Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(Mark One)
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     _
Commission file number 001-37666
PINNACLE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
47-4668380
(I.R.S. Employer Identification No.)
3980 Howard Hughes Parkway
Las Vegas, Nevada 89169
(Address of principal executive offices) (Zip Code)
(702) 541-7777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value per share
 
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o 
(Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. YES o NO o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2017 was $1,090 million based on a closing price of $19.76 per share of common stock as reported on The NASDAQ Stock Market LLC.
The number of outstanding shares of the registrant’s common stock as of the close of business on February 23, 2018 was 58,133,737.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive 2018 proxy statement, anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.



PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS

 



PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS
(Continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EX101 Instance Document
 
EX101 Schema Document
 
EX101 Calculation Linkbase Document
 
EX101 Definition Linkbase Document
 
EX101 Label Linkbase Document
 
EX101 Presentation Linkbase Document
 



Table of Contents

PART I
Item 1.
Business
 
Overview

The Company

Pinnacle Entertainment, Inc. owns and operates 16 gaming, hospitality and entertainment businesses, of which 15 operate in leased facilities. Our owned facility is located in Ohio and our leased facilities are located in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada and Pennsylvania. The leased facilities located outside of Pennsylvania are subject to the Master Lease (as defined below) and our leased facility located in Pennsylvania is subject to the Meadows Lease (as defined below). We view each of our operating businesses as an operating segment with the exception of our two businesses in Jackpot, Nevada, which we view as one operating segment. For financial reporting purposes, we aggregate our operating segments into three reportable segments: Midwest, South and West (see “Operating Properties” below).

Our mission is to increase stockholder value. We seek to increase revenues through enhancing the guest experience by providing them with their favorite games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service and our mychoice guest loyalty program. We seek to improve cash flows by focusing on operational excellence and efficiency while trying to exceed our guests’ expectations of value. In making decisions, we consider our stockholders, guests, team members and other constituents in the communities in which we operate.

Over the last several years, we have grown through strategic acquisitions, notably the acquisition of Ameristar Casinos, Inc. (“Ameristar”) in August 2013 and the acquisition of The Meadows Racetrack and Casino (“Meadows”) in September 2016, as well as through the development and opening of three properties: Belterra Park, L’Auberge Baton Rouge and River City. We have also made strategic dispositions over the last several years, notably the April 2016 sale-leaseback of the majority of our real estate assets to Gaming and Leisure Properties, Inc. (“GLPI”), a real estate investment trust, and the sale of the equity interests in subsidiaries that operated the Lumiére Place Casino, HoteLumiére, and the Four Seasons Hotel St. Louis (collectively, the “Lumiére Place Casino and Hotels”).

References herein to “Pinnacle,” the “Company,” “we,” “our” or “us” refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where stated or the context otherwise indicates. References to “Former Pinnacle” refer to Pinnacle Entertainment, Inc. prior to the Spin-Off and Merger (as such terms are defined below).

Proposed Company Sale

On December 17, 2017, Pinnacle entered into an Agreement and Plan of Merger (the “Penn National Merger Agreement”) with Penn National Gaming, Inc., a Pennsylvania corporation (“Penn National”), and Franchise Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Penn National (“Franchise Merger Sub”), providing for the merger of Franchise Merger Sub with and into Pinnacle (the “Proposed Company Sale”), with Pinnacle surviving the Proposed Company Sale as a wholly-owned subsidiary of Penn National.

At the effective time of the Proposed Company Sale, each share of Pinnacle common stock, par value $0.01 per share (the “Pinnacle Common Stock”), issued and outstanding immediately prior to the effective time (other than shares held by Penn National and other than dissenting shares) will be canceled and converted automatically into the right to receive (i) $20.00 in cash (plus, if the Proposed Company Sale is not consummated on or prior to October 31, 2018, $0.01 for each day during the period commencing on November 1, 2018 through the effective time of the Proposed Company Sale) (the “Cash Consideration”) and (ii) 0.42 shares of common stock, par value $0.01 per share, of Penn National (the “Penn National Common Stock”) (the “Exchange Ratio”; together with the Cash Consideration and cash required to be paid in lieu of fractional shares of Penn National Common Stock, the “Proposed Company Sale Consideration”).

In connection with the Proposed Company Sale, Penn National entered into (i) a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Boyd Gaming Corporation (“Boyd”), to which Pinnacle will become a party immediately prior to the Proposed Company Sale, pursuant to which a subsidiary of Boyd will acquire the gaming and related operations of Ameristar St. Charles, Ameristar Kansas City, Belterra Resort and Belterra Park, in connection with the Proposed Company Sale; and (ii) definitive agreements with a subsidiary of GLPI, a Pennsylvania corporation, to which Pinnacle will become a party immediately prior to the Proposed Company Sale, pursuant to which GLPI’s subsidiary will acquire the real estate associated with Belterra Park, from Pinnacle, and Plainridge Park Casino in Plainville, Massachusetts, from Penn National. At the closing of the transactions contemplated by the Membership Interest Purchase Agreement, GLPI

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and Boyd will enter into a master lease agreement for the gaming operations acquired by Boyd and Penn National will assume Pinnacle’s existing Master Lease and Meadows Lease and enter into certain amendments thereto.

Completion of the Proposed Company Sale is subject to certain conditions, many of which are beyond our control, including, among others: (1) receipt of the approval of stockholders of both Penn National and Pinnacle as required for the transaction, including the approval of the issuance of Penn National’s common stock in connection with the Proposed Company Sale Consideration; (2) the absence of any injunction, restraining order or other orders or laws prohibiting the consummation of the Proposed Company Sale; (3) the expiration or termination of any waiting period applicable to the Proposed Company Sale under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976, as amended; (4) the receipt of all required regulatory approvals in a timely manner (including receipt of necessary approvals from gaming regulatory authorities); (5) the registration of the shares of Penn National to be issued to stockholders of Pinnacle; and (6) the listing of the shares of Penn National on The NASDAQ Stock Market LLC (“NASDAQ”). The obligation of each party to consummate the Proposed Company Sale is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect involving the other party, and the other party having performed in all material respects its obligations under the Penn National Merger Agreement. Subject to the satisfaction or waiver of the closing conditions, the Proposed Company Sale is expected to close in the second half of 2018. If the Proposed Company Sale is completed, Pinnacle stockholders will hold approximately 22% of the combined company’s outstanding shares.

If the Proposed Company Sale is not consummated on or before October 31, 2018, subject to certain limited extensions (including pursuant to Penn National’s election to extend under certain circumstances) provided in the Penn National Merger Agreement, either party may terminate the Penn National Merger Agreement. Consummation of the Proposed Company Sale is not subject to a financing condition.

There can be no assurance that the Proposed Company Sale will be completed as contemplated. Furthermore, there are a number of risks and uncertainties to our business related to the Proposed Company Sale. For additional information, please see Item 1A. “Risk Factors, Risks Relating to the Proposed Company Sale to Penn National.”

Spin-Off and Merger

On April 28, 2016, Former Pinnacle completed the transactions under the terms of a definitive agreement with GLPI (the “GLPI Merger Agreement”). Pursuant to the terms of the GLPI Merger Agreement, Former Pinnacle separated its operating assets and liabilities (and its Belterra Park property and excess land at certain locations) into the Company, a newly formed subsidiary initially named PNK Entertainment, Inc., and distributed to its stockholders, on a pro rata basis, all of the issued and outstanding shares of common stock of the Company (such distribution referred to as the “Spin-Off”). As a result, Former Pinnacle stockholders received one share of the Company’s common stock, with a par value of $0.01 per share, for each share of Former Pinnacle common stock that they owned. Gold Merger Sub, LLC, a wholly-owned subsidiary of GLPI (“Merger Sub”), then merged with and into Former Pinnacle (the “Merger”), with Merger Sub surviving the Merger as a wholly-owned subsidiary of GLPI. Immediately following the Merger, the Company was renamed Pinnacle Entertainment, Inc.

In connection with the Spin-Off and Merger, we entered into a triple-net master lease agreement for the fourteen gaming facilities acquired by GLPI (the “Master Lease”). The Master Lease has an initial term of 10 years with five subsequent, five-year renewal periods at our option.

Acquisition of the Meadows Business

On September 9, 2016, we closed on a purchase agreement (the “Purchase Agreement”) with GLP Capital, L.P. (“GLPC”), a subsidiary of GLPI, pursuant to which we acquired all of the equity interests of the Meadows located in Washington, Pennsylvania for base consideration of $138.0 million, subject to certain adjustments. The purchase price, after giving effect to such adjustments, was $134.0 million. As a result of the transaction, we own and operate the Meadows’ gaming, entertainment and harness racing business subject to a triple-net lease of its underlying real estate with GLPI (the “Meadows Lease” and collectively with the Master Lease, the “Leases”).




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Operating Properties

The following table presents selected statistical and other information concerning the properties in which we operate our businesses as of December 31, 2017:
 
Location
 
Opening Year
 
Casino Square Footage
 
Slot Machines/
Video Lottery Terminals
 
Table Games
 
Hotel Rooms (1)
 
Food & Beverage Outlets (2)
 
Parking Spaces
Midwest segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ameristar Council Bluffs
Council Bluffs, IA
 
1996
 
38,500
 
1,525
 
25
 
444
 
8
 
3,017
Ameristar East Chicago
East Chicago, IN
 
1997
 
56,000
 
1,720
 
72
 
288
 
5
 
2,468
Ameristar Kansas City
Kansas City, MO
 
1997
 
140,000
 
2,121
 
74
 
184
 
13
 
8,320
Ameristar St. Charles
St. Charles, MO
 
1994
 
130,000
 
2,290
 
75
 
397
 
15
 
6,775
Belterra Resort
Florence, IN
 
2000
 
47,000
 
1,190
 
42
 
662
 
6
 
2,528
Belterra Park
Cincinnati, OH
 
2014
 
51,800
 
1,362
 
 
 
5
 
2,318
Meadows
Washington, PA
 
2009
 
131,000
 
3,052
 
87
 
 
15
 
3,912
River City
St. Louis, MO
 
2010
 
90,000
 
1,925
 
53
 
200
 
10
 
4,122
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
South segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ameristar Vicksburg
Vicksburg, MS
 
1994
 
70,000
 
1,335
 
37
 
149
 
4
 
3,063
Boomtown Bossier City
Bossier City, LA
 
1996
 
30,000
 
864
 
16
 
187
 
4
 
1,867
Boomtown New Orleans
New Orleans, LA
 
1994
 
30,000
 
1,205
 
28
 
150
 
5
 
1,907
L’Auberge Baton Rouge
Baton Rouge, LA
 
2012
 
74,000
 
1,440
 
49
 
205
 
9
 
2,689
L’Auberge Lake Charles
Lake Charles, LA
 
2005
 
70,000
 
1,518
 
75
 
995
 
10
 
3,236
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
West segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ameristar Black Hawk
Black Hawk, CO
 
2001
 
56,000
 
1,183
 
62
 
535
 
6
 
1,500
Cactus Petes and Horseshu
Jackpot, NV
 
1956
 
29,000
 
740
 
21
 
416
 
9
 
912
 
 
 
 
 
1,043,300
 
23,470
 
716
 
4,812
 
124
 
48,634
(1)
Includes 284 rooms at Ameristar Council Bluffs operated by a third party and located on land leased by us and subleased to such third party and 54 rooms at Belterra Resort relating to the Ogle Haus Inn, which is operated by us and located near Belterra Resort.
(2)
Includes one outlet each at Ameristar Kansas City and Meadows that are subleased to and operated by third parties.
Midwest Segment
The Ameristar Council Bluffs property is located across the Missouri River from Omaha, Nebraska and includes the largest riverboat in Iowa. This location serves the Omaha and southwestern Iowa markets. Ameristar Council Bluffs operates one of three gaming licenses issued in the Council Bluffs gaming market pursuant to an operating agreement with the Iowa West Racing Association. The two other licenses are operated by a single company and consist of two land-based casinos.
The Ameristar East Chicago property is located approximately 25 miles from downtown Chicago, Illinois and serves metropolitan Chicago and Northwest Indiana. Ameristar East Chicago’s core competitive markets include Northwest Indiana and Northeast Illinois.
The Ameristar Kansas City property, located approximately seven miles from downtown Kansas City, Missouri, has one of the largest casino floors in Missouri. The property attracts guests from the greater Kansas City area as well as regional overnight guests. Ameristar Kansas City competes with several other gaming operations located in or around Kansas City, Missouri and other regional Midwest markets.
The Ameristar St. Charles and River City properties are located in the St. Louis, Missouri metropolitan area. Ameristar St. Charles is located in St. Charles at the Missouri River, strategically situated to attract guests from the St. Charles and the greater St. Louis areas as well as tourists from outside the region. The property, which is in close proximity to the St. Charles convention facility, is located along the western bank of the Missouri River. The River City property is located just south of the confluence of the Mississippi River and the River des Peres in the south St. Louis community of Lemay, Missouri. Both of the

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St. Louis properties compete with other gaming operations located in the metropolitan St. Louis area and other regional Midwest markets. Two of these competitors are located in Illinois.
The southern Indiana property, Belterra Resort, is located along the Ohio River near Vevay, Indiana, approximately 50 minutes from downtown Cincinnati, Ohio, 70 minutes from Louisville, Kentucky, and 90 minutes from Lexington, Kentucky. Belterra Resort is also approximately two and one-half hours from Indianapolis, Indiana. Belterra Resort currently competes with four dockside riverboat casinos; a casino resort in French Lick, Indiana, approximately 100 miles west of Belterra Resort, two racetrack casinos in the Indianapolis, Indiana metropolitan area, and multiple casino and racino developments in the state of Ohio, including Belterra Park.
Belterra Park is located approximately 10 miles southeast of downtown Cincinnati, Ohio, situated along the Ohio River. Belterra Park faces competition from casinos and racinos in Ohio and Indiana, including Belterra Resort. In addition to the offerings presented in the table above, Belterra Park offers live racing and pari-mutuel wagering.
The Meadows property is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. The Meadows faces competition from casinos and racinos in Ohio, Indiana, Pennsylvania and West Virginia. In addition to the offerings presented in the table above, the Meadows offers a simulcast betting parlor, a harness racetrack and a bowling alley.
South Segment
The Ameristar Vicksburg property is located in Vicksburg, Mississippi along the Mississippi River approximately 45 miles west of Mississippi’s largest city, Jackson. Ameristar Vicksburg is the largest dockside casino in central Mississippi. The property caters primarily to guests from the Vicksburg and Jackson, Mississippi and Monroe, Louisiana areas, along with tourists visiting the area. Ameristar Vicksburg primarily competes with three other gaming operations located in Vicksburg. The property also faces competition from two casinos owned by a Native American tribe in Philadelphia, Mississippi, located about 70 miles east of Jackson and 115 miles east of Vicksburg and from gaming operations located in or immediately surrounding Biloxi, Mississippi and the broader Mississippi Gulf Coast area.
Boomtown Bossier City is located in Bossier City, Louisiana. Boomtown Bossier City features a hotel adjoining a dockside riverboat casino and competes with five dockside riverboat casino hotels, a racetrack slot operation and large Native American casinos in southern Oklahoma. Such Native American facilities are approximately 60 miles north of Dallas, Texas.
Boomtown New Orleans is the only casino in the West Bank area, across the Mississippi River from downtown New Orleans, Louisiana. Boomtown New Orleans competes with a large land-based casino in downtown New Orleans, two riverboat casinos, a racetrack with slot machines and numerous truck stop casinos with video poker machines, as well as casinos on the Mississippi Gulf Coast.
L’Auberge Baton Rouge is located approximately 10 miles southeast of downtown Baton Rouge, Louisiana. L’Auberge Baton Rouge offers a fully-integrated casino entertainment experience. This property competes directly with two casinos in the Baton Rouge area and other resort facilities regionally in New Orleans and the Mississippi Gulf Coast.
L’Auberge Lake Charles, located in Lake Charles, Louisiana, offers one of the closest full-scale casino hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively. This property competes with other full-service regional and destination resort casinos, including those in Lake Charles, Louisiana; New Orleans, Louisiana; Biloxi, Mississippi; and Las Vegas, Nevada. L’Auberge Lake Charles also competes with a land-based Native American casino, which is approximately 43 miles northeast of Lake Charles; a racetrack slot operation located approximately 25 miles to the west; and numerous truck stops with slot machines in many parishes of Louisiana.
West Segment
The Ameristar Black Hawk property, located in the center of the Black Hawk gaming district, is approximately 40 miles west of Denver, Colorado. The property caters primarily to patrons from the Denver metropolitan area and surrounding states and primarily competes with 23 other gaming operations located in the Black Hawk and Central City gaming market in Colorado.
The Cactus Petes and Horseshu properties (collectively, “the Jackpot Properties”) are located in Jackpot, Nevada, just south of the Idaho border. The Jackpot Properties serve guests primarily from Idaho, and secondarily from Oregon, Washington, Montana, northern California and the southwestern Canadian provinces. The Jackpot Properties compete primarily with three other hotels and motels (all of which also have casinos) in Jackpot and a Native American casino and hotel near Pocatello, Idaho.

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Other Assets and Operations
    
We own and operate the Heartland Poker Tour, which is a live and televised poker tournament series.

We own 75.5% of the equity of Pinnacle Retama Partners, LLC, which is the owner of the racing license utilized in the operation of Retama Park Racetrack. We also have a management contract with Retama Development Corporation to manage the day-to-day operations of Retama Park Racetrack.

Financial information about segments and geographic areas is incorporated by reference from Note 13, “Segment Information,” to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Competition
We face significant competition in each of the jurisdictions in which we operate. Such competition may intensify in some of these jurisdictions if new gaming operations open in these markets or existing competitors expand their operations. Our businesses compete directly with other gaming businesses in each state in which we operate, as well as businesses in other states. We also compete for customers with other casino operators in other markets, including casinos located on Native American reservations, and other forms of gaming, such as lotteries and internet gaming. Many of our competitors are larger and have substantially greater name recognition and marketing and financial resources. In some instances, particularly with Native American casinos, our competitors pay substantially lower taxes or no taxes at all, as compared to us. We believe that increased legalized gaming in certain states, particularly in areas close to where our existing gaming businesses are located; the development or expansion of Native American gaming in or near the states in which we operate; and the potential legalization of internet gaming could create additional competition for us and could adversely affect our operations or proposed development projects.

Government Regulation and Gaming Issues

The gaming industry is highly regulated, and we must obtain and maintain certain licenses to continue our operations. Each of the casinos on which we operate is subject to extensive regulation under the laws, rules and regulations of the jurisdiction in which 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 in one jurisdiction could result in disciplinary action in other jurisdictions. For a more detailed description of the statutes and regulations to which we are subject, please see Exhibit 99.1, “Government Regulation and Gaming Issues,” to this Annual Report on Form 10-K, which is incorporated herein by reference.

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment have not had a material effect upon our capital expenditures, earnings or the competitive positions of our properties. From time to time, certain development projects may require substantial costs for environmental remediation due to prior use of our development sites. Our project budgets for such a site typically include amounts expected to cover the remediation work required.


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Executive Officers of the Registrant
The persons serving as our executive officers and their positions with us are as follows:
NAME
 
POSITION WITH THE COMPANY
Anthony M. Sanfilippo
 
Chairman of the Board and Chief Executive Officer
Carlos A. Ruisanchez
 
President, Chief Financial Officer and Director
Donna S. Negrotto
 
Executive Vice President, Secretary and General Counsel
Virginia E. Shanks
 
Executive Vice President and Chief Administrative Officer
Troy A. Stremming
 
Executive Vice President, Government Relations and Public Affairs
Neil E. Walkoff
 
Executive Vice President, Operations

Directors of the Registrant
The following table lists our directors, their principal occupations and principal employers:
NAME
 
PRINCIPAL OCCUPATION & EMPLOYER
Anthony M. Sanfilippo
 
Chairman of the Board and Chief Executive Officer of Pinnacle Entertainment, Inc.
Carlos A. Ruisanchez
 
President and Chief Financial Officer of Pinnacle Entertainment, Inc.
Charles L. Atwood
 
Lead Independent Director of Pinnacle Entertainment, Inc., Advisor and Lead Trustee, Equity Residential
Stephen C. Comer
 
Retired Accounting Firm Managing Partner
Ron Huberman
 
Chief Executive Officer of Benchmark Analytics and Senior Advisor of PeopleAdmin
James L. Martineau
 
Corporate Director, Private Investor and Advisor
Jaynie M. Studenmund
 
Corporate Director and Advisor
Desirée Rogers
 
Corporate Director

Other

Pinnacle Entertainment, Inc. is a Delaware corporation which was incorporated in 2016 as a result of the Spin-Off and Merger transactions discussed above. Former Pinnacle, which was acquired by GLPI in April 2016, was a Delaware corporation and the successor to the Hollywood Park Turf Club, which was organized in 1938. Former Pinnacle was incorporated in 1981 under the name Hollywood Park Realty Enterprises, Inc., changed its name to Hollywood Park, Inc. in 1992, and later changed its name again to Pinnacle Entertainment, Inc. in 2000.

As of December 31, 2017, we employed 15,377 full-time and part-time employees.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (the “SEC”) through our internet website, www.pnk.com. Our filings are also available through a database maintained by the SEC at www.sec.gov.

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Item 1A.
Risk Factors

An investment in our securities is subject to risks inherent to our business. We have described below what we currently believe to be the material risks and uncertainties in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K.

This Annual Report on Form 10-K is qualified in its entirety by these risk factors. We also face other risks and uncertainties beyond what is described below. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of securities, including our common stock, could decline significantly. You could lose all or part of your investment.

Risks Relating to the Proposed Company Sale to Penn National

The announcement and pendency of the Proposed Company Sale to Penn National may have an adverse effect on our business, operating results and stock price.

There are a number of risks and uncertainties related to the Proposed Company Sale that may adversely affect our business, operating results and stock price, whether or not the Proposed Company Sale is completed, including: (1) having to focus the Company’s management on the Proposed Company Sale, which could lead to disruption of the Company’s ongoing business or inconsistencies in its services, standards, controls, procedures and policies, (2) potential difficulties in recruiting and retaining team members as a result of the transaction; (3) the transaction may involve unexpected costs, liabilities or delays, including those arising from legal proceedings related to the transaction; (4) our business, including our relationships with our guests, team members and suppliers, may suffer as a result of uncertainty surrounding the Proposed Company Sale; (5) certain persons with whom the Company have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with the Company as a result of the Proposed Company Sale; (6) that we may be adversely affected by other economic, business or competitive factors during the time the Proposed Company Sale is pending; and (7) that the Penn National Merger Agreement contains provisions that place certain restrictions on the conduct of our business prior to the completion of the Proposed Company Sale, which may disrupt our current plans and operations, including plans for future growth, and/or adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures.

In connection with the Proposed Company Sale to Penn National, a purported stockholder of the Company filed a putative class action lawsuit against the Company and its directors in the United States District Court for the District of Nevada. The complaint alleges that the defendants violated Sections 14(a) and 20(a) of the Exchange Act because the preliminary Form S-4 filed with the SEC allegedly contains material omissions and misstatements. The complaint seeks, among other things, injunctive relief preventing the consummation of the Proposed Company Sale until additional disclosures are made, and damages. While we believe that the allegations in this lawsuit are without merit and intend to defend vigorously against these allegations, we cannot assure you as to the outcome of this, or any similar future lawsuits, including the costs associated with defending these claims or any other liabilities that may be incurred in connection with litigation or settlement of these claims.

Because the Exchange Ratio is fixed and the market prices of Penn National Common Stock and Pinnacle Common Stock may fluctuate, our stockholders cannot be sure of the value of the Penn National Common Stock they will receive on the closing date.

The consideration that our stockholders will receive will be $20.00 in cash (plus, if the Proposed Company Sale is not consummated on or prior to October 31, 2018, $0.01 for each day during the period commencing on November 1, 2018 through the effective time of the Proposed Company Sale) and 0.42 share of Penn National Common Stock for every outstanding share of Pinnacle Common Stock and such Exchange Ratio will not vary based on the market price of Penn National Common Stock before the effective time of the Proposed Company Sale. If the market price of Penn National Common Stock declines prior to the closing of the Proposed Company Sale, the per share consideration our stockholders will receive could reflect a lower value than that upon which the Proposed Company Sale was valued at the time we entered into the Penn National Merger Agreement.

The Proposed Company Sale to Penn National may not be completed.

The Proposed Company Sale pursuant to which Penn National will acquire Pinnacle may not be completed as contemplated for a variety of reasons, including: (1) conditions to the closing of the transaction may not be satisfied; (2) the

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occurrence of an event, change or other circumstance that could give rise to the termination of the Penn National Merger Agreement; and (3) other risks to the consummation of the Proposed Company Sale.

Completion of the Proposed Company Sale is subject to certain conditions, many of which are beyond our control, including, among others: (1) receipt of the approval of stockholders of both Penn National and Pinnacle as required for the transaction, including the approval of the issuance of Penn National’s common stock in connection with the Proposed Company Sale consideration; (2) the absence of any injunction, restraining order or other orders or laws prohibiting the consummation of the Proposed Company Sale; (3) the expiration or termination of any waiting period applicable to the Proposed Company Sale under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976, as amended; (4) the receipt of all required regulatory approvals in a timely manner (including receipt of necessary approvals from gaming regulatory authorities); (4) the registration of the shares of Penn National to be issued to stockholders of Pinnacle; and (5) the listing of the shares of Penn National on NASDAQ. The obligation of each party to consummate the Proposed Company Sale is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect involving the other party, and the other party having performed in all material respects its obligations under the Penn National Merger Agreement.

The Penn National Merger Agreement contains certain termination rights for both the Company and Penn National. If the Penn National Merger Agreement is terminated by either party because the stockholders of the Company fail to adopt the Penn National Merger Agreement, the Company will be required to pay a fixed expense reimbursement of $30.0 million to Penn National. The Company will be required to pay Penn National a termination fee equal to $60.0 million (less any expenses previously paid to Penn National in the case of a termination described in clause (iii) below) if the Penn National Merger Agreement is terminated (i) by Penn National because the Company’s Board of Directors has made an adverse recommendation change, (ii) by the Company to accept and enter into a Company Superior Proposal (as defined in the Penn National Merger Agreement), and (iii) by Penn National or the Company because the stockholders of the Company fail to adopt the Penn National Merger Agreement, a Company Takeover Proposal (as defined and adjusted in the Penn National Merger Agreement) had been publicly announced or becomes publicly known and not publicly withdrawn by at least 15 business days prior to the Company stockholders meeting to vote on the Penn National Merger Agreement, and within 12 months of such a termination the Company enters into or consummates a Company Takeover Proposal. Under certain circumstances, Penn National may be obligated to pay a termination fee to the Company, but such fee may not adequately compensate the Company for its losses.

Failure to complete the Proposed Company Sale to Penn National could negatively impact the stock price and the future business and financial results of the Company.

If the Proposed Company Sale is not completed, the ongoing business of the Company may be adversely affected and the Company will be subject to several risks, including the following:

having to pay certain costs relating to the Proposed Company Sale, such as legal, accounting, financial advisor, filing, printing and mailing fees; and

the Company will have forgone other opportunities in favor of the Proposed Company Sale and committed time and resources of its management to matters related to the Proposed Company Sale instead of pursuing such other opportunities that could be beneficial to the Company, including opportunities the Company is restricted from pursuing due to provisions in the Penn National Merger Agreement that place restrictions on the conduct of our business prior to the completion of the Proposed Company Sale, without realizing any of the benefits of having the Proposed Company Sale completed.

If the Proposed Company Sale is not completed, the Company cannot assure its stockholders that the risks described above will not materialize and will not materially affect its business, financial results, and stock price.

The Penn National Merger Agreement contains provisions that limit the Company’s ability to pursue alternatives to the Proposed Company Sale, could discourage a potential competing acquirer of the Company from making a favorable alternative transaction proposal and, in specified circumstances, could require the Company to pay Penn National a termination fee of $60.0 million.

The Penn National Merger Agreement contains certain provisions that restrict the Company’s ability to initiate, solicit or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of a competing proposal, engage in any discussions or negotiations with respect to a competing proposal or furnish any non-public information to any person in connection with a competing proposal. Further, even if the Company’s board of directors changes, withholds, modifies, withdraws or qualifies its recommendation with respect to the Penn National Merger Agreement proposal or the share issuance proposal, as applicable, unless the Company has terminated the Penn National Merger Agreement to accept and enter

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into a Company Superior Proposal (as defined in the Penn National Merger Agreement), the Company will still be required to submit the adoption of the Penn National Merger Agreement to a vote at a special meeting of its stockholders. In addition, Penn National generally has an opportunity to offer to modify the terms of the transactions contemplated by the Penn National Merger Agreement in response to any third-party alternative transaction proposal before the Company’s board of directors may change, withhold, modify, withdraw or qualify its recommendation with respect to the adoption of the Penn National Merger Agreement. In some circumstances, upon termination of the Penn National Merger Agreement, the Company will be required to pay a termination fee of $60.0 million to Penn National.

These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring all or a significant portion of the Company or pursuing an alternative transaction with the Company from considering or proposing such a transaction, even if, in the case of an acquisition of the Company, it were prepared to pay consideration with a higher per share price than the per share price proposed to be received in the Proposed Company Sale or might result in a potential third-party acquirer or merger partner proposing to pay a lower price to the stockholders of the Company than it might otherwise have proposed to pay because of the added expense of the $60.0 million termination fee that may become payable in certain circumstances.

The completion of the transactions contemplated by the Penn National Merger Agreement may trigger change in control or other provisions in certain agreements to which the Company is a party.

If the Company and Penn National are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if the Company and Penn National are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the Company.

Risks Relating to Our Business

Our business is particularly sensitive to reductions in consumers’ discretionary spending as a result of downturns in the economy or other changes we cannot accurately predict.

Demand for entertainment and leisure activities is sensitive to consumers’ disposable incomes, and thus demand can be affected by changes in the economy that we cannot predict. We compete with a broad range of entertainment and leisure activities and consumer preferences may change. Perceived or actual unfavorable changes in general economic conditions, including recession, economic slowdown, high unemployment levels, housing and credit crises, high fuel or other transportation costs, and changes in consumer confidence may reduce disposable income of our customers or result in fewer patrons visiting our casinos. As a result, we cannot ensure that demand for entertainment and leisure activities will not be adversely affected or that customers will continue to want to frequent our facilities or continue to spend money at our facilities. Many of our younger customers do not play slot machines, which is where we derive the majority of our revenue. In the event that our customers do not use slot machines, this may have an adverse effect on our results of operations. Adverse developments affecting economies throughout the world, including a general tightening of the availability of credit, rising interest rates, increasing energy costs, rising prices, inflation, acts of war or terrorism, natural disasters, declining consumer confidence or significant declines in the stock market could lead to a reduction in discretionary spending on entertainment and leisure activities, which could adversely affect our business, financial condition and results of operations.

The gaming industry is very competitive and increased competition, including through legislative legalization or expansion of gaming by states in or near where we operate facilities or through Native American gaming facilities and internet gaming, could adversely affect our financial results.

We face significant competition in all of the areas in which we operate. Increased competitive pressures may adversely affect our ability to continue to attract customers or affect our ability to compete efficiently.
Several of the facilities on which we operate are located in jurisdictions that restrict gaming to certain areas and/or may be affected by state laws that currently prohibit or restrict gaming operations. Economic difficulties faced by state governments could lead to intensified political pressures for the legalization of gaming in jurisdictions where it is currently prohibited. The legalization of gaming in such jurisdictions could be an expansion opportunity for us, or create competitive pressure, depending on where the legalization occurs and our ability to capitalize on it. Our ability to attract customers to the existing casinos on which we operate could be significantly and adversely affected by the legalization or expansion of gaming in certain jurisdictions, including, in particular, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Ohio, Oklahoma, Pennsylvania, Texas and West Virginia areas where our customers may also visit, and by the development or expansion of Native American casinos in areas where our customers may visit.

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Voters and state legislatures may seek to supplement traditional tax sources of state governments by authorizing or expanding gaming in those jurisdictions. We also face the risk that existing casino licensees will expand their operations and the risk that Native American gaming will continue to grow.

On October 30, 2017, Pennsylvania enacted legislation that expanded gaming by authorizing (i) up to 10 ancillary casinos which may each operate between 300 and 750 slot machine and initially up to 30 table games; (ii) the operation of up to five video gaming terminals at each truck stop that meets certain criteria; and (iii) the establishment of a program to permit internet gaming. This expansion of gaming in Pennsylvania may provide additional competition to the Meadows.

From time to time, our competitors refurbish, rebrand or expand their casino offerings, which could function to increase competition. In addition, changes in ownership may result in improved quality of our competitors’ facilities, which may make such facilities more competitive.
 
We also compete with other forms of legalized gaming and entertainment such as bingo, pull-tab games, card parlors, sports books, pari-mutuel or telephonic betting on horse and dog racing, state-sponsored lotteries, instant racing machines, video lottery terminals (“VLTs”) (including racetracks that offer VLTs), video poker terminals and, in the future, we may compete with gaming or entertainment at other venues. Furthermore, competition from internet lotteries and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home, could divert customers from the facilities we operate and thus adversely affect our business. Such internet wagering services are likely to expand in future years and become more accessible to domestic gamblers as a result of U.S. Department of Justice positions related to the application of federal laws to intrastate internet gaming and initiatives in some states to consider legislation to legalize intrastate internet wagering. The law in this area has been rapidly evolving, and additional legislative developments may occur at the federal and state levels that would accelerate the proliferation of certain forms of internet gaming in the United States.

Our gaming operations rely heavily on technology services provided by third parties. In the event that there is an interruption of these services to us, it may have an adverse effect on our operations and financial conditions.

We engage a number of third parties to provide gaming operating systems for the facilities we operate. As a result, we rely on such third parties to provide uninterrupted services to us in order to run our business efficiently and effectively. In the event one of these third parties 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 on which we operate and have a material effect on our business, operating results and financial condition.

Any unscheduled interruption in our technology services is likely to result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations, cloud computing and lottery systems. Such interruptions may occur as a result of, for example, catastrophic events or rolling blackouts. Our systems are also vulnerable to damage or interruption from earthquakes, floods, fires, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events.

Our business may be harmed from cyber security risk and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our guests’ or our business partners’ or our own information or other breaches of our information security.

We make extensive use of online services and centralized data processing, including through third party service providers. The secure maintenance and transmission of customer information is a critical element of our operations. Our information technology and other systems that maintain and transmit guest information, or those of service providers, business partners, or employee information may be compromised by a malicious third party penetration of our network security, or that of a third party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees, or those of a third party service provider or business partner. As a result, our guests’ information may be lost, disclosed, accessed or taken without our guests’ consent.

In addition, third party service providers and other business partners process and maintain proprietary business information and data related to our employees, guests, suppliers and other business partners. Our information technology and other systems that maintain and transmit this information, or those of service providers or business partners, may also be compromised by a malicious third party penetration of our network security or that of a third party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees or those of a third party service provider or business partner. As a result, our business information, guest, supplier, and other business partner data may be lost, disclosed, accessed or taken without their consent.

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Any such loss, disclosure or misappropriation of, or access to, guests’ or business partners’ information or other breach of our information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition. Furthermore, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, businesses, operating results and financial condition.

We are required to pay a significant portion of our cash flows pursuant to and subject to the terms and conditions of the Leases, which could adversely affect our ability to fund our operations and growth and limit our ability to react to competitive and economic changes.

We are required to pay a significant portion of our cash flow from operations to GLPI pursuant to and subject to the terms and conditions of the Leases. Under the Master Lease, the current annual aggregate rent payable by Pinnacle MLS, LLC, the tenant under the Master Lease, is $382.8 million. In addition, under the Meadows Lease, the current annual aggregate rent payable by PNK Development 33, LLC, the tenant under the Meadows Lease, is $25.8 million. As a result of our significant lease payments, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the Leases may:

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

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

reduce the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

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

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

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

The following are certain provisions, among others, of the Master Lease which restrict our ability to freely operate and could have an adverse effect on our business and financial condition:

Escalations in Rent - We are obligated to pay base rent under the Master Lease, and base rent is composed of building base rent and land base rent. Every year of the Master Lease term, building base rent is subject to an annual escalation of up to 2% and we may be required to pay the escalated building base rent regardless of our revenues, profit or general financial condition.

Variable Rent - We are obligated to pay percentage rent under the Master Lease, which is re-calculated every two years. Such percentage rent shall equal 4% of the change between (i) the average net revenues for the trailing two-year period and (ii) 50% of the trailing 12 months net revenues as of the month ending immediately prior to the execution of the Master Lease. We may be required to pay an increase in percentage rent based on increases in net revenues without a corresponding increase in our profits.

New Developments - If we contemplate developing or building a new facility which is located within a 60 mile radius of a facility that is subject to the Master Lease, the annual percentage rent due from the affected existing facility subject to the Master Lease may thereafter be subject to a floor. Therefore, our percentage rent may not decline as a result of a subsequent decline in revenues at the leased properties.

Guaranty by Parent - In connection with certain assignments of the Master Lease, the ultimate parent company of such assignee of the Master Lease must execute a guaranty and shall be required to be solvent. Such requirement may limit our ability to freely assign the Master Lease or pursue certain transactions.


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Master Lease Guaranties - The Master Lease is guaranteed by the tenant’s parent and certain subsidiaries of the tenant (the “Lease Guarantors”). A default under any of the Master Lease guaranties that is not cured within the applicable grace period will constitute an event of default under the Master Lease.

Cross-Defaults - If we or any of the Lease Guarantors fail to pay or bond final judgments aggregating in excess of $100 million, and such judgments are not discharged, waived or stayed within 45 days, an event of default will arise under the Master Lease.

Effect of End of Term or Not Renewing the Master Lease - If we do not renew the Master Lease at the stipulated renewals or we do not enter into a new master lease at the end of the term, we will be required to sell the business of tenant. If we cannot agree upon acceptable terms of sale with a qualified successor tenant within a three month period after potential successive tenants are identified, GLPI will select the successor tenant to purchase our business through a competitive auction. If this occurs, we will be required to transfer our business to the highest bidder at the auction, subject to regulatory approvals.

The Meadows Lease contains provisions that are similar to many of the foregoing provisions of the Master Lease.

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

We lease 14 of the gaming facilities we operate pursuant to the Master Lease with GLPI and we lease the Meadows pursuant to the Meadows Lease with GLPI. The Leases provide that GLPI may terminate each lease for a number of reasons, including, subject to applicable cure periods, the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of either of the Leases could result in a default under our credit agreement with certain lenders, which is comprised of a term loan A facility with a maturity of five years, term loan B facility with a maturity of seven years and a revolving credit facility with a maturity of five years (the “Revolving Credit Facility” and together with the term loan A facility and term loan B facility, the “Senior Secured Credit Facilities”) and the bond indenture governing our 5.625% senior notes due 2024 (“5.625% Notes” and together with the Senior Secured Credit Facilities, the “Debt Agreements”) and could have a material adverse effect on our business, financial position or results of operations. There can also be no assurance that we will be able to comply with our obligations under the Leases in the future.

Each of the Leases is a “triple-net lease.” Accordingly, in addition to rent, we are required to pay among other things the following: (i) all facility maintenance, (ii) all insurance required in connection with the leased properties and the business conducted on the leased properties, (iii) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (iv) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We are responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the benefits received in exchange for such costs shall in part accrue to GLPI as owner of the associated facilities.

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

We face risks associated with growth and acquisitions.

We regularly evaluate opportunities for growth through development of gaming operations in existing or new markets, through acquiring other gaming, hospitality and entertainment businesses or through redeveloping our existing locations. The expansion of our operations, whether through acquisitions, development or internal growth, could divert management’s attention and could also cause us to incur substantial costs, including legal, professional and consulting fees. It is uncertain that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations into our existing operations without substantial costs, delays or other problems. Additionally, it is uncertain that we will receive gaming or other necessary licenses or governmental approvals for our new projects or in jurisdictions that we have not operated in the past or that gaming will be approved in jurisdictions where it is not currently approved. Further, we may not obtain adequate financing for such opportunities on acceptable terms. Finally, under the terms of the Penn National Merger Agreement, we have certain restrictions on the conduct of our business prior to the completion of the

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Proposed Company Sale, including with respect to growth and acquisition opportunities which may be beneficial to the Company.

If we make new acquisitions or new investments, we may face additional risks related to our business, results of operations, financial condition, liquidity and ability to satisfy our financial covenants and comply with other restrictive covenants under our Debt Agreements.

We derived 26.3% and 26.4% of our revenues for the year ended December 31, 2017 from our casinos located in Louisiana and Missouri, respectively, and are especially subject to certain risks, including economic and competitive risks, associated with the conditions in those areas and in the states from which we draw patrons.

Four of our sixteen gaming facilities on which we operate are located in Louisiana. During the year ended December 31, 2017, we derived 26.3% of our revenues from these four casinos, including 13.1% from one of them, L’Auberge Lake Charles in Lake Charles, Louisiana. In addition, we derived 26.4% of our revenues from our three casinos in Missouri during the year ended December 31, 2017.

Because we expect to derive a significant percentage of our revenues from operating facilities concentrated in two states, we are subject to greater risks from regional conditions than a gaming company operating facilities in several different geographies. A decrease in revenues from or increase in costs for any of these locations is likely to have a proportionally greater impact on our business and operations than it would for a gaming company with more geographically diverse facilities. Risks from regional conditions include the following:

regional economic conditions;

regional competitive conditions, including legalization or expansion of gaming in Louisiana or Missouri or in neighboring states;

reduced land and air travel due to increasing fuel costs or transportation disruptions;

inaccessibility of the area due to inclement weather, road construction or closure of primary access routes;

the outbreak of public health threats at any of our facilities, or in the areas in which they are located, or the perception that such threats exist; and

a decline in the number of visitors.

Our present indebtedness and projected future borrowings could adversely affect our financial health; future cash flows may not be sufficient to meet our obligations, and we may have difficulty obtaining additional financing; and we may experience adverse effects of interest rate fluctuations.

As of December 31, 2017, we had indebtedness of $821.7 million, including $500.0 million aggregate principal amount of 5.625% Notes, $169.2 million in borrowings under our revolving commitment under our Senior Secured Credit Facilities and $152.4 million in outstanding term loan borrowings under our Senior Secured Credit Facilities. In addition, we had $9.2 million in outstanding letters of credit under our Senior Secured Credit Facilities as of December 31, 2017.

There can be no assurance in the future that we will generate sufficient cash flow from operations or through asset sales to meet our expected long-term debt service obligations. Our indebtedness and projected future borrowings could have important adverse consequences to us, such as:

making it more difficult for us to satisfy our obligations with respect to our expected indebtedness (including our obligations under the 5.625% Notes, the Senior Secured Credit Facilities and the Leases);

limiting our ability to obtain additional financing without restructuring the covenants in our expected indebtedness to permit the incurrence of such financing;

requiring a substantial portion of our cash flow to be used for payments on the debt (including our obligations under the 5.625% Notes, the Senior Secured Credit Facilities and the Leases) and related interest (as applicable), thereby reducing our ability to use cash flow to fund other working capital, capital expenditures and general corporate requirements;

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limiting our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which may affect our financial condition;

causing us to incur higher interest expense in the event of increases in interest rates on our borrowings that have variable interest rates or in the event of refinancing existing debt at higher interest rates;

limiting our ability to make investments, dispose of assets, pay cash dividends or repurchase stock;

increasing our vulnerability to downturns in our business, our industry or the general economy and restricting us from making improvements or acquisitions or exploring business opportunities;

placing us at a competitive disadvantage to competitors with less debt or greater resources; and

subjecting us to financial and other restrictive covenants in our indebtedness, the non-compliance with which could result in an event of default.

We cannot assure you that our business will generate sufficient cash flow from operations, that our anticipated revenue growth will be realized, or that future borrowings will be available to us under our Debt Agreements in amounts sufficient to enable us to pay our indebtedness (including our obligations under the 5.625% Notes, the Senior Secured Credit Facilities and the Leases) or to fund our other liquidity needs. In addition, in the event we undertake substantial new developments or facility renovations in the future or if we consummate significant acquisitions in the future, our cash requirements and our debt service requirements may increase significantly.

If we fail to generate sufficient cash flow from future operations to meet our expected debt service obligations (including our obligations under the 5.625% Notes, the Senior Secured Credit Facilities and the Leases), we may need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt on attractive terms, commercially reasonable terms or at all, particularly because of our anticipated high levels of debt and the debt incurrence restrictions imposed by the agreements expected to govern our debt.

Our borrowings under our Senior Secured Credit Facilities are at variable rates of interest, which could expose us to market risk from adverse changes in interest rates. While we may enter into interest rate hedges in the future, we currently have no such interest rate hedges. If interest rates increase, our debt service obligations on the variable-rate indebtedness could increase significantly even though the amount borrowed would remain the same.

Our indebtedness imposes restrictive covenants on us.

Our Debt Agreements impose various customary negative covenants on us and our restricted subsidiaries. The restrictions that are imposed by these debt instruments include, among other obligations, limitations on our and our restricted subsidiaries’ ability to:

incur additional debt;

make payments on subordinated obligations;

make dividends or distributions and repurchase stock;

make investments;

grant liens on our property to secure debt;

enter into certain transactions with affiliates;

sell assets or enter into mergers or consolidations;

create dividend and other payment restrictions affecting our subsidiaries;

change the nature of our lines of business;


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designate restricted and unrestricted subsidiaries; and

make material amendments to the Leases.

In addition, the Senior Secured Credit Facilities require us to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage and maximum consolidated senior secured net leverage ratios. The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default, which events of default include the occurrence of a change of control, revocation of material licenses by gaming authorities (subject to a cure period), termination of the Leases and a cross-default to certain events of default under the Leases. The terms of the bond indenture governing the 5.625% Notes also include customary covenants and defaults for debt issuances of that nature. Our ability to comply with the covenants contained in these instruments may be affected by general economic conditions, industry conditions, and other events beyond our control, including delay in the completion of new projects under construction. As a result, we cannot assure you that we will be able to comply with these covenants. Our failure to comply with the covenants contained in the Debt Agreements, including failure to comply as a result of events beyond our control, could result in an event of default under our debt instruments, which could materially and adversely affect our operating results and our financial condition. If there were an event of default under one of our debt instruments, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable, subject to applicable grace periods. This could trigger cross-defaults under our Debt Agreements. We cannot assure you that our assets or cash flow would be sufficient to repay borrowings under our debt instruments if accelerated upon an event of default, or that we would be able to repay, refinance or restructure the payments on any of those proposed debt instruments.

To service our indebtedness and make payments under the Leases, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, make payments under the Leases and fund planned capital expenditures and expansion efforts will depend upon our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under our Senior Secured Credit Facilities in amounts sufficient to enable us to pay our obligations under the Leases or pay our indebtedness, as such indebtedness matures and to fund our other liquidity needs. In such circumstances, we may need to refinance all or a portion of our indebtedness, at or before maturity, and cannot provide assurances that we will be able to refinance any of our expected indebtedness on commercially reasonable terms, or at all. We may have to adopt one or more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling assets, restructuring debt, or obtaining additional equity or debt financing or joint venture partners. These financing strategies may not be completed on satisfactory terms, if at all. In addition, certain states’ laws contain restrictions on the ability of companies engaged in the gaming business to undertake certain financing transactions. Some restrictions may prevent us from obtaining necessary capital.

Our ability to obtain additional financing on commercially reasonable terms may be limited.

Although we believe that our cash, cash equivalents and short-term investments, as well as future cash from operations and availability under the Revolving Credit Facility, will provide adequate resources to fund ongoing operating requirements, we may need to seek additional financing to compete effectively. As a result of the Spin-Off and Merger with GLPI, Former Pinnacle sold substantially all of its real estate and as a result, we have less collateral with which we are able to secure financing in the future. This may result in us entering into debt financing terms that are more expensive and on less than ideal terms. Our debt ratings affect both our ability to raise debt financing and the cost of that financing. Future downgrades of our debt ratings may increase our borrowing costs and affect our ability to access the debt markets on terms and in amounts that would be satisfactory to us. If we are unable to obtain financing on commercially reasonable terms, it could:
 
reduce funds available to us for purposes such as working capital, capital expenditures, strategic acquisitions and other general corporate purposes;

restrict our ability to capitalize on business opportunities;

increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and

place us at a competitive disadvantage.


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In the event that we undertake future development plans for capital-intensive projects, we may be required to borrow significant amounts under our Senior Secured Credit Facilities and, depending on which projects are pursued to completion, may cause us to incur substantial additional indebtedness.

We expect to fund our working capital and general corporate requirements (including our development activities) with cash flow from operations and funding from our Debt Agreements, but cannot provide assurances that such financing will provide adequate funding for our future developments. In the event that we pursue future developments and our future cash flows from operations do not match the levels we currently anticipate, whether due to downturns in the economy or otherwise, we may need to amend the terms of our credit facility or obtain waivers from our lenders in order to implement future development plans. We may not be able to obtain such an amendment or waiver from our lenders. In such event, we may need to raise funds through the capital markets and may not be able to do so on favorable terms or on terms acceptable to us.

We may experience an impairment of our goodwill, other intangible assets, or long-lived assets, which could adversely affect our financial condition and results of operations.

We test goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter (October 1st test date), or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. A significant amount of judgment is involved in performing fair value estimates for goodwill and other indefinite-lived intangible assets because the results are based on estimated future cash flows and assumptions related thereto. Significant assumptions include estimates of future sales and expense trends, liquidity and capitalization, among other factors. We base our fair value estimates on projected financial information, which we believe to be reasonable. If we are required to recognize an impairment to some portion of our goodwill and other indefinite-lived intangible assets, it could adversely affect our financial condition and results of operations.

We review the carrying amount of our long-lived assets whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. When performing this assessment, we consider current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition, and other economic, legal, and regulatory factors. If we are required to recognize an impairment to some portion of the carrying amount of our long-lived assets, it could adversely affect our financial condition and results of operations.

Insufficient or lower-than-expected results generated from our new developments and acquisitions may negatively affect our operating results and financial condition.

We cannot assure you that the revenues generated from our new developments and acquisitions, such as our acquisition of the Meadows in September 2016, will be sufficient to pay related expenses if and when these developments and acquisitions are completed, or, even if revenues are sufficient to pay expenses, that the new developments and acquisitions will yield an adequate return or any return on our significant investments. In particular, achieving the anticipated synergies of any transaction, is subject to a number of uncertainties, including whether an acquired business can be integrated in an efficient and effective manner. It is possible that the integration process with respect to an acquired business could take longer than anticipated and could result in the loss of valuable employees, the disruption of our ongoing business, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements. In addition, our projects, if completed, may take significantly longer than we expect to generate returns, if any. Moreover, lower-than-expected results from the opening of a new facility may negatively affect our operating results and financial condition and may make it more difficult to raise capital, even as such a shortfall would increase the need to raise capital. In addition, as new facilities on which we operate open, they may compete with the existing facilities which we own or operate.

Rising operating costs at our operations could have a negative impact on our business.

The operating expenses associated with our operations could increase due to, among other reasons, the following factors:

changes in the foreign, federal, state or local tax or regulations, including state gaming regulations or taxes, could impose additional restrictions or increase our operating costs;

aggressive marketing and promotional campaigns by our competitors for an extended period of time could force us to increase our expenditures for marketing and promotional campaigns in order to maintain our existing customer base and attract new customers;


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as our facilities age, we may need to increase our expenditures for repairs, maintenance, and to replace equipment necessary to operate our business in amounts greater than what we have spent historically;

the Master Lease requires us to pay variable rent and base rent, and base rent is composed of building base rent and land base rent. Every year of the Master Lease term, building base rent is subject to an annual escalation of up to 2% and may increase without a corresponding increase in revenues. Our annual variable rent is based on changes in our net revenue and as our revenues increase, our variable rent may increase without a corresponding increase in our profits;

the Meadows Lease requires us to pay percentage rent and base rent. Every year of the initial term of the Meadows Lease, our base rent is subject to an annual escalation of up to 5% with each year thereafter subject to an annual escalation of up to 2% and may increase without a corresponding increase in revenues. After the first two years of the Meadows Lease and each two years thereafter, the percentage rent is based on changes in the Meadows’ average net revenue for the trailing two-lease-year period and as our Meadows’ net revenues increase, our percentage rent under the Meadows Lease may increase without a corresponding increase in the Meadows’ profits;

an increase in the cost of health care benefits for our employees could have a negative impact on our financial results;

our reliance on slot play revenues and any additional costs imposed on us from vendors;

availability and cost of the many products and service we provide our customers, including food, beverages, retail items, entertainment, hotel rooms, spa and golf services;

availability and costs associated with insurance;

increase in costs of labor, including due to potential unionization of our employees;

our facilities use significant amounts of electricity, natural gas and other forms of energy, and energy price increase may adversely affect our cost structure; and

our facilities use significant amounts of water, and a water shortage may adversely affect our operations.

If our operating expenses increase without any offsetting increase in our revenues, our results of operations would suffer.

Our slots and table games hold percentages may fluctuate.

The gaming industry is characterized by an element of chance and our casino guests’ winnings depend on a variety of factors, some of which are beyond our control. In addition to the element of chance, hold percentages are affected by other factors, including players’ skill and experience, the mix of games played, the financial resources of players, the volume of bets placed and the amount of time played. The variability of our hold percentages have the potential to adversely affect our business, financial condition and results of operations.

Recessions have affected our business and financial condition, and economic conditions may continue to affect us in ways that we currently cannot accurately predict.

Economic recessions have had and may continue to have far reaching adverse consequences across many industries, including the gaming industry, which may have an effect on our business and financial condition. The U.S. economy experienced some weakness following a severe recession, which resulted in increased unemployment, decreased consumer spending and a decline in housing values. In addition, while the Federal Reserve took policy actions to promote market liquidity and encourage economic growth following the recession, such actions are now being curtailed as signs of improvement in the economy have emerged, and the impact of these monetary policy actions on the recovery is uncertain. Moreover, we rely on the strength of regional and local economies for the performance of each of our properties. If the national economic recovery slows or stalls, the national economy experiences another recession or any of the relevant regional or local economies suffers a downturn, we may experience a material adverse effect on our business, results of operations and financial condition.    


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We expect to be engaged from time to time in one or more construction and development projects, and many factors could prevent us from completing them as planned, including the escalation of construction costs beyond increments anticipated in our construction budgets.

Construction of major buildings has certain inherent risks, including the risks of fire, structural collapse, human error and electrical, mechanical and plumbing malfunction. In addition, projects entail additional risks related to structural heights and the required use of cranes. Our expected development and expansion projects also entail significant risks, including:

shortage of materials;

shortage of skilled labor or work stoppages;

unforeseen construction scheduling, engineering, excavation, environmental or geological problems;

natural disasters, hurricanes, weather interference, changes in river levels, floods, fires, earthquakes or other casualty losses or delays;

unanticipated cost increase or delays in completing the project;

delays in obtaining or inability to obtain or maintain necessary license or permits;

changes to plans or specifications;

performance by contractors and subcontractors;

disputes with contractors;

disruption of our operations caused by diversion of management’s attention to new development projects and construction at our existing facilities;

remediation of environmental contamination at some of our proposed construction sites, which may prove more costly than anticipated in our construction budgets;

failure to obtain and maintain necessary gaming regulatory approvals and licenses, or failure to obtain such approvals and licenses on a timely basis;

requirements or government-established “goals” concerning union labor or requiring that a portion of the project expenditures be through companies controlled by specific ethnic or gender groups, goals that may not be obtainable, or may only be obtainable at additional project cost; and

increases in the cost of raw materials for construction, driven by worldwide demand, higher labor and construction costs and other factors, may cause price increases beyond those anticipated in the budgets for our development projects.

Escalating construction costs may cause us to modify the design and scope of projects from those initially contemplated or cause the budgets for those projects to be increased. We will generally carry insurance to cover certain liabilities related to construction, but not all risks are covered, and it is uncertain whether such insurance will provide sufficient payment in a timely fashion even for those risks that are insured and material to us.

Construction of our development projects exposes us to risks of cost overruns due to typical construction uncertainties associated with any project or changes in the designs, plans or concepts of such projects. For these and other reasons, construction costs may exceed the estimated cost of completion, notwithstanding the existence of any guaranteed maximum price construction contracts.

Our industry is highly regulated, which makes us dependent on obtaining and maintaining gaming licenses and subjects us to potentially significant fines and penalties.

The ownership, management and operation of gaming facilities are subject to extensive state and local regulation. The statutes, rules and regulations of the states and local jurisdictions in which we and our subsidiaries conduct gaming operations

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require us to hold various licenses, registrations, permits and approvals and to obtain findings of suitability. The various regulatory authorities, including the Colorado Division of Gaming, the Colorado Limited Gaming Control Commission, Indiana Gaming Commission, the Iowa Racing and Gaming Commission, the Louisiana Gaming Control Board, the Mississippi Gaming Commission, the Missouri Gaming Commission, the Nevada Gaming Control Board, the Nevada Gaming Commission, the Ohio State Racing Commission, the Ohio Lottery Commission, the Pennsylvania Gaming Control Board, the Pennsylvania Harness Racing Commission and the Texas Racing Commission may, among other things, limit, condition, suspend, revoke or fail to renew a license to conduct gaming operations or prevent us from owning the securities of any of our gaming subsidiaries for any cause deemed reasonable by such licensing authorities. Substantial fines or forfeitures of assets for violations of gaming laws or regulations may be levied against us, our subsidiaries and the persons involved, including, but not limited to, our management, employees and holders of 5% or more of our securities. In addition, many of our key vendors must be licensed and found suitable by regulatory authorities and there can be no assurance that such vendors will be able to be licensed and found suitable.

To date, we have obtained all governmental licenses, findings of suitability, registrations, permits and approvals necessary for the operation of our existing gaming facilities. It is uncertain, however, whether we will be able to obtain any new licenses, registrations, permits, approvals and findings of suitability that may be required in the future or that existing ones will be renewed or will not be suspended or revoked. Any expansion of our gaming operations in our existing jurisdictions or into new jurisdictions may require various additional licenses, findings of suitability, registrations, permits and approvals of the gaming authorities. The approval process can be time consuming and costly, and there can be no assurance of success.

We will also be subject to a variety of other rules and regulations, including, but not limited to, laws and regulations governing payment card information and the serving of alcoholic beverages at our operating facilities. If we are not in compliance with these laws, it could adversely affect our business.

Potential changes in the regulatory environment could harm our business.

Changes in regulations affecting the casino business can affect our operations. In addition, legislators and special-interest groups have proposed legislation from time to time that would restrict or prevent gaming operations. Other regulatory restrictions or prohibitions on our gaming operations could curtail our operations and could result in decreases in revenues.

Our business may be adversely affected by legislation prohibiting tobacco smoking.

Legislation in various forms to ban indoor tobacco smoking in public places has been enacted or introduced in many states and local jurisdictions, including several of the jurisdictions in which we operate. We believe the smoking bans and restrictions have significantly impacted business volumes.

In January 2015, the New Orleans City Council unanimously approved an ordinance in the City of New Orleans that prohibits smoking in casinos, bars and restaurants. The Boomtown New Orleans facility is located in the City of Harvey and not in the City of New Orleans, so the smoking ban does not apply to such facility. However, if a smoking ban was approved in the City of Harvey, we believe that this will adversely affect our business.

In August 2017, the East Baton Rouge Metropolitan Council approved a smoking ban in casinos and bars that will take effect in June 2018. We believe that this smoking ban will adversely affect our business at L’Auberge Baton Rouge.
Our operations are largely dependent on the skill and experience of our management and key personnel. The loss of management and other key personnel could significantly harm our business, and we may not be able to effectively replace members of management who have left our company.
Our success and our competitive position are largely dependent upon, among other things, the efforts and skills of our senior executives and management team. Although we enter into employment agreements with certain of our senior executives and key personnel, we cannot guarantee that these individuals will remain employed by us. If we lose the services of any members of our management team or other key personnel, our business may be significantly impaired. We cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel.
 
We expect to experience strong competition in hiring and retaining qualified property and corporate management personnel, including competition from numerous Native American gaming facilities that are not subject to the same taxation regimes as we are and therefore may be willing and able to pay higher rates of compensation. From time to time, we expect to have a number of vacancies in key corporate and property management positions. If we are unable to successfully recruit and

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retain qualified management personnel at our facilities or at our corporate level, our results of operations could be adversely affected.

In addition, our officers, directors and key employees are required to file applications with the gaming authorities in each of the jurisdictions in which we operate and are required to be licensed or found suitable by these gaming authorities. If the gaming authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could significantly impair our operations.

Adverse weather conditions, road construction, gasoline shortages and other factors affecting our facilities and the areas in which we operate could make it more difficult for potential customers to travel to the facilities on which we operate and deter customers from visiting our facilities.

Our business depends upon our ability to draw customers from each of the geographic markets in which we operate. Adverse weather conditions or road construction can deter our customers from traveling to the facilities on which we operate or make it difficult for them to frequent the facilities on which we operate. In 2015, Boomtown Bossier City and Belterra Park both experienced flooding which resulted in temporary closures at both properties, repair and clean-up costs and lost business volume. In 2016, L’Auberge Lake Charles and L’Auberge Baton Rouge were both negatively impacted by lost business volume due to severe rain and flooding. In 2017, visitation to Boomtown New Orleans, L’Auberge Lake Charles and L’Auberge Baton Rouge was negatively impacted by Hurricanes Harvey and Nate. Moreover, gasoline shortages or fuel price increases in regions that constitute a significant source of customers for the facilities on which we operate could make it more difficult for potential customers to travel to such facilities and deter customers from visiting. The dockside gaming facilities in Indiana, Iowa, Louisiana, Mississippi and Missouri, as well as any additional riverboat or dockside casino facilities that might be developed or acquired, are also subject to risks, in addition to those associated with land-based casinos, which could disrupt our operations. Although none of the vessels on which we operate leave their moorings in normal operations, there are risks associated with the movement or mooring of vessels on waterways, including risks of casualty due to river turbulence, flooding, collisions with other vessels and severe weather conditions.

Our results of operations and financial condition could be materially adversely affected by the occurrence of natural disasters, such as hurricanes, or other catastrophic events, including war and terrorism.

Natural disasters, such as major hurricanes, typhoons, floods, fires and earthquakes, could adversely affect our business and operating results. Hurricanes are common in the areas in which our Louisiana operations are located, and the severity of such natural disasters is unpredictable. The facilities where we operate in St. Louis (River City and Ameristar St. Charles) are located near an earthquake fault line and are subject to earthquakes. In addition, the River City casino is in an area along the Mississippi River that has historically experienced flooding. Although its foundation is built up to be above historical flooding levels, there is no certainty that this will be sufficient in future floods.

For example, in 2005, Hurricanes Katrina and Rita caused significant damage in the Gulf Coast region. Hurricane Katrina destroyed Former Pinnacle’s former Biloxi, Mississippi facility. In August 2005, the Boomtown New Orleans casino on which we operate was forced to close for 34 days as a result of Hurricane Katrina. In 2015, Boomtown Bossier City and Belterra Park both experienced flooding, which resulted in temporary closures at both properties. In 2016, L’Auberge Lake Charles and L’Auberge Baton Rouge were both negatively impacted by lost business volume due to severe rain and flooding. In 2017, visitation to Boomtown New Orleans, L’Auberge Lake Charles and L’Auberge Baton Rouge was negatively impacted by Hurricanes Harvey and Nate.

Catastrophic events, such as terrorist attacks in the United States and elsewhere, have had a negative effect on travel and leisure expenditures, including lodging, gaming (in some jurisdictions) and tourism. We cannot accurately predict the extent to which such events may affect us, directly or indirectly, in the future. We also cannot assure you that we will be able to obtain or choose to purchase any insurance coverage with respect to occurrences of terrorist acts and any losses that could result from these acts. If there is a prolonged disruption at our facilities due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition would be materially adversely affected.

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We are exposed to a variety of natural disasters such as named windstorms, floods and earthquakes and this can make it challenging for us to obtain adequate levels of weather catastrophe occurrence insurance coverage for our facilities at reasonable rates, if at all.
Because of significant historical loss experience and the potential for future similar losses caused by hurricanes and other natural disasters, adequate insurance may be limited or may be cost prohibitive. Therefore, our policy contains sub-limits specifically for weather catastrophe occurrences. Our coverage for a named windstorm, flood, earthquake or act of terrorism is $200 million per occurrence, subject to a deductible, including business interruption. For other catastrophes, our coverage is $700 million per occurrence, subject to a deductible, including business interruption. In addition, as a result of the worldwide economic conditions, there may be uncertainty as to the viability of certain insurance companies and their ability to pay a claim. While we believe that the insurance companies will remain solvent, there is no certainty that this will be the case in the event of a loss.
We may incur property and other losses that are not adequately covered by insurance, which may harm our results of operations.
Although we maintain insurance that our management believes is customary and appropriate for our business, we cannot assure you that insurance will be available or adequate to cover all losses and damage to which our business or our assets might be subjected. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are uninsured or underinsured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property and reduce the funds available for payments of our obligations. The Leases require us, in the event of a casualty event, to rebuild a leased property to substantially the same condition as existed immediately before such casualty event. We renew our insurance policies (other than our builder’s risk insurance) on an annual basis. The cost of coverage may become so material that we may need to further reduce our policy limits, further increase our deductibles, or agree to certain exclusions from our coverage.

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

A substantial majority of our revenues is attributable to slot machines operated by us at our casinos. It is important that, for competitive reasons, we offer the most popular and up-to-date slot machine games with the latest technology to our guests.
In recent years, the prices of new slot machines with additional features have escalated faster than the general rate of inflation. Furthermore, in recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines. Participation slot machine leasing arrangements typically require the payment of a fixed daily rental. Such agreements may also include a percentage payment of coin-in or net win. Generally, a participation lease is substantially more expensive over the long-term than the cost to purchase a new machine.
 
For competitive reasons, we may choose to purchase new slot machines or enter into participation lease arrangements that are more expensive than the costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.

We materially rely on a variety of hardware and software products to maximize revenue and efficiency in our operations. Technology in the gaming industry is developing rapidly, and we may need to invest substantial amounts to acquire the most current gaming and hotel technology and equipment in order to remain competitive in the markets in which we operate. Ensuring the successful implementation and maintenance of any new technology acquired is an additional risk.

We operate in a highly taxed industry and it may be subject to higher taxes in the future. If the jurisdictions in which we operate increase gaming taxes and fees, our operating results could be adversely affected.

In gaming jurisdictions in which we operate, state and local governments raise considerable revenues from taxes based on casino revenues and operations. We also pay property taxes, admission taxes, occupancy taxes, sales and use taxes, payroll taxes, franchise taxes and income taxes. Our profitability depends on generating enough revenues to pay gaming taxes and other largely variable expenses, such as payroll and marketing, as well as largely fixed expenses, such as property taxes and interest expense. From time to time, state and local governments have increased gaming taxes and such increases can significantly impact the profitability of gaming operations. For example, on October 30, 2017, Pennsylvania increased gaming taxes, which will adversely impact the Meadows.

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We cannot assure you that governments in jurisdictions in which we operate, or the federal government, will not enact legislation that increases gaming tax rates. Global economic pressures have reduced the revenues of state governments from traditional tax sources, which may cause state legislatures or the federal government to be more inclined to increase gaming tax rates.
Work stoppages, organizing drives and other labor problems could negatively impact our future profits.

We are a party to certain collective bargaining agreements, including one collective bargaining agreement at Belterra Park, one collective bargaining agreement at Ameristar East Chicago and four collective bargaining agreements at the Meadows. In addition, other unions have approached our employees. A lengthy strike or other work stoppages at any of our casino facilities or future construction projects could have an adverse effect on our business and results of operations. Labor unions are making a concerted effort to recruit more employees in the gaming industry. We cannot provide any assurance that we will not experience additional and more aggressive union activity in the future.

We face environmental and archaeological regulation of the real estate on which we operate.

Our business is subject to a variety of federal, state and local governmental statutes and regulations relating to activities or operations that may have adverse environmental effects, such as discharges to air and water and use, storage, discharge, emission and disposal of hazardous materials and concentrated animal feeding operations. These laws and regulations are complex, and subject to change, and failure to comply with such laws could result in the imposition of severe penalties or restrictions on our operations by government agencies or courts of law or the incurrence of significant costs for the remediation of spills, disposals or other releases of hazardous or toxic substances or wastes. Under certain of these laws and regulations, and under our contractual arrangements with GLPI, including the Leases, a current or previous owner or operator of property may be liable for the costs of remediating contamination on its property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time that they occurred. We endeavor to maintain compliance with environmental laws, but from time to time, current or historical operations on, or adjacent to, our property may have resulted or may result in noncompliance with environmental laws or liability for cleanup pursuant to environmental laws. A material fine or penalty, severe operational or development restriction, or imposition of material remediation costs could adversely affect our business. In addition, the locations of our current or future developments may coincide with sites containing archaeologically significant artifacts, such as Native American remains and artifacts. Federal, state and local governmental regulations relating to the protection of such sites may require us to modify, delay or cancel construction projects at significant cost to us.

We are subject to litigation, which, if adversely determined, could cause us to incur substantial losses.

From time to time during the normal course of operating our businesses, we are subject to various litigation claims and legal disputes. Some of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage. As a result, we might also be required to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because we cannot accurately predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.

We are subject to certain federal, state and other regulations.

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

The riverboats on which we operate must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel and safety. In addition, we are required to have third parties periodically

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inspect and certify all of our casino barges for stability and single compartment flooding integrity. The casino barges on which we operate also must meet local fire safety standards. We would incur additional costs if any of the gaming facilities on which we operate were not in compliance with one or more of these regulations.

We are also subject to a variety of other federal, state and local laws and regulations, including those relating to zoning, construction, land use, employment, marketing and advertising and the production, sale and service of alcoholic beverages. If we are not in compliance with these laws and regulations, it could have a material adverse effect on our business, financial condition and results of operations.

The imposition of a substantial penalty could have a material adverse effect on our business.

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

There is a growing political and scientific consensus that greenhouse gas emissions, also referred to herein as “GHG” continue to alter the composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate. Climate change, including the impact of global warming, creates physical and financial risk. Physical risks from climate change include an increase in sea level and changes in weather conditions, such as an increase in changes in precipitation and extreme weather events. Climate change could have a material adverse effect on our results of operations, financial condition, and liquidity. We have described the risks to us associated with extreme weather events in the risk factors above.

We may become subject to legislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators and regulators, stockholders and nongovernmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. Many states have announced or adopted programs to stabilize and reduce GHG emissions and in the past federal legislation have been proposed in Congress. If such legislation is enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply with the limitations. Unless and until legislation is enacted and its terms are known, we cannot reasonably or reliably estimate its impact on our financial condition, operating performance or ability to compete. Further, regulation of GHG emissions may limit our guests’ ability to travel to our facilities as a result of increased fuel costs or restrictions on transport related emissions.

We face business and regulatory risks associated with our investment in ACDL.

PNK Development 18, LLC, one of our wholly-owned unrestricted subsidiaries, owns a minority interest in Asian Coast Development (Canada) Ltd., a British Columbia corporation (“ACDL”). Entities affiliated with Harbinger Capital Partners (“Harbinger”) are the majority shareholders of ACDL. ACDL’s wholly-owned subsidiary Ho Tram Project Company Limited (“HTP”) is the owner and developer of the Ho Tram Strip beachfront complex of destination integrated resorts, residential developments and golf course in the Province of Ba Ria-Vung Tau in southern Vietnam (the “Ho Tram Strip”). As a minority shareholder of ACDL, our ability to control the management, record keeping, operations and decision-making of ACDL is limited. We fully impaired the value of our investment in ACDL in the first quarter 2013.
HTP’s operations are subject to the significant business, economic, regulatory and competitive uncertainties and contingencies frequently encountered by new businesses in new gaming jurisdictions and other risks associated with this investment, many of which are beyond ACDL’s, HTP’s or our control. The gaming elements of the businesses are subject to regulation by the government of Vietnam and uncertainty exists as to how such regulation will affect HTP’s gaming operations. Because ACDL and HTP have limited operating history, it may be more difficult for them to prepare for and respond to these types of risks than for a company with an established business and operating cash flow.
ACDL has operations outside the United States, which expose us to complex foreign and U.S. regulations inherent in doing business in Vietnam. We are subject to regulations imposed by the Foreign Corrupt Practices Act (the “FCPA”), and other anti-corruption laws that generally prohibit U.S. companies and their intermediaries from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions as well as other penalties. The SEC and U.S. Department of Justice in recent years have increased their enforcement activities with respect to the FCPA.
Internal control policies and procedures and the compliance program that ACDL has implemented to deter prohibited practices may not be effective in prohibiting its employees, contractors or agents from violating or circumventing our policies and the law. If ACDL’s or our employees or agents fail to comply with applicable laws or company policies governing ACDL’s international operations, we and our subsidiaries may face investigations, prosecutions and other legal and regulatory proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions which could, in

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turn, serve as the basis for the initiation of like proceedings by gaming regulators in one or more of the states wherein we and our subsidiaries hold gaming licenses. Any determination that we have violated the FCPA could have a material adverse effect on our financial condition and on the gaming licenses and approvals held by us and our subsidiaries.
Compliance with international and U.S. laws and regulations that apply to ACDL’s international operations increases the cost of doing business in foreign jurisdictions. ACDL will also deal with significant amounts of cash in its operations and will be subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by ACDL could have a negative effect on us.

We are subject to extensive governmental regulations that impose restrictions on the ownership and transfer of our securities.

We are subject to extensive governmental regulations that relate to our current or future gaming operations and that impose certain restriction on the ownership and transfer of our securities.

In addition, we may be required by gaming authority to redeem shares of our common stock in the event that a stockholder is deemed to be unsuitable by a gaming regulatory authority. Our certificate of incorporation requires that if a person owns or controls our securities, including shares of our common stock, and is determined by a gaming authority to be unsuitable to own or control such securities or in the sole discretion of our Board of Directors is deemed likely to jeopardize our right to conduct gaming activities in any of the jurisdictions in which we conduct or intend to conduct gaming activities, we may redeem, and we may be required by a gaming authority to redeem, such person’s securities to the extent required by the government gaming authority or deemed necessary or advisable by us.

If a gaming authority requires us, or if we deem it necessary or advisable, to redeem such securities, we will serve notice on the holder who holds securities subject to redemption and will call for the redemption of the securities of such holder at a redemption price equal to that required to be paid by the gaming authority making the finding of unsuitability, or if such gaming authority does not require a certain price per share to be paid, a sum deemed reasonable by us, which in our discretion may be the original purchase price, the then current trading price of the securities or another price we determine. Unless the gaming authority requires otherwise, the redemption price will in no event exceed:

the closing sales price of the securities on the national securities exchange on which such shares are then listed on the date the notice of redemption is delivered to the person who has been determined to be unsuitable, or

if such shares are not then listed for trading on any national securities exchange, then the closing sales price of such shares as quoted in NASDAQ National Market System, or

if the shares are not then so quoted, then the mean between the representative bid and the ask price as quoted by NASDAQ or another generally recognized reporting system.
 
The redemption price may be paid in cash, by promissory note, or both, as required by the applicable gaming authority and, if not so required, as we elect. Any promissory note shall contain such terms and conditions as our Board of Directors determines necessary or advisable to comply with any applicable law or regulation or to prevent a default under any of our Debt Agreements. Subject to the foregoing, the principal amount of the promissory note together with any unpaid interest shall be due and payable no later than the tenth anniversary of delivery of the note and interest on the unpaid principal thereof shall be payable annually in arrears at the rate of 2% per annum.

Beginning on the date that a gaming authority serves notice of a determination of unsuitability or the loss or threatened loss of a gaming license upon us, and until the securities owned or controlled by the unsuitable person are owned or controlled by persons found by such gaming authority to be suitable to own them, it is unlawful for the unsuitable person or any affiliate of such person (i) to receive any dividend, payment, distribution or interest with regard to the securities, (ii) to exercise, directly or indirectly or through any proxy, trustee, or nominee, any voting or other right conferred by such securities, and such securities shall not for any purposes be included in our securities entitled to vote, or (iii) to receive any remuneration in any form from the corporation or an affiliated company for services rendered or otherwise.

From and after the date of redemption, such securities will no longer be deemed to be outstanding and all rights of the person who was determined to be unsuitable, other than the right to receive the redemption price, will cease. Such person must surrender the certificates for any securities to be redeemed in accordance with the requirements of the redemption notice.


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All persons owning or controlling securities of the Company and any affiliated companies must comply with all requirements of the gaming laws in each gaming jurisdiction in which we or any of our affiliated companies conduct or intend to conduct gaming activities. All securities of the Company must be held subject to the requirements of such gaming laws, including any requirement that (i) the holder file applications for gaming licenses with, or provide information to, applicable gaming authorities, or (ii) that any transfer of such securities may be subject to prior approval by gaming authorities, and any transfer of our securities in violation of any such approval requirement are not permitted and the purported transfer is void ab initio.

Ownership and transfer of our securities could be subjected at any time to additional or more restrictive regulations, including regulation in applicable jurisdictions where there are no current restrictions on the ownership and transfer of our securities or in new jurisdictions where we may conduct our operations in the future. A detailed description of such regulations, including the requirements under gaming laws of the jurisdictions in which we operate, can be found in Exhibit 99.1, “Government Regulation and Gaming Issues,” to this Annual Report on Form 10-K, which is incorporated herein by reference.

The market price for our common stock may be volatile, and you may not be able to sell our stock at a favorable price or at all.

Many factors could cause the market price of our common stock to rise and fall, including:

market expectations regarding the Proposed Company Sale, including the timing and likelihood of the completion of the Proposed Company Sale and fluctuations in the market price of Penn National’s common stock;

actual or anticipated variations in our quarterly results of operations;

change in market valuations of companies in our industry;

change in expectations of future financial performance;

regulatory changes;

fluctuations in stock market prices and volumes;

issuance of common stock market prices and volumes;

issuance of common stock or other securities in the future;

the addition or departure of key personnel; and

announcements by us or our competitors of acquisitions, investments, dispositions, joint ventures or other significant business decisions.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to companies’ operating performance. Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following the announcement of transactions such as the Proposed Company Sale or following periods of volatility in the market price of a company’s securities, shareholder derivative lawsuits and/or securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.


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FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. Except for the historical information contained herein, the matters addressed in this Annual Report on Form 10-K, as well as in other reports filed with or furnished to the SEC or statements made by us, may constitute “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. From time to time, we may provide oral or written forward-looking statements in our other periodic reports on Form 10-Q, Form 8-K, press releases and other materials released to the public. All forward-looking statements made in this Annual Report on Form 10-K and any documents we incorporate by reference are made pursuant to the Act. Words such as, but not limited to, “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “could,” “may,” “will,” “should,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements, which may include, without limitation, statements regarding the Proposed Company Sale and the Penn National Merger Agreement, the consummation of the Proposed Company Sale and the timing thereof, the ability of the Company and Penn National to receive stockholder approvals for the transaction, the ability of the Company and Penn National to obtain required regulatory approvals, the stock price of the Company and Penn National following the consummation of a transaction with Penn National, the expected results of operations and future operating performance and future growth; adequacy of resources to fund development and expansion projects; liquidity, financing options, including the state of the capital markets and our ability to access the capital markets; the state of the credit markets and economy; cash needs; cash reserves; operating and capital expenses; expense reductions; the sufficiency of insurance coverage; anticipated marketing costs at various projects; the future outlook of Pinnacle and the gaming industry and pending regulatory and legal matters; the potential occurrence of impairments to goodwill, other intangible assets or long-lived assets; extreme weather conditions or climate change; potential work stoppages or other labor problems; cyber security risks; the ability of the Company to continue to meet its financial and other covenants governing the Debt Agreements and the Leases; the Company’s anticipated future capital expenditures; ability to implement strategies to improve revenues and operating margins at the Company’s properties; reduce costs and debt; the Company’s ability to successfully implement marketing programs to increase revenue at the Company’s properties; and the Company’s ability to improve operations and performance, are all subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by us. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. For more information on the potential factors that could affect our operating results and financial condition in addition to the risk factors described above, review our other filings (other than any portion of such filings that are furnished under applicable SEC rules rather than filed) with the SEC.

All forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Form 10-K. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 1B.
Unresolved Staff Comments
None.

Item 2.
Properties

The following describes the principal real estate associated with our businesses by segment:

Midwest

Ameristar Council Bluffs: Ameristar Council Bluffs is located on approximately 58 acres along the east bank of the Missouri River in Council Bluffs, Iowa. We lease the real estate at this site under the terms of the Master Lease. We sublease approximately one acre of the site to a third party for the operation of a 188-room limited service Holiday Inn Suites Hotel and a 96-room Hampton Inn Hotel.

Ameristar East Chicago: Ameristar East Chicago is located on approximately 22 acres in East Chicago, Indiana, approximately 25 miles from downtown Chicago, Illinois. We lease the casino vessel, hotel and other improvements on the site under the terms of the Master Lease and the land under the terms of the Master Lease and a ground lease.

Ameristar Kansas City: Ameristar Kansas City is located on approximately 215 acres of land in Kansas City, Missouri. We lease the casino vessel, hotel and other improvements on the site under the terms of the Master Lease and we lease the land under the terms of the Master Lease and a ground lease. In addition, there are approximately 37 acres of undeveloped wetlands. The site is east of and adjacent to Interstate 435 along the north bank of the Missouri River.


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Ameristar St. Charles: Ameristar St. Charles is located on approximately 59 acres of land along the west bank of the Missouri River immediately north of Interstate 70 in St. Charles, Missouri. In addition, there are approximately 181 acres of undeveloped land held for possible future wetlands remediation. The real estate at this site is leased under the terms of the Master Lease.

Belterra Resort: We lease the real estate used in the operations of Belterra Resort under the terms of the Master Lease and a ground lease. Belterra Resort occupies approximately 315 acres in Florence, Indiana and includes a 54-room hotel on six acres of land approximately 10 miles from Belterra Resort.

Belterra Park: Belterra Park is located on approximately 160 acres of land, of which, approximately 40 acres are undeveloped, that we own in southeast Cincinnati, Ohio. Additionally, we own the buildings and building improvements associated with the facility.

Meadows: We lease the real estate used in the operations of the Meadows, located on approximately 153 acres of land under the terms of the Meadows Lease. The Meadows is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. The Meadows also offers off-track betting at a separate facility we lease in Pittsburgh.

River City: We lease the real estate used in the operations of River City under the terms of the Master Lease and a ground lease. The River City site is located on approximately 56 acres in south St. Louis County, approximately 12 miles south of downtown St. Louis.

South

Ameristar Vicksburg: Ameristar Vicksburg is located on a total of approximately 74 acres of land in Vicksburg, Mississippi, on either side of Washington Street near Interstate 20. In addition to the gaming and hotel facilities, we operate a recreational vehicle park and utilize buildings for warehousing and support services also located on these parcels. We lease the real estate at this location under the terms of the Master Lease.

Boomtown Bossier City: Boomtown Bossier City is located on approximately 23 acres in Bossier City, Louisiana on the banks of the Red River. We lease the real estate at this site, including the dockside riverboat casino, under the terms of the Master Lease and lease approximately one acre of water bottoms.

Boomtown New Orleans: Boomtown New Orleans is located in Harvey, Louisiana on approximately 54 acres. The land, facilities, and associated improvements at the property, including the dockside riverboat casino and hotel, are leased under the terms of the Master Lease.

L’Auberge Baton Rouge: L’Auberge Baton Rouge is located approximately 10 miles south of downtown Baton Rouge, Louisiana. We lease the real estate of the L’Auberge Baton Rouge property under the terms of the Master Lease, which includes approximately 99 acres and the casino facility. Additionally, we own approximately 478 acres of excess land adjacent to L’Auberge Baton Rouge, which is available for future expansion and development.

L’Auberge Lake Charles: L’Auberge Lake Charles is located in Lake Charles, Louisiana, approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin, Texas and San Antonio, Texas, respectively. We lease approximately 235 acres of land; upon which the L’Auberge Lake Charles property is located; the casino facility; and other real estate improvements under the terms of the Master Lease and a ground lease. Additionally, we own approximately 54 acres of excess land surrounding the site, which is available for future expansion and development.

West

Ameristar Black Hawk: Ameristar Black Hawk is located on a site of approximately six acres on the north side of Colorado Highway 119 in Black Hawk, Colorado. Under the terms of the Master Lease, we lease the real estate of Ameristar Black Hawk, including the land underlying the casino facility, and other property in the vicinity, including approximately 100 acres of largely hillside land across Richman Street from the casino site, portions of which are used for overflow parking, administrative offices and other operational uses.

Cactus Petes and Horseshu: Cactus Petes and Horseshu are located in Jackpot, Nevada, across from each other on either side of U.S. Highway 93. We lease the real estate at both locations and other property in the vicinity under the terms of the Master Lease, which includes approximately 34 acres for Cactus Petes, approximately 20 acres for Horseshu, and

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approximately 26 acres for a service station and 288 housing units that support the primary operations of the Jackpot Properties.

Other

We lease office and warehouse space in various locations outside of our operating properties, including our corporate offices in Las Vegas, Nevada.

Our real property interests at Belterra Park, the excess land at L’Auberge Baton Rouge and L’Auberge Lake Charles, and the leasehold interests for the properties described above collateralize our obligations under our Senior Secured Credit Facilities.

Item 3.
Legal Proceedings

We are a party to a number of pending legal proceedings. Management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on our financial position, cash flows or results of operations.

Item 4.
Mine Safety Disclosures

Not applicable.

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PART II

Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information: Our common stock has been listed and quoted on the NASDAQ Global Select Market of The NASDAQ Stock Market LLC under the symbol “PNK” since April 29, 2016, the first day following the closing of the Spin-Off and Merger. In connection with the Merger, the common stock of Former Pinnacle ceased being listed and quoted on the NASDAQ Global Select Market of The NASDAQ Stock Market LLC (also under the symbol “PNK”). The last trading day of Former Pinnacle’s common stock was April 28, 2016. The table below sets forth the high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market for the periods indicated:
 
 
Price Range
 
 
High
 
Low
2017
 
 
 
 
Fourth Quarter
 
$
33.59

 
$
21.22

Third Quarter
 
$
21.46

 
$
18.30

Second Quarter
 
$
22.10

 
$
18.78

First Quarter
 
$
19.66

 
$
13.61

2016
 
 
 
 
Fourth Quarter
 
$
15.03

 
$
11.36

Third Quarter
 
$
12.71

 
$
10.41

Second Quarter (since April 29, 2016)
 
$
11.75

 
$
9.72

On February 23, 2018, the last sale price of our common stock as reported on the NASDAQ Global Select Market was $30.21.
Holders: As of February 23, 2018, there were 1,686 stockholders of record of our common stock.
Dividends: We did not pay any cash dividends in 2017. The Penn National Merger Agreement, the bond indenture governing our 5.625% Notes and our Senior Secured Credit Facilities limit the amount of dividends that we are permitted to pay.
Sales of Unregistered Equity Securities: During the year ended December 31, 2017, we did not issue or sell any unregistered equity securities.


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Stock Performance Graph: The stock performance graph and related information presented below is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.
Set forth below is a graph comparing the cumulative total stockholder return for Pinnacle’s common stock with the cumulative total returns for the NASDAQ Composite Index and the Dow Jones US Gambling Index. The total cumulative return calculations are for the period that commenced on April 29, 2016 and ended on December 31, 2017, and include the reinvestment of dividends. The stock price performance shown in this graph is neither necessarily indicative of, nor intended to suggest, future stock price performance.
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12097953&doc=22
 
 
4/29/2016*
 
12/31/2016
 
12/31/2017
Pinnacle Entertainment, Inc.
 
$
100.00

 
$
131.34

 
$
296.47

NASDAQ Composite Index
 
$
100.00

 
$
112.82

 
$
145.87

Dow Jones US Gambling Index
 
$
100.00

 
$
122.01

 
$
170.99

*
Assumes $100 invested on April 29, 2016 in Pinnacle’s common stock, the NASDAQ Composite Index and the Dow Jones US Gambling Index. Total return assumes reinvestment of dividends.

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Issuer Purchases of Equity Securities: The following table contains information with respect to purchases made by or on behalf of Pinnacle or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934), of its common stock during the fourth quarter ended December 31, 2017.

Period
 
Total Number of Shares (or Units) Purchased
 
Average Price Paid per Share (or Unit) (1)
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may be Purchased Under the Plans or Programs (2)
October 1 - October 31, 2017
 
23,236

 
$
21.63

 
23,236

 
$
7,577,726

November 1 - November 30, 2017
 

 
$

 

 
$
7,577,726

December 1 - December 31, 2017
 

 
$

 

 
$

Total
 
23,236

 
$
21.63

 
23,236

 
$


(1)
Average price paid per share for shares purchased as part of our share repurchase program (includes brokerage commissions).

(2)
In August 2016, the Company’s Board of Directors authorized a share repurchase program of up to $50.0 million of our common stock. In December 2017, the Company canceled the share repurchase program and at that time, we had repurchased 2.8 million shares of common stock for $42.4 million.


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Item 6.
Selected Financial Data
The following selected financial information for the years 2013 through 2017 was derived from our audited Consolidated Financial Statements. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited Consolidated Financial Statements and related notes thereto.
 
For the year ended December 31,
 
2017 (a)
 
2016 (b)
 
2015 (c)
 
2014 (d)
 
2013 (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except per share data)
 
 
Results of Operations:
 
 
 
 
 
 
 
 
 
Revenues
$
2,561.9

 
$
2,378.9

 
$
2,291.9

 
$
2,210.5

 
$
1,487.8

Operating income (loss)
$
428.6

 
$
(146.3
)
 
$
301.2

 
$
310.5

 
$
104.4

Income (loss) from continuing operations
$
61.7

 
$
(457.9
)
 
$
42.1

 
$
38.3

 
$
(133.4
)
Income (loss) from discontinued operations, net of income taxes
$

 
$
0.4

 
$
5.5

 
$
5.5

 
$
(122.5
)
Net income (loss) from continuing operations per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.12

 
$
(7.80
)
 
$
0.71

 
$
0.64

 
$
(2.27
)
Diluted
$
1.02

 
$
(7.80
)
 
$
0.68

 
$
0.62

 
$
(2.27
)
Other Data:
 
 
 
 
 
 
 
 
 
Capital expenditures and land additions
$
78.9

 
$
97.9

 
$
84.0

 
$
230.8

 
$
292.6

Ratio of earnings to fixed charges (f)
1.1x

 

 
1.2x

 
1.2x

 

Cash Flows Provided by (Used in):
 
 
 
 
 
 
 
 
 
Operating activities
$
285.8

 
$
255.7

 
$
408.2

 
$
328.5

 
$
161.1

Investing activities
$
(80.9
)
 
$
(195.1
)
 
$
(79.9
)
 
$
33.2

 
$
(1,842.7
)
Financing activities
$
(205.7
)
 
$
(39.6
)
 
$
(329.0
)
 
$
(395.6
)
 
$
1,778.5

Balance Sheet Data—December 31:
 
 
 
 
 
 
 
 
 
Cash, restricted cash and equivalents (g)
$
187.4

 
$
188.9

 
$
164.0

 
$
170.3

 
$
203.5

Total assets
$
3,950.2

 
$
4,077.1

 
$
4,530.9

 
$
4,802.5

 
$
5,121.7

Long-term debt less current portion
$
812.3

 
$
924.4

 
$
3,616.7

 
$
3,944.4

 
$
4,326.4

Long-term financing obligation less current portion
$
3,088.9

 
$
3,113.5

 
$

 
$

 
$

Total stockholders’ equity (deficit)
$
(321.0
)
 
$
(372.9
)
 
$
363.5

 
$
289.4

 
$
225.2

(a)
The results of operations for 2017 include the full year impact of the acquisition of the Meadows. In addition, our results of operations and financial position reflect the redemption of $193.2 million of aggregate principal amount of term loans, for a net reduction in total debt of $131.2 million under our Senior Secured Credit Facilities. In addition, our financial position reflects $49.8 million of principal payments made on the Master Lease financing obligation.
(b)
The results of operations and financial position for 2016 include the impact of the Spin-Off and Merger in April 2016; including the termination of Former Pinnacle’s amended and restated credit agreement (“Former Senior Secured Credit Facilities”), early redemption of Former Pinnacle’s senior notes and senior subordinated notes, entrance into our Senior Secured Credit Facilities and issuance of 5.625% Notes; entrance into the Master Lease, which resulted in the recognition of the financing obligation; and the acquisition of the Meadows in September 2016. In connection with these transactions, we incurred a $321.3 million impairment charge to goodwill, a $129.5 million impairment charge related to other intangible assets, a $5.2 million loss on early extinguishment of debt, $22.6 million of incremental share-based compensation expense attributable to the accelerated vesting of equity awards and $55.1 million in costs associated with the Spin-Off, Merger and the acquisition of the Meadows. Additionally, as a result of our 2016 annual assessment for impairment, we recognized impairments of goodwill and gaming licenses in the amounts of $1.2 million and $17.0 million, respectively.
(c)
The results of operations for 2015 include the impact of a $4.7 million impairment charge to goodwill, a $33.9 million impairment charge related to other intangible assets, a gain of $8.4 million related to the sale of approximately 40

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acres of land in Springfield, Massachusetts, and a gain of $4.8 million related to the sale of approximately 783 acres of excess land associated with our former Boomtown Reno operations. Our financial position reflects the redemption of $336.5 million of net aggregate principal amount of debt under the Former Senior Secured Credit Facilities during the year.
(d)
The results of operations for 2014 include the full year impact of the acquisition of Ameristar. In addition, the results of operations include Belterra Park, which opened on May 1, 2014. In addition, our results of operations and financial position reflect the redemption of $514.3 million of aggregate principal amount of term loans, for a net reduction in total debt of $401.3 million under the Former Senior Secured Credit Facilities, a portion of which resulted in an $8.2 million loss on early extinguishment of debt.
(e)
The results of operations for 2013 include the impact of the acquisition of Ameristar in August 2013. In addition, we incurred $85.3 million in costs associated with the acquisition of Ameristar, a $30.8 million loss on early extinguishment of debt, a $144.6 million charge to discontinued operations for the impairment of Lumiére Place Casino and Hotels classified as held for sale in 2013, a $10.0 million charge related to the impairment of our Boomtown Bossier City gaming license, a tax benefit from the release of $58.4 million of our valuation allowance as a result of the consolidation of our deferred tax assets with Ameristar’s deferred tax liabilities, and a $92.2 million impairment of our investment in ACDL.
(f)
In computing the ratio of earnings to fixed charges: (x) earnings were pre-tax income (loss) from continuing operations before losses from equity method investments and fixed charges, excluding capitalized interest; and (y) fixed charges were the sum of interest expense, amortization of debt issuance costs and debt discount/premium, capitalized interest and the estimated interest component included in rental expense. Due principally to large non-cash charges deducted to compute such earnings, earnings were less than fixed charges by $99.5 million and $485.9 million for the years ended December 31, 2013 and December 31, 2016, respectively.
(g)
The amount for 2013 excludes cash and cash equivalents associated with Lumiére Place Casino and Hotels, which was classified as held for sale.

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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, our audited Consolidated Financial Statements and the notes thereto, included in this Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission.

EXECUTIVE OVERVIEW

Pinnacle Entertainment, Inc. owns and operates 16 gaming, hospitality and entertainment businesses, of which 15 operate in leased facilities. Our owned facility is located in Ohio and our leased facilities are located in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada and Pennsylvania. The leased facilities located outside of Pennsylvania are subject to the Master Lease (as defined below) and our leased facility located in Pennsylvania is subject to the Meadows Lease (as defined below). References herein to “Pinnacle,” the “Company,” “we,” “our” or “us” refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where stated or the context otherwise indicates. References to “Former Pinnacle” refer to Pinnacle Entertainment, Inc. prior to the Spin-Off and Merger (as such terms are defined below).

We view each of our operating businesses as an operating segment with the exception of our two businesses in Jackpot, Nevada, which we view as one operating segment. For financial reporting purposes, we aggregate our operating segments into the following reportable segments:
Midwest segment, which includes:
Location
Ameristar Council Bluffs
Council Bluffs, Iowa
Ameristar East Chicago
East Chicago, Indiana
Ameristar Kansas City
Kansas City, Missouri
Ameristar St. Charles
St. Charles, Missouri
Belterra Resort
Florence, Indiana
Belterra Park
Cincinnati, Ohio
Meadows
Washington, Pennsylvania
River City
St. Louis, Missouri
 
 
South segment, which includes:
Location
Ameristar Vicksburg
Vicksburg, Mississippi
Boomtown Bossier City
Bossier City, Louisiana
Boomtown New Orleans
New Orleans, Louisiana
L’Auberge Baton Rouge
Baton Rouge, Louisiana
L’Auberge Lake Charles
Lake Charles, Louisiana
 
 
West segment, which includes:
Location
Ameristar Black Hawk
Black Hawk, Colorado
Cactus Petes and Horseshu
Jackpot, Nevada

All of our gaming, hospitality and entertainment businesses include gaming, food and beverage, and retail facilities, and most include hotel and resort amenities. Our operating results are highly dependent on the volume of customers at our businesses, which, in turn, affects the price we can charge for hotel rooms and other amenities. While we do provide casino credit in several gaming jurisdictions, most of our revenue is cash-based, with customers wagering with cash or paying for hospitality or entertainment services with cash or credit cards. Our businesses generate significant operating cash flow. Our industry is capital-intensive, and we rely on the ability of our businesses to generate operating cash flow to satisfy our obligations under the Master Lease and the Meadows Lease, pay interest, repay debt, and fund maintenance capital expenditures.

Our mission is to increase stockholder value. We seek to increase revenues through enhancing the guest experience by providing them with their favorite games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service and our mychoice guest loyalty program (“mychoice program”). We seek to improve cash flows by focusing on operational excellence and efficiency while trying to exceed our guests’ expectations of

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value. In making decisions, we consider our stockholders, guests, team members and other constituents in the communities in which we operate.

Proposed Company Sale

On December 17, 2017, Pinnacle entered into an Agreement and Plan of Merger (the “Penn National Merger Agreement”) with Penn National Gaming, Inc., a Pennsylvania corporation (“Penn National”), and Franchise Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Penn National (“Franchise Merger Sub”), providing for the merger of Franchise Merger Sub with and into Pinnacle (the “Proposed Company Sale”), with Pinnacle surviving the Proposed Company Sale as a wholly-owned subsidiary of Penn National.

At the effective time of the Proposed Company Sale, each share of Pinnacle common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time (other than shares held by Penn National and other than dissenting shares) will be canceled and converted automatically into the right to receive (i) $20.00 in cash (plus, if the Proposed Company Sale is not consummated on or prior to October 31, 2018, $0.01 for each day during the period commencing on November 1, 2018 through the effective time of the Proposed Company Sale) (the “Cash Consideration”) and (ii) 0.42 shares of common stock, par value $0.01 per share, of Penn National (the “Penn National Common Stock”) (together with the Cash Consideration and cash required to be paid in lieu of fractional shares of Penn National Common Stock, the “Proposed Company Sale Consideration”).

In connection with the Proposed Company Sale, Penn National entered into (i) a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Boyd Gaming Corporation (“Boyd”), to which Pinnacle will become a party immediately prior to the Proposed Company Sale, pursuant to which a subsidiary of Boyd will acquire the gaming and related operations of Ameristar St. Charles, Ameristar Kansas City, Belterra Resort and Belterra Park, in connection with the Proposed Company Sale; and (ii) definitive agreements with a subsidiary of Gaming and Leisure Properties, Inc. (“GLPI”), a Pennsylvania corporation and real estate investment trust, to which Pinnacle will become a party immediately prior to the Proposed Company Sale, pursuant to which GLPI’s subsidiary will acquire the real estate associated with Belterra Park, from Pinnacle, and Plainridge Park Casino in Plainville, Massachusetts, from Penn National. At the closing of the transactions contemplated by the Membership Interest Purchase Agreement, GLPI and Boyd will enter into a master lease agreement for the gaming operations acquired by Boyd and Penn National will assume Pinnacle’s existing Master Lease and Meadows Lease and enter into certain amendments thereto.

Completion of the Proposed Company Sale is subject to certain conditions, many of which are beyond our control, including, among others: (1) receipt of the approval of stockholders of both Penn National and Pinnacle as required for the transaction, including the approval of the issuance of Penn National’s common stock in connection with the Proposed Company Sale Consideration; (2) the absence of any injunction, restraining order or other orders or laws prohibiting the consummation of the Proposed Company Sale; (3) the expiration or termination of any waiting period applicable to the Proposed Company Sale under the Hart-Scott-Rodino Antitrust Improvement Acts of 1976, as amended; (4) the receipt of all required regulatory approvals in a timely manner (including receipt of necessary approvals from gaming regulatory authorities); (5) the registration of the shares of Penn National to be issued to stockholders of Pinnacle; and (6) the listing of the shares of Penn National on The NASDAQ Stock Market LLC. The obligation of each party to consummate the Proposed Company Sale is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect involving the other party, and the other party having performed in all material respects its obligations under the Penn National Merger Agreement. Subject to the satisfaction or waiver of the closing conditions, the Proposed Company Sale is expected to close in the second half of 2018. If the Proposed Company Sale is completed, Pinnacle stockholders will hold approximately 22% of the combined company’s outstanding shares.

If the Proposed Company Sale is not consummated on or before October 31, 2018, subject to certain limited extensions (including pursuant to Penn National’s election to extend under certain circumstances) provided in the Penn National Merger Agreement, either party may terminate the Penn National Merger Agreement. Consummation of the Proposed Company Sale is not subject to a financing condition.

There can be no assurance that the Proposed Company Sale will be completed as contemplated. Furthermore, there are a number of risks and uncertainties to our business related to the Proposed Company Sale. For additional information, please see Item 1A. “Risk Factors, Risks Relating to the Proposed Company Sale to Penn National.”


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Spin-Off and Merger

On April 28, 2016, Former Pinnacle completed the transactions under the terms of a definitive agreement with GLPI (the “GLPI Merger Agreement”). Pursuant to the terms of the GLPI Merger Agreement, Former Pinnacle separated its operating assets and liabilities (and its Belterra Park property and excess land at certain locations) into the Company, a newly formed subsidiary initially named PNK Entertainment, Inc., and distributed to its stockholders, on a pro rata basis, all of the issued and outstanding shares of common stock of the Company (such distribution referred to as the “Spin-Off”). As a result, Former Pinnacle stockholders received one share of the Company’s common stock, with a par value of $0.01 per share, for each share of Former Pinnacle common stock that they owned. Gold Merger Sub, LLC, a wholly-owned subsidiary of GLPI (“Merger Sub”), then merged with and into Former Pinnacle (the “Merger”), with Merger Sub surviving the Merger as a wholly-owned subsidiary of GLPI. Immediately following the Merger, the Company was renamed Pinnacle Entertainment, Inc., and operates its businesses under a triple-net master lease agreement for the facilities acquired by GLPI (the “Master Lease”). See “Liquidity and Capital Resources” for further discussion of the Master Lease.

In completing the Merger, each share of common stock, par value $0.10 per share, of Former Pinnacle (the “Former Pinnacle Common Stock”) issued and outstanding immediately prior to the effective time (other than shares of Former Pinnacle Common Stock (i) owned or held in treasury by Former Pinnacle or (ii) owned by GLPI, its subsidiaries or Merger Sub) was canceled and converted into the right to receive 0.85 shares of common stock, par value $0.01 per share, of GLPI.

We concluded that the spin-off of the Company should be accounted for as the reverse of its legal form under the requirements of Accounting Standards Codification (“ASC”) Subtopic 505-60, Spinoff and Reverse Spinoffs, which resulted in the Company being considered the accounting spinnor. The facilities acquired by GLPI, which are leased back by the Company under the Master Lease, did not qualify for sale-leaseback accounting. Therefore, the Master Lease is accounted for as a financing obligation and the facilities remain on the Company’s Consolidated Balance Sheets.

Acquisition of the Meadows Business and Meadows Lease

On September 9, 2016, we closed on a purchase agreement (the “Purchase Agreement”) with GLP Capital, L.P. (“GLPC”), a subsidiary of GLPI, pursuant to which we acquired all of the equity interests of The Meadows Racetrack and Casino (“Meadows”) located in Washington, Pennsylvania for base consideration of $138.0 million, subject to certain adjustments. The purchase price, after giving effect to such adjustments, was $134.0 million. As a result of the transaction, we own and operate the Meadows’ gaming, entertainment and harness racing business subject to a triple-net lease of its underlying real estate with GLPI (the “Meadows Lease”).

The Meadows Lease provides for a 10-year initial term, including renewal terms at our option, up to a total of 29 years. As of December 31, 2017, annual rent under the Meadows Lease was $25.8 million, payable in monthly installments, and comprised of a base rent of $14.4 million, which is subject to certain adjustments, and an initial percentage rent of $11.4 million. The base rent is subject to an annual escalation of up to 5% for the initial term or until the lease year in which base rent plus percentage rent is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 1.8:1 during the second year of the lease, 1.9:1 during the third year of the lease and 2.0:1 during the fourth year of the lease and thereafter. The percentage rent is fixed for the first two years and will be adjusted every two years to establish a new fixed amount for the next two-year period equal to 4% of the average annual net revenues during the trailing two-year period.

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RESULTS OF OPERATIONS
The following table highlights our results of operations for the years ended December 31, 2017, 2016 and 2015. As discussed in Note 13, “Segment Information,” to our Consolidated Financial Statements, we report segment operating results based on revenues and Adjusted EBITDAR. Such segment reporting is on a basis consistent with how we measure our business and allocate resources internally.
The following table highlights our revenues and Adjusted EBITDAR (defined below) for each segment. In addition, the following table includes a reconciliation of Income (loss) from continuing operations, which is determined in accordance with generally accepted accounting principles in the United States (“GAAP”), to Consolidated Adjusted EBITDAR (defined below) and to Consolidated Adjusted EBITDAR, net of Lease Payments (defined below), which are non-GAAP financial measures.
 
For the year ended December 31,
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(in millions, except margin)
Revenues:
 
 
 
 
 
Midwest segment (a)
$
1,547.0

 
$
1,359.9

 
$
1,265.6

South segment (a)
767.1

 
777.1

 
793.3

West segment (a)
242.2

 
236.0

 
226.6

 
2,556.3

 
2,373.0

 
2,285.5

Corporate and other (b)
5.6

 
5.9

 
6.4

      Total revenues
$
2,561.9

 
$
2,378.9

 
$
2,291.9

Adjusted EBITDAR (c):
 
 
 
 
 
Midwest segment (a)
$
439.8

 
$
402.4

 
$
379.3

South segment (a)
250.3

 
246.1

 
239.0

West segment (a)
93.1

 
88.4

 
81.7

 
783.2

 
736.9

 
700.0

Corporate expenses and other (b)
(81.3
)
 
(82.4
)
 
(83.0
)
Consolidated Adjusted EBITDAR (c)
701.9

 
654.5

 
617.0

Lease Payments (d)
(406.3
)
 
(264.0
)
 

Consolidated Adjusted EBITDA, net of Lease Payments (d)
$
295.6

 
$
390.5

 
$
617.0

 
 
 
 
 
 
Income (loss) from continuing operations
$
61.7

 
$
(457.9
)
 
$
42.1

Rent expense under the Meadows Lease
16.3

 
5.1

 

Depreciation and amortization
217.0

 
218.3

 
242.5

Pre-opening, development and other costs
9.5

 
56.0

 
14.2

Non-cash share-based compensation
14.7

 
35.5

 
17.8

Impairment of goodwill

 
322.5

 
4.7

Impairment of other intangible assets

 
146.5

 
33.9

Write-downs, reserves and recoveries, net
15.8

 
16.9

 
2.7

Interest expense, net
380.9

 
334.3

 
244.4

Loss on early extinguishment of debt
0.5

 
5.2

 

Loss from equity method investment
0.1

 
0.1

 
0.1

Income tax expense (benefit)
(14.6
)
 
(28.0
)
 
14.6

Consolidated Adjusted EBITDAR (c)
701.9

 
654.5

 
617.0

Lease Payments (d)
(406.3
)
 
(264.0
)
 

Consolidated Adjusted EBITDA, net of Lease Payments (d)
$
295.6

 
$
390.5

 
$
617.0

 
 
 
 
 
 
Income (loss) from continuing operations margin
2.4
%
 
(19.2
)%
 
1.8
%
Consolidated Adjusted EBITDAR margin (c)
27.4
%
 
27.5
 %
 
26.9
%

(a)
See “Executive Overview” section for listing of properties included in each reportable segment.


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(b)
Corporate and other includes revenues from a live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”), and management fees associated with Retama Park Racetrack, which is located outside of San Antonio, Texas. Corporate expenses represent payroll, professional fees, travel expenses and other general and administrative expenses not directly related to our casino and hotel operations. Corporate expenses that are directly attributable to a property are allocated to each applicable property. Other includes expenses relating to the operation of HPT and management of Retama Park Racetrack.

(c)
Consolidated Adjusted EBITDAR and Consolidated Adjusted EBITDAR margin are non-GAAP financial measures. We define Consolidated Adjusted EBITDAR as earnings before interest income and expense, income taxes, depreciation, amortization, rent expense associated with the Meadows Lease, pre-opening, development and other costs, non-cash share-based compensation, asset impairment costs, write-downs, reserves, recoveries, gain (loss) on sale of certain assets, loss on early extinguishment of debt, gain (loss) on sale of equity security investments, income (loss) from equity method investments, non-controlling interest and discontinued operations. We define Adjusted EBITDAR for each reportable segment as earnings before interest income and expense, income taxes, depreciation, amortization, rent expense associated with the Meadows Lease, pre-opening, development and other costs, non-cash share-based compensation, asset impairment costs, write-downs, reserves, recoveries, inter-company management fees, gain (loss) on sale of certain assets, gain (loss) on early extinguishment of debt, gain (loss) on sale of discontinued operations and discontinued operations. We define Consolidated Adjusted EBITDAR margin as Consolidated Adjusted EBITDAR divided by revenues on a consolidated basis. We define Adjusted EBITDAR margin as Adjusted EBITDAR for the segment divided by segment revenues. We use Consolidated Adjusted EBITDAR and Adjusted EBITDAR for each segment to compare operating results among our businesses and between accounting periods. Consolidated Adjusted EBITDAR and Adjusted EBITDAR have economic substance because they are used by management as measures to analyze the performance of our business and are especially relevant in evaluating large, long-lived casino-hotel 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 eliminate the results from discontinued operations at the time they are deemed discontinued. We also review pre-opening, development and other costs separately, as such expenses are also included in total project costs when assessing budgets and project returns, and because such costs relate to anticipated future revenues and income. We believe that Consolidated Adjusted EBITDAR, Consolidated Adjusted EBITDAR margin and Adjusted EBITDAR are useful measures for investors because they are indicators of the performance of ongoing business operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value of companies within our industry. In addition, Consolidated Adjusted EBITDAR approximates the measures used in the debt covenants within the Company’s debt agreements. Consolidated Adjusted EBITDAR and Adjusted EBITDAR do not include depreciation or interest expense and, therefore, do not reflect current or future capital expenditures or the cost of capital. Consolidated Adjusted EBITDAR should not be considered as an alternative to operating income (loss) as an indicator of performance, or as an alternative to any other measure provided in accordance with GAAP. Our calculations of Consolidated Adjusted EBITDAR and Adjusted EBITDAR may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

(d)
Consolidated Adjusted EBITDA, net of Lease Payments is a non-GAAP financial measure. Consolidated Adjusted EBITDA, net of Lease Payments is defined as Consolidated Adjusted EBITDAR (as defined above), less Lease Payments. The Company defines Lease Payments as lease payments made to GLPI for the Master Lease and the Meadows Lease. We believe that Consolidated Adjusted EBITDA, net of Lease Payments is a useful measure to compare operating results between accounting periods. In addition, Consolidated Adjusted EBITDA, net of Lease Payments is a useful measure for investors because it is an indicator of the performance of ongoing business operations after incorporating the cash flow obligations associated with the Master Lease and the Meadows Lease. Consolidated Adjusted EBITDA, net of Lease Payments should not be considered as an alternative to operating income (loss) as an indicator of performance, or as an alternative to any other measure provided in accordance with GAAP. Our calculations of Consolidated Adjusted EBITDA, net of Lease Payments may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

Consolidated Overview

For the year ended December 31, 2017, total revenues increased by $183.0 million, or 7.7%, year over year to $2.6 billion and income from continuing operations was $61.7 million. Consolidated Adjusted EBITDAR was $701.9 million for the year ended December 31, 2017, an increase of $47.4 million, or 7.2%, year over year and Consolidated Adjusted EBITDA, net of Lease Payments was $295.6 million. Income from continuing operations margin was 2.4% for the year ended December 31, 2017. Consolidated Adjusted EBITDAR margin for the year ended December 31, 2017, was 27.4%, representing a year over year decrease of 10 bps, which was driven by the acquisition of the Meadows.

For the year ended December 31, 2016, total revenues increased by $87.0 million, or 3.8%, year over year to $2.4 billion, loss from continuing operations was $457.9 million and Consolidated Adjusted EBITDAR was $654.5 million, an increase of $37.5 million, or 6.1%, year over year. Loss from continuing operations margin was 19.2% for the year ended December 31, 2016. Consolidated Adjusted EBITDAR margin for the year ended December 31, 2016, was 27.5%, representing a year over year increase of 60 bps.

The 2017 consolidated operating results benefited from the full year of operations at Meadows, which was acquired on September 9, 2016, and improved operating performances at L’Auberge Baton Rouge, Belterra Park, Belterra Resort, River City and Ameristar Black Hawk. The consolidated operating results were negatively impacted by lost business volume at

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L’Auberge Lake Charles, due principally to Hurricane Harvey, and at Ameristar Kansas City due to road construction surrounding the facility, and by lower gaming and hospitality volume at Ameristar Vicksburg.

The 2016 consolidated operating results were driven by the acquisition of the Meadows and improved operating performances at Belterra Park, L’Auberge Lake Charles, L’Auberge Baton Rouge, Ameristar Black Hawk and Ameristar East Chicago. A focus on growing certain revenue streams and continued focus on operational efficiencies throughout our portfolio of businesses resulted in Consolidated Adjusted EBITDAR margin improvement year over year on top of a year over year improvement achieved in the prior year. The improved operating performance, in part, due to marketing reinvestment efficiencies and other operating efficiencies, offset softness in revenue trends at certain of our businesses, particularly in the South segment. The 2016 consolidated operating results benefited from lower expense accruals from compensation program changes of $4.6 million. Non-cash impairment charges to goodwill and other intangible assets, primarily as a result of the Spin-Off and Merger, in the amounts of $322.5 million and $146.5 million, respectively, resulted in a loss from continuing operations for the year ended December 31, 2016.

We offer incentives to our guests through our mychoice program. Under the mychoice program, guests earn points based on their level of play that may be redeemed for various benefits, such as cash back, dining, or hotel stays, among others. The reward credit balance under the program will be forfeited if the guest does not earn any reward credits over the prior six-month period. In addition, based on their level of play, guests can earn additional benefits without redeeming points, such as a car lease, among other items. In January 2018, the Company implemented the mychoice program at Meadows, which previously operated its own guest loyalty program.

We accrue a liability for the estimated cost of providing these benefits as the benefits are earned. Estimates and assumptions are made regarding cost of providing the benefits, breakage rates, and the mixture of goods and services guests will choose. We use historical data to assist in the determination of estimated accruals. Changes in estimates or guest redemption habits could produce different results. As of December 31, 2017 and 2016, we had accrued $21.0 million and $25.1 million, respectively, for the estimated cost of providing these benefits. As described below in “Recently Issued Accounting Pronouncements,” the accounting related to our guest loyalty programs was impacted by the adoption of ASC 606 (as defined below) during the first quarter 2018.
 
The Company’s revenue consists mostly of gaming revenue, which is primarily from slot machines and to a lesser extent, table games. The slot revenue represented approximately 83%, 82% and 82% of gaming revenue in 2017, 2016 and 2015, respectively. In analyzing the performance of our businesses, the key indicators related to gaming revenue are slot handle and table games drop (which are volume indicators) and win or hold percentage.

Slot handle or video lottery terminal (“VLT”) handle represents the total amount wagered in a slot machine or VLT, and table games drop represents the total amount of cash and net markers issued that are deposited in gaming table drop boxes. Win represents the amount of wagers retained by us and recorded as gaming revenue, and hold represents win as a percentage of slot handle, VLT handle or table games drop. Given the stability in our slot and VLT hold percentages, we have not experienced any significant impact on our results of operations due to changes in hold percentages.

For table games, guests usually purchase cash chips at the gaming tables. The cash and markers (extensions of credit granted to certain credit-worthy guests) are deposited in the drop box of each gaming table. Table game win is the amount of drop that is retained and recorded as gaming revenue, with liabilities recognized for funds deposited by guests.


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Segment comparison of years ended December 31, 2017, 2016 and 2015

Midwest Segment 
 
 
For the year ended December 31,
 
Change
 
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except margin)
 
 
 
 
Gaming revenues
 
$
1,393.4

 
$
1,230.1

 
$
1,146.9

 
13.3
%
 
7.3
 %
Total revenues
 
$
1,547.0

 
$
1,359.9

 
$
1,265.6

 
13.8
%
 
7.5
 %
Operating income
 
$
290.6

 
$
25.5

 
$
218.9

 
NM

 
(88.4
)%
Adjusted EBITDAR
 
$
439.8

 
$
402.4

 
$
379.3

 
9.3
%
 
6.1
 %
Adjusted EBITDAR margin
 
28.4
%
 
29.6
%
 
30.0
%
 
(120) bps
 
(40) bps
NM — Not Meaningful

In the Midwest segment, total revenues increased by $187.1 million, or 13.8%, year over year to $1.5 billion and Adjusted EBITDAR increased by $37.4 million, or 9.3%, year over year to $439.8 million for the year ended December 31, 2017. For the year ended December 31, 2016, total revenues increased by $94.3 million, or 7.5%, year over year to $1.4 billion and Adjusted EBITDAR increased by $23.1 million, or 6.1%, year over year to $402.4 million. The acquisition of the Meadows on September 9, 2016 contributed $281.9 million of total revenues and $51.2 million of Adjusted EBITDAR for the year ended December 31, 2017 and $83.9 million of total revenues and $12.9 million of Adjusted EBITDAR for the year ended December 31, 2016.

As compared to the year ended December 31, 2016, the Midwest segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2017 benefited from the timing of the acquisition of the Meadows and improved operating performances at Belterra Park, where gaming and hospitality volumes have continued to ramp up and marketing efficiencies continued; Belterra Resort, where an emphasis on cash hospitality revenue streams continued; and River City, where gaming volume continued to increase and hospitality revenues increased, in part, from the ramp up of new food and beverage outlets. The Midwest segment operating results were negatively impacted by lost business volume at Ameristar Kansas City due to road construction surrounding the facility.

As compared to the year ended December 31, 2015, the Midwest segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2016 benefited from the acquisition of the Meadows and improved operating performance at Belterra Resort, Belterra Park, River City and Ameristar East Chicago, but were negatively impacted by lost business volume at Ameristar St. Charles due, in part, to highway interchange construction on Interstate 70 through its completion in November 2016. Modest growth in gaming revenues, an emphasis on cash hospitality revenue streams, and operational efficiencies resulted in improved operating performance at Belterra Resort. At Belterra Park, gaming volumes continued to ramp up and additional cost efficiencies were realized. River City experienced growth in hospitality revenue, in part, from the ramp up of new food and beverage outlets, Asian Noodle and Cibare Italian Kitchen, which opened in September 2016 and November 2016, respectively. Ameristar East Chicago benefited from cost efficiencies, particularly in hospitality.

In addition, the Midwest segment’s operating income and Adjusted EBITDAR for the year ended December 31, 2016 benefited from lower expense accruals from compensation program changes of $2.5 million. Operating income for the year ended December 31, 2016 was negatively impacted by $245.3 million in non-cash impairment of goodwill and other intangible assets as a result of an interim assessment for impairment caused by the Spin-Off and Merger and our 2016 annual assessment for impairment.


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South Segment
 
 
For the year ended December 31,
 
Change
 
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except margin)
 
 
 
 
Gaming revenues
 
$
691.1

 
$
701.0

 
$
712.4

 
(1.4
)%
 
(1.6
)%
Total revenues
 
$
767.1

 
$
777.1

 
$
793.3

 
(1.3
)%
 
(2.0
)%
Operating income (loss)
 
$
180.0

 
$
(16.7
)
 
$
150.2

 
NM

 
NM

Adjusted EBITDAR
 
$
250.3

 
$
246.1

 
$
239.0

 
1.7
 %
 
3.0
 %
Adjusted EBITDAR margin
 
32.6
%
 
31.7
%
 
30.1
%
 
90 bps
 
160 bps
NM — Not Meaningful

In the South segment, total revenues decreased by $10.0 million, or 1.3%, year over year to $767.1 million and Adjusted EBITDAR increased by $4.2 million, or 1.7%, year over year to $250.3 million for the year ended December 31, 2017. For the year ended December 31, 2016, total revenues decreased by $16.2 million, or 2.0%, year over year to $777.1 million and Adjusted EBITDAR increased by $7.1 million, or 3.0%, year over year to $246.1 million.

As compared to the year ended December 31, 2016, the South segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2017 benefited from improved operating performance at L’Auberge Baton Rouge, which continued to experience gaming revenue growth as well as achieved operational efficiencies principally relating to marketing efforts. A focus on improving operational efficiencies at L’Auberge Lake Charles largely offset lost business volume at this business principally caused by Hurricane Harvey. Ameristar Vicksburg experienced lower gaming and hospitality volume during the year ended December 31, 2017.

As compared to the year ended December 31, 2015, the South segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2016 were driven by improved operating performances at L’Auberge Baton Rouge and L’Auberge Lake Charles. The operating results at L’Auberge Lake Charles stabilized and begun to recover since the opening of a new competitor in December 2014, which added gaming and hotel capacity to the Lake Charles market. Ameristar Vicksburg, Boomtown Bossier City and Boomtown New Orleans experienced softness in revenue trends, which partially offset the improved operating performances at L’Auberge Baton Rouge and L’Auberge Lake Charles. In addition to increased operational efficiencies, particularly at L’Auberge Baton Rouge and L’Auberge Lake Charles, Adjusted EBITDAR for the year ended December 31, 2016 benefited from lower expense accruals from compensation program changes of $1.1 million. Non-cash impairment of goodwill and other intangible assets in the amount of $179.9 million, which was the result of an interim assessment for impairment caused by the Spin-Off and Merger, resulted in an operating loss for the year ended December 31, 2016.

West Segment
 
 
For the year ended December 31,
 
Change
 
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except margin)
 
 
 
 
Gaming revenues
 
$
202.4

 
$
196.9

 
$
189.0

 
2.8
%
 
4.2
 %
Total revenues
 
$
242.2

 
$
236.0

 
$
226.6

 
2.6
%
 
4.1
 %
Operating income
 
$
72.0

 
$
25.2

 
$
56.0

 
NM

 
(55.0
)%
Adjusted EBITDAR
 
$
93.1

 
$
88.4

 
$
81.7

 
5.3
%
 
8.2
 %
Adjusted EBITDAR margin
 
38.4
%
 
37.5
%
 
36.1
%
 
90 bps
 
140 bps
NM — Not Meaningful

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In the West segment, total revenues increased by $6.2 million, or 2.6%, year over year to $242.2 million and Adjusted EBITDAR increased by $4.7 million, or 5.3%, year over year to $93.1 million for the year ended December 31, 2017. For the year ended December 31, 2016, total revenues increased by $9.4 million, or 4.1%, year over year to $236.0 million and Adjusted EBITDAR increased by $6.7 million, or 8.2%, year over year to $88.4 million.

As compared to the year ended December 31, 2016, the West segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2017 were positively impacted by the operating performance at Ameristar Black Hawk, which continued to experience visitation and volume growth.

As compared to the year ended December 31, 2015, the West segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2016 were driven by improved visitation and volume at Ameristar Black Hawk and the Jackpot Properties as well as continued operational efficiencies. In addition, the West segment’s operating results benefited from the opening of the newly renovated buffet at Cactus Petes in April 2016 and lower expense accruals from compensation program changes of $0.4 million. Operating income for the year ended December 31, 2016 was negatively impacted by a $42.6 million non-cash impairment of goodwill and other intangible assets as a result of an interim assessment for impairment caused by the Spin-Off and Merger.

Other factors affecting income (loss) from continuing operations
 
 
For the year ended December 31,
 
Change
 
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
Other benefits (costs):
 
 
 
 
 
 
 
 
 
 
Corporate expenses and other
 
$
(81.3
)
 
$
(82.4
)
 
$
(83.0
)
 
(1.3
)%
 
(0.7
)%
Rent expense under the Meadows Lease
 
$
(16.3
)
 
$
(5.1
)
 
$

 
NM

 
NM

Depreciation and amortization expense
 
$
(217.0
)
 
$
(218.3
)
 
$
(242.5
)
 
(0.6
)%
 
(10.0
)%
Pre-opening, development and other costs
 
$
(9.5
)
 
$
(56.0
)
 
$
(14.2
)
 
(83.0
)%
 
NM

Share-based compensation expense
 
$
(14.7
)
 
$
(35.5
)
 
$
(17.8
)
 
(58.6
)%
 
99.4
 %
Impairment of goodwill
 
$

 
$
(322.5
)
 
$
(4.7
)
 
NM

 
NM

Impairment of other intangible assets
 
$

 
$
(146.5
)
 
$
(33.9
)
 
NM

 
NM

Write-downs, reserves and recoveries, net
 
$
(15.8
)
 
$
(16.9
)
 
$
(2.7
)
 
(6.5
)%
 
NM

Interest expense, net
 
$
(380.9
)
 
$
(334.3
)
 
$
(244.4
)
 
13.9
 %
 
36.8
 %
Loss on early extinguishment of debt
 
$
(0.5
)
 
$
(5.2
)
 
$

 
(90.4
)%
 
NM

Loss from equity method investment
 
$
(0.1
)
 
$
(0.1
)
 
$
(0.1
)
 
 %
 
 %
Income tax benefit (expense)
 
$
14.6

 
$
28.0

 
$
(14.6
)
 
(47.9
)%
 
NM

NM — Not Meaningful

Corporate expenses and other is principally comprised of corporate overhead expense, HPT and the management of Retama Park Racetrack. Corporate overhead expense decreased by $1.1 million year over year to $81.3 million for the year ended December 31, 2017 primarily attributable to lower legal settlement accruals. The decrease in corporate overhead expense of $0.6 million year over year to $82.4 million for the year ended December 31, 2016 was primarily driven by lower professional services and by a decrease in expense accruals from compensation program changes of $0.6 million.

Rent expense under the Meadows Lease for the years ended December 31, 2017 and 2016, increased as compared to the respective prior years as a result of the timing of the acquisition of Meadows and the commencement of the Meadows Lease, which occurred on September 9, 2016.

Depreciation and amortization expense decreased for the years ended December 31, 2017 and 2016, as compared to the respective prior years primarily as a result of decreases caused by the timing of furniture, fixtures and equipment becoming fully depreciated and the accelerated method of amortization on our player relationships, partially offset by the increases attributable to the timing of the acquisition of Meadows, which occurred on September 9, 2016.

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As a result of the Spin-Off and Merger, substantially all of the land, buildings, vessels and associated improvements used in the Company’s operations and included in our Consolidated Balance Sheets are subject to the Master Lease and owned by GLPI. Furthermore, these assets continue to be depreciated consistent with treatment prior to the Spin-Off and Merger.
Pre-opening, development and other costs consisted of the following:
 
 
For the year ended December 31,
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions)
Proposed Company Sale costs (1)
 
$
6.9

 
$

 
$

Spin-Off and Merger costs (1)
 
0.9

 
48.7

 
12.2

Meadows acquisition costs (1)
 
0.2

 
6.4

 

Other
 
1.5

 
0.9

 
2.0

Total pre-opening, development and other costs
 
$
9.5

 
$
56.0

 
$
14.2

(1)
Amounts comprised principally of legal, advisory and other costs associated with each of these transactions.

Share-based compensation expense decreased as compared to the prior year for the year ended December 31, 2017, and increased as compared to the prior year for the year ended December 31, 2016, primarily due to the $22.6 million of incremental expense attributable to the accelerated vesting of share-based payment awards as a result of the Spin-Off and Merger, which was included in the year ended December 31, 2016.

Impairment of goodwill for the year ended December 31, 2016 included a non-cash impairment charge of $321.3 million as a result of an interim assessment for impairment. Given that the Spin-Off and Merger transactions represented a significant financial restructuring event that increased our cash flow obligations in connection with the Master Lease, we concluded that an indicator of impairment existed as of April 28, 2016, the closing date of the transactions. Additionally, the year ended December 31, 2016 included a $1.2 million non-cash impairment charge at HPT as a result of our 2016 annual assessment for impairment.

During the year ended December 31, 2015, as a result of separate interim assessments for impairment, we recognized non-cash impairments of the goodwill of Pinnacle Retama Partners, LLC (“PRP”) and HPT in the amounts of $3.3 million and $1.4 million, respectively. For PRP, we determined that there was an indicator that impairment may exist on its goodwill and other intangible assets as a result of the lack of legislative progress and on-going negative operating results at Retama Park Racetrack. For HPT, we determined that there was an indicator that impairment may exist on its goodwill and other intangible assets due to its operating performance.
Impairment of other intangible assets for the year ended December 31, 2016 consisted of non-cash impairment charges to gaming licenses and trade names, in the amounts of $85.5 million and $61.0 million, respectively. Of the $85.5 million, $68.5 million was the result of an interim assessment for impairment performed as of April 28, 2016 due to the Spin-Off and Merger and $17.0 million was the result of our 2016 annual assessment for impairment. The gaming license impairments pertained to our Midwest segment and the trade name impairments related to our Midwest, South and West segments, in the amounts of $35.3 million, $22.2 million and $3.5 million, respectively.

During the year ended December 31, 2015, as a result of our 2015 annual assessment for impairment, we recognized non-cash impairments of a gaming license and a trade name in the amounts of $27.5 million and $0.5 million, respectively. The gaming license impairment, which pertained to our Midwest segment, was primarily driven by the operating results of one of our businesses being below expectations, which resulted in revisions to our long-term operating projections for this business. The trade name impairment, which pertained to our West segment, was primarily the result of updated assumptions used in the analysis, such as the discount rate.
During the year ended December 31, 2015, as a result of separate interim assessments for impairment, we recognized non-cash impairments of the racing license of Retama Park Racetrack, the HPT trade name and the HPT player relationship, in the amounts of $5.0 million, $0.2 million and $0.7 million, respectively.

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Write-downs, reserves and recoveries, net, consisted of the following:
 
 
For the year ended December 31,
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions)
Loss on disposals of long-lived assets, net
 
$
10.2

 
$
16.2

 
$
0.3

Impairment of held-to-maturity securities
 
3.8

 

 

Impairment of long-lived assets
 
0.1

 
0.2

 
3.2

Other
 
1.7

 
0.5

 
(0.8
)
Write-downs, reserves and recoveries, net
 
$
15.8

 
$
16.9

 
$
2.7


Loss on disposals of long-lived assets, net: During the years ended December 31, 2017, 2016 and 2015, we recorded net losses of $10.2 million, $16.2 million and $8.7 million, respectively, related primarily to disposals of furniture, fixtures and equipment at the properties in the normal course of business. Additionally, during the year ended December 31, 2015, we recorded a gain on the sale of land in Springfield, Massachusetts, originally purchased by Ameristar Casinos, Inc., for a possible future casino resort of $8.4 million.

Impairment of held-to-maturity securities: During the year ended December 31, 2017, as a result of the lack of legislative progress and on-going negative operating results at Retama Park Racetrack, we recorded an other-than-temporary impairment on our local government corporation bonds issued by Retama Development Corporation, a local government corporation of the City of Selma, Texas.

Impairment of long-lived assets: During the years ended December 31, 2017, 2016 and 2015, we recorded non-cash impairments of furniture, fixtures and equipment at the properties in the normal course of business. Additionally, during the year ended December 31, 2015, we recorded a total of $3.0 million in non-cash impairment charges on land in Central City, Colorado.
Interest expense, net, was as follows:
 
 
For the year ended December 31,
 
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in millions)
Interest expense from financing obligation (1)
 
$
331.1

 
$
225.1

 
$

Interest expense from debt (2)
 
50.3

 
108.0

 
244.7

Interest income
 
(0.4
)
 
(0.4
)
 
(0.3
)
Capitalized interest
 
(0.1
)
 
(0.1
)
 

Other (3)
 

 
1.7

 

Interest expense, net
 
$
380.9

 
$
334.3

 
$
244.4

(1)
Total payments under the Master Lease, which commenced on April 28, 2016, for the years ended December 31, 2017 and 2016, were $380.9 million and $256.1 million, respectively.
(2)
Interest expense associated with the Former Senior Secured Credit Facilities, the 6.375% Notes, the 7.50% Notes, the 7.75% Notes, and the 8.75% Notes (as such terms are defined in the “Liquidity and Capital Resources” section below), which were no longer obligations of the Company as of April 28, 2016, included in the year ended December 31, 2016 was $76.5 million.
(3)
Represents a nonrecurring expense associated with the Spin-Off and Merger.

For the years ended December 31, 2017 and 2016, interest expense, net, increased as compared to the respective prior years due principally to the increases in interest expense associated with the Master Lease financing obligation, which offset the decreases in interest expense incurred related to our debt borrowings.
 
Loss on early extinguishment of debt for the years ended December 31, 2017 and 2016, related to the repayments, in full, of the Term Loan B Facility (as defined in the “Liquidity and Capital Resources” section below) and the Former Senior Secured Credit Facilities, respectively. The losses included the write-off of previously unamortized debt issuance costs and original issuance discount.

Loss on equity method investment represents losses recognized for the years ended December 31, 2017, 2016 and 2015, for our allocable share of an investment in a land re-vitalization project in downtown St. Louis.

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Income tax benefit for the year ended December 31, 2017 was $14.6 million, as compared to income tax benefit of $28.0 million and income tax expense of $14.6 million for the years ended December 31, 2016, and 2015, respectively. For the years ended December 31, 2017, 2016 and 2015, the effective tax rates were (31.0)%, 5.8% and 25.7%, respectively. The Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017, significantly revised U.S. corporate income tax law by, among other things, reducing the federal corporate income tax rate from 35% to 21% and granting indefinite carry-forward of net operating losses generated on or after January 1, 2018. The Tax Act also imposed a new minimum tax on global intangible low-taxed income and implemented a modified territorial tax system that included a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, neither of which significantly impacted the Company upon enactment.

Our effective tax rate for the year ended December 31, 2017 was impacted by a one-time benefit from the Tax Act of $21.5 million, principally as a result of the revaluation of our deferred tax assets and liabilities and the change in net operating loss carry-forward rules. Our effective tax rate for the year ended December 31, 2016 was impacted by the non-cash impairments of goodwill and other intangible assets, principally as a result of the Spin-Off and Merger. Our effective tax rate may differ from the expected federal statutory tax rate due to the effect of permanent items, the recording of valuation allowance releases, deferred tax expense on tax amortization of indefinite-lived intangible assets, state taxes and reserves for unrecognized tax benefits.

The Spin-Off described in the “Executive Overview” was a taxable transaction whereby a gain was recognized for tax purposes and the tax bases of the operating assets were stepped up to fair market value at the time of the transaction. Pursuant to ASC Topic 740, Income Taxes, the tax impact directly related to the transaction amongst stockholders was recorded to equity, consistent with the overall accounting treatment of the transaction. All changes in tax bases of assets and liabilities caused by the transactions were recorded to additional paid-in capital. Furthermore, as previously noted, the gaming facilities leased from GLPI are presented on the Company’s Consolidated Balance Sheets at historical cost, net of accumulated depreciation, and the Master Lease is accounted for as a financing obligation. However, for federal and state income tax purposes, the Master Lease is considered an operating lease. As such, the Company does not recognize any tax bases in the leased gaming facilities, which creates basis differences that give rise to deferred income taxes.

Discontinued operations

Income from discontinued operations, net of income taxes, for the years ended December 31, 2016 and 2015 was $0.4 million and $5.5 million, respectively. These amounts are attributable to the deferred consideration received in the form of a note from the buyer of the equity interests of our subsidiary, which was constructing the Ameristar Lake Charles development project, and to the gain on disposition of excess land associated with our former Boomtown Reno operations.

LIQUIDITY AND CAPITAL RESOURCES

We generally produce significant positive cash flows from operations, though this is not always reflected in our reported net income (loss) due to large non-cash charges, such as impairment of goodwill and other intangible assets and depreciation. However, our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, funding of construction of development projects, and our compliance with covenants contained in our debt agreements. As of December 31, 2017, we held $184.2 million of cash and cash equivalents. As of December 31, 2017, we had $169.2 million drawn on our $400.0 million Revolving Credit Facility (as defined below) and had $9.2 million committed under various letters of credit.
 
For the year ended December 31,
 
Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
Net cash provided by operating activities
$
285.8

 
$
255.7

 
$
408.2

 
11.8
 %
 
(37.4
)%
Net cash used in investing activities
$
(80.9
)
 
$
(195.1
)
 
$
(79.9
)
 
(58.5
)%
 
NM

Net cash used in financing activities
$
(205.7
)
 
$
(39.6
)
 
$
(329.0
)
 
NM

 
(88.0
)%
NM — Not Meaningful
Operating Cash Flow
Our net cash provided by operating activities for the year ended December 31, 2017, as compared to the prior year, increased due to the Meadows, expenses and other costs associated with the completion of the Spin-Off and Merger incurred in

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the prior year, and a $71.3 million decrease in interest payments made on long-term debt, offset by an increase in interest payments made on the Master Lease financing obligation of $106.0 million and an increase in lease payments made under the Meadows Lease of $17.5 million. Additionally, net cash payments related to income taxes for the year ended December 31, 2017 decreased by $8.7 million, as compared to the prior year.
Our net cash provided by operating activities for the year ended December 31, 2016, as compared to the prior year, decreased due primarily to the interest payments made on the Master Lease financing obligation of $225.1 million; expenses and other costs associated with the completion of the Spin-Off and Merger, including costs to obtain financing; acquisition costs related to the Meadows; and the timing of payments and receipts of working capital items, offset by a $118.4 million decrease in interest payments made on long-term debt and the increase attributable to improved operating results. Additionally, for the year ended December 31, 2016, net cash payments related to income taxes were $12.5 million, as compared to the prior year, in which we received $17.3 million of net cash refunds related to income taxes.
Investing Cash Flow
Our net cash used in investing activities for the year ended December 31, 2017 decreased as compared to the prior year and increased for the year ended December 31, 2016, as compared to the prior year, principally as a result of the acquisition of the Meadows on September 9, 2016. The cash paid for the Meadows business, net of cash acquired, was $107.5 million.
The following is a summary of our capital expenditures by segment:
 
For the year ended December 31,
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
(in millions)
Midwest segment
$
42.7

 
$
56.3

 
$
45.6

South segment
23.0

 
27.7

 
24.1

West segment
5.7

 
10.6

 
9.9

Other
7.5

 
3.3

 
4.4

Total capital expenditures
$
78.9

 
$
97.9

 
$
84.0


During the year ended December 31, 2016, we received $0.3 million in net proceeds from the disposition of land in Central City, Colorado, and $10.0 million from the collection of deferred consideration in the form of a note receivable relating to the disposition of Ameristar Lake Charles, which was sold in November 2013. During the year ended December 31, 2015, we made our final installment payment of $25.0 million for Belterra Park’s VLT license and received $25.1 million in combined net proceeds from the dispositions of land in Springfield, Massachusetts, and Reno,