinois Gaming Investors, LLC, d/b/a
Other Properties
Sanford‑Orlando Kennel Club
Sanford‑Orlando Kennel Club
over 10,000 square feet of conference space.
Raceway.
Through our joint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of Freehold15
Sam Houston Race Park and Valley Race Park
Park. Our joint venture with MAXXAM owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park, in Harlingen, Texas, and holds a license for a racetrack in Manor, Texas, just outside of Austin. Sam Houston Race Park, which is located 15 miles northwest from downtown Houston along Beltway 8. Sam Houston Race Park8, hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as hosts various special events, private parties and meetings, concerts and national touring festivals throughout the year. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility.
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 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.
receive all necessary regulatory approvals.
As partUSPTO.
Pursuant to a License Agreement with Boomtown, Inc., dated August 8, 2000, our subsidiary BTN, LLC (successor to BTN, Inc.) uses the “Boomtown” trademark.
The Company provides branding services with regards to the Hollywood Casino-branded gaming facility on the Jamul Tribe’s trust land in San Diego County, California pursuant to an Intellectual Property, License, Branding and Marketing Agreement dated April 3, 2013.
Effective as of November 1, 2015, the Company’s subsidiary, Hollywood Casinos, LLC, has a Trademark License Agreement with GLPI, pursuant to which GLPI has a license to use certain trademarks for use in connection with the Hollywood Casino Baton Rouge and Hollywood Casino Perryville facilities, which were contributed to GLPI in the Spin-Off.
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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 Louisiana and Pennsylvania; historical horse racing in certain states, such as Arkansas, Kentucky and 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, Pennsylvania, and Maryland),properties, have recently legalized, implemented and expanded or have plans to license additional gaming facilities, video gaming terminals and other gaming offerings in the near future.gaming. In addition, moreestablished gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations. New, relocated or expanded operations by other companies will increase competition for our gaming operations(including VGTs, skill games, sports betting and could have a material adverse impactiGaming). Competition is discussed in further detail within “Item 1A. Risk Factors,” 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 racetracks and off-track wagering facilities (“OTWs”), some of which also offer other forms of gaming, as well as other gaming venues such as casinos and historic racing. Additionally, for a number of years, there has been a general decline in the number of people attending and wagering on live horse races at North American racetracks due to a number of factors, including increased competition from other wagering and entertainment alternatives and unwillingness of customers to travel a significant distance to racetracks. Our account wagering operations compete with large providers of such services throughout the country. We also face competition in the future from new OTWs, new racetracks, historic racing, or new providers of account wagering. From time to time, states consider legislation to permit other forms of gaming. If additional gaming opportunities become available near our racing operations, such gaming opportunities could have an adverse effect on our business, financial condition and results of operations.
Northeast. Hollywood Casino at Charles Town Races has been and will continue to be negatively impacted by competition in the Baltimore, Maryland market, which includes Maryland Live! and Horseshoe Casino Baltimore. Maryland Live!, a casino complex at the Arundel Mills mall in Anne Arundel, Maryland, opened in June 2012 and Horseshoe Casino Baltimore opened at the end of August 2014. Both of these facilities are substantial in nature, as Maryland Live! Has approximately 4,000 slot machines, over 200 table games and various food and beverage offerings whereas Horseshoe Baltimore has 2,200 slot machines and 180 table games. In December 2013, the sixth casino license for Maryland in Prince George’s County was granted to MGM. In December 2016, MGM National Harbor casino and resort opened featuring 3,300 slot machines and 124 table games and has had an adverse impact our financial results, as it has created additional competition for Hollywood Casino at Charles Town Races.
In November 2011, the Expanded Gaming Act was signed into law in Massachusetts, which allows up to three destination resort casinos located in three geographically diverse regions across the stateForm 10-K and a single slots facility for one location statewide. In February 2014, the Massachusetts Gaming Commission awarded us the slots‑only gaming license and in June 2015, we opened Plainridge Park Casino in Plainville. The licenses for twodiscussion of three casino resorts have been awarded with the remaining license in Southeastern Massachusetts still open. MGM Springfield in Western Massachusetts is expected to be completed in September 2018 and Wynn Everett in the Boston Area is scheduled to open in mid-2019. Construction of a tribal casino in Taunton, Massachusetts, which was expected to open in 2017, is currently on hold following a judicial opinion issued during the third quarter of 2016 regarding the validity of the Tribe’s land in trust. In addition, a proposal to relocate the Newport Casino license to Tiverton, Rhode Island, near the Massachusetts border, was approved by local and statewide voters in November 2016. The proposal calls for a $75 million casino featuring 1,000 slot machines, 32 table games and an 84 room hotel. The increased competition in
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Massachusetts will have a negative impact on the operations of Plainridge Park Casino; however, we anticipate that it will be the sole gaming facility in Massachusetts until at the least third quarter of 2018.
In Ohio, voters passed a referendum in 2009 to allow four land‑based casinos in four cities, one of which was in downtown Cincinnati, which is the primary feeder market for our Hollywood Casino Lawrenceburg property. The Cincinnati casino opened in March 2013 and has had and will likely continue to have an adverse impact on Hollywood Casino Lawrenceburg. However, this referendum also resulted in the Company operating two of the four land‑based casinos. We opened Hollywood Casino Toledo in May 2012 and Hollywood Casino Columbus in October 2012. Additionally, the State of Ohio approved the placement of video lottery terminals at the state’s seven racetracks. In June 2012, a new racino at Scioto Downs in Columbus, Ohio opened, which has had a negative impact on Hollywood Casino Lawrenceburg’s financial results and competes aggressively in the same market as Hollywood Casino Columbus. In addition, a racino at Miami Valley Gaming opened in mid‑December 2013, and a racino at Belterra Park 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 in August 2014 and Hollywood Gaming at Mahoning Valley Race Course opening in September 2014. As a result, in a relatively short period of time, Ohio has gone from having no gaming facilities to having four casinos and seven video lottery terminal facilities. In addition, we continue to fight illegal gaming operations, such as internet sweepstakes.
In addition, legislators in Kentucky regularly consider new gaming legislation. The commencement of gaming in Kentucky would negatively impact certain of our existing properties in the Northeast segment. In October 2017, Pennsylvania enacted gaming expansion legislation that authorized licenses for up to ten new category 4 satellite casinos, VGTs at truck stops, online gaming, and other gaming offerings. The new casinos will have the ability to operate between 300 and 750 slot machines and between 30 and 40 table games. Only Pennsylvania’s existing gaming operators may initially participate in the auctions for these new casinos, with a preference given to the category 1 and category 2 license holders in the first round ending July 31, 2018. On January 10, 2018, Penn was awarded the first category 4 satellite casino license to be located in York County, which will compete with our Hollywood Casino at Penn National Race Course facility. On February 8, 2018, the third category 4 satellite casino license was awarded in Lawrence County which is expected to compete with and have an adverse impact on our existing Hollywood Gaming at Mahoning Valley Race Course facility in Austintown, Ohio. On February 22, 2018, the fourth category 4 satellite casino license was awarded in Cumberland County which is expected to compete with and have an adverse impact on our Hollywood Casino at Penn National Race Course facility in Grantville, Pennsylvania. Depending on how many of the ten satellite casino licenses are ultimately issued, and the final locations, size and scope of these satellite casinos, and the impact of VGT’s at truck stops and online gaming offerings, there may be additional negative impactscompetition on our existing facilities in the Northeast segment.
South/West. Our South/West segment contains our M Resort and Tropicana Las Vegas properties and Hollywood Casino Jamul- San Diego, which we operate under our management contract with the Jamul Tribe. M Resort and Tropicana Las Vegas compete directly with other Las Vegas hotels, resorts, and casinos, including those located on the Las Vegas Strip, on the basis of overall atmosphere, range of amenities, level of service, price, location, entertainment offered, convention and meeting facilities, shopping and restaurant facilities, theme, and size. In addition, a substantial number of customers are drawn from geographic areas outside of Las Vegas, particularly California and Arizona. Specifically, in California, we expect Hollywood Casino Jamul – San Diego to continue to experience significant competition from nearby casinos operated on Native American lands, which could negatively impact their results as well as the Las Vegas market. In the Mississippi Gulf Coast market, a casino in D’Iberville, Mississippi opened in December 2015, which has had an adverse effect on the financial results of our Boomtown Biloxi property.
Midwest. In Illinois, there have been perennial gaming expansion proposals introduced in the legislature, which we expect to continue. In October 2012, video gambling in Illinois was officially launched with the first locations being allowed to operate VGTs. Currently, there are over 22,000 terminals at numerous locations throughout the state, which has had a negative impactoperations and cash flows is included within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report on our casinos near or in Illinois. In September 2015, we purchased Prairie StateForm 10-K.
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Illinois also continues to discuss the viability of gaming expansion in the state through a potential combination of additional riverboat operations, land-based casinos and slots at racetracks. In addition, legislators in Indiana and Missouri are currently considering VGT legislation. The commencement of gaming in Indiana and Missouri or the expansion of gaming in Illinois would negatively impact certain of our existing properties in the Midwest segment. In addition, there is a proposal to reopen a race track with slot machines at the Woodlands in Wyandotte County, which could have an adverse effect on the financial results of Hollywood Casino at Kansas Speedway.
U.S. and Foreign Revenues
Our net revenues in the U.S. for 2017, 2016, and 2015 were approximately $3,136.4 million, $3,023.2 million, and $2,828.1 million, respectively. Our revenues from operations in Canada for 2017, 2016, and 2015 were approximately $11.6 million, $11.2 million, and $10.3 million, respectively.
Management
The persons listed below represent executive officers of the Company.
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Timothy J. Wilmott. Mr. Wilmott joined us in February 2008 as President and Chief Operating Officer and was named Chief Executive Officer on November 1, 2013. In addition, in September 2014, Mr. Wilmott was appointed to the Board of Directors. Previously, Mr. Wilmott served as Chief Operating Officer of Harrah’s Entertainment, a position he held for approximately four years. In this position, he oversaw the operations of all of Harrah’s revenue‑generating businesses, including 48 casinos, 38,000 hotel rooms and 300 restaurants. All Harrah’s Division Presidents, Senior Vice Presidents of Brand Operations, Marketing and Information Technology personnel reported to Mr. Wilmott in his capacity as Chief Operating Officer. Prior to his appointment to the position of Chief Operating Officer, Mr. Wilmott served from 1997 to 2002 as Division President of Harrah’s Eastern Division with responsibility for the operations of eight Harrah’s properties.
Jay Snowden. Mr. Snowden is currently our President and Chief Operating Officer. Mr. Snowden joined us in October 2011 as Senior Vice President‑Regional Operations, became our Chief Operating Officer in January 2014, and became our President and Chief Operating Officer in March 2017. Mr. Snowden is responsible for overseeing all of our operating businesses, as well as human resources, marketing, and information technology. Prior to joining us, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic City, and prior to that, held various leadership positions with them in St. Louis, San Diego and Las Vegas.
William J. Fair. Mr. Fair is currently our Executive Vice President and Chief Financial Officer. In January 2014, Mr. Fair joined us as Senior Vice President and Chief Development Officer and became our Executive Vice President and Chief Financial Officer in January 2017. Previously, Mr. Fair worked in development leadership positions for Universal Studios and Disney Development. Most recently, Mr. Fair was the President and Chief Executive Officer of the American Skiing Company, where he had oversight of ten ski mountain resorts which included ski operations, nine hotels, condominium operations, food and beverage operations, retail and rental operations, real estate brokerage and development.
Carl Sottosanti. Mr. Sottosanti is currently our Executive Vice President, General Counsel and Secretary. In February 2014, Mr. Sottosanti was appointed to the position of Senior Vice President and General Counsel and became
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Secretary in November 2014. Prior to this appointment, Mr. Sottosanti served as Vice President, Deputy General Counsel since 2003. Before joining the Company, Mr. Sottosanti served for five years as General Counsel at publicly traded, Sanchez Computer Associates, Inc. and had oversight of all legal, compliance and intellectual property matters. From 1994 to 1998, Mr. Sottosanti was the Assistant General Counsel for Salient 3 Communications, Inc., a publicly traded telecommunications company. Mr. Sottosanti began his legal career in 1989 with the Philadelphia law firm Schnader, Harrison, Segal & Lewis LLP.
Governmental Regulations
The gaming and racing industries are highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our facilitiesproperties is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions. AFor a more detailed description of the statutes and regulations to which we are subject, is contained in see Exhibit 99.1, “Description of Government Regulations,” to this Annual Report on Form 10‑K,10-K, which is incorporated herein by reference.
| NAME | AGE | POSITION WITH THE COMPANY | ||
| Jay Snowden | 43 | President and Chief Executive Officer | ||
| William J. Fair | 57 | Executive Vice President and Chief Financial Officer | ||
| Carl Sottosanti | 55 | Executive Vice President, General Counsel and Secretary | ||
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.
The Company is required to have agreements with the horsemen at the majority As of its racetracks to conduct its live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari‑mutuel clerks and breeders.
At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles Town Races also renewed an agreement with the breeders that expires on June 30, 2018. Additionally, the pari‑mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month‑to‑month basis.
The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January2019, we had 31 2019. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff, which expired in December 2016. A new contract was negotiated and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.
The Company’s agreement with the Maine Harness Horsemen Association at Bangor Raceway continues through the conclusion of the 2018 racing season.
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In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September 2014 commencement of video lottery terminal operations at that facility.
In September 2015, Hollywood Gaming at Dayton Raceway entered into an agreement with the Ohio Harness Horsemen’s Association for racing at the property. The term is for a period of ten years from the September 2015 effective date.
In January 2014, the Company entered into an agreement with the Harness Horsemen’s Association of New England at Plainridge Park Casino which remains in effect through December 31, 2018.
Across certain of the Company’s properties, Seafarers Entertainment and Allied Trade Union (“SEATU”) represents approximately 1,670 of the Company’s employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.
SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton, Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018 (which is currently being negotiated), Hollywood Casino Lawrenceburg has a wage reopener in June 2018, Hollywood Casino Kansas Speedway has a wage reopener in July 2018 and Hollywood Casino Joliet and Plainridge Park Casino have a wage reopener in November 2018; the remainder of the SEATU agreements have expiration dates in 2019 and beyond.
At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents approximately 167 employees under a collective bargaining agreement which expires on March 31, 2019. At Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and the United Steel Workers represents approximately 1,271 employees under a collective bargaining agreement which ends on November 15, 2019.
On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which had seven existing collective bargaining agreements with the following unions: (1) Culinary & Bartenders (expires on May 31, 2018), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical Workers (expires on February 28, 2021), (4) International Alliance of Theatrical Stage Employees (expires on December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7) Teamsters (front and back of the house, both expire on March 31, 2018).
The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego, which the Company opened on October 10, 2016. Unite Here! International Union and Local 30 represents employees in stewarding, facilities, food and beverage, and operations classifications, and the parties are in the process of negotiating their firstcovering approximately 5,900 employees. Seven collective bargaining agreement.
In addition, at some of the Company’s properties, the Security Policeagreements are scheduled to expire in 2020, and Fire Professionals of America, the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local 1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel Workers represent certain of the Company’s employees underwe are currently renegotiating three collective bargaining agreements that expire at various times between April 2018expired in 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
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.
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Annual Report on Form 10‑K.10-K. Our electronic filings with the U.S. Securities and Exchange Commission (“SEC”) (including all Annual Reports on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q,10-Q, and Current Reports on Form 8‑K,8-K, and any amendments to these reports), including the exhibits, are available free of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.
Our filings are also available through a database maintained by the SEC at www.sec.gov.
| ITEM 1A. | RISK FACTORS |
cash flows.
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operations.Illinois. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions. Pennsylvania recentlyalso enacted legislation that willin October 2017 to significantly expand gaming in the state which will causethat causes additional competition for Hollywood Casino at Penn National Race Course, and Hollywood Gaming at Mahoning Valley Race Course.Course, and Meadows Racetrack and Casino. In addition, Indiana legislators approved a bill that allows new casinos in 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.
Weoperations and cash flows.
such acquisition.
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We face a number of challenges prior to opening new or upgraded gaming facilities.
properties.
operations and cash flows.
| 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. |
operations and cash flows.
operations and cash flows.
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obligations under the Master LeaseTriple Net Leases in the future. In addition, if GLPIone of our landlords has financial, operational, regulatory
The Master Lease is commonly known as a triple‑
operations and cash flows.
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.
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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 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
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 bannedby DOJ is presently the subject of ongoing litigation.
Taxation and fees.
Complianceresults, especially in light of our significant fixed rent payments.
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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.
| 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; |
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| the occurrence of natural disasters or other adverse regional weather trends. |
condition and results of operations.
We depend on our key personnel.
Weoperations and cash flows.
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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.
affected.
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.
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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.
operations and cash flows.
We depend on agreements with our horsemen and pari‑mutuel clerks
The Federal Interstate Horseracing Act of 1978, as amended, the West Virginia Race Horse Industry Reform Act and the Pennsylvania Racing Act require that, in order to simulcast races, we have certain agreements with the horse owners and trainers at our West Virginia and Pennsylvania racetracks. In addition, West Virginia requires applicants seeking to renew their gaming license to demonstrate they have an agreement regarding the proceeds of the gaming machines with a representative of a majority of the horse owners and trainers, a representative of a majority of the pari-mutuel clerks and a representative of a majority of the horse breeders.
At Hollywood Casino at Charles Town Races, we have an agreement with the Charles Town Horsemen’s Benevolent and Protective Association through June 18, 2018. Additionally, the pari-mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month-to-month basis.
The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract was negotiated and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.
Our agreement with the Maine Harness Horsemen Association at Bangor Raceway is in effect through the
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conclusion of the 2018 racing season. In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September 2014 commencement of video lottery terminal operations at that facility. Hollywood Gaming at Dayton Raceway entered into a ten-year agreement with the Ohio Harness Horsemen’s Association for racing at Hollywood Gaming at Dayton Raceway in September of 2015. In January 2014 Plainridge Park Casino entered into an agreement with the Harness Horsemen’s Association of New England which expires December 31, 2018.
In certain jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an agreement with the horsemen at a track, we may not be permitted to conduct live racing and export and import simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed. In addition, our annual simulcast export agreements are subject to the horsemen’s approval under the Federal Interstate Horseracing Act of 1978, as amended. Some simulcast import agreements require horsemen approval depending on state law. If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on our business, financial condition and results of operations
A deterioration in the performance of the Jamul Tribal facility could result in additional charges on our loan that we extended to the Jamul Indian Village Development Corporation.
We have made substantial loans to the Jamul Indian Village Development Corporation (“JIVDC”), an instrumentality of the Jamul Tribe, for the construction, development, equipment and operations of the Hollywood Casino Jamul-San Diego. Our subsidiary, San Diego Gaming Ventures, LLC (“SDGV”), provided a $98 million term loan C facility to the project. Furthermore, we provided additional delayed draw term loans and a limited completion guarantee for certain post-opening construction costs related to roadway improvements. As of December 31, 2017, these future funding commitments total approximately $29 million. All of our loans and any future funding obligations are subordinated to the other substantial debt on the property. Our only material recourse for collection of indebtedness from the JIVDC or for money damages for breach or wrongful termination of a management, development, consulting or financing agreement is from positive cash flow, if any, from casino operations or from the sale of our loan to a third party. Penn recorded charges of $89.8 million related to the loan and related loan commitments in 2017. We may realize little or no value for our loan which could result in additional charges of up to $27.9 million which represents our loan and loan commitments net of reserves at December 31, 2017. Additionally, we may incur unexpected costs related to the termination and transition of our management contract with the Jamul Tribe.
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Our planned capital expenditures may not result in our expected improvements in our business.
and cash flows.
We have announced several initiatives in the social gaming space, including the 2016 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, Zynga and slot manufacturers. Given the open nature of the development and distribution of games for electronic devices, our business will also compete with developers and distributors who are able to create and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. We have limited experience
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operating in this rapidly evolving marketplace and may not be able to compete effectively.
In addition, our ability to be successful with our social gaming platform is dependent on numerous factors beyond our control that affect the social and mobile gaming industry and the online gaming industry in the United States, including the occurrence and manner of legalization of online real money gaming in the United States beyond Nevada, Delaware and New Jersey; changes to the policies of social gaming distribution channels, including Apple and Google, changes in consumer demographics and public tastes and preferences; changing laws and regulations affecting social and mobile games; the reaction of regulatory bodies to social gaming initiatives by holders of gaming licenses; the availability and popularity of other forms of entertainment; any challenges to the intellectual property rights underlying our games; and outages and disruptions of our online services that may harm our business.
Our social gaming initiatives will result in increased operating expense and increased time and attention from our management. In addition, we may be particularly dependent on key personnel in our interactive business unit. We believe our social games are complementary to our current operations and offer additional avenues of access and interaction for our customers, and, the social gaming business depends on developing and publishing games that consumers will download and spend time and money on consistently. We continue to invest in research and development, analytics and marketing to attract and retain customers for our social games. Our success depends, in part, on unpredictable factors beyond our control, including consumer preferences, competing games and other forms of entertainment, and the emergence of new platforms. Our inability to ultimately monetize our investment in social gaming initiatives could have a material adverse effectgenerate sufficient returns on our business and results of operations.
investment.
On
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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.
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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.
Risks Related to the Anticipated Acquisition of Pinnacle
The transactions contemplated by the merger agreement with Pinnacle
Completioncertify all of our proposed acquisitioncasino 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 Pinnacle isthe gaming facilities on which we operate were not in compliance with one or more of these regulations.
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We will be subject to business uncertainties while our proposed acquisition of Pinnacle and related transaction with Boyd and GLPI are pending, which could adversely affect our business.
It is possible that certain persons with whom we have a business relationship may delay or defer business decisions or might decide to seek to terminate, change or renegotiate their relationships with us as a result of the transactions contemplated by the merger agreement with Pinnacle and related agreements with Boyd and GLPI, which could negatively affect our revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the proposed transactions are completed.
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In addition, under the terms of the merger agreement, we are subject to certain restrictions on the conduct of our business prior to the closing, which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to acquire or dispose of assets or repurchase shares of our common stock. Such limitationsa substantial penalty, it could negatively affect our business and operations prior to the completion of the transactions contemplated by the merger agreement.
If our proposed acquisition of Pinnacle and related transactions with Boyd and GLPI are completed, we may not achieve the intended benefits and the transactions may disrupt our current plans or operations.
There can be no assurance that we will be able to successfully integrate Pinnacle’s assets or otherwise realize the expected benefits of the acquisition and related transactions with Boyd and GLPI. In addition, the merger is not subject tohave a financing condition, which means that we would be required to complete the merger even if financing is not available or is available only on terms other than those currently anticipated. Our inability to finance the acquisition on attractive terms could result in increased costs, dilution to our shareholders and/or have anmaterial adverse effect on our financial condition, results of operations orand cash flows.
debt. We cannot assure you that we will be able to refinance any of our debt, including our 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.
Spin-Off
If the Spin‑OffSpin-Off fails to qualify for tax‑freetax-free treatment, in general, we would be subject to tax as if we had sold the GLPI common stock in a taxable sale for its fair market value.
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subject to substantial liabilities and there can be no assurance that GLPI will be able to satisfy such indemnification obligations.
On September 27, 2017, the Internal Revenue ServiceIRS finalized the audit examination of the 2013 U.S. federal income tax return with no adjustments related to the spin-off transactionSpin-Off including the tax-free treatment. Although the 2013 examination is finalized, the statute of limitation was extended to June 30, 2018.
Peter M. Carlino, our Chairman, and David A. Handler, one of our directors, may have actual or potential conflicts of interest because of their positions at GLPI.
Peter M. Carlino serves as our Chairman and as the Chairman and Chief Executive Officer of GLPI. In addition, David A. Handler, one of our directors, is also a director of GLPI. While we have procedures in place to address such situations, these overlapping positions could create, or appear to create, potential conflicts of interest when our or GLPI’s management and directors pursue the same corporate opportunities, such as greenfield development opportunities or potential acquisition targets, or face decisions that could have different implications for us and GLPI. Further, potential conflicts of interest could arise in connection with the resolution of any dispute between us and GLPI (or its subsidiaries) regarding the terms of the agreements governing the separation and the relationship, between us and GLPI, such as under the Master Lease. Potential conflicts of interest could also arise if we and GLPI enter into any commercial or other adverse arrangements with each other in the future.
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be(ii) subject to a penalty on the portion deemed excessive, each of which could have a material adverse effect on our business, financial position orcondition, results of operations. In addition,operations and cash flows. Also, our shareholders would be deemed to have received a distribution that was then contributed to the capital of GLPI.
Risks Related
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
| ITEM 2. | PROPERTIES |
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.
We have a substantial amount of indebtedness and a significant fixed annual lease payment to GLPI which will increase upon the closingleases of the merger with Pinnacle. Our substantial indebtedness and additional fixed costs via our Master Lease obligation could have important consequences to our financial health. For example, it could:
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Any of the above listed factors could have a material adverse effect on our business, financial condition and results of operations. The terms of our debt do not, and any future debt may not, fully prohibit us from incurring additional debt, including debt related to facilities we develop or acquire. If new debt is added to our current debt levels, the related risks that we now face could intensify.
Volatility and disruption of the capital and credit markets and adverse changes in the global economy may negatively impact our revenues and our ability to access favorable financing terms.
While we intend to finance expansion and renovation projects with existing cash, cash flow from operations and borrowings under our senior secured credit facility, we may require additional financing to support our continued growth. However, depending on then current economic or capital market conditions, our access to capital may not be available on terms acceptable to us or at all. Further, if adverse regional and national economic conditions persist or
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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 facility and equity or debt financings. We are required by the Master Lease to, in the case of certain expansion projects, or may choose, in the case of other development projects, provide GLPI the right to provide the financing needed for such purposes. Depending on the 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.
The capacity under our revolving credit facility, which expires in 2022, has increased to $700 million via a bank group that is comprised of 12 large financial institutions with the top six institutions providing approximately 71% of the facility. If a large percentage of our lenders were to file for bankruptcy or otherwise default on their obligations to us, we could experience decreased levels of liquidity which could have a detrimental impact on our operations. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our senior secured credit facility.
Our indebtedness imposes restrictive covenants on us that could limit our operations and lead to events of default if we do not comply with those covenants.
Our senior secured credit facility requires us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage, senior secured net leverage and total net leverage ratios. In addition, our credit facility restricts, among other things, our ability to incur additional indebtedness, incur guarantee obligations, repay certain other indebtedness or amend debt instruments, pay dividends, create liens on our assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiariesincludes the land underlying the facility and affiliates or otherwise restrict corporate activities. In addition, the indenture governing our senior unsecured notes restricts, among other things, our ability to incur additional indebtedness (excluding certain indebtedness under our credit facility), issue certain preferred stock, pay dividends or distributions on our capital stock or repurchase our capital stock, make certain investments, create liens on our assets to secure certain debt, enter into transactions with affiliates, merge or consolidate with another company, transfer and sell assets and designate our subsidiaries as unrestricted subsidiaries. A failure to comply with the restrictions containedbuildings used in the documentation governing any of our indebtedness, terminationoperations of the Master Lease (subject to certain exceptions) orcasino and the occurrence of certain defaults under the Master Lease could lead to an event of default thereunder that could result in an acceleration of such indebtedness. Such acceleration would likely constitute an event of default under our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.
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To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility in amounts sufficient to enable us to fund our liquidity needs, including with respect to our indebtedness. We also may incur indebtedness related to facilities we develop or acquire in the future prior to generating cash flow from those facilities. If those facilities do not provide us with cash flow to service that indebtedness, we will need to rely on cash flow from our other properties, which would increase our leverage. In addition,hotel, if we consummate significant acquisitions in the future, our cash requirements may increase significantly. As we are required to satisfy amortization requirements under our senior secured credit facility or as other debt matures, we may also need to raise funds to refinance all or a portion of our debt. We cannot assure you that we will be able to refinance any of our debt, including our senior secured credit facility, on attractive terms, commercially reasonable terms or at all. Our future operating performance and our ability to service, extend or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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 Chicago | East Chicago, IN | — | — | Land, buildings, boat | 22 | ||||
| Greektown Casino-Hotel | Detroit, MI | — | — | Land, buildings | 8 | ||||
| Hollywood Casino Bangor | Bangor, ME | — | — | Land, racetrack, buildings | 44 | ||||
| Hollywood Casino at Charles Town Races | Charles Town and Ranson, WV | — | — | Land, racetrack, buildings | 299 | ||||
| Hollywood Casino Columbus | Columbus, OH | — | — | Land, buildings | 116 | ||||
| Hollywood Casino Lawrenceburg | Lawrenceburg, IN | Land, buildings | 3 | Land, buildings, boat | 105 | ||||
| Hollywood Casino at Penn National Race Course | Grantville, PA | — | — | Land (1), racetrack, buildings | 574 | ||||
| Hollywood Casino Toledo | Toledo, OH | — | — | Land, buildings | 42 | ||||
| Hollywood Gaming at Dayton Raceway | Dayton, OH | — | — | Land, racetrack, buildings | 120 | ||||
| Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | — | — | Land, racetrack, buildings | 193 | ||||
| Meadows Racetrack and Casino | Washington, PA | — | — | Land, racetrack, buildings | 156 | ||||
| Plainridge Park Casino | Plainville, MA | — | — | Land, racetrack, buildings | 88 | ||||
| South segment | |||||||||
1st Jackpot Casino | Tunica, MS | — | — | Land (2), buildings, boat | 147 | ||||
| Ameristar Vicksburg | Vicksburg, MS | — | — | Land, buildings, boat | 74 | ||||
| Boomtown Biloxi | Biloxi, MS | — | — | Land (3), buildings, boat | 26 | ||||
| Boomtown Bossier City | Bossier City, LA | — | — | Land, buildings, boat | 22 | ||||
| Boomtown New Orleans | New Orleans, LA | — | — | Land, buildings, boat | 54 | ||||
| Hollywood Casino Gulf Coast | Bay St. Louis, MS | — | — | Land, buildings | 579 | ||||
| Hollywood Casino Tunica | Tunica, MS | — | — | Land, buildings, boat | 68 | ||||
| L’Auberge Baton Rouge | Baton Rouge, LA | Undeveloped land | 478 | Land, buildings, barge | 99 | ||||
| L’Auberge Lake Charles | Lake Charles, LA | Undeveloped land | 54 | Land, buildings, barge | 235 | ||||
| Margaritaville Resort Casino | Bossier City, LA | — | — | Land, buildings, barge | 34 | ||||
Resorts Casino Tunica (4) | Tunica, MS | — | — | Land, buildings, boat | 87 | ||||
| West segment | |||||||||
| Ameristar Black Hawk | Black Hawk, CO | — | — | Land, buildings | 104 | ||||
| Cactus Petes and Horseshu | Jackpot, NV | — | — | Land, buildings | 80 | ||||
| M Resort | Henderson, NV | — | — | Land, buildings | 84 | ||||
| Tropicana Las Vegas | Las Vegas, NV | Land, buildings | 35 | — | — | ||||
| Zia Park Casino | Hobbs, NM | — | — | Land, racetrack, buildings | 317 | ||||
| Midwest segment | |||||||||
| Ameristar Council Bluffs | Council Bluffs, IA | — | — | Land, buildings, boat | 59 | ||||
| Argosy Casino Alton | Alton, IL | Boat | — | Land, buildings | 4 | ||||
| Argosy Casino Riverside | Riverside, MO | — | — | Land (5), buildings, barge | 45 | ||||
| Hollywood Casino Aurora | Aurora, IL | — | — | Land, buildings, barge | 2 | ||||
| Hollywood Casino Joliet | Joliet, IL | — | — | Land, buildings, barge | 276 | ||||
| Hollywood Casino at Kansas Speedway | Kansas City, KS | Land, buildings | 101 | — | — | ||||
| Hollywood Casino St. Louis | Maryland Heights, MO | — | — | Land, buildings, barge | 221 | ||||
| River City Casino | St. Louis, MO | — | — | Land (6), buildings, barge | 83 | ||||
| Other | |||||||||
| Freehold Raceway | Freehold, NJ | Land, racetrack, buildings | 51 | — | — | ||||
| Cherry Hill, NJ | Undeveloped land | 10 | — | — | |||||
Retama Park Racetrack (7) | Selma, TX | Undeveloped land | 28 | — | — | ||||
| Sam Houston Race Park | Houston, TX | Land, racetrack, buildings | 168 | — | — | ||||
| Sanford-Orlando Kennel Club | Longwood, FL | Land, racetrack, buildings | 26 | — | — | ||||
| Valley Race Park | Harlingen, 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. |
Hollywood Casino at Penn National Race Course. We lease approximately 574 acres in Grantville, Pennsylvania, where Penn National Race Course is located on approximately 181 acres. The facility includes a one‑mile all‑weather lighted thoroughbred racetrack and a 7/8‑mile turf track, a parking garage and surface parking spaces. The property also includes approximately 393 acres surrounding the Penn National Race Course that are available for future expansion or development.
Hollywood Casino Toledo. We lease approximately 44‑acres in Toledo, Ohio, where we opened Hollywood Casino Toledo on May 29, 2012. The property includes the casino as well as structured and surface parking.
Hollywood Casino Columbus. We lease approximately 116 acres of land in Columbus, Ohio, where we opened Hollywood Casino Columbus on October 8, 2012. The property includes the casino as well as structured and surface parking.
Hollywood Gaming at Dayton Raceway. We lease approximately 120 acres on the site of an abandoned Delphi Automotive plant in Dayton, Ohio, where we relocated Raceway Park and opened a new gaming facility on August 28, 2014. The facility includes a 5/8‑mile standardbred racetrack and surface parking.
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Hollywood Gaming at Mahoning Valley Race Course. We lease approximately 193 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 OLG has a long‑term ground lease with an affiliate of the Rama First Nation, for the land on which Casino Rama is situated. Under the Agreement, CHC Casinos and CRC Holdings, Inc. have been granted full access to Casino Rama during the term of the Agreement to perform the management services under the Agreement. The Casino Rama facilities are located on approximately 61 acres.
South/West
M Resort. 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.
1st Jackpot Casino (formerly known as Bally’s Casino Tunica). We lease approximately 94 acres of land and own approximately 53 acres of wetlands in Tunica, Mississippi. The property includes the casino, surface parking and other land‑based facilities.
Resorts Casino Tunica. We lease approximately 87 acres of land in Tunica, Mississippi. The property includes the casino, a 201‑room hotel, surface parking and other land‑based facilities.
Hollywood Casino Gulf Coast. We lease approximately 580 acres in the city of Bay St. Louis, Mississippi. The property includes a land‑based casino, 18‑hole golf course, a 291‑room hotel, a 20‑slip marina, a 100‑space RV Park and other facilities.
Boomtown Biloxi. We lease approximately 19.5 acres in Biloxi, Mississippi, most of which is utilized for the gaming location. We also lease approximately 5 acres of submerged tidelands at the casino site from the State of Mississippi and approximately 1 acre of land utilized mostly for the daiquiri bar area and welcome center.
Tropicana Las Vegas. We own approximately 35 acres on the strip of Las Vegas, Nevada. The property includes the casino as well as a 1,470‑room hotel and structured and surface parking.
40
Hollywood Casino Jamul-San Diego. We are the operator of this facility under our management contract with the Jamul Tribe. As such we do not own the casino or the land on which the casino is located. The Jamul Tribe is a federally recognized Indian Tribe holding a government-to-government relationship with the U.S. through the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent powers of self-government. The Jamul Tribe is the beneficial owner of approximately 6 acres of reservation land located within the exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe. The Jamul Tribe exercises jurisdiction over the Property pursuant to its powers of self-government and consistent with the resolutions and ordinances of the Jamul Tribe.
In October 2016, the Company exercised an option agreement to purchase approximately 98 acres of land located adjacent to the Jamul Indian Village reservation in San Diego County, California and all buildings, structures and improvements erected or situated on the land.
Midwest
Hollywood Casino Aurora. We lease a dockside barge structure and land‑based pavilion in Aurora, Illinois. We lease the land, which is 0.4 acres, on which the pavilion is located. We also lease the rights to a pedestrian walkway bridge and two parking garages, together comprising approximately 2 acres.
Hollywood Casino Joliet. We lease approximately 276 acres in Joliet, Illinois, which includes a barge‑based casino, land‑based pavilion, a 100‑room hotel, structured and surface parking areas and a recreational vehicle park.
Argosy Casino Alton. We lease 3.8 acres in Alton, Illinois, a portion of which serves as the dockside boarding for the Alton Belle II, a riverboat casino. The dockside facility includes an entertainment pavilion and office space, as well as surface parking areas.
Hollywood Casino St. Louis. We lease approximately 248 acres along the Missouri River in Maryland Heights, Missouri, which includes a 502‑room hotel and structure and surface parking.
Argosy Casino Riverside. We lease approximately 38 acres in Riverside, Missouri, which includes a barge‑based casino, a 258‑room luxury hotel, an entertainment/banquet facility and a parking garage. We also lease 6.8 acres which is primarily used for overflow parking.
Hollywood Casino Lawrenceburg. We lease approximately 53 acres in Lawrenceburg, Indiana, a portion of which serves as the dockside embarkation for the gaming vessel, and includes a Hollywood‑themed casino riverboat, an entertainment pavilion, a 295‑room hotel, two parking garages and an adjacent surface lot. In addition, we lease approximately 52 acres on Route 50 used for remote parking. Effective January 2015, we own and operate a hotel and event center located less than a mile away from our Hollywood Casino Lawrenceburg property, which includes 168 rooms, approximately 18,000 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 1,715 video gaming terminals across a network of approximately 377 bar and retail gaming establishments in seven distinct geographic areas throughout Illinois.
41
Other
Sanford‑Orlando Kennel Club. We own approximately 26 acres in Longwood, Florida where Sanford‑Orlando Kennel Club is located. The property includes a 1/4‑mile racing surface, a clubhouse dining facility and a main grandstand building. Kennel facilities for up to 1,300 greyhounds are located at a leased location approximately 1/2 mile from the racetrack enclosure.
Freehold Raceway. Through our joint venture in Pennwood, we own an approximate 51‑acre site in Freehold, New Jersey, where Freehold Raceway is located. The property features a half‑mile standardbred race track and a grandstand. In addition, through our joint venture in Pennwood, we own an approximate 10‑acre site in Cherry Hill, New Jersey, which is currently undeveloped.
Sam Houston Race Park and Valley Race Park. Through our joint venture with MAXXAM, we own approximately 168 acres at Sam Houston Race Park and approximately 71 acres at Valley Race Park. Sam Houston Race Park includes a one‑mile dirt track and a 7/8‑mile turf track as well as a 226,000 square foot grandstand and pavilion centre. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility located in Harlingen, Texas.
Off‑track Wagering Facilities. The following is a listlocations outside of our three OTWs and their locations:
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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 leaseoperating properties, including 52,116 square
Penn Interactive Ventures. We leasePennsylvania; 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, 10,463 square feet of executive office space in San Francisco, California, andPennsylvania; 5,740 square feet of executive office space in Henderson, Nevada.
ITEM 3. LEGAL PROCEEDINGSNevada; and approximately 1,000 square feet of office space in Philadelphia, Pennsylvania.
| ITEM 3. | LEGAL PROCEEDINGS |
| ITEM 4. | MINE SAFETY DISCLOSURES |
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
42
Legal proceedings could result in costs, settlements, damages, or rulings that materially impact the Company’s consolidated financial condition or operating results. The Company believes that it has meritorious defenses, claims and/or counter claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
43
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.
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| High |
| Low |
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2017 |
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First Quarter |
| $ | 18.50 |
| $ | 13.06 |
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Second Quarter |
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| 22.03 |
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| 18.11 |
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Third Quarter |
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| 23.39 |
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| 20.14 |
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Fourth Quarter |
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| 31.42 |
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| 22.91 |
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2016 |
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First Quarter |
| $ | 16.69 |
| $ | 12.81 |
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Second Quarter |
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| 17.32 |
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| 13.59 |
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Third Quarter |
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| 15.07 |
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| 12.72 |
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Fourth Quarter |
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| 14.62 |
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| 11.98 |
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The closing sale price per share of our common stock on the NASDAQ Global Select Market on February 15, 2018 was $28.18. As of February 15, 2018,21, 2020, there were approximately 4341,756 holders of record of our common stock.
Dividend Policy
44
Stock Repurchase
On February 3, 2017,January 9, 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized theto repurchase of up to $100$200.0 million of the Company’s common stock, which can be executed over a two year period. The following table provides information regarding purchases of our common stock pursuant to the repurchase program forexpires on December 31, 2020. During the year ended December 31, 2017.2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $24.9 million at an average price of $19.55 per share. All of the repurchased shares have beenwere retired.
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| Total Number of |
| Maximum Dollar |
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| Shares Purchased as |
| Value of Shares that |
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| Part of Publicly |
| May Yet Be |
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| Total Number of |
| Average Price Paid |
| Announced |
| Purchased Under |
| |
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| Shares Purchased |
| per Share |
| Program |
| the Program |
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January 1, 2017 - January 31 2017 |
| — |
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| — |
| N/A |
| N/A |
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February 1, 2017 - February 28, 2017 |
| 416,886 |
| $ | 13.88 |
| 416,886 | $ | 94,214,031 |
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March 1, 2017 - March 31, 2017 |
| — |
|
| — |
| N/A | $ | 94,214,031 |
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April 1, 2017 - April 30, 2017 |
| — |
|
| — |
| N/A | $ | 94,214,031 |
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May 1, 2017 - May 31, 2017 |
| — |
|
| — |
| N/A | $ | 94,214,031 |
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June 1, 2017 - June 30, 2017 |
| — |
|
| — |
| N/A | $ | 94,214,031 |
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July 1, 2017 - July 31, 2017 |
| — |
|
| — |
| N/A | $ | 94,214,031 |
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August 1, 2017 - August 31, 2017 |
| 214,000 |
| $ | 22.08 |
| 630,886 | $ | 89,489,831 |
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September 1, 2017 - September 30, 2017 |
| 633,263 |
| $ | 22.52 |
| 1,264,149 | $ | 75,229,530 |
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October 1, 2017 - October 31, 2017 |
| — |
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| — |
| N/A | $ | 75,229,530 |
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November 1, 2017 - November 30, 2017 |
| — |
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| — |
| N/A | $ | 75,229,530 |
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December 1, 2017 - December 31, 2017 |
| — |
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| — |
| N/A | $ | 75,229,530 |
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| ITEM 6. | SELECTED FINANCIAL DATA |
45
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial and operating datainformation for the five‑year period ended December 31, 2017 areyears 2015 through 2019 was derived from our audited financial statements andConsolidated Financial Statements. The information 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.
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| Year ended December 31, |
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| 2017(1) |
| 2016 |
| 2015(2) |
| 2014(3) |
| 2013(4) |
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Income statement data: |
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Net revenues |
| $ | 3,147,970 |
| $ | 3,034,380 |
| $ | 2,838,358 |
| $ | 2,590,527 |
| $ | 2,777,886 |
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Total operating expenses |
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| 2,702,256 |
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| 2,491,364 |
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| 2,370,512 |
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| 2,333,339 |
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| 3,201,754 |
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Income (loss) from continuing operations |
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| 445,714 |
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| 543,016 |
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| 467,846 |
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| 257,188 |
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| (423,868) |
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Total other expenses |
|
| (470,758) |
|
| (422,399) |
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| (411,236) |
|
| (410,491) |
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| (202,509) |
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Income (loss) from continuing operations before income taxes |
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| (25,044) |
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| 120,617 |
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| 56,610 |
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| (153,303) |
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| (626,377) |
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Income tax (benefit) provision |
|
| (498,507) |
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| 11,307 |
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| 55,924 |
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| 30,519 |
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| (33,580) |
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Net income (loss) from continuing operations including noncontrolling interests |
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| 473,463 |
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| 109,310 |
|
| 686 |
|
| (183,822) |
|
| (592,797) |
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Net income from discontinued operations net of tax |
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| — |
|
| — |
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| — |
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| — |
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| 11,545 |
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Net income (loss) attributable to the shareholders of Penn |
| $ | 473,463 |
| $ | 109,310 |
| $ | 686 |
| $ | (183,822) |
| $ | (581,252) |
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Per share data: |
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Basic earnings (loss) per common share from continuing operations |
| $ | 5.21 |
| $ | 1.21 |
| $ | 0.01 |
| $ | (2.34) |
| $ | (7.59) |
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Diluted earnings (loss) per common share from continuing operations |
| $ | 5.07 |
| $ | 1.19 |
| $ | 0.01 |
| $ | (2.34) |
| $ | (7.59) |
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Basic earnings per common share from discontinued operations |
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| N/A |
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| N/A |
| $ | N/A |
| $ | N/A |
| $ | 0.15 |
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Diluted earnings per common share from discontinued operations |
|
| N/A |
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| N/A |
| $ | N/A |
| $ | N/A |
| $ | 0.15 |
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Weighted shares outstanding—Basic(5) |
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| 90,854 |
|
| 82,929 |
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| 80,003 |
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| 78,425 |
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| 78,111 |
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Weighted shares outstanding—Diluted(5) |
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| 93,378 |
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| 91,407 |
|
| 90,904 |
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| 78,425 |
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| 78,111 |
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Other data: |
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Net cash provided by operating activities (6) |
| $ | 459,079 |
| $ | 411,719 |
| $ | 413,808 |
| $ | 272,583 |
| $ | 464,538 |
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Net cash used in investing activities |
|
| (221,608) |
|
| (79,288) |
|
| (781,005) |
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| (375,536) |
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| (180,357) |
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Net cash (used in) provided by financing activities (6) |
|
| (189,028) |
|
| (339,930) |
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| 395,533 |
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| 18,631 |
|
| (251,653) |
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Depreciation and amortization |
|
| 267,062 |
|
| 271,214 |
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| 259,461 |
|
| 266,742 |
|
| 303,404 |
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Interest expense |
|
| 466,761 |
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| 459,243 |
|
| 443,127 |
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| 425,114 |
|
| 159,897 |
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Capital expenditures |
|
| 99,261 |
|
| 97,245 |
|
| 199,240 |
|
| 228,145 |
|
| 196,600 |
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Balance sheet data: |
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Cash and cash equivalents |
| $ | 277,953 |
| $ | 229,510 |
| $ | 237,009 |
| $ | 208,673 |
| $ | 292,995 |
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Total assets |
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| 5,234,812 |
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| 4,974,484 |
|
| 5,138,752 |
|
| 4,624,551 |
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| 4,467,587 |
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Total financing obligation |
|
| 3,538,821 |
|
| 3,514,080 |
|
| 3,564,628 |
|
| 3,611,513 |
|
| 3,534,809 |
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Total debt(7) |
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| 1,250,237 |
|
| 1,415,534 |
|
| 1,710,959 |
|
| 1,241,430 |
|
| 1,044,995 |
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Shareholders’ deficit |
|
| (73,146) |
|
| (543,320) |
|
| (678,043) |
|
| (708,014) |
|
| (550,852) |
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46
| 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 expenses | 4,729.5 | 2,953.8 | 2,702.3 | 2,491.4 | 2,370.5 | ||||||||||||||
| Operating income | 571.9 | 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 taxes | 86.1 | 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—Basic | 115.7 | 97.1 | 90.9 | 82.9 | 80.0 | ||||||||||||||
| Weighted-average shares outstanding—Diluted | 117.8 | 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 | ) | ||||||
| (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. |
| (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, |
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| (4) |
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| (5) |
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| (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 |
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| ITEM 7. |
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47
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On February 8, 2018, the Company issued a press release summarizingfinancial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its results for the fourth quarter and year ended December 31, 2017. These results included an impairment charge of $48.5 million on the Company’s loan and unfunded loan commitments to the JIVDC. In late February 2018, the Companyentirety by, our Consolidated Financial Statements and the Jamul Tribe mutually agreed that notes thereto, included in this Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission.
Our Operations
We areNational 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. In 2015, we launchedWe currently offer live sports betting at our properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia. We operate an interactive gaming strategy(“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which focuses on socialrecently launched an online casino (“iCasino”) in Pennsylvania through our HollywoodCasino.com gaming products.
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 currently has over 20 million members and provides such 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.
��
The vast majoritythe Pinnacle Master Lease (as such terms are defined in the
Key performance indicators related to gaming revenue are slot handle and table game drop (volume indicators) and “win” or “hold” percentage. Our typical property slot hold percentage is in the range of 6% to 10% of slot handle, and our typical table game win percentage is in the range of 16% to 26% of table game drop.
Slot handle is the gross amount wagered for the period cited. The win or hold percentage is the 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
Our properties generate significant operating cash flow, since mostholdings and has provided us with greater operational scale and geographic diversity.
48
We continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties, particularly in attractiveproperties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional markets. Additional information regarding our capital projects is discussed in detail in the section entitled “Liquiditygaming operator to a best-in-class omni-channel provider of retail and Capital Resources—Capital Expenditures” below.
Segment Information
The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), as that term is defined in ASC 280, measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations.
The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, and Plainridge Park Casino, which opened on June 24, 2015. It also includes the Company’s Casino Rama management service contract.
The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, which was acquired on August 25, 2015, 1st Jackpot and Resorts which were acquired on May 1, 2017, as well as our management contract with Hollywood Casino Jamul-San Diego, which opened on October 10, 2016.
The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on September 1, 2015, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.
The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net revenues and 5% of income from operations for the year ended December 31, 2017,sports betting entertainment.
In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and believes it is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. The Company defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair valueCompetitive Environment
49
Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA.
Executive Summary
As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth in recent years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. The proliferation of new gaming facilities continues to impact the overall domestic gaming industry as well as our operating results in certain markets. However, the current economic environment, specifically low unemployment levels, strengths in residential real estate prices, and higher levels of consumer confidence, has resulted in a stable operating environment in recent periods. Our ability to continue to succeed in this environment will be predicated on operating our existing facilities efficientlyproperties; and offering our customers additionalstrategic acquisitions of gaming experiences through our multi-channel distribution strategy. We will also seek to continue to expand our customer database through accretive acquisitions and capitalize on organic growth opportunities from our recent facility openings and new business lines.
We operate a geographically diversifiedproperties. Our portfolio is comprised largely of new and well maintainedwell-maintained regional gaming facilities. 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,
| 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 segment | 1,118.9 | 394.4 | 224.3 | ||||||||
| West segment | 642.5 | 437.9 | 380.4 | ||||||||
| Midwest segment | 1,094.5 | 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 segment | 369.8 | 118.9 | 62.6 | ||||||||
| West segment | 198.8 | 114.3 | 72.7 | ||||||||
| Midwest segment | 403.6 | 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 margin | 0.8 | % | 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 |
| (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. |
| 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 other | 1,032.7 | 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. |
| 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 other | 672.7 | 439.3 | 421.8 | 233.4 | 17.5 | 53.1 | % | 4.1 | % | ||||||||||||||||
| General and administrative | 1,187.7 | 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 amortization | 414.2 | 269.0 | 267.1 | 145.2 | 1.9 | 54.0 | % | 0.7 | % | ||||||||||||||||
| Impairment losses | 173.1 | 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 | % | |||||||||||
| 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 | % | |||||||||
Onnon-deductible goodwill impairment charge, non-deductible officers’ compensation, and higher state taxable income from operations. Our effective tax rate for the year ended December 18, 2017, we announced31, 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 had entered into a definitive agreement under which we will acquire Pinnaclerecognized in a cash and stock transaction valued at approximately $2.8 billion inclusivethe amount of assumed indebtedness. Under the terms of the agreement, Pinnacle shareholders will receive $20.00 in cash and 0.42 shares of Penn common stock for each Pinnacle share.
Coincident with the closing, we plan to divest the membership interests of certain Pinnacle subsidiaries which operate the casinos known as Ameristar Casino Resort Spa St. Charles (Missouri), Ameristar Casino Hotel Kansas City (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio) to Boyd Gaming Corp (“Boyd”) for approximately $575$22.4 million in cash. These divestitures are anticipated to occur immediately prior to, and are conditioned upon, the completion of the Pinnacle acquisition. Additionally, at the closing of the merger, (i) GLPI will acquire the real estate associated withfrom the Plainridge Park Casino Sale-Leaseback. The Company’s effective tax rate for $250the 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
| 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 other | 282.8 | 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 margin | 30.0 | % | 30.9 | % | 31.3 | % | (90) bps | (40) bps | |||||||||||||||||
| (1) | See footnote (1) to the consolidated revenues table above. |
| 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 other | 287.8 | 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 margin | 33.1 | % | 30.1 | % | 27.9 | % | 300 bps | 220 bps | |||||||||||||||||
| (1) | See footnote (1) to the consolidated revenues table above. |
We will have significantly greater operationalAmeristar Vicksburg, Boomtown Bossier City, Boomtown New Orleans, L’Auberge Baton Rouge and geographic diversity and operateL’Auberge Lake Charles in October 2018, which contributed a combined 41 properties$151.6 million of revenues and $45.8 million of Adjusted EBITDAR. In addition, as a result of the timing of the acquisitions of 1
| 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 other | 268.2 | 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 margin | 30.9 | % | 26.1 | % | 19.1 | % | 480 bps | 700 bps | |||||||||||||||||
| (1) | See footnote (1) to the consolidated revenues table above. |
| 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 other | 156.4 | 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 margin | 36.9 | % | 35.7 | % | 34.0 | % | 120 bps | 170 bps | |||||||||||||||||
| (1) | See footnote (1) to the consolidated revenues table above. |
50
Penn has received committed financing for the transaction, subject to customary conditions, from BofA Merrill Lynch and Goldman Sachs Bank USA, and expects to fund the acquisition with a combination of the proceeds from the Boyd and GLPI transactions, existing cash on its balance sheet and new debt financing. Penn anticipates that the additional cash flow resulting from the acquisition will allow it to pay down debt on an accelerated basis after closing.
The transaction has been approved by the boards of directors of both companies and is now subject to approval of the shareholders of Penn and Pinnacle, the approval of applicable gaming authorities, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and other customary closing conditions. The companies expect the transaction to close in the second half of 2018.
Upon completion of the transaction, former Penn and Pinnacle shareholders will hold 78 percent and 22 percent, respectively, of the combined company’s outstanding shares.
Financial Highlights:
We reported net revenues and income from operations of $3,148.0Other category were $47.5 million and $445.7$(87.8) million, respectively, for the year ended December 31, 2017, compared2019. Total revenues increased by $7.1 million for the year ended December 31, 2019, principally as a 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, 2019, principally as a result of an increase in corporate overhead costs, largely attributable to netpayroll and other general and administrative costs associated with the Pinnacle Acquisition.
| 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, net | 534.2 | 538.4 | 463.2 | ||||||||
| Other expense (income) | (20.0 | ) | 7.1 | 2.3 | |||||||
| Operating income | 571.9 | 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 amortization | 414.2 | 269.0 | 267.1 | ||||||||
| Impairment losses | 173.1 | 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 affiliates | 28.4 | 22.3 | 18.7 | ||||||||
Non-operating items for Kansas JV (3) | 3.7 | 5.1 | 5.8 | ||||||||
| Adjusted EBITDA | 1,238.8 | 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 margin | 0.8 | % | 2.6 | % | 15.0 | % | |||||
| Adjusted EBITDA margin | 23.4 | % | 29.0 | % | 27.9 | % | |||||
| Adjusted EBITDAR margin | 30.3 | % | 29.1 | % | 27.9 | % | |||||
| (1) | These items are included in “General and administrative” within the Company’s Consolidated Statements of Income. |
| (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, 2019, the price of the Company’s common stock increased, which resulted in an unfavorable variance to budget. During the year ended December 31, 2018, the price of the Company’s common stock decreased, which resulted in a favorable variance to budget. |
| (3) | Consists principally of depreciation and amortization associated with the operations of Hollywood Casino at Kansas Speedway. |
| 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 | ||||||||||
| 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 | |||||
| (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 | |||
| For the year ended December 31, | |||||||||||
| (in millions) | 2019 | 2018 | 2017 | ||||||||
| Penn Master Lease | $ | 457.9 | $ | 461.5 | $ | 455.4 | |||||
| Pinnacle Master Lease | 328.6 | 70.3 | — | ||||||||
| Meadows Lease | 26.4 | 5.6 | — | ||||||||
| Margaritaville Lease | 23.1 | — | — | ||||||||
| Greektown Lease | 33.8 | — | — | ||||||||
| Total | $ | 869.8 | $ | 537.4 | $ | 455.4 | |||||
| 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 | |||||||||||||||||||
| Principal | 400.0 | — | — | — | 400.0 | ||||||||||||||
| Interest | 168.8 | 22.5 | 45.0 | 45.0 | 56.3 | ||||||||||||||
| Purchase obligations | 126.4 | 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 | |||||||||
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| (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. |
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| (2) | We anticipate spending $324.3 million for |
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| (4) | In addition to the |
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| (5) | Excludes the liability for unrecognized tax benefits of $37.2 million, as we cannot reasonably estimate the period of cash settlement with the respective taxing authorities. Additionally, it does not include an estimate of the |
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Segment Developments:
The following are recent developments that have had, may have or will have antable 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 credit. |
During 2017, we engaged third party consultants to help us validate and quantify a new set of strategic initiatives which we expect will improve our already industry-leading property level operating marginsConsolidated Financial Statements, see
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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 loans to the JIVDC asselection of critical accounting estimates, as they areand the most important torelated disclosures, have been reviewed with the Audit Committee of our financial statement presentation and require difficult, subjective and complex judgments.
Board of Directors. We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statementsConsolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements,Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidatedfinancial condition, results of operations and in certain situations, could have a material adverse effect on our consolidated financial condition.
The development and selection of the critical accounting estimates, and the related disclosures, have been reviewed with the Audit Committee of our Board of Directors.
Long‑lived assets
At December 31, 2017, we had a net property and equipment balance of $2,756.7 million within our consolidated balance sheet, representing 52.7% of total assets. We depreciate property and equipment on a straight‑line basis over their estimated useful lives. The estimated useful lives are determined based on the nature of the assets as well as our current operating strategy. We review the carrying value of our property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by us in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. For purposes of recognizing and measuring impairment in accordance with ASC 360, “Property, Plant, and Equipment,” assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying value of property and equipment, we must make assumptions
53
regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non‑cash component of operating income.
Goodwill and other intangible assets
At
For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated using the combination of a discounted cash flow model and a GPC multiples approach which is then compared to In determining the carrying value of each reporting unit. The Company adjusts the carrying valueamount of each reporting unit that utilizes property that isreal estate assets subject to the Master Lease by an allocation of aTriple Net Leases, if and as applicable, (i) the Company allocates each reporting unit their pro-rata portion of the GLPIright-of-use (“ROU”) assets, lease liabilities, and/or financing obligationobligations, and (ii) pushes down the carrying amount of the property and equipment subject to such leases. In general, as it pertains to the Master Leases, such amounts are allocated based on the reporting unit’s estimated fair valueprojected Adjusted EBITDA as a percentage of the aggregate estimated fair valueAdjusted EBITDA of all reporting units that utilize property that is subject to either of the Master Lease.
Leases, as applicable. The Company compares the aggregate weighted average fair value to the carrying value of its reporting units.units to the carrying amounts. If the carrying valueamount of the reporting unit exceeds the aggregate weighted average fair value, an impairment is recorded equal to the amount of the excess not(not to exceed the amount of goodwill allocated to the reporting unit.
In accordance with ASC 350, “Intangibles Goodwill and Other,” the Company considers itsunit).
The Company assessedeach year.
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Consistent with prior years,
For the year ended December 31, 2017, the Company recorded goodwill impairment charges of $18.0 million, related to the goodwill at Tropicana Las Vegas and Sanford Orlando Kennel Club.
For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million, as of the valuation date of October 1, 2015, related to the write‑off of our Plainridge Park Casino gaming license and a partial write‑down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.
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Consistent with prior years, we believe at this time all of our reporting units with goodwill and otherindefinite-lived intangible assets are at risknot amortized, there may be volatility in reported net income or loss because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite life are amortized on a straight-line basis over their estimated useful lives or related service contract. The Company reviews the carrying amount of its amortizing intangible assets for possible impairment chargeswhenever events or changes in future periods regardlesscircumstances indicate that their carrying amount may not be recoverable. If the carrying amount of the margin by which the currentamortizing intangible assets exceed their fair value, of our reporting units exceed their carrying valuean impairment loss is recognized.
Once an
The Company’s remaining goodwill and other intangible assets by reporting unit at December 31, 2017 is shown below (in thousands):
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| Total Intangible |
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Reporting Unit |
| Goodwill |
| Assets |
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Hollywood Casino St. Louis |
| $ | 205,783 |
| $ | 58,418 |
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Hollywood Casino Aurora |
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| 207,207 |
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| — |
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Argosy Casino Riverside |
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| 154,332 |
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| 4,964 |
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Zia Park Casino |
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| 142,359 |
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| — |
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Hollywood Gaming at Dayton Raceway |
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| 15,339 |
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| 110,436 |
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Hollywood Gaming at Mahoning Valley Race Course |
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| — |
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| 125,000 |
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Penn Interactive Ventures |
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| 67,004 |
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| 15,968 |
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Hollywood Casino at Penn National Race Course |
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| 1,497 |
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| 67,607 |
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Prairie State Gaming |
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| 34,185 |
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| 30,031 |
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Hollywood Casino Lawrenceburg |
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| 63,189 |
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| — |
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Hollywood Casino Tunica |
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| 44,042 |
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| — |
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1st Jackpot Casino |
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| 35,929 |
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| 567 |
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Boomtown Biloxi |
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| 22,365 |
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| — |
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Argosy Casino Alton |
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| 9,863 |
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| 8,285 |
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Plainridge Park Casino |
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| 3,052 |
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| — |
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Hollywood Casino at Charles Town Races |
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| 1,354 |
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| — |
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Others |
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| 597 |
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| 1,330 |
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Total |
| $ | 1,008,097 |
| $ | 422,606 |
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Year ended December 31, 2017 2016 2015 (in thousands) Revenues: Gaming $ 2,692,021 $ 2,606,262 $ 2,497,497 Food, beverage, hotel and other 601,731 575,434 485,534 Management service fee and licensing fees 11,654 11,348 10,314 Reimbursable management costs 26,060 15,997 — Revenues 3,331,466 3,209,041 2,993,345 Less promotional allowances (183,496) (174,661) (154,987) Net revenues 3,147,970 3,034,380 2,838,358 Operating expenses: Gaming 1,364,989 1,334,980 1,271,679 Food, beverage, hotel and other 421,848 406,871 349,897 General and administrative 514,776 463,028 449,433 Reimbursable management costs 26,060 15,997 — Depreciation and amortization 267,062 271,214 259,461 Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC 107,810 — 40,042 Insurance recoveries, net of deductible charges (289) (726) — Total operating expenses 2,702,256 2,491,364 2,370,512 Income from operations $ 445,714 $ 543,016 $ 467,846 Net Revenues Income (loss) from Operations Year ended December 31, 2017 2016 2015 2017 2016 2015 (in thousands) Northeast $ 1,584,119 $ 1,568,514 $ 1,505,838 $ 408,693 $ 397,524 $ 328,567 South/West 604,665 546,608 478,128 (5,781) 92,629 102,380 Midwest 907,493 877,567 833,455 233,704 223,180 225,526 Other 51,693 41,691 20,937 (190,902) (170,317) (188,627) Total $ 3,147,970 $ 3,034,380 $ 2,838,358 $ 445,714 $ 543,016 $ 467,846 Percentage Year Ended December 31, 2017 2016 Variance Variance Gaming $ 2,692,021 2,606,262 $ 85,759 3.3 % Food, beverage, hotel and other 601,731 575,434 26,297 4.6 % Management service and licensing fees 11,654 11,348 306 2.7 % Reimbursable management costs 26,060 15,997 10,063 62.9 % Revenues 3,331,466 3,209,041 122,425 3.8 % Less promotional allowances (183,496) (174,661) (8,835) 5.1 % Net revenues $ 3,147,970 $ 3,034,380 $ 113,590 3.7 % Percentage Year Ended December 31, 2016 2015 Variance Variance Gaming $ 2,606,262 2,497,497 $ 108,765 4.4 % Food, beverage, hotel and other 575,434 485,534 89,900 18.5 % Management service and licensing fees 11,348 10,314 1,034 10.0 % Reimbursable management costs 15,997 — 15,997 N/A Revenues 3,209,041 2,993,345 215,696 7.2 % Less promotional allowances (174,661) (154,987) (19,674) 12.7 % Net revenues $ 3,034,380 $ 2,838,358 $ 196,022 6.9 % Percentage Year ended December 31, 2017 2016 Variance Variance Gaming $ 1,364,989 $ 1,334,980 $ 30,009 2.2 % Food, beverage, hotel and other 421,848 406,871 14,977 3.7 % General and administrative 514,776 463,028 51,748 11.2 % Reimbursable management costs 26,060 15,997 10,063 62.9 % Depreciation and amortization 267,062 271,214 (4,152) (1.5) % Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC 107,810 — 107,810 N/A Insurance recoveries, net of deductible charges (289) (726) 437 (60.2) % Total operating expenses $ 2,702,256 $ 2,491,364 $ 210,892 8.5 % Percentage Year ended December 31, 2016 2015 Variance Variance Gaming $ 1,334,980 $ 1,271,679 $ 63,301 5.0 % Food, beverage, hotel and other 406,871 349,897 56,974 16.3 % General and administrative 463,028 449,433 13,595 3.0 % Reimbursable management costs 15,997 — 15,997 N/A Depreciation and amortization 271,214 259,461 11,753 4.5 % Impairment losses — 40,042 (40,042) (100.0) % Insurance recoveries, net of deductible charges (726) — (726) N/A Total operating expenses $ 2,491,364 $ 2,370,512 $ 120,852 5.1 % Percentage Year ended December 31, 2017 2016 Variance Variance Interest expense $ (466,761) (459,243) $ (7,518) 1.6 % Interest income 3,552 24,186 (20,634) (85.3) % Income from unconsolidated affiliates 18,671 14,337 4,334 30.2 % Loss on early extinguishment of debt (23,963) — (23,963) N/A Other (2,257) (1,679) (578) 34.4 % Total other expenses $ (470,758) $ (422,399) $ (48,359) 11.4 % Percentage Year ended December 31, 2016 2015 Variance Variance Interest expense $ (459,243) (443,127) (16,116) 3.6 % Interest income 24,186 11,531 12,655 109.7 % Income from unconsolidated affiliates 14,337 14,488 (151) (1.0) % Other (1,679) 5,872 (7,551) (128.6) % Total other expenses $ (422,399) $ (411,236) $ (11,163) 2.7 % Year ended December 31, 2017 2016 2015 (in thousands) Net income $ 473,463 $ 109,310 $ 686 Income (benefit) tax provision (498,507) 11,307 55,924 Other 26,220 1,679 (5,872) Income from unconsolidated affiliates (18,671) (14,337) (14,488) Interest income (3,552) (24,186) (11,531) Interest expense 466,761 459,243 443,127 Income from operations $ 445,714 $ 543,016 $ 467,846 Loss (gain) on disposal of assets 172 (2,471) 1,286 Insurance recoveries, net of deductible charges (289) (726) — Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC 107,810 — 40,042 Charge for stock compensation 7,780 6,871 8,223 Contingent purchase price (6,840) 1,277 (5,374) Depreciation and amortization 267,062 271,214 259,461 Income from unconsolidated affiliates 18,671 14,337 14,488 Non operating items for Kansas JV(1) 5,866 10,311 10,377 Adjusted EBITDA $ 845,946 $ 843,829 $ 796,349 Year Ended December 31, 2017 Northeast South/West Midwest Other (1) Total Income (loss) from operations $ 408,693 $ (5,781) $ 233,704 $ (190,902) $ 445,714 Charge for stock compensation — — — 7,780 7,780 Insurance recoveries, net of deductible charges — — (289) — (289) Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC — 104,605 — 3,205 107,810 Depreciation and amortization 80,105 36,622 37,837 112,498 267,062 Contingent purchase price 12,529 — 13 (19,382) (6,840) (Gain) loss on disposal of assets (56) (122) 168 182 172 Income (loss) from unconsolidated affiliates — — 20,478 (1,807) 18,671 Non-operating items for Kansas JV — — 5,866 — 5,866 Adjusted EBITDA $ 501,271 $ 135,324 $ 297,777 $ (88,426) $ 845,946 Year Ended December 31, 2016 Northeast South/West Midwest Other (1) Total Income (loss) from operations $ 397,524 $ 92,629 $ 223,180 $ (170,317) $ 543,016 Charge for stock compensation — — — 6,871 6,871 Insurance recoveries — — (726) — (726) Depreciation and amortization 92,373 35,831 38,210 104,800 271,214 Contingent purchase price (1,277) — 6 2,548 1,277 Loss (gain) on disposal of assets 450 109 334 (3,364) (2,471) Income (loss) from unconsolidated affiliates — — 15,960 (1,623) 14,337 Non-operating items for Kansas JV — — 10,311 — 10,311 Adjusted EBITDA $ 489,070 $ 128,569 $ 287,275 $ (61,085) $ 843,829 Year ended December 31, 2015 Northeast South/West Midwest Other Total Income (loss) from operations $ 328,567 102,380 225,526 (188,627) $ 467,846 Charge for stock compensation — — — 8,223 8,223 Impairment losses 40,042 — — — 40,042 Insurance recoveries, net of deductible charges — — — — — Depreciation and amortization 93,299 25,793 39,917 100,452 259,461 Contingent purchase price (5,374) — — — (5,374) Loss on disposal of assets 65 677 208 336 1,286 Income (loss) from unconsolidated affiliates — — 15,289 (801) 14,488 Non-operating items for Kansas JV — — 10,377 — 10,377 Adjusted EBITDA $ 456,599 $ 128,850 $ 291,317 $ (80,417) $ 796,349 Actual (in millions) South/West (1) $ 24.8 Midwest (2) 5.7 Total $ 30.5 Project Cap Ex Maintenance Cap Ex (in millions) (in millions) Northeast $ — $ 21.8 South/West(1) 1.8 17.7 Midwest — 26.6 Other — 37.6 Total $ 1.8 $ 103.7 Payments Due By Period Total 2018 2019-2020 2021-2022 2023 and After (in thousands) Senior secured credit facility Principal $ 760,000 $ 20,000 $ 58,750 $ 235,000 $ 446,250 Interest (1) 179,057 33,745 63,246 52,130 29,936 5.875% senior unsecured notes Principal 400,000 — — — 400,000 Interest 211,375 22,250 44,500 44,500 100,125 Purchase obligations 73,551 44,060 22,968 6,523 — Capital expenditure commitments (2) 4,805 4,805 — — — Capital leases 890 824 66 — — Financing obligation to GLPI (3) 10,299,854 387,456 664,518 664,518 8,583,362 Operating leases 84,919 8,097 9,679 6,626 60,517 Ohio Payments (4) 188,956 33,224 64,448 62,448 28,836 Other liabilities reflected in the Company’s consolidated balance sheets (5) 13,015 13,015 — — — Total $ 12,216,422 $ 567,476 $ 928,175 $ 1,071,745 $ 9,649,026 Total Amounts Committed 2018 2019-2020 2021-2022 2023 and After (in thousands) Letters of Credit(1) $ 22,088 $ 22,088 $ — $ — $ — Total $ 22,088 $ 22,088 $ — $ — $ — Fair Value 2018 2019 2020 2021 2022 Thereafter Total 12/31/2017 (in thousands) Long‑term debt: Fixed rate $ — $ — $ — $ — $ — $ 400,000 $ 400,000 $ 412,000 Average interest rate 5.63 % Variable rate $ 20,000 $ 25,625 $ 33,125 $ 35,000 $ 200,000 $ 446,250 $ 760,000 $ 760,456 Average interest rate(1) 4.42 % 4.40 % 4.29 % 4.29 % 4.58 % 5.33 % December 31, 2017 2016 Assets Current assets Cash and cash equivalents $ 277,953 $ 229,510 Receivables, net of allowance for doubtful accounts of $2,983 and $3,180 at December 31, 2017 and December 31, 2016, respectively 62,805 61,855 Prepaid expenses 43,780 59,707 Other current assets 16,494 48,193 Total current assets 401,032 399,265 Property and equipment, net 2,756,669 2,820,383 Other assets Investment in and advances to unconsolidated affiliates 148,912 156,176 Goodwill 1,008,097 989,685 Other intangible assets, net 422,606 435,494 Deferred income taxes 390,943 — Loan to the JIVDC, net of allowance for loan losses of $64,052 at December 31, 2017 and $0 at December 31, 2016 20,900 91,401 Other assets 85,653 82,080 Total other assets 2,077,111 1,754,836 Total assets $ 5,234,812 $ 4,974,484 Liabilities Current liabilities Current portion of financing obligation to GLPI $ 56,248 $ 56,595 Current maturities of long-term debt 35,612 85,595 Accounts payable 26,048 35,091 Accrued expenses 125,688 101,906 Accrued interest 13,528 6,345 Accrued salaries and wages 111,252 92,238 Gaming, pari-mutuel, property, and other taxes 69,645 60,384 Insurance financing 2,404 2,636 Other current liabilities 89,584 95,526 Total current liabilities 530,009 536,316 Long-term liabilities Long-term financing obligation to GLPI, net of current portion 3,482,573 3,457,485 Long-term debt, net of current maturities and debt issuance costs 1,214,625 1,329,939 Deferred income taxes — 126,924 Noncurrent tax liabilities 34,099 26,791 Other noncurrent liabilities 46,652 40,349 Total long-term liabilities 4,777,949 4,981,488 Shareholders' deficit Series B Preferred stock ($.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at December 31, 2017 and 2016) — — Series C Preferred stock ($.01 par value, 18,500 shares authorized, no shares issued and outstanding at December 31, 2017 and 2016) — — Common stock ($.01 par value, 200,000,000 shares authorized, 93,392,635 and 93,289,701 shares issued, and 91,225,242 and 91,122,308 shares outstanding at December 31, 2017 and 2016, respectively) 933 932 Treasury stock, at cost (2,167,393 shares held at December 31, 2017 and 2016) (28,414) (28,414) Additional paid-in capital 1,007,606 1,014,119 Retained deficit (1,051,818) (1,525,281) Accumulated other comprehensive loss (1,453) (4,676) Total shareholders' deficit (73,146) (543,320) Total liabilities and shareholders' deficit $ 5,234,812 $ 4,974,484 Year ended December 31, 2017 2016 2015 Revenues Gaming $ 2,692,021 $ 2,606,262 $ 2,497,497 Food, beverage, hotel and other 601,731 575,434 485,534 Management service and license fees 11,654 11,348 10,314 Reimbursable management costs 26,060 15,997 — Revenues 3,331,466 3,209,041 2,993,345 Less promotional allowances (183,496) (174,661) (154,987) Net revenues 3,147,970 3,034,380 2,838,358 Operating expenses Gaming 1,364,989 1,334,980 1,271,679 Food, beverage, hotel and other 421,848 406,871 349,897 General and administrative 514,776 463,028 449,433 Reimbursable management costs 26,060 15,997 — Depreciation and amortization 267,062 271,214 259,461 Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC 107,810 — 40,042 Insurance recoveries (289) (726) — Total operating expenses 2,702,256 2,491,364 2,370,512 Income from operations 445,714 543,016 467,846 Other income (expenses) Interest expense (466,761) (459,243) (443,127) Interest income 3,552 24,186 11,531 Income from unconsolidated affiliates 18,671 14,337 14,488 Loss on early extinguishment of debt (23,963) — — Other (2,257) (1,679) 5,872 Total other expenses (470,758) (422,399) (411,236) (Loss) income from operations before income taxes (25,044) 120,617 56,610 Income tax (benefit) provision (498,507) 11,307 55,924 Net income $ 473,463 $ 109,310 $ 686 Earnings per common share Basic earnings per common share $ $ $ Diluted earnings per common share $ 5.07 $ 1.19 $ 0.01 Weighted average basic shares outstanding Weighted average diluted shares outstanding Year ended December 31, 2017 2016 2015 Net income $ $ 109,310 $ 686 Other comprehensive loss, net of tax: Foreign currency translation adjustment during the period (122) (3,272) Other comprehensive income (loss) Comprehensive income (loss) $ $ $ Accumulated Additional Other Total Preferred Stock Common Stock Treasury Paid-In Retained Comprehensive Shareholders’ Shares Amount Shares Amount Stock Capital Deficit Income (Loss) Deficit Balance, December 31, 2014 8,624 $ - 79,161,817 $ 813 $ (28,414) $ 956,146 $ (1,635,277) $ (1,282) $ (708,014) Share-based compensation arrangements, net of tax - - 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 - - 1,609,033 16 - 25,519 - - 25,535 Foreign currency translation adjustment - - - - - - - (122) (122) Conversion of preferred stock (8,624) - 8,624,000 86 - (86) - - - Net income - - - - - - 109,310 - 109,310 Balance, December 31, 2016 - - 91,122,308 932 (28,414) 1,014,119 (1,525,281) (4,676) (543,320) Share-based compensation arrangements - - 1,367,083 14 - 18,270 - - 18,284 Foreign currency translation adjustment - - - - - - - 3,223 3,223 Share repurchases - - (1,264,149) (13) - (24,783) - - (24,796) Net income - - - - - - 473,463 - 473,463 Balance, December 31, 2017 - $ - 91,225,242 $ 933 $ (28,414) $ 1,007,606 $ (1,051,818) $ (1,453) $ (73,146) Year Ended December 31, 2017 2016 2015 Operating activities Net income $ 473,463 $ 109,310 $ 686 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 267,062 271,214 259,461 Amortization of items charged to interest expense and interest income 6,960 7,200 6,599 Change in fair values of contingent purchase price (6,840) 1,277 (5,374) Loss (gain) on sale of property and equipment and assets held for sale 172 (2,471) 1,286 Income from unconsolidated affiliates (18,671) (14,337) (14,488) Distributions from unconsolidated affiliates 26,450 26,300 28,150 Deferred income taxes (517,906) 8,736 57,236 Charge for stock-based compensation 7,780 6,871 8,223 Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC 107,810 — 40,042 Write off of debt issuance costs and discounts 5,951 — — (Decrease) increase, net of businesses acquired Accounts receivable (9,186) (5,911) 710 Prepaid expenses and other current assets (7,239) (485) 10,345 Other assets 1,662 (4,879) 4,363 (Decrease) increase, net of businesses acquired Accounts payable (342) (7,500) 2,113 Accrued expenses 23,761 1,519 7,243 Accrued interest 7,183 (746) 1,910 Accrued salaries and wages 15,783 (6,721) 8,454 Gaming, pari-mutuel, property and other taxes 8,495 3,379 3,933 Income taxes 20,448 26,008 1,443 Other current and noncurrent liabilities 46,283 (7,045) (8,527) Net cash provided by operating activities Investing activities Project capital expenditures (25,033) (18,740) (136,548) Maintenance capital expenditures (74,228) (78,505) (62,692) Insurance remediation proceeds 577 — — Loans to the JIVDC (845) (184,193) (105,658) Funds advanced to the JIVDC in connection with their refinancing — (98,000) — Reimbursement of advances with the JIVDC — 341,864 — Land purchased adjacent to Hollywood Casino Jamul - San Diego (1,500) (3,065) — Repayment (Purchase) of note from the previous developer of the Jamul project — 30,000 (24,000) Receipts applied against nonaccrual loan to the JIVDC 8,226 — — Proceeds from sale of property and equipment and assets held for sale 1,013 18,210 561 Additional fundings and investment in joint ventures (500) — (2,555) Consideration paid for acquisitions of businesses, gaming licenses, and other intangibles, net of cash acquired (129,318) (86,859) (450,113) Net cash used in investing activities Financing activities Proceeds from exercise of options 10,447 11,601 9,399 Repurchase of common stock (24,796) — — Principal payments on financing obligation with GLPI (57,859) (50,548) (46,885) Proceeds from issuance of long-term debt, net of issuance costs 1,430,796 122,747 562,076 Increase from financing obligation in connection with acquisition 82,600 — — Principal payments on long-term debt (1,574,918) (407,662) (115,195) Payments of other long-term obligations (35,453) (13,772) (3,307) Payments of contingent purchase price (19,613) (1,807) — Proceeds from insurance financing 11,948 13,119 4,720 Payments on insurance financing (12,180) (13,608) (15,275) Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents 48,443 (7,499) 28,336 Cash and cash equivalents at beginning of year 229,510 237,009 208,673 Cash and cash equivalents at end of year $ $ $ Supplemental disclosure Interest expense paid, net of amounts capitalized $ 452,779 $ 452,842 $ 434,175 Income taxes (refunds received)/taxes paid $ (43,067) $ (11,412) $ 5,116 Non-cash investing activities Accrued capital expenditures $ 1,890 $ 6,749 $ 5,890 Accrued advances to Jamul Tribe $ 2,465 $ 6,962 $ 39,625 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. See collected for Year ended December 31, 2017 2016 2015 Rooms $ 41,213 $ 39,352 $ 34,708 Food and beverage 133,104 126,438 111,144 Other 9,179 8,871 9,135 Total promotional allowances $ 183,496 $ 174,661 $ 154,987 Year ended December 31, 2017 2016 2015 Rooms $ 5,826 $ 5,291 $ 4,199 Food and beverage 51,460 48,497 44,012 Other 3,437 3,518 3,582 Total cost of complimentary services $ 60,723 $ 57,306 $ 51,793 which revenue was previously recognized. The Company’s 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. Earnings Per Year ended December 31, 2017 2016 2015 (in thousands) Net income $ 473,463 $ 109,310 $ 686 Net income applicable to preferred stock — 8,662 67 Net income applicable to common stock $ 473,463 $ 100,648 $ 619 Year ended December 31, 2017 2016 2015 (in thousands) Determination of shares: Weighted-average common shares outstanding 90,854 82,929 80,003 Assumed conversion of dilutive employee stock-based awards 2,431 1,299 2,217 Assumed conversion of restricted stock 93 42 60 Diluted weighted-average common share outstanding before participating security 93,378 84,270 82,280 Assumed conversion of preferred stock — 7,137 8,624 Diluted weighted-average common shares outstanding 93,378 91,407 90,904 Year ended December 31, 2017 2016 2015 Calculation of basic EPS: Net income applicable to common stock $ 473,463 $ 100,648 $ 619 Weighted-average common shares outstanding 90,854 82,929 80,003 Basic EPS $ 5.21 $ 1.21 $ 0.01 Calculation of diluted EPS using two class method: Net income applicable to common stock $ 473,463 $ 100,648 $ 619 Diluted weighted-average common shares outstanding before participating security 93,378 84,270 82,280 Diluted EPS $ 5.07 $ 1.19 $ 0.01 Year ended December 31, 2017 2016 2015 Risk-free interest rate % 1.20 % 1.54 % Expected volatility % 31.23 % 36.68 % Dividend yield — — — Weighted-average expected life (years) 5.40 5.45 Voting Interest Entities and Variable Interest 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 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. Consolidated Financial Statements. obsolescence. synergies. Casino Tunica Rocket Speed over a Year ended December 31, Net Revenues $ 3,154,848 Income from continuing operations 540,992 Jamul Indian Village Allowance Reserve for unfunded for loan loss loan commitments (1) Balance at January 1, 2017 $ - $ - Provisions 64,052 21,996 Balance at December 31, 2017 $ 64,052 $ 21,996 (1) Amount is reflected in other non-current liabilities on the Consolidated Balance Sheets its JV with Greenwood Limited Jersey, Inc. (“Greenwood”). For the year ended December 31, As of December 31, 2017 2016 2015 Current assets $ 18,452 $ 16,638 $ 16,550 Noncurrent assets $ 165,801 $ 176,050 $ 195,010 Current liabilities $ 17,861 $ 15,351 $ 14,544 For the twelve months ended December 31, 2017 2016 2015 Net revenues $ 155,636 $ 152,926 $ 153,407 Operating expenses 114,681 121,006 122,828 Income from operations 40,955 31,920 30,579 Net income $ 40,955 $ 31,920 $ 30,579 Net income attributable to Penn $ 20,478 $ 15,960 $ 15,290 Annual Report on Form 10-K for the year ended December 31, 2019. Ventures 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 Property and equipment, net, December 31, December 31, 2017 2016 (in thousands) Property and equipment - non-master lease Land and improvements $ 294,695 $ 294,590 Building and improvements 429,015 404,158 Furniture, fixtures and equipment 1,385,889 1,355,615 Leasehold improvements 130,801 118,940 Construction in progress 15,617 16,375 2,256,017 2,189,678 Less Accumulated depreciation (1,345,147) (1,224,596) 910,870 965,082 Property and equipment - master lease Land and improvements 424,700 382,246 Building and improvements 2,258,577 2,219,018 2,683,277 2,601,264 Less accumulated depreciation (837,478) (745,963) 1,845,799 1,855,301 Property and equipment, net $ 2,756,669 $ 2,820,383 Balance at December 31, 2015 Goodwill $ 2,175,507 Accumulated goodwill impairment losses (1,263,565) Goodwill, net $ 911,942 Goodwill acquired 77,743 Balance at December 31, 2016: Goodwill $ 2,253,250 Accumulated goodwill impairment losses (1,263,565) Goodwill, net $ 989,685 Goodwill acquired 36,598 Goodwill impairment losses (18,026) Other (160) Balance at December 31, 2017: Goodwill $ 2,289,848 Accumulated goodwill impairment losses (1,281,751) Goodwill, net $ 1,008,097 December 31, 2017 December 31, 2016 (in thousands) Gross Gross Carrying Accumulated Net Book Carrying Accumulated Net Book Value Amortization Value Value Amortization Value Indefinite-life intangible assets $ 375,405 $ — $ 375,405 $ 375,405 $ — $ 375,405 Other intangible assets 131,483 84,282 47,201 125,584 65,495 60,089 Total $ 506,888 $ 84,282 $ 422,606 $ 500,989 $ 65,495 $ 435,494 The following table presents 2018 $ 13,614 2019 8,505 2020 5,844 2021 3,599 2022 3,596 Thereafter 12,043 Total $ 47,201 Total Intangible Reporting Unit Goodwill Assets Hollywood Casino St. Louis $ 205,783 $ 58,418 Hollywood Casino Aurora 207,207 — Argosy Casino Riverside 154,332 4,964 Zia Park Casino 142,359 — Hollywood Gaming at Dayton Raceway 15,339 110,436 Hollywood Gaming at Mahoning Valley Race Course — 125,000 Penn Interactive Ventures 67,004 15,968 Hollywood Casino at Penn National Race Course 1,497 67,607 Prairie State Gaming 34,185 30,031 Hollywood Casino Lawrenceburg 63,189 — Hollywood Casino Tunica 44,042 — 1st Jackpot Casino 35,929 567 Boomtown Biloxi 22,365 — Argosy Casino Alton 9,863 8,285 Plainridge Park Casino 3,052 — Hollywood Casino at Charles Town Races 1,354 — Others 597 1,330 Total $ 1,008,097 $ 422,606 December 31, December 31, 2017 2016 (in thousands) Senior secured credit facility $ 760,000 $ 976,845 $300 million 5.875% senior unsecured notes due November 1, 2021 — 300,000 $400 million 5.625% senior unsecured notes due January 15, 2027 400,000 — Other long-term obligations 119,310 154,084 Capital leases 891 1,760 1,280,201 1,432,689 Less current maturities of long-term debt (35,612) (85,595) Less discount on senior secured credit facility Term Loan B (2,558) (620) Less debt issuance costs (27,406) (16,535) $ 1,214,625 $ 1,329,939 The following is a schedule of future minimum repayments of long-term debt as of December 31, 2018 $ 35,612 2019 41,132 2020 49,324 2021 51,994 2022 217,828 Thereafter 884,311 Total minimum payments $ 1,280,201 Facilities “2013 Senior Secured Credit Facilities”). Facility. Income. 5.625% Senior Unsecured Notes The were due in 2021. In 2018 $ 387,456 2019 332,259 2020 332,259 2021 332,259 2022 332,259 Thereafter 8,583,363 Total minimum payments 10,299,855 Less amounts representing interest (7,148,946) Plus residual values 387,912 Present value of future minimum payments 3,538,821 Less current portion of financing obligation (56,248) Long-term portion of financing obligation $ 3,482,573 Year ending December 31, Total 2018 $ 8,609 2019 6,387 2020 4,692 2021 4,026 2022 3,504 Thereafter 60,517 Total $ 87,735 Location Share Agreements will be incurred in 2020. The following table summarizes the tax effects of temporary differences between the 2017 2016 (in thousands) Deferred tax assets: Stock-based compensation expense $ 15,038 $ 17,773 Accrued expenses 39,474 64,175 Loan to the JIVDC 26,237 2,268 Financing obligation to GLPI 900,311 1,359,193 Unrecognized tax benefits 6,565 9,377 Net operating losses and tax credit carryforwards 59,842 78,021 Gross deferred tax assets 1,047,467 1,530,807 Less valuation allowance (113,699) (828,501) Net deferred tax assets 933,768 702,306 Deferred tax liabilities: Property, plant and equipment, non-master lease (33,148) (69,151) Property, plant and equipment, master lease (469,363) (717,602) Investments in unconsolidated affiliates (1,218) (1,383) Undistributed foreign earnings (2,061) (8,596) Intangibles (37,035) (32,498) Net deferred tax liabilities (542,825) (829,230) Noncurrent deferred tax assets/(liabilities), net $ 390,943 $ (126,924) carryforwards. 2039. Year ended December 31, 2017 2016 2015 Domestic (29,538) 116,693 54,443 Foreign 4,494 3,924 2,167 Total (25,044) 120,617 56,610 Year ended December 31, 2017 2016 2015 (in thousands) Current tax expense (benefit) Federal $ 16,318 $ 8,721 $ (5,158) State 6,062 3,489 133 Foreign (2,981) (9,639) 3,713 Total current 19,399 2,571 (1,312) Deferred tax (benefit) expense Federal (480,712) 4,701 51,817 State (39,255) 3,279 5,419 Foreign 2,061 756 — Total deferred (517,906) 8,736 57,236 Total income tax (benefit) provision $ (498,507) $ 11,307 $ 55,924 Year ended December 31, 2017 2016 2015 Percent of pretax income Federal statutory rate 35.0 % 35.0 % 35.0 % State and local income taxes - net of federal benefits 6.3 % 1.2 % 6.1 % Nondeductible expenses (16.0) % 0.3 % 3.0 % Goodwill impairment (20.5) % — % — % Compensation 29.5 % (1.5) % 2.8 % Contingent liability settlement 22.9 % 0.6 % — % Foreign 11.3 % (8.5) % 5.2 % Valuation allowance 2,962.3 % (17.1) % 55.3 % Federal tax reform enactment - deferred rate change (1,043.5) % — % — % Other miscellaneous items 3.3 % (0.6) % (8.6) % Total effective tax rate 1,990.6 % 9.4 % 98.8 % Year ended December 31, 2017 2016 2015 (in thousands) Amount of pretax income Federal statutory rate $ (8,765) $ 42,216 $ 19,814 State and local income taxes - net of federal benefits (1,567) 1,498 3,435 Nondeductible expenses 4,018 371 1,717 Goodwill impairment 5,131 — — Compensation (7,376) (1,817) 1,559 Contingent liability settlement (5,740) 756 — Foreign (2,840) (10,268) 2,955 Valuation allowance (741,872) (20,675) 31,288 Federal tax reform enactment - deferred rate change 261,329 — — Other miscellaneous items (825) (774) (4,844) Total income tax provision $ (498,507) $ 11,307 $ 55,924 A reconciliation of the beginning and ending Unrecognized tax benefits (in thousands) Unrecognized tax benefits $ 33,569 Cumulative advance deposits on account (31,371) Balance at December 31, 2015 $ 2,198 Additions based on current year positions — Additions based on prior year positions 3,749 Decreases due to settlements and/or reduction in reserves (9,091) Currency translation adjustments 2,565 Settlement payments (4,000) Unrecognized tax benefits at December 31, 2016 $ 26,792 Additions based on current year positions Additions based on prior year positions Decreases due to settlements and/or reduction in reserves Currency translation adjustments Settlement payments Unrecognized tax benefits at December 31, 2017 $ 30,950 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, However, the 2008 Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired. The following table contains information on Weighted- Average Remaining Aggregate Number of Option Weighted-Average Contractual Intrinsic Value Shares Exercise Price Term (in years) (in thousands) Outstanding at December 31, 2016 6,326,593 $ Granted 1,486,790 Exercised (1,226,345) Canceled (35,724) Outstanding at December 31, 2017 6,551,314 $ $ 124,709 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 Exercise Price Range Total $6.96 to $11.12 to $16.59 to $6.96 to $10.41 $16.02 $20.75 $20.75 Outstanding options Number outstanding 1,178,054 5,283,711 89,549 6,551,314 Weighted-average remaining contractual life (years) 0.77 4.67 5.48 3.98 Weighted-average exercise price $ 8.16 $ 13.11 $ 18.36 $ 12.29 Exercisable options Number outstanding 1,176,804 1,915,712 13,661 3,106,177 Weighted-average exercise price $ 8.16 $ 12.60 $ 16.59 $ 10.94 The following Year ended December 31, 2017 2016 2015 (in thousands) Net Revenues Northeast $ 1,584,119 $ 1,568,514 $ 1,505,838 South/West 604,665 546,608 478,128 Midwest 907,493 877,567 833,455 Other (1) 51,693 41,691 20,937 Total Reportable Segment Net Revenues 3,147,970 3,034,380 2,838,358 Adjusted EBITDA Northeast 501,271 489,070 456,599 South/West 135,324 128,569 128,850 Midwest 297,777 287,275 291,317 Other (1) (88,426) (61,085) (80,417) Total Reportable Segment Adjusted EBITDA 845,946 843,829 796,349 Other operating costs and other expenses (income) Depreciation and amortization 267,062 271,214 259,461 Unconsolidated non-operating costs - Kansas JV 5,866 10,311 10,377 Interest expense 466,761 459,243 443,127 Interest income (3,552) (24,186) (11,531) Loss (gain) on disposal of assets 172 (2,471) 1,286 Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC 107,810 — 40,042 Insurance recoveries (289) (726) — Loss on early extinguishment of debt 23,963 — — Other 2,257 1,679 (5,872) Contingent purchase price (6,840) 1,277 (5,374) Charge for stock compensation 7,780 6,871 8,223 Income before income taxes (25,044) 120,617 56,610 Income taxes (498,507) 11,307 55,924 Net income $ 473,463 $ 109,310 $ 686 Northeast South/West Midwest Other (1) Total (in thousands) Year ended December 31, 2017 Capital expenditures $ 22,632 $ 42,025 $ 29,827 $ 4,777 $ 99,261 Year ended December 31, 2016 Capital expenditures $ 30,677 $ 30,458 $ 30,921 $ 5,189 $ 97,245 Year ended December 31, 2015 Capital expenditures $ 155,413 $ 16,805 $ 22,679 $ 4,343 $ 199,240 Balance sheet at December 31, 2017 Total assets $ 821,649 $ 794,274 $ 1,070,204 $ 2,548,685 $ 5,234,812 Investment in and advances to unconsolidated affiliates 102 — 88,296 60,514 148,912 Goodwill 21,242 244,695 674,558 67,602 1,008,097 Other intangible assets, net 303,043 1,623 101,698 16,242 422,606 Balance sheet at December 31, 2016 Total assets $ 861,951 $ 840,076 $ 1,103,231 $ 2,169,226 $ 4,974,484 Investment in and advances to unconsolidated affiliates 76 — 93,768 62,332 156,176 Goodwill 21,242 223,586 673,889 70,968 989,685 Other intangible assets, net 303,043 1,133 101,488 29,830 435,494 Fiscal Quarter First (1) Second (1,2) Third Fourth (in thousands, except per share data) 2017 Net revenues $ 776,224 $ 796,463 $ 806,247 $ 769,036 Income from operations 140,287 134,989 143,663 26,775 Net income (loss) 5,104 17,079 789,340 (338,060) Earnings (loss) per common share: Basic earnings (loss) per common share $ 0.06 $ 0.19 $ 8.68 $ (3.72) Diluted earnings (loss) per common share $ 0.06 $ 0.18 $ 8.43 $ (3.72) Fiscal Quarter First Second Third (3) Fourth (4) (in thousands, except per share data) 2016 Net revenues $ 756,451 $ 769,422 $ 765,597 $ 742,910 Income from operations 140,531 149,337 139,300 113,848 Net income 23,708 34,035 46,535 5,032 Earnings per common share: Basic earnings per common share $ 0.26 $ 0.38 $ 0.52 $ 0.06 Diluted earnings per common share $ 0.26 $ 0.37 $ 0.51 $ 0.05 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 following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate. The fair value of the Company’s trade accounts receivable and payables approximates the carrying amounts. Cash Equivalents 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. 2 inputs. Debt next payment. December 31, 2017 Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and cash equivalents $ 277,953 $ 277,953 $ 277,953 $ — $ — Loan to the JIVDC 20,900 16,533 — — 16,533 Financial liabilities: Long-term debt Senior secured credit facility 730,787 760,456 760,456 — — Senior unsecured notes 399,249 412,000 412,000 — — Other long-term obligations 119,310 113,460 — 113,460 — Other liabilities 22,696 22,696 — — 22,696 December 31, 2016 Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and cash equivalents $ 229,510 $ 229,510 $ 229,510 $ — $ — Loan to the JIVDC 92,100 98,000 — — 98,000 Financial liabilities: Long-term debt Senior secured credit facility 962,703 976,092 785,092 191,000 — Senior unsecured notes 296,895 312,000 312,000 — — Other long-term obligations 154,084 152,132 — 152,132 — Other liabilities 48,244 48,244 — — 48,244 Other Liabilities Contingent Purchase Price Balance at January 1, 2015 $ 19,189 Included in earnings (5,374) Balance at December 31, 2015 $ 13,815 Additions 34,945 Payments (1,793) Included in earnings 1,277 Balance at December 31, 2016 $ 48,244 Additions 905 Payments (19,613) Included in earnings (6,840) Balance at December 31, 2017 $ 22,696 Discount Rate Discounted cash flow Discount rate Total Reduction in Balance at Fair Value Balance December 31, Recorded during Sheet 2017 the year ended Location Level 1 Level 2 Level 3 Total December 31, 2017, Assets: Goodwill Goodwill $ — $ — $ 598 $ 598 $ (18,026) 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 2019. Changes in Internal Control Over Financial Reporting REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Penn National Gaming, Inc. statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard. Greektown Casino-Hotel. PCAOB. 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. PART IV Financial 3. 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 EXHIBIT INDEX 31.1* President and Chief Executive Officer Signature /s/ Executive Vice President Finance and Chief Financial Officer (Principal Financial /s/ David A. Handler Director, David A. Handler /s/ John M. Jacquemin Director John M. Jacquemin /s/ Ronald J. Naples Director Ronald J. Naples /s/ Saul V. Reibstein Director Barbara Z. Shattuck Kohn /s/ Jane Scaccetti Director Jane Scaccetti Increase in the Recorded Amount of Impairment Loss as a Result of: (dollars in millions) Carrying Amount Cushion 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 We account for income taxes in accordance with. 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.56The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. We consider all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining more likely than not the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.In connection with the failed spin off leaseback, the Company recorded real property assets and a financing obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013, which resulted in a substantial increase to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny should be given to deferred tax assets of an entity with cumulative pre tax losses during the most recent three years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude that a valuation allowance is not warranted. As of September 30, 2017, the Company determined that a valuation allowance was no longer required against its federal net deferred tax assets for the portion that will be realized. As such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017 due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-than-not” realization standard. See Note 12 “Income Taxes” for additional information.Federal Tax Reform – critical accounting changesOn December 22, 2017, the President signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States tax law. The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying capital improvements (including those acquired via asset acquisitions) through 2022, which then phase out 20% a year thereafter, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”).Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides accounting guidance for the Tax Act. SAB 118 provides a measurement period similar to a business combination whereby recognizing provisional amounts to the extent that they are reasonably estimable and adjust them over time as more information becomes available not to extend beyond one year from the Tax Act enactment date. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the accounting under ASC 740 is complete. To the extent the accounting related to the Tax Act is incomplete but a reasonable estimate is attainable, a provisional estimate should be reflected in the financial statementsWe recorded a net charge of $266.0 million included in the income tax provision in the Consolidated Statements of Operations consisting of three components: (i) a $261.3 million charge due to the revaluation of the net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian subsidiary (which we will pay interest free over 8 years) and (iii) a $2.1 million foreign withholding tax charge due to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment assertion. While we believe the $266.0 million net charge represents a reasonable estimate of the income tax effects of the Tax Act in our Consolidated Statements of Operations as of December 31, 2017, these amounts are considered provisional. These adjustments reflected in our financial statements related to the application of the Tax Act are provisional amounts estimated based on published guidance and our interpretation as enacted. The new law directs the United States57Treasury to promulgate regulations as it deems appropriate as well as provide guidance implementing the intent of Congress. We will recognize any change to the provisional amounts in the period any additional guidance is published. Loan and unfunded loan commitments to the JIVDCFor year ended December 31, 2017, we recorded a provision for loan loss and reserves for unfunded loan commitments to the JIVDC of $89.8 million within our consolidated statements of operations. Our loan is impaired and as such the value is estimated based on the present value of expected future cash flows of the facility discounted at the loan’s original effective interest rate in accordance with ASC 310 “Receivables”. The estimate uses subjective assumptions such as, but not limited to, projected future earnings of the facility and potential proceeds which could be realized upon termination of our relationship with the Jamul Tribe. If our estimates are not accurate, we could incur additional losses up to our remaining maximum exposure on the loan and unfunded loan commitments to the JIVDC of approximately $28 million.Results of OperationsThe following are the most important factors and trends that contribute to our operating performance:·Most of our properties operate in mature competitive markets. As a result, we expect a significant amount of our future growth to come from prudent acquisitions of gaming properties (such as our pending acquisition of Pinnacle Entertainment, our August 2015 acquisition of Tropicana Las Vegas Hotel and Casino), jurisdictional expansions (such as our June 2015 opening of a slots‑only gaming facility in Massachusetts, the September 2014 opening of Hollywood Gaming at Mahoning Valley Race Course and the August 2014 opening of Hollywood Gaming at Dayton Raceway), expansions of gaming in existing jurisdictions (such as the introduction of table games in July 2010 at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, and at Hollywood Casino Bangor in March 2012), expansions/improvements of existing properties (such as Tropicana Las Vegas) and new growth opportunities (such as our acquisition of Prairie State Gaming, a leading video lottery terminal operator in Illinois, and our entry into the interactive and social gaming space through Penn Interactive Ventures, including our recent acquisition of Rocket Speed).·A number of states are currently considering or implementing legislation to legalize or expand gaming. Such legislation presents both potential opportunities to establish new properties (for example, in Massachusetts, where we opened a slots‑only gaming facility on June 24, 2015, in Kansas, where we opened a casino through a joint venture in February 2012, and in Ohio, where we opened casinos in Toledo and Columbus in May 2012 and October 2012, respectively, and opened video lottery terminal facilities at two racetracks in Ohio in the third quarter of 2014) and increased competitive threats to business at our existing properties (such as the introduction/expansion of commercial casinos in Kansas, Maryland, Ohio, Pennsylvania, and potentially Kentucky and Nebraska, and the introduction of tavern licenses in several states, most significantly in Illinois).·The successful implementation of our margin enhancement initiatives.·The actions of government bodies can affect our operations in a variety of ways. For instance, the continued pressure on governments to balance their budgets could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or property taxes, or via an expansion of gaming. In addition, government bodies may restrict, prevent or negatively impact operations in the jurisdictions in which we do business (such as the implementation of smoking bans).·The continued demand for, and our emphasis on, slot wagering entertainment at our properties.58·The successful execution of our development and construction activities, as well as the risks associated with the costs, regulatory approval and the timing of these activities.·The risks related to economic conditions and the effect of such prolonged sluggish conditions on consumer spending for leisure and gaming activities, which may negatively impact our operating results and our ability to continue to access financing at favorable terms.The consolidated results of operations for the years ended December 31, 2017, 2016 and 2015 are summarized below:Certain information regarding our results of operations by segment for the years ended December 31, 2017, 2016 and 2015 is summarized below:59RevenuesRevenues for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):In our business, revenue is driven by discretionary consumer spending. The proliferation of new gaming facilities has increased competition in many regional markets (including at some of our key facilities). As reported by most jurisdictions, regional gaming industry trends have shown limited revenue growth in recent years as numerous jurisdictions now permit gaming or have expanded their gaming offerings.We have no certain mechanism for determining why consumers choose to spend more or less money at our properties from period to period and as such cannot quantify a dollar amount for each factor that impacts our customers’ spending behaviors.However, based on our experience, we can generally offer some insight into the factors that we believe were likely to account for such changes. In instances where we believe one factor may have had a significantly greater impact than the other factors, we have noted that as well. However, in all instances, such insights are based only on our reasonable judgment and professional experience, and no assurance can be given as to the accuracy of our judgments.The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as “promotional allowances.” Our promotional allowance levels are determined based on various factors such as our marketing plans, competitive factors, economic conditions, and regulations.Gaming revenue2017 Compared with 20166Gaming revenue increased by $85.8 million, or 3.3%, to $2,692.0 million in 2017, primarily due to the variances explained below.60Gaming revenue for our Northeast segment increased by $14.1 million in 2017, primarily due to increased gaming revenue at all four of our Ohio properties, which together increased gaming revenues $37.6 million for the year ended December 31, 2017 and increased gaming revenues at Plainridge Park Casino, partially offset by decreased gaming revenue at Hollywood Casino Bangor and Hollywood Casino at Charles Town Races due to increased competition from the Maryland market.Gaming revenue for our Midwest segment increased by $27.2 million in 2017, primarily due to increased gaming revenue at Prairie State Gaming primarily resulting from the acquisition of the assets of four smaller VGT route operators in Illinois since the fourth quarter 2016 and increased gaming revenue at Argosy Casino Riverside, partially offset by decreased gaming revenue at Argosy Casino Alton partly due to flooding which occurred in May 2017, and Hollywood Casino Lawrenceburg, primarily due to continued impact of competition in Ohio.Gaming revenue for our South/West segment increased by $44.4 million in 2017, primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017, which contributed a combined $44.2 million of gaming revenue for the year ended December 31, 2017 and increased gaming revenue at Tropicana Las Vegas, M Resort and Zia Park, as the local economy has shown improvements over the second half of the year, partially offset by decreased gaming revenue at Hollywood Casino Gulf Coast and Boomtown Biloxi, both of which were negatively impacted by Hurricane Nate in October 2017 and decreased gaming revenue at Hollywood Casino Tunica.2016 Compared with 2015Gaming revenue increased by $108.8 million, or 4.4%, to $2,606.3 million in 2016, primarily due to the variances explained below.Gaming revenue for our Northeast segment increased by $59.1 million in 2016, primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, which increased gaming revenue by $67.0 million, improved results at Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, and Hollywood Gaming at Mahoning Valley Racecourse, which together increased gaming revenues $13.8 million for the year ended December 31, 2016. These increases were partially offset by decreased gaming revenue at Hollywood Casino at Charles Town Races and, to a lesser extent, Hollywood Casino at Penn National Race Course, primarily due to increased competition from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore, which opened at the end of August 2014, and MGM National Harbor, which opened in December 2016.Gaming revenue for our Midwest segment increased by $40.9 million in 2016, primarily due to a full year of operations at Prairie State Gaming, which was acquired on September 1, 2015, and increased gaming revenue by $43.9 million, and increased gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside. These increases were partially offset by decreased gaming revenue at Hollywood Casino Joliet, Argosy Casino Alton, which was negatively impacted by flooding that occurred during the first quarter 2016, and Hollywood Casino Lawrenceburg, primarily due to the continued impact of competition in Ohio, namely the openings of a racino at Belterra park, Horseshoe Casino in Cincinnati and our own facility in Dayton.Gaming revenue for our South/West segment increased by $8.8 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015 and had increased gaming revenue of $32.0 million, partially offset by decreased gaming revenue at Hollywood Casino Tunica, Zia Park, as low oil prices have continued to affect the economy in this area, and Boomtown Biloxi, due to new competition.61Food, beverage, hotel and other revenue2017 Compared with 2016Food, beverage, hotel and other revenue increased by $26.3 million, or 4.6%, to $601.7 million in 2017 primarily due to the variances explained below.Food, beverage, hotel and other revenue for our South/West segment increased by $12.7 million in 2017, primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017 and increased food, beverage, hotel and other revenue at Tropicana Las Vegas and M Resort, partially offset by decreased food, beverage, hotel and other revenue at Hollywood Casino Tunica.Food, beverage, hotel and other revenue for our Northeast segment increased by $2.4 million in 2017, primarily due to increased food, beverage, hotel and other revenue at Hollywood Gaming at Mahoning Valley, Hollywood Gaming at Dayton Raceway and Hollywood Casino Columbus, partially offset by decreased food, beverage, hotel and other revenue at Hollywood Casino at Charles Town Races due to increased competition from the Maryland market.Food, beverage, hotel and other revenue for our Other segment increased by $10.4 million in 2017, primarily due to a full year of operations for Rocket Speed, which was acquired on August 1, 2016, partially offset by the sale of Rosecroft Raceway on July 31, 2016.2016 Compared with 2015Food, beverage, hotel and other revenue increased by $89.9 million, or 18.5%, to $575.4 million in 2016 primarily due to the variances explained below.Food, beverage, hotel and other revenue for our South/West segment increased by $55.7 million in 2016, primarily due to increased food, beverage, hotel and other revenue due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, which had increased food, beverage, hotel and other revenue of $58.5 million for the year ended December 31, 2016. This increase was partially offset by decreased food, beverage, hotel and other revenue from Zia Park Casino.Food, beverage, hotel and other revenue for our Northeast segment increased by $8.4 million in 2016, primarily due to increased food, beverage, hotel and other revenue from a full year of operations at Plainridge Park Casino which opened on June 24, 2015, which had increased food, beverage, hotel and other revenue of $6.5 million for the year ended December 31, 2016.Food, beverage, hotel and other revenue for our Midwest segment increased by $5.1 million in 2016, primarily due to increased food, beverage, hotel and other revenue at Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Argosy Casino Riverside.Promotional allowancesThe 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.622017 Compared with 2016Promotional allowances increased by $8.8 million, or 5.1%, to $183.5 million in 2017, primarily due the acquisitions of 1st Jackpot and Resorts on May 1, 2017 and increased marketing efforts at Tropicana Las Vegas and M Resort.2016 Compared with 2015Promotional allowances increased by $19.7 million, or 12.7%, to $174.7 million in 2016, primarily due to increased promotional allowances from a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015.Operating ExpensesOperating expenses for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):Gaming expense2017 Compared with 2016Gaming expense increased by $30.0 million, or 2.2%, to $1,365.0 million in 2017, primarily due to the variances explained below.Gaming expense for our Midwest segment increased by $19.7 million in 2017, primarily due to an increase in gaming taxes resulting from increased taxable gaming revenue mentioned above at Prairie State Gaming primarily resulting from the acquisition of four smaller VGT route operators in Illinois since the fourth quarter 2016 and Argosy Casino Riverside, partially offset by a decrease in gaming taxes resulting from decreased taxable gaming revenue63mentioned above at Argosy Casino Alton and Hollywood Casino Lawrenceburg, primarily due to continued impact of competition in Ohio.Gaming expense for our South/West segment increased by $9.9 million in 2017, primarily due to an increase in gaming taxes resulting from the acquisitions of 1st Jackpot and Resorts on May 1, 2017, and an increase in gaming taxes resulting from increased taxable gaming revenue mentioned above at Tropicana Las Vegas and Zia Park, as the local economy has shown improvements over the second half of the year, partially offset by a decrease in gaming taxes resulting from decreased taxable gaming revenue mentioned above at Hollywood Casino Gulf Coast and Boomtown Biloxi, both of which were negatively impacted by Hurricane Nate in October 2017 and at Hollywood Casino Tunica2016 Compared with 2015Gaming expense increased by $63.3 million, or 5.0%, to $1,335.0 million in 2016, primarily due to the variances explained below.Gaming expense for our Midwest segment increased by $31.9 million in 2016, primarily due to a full year of operations at Prairie State Gaming, which was acquired on September 1, 2015 and an overall increase in gaming taxes resulting from increased taxable gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside, partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Hollywood Casino Joliet, Hollywood Casino Aurora, and Argosy Casino Alton.Gaming expense for our Northeast segment increased by $28.8 million in 2016, primarily due to full year of operation at Plainridge Park Casino, which opened on June 24, 2015, and increased gaming taxes as a result of increased taxable gaming revenue at Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, and Hollywood Gaming at Mahoning Valley Race Course. These increases were partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course.Gaming expense for our South/West segment increased by $3.0 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Zia Park Casino as low oil prices have continued to affect the economy in this area, Hollywood Casino Tunica and M Resort.Food, beverage, hotel and other expense2017 Compared with 2016Food, beverage, hotel and other expense increased by $15.0 million, or 3.7%, to $421.8 million in 2017, primarily due to the variances explained below.Food, beverage, hotel and other expense for our South/West segment increased by $12.5 million in 2017, primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and higher food, beverage, hotel and other expenses at Tropicana Las Vegas and M Resort, partially offset by lower food, beverage, hotel and other expenses at Hollywood Casino Tunica and Boomtown Biloxi.Food, beverage, hotel and other expense for our Northeast segment increased by $2.2 million in 2017, primarily due to higher food, beverage, hotel and other expenses at Hollywood Casino at Penn National Race Course, Hollywood Gaming at Mahoning Valley Race Course, Hollywood Gaming at Dayton Raceway and Hollywood Casino Columbus, partially offset by lower food, beverage, hotel and other expenses at Hollywood Casino Toledo and Hollywood Casino at Charles Town Races due to increased competition from the Maryland market .642016 Compared with 2015Food, beverage, hotel and other expense increased by $57.0 million, or 16.3%, to $406.9 million in 2016, primarily due to the variances explained below.Food, beverage, hotel and other expense for our South/West segment increased by $39.9 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015.Food, beverage, hotel and other expense for our Northeast segment increased by $4.8 million in 2016, primarily due to increased food, beverage and other expense from a full year of operations at Plainridge Park Casino which opened on June 24, 2015.Food, beverage, hotel and other expense for our Midwest segment increased by $3.8 million in 2016, primarily due to increased food, beverage, hotel and other expense at Hollywood Casino Joliet, Hollywood Casino St. Louis and Argosy Casino Riverside.General and administrative expenseGeneral and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include lobbying expenses and changes in the fair value of our contingent purchase price obligations.2017 Compared with 2016General and administrative expenses increased by $51.7 million, or 11.2%, to $514.8 million in 2017, primarily due to the variances explained below.General and administrative expenses for Other increased by $19.0 million in 2017, primarily due to higher cash-settled stock-based compensation charges of $23.0 million from increases in Penn’s stock price during 2017 compared to 2016, higher bonus accrual expense of $3.5 million due to the Company’s better overall performance against its budget, higher outside services and legal fees of $9.4 million due to development and acquisition costs and a full year of operations of Rocket Speed, which was acquired on August 1, 2016, partially offset by a $22.2 million benefit from a buy out of the contingent purchase price obligation for Rocket Speed.General and administrative expenses for our South/West segment increased by $18.6 million in 2017, primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and higher expenses at Tropicana Las Vegas due to a favorable litigation settlement in 2016, partially offset by by cost saving measures at Hollywood Casino Gulf Coast and Hollywood Casino Tunica.General and administrative expenses for our Northeast segment increased by $14.3 million in 2017, primarily due to higher contingent purchase price expense at Plainridge Park Casino due to improved results and long-term outlook.2016 Compared with 2015General and administrative expenses increased by $13.6 million, or 3.0%, to $463.0 million in 2016, primarily due to the variances explained below.65General and administrative expenses for our Midwest segment increased by $13.1 million in 2016, primarily due to favorable property tax settlements of $17.4 million in 2015, partially offset by lower expenses at Hollywood Casino Joliet and Argosy Casino Alton.General and administrative expenses for Other decreased by $10.0 million in 2016, primarily due to lower cash settled stock based compensation charges of $7.8 million mainly due to stock price decreases for Penn and GLPI common stock during 2016 compared to stock price increases in 2015 and lower bonus expense of $2.7 million.General and administrative expenses for our South/West segment increased by $9.4 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, partially offset by decreased expenses at M Resort primarily due to decreases in outside service costs.General and administrative expenses for our Northeast segment increased by $1.1 million in 2016, primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, partially offset by a favorable property tax adjustment for Hollywood Gaming at Dayton Raceway.Depreciation and amortization expense2017 Compared with 2016Depreciation and amortization expense decreased by $4.2 million, or 1.5%, to $267.1 million in 2017, primarily due to decreases at the majority of our properties due to assets becoming fully depreciated, partially offset by the acquisitions of 1st Jackpot and Resorts on May 1, 2017, increased intangible asset amortization from a full year of operations at Rocket Speed and the acquisitions of the assets of four smaller VGT route operators in Illinois since the fourth quarter 2016.2016 Compared with 2015Depreciation and amortization expense increased by $11.8 million, or 4.5%, to $271.2 million in 2016, primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, Tropicana Las Vegas, which was acquired on August 25, 2015, Prairie State Gaming, which was acquired on September 1, 2015, and intangible asset amortization expense associated with our acquisition of Rocket Speed. These increases were partially offset by lower expenses at the majority of our other properties as assets become fully depreciated.Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDCFor the year ended December 31, 2017, the Company recorded a provision for loan loss and unfunded loan commitments to the JIVDC of $89.8 million and goodwill impairment charges of $18.0 million.For the year ended December 31, 2016, the Company did not record any impairment charges.For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million related to the write‑off of our Plainridge Park Casino gaming license and a partial write‑down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.Insurance recoveries, net of deductible chargesInsurance recoveries for the year ended December 31, 2017 were related to an insurance gain in our Midwest segment of $0.3 million for the second quarter flood that occurred at Argosy Casino Alton.66Insurance recoveries for the year ended December 31, 2016 were related to an insurance gain in our Midwest segment of $0.7 million for the first quarter flood that occurred at Argosy Casino Alton.Other income (expenses)Other income (expenses) for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):Interest expenseInterest expense increased by $7.5 million, or 1.6%, to $466.8 million in 2017, primarily due to $5.8 million higher interest payments on the financing obligation to GLPI due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and the incurrence of rent escalators, $5.0 million from higher borrowing levels on the senior unsecured notes, partially offset by $2.5 million from lower borrowing levels and interest rates on the revolver portion of the senior secured credit facility and $0.7 million lower accretion on the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.Interest expense increased by $16.1 million, or 3.6%, to $459.2 million in 2016, primarily due to $11.9 million from higher borrowings on the Term Loan A and revolver portions of the senior secured credit facility during year ended December 31, 2016, compared to prior year, lower capitalized interest of $1.7 million and higher payments of $1.7 million from the rent escalator on the financing obligation to GLPI.Interest incomeInterest income decreased by $20.6 million, or 85.3%, to $3.6 million in 2017, primarily due to lower interest accrued on the loan to the JIVDC due to their refinancing on October 20, 2016 (see Note 5 to the consolidated financial statements for further details).Interest income increased by $12.7 million, or 109.7%, to $24.2 million in 2016, primarily due to higher interest accrued on the loan to the JIVDC (see Note 5 to the consolidated financial statements for further details).67Income from unconsolidated affiliatesIncome from unconsolidated affiliates increased by $4.3 million, or 30.2%, to $18.7 million in 2017, primarily due to increased earnings related to our joint venture in Kansas Entertainment primarily due to higher year over year revenue.OtherOther changed by $0.6 million, or 34.4%, to $(2.3) million in 2017 compared to 2016 primarily due to costs associated with the January 2017 debt refinancing, partially offset by lower foreign currency translation losses for the year ended December 31, 2017 compared to 2016.Other changed by $7.6 million, or 128.6%, to $(1.7) million in 2016 compared to 2015 primarily due to foreign currency translation losses for the year ended December 31, 2016 compared to foreign currency translation gains for 2015.Our income tax benefit from operations was $498.5 million for the year ended December 31, 2017, compared to an income tax expense of $11.3 million in the prior year period. Our effective tax rate (income taxes as a percentage of income from operations before income taxes) was 1,990.6% for the year ended December 31, 2017, as compared to 9.4% for the year ended December 31, 2016. The Company’s effective tax rate in the current year is lower than the federal statutory tax rate of 35% due to the effect of permanent items such as nondeductible goodwill amortization, stock compensation, and the contingent liability settlement, as well as the decrease in our valuation allowance during the year compared to the corresponding prior year period , which is partially offset by the effects of the deferred federal income tax rate reduction from 35% to 21% due to income tax reform legislation known as the Tax Cuts and Jobs Act. Our low level of pre tax earnings has magnified the impact of the above items on our effective tax rate during the year ended December 31, 2017, compared to the corresponding prior year period.We recorded a net charge of $266.0 million included in the income tax provision in the Consolidated Statements of Operations consisting of three components: (i) a $261.3 million charge due to the revaluation of the net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian subsidiary (which we will pay interest free over 8 years) and (iii) a $2.1 million foreign withholding tax charge due to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment assertion. While we believe the $266.0 million net charge represents a reasonable estimate of the income tax effects of the Tax Act in our Consolidated Statements of Operations as of December 31, 2017, these amounts are considered provisional. Our effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and the level of our tax credits. Certain of these and other factors, including our history and projections of pre tax earnings, are considered in assessing our ability to realize our net deferred tax assets. During the year ended December 31, 2017, we determined that a valuation allowance was no longer required against the federal and state net deferred tax assets for the portion that will be realized. As such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017. The Company continues to maintain a valuation allowance of $113.7 million as of December 31, 2017 for federal capital loss carryforwards, as well as certain state filing groups, where it continues to be in a cumulative three-year pretax loss position.Adjusted EBITDAIn 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, stock68compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction was accounted for as a financing obligation. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We also present adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In addition, gaming companies have historically reported adjusted EBITDA as a supplement to financial measures in accordance with GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino properties. However, adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a widely used measure of performance in the gaming industry, is used in the valuation of gaming companies, and that it is considered by many to be a key indicator of the Company’s operating results. Management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel. Adjusted EBITDA should not be construed as an alternative to operating income, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA. It should also be noted that other gaming companies that report adjusted EBITDA information may calculate adjusted EBITDA in a different manner than the Company and therefore, comparability may be limited. A reconciliation of the Company’s net income per GAAP adjusted EBITDA, as well as the Company’s income from operations per GAAP to adjusted EBITDA, is included below. Additionally, a reconciliation of each segment’s income (loss) from operations to adjusted EBITDA is also included above. On a segment level, income (loss) from operations per GAAP, rather than net income (loss) per GAAP is reconciled to adjusted EBITDA due to, among other things, the impracticability of allocating interest expense, interest income, income taxes and certain other items to the Company’s segments on a segment by segment basis. Management believes that this presentation is important to investors in evaluating the performance of the Company’s segments and is consistent with the reporting of other gaming companies.69The reconciliation of the Company’s income (loss) from operations per GAAP to adjusted EBITDA, as well as the Company’s net income per GAAP to adjusted EBITDA, for the years ended December 31, 2017, 2016 and 2015 was as follows:(1)Adjusted EBITDA excludes our share of the impact of non‑operating items (such as depreciation and amortization expense) from our joint venture in Kansas Entertainment.The reconciliation of each segment’s income (loss) from operations to adjusted EBITDA for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):702017 Compared to 2016Adjusted EBITDA for our Northeast segment increased by $12.2 million, or 2.5%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to improved results at all four of our Ohio properties and Plainridge Park Casino, partially offset by lower Adjusted EBITDA at Hollywood Casino at Charles Town Races due to increased competition from the Maryland market.Adjusted EBITDA for our Midwest segment increased by $10.5 million, or 3.7%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to improved results at Argosy Casino Riverside and Prairie State Gaming which benefited from the acquisition of two smaller VGT route operators during the year, partially offset by lower adjusted EBITDA at Hollywood Casino Joliet and Hollywood Casino St. Louis.Adjust EBITDA for our South/West segment increased by $6.8 million, or 5.3%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017, which contributed adjusted EBITDA of $8.6 million, improved results at M Resort and Zia Park Casino, as the local economy has shown improvements in the second half of 2017, partially offset by lower adjusted EBITDA at Hollywood Casino Gulf Coast due to impacts from Hurricane Nate in October 2017 and at Tropicana Las Vegas, primarily due to negative impacts in the fourth quarter following the tragic shootings and a favorable litigation settlement in the prior year.Adjusted EBITDA for Other decreased by $27.3 million, or 44.8%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to increased corporate overhead costs of $34.8 million, primarily due to higher cash‑settled stock‑based compensation charges of $23.0 million mainly due to higher Penn stock price during 2017 compared to 2016, higher acquisition and development costs of $9.4 million as well as increased bonus expense of $3.5 million due to the Company’s better overall performance against its budget, partially offset by a full year of earnings from Rocket Speed, which was acquired on August 1, 2016.712016 Compared to 2015Adjusted EBITDA for our Northeast segment increased by $32.5 million, or 7.1%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a full year of operations for Plainridge Park Casino, which opened on June 24, 2015, improved results at all of our Ohio properties, which together increased adjusted EBITDA by $11.5 million, partially offset by decreased adjusted EBITDA at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, primarily due to the continued impact of competition of in the region, namely Maryland Live!, Horseshoe Casino Baltimore, and MGM National Harbor, which opened in December 2016.Adjusted EBITDA for our Midwest segment decreased by $4.0 million, or 1.4%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to decreased EBITDA at Hollywood St. Louis as a result of a $15.4 million property tax credit received during 2015, Hollywood Casino Lawrenceburg as a result of a $2.0 million property tax refund received in the first quarter of 2015, and Argosy Casino Alton due to flooding during the first quarter 2016, which resulted in declines in business volumes and difficulty recovering lost business, partially offset by increased adjusted EBITDA from a full year of operations of Prairie State Gaming which was acquired on September 1, 2015.Adjusted EBITDA for Other increased by $19.3 million, or 24.0%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to decreased corporate overhead costs of $11.7 million, primarily due to lower cash settled stock based compensation charges of $7.8 million mainly due to stock price decreases for Penn and GLPI common stock during 2016 compared to stock price increases in 2015, as well as decreased bonus expense of $2.7 million. Penn Interactive Ventures also increased adjusted EBITDA by $8.8 million for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to growth from our HollywoodCasino.com social gaming business and the acquisition of Rocket Speed on August 1, 2016.Liquidity and Capital ResourcesHistorically and prospectively, our primary sources of liquidity and capital resources have been and will be cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities.Net cash provided by operating activities was $459.1 million, $411.7 million, and $413.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The increase in net cash provided by operating activities of $47.4 million for the year ended December 31, 2017, compared to the corresponding period in the prior year, was comprised primarily of an increase in cash receipts from customers of $109.2 million, primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017, Rocket Speed on August 1, 2016 and four smaller acquisitions by Prairie State Gaming since the fourth quarter 2016 and an increase in income tax refunds of $32.1 million, offset by an increase in cash paid to suppliers and vendors of $37.6 million, primarily due to the acquisitions noted above, a reduction of $23.0 million in interest income collections resulting from the refinancing of the Jamul loan in October 2016, cash payments for the early extinguishment of debt of $18.0 million and an increase in cash paid to employees of $15.5 million.Net cash used in investing activities totaled $221.6 million, $79.3 million, and $781.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. The increase in net cash used in investing activities of $142.3 million for the year ended December 31, 2017, compared to the corresponding period in the prior year, was primarily due the $273.9 million received from the refinancing of loans to the Jamul Tribe in the prior year, cash payments of $42.5 million primarily related to the acquisition of 1st Jackpot and Resorts and decreased proceeds related to the sale of assets held for sale of $17.2 million primarily from the sale of Rosecroft Raceway in 2016. All of which were partially offset by $183.3 million decrease in loan to the JIVDC and $8.2 million of principal and interest collections applied against the nonaccrual loan to the JIVDC.72Net cash (used in) provided by financing activities totaled $(189.0) million, $(339.9) million, and $395.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease in net cash used in financing activities of $150.9 million for the year ended December 31, 2017, compared to the prior year, was primarily due to higher proceeds from our long-term debt of $1,308.0 million, due to the refinancing of corporate debt, and higher proceeds of $82.6 million from GLPI for financing the acquisition of 1st Jackpot and Resorts. All of which were partially offset by higher principal payments on long-term debt of $1,167.3 million due to the previously mentioned refinancing, payments of $24.8 million relating to the repurchase of common stock, higher payments of $17.8 million primarily relating to a buy out of the contingent purchase price obligation with Rocket Speed, higher payments on other long-term obligations of $21.7 million and higher principal payments on the financing obligation with GLPI of $7.3 million.Capital ExpendituresCapital expenditures are accounted for as either project capital or maintenance (replacement) capital expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair.The following table summarizes our project capital expenditures by segment for the year ended December 31, 2017:(1)Capital expenditures from our South/West segment are related to the improvements at the Tropicana Las Vegas.(2)Capital expenditures from our Midwest segment are related to hotel improvements at Hollywood St. Louis.��During 2017, we made further enhancements to our Tropicana Las Vegas facility including adding a celebrity chef restaurant, the Robert Irvine Public House, which opened on July 27, 2017.During the year ended December 31, 2017, we spent $68.8 million on maintenance capital expenditures, with $22.6 million in our Northeast segment, $17.2 million in our South/West segment, $24.2 million in our Midwest segment, and $4.8 million in Other. The majority of the maintenance capital expenditures were for slot machines and slot machine equipment.Cash generated from operations and cash available under the revolving credit facility portion of our senior secured credit facility funded our capital projects and maintenance capital expenditures in 2017.73The following table summarizes our expected capital expenditures for the year ending December 31, 2018 by segment:(1)Expected project capital expenditures in 2018 for our South/West segment is for improvements at the Tropicana Las Vegas.In January 2018, the Company secured a Category 4 satellite casino license in York County, Pennsylvania and paid $50.1 million for the gaming license. At the time of this filing, the timing and scope of our future investment of capital for this project have not been determined and, as such, the table above does not include any amount related to this project.Jamul Indian Village Development CorporationOur loan to the JIVDC, net of allowance for loan losses, which totaled $20.9 million and $92.1 million at December 31, 2017 and 2016, is accounted for as a loan on the consolidated balance sheets and as such is not included in the capital expenditures table presented above. See Note 5 to the consolidated financial statements for additional details.DebtSenior Secured Credit FacilityOn October 30, 2013, the Company entered into a new senior secured credit facility. The new senior secured credit facility consists of a five year $500 million revolver, a five year $500 million Term Loan A facility, and a seven year $250 million Term Loan B facility. The Term Loan A facility was priced at LIBOR plus a spread (ranging from 2.75% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor.On April 28, 2015, the Company entered into an agreement to amend its senior secured credit facility. In August 2015, the amendment to the senior secured credit facility went into effect increasing the capacity under an existing five year revolver from $500 million to $633.2 million and increased the existing five year $500 million Term Loan A facility by $146.7 million. The seven year $250 million Term Loan B facility remained unchanged. On January 19, 2017, the Company entered into an amended and restated senior secured credit facility. The amended and restated senior secured credit facility consists of a five year $700 million revolver, a five year $300 million Term Loan A facility, and a seven year $500 million Term Loan B facility (the “Amended Credit Facilities”). The Term Loan A facility was priced at LIBOR plus a spread (ranging from 3.00% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor. At December 31, 2017, the Company’s senior secured credit facility had a gross outstanding balance of $760.0 million, consisting of a $288.8 million Term Loan A facility and a $471.2 million Term Loan B facility. The revolving credit facility had nothing drawn at December 31, 2017.74Additionally, at December 31, 2017 and 2016, the Company had conditional obligations under letters of credit issued pursuant to the senior secured credit facility with face amounts aggregating $22.1 million and $23.0 million, respectively, resulting in $677.9 million and $419.1 million of available borrowing capacity as of December 30, 2017 and 2016, respectively, under the revolving credit facility. In connection with the repayment of the previous senior secured credit facility, the Company recorded $1.7 million in refinancing costs and a $2.3 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the write-off of deferred debt issuance costs and the discount on the Term Loan B facility of the previous senior secured credit facility.The payment and performance of obligations under the senior secured credit facility are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property such as gaming licenses) of the Company and its subsidiaries.5.875% Senior Unsecured NotesOn October 30, 2013, the Company completed an offering of $300 million 5.875% senior unsecured notes that mature on November 1, 2021 (the “5.875% Notes”) at a price of par. Interest on the 5.875% Notes is payable on May 1 and November 1 of each year. The 5.875% Notes are senior unsecured obligations of the Company. The 5.875% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary guaranteed debt securities. The Company may redeem the 5.875% Notes at any time, and from time to time, on or after November 1, 2016, at the declining redemption premiums set forth in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a “make whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays 105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.The Company used the proceeds of the new senior secured credit facility, new 5.875% Notes, and cash on hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its previously issued 83/4% senior subordinated notes (“83/4% Notes”)and the related consent solicitation to make certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay related fees and expenses and for working capital purposes.Redemption of 5.875% Senior Subordinated NotesIn the first quarter of 2017, the Company redeemed all of its $300 million 5.875% senior subordinated notes, which were due in 2021 (“5.875% Notes”). In connection with this redemption, the Company recorded a $21.1 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the difference between the reacquisition price of the 5.875% Notes compared to its carrying value.5.625% Senior Unsecured NotesOn January 19, 2017, the Company completed an offering of $400 million 5.625% senior unsecured notes that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on January 15th and July 15th of each year. The 5.625% Notes are senior unsecured obligations of the Company. The 5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary guaranteed debt securities. The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the 5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture governing the 5.625%75Notes. In addition, prior to January 15, 2020, the Company may redeem the 5.625% Notes with an amount equal to the net proceeds from one or more equity offerings, at a redemption price equal to 105.625% of the principal amount of the 5.625% Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date, so long as at least 60% of the aggregate principal amount of the notes originally issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the related equity offering.The Company used a portion of the proceeds from the issuance of the 5.625% Notes to retire its existing 5.875% Notes and to fund related transaction fees and expenses. The Company used loans funded under the Amended Credit Facilities and a portion of the proceeds of the 5.625% Notes to repay amounts outstanding under its then existing Credit Agreement and to fund related transaction fees and expenses and for general corporate purposes.Financing obligation with GLPIThe Company’s Master Lease with GLPI that became effective November 1, 2013 was accounted for as a financing obligation and totaled $3.54 billion and $3.51 billion at December 31, 2017 and 2016, respectively. At the inception of the lease, the Company determined that the lease term should include all option periods since renewal was reasonably assured given the high percentage of earnings from the Master Lease properties operations to the Company and the lack of alternative economically feasible leasing options for such real estate. The future minimum lease payments at lease inception were discounted at 9.7% which represented the Company’s estimated incremental borrowing rate over the term of the lease. The financing obligation increased by $24.7 million for the year ended December 31, 2017 compared to the prior year due to the addition of $82.6 million in connection with the acquisition of 1st Jackpot and Resorts, partially offset by principal payment reductions. Interest expense recognized on this obligation for the years ended December 31, 2017 and 2016 totaled $397.6 million and $391.7 million, respectively.Other Long‑Term ObligationsOther long term obligations at December 31, 2017 and 2016 of $119.3 million and $154.1 million, respectively, included $105.4 million and $118.9 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course. At December 31, 2017 and 2016, $13.8 million and $14.4 million, respectively, related to the repayment obligation of a hotel and event center located near Hollywood Casino Lawrenceburg. The December 31, 2016 long term obligations included $20.8 million related to a corporate airplane loan; all of which are more fully described below.In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $5.5 million and $6.2 million for the year ended December 31, 2017 and 2016, respectivelyThe 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 interest76expense at its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for the years ended December 31, 2017 and 2016.Corporate Airplane LoanOn 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. CovenantsThe Company’s senior secured credit facility and senior unsecured notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge coverage, interest coverage, senior leverage and total leverage ratios. In addition, the Company’s senior secured credit facility and senior unsecured notes restrict, among other things, its ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.At December 31, 2017, the Company was in compliance with all required financial covenants.OutlookBased on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our senior secured credit facility, will be adequate to meet our anticipated Master Lease obligations, debt service requirements, capital expenditures and working capital needs for the foreseeable future. However, we cannot be certain that our business will generate sufficient cash flow from operations, that our anticipated earnings projections will be realized, or that future borrowings will be available under our senior secured credit facility or otherwise will be available to enable us to service our indebtedness or to make anticipated capital expenditures. In addition, we expect a majority of our future growth to come from acquisitions of gaming properties at reasonable valuations, greenfield projects, jurisdictional expansions and property expansion in under‑penetrated markets. If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See “Risk Factors—Risks Related to Our Capital Structure” of this Annual Report on Form 10‑K for a discussion of the risks related to our capital structure.We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace and in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they come due through internally generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity.We expect to fund the anticipated acquisition of Pinnacle with a combination of proceeds from asset divestitures and the sale-leaseback of Plainridge Park Casino, existing cash on our balance sheet, new debt financing and internally generated cash flow prior to the acquisition. We anticipate that the additional cash flow resulting from the acquisition will allow us to pay down debt on an accelerated basis after closing.77Commitments and ContingenciesContractual Cash ObligationsAt December 31, 2017, there was approximately $677.9 million available for borrowing under our revolving credit facility. The following table presents our contractual cash obligations at December 31, 2017:(1)The interest rates associated with the variable rate components of our senior secured credit facility are estimated, based on the forward LIBOR curves plus the current spread based on our current levels of indebtedness over LIBOR as of December 31, 2017. The contractual amounts to be paid on our variable rate obligations are affected by changes in market interest rates and changes in our spreads which are based on our leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid.(2)The Company anticipates spending approximately $105.5 million for future capital expenditures over the next year, of which the Company has been contractually committed to spend approximately $4.8 million at year‑end.(3)Reflects the undiscounted future minimum lease payments to GLPI over the lease term, including renewal options. The amounts above exclude contingent payments (See Note 10 to the consolidated financial statements for further discussion).(4)The Company agreed to pay $110 million (of which $60.0 million remains to be paid) to the State of Ohio over ten years in return for certain clarifications from the State of Ohio with respect to various financial matters and limits on competition within the ten year time period. This amount also includes the remaining portion of the relocation fees to be paid associated with our two new facilities in Dayton and Mahoning Valley, Ohio (See Note 9 and Note 11 to the consolidated financial statements).(5)Represents liabilities associated with reward programs that can be redeemed for cash, free play or services. Does not include any liability for unrecognized tax benefits of $31.8 million, as the Company cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing authority. Additionally, it does not include an estimate of the payments associated with our contingent purchase price obligations of $22.7 million as it78is not a fixed obligation. Finally, it does not include an estimate for unfunded loan commitments to the JIVDC which totaled approximately $29 million at December 31 ,2017 as we are unable to predict when these amounts would be incurred. See Note 3 “Summary of Significant Accounting Policies” for more information on our player loyalty programs.Other Commercial CommitmentsThe following table presents our material commercial commitments as of December 31, 2017 for the following future periods:(1)The available balance under the revolving credit portion of our senior secured credit facility is reduced by outstanding letters of credit.New Accounting PronouncementsFor 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 RISKThe table below provides information at December 31, 2017 about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts maturing during the year and the related weighted‑average interest rates by maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged by maturity date and the weighted‑average interest rates are based on implied forward LIBOR rates at December 31, 2017.(1)Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable‑rate borrowing.79ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors ofPenn National Gaming, Inc. and SubsidiariesOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheet of Penn National Gaming, Inc. and Subsidiaries (the "Company") as of December 31, 2017, the related consolidated statement of operations, comprehensive income, changes in shareholders' deficit and cash flows for the year ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2018 expressed an unqualified opinion on the Company's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion./s/ Deloitte & Touche LLPPhiladelphia, PennsylvaniaMarch 1, 2018We have served as the Company's auditor since 2017.80REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and Shareholders ofPenn National Gaming, Inc. and SubsidiariesWe have audited the accompanying consolidated balance sheet of Penn National Gaming, Inc. and Subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' deficit and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Penn National Gaming, Inc. and Subsidiaries at December 31, 2016, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Penn National Gaming, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLPPhiladelphia, Pennsylvania
February 24, 2017, except for the classification adjustments to the Consolidated Statements of Cash Flows related to the adoption of Accounting Standards Update 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, described in Note 4, as to which the date is March 1, 201881Penn National Gaming, Inc. and SubsidiariesConsolidated Balance Sheets(in thousands, except share and per share data)See accompanying notes to the consolidated financial statements.82Penn National Gaming, Inc. and SubsidiariesConsolidated Statements of Operations(in thousands, except per share data)5.21 1.21 0.01 90,854 82,929 80,003 93,378 91,407 90,904 See accompanying notes to the consolidated financial statements.83Penn National Gaming, Inc. and SubsidiariesConsolidated Statements of Comprehensive Income (Loss)(in thousands)473,463 3,223 3,223 (122) (3,272) 476,686 109,188 (2,586) See accompanying notes to the consolidated financial statements.84Penn National Gaming, Inc. and SubsidiariesConsolidated Statements of Changes in Shareholders’ Deficit(in thousands, except share data)
benefits of $14,826
benefits of $6,896See accompanying notes to the consolidated financial statements.85Penn National Gaming, Inc. and SubsidiariesConsolidated Statements of Cash Flows(in thousands)459,079 411,719 413,808 (221,608) (79,288) (781,005) (189,028) (339,930) 395,533 277,953 229,510 237,009 See accompanying notes to the consolidated financial statements.86Non-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.87Penn National Gaming, Inc. and SubsidiariesNotes to Consolidated Financial Statements1.Business and Basis of PresentationPenn National Gaming, Inc. (“Penn”) and together with its subsidiaries (collectively, the “Company”, “we”, “our” or “us”) is a geographically diversified, multi-jurisdictional owner and manager of gaming and racing facilities and video gaming terminal operations with a focus on slot machine entertainment. The Company was incorporated in Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company became a publicly traded company. In 1997, the Company began its transition from a pari-mutuel company to a diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions, greenfield projects, and property expansions. We, along with our joint venture partner, opened Hollywood Casino at Kansas Speedway in February 2012. In Ohio, the Company opened four new gaming properties, including: Hollywood Casino Toledo in May 2012, Hollywood Casino Columbus in October 2012, Hollywood Gaming at Dayton Raceway in August 2014, and Hollywood Gaming at Mahoning Valley Race Course in September 2014. In addition, in November 2012, the Company acquired Harrah’s St Louis, which was subsequently rebranded as Hollywood Casino St Louis. In 2015, the Company opened Plainridge Park Casino, an integrated racing and slots-only gaming facility in Plainville, Massachusetts, in June, completed the acquisition of our first Las Vegas strip asset, Tropicana Hotel and Casino in Las Vegas, Nevada in August, and acquired Illinois Gaming Investors, LLC (d/b/a Prairie State Gaming), one of the largest video gaming terminal route operators in Illinois, in September.In 2016, Prairie State Gaming also acquired two smaller video gaming terminal route operators in Illinois. Finally, the Company implemented its interactive gaming strategy through its subsidiary, Penn Interactive Ventures, which included launching the HollywoodCasino.com Play4Fun social gaming platform with Scientific Games. On August 1, 2016, the Company completed its acquisition of Rocket Speed, a leading developer of social casino games. On May 1, 2017, the Company completed its acquisition of 1st Jackpot Casino Tunica (formerly known as Bally’s Casino Tunica, (“1st Jackpot”)) and Resorts Casino Tunica (“Resorts”). In the first half of 2017, the Company’s subsidiary, Prairie State Gaming acquired the assets of two additional smaller video gaming terminal operators in Illinois.As of December 31, 2017, the Company owned, managed, or had ownership interests in twenty‑nine facilities in the following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario, Canada.The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.2.Principles of ConsolidationThe 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.883.Summary of Significant Accounting PoliciesCash and Cash EquivalentsThe 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 RiskFinancial instruments that subject the Company to credit risk consist of cash and cash equivalents, and accounts receivable. The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short‑term money market and tax‑free bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and overnight repurchase agreements that exceed federally‑insured limits.Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers only following credit checks and investigations of creditworthiness. Marker balances issued to approved casino customers were $3.7 million at December 31, 2017, compared to $4.4 million at December 31, 2016.The Company’s receivables of $62.8 million and $61.9 million at December 31, 2017 and 2016, respectively, primarily consist of $6.1 million and $5.0 million, respectively, due from the West Virginia Lottery for gaming revenue settlements and capital reinvestment projects at Hollywood Casino at Charles Town Races, $9.9 million and $11.8 million, respectively, for reimbursement of expenses paid on behalf of Casino Rama and Hollywood Casino Jamul – San Diego, $5.5 million and $4.0 million, respectively, for racing settlements due from simulcasting at Hollywood Casino at Penn National Race Course, $3.4 million and $3.4 million, respectively, for reimbursement of payroll expenses paid on behalf of the Company’s joint venture in Kansas, $13.9 million and $10.8 million, respectively, for cash, credit card and other advances to customers, $3.0 million and $ 3.2 million, respectively, due from platform providers (i.e. Apple, Google, Amazon and Facebook) for social casino game revenues, and markers issued to customers mentioned above.Accounts are written off when management determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is determined to reduce the Company’s receivables to their carrying value, which approximates fair value. The allowance is estimated based on historical collection experience, specific review of individual customer accounts, and current economic and business conditions. Historically, the Company has not incurred any significant credit‑related losses.See Note 5 to the consolidated financial statements for a discussion of the credit risk associated with our loan to the Jamul Indian Village Development Corporation (“JIVDC”), including allowances for loan losses that were established in 2017.Property and EquipmentProperty 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 nor89appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.Depreciation of property and equipment is recorded using the straight‑ line method over the following estimated useful lives:Land improvements15yearsBuilding and improvements5 to 31yearsFurniture, fixtures, and equipment3 to 31yearsAll 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 AssetsAt December 31, 2017, the Company had $1,008.1 million in goodwill and $422.6 million in other intangible assets within its consolidated balance sheet, respectively, resulting from the Company’s acquisition of other businesses and payment for gaming licenses.Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if indicators of impairment exist. An income approach, in which a discounted cash flow model is utilized and a market-based approach utilizing guideline public company (“GPC”) multiples of adjusted EBTIDA from the Company’s peer group is utilized to estimate the fair market value of the Company’s reporting units.For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated using the combination of a discounted cash flow model and a GPC multiples approach which is then compared to the carrying value of each reporting unit. The Company adjusts the carrying value of each reporting unit that utilizes property that is subject to the Master Lease by an allocation of a pro-rata portion of the GLPI financing obligation based on the reporting unit’s estimated fair value as a percentage of the aggregate estimated fair value of all reporting units that utilize property that is subject to the Master Lease.90The Company compares the aggregate weighted average fair value to the carrying value of its reporting units. If the carrying value of the reporting unit exceeds the aggregate weighted average fair value, an impairment is recorded equal to the amount of the excess not to exceed the amount of goodwill allocated to the reporting unit.In accordance with ASC 350, “Intangibles‑Goodwill and Other,” the Company considers its gaming licenses and certain other intangible assets as indefinite‑life intangible assets that do not require amortization based on the Company’s future expectations to operate its gaming facilities indefinitely as well as its historical experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite‑life intangible assets exceed their fair value, an impairment loss is recognized. The Company completes its testing of its intangible assets prior to assessing the realizability of its goodwill.The Company assessed the fair value of its indefinite‑life intangible assets (which are primarily gaming licenses) using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value of the gaming license using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing facility. The method assumes a theoretical start‑up company going into business without any assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the following items:·Projected revenues and operating cash flows (including an allocation of the Company’s projected financing payments to its reporting units consistent with how the GLPI financing obligation is allocated);·Theoretical construction costs and duration;·Pre‑opening expenses; and·Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license.The evaluation of goodwill and indefinite‑life intangible assets requires the use of estimates about future operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite‑lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows (including an allocation of the Company’s projected financing obligation to its reporting units) that are based on reasonable and supportable assumptions which represent the Company’s best estimates of the cash flows expected to result from the use of the assets including their eventual disposition. Changes in estimates, increases in the Company’s cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future accounting periods. The Company’s estimates of cash flows are based on the current regulatory and economic climates, recent operating information and budgets of the various properties where it conducts operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting the Company’s properties.Forecasted cash flows (based on the Company’s annual operating plan as determined in the fourth quarter) can be significantly impacted by the local economy in which its reporting units operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions where the Company’s reporting units currently operate can result in opportunities for the Company to expand its operations. However, it also has the impact of increasing competition for the Company’s established properties which91generally will have a negative effect on those locations’ profitability once competitors become established as a certain level of cannibalization occurs absent an overall increase in customer visitations. Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.Assumptions and estimates about future cash flow levels and multiples by individual reporting units are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company’s business strategy, which may reallocate capital and resources to different or new opportunities which management believes will enhance its overall value but may be to the detriment of an individual reporting unit.Once an impairment of goodwill or other indefinite‑life intangible assets has been recorded, it cannot be reversed. Because the Company’s goodwill and indefinite‑life intangible assets are not amortized, there may be volatility in reported income because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite‑life are amortized on a straight‑line basis over their estimated useful lives or related service contract. The Company reviews the carrying value of its intangible assets that have a definite‑life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of the intangible assets that have a definite‑life exceed their fair value, an impairment loss is recognized.Financing Obligation with GLPIThe Company’s spin-off of real property assets and corresponding Master Lease Agreement with GLPI on November 1, 2013 did not meet all of the requirements for sale-leaseback accounting treatment under ASC 840 “Leases” and therefore is accounted for as a financing obligation rather than a distribution of assets followed by an operating lease. Specifically, the Master Lease contains provisions that would indicate the Company has prohibited forms of continuing involvement in the leased assets which are not a normal leaseback. As a result, the Company calculated a financing obligation at the inception of the Master Lease based on the future minimum lease payments discounted at the Company’s estimated incremental borrowing rate at lease inception over the lease term of 35 years, which included renewal options that were reasonably assured of being exercised given the high percentage of the Company’s earnings that were derived from the Master Lease properties operations to the Company and the lack of alternative economically feasible leasing options for such real estate. The minimum lease payments are recorded as interest expense and in part as a payment of principal reducing the financing obligation. Contingent rentals are recorded as additional interest expense. The real property assets in the transaction remain on the consolidated balance sheets and continue to be depreciated over their remaining useful lives.Debt Issuance CostsDebt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. These costs are classified as a direct reduction of long-term debt on the Company’s consolidated balance sheets.Self-Insurance ReservesThe Company is self-insured for employee health coverage, general liability and workers compensation up to certain stop loss amounts. The Company uses a reserve method for each reported claim plus an allowance for claims incurred but not yet reported to a fully developed claims reserve method based on an actuarial computation of ultimate liability. Self-insurance reserves are included in accrued expenses on the Company’s consolidated balance sheets.92Contingent Purchase PriceThe consideration for the Company’s acquisitions often includes future payments that are contingent upon the occurrence of a particular event. The Company records an obligation for such contingent payments at fair value at the acquisition date.The Company revalues its contingent consideration obligations each reporting period. Changes in the fair value of the contingent consideration obligation are recognized in the Company’s consolidated statements of operations as a component of general and administrative expense. Changes in the fair value of the contingent purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount rate and changes in the assumed probabilities of successful achievement of certain financial targets.Other Comprehensive IncomeThe Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income,” which establishes standards for the reporting and presentation of comprehensive income in the consolidated financial statements. The Company presents comprehensive income in two separate but consecutive statements. For the years ended December 31, 2017, 2016 and 2015, the only component of accumulated other comprehensive income was foreign currency translation adjustments.Income TaxesThe Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (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 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 ◦ 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. ◦ 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. ◦ Lease classification ◦ Build to suit and sale lease back transactions. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania February 27, 2020 We have served as the Company’s auditor since 2017. 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 $3.2 88.7 106.8 Prepaid expenses 76.7 63.0 Other current assets 40.0 28.2 Total current assets 642.8 677.6 Property and equipment, net 5,120.2 6,868.8 Investment in and advances to unconsolidated affiliates 128.3 128.5 Goodwill 1,270.7 1,228.4 Other intangible assets, net 2,026.5 1,856.9 Deferred income taxes — 80.6 Operating lease right-of-use assets 4,613.3 — Finance lease right-of-use assets 224.0 — Other assets 168.7 120.2 Total assets $ 14,194.5 $ 10,961.0 Liabilities Current liabilities Accounts payable $ 40.3 $ 30.5 Current maturities of long-term debt 62.9 62.1 Current portion of financing obligations 40.5 67.8 Current portion of operating lease liabilities 124.1 — Current portion of finance lease liabilities 6.5 — Accrued expenses and other current liabilities 631.3 578.0 Total current liabilities 905.6 738.4 Long-term debt, net of current maturities and debt issuance costs 2,322.2 2,350.1 Long-term portion of financing obligations 4,102.2 7,080.6 Long-term portion of operating lease liabilities 4,450.6 — Long-term portion of finance lease liabilities 219.4 — Deferred income taxes 244.6 — Other long-term liabilities 98.0 60.7 Total liabilities 12,342.6 10,229.8 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 capital 1,718.3 1,726.4 Retained earnings (accumulated deficit) 161.6 (968.0 ) Total Penn National stockholders’ equity 1,852.7 731.2 Non-controlling interest (0.8 ) — Total stockholders’ equity 1,851.9 731.2 Total liabilities and stockholders’ equity $ 14,194.5 $ 10,961.0 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 other 1,032.7 629.7 601.7 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 revenues 5,301.4 3,587.9 3,148.0 Operating expenses Gaming 2,281.8 1,551.4 1,365.0 Food, beverage, hotel and other 672.7 439.3 421.8 General and administrative 1,187.7 618.9 514.5 Reimbursable management costs — 57.3 26.1 Depreciation and amortization 414.2 269.0 267.1 Impairment losses 173.1 34.9 18.0 Provision for (recoveries on) loan loss and unfunded loan commitments — (17.0 ) 89.8 Total operating expenses 4,729.5 2,953.8 2,702.3 Operating income 571.9 634.1 445.7 Other income (expenses) Interest expense, net (534.2 ) (538.4 ) (463.2 ) Income from unconsolidated affiliates 28.4 22.3 18.7 Loss on early extinguishment of debt — (21.0 ) (24.0 ) Other 20.0 (7.1 ) (2.3 ) Total other expenses (485.8 ) (544.2 ) (470.8 ) Income (loss) before income taxes 86.1 89.9 (25.1 ) Income tax benefit (expense) (43.0 ) 3.6 498.5 Net income 43.1 93.5 473.4 Less: Net loss attributable to non-controlling interest 0.8 — — 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 outstanding 115.7 97.1 90.9 Weighted-average diluted shares outstanding 117.8 100.3 93.4 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 income 43.1 93.5 476.6 Less: Comprehensive loss attributable to non-controlling interest 0.8 — — Comprehensive income attributable to Penn National $ 43.9 $ 93.5 $ 476.6 Preferred Stock Common Stock Treasury
Stock 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 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 amortization 414.2 269.0 267.1 Amortization of items charged to interest expense 7.7 6.4 7.0 Noncash operating lease expense 100.4 — — Change in fair value of contingent purchase price 7.0 0.5 (6.8 ) Holding gain on equity securities (19.9 ) — — Loss on sale or disposal of property and equipment 5.5 3.2 0.2 Income from unconsolidated affiliates (28.4 ) (22.3 ) (18.7 ) Return on investment from unconsolidated affiliates 29.0 27.0 26.5 Deferred income taxes 21.1 (26.7 ) (517.9 ) Stock-based compensation 14.9 12.0 7.8 Impairment losses 173.1 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 receivable 27.0 (1.8 ) (9.2 ) Prepaid expenses and other current assets 9.7 13.3 (7.3 ) Other assets (2.3 ) 1.5 2.4 Accounts payable 4.4 (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 liabilities 47.6 (6.8 ) 46.3 Net cash provided by operating activities 703.9 352.8 477.8 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 acquisitions 961.1 — — 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 facility 412.0 201.0 256.4 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 options 1.9 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 financing 16.1 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 year 481.2 279.4 230.2 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 assets 15.5 — — Restricted cash included in Other assets 2.3 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 Location Real Estate Assets Lease or Ownership Structure Northeast segment Ameristar East Chicago East Chicago, Indiana Pinnacle Master Lease Detroit, Michigan Greektown Lease Hollywood Casino Bangor Bangor, Maine Penn Master Lease Hollywood Casino at Charles Town Races Charles Town, West Virginia Penn Master Lease Hollywood Casino Columbus Columbus, Ohio Penn Master Lease Hollywood Casino Lawrenceburg Lawrenceburg, Indiana Penn Master Lease Hollywood Casino at Penn National Race Course Grantville, Pennsylvania Penn Master Lease Hollywood Casino Toledo Toledo, Ohio Penn Master Lease Hollywood Gaming at Dayton Raceway Dayton, Ohio Penn Master Lease Hollywood Gaming at Mahoning Valley Race Course Youngstown, Ohio Penn Master Lease Pennsylvania N/A Meadows Racetrack and Casino Washington, Pennsylvania Meadows Lease Plainridge Park Casino Plainville, Massachusetts Pinnacle Master Lease Tunica, Mississippi Penn Master Lease Ameristar Vicksburg Vicksburg, Mississippi Pinnacle Master Lease Boomtown Biloxi Biloxi, Mississippi Penn Master Lease Boomtown Bossier City Bossier City, Louisiana Pinnacle Master Lease Boomtown New Orleans New Orleans, Louisiana Pinnacle Master Lease Hollywood Casino Gulf Coast Bay St. Louis, Mississippi Penn Master Lease Hollywood Casino Tunica Tunica, Mississippi Penn Master Lease L’Auberge Baton Rouge Baton Rouge, Louisiana Pinnacle Master Lease L’Auberge Lake Charles Lake Charles, Louisiana Pinnacle Master Lease Bossier City, Louisiana Margaritaville Lease West segment Ameristar Black Hawk Black Hawk, Colorado Pinnacle Master Lease Cactus Petes and Horseshu Jackpot, Nevada Pinnacle Master Lease M Resort Henderson, Nevada Penn Master Lease Tropicana Las Vegas Las Vegas, Nevada Owned Zia Park Casino Hobbs, New Mexico Penn Master Lease Midwest segment Ameristar Council Bluffs Council Bluffs, Iowa Pinnacle Master Lease Alton, Illinois Penn Master Lease Argosy Casino Riverside Riverside, Missouri Penn Master Lease Hollywood Casino Aurora Aurora, Illinois Penn Master Lease Hollywood Casino Joliet Joliet, Illinois Penn Master Lease Kansas City, Kansas Owned - JV Hollywood Casino St. Louis Maryland Heights, Missouri Penn Master Lease Illinois N/A River City Casino St. Louis, Missouri Pinnacle 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. December 31, (in millions) 2019 2018 Markers issued to customers $ 22.9 $ 17.2 Credit card receivables and other advances to customers 16.5 20.9 Receivables from ATM and cash kiosk transactions 14.4 19.2 Hotel and banquet receivables 6.5 8.1 Racing settlements 6.6 6.1 Receivables due from platform providers for social casino games 3.3 2.3 Other 26.2 36.2 Allowance for doubtful accounts (7.7 ) (3.2 ) Accounts receivable, net $ 88.7 $ 106.8 Years Land improvements 15 Buildings and improvements 5 to 31 Vessels 10 to 35 Furniture, fixtures and equipment 3 to 31 RecognitionRecognition: Our revenue from contracts with customers consists of gaming wagers, food and Promotional AllowancesGamingbeverage 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 consists mainly of slotby type and video lotterygeographic location.machine revenue as well as to a lesser extent table game and poker revenue. Gaming revenuewagering contract is the aggregate net difference between gaming wins and losses, with liabilities recognizednot the total amount wagered. The transaction price for funds deposited by customers before gaming play occurs,food and beverage, hotel and retail contracts is the net amount collected from the customer for "ticket-in, ticket-out" couponssuch goods and services. Sales tax and other taxes collected on behalf of governmental authorities are accounted for on the net basis and are not included in revenues or expenses. The transaction price for our racing operations, inclusive of live racing events conducted at our racing facilities and our import and export arrangements, is the customers' possession,commission received from the pari-mutuel pool less contractual fees and for accrualsobligations primarily consisting of purse funding requirements, simulcasting fees, tote fees and certain pari-mutuel taxes that are directly related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue asracing operations. The transaction price for our former management service contracts was the amount of the jackpots increases. Table game revenue is the aggregate of table drop adjusted93the changeservices rendered in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens and outstanding markers (credit instruments) that are removed from the live gaming tables.Food, beverage, hotel and other revenue, including racing revenue, is recognized as services are performed. Racing revenue includes the Company’s share of pari-mutuel wagering on live races after payment of amounts returned as winning wagers, its share of wagering from import and export simulcasting, and its share of wagering from its off-track wagering facilities (“OTWs”).Revenue from our management service contract for Casino Rama and Hollywood Casino Jamul – San Diego are based upon contracted terms and are recognized when services are performed and collection is reasonably assured.Revenues include reimbursable costs associatedaccordance with the Company’s management contract with the Jamul Tribe, which represent amounts received or due pursuant to the Company’s management agreementcontractual terms. The transaction price for the reimbursement of expenses, primarily payroll costs, incurred on their behalf. The Company recognizes the reimbursable costs associated with this contract as revenueour former management contracts was the gross amount of the reimbursable expenditure, which primarily consisted of payroll costs incurred by the Company for the benefit of the managed 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.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.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.guests without charge is included in grosspatrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food and beverage, hotel, and other revenues, and then deductedat their estimated SSPs with an offset recorded as promotional allowances.a reduction to gaming revenues. The estimated cost of providing such promotional allowancescomplimentary goods and services to patrons as an inducement to gamble as well as for the fulfillment of our loyalty point obligation is primarily included in food, beverage, hotel, and other expense.The amounts included in promotional allowances for the years ended December 31, 2017, 2016expenses. Revenues recorded to food and 2015 arebeverage, hotel, and other and offset to gaming revenues were as follows (in thousands): For the year ended December 31, (in millions) 2019 2018 Food and beverage $ 261.4 $ 137.2 Hotel 159.6 60.8 Other 17.6 8.1 Total complimentaries associated with gaming contracts $ 438.6 $ 206.1 The estimated cost of providing such complimentary services for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):Player Loyalty Programsa nationwide branded loyaltythree general types of liabilities related to contracts with customers: (i) the obligation associated with our mychoice program called Marquee Rewards. Marquee Rewards(loyalty points and tier status benefits), (ii) advance payments on goods and services yet to be provided and for unpaid wagers, and (iii) deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access.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.casinosobligation to settle outstanding slot tickets, pari-mutuel racing tickets and can concurrently redeem them at our casinos. 94player loyalty liability recorded within accrued expensesadvance payments on the consolidated balance sheets was $13.0goods and services yet to be provided and for unpaid wagers were $42.2 million and $14.2$34.3 million atas of December 31, 20172019 and 2016,2018, 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.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. TaxesThe Company isTaxes: pari‑mutuelpari-mutuel taxes based on gross gaming revenue and pari‑mutuelpari-mutuel revenue in the jurisdictions in which it operates.we operate. The Company primarily recognizes gaming and pari‑mutuelpari-mutuel tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where or in which wagering occurs. In certain states in which the Company operates, gaming taxes are based on graduated rates. The Company records gaming tax expense at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied prospectively in the determination of gaming tax expense in future interim periods. For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, these expenses, which arewere recorded primarily withinin gaming expense inwithin the consolidated statementsConsolidated Statements of operations,Income, were $1,590.0 million, $1,102.3 million, and $983.3 million, $962.7 million, and $921.6 million, respectively.Payments related to the Master LeaseAsDecember 31, 2017, the Company leases the real estate associated with twentyemployee services received in exchange for an award of the Company’s gaming and related facilities used in the Company’s operations under a Master Lease arrangement.The Master Lease is commonly known as a triple-net lease. Accordingly, in addition to the required payments to GLPI, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. At the Company’s option, the Master Lease may be extended for up to four five‑year renewal terms beyond the initial fifteen‑year term, on the same terms and conditions.The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed component, a portion of which is subject to an annual escalator of up to 2% if certain coverage ratio thresholds are met, and a component thatequity instruments is based on the performancegrant-date fair value of the facilities,award and the expense is recognized ratably over the requisite service period. The Company accounts for forfeitures in the period in which they occur based on actual amounts. The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model, which requires us to make assumptions, including the expected term, which is prospectively adjusted, subject tobased on the contractual term of the stock option and historical exercise data of the Company’s employees; the risk-free interest rate, which is based on the U.S. Treasury spot rate with a floor of zero (i) every five years by an amountterm equal to 4%the expected term assumed at the grant date; the expected volatility, which is estimated based on the historical volatility of the average change to net revenues of all facilities underCompany’s stock price over the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month.On May 1, 2017, following the acquisition of RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for the gaming operations of 1st Jackpot and Resorts in Tunica, Mississippi, an amendment to the Master Lease was entered into in order to add the two additional facilities. The Company is operating both of these casino properties and it leases the underlying real estate associated with these two businesses from GLPI with a total initial annual payment of $9.0 million subject to the provisions included in the terms of the Master Lease. The transaction increased the Company’s Master Lease financing obligation by $82.6 millionexpected term assumed at the acquisition date,grant date; and the expected dividend yield, which represents the purchase price GLPIis 0 since we have not historically paid for the underlying real estate assets.Based on the performance of the facilities under the Master Lease, the Company has incurred escalators which resulted in an increase to the Company’s annual payment of $2.4 million, $4.5 million and $5.0 million starting on95November 1, 2017, 2016 and 2015, respectively. Total payments made to GLPI under the Master Lease were $455.4 million, $442.3 million and $437.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.ShareThe 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.”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, 2017 and 2016. 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.The following table sets forth the allocation of net income for the years ended December 31, 2017, 2016 and 2015 under the two class method: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, 2017, 2016 and 2015:Options to purchase 51,803 shares, 3,036,819 shares and 1,635,929 shares were outstanding during the years ended December 31, 2017, 2016 and 2015, respectively, but were not included in the computation of diluted EPS because they were antidilutive.96The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per share data):Stock‑Based CompensationThe 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 5.30 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.The following are the weighted‑average assumptions used in the Black‑Scholes option‑pricing model for the years ended December 31, 2017, 2016 and 2015:1.97 30.66 5.30 Segment InformationThe Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), as that term is defined in ASC 280, measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations.The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, Plainridge Park Casino and the Company’s Casino Rama management service contract.97The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, 1st Jackpot and Resorts as well as our management contract with Hollywood Casino Jamul-San Diego.The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less than 2% of the Company’s total assets at December 31, 2017.In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and believes it is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. Adjusted EBITDA is a Non-GAAP financial measure which the Company defines as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA.See Note 15 to the consolidated financial statements for further information with respect to the Company’s segments.Statements of Cash FlowsThe Company has presented the consolidated statements of cash flows using the indirect method, which involves the reconciliation of net income to net cash flow from operating activities.AcquisitionsThe Company accounts for its acquisitionsaccounting in accordance with ASC Topic 805, “Business Combinations.Combinations,” which requires us to allocate the purchase price to tangible and identifiable intangible assets based on their fair values. The resultsexcess of operations ofthe purchase price over the fair value ascribed to tangible and identifiable intangible assets is recorded as goodwill. If the fair value ascribed to tangible and identifiable intangible assets changes during the measurement period (due to additional information being available and related Company analysis), the measurement period adjustment is recognized in the reporting period in which the adjustment amount is determined and offset against goodwill. The measurement period for our acquisitions are includedno more than one year in the consolidated financial statements from their respective dates of acquisition.98EntitiesIn accordance with the authoritative guidance of ASC 810, “Consolidation” (“ASC 810”), theEntities: The Company consolidates all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the VOE model or the VIE ifmodel. Under the CompanyVOE model, controlling financial interest is the primary beneficiary,generally defined as a majority ownership of voting rights. Under the party that has bothVIE model, controlling financial interest is defined as (i) the power to direct the activities that most significantly impact the VIE’s economic performance of the entity and (ii) the obligation toVIEentity 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 whetherconsolidates the financial position and results of operations of every VOE in which it has a controlling financial interest and VIEs in which it is considered to be the primary beneficiarybeneficiary. See Note 6, “Investments in and Advances to Unconsolidated Affiliates.”VIE orcumulative-effect adjustment to retained earnings. The core principle of ASC 842 is that a lessee should recognize on the holder of a significant variable interestbalance 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 standards in a VIE on an on-going basiseffect for each such interest.Certain Risks and UncertaintiesThe Company faces intense gaming competition in mostthose periods. As part of the markets where its properties operate. Certain states are currently considering or implementing legislationadoption, the Company elected to legalize or expand gaming. Such legislation presents potential opportunities forutilize the package of practical expedients included in this guidance, which permitted the Company to establishnot 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.properties; however, this also presents potential competitive threatslease standard relates to the Company’saccounting 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 a 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, the Company was required to evaluate its existing properties. For example,sale-leaseback transactions with GLPI to determine whether a sale had occurred, and if a sale had occurred, to determine the Company’s facilityclassification (operating or finance) of each component contained within each of the Master Leases.Charles Town, West Virginia which generates approximately 10%(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.more of our net revenues has faced new sources of significant competition. Namely,(b) at the acquisition date with respect to the Pinnacle Master Lease.Charles Town Races has faced increased competition from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino BaltimoreDayton Raceway and MGM National Harbor. Additionally, recent gaming expansion in Pennsylvania has authorized up to 10 additional gaming licenses for category 4 facilities which can have between 300 and 750 slot machines and up to 40 table games. We have secured one of these licenses that will be placed in York County. However, this location is anticipated to increase competition for our Hollywood Casino at Penn National Racecourse. Additionally, licenses have been awarded to competitors whose placement of a new facility is anticipated to compete with our Hollywood Gaming at Mahoning Valley Race Course.Company’s operations are dependent on its continued licensing by state gaming commissions.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 lossDayton and Mahoning Valley lease components were determined to be finance leases, which resulted in (i) the recognition of a license, in any jurisdiction in whichfinance lease ROU asset (recorded to depreciation and amortization expense over the Company operates, could havelease term), (ii) a material adverse effect on future resultscorresponding finance lease liability (recorded to interest expense over the lease term), and (iii) a write-off of operations.Company is dependent on each gaming property’s local marketadoption 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 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 could be adversely affected.The Company is dependentoperating leases was based on the economypresent 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 theU.S. 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.New Accounting PronouncementsAccounting Pronouncements Implemented in 2017In 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 twoadoption 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 Company has elected to early adopt this change in accounting principle effective July 1, 2017. The new lease standard has been applied to interim period goodwill impairment tests completed as of September 30,992017 as well as to the Company’s annual impairment test at October 1, 2017. See Note 8 “Goodwill Impairment” for the disclosure ofon our impairment analysis.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 Company adopted this change in accounting principle effective January 1, 2017. As a result of adopting the change to accounting for income taxes, for the year ended December 31, 2017, the Company recognized an income tax benefit of $6.3 million related to excess tax deductions that would have previously been recognized as additional paid in capital within Total Shareholders’ equity (deficit). The Company did not record a cumulative effect adjustment to retained earnings due to having a full valuation allowance against all deferred tax assetsConsolidated Balance Sheets at January 1, 2017. Deferred tax assets and the valuation allowance increased by $15.4 million at January 1, 2017 for the tax effect previously unrecognized for excess tax deductions. The Company has elected to present the change in classification of excess /(deficient) tax deductions from a financing activity to an operating activity within its consolidated2019 was as follows (only financial statement of cash flows on a retrospective basis. The impact to the comparative period ended December 31, 2016 and 2015 was an increase to net cash provided by operating activities of $6.9 million and $14.8 million, respectively, and a decrease in net cash provided by (used in) financing activities of $6.9 million and $14.8 million, respectively. The Company has also made an accounting policy election to account for forfeitures when they occur which had no cumulative effect to retained earnings. Finally, effective January 1, 2017, the Company adopted the change related to diluted EPS on a prospective basis such that the net benefit/ (deficiency) attributable to taxes is no longer included in the computation of assumed proceeds.New line items impacted are presented): Impacts of: (in millions) As Reported as of December 31, 2018 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 ) $ 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 $ — $ — $ — $ 3,541.2 $ 112.8 $ 152.5 $ 3,806.5 $ 3,806.5 $ — $ — $ 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 $ 67.8 $ — $ (1.5 ) $ (16.2 ) $ — $ — $ 50.1 $ (17.7 ) $ — $ — $ — $ 72.9 $ 20.5 $ 8.9 $ 102.3 $ 102.3 $ — $ — $ 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 $ 7,080.6 $ 5.5 $ (181.3 ) $ (2,760.6 ) $ — $ — $ 4,144.2 $ (2,936.4 ) $ — $ — $ — $ 3,467.1 $ 92.3 $ 145.0 $ 3,704.4 $ 3,704.4 $ — $ — $ 218.3 $ — $ — $ — $ 218.3 $ 218.3 $ — $ — $ 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) (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) fiscal year 2018In May 2014,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 FASB issuedCompany to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The core principle of Topic 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance2016-13 is effective for fiscal years and forbeginning after December 15, 2019, including interim periods within those fiscal years, beginning after December 15, 2017 . Additional ASUs have been issued that are part of the overall new revenue guidance including: (i) ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, (ii) ASU No. 2016-10, “Identifying Performance Obligations and Licensing”, (iii) ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts” and, (iv) ASU No. 2016-12, “Narrow Scope Improvements and Practical Expedients”, which clarified guidance on certain items such as reporting revenue as a principal or agent, identifying performance obligations, accounting for fixed odds wagering contracts associated with the Company’s racing operations, accounting for intellectual property licenses and accessing collectability and presentation of sales tax. Management has completed its assessment of the impact of the new standard on the Company’s consolidated financial statements and has elected to adopt Topic 606 using the modified retrospective method on January 1, 2018. As a result of the adoption, the following areas that are expected to result in significant changes to the Company’s accounting are: (1)The new standard will change the accounting for loyalty points which are earned by our customers. The Company’s loyalty reward programs allow members to utilize their rewards membership card to earn loyalty points that are redeemable for slot play and complimentaries such as food and beverages at our restaurants and products offered at our retail stores across the vast majority of the Company’s casino properties. The estimated liability for unredeemed points is currently accrued based on expected redemption rates and the estimated costs of the services or merchandise to be provided. Under the new standard, the Company will use a deferred revenue model and defer revenue at the estimated fair value100when the loyalty points are earned by our customers and recognize revenue when the loyalty points are deemed. The deferred revenue liability is based on the estimated standalone selling price of the loyalty points earned after factoring in the likelihood of redemption. The modification will result in a cumulative-effect adjustment to opening retained earnings, with an insignificant change to revenue on a go-forward basis. At the January 1, 2018 adoption date, we expect to record a reduction to the opening balance of retained earnings of approximately $11.4 million on a pre-tax basis, and an increase to accrued expenses. (2)The new standard will change the accounting for promotional allowances. The Company will no longer be permitted to report revenue for goods and services provided to customers for free as an inducement to gamble as gross revenue with a corresponding reduction in promotional allowances to arrive at net revenues. Under the new standard, amounts will be recorded as a reduction to gaming revenues, and promotional allowances will no longer be netted on our consolidated statements of operations. Additionally, the Company has identified and implemented changes to its accounting policies and practices, business processes, and controls to support the new revenue recognition standard. The Company is continuing its assessment of potential changes to our disclosures under the new guidance internally and through following the AICPA Revenue Recognition Task for Gaming Entities.In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments.” The amendments are intended to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following specific cash flow issues: (a) debt prepayment or debt extinguishment costs; (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (c) contingent consideration payments made after a business combination; (d) proceeds from the settlement of insurance claims; (e) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (f) distributions received from equity method investees; (g) beneficial interest in securitization transactions; and (h) separately identifiable cash flows and application of the predominance principle. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The Company plans to adopt this new guidance on January 1, 2018 on a retrospective basis. The Company does not expect the adoption to have a material impact on our consolidated financial statements.In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The new guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to an outside party. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The new guidance requires adoption on a modified retrospective basismust be applied through a cumulative-effect adjustment directly to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Although we are still finalizing our assessment of adoption. The Company doesthe impact of the adoption of ASU 2016-13, which is effective January 1, 2020, we currently do not expect the adoptionit to have a material impact on our consolidated financial statements.January 2017,August 2018, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). Under 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, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This will result in certain implementation costs being capitalized; the associated amortization charge will, however, be recorded as an operating expense. Under the previous guidance, costs incurred when implementing a cloud computing arrangement deemed to be a service contract 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, 2017 and will be adopted on a prospective basis.In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires the application of modification accounting if the value, vesting conditions or classification of the award changes. The new guidance is effective for fiscal years, and for2019, including interim periods within those fiscal years, beginningyears. Entities can choose to adopt the new guidance prospectively to eligible costs incurred on or after December 15, 2017 and will be adoptedthe date the guidance is first applied or retrospectively. We have elected to adopt the net guidance on a prospective basis.101New Accounting Pronouncements to be Implemented in fiscal year 2019In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require, among other items, lessees to recognize a right-of-use asset and a lease liability for most leases. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of expenses recognized and expected to be recognized from existing contracts. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. In January 2018, the FASB issued ASU No. 2018-1, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” that provides an optional transitional practical expedient regarding land easements. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Management has not yet completed its Although we are still finalizing our assessment of the impact of the new standard on the Company’s consolidated financial statements, however, the Company has numerous operating leases which, under the new standard, will need to be reported as an asset and a liability on our consolidated balance sheet. The precise amount of this asset and liability will be determined based on the leases that exist at the Company on the date of adoption. The adoption of this standardASU 2018-15, which is expectedeffective January 1, 2020, we currently do not expect it to have a material impact on our consolidated financial statementsConsolidated Financial Statements. For the year ended December 31, 2019 (in millions) Northeast South West Midwest Other Total Revenues: Gaming $ 2,117.1 $ 831.1 $ 374.3 $ 938.1 $ 8.8 $ (0.7 ) $ 4,268.7 Food and beverage 155.1 154.1 116.7 84.7 1.4 — 512.0 Hotel 43.5 98.2 125.9 43.4 — — 311.0 Racing 25.1 — 0.6 — 5.6 — 31.3 Other 59.1 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 beverage 109.6 56.6 89.6 57.9 1.1 314.8 Hotel 23.2 23.3 90.8 26.3 — 163.6 Racing 20.3 — 0.6 — 5.9 26.8 Reimbursable management costs 46.8 — 10.5 — — 57.3 Other 47.4 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 beverage 115.0 35.5 82.4 58.4 1.1 292.4 Hotel 21.5 10.3 76.1 22.0 — 129.9 Racing 49.6 — 2.3 — 10.8 62.7 Reimbursable management costs — — 26.1 — — 26.1 Other 48.7 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 significantan 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”).(in millions) Measurement period adjustments Estimated fair value, as adjusted Cash and cash equivalents $ 31.1 $ — $ 31.1 Receivables, prepaid expenses, and other current assets 15.7 (1.2 ) 14.5 Property and equipment 32.3 (3.9 ) 28.4 61.7 5.7 67.4 Other intangible assets Gaming license 166.4 — 166.4 Trademark 24.4 — 24.4 Customer relationships 3.3 — 3.3 Operating lease right-of-use assets 516.1 — 516.1 Finance lease right-of-use assets 4.1 — 4.1 Other assets 0.2 (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 liabilities 516.1 — 516.1 Finance lease liabilities 4.1 — 4.1 Total liabilities 535.0 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. commitments that are off-balance sheetROU 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 current U.S. GAAP.5.Acquisitions Management determined the fair value of its office equipment, computer equipment and Other Recent Business VenturesAnticipated Acquisitionslot 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 Pinnacle(in millions) Period from May 23, 2019 through December 31, 2019 Revenues $ 195.9 Net income $ 10.9 December 18, 2017, Penn announced that it hadJanuary 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.(in millions) Measurement period adjustments Fair value, as finalized Cash and cash equivalents $ 10.7 $ — $ 10.7 Receivables, prepaid expenses, and other current assets 7.1 (0.1 ) 7.0 Property and equipment 21.7 (1.0 ) 20.7 39.5 4.7 44.2 Other intangible assets Gaming license 48.1 — 48.1 Customer relationships 2.3 — 2.3 Operating lease right-of-use assets 196.2 — 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 liabilities 196.2 — 196.2 Total liabilities 205.7 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. definitive agreementcombination 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.it will acquire 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 inAcquisitionandpayment of $20.00 per share of Pinnacle common stock, transaction valued at approximately $2.8 billion. Under the terms of the agreement, Pinnacle shareholders will receive $20.00 in cash and 0.42 sharestotaling $1,252.2 million; (ii) issuance of Penn National common stock for eachin the amount of $749.7 million; and (iii) the retirement of $814.3 million of Pinnacle share.Coincidentdebt obligations. In conjunction with the closing ofPinnacle Acquisition, the merger, we plan to divestCompany divested the membership interests of certain Pinnacle subsidiaries, which operateoperated the casinos known as Ameristar Casino Resort Spa St. Charles, (Missouri), Ameristar Casino Hotel Kansas City, (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio)(referred to collectively as the “Divested Properties”), to Boyd Gaming Corp (“Boyd”) for approximately $575 million in cash. These divestitures are anticipated to occur immediately prior to, and are conditioned upon, the completionCorporation (NYSE: BYD). Additionally, as a part of the transaction, (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 acquisition. Additionally, atMaster Lease, which was assumed by the Company concurrent with the closing of the merger, (i) GLPI will acquirePinnacle Acquisition, was amended. The Pinnacle Acquisition added 12 gaming properties to our holdings and provides us with greater operational scale and geographic diversity. For more information on the real estate associated with the Plainridge Park Casino for $250 million, and concurrently it will be leased back to Penn pursuant to the amended Pinnacle master lease for a fixed annual rent of $25 million and (ii) GLPI will acquire the real estate assets of Belterra Park from Penn for approximately $65 million, which subsequently will be included in an amended master lease between GLPI and Boyd. The amended Pinnacle Master Lease will be adjustedand related amendment, see (in millions) Measurement period adjustments Fair value, as finalized Cash and restricted cash $ 124.2 $ — $ 124.2 Assets held for sale 667.0 0.5 667.5 Other current assets 80.6 0.5 81.1 Property and equipment - non-Pinnacle Master Lease 318.9 (0.3 ) 318.6 3,984.1 (29.2 ) 3,954.9 219.5 18.7 238.2 Other intangible assets Gaming licenses 1,046.0 21.6 1,067.6 Trademarks 298.0 — 298.0 Customer relationships 22.4 — 22.4 Other long-term assets 38.9 — 38.9 Total assets $ 6,799.6 $ 11.8 $ 6,811.4 $ 3,427.0 $ 5.5 $ 3,432.5 Other current liabilities 200.6 5.5 206.1 Deferred tax liabilities 339.2 0.8 340.0 Other long-term liabilities 16.6 — 16.6 Total liabilities 3,983.4 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) (4) Long-term financing obligation, including current portion represents the financing obligation associated with Pinnacle Master Lease, as amended. incremental rent of $13.9 millionacquisition costs. The below pro forma results do not include any adjustments related to adjust to market conditions. The acquisition is expected to close in the second half of 2018. 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 ) RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for the gaming operations of 1st Jackpot Casino and Resorts inCasino Tunica, Mississippi, for total cash considerationa net purchase price of $47.0 million. The Company is operating both of these casino properties and it leasesIn connection with the underlyingacquisitions, the real estate associated with these two businesses fromassets relating to 1st Jackpot Casino and Resorts Casino Tunica were acquired by GLPI with a total initial annual paymentfor an aggregate sales price of $9.0$82.6 million subject to the provisionsand included in the terms of thePenn Master Lease. The underlying real estate leased from GLPI has been accounted for as a financing obligation, which is included in the total consideration for the transaction and increased theResorts Casino Tunica ceased operations on June 30, 2019.102Company’s Master Lease financing obligation by $82.6 million at the acquisition date, which represents the purchase price GLPI paid for the underlying real estate assets.The preliminary purchase price allocation has resulted in $35.9 million of goodwill which is deductible for tax purposes. Property and equipment under the Master Lease is comprised of buildings and improvements and land rights that are amortized on a straight-line basis over thirty-one years. This time period represents the remaining life of the Master Lease with GLPI, including renewal options that are reasonably assured of being exercised. Additionally, prior to the acquisition date, the Company incurred transaction costs $1.0 million, which were reported in general and administrative expenses for the year ended December 31, 2017. This acquisition was not material to the Company’s consolidated financial statements.May 1, 2017Cash$ 6,725Other current assets2,735Property and equipment - non-master lease8,368Property and equipment - master lease82,603Goodwill35,929Other intangible assets851Total Assets$ 137,211Current portion of financing obligation$ 1,968Accrued expenses2,931Accrued salaries and wages3,256Other current liabilities1,448Long-term financing obligation80,635Total liabilities$ 90,238Cash paid46,973Total consideration transferred$ 137,211DSG Amusements and Advantage GamingOn February 1, 2017 and June 1, 2017, the Company acquired 100% of the assets of DSG Amusements, Ltd. (‘DSG”), and Advantage Gaming, LLC (“Advantage”) for $1.9 million and $2.1 million, respectively, in all cash transactions. The transactions were funded by revolving commitments under the Company’s amended senior secured credit facility. The results of DSG and Advantage have been included in the Company’s consolidated financial statements since the acquisition dates. The Company’s preliminary purchase price allocations included $0.7 million in goodwill and $3.7 million in other intangible assets related to acquired customer contracts, as a result of these transactions. The goodwill recognized for these two transactions is deductible for tax purposes. The acquisitions of DSG and Advantage did not materially impact the 2017 consolidated results of operations. Inc.On1, 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 Agreementstock purchase agreement included contingent consideration payments over the next two years that were based on a multiple of 6.25 times Rocket Games’ then-trailing twelve months of earnings before interest, taxes, depreciation and amortization,then trailing-twelve-months EBITDA, subject to a cap of $110$110.0 million. Up to $10$10.0 million of the contingent considerationpurchase price was accounted for as compensation as it was tied to continued employment103two yeartwo-year period. The acquisition was funded by Penn with cash on hand and revolving commitments under the Company’s senior secured credit facility. The fair value of the contingent purchase price was estimated to be $34.4 million at the acquisition date based on an income approach by applying an option pricing method to the Company’s internal earning projections using a Monte Carlo simulation. This acquisition complemented Penn’s interactive gaming strategy through its wholly-owned subsidiary Penn Interactive Ventures which is included in the Other category. The purchase price allocation is detailed in the table below (in thousands). Current assets includes $4.1 million of cash acquired.During the third quarter ofdate. Ventures reached an agreement with the former shareholders of Rocket Speed to buy out the two yearremaining contingent purchase price, consideration which resulted in a benefit to general and administrative expense in the amount of $22.2 million.August 1, 2016Current assets$ 7,738Fixed assets235Goodwill67,164Other intangible assets35,383Other assets73Total assets$ 110,593Current liabilities$ 5,350Deferred taxes10,268Other liabilities100Total liabilities15,718Cash paid60,489Contingent purchase price34,386Total consideration transferred$ 110,593Developed technology intangible$ 17,969User base intangible11,563Non-compete agreements intangible5,851Other intangible assets$ 35,383The developed technology intangible represents the intellectual property embodied by the developed, completed gaming appsmillion, which is included within “General and administrative” within our Consolidated Statements of Rocket Speed as of the acquisition date. The Company used a multiple period excess earnings model under the income approach to estimate the fair value for this intangible asset and are amortizing the asset over four years on an accelerated basis. The user base intangible asset represents the estimated value of the acquired customer database. The Company used a replacement cost method to estimate the fair value for this intangible asset and are amortizing it on an accelerated basis over two years. Non-compete agreements limit specific employees from competing in related businesses. The Company used a with-and-without method under the income approach to estimate the fair value for this intangible asset and will amortize it over four years consistent with the length of the agreements.The acquisition of Rocket Speed resulted in an increase the Company’s reported net revenues of $17.3 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, 2016.104Slot Kings and Bell GamingOn October 3, 2016 and November 1, 2016, the Company acquired 100% of the assets of Slot Kings, LLC and Bell Gaming, LLC for $17.1 million and $10.8 million, respectively, in all cash transactions. The transactions were funded by revolving commitments under the Company’s existing senior secured credit facility. The results of Slot Kings and Bell Gaming have been included in the Company’s consolidated financial statements since the acquisition dates. The Company’s purchase price allocations included $10.5 million in goodwill and $16.6 million in other intangible assets related to acquired customer contracts, as a result of these transactions. The goodwill recognized for these two transactions is deductible for tax purposes. The acquisitions of Slot Kings and Bell Gaming did not materially impact the 2016 consolidated results of operations.Tropicana Las VegasOn August 25, 2015, the Company acquired 100% of Tropicana Las Vegas Hotel and Casino in Las Vegas, Nevada from Trilliant Gaming Nevada, Inc. for the purchase price of $357.7 million. The purchase price for this cash transaction was funded by revolving commitments under the Company’s existing senior secured credit facility and approximately $280 million of incremental commitments under an amended senior secured credit facility. The results of the Tropicana Las Vegas facility have been included in the Company’s consolidated financial statements since the acquisition date. The purchase price allocation is detailed in the table below (in thousands). Current assets includes $8.0 million of cash acquired.Tropicana Las Vegas, located on the strip in Las Vegas, Nevada, is situated on a 35-acre land parcel at the corner of Tropicana Boulevard and Las Vegas Boulevard. The resort features 1,183,984 of property square footage with 775 slot machines and 36 table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, three full services restaurants, a food court, a 1,200-seat performance theater, a 300-seat comedy club, over 100,000 square feet of exhibition and meeting space, and a five-acre tropical beach event area and spa. The Company believes this acquisition fulfilled our strategic objective of obtaining a presence on the Las Vegas Strip.August 25, 2015Current assets$ 15,966Property and equipment, net365,492Goodwill14,821Other assets4,553Total assets$ 400,832Current liabilities$ 25,755Other liabilities17,417Total liabilities43,172Cash paid / total consideration transferred357,660Prairie State GamingOn September 1, 2015, the Company acquired 100% of Prairie State Gaming from The Robert H. Miller Trust and Illinois Funding, LLC in an all cash transaction. The transaction was funded by revolving commitments under the Company’s existing senior secured credit facility. The results of Prairie State Gaming have been included in the Company’s consolidated financial statements since the acquisition date. The Company recorded $22.9 million and $15.7 million in goodwill and other intangible assets, respectively, from this transaction.105Prairie State Gaming is one of the largest slot-route operators in Illinois with operations that included, at the time of acquisition, more than 1,100 video gaming terminals across a network of 270 bar and retail gaming establishments throughout Illinois. The Company intends to leverage its gaming experience, relationships, and purchasing power to improve Prairie State Gaming’s performance and expand its network.The unaudited pro forma financial information for the periods set forth below gives effect to the 2015 acquisitions described above as if they had occurred as of January 1, 2015. This incorporates the impacts on depreciation and amortization expense resulting from the Company’s purchase accounting adjustments to the acquired assets and liabilities. The pro forma results for the 2017 and 2016 acquisitions are not materially different than reported results. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (in thousands):Pro Forma Financial Information (Unaudited)2015 The acquisitions of Tropicana Las Vegas and Prairie State Gaming resulted in an increase to the Company’s reported net revenues of $57.3 million and a decrease of $3.0 million to income from continuing operations for the year ended December 31, 2015. Additionally, prior to the acquisition dates, the Company incurred transaction costs of $1.9 million, which were reported in general and administrative expenses for the year ended December 31, 2015.On Development Corporation 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 JIVDCJamul Indian Village Development Corporation (the “JIVDC”) to fund certain development costs; and (iii) create an exclusive arrangement betweencosts. Following the parties.The Jamul Tribe is a federally recognized Indian Tribe holding a government-to-government relationship with the U.S. through the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent powers of self-government. The Jamul Tribe is the beneficial owner of approximately six acres of reservation land located within the exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe (the “Property”). The Jamul Tribe exercises jurisdiction over the Property pursuant to its powers of self-government and consistent with the resolutions and ordinances of the Jamul Tribe. The arrangement between the Jamul Tribe andopening, the Company providesalso managed the Jamul Tribe with the expertise, knowledge and capacity of a proven developer and operator of gaming facilities and provides the Company with the exclusive right to administer and oversee planning, designing, development, construction management, and coordination during the development and construction of the project as well as the management of a gaming facility on the Property.The Company considered whether the arrangement with the Jamul Tribe represents a variable interest that should be accounted for pursuant to the VIE subsections of ASC 810. The Company noted that the scope and scope exceptions of ASC 810-10-15-12(e) states that a reporting entity shall not consolidate a government organization or financing entity established by a government organization (other than certain financing entities established to circumvent106the provisions of the VIE subsections of ASC 810). Based on the status of the Tribe as a government organization, the Company concluded its arrangement with the Jamul Tribe is not within the scope defined by ASC 810.Hollywood Casino Jamul – San Diego is a three-story gaming and entertainment facility of approximately 200,000 square feet featuring 1,731 slot machines, 40 live table games, multiple restaurants, bars and lounges and a partially enclosed parking structure with over 1,800 spaces. In mid-January 2014, the Company announced the commencement of construction activities at the site. The facility opened to the public on October 10, 2016. The Company provided a portion of the financing to the JIVDC in connection with the project and, following the opening, has managed and provided branding for the casino.The Company is accounting for the development agreement and related loan commitment letter with the JIVDC as a loan (the “Loan”) with accrued interest in accordance with ASC 310, “Receivables.” The Loan represented advances made by the Company to the JIVDC for the development and construction of a gaming facility for the Jamul Tribe on reservation land. As such, the Jamul Tribe owns the casino and its related assets and liabilities. Repayment of funds advanced to the Jamul Tribe is primarily predicated on cash flows from the operations of the facility. In December 2015, the Company entered into an agreement to purchase a $60 million subordinated note from the previous developer of the Jamul Indian Village project for $24 million. Interest on this subordinated note, as of the effective date and at all times thereafter until the Loans has been paid in full, shall accrue as follows: as of the effective date, no interest shall accrue initially; at the opening date, interest shall accrue at a simple fixed rate of 4.25% per annum. The subordinated note is subordinated to the Loan, and payments on the subordinated note may only be made after all necessary payments are made on the Loan subject to certain limitations. The Company recorded the subordinated Note at its acquisition price of $24 million, which was considered to be its fair value. The Company has concluded that the $24 million carrying value, which is recorded within other assets on the consolidated balance sheet at December 31, 2015, represents the expected cash flows to be received. As described below, this subordinated note was repaid in connection with the Jamul Tribe refinancing of its existing indebtedness and the Company received a $6 million premium which was accounted for as an origination fee on our new loan with the JIVDC. On October 20, 2016, the JIVDC obtained long termlong-term secured financing, consisting of 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 Credit Facilities, allCompany was the lender under the Term Loan C Facility in the amount of which are due in 2022, consist$98.0 million.a $5 million revolving credit facility, a $340 million term loan B facility and a $98 million term loan C facility. The revolving credit facility was provided by various commercial banks;December 31, 2017, 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 anniversaryJIVDC breached one of the opening of Hollywood Casino Jamul – San Diego (the “Casino”), the JIVDC has not achieved a senior secured net leverage ratio equal to or less than 5.0 to 1.0, then all or a portion of the term loan C facility will become subordinated to the other Credit Facilities to the extent necessary such that, after giving effect to such conversion, such senior secured net leverage ratio is 5.0 to 1.0. The rights of the Company to receive management and license fees are subordinated to the claims of the lenders underfinancial covenants contained within the Credit Facilities, and are subject to certain conditions containedresulting in the Credit Facilities.The Company was repaid on October 20, 2016, a net amount of approximately $274 million (consisting of reimbursements totaling approximately $372 million less funds advanced of $98 million) of the advances to the JIVDC for the development and construction of the property as well as previously purchased Jamul Tribal debt.As a condition to the availability of the Credit Facilities,default. Consequently, the Company provided a limited completion guarantee, in favorperformed an analysis of the administrative agent under the Credit Facilities, to provide up to $15 million of additional loans related to the construction and opening of the Casino, as well as certain post opening construction costs. The term loan C facility bears interest at LIBOR plus 8.50% with a 1% LIBOR floor (or, at the JIVDC’s election, a base rate determined by reference to the prime rate, the federal funds effective rate or LIBOR, as applicable, plus 7.50%), and the subordinated loans will bear interest at 14.0% (with 12.0% to be paid in cash and 2.0% to be paid-in-kind).107The Company is accounting for its term loan C with the JIVDC as a loan (the “Loan”) in accordance with ASC 310, “Receivables.” The Loan represents advances made by the Company to the JIVDC for the development and construction of Hollywood Casino Jamul-San Diego for the Jamul Tribe on reservation land. As such, the Jamul Tribe owns the casino and its related assets and liabilities. Repayment of the Loan is primarily predicated on cash flows from the operations of the facility.Although Hollywood Casino Jamul San-Diego opened to strong business and earnings volumes in October 2016, which met our expectations, results began to soften earlier and with a steeper drop-off than anticipated. As a result, we concluded the Loan was impaired at December 31, 2016 and at all time periods subsequent to this date. A loan is considered impaired when, based on current information, events and projections, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when contractually due under the terms of the loan agreement. The fair value of the Loan is not observable, nor secured by any significant levels of collateral. Therefore, the Loan is not measured using a practical expedient (observable market rate of interest or fair value of collateral) under ASC 310-10. As such, an impairment charge is being recorded to the extent the present value of expected future cash flows it would receive based on forecasted operations of the property, discounted at the loan’sTerm Loan C Facility’s effective interest rate, exceeds the carrying amount of the loan. The Company records interest income on a cash basis to the extent a reserve is not required for the impaired loan. At June 30, 2017, the JIVDC was effectively in breach of a financial covenant requirement with respect to debt to earnings ratios. At September 30, 2017, the JIVDC was in active negotiations with its lenders to modify certain terms of its loan agreements including the elimination of its June 30, 2017 financial covenant requirement. Amended terms that were negotiated during the three months ended December 31, 2017, were not accepted by the Jamul Tribe. The JIVDC is currently in default on its obligations and our Loan is fully subordinated to the other lenders that have extended credit to the JIVDC.In late February 2018, the Company and the Jamul Tribe mutually agreed that Pennas well as any concessions it would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May. The Company performed a comprehensive analysis of the future cash flows that we expect to receive on the Loan based upon our best estimates of the operations of the facility and the concessions we will grant to the JIVDC. The expected cash flows to be received by the Company on the Loan were then discounted at the Loan’s effective interest rate in accordance with ASC 310 which was less than its carrying value at December 31, 2017. Therefore,As a result of such analysis, the Company recorded a charge of $86.0 million in the consolidated statements of operation for the year ended December 31, 2017, (see table below for allowance for loan losses balance). The unpaid principal balance of the Loan at December 31, 2017 and December 31, 2016 was $98.3which $64.0 million and $98.0 million, respectively. The net carrying value of the Loan totaled $20.9 million and $92.1 million at December 31, 2017 and December 31, 2016, respectively. The Company’s remaining exposure at December 31, 2017 was $27.9 million inclusive of future unfunded commitments on the Loan.In additionpertained to the reserves above,Term Loan C Facility and $22.0 million was a reserve108Plainridge Racecourse AcquisitionIn September 2013,May 28, 2018. On May 25, 2018, the Company entered into an option anda purchase agreement to purchase Plainridge Racecourse in Massachusetts, with the sellers having no involvement insenior lender under the business or operations from that date forward. The Company subsequently beganCredit Facilities for the property to operate Plainridge Racecourse effective January 1, 2014 pursuant tosell them all of the Company’s outstanding rights and obligations under the Term Loan C Facility and the JIVDC commitments. As a temporary operations agreement. On February 28, 2014, the Massachusetts Gaming Commission awardedresult, the Company a Category Two slots-only gaming license,received cash proceeds of $15.2 million from the sale and in early March 2014,was relieved of all rights and obligations with respect to the Company exercised its option to purchase Plainridge Racecourse. This acquisition reflects the continuing effortsJIVDC. The sale of the Company to expand its gaming operations through the developmentloan resulted in a recovery of new gaming properties. The fixed portionloan losses and unfunded loan commitments 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 $21.3 million, $10.7 million, and $13.8 million at December 31, 2017, 2016 and 2015, respectively, based on an income approach from the Company’s internal earning projections and was discounted at a rate consistent with the risk a third party market participant would require holding the identical instrument as an asset. This 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 charge of $12.5 million, and a reduction of $1.3 million and $5.4$17.0 million for the yearsyear ended December 31, 2017, 2016 and 2015, respectively. In August 2016 and 2017, the first and second payment of $1.8 million and $2.0 million was made for the contingent purchase price.6.Investment In2018.2017, 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.The Company has a 50%which owns the Hollywood Casino at Kansas Speedway. Hollywood Casino at Kansas Speedway is a Hollywood-themed facility, which features 244,791 of property square footage with 2,000 slot machines, 41 table games and 12 poker tables, a 1,253 space parking structure, as well as a variety of dining and entertainment facilities. As of December 31, 2017 and 2016, the Company’s investment balance was $88.3$90.8 million and $93.8$89.4 million, respectively. During the years ended December 31, 2017, 2016,2019, 2018 and 2015,2017, the Company received distributions from Kansas Entertainment totaling $26.0$29.0 million, $25.8$27.0 million and $27.2$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 Companyqualifieddoes not qualify as a VIE at December 31, 2017 and 2016. The Company didVIE. Using the guidance for entities that are not consolidate its investment in Kansas Entertainment asVIEs, the Company determined that it did not qualifyhave a controlling financial interest in the JV as the primary beneficiary of Kansas Entertainment at, and for the years ended December 31, 20172019 and 2016,2018, 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, 20172019 and 2016.2018.1092017, 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 in the Company’s consolidated balance sheets and consolidated statements of operations (in thousands): 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 expenses 101.3 110.4 114.7 Operating income 61.0 48.6 41.0 Net income $ 61.0 $ 48.6 $ 41.0 Net income attributable to Penn National $ 30.5 $ 24.3 $ 20.5 to the assessment performed by the Company of its investment in Kansas Entertainment under the requirements of S-X Rule 4-08(g), the Company also assessed its investment in Kansas Entertainment under the requirements of S-X Rule 3-09(b) for the year ended December 31, 2017, and2019, we determined that it was required to provide the audited financial statements of Kansas Entertainment. The consolidatedaudited financial statements of Kansas Entertainment for the years ended June 30, 2017, 20162019, 2018 and 20152017 are provided as exhibits to this document to comply with this rule.Venturejoint ventureJV with MAXXAM, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas. 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.Companyproperty features a half-mile standardbred racetrack and a grandstand. theneither our Texas joint venture did notJV nor our New Jersey JV qualify as a VIE at December 31, 2017 and 2016.VIE. Using the guidance for entities that are not VIEs, in both cases, the Company determined that it did not have a controlling financial interest in either of the joint venture at,JVs as of and for the years ended December 31, 20172019 and 2016,2018, 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, 20172019 and 2016.New Jersey Joint VentureThrough 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.a grandstand.The Company determined that the New Jersey joint venture did not qualify as a VIE at December 31, 2017 and 2016. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the joint venture at, and for the years ended December 31, 2017 and 2016, primarily as it did not have the ability to direct the activities of the joint venture that most significantly impacted the joint venture’s economic110performance 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, 2017 and 2016.7.Property and Equipmentconsistsconsisted of the following:December 31, (in millions) 2019 2018 Property and equipment - Not Subject to Master Leases $ 353.2 $ 344.0 Building, vessels and improvements 420.4 343.0 1,598.3 1,565.8 183.6 152.9 59.3 25.5 2,614.8 2,431.2 Less: Accumulated depreciation (1,548.3 ) (1,400.2 ) 1,066.5 1,031.0 Property and equipment - Subject to Master Leases 1,525.9 2,971.0 3,664.6 3,845.0 5,190.5 6,816.0 Less: Accumulated depreciation (1,136.8 ) (978.2 ) 4,053.7 5,837.8 $ 5,120.2 $ 6,868.8 Property and equipment, net decreased by $63.7 million primarily due to depreciation(1) partially offset by the acquisition of 1st Jackpot and Resorts, additional video gaming terminals at Prairie State Gamingwas as well as improvements at Tropicana Las Vegas, Hollywood Casino St. Louis, M Resort and Hollywood Casino Lawrenceburg duringfollows: For the year ended December 31, (in millions) 2019 2018 2017 $ 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. 2017.Depreciation expense, for2018, we recorded $34.3 million of impairment on the property and equipment as well as capital leases, totaled $248.2 million, $261.9 million, and $258.9 million in 2017, 2016 and 2015. 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 $92.4 million, $91.1 millionthe result of an impairment assessment performed after reviewing the financial results and $92.4 million for the years ended December 31, 2017, 2016, and 2015 respectively. Interest capitalized in connection with major construction projects was $0.2 million, $0.1 million, and $1.8 million in 2017, 2016 and 2015, respectively.1118.GoodwillNote 8—Goodwill and Other Intangible Assetsfollows (in thousands):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, net 84.4 102.3 142.4 611.4 67.6 1,008.1 Goodwill acquired during year 56.4 48.3 51.4 63.4 0.8 220.3 Balance as of December 31, 2018 Goodwill, gross 848.4 185.2 210.4 1,110.1 156.1 2,510.2 Accumulated goodwill impairment losses (707.6 ) (34.6 ) (16.6 ) (435.3 ) (87.7 ) (1,281.8 ) Goodwill, net 140.8 150.6 193.8 674.8 68.4 1,228.4 Goodwill acquired during year 67.4 44.2 — — — 111.6 Impairment losses during year (10.3 ) (17.4 ) — (60.3 ) — (88.0 ) (1.5 ) 7.2 6.4 6.6 — 18.7 Balance as of December 31, 2019 Goodwill, gross 914.3 236.6 216.8 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 The Company’s goodwill was tested(1) duringwe 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.(beforeof 2017, the annualCompany identified an indicator of impairment dateon its goodwill as a result of October 1, 2017) due toa reversal of a significant deferred tax valuation allowance, reversal which resultedcaused increases in an increase to the carrying amounts of somecertain of itsour reporting units, and, as such, was determined to be a triggering event. In accordance with ASC 805 “Business Combinations”, the Company’s allocation of the purchase price for Tropicana Las Vegas, which was acquired in August 2015, included a significant amount of net operating losses (“NOL’s”). The Company did not record deferred tax assets (“DTA”) of approximately $68 million at the acquisition date due to the recognition of a full valuation allowance at that time. The Company’s purchase price allocation resulted in goodwill of $14.8 million being created which would not have been recorded if we had been able to recognize a deferred tax asset. As of September 30, 2017, Tropicana Las Vegas failed the quantitative goodwill impairment test as we determined its fair value was less than its carrying value.units. As a result of an interim assessment for impairment, one of our reporting units within the Company determined that the goodwill for the Tropicana Las Vegas reporting unitWest segment was fully impaired, and recordedresulting in an impairment charge of $14.8 million, within our South/West segment. Additionally,and the Company’s Sanford Orlandogoodwill at Sanford-Orlando Kennel Club, reporting unit within ourwhich is included in the Other category, failed the quantitative goodwill impairment test as of September 30, 2017, and, as such, a partialwas partially impaired, resulting in an impairment charge of $3.2 million was recorded.No goodwill impairment chargesmillion. The estimated fair values of the reporting units were recorded fordetermined by using DCF models, which utilized Level 3 inputs.yearsyear ended December 31, 2016 and 2015.Hollywood Casino2017, 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. Charles Town Races and Hollywood Casino at Penn National Race Course both within the Company’s Northeast segment and Argosy Casino Alton within the Company’s Midwest segment have negative112carrying values with allocated goodwill of $1.4 million, $1.5 million and $9.9 million, respectively. All three of these reporting units generate significant earnings andwas as such the Company does not believe impairment charges are required.Indefinite‑life intangible assets consist primarily of gaming licenses. follows (in millions):Northeast segment Hollywood Casino at Charles Town Races $ 8.7 Plainridge Park Casino $ 6.3 Midwest segment Ameristar Council Bluffs $ 36.2 value,amount, accumulated amortization, and net book valuecarrying amount of each major class of other intangible assets at December 31, 2017 and 2016:assets:Total other intangible assets decreased by $12.9 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 Trademarks 302.4 — 302.4 298.0 — 298.0 Other 0.7 — 0.7 0.7 — 0.7 Amortizing intangible assets Customer relationships 104.4 (69.0 ) 35.4 98.8 (51.5 ) 47.3 Other 36.1 (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 2017 primarily due to amortization of $18.92019, we paid $10.0 million partially offset by acquisitions of definite-lived other intangible assets related to Illinois slot operator acquisitions. Other intangible assets have a weighted average remaining amortization period of 4.9 years.No other intangible asset impairment charges were recorded for the years ended December 31, 2017online and 2016.Forretail sports betting licenses in Pennsylvania and during the year ended December 31, 2015, the Company recorded other2018, 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 been classified as indefinite-lived intangible assets.impairment charges of $40.0was $24.7 million, as of the valuation date of October 1, 2015 (the date of our annual impairment test), related to the write-off of our Plainridge Park Casino gaming license and a partial write-down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.The Company’s intangible asset amortization expense was $18.9 million, $9.3$17.1 million, and $0.5$18.9 million for the years ended December 31, 2019, 2018 and 2017, 2016 and 2015, respectively.expected intangible assetthe estimated amortization expense based on existingour amortizing intangible assets atas of December 31, 20172019 (in thousands)millions):113Years ending December 31: 2020 $ 19.7 2021 5.8 2022 3.9 2023 3.6 2024 3.6 Thereafter 4.9 Total $ 41.5 The Company’s remaining goodwillintangible assets by reporting unit at December 31, 2017 is shown below (in thousands):current liabilities consisted of the following:9.Long‑term December 31, (in millions) 2019 2018 Accrued salaries and wages $ 142.1 $ 139.2 Accrued gaming, pari-mutuel, property, and other taxes 103.3 105.8 Accrued interest 13.0 15.8 225.8 204.6 147.1 112.6 Accrued expenses and other current liabilities $ 631.3 $ 578.0 (1) (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. Long‑termiswas as follows:114 December 31, (in millions) 2019 2018 Senior Secured Credit Facilities: Revolving Credit Facility due 2023 $ 140.0 $ 112.0 Term Loan A Facility due 2023 672.3 707.7 Term Loan B-1 Facility due 2025 1,117.5 1,128.7 5.625% Notes due 2027 400.0 400.0 Other long-term obligations 89.2 104.6 — 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. 20172019 (in thousands)millions):Year ending December 31: $ 62.9 81.4 99.9 2023 683.1 2024 21.3 1,470.4 $ 2,419.0 Facilitynew 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 Termfacility. 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.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 $250 millionAmended 2013 Credit Agreement did not impact the 2013 Term Loan B facility remained unchanged. amendedagreement to amend and restated senior secured credit facility. The amended and restated senior securedrestate its Amended 2013 Credit Agreement (the “2017 Credit Agreement”), which provided for: (i) a five-year $700.0 million revolving credit facility consists of(the “Revolving Credit Facility”), a five year $700five-year $300.0 million revolver, a five year $300 million Termterm loan A facility (the “Term Loan A facility,Facility”), and a seven year $500seven-year $500.0 million Term Loan B facility (the “Amended“Term Loan B Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”).A facility was priced atB-1 Facility is subject to a LIBOR plus a spread (ranging from 3.00%“floor” of 0.75%. Prior to 1.25%) based onextinguishment, the Company’s consolidated total net leverage ratio as defined inapplicable margin for the new senior secured credit facility. The Term Loan B facilityFacility was priced2.50% 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 LIBOR plus 2.50%, with a 0.75% LIBOR floor. 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.2017, the Company’s senior secured credit facility had a gross outstanding balance of $760.0 million, consisting of a $288.8 million Term Loan A facility2019 and a $471.2 million Term Loan B facility. The revolving credit facility had nothing drawn at December 31, 2017. Additionally, at December 31, 2017 and 2016,2018, the Company had conditional obligations under letters of credit issued pursuant to the senior secured credit facilitySenior Secured Credit Facilities with face amounts aggregating $22.1$30.0 million in both periods, resulting in $530.0 million and $23.0 million, respectively, resulting in $677.9 million and $419.1$558.0 million of available borrowing capacity as of December 30, 2017 and 2016, respectively, under the revolving credit facility. InRevolving Credit Facility, respectively.previous senior secured credit facility,2013 Senior Secured Credit Facilities, the Company recorded $1.7 million in refinancing costs and a $2.3 million loss on the early extinguishment of debt, for the year ended December 31, 2017 related to the write-off of deferred debt issuance costs and the discount on the 2013 Term Loan B facilityFacility. The refinancing costs are included in “Other,” as reported in “Other income (expenses)” within our Consolidated Statements of the previous senior secured credit facility.senior secured credit facilitySenior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property, such as gaming licenses) of the Company and its subsidiaries. 5.875% Senior Unsecured NotesOn 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 issues115certain subsidiary‑guaranteed debt securities. The Company may redeem the 5.875% Notes at any time, and from time to time, on or after November 1, 2016, at the declining redemption premiums set forth in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a “make‑whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays 105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.The Company used the proceeds of the new senior secured credit facility, new 5.875% Notes, and cash on hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its previously issued 83/4% senior subordinated notes (“83/4% Notes”)and the related consent solicitation to make certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay related fees and expenses and for working capital purposes.Redemption of 5.875% Senior Subordinated NotesIn the first quarter of 2017, the Company redeemed all of its $300 million 5.875% senior subordinated notes, which were due in 2021 (“5.875% Notes”). In connection with this redemption, the Company recorded a $21.1 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the difference between the reacquisition price of the 5.875% Notes compared to its carrying value.$400$400.0 million aggregate principal amount of 5.625% senior unsecured notes that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on January 15th and July 15th of each year. The 5.625% Notes are senior unsecured obligations of the Company. The 5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary‑guaranteedsubsidiary-guaranteed debt securities. The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set In addition, prior to January 15, 2020, the Company may redeem the 5.625% Notes with an amount equal to the net proceeds from one or more equity offerings, at a redemption price equal to 105.625% of the principal amount of the 5.625% Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date, so long as at least 60% of the aggregate principal amount of the notes originally issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the related equity offering.Company used loans funded underremaining proceeds from the Amended Credit Facilities and a portion of the proceedsissuance of the 5.625% Notes to repay amounts outstanding under its then existing Credit Agreement and to fund related transaction fees and expenses andwere used for general corporate purposes.Other Long‑Term ObligationsOther long term obligations atand 2016 of $119.3 million and $154.1 million, respectively, included $105.4 million and $118.9 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course. At December 31, 2017 and 2016, $13.8 million116and $14.4 million, respectively, related to the repayment obligation of a hotel and event center located near Hollywood Casino Lawrenceburg. The December 31, 2016 long term obligations included $20.8 million related to a corporate airplane loan;Company redeemed all of its $300.0 million 5.875% senior subordinated notes (“5.875% Notes”), which are more fully described below. Ohio Relocation FeesJune 2013,connection with this redemption, the Company finalized the termsrecorded a $21.1 million loss on early extinguishment of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $5.5 million and $6.2 milliondebt for the year ended December 31, 2017 and 2016, respectively.Event CenterThe 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 forrelated 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.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, 2017as follows: For the year ended December 31, (in millions) 2019 2018 2017 Interest expense $ (535.9 ) $ (539.4 ) $ (467.0 ) Interest income 1.4 1.0 3.6 Capitalized interest 0.3 — 0.2 Interest expense, net $ (534.2 ) $ (538.4 ) $ (463.2 ) 2016.Corporate Airplane LoanOn 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. CovenantsThe 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, 2017,2019, the Company was in compliance with all required financial covenants.10.Master Lease Financing ObligationThe Company’s lease obligation with GLPI that is described in Note 3consolidated financial statements is accountedrelocation fees for asDayton and Mahoning Valley, which opened in August 2014 and September 2014, respectively. In June 2013, we finalized the terms of our memorandum of understanding with the State of Ohio, which included an agreement for us to pay a financing obligation. Therelocation fee in return for being able to relocate our existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening Dayton and Mahoning Valley, each relocation fee was recorded at the present value of the contractual obligation, which was calculated at the inception of the transactionas $75.0 million based on the future minimum lease5.0% discount rate included in the agreement. Each relocation fee is payable as follows: $7.5 million upon opening and 18 semi-annual payments discountedof $4.8 million beginning one year after opening. This obligation is accreted to interest expense at the Company’s estimated incremental borrowing rate at lease inception over the lease term, including renewal options, that were reasonably assuredan effective yield of being exercised and the funded117construction of certain leased real estate assets5.0%. The amount included in development at the date of the Spin-Off. As of May 1, 2017, in connection with the acquisition of 1st Jackpot and Resorts, the Company’s Master Lease Financinginterest expense related to this obligation was increased by $82.6$4.1 million, which was the purchase price paid by GLPI for the casinos underlying real estate assets. Total payments to GLPI under the Master Lease were $455.4 million, $442.3$4.8 million and $437.0$5.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.2015, respectively,2017.$397.6is 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, $391.7$5.4 million and $390.1$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.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 interestCompany has determined that the lease term is 32.5 years.December 31, 2019 Weighted-Average Remaining Lease Term Operating leases 27.6 years Finance leases 28.6 years Financing obligations 30.4 years Weighted-Average Discount Rate Operating leases 6.7 % Finance leases 6.8 % Financing obligations 8.1 % 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 $ — $ — $ 366.4 $ — $ — $ 366.4 0.4 0.5 16.6 — — 17.5 Short-term lease cost 53.8 1.3 1.5 — — 56.6 2.8 — 1.1 — — 3.9 Total $ 57.0 $ 1.8 $ 385.6 $ — $ — $ 444.4 Finance Lease Costs $ — $ — $ — $ 15.4 $ — $ 15.4 — — — — 7.9 7.9 Total $ — $ — $ — $ 15.4 $ 7.9 $ 23.3 Financing Obligation Costs $ — $ — $ — $ 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). 2016respectively.(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 2015 includes $46.8financing obligations as of December 31, 2019:(in millions) Operating Leases Finance Leases Financing Obligations Years ending December 31: 2020 $ 424.0 $ 21.7 $ 374.7 2021 403.7 21.7 367.3 2022 400.6 21.6 367.3 2023 397.5 20.8 367.3 2024 381.0 16.7 367.3 Thereafter 8,153.3 393.5 9,270.6 Total lease payments 10,160.1 496.0 11,114.5 Less: Imputed interest (5,585.4 ) (270.1 ) (6,971.8 ) Present value of future lease payments 4,574.7 225.9 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 $43.8$163.6 million, and $43.5$129.9 million, respectively from contingent payments associated with the monthly variable components for Hollywood Casino Columbus and Hollywood Casino Toledo.The future minimum paymentsof lessor revenues related to the Master Lease financing obligationrental of hotel rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature. The cost and accumulated depreciation of property and equipment associated with GLPI, at December 31, 2017 are as follows (in thousands):11.Commitmentshotel rooms is included in “Property and equipment, net” within our Consolidated Balance Sheets.consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations.Consolidated Financial Statements. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.Legal proceedings could result in costs, settlements, damages, or rulings that materially impact the Company’s consolidated financial condition or operating results. The Company believes that it has meritorious defenses, claims and/or counter‑claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.Operating Lease CommitmentsThe Company is liable under numerous operating leases for various assets, including but not limited to ground leases, automobiles, and other equipment. The majority of these lease arrangements are cancelable within 30 days. Total rental expense under all operating lease agreements was $45.4 million, $40.3 million, and $37.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.118The future minimum lease commitments relating to the base lease rent portion of noncancelable operating leases at December 31, 2017 are as follows (in thousands):The Company’s subsidiary, Prairie State GamingPSG to place VGTs in the bar or retail establishment in exchange for a percentage of the variable revenue generated by the VGTs. Prairie State GamingPSG holds the gaming license with the state of Illinois and the location share percentage is determined by the state of Illinois. For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, the total location share payments made by Prairie State Gaming (recorded inPSG, which are recorded within our Consolidated Statements of Income as gaming expenses)expenses, were $33.1 million, $34.7 million, and $29.7 million, $21.2respectively.and $6.0as of December 31, 2019, of which $70.4 million respectively.The Company currently has a capital expenditures budgetapproximately $105.5 million for 2018, of which the Company was contractually committed to spend approximately $4.8 million at December 31, 2017. The Company’s properties that are subject to the Master Lease with GLPIour Triple Net Leases, we are obligated to spend a minimum of 1% of annual net revenues, forin the aggregate under each lease, on the maintenance of thosesuch facilities. The Company historically spends well in excess of this minimum threshold.Purchase ObligationsThe Company has obligations to purchase various goods and services totaling $73.6 million at December 31, 2017, of which $44.1 million will be incurred in 2018.Loan Commitments to the JIVDCThe Company has $29.0 million of unfunded loan commitments related to its loan to the JIVDC.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, 2019, 2018 and 2017 2016were $11.7 million, $6.5 million, and 2015 were $6.0 million, $5.3 million, and $5.0 million, respectively.The Company also hasdefined 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 retirement119expense, which is calculated as 0.25% of the daily mutual handle, 1.0% of net video lottery revenue up to a base and, after the base is met, it reverts to 0.5% and 0.84% of table and poker revenue, respectively. The contributions for the two plans at Hollywood Casino at Charles Town Races for the years ended December 31, 2017, 2016 and 2015 were $2.6 million, $2.8 million, and $2.9 million, respectively.The Company maintains a non‑qualifiednon-qualified deferred compensation plan (the “EDC Plan”) that covers most management and other highly‑compensatedhighly-compensated employees. This planThe EDC Plan was effective beginning March 1, 2001. The planEDC Plan allows the participants to defer, on a pre‑taxpre-tax basis, a portion of their base annual salary and/or their annual bonus and earn tax‑deferredtax-deferred earnings on these deferrals. The planEDC Plan also provides for matching Company contributions that vest over a five‑yearfive-year period. The Company has established a Trust,trust, and transfers to the Trust,trust, on a periodic basis, an amount necessary to provide for its respective future liabilities with respect to participant deferral and Company contribution amounts. The Company’s matching contributions for the non‑qualified deferred compensation planEDC Plan for the years ended December 31, 2019, 2018 and 2017 2016were $2.3 million, $2.3 million, and 2015 were $2.2 million, $2.2 million, and $2.0 million, respectively. The Company’sOur deferred compensation liability, which wasis included in “Accrued expenses and other current liabilitiesliabilities” within the consolidated balance sheets,Consolidated Balance Sheets, was $64.7$80.1 million and $59.4$64.1 million atas of December 31, 20172019 and 2016,2018, respectively.The Company isitsour racetracks to conduct itsour live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari‑mutuelpari-mutuel clerks and breeders.At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles Town Races also renewed an agreement with the breeders that expires on June 30, 2018. Additionally, the pari‑mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union As of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month‑to‑month basis.The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January2019, we had 31 2019. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract was negotiated and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.The Company’s agreement with the Maine Harness Horsemen Association at Bangor Raceway continues through the conclusion of the 2018 racing season.In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September 2014 commencement of video lottery terminal operations at that facility.In September 2015, Hollywood Gaming at Dayton Raceway entered into an agreement with the Ohio Harness Horsemen’s Association for racing at the property. The term is for a period of ten years from the September 2015 effective date.In January 2014, the Company entered into an agreement with the Harness Horsemen’s Association of New England at Plainridge Park Casino which remains in effect through December 31, 2018.120Across certain of the Company’s properties, SEATU represents approximately 1,670 of the Company’s employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton, Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018, Hollywood Casino Lawrenceburg has a wage reopener in June 2018, Hollywood Casino Kansas Speedway has a wage reopener in July 2018 and Hollywood Casino Joliet and Plainridge Park Casino have a wage reopener in November 2018; the remainder of the SEATU agreements have expiration dates in 2019 and beyond.At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents approximately 167 employees under a collective bargaining agreement which expires on March 31, 2019. At Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and the United Steel Workers represents approximately 1,271 employees under a collective bargaining agreement which ends on November 15, 2019.On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which had seven existing collective bargaining agreements with the following unions: (1) Culinary & Bartenders (expires on May 31, 2018.), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical Workers (expires on February 28, 2021), (4) International Alliance of Theatrical Stage Employees (expires on December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7) Teamsters (front and back of the house, both expire on March 31, 2018).The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego, which the Company opened on October 10, 2016. Unite Here! International Union and Local 30 represents employees in stewarding, facilities, food and beverage, and operations classifications, and the parties are in the process of negotiating their firstcovering approximately 5,900 employees. NaN collective bargaining agreement.In addition, at some of the Company’s properties, the Security Policeagreements are scheduled to expire in 2020, and Fire Professionals of America, the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local 1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel Workers represent certain of the Company’s employees underwe are currently renegotiating 3 collective bargaining agreements that expire at various times between April 2018 and September 2025. None of these additional unions represent more than 77 of the Company’s employees.If the Company fails to maintain operative agreements with the horsemen at a track, it will not be permitted to conduct live racing and export and import simulcasting at that track and OTWs and,expired in West Virginia, the Company will not be permitted to operate its gaming machines and table games unless the state intervenes or changes the statute. In addition, the Company’s simulcasting agreements are subject to the horsemen’s approval. If the Company fails to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on its business, financial condition and results of operations. Except for the closure of the facilities at Penn National Race Course and its OTWs from February 16, 1999 to March 24, 1999 due to a horsemen’s strike, and a few days at other times and locations, the Company has been able to maintain the necessary agreements. There can be no assurance that the Company will be able to maintain the required agreements.12.Income2019.On December 22, 2017, the President of the United States signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States121tax law. The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying capital improvements, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”).Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides accounting guidance for the Tax Act. SAB 118 provides a measurement period similar to a business combination whereby recognizing provisional amounts to the extent that they are reasonably estimable and adjust them over time as more information becomes available not to extend beyond one year from the Tax Act enactment date. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the accounting under ASC 740 is complete. To the extent the accounting related to the Tax Act is incomplete but a reasonable estimate is attainable, a provisional estimate should be reflected in the financial statements.The adjustments reflected in our financial statements related to the application of the Tax Act are provisional amounts estimated based on published guidance and the interpretation of these provisions as of December 31, 2017. The new law directs the United States Treasury to promulgate regulations as it deems appropriate as well as provide guidance implementing the intent of Congress. The Company will recognize any change to the provisional amounts in the period our computations are complete. The Company calculated reasonable estimates of certain Tax Act provisions including the federal corporate tax rate change, 100% expensing of capital improvements and the one-time transition tax on foreign earnings. In connection with our initial analysis of the Tax Act impact, we have recorded a provisional decrease to net deferred tax assets of $261.3 million with a corresponding increase to deferred tax expense. The Company recorded these provisional amounts in our consolidated financial statements in the period of enactment – December 22, 2017. The Company’s computations are not complete since the Tax Act is unclear in many respects subjecting the legislation to potential technical corrections and interpretation from the United States Treasury and Internal Revenue Service. In addition, there is uncertainty regarding how these U.S. federal income tax changes will affect state and local taxation, which generally use federal taxable income as a starting point for computing the tax liability. The Tax Act also provides for a 100% temporary tax deduction on all qualified assets placed into service after September 27, 2017 and before December 31, 2022 including significant improvements we regularly expend to construct, maintain and renovate our properties. This provision phases out each year thereafter by 20% and will be completely phased out as of January 1, 2027. Beginning in 2018, the new federal rate will also be reflected in the current federal tax expense or benefit in our consolidated statement of operations. Additionally, upon enactment, there is a one-time deemed repatriation tax on undistributed foreign earnings and profits (“transition tax”). The application of the transition tax is relevant to certain undistributed and previously untaxed post-1986 foreign earnings and profits from our management service contract with Casino Rama located in Orillia, Ontario. The Company recognized a provisional tax expense of $2.6 million related to the transition tax in 2017 and the new law allows a Company to pay this liability over an eight-year period without interest. The Company is continuing to gather additional information to refine the amount of transition tax. As of December 31, 2017, the Company changed its indefinite reinvestment assertion due to new favorable U.S. treatment of foreign dividends and the anticipated termination of the Casino Rama management service contract during the second half of 2018. Because our indefinite reinvestment assertion changed, we recorded foreign withholding taxes of approximately $2.1 million. The Tax Act also contains a new GILTI tax provision and due to the complexity, the Company is continuing to evaluate this provision and application of ASC 740. Therefore, the Company did not record any amount related to GILTI in our financial statements or make a policy decision regarding whether to record deferred taxes related to GILTI. The effects of other provisions within the Tax Act are not expected to have a material impact on our consolidated financial statements for the year ended December 31, 2017.122financial statementConsolidated Financial Statements carrying valueamount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets. In connection 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.arewere as follows:December 31, (in millions) 2019 2018 $ 11.7 $ 9.0 37.6 42.9 Financing obligations associated with the Master Leases 1,097.6 1,919.7 7.7 6.7 Investments in and advances to unconsolidated affiliates — 3.6 Net operating losses, interest limitation and tax credit carryforwards 87.6 122.8 1,242.2 2,104.7 Less: Valuation allowance (54.2 ) (89.5 ) 1,188.0 2,015.2 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 ) — (0.4 ) (0.4 ) Intangible assets (287.3 ) (287.0 ) (1,432.6 ) (1,934.6 ) Long-term deferred tax assets (liabilities), net $ (244.6 ) $ 80.6 itsour federal and state net deferred tax assets for the portion that will be realized. The most significant evidence that led to the reversal of theour valuation allowance duringas of the three months ended September 30, 2017 includesaforementioned period included, (i) the following:·Achievement and sustained growth in our three-year cumulative pretax earnings.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 2016, we emerged from a three-year cumulative pretax loss position, generating a near break-even cumulative amount of pretax income. This cumulative pretax income increased to $76.6 million as of123September 30, 2017 and was expected to rise substantially at year end since the Company had recorded a $161.5 million pretax loss in the fourth quarter of 2014 due to impairment charges of $155.3 million in that period.·Substantial pretax income in seven of the last eight quarters with the only loss reported eight quarters ago. ·Lack of significant goodwill and intangible asset impairment charges expected in 2017. The Company had experienced significant impairment charges in connection with the spin-off of its real estate assets to Gaming Leisure Properties, Inc. in November 2013. The Company recorded impairment charges totaling $40.0 million, $159.9 million and $798.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. There were no impairments recorded in 2016 and for the nine months ended September 30, 2017, the Company recorded impairments of $29.9 million.For the three months ended December 31, 2017, there were no material changes to our core business operations that altered our prior interim conclusion to release the valuation allowance against the federal and state net deferred tax assets for the portion that is more-likely-than-not to be realized. The Company continues to experience significant three-year cumulative pretax income of $152.2 million at December 31, 2017 despite the Jamul impairment charge of $77.9 million during the three months ended December 31, 2017. As such, the Companywe released $741.9 million of itsour total valuation allowance for the year ended December 31, 2017 due to the positive evidence outweighing the negative evidence thereby allowing the Companyus to achieve the “more-likely-than-not”more-likely-than-not realization standard. This reversal is reflected inincome tax benefitvaluation 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 accompanying consolidated statements of operations. The Company continues to maintain a valuation allowance of $113.7 million as of December 31, 2017 for federal capitalstate net operating loss carryforwards, as well as certain state filing groups, where it continues to be in a cumulative three-year pretax loss position.changechanges of the Tropicana Las Vegas, the Company has a$120.3 million of total gross federal net operating loss carry-forwards in the amount of $143.4 million for the year ended December 31, 2017, whichcarryforwards that 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 that the benefit from these tax attributes will be realized.the Company hasas of December 31, 2019, we had gross state net operating loss carry-forwardscarryforwards aggregating approximately $478.3$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, Illinois, and Ohio localities as of December 31, 2017.localities. The tax benefit associated with these net operating loss carry-forwards is approximately $28.7carryforwards was $52.2 million. Due to statutorily limited operating loss carry-forwardscarryforwards and income and loss projections in the applicable jurisdictions, a valuation allowance has been recorded to reflect the net operating losses which are not presently expected to be realized in the amount of $28.3$36.4 million. If not used, substantially all the carry-forwardscarryforwards will expire at various dates from December 31, 2018 to2020 through December 31, 2037.Additionally, included in the Company’s valuation allowance is $0.1 million for realized federal capital losses that will expire if not used via the realization of capital gains by December 31, 2018, as well as $26.2 million for an unrealized capital loss associated with our loan to the JIVDC. Overall the Company’s valuation allowance at December 31, 2017 decreased from December 31, 2016 by a net amount of $714.8 million primarily due to the reversal of the federal valuation allowance, and a partial reversal of the state valuation allowance. tax expensetaxes for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 waswere as follows:124ContentsThe provision for income taxes charged to operationstax benefit (expense) for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 waswere as follows: For the year ended December 31, (in millions) 2019 2018 2017 Current tax benefit (expense) $ (12.5 ) $ (15.3 ) $ (16.3 ) (9.2 ) (6.4 ) (6.1 ) (0.2 ) (1.4 ) 3.0 (21.9 ) (23.1 ) (19.4 ) Deferred tax benefit (expense) (16.7 ) 14.6 480.7 (4.4 ) 10.9 39.3 — 1.2 (2.1 ) (21.1 ) 26.7 517.9 Total income tax benefit (expense) $ (43.0 ) $ 3.6 $ 498.5 The negative pretax income magnifiesimpact of one-time items including reversalPresident of the valuation allowanceUnited 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 deferred rate change in the Company’s effectivecorporate tax rate forfrom 35% to 21% effective January 1, 2018. For the year ended December 31, 2017. 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%.for 2017, 2016 and 2015:Therelated amounts of income tax (benefit)/expense differs frombenefit (expense), for the federal statutory amount because the effect of the items detailed in the table below. 125
years ended December 31, 2019, 2018 and 2017: 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 rate 21.0 % $ (18.1 ) 21.0 % $ (18.9 ) 35.0 % $ 8.8 State and local income taxes, net of federal benefits 9.9 (8.5 ) (6.2 ) 5.6 6.3 1.6 Nondeductible expenses 4.0 (3.5 ) 6.9 (6.2 ) (16.0 ) (4.0 ) Goodwill impairment losses 14.4 (12.4 ) — — (20.5 ) (5.1 ) Compensation 0.3 (0.3 ) (3.8 ) 3.4 29.5 7.4 Contingent liability settlement — — — — 22.9 5.7 Foreign 0.1 (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 ) Other 0.2 (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 amountamounts of unrecognized tax benefits is as follows:(in millions) Unrecognized tax benefits Unrecognized tax benefits as of January 1, 2017 $ 26.8 Additions based on current year positions 2.9 Additions based on prior year positions 2.8 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, 2017 30.9 Additions based on prior year positions 0.8 Decreases due to settlements and/or reduction in reserves (2.0 ) Unrecognized tax benefits as of December 31, 2018 29.7 Additions based on prior year positions 6.5 Decreases due to settlements and/or reduction in reserves (0.2 ) Unrecognized tax benefits as of December 31, 2019 $ 36.0 is as follows:2,979 2,836 (1,322) (119) (216) The Company is required under ASC 740 to disclose its accounting policy for classifying interestof December 31, 2019 and penalties,2018 included $29.4 million and $23.6 million, respectively, of tax positions that, if reversed, would affect the amounteffective tax rate. During the years ended December 31, 2019, 2018 and 2017, we recognized $0.1 million, $0.5 million and $1.7 million, respectively, of interest and penalties, charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets.net of deferred taxes. The Company will continue tohad no reductions in previously accrued interest and penalties for the year ended December 31, 2019. We classify any income tax related penalties and interest accrued related to unrecognized tax benefits in income“Income tax provisionsbenefit (expense)” within the consolidated statementsConsolidated Statements of operations.The U.S. and Canadian competent authorities have effectively settled and issued refunds for the transfer pricing dispute related to our Casino Rama management service agreement. During the year ended December 31, 2017, the Company received a cash refund of $9.5 million and $29.7 million from U.S. and Canada (inclusive of advances on account listed in the table above), respectively, which was classified in other current assets at December 31, 2016. During the year ended December 31, 2017, the Company recorded $3.6 million of tax reserves and accrued interest and penalties related to current year uncertain tax positions. In regard to prior year tax positions, the Company recorded $3.1 million of tax reserves and accrued interest and reversed $1.4 million of previously recorded tax reserves126and accrued interest for uncertain tax positions that have settled and/or closed. The unrecognized tax benefits of $31.8 million is classified in other noncurrent tax liabilities. Overall, the Company recorded a net tax expense of $8.0 million in connection with its uncertain tax positions for the year ended December 31, 2017.Included in the liability for unrecognized tax benefits at December 31, 2017 and 2016 were $25.1 million and $9.4 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. Also included in the reserve at December 31, 2017 and 2016 were $0.1 million and $1.7 million gain of currency translation related to foreign currency tax positions and the settlement receivable on account, respectively.During the years ended December 31, 2017 and 2016, the Company recognized approximately $1.7 million and $0.3 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and penalties of $0.1 million, net of deferred taxes. These accruals are included in noncurrent tax liabilities and prepaid expenses within the consolidated balance sheets at December 31, 2017 and 2016, respectively.2017,2019, the Company is subject to U.S. federal2014, 2015, 2016, 2017 and 2016. The 2013 U.S. federal income tax return was audited by the Internal Revenue Service and the examination concluded on September 27, 2017 with no adjustments other than the expected Canada competent authority settlement. The 2013 income tax return statute of limitation was extended to June 30, 2018 to accommodate the processing of this change.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, 20172019 and 2016, prepaid expenses within the consolidated balance sheets included2018, prepaid income taxes of $12.0$22.2 million and $30.1$14.9 million, respectively. The Company received federal income tax refunds of $28.1 million including interest duringrespectively, were included in “Prepaid expenses” within the year related to net operating loss carryback, general business credit carryback and a prior year overpayment.13.Shareholders’Company’s Consolidated Balance Sheets.Preferred Equity InvestmentJune 15, 2007,January 9, 2019, the Company announced that it had entered into a merger agreement that, at the effective time of the transactions contemplated thereby, would have resulted in the Company’s shareholders receiving $67.00 per share. Specifically, the Company, PNG Acquisition Company Inc. (“Parent”) and PNG Merger Sub Inc., a wholly‑owned subsidiary of Parent (“Merger Sub”), announced that they had entered into an Agreement and Plan of Merger, dated as of June 15, 2007 (the “Merger Agreement”), that provided, among other things, for Merger Sub to be merged with and into the Company, as a result of which the Company would have continued as the surviving corporation and would have become a wholly‑owned subsidiary of Parent. Parent is indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) and Centerbridge Partners, L.P. (“Centerbridge”).On July 3, 2008, the Company entered into an agreement with certain affiliates of Fortress and Centerbridge, terminating the Merger Agreement. In connection with the termination of the Merger Agreement, certain affiliates of Fortress and Centerbridge agreed to pay the Company a total of $1.475 billion, consisting of a nonrefundable $225 million cash termination fee and a $1.25 billion, zero coupon, preferred equity investment (the “Investment”). On October 30, 2008, the Company closed the sale of the Investment and issued 12,500 shares of the Series B Preferred Stock. During the year ended December 31, 2010, the Company repurchased 225 shares of Series B Preferred Stock for $11.2 million.127As part of the Spin‑Off, the Company entered into an agreement (the “Exchange Agreement”) with FIF V PFD LLC, an affiliate of Fortress, providing for the exchange of shares of the Company’s Series B Preferred Stock for shares of a new class of preferred stock, Series C Preferred Stock, in contemplation of the Spin‑Off.The Exchange Agreement provided Fortress with the right to exchange its 9,750 shares of Series B Preferred Stock for fractional shares of Series C Preferred Stock at an exchange ratio that treated each such fractional share (and therefore each share of common stock into which such fractional share was convertible) as worth $67 per share, which was the “ceiling price” at which the shares of Series B Preferred Stock were redeemable by the Company at maturity. Any shares of Series B Preferred Stock that were not exchanged for shares of Series C Preferred Stock prior to the second business day before October 16, 2013, the record date established for the distribution of GLPI common stock in the Spin‑Off, were automatically exchanged for shares of Series C Preferred Stock on such date. Subsequently, the Company had the right to purchase from Fortress, prior to the record date for the Spin‑Off, a number of shares of Series C Preferred Stock, at a price of $67 per fractional share of Series C Preferred Stock, such that, immediately following the consummation of the Spin‑Off, Fortress would not own more than 9.9% of GLPI’s common stock.On October 11, 2013, the Company completed its exchange and repurchase transactions with Fortress and repurchased all of the 2,300 shares of Series B Preferred Stock held by Centerbridge at par and issued to the affiliate of Fortress 14,553 shares of non-voting Series C Preferred Stock in order to redeem all of the previously outstanding shares of Series B Preferred Stock. The Company then repurchased 5,929 shares of Series C Preferred Stock from Fortress. Additionally, in February 2013, the Company repurchased 225 shares of Series B Preferred Stock from WF Investment Holdings, LLC at a slight discount to par. In these transactions, the Company paid a total of $649.5 million, which was primarily funded by borrowings under the revolving credit facility, to the affiliates of Fortress, Centerbridge and WF Investment Holdings, LLC. As a result of these transactions, there are currently no outstanding shares of Series B Preferred Stock and Fortress held 8,624 shares of Series C Preferred Stock at December 31, 2015.During 2016, Fortress sold all 8,624 shares of Series C Preferred Stock, which converted upon sale into 8,624,000 shares of common stock under previously agreed upon terms. As a result, no shares of Series C Preferred Stock were outstanding at December 31, 2017 and 2016.Repurchase of Common StockOn February 3, 2017, the Company announced a repurchase program pursuant to which the Board of Directors authorized to repurchase up to $100$200.0 million of the Company’s common stock, which can be executed over a two year period.expires on December 31, 2020. During the year ended December 31, 2017,2019, the Company repurchased 1,264,1491,271,823 shares of its Common Stockcommon stock in open market transactions for approximately$24.9 million at an average price of $19.55 per share. All repurchased shares were retired.share.share, respectively. All of the repurchased shares have beenwere retired.14.Stock‑BasedOn April 16, 2003,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 such128plan 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, 2017,2019, there were 1,436,3488,417,411 shares available for future grants under the 2018 Plan. Outstanding as of January 1, 2019 5,869,211 $ 15.14 Granted 2,436,811 $ 19.24 Exercised (230,644 ) $ 14.32 Forfeited (257,942 ) $ 19.44 Outstanding as of December 31, 2019 7,817,436 $ 16.30 4.84 $ 75.1 Exercisable as of December 31, 2019 4,071,052 $ 13.62 2.49 $ 49.2 Exercise Price Range Total $11.61 to
$16.93 $17.77 to
$25.05 $30.74 to
$32.90 $11.61 to
$32.90Outstanding options Number outstanding 4,842,725 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 outstanding 3,901,333 10,584 159,135 4,071,052 Weighted-average exercise price $ 12.91 $ 18.62 $ 30.75 $ 13.62 For the year ended December 31, 2019 2018 2017 Risk-free interest rate 2.00 % 2.26 % 1.97 % Expected volatility 32.90 % 30.80 % 30.66 % Dividend yield — — — Weighted-average expected life (in years) 5.30 5.30 5.30 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.(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 eligible to participate in the Performance Share Program. An aggregateissuance of 172,245 and 189,085 performance shares were awardedPSAs, at target, on February 17, 2017, and February 9, 2016, respectively, with each award having a three-year award period consistingto be granted in one-third increments.three3 one-year performance periods andover a three-year service period. The performance goal for each performance period willawards have the potential to be an adjusted EBITDA goal established for each one-year performance period. The awards will potentially be earned at between 0% and 150% of the number of shares awarded in one-third incrementsgranted depending on achievement of the annual performance goals, but remain subject to vesting for the full three-year service term.At December 31, 2017,period.targetas adjusted”); and run-rate cost synergies from the Pinnacle Acquisition. The performance goal for the third trancheperformance period is based on EBITDA, as adjusted. The performance goals for each of the 2016one-year performance awards and the second and third tranchesperiods of the 2017 performance awards were not yet 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 each 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 on the grant date since all key terms for the specific tranche weretargets are established and mutually understood by the Company and the individuals receiving the awards. At each reporting period, accrualsPSAs.stock based compensation 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.Stock options that expire between July 8, 2018 and August 7, 2024, have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $6.96 to $20.75 per share. All options were granted at the fair market value of the common stock on the date the options were granted (as defined in the respective plan document) and have contractual lives ranging from 4 to 10 years. The Company issues new authorized common shares to satisfy stock option exercises as well as lapses of forfeiture of restrictions on restricted stock.129stock options issued under the plans for the year endedour RSAs: With Performance Conditions Without Performance Conditions Weighted- Average Grant Date Fair Value Weighted- Average Grant Date Fair Value Nonvested as of January 1, 2019 351,472 $ 22.10 207,349 $ 25.55 Granted 253,609 $ 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, 2019 395,362 $ 24.35 298,479 $ 23.15 2017:11.17 14.26 8.81 14.38 12.29 3.98 weighted‑average grant‑datetotal fair value of options grantedRSAs that vested during the years ended December 31, 2019, 2018 and 2017 and 2016 were $4.48 and $3.97, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $15.8$5.5 million, $10.3$0.9 million and $19.5$1.0 million, respectively. At December 31, 2017, there were 3,106,177 shares that were exercisable, with a weighted‑average exercise price of $10.94, a weighted‑average remaining contractual term of 2.67 years, and an aggregate intrinsic value of $63.3 million.The following table summarizes information about stock options outstanding at December 31, 2017:The following table contains information on restricted stock awards issued under the plans for the year ended December 31, 2017:Number of AwardSharesOutstanding at December 31, 2016175,886Awarded176,865Released(68,257)Canceled(16,839)Outstanding at December 31, 2017267,655Stock-based compensation expenses for the years ended December 31, 2017, 2016 and 2015 totaled $7.8 million, $6.9 million and $8.2 million, respectively, and are included within the consolidated statements of operations under general and administrative expense.At December 31, 2017, 2016 and 2015, the total compensation cost related to nonvested awards not yet recognized equaled $12.2 million, $11.6 million and $11.2 million, respectively, including $9.8 million, $9.9 million and $8.8 million for stock options, respectively, and $2.4 million, $1.7 million and $2.4 million for restricted stock, respectively. This cost is expected to be recognized over the remaining vesting periods, which will not exceed four years.130The 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,$4.8$3.3 million and $5.6$1.7 million atas of December 31, 20172019 and 2016,2018, respectively.Penn employees and directors of the Company, there was $5.7$3.3 million of total unrecognized compensation cost atas of December 31, 20172019 that will be recognized over the grantsawards remaining weighted averageweighted-average vesting period of 2.361.6 years. For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, the Company recognized $11.9$4.1 million, $8.5$1.1 million, and $14.1$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 increase was primarily due to an increase in the stock priceConsolidated Statements of Penn common stockIncome. We paid $2.5 million, $4.2 million, and $12.7 million during 2017. Amounts paid by the Company for the years ended December 31, 2019, 2018 and 2017, 2016, and 2015 on theserespectively, pertaining to our cash-settled awards totaled $12.7 million, $10.7 million, and $14.5 million, respectively.For the Company’s SARs, thePSUs.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, 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 $24.0$14.4 million and $7.3$6.8 million atas of December 31, 20172019 and 2016,2018, respectively.Penn employees of the Company, there was $17.5$9.6 million of total unrecognized compensation cost atas of December 31, 20172019 that will be recognized over the awards remaining weighted averageweighted-average vesting period of 2.502.6 years. For the yearsyear ended December 31, 2017, 2016 and 2015,2019, the Company recognized $21.9compensation expense of $10.7 million $2.4as compared to a reduction to compensation expense of $6.7 million and $5.1 million of compensation expense associated with these awards. The reason for the increase was primarily due to an increase in the stock price of Penn common stock during 2017. Amounts paid by the Company$21.9 million for the years ended December 31, 2018 and 2017, 2016respectively, associated with these awards. Compensation expense associated with our SARs is recorded in “General and 2015 on these cash-settled awards totaledadministrative” within the Consolidated Statements of Income. We paid $3.5 million, $10.5 million and $6.2 million $3.3 millionduring the years ended December 31, 2019, 2018 and $3.4 million, respectively.2017, respectively, pertaining to our cash-settled SARs.13115.Segment Informationtables present certain information with respecttable reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the Company’s segments. Intersegment revenues betweenweighted-average common shares outstanding used in the calculation of diluted EPS for the years ended December 31, 2019, 2018 and 2017: For the year ended December 31, (in millions) 2019 2018 2017 Determination of shares: Weighted-average common shares outstanding 115.7 97.1 90.9 Assumed conversion of dilutive stock options 1.8 3.0 2.4 Assumed conversion of dilutive restricted stock awards 0.3 0.2 0.1 Diluted weighted-average common shares outstanding 117.8 100.3 93.4 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 outstanding 115.7 97.1 90.9 Basic EPS $ 0.38 $ 0.96 $ 5.21 Calculation of diluted EPS: Net income applicable to common stock 43.9 93.5 473.4 Diluted weighted-average common shares outstanding 117.8 100.3 93.4 Diluted EPS $ 0.37 $ 0.93 $ 5.07 were not material in anyinto 4 reportable segments based on the similar characteristics of the periods presented below. operating segments within the regions in which they operate: Northeast, South, West and Midwest. The Other category is included in the following tables in order to reconcile the segment information to the consolidated information.132 For the year ended December 31, (in millions) 2019 2018 2017 Revenues: Northeast segment $ 2,399.9 $ 1,891.5 $ 1,756.6 South segment 1,118.9 394.4 224.3 West segment 642.5 437.9 380.4 Midwest segment 1,094.5 823.7 735.0 47.5 40.4 51.7 (1.9 ) — — Total $ 5,301.4 $ 3,587.9 $ 3,148.0 Northeast segment $ 720.8 $ 583.8 $ 549.3 South segment 369.8 118.9 62.6 West segment 198.8 114.3 72.7 Midwest segment 403.6 294.3 249.7 (87.8 ) (68.1 ) (55.2 ) 1,605.2 1,043.2 879.1 Other operating benefits (costs) and other income (expenses): (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 charges 3.0 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 ) Other 20.0 (7.1 ) (2.3 ) Income before income taxes 86.1 89.9 (25.1 ) Income tax benefit (expense) (43.0 ) 3.6 498.5 Net income $ 43.1 $ 93.5 $ 473.4 (1) Total assets include the real property assets under the Master Lease with GLPI. Net revenues and adjusted EBITDA relate toThe Other 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 joint ventureJV interests in TexasSam Houston Race Park, Valley Race Park, and New Jersey (see Note 6 to the consolidated financial statements) which do not have gaming operations. 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 HPT. Expenses incurred for corporate overhead operations as well as Penn Interactive Ventures, which isand shared services activities that are directly attributable to a wholly-owned subsidiary that is pursuing the Company’s interactive gaming strategy.13316.Summarized Quarterly Data (Unaudited)The following table summarizes the quarterly results of operations for the years ended December 31, 2017certain expenses, such as: payroll, professional fees, travel expenses and 2016:(1)On February 1, 2017 and June 1, 2017, the Company acquired DSG Amusement, Ltd. and Advantage Gaming LLC, respectively.(2)On May 1, 2017 the Company acquired 1st Jackpot and Resorts.(3)On August 1, 2016 the Company acquired Rocket Speed.(4)On October 3, 2016 and November 1, 2016 the Company acquired Slot Kings, LLC and Bell Gaming, LLC, respectively.For the second, third and fourth quarters of 2017, the Company recorded a $5.6 million, $6.3 million, and $77.9 million of charges, respectively, for the Company’s loan and unfunded loan commitments to the JIVDC. In addition, the Company recorded a goodwill impairment charges of $18.0 million for Tropicana Las Vegas and Sanford Orlando Kennel Club in the third quarter of 2017. In the third quarter of 2017, the Company determined that a valuation allowance was no longer required against its federal net deferred tax assets for the portion that will be realized. As a result, the Company released $766.2 million of its total valuation allowance due to the positive evidence outweighing the negative evidence. In the fourth quarter of 2017, the Company wrote-off $257.0 million of deferred tax assets due to the passage of the tax reform act in December of 2017. See Note 12 to the consolidated financial statements for more details. During the first quarter of 2017, the Company recorded a $25.1 million loss on the early extinguishment of debt and finance charges related to the January 2017 refinancing. See Note 9 to the consolidated financial statements for more details.During the third quarter of 2017, Penn Interactive Ventures reached an agreement with the former shareholders of Rocket Speed to buy out the two year contingent purchase price consideration which resulted in a benefit toother general and administrative expense in the amount of $22.2 million.(2) Represents the elimination of intersegment revenues associated with Penn Interactive and HPT. (3) We define Adjusted EBITDAR as earnings before interest expense, net; income taxes; depreciation and amortization; rent expense associated with triple net operating leases (see footnote (4) below); stock-based compensation; debt extinguishment and financing charges; impairment charges; 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. 134 For the year ended December 31, (in millions) 2019 2018 2017 Capital expenditures: Northeast segment $ 96.2 $ 38.9 $ 26.3 South segment 29.8 10.6 6.3 West segment 21.2 12.8 35.7 Midwest segment 32.7 25.3 26.2 Other 10.7 5.0 4.8 Total capital expenditures $ 190.6 $ 92.6 $ 99.3 17.Related Party TransactionsThe Company currently leases executive office buildings in Wyomissing, Pennsylvania from affiliates of its Chairman of the Board of Directors. Rent expense for each of the years ended December 31, 2017, 2016 and 2015 amounted to $1.2 million, respectively. The leases for the office space expire in May 2019 and August 2024. The future minimum lease commitments relating to these leases at December 31, 2017 are $4.5 million.18.Fair(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 $ 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 $ 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 $ 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 Master Leases, which 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 category includes the real estate assets subject to the Master Leases, which are classified as property and equipment. ···estimate:cash equivalentsthetheir carrying value of the Company’s cash and cash equivalents,amount, due to the short maturity of the cash equivalents.Loan toJIVDCCompany’s loanequity securities was determined using Level 2 inputs, which use market approach valuation techniques. The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the JIVDC wasordinary shares, and a Black-Scholes option pricing model with respect to the warrants. The DLOM is based on the present valueremaining term of the projected future cash flows discounted at 14%relevant lock-up periods and the volatility associated with the underlying equity securities. The Black-Scholes option pricing model utilizes the exercise price of the warrants, a risk-free rate, volatility associated with the underlying equity securities and the expected life of the warrants.believe approximatesrecorded an other-than-temporary impairment on the return a market participant would require. Sincepromissory notes and the projectionslocal government corporation bonds totaling $2.5 million, which is included in “Impairment losses” within our Consolidated Statements of Income.management’s internal projections,appraised values of the Company concluded that this instrument should beland associated with Retama Park Racetrack, which are classified as a Level 3 measurement. See Note 5 to the consolidated financial statements for further details, including how the loans carrying amount was determined.debtthe 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.135Other long term obligations at December 31, 2017 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 the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course and the repayment obligation for the hotel and event centerthese long-term obligations are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as such are Level 2 measurements.atas of December 31, 2017 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 Racecourse.the gaming operations over the first ten years of operations, which commenced in June 2015. As of December 31, 2019 and 2018, we were contractually obligated tothe 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. Duringmeasurements, are included within our Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the three months ended September 30, 2017, Penn Interactive Ventures reached an agreement withtiming of the former owners of Rocket Speed to buy out the contingent purchase price obligation which resulted in a $22.2 million benefit to general and administrative expense. At each reporting period, the Company assesses the fair value of its contingent purchase price obligations and changes in its value are recorded in earnings. The amount included in general and administrative expenses related to the change in fair value of these obligations resulted in a reduction of $6.8 million for the year ended December 31, 2017 compared to a charge of $1.3 million for the year ended December 31, 2016.during the years ended December 31, 2017 and 2016 arewere as follows (in thousands):136
follows: 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 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 Additions 0.9 Payments (19.6 ) (6.8 ) Balance as of December 31, 2017 22.7 Payments (4.2 ) 0.5 Balance as of December 31, 2018 19.0 Payments (8.5 ) 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. (in millions) Valuation Date Valuation Technique Level 1 Level 2 Level 3 Total Balance Goodwill 10/1/2019 Discounted cash flow and market approach $ — $ — $ 161.1 $ 161.1 $ (88.0 ) Gaming licenses 10/1/2019 Discounted cash flow $ — $ — $ 290.0 $ 290.0 $ (62.6 ) Trademarks 10/1/2019 Discounted cash flow $ — $ — $ 87.5 $ 87.5 $ (20.0 ) 12/31/2018 Cost and market approach $ — $ — $ — $ — $ (34.3 ) (1) liabilities:liabilities on a recurring basis as of December 31, 2019:ValuationUnobservableValuation Technique TechniqueUnobservable Input InputContingentPlainridge Park Casino contingent purchase price - Plainridge8.30%5.63% sets forthpresents quantitative information about the assets measured at fair value on a non-recurring basis during the year ended December 31, 2017 (in thousands):GoodwillThe valuation techniquesignificant unobservable inputs used to measure the fair value of goodwill and intangible assets was the income approach. See Note 3 to the consolidated financial statements for a description of the inputs and the information used to develop the inputs in calculating the fair value measurements of goodwillother indefinite-lived intangible assets 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% indefinite-life intangible assets.Company’s goodwill was testedfuture minimum lease commitments relating to these leases as of December 31, 2019 were $1.8 million.impairment during the third quarter (before the next annual impairment test date of October 1, 2017) dueyears ended December 31, 2019 and 2018: Fiscal Quarter (in millions, except per share data) First Second Third 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 Third 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) (2) (3) significant deferred tax valuation allowance reversalstock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports (the “Sellers”), in which resulted in an increase to the carrying amounts of some of its reporting units, and, as such, was determined to be a triggering event. In accordance with ASC 805 “Business Combinations,” the Company’s allocationwe purchased approximately 36% of the common stock, par value $0.0001 per share, of Barstool Sports (“Barstool Sports Common Stock”) for a purchase price for Tropicana Las Vegas, which was acquired in August 2015, included a significant amount of net operating losses (“NOL’s”). The Company did not record deferred tax assets (“DTA”) of approximately $68$163.0 million. The purchase price consisted of approximately $135.0 million atin cash and $28.0 million in shares of non-voting convertible preferred stock of the acquisition date due to the recognitionCompany (the “Penn Preferred Stock”). 1/1,000th of a full valuation allowance at that time. The Company’s purchase price allocation resulted in goodwillshare of $14.8 million being created which would not have been recorded if we had been able to recognize a deferred tax asset. 137Ascommon stock, par value $0.01 per share, of September 30, 2017, Tropicana Las Vegas failed the quantitative goodwill impairment test as we determined its fair value was less than its carrying value. As a result, the Company determined that(“Penn Common Stock”), and the goodwill forPenn 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 Tropicana Las Vegas reporting unit was fully impaired and recorded an impairment chargenumber of $14.8 million within our South/West segment. Additionally, the Company’s Sanford Orlando Kennel Club reporting unit within our Other category failed the quantitative goodwill impairment test asshares of September 30, 2017, and, asPenn Common Stock into which such a partial impairment charge of $3.2 million was recorded.138ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES 13a‑15(e)13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2017,2019, 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'sCompany’s disclosure controls and procedures were effective as of December 31, 20172019 to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission'sCommission’s rules and forms and (ii) accumulated and communicated to the Company'sCompany’s management, including the Company'sCompany’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. 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.2017.2019. 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).Thecompleted its acquisition of 1st Jackpot and Resorts on May 1, 2017.acquired Greektown Casino-Hotel (“Greektown”). Since the Company has not yet fully incorporated the internal controls and procedures of 1st Jackpot and ResortGreektown into the Company’s internal control over financial reporting, management excluded 1st Jackpot and ResortsGreektown from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2019. This acquisition constituted approximately 1%6% of the Company’s total consolidated assets and approximately 1.5%4% of the Company’s consolidated net revenues as of and for the year ended December 31, 2017,2019, respectively.2017.consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 2017,2019, issued an attestation report on the Company’s internal control over financial reporting which immediately follows this report.1392017,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.140Shareholders ofshareholders and the Board of Directors of and SubsidiariesSubsidiariessubsidiaries (the “Company”) as of December 31, 2017,2019, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control —- Integrated Framework (2013) issued by COSO.20172019, of the Company and our report dated March 1, 2018February 27, 2020, expressed an unqualified opinion on those financial statements.1st Jackpot Casino Tunica and Resorts Casino Tunica,Greektown Casino-Hotel which werewas acquired on May 1, 201723, 2019 and whose financial statements constitute 1 %approximately 6% of the Company’s total consolidated assets and 1.5 % of net revenuesapproximately 4% of the Company’s total consolidated financial statement amountsnet revenues as of and for the year ended December 31, 2017.2019. Accordingly, our audit did not include the internal control over financial reporting at 1st Jackpot Casino Tunica and Resorts Casino Tunica. PCAOB141/s/ Deloitte & Touche LLPPhiladelphia, PennsylvaniaMarch 1, 2018142/s/ Deloitte & Touche LLP Philadelphia, Pennsylvania February 27, 2020
None.ITEM 9B. OTHER INFORMATION ITEM 9B. OTHER INFORMATIONITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE “2018“2020 Proxy Statement”), to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2017,2019, 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 20182020 Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERSITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS 20182020 Proxy Statement.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 20182020 Proxy Statement.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 20182020 Proxy Statement.143ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) 1 and 2.1.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 Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 20162019, 2018 and 20152. 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.Exhibits, Including Those Incorporated by Reference. 10‑K.ITEM 16. SUMMARY INFORMATIONITEM 16. FORM 10-K SUMMARY 144ExhibitExhibit Number Description of Exhibit 2.12.1††2.22.2†† 2.32.3†† 2.42.4†† 2.52.5†† 2.62.6†† 3.1(a)2.7†† 2.8†† 2.9†† 3.1 3.1(b)3.1(c)3.1(d)145Exhibit Number Description of Exhibit 3.2 4.1 4.2 4.3 4.44.4(a)4.54.5(a)9.14.4*9.1*** Form of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J. Carlino, David E. Carlino, Susan F. Harrington, Anne de Lourdes Irwin, Robert M. Carlino, Stephen P. Carlino and Rosina E. Carlino Gilbert. (IncorporatedGilbert is hereby incorporated by reference to the Company’s registration statementRegistration Statement on Form S-1, File No. 33 77758, dated May 26, 1994).1994. (SEC File No. 33-77758)10.1#10.1† 10.1(a)#10.1(b)#10.2#146ExhibitDescription of Exhibit10.3#10.4#10.2(a)† 10.5#10.2(b)† 10.6#10.2(c)† 10.7#10.2(d)† 10.8#10.2(e)† 10.9#10.10#10.2(e)(i)† 10.2(e)(ii)† 10.11#Exhibit Number Description of Exhibit 10.3† 10.3(a)* 10.3(b)† 10.3(c)† 10.3(d)† 10.3(e)† 10.3(f)† 10.3(f)(i)† 10.3(f)(ii)† 10.3(g) 10.3(g)(i)† 10.3(h)*† 10.3(i)*† 10.3(j)*† 10.3(k)*† 10.3(l)*† Exhibit Number Description of Exhibit 10.3(m)*† 10.4† 10.12#10.5† 10.13#10.6† 10.14#10.6(a)† 10.7† 10.1510.8† 10.1610.9† 147ExhibitDescription of Exhibit10.1710.1810.1910.20(a)10.10* 10.20(b)10.20(c)10.20(d)10.2110.21(a)10.21(b)10.2210.2310.12*10.2410.13†† 10.13(a) 10.13(b) 10.13(c) Exhibit Number Description of Exhibit 10.13(d) 10.13(e) 10.13(f) 10.13(g) 10.13(h) 148ExhibitDescription of Exhibit10.2510.14(a)10.14(b) 10.14(c) 10.26(a)10.15 10.26(b)10.16 10.2710.17 10.28Riverboat Gaming DevelopmentExhibit Number Description of Exhibit 10.18 10.28(a)10.28(b)10.2910.20 10.3010.21 149ExhibitDescription of Exhibit10.3110.2210.3210.22(a) 10.22(b) 10.3310.23†† 10.3410.3521.1*21.1*23.1*23.1* 23.2*Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.23.3*23.4*Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.31.2*31.2* 32.1*32.1** 32.2*32.2** 99.1*99.1* 99.2*99.2* 99.3*Kansas Entertainment, LLC Financial Statements for the Years Ended June 30, 2016 and 2015.101Interactive data files pursuant to Rule 405 of Regulation S‑T: (i) the Consolidated Balance Sheets at December 31, 2017 and 2016, (ii) the Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015, (iii) the Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and 2015, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 and (vi) the notes to the Consolidated Financial Statements, tagged as blocks of text.150#Compensation plans and arrangements for executives and others.Exhibit Number Description 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. *Filed herewith.PENN NATIONAL GAMING, INC. Dated: February 27, 2020 By: /s/ Jay A. Snowden By:/s/ Timothy J. WilmottJay A. Snowden Timothy J. WilmottDated: March 1, 2018SignatureTitleDateTitle Date /s/ Timothy J. WilmottJay A. SnowdenMarch 1, 2018Timothy J. WilmottWILLIAMWilliam J. FAIROfficerOfficer)February 27, 2020 William J. Fair /s/ Christine LaBombard March 1, 2018William J. Fair/s/ Peter M. CarlinoChairman of the BoardMarch 1, 2018Peter M. CarlinoMarch 1, 2018March 1, 2018March 1, 2018Director February 27, 2020 Saul V. Reibstein /s/ Barbara Z. Shattuck Kohn March 1, 2018March 1, 2018151