UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
FORM 10-K
For the transition period from to
Commission file number 0-24206
Penn National Gaming, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
825 Berkshire Blvd., Suite 200
Wyomissing, Pennsylvania
(Address of principal executive offices)
23-2234473
(I.R.S. Employer
Identification No.)
19610
(Zip Code)
Registrant’s telephone number, including area code: (610) 373-2400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:134)
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 (cid:134) No (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports 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 (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-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 (cid:95) No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:95)(cid:3)
Accelerated filer (cid:133)
Non-accelerated filer (cid:133)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:133)
Emerging growth company (cid:133)
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. (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
As of June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value
of the voting common stock held by non-affiliates of the registrant was approximately $1.81 billion. Such aggregate market value was computed
by reference to the closing price of the common stock as reported on the NASDAQ Global Select Market on June 30, 2017.
The number of shares of the registrant’s common stock outstanding as of February 15, 2018 was 91,674,552.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2018 annual meeting of shareholders are incorporated by reference into
Part III.
TABLE OF CONTENTS
Page
PART I(cid:3)
ITEM 1. (cid:3) BUSINESS ................................................................................................................................................ 1(cid:3)
ITEM 1A.(cid:3) RISK FACTORS .................................................................................................................................... 18(cid:3)
ITEM 1B.(cid:3) UNRESOLVED STAFF COMMENTS ................................................................................................. 34(cid:3)
PROPERTIES .......................................................................................................................................... 34(cid:3)
ITEM 2.(cid:3)
ITEM 3.(cid:3)
LEGAL PROCEEDINGS ........................................................................................................................ 37(cid:3)
ITEM 4.(cid:3) MINE SAFETY DISCLOSURES ........................................................................................................... 37(cid:3)
PART II(cid:3)
ITEM 5. (cid:3) MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ................................................. 38(cid:3)
SELECTED FINANCIAL DATA ........................................................................................................... 40(cid:3)
ITEM 6.(cid:3)
ITEM 7.(cid:3) MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................................................................................ 42(cid:3)
ITEM 7A.(cid:3) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ....................... 73(cid:3)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................................................ 74(cid:3)
ITEM 8.(cid:3)
ITEM 9.(cid:3)
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................................................................................... 131(cid:3)
ITEM 9A.(cid:3) CONTROLS AND PROCEDURES ..................................................................................................... 131(cid:3)
ITEM 9B.(cid:3) OTHER INFORMATION .................................................................................................................... 135(cid:3)
PART III(cid:3)
ITEM 10. (cid:3) DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ............................... 135(cid:3)
ITEM 11.(cid:3) EXECUTIVE COMPENSATION ......................................................................................................... 135(cid:3)
ITEM 12.(cid:3) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDERS MATTERS ............................................................................... 135(cid:3)
ITEM 13.(cid:3) CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE ................................................................................................................................. 135(cid:3)
ITEM 14.(cid:3) PRINCIPAL ACCOUNTING FEES AND SERVICES ........................................................................ 135(cid:3)
PART IV(cid:3)
ITEM 15. (cid:3) EXHIBITS, FINANCIAL STATEMENT SCHEDULES ..................................................................... 136(cid:3)
ITEM 16.(cid:3) SUMMARY INFORMATION .............................................................................................................. 136(cid:3)
i
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
This document includes “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements
are included throughout the document, including the section entitled “Risk Factors,” and relate to our business
strategy, our prospects and our financial position. These statements can be identified by the use of forward-looking
terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “seeks,” “may,” “will,”
“should” or “anticipates” or the negative or other variation of these or similar words, or by discussions of future
events, strategies or risks and uncertainties. In addition, forward-looking statements in this document include
information regarding our proposed acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), the potential effects of
the pending acquisition on our business and operations prior to the consummation thereof, the effects on Penn
National Gaming, Inc. (“Penn”) and its subsidiaries (together with Penn, collectively, the “Company”) if the
acquisition is not consummated and information regarding the combined operations and business of the Company
and Pinnacle following the acquisition, if consummated. Specifically, forward-looking statements may include,
among others, statements concerning:
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(cid:120)
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the combination of our business and operations with Pinnacle’s operations and business;
the financing, timing of, and our expectations regarding, the completion of our acquisition of Pinnacle;
the real estate sales and divestitures anticipated to be required in order to complete our acquisition of
Pinnacle;
potential litigation relating to the acquisition of Pinnacle;
our expectations of future results of operations or financial condition;
our expectations for our operating properties or our development projects;
the timing, cost and expected impact of planned capital expenditures on our results of operations;
the impact of our geographic diversification;
our expectations with regard to the impact of competition;
our expectations with regard to further acquisitions and development opportunities, as well as the
integration and ultimate results of any companies we have acquired or may acquire;
the outcome and financial impact of the litigation in which we are or will be periodically involved;
the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level
with regard to our business and new business lines and the impact of any such actions;
our ability to maintain regulatory approvals for our existing businesses and to receive regulatory
approvals for our new businesses;
our expectations regarding economic and consumer conditions;
our expectations for the continued availability and cost of capital;
our expectations with respect to the termination of our management service contract for Casino Rama;
and
our expectations regarding the impact of the Tax Cuts and Jobs Act (the “Act”) on our net deferred tax
assets and our tax expense with respect the repatriation of foreign earnings.
ii
Although the Company believes that the expectations reflected in such forward-looking statements are
reasonable, they are inherently subject to risks, uncertainties and assumptions about our subsidiaries and us. There
can be no assurance that actual results will not differ materially from our expectations, and accordingly, our
forward-looking statements are qualified in their entirety by reference to the factors described below and in the
information incorporated by reference herein. Meaningful factors that could cause actual results to differ materially
from the forward-looking statements include, without limitation, risks related to the following:
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the ability of our operating teams to drive revenue and adjusted EBITDA margins at existing and
recently acquired/opened properties;
the impact of significant competition from other gaming and entertainment operations;
our ability to obtain timely regulatory approvals required to own, develop and/or operate our facilities,
or other delays, approvals or impediments to completing our planned acquisitions or projects, such as
construction factors, including delays, unexpected remediation costs, local opposition, organized labor,
and increased cost of labor and materials;
the passage of state, federal or local legislation (including referenda) that would expand, restrict,
further tax, prevent or negatively impact operations in or adjacent to the jurisdictions in which we do
or seek to do business (such as a smoking ban at any of our facilities);
our ability to maintain agreements with our horsemen, pari-mutuel clerks and other organized labor
groups;
the effects of local and national economic, credit, capital market, housing, and energy conditions on
the economy in general and on the gaming and lodging industries in particular;
the activities of our competitors and the continued increase of new competitors (traditional, internet,
social, sweepstakes based and video gaming terminals (“VGTs”) in bars, truck stops and other retail
establishments);
increases in the effective rate of taxation at any of our properties or at the corporate level;
our ability to identify attractive acquisition and development opportunities (especially in new business
lines) and to agree to terms with, and maintain good relationships with partners/municipalities for such
transactions;
the costs and risks involved in the pursuit of such opportunities and our ability to complete the
acquisition or development of, and achieve the expected returns from, such opportunities;
our ability to maintain market share in established markets and ramp up operations at our recently
opened facilities;
our expectations for the continued availability and cost of capital;
the impact of weather;
the outcome of pending legal proceedings;
changes in accounting standards;
the risk of failing to maintain the integrity of our information technology infrastructure and safeguard
our business, employee and customer data;
our ability to generate sufficient future taxable income to realize our deferred tax assets;
iii
(cid:120) with respect to our loan and related funding commitments to the Jamul Indian Village Development
Corporation, particular risks associated with the collectability of our loan and the risk of future
impairment charges as well as the risks associated with the pending termination of our management,
license and development agreements;
(cid:120) with respect to our Plainridge Park Casino in Massachusetts, the ultimate location and timing of the
other gaming facilities in the state and the region;
(cid:120) with respect to our social and other interactive gaming endeavors, risks related to the social gaming
industry, employee retention, cyber-security, data privacy, intellectual property and legal and
regulatory challenges, increasing competition as well as our ability to successfully develop innovative
new games that attract and retain a significant number of players in order to grow our revenues and
earnings;
(cid:120) with respect to Illinois Gaming Investors, LLC (d/b/a Prairie State Gaming), risks relating to recent
acquisitions of additional assets and the integration of such acquisitions, our ability to successfully
compete in the VGT market, our ability to retain existing customers and secure new customers, risks
relating to municipal authorization of VGT operations and the implementation and the ultimate success
of the products and services being offered;
(cid:120) with respect to recent gaming expansion anticipated in Pennsylvania, including our recently awarded
Category 4 license in York County, risks related to the potential cannibalization to Hollywood Casino
at Penn National Race Course and Hollywood Gaming at Mahoning Valley Race Course, ongoing
litigation surrounding Pennsylvania’s gaming expansion legislation and the ultimate location of other
gaming facilities in the Commonwealth;
(cid:120) with respect to our proposed acquisition of Pinnacle, risks relating to the integration of the businesses
and assets to be acquired, the possibility that the proposed transaction does not close when expected or
at all because of required regulatory, shareholder or other approvals that are not received or other
conditions to the closing that are not satisfied on a timely basis or at all, the risk that the financing
required to fund the transaction is not obtained on the terms anticipated or at all, the possibility that the
transactions involving Boyd Gaming Corporation and/or Gaming and Leisure Properties, Inc. do not
close in a timely fashion or at all, potential adverse reactions or changes to the business or employee
relationships, potential litigation challenging the transaction, the possibility that the anticipated
benefits of the transaction are not realized when expected or at all, the possibility that additional
divestitures may be required, and the possibility that the transaction may be more expensive than
anticipated; and
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other factors included under the heading “Risk Factors” in this Annual Report on Form 10-K or
discussed in our filings with the U.S. Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements included in this document. We undertake
no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this document may not occur.
iv
ITEM 1. BUSINESS
Overview
PART I
Penn National Gaming, Inc. (“Penn”) and together with its subsidiaries (collectively, the “Company,”
“we,” “our”or “us”) is a leading, geographically diversified, multi-jurisdictional owner and manager of gaming and
racing facilities and video gaming terminal operations with a focus on slot machine entertainment. The Company
was incorporated in Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company
became a publicly traded company. In 1997, we began our transition from a pari-mutuel company to a diversified
gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals
in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions,
greenfield projects, and property expansions. For example, in 2015, we opened Plainridge Park Casino, an
integrated racing and slots-only gaming facility in Plainville, Massachusetts in June, completed the acquisition of
our first Las Vegas strip asset, Tropicana Hotel and Casino (“Tropicana Las Vegas”) in Las Vegas, Nevada in
August, and acquired Illinois Gaming Investors LLC (d/b/a Prairie State Gaming, (“Prairie State Gaming”) one of
the largest video gaming terminal route operators in Illinois, in September.
In 2016, our subsidiary, Prairie State Gaming, acquired two small video gaming terminal route operators in
Illinois. We have also recently implemented our interactive gaming strategy through our subsidiary, Penn
Interactive Ventures, LLC (“Penn Interactive Ventures”) which included launching our HollywoodCasino.com
Play4Fun social gaming platform with Scientific Games and on August 1, 2016, we enhanced our social gaming
offerings with the acquisition of Rocket Speed, Inc. (“Rocket Speed”)), a leading developer of social casino games.
On May 1, 2017, we completed our acquisition of 1st Jackpot Casino Tunica (formerly known as Bally’s Casino
Tunica, (“1st Jackpot”)) and Resorts Casino Tunica (“Resorts”). In the first half of 2017, our subsidiary, Prairie
State Gaming acquired the assets of two additional smaller video gaming terminal operators in Illinois.
Anticipated Acquisition of Pinnacle
On December 17, 2017, the Company entered into an agreement to acquire Pinnacle Entertainment, Inc., a
leading regional gaming operator. This transaction, which is expected to close in the second half of 2018 (subject to
receipt of all required regulatory approvals and the satisfaction of other conditions to closing), is expected to add
eleven more properties to our holdings and to provide greater operational scale and geographic diversity.
We believe that our portfolio of assets provides us the benefit of a geographically diversified cash flow
from operations. We expect to continue to expand our gaming operations through the implementation and execution
of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and the
development of new gaming properties, particularly in attractive regional markets.
In this Annual Report on Form 10-K, the terms “we,” “us,” “our,” the “Company” and “Penn” refer to Penn
National Gaming, Inc. and its subsidiaries, unless the context indicates otherwise.
Master Lease
On November 1, 2013, the Company completed its plan to separate its gaming operating assets from its real
property assets by creating a newly formed, publicly traded real estate investment trust (“REIT”), known as Gaming
and Leisure Properties, Inc. (“GLPI”), through a tax free spin-off (the “Spin-Off”).
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets as of such
date and leases back those assets (other than Hollywood Casino Baton Rouge and Hollywood Casino Perryville, the
“TRS Properties”) to Penn for use by its subsidiaries, under a “triple net” master lease agreement (the “Master
Lease”) (which has a fifteen-year initial term that can be extended at Penn’s option for up to four five-year renewal
terms). Penn continues to operate the leased gaming facilities and holds the gaming licenses associated with these
1
facilities. The TRS Properties were transferred to GLPI in connection with the Spin-Off and the financial results
from these properties were included in discontinued operations for 2013.
As of December 31, 2017, the Company leased from GLPI real property assets associated with twenty of
the Company’s gaming and related facilities used in the Company’s operations. The following summary of the
Master Lease is qualified in its entirety by reference to the Master Lease and subsequent amendments, each of which
has been filed with the U.S. Securities and Exchange Commission. It was determined that the Master Lease did not
meet the requirements of a normal leaseback under Accounting Standards Codification (“ASC”) 840 “Leases” due
to prohibited forms of continuing involvement and is therefore accounted for as a financing obligation.
The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed
component, a portion of which is subject to an annual escalator of up to 2% if certain coverage ratio thresholds are
met, and a component that is based on the performance of the facilities, which is prospectively adjusted, subject to a
floor of zero (i) every five years by an amount equal to 4% of the average change to net revenues of all facilities
under the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the
preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood
Casino Columbus and Hollywood Casino Toledo during the preceding month. In addition, with the openings of
Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course in the third
quarter of 2014, our annual payment related to the Master Lease increased by approximately $19 million, which
approximates 10% of the real estate construction costs paid for by GLPI related to these facilities.
In April 2014, we entered into an amendment to the Master Lease in order to revise certain provisions
relating to our Sioux City property. In accordance with that amendment, upon the cessation of gaming operations at
Argosy Casino Sioux City on July 30, 2014, due to the termination of its gaming license, the annual payment to
GLPI was reduced by $6.2 million.
On May 1, 2017, following the acquisition of RIH Acquisitions MS I, LLC and RIH Acquisitions MS II,
LLC, the holding companies for the gaming operations of 1st Jackpot and Resorts in Tunica, Mississippi, an
amendment to the Master Lease was entered into in order to add the two additional facilities. The Company is
operating both of these casino properties and it leases the underlying real estate associated with these two businesses
from GLPI with a total initial annual payment of $9.0 million subject to the provisions included in the terms of the
Master Lease. The transaction increased the Company’s Master Lease financing obligation by $82.6 million on the
acquisition date, which represents the purchase price GLPI paid for the underlying real estate assets.
The Master Lease is commonly known as a triple-net lease. Accordingly, in addition to financing obligation
payments, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all
insurance required in connection with the leased properties and the business conducted on the leased properties;
(3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all
utilities and other services necessary or appropriate for the leased properties and the business conducted on the
leased properties.
At the Company’s option, the Master Lease may be extended for up to four five-year renewal terms beyond
the initial fifteen-year term, on the same terms and conditions. If we elect to renew the term of the Master Lease, the
renewal will be effective as to all, but not less than all, of the leased property then subject to the Master Lease,
provided that the final renewal option shall only be exercisable with respect to certain of the barge-based facilities—
i.e., facilities where barges serve as foundations upon which buildings are constructed to serve as gaming or related
facilities or serve ancillary purposes such as access platforms or shear barges to protect a gaming facility from
floating debris—following an independent third party expert’s review of the total useful life of the applicable
barged-based facility measured from the beginning of the initial term. If the final five-year renewal term would not
cause the aggregate term to exceed 80% of the useful life of such facility, the facility shall be included in the
five-year renewal. In the event that a five-year renewal of such facility would cause it to exceed 80% of the
estimated useful life, such facility shall be included in the renewal for the period of time equal to but not exceeding
80% of the estimated useful life.
2
We do not have the ability to terminate our obligations under the Master Lease prior to its expiration
without GLPI’s consent. If the Master Lease is terminated prior to its expiration other than with GLPI’s consent, we
may be liable for damages and incur charges such as continued lease payments through the end of the lease term and
maintenance costs for the leased property.
Segment Information
The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker
(“CODM”), as that term is defined in ASC 280 “Segment Reporting”, measures and assesses the Company’s
business performance based on regional operations of various properties grouped together based primarily on their
geographic locations.
The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town
Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo,
Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley
Race Course, and Plainridge Park Casino. It also includes the Company’s Casino Rama management service
contract.
The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood
Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, 1st Jackpot and
Resorts which were acquired on May 1, 2017, as well as our management contract with Hollywood Casino Jamul-
San Diego. In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer
manage the facility or provide branding and development services on May 28, 2018. The company will provide a
transition that it anticipates will last through approximately late May.
The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora,
Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg,
Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on September 1, 2015, and
includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the
Hollywood Casino at Kansas Speedway.
The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway,
which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam
Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming
operations at these locations, they would be assigned to one of the Company’s regional executives and reported in
their respective reportable segment. The Other category also includes the Company’s corporate overhead operations,
which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category
includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming
initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under
ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net
revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less
than 2% of the Company’s total assets at December 31, 2017.
In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of
the operating performance of its segments, including the evaluation of operating personnel and believes it is
especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current
effects of operating decisions separated from the substantial non-operational depreciation charges and financing
costs of such projects. The Company defines adjusted EBITDA as earnings before interest, taxes, stock
compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible
charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price
obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of
income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as
depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA
excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a
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financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an
indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a
measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company
has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal
repayments, which are not reflected in adjusted EBITDA.
See Note 15 to the consolidated financial statements for further information with respect to the Company’s
segments.
Properties
Penn National Gaming, Inc. owns, operates, or has ownership interests in gaming and racing facilities and
video gaming terminal operations with a focus on slot machine entertainment. As of December 31, 2017, we
operated twenty-nine facilities in the following seventeen jurisdictions: Florida, Illinois, Indiana, Kansas, Maine,
Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West
Virginia, California, and Ontario.
The real estate of the Master Lease properties described below has been contributed to GLPI; however,
Penn continues to operate the leased gaming facilities. The following table summarizes certain features of the
Master Lease properties operated and managed by us as of December 31, 2017:
4
Master Lease Properties
Location
Type of Facility
Approx.
Property
Square
Hotel
Footage(1) Machines Games(2) Rooms
Gaming
Table
Land-based gaming/Thoroughbred racing
511,249
2,391
73
153
Dockside gaming
634,000
1,711
63
295
Land-based gaming
Land-based gaming
285,335
2,043
354,075
2,237
Land-based gaming/Harness racing
191,037
1,015
51
64
—
—
—
—
Land-based gaming/Thoroughbred racing
177,448
1,036
—
—
Maryland Heights, MO Dockside gaming
645,270
2,003
63
502
Land-based gaming/Thoroughbred racing
Land-based gaming
Dockside gaming
451,758
910,173
450,397
2,319
1,180
1,479
54
40
42
—
390
258
Land-based gaming
425,920
1,016
21
291
Dockside gaming
315,831
1,020
17
494
Dockside gaming
Dockside gaming
Dockside gaming
Dockside gaming
Dockside gaming
Land-based gaming/Harness racing
Dockside gaming
Land-based gaming/Thoroughbred racing
78,941
319,823
900
805
222,189
134,800
322,446
1,066
783
1,100
257,085
124,569
193,645
7,005,991
739
796
734
26,373
16
7
27
14
18
—
201
—
—
100
14
12
—
596
152
—
154
2,990
Charles Town, WV
Lawrenceburg, IN
Youngstown, OH
Toledo, OH
Dayton, OH
Columbus, OH
Hollywood Casino at
Charles Town Races
Hollywood Casino
Lawrenceburg
Hollywood Casino
Toledo
Hollywood Casino
Columbus
Hollywood Gaming at
Dayton Raceway
Hollywood Gaming at
Mahoning Valley
Race Course
Hollywood Casino
St. Louis
Hollywood Casino at
Penn National Race
Grantville, PA
Course
M Resort
Henderson, NV
Argosy Casino Riverside Riverside, MO
Hollywood Casino Gulf
Coast
Hollywood Casino
Tunica
1st Jackpot Casino
(formerly known as
Bally's Casino Tunica)
Resorts Casino Tunica
Hollywood Casino
Aurora
Boomtown Biloxi
Hollywood Casino Joliet Joliet, IL
Hollywood Casino
Bangor
Argosy Casino Alton(3)
Zia Park Casino
Bangor, ME
Alton, IL
Hobbs, NM
Tunica, MS
Tunica, MS
Aurora, IL
Biloxi, MS
Tunica, MS
Total
Bay St. Louis, MS
(1) Square footage includes conditioned space and excludes parking garages and barns.
(2) Excludes poker tables.
(3) Excludes the riverboat, which continues to be owned by Penn.
5
The following table summarizes certain features of the properties that are not subject to the Master Lease
and are owned and operated, or managed, by us as of December 31, 2017:
Other Properties
Location
Type of Facility
Approx.
Property
Square
Footage(1)
Gaming
Machines Games(2)
Table
Hotel
Rooms
Owned Properties:
Hollywood Casino
at Kansas
Speedway(3)
Freehold
Raceway(4)
Sanford-Orlando
Kennel Club
Plainridge Park
Casino
Sam Houston Race
Park(5)
Valley Race
Park(5)
Tropicana Las
Vegas
Managed
Property:
Casino Rama(6)
Hollywood Casino
Jamul - San Diego
(7)
VGT-route
Operations:
Prairie State
Gaming
Kansas City, KS Land-based gaming
244,791
2,000
41 —
Freehold, NJ
Longwood, FL
Plainville, MA
Houston, TX
Harlingen, TX
Standardbred racing
132,865
Greyhound racing
58,940
—
—
— —
— —
Land-based gaming/Harness
racing
196,473
1,249
— —
Thoroughbred racing
283,383
Greyhound racing
91,000
—
—
— —
— —
Las Vegas, NV Land-based gaming
Orillia, Ontario Land-based gaming
San Diego, CA Land-based gaming
1,183,984
655
35 1,470
864,047
2,523
101
289
195,913
1,730
40
—
Illinois
Land-based gaming
N/A
1,715
— —
Total
3,251,396
9,872
217 1,759
(1) Square footage includes conditioned space and excludes parking garages and barns.
(2) Excludes poker tables.
(3) Pursuant to a joint venture with International Speedway Corporation (“International Speedway”).
(4) Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc.
(5) Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”).
(6) Pursuant to a management contract.
(7) Pursuant to management and branding services agreements. Opened on October 10, 2016.
As mentioned above, we organize the properties we operate, manage and own, as applicable, into three
segments, Northeast, South/West and Midwest. Below is a description of each of our properties by segment.
6
Northeast Properties
Hollywood Casino at Charles Town Races
Hollywood Casino at Charles Town Races is located in Charles Town, West Virginia, within
approximately an hour drive of the Baltimore, Maryland and Washington, D.C. markets. Hollywood Casino at
Charles Town Races features 511,249 of property square footage with 2,391 gaming machines, 73 table games and
16 poker tables and a 153-room hotel. Hollywood Casino at Charles Town Races also features various dining
options, including a high-end steakhouse, a sports bar and entertainment lounge, as well as an Asian themed
restaurant. The complex also features live thoroughbred racing at a 3/4-mile all-weather lighted thoroughbred
racetrack with a 3,000-seat grandstand, parking for 5,781 vehicles and simulcast wagering and dining.
Hollywood Casino at Penn National Race Course
Hollywood Casino at Penn National Race Course is located in Grantville, Pennsylvania, which is 15 miles
northeast of Harrisburg. Hollywood Casino at Penn National Race Course features 451,758 of property square
footage with 2,319 slot machines, 54 table games and 16 poker tables. The facility also includes an entertainment
bar and lounge, a sports bar, a buffet, a high-end steakhouse and various casual dining options, as well as a simulcast
facility and viewing area for live racing. The facility has ample parking, including a five-story self-parking garage,
with capacity for approximately 2,200 cars, and approximately 1,500 surface parking spaces for self and valet
parking. The property includes a one-mile all-weather lighted thoroughbred racetrack and a 7/8-mile turf track. The
property also includes approximately 393 acres that are available for future expansion or development.
Hollywood Casino Toledo
Hollywood Casino Toledo is located in Toledo, Ohio and opened on May 29, 2012. Hollywood Casino
Toledo is a Hollywood-themed casino featuring 285,335 of property square footage with 2,043 slot machines, 51
table games and 20 poker tables. Hollywood Casino Toledo also includes multiple food and beverage outlets, an
entertainment lounge, and structured and surface parking for approximately 3,300 spaces.
Hollywood Casino Columbus
Hollywood Casino Columbus is located in Columbus, Ohio and opened on October 8, 2012. Hollywood
Casino Columbus is a Hollywood-themed casino featuring 354,075 of property square footage with 2,237 slot
machines, 64 table games and 36 poker tables. Hollywood Casino Columbus also includes multiple food and
beverage outlets, an entertainment lounge, and structured and surface parking for 4,616 spaces.
Hollywood Gaming at Dayton Raceway
Hollywood Gaming at Dayton Raceway is located in Dayton, Ohio and opened on August 28, 2014.
Hollywood Gaming at Dayton Raceway is a Hollywood-themed facility featuring 191,037 of property square
footage with 1,015 video lottery terminals and a 5/8-mile standardbred racetrack. Hollywood Gaming at Dayton
Raceway also includes various restaurants, bars, surface parking for 1,806 spaces and other amenities.
Hollywood Gaming at Mahoning Valley Race Course
Hollywood Gaming at Mahoning Valley Race Course is located in Youngstown, Ohio and opened on
September 17, 2014. Hollywood Gaming at Mahoning Valley Race Course is a Hollywood-themed facility featuring
177,448 of property square footage with 1,036 video lottery terminals and a one-mile thoroughbred racetrack.
Hollywood Gaming at Mahoning Valley Race Course also includes various restaurants, bars, surface parking with
1,254 spaces and other amenities.
7
Hollywood Casino Bangor
Hollywood Casino Bangor, which is located in Bangor, Maine, includes 257,085 of property square footage
with 739 slot machines, 14 table games and four poker tables. Hollywood Casino Bangor’s amenities include a
152-room hotel with 5,119 square feet of meeting and multipurpose space, three eateries, a buffet, a snack bar and a
casual dining restaurant, a small entertainment stage, and a four-story parking garage with 1,500 spaces. Bangor
Raceway, which is adjacent to the property, is located at historic Bass Park and includes a one-half mile
standardbred racetrack and grandstand to seat 3,500 patrons.
Plainridge Park Casino
Plainridge Park Casino, which opened on June 24, 2015, is located 20 miles southwest of the Boston
beltway just off interstate 95 in Plainville, Massachusetts. Plainridge Park features 196,473 of property square
footage with 1,249 gaming devices. Plainridge Park Casino offers various restaurants, bars, 1,620 structured and
surface parking spaces, and other amenities. Plainridge Park Casino also includes a 5/8-mile live harness racing
facility with approximate 55,000 square foot, two story clubhouse for simulcast operations and live racing viewing.
Casino Rama
Through CHC Casinos Canada Limited (“CHC Casinos”), our indirectly wholly-owned subsidiary, we
manage Casino Rama, a full service gaming and entertainment facility, on behalf of the Ontario Lottery and Gaming
Corporation (“OLG”), an agency of the Province of Ontario. Casino Rama is located on the lands of the Rama First
Nation, approximately 90 miles north of Toronto. The property has 864,047 of property square footage with 2,523
gaming machines, 101 table games and 10 poker tables. In addition, the property includes a 5,000-seat entertainment
facility, a 289-room hotel and 3,422 surface parking spaces.
The Development and Operating Agreement, which we refer to as the management service contract for
Casino Rama, sets out the duties, rights and obligations of CHC Casinos and our indirectly wholly-owned
subsidiary, CRC Holdings, Inc. The compensation under the management service agreement is a base fee equal to
2.0% of gross revenues of the casino and an incentive fee equal to 5.0% of the casino’s net operating profit.
In June 2014, we signed an agreement to extend the Casino Rama Agreement on a month-to-month basis
with a 60-day notice period for up to a maximum period of forty-eight months, ending September 30, 2018. The
OLG is exploring bids for new operating contracts and privatization in Ontario, including at Casino Rama. As a
result, we expect our management contract with the OLG to end shortly after June 30, 2018.
South/West Properties
M Resort
The M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated
on approximately 90 acres on the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort
features 910,173 of property square footage with 1,180 slot machines and 40 table games. The M Resort also offers
390 guest rooms and suites, seven restaurants and six destination bars, more than 60,000 square feet of meeting and
conference space, a 4,700 space parking facility, a spa and fitness center and a 100,000 square foot events piazza.
Zia Park Casino
Zia Park Casino is located in Hobbs, New Mexico and includes a casino, as well as an adjoining racetrack.
The property includes 193,645 of property square footage with 734 slot machines and two restaurants. The property
has a one-mile quarter/thoroughbred racetrack, with live racing from September to December, and a year-round
simulcast parlor. In August 2014, we opened a new hotel, which includes 148 rooms, six suites, a business center,
exercise/fitness facilities and a breakfast venue.
8
Hollywood Casino Tunica
Hollywood Casino Tunica is located in Tunica, Mississippi. This single-level property features 315,831 of
property square footage with 1,020 slot machines, 17 table games and six poker tables. Hollywood Casino Tunica
also has a 494-room hotel and 123-space recreational vehicle park. Entertainment amenities include a steakhouse, a
buffet, a grill, an entertainment lounge, a premium players’ club, a themed bar facility, an indoor pool and
showroom as well as banquet and meeting facilities. In addition, Hollywood Casino Tunica offers surface parking
with 1,635 spaces.
1st Jackpot Casino (formerly known as Bally’s Casino Tunica)
1st Jackpot Casino, the closest Tunica-area casino to downtown Memphis, features 78,941 of property
square footage with 900 slot machines and 16 table games, along with a steakhouse, buffet restaurant, 24-hour café,
and a live entertainment venue.
Resorts Casino Tunica
Resorts Casino Tunica, which is located adjacent to Hollywood Casino Tunica, features 319,823 of
property square footage with 805 slot machines and 7 table games. The property also offers a steakhouse, buffet
restaurant and 24-hour café as well as 18,000 square feet of meeting and event space and a 201-room hotel.
Hollywood Casino Gulf Coast
Hollywood Casino Gulf Coast (formerly Hollywood Casino Bay St. Louis), which is located in Bay
St. Louis, Mississippi, features 425,920 of property square footage with 1,016 slot machines, 21 table games, and
five poker tables. The waterfront Hollywood Hotel features 291 rooms, a 10,000 square foot ballroom, and nine
separate meeting rooms offering more than 14,000 square feet of meeting space. Hollywood Casino Gulf Coast
offers live concerts and various entertainment on weekends. The property also features The Bridges golf course, an
18-hole championship golf course. Hollywood Casino Gulf Coast has various dining facilities including a
steakhouse, a buffet, a grill and a clubhouse lounge as well as an entertainment bar. Other amenities include a
recreational vehicle park with 100 spaces and a gift shop, lazy river, spa, and pool cabanas.
Boomtown Biloxi
Boomtown Biloxi is located in Biloxi, Mississippi and offers 134,800 of property square footage with 783
slot machines and 14 table games. It features a buffet, a steakhouse, a 24-hour grill, a noodle bar and an recreational
vehicle park with 50 spaces. Boomtown Biloxi also has 1,450 surface parking spaces.
Tropicana Las Vegas
The Company acquired Tropicana Las Vegas on August 25, 2015. Tropicana Las Vegas, located on the
strip in Las Vegas, Nevada, is situated on an approximate 35-acre land parcel at the corner of Tropicana Boulevard
and Las Vegas Boulevard. The resort features 1,183,984 of property square footage with 655 slot machines and 35
table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, four full services restaurants, a food
court, a 1,100-seat performance theater, a 300-seat comedy club, over 100,000 square feet of exhibition and meeting
space, a five-acre tropical beach event area and spa, and 2,095 parking spaces.
9
Hollywood Casino Jamul-San Diego
Hollywood Casino Jamul – San Diego is a three-story gaming and entertainment facility featuring
approximately 200,000 square feet with 1,730 slot machines, 40 live table games, multiple restaurants, bars and
lounges and a partially enclosed parking structure with over 1,800 spaces. The facility opened to the public on
October 10, 2016. The Company currently provides a portion of the financing in connection with the project
including additional commitments for future construction spending and, following the opening, manages the casino.
In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer manage the
facility or provide branding and development services on May 28, 2018. The company will provide a transition that
it anticipates will last through approximately late May.
Midwest Properties
Hollywood Casino Aurora
Hollywood Casino Aurora, part of the Chicagoland market, is located in Aurora, Illinois, the second largest
city in Illinois, approximately 35 miles west of Chicago. This single-level dockside casino provides 222,189 of
property square footage with 1,066 slot machines, 27 gaming tables and six poker tables. The facility features a
steakhouse with a private dining room, a VIP lounge for premium players, a casino bar with video poker, a buffet,
and a deli. Hollywood Casino Aurora also has a surface parking lot, two parking garages with approximately 1,500
parking spaces, and a gift shop.
Hollywood Casino Joliet
Hollywood Casino Joliet, part of the Chicagoland market, is located on the Des Plaines River in Joliet,
Illinois, approximately 40 miles southwest of Chicago. This barge-based casino provides two levels with 1,100 slot
machines, 18 table games and three poker tables. The land-based pavilion includes a steakhouse, a buffet and a
sports bar. The casino barge includes a deli and VIP lounge. The complex also includes a 100-room hotel, a 1,100
space parking garage, surface parking areas with approximately 1,500 spaces and an 80-space recreational vehicle
park. In total, the facility includes 322,446 of property square footage.
Argosy Casino Alton
Argosy Casino Alton is located on the Mississippi River in Alton, Illinois, approximately 20 miles
northeast of downtown St. Louis. Argosy Casino Alton is a three-deck gaming facility featuring 124,569 of property
square footage with 796 slot machines and 12 table games. Argosy Casino Alton includes an entertainment pavilion
and features a 214-seat buffet, a restaurant, a deli and a 475-seat main showroom. The facility also includes surface
parking areas with 1,341 spaces.
Argosy Casino Riverside
Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown
Kansas City in Riverside, Missouri. The property features 450,397 of property square footage with 1,479 slot
machines and 42 table games. This Mediterranean-themed casino and hotel features a nine-story, 258-room hotel
and spa, an entertainment facility featuring various food and beverage areas, including a buffet, a steakhouse, a deli,
a coffee bar, a Mexican restaurant, a VIP lounge and a sports/entertainment lounge and 19,000 square feet of
banquet/conference facilities. Argosy Casino Riverside also has parking for approximately 3,000 vehicles, including
a 1,250 space parking garage.
10
Hollywood Casino Lawrenceburg
Hollywood Casino Lawrenceburg is located on the Ohio River in Lawrenceburg, Indiana, approximately 15
miles west of Cincinnati. The Hollywood-themed casino riverboat has 634,000 square feet of property square
footage with 1,711 slot machines, 63 table games and 19 poker tables. Hollywood Casino Lawrenceburg also
includes a 295-room hotel, as well as a restaurant, bar, nightclub, sports bar, two cafes and meeting space.
The City of Lawrenceburg Department of Redevelopment constructed a hotel and event center located less
than a mile away from our Hollywood Casino Lawrenceburg property. Effective in January 2015, by contractual
agreement, the hotel and event center is owned and operated by a subsidiary of the Company. The hotel and event
center includes 168 rooms, approximately 18,000 square feet of multipurpose space and 19,500 square feet of
ballroom and meeting space.
Hollywood Casino at Kansas Speedway
Hollywood Casino at Kansas Speedway, our 50% joint venture with International Speedway, is located in
Kansas City, Kansas and opened on February 3, 2012. The facility features 244,791 of property square footage with
2,000 slot machines, 41 table games and 12 poker tables. Hollywood Casino at Kansas Speedway offers a variety of
dining and entertainment facilities and has a 1,253 space parking structure.
Hollywood Casino St. Louis
Hollywood Casino St. Louis is located adjacent to the Missouri River in Maryland Heights, Missouri,
directly off I-70 and approximately 22 miles northwest of downtown St. Louis, Missouri. The facility is situated on
approximately 248 acres along the Missouri River and features 645,270 of property square footage with 2,003 slot
machines, 63 table games, 20 poker tables, a 502 guestroom hotel, nine dining and entertainment venues and
structured and surface parking with approximately 4,600 spaces.
Prairie State Gaming
The Company acquired Illinois Gaming Investors, LLC, d/b/a Prairie State Gaming, a licensed video
gaming terminal route operator in Illinois, on September 1, 2015. Prairie State Gaming’s operations now include
more than 1,715 video gaming terminals across a network of approximately 377 bar and retail gaming
establishments in seven distinct geographic areas throughout Illinois.
Other Properties
Sanford-Orlando Kennel Club
Sanford-Orlando Kennel Club is a 1/4-mile greyhound facility located in Longwood, Florida. The facility
has capacity for 6,500 patrons, with seating for 4,000 and surface parking for 2,500 vehicles. The facility conducts
year-round greyhound racing and greyhound, thoroughbred, and harness racing simulcasts.
Freehold Raceway
Through our joint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of Freehold Raceway,
located in Freehold, New Jersey. The property features a half-mile standardbred race track and a 117,715 square foot
grandstand.
11
Sam Houston Race Park and Valley Race Park
Our joint venture with MAXXAM owns and operates the Sam Houston Race Park in Houston, Texas and
the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Manor, Texas, just outside of
Austin. Sam Houston Race Park is located 15 miles northwest from downtown Houston along Beltway 8. Sam
Houston Race Park hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as
hosts various special events, private parties and meetings, concerts and national touring festivals throughout the
year. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility located
in Harlingen, Texas.
Off-track Wagering Facilities
Our off-track wagering facilities (“OTWs”) and racetracks provide areas for viewing import simulcast races
of thoroughbred and standardbred horse racing, televised sporting events, placing pari-mutuel wagers and dining.
We operate two OTWs in Pennsylvania, and through our joint venture in Pennwood, we own 50% of a leased OTW
in Toms River, New Jersey. In addition, in accordance with an operating agreement with Pennwood, the Company
constructed an OTW in Gloucester Township, New Jersey, which opened in July 2014. Per the operating agreement,
this OTW is operated by us; however, Pennwood has the option to purchase the OTW once the Company has
received its total investment as defined in the operating agreement.
Trademarks
We own a number of trademarks and service marks registered with the U.S. Patent and Trademark Office
(“U.S. PTO”), including but not limited to, “Hollywood Casino®,” “Hollywood Gaming®,” “Argosy®,” “M
Resort®,” “Hollywood Poker®,” and “Marquee Rewards®”. We believe that our rights to our marks are well
established and have competitive value to our properties. We also have a number of trademark applications pending
with the U.S. PTO.
As part of our acquisition of Tropicana Las Vegas in August 2015, we assumed a trademark settlement
agreement with Tropicana Entertainment, LLC, an affiliate of Tropicana Entertainment, Inc. (NASDAQ: TCPA)
that is not related to the Company, which, subject to other terms, conditions, and advertising limitations set forth in
the agreement, confirms, among other things, that (i) Tropicana Las Vegas owns and has the exclusive right to use
the “Tropicana Las Vegas” and the “Tropicana LV” marks within 50 miles of the “Las Vegas Property” for the
purpose of providing goods and services in the field of entertainment and hospitality and in the natural scope of
expansion thereof (the “Services”), and for “Internet Uses” (as defined in the Agreement) without geographic
limitation, (ii) Tropicana Las Vegas may advertise the Services identified by the “Tropicana Las Vegas” and the
“Tropicana LV” marks worldwide provided that the advertisements explicitly reference the location of the
Tropicana Las Vegas Property, and (ii) Tropicana Entertainment, LLC owns and has the exclusive right to use the
“Tropicana” and “Trop” marks, in connection with a modifier indicating the type of service being provided or a
modifier designating an accurate geographic location of a property, outside of the Las Vegas area, and may advertise
the Services worldwide provided that the advertisements explicitly reference the location of the properties.
Pursuant to a License Agreement with Boomtown, Inc., dated August 8, 2000, our subsidiary BTN, LLC
(successor to BTN, Inc.) uses the “Boomtown” trademark.
The Company provides branding services with regards to the Hollywood Casino-branded gaming facility
on the Jamul Tribe’s trust land in San Diego County, California pursuant to an Intellectual Property, License,
Branding and Marketing Agreement dated April 3, 2013.
Effective as of November 1, 2015, the Company’s subsidiary, Hollywood Casinos, LLC, has a Trademark
License Agreement with GLPI, pursuant to which GLPI has a license to use certain trademarks for use in connection
with the Hollywood Casino Baton Rouge and Hollywood Casino Perryville facilities, which were contributed to
GLPI in the Spin-Off.
12
Competition
The gaming industry is characterized by a high degree of competition among a large number of operators,
including riverboat casinos, dockside casinos, land-based casinos, video lottery, video gaming terminals (VGTs) at
taverns in certain states, such as Illinois, sweepstakes and poker machines not located in casinos, Native American
gaming, emerging varieties of Internet and fantasy sports gaming, the potential for increased sports betting and other
forms of gaming in the U.S. In a broader sense, our gaming operations face competition from all manner of leisure
and entertainment activities, including: shopping; athletic events; television and movies; concerts and travel.
Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on
various lands taken into trust for the benefit of certain Native Americans in the U.S. and First Nations in Canada.
Other jurisdictions, including states adjacent to states in which we currently have facilities (such as in Ohio,
Massachusetts, Pennsylvania, and Maryland), have legalized and expanded or have plans to license additional
gaming facilities, video gaming terminals and other gaming offerings in the near future. In addition, more gaming
jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming
operations. New, relocated or expanded operations by other companies will increase competition for our gaming
operations and could have a material adverse impact on us. Finally, the imposition of smoking bans and/or higher
gaming tax rates have a significant impact on our properties’ ability to compete with facilities in nearby
jurisdictions.
Our racing operations face significant competition for wagering dollars from other racetracks and off-track
wagering facilities (“OTWs”), some of which also offer other forms of gaming, as well as other gaming venues such
as casinos and historic racing. Additionally, for a number of years, there has been a general decline in the number of
people attending and wagering on live horse races at North American racetracks due to a number of factors,
including increased competition from other wagering and entertainment alternatives and unwillingness of customers
to travel a significant distance to racetracks. Our account wagering operations compete with large providers of such
services throughout the country. We also face competition in the future from new OTWs, new racetracks, historic
racing, or new providers of account wagering. From time to time, states consider legislation to permit other forms of
gaming. If additional gaming opportunities become available near our racing operations, such gaming opportunities
could have an adverse effect on our business, financial condition and results of operations.
Northeast. Hollywood Casino at Charles Town Races has been and will continue to be negatively impacted
by competition in the Baltimore, Maryland market, which includes Maryland Live! and Horseshoe Casino
Baltimore. Maryland Live!, a casino complex at the Arundel Mills mall in Anne Arundel, Maryland, opened in
June 2012 and Horseshoe Casino Baltimore opened at the end of August 2014. Both of these facilities are
substantial in nature, as Maryland Live! Has approximately 4,000 slot machines, over 200 table games and various
food and beverage offerings whereas Horseshoe Baltimore has 2,200 slot machines and 180 table games. In
December 2013, the sixth casino license for Maryland in Prince George’s County was granted to MGM. In
December 2016, MGM National Harbor casino and resort opened featuring 3,300 slot machines and 124 table
games and has had an adverse impact our financial results, as it has created additional competition for Hollywood
Casino at Charles Town Races.
In November 2011, the Expanded Gaming Act was signed into law in Massachusetts, which allows up to
three destination resort casinos located in three geographically diverse regions across the state and a single slots
facility for one location statewide. In February 2014, the Massachusetts Gaming Commission awarded us the
slots-only gaming license and in June 2015, we opened Plainridge Park Casino in Plainville. The licenses for two of
three casino resorts have been awarded with the remaining license in Southeastern Massachusetts still open. MGM
Springfield in Western Massachusetts is expected to be completed in September 2018 and Wynn Everett in the
Boston Area is scheduled to open in mid-2019. Construction of a tribal casino in Taunton, Massachusetts, which
was expected to open in 2017, is currently on hold following a judicial opinion issued during the third quarter of
2016 regarding the validity of the Tribe’s land in trust. In addition, a proposal to relocate the Newport Casino license
to Tiverton, Rhode Island, near the Massachusetts border, was approved by local and statewide voters in November
2016. The proposal calls for a $75 million casino featuring 1,000 slot machines, 32 table games and an 84 room
13
hotel. The increased competition in Massachusetts will have a negative impact on the operations of Plainridge Park
Casino; however, we anticipate that it will be the sole gaming facility in Massachusetts until at the least third quarter
of 2018.
In Ohio, voters passed a referendum in 2009 to allow four land-based casinos in four cities, one of which
was in downtown Cincinnati, which is the primary feeder market for our Hollywood Casino Lawrenceburg property.
The Cincinnati casino opened in March 2013 and has had and will likely continue to have an adverse impact on
Hollywood Casino Lawrenceburg. However, this referendum also resulted in the Company operating two of the four
land-based casinos. We opened Hollywood Casino Toledo in May 2012 and Hollywood Casino Columbus in
October 2012. Additionally, the State of Ohio approved the placement of video lottery terminals at the state’s seven
racetracks. In June 2012, a new racino at Scioto Downs in Columbus, Ohio opened, which has had a negative impact
on Hollywood Casino Lawrenceburg’s financial results and competes aggressively in the same market as Hollywood
Casino Columbus. In addition, a racino at Miami Valley Gaming opened in mid-December 2013, and a racino at
Belterra Park opened in May 2014. Both of these racinos compete with Hollywood Casino Lawrenceburg.
Conversely, we have opened our own racinos in Ohio, with Hollywood Gaming at Dayton Raceway opening in
August 2014 and Hollywood Gaming at Mahoning Valley Race Course opening in September 2014. As a result, in a
relatively short period of time, Ohio has gone from having no gaming facilities to having four casinos and seven
video lottery terminal facilities. In addition, we continue to fight illegal gaming operations, such as internet
sweepstakes.
In addition, legislators in Kentucky regularly consider new gaming legislation. The commencement of
gaming in Kentucky would negatively impact certain of our existing properties in the Northeast segment. In October
2017, Pennsylvania enacted gaming expansion legislation that authorized licenses for up to ten new category 4
satellite casinos, VGTs at truck stops, online gaming, and other gaming offerings. The new casinos will have the
ability to operate between 300 and 750 slot machines and between 30 and 40 table games. Only Pennsylvania’s
existing gaming operators may initially participate in the auctions for these new casinos, with a preference given to
the category 1 and category 2 license holders in the first round ending July 31, 2018. On January 10, 2018, Penn
was awarded the first category 4 satellite casino license to be located in York County, which will compete with our
Hollywood Casino at Penn National Race Course facility. On February 8, 2018, the third category 4 satellite casino
license was awarded in Lawrence County which is expected to compete with and have an adverse impact on our
existing Hollywood Gaming at Mahoning Valley Race Course facility in Austintown, Ohio. On February 22, 2018,
the fourth category 4 satellite casino license was awarded in Cumberland County which is expected to compete with
and have an adverse impact on our Hollywood Casino at Penn National Race Course facility in Grantville,
Pennsylvania. Depending on how many of the ten satellite casino licenses are ultimately issued, and the final
locations, size and scope of these satellite casinos, and the impact of VGT’s at truck stops and online gaming
offerings, there may be additional negative impacts on our existing facilities in the Northeast segment.
South/West. Our South/West segment contains our M Resort and Tropicana Las Vegas properties and
Hollywood Casino Jamul- San Diego, which we operate under our management contract with the Jamul Tribe. M
Resort and Tropicana Las Vegas compete directly with other Las Vegas hotels, resorts, and casinos, including those
located on the Las Vegas Strip, on the basis of overall atmosphere, range of amenities, level of service, price,
location, entertainment offered, convention and meeting facilities, shopping and restaurant facilities, theme, and
size. In addition, a substantial number of customers are drawn from geographic areas outside of Las Vegas,
particularly California and Arizona. Specifically, in California, we expect Hollywood Casino Jamul – San Diego to
continue to experience significant competition from nearby casinos operated on Native American lands, which could
negatively impact their results as well as the Las Vegas market. In the Mississippi Gulf Coast market, a casino in
D’Iberville, Mississippi opened in December 2015, which has had an adverse effect on the financial results of our
Boomtown Biloxi property.
Midwest. In Illinois, there have been perennial gaming expansion proposals introduced in the legislature,
which we expect to continue. In October 2012, video gambling in Illinois was officially launched with the first
locations being allowed to operate VGTs. Currently, there are over 22,000 terminals at numerous locations
throughout the state, which has had a negative impact on our casinos near or in Illinois. In September 2015, we
purchased Prairie State Gaming, which is a licensed VGT operator in Illinois, whose operations now include more
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than 1,700 video gaming terminals. Illinois also continues to discuss the viability of gaming expansion in the state
through a potential combination of additional riverboat operations, land-based casinos and slots at racetracks. In
addition, legislators in Indiana and Missouri are currently considering VGT legislation. The commencement of
gaming in Indiana and Missouri or the expansion of gaming in Illinois would negatively impact certain of our
existing properties in the Midwest segment. In addition, there is a proposal to reopen a race track with slot machines
at the Woodlands in Wyandotte County, which could have an adverse effect on the financial results of Hollywood
Casino at Kansas Speedway.
U.S. and Foreign Revenues
Our net revenues in the U.S. for 2017, 2016, and 2015 were approximately $3,136.4 million,
$3,023.2 million, and $2,828.1 million, respectively. Our revenues from operations in Canada for 2017, 2016, and
2015 were approximately $11.6 million, $11.2 million, and $10.3 million, respectively.
Management
The persons listed below represent executive officers of the Company.
Name
Timothy J. Wilmott
Jay Snowden
William J. Fair
Carl Sottosanti
Age
Position
59 Chief Executive Officer
41 President and Chief Operating Officer
55 Executive Vice President and Chief Financial Officer
53 Executive Vice President, General Counsel, and Secretary
Timothy J. Wilmott. Mr. Wilmott joined us in February 2008 as President and Chief Operating Officer
and was named Chief Executive Officer on November 1, 2013. In addition, in September 2014, Mr. Wilmott was
appointed to the Board of Directors. Previously, Mr. Wilmott served as Chief Operating Officer of Harrah’s
Entertainment, a position he held for approximately four years. In this position, he oversaw the operations of all of
Harrah’s revenue-generating businesses, including 48 casinos, 38,000 hotel rooms and 300 restaurants. All Harrah’s
Division Presidents, Senior Vice Presidents of Brand Operations, Marketing and Information Technology personnel
reported to Mr. Wilmott in his capacity as Chief Operating Officer. Prior to his appointment to the position of Chief
Operating Officer, Mr. Wilmott served from 1997 to 2002 as Division President of Harrah’s Eastern Division with
responsibility for the operations of eight Harrah’s properties.
Jay Snowden. Mr. Snowden is currently our President and Chief Operating Officer. Mr. Snowden joined
us in October 2011 as Senior Vice President-Regional Operations, became our Chief Operating Officer in January
2014, and became our President and Chief Operating Officer in March 2017. Mr. Snowden is responsible for
overseeing all of our operating businesses, as well as human resources, marketing, and information technology. Prior
to joining us, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic
City, and prior to that, held various leadership positions with them in St. Louis, San Diego and Las Vegas.
William J. Fair. Mr. Fair is currently our Executive Vice President and Chief Financial Officer. In
January 2014, Mr. Fair joined us as Senior Vice President and Chief Development Officer and became our
Executive Vice President and Chief Financial Officer in January 2017. Previously, Mr. Fair worked in development
leadership positions for Universal Studios and Disney Development. Most recently, Mr. Fair was the President and
Chief Executive Officer of the American Skiing Company, where he had oversight of ten ski mountain resorts which
included ski operations, nine hotels, condominium operations, food and beverage operations, retail and rental
operations, real estate brokerage and development.
Carl Sottosanti. Mr. Sottosanti is currently our Executive Vice President, General Counsel and Secretary.
In February 2014, Mr. Sottosanti was appointed to the position of Senior Vice President and General Counsel and
became Secretary in November 2014. Prior to this appointment, Mr. Sottosanti served as Vice President, Deputy
General Counsel since 2003. Before joining the Company, Mr. Sottosanti served for five years as General Counsel
at publicly traded, Sanchez Computer Associates, Inc. and had oversight of all legal, compliance and intellectual
15
property matters. From 1994 to 1998, Mr. Sottosanti was the Assistant General Counsel for Salient 3
Communications, Inc., a publicly traded telecommunications company. Mr. Sottosanti began his legal career in 1989
with the Philadelphia law firm Schnader, Harrison, Segal & Lewis LLP.
Governmental Regulations
The gaming and racing industries are highly regulated and we must maintain our licenses and pay gaming
taxes to continue our operations. Each of our facilities is subject to extensive regulation under the laws, rules and
regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the
responsibility, financial stability and character of the owners, managers, and persons with financial interests in the
gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other
jurisdictions. A more detailed description of the regulations to which we are subject is contained in Exhibit 99.1 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, health care, currency transactions, taxation, zoning and
building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted
differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or
material differences in interpretations by courts or governmental authorities could adversely affect our operating
results.
Employees and Labor Relations
As of December 31, 2017, we had 18,754 full- and part-time employees.
The Company is required to have agreements with the horsemen at the majority of its racetracks to conduct
its live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in
West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari-mutuel clerks
and breeders.
At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town
Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles
Town Races also renewed an agreement with the breeders that expires on June 30, 2018. Additionally, the
pari-mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia
Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month-to-month basis.
The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at
Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an
agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and
off-track pari-mutuel clerks and admission staff, which expired in December 2016. A new contract was negotiated
and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year
collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.
The Company’s agreement with the Maine Harness Horsemen Association at Bangor Raceway continues
through the conclusion of the 2018 racing season.
In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the
Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September
2014 commencement of video lottery terminal operations at that facility.
In September 2015, Hollywood Gaming at Dayton Raceway entered into an agreement with the Ohio
Harness Horsemen’s Association for racing at the property. The term is for a period of ten years from the September
2015 effective date.
16
In January 2014, the Company entered into an agreement with the Harness Horsemen’s Association of New
England at Plainridge Park Casino which remains in effect through December 31, 2018.
Across certain of the Company’s properties, Seafarers Entertainment and Allied Trade Union (“SEATU”)
represents approximately 1,670 of the Company’s employees under a National Agreement that expires on
January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.
SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy
Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton,
Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and
Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018 (which is currently
being negotiated), Hollywood Casino Lawrenceburg has a wage reopener in June 2018, Hollywood Casino Kansas
Speedway has a wage reopener in July 2018 and Hollywood Casino Joliet and Plainridge Park Casino have a wage
reopener in November 2018; the remainder of the SEATU agreements have expiration dates in 2019 and beyond.
At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents
approximately 167 employees under a collective bargaining agreement which expires on March 31, 2019. At
Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and
the United Steel Workers represents approximately 1,271 employees under a collective bargaining agreement which
ends on November 15, 2019.
On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which had seven
existing collective bargaining agreements with the following unions: (1) Culinary & Bartenders (expires on May 31,
2018), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical
Workers (expires on February 28, 2021), (4) International Alliance of Theatrical Stage Employees (expires on
December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7)
Teamsters (front and back of the house, both expire on March 31, 2018).
The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego,
which the Company opened on October 10, 2016. Unite Here! International Union and Local 30 represents
employees in stewarding, facilities, food and beverage, and operations classifications, and the parties are in the
process of negotiating their first collective bargaining agreement.
In addition, at some of the Company’s properties, the Security Police and Fire Professionals of America,
the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local
1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United
Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel
Workers represent certain of the Company’s employees under collective bargaining agreements that expire at
various times between April 2018 and September 2025. None of these additional unions represent more than 77 of
the Company’s employees.
Available Information
For more information about us, visit our website at www.pngaming.com. The contents of our website are not part of
this Annual Report on Form 10-K. Our electronic filings with the U.S. Securities and Exchange Commission
(“SEC”) (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on
Form 8-K, and any amendments to these reports), including the exhibits, are available free of charge through our
website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.
17
ITEM 1A. RISK FACTORS
Risks Related to Our Business
We face significant competition from other gaming and entertainment operations.
The gaming industry is characterized by an increasingly high degree of competition among a large number
of participants, including riverboat casinos, dockside casinos, land-based casinos, video lottery, gaming at taverns in
certain states, such as Illinois as well as the potential legalization in Indiana, sweepstakes and poker machines not
located in casinos, the potential for increased sports betting and fantasy sports, Native American gaming and other
forms of gaming in the U.S. Furthermore, competition from internet lotteries, sweepstakes, and other internet
wagering services, which allow their customers to wager on a wide variety of sporting events and play Las
Vegas-style casino games from home or in non-casino settings, could divert customers from our properties and thus
adversely affect our business. Such internet wagering services are often illegal under federal law but operate from
overseas locations, and are nevertheless sometimes accessible to domestic gamblers. Currently, there are proposals
that would legalize internet poker and other varieties of internet gaming in a number of states and at the federal
level. Several states, such as Nevada, New Jersey and Delaware, have enacted legislation authorizing intrastate
internet gaming and internet gaming operations have begun in these states. Expansion of internet gaming in other
jurisdictions (both legal and illegal) could further compete with our traditional operations, which could have an
adverse impact on our business and result of operations.
In a broader sense, our gaming operations face competition from all manner of leisure and entertainment
activities, including: shopping; athletic events; television and movies; concerts; and travel. Legalized gaming is
currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken
into trust for the benefit of certain Native Americans in the U.S. and Canada. Other jurisdictions, including states
adjacent to states in which we currently have facilities (such as in Ohio and Maryland), have recently legalized,
implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming
licenses or permit the expansion or relocation of existing gaming operations. New, relocated or expanded operations
by other persons could increase competition for our gaming operations and could have a material adverse impact on
us.
Gaming competition is intense in most of the markets where we operate. Recently, there has been
additional significant competition in our markets as a result of the upgrading or expansion of facilities by existing
market participants, the entrance of new gaming participants into a market or legislative changes. As competing
properties and new markets are opened, our operating results may be negatively impacted. For example, new
casinos and racinos have opened that compete in the same market as our Lawrenceburg property, namely the
opening of Belterra Park in May 2014, our own Dayton facility in August 2014, and Horseshoe Casino in
Cincinnati in March 2013; there is significantly increased competition to our Charles Town property from the
casino complex at the Arundel Mills mall in Anne Arundel, Maryland, the opening of Maryland Live! and
Horseshoe Casino Baltimore in Baltimore, Maryland in 2014 and the opening of MGM National Harbor casino
in Prince George’s County, Maryland in December 2016, which also competes to a lesser extent with Hollywood
Casino at Penn National Race Course; the opening of our joint venture casino project in Kansas in February
2012, which impacted Argosy Casino Riverside; and the potential opening of a tribal casino in Taunton,
Massachusetts (the construction is currently on hold following a judicial ruling in favor of the Taunton property
owners who contended that the federal government erred in placing reservation land in trust for the Mashpee
Wampanoag tribe) and the expected openings of MGM Springfield in Western Massachusetts in late 2018 and
Wynn Everett in Eastern Massachusetts in mid-2019 are anticipated to negatively impact our Plainridge Park
Casino. Hollywood Casino Aurora and Hollywood Casino Joliet have also been negatively impacted by the
proliferation of VGTs at numerous locations throughout the state of Illinois, which are in the vicinity of our
operations. In addition, some of our direct competitors in certain markets may have superior facilities and/or
operating conditions. Pennsylvania recently enacted legislation that will expand gaming in the state which will
cause additional competition for Hollywood Casino at Penn National Race Course and Hollywood Gaming at
Mahoning Valley Race Course. We expect each existing or future market in which we participate to be highly
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competitive. The competitive position of each of our casino properties is discussed in detail in the subsection
entitled “Competition” of this Annual Report on Form 10-K.
We may face disruption and other difficulties in integrating and managing facilities we have recently
developed or acquired, or may develop or acquire in the future.
We expect to continue pursuing expansion opportunities, and we regularly evaluate opportunities for
acquisition and development of new properties, which evaluations may include discussions and the review of
confidential information after the execution of nondisclosure agreements with potential acquisition candidates, some
of which may be potentially significant in relation to our size.
We could face significant challenges in managing and integrating our expanded or combined operations
and any other properties we may develop or acquire, particularly in new competitive markets. The integration of
more significant properties we may develop or acquire (such as those anticipated in the Pinnacle transaction) will
require the dedication of management resources that may temporarily divert attention from our day-to-day business.
The process of integrating properties that we may acquire also could interrupt the activities of those businesses,
which could have a material adverse effect on our business, financial condition and results of operations. In addition,
the development of new properties may involve construction, local opposition, regulatory, legal and competitive
risks as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects
where we team up with a joint venture partner, if we cannot reach agreement with such partners, or our relationships
otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase
the anticipated cost of a project. Finally, given the competitive nature of these types of limited license opportunities,
litigation is possible.
Management of new properties, especially in new geographic areas and business lines may require that we
increase our management resources. We cannot assure you that we will be able to manage the combined operations
effectively or realize any of the anticipated benefits of our acquisitions or development projects. We also cannot
assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our
expectations.
Our ability to achieve our objectives in connection with any acquisition we may consummate may be
highly dependent on, among other things, our ability to retain the senior level property management teams of such
acquisition candidates. If, for any reason, we are unable to retain these management teams following such
acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions
could be materially adversely affected.
The occurrence of some or all of the above described events could have a material adverse effect on our
business, financial condition and results of operations.
We may face risks related to our ability to receive regulatory approvals required to complete, or other
delays or impediments to completing certain of our acquisitions.
Our growth is fueled, in part, by the acquisition of existing gaming, racing, and development properties. In
addition to standard closing conditions, our acquisitions are often conditioned on the receipt of regulatory approvals
and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the
benefits to us of such acquisitions and could have a material adverse effect on our business, financial condition and
results of operations.
We face a number of challenges prior to opening new or upgraded gaming facilities.
No assurance can be given that, when we endeavor to open new or upgraded gaming facilities, the expected
timetables for opening such facilities will be met in light of the uncertainties inherent in the development of the
regulatory framework, construction, the licensing process, legislative action and litigation. Delays in opening new or
19
upgraded facilities could lead to increased costs and delays in receiving anticipated revenues with respect to such
facilities and could have a material adverse effect on our business, financial condition and results of operations.
We are required to pay a significant portion of our cash flows as financing payments under the Master
Lease, which could adversely affect our ability to fund our operations and growth and limit our ability to react to
competitive and economic changes.
We are required to pay more than half of our cash flow from operations to GLPI pursuant to and subject to
the terms and conditions of the Master Lease. As a result of this commitment, our ability to fund our own operations
or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic
changes may be adversely affected. For example, our obligations under the Master Lease may:
(cid:120) make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain
(cid:120)
(cid:120)
(cid:120)
(cid:120)
additional indebtedness;
increase our vulnerability to general or regional adverse economic and industry conditions or a
downturn in our business;
require us to dedicate a substantial portion of our cash flow from operations to making lease payments,
thereby reducing the availability of our cash flow to fund working capital, capital expenditures and
other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate; and
restrict our ability to raise capital, make acquisitions, divestitures and engage in other significant
transactions.
Any of the above listed factors could have a material adverse effect on our business, financial condition and
results of operations.
Most of our gaming and racing facilities are leased and could experience risks associated with leased
property, including risks relating to lease termination, lease extensions, charges and our relationship with GLPI,
which could have a material adverse effect on our business, financial position or results of operations.
We lease 20 of the gaming and racing facilities we operate pursuant to the Master Lease. The Master Lease
provides that GLPI may terminate the lease for a number of reasons, including, subject to applicable cure periods,
the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or
agreement in the lease. Termination of the Master Lease could result in a default under our debt agreements and
could have a material adverse effect on our business, financial position or results of operations. Moreover, as a
lessee we do not completely control the land and improvements underlying our operations and GLPI as lessor could
take certain actions to disrupt our rights in the facilities leased under the Master Lease which are beyond our control.
If GLPI chose to disrupt our use either permanently or for a significant period of time, then the value of our assets
could be impaired and our business and operations could be adversely affected. There can also be no assurance that
we will be able to comply with our obligations under the Master Lease in the future. In addition, if GLPI has
financial, operational, regulatory or other challenges there can be no assurance that GLPI will be able to comply
with its obligations under its agreements with us.
The Master Lease is commonly known as a triple-net lease. Accordingly, in addition to rent, we are
required to pay among other things the following: (1) all facility maintenance, (2) all insurance required in
connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with
respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services
necessary or appropriate for the leased properties and the business conducted on the leased properties. We are
responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the
benefits received in exchange for such costs shall in part accrue to GLPI as owner of the associated facilities. In
20
addition, if some of our leased facilities should prove to be unprofitable, we could remain obligated for lease
payments and other obligations under the Master Lease 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 may face reductions in discretionary consumer spending as a result of an economic downturn.
Our net revenues are highly dependent upon the volume and spending levels of customers at properties we
manage and as such our business has been adversely impacted by economic downturns. Decreases in discretionary
consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster
recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence,
weakness in the housing market, cultural and demographic changes, and increased stock market volatility may
negatively impact our revenues and operating cash flow.
We face extensive regulation from gaming and other regulatory authorities.
Licensing requirements. As managers of gaming and pari-mutuel wagering facilities, we are subject to
extensive state, local and, in Canada, provincial regulation. In addition, the Hollywood Casino Jamul-San Diego is
subject to the oversight of the National Indian Gaming Commission, which administers the Indian Gaming
Regulatory Act of 1988 with respect to the terms and conditions of management contracts and the operation of
casinos and all gaming on land held in trust for Native American tribes in the U.S. State, local and provincial
authorities require us and our subsidiaries to demonstrate suitability to obtain and retain various licenses and require
that we have registrations, permits and approvals to conduct gaming operations. These regulatory authorities have
broad discretion, and may, for any reason set forth in the applicable legislation, rules and regulations, limit,
condition, suspend, fail to renew or revoke a license or registration to conduct gaming operations or prevent us from
owning the securities of any of our gaming subsidiaries or prevent another person from owning an equity interest in
us. Like all gaming operators in the jurisdictions in which we operate, we must periodically apply to renew our
gaming licenses or registrations and have the suitability of certain of our directors, officers and employees approved.
We cannot assure you that we will be able to obtain such renewals or approvals. Regulatory authorities have input
into our operations, for instance, hours of operation, location or relocation of a facility, and numbers and types of
machines. Regulators may also levy substantial fines against or seize our assets or the assets of our subsidiaries or
the people involved in violating gaming laws or regulations. Any of these events could have a material adverse
effect on our business, financial condition and results of operations.
We have demonstrated suitability to obtain and have obtained all governmental licenses, registrations,
permits and approvals necessary for us to operate our existing gaming and pari-mutuel facilities. We can give no
assurance to you that we will be able to retain those existing licenses or demonstrate suitability to obtain any new
licenses, registrations, permits or approvals. In addition, the loss of a license in one jurisdiction could trigger the
loss of a license or affect our eligibility for a license in another jurisdiction. As we expand our gaming operations in
our existing jurisdictions or to new areas, we may have to meet additional suitability requirements and obtain
additional licenses, registrations, permits and approvals from gaming authorities in these jurisdictions. The approval
process can be time-consuming and costly and we cannot be sure that we will be successful.
Gaming authorities in the U.S. generally can require that any beneficial owner of our securities file an
application for a finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to
file a suitability application, the owner must generally apply for a finding of suitability within 30 days or at an
earlier time prescribed by the gaming authority. The gaming authority has the power to investigate such an owner’s
suitability and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner
may be required by law to dispose of our securities.
Potential changes in legislation and regulation of our operations. Regulations governing the conduct of
gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may
21
have gaming operations are subject to change and could impose additional operating, financial, competitive or other
burdens on the way we conduct our business.
Moreover, legislation to prohibit, limit or add burdens to our business may be introduced in the future in
states where gaming has been legalized. In addition, from time to time, legislators and special interest groups have
proposed legislation that would expand, restrict or prevent gaming operations or which may otherwise adversely
impact our operations in the jurisdictions in which we operate. Any expansion of gaming or restriction on or
prohibition of our gaming operations or enactment of other adverse regulatory changes could have a material
adverse effect on our operating results.
The passage of the Smoke Free Illinois Act which banned smoking in casinos, adversely affected revenues
and operating results at our Illinois properties at the time it was implemented in January 2008. In Pennsylvania, we
are currently permitted to allow smoking on only up to 50% of the gaming floor of our Grantville facility and
smoking is banned in all other indoor areas. Additionally, in July 2012, a state statute in Indiana became effective
that imposes a state wide smoking ban in specified businesses, buildings, public places and other specified locations.
The statute specifically exempts riverboat casinos, and all other gaming facilities in Indiana, from the smoking ban.
However, the statute allows local government to enact a more restrictive smoking ban than the state statute and also
leaves in place any more restrictive local legislation that exists as of the effective date of the statute. To date, our
facility in Lawrenceburg, Indiana is not subject to any such local legislation. If additional smoking bans are enacted
within jurisdictions where we operate or seek to do business, our business could be adversely affected.
Taxation and fees. We believe that the prospect of significant revenue is one of the primary reasons that
jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant revenue
based taxes and fees in addition to normal federal, state, local and provincial income taxes, and such taxes and fees
are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to
time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the
administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could
intensify the efforts of state and local governments to raise revenues through increases in gaming taxes, property
taxes, and/or authorizing additional gaming facilities each subject to payment of a new license fee. It is not possible
to determine with certainty the likelihood of changes in such laws or in the administration of such laws. Such
changes, if adopted, could have a material adverse effect on our business, financial condition and results of
operations. The large number of state and local governments with significant current or projected budget deficits
makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or
increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any
material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future
financial results.
Compliance with other laws. We are also subject to a variety of other rules and regulations, including
zoning, environmental, construction and land-use laws and regulations governing the serving of alcoholic beverages.
If we are not in compliance with these laws, it could have a material adverse effect on our business, financial
condition and results of operations. We also deal with significant amounts of cash in our operations and are subject
to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or
regulations, or any accusations of money laundering or regulatory investigations into possible money laundering
activities, by any of our properties, employees or customers could have a material adverse effect on our financial
condition, results of operations and cash flows.
We have certain properties that generate a significant percentage of our net revenues.
For the year ended December 31, 2017, our facility in Charles Town, West Virginia generated
approximately 12% of our net revenues. Our ability to meet our operating and debt service requirements is
dependent, in part, upon the continued success of this facility. The operations at this facility and any of our other
facilities could be adversely affected by numerous factors, including those described in these “Risk Factors” as well
as more specifically those described below:
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(cid:120)
(cid:120)
(cid:120)
risks related to local and regional economic and competitive conditions, such as a decline in the
number of visitors to a facility, a downturn in the overall economy in the market, a decrease in
consumer spending on gaming activities in the market or an increase in competition within and outside
the state in which each property is located;
changes in local and state governmental laws and regulations (including changes in laws and
regulations affecting gaming operations and taxes) applicable to a facility;
impeded access to a facility due to weather, road construction or closures of primary access routes;
(cid:120) work stoppages, organizing drives and other labor problems as well as issues arising in connection
with agreements with horsemen and pari-mutuel clerks; and
(cid:120)
the occurrence of natural disasters or other adverse regional weather trends.
In addition, although to a lesser extent than our facility in Charles Town, West Virginia, we anticipate
meaningful contributions from Hollywood Casino at Penn National Race Course and Hollywood Casino St. Louis
and our properties in Ohio. Therefore, our results will be dependent on the regional economies and competitive
landscapes at these locations as well.
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could
impact our financial condition.
From time to time, we are defendants in various lawsuits relating to matters incidental to our business. The
nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees,
competitors, business partners and others in the ordinary course of business (particularly in the case of class actions).
As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can
be expensive and time consuming. We may not be successful in these lawsuits, and, especially with increasing class
action claims in our industry, could result in costs, settlements or damages that could significantly impact our
business, financial condition and results of operations.
We depend on our key personnel.
We are highly dependent on the services of our executive management team and other members of our
senior management team. Our ability to attract and retain key personnel is affected by the competitiveness of our
compensation packages and the other terms and conditions of employment, our continued ability to compete
effectively against other gaming companies and our growth prospects. The loss of the services of any members of
our senior management team could have a material adverse effect on our business, financial condition and results of
operations.
Inclement weather and other casualty events could seriously disrupt our business and have a material
adverse effect on our financial condition and results of operations.
The operations of our facilities are subject to disruptions or reduced patronage as a result of severe weather
conditions, natural disasters and other casualty events. Because many of our gaming operations are located on or
adjacent to bodies of water, these facilities are subject to risks in addition to those associated with land-based
casinos, including loss of service due to casualty, forces of nature, mechanical failure, extended or extraordinary
maintenance, flood, hurricane or other severe weather conditions. Many of our casinos operate in areas which are
subject to periodic flooding that has caused us to experience decreased attendance and increased operating expenses.
Any flood or other severe weather condition could lead to the loss of use of a casino facility for an extended period.
For instance, Hollywood Casino Toledo was closed for brief periods in 2014, 2015 and 2016 due to harsh winter
conditions and Argosy Casino Alton was closed for several days in December 2015, January 2016 and May 2017
due to flooding. Even if adverse weather conditions do not require the closure of our facilities, those conditions
make it more difficult for our customers to reach our properties for an extended period of time, which can have an
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adverse impact on our operations. Casualty events such as, the tragic shootings that occurred on the Las Vegas Strip
on October 1, 2017 that affect tourism also impact our business. Following the October 2017 tragedy, operations at
Tropicana Las Vegas were adversely effected.
The extent to which we can recover under our insurance policies for damages sustained at our
properties in the event of future inclement weather and other casualty events could adversely affect our business.
We maintain significant property insurance, including business interruption coverage, for these and other
properties. However, there can be no assurances that we will be fully or promptly compensated for losses at any of
our facilities in the event of future inclement weather or casualty events. In addition, our property insurance
coverage is in an amount that may be significantly less than the expected and actual replacement cost of rebuilding
certain facilities “as was” if there was a total loss. The Master Lease requires us, in the event of a casualty event, to
rebuild a leased property to substantially the same condition as existed immediately before such casualty event. We
renew our insurance policies (other than our builder’s risk insurance) on an annual basis. The cost of coverage may
become so material that we may need to further reduce our policy limits, further increase our deductibles, or agree to
certain exclusions from our coverage.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical
power. Our security systems and all of our slot machines are controlled by computers and reliant on electrical
power to operate.
Any unscheduled disruption in our technology services or interruption in the supply of electrical power
could result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations.
Such interruptions may occur as a result of, for example, a failure of our information technology or related systems,
catastrophic events or rolling blackouts. Our systems are also vulnerable to damage or interruption from
earthquakes, floods, fires, telecommunication failures, terrorist attacks, computer viruses, computer
denial-of-service attacks and similar events.
Our information technology and other systems are subject to cyber security risk including
misappropriation of employee information, customer information or other breaches of information security.
We rely on information technology and other systems to manage our business and employee data and
maintain and transmit customers’ personal and financial information, credit card settlements, credit card funds
transmissions, mailing lists and reservations information. Our collection of such data is subject to extensive
regulation by private groups, such as the payment card industry, as well as governmental authorities, including
gaming authorities. Privacy regulations continue to evolve and we have taken, and will continue to take, steps to
comply by implementing processes designed to safeguard our business, employee and customers’ confidential and
personal information. In addition, our security measures are reviewed and evaluated regularly. However, our
information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of
potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company
employees, or employees of third party vendors. The steps we take to deter and mitigate the risks of breaches may
not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or
regulatory compliance and could result in remedial expenses, fines, litigation, disclosures, and loss of reputation,
potentially impacting our financial results.
Further, as cyber-attacks continue to evolve, we may incur significant costs in our attempts to modify or
enhance our protective measures or investigate or remediate any vulnerability. Increased instances of cyber-attacks
may also have a negative reputational impact on us and our properties that may result in a loss of customer
confidence and, as a result, may have a material adverse effect on our business and results of operations.
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Our operations in certain jurisdictions depend on management agreements and/or leases with third
parties and local governments.
Our operations in several jurisdictions depend on land leases and/or management and development
agreements with third parties and local governments. If we, or if GLPI in the case of leases pursuant to which we are
the sub-lessee, are unable to renew these leases and agreements on satisfactory terms as they expire or disputes arise
regarding the terms of these agreements, our business may be disrupted and, in the event of disruptions in multiple
jurisdictions, could have a material adverse effect on our financial condition and results of operations. For example,
in the Province of Ontario, through CHC Casinos, our indirectly wholly owned subsidiary, we manage Casino
Rama, a full service gaming and entertainment facility, on behalf of the OLG, an agency of the Province of Ontario.
In June 2014, we signed an agreement to extend the management agreement for Casino Rama on a month-to-month
basis with a 60-day notice period for up to a maximum period of forty-eight months. The OLG is exploring bids for
new operating contracts and privatization in Ontario, including at Casino Rama. As a result, we expect our
management contract with the OLG to end shortly after June 30, 2018.
We depend on agreements with our horsemen and pari-mutuel clerks
The Federal Interstate Horseracing Act of 1978, as amended, the West Virginia Race Horse Industry
Reform Act and the Pennsylvania Racing Act require that, in order to simulcast races, we have certain agreements
with the horse owners and trainers at our West Virginia and Pennsylvania racetracks. In addition, West Virginia
requires applicants seeking to renew their gaming license to demonstrate they have an agreement regarding the
proceeds of the gaming machines with a representative of a majority of the horse owners and trainers, a
representative of a majority of the pari-mutuel clerks and a representative of a majority of the horse breeders.
At Hollywood Casino at Charles Town Races, we have an agreement with the Charles Town Horsemen’s
Benevolent and Protective Association through June 18, 2018. Additionally, the pari-mutuel clerks at Charles Town
are represented under a collective bargaining agreement with the West Virginia Union of Mutuel Clerks, which
expired on December 31, 2010 and has been extended on a month-to-month basis.
The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at
Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an
agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and
off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract was negotiated
and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year
collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.
Our agreement with the Maine Harness Horsemen Association at Bangor Raceway is in effect through the
conclusion of the 2018 racing season. In March of 2014, Hollywood Gaming at Mahoning Valley Race Course
entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a
period of ten years from the September 2014 commencement of video lottery terminal operations at that facility.
Hollywood Gaming at Dayton Raceway entered into a ten-year agreement with the Ohio Harness Horsemen’s
Association for racing at Hollywood Gaming at Dayton Raceway in September of 2015. In January 2014
Plainridge Park Casino entered into an agreement with the Harness Horsemen’s Association of New England which
expires December 31, 2018.
In certain jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an
agreement with the horsemen at a track, we may not be permitted to conduct live racing and export and import
simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed. In
addition, our annual simulcast export agreements are subject to the horsemen’s approval under the Federal Interstate
Horseracing Act of 1978, as amended. Some simulcast import agreements require horsemen approval depending on
state law. If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material
adverse effect on our business, financial condition and results of operations
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A deterioration in the performance of the Jamul Tribal facility could result in additional charges on our
loan that we extended to the Jamul Indian Village Development Corporation.
We have made substantial loans to the Jamul Indian Village Development Corporation (“JIVDC”), an
instrumentality of the Jamul Tribe, for the construction, development, equipment and operations of the Hollywood
Casino Jamul-San Diego. Our subsidiary, San Diego Gaming Ventures, LLC (“SDGV”), provided a $98 million
term loan C facility to the project. Furthermore, we provided additional delayed draw term loans and a limited
completion guarantee for certain post-opening construction costs related to roadway improvements. As of
December 31, 2017, these future funding commitments total approximately $29 million. All of our loans and any
future funding obligations are subordinated to the other substantial debt on the property. Our only material recourse
for collection of indebtedness from the JIVDC or for money damages for breach or wrongful termination of a
management, development, consulting or financing agreement is from positive cash flow, if any, from casino
operations or from the sale of our loan to a third party. Penn recorded charges of $89.8 million related to the loan
and related loan commitments in 2017. We may realize little or no value for our loan which could result in
additional charges of up to $27.9 million which represents our loan and loan commitments net of reserves at
December 31, 2017. Additionally, we may incur unexpected costs related to the termination and transition of our
management contract with the Jamul Tribe.
Our planned capital expenditures may not result in our expected improvements in our business.
We regularly expend capital to construct, maintain and renovate our properties to remain competitive,
maintain the value and brand standards of our properties and comply with applicable laws and regulations. Our
ability to realize the expected returns on our capital investments is dependent on a number of factors, including,
general economic conditions; changes to construction plans and specifications; delays in obtaining or inability to
obtain necessary permits, licenses and approvals; disputes with contractors; disruptions to our business caused by
construction; and other unanticipated circumstances or cost increases.
While we believe that the overall budgets for our planned capital expenditures are reasonable, these costs
are estimates and the actual costs may be higher than expected. In addition, we can provide no assurance that these
investments will be sufficient or that we will realize our expected returns on our capital investments, or any returns
at all. A failure to realize our expected returns on capital investments could materially adversely affect our business,
financial condition and results of operations or an outright sale of the loan to a third party.
The concentration and evolution of the slot machine manufacturing industry could impose additional
costs on us.
A majority of our revenues are attributable to slot machines and related systems operated by us at our
gaming facilities. It is important, for competitive reasons, that we offer the most popular and up to date slot machine
games with the latest technology to our customers.
A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few
select companies, and there has been extensive consolidation activity within the gaming equipment sector in recent
years, including the acquisitions of Multimedia Games, Inc. by Global Cash Access, Bally Technologies, Inc.
(which had acquired SHFL Entertainment, Inc.) and WMS Industries Inc. by Scientific Games Corporation and
International Gaming Technologies by GTECH Holdings.
In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most
popular games, instead requiring participation lease arrangements in order to acquire the machines. Participation slot
machine leasing arrangements typically require the payment of a fixed daily rental. Such agreements may also
include a percentage payment of coin-in or net win. Generally, a participation lease is substantially more expensive
over the long term than the cost to purchase a new machine.
For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease
arrangements that are more expensive than our current costs associated with the continued operation of our existing
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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 have announced several initiatives in the social gaming space, which is a new line of business for us
in a rapidly evolving and highly competitive market. There can be no assurance that we will be able to compete
effectively or that our new initiatives will be successful.
We have announced several initiatives in the social gaming space, including the 2016 acquisition of Rocket
Speed, and expect to continue to invest in and market social gaming and other mobile gaming platforms to our
customers in casinos and beyond and to explore other acquisitions in the space. Social gaming is a new line of
business for us, which makes it difficult to assess its future prospects. Our products will compete in a rapidly
evolving and highly competitive market against an increasing number of competitors, including Playtika, Zynga and
slot manufacturers. Given the open nature of the development and distribution of games for electronic devices, our
business will also compete with developers and distributors who are able to create and launch games and other
content for these devices using relatively limited resources and with relatively limited start-up time or expertise. We
have limited experience operating in this rapidly evolving marketplace and may not be able to compete effectively.
In addition, our ability to be successful with our social gaming platform is dependent on numerous factors
beyond our control that affect the social and mobile gaming industry and the online gaming industry in the United
States, including the occurrence and manner of legalization of online real money gaming in the United States
beyond Nevada, Delaware and New Jersey; changes to the policies of social gaming distribution channels, including
Apple and Google, changes in consumer demographics and public tastes and preferences; changing laws and
regulations affecting social and mobile games; the reaction of regulatory bodies to social gaming initiatives by
holders of gaming licenses; the availability and popularity of other forms of entertainment; any challenges to the
intellectual property rights underlying our games; and outages and disruptions of our online services that may harm
our business.
Our social gaming initiatives will result in increased operating expense and increased time and attention
from our management. In addition, we may be particularly dependent on key personnel in our interactive business
unit. We believe our social games are complementary to our current operations and offer additional avenues of
access and interaction for our customers, and, the social gaming business depends on developing and publishing
games that consumers will download and spend time and money on consistently. We continue to invest in research
and development, analytics and marketing to attract and retain customers for our social games. Our success depends,
in part, on unpredictable factors beyond our control, including consumer preferences, competing games and other
forms of entertainment, and the emergence of new platforms. Our inability to ultimately monetize our investment in
social gaming initiatives could have a material adverse effect on our business and results of operations.
Our social gaming initiatives may result in increased risk of cyber-attack, hacking, or other security
breaches, which could harm our reputation and competitive position and which could result in regulatory actions
against us or in other penalties.
As our social gaming business grows, we will face increased cyber risks and threats that seek to damage,
disrupt or gain access to our networks, our products and services, and supporting infrastructure. Such cyber risks and
threats, including to virtual currencies that may be used in the games, may be difficult to detect. Any failure to
prevent or mitigate security breaches or cyber risk could result in interruptions to the services we provide, degrade
the user experience, and cause our users to lose confidence in our products. The unauthorized access, acquisition or
disclosure of consumer information could compel us to comply with disparate breach notification laws and
otherwise subject us to proceedings by governmental entities or others and substantial legal and financial liability.
Our key business partners also face these same risks with respect to consumer information they collect, and data
security breaches with respect to such information could cause reputational harm to them and negatively impact our
ability to offer our products and services through their platforms. This could harm our business and reputation,
disrupt our relationships with partners and diminish our competitive position.
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The success of our VGT operations in Illinois is dependent on our ability to renew our contracts and
expand the business.
On September 1, 2015, we completed our acquisition of Prairie State Gaming, one of the largest VGT
operators in Illinois and subsequently have completed several smaller acquisitions of VGT operators in the state. We
face competition from other VGT operators, as well as from casinos, hotels, taverns and other entertainment venues.
Our ability to compete successfully in this new line of business depends on our ability to retain existing customers
and secure new establishments, both of which are dependent on the level of service and variety of products that we
are able to offer to our customers. VGT contracts are renewable at the option of the owner of the applicable bar and
retail gaming establishments and, as our contracts expire, we will be subject to competition for renewals. In addition,
VGT operations in Illinois are subject to approval by local municipalities, and therefore our ability to retain and
expand our VGT business depends, in part, on such approvals. In addition, there is a risk that the market for VGTs
in Illinois could become oversaturated. If we are unable to retain our existing customers or their results suffer as a
result of competition or because the market becomes oversaturated or if certain municipalities in Illinois elect to
prohibit VGTs, our business and operations could be adversely impacted.
It is unclear what long-term impact our business structure will have on our key business relationships
and our ability to compete with other gaming operators.
As a result of the completed Spin-Off, we were the first gaming operator that leases the majority of its
properties from a single lessor under a master lease arrangement. As a result, it is difficult to predict whether and to
what extent our relationship with GLPI, including any actual or perceived conflicts of interest on the part of our
overlapping directors, will affect our relationships with suppliers, customers, regulators and our ability to compete
with other gaming operators that are not subject to a master lease arrangement with a single lessor.
Work stoppages, organizing drives and other labor problems could negatively impact our future profits.
Some of our employees are currently represented by labor unions. A lengthy strike or other work stoppages
at any of our casino properties or construction projects could have an adverse effect on our business and results of
operations. Given the large number of employees, labor unions are making a concerted effort to recruit more
employees in the gaming industry. We cannot provide any assurance that we will not experience additional and
more successful union organization activity in the future.
We are subject to environmental laws and potential exposure to environmental liabilities.
We are subject to various federal, state and local environmental laws and regulations that govern our
operations, including emissions and discharges into the environment, and the handling and disposal of hazardous
and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for
corrective action, penalties or the imposition of other liabilities or restrictions. From time to time, we have incurred
and are incurring costs and obligations for correcting environmental noncompliance matters. For example, portions
of Tropicana Las Vegas are known to contain asbestos as well as other environmental conditions, which may
include the presence of mold. The environmental conditions may require remediation in isolated areas. The extent of
such potential conditions cannot be determined definitively. To date, none of these matters have had a material
adverse effect on our business, financial condition or results of operations; however, there can be no assurance that
such matters will not have such an effect in the future.
We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of
hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner
or operator of property may be liable for the costs of remediating contaminated soil or groundwater on or from its
property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur
liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it
properly, may adversely affect our ability to use, sell or rent property. Under our contractual arrangements with
GLPI, including the Master Lease, we will generally be responsible for both past and future environmental liabilities
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associated with our gaming operations, notwithstanding ownership of the underlying real property having been
transferred to GLPI. Furthermore, we are aware that there is or may have been soil or groundwater contamination at
certain of our properties resulting from current or former operations. By way of further example, portions of
Tropicana Las Vegas are known to contain asbestos as well as other environmental conditions, which may include
the presence of mold. The environmental conditions may require remediation in isolated areas. The extent of such
potential conditions cannot be determined definitely, and may result in additional expense in the event that
additional or currently unknown conditions are detected.
Additionally, certain of the gaming chips used at many gaming properties, including some of ours, have
been found to contain some level of lead. Analysis by third parties has indicated the normal handling of the chips
does not create a health hazard. We have disposed of a majority of these gaming chips. To date, none of these
matters or other matters arising under environmental laws has had a material adverse effect on our business,
financial condition, or results of operations; however, there can be no assurance that such matters will not have such
an effect in the future.
Risks Related to the Anticipated Acquisition of Pinnacle
The transactions contemplated by the merger agreement with Pinnacle are subject to conditions,
including certain conditions that may not be satisfied, or completed on a timely basis, if at all. Failure to complete
the transactions contemplated by the merger agreement and related transaction agreements could have material
and adverse effects on us.
Completion of our proposed acquisition of Pinnacle is subject to a number of conditions, including the
approval by our shareholders and Pinnacle’s stockholders and certain antitrust and state gaming approvals, which
make the completion and timing of the completion of the transactions uncertain. If the transactions contemplated by
the merger agreement and related transaction agreements with Boyd Gaming Corporation (“Boyd”) and GLPI are
not completed, or are not completed on a timely basis our business may be adversely affected and, without realizing
any of the benefits of having completed the transactions, we will be subject to a number of risks, costs and expenses,
including the following:
(cid:120) we will be required to pay our costs relating to the transactions, such as legal, accounting, financial
advisory and printing fees, whether or not the transactions are completed;
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if the merger agreement is terminated as a result of the failure to obtain the requisite antitrust and
gaming law approvals, Penn will be forced to pay Pinnacle a termination fee of $125 million;
in some circumstances, upon termination of the merger agreement, Penn or Pinnacle will be required to
pay a $60 million termination fee to the other party;
if we are unable to close the merger prior to November 1, 2018, we will be required to pay an
additional $0.01 per share per day until closing to Pinnacle stockholders;
the diversion of time and resources committed by our management to matters relating to the proposed
transactions that could otherwise have been devoted to pursuing other opportunities;
the market price of our common stock could decline to the extent that the current market price reflects
a market assumption that the transactions will be completed;
if the merger is not completed by October 31, 2018, assuming that Penn does not elect to extend this
deadline and the deadline is not otherwise automatically extended as contemplated in the merger
agreement, either Penn or Pinnacle may terminate the merger agreement; and
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(cid:120) we may be subject to litigation related to any failure to complete the merger.
We will be subject to business uncertainties while our proposed acquisition of Pinnacle and related
transaction with Boyd and GLPI are pending, which could adversely affect our business.
It is possible that certain persons with whom we have a business relationship may delay or defer business
decisions or might decide to seek to terminate, change or renegotiate their relationships with us as a result of the
transactions contemplated by the merger agreement with Pinnacle and related agreements with Boyd and GLPI,
which could negatively affect our revenues, earnings and cash flows, as well as the market price of our common
stock, regardless of whether the proposed transactions are completed.
In addition, under the terms of the merger agreement, we are subject to certain restrictions on the conduct
of our business prior to the closing, which may adversely affect our ability to execute certain of our business
strategies, including the ability in certain cases to acquire or dispose of assets or repurchase shares of our common
stock. Such limitations could negatively affect our business and operations prior to the completion of the
transactions contemplated by the merger agreement.
If our proposed acquisition of Pinnacle and related transactions with Boyd and GLPI are completed, we
may not achieve the intended benefits and the transactions may disrupt our current plans or operations.
There can be no assurance that we will be able to successfully integrate Pinnacle’s assets or otherwise
realize the expected benefits of the acquisition and related transactions with Boyd and GLPI. In addition, the merger
is not subject to a financing condition, which means that we would be required to complete the merger even if
financing is not available or is available only on terms other than those currently anticipated. Our inability to
finance the acquisition on attractive terms could result in increased costs, dilution to our shareholders and/or have an
adverse effect on our financial condition, results of operations or cash flows. In addition, our business may be
negatively affected following the transaction if we are unable to effectively manage our expanded operations. The
integration will require significant time and focus from our management following the transaction. Additionally,
consummating the transactions could disrupt current plans and operations, which could delay the achievement of our
strategic objectives.
Risks Related to the Spin-Off
If the Spin-Off, together with certain related transactions, does not qualify as a transaction that is
generally tax-free for U.S. federal income tax purposes, we could be subject to significant tax liabilities.
We received a private letter ruling (the “IRS Ruling”) from the IRS substantially to the effect that, among
other things, the Spin-Off, together with certain related transactions, will qualify as a transaction that is generally
tax-free for U.S. federal income tax purposes under Sections 355 and/or 368(a)(1)(D) of the Internal Revenue Code
of 1986, as amended (the “Code”). The IRS Ruling does not address certain requirements for tax-free treatment of
the Spin-Off under Section 355, and we received from our tax advisors a tax opinion substantially to the effect that,
with respect to such requirements on which the IRS will not rule, such requirements will be satisfied. The IRS
Ruling, and the tax opinions that we received from our tax advisors, relied on and will rely on, among other things,
certain representations, assumptions and undertakings, including those relating to the past and future conduct of
GLPI’s business, and the IRS Ruling and the opinions would not be valid if such representations, assumptions and
undertakings were incorrect in any material respect.
Notwithstanding the IRS Ruling and the tax opinions, the IRS could determine the Spin-Off should be
treated as a taxable transaction for U.S. federal income tax purposes if it determines any of the representations,
assumptions or undertakings that were included in the request for the IRS Ruling are false or have been violated or if
it disagrees with the conclusions in the opinions that are not covered by the IRS Ruling.
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If the Spin-Off fails to qualify for tax-free treatment, in general, we would be subject to tax as if we had
sold the GLPI common stock in a taxable sale for its fair market value.
Under the tax matters agreement that GLPI entered into with us, GLPI generally is required to indemnify us
against any tax resulting from the Spin-Off to the extent that such tax resulted from (1) an acquisition of all or a
portion of the equity securities or assets of GLPI, whether by merger or otherwise, (2) other actions or failures to act
by GLPI, or (3) any of GLPI’s representations or undertakings being incorrect or violated. GLPI’s indemnification
obligations to Penn and its subsidiaries, officers and directors will not be limited by any maximum amount. If GLPI
is required to indemnify Penn or such other persons under the circumstance set forth in the tax matters agreement,
GLPI may be subject to substantial liabilities and there can be no assurance that GLPI will be able to satisfy such
indemnification obligations.
On September 27, 2017 the Internal Revenue Service finalized the audit examination of the 2013 U.S.
federal income tax return with no adjustments related to the spin-off transaction including the tax-free treatment.
Although the 2013 examination is finalized, the statute of limitation was extended to June 30, 2018.
Peter M. Carlino, our Chairman, and David A. Handler, one of our directors, may have actual or
potential conflicts of interest because of their positions at GLPI.
Peter M. Carlino serves as our Chairman and as the Chairman and Chief Executive Officer of GLPI. In
addition, David A. Handler, one of our directors, is also a director of GLPI. While we have procedures in place to
address such situations, these overlapping positions could create, or appear to create, potential conflicts of interest
when our or GLPI’s management and directors pursue the same corporate opportunities, such as greenfield
development opportunities or potential acquisition targets, or face decisions that could have different implications
for us and GLPI. Further, potential conflicts of interest could arise in connection with the resolution of any dispute
between us and GLPI (or its subsidiaries) regarding the terms of the agreements governing the separation and the
relationship, between us and GLPI, such as under the Master Lease. Potential conflicts of interest could also arise if
we and GLPI enter into any commercial or other adverse arrangements with each other in the future.
In connection with the Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can
be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or
that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the separation and distribution agreement, GLPI has agreed to indemnify us for certain
liabilities. However, third parties could seek to hold us responsible for any of the liabilities that GLPI agreed to
retain, and there can be no assurance that GLPI will be able to fully satisfy its indemnification obligations.
Moreover, even if we ultimately succeed in recovering from GLPI any amounts for which we are held liable, we
may be temporarily required to bear these losses while seeking recovery from GLPI.
A court could deem the distribution in the Spin-Off to be a fraudulent conveyance and void the
transaction or impose substantial liabilities upon us.
If the transaction is challenged by a third party, a court could deem the distribution of GLPI common shares
or certain internal restructuring transactions undertaken by us in connection with the Spin-Off to be a fraudulent
conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations
incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations
incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor
insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court
could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial
condition and our results of operations. Among other things, the court could require our shareholders to return to us
some or all of the shares of our common stock issued in the distribution or require us to fund liabilities of other
companies involved in the restructuring transactions for the benefit of creditors. Whether a transaction is a
fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.
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If we and GLPI are treated by the IRS as being under common control, both we and GLPI could
experience adverse tax consequences.
If we and GLPI are treated by the IRS as being under common control, the IRS will be authorized to
reallocate income and deductions between us and GLPI to reflect arm’s length terms. If the IRS were to successfully
establish that rents paid by us to GLPI are excessive, (1) we would be denied a deduction for the excessive portion
and (2) we would be subject to a penalty on the portion deemed excessive, each of which could have a material
adverse effect on our business, financial position or results of operations. In addition, our shareholders would be
deemed to have received a distribution that was then contributed to the capital of GLPI.
Risks Related to Our Capital Structure
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling
our obligations under our outstanding indebtedness.
We have a substantial amount of indebtedness and a significant fixed annual lease payment to GLPI which
will increase upon the closing of the merger with Pinnacle. Our substantial indebtedness and additional fixed costs
via our Master Lease obligation could have important consequences to our financial health. For example, it could:
(cid:120) make it more difficult for us to satisfy our obligations with respect to our indebtedness;
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limit our ability to participate in multiple or large development projects, absent additional third party
financing;
increase our vulnerability to general or regional adverse economic and industry conditions or a
downturn in our business;
require us to dedicate a substantial portion of our cash flow from operations to satisfy our financing
obligation and debt service, thereby reducing the availability of our cash flow to fund working capital,
capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate;
place us at a competitive disadvantage compared to our competitors that are not as highly leveraged;
limit, along with the financial and other restrictive covenants in our indebtedness, among other things,
our ability to borrow additional funds; and
result in an event of default if we fail to satisfy our obligations under our indebtedness or fail to
comply with the financial and other restrictive covenants contained in our debt instruments, which
event of default could result in all of our debt becoming immediately due and payable and could permit
certain of our lenders to foreclose on any of our assets securing such debt.
Any of the above listed factors could have a material adverse effect on our business, financial condition and
results of operations. The terms of our debt do not, and any future debt may not, fully prohibit us from incurring
additional debt, including debt related to facilities we develop or acquire. If new debt is added to our current debt
levels, the related risks that we now face could intensify.
32
Volatility and disruption of the capital and credit markets and adverse changes in the global economy
may negatively impact our revenues and our ability to access favorable financing terms.
While we intend to finance expansion and renovation projects with existing cash, cash flow from
operations and borrowings under our senior secured credit facility, we may require additional financing to support
our continued growth. However, depending on then current economic or capital market conditions, our access to
capital may not be available on terms acceptable to us or at all. Further, if adverse regional and national economic
conditions persist or worsen, we could experience decreased revenues from our operations attributable to decreases
in consumer spending levels and could fail to satisfy the financial and other restrictive covenants to which we are
subject under our existing indebtedness. Finally, our borrowing costs under our senior secured credit facility are tied
to LIBOR. We currently have no hedges in place to mitigate the impact of higher LIBOR rates and as such
significant increases in LIBOR could have a negative impact on our results of operations.
The availability and cost of financing could have an adverse effect on business.
We intend to finance some of our current and future expansion, development and renovation projects and
acquisitions with cash flow from operations, borrowings under our senior secured credit facility and equity or debt
financings. We are required by the Master Lease to, in the case of certain expansion projects, or may choose, in the
case of other development projects, provide GLPI the right to provide the financing needed for such purposes.
Depending on the state of the credit markets, if we are unable to finance our current or future projects, we could
have to seek alternative financing, such as through selling assets, restructuring debt, increasing our reliance on
equity financing or seeking additional joint venture partners. Depending on credit market conditions, alternative
sources of funds may not be sufficient to finance our expansion, development and/or renovation, or such other
financing may not be available on acceptable terms, in a timely manner or at all. In addition, our existing
indebtedness contains restrictions on our ability to incur additional indebtedness. If we are unable to secure
additional financing, we could be forced to limit or suspend expansion, development and renovation projects and
acquisitions, which may adversely affect our business, financial condition and results of operations.
The capacity under our revolving credit facility, which expires in 2022, has increased to $700 million via a
bank group that is comprised of 12 large financial institutions with the top six institutions providing approximately
71% of the facility. If a large percentage of our lenders were to file for bankruptcy or otherwise default on their
obligations to us, we could experience decreased levels of liquidity which could have a detrimental impact on our
operations. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations
under our senior secured credit facility.
Our indebtedness imposes restrictive covenants on us that could limit our operations and lead to events
of default if we do not comply with those covenants.
Our senior secured credit facility requires us, among other obligations, to maintain specified financial ratios
and to satisfy certain financial tests, including interest coverage, senior secured net leverage and total net leverage
ratios. In addition, our credit facility restricts, among other things, our ability to incur additional indebtedness, incur
guarantee obligations, repay certain other indebtedness or amend debt instruments, pay dividends, create liens on
our assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions
with subsidiaries and affiliates or otherwise restrict corporate activities. In addition, the indenture governing our
senior unsecured notes restricts, among other things, our ability to incur additional indebtedness (excluding certain
indebtedness under our credit facility), issue certain preferred stock, pay dividends or distributions on our capital
stock or repurchase our capital stock, make certain investments, create liens on our assets to secure certain debt,
enter into transactions with affiliates, merge or consolidate with another company, transfer and sell assets and
designate our subsidiaries as unrestricted subsidiaries. A failure to comply with the restrictions contained in the
documentation governing any of our indebtedness, termination of the Master Lease (subject to certain exceptions) or
the occurrence of certain defaults under the Master Lease could lead to an event of default thereunder that could
result in an acceleration of such indebtedness. Such acceleration would likely constitute an event of default under
our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable
and could permit certain of our lenders to foreclose on any of our assets securing such debt.
33
To service our indebtedness, we will require a significant amount of cash, which depends on many
factors beyond our control.
We cannot assure you that our business will generate sufficient cash flow from operations or that future
borrowings will be available to us under our senior secured credit facility in amounts sufficient to enable us to fund
our liquidity needs, including with respect to our indebtedness. We also may incur indebtedness related to facilities
we develop or acquire in the future prior to generating cash flow from those facilities. If those facilities do not
provide us with cash flow to service that indebtedness, we will need to rely on cash flow from our other properties,
which would increase our leverage. In addition, if we consummate significant acquisitions in the future, our cash
requirements may increase significantly. As we are required to satisfy amortization requirements under our senior
secured credit facility or as other debt matures, we may also need to raise funds to refinance all or a portion of our
debt. We cannot assure you that we will be able to refinance any of our debt, including our senior secured credit
facility, on attractive terms, commercially reasonable terms or at all. Our future operating performance and our
ability to service, extend or refinance our debt will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond our control.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following describes our principal real estate properties by segment:
Northeast
Hollywood Casino at Charles Town Races. We lease approximately 300 acres on various parcels in
Charles Town and Ranson, West Virginia of which approximately 155 acres comprise Hollywood Casino at Charles
Town Races. The facility includes a 153-room hotel and a 3/4-mile all-weather lighted thoroughbred racetrack, a
training track, two parking garages, an employee parking lot, an enclosed grandstand/clubhouse and housing
facilities for over 1,300 horses.
Hollywood Casino at Penn National Race Course. We lease approximately 574 acres in Grantville,
Pennsylvania, where Penn National Race Course is located on approximately 181 acres. The facility includes a
one-mile all-weather lighted thoroughbred racetrack and a 7/8-mile turf track, a parking garage and surface parking
spaces. The property also includes approximately 393 acres surrounding the Penn National Race Course that are
available for future expansion or development.
Hollywood Casino Toledo. We lease approximately 44-acres in Toledo, Ohio, where we opened
Hollywood Casino Toledo on May 29, 2012. The property includes the casino as well as structured and surface
parking.
Hollywood Casino Columbus. We lease approximately 116 acres of land in Columbus, Ohio, where we
opened Hollywood Casino Columbus on October 8, 2012. The property includes the casino as well as structured and
surface parking.
Hollywood Gaming at Dayton Raceway. We lease approximately 120 acres on the site of an abandoned
Delphi Automotive plant in Dayton, Ohio, where we relocated Raceway Park and opened a new gaming facility on
August 28, 2014. The facility includes a 5/8-mile standardbred racetrack and surface parking.
Hollywood Gaming at Mahoning Valley Race Course. We lease approximately 193 acres in Austintown,
Ohio, where we relocated Beulah Park and opened a new gaming facility on September 17, 2014. The facility
includes a one-mile thoroughbred racetrack and surface parking.
34
Hollywood Casino Bangor. We lease the land on which the Hollywood Casino Bangor facility is located in
Bangor, Maine, which consists of approximately 9 acres, and includes a 152-room hotel and four-story parking. In
addition, we lease approximately 35 acres located at historic Bass Park, which is adjacent to the facility, which
includes a one-half mile standardbred racetrack and a grandstand with over 12,000 square feet and seating for 3,500
patrons.
Plainridge Park Casino. We own an approximate 90-acre site in Plainville, Massachusetts, where we
opened Plainridge Park Casino on June 24, 2015. The property includes the casino as well as structured and surface
parking. The facility also includes a 5/8-mile live harness racing track, and a two story clubhouse.
Casino Rama. We do not own any of the land located at or near the casino or Casino Rama’s facilities and
equipment. The OLG has a long-term ground lease with an affiliate of the Rama First Nation, for the land on which
Casino Rama is situated. Under the Agreement, CHC Casinos and CRC Holdings, Inc. have been granted full access
to Casino Rama during the term of the Agreement to perform the management services under the Agreement. The
Casino Rama facilities are located on approximately 61 acres.
South/West
M Resort. We lease approximately 84 acres on the southeast corner of Las Vegas Boulevard and St. Rose
Parkway in Henderson, Nevada, where the M Resort is located. The M Resort property includes a 390-room hotel, a
4,700 space parking facility, and other facilities. We also lease approximately 4 acres of land which is part of the
property.
Zia Park Casino. Our casino adjoins the racetrack and is located on approximately 317 acres that we lease
in Hobbs, New Mexico. The property includes a one-mile quarter/thoroughbred racetrack. In August 2014, we
opened a new hotel, which includes 148 rooms, six suites, a business center, exercise/fitness facilities and a
breakfast venue.
Hollywood Casino Tunica. We lease approximately 68 acres of land in Tunica, Mississippi. The property
includes a single-level casino, a 494-room hotel, surface parking and other land-based facilities.
1st Jackpot Casino (formerly known as Bally’s Casino Tunica). We lease approximately 94 acres of land
and own approximately 53 acres of wetlands in Tunica, Mississippi. The property includes the casino, surface
parking and other land-based facilities.
Resorts Casino Tunica. We lease approximately 87 acres of land in Tunica, Mississippi. The property
includes the casino, a 201-room hotel, surface parking and other land-based facilities.
Hollywood Casino Gulf Coast. We lease approximately 580 acres in the city of Bay St. Louis, Mississippi.
The property includes a land-based casino, 18-hole golf course, a 291-room hotel, a 20-slip marina, a 100-space RV
Park and other facilities.
Boomtown Biloxi. We lease approximately 19.5 acres in Biloxi, Mississippi, most of which is utilized for
the gaming location. We also lease approximately 5 acres of submerged tidelands at the casino site from the State of
Mississippi and approximately 1 acre of land utilized mostly for the daiquiri bar area and welcome center.
Tropicana Las Vegas. We own approximately 35 acres on the strip of Las Vegas, Nevada. The property
includes the casino as well as a 1,470-room hotel and structured and surface parking.
Hollywood Casino Jamul-San Diego. We are the operator of this facility under our management contract
with the Jamul Tribe. As such we do not own the casino or the land on which the casino is located. The Jamul
Tribe is a federally recognized Indian Tribe holding a government-to-government relationship with the U.S. through
the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent powers of self-
government. The Jamul Tribe is the beneficial owner of approximately 6 acres of reservation land located within the
exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe. The Jamul Tribe exercises
35
jurisdiction over the Property pursuant to its powers of self-government and consistent with the resolutions and
ordinances of the Jamul Tribe.
In October 2016, the Company exercised an option agreement to purchase approximately 98 acres of land
located adjacent to the Jamul Indian Village reservation in San Diego County, California and all buildings,
structures and improvements erected or situated on the land.
Midwest
Hollywood Casino Aurora. We lease a dockside barge structure and land-based pavilion in Aurora,
Illinois. We lease the land, which is 0.4 acres, on which the pavilion is located. We also lease the rights to a
pedestrian walkway bridge and two parking garages, together comprising approximately 2 acres.
Hollywood Casino Joliet. We lease approximately 276 acres in Joliet, Illinois, which includes a
barge-based casino, land-based pavilion, a 100-room hotel, structured and surface parking areas and a recreational
vehicle park.
Argosy Casino Alton. We lease 3.8 acres in Alton, Illinois, a portion of which serves as the dockside
boarding for the Alton Belle II, a riverboat casino. The dockside facility includes an entertainment pavilion and
office space, as well as surface parking areas.
Hollywood Casino St. Louis. We lease approximately 248 acres along the Missouri River in Maryland
Heights, Missouri, which includes a 502-room hotel and structure and surface parking.
Argosy Casino Riverside. We lease approximately 38 acres in Riverside, Missouri, which includes a
barge-based casino, a 258-room luxury hotel, an entertainment/banquet facility and a parking garage. We also lease
6.8 acres which is primarily used for overflow parking.
Hollywood Casino Lawrenceburg. We lease approximately 53 acres in Lawrenceburg, Indiana, a portion
of which serves as the dockside embarkation for the gaming vessel, and includes a Hollywood-themed casino
riverboat, an entertainment pavilion, a 295-room hotel, two parking garages and an adjacent surface lot. In addition,
we lease approximately 52 acres on Route 50 used for remote parking. Effective January 2015, we own and operate
a hotel and event center located less than a mile away from our Hollywood Casino Lawrenceburg property, which
includes 168 rooms, approximately 18,000 square feet of multipurpose space and 19,500 square feet of ballroom and
meeting space.
Hollywood Casino at Kansas Speedway. Through our joint venture with International Speedway, we own
approximately 101 acres in which Hollywood Casino sits on Turn Two of the Kansas Speedway.
Prairie State Gaming. The Company acquired Prairie State Gaming, a licensed video gaming terminal
operator in Illinois, on September 1, 2015. Prairie State Gaming’s operations include more than 1,715 video gaming
terminals across a network of approximately 377 bar and retail gaming establishments in seven distinct geographic
areas throughout Illinois.
Other
Sanford-Orlando Kennel Club. We own approximately 26 acres in Longwood, Florida where
Sanford-Orlando Kennel Club is located. The property includes a 1/4-mile racing surface, a clubhouse dining facility
and a main grandstand building. Kennel facilities for up to 1,300 greyhounds are located at a leased location
approximately 1/2 mile from the racetrack enclosure.
Freehold Raceway. Through our joint venture in Pennwood, we own an approximate 51-acre site in
Freehold, New Jersey, where Freehold Raceway is located. The property features a half-mile standardbred race track
and a grandstand. In addition, through our joint venture in Pennwood, we own an approximate 10-acre site in Cherry
Hill, New Jersey, which is currently undeveloped.
36
Sam Houston Race Park and Valley Race Park. Through our joint venture with MAXXAM, we own
approximately 168 acres at Sam Houston Race Park and approximately 71 acres at Valley Race Park. Sam Houston
Race Park includes a one-mile dirt track and a 7/8-mile turf track as well as a 226,000 square foot grandstand and
pavilion centre. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting
facility located in Harlingen, Texas.
Off-track Wagering Facilities. The following is a list of our three OTWs and their locations:
(cid:3)
Location
York, PA
Lancaster, PA
Clementon, NJ
Approx. Size
(Square Ft.)
25,590 Leased
24,000 Leased
15,000 Leased
Owned/Leased Date Opened
March 1995
July 1996
July 2014
In addition, through our joint venture in Pennwood, we own 50% of a leased OTW in Toms River, New
Jersey, that has 28,160 square feet.
Corporate. We lease 52,116 square feet of executive office and warehouse space for buildings in
Wyomissing, Pennsylvania.
Penn Interactive Ventures. We lease 7,787 square feet of executive office space in Conshohocken
Pennsylvania, 10,463 square feet of executive office space in San Francisco, California, and 5,740 square feet of
executive office space in Henderson, Nevada.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal and administrative proceedings relating to personal injuries,
employment matters, commercial transactions, development agreements and other matters arising in the ordinary
course of business. The Company does not believe that the final outcome of these matters will have a material
adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company
maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings.
However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be
given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial
condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance
coverage will be sufficient to cover losses arising from such matters.
Legal proceedings could result in costs, settlements, damages, or rulings that materially impact the
Company’s consolidated financial condition or operating results. The Company believes that it has meritorious
defenses, claims and/or counter claims with respect to these proceedings, and intends to vigorously defend itself or
pursue its claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
37
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Range of Market Price
Our common stock is quoted on the NASDAQ Global Select Market under the symbol “PENN.” The
following table sets forth for the periods indicated the high and low sales prices per share of our common stock as
reported on the NASDAQ Global Select Market.
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 18.50 $ 13.06
18.11
20.14
22.91
22.03
23.39
31.42
$ 16.69 $ 12.81
13.59
12.72
11.98
17.32
15.07
14.62
The closing sale price per share of our common stock on the NASDAQ Global Select Market on February
15, 2018 was $28.18. As of February 15, 2018, there were approximately 434 holders of record of our common
stock.
Dividend Policy
Since our initial public offering of common stock in May 1994, we have not paid any cash dividends on our
common stock. We intend to retain all of our earnings to finance the development of our business, and thus, do not
anticipate paying cash dividends on our common stock for the foreseeable future. Payment of any cash dividends in
the future will be at the discretion of our Board of Directors and will depend upon, among other things, our future
earnings, operations and capital requirements, our general financial condition and general business conditions. In
addition, our senior secured credit facility and senior notes restrict, among other things, our ability to pay dividends.
In addition, future financing arrangements may prohibit the payment of dividends under certain conditions.
38
Stock Repurchase
On February 3, 2017, the Company announced a repurchase program pursuant to which the Board of
Directors authorized the repurchase of up to $100 million of the Company’s common stock which can be executed
over a two year period. The following table provides information regarding purchases of our common stock pursuant
to the repurchase program for the year ended December 31, 2017. All of the repurchased shares have been retired.
Total Number of Average Price Paid
Shares Purchased
per Share
Part of Publicly
Announced
Program
May Yet Be
Purchased Under
the Program
Total Number of
Maximum Dollar
Shares Purchased as Value of Shares that
January 1, 2017 - January 31 2017
February 1, 2017 - February 28, 2017
March 1, 2017 - March 31, 2017
April 1, 2017 - April 30, 2017
May 1, 2017 - May 31, 2017
June 1, 2017 - June 30, 2017
July 1, 2017 - July 31, 2017
August 1, 2017 - August 31, 2017
September 1, 2017 - September 30, 2017
October 1, 2017 - October 31, 2017
November 1, 2017 - November 30, 2017
December 1, 2017 - December 31, 2017
—
416,886 $
—
—
—
—
—
214,000 $
633,263 $
—
—
—
—
13.88
—
—
—
—
—
22.08
22.52
—
—
—
N/A
416,886 $
N/A $
N/A $
N/A $
N/A $
N/A $
630,886 $
1,264,149 $
N/A $
N/A $
N/A $
N/A
94,214,031
94,214,031
94,214,031
94,214,031
94,214,031
94,214,031
89,489,831
75,229,530
75,229,530
75,229,530
75,229,530
39
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial and operating data for the five-year period ended
December 31, 2017 are derived from our audited financial statements and should be read in conjunction with our
consolidated financial statements and notes thereto, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the other financial information included herein.
2017(1)
2016
Year ended December 31,
2015(2)
(in thousands, except per share data)
2014(3)
2013(4)
Income statement data:
Net revenues
Total operating expenses
Income (loss) from continuing
operations
Total other expenses
Income (loss) from continuing
operations before income taxes
Income tax (benefit) provision
Net income (loss) from continuing
operations including noncontrolling
interests
Net income from discontinued
operations net of tax
Net income (loss) attributable to the
shareholders of Penn
Per share data:
Basic earnings (loss) per common share
from continuing operations
Diluted earnings (loss) per common
share from continuing operations
Basic earnings per common share from
discontinued operations
Diluted earnings per common share
from discontinued operations
Weighted shares outstanding—Basic(5)
Weighted shares outstanding—
Diluted(5)
Other data:
Net cash provided by operating
activities (6)
Net cash used in investing activities
Net cash (used in) provided by
financing activities (6)
Depreciation and amortization
Interest expense
Capital expenditures
Balance sheet data:
Cash and cash equivalents
Total assets
Total financing obligation
Total debt (7)
Shareholders’ deficit
$ 3,147,970 $ 3,034,380 $ 2,838,358 $ 2,590,527 $ 2,777,886
3,201,754
2,370,512
2,491,364
2,333,339
2,702,256
445,714
(470,758)
543,016
(422,399)
467,846
(411,236)
257,188
(410,491)
(423,868)
(202,509)
(25,044)
(498,507)
120,617
11,307
56,610
55,924
(153,303)
30,519
(626,377)
(33,580)
473,463
109,310
686
(183,822)
(592,797)
—
—
—
—
11,545
$ 473,463 $ 109,310 $
686 $ (183,822) $ (581,252)
$
$
5.21 $
1.21 $
0.01 $
(2.34) $
(7.59)
5.07 $
1.19 $
0.01 $
(2.34) $
(7.59)
N/A
N/A $
N/A $
N/A $
0.15
N/A
90,854
N/A $
N/A $
N/A $
82,929
80,003
78,425
0.15
78,111
93,378
91,407
90,904
78,425
78,111
$ 459,079 $ 411,719 $ 413,808 $
(79,288)
(221,608)
(781,005)
272,583 $ 464,538
(180,357)
(375,536)
(189,028)
267,062
466,761
99,261
(339,930)
271,214
459,243
97,245
395,533
259,461
443,127
199,240
18,631
266,742
425,114
228,145
(251,653)
303,404
159,897
196,600
$ 277,953 $ 229,510 $ 237,009 $
4,974,484
3,514,080
1,415,534
(543,320)
5,138,752
3,564,628
1,710,959
(678,043)
5,234,812
3,538,821
1,250,237
(73,146)
208,673 $ 292,995
4,467,587
3,534,809
1,044,995
(550,852)
4,624,551
3,611,513
1,241,430
(708,014)
40
(1) For the year ended December 31, 2017, the Company recorded goodwill impairment charges of $14.8 million
within our South/West segment and $3.2 million within our Other category and a provision for its loan and
unfunded loan commitments to the JIVDC of $89.8 million. The Company also released $741.9 million of its
total valuation allowance for the year ended December 31, 2017. Finally, during the fourth quarter of 2017, the
Company recorded a $261.3 million write down of our deferred tax assets due to the lowering of the corporate
tax rate to 21% effective on January 1, 2018.
(2) For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of
$40.0 million related to the write-off of our Plainridge Park Casino gaming license and a partial write-down of
the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings
forecast at both of these locations.
(3) During the fourth quarter of 2014, the Company recorded goodwill and other intangible assets impairment
charges of $155.3 million as we determined that a portion of the value of our goodwill and other intangible
assets was impaired due to our outlook of continued challenging regional gaming conditions which persisted in
2014 at certain properties in our Midwest segment, as well as for the write-off of a trademark intangible asset in
the South/West segment. During the second quarter of 2014, the Company recorded an impairment charge of
$4.6 million to write-down certain idle assets to their estimated salvage value. Interest expense on the Master
Lease financing obligation, which became effective November 1, 2013, was $379.2 million for the year ended
December 31, 2014.
(4) The Company recorded impairment charges of $724.2 million, which included the impact of the spin-off, during
the year ended December 31, 2013. In addition, as a result of a new gaming license being awarded for the
development of an additional casino in Sioux City, Iowa to another applicant in April 2013, we recorded an
impairment charge of $71.8 million for Argosy Casino Sioux City during the year ended December 31, 2013.
Additionally, in conjunction with the relocation of our two racetracks in Ohio, we recorded an impairment
charge of $2.2 million during the year ended December 31, 2013. Furthermore, for 2013, we incurred a
$61.7 million loss on the early extinguishment of debt, transaction costs associated with the Spin-Off of
$39.5 million, and interest expense on the Master Lease financing obligation of $62.1 million. Finally, we
recorded a valuation allowance in the fourth quarter of 2013 of which $90.3 million was recorded as income tax
provision and $599.9 million was recorded as part of the Spin-Off transaction.
(5) Since we reported a loss from operations for the years ended December 31, 2014 and 2013, we were required to
use basic weighted-average common shares outstanding because to include diluted shares would be anti-
dilutive.
(6) On January 1, 2017, the Company adopted ASU 2016-09 and retrospectively reclassified the amount of excess
tax deductions for share-based payment award transactions from financing activities to operating activities.
(7) During the first quarter of 2015, the Company adopted ASU 2015-03 and retrospectively reclassified the
amount of deferred financing fees previously recorded as an asset, to an offset to the Company’s long-term
debt.
41
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On February 8, 2018, the Company issued a press release summarizing its results for the fourth quarter and
year ended December 31, 2017. These results included an impairment charge of $48.5 million on the Company’s
loan and unfunded loan commitments to the JIVDC. In late February 2018, the Company and the Jamul Tribe
mutually agreed that Penn would no longer manage the facility or provide branding and development services on
May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.
As a result, the Company recorded an additional charge of $29.4 million on the loan and unfunded loan
commitments to the JIVDC for the fourth quarter and year ended December 31, 2017.
Our Operations
We are a leading, geographically diversified, multi-jurisdictional owner and manager of gaming and racing
facilities and video gaming terminal operations. In 2015, we launched our interactive gaming strategy through our
subsidiary, Penn Interactive Ventures which focuses on social gaming products.
As of December 31, 2017, we owned, managed, or had ownership interests in twenty-nine facilities in the
following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi,
Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario, Canada.
The vast majority of our revenue is gaming revenue, derived primarily from gaming on slot machines
(which represented approximately 87% of our gaming revenue in 2017 and 2016 and to a lesser extent, table games,
which is highly dependent upon the volume and spending levels of customers at our properties. Other revenues are
derived from our management service fees from Casino Rama, our hotel, dining, retail, admissions, program sales,
concessions and certain other ancillary activities, and our racing operations. Our racing revenue includes our share
of pari-mutuel wagering on live races after payment of amounts returned as winning wagers, our share of wagering
from import and export simulcasting, and our share of wagering from our off-track wagering facilities.
Key performance indicators related to gaming revenue are slot handle and table game drop (volume
indicators) and “win” or “hold” percentage. Our typical property slot hold percentage is in the range of 6% to 10%
of slot handle, and our typical table game win percentage is in the range of 16% to 26% of table game drop.
Slot handle is the gross amount wagered for the period cited. The win or hold percentage is the net amount
of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive
jackpots. Our slot hold percentages have consistently been in the 6% to 10% range over the past several years. Given
the stability in our slot hold percentages, we have not experienced significant impacts to earnings from changes in
these percentages.
For table games, customers usually purchase cash chips at the gaming tables. The cash and markers
(extensions of credit granted to certain credit worthy customers) are deposited in the gaming table’s drop box. Table
game win is the amount of drop that is retained and recorded as casino gaming revenue, with liabilities recognized
for funds deposited by customers before gaming play occurs and for unredeemed gaming chips. As we are primarily
focused on regional gaming markets, our table win percentages are fairly stable as the majority of these markets do
not regularly experience high-end play, which can lead to volatility in win percentages. Therefore, changes in table
game win percentages do not typically have a material impact to our earnings.
Our properties generate significant operating cash flow, since most of our revenue is cash-based from slot
machines, table games, and pari-mutuel wagering. Our business is capital intensive, and we rely on cash flow from
our properties to generate operating cash to satisfy our obligations under the Master Lease, repay debt, fund
maintenance capital expenditures, fund new capital projects at existing properties and provide excess cash for future
development and acquisitions.
42
We continue to expand our gaming operations through the implementation and execution of a disciplined
capital expenditure program at our existing properties, the pursuit of strategic acquisitions and the development of
new gaming properties, particularly in attractive regional markets. Additional information regarding our capital
projects is discussed in detail in the section entitled “Liquidity and Capital Resources—Capital Expenditures”
below.
Segment Information
The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker
(“CODM”), as that term is defined in ASC 280, measures and assesses the Company’s business performance based
on regional operations of various properties grouped together based primarily on their geographic locations.
The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town
Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo,
Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley
Race Course, and Plainridge Park Casino, which opened on June 24, 2015. It also includes the Company’s Casino
Rama management service contract.
The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood
Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, which was
acquired on August 25, 2015, 1st Jackpot and Resorts which were acquired on May 1, 2017, as well as our
management contract with Hollywood Casino Jamul-San Diego, which opened on October 10, 2016.
The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora,
Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg,
Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on September 1, 2015, and
includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the
Hollywood Casino at Kansas Speedway.
The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway,
which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam
Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming
operations at these locations, they would be assigned to one of the Company’s regional executives and reported in
their respective reportable segment. The Other category also includes the Company’s corporate overhead operations,
which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category
includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming
initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under
ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net
revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less
than 2% of the Company’s total assets at December 31, 2017.
In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of
the operating performance of its segments, including the evaluation of operating personnel and believes it is
especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current
effects of operating decisions separated from the substantial non-operational depreciation charges and financing
costs of such projects. The Company defines adjusted EBITDA as earnings before interest, taxes, stock
compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible
charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price
obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of
income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as
depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA
excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a
financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an
indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a
43
measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company
has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal
repayments, which are not reflected in adjusted EBITDA.
Executive Summary
As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth in
recent years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. The
proliferation of new gaming facilities continues to impact the overall domestic gaming industry as well as our
operating results in certain markets. However, the current economic environment, specifically low unemployment
levels, strengths in residential real estate prices, and higher levels of consumer confidence, has resulted in a stable
operating environment in recent periods. Our ability to continue to succeed in this environment will be predicated
on operating our existing facilities efficiently and offering our customers additional gaming experiences through our
multi-channel distribution strategy. We will also seek to continue to expand our customer database through
accretive acquisitions and capitalize on organic growth opportunities from our recent facility openings and new
business lines.
We operate a geographically diversified portfolio comprised largely of new and well maintained regional
gaming facilities. This has allowed us to develop what we believe to be a solid base for future growth opportunities
supported by a flexible and attractively priced capital structure. We have also made investments in joint ventures
that we believe may allow us to capitalize on additional gaming opportunities in certain states if legislation or
referenda are passed that permit and/or expand gaming in these jurisdictions and we are selected as a licensee.
Historically, the Company has been reliant on certain key regional gaming markets (for example, its results
from Hollywood Casino at Charles Town Races and Hollywood Casino Lawrenceburg). Over the past several years,
we have diversified our operations via development of new facilities and acquisitions and we anticipate further
reducing our reliance on specific properties subsequent to the closing of the Pinnacle transaction.
On December 18, 2017, we announced that we had entered into a definitive agreement under which we will
acquire Pinnacle in a cash and stock transaction valued at approximately $2.8 billion inclusive of assumed
indebtedness. Under the terms of the agreement, Pinnacle shareholders will receive $20.00 in cash and 0.42 shares
of Penn common stock for each Pinnacle share.
Coincident with the closing, we plan to divest the membership interests of certain Pinnacle subsidiaries
which operate the casinos known as Ameristar Casino Resort Spa St. Charles (Missouri), Ameristar Casino Hotel
Kansas City (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio) to Boyd Gaming Corp (“Boyd”)
for approximately $575 million in cash. These divestitures are anticipated to occur immediately prior to, and are
conditioned upon, the completion of the Pinnacle acquisition. Additionally, at the closing of the merger, (i) GLPI
will acquire the real estate associated with the Plainridge Park Casino for $250 million, and concurrently be leased
back to Penn pursuant to the amended Pinnacle master lease for a fixed annual rent of $25 million and (ii) GLPI will
acquire the real estate assets of Belterra Park from Penn for approximately $65 million, which subsequently will be
included in an amended master lease between GLPI and Boyd. The amended Pinnacle Master Lease will be
adjusted for incremental rent of $13.9 million to adjust to market conditions.
We will have significantly greater operational and geographic diversity and operate a combined 41
properties in 20 jurisdictions throughout North America. The transaction is expected to generate $100 million in
annual run-rate cost synergies achieved within 24 months of closing. We also believe the transaction will present
opportunities with respect to increased Las Vegas visitation and higher social gaming revenues from the enhanced
scale and size of the customer database.
Penn has received committed financing for the transaction, subject to customary conditions, from BofA
Merrill Lynch and Goldman Sachs Bank USA, and expects to fund the acquisition with a combination of the
proceeds from the Boyd and GLPI transactions, existing cash on its balance sheet and new debt financing. Penn
44
anticipates that the additional cash flow resulting from the acquisition will allow it to pay down debt on an
accelerated basis after closing.
The transaction has been approved by the boards of directors of both companies and is now subject to
approval of the shareholders of Penn and Pinnacle, the approval of applicable gaming authorities, the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino Act and other customary closing
conditions. The companies expect the transaction to close in the second half of 2018.
Upon completion of the transaction, former Penn and Pinnacle shareholders will hold 78 percent and 22
percent, respectively, of the combined company’s outstanding shares.
Financial Highlights:
We reported net revenues and income from operations of $3,148.0 million and $445.7 million, respectively,
for the year ended December 31, 2017, compared to net revenues and income from operations of $3,034.4 million
and $543.0 million, respectively, for the corresponding period in the prior year. The major factors affecting our
results for the year ended December 31, 2017, as compared to the year ended December 31, 2016, were:
(cid:120) Provision for loan losses and unfunded loan commitments to the JIVDC of $89.8 million and goodwill
impairment charges of $18.0 million for the year ended December 31, 2017, compared to no charges in
2016.
(cid:120) A $25.1 million loss on the early extinguishment of debt and finance charges related to the January
2017 refinancing of our senior secured credit facility, redemption of the $300 million 5.875% senior
unsecured notes and issuance of $400 million of new 5.625% senior unsecured notes.
(cid:120) The acquisition of 1st Jackpot and Resorts in our South/West segment, which generated net revenues of
$46.4 million for the eight months ended December 31, 2017.
(cid:120) The acquisition of Rocket Speed on August 1, 2016 in our Other segment, which generated net
revenues of $29.3 million for the year ended December 31, 2017 and $17.3 million for the year ended
December 31, 2016 (which only represented five months of activity given its acquisition date).
(cid:120) During the third quarter 2017, Penn Interactive Ventures reached an agreement with the former
shareholders of Rocket Speed to buy out the two year contingent purchase price consideration which
resulted in a benefit to general and administrative expense in the amount of $22.2 million.
(cid:120)
Increased competition in our Northeast segment from the Baltimore, Maryland market, primarily due
to the opening of MGM National Harbor in December 2016.
(cid:120) Lower depreciation and amortization expense of $4.2 million for the year ended December 31, 2017,
as compared to the corresponding period in the prior year.
(cid:120) We had net income of $473.5 million and $109.3 million for the years ended December 31, 2017 and
2016, respectively, primarily due to the variances discussed above, as well as lower income taxes
resulting from a $741.9 million tax valuation allowance reversal for the year ended December 31,
2017, which was partially offset by a $261.3 million deferred tax asset write-off due to the recent Tax
Cuts and Jobs Act, lower interest income, and increased interest expense primarily due to higher
borrowings on our Term Loan A and our senior unsecured notes.
45
Segment Developments:
The following are recent developments that have had, may have or will have an impact on us by segment:
During 2017, we engaged third party consultants to help us validate and quantify a new set of strategic
initiatives which we expect will improve our already industry-leading property level operating margins in the
coming years. This effort encompassed both revenue and cost saving initiatives throughout the organization which
we expect to realize recurring benefits over the next several years.
Northeast
(cid:120)
In October 2017, Pennsylvania’s House Bill 271 was signed into law. The bill extensively expands
gambling in the state by introducing licenses for up to ten additional casinos limited to 750 slot
machines and up to 40 table games not to be within twenty-five miles of existing casinos, up to five
video gaming terminals at certain truck stops, online gambling, fantasy contests and sport wagering.
We believe Hollywood Casino at Penn National Race Course and Hollywood Gaming at Mahoning
Valley Race Course may be impacted by new competition in the near future based on the ultimate
location of the additional facilities.
(cid:120) Hollywood Casino at Charles Town Races faced increased competition from the Baltimore, Maryland
market, which includes Maryland Live!, Horseshoe Casino Baltimore, which opened at the end of
August 2014 and MGM National Harbor, which opened in December 2016.
(cid:120) Construction of a tribal casino in Taunton, Massachusetts that was expected to open in 2017, is
currently on hold following a judicial opinion. MGM Springfield in Western Massachusetts is expected
to be completed in September 2018 and Wynn Everett in Eastern Massachusetts is scheduled to open
in mid-2019. The increased competition in Massachusetts will have a negative impact on the
operations of Plainridge Park Casino.
(cid:120) The management service contract with Casino Rama in Ontario, Canada is expected to end in the third
quarter of 2018.
South/West
(cid:120) On May 1, 2017, we acquired RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the
holding companies for operations of 1st Jackpot Casino and Resorts Casino, in Tunica, Mississippi.
(cid:120) On October 10, 2016, we opened and began to manage Hollywood Casino Jamul – San Diego on the
Jamul Tribe’s trust land in San-Diego California. During 2017, our loan to the JIVDC went into default
and as a result Penn incurred impairment charges related to its loan and funding commitments of $89.8
million. In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no
longer manage the facility or provide branding and development services on May 28, 2018. The
company will provide a transition that it anticipates will last through approximately late May.
(cid:120)
In August 2015 we completed the acquisition of Tropicana Las Vegas Hotel and Casino for
$360 million. During the second quarter of 2016, we refreshed the gaming floor with new slot
machines and launched our Marquee Rewards player loyalty program at the Tropicana Las Vegas.
During 2017, we made various incremental food and beverage offerings at the facility and on July 27,
2017, we opened celebrity chef Robert Irvine’s first signature Las Vegas restaurant, the Robert Irvine
Public House. Additionally, we continue to evaluate additional improvements at the property which
may include additional food, beverage, retail and entertainment and other non-gaming amenities and
enhancements in future periods.
46
Midwest
(cid:120) On September 1, 2015, we acquired a leading Illinois video gaming terminal (“VGT”) operator, Prairie
State Gaming. As one of the largest and most respected VGT route operators in Illinois, Prairie State
Gaming’s operations include more than 1,715 terminals across a network of 377 bars and retail gaming
establishments throughout Illinois. During the fourth quarter of 2016, we acquired two small video
gaming terminal route operators in Illinois. In addition, during the first half of 2017, we acquired two
additional small video gaming route operators in Illinois.
Other
(cid:120) On August 1, 2016, we completed our acquisition of Rocket Speed, a leading developer of social
casino games.
Critical Accounting Estimates
We make certain judgments and use certain estimates and assumptions when applying accounting
principles in the preparation of our consolidated financial statements. The nature of the estimates and assumptions
are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the
susceptibility of such factors to change. We have identified the accounting for long-lived assets, goodwill and other
intangible assets, income taxes, and loans to the JIVDC as critical accounting estimates, as they are the most
important to our financial statement presentation and require difficult, subjective and complex judgments.
We believe the current assumptions and other considerations used to estimate amounts reflected in our
consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and
other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting
changes could have a material adverse effect on our consolidated results of operations and, in certain situations,
could have a material adverse effect on our consolidated financial condition.
The development and selection of the critical accounting estimates, and the related disclosures, have been
reviewed with the Audit Committee of our Board of Directors.
Long-lived assets
At December 31, 2017, we had a net property and equipment balance of $2,756.7 million within our
consolidated balance sheet, representing 52.7% of total assets. We depreciate property and equipment on a
straight-line basis over their estimated useful lives. The estimated useful lives are determined based on the nature of
the assets as well as our current operating strategy. We review the carrying value of our property and equipment for
possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual
disposition. The factors considered by us in performing this assessment include current operating results, trends and
prospects, as well as the effect of obsolescence, demand, competition and other economic factors. For purposes of
recognizing and measuring impairment in accordance with ASC 360, “Property, Plant, and Equipment,” assets are
grouped at the individual property level representing the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets. In assessing the recoverability of the carrying value of property and
equipment, we must make assumptions regarding future cash flows and other factors. If these estimates or the
related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an
impairment loss would be recognized as a non-cash component of operating income.
Goodwill and other intangible assets
At December 31, 2017, the Company had $1,008.1 million in goodwill and $422.6 million in other
intangible assets within its consolidated balance sheet, representing 19.3% and 8.1% of total assets, respectively,
resulting from the Company’s acquisition of other businesses and payment for gaming licenses. These assets require
47
significant management estimates and judgment pertaining to: (i) the valuation in connection with the initial
purchase price allocation; and (ii) the ongoing evaluation for impairment.
In connection with the Company’s acquisitions, valuations are completed to determine the allocation of the
purchase prices. The factors considered in the valuations include data gathered as a result of the Company’s due
diligence in connection with the acquisitions, projections for future operations, and data obtained from third-party
valuation specialists as deemed appropriate. Goodwill represents the future economic benefits of a business
combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is
tested annually, or more frequently if indicators of impairment exist. An income approach, in which a discounted
cash flow model is utilized and a market-based approach utilizing guideline public company (“GPC”) multiples of
adjusted EBTIDA from the Company’s peer group is utilized to estimate the fair market value of the Company’s
reporting units.
For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated
using the combination of a discounted cash flow model and a GPC multiples approach which is then compared to
the carrying value of each reporting unit. The Company adjusts the carrying value of each reporting unit that utilizes
property that is subject to the Master Lease by an allocation of a pro-rata portion of the GLPI financing obligation
based on the reporting unit’s estimated fair value as a percentage of the aggregate estimated fair value of all
reporting units that utilize property that is subject to the Master Lease.
The Company compares the aggregate weighted average fair value to the carrying value of its reporting
units. If the carrying value of the reporting unit exceeds the aggregate weighted average fair value, an impairment is
recorded equal to the amount of the excess not to exceed the amount of goodwill allocated to the reporting unit.
In accordance with ASC 350, “Intangibles Goodwill and Other,” the Company considers its gaming
licenses and certain other intangible assets as indefinite life intangible assets that do not require amortization based
on the Company’s future expectations to operate its gaming facilities indefinitely (notwithstanding our experience in
2014 in Iowa which the Company concluded was an isolated incident and the first time in the Company’s history a
gaming regulator has taken an action which could cause it to lose its gaming license) as well as its historical
experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these
intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by
comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite life
intangible assets exceed their fair value, an impairment loss is recognized. The Company completes its testing of its
intangible assets prior to assessing the realizability of its goodwill.
The Company assessed the fair value of its indefinite life intangible assets (which are primarily gaming
licenses) using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value
of the gaming license using a discounted cash flow model assuming the Company built a casino with similar utility
to that of the existing facility. The method assumes a theoretical start up company going into business without any
assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the
following items:
(cid:120) Projected revenues and operating cash flows (including an allocation of the Company’s projected financing
payments to its reporting units consistent with how the GLPI financing obligation is allocated);
(cid:120) Theoretical construction costs and duration;
(cid:120) Pre-opening expenses; and
(cid:120) Discounting that reflects the level of risk associated with receiving future cash flows attributable to the
license.
48
The evaluation of goodwill and indefinite life intangible assets requires the use of estimates about future
operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite
lived intangible assets. The Company must make various assumptions and estimates in performing its impairment
testing. The implied fair value includes estimates of future cash flows (including an allocation of the Company’s
projected financing obligation to its reporting units) that are based on reasonable and supportable assumptions which
represent the Company’s best estimates of the cash flows expected to result from the use of the assets including their
eventual disposition. Changes in estimates, increases in the Company’s cost of capital, reductions in transaction
multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and
definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective
and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of
future cash flows are not met, the Company may have to record additional impairment charges in future accounting
periods. The Company’s estimates of cash flows are based on the current regulatory and economic climates, recent
operating information and budgets of the various properties where it conducts operations. These estimates could be
negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting
the Company’s properties.
Forecasted cash flows (based on the Company’s annual operating plan as determined in the fourth quarter)
can be significantly impacted by the local economy in which its reporting units operate. For example, increases in
unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition,
the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in
jurisdictions where the Company’s reporting units currently operate can result in opportunities for the Company to
expand its operations. However, it also has the impact of increasing competition for the Company’s established
properties which generally will have a negative effect on those locations’ profitability once competitors become
established as a certain level of cannibalization occurs absent an overall increase in customer visitations.
Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash
flows.
Assumptions and estimates about future cash flow levels and multiples by individual reporting units are
complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of
factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as
changes in the Company’s business strategy, which may reallocate capital and resources to different or new
opportunities which management believes will enhance its overall value but may be to the detriment of an individual
reporting unit.
Consistent with prior years, the Company’s annual goodwill and other indefinite-life intangible assets
impairment test is performed on October 1st of each year.
For the year ended December 31, 2017, the Company recorded goodwill impairment charges of $18.0
million, related to the goodwill at Tropicana Las Vegas and Sanford Orlando Kennel Club.
For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges
of $40.0 million, as of the valuation date of October 1, 2015, related to the write-off of our Plainridge Park Casino
gaming license and a partial write-down of the gaming license at Hollywood Gaming at Dayton Raceway due to a
reduction in the long term earnings forecast at both of these locations.
Consistent with prior years, we believe at this time all of our reporting units with goodwill and other
intangible assets are at risk to have impairment charges in future periods regardless of the margin by which the
current fair value of our reporting units exceed their carrying value and that such margin cannot and should not be
relied upon to predict which properties are most at risk for future impairment charges. This is because the revenue
and earning streams in our industry can vary significantly based on various circumstances, which in many cases are
outside of the Company’s control, and as such are extremely difficult to predict and quantify. We have disclosed
several of these circumstances in the “Risk Factors” section of this Annual Report on Form 10-K. For instance,
changes in legislation that approves gaming in nearby jurisdictions, further expansion of gaming in jurisdictions
49
where we currently operate, new state legislation that requires the implementation of smoking bans at our casinos or
any other events outside of our control that make the customer experience less desirable.
Once an impairment of goodwill or other indefinite life intangible assets has been recorded, it cannot be
reversed. Because the Company’s goodwill and indefinite life intangible assets are not amortized, there may be
volatility in reported income because impairment losses, if any, are likely to occur irregularly and in varying
amounts. Intangible assets that have a definite life are amortized on a straight line basis over their estimated useful
lives or related service contract. The Company reviews the carrying value of its intangible assets that have a definite
life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not
be recoverable. If the carrying amount of the intangible assets that have a definite life exceed their fair value, an
impairment loss is recognized.
The Company’s remaining goodwill and other intangible assets by reporting unit at December 31, 2017 is
shown below (in thousands):
Reporting Unit
Hollywood Casino St. Louis
Hollywood Casino Aurora
Argosy Casino Riverside
Zia Park Casino
Hollywood Gaming at Dayton Raceway
Hollywood Gaming at Mahoning Valley Race Course
Penn Interactive Ventures
Hollywood Casino at Penn National Race Course
Prairie State Gaming
Hollywood Casino Lawrenceburg
Hollywood Casino Tunica
1st Jackpot Casino
Boomtown Biloxi
Argosy Casino Alton
Plainridge Park Casino
Hollywood Casino at Charles Town Races
Others
Total
Income taxes
Total Intangible
Goodwill
Assets
$
205,783 $
207,207
154,332
142,359
15,339
—
67,004
1,497
34,185
63,189
44,042
35,929
22,365
9,863
3,052
1,354
597
$ 1,008,097 $
58,418
—
4,964
—
110,436
125,000
15,968
67,607
30,031
—
—
567
—
8,285
—
—
1,330
422,606
We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Under ASC 740,
deferred tax assets and liabilities are determined based on the differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that
will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be
reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will
not be realized.
The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance
and by adjusting the amount of the allowance, if necessary. We consider all available positive and negative evidence
including projected future taxable income and available tax planning strategies that could be implemented to realize
the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC
740 in determining more likely than not the net deferred tax assets will be realized. In the event the Company
determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount,
an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.
50
In connection with the failed spin off leaseback, the Company recorded real property assets and a financing
obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013, which resulted in a substantial
increase to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny should be given
to deferred tax assets of an entity with cumulative pre tax losses during the most recent three years. Positive
evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude
that a valuation allowance is not warranted. As of September 30, 2017, the Company determined that a valuation
allowance was no longer required against its federal net deferred tax assets for the portion that will be realized. As
such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017
due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the
“more-likely-than-not” realization standard. See Note 12 “Income Taxes” for additional information.
Federal Tax Reform – critical accounting changes
On December 22, 2017, the President signed into law comprehensive tax reform legislation commonly
known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States tax law.
The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate
tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying
capital improvements (including those acquired via asset acquisitions) through 2022, which then phase out 20% a
year thereafter, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on
dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed
income (“GILTI”).
Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which
provides accounting guidance for the Tax Act. SAB 118 provides a measurement period similar to a business
combination whereby recognizing provisional amounts to the extent that they are reasonably estimable and adjust
them over time as more information becomes available not to extend beyond one year from the Tax Act enactment
date. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the
accounting under ASC 740 is complete. To the extent the accounting related to the Tax Act is incomplete but a
reasonable estimate is attainable, a provisional estimate should be reflected in the financial statements
We recorded a net charge of $266.0 million included in the income tax provision in the Consolidated
Statements of Operations consisting of three components: (i) a $261.3 million charge due to the revaluation of the
net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related
to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian
subsidiary (which we will pay interest free over 8 years) and (iii) a $2.1 million foreign withholding tax charge due
to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment
assertion. While we believe the $266.0 million net charge represents a reasonable estimate of the income tax effects
of the Tax Act in our Consolidated Statements of Operations as of December 31, 2017, these amounts are
considered provisional.
These adjustments reflected in our financial statements related to the application of the Tax Act are
provisional amounts estimated based on published guidance and our interpretation as enacted. The new law directs
the United States Treasury to promulgate regulations as it deems appropriate as well as provide guidance
implementing the intent of Congress. We will recognize any change to the provisional amounts in the period any
additional guidance is published.
51
Loan and unfunded loan commitments to the JIVDC
For year ended December 31, 2017, we recorded a provision for loan loss and reserves for unfunded loan
commitments to the JIVDC of $89.8 million within our consolidated statements of operations. Our loan is impaired
and as such the value is estimated based on the present value of expected future cash flows of the facility discounted
at the loan’s original effective interest rate in accordance with ASC 310 “Receivables”. The estimate uses subjective
assumptions such as, but not limited to, projected future earnings of the facility and potential proceeds which could
be realized upon termination of our relationship with the Jamul Tribe. If our estimates are not accurate, we could
incur additional losses up to our remaining maximum exposure on the loan and unfunded loan commitments to the
JIVDC of approximately $28 million.
Results of Operations
The following are the most important factors and trends that contribute to our operating performance:
(cid:120) Most of our properties operate in mature competitive markets. As a result, we expect a significant
amount of our future growth to come from prudent acquisitions of gaming properties (such as our
pending acquisition of Pinnacle Entertainment, our August 2015 acquisition of Tropicana Las Vegas
Hotel and Casino), jurisdictional expansions (such as our June 2015 opening of a slots-only gaming
facility in Massachusetts, the September 2014 opening of Hollywood Gaming at Mahoning Valley
Race Course and the August 2014 opening of Hollywood Gaming at Dayton Raceway), expansions of
gaming in existing jurisdictions (such as the introduction of table games in July 2010 at Hollywood
Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, and at
Hollywood Casino Bangor in March 2012), expansions/improvements of existing properties (such as
Tropicana Las Vegas) and new growth opportunities (such as our acquisition of Prairie State Gaming,
a leading video lottery terminal operator in Illinois, and our entry into the interactive and social gaming
space through Penn Interactive Ventures, including our recent acquisition of Rocket Speed).
(cid:120) A number of states are currently considering or implementing legislation to legalize or expand gaming.
Such legislation presents both potential opportunities to establish new properties (for example, in
Massachusetts, where we opened a slots-only gaming facility on June 24, 2015, in Kansas, where we
opened a casino through a joint venture in February 2012, and in Ohio, where we opened casinos in
Toledo and Columbus in May 2012 and October 2012, respectively, and opened video lottery terminal
facilities at two racetracks in Ohio in the third quarter of 2014) and increased competitive threats to
business at our existing properties (such as the introduction/expansion of commercial casinos in
Kansas, Maryland, Ohio, Pennsylvania, and potentially Kentucky and Nebraska, and the introduction
of tavern licenses in several states, most significantly in Illinois).
(cid:120) The successful implementation of our margin enhancement initiatives.
(cid:120) The actions of government bodies can affect our operations in a variety of ways. For instance, the
continued pressure on governments to balance their budgets could intensify the efforts of state and
local governments to raise revenues through increases in gaming taxes and/or property taxes, or via an
expansion of gaming. In addition, government bodies may restrict, prevent or negatively impact
operations in the jurisdictions in which we do business (such as the implementation of smoking bans).
(cid:120) The continued demand for, and our emphasis on, slot wagering entertainment at our properties.
(cid:120) The successful execution of our development and construction activities, as well as the risks associated
with the costs, regulatory approval and the timing of these activities.
52
(cid:120) The risks related to economic conditions and the effect of such prolonged sluggish conditions on
consumer spending for leisure and gaming activities, which may negatively impact our operating
results and our ability to continue to access financing at favorable terms.
The consolidated results of operations for the years ended December 31, 2017, 2016 and 2015 are
summarized below:
Year ended December 31,
Revenues:
(cid:3)
Gaming
Food, beverage, hotel and other
Management service fee and licensing fees
Reimbursable management costs
Revenues
Less promotional allowances
Net revenues
Operating expenses:
2017
2016
(in thousands)
2015
$
2,692,021 $
601,731
11,654
26,060
2,606,262 $
575,434
11,348
15,997
2,497,497
485,534
10,314
—
3,331,466
(183,496)
3,209,041
(174,661)
2,993,345
(154,987)
3,147,970
3,034,380
2,838,358
Gaming
Food, beverage, hotel and other
General and administrative
Reimbursable management costs
Depreciation and amortization
Impairment losses, provision for loan loss and unfunded loan
commitments to the JIVDC
Insurance recoveries, net of deductible charges
1,364,989
421,848
514,776
26,060
267,062
1,334,980
406,871
463,028
15,997
271,214
1,271,679
349,897
449,433
—
259,461
107,810
(289)
—
(726)
40,042
—
Total operating expenses
Income from operations
2,702,256
2,370,512
$ 445,714 $ 543,016 $ 467,846
2,491,364
Certain information regarding our results of operations by segment for the years ended December 31, 2017,
2016 and 2015 is summarized below:
Year ended December 31,
(cid:3)
Northeast
South/West
Midwest
Other
Total
(cid:3)
(cid:3)
2017
Net Revenues
2016
2015
Income (loss) from Operations
2016
2015
2017
(in thousands)
$ 1,584,119 $ 1,568,514 $ 1,505,838 $ 408,693 $ 397,524 $ 328,567
102,380
225,526
(188,627)
$ 3,147,970 $ 3,034,380 $ 2,838,358 $ 445,714 $ 543,016 $ 467,846
92,629
223,180
(170,317)
(5,781)
233,704
(190,902)
478,128
833,455
20,937
604,665
907,493
51,693
546,608
877,567
41,691
53
Revenues
Revenues for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):
(cid:3)
Year Ended December 31,
Gaming
Food, beverage, hotel and other
Management service and licensing fees
Reimbursable management costs
Revenues
Less promotional allowances
Net revenues
(cid:3)
Year Ended December 31,
Gaming
Food, beverage, hotel and other
Management service and licensing fees
Reimbursable management costs
Revenues
Less promotional allowances
Net revenues
2017
2016
Variance
Variance
Percentage
$ 2,692,021
601,731
11,654
26,060
3,331,466
(183,496)
85,759
26,297
306
10,063
122,425
(8,835)
$ 3,147,970 $ 3,034,380 $ 113,590
2,606,262 $
575,434
11,348
15,997
3,209,041
(174,661)
3.3 %
4.6 %
2.7 %
62.9 %
3.8 %
5.1 %
3.7 %
2016
2015
Variance
Variance
Percentage
$ 2,606,262
575,434
11,348
15,997
3,209,041
(174,661)
2,497,497 $ 108,765
89,900
1,034
15,997
215,696
(19,674)
$ 3,034,380 $ 2,838,358 $ 196,022
485,534
10,314
—
2,993,345
(154,987)
4.4 %
18.5 %
10.0 %
N/A
7.2 %
12.7 %
6.9 %
In our business, revenue is driven by discretionary consumer spending. The proliferation of new gaming
facilities has increased competition in many regional markets (including at some of our key facilities). As reported
by most jurisdictions, regional gaming industry trends have shown limited revenue growth in recent years as
numerous jurisdictions now permit gaming or have expanded their gaming offerings.
We have no certain mechanism for determining why consumers choose to spend more or less money at our
properties from period to period and as such cannot quantify a dollar amount for each factor that impacts our
customers’ spending behaviors.
However, based on our experience, we can generally offer some insight into the factors that we believe
were likely to account for such changes. In instances where we believe one factor may have had a significantly
greater impact than the other factors, we have noted that as well. However, in all instances, such insights are based
only on our reasonable judgment and professional experience, and no assurance can be given as to the accuracy of
our judgments.
The retail value of accommodations, food and beverage, and other services furnished to guests without
charge is included in gross revenues and then deducted as “promotional allowances.” Our promotional allowance
levels are determined based on various factors such as our marketing plans, competitive factors, economic
conditions, and regulations.
54
Gaming revenue
2017 Compared with 20166
Gaming revenue increased by $85.8 million, or 3.3%, to $2,692.0 million in 2017, primarily due to the
variances explained below.
Gaming revenue for our Northeast segment increased by $14.1 million in 2017, primarily due to increased
gaming revenue at all four of our Ohio properties, which together increased gaming revenues $37.6 million for the
year ended December 31, 2017 and increased gaming revenues at Plainridge Park Casino, partially offset by
decreased gaming revenue at Hollywood Casino Bangor and Hollywood Casino at Charles Town Races due to
increased competition from the Maryland market.
Gaming revenue for our Midwest segment increased by $27.2 million in 2017, primarily due to increased
gaming revenue at Prairie State Gaming primarily resulting from the acquisition of the assets of four smaller VGT
route operators in Illinois since the fourth quarter 2016 and increased gaming revenue at Argosy Casino Riverside,
partially offset by decreased gaming revenue at Argosy Casino Alton partly due to flooding which occurred in May
2017, and Hollywood Casino Lawrenceburg, primarily due to continued impact of competition in Ohio.
Gaming revenue for our South/West segment increased by $44.4 million in 2017, primarily due to the
acquisitions of 1st Jackpot and Resorts on May 1, 2017, which contributed a combined $44.2 million of gaming
revenue for the year ended December 31, 2017 and increased gaming revenue at Tropicana Las Vegas, M Resort
and Zia Park, as the local economy has shown improvements over the second half of the year, partially offset by
decreased gaming revenue at Hollywood Casino Gulf Coast and Boomtown Biloxi, both of which were negatively
impacted by Hurricane Nate in October 2017 and decreased gaming revenue at Hollywood Casino Tunica.
2016 Compared with 2015
Gaming revenue increased by $108.8 million, or 4.4%, to $2,606.3 million in 2016, primarily due to the
variances explained below.
Gaming revenue for our Northeast segment increased by $59.1 million in 2016, primarily due to a full year
of operations at Plainridge Park Casino, which opened on June 24, 2015, which increased gaming revenue by $67.0
million, improved results at Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, and Hollywood
Gaming at Mahoning Valley Racecourse, which together increased gaming revenues $13.8 million for the year
ended December 31, 2016. These increases were partially offset by decreased gaming revenue at Hollywood Casino
at Charles Town Races and, to a lesser extent, Hollywood Casino at Penn National Race Course, primarily due to
increased competition from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino
Baltimore, which opened at the end of August 2014, and MGM National Harbor, which opened in December 2016.
Gaming revenue for our Midwest segment increased by $40.9 million in 2016, primarily due to a full year
of operations at Prairie State Gaming, which was acquired on September 1, 2015, and increased gaming revenue by
$43.9 million, and increased gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside. These
increases were partially offset by decreased gaming revenue at Hollywood Casino Joliet, Argosy Casino Alton,
which was negatively impacted by flooding that occurred during the first quarter 2016, and Hollywood Casino
Lawrenceburg, primarily due to the continued impact of competition in Ohio, namely the openings of a racino at
Belterra park, Horseshoe Casino in Cincinnati and our own facility in Dayton.
Gaming revenue for our South/West segment increased by $8.8 million in 2016, primarily due to a full year
of operations at Tropicana Las Vegas, which was acquired on August 25, 2015 and had increased gaming revenue of
$32.0 million, partially offset by decreased gaming revenue at Hollywood Casino Tunica, Zia Park, as low oil prices
have continued to affect the economy in this area, and Boomtown Biloxi, due to new competition.
55
Food, beverage, hotel and other revenue
2017 Compared with 2016
Food, beverage, hotel and other revenue increased by $26.3 million, or 4.6%, to $601.7 million in 2017
primarily due to the variances explained below.
Food, beverage, hotel and other revenue for our South/West segment increased by $12.7 million in 2017,
primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017 and increased food, beverage, hotel and
other revenue at Tropicana Las Vegas and M Resort, partially offset by decreased food, beverage, hotel and other
revenue at Hollywood Casino Tunica.
Food, beverage, hotel and other revenue for our Northeast segment increased by $2.4 million in 2017,
primarily due to increased food, beverage, hotel and other revenue at Hollywood Gaming at Mahoning Valley,
Hollywood Gaming at Dayton Raceway and Hollywood Casino Columbus, partially offset by decreased food,
beverage, hotel and other revenue at Hollywood Casino at Charles Town Races due to increased competition from
the Maryland market.
Food, beverage, hotel and other revenue for our Other segment increased by $10.4 million in 2017,
primarily due to a full year of operations for Rocket Speed, which was acquired on August 1, 2016, partially offset
by the sale of Rosecroft Raceway on July 31, 2016.
2016 Compared with 2015
Food, beverage, hotel and other revenue increased by $89.9 million, or 18.5%, to $575.4 million in 2016
primarily due to the variances explained below.
Food, beverage, hotel and other revenue for our South/West segment increased by $55.7 million in 2016,
primarily due to increased food, beverage, hotel and other revenue due to a full year of operations at Tropicana Las
Vegas, which was acquired on August 25, 2015, which had increased food, beverage, hotel and other revenue of
$58.5 million for the year ended December 31, 2016. This increase was partially offset by decreased food,
beverage, hotel and other revenue from Zia Park Casino.
Food, beverage, hotel and other revenue for our Northeast segment increased by $8.4 million in 2016,
primarily due to increased food, beverage, hotel and other revenue from a full year of operations at Plainridge Park
Casino which opened on June 24, 2015, which had increased food, beverage, hotel and other revenue of $6.5 million
for the year ended December 31, 2016.
Food, beverage, hotel and other revenue for our Midwest segment increased by $5.1 million in 2016,
primarily due to increased food, beverage, hotel and other revenue at Hollywood Casino Lawrenceburg, Hollywood
Casino St. Louis, and Argosy Casino Riverside.
Promotional allowances
The retail value of accommodations, food and beverage, and other services furnished to guests without
charge is included in gross revenues and then deducted as “promotional allowances.” Our promotional allowance
levels are determined based on various factors such as our marketing plans, competitive factors, economic
conditions, and regulations.
2017 Compared with 2016
Promotional allowances increased by $8.8 million, or 5.1%, to $183.5 million in 2017, primarily due the
acquisitions of 1st Jackpot and Resorts on May 1, 2017 and increased marketing efforts at Tropicana Las Vegas and
M Resort.
56
2016 Compared with 2015
Promotional allowances increased by $19.7 million, or 12.7%, to $174.7 million in 2016, primarily due to
increased promotional allowances from a full year of operations at Tropicana Las Vegas, which was acquired on
August 25, 2015.
Operating Expenses
Operating expenses for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):
Year ended December 31,
Gaming
Food, beverage, hotel and other
General and administrative
Reimbursable management costs
Depreciation and amortization
Impairment losses, provision for loan loss and unfunded
loan commitments to the JIVDC
Insurance recoveries, net of deductible charges
Total operating expenses
Year ended December 31,
Gaming
Food, beverage, hotel and other
General and administrative
Reimbursable management costs
Depreciation and amortization
Impairment losses
Insurance recoveries, net of deductible charges
Total operating expenses
Gaming expense
2017 Compared with 2016
2017
2016
Variance
Percentage
Variance
$ 1,364,989 $ 1,334,980 $ 30,009
14,977
51,748
10,063
(4,152)
421,848
514,776
26,060
267,062
406,871
463,028
15,997
271,214
107,810
(289)
107,810
437
$ 2,702,256 $ 2,491,364 $ 210,892
—
(726)
2.2 %
3.7 %
11.2 %
62.9 %
(1.5)%
N/A
(60.2)%
8.5 %
2016
2015
Percentage
Variance Variance
$ 1,334,980 $ 1,271,679 $ 63,301
56,974
13,595
15,997
11,753
(40,042)
(726)
$ 2,491,364 $ 2,370,512 $ 120,852
406,871
463,028
15,997
271,214
—
(726)
349,897
449,433
—
259,461
40,042
—
5.0 %
16.3 %
3.0 %
N/A
4.5 %
(100.0)%
N/A
5.1 %
Gaming expense increased by $30.0 million, or 2.2%, to $1,365.0 million in 2017, primarily due to the
variances explained below.
Gaming expense for our Midwest segment increased by $19.7 million in 2017, primarily due to an increase
in gaming taxes resulting from increased taxable gaming revenue mentioned above at Prairie State Gaming primarily
resulting from the acquisition of four smaller VGT route operators in Illinois since the fourth quarter 2016 and
Argosy Casino Riverside, partially offset by a decrease in gaming taxes resulting from decreased taxable gaming
revenue mentioned above at Argosy Casino Alton and Hollywood Casino Lawrenceburg, primarily due to continued
impact of competition in Ohio.
Gaming expense for our South/West segment increased by $9.9 million in 2017, primarily due to an
increase in gaming taxes resulting from the acquisitions of 1st Jackpot and Resorts on May 1, 2017, and an increase
in gaming taxes resulting from increased taxable gaming revenue mentioned above at Tropicana Las Vegas and Zia
Park, as the local economy has shown improvements over the second half of the year, partially offset by a decrease
in gaming taxes resulting from decreased taxable gaming revenue mentioned above at Hollywood Casino Gulf Coast
and Boomtown Biloxi, both of which were negatively impacted by Hurricane Nate in October 2017 and at
Hollywood Casino Tunica
57
2016 Compared with 2015
Gaming expense increased by $63.3 million, or 5.0%, to $1,335.0 million in 2016, primarily due to the
variances explained below.
Gaming expense for our Midwest segment increased by $31.9 million in 2016, primarily due to a full year
of operations at Prairie State Gaming, which was acquired on September 1, 2015 and an overall increase in gaming
taxes resulting from increased taxable gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside,
partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at
Hollywood Casino Joliet, Hollywood Casino Aurora, and Argosy Casino Alton.
Gaming expense for our Northeast segment increased by $28.8 million in 2016, primarily due to full year
of operation at Plainridge Park Casino, which opened on June 24, 2015, and increased gaming taxes as a result of
increased taxable gaming revenue at Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, and
Hollywood Gaming at Mahoning Valley Race Course. These increases were partially offset by an overall decrease
in gaming taxes resulting from decreased taxable gaming revenue at Hollywood Casino at Charles Town Races and
Hollywood Casino at Penn National Race Course.
Gaming expense for our South/West segment increased by $3.0 million in 2016, primarily due to a full year
of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, partially offset by an overall
decrease in gaming taxes resulting from decreased taxable gaming revenue at Zia Park Casino as low oil prices have
continued to affect the economy in this area, Hollywood Casino Tunica and M Resort.
Food, beverage, hotel and other expense
2017 Compared with 2016
Food, beverage, hotel and other expense increased by $15.0 million, or 3.7%, to $421.8 million in 2017,
primarily due to the variances explained below.
Food, beverage, hotel and other expense for our South/West segment increased by $12.5 million in 2017,
primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and higher food, beverage, hotel and
other expenses at Tropicana Las Vegas and M Resort, partially offset by lower food, beverage, hotel and other
expenses at Hollywood Casino Tunica and Boomtown Biloxi.
Food, beverage, hotel and other expense for our Northeast segment increased by $2.2 million in 2017,
primarily due to higher food, beverage, hotel and other expenses at Hollywood Casino at Penn National Race
Course, Hollywood Gaming at Mahoning Valley Race Course, Hollywood Gaming at Dayton Raceway and
Hollywood Casino Columbus, partially offset by lower food, beverage, hotel and other expenses at Hollywood
Casino Toledo and Hollywood Casino at Charles Town Races due to increased competition from the Maryland
market .
2016 Compared with 2015
Food, beverage, hotel and other expense increased by $57.0 million, or 16.3%, to $406.9 million in 2016,
primarily due to the variances explained below.
Food, beverage, hotel and other expense for our South/West segment increased by $39.9 million in 2016,
primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015.
Food, beverage, hotel and other expense for our Northeast segment increased by $4.8 million in 2016,
primarily due to increased food, beverage and other expense from a full year of operations at Plainridge Park Casino
which opened on June 24, 2015.
58
Food, beverage, hotel and other expense for our Midwest segment increased by $3.8 million in 2016,
primarily due to increased food, beverage, hotel and other expense at Hollywood Casino Joliet, Hollywood Casino
St. Louis and Argosy Casino Riverside.
General and administrative expense
General and administrative expenses include items such as compliance, facility maintenance, utilities,
property and liability insurance, surveillance and security, and certain housekeeping services, as well as all expenses
for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General
and administrative expenses also include lobbying expenses and changes in the fair value of our contingent purchase
price obligations.
2017 Compared with 2016
General and administrative expenses increased by $51.7 million, or 11.2%, to $514.8 million in 2017,
primarily due to the variances explained below.
General and administrative expenses for Other increased by $19.0 million in 2017, primarily due to higher
cash-settled stock-based compensation charges of $23.0 million from increases in Penn’s stock price during 2017
compared to 2016, higher bonus accrual expense of $3.5 million due to the Company’s better overall performance
against its budget, higher outside services and legal fees of $9.4 million due to development and acquisition costs
and a full year of operations of Rocket Speed, which was acquired on August 1, 2016, partially offset by a $22.2
million benefit from a buy out of the contingent purchase price obligation for Rocket Speed.
General and administrative expenses for our South/West segment increased by $18.6 million in 2017,
primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and higher expenses at Tropicana Las
Vegas due to a favorable litigation settlement in 2016, partially offset by by cost saving measures at Hollywood
Casino Gulf Coast and Hollywood Casino Tunica.
General and administrative expenses for our Northeast segment increased by $14.3 million in 2017,
primarily due to higher contingent purchase price expense at Plainridge Park Casino due to improved results and
long-term outlook.
2016 Compared with 2015
General and administrative expenses increased by $13.6 million, or 3.0%, to $463.0 million in 2016,
primarily due to the variances explained below.
General and administrative expenses for our Midwest segment increased by $13.1 million in 2016,
primarily due to favorable property tax settlements of $17.4 million in 2015, partially offset by lower expenses at
Hollywood Casino Joliet and Argosy Casino Alton.
General and administrative expenses for Other decreased by $10.0 million in 2016, primarily due to lower
cash settled stock based compensation charges of $7.8 million mainly due to stock price decreases for Penn and
GLPI common stock during 2016 compared to stock price increases in 2015 and lower bonus expense of $2.7
million.
General and administrative expenses for our South/West segment increased by $9.4 million in 2016,
primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, partially
offset by decreased expenses at M Resort primarily due to decreases in outside service costs.
General and administrative expenses for our Northeast segment increased by $1.1 million in 2016,
primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, partially offset
by a favorable property tax adjustment for Hollywood Gaming at Dayton Raceway.
59
Depreciation and amortization expense
2017 Compared with 2016
Depreciation and amortization expense decreased by $4.2 million, or 1.5%, to $267.1 million in 2017,
primarily due to decreases at the majority of our properties due to assets becoming fully depreciated, partially offset
by the acquisitions of 1st Jackpot and Resorts on May 1, 2017, increased intangible asset amortization from a full
year of operations at Rocket Speed and the acquisitions of the assets of four smaller VGT route operators in Illinois
since the fourth quarter 2016.
2016 Compared with 2015
Depreciation and amortization expense increased by $11.8 million, or 4.5%, to $271.2 million in 2016,
primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, Tropicana Las
Vegas, which was acquired on August 25, 2015, Prairie State Gaming, which was acquired on September 1, 2015,
and intangible asset amortization expense associated with our acquisition of Rocket Speed. These increases were
partially offset by lower expenses at the majority of our other properties as assets become fully depreciated.
Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC
For the year ended December 31, 2017, the Company recorded a provision for loan loss and unfunded loan
commitments to the JIVDC of $89.8 million and goodwill impairment charges of $18.0 million.
For the year ended December 31, 2016, the Company did not record any impairment charges.
For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges
of $40.0 million related to the write-off of our Plainridge Park Casino gaming license and a partial write-down of the
gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at
both of these locations.
Insurance recoveries, net of deductible charges
Insurance recoveries for the year ended December 31, 2017 were related to an insurance gain in our
Midwest segment of $0.3 million for the second quarter flood that occurred at Argosy Casino Alton.
Insurance recoveries for the year ended December 31, 2016 were related to an insurance gain in our
Midwest segment of $0.7 million for the first quarter flood that occurred at Argosy Casino Alton.
Other income (expenses)
Other income (expenses) for the years ended December 31, 2017, 2016 and 2015 are as follows (in
thousands):
Year ended December 31,
Interest expense
Interest income
Income from unconsolidated affiliates
Loss on early extinguishment of debt
Other
Total other expenses
60
2016
2017
$ (466,761)
3,552
18,671
(23,963)
(2,257)
(459,243) $ (7,518)
(20,634)
4,334
(23,963)
(578)
$ (470,758) $ (422,399) $ (48,359)
Percentage
Variance Variance
1.6 %
(85.3)%
30.2 %
N/A
34.4 %
11.4 %
24,186
14,337
—
(1,679)
Year ended December 31,
Interest expense
Interest income
Income from unconsolidated affiliates
Other
Total other expenses
Interest expense
2016
$ (459,243)
24,186
14,337
(1,679)
(16,116)
12,655
(151)
(7,551)
$ (422,399) $ (411,236) $ (11,163)
2015
(443,127)
11,531
14,488
5,872
Percentage
Variance Variance
3.6 %
109.7 %
(1.0)%
(128.6)%
2.7 %
Interest expense increased by $7.5 million, or 1.6%, to $466.8 million in 2017, primarily due to $5.8
million higher interest payments on the financing obligation to GLPI due to the acquisition of 1st Jackpot and
Resorts on May 1, 2017 and the incurrence of rent escalators, $5.0 million from higher borrowing levels on the
senior unsecured notes, partially offset by $2.5 million from lower borrowing levels and interest rates on the
revolver portion of the senior secured credit facility and $0.7 million lower accretion on the relocation fees for
Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.
Interest expense increased by $16.1 million, or 3.6%, to $459.2 million in 2016, primarily due to $11.9
million from higher borrowings on the Term Loan A and revolver portions of the senior secured credit facility
during year ended December 31, 2016, compared to prior year, lower capitalized interest of $1.7 million and higher
payments of $1.7 million from the rent escalator on the financing obligation to GLPI.
Interest income
Interest income decreased by $20.6 million, or 85.3%, to $3.6 million in 2017, primarily due to lower
interest accrued on the loan to the JIVDC due to their refinancing on October 20, 2016 (see Note 5 to the
consolidated financial statements for further details).
Interest income increased by $12.7 million, or 109.7%, to $24.2 million in 2016, primarily due to higher
interest accrued on the loan to the JIVDC (see Note 5 to the consolidated financial statements for further details).
Income from unconsolidated affiliates
Income from unconsolidated affiliates increased by $4.3 million, or 30.2%, to $18.7 million in 2017,
primarily due to increased earnings related to our joint venture in Kansas Entertainment primarily due to higher year
over year revenue.
Other
Other changed by $0.6 million, or 34.4%, to $(2.3) million in 2017 compared to 2016 primarily due to costs
associated with the January 2017 debt refinancing, partially offset by lower foreign currency translation losses for
the year ended December 31, 2017 compared to 2016.
Other changed by $7.6 million, or 128.6%, to $(1.7) million in 2016 compared to 2015 primarily due to
foreign currency translation losses for the year ended December 31, 2016 compared to foreign currency translation
gains for 2015.
Taxes
Our income tax benefit from operations was $498.5 million for the year ended December 31, 2017,
compared to an income tax expense of $11.3 million in the prior year period. Our effective tax rate (income taxes as
a percentage of income from operations before income taxes) was 1,990.6% for the year ended December 31, 2017,
as compared to 9.4% for the year ended December 31, 2016. The Company’s effective tax rate in the current year is
lower than the federal statutory tax rate of 35% due to the effect of permanent items such as nondeductible goodwill
61
amortization, stock compensation, and the contingent liability settlement, as well as the decrease in our valuation
allowance during the year compared to the corresponding prior year period , which is partially offset by the effects
of the deferred federal income tax rate reduction from 35% to 21% due to income tax reform legislation known as
the Tax Cuts and Jobs Act. Our low level of pre tax earnings has magnified the impact of the above items on our
effective tax rate during the year ended December 31, 2017, compared to the corresponding prior year period.
We recorded a net charge of $266.0 million included in the income tax provision in the Consolidated
Statements of Operations consisting of three components: (i) a $261.3 million charge due to the revaluation of the
net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related
to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian
subsidiary (which we will pay interest free over 8 years) and (iii) a $2.1 million foreign withholding tax charge due
to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment
assertion. While we believe the $266.0 million net charge represents a reasonable estimate of the income tax effects
of the Tax Act in our Consolidated Statements of Operations as of December 31, 2017, these amounts are
considered provisional.
Our effective income tax rate can vary from period to period depending on, among other factors, the
geographic and business mix of our earnings and the level of our tax credits. Certain of these and other factors,
including our history and projections of pre tax earnings, are considered in assessing our ability to realize our net
deferred tax assets. During the year ended December 31, 2017, we determined that a valuation allowance was no
longer required against the federal and state net deferred tax assets for the portion that will be realized. As such, the
Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017. The
Company continues to maintain a valuation allowance of $113.7 million as of December 31, 2017 for federal capital
loss carryforwards, as well as certain state filing groups, where it continues to be in a cumulative three-year pretax
loss position.
Adjusted EBITDA
In addition to GAAP financial measures, adjusted EBITDA is used by management as an important
measure of the Company’s operating performance. We define adjusted EBITDA as earnings before interest, taxes,
stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and
deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase
price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also
inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as
depreciation and amortization) added back for our joint venture in Kansas Entertainment. Adjusted EBITDA
excludes payments associated with our Master Lease agreement with GLPI as the transaction was accounted for as a
financing obligation. Adjusted EBITDA has economic substance because it is used by management as a
performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long
lived casino projects because they provide a perspective on the current effects of operating decisions separated from
the substantial non-operational depreciation charges and financing costs of such projects. We also present adjusted
EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of
ongoing business operations, including our ability to service debt, fund capital expenditures, acquisitions and
operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to
evaluate and compare operating performance and value companies within our industry. In addition, gaming
companies have historically reported adjusted EBITDA as a supplement to financial measures in accordance with
GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including
us, have historically excluded from their adjusted EBITDA calculations certain corporate expenses that do not relate
to the management of specific casino properties. However, adjusted EBITDA is not a measure of performance or
liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental
disclosure, as management believes that it is a widely used measure of performance in the gaming industry, is used
in the valuation of gaming companies, and that it is considered by many to be a key indicator of the Company’s
operating results. Management uses adjusted EBITDA as an important measure of the operating performance of its
segments, including the evaluation of operating personnel. Adjusted EBITDA should not be construed as an
alternative to operating income, as an indicator of the Company’s operating performance, as an alternative to cash
62
flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in
accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest
payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA. It should also be noted
that other gaming companies that report adjusted EBITDA information may calculate adjusted EBITDA in a
different manner than the Company and therefore, comparability may be limited.
A reconciliation of the Company’s net income per GAAP adjusted EBITDA, as well as the Company’s
income from operations per GAAP to adjusted EBITDA, is included below. Additionally, a reconciliation of each
segment’s income (loss) from operations to adjusted EBITDA is also included above. On a segment level, income
(loss) from operations per GAAP, rather than net income (loss) per GAAP is reconciled to adjusted EBITDA due to,
among other things, the impracticability of allocating interest expense, interest income, income taxes and certain
other items to the Company’s segments on a segment by segment basis. Management believes that this presentation
is important to investors in evaluating the performance of the Company’s segments and is consistent with the
reporting of other gaming companies.
The reconciliation of the Company’s income (loss) from operations per GAAP to adjusted EBITDA, as
well as the Company’s net income per GAAP to adjusted EBITDA, for the years ended December 31, 2017, 2016
and 2015 was as follows:
Year ended December 31,
(cid:3)
2017
2016
(in thousands)
2015
Net income
Income (benefit) tax provision
Other
Income from unconsolidated affiliates
Interest income
Interest expense
Income from operations
Loss (gain) on disposal of assets
Insurance recoveries, net of deductible charges
Impairment losses, provision for loan loss and unfunded loan commitments
to the JIVDC
Charge for stock compensation
Contingent purchase price
Depreciation and amortization
Income from unconsolidated affiliates
Non operating items for Kansas JV(1)
Adjusted EBITDA
$ 473,463 $ 109,310 $
11,307
1,679
(14,337)
(24,186)
459,243
(498,507)
26,220
(18,671)
(3,552)
466,761
686
55,924
(5,872)
(14,488)
(11,531)
443,127
$ 445,714 $ 543,016 $ 467,846
1,286
—
(2,471)
(726)
172
(289)
107,810
7,780
(6,840)
267,062
18,671
5,866
40,042
8,223
(5,374)
259,461
14,488
10,377
(cid:3) $ 845,946 $ 843,829 $ 796,349
—
6,871
1,277
271,214
14,337
10,311
(1) Adjusted EBITDA excludes our share of the impact of non-operating items (such as depreciation and
amortization expense) from our joint venture in Kansas Entertainment.
63
The reconciliation of each segment’s income (loss) from operations to adjusted EBITDA for the years
ended December 31, 2017, 2016 and 2015 were as follows (in thousands):
Year Ended December 31, 2017
Income (loss) from operations
Charge for stock compensation
Insurance recoveries, net of deductible charges
Impairment losses, provision for loan loss and
unfunded loan commitments to the JIVDC
Depreciation and amortization
Contingent purchase price
(Gain) loss on disposal of assets
Income (loss) from unconsolidated affiliates
Non-operating items for Kansas JV
Adjusted EBITDA
Year Ended December 31, 2016
Income (loss) from operations
Charge for stock compensation
Insurance recoveries
Depreciation and amortization
Contingent purchase price
Loss (gain) on disposal of assets
Income (loss) from unconsolidated affiliates
Non-operating items for Kansas JV
Adjusted EBITDA
Year ended December 31, 2015
Income (loss) from operations
Charge for stock compensation
Impairment losses
Insurance recoveries, net of deductible charges
Depreciation and amortization
Contingent purchase price
Loss on disposal of assets
Income (loss) from unconsolidated affiliates
Non-operating items for Kansas JV
Adjusted EBITDA
2017 Compared to 2016
Northeast South/West Midwest
$ 408,693 $ (5,781) $ 233,704 $ (190,902) $ 445,714
7,780
(289)
7,780
—
—
(289)
—
—
—
—
Other (1)
Total
—
80,105
12,529
(56)
—
—
107,810
267,062
(6,840)
172
18,671
5,866
$ 501,271 $ 135,324 $ 297,777 $ (88,426) $ 845,946
104,605
36,622
—
(122)
—
—
3,205
112,498
(19,382)
182
(1,807)
—
—
37,837
13
168
20,478
5,866
Total
Other (1)
Northeast South/West Midwest
$ 397,524 $ 92,629 $ 223,180 $ (170,317) $ 543,016
6,871
(726)
271,214
1,277
(2,471)
14,337
10,311
$ 489,070 $ 128,569 $ 287,275 $ (61,085) $ 843,829
6,871
—
104,800
2,548
(3,364)
(1,623)
—
—
(726)
38,210
6
334
15,960
10,311
—
—
92,373
(1,277)
450
—
—
—
—
35,831
—
109
—
—
Other
Total
Northeast South/West Midwest
$ 328,567
—
40,042
—
93,299
(5,374)
65
—
—
(188,627) $ 467,846
8,223
40,042
—
259,461
(5,374)
1,286
14,488
10,377
$ 456,599 $ 128,850 $ 291,317 $ (80,417) $ 796,349
225,526
—
—
—
39,917
—
208
15,289
10,377
102,380
—
—
—
25,793
—
677
—
—
8,223
—
—
100,452
—
336
(801)
—
Adjusted EBITDA for our Northeast segment increased by $12.2 million, or 2.5%, for the year ended
December 31, 2017, as compared to the year ended December 31, 2016, primarily due to improved results at all four
of our Ohio properties and Plainridge Park Casino, partially offset by lower Adjusted EBITDA at Hollywood Casino
at Charles Town Races due to increased competition from the Maryland market.
Adjusted EBITDA for our Midwest segment increased by $10.5 million, or 3.7%, for the year ended
December 31, 2017, as compared to the year ended December 31, 2016, primarily due to improved results at Argosy
Casino Riverside and Prairie State Gaming which benefited from the acquisition of two smaller VGT route operators
during the year, partially offset by lower adjusted EBITDA at Hollywood Casino Joliet and Hollywood Casino St.
Louis.
64
Adjust EBITDA for our South/West segment increased by $6.8 million, or 5.3%, for the year ended
December 31, 2017, as compared to the year ended December 31, 2016, primarily due to the acquisitions of 1st
Jackpot and Resorts on May 1, 2017, which contributed adjusted EBITDA of $8.6 million, improved results at M
Resort and Zia Park Casino, as the local economy has shown improvements in the second half of 2017, partially
offset by lower adjusted EBITDA at Hollywood Casino Gulf Coast due to impacts from Hurricane Nate in October
2017 and at Tropicana Las Vegas, primarily due to negative impacts in the fourth quarter following the tragic
shootings and a favorable litigation settlement in the prior year.
Adjusted EBITDA for Other decreased by $27.3 million, or 44.8%, for the year ended December 31, 2017,
as compared to the year ended December 31, 2016, primarily due to increased corporate overhead costs of
$34.8 million, primarily due to higher cash-settled stock-based compensation charges of $23.0 million mainly due to
higher Penn stock price during 2017 compared to 2016, higher acquisition and development costs of $9.4 million as
well as increased bonus expense of $3.5 million due to the Company’s better overall performance against its budget,
partially offset by a full year of earnings from Rocket Speed, which was acquired on August 1, 2016.
2016 Compared to 2015
Adjusted EBITDA for our Northeast segment increased by $32.5 million, or 7.1%, for the year ended
December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a full year of operations for
Plainridge Park Casino, which opened on June 24, 2015, improved results at all of our Ohio properties, which
together increased adjusted EBITDA by $11.5 million, partially offset by decreased adjusted EBITDA at Hollywood
Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, primarily due to the continued
impact of competition of in the region, namely Maryland Live!, Horseshoe Casino Baltimore, and MGM National
Harbor, which opened in December 2016.
Adjusted EBITDA for our Midwest segment decreased by $4.0 million, or 1.4%, for the year ended
December 31, 2016, as compared to the year ended December 31, 2015, primarily due to decreased EBITDA at
Hollywood St. Louis as a result of a $15.4 million property tax credit received during 2015, Hollywood Casino
Lawrenceburg as a result of a $2.0 million property tax refund received in the first quarter of 2015, and Argosy
Casino Alton due to flooding during the first quarter 2016, which resulted in declines in business volumes and
difficulty recovering lost business, partially offset by increased adjusted EBITDA from a full year of operations of
Prairie State Gaming which was acquired on September 1, 2015.
Adjusted EBITDA for Other increased by $19.3 million, or 24.0%, for the year ended December 31, 2016,
as compared to the year ended December 31, 2015, primarily due to decreased corporate overhead costs of $11.7
million, primarily due to lower cash settled stock based compensation charges of $7.8 million mainly due to stock
price decreases for Penn and GLPI common stock during 2016 compared to stock price increases in 2015, as well as
decreased bonus expense of $2.7 million. Penn Interactive Ventures also increased adjusted EBITDA by $8.8
million for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to
growth from our HollywoodCasino.com social gaming business and the acquisition of Rocket Speed on August 1,
2016.
65
Liquidity and Capital Resources
Historically and prospectively, our primary sources of liquidity and capital resources have been and will be
cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities.
Net cash provided by operating activities was $459.1 million, $411.7 million, and $413.8 million for the
years ended December 31, 2017, 2016 and 2015, respectively. The increase in net cash provided by operating
activities of $47.4 million for the year ended December 31, 2017, compared to the corresponding period in the prior
year, was comprised primarily of an increase in cash receipts from customers of $109.2 million, primarily due to the
acquisition of 1st Jackpot and Resorts on May 1, 2017, Rocket Speed on August 1, 2016 and four smaller
acquisitions by Prairie State Gaming since the fourth quarter 2016 and an increase in income tax refunds of $32.1
million, offset by an increase in cash paid to suppliers and vendors of $37.6 million, primarily due to the
acquisitions noted above, a reduction of $23.0 million in interest income collections resulting from the refinancing
of the Jamul loan in October 2016, cash payments for the early extinguishment of debt of $18.0 million and an
increase in cash paid to employees of $15.5 million.
Net cash used in investing activities totaled $221.6 million, $79.3 million, and $781.0 million for the years
ended December 31, 2017, 2016 and 2015, respectively. The increase in net cash used in investing activities of
$142.3 million for the year ended December 31, 2017, compared to the corresponding period in the prior year, was
primarily due the $273.9 million received from the refinancing of loans to the Jamul Tribe in the prior year, cash
payments of $42.5 million primarily related to the acquisition of 1st Jackpot and Resorts and decreased proceeds
related to the sale of assets held for sale of $17.2 million primarily from the sale of Rosecroft Raceway in 2016. All
of which were partially offset by $183.3 million decrease in loan to the JIVDC and $8.2 million of principal and
interest collections applied against the nonaccrual loan to the JIVDC.
Net cash (used in) provided by financing activities totaled $(189.0) million, $(339.9) million, and $395.5
million for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease in net cash used in
financing activities of $150.9 million for the year ended December 31, 2017, compared to the prior year, was
primarily due to higher proceeds from our long-term debt of $1,308.0 million, due to the refinancing of corporate
debt, and higher proceeds of $82.6 million from GLPI for financing the acquisition of 1st Jackpot and Resorts. All
of which were partially offset by higher principal payments on long-term debt of $1,167.3 million due to the
previously mentioned refinancing, payments of $24.8 million relating to the repurchase of common stock, higher
payments of $17.8 million primarily relating to a buy out of the contingent purchase price obligation with Rocket
Speed, higher payments on other long-term obligations of $21.7 million and higher principal payments on the
financing obligation with GLPI of $7.3 million.
Capital Expenditures
Capital expenditures are accounted for as either project capital or maintenance (replacement) capital
expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a
new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life
greater than one year that are obsolete, worn out or no longer cost effective to repair.
66
The following table summarizes our project capital expenditures by segment for the year ended
December 31, 2017:
South/West (1)
Midwest (2)
Total
Actual
(in millions)
$
24.8
5.7
30.5
$
(1) Capital expenditures from our South/West segment are related to the improvements at the Tropicana Las Vegas.
(2) Capital expenditures from our Midwest segment are related to hotel improvements at Hollywood St. Louis.
During 2017, we made further enhancements to our Tropicana Las Vegas facility including adding a
celebrity chef restaurant, the Robert Irvine Public House, which opened on July 27, 2017.
During the year ended December 31, 2017, we spent $68.8 million on maintenance capital expenditures,
with $22.6 million in our Northeast segment, $17.2 million in our South/West segment, $24.2 million in our
Midwest segment, and $4.8 million in Other. The majority of the maintenance capital expenditures were for slot
machines and slot machine equipment.
Cash generated from operations and cash available under the revolving credit facility portion of our senior
secured credit facility funded our capital projects and maintenance capital expenditures in 2017.
The following table summarizes our expected capital expenditures for the year ending December 31, 2018
by segment:
(cid:3)
Northeast
South/West(1)
Midwest
Other
Total
(cid:3)
(cid:3)
Project Cap Ex Maintenance Cap Ex
(in millions)
(in millions)
$
$
— $(cid:3)
(cid:3)
1.8
(cid:3)
—
(cid:3)
—
1.8 $
21.8
17.7
26.6
37.6
103.7
(1) Expected project capital expenditures in 2018 for our South/West segment is for improvements at the Tropicana
Las Vegas.
In January 2018, the Company secured a Category 4 satellite casino license in York County, Pennsylvania
and paid $50.1 million for the gaming license. At the time of this filing, the timing and scope of our future
investment of capital for this project have not been determined and, as such, the table above does not include any
amount related to this project.
Jamul Indian Village Development Corporation
Our loan to the JIVDC, net of allowance for loan losses, which totaled $20.9 million and $92.1 million at
December 31, 2017 and 2016, is accounted for as a loan on the consolidated balance sheets and as such is not
included in the capital expenditures table presented above. See Note 5 to the consolidated financial statements for
additional details.
67
Debt
Senior Secured Credit Facility
On October 30, 2013, the Company entered into a new senior secured credit facility. The new senior
secured credit facility consists of a five year $500 million revolver, a five year $500 million Term Loan A facility,
and a seven year $250 million Term Loan B facility. The Term Loan A facility was priced at LIBOR plus a spread
(ranging from 2.75% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new
senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR
floor.
On April 28, 2015, the Company entered into an agreement to amend its senior secured credit facility. In
August 2015, the amendment to the senior secured credit facility went into effect increasing the capacity under an
existing five year revolver from $500 million to $633.2 million and increased the existing five year $500 million
Term Loan A facility by $146.7 million. The seven year $250 million Term Loan B facility remained unchanged.
On January 19, 2017, the Company entered into an amended and restated senior secured credit facility. The
amended and restated senior secured credit facility consists of a five year $700 million revolver, a five year $300
million Term Loan A facility, and a seven year $500 million Term Loan B facility (the “Amended Credit
Facilities”). The Term Loan A facility was priced at LIBOR plus a spread (ranging from 3.00% to 1.25%) based on
the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term
Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor. At December 31, 2017, the
Company’s senior secured credit facility had a gross outstanding balance of $760.0 million, consisting of a $288.8
million Term Loan A facility and a $471.2 million Term Loan B facility. The revolving credit facility had nothing
drawn at December 31, 2017. Additionally, at December 31, 2017 and 2016, the Company had conditional
obligations under letters of credit issued pursuant to the senior secured credit facility with face amounts aggregating
$22.1 million and $23.0 million, respectively, resulting in $677.9 million and $419.1 million of available borrowing
capacity as of December 30, 2017 and 2016, respectively, under the revolving credit facility. In connection with the
repayment of the previous senior secured credit facility, the Company recorded $1.7 million in refinancing costs and
a $2.3 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the write-
off of deferred debt issuance costs and the discount on the Term Loan B facility of the previous senior secured credit
facility.
The payment and performance of obligations under the senior secured credit facility are guaranteed by a
lien on and security interest in substantially all of the assets (other than excluded property such as gaming licenses)
of the Company and its subsidiaries.
5.875% Senior Unsecured Notes
On October 30, 2013, the Company completed an offering of $300 million 5.875% senior unsecured notes
that mature on November 1, 2021 (the “5.875% Notes”) at a price of par. Interest on the 5.875% Notes is payable on
May 1 and November 1 of each year. The 5.875% Notes are senior unsecured obligations of the Company. The
5.875% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in
the future issues certain subsidiary guaranteed debt securities. The Company may redeem the 5.875% Notes at any
time, and from time to time, on or after November 1, 2016, at the declining redemption premiums set forth in the
indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the
redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from
time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a
“make whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued
and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior
to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays
105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing
the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.
68
The Company used the proceeds of the new senior secured credit facility, new 5.875% Notes, and cash on
hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its
previously issued 83/4% senior subordinated notes (“83/4% Notes”)and the related consent solicitation to make
certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay
related fees and expenses and for working capital purposes.
Redemption of 5.875% Senior Subordinated Notes
In the first quarter of 2017, the Company redeemed all of its $300 million 5.875% senior subordinated
notes, which were due in 2021 (“5.875% Notes”). In connection with this redemption, the Company recorded a
$21.1 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the
difference between the reacquisition price of the 5.875% Notes compared to its carrying value.
5.625% Senior Unsecured Notes
On January 19, 2017, the Company completed an offering of $400 million 5.625% senior unsecured notes
that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on
January 15th and July 15th of each year. The 5.625% Notes are senior unsecured obligations of the Company. The
5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in
the future issues certain subsidiary guaranteed debt securities. The Company may redeem the 5.625% Notes at any
time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the
5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture
governing the 5.625% Notes. In addition, prior to January 15, 2020, the Company may redeem the 5.625% Notes
with an amount equal to the net proceeds from one or more equity offerings, at a redemption price equal to
105.625% of the principal amount of the 5.625% Notes redeemed, together with accrued and unpaid interest to, but
not including, the redemption date, so long as at least 60% of the aggregate principal amount of the notes originally
issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the related
equity offering.
The Company used a portion of the proceeds from the issuance of the 5.625% Notes to retire its existing
5.875% Notes and to fund related transaction fees and expenses.
The Company used loans funded under the Amended Credit Facilities and a portion of the proceeds of the
5.625% Notes to repay amounts outstanding under its then existing Credit Agreement and to fund related transaction
fees and expenses and for general corporate purposes.
Financing obligation with GLPI
The Company’s Master Lease with GLPI that became effective November 1, 2013 was accounted for as a
financing obligation and totaled $3.54 billion and $3.51 billion at December 31, 2017 and 2016, respectively. At the
inception of the lease, the Company determined that the lease term should include all option periods since renewal
was reasonably assured given the high percentage of earnings from the Master Lease properties operations to the
Company and the lack of alternative economically feasible leasing options for such real estate. The future minimum
lease payments at lease inception were discounted at 9.7% which represented the Company’s estimated incremental
borrowing rate over the term of the lease. The financing obligation increased by $24.7 million for the year ended
December 31, 2017 compared to the prior year due to the addition of $82.6 million in connection with the
acquisition of 1st Jackpot and Resorts, partially offset by principal payment reductions. Interest expense recognized
on this obligation for the years ended December 31, 2017 and 2016 totaled $397.6 million and $391.7 million,
respectively.
69
Other Long-Term Obligations
Other long term obligations at December 31, 2017 and 2016 of $119.3 million and $154.1 million,
respectively, included $105.4 million and $118.9 million, respectively, related to the relocation fees for Hollywood
Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course. At December 31, 2017 and
2016, $13.8 million and $14.4 million, respectively, related to the repayment obligation of a hotel and event center
located near Hollywood Casino Lawrenceburg. The December 31, 2016 long term obligations included $20.8
million related to a corporate airplane loan; all of which are more fully described below.
In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio,
which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing
racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two
racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value
of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the
agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility
and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This
obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense
related to this obligation was $5.5 million and $6.2 million for the year ended December 31, 2017 and 2016,
respectively
The City of Lawrenceburg Department of Redevelopment completed construction of a hotel and event
center located less than a mile away from Hollywood Casino Lawrenceburg. Effective in mid-January 2015, by
contractual agreement, a repayment obligation for the hotel and event center was assumed by a wholly-owned
subsidiary of the Company in the amount of $15.3 million, which was financed through a loan with the City of
Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property. The Company is
obligated to make annual payments on the loan of approximately $1 million for twenty years beginning January
2016. This obligation is accreted to interest expense at its effective yield of 3.0%. The amount included in interest
expense related to this obligation was $0.4 million for the years ended December 31, 2017 and 2016.
Corporate Airplane Loan
On September 30, 2016, the Company acquired a previously leased corporate airplane that was accounted
for as a capital lease and financed the purchase price with an amortizing loan at a fixed interest rate of 5.22% for a
term of five years with monthly payments of $220 thousand and a balloon payment of $12.6 million at the end of the
loan term. The loan was subsequently repaid in full on January 19, 2017.
Covenants
The Company’s senior secured credit facility and senior unsecured notes require us, among other
obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge
coverage, interest coverage, senior leverage and total leverage ratios. In addition, the Company’s senior secured
credit facility and senior unsecured notes restrict, among other things, its ability to incur additional indebtedness,
incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments,
engage in mergers or consolidations, and otherwise restrict corporate activities.
At December 31, 2017, the Company was in compliance with all required financial covenants.
Outlook
Based on our current level of operations, we believe that cash generated from operations and cash on hand,
together with amounts available under our senior secured credit facility, will be adequate to meet our anticipated
Master Lease obligations, debt service requirements, capital expenditures and working capital needs for the
foreseeable future. However, we cannot be certain that our business will generate sufficient cash flow from
operations, that our anticipated earnings projections will be realized, or that future borrowings will be available
under our senior secured credit facility or otherwise will be available to enable us to service our indebtedness or to
70
make anticipated capital expenditures. In addition, we expect a majority of our future growth to come from
acquisitions of gaming properties at reasonable valuations, greenfield projects, jurisdictional expansions and
property expansion in under-penetrated markets. If we consummate significant acquisitions in the future or
undertake any significant property expansions, our cash requirements may increase significantly and we may need to
make additional borrowings or complete equity or debt financings to meet these requirements. Our future operating
performance and our ability to service or refinance our debt will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond our control. See “Risk Factors—Risks Related to
Our Capital Structure” of this Annual Report on Form 10-K for a discussion of the risks related to our capital
structure.
We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary
our leverage to pursue opportunities in the marketplace and in an effort to maximize our enterprise value for our
shareholders. We expect to meet our debt obligations as they come due through internally generated funds from
operations and/or refinancing them through the debt or equity markets prior to their maturity.
We expect to fund the anticipated acquisition of Pinnacle with a combination of proceeds from asset
divestitures and the sale-leaseback of Plainridge Park Casino, existing cash on our balance sheet, new debt financing
and internally generated cash flow prior to the acquisition. We anticipate that the additional cash flow resulting from
the acquisition will allow us to pay down debt on an accelerated basis after closing.
Commitments and Contingencies
Contractual Cash Obligations
At December 31, 2017, there was approximately $677.9 million available for borrowing under our
revolving credit facility. The following table presents our contractual cash obligations at December 31, 2017:
Senior secured credit facility
Principal
Interest (1)
5.875% senior unsecured notes
Principal
Interest
Purchase obligations
Capital expenditure commitments (2)
Capital leases
Financing obligation to GLPI (3)
Operating leases
Ohio Payments (4)
Other liabilities reflected in the
Company’s consolidated balance sheets
(5)
Total
Payments Due By Period
Total
2018
2019-2020
(in thousands)
2021-2022
2023 and
After
$
760,000 $ 20,000 $ 58,750 $
33,745
179,057
63,246
235,000 $ 446,250
29,936
52,130
400,000
211,375
73,551
4,805
890
10,299,854
84,919
188,956
—
22,250
44,060
4,805
824
387,456
8,097
33,224
—
44,500
22,968
—
66
664,518
9,679
64,448
—
44,500
6,523
—
—
664,518
6,626
62,448
400,000
100,125
—
—
—
8,583,362
60,517
28,836
13,015
—
$ 12,216,422 $ 567,476 $ 928,175 $ 1,071,745 $ 9,649,026
13,015
—
—
(1) The interest rates associated with the variable rate components of our senior secured credit facility are
estimated, based on the forward LIBOR curves plus the current spread based on our current levels of
indebtedness over LIBOR as of December 31, 2017. The contractual amounts to be paid on our variable rate
obligations are affected by changes in market interest rates and changes in our spreads which are based on our
leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid.
71
(2) The Company anticipates spending approximately $105.5 million for future capital expenditures over the next
year, of which the Company has been contractually committed to spend approximately $4.8 million at year-end.
(3) Reflects the undiscounted future minimum lease payments to GLPI over the lease term, including renewal
options. The amounts above exclude contingent payments (See Note 10 to the consolidated financial statements
for further discussion).
(4) The Company agreed to pay $110 million (of which $60.0 million remains to be paid) to the State of Ohio over
ten years in return for certain clarifications from the State of Ohio with respect to various financial matters and
limits on competition within the ten year time period. This amount also includes the remaining portion of the
relocation fees to be paid associated with our two new facilities in Dayton and Mahoning Valley, Ohio (See
Note 9 and Note 11 to the consolidated financial statements).
(5) Represents liabilities associated with reward programs that can be redeemed for cash, free play or services.
Does not include any liability for unrecognized tax benefits of $31.8 million, as the Company cannot make a
reasonably reliable estimate of the period of cash settlement with the respective taxing authority. Additionally,
it does not include an estimate of the payments associated with our contingent purchase price obligations of
$22.7 million as it is not a fixed obligation. Finally, it does not include an estimate for unfunded loan
commitments to the JIVDC which totaled approximately $29 million at December 31 ,2017 as we are unable to
predict when these amounts would be incurred. See Note 3 “Summary of Significant Accounting Policies” for
more information on our player loyalty programs.
Other Commercial Commitments
The following table presents our material commercial commitments as of December 31, 2017 for the
following future periods:
Letters of Credit(1)
Total
Total Amounts
Committed
2018
2019-2020 2021-2022 2023 and After
(in thousands)
$
$
22,088 $ 22,088 $
22,088 $ 22,088 $
— $
— $
— $
— $
—
—
(1) The available balance under the revolving credit portion of our senior secured credit facility is reduced by
outstanding letters of credit.
New Accounting Pronouncements
For information with respect to new accounting pronouncements and the impact of these pronouncements
on our consolidated financial statements, see Note 4 “New Accounting Pronouncements” in the Notes to the
Consolidated Financial Statements.
72
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information at December 31, 2017 about our financial instruments that are
sensitive to changes in interest rates. For debt obligations, the table presents notional amounts maturing during the
year and the related weighted-average interest rates by maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged by maturity date and the weighted-average interest rates are based on implied
forward LIBOR rates at December 31, 2017.
2018
2019
2020
2021
2022
(in thousands)
Thereafter
Total
Fair Value
12/31/2017
Long-term
debt:
Fixed
rate
Average
interest
rate
Variable
rate
Average
interest
rate(1)
$
—
$
—
$
—
$
—
$
—
$
400,000
$
400,000 $
412,000
$
20,000
$
25,625
$
33,125
$
35,000
$
200,000
$
446,250
$
760,000 $
760,456
5.63 %
4.42 %
4.40 %
4.29 %
4.29 %
4.58 %
5.33 %
(1) Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable-rate borrowing.
73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Penn National Gaming, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Penn National Gaming, Inc. and
Subsidiaries (the "Company") as of December 31, 2017, the related consolidated statement of operations,
comprehensive income, changes in shareholders' deficit and cash flows for the year ended December 31, 2017, and
the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the
results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2018 expressed an
unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audit provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 1, 2018
We have served as the Company's auditor since 2017.
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of
Penn National Gaming, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Penn National Gaming, Inc. and Subsidiaries as of
December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in
shareholders' deficit and cash flows for each of the two years in the period ended December 31, 2016. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Penn National Gaming, Inc. and Subsidiaries at December 31, 2016, and the consolidated
results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Penn National Gaming, Inc. and Subsidiaries’ internal control over financial reporting as of December 31,
2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2017 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 24, 2017, except for the classification adjustments to the Consolidated Statements of Cash Flows related to
the adoption of Accounting Standards Update 2016-09, Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting, described in Note 4, as to which the date is March 1,
2018
75
Penn National Gaming, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents
Receivables, net of allowance for doubtful accounts of $2,983 and $3,180 at December 31, 2017 and
December 31, 2016, respectively
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Other assets
Investment in and advances to unconsolidated affiliates
Goodwill
Other intangible assets, net
Deferred income taxes
Loan to the JIVDC, net of allowance for loan losses of $64,052 at December 31, 2017 and $0 at
December 31, 2016
Other assets
Total other assets
Total assets
Liabilities
Current liabilities
Current portion of financing obligation to GLPI
Current maturities of long-term debt
Accounts payable
Accrued expenses
Accrued interest
Accrued salaries and wages
Gaming, pari-mutuel, property, and other taxes
Insurance financing
Other current liabilities
Total current liabilities
Long-term liabilities
Long-term financing obligation to GLPI, net of current portion
Long-term debt, net of current maturities and debt issuance costs
Deferred income taxes
Noncurrent tax liabilities
Other noncurrent liabilities
Total long-term liabilities
Shareholders' deficit
Series B Preferred stock ($.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at
December 31, 2017 and 2016)
Series C Preferred stock ($.01 par value, 18,500 shares authorized, no shares issued and outstanding at
December 31, 2017 and 2016)
Common stock ($.01 par value, 200,000,000 shares authorized, 93,392,635 and 93,289,701 shares issued,
and 91,225,242 and 91,122,308 shares outstanding at December 31, 2017 and 2016, respectively)
Treasury stock, at cost (2,167,393 shares held at December 31, 2017 and 2016)
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total shareholders' deficit
Total liabilities and shareholders' deficit
December 31,
2017
2016
$
277,953
$
229,510
62,805
43,780
16,494
401,032
2,756,669
148,912
1,008,097
422,606
390,943
61,855
59,707
48,193
399,265
2,820,383
156,176
989,685
435,494
—
20,900
85,653
2,077,111
$ 5,234,812
91,401
82,080
1,754,836
$ 4,974,484
$
$
56,248
35,612
26,048
125,688
13,528
111,252
69,645
2,404
89,584
530,009
56,595
85,595
35,091
101,906
6,345
92,238
60,384
2,636
95,526
536,316
3,482,573
1,214,625
—
34,099
46,652
4,777,949
3,457,485
1,329,939
126,924
26,791
40,349
4,981,488
—
—
—
—
933
(28,414)
1,007,606
(1,051,818)
(1,453)
(73,146)
$ 5,234,812
932
(28,414)
1,014,119
(1,525,281)
(4,676)
(543,320)
$ 4,974,484
See accompanying notes to the consolidated financial statements.
76
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Year ended December 31,
Revenues
Gaming
Food, beverage, hotel and other
Management service and license fees
Reimbursable management costs
Revenues
Less promotional allowances
Net revenues
Operating expenses
Gaming
Food, beverage, hotel and other
General and administrative
Reimbursable management costs
Depreciation and amortization
Impairment losses, provision for loan loss and unfunded loan
commitments to the JIVDC
Insurance recoveries
Total operating expenses
Income from operations
Other income (expenses)
Interest expense
Interest income
Income from unconsolidated affiliates
Loss on early extinguishment of debt
Other
Total other expenses
(Loss) income from operations before income taxes
Income tax (benefit) provision
Net income
2017
2016
2015
$ 2,692,021 $ 2,606,262 $ 2,497,497
485,534
10,314
—
2,993,345
(154,987)
2,838,358
575,434
11,348
15,997
3,209,041
(174,661)
3,034,380
601,731
11,654
26,060
3,331,466
(183,496)
3,147,970
1,364,989
421,848
514,776
26,060
267,062
1,334,980
406,871
463,028
15,997
271,214
1,271,679
349,897
449,433
—
259,461
107,810
(289)
2,702,256
445,714
—
(726)
2,491,364
543,016
40,042
—
2,370,512
467,846
(466,761)
3,552
18,671
(23,963)
(2,257)
(470,758)
(25,044)
(498,507)
(459,243)
24,186
14,337
—
(1,679)
(422,399)
120,617
11,307
(443,127)
11,531
14,488
—
5,872
(411,236)
56,610
55,924
686
$ 473,463 $ 109,310 $
Earnings per common share
Basic earnings per common share
Diluted earnings per common share
$
$
5.21 $
5.07 $
1.21 $
1.19 $
0.01
0.01
Weighted average basic shares outstanding
Weighted average diluted shares outstanding
90,854
93,378
82,929
91,407
80,003
90,904
See accompanying notes to the consolidated financial statements.
77
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Year ended December 31,
Net income
Other comprehensive loss, net of tax:
Foreign currency translation adjustment during the period
Other comprehensive income (loss)
Comprehensive income (loss)
2017
2016
2015
$473,463 $ 109,310 $
686
3,223
3,223
(3,272)
(3,272)
$476,686 $ 109,188 $ (2,586)
(122)
(122)
See accompanying notes to the consolidated financial statements.
78
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79
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of items charged to interest expense and interest income
Change in fair values of contingent purchase price
Loss (gain) on sale of property and equipment and assets held for sale
Income from unconsolidated affiliates
Distributions from unconsolidated affiliates
Deferred income taxes
Charge for stock-based compensation
Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC
Write off of debt issuance costs and discounts
(Decrease) increase, net of businesses acquired
Accounts receivable
Prepaid expenses and other current assets
Other assets
(Decrease) increase, net of businesses acquired
Accounts payable
Accrued expenses
Accrued interest
Accrued salaries and wages
Gaming, pari-mutuel, property and other taxes
Income taxes
Other current and noncurrent liabilities
Net cash provided by operating activities
Investing activities
Project capital expenditures
Maintenance capital expenditures
Insurance remediation proceeds
Loans to the JIVDC
Funds advanced to the JIVDC in connection with their refinancing
Reimbursement of advances with the JIVDC
Land purchased adjacent to Hollywood Casino Jamul - San Diego
Repayment (Purchase) of note from the previous developer of the Jamul project
Receipts applied against nonaccrual loan to the JIVDC
Proceeds from sale of property and equipment and assets held for sale
Additional fundings and investment in joint ventures
Consideration paid for acquisitions of businesses, gaming licenses, and other intangibles, net of cash
acquired
Net cash used in investing activities
Financing activities
Proceeds from exercise of options
Repurchase of common stock
Principal payments on financing obligation with GLPI
Proceeds from issuance of long-term debt, net of issuance costs
Increase from financing obligation in connection with acquisition
Principal payments on long-term debt
Payments of other long-term obligations
Payments of contingent purchase price
Proceeds from insurance financing
Payments on insurance financing
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure
Interest expense paid, net of amounts capitalized
Income taxes (refunds received)/taxes paid
Non-cash investing activities
Accrued capital expenditures
Accrued advances to Jamul Tribe
2017
2016
2015
$
473,463
$
109,310
$
686
267,062
6,960
(6,840)
172
(18,671)
26,450
(517,906)
7,780
107,810
5,951
(9,186)
(7,239)
1,662
(342)
23,761
7,183
15,783
8,495
20,448
46,283
459,079
(25,033)
(74,228)
577
(845)
—
—
(1,500)
—
8,226
1,013
(500)
(129,318)
(221,608)
10,447
(24,796)
(57,859)
1,430,796
82,600
(1,574,918)
(35,453)
(19,613)
11,948
(12,180)
(189,028)
48,443
229,510
277,953
452,779
(43,067)
1,890
2,465
$
$
$
$
$
$
$
$
$
$
271,214
7,200
1,277
(2,471)
(14,337)
26,300
8,736
6,871
—
—
(5,911)
(485)
(4,879)
(7,500)
1,519
(746)
(6,721)
3,379
26,008
(7,045)
411,719
(18,740)
(78,505)
—
(184,193)
(98,000)
341,864
(3,065)
30,000
—
18,210
—
(86,859)
(79,288)
11,601
—
(50,548)
122,747
—
(407,662)
(13,772)
(1,807)
13,119
(13,608)
(339,930)
(7,499)
237,009
229,510
452,842
(11,412)
6,749
6,962
$
$
$
$
$
259,461
6,599
(5,374)
1,286
(14,488)
28,150
57,236
8,223
40,042
—
710
10,345
4,363
2,113
7,243
1,910
8,454
3,933
1,443
(8,527)
413,808
(136,548)
(62,692)
—
(105,658)
—
—
—
(24,000)
—
561
(2,555)
(450,113)
(781,005)
9,399
—
(46,885)
562,076
—
(115,195)
(3,307)
—
4,720
(15,275)
395,533
28,336
208,673
237,009
434,175
5,116
5,890
39,625
See accompanying notes to the consolidated financial statements.
80
Non-cash transactions: In conjunction with the purchase price of Rocket Speed on August 1, 2016, the Company
increased its acquired assets and other current and noncurrent liabilities by $34.4 million for the fair value of the
contingent purchase price consideration at the time of acquisition. The remaining portion of the purchase price was
paid in cash.
In January 2015, a repayment obligation for a hotel and event center near Hollywood Casino Lawrenceburg was
assumed by a subsidiary of the Company, which was financed through a loan with the City of Lawrenceburg
Department of Redevelopment. This non-cash transaction increased property and equipment, net and total debt by
$15.3 million. See Note 9 for further detail.
81
Penn National Gaming, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1.
Business and Basis of Presentation
Penn National Gaming, Inc. (“Penn”) and together with its subsidiaries (collectively, the “Company”,
“we”, “our” or “us”) is a geographically diversified, multi-jurisdictional owner and manager of gaming and racing
facilities and video gaming terminal operations with a focus on slot machine entertainment. The Company was
incorporated in Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company
became a publicly traded company. In 1997, the Company began its transition from a pari-mutuel company to a
diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery
terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic
acquisitions, greenfield projects, and property expansions. We, along with our joint venture partner, opened
Hollywood Casino at Kansas Speedway in February 2012. In Ohio, the Company opened four new gaming
properties, including: Hollywood Casino Toledo in May 2012, Hollywood Casino Columbus in October 2012,
Hollywood Gaming at Dayton Raceway in August 2014, and Hollywood Gaming at Mahoning Valley Race Course
in September 2014. In addition, in November 2012, the Company acquired Harrah’s St Louis, which was
subsequently rebranded as Hollywood Casino St Louis. In 2015, the Company opened Plainridge Park Casino, an
integrated racing and slots-only gaming facility in Plainville, Massachusetts, in June, completed the acquisition of
our first Las Vegas strip asset, Tropicana Hotel and Casino in Las Vegas, Nevada in August, and acquired Illinois
Gaming Investors, LLC (d/b/a Prairie State Gaming), one of the largest video gaming terminal route operators in
Illinois, in September.
In 2016, Prairie State Gaming also acquired two smaller video gaming terminal route operators in Illinois.
Finally, the Company implemented its interactive gaming strategy through its subsidiary, Penn Interactive Ventures,
which included launching the HollywoodCasino.com Play4Fun social gaming platform with Scientific Games. On
August 1, 2016, the Company completed its acquisition of Rocket Speed, a leading developer of social casino
games. On May 1, 2017, the Company completed its acquisition of 1st Jackpot Casino Tunica (formerly known as
Bally’s Casino Tunica, (“1st Jackpot”)) and Resorts Casino Tunica (“Resorts”). In the first half of 2017, the
Company’s subsidiary, Prairie State Gaming acquired the assets of two additional smaller video gaming terminal
operators in Illinois.
As of December 31, 2017, the Company owned, managed, or had ownership interests in twenty-nine
facilities in the following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine,
Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West
Virginia, and Ontario, Canada.
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses for the reporting periods. Actual results could differ from those estimates.
2.
Principles of Consolidation
The consolidated financial statements include the accounts of Penn and its subsidiaries. Investment in and
advances to unconsolidated affiliates, that do not meet the consolidation criteria of the authoritative guidance for
voting interest, controlling interest or variable interest entities (“VIEs”), are accounted for under the equity method.
All intercompany accounts and transactions have been eliminated in consolidation.
82
3.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all cash balances and highly-liquid investments with original maturities of three
months or less to be cash and cash equivalents.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, and
accounts receivable.
The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place
investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free
bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and
overnight repurchase agreements that exceed federally-insured limits.
Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit
evaluation process. The Company issues markers to approved casino customers only following credit checks and
investigations of creditworthiness. Marker balances issued to approved casino customers were $3.7 million at
December 31, 2017, compared to $4.4 million at December 31, 2016.
The Company’s receivables of $62.8 million and $61.9 million at December 31, 2017 and 2016,
respectively, primarily consist of $6.1 million and $5.0 million, respectively, due from the West Virginia Lottery for
gaming revenue settlements and capital reinvestment projects at Hollywood Casino at Charles Town Races,
$9.9 million and $11.8 million, respectively, for reimbursement of expenses paid on behalf of Casino Rama and
Hollywood Casino Jamul – San Diego, $5.5 million and $4.0 million, respectively, for racing settlements due from
simulcasting at Hollywood Casino at Penn National Race Course, $3.4 million and $3.4 million, respectively, for
reimbursement of payroll expenses paid on behalf of the Company’s joint venture in Kansas, $13.9 million and
$10.8 million, respectively, for cash, credit card and other advances to customers, $3.0 million and $ 3.2 million,
respectively, due from platform providers (i.e. Apple, Google, Amazon and Facebook) for social casino game
revenues, and markers issued to customers mentioned above.
Accounts are written off when management determines that an account is uncollectible. Recoveries of
accounts previously written off are recorded when received. An allowance for doubtful accounts is determined to
reduce the Company’s receivables to their carrying value, which approximates fair value. The allowance is
estimated based on historical collection experience, specific review of individual customer accounts, and current
economic and business conditions. Historically, the Company has not incurred any significant credit-related losses.
See Note 5 to the consolidated financial statements for a discussion of the credit risk associated with our
loan to the Jamul Indian Village Development Corporation (“JIVDC”), including allowances for loan losses that
were established in 2017.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Capital expenditures are
accounted for as either project capital or maintenance (replacement) capital expenditures. Project capital
expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance
capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are
obsolete, worn out or no longer cost effective to repair. Maintenance and repairs that neither add materially to the
value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the
disposal of property and equipment are included in the determination of income.
83
Depreciation of property and equipment is recorded using the straight- line method over the following
estimated useful lives:
Land improvements
Building and improvements
Furniture, fixtures, and equipment
15 years
5 to 31 years
3 to 31 years
All costs funded by Penn considered to be an improvement to the real property assets owned by GLPI
under the Master Lease are recorded as leasehold improvements. Leasehold improvements are depreciated over the
shorter of the estimated useful life of the improvement or the related lease term.
The estimated useful lives are determined based on the nature of the assets as well as the Company’s
current operating strategy.
The Company reviews the carrying value of its property and equipment for possible impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on
undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors
considered by the Company in performing this assessment include current operating results, trends and prospects, as
well as the effect of obsolescence, demand, competition and other economic factors. For purposes of recognizing
and measuring impairment in accordance with Financial Accounting Standards Board (the “FASB”) Accounting
Standards Codification (“ASC”) 360, “Property, Plant, and Equipment,” assets are grouped at the individual
property level representing the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets. In assessing the recoverability of the carrying value of property and equipment, the Company
must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions
change in the future, the Company may be required to record an impairment loss for these assets. Such an
impairment loss would be recognized as a non-cash component of operating income.
Goodwill and Other Intangible Assets
At December 31, 2017, the Company had $1,008.1 million in goodwill and $422.6 million in other
intangible assets within its consolidated balance sheet, respectively, resulting from the Company’s acquisition of
other businesses and payment for gaming licenses.
Goodwill represents the future economic benefits of a business combination measured as the excess
purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if
indicators of impairment exist. An income approach, in which a discounted cash flow model is utilized and a
market-based approach utilizing guideline public company (“GPC”) multiples of adjusted EBTIDA from the
Company’s peer group is utilized to estimate the fair market value of the Company’s reporting units.
For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated
using the combination of a discounted cash flow model and a GPC multiples approach which is then compared to
the carrying value of each reporting unit. The Company adjusts the carrying value of each reporting unit that utilizes
property that is subject to the Master Lease by an allocation of a pro-rata portion of the GLPI financing obligation
based on the reporting unit’s estimated fair value as a percentage of the aggregate estimated fair value of all
reporting units that utilize property that is subject to the Master Lease.
The Company compares the aggregate weighted average fair value to the carrying value of its reporting
units. If the carrying value of the reporting unit exceeds the aggregate weighted average fair value, an impairment is
recorded equal to the amount of the excess not to exceed the amount of goodwill allocated to the reporting unit.
In accordance with ASC 350, “Intangibles-Goodwill and Other,” the Company considers its gaming
licenses and certain other intangible assets as indefinite-life intangible assets that do not require amortization based
on the Company’s future expectations to operate its gaming facilities indefinitely as well as its historical experience
84
in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets
are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value
of the recorded assets to their carrying amount. If the carrying amounts of the indefinite-life intangible assets exceed
their fair value, an impairment loss is recognized. The Company completes its testing of its intangible assets prior to
assessing the realizability of its goodwill.
The Company assessed the fair value of its indefinite-life intangible assets (which are primarily gaming
licenses) using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value
of the gaming license using a discounted cash flow model assuming the Company built a casino with similar utility
to that of the existing facility. The method assumes a theoretical start-up company going into business without any
assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the
following items:
(cid:120) Projected revenues and operating cash flows (including an allocation of the Company’s projected
financing payments to its reporting units consistent with how the GLPI financing obligation is
allocated);
(cid:120) Theoretical construction costs and duration;
(cid:120) Pre-opening expenses; and
(cid:120) Discounting that reflects the level of risk associated with receiving future cash flows attributable to the
license.
The evaluation of goodwill and indefinite-life intangible assets requires the use of estimates about future
operating results of each reporting unit to determine the estimated fair value of the reporting unit and the
indefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its
impairment testing. The implied fair value includes estimates of future cash flows (including an allocation of the
Company’s projected financing obligation to its reporting units) that are based on reasonable and supportable
assumptions which represent the Company’s best estimates of the cash flows expected to result from the use of the
assets including their eventual disposition. Changes in estimates, increases in the Company’s cost of capital,
reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of
alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are,
by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s
ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges
in future accounting periods. The Company’s estimates of cash flows are based on the current regulatory and
economic climates, recent operating information and budgets of the various properties where it conducts operations.
These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns,
or other events affecting the Company’s properties.
Forecasted cash flows (based on the Company’s annual operating plan as determined in the fourth quarter)
can be significantly impacted by the local economy in which its reporting units operate. For example, increases in
unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition,
the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in
jurisdictions where the Company’s reporting units currently operate can result in opportunities for the Company to
expand its operations. However, it also has the impact of increasing competition for the Company’s established
properties which generally will have a negative effect on those locations’ profitability once competitors become
established as a certain level of cannibalization occurs absent an overall increase in customer visitations.
Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash
flows.
85
Assumptions and estimates about future cash flow levels and multiples by individual reporting units are
complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of
factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as
changes in the Company’s business strategy, which may reallocate capital and resources to different or new
opportunities which management believes will enhance its overall value but may be to the detriment of an individual
reporting unit.
Once an impairment of goodwill or other indefinite-life intangible assets has been recorded, it cannot be
reversed. Because the Company’s goodwill and indefinite-life intangible assets are not amortized, there may be
volatility in reported income because impairment losses, if any, are likely to occur irregularly and in varying
amounts. Intangible assets that have a definite-life are amortized on a straight-line basis over their estimated useful
lives or related service contract. The Company reviews the carrying value of its intangible assets that have a
definite-life for possible impairment whenever events or changes in circumstances indicate that their carrying value
may not be recoverable. If the carrying amount of the intangible assets that have a definite-life exceed their fair
value, an impairment loss is recognized.
Financing Obligation with GLPI
The Company’s spin-off of real property assets and corresponding Master Lease Agreement with GLPI on
November 1, 2013 did not meet all of the requirements for sale-leaseback accounting treatment under ASC 840
“Leases” and therefore is accounted for as a financing obligation rather than a distribution of assets followed by an
operating lease. Specifically, the Master Lease contains provisions that would indicate the Company has prohibited
forms of continuing involvement in the leased assets which are not a normal leaseback. As a result, the Company
calculated a financing obligation at the inception of the Master Lease based on the future minimum lease payments
discounted at the Company’s estimated incremental borrowing rate at lease inception over the lease term of 35
years, which included renewal options that were reasonably assured of being exercised given the high percentage of
the Company’s earnings that were derived from the Master Lease properties operations to the Company and the lack
of alternative economically feasible leasing options for such real estate. The minimum lease payments are recorded
as interest expense and in part as a payment of principal reducing the financing obligation. Contingent rentals are
recorded as additional interest expense. The real property assets in the transaction remain on the consolidated
balance sheets and continue to be depreciated over their remaining useful lives.
Debt Issuance Costs
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred
and amortized to interest expense using the effective interest method over the contractual term of the underlying
indebtedness. These costs are classified as a direct reduction of long-term debt on the Company’s consolidated
balance sheets.
Self-Insurance Reserves
The Company is self-insured for employee health coverage, general liability and workers compensation up
to certain stop loss amounts. The Company uses a reserve method for each reported claim plus an allowance for
claims incurred but not yet reported to a fully developed claims reserve method based on an actuarial computation of
ultimate liability. Self-insurance reserves are included in accrued expenses on the Company’s consolidated balance
sheets.
Contingent Purchase Price
The consideration for the Company’s acquisitions often includes future payments that are contingent upon
the occurrence of a particular event. The Company records an obligation for such contingent payments at fair value
at the acquisition date.
86
The Company revalues its contingent consideration obligations each reporting period. Changes in the fair
value of the contingent consideration obligation are recognized in the Company’s consolidated statements of
operations as a component of general and administrative expense. Changes in the fair value of the contingent
purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount
rate and changes in the assumed probabilities of successful achievement of certain financial targets.
Other Comprehensive Income
The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive
Income,” which establishes standards for the reporting and presentation of comprehensive income in the
consolidated financial statements. The Company presents comprehensive income in two separate but consecutive
statements. For the years ended December 31, 2017, 2016 and 2015, the only component of accumulated other
comprehensive income was foreign currency translation adjustments.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”).
Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing
enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that
deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the
deferred tax assets will not be realized.
The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance
and by adjusting the amount of the allowance, if necessary. The Company considers all available positive and
negative evidence including projected future taxable income and available tax planning strategies that could be
implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a
requirement pursuant to ASC 740 in determining more-likely-than-not the net deferred tax assets will be realized. In
the event the Company determines that the deferred income tax assets would be realized in the future in excess of
their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the
provision for income taxes.
ASC 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing the minimum
recognition threshold a tax position is required to meet before being recognized in an enterprise’s financial
statements. It also provides guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
Revenue Recognition and Promotional Allowances
Gaming revenue consists mainly of slot and video lottery gaming machine revenue as well as to a lesser
extent table game and poker revenue. Gaming revenue is the aggregate net difference between gaming wins and
losses, with liabilities recognized for funds deposited by customers before gaming play occurs, for "ticket-in, ticket-
out" coupons in the customers' possession, and for accruals related to the anticipated payout of progressive jackpots.
Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of
coins played, are charged to revenue as the amount of the jackpots increases. Table game revenue is the aggregate of
table drop adjusted for the change in aggregate table chip inventory. Table drop is the total dollar amount of the
currency, coins, chips, tokens and outstanding markers (credit instruments) that are removed from the live gaming
tables.
Food, beverage, hotel and other revenue, including racing revenue, is recognized as services are performed.
Racing revenue includes the Company’s share of pari-mutuel wagering on live races after payment of amounts
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returned as winning wagers, its share of wagering from import and export simulcasting, and its share of wagering
from its off-track wagering facilities (“OTWs”).
Revenue from our management service contract for Casino Rama and Hollywood Casino Jamul – San
Diego are based upon contracted terms and are recognized when services are performed and collection is reasonably
assured.
Revenues include reimbursable costs associated with the Company’s management contract with the Jamul
Tribe, which represent amounts received or due pursuant to the Company’s management agreement for the
reimbursement of expenses, primarily payroll costs, incurred on their behalf. The Company recognizes the
reimbursable costs associated with this contract as revenue on a gross basis, with an offsetting amount charged to
operating expense as it is the primary obligor for these costs.
Revenues are recognized net of certain sales incentives in accordance with ASC 605-50, “Revenue
Recognition—Customer Payments and Incentives.” The Company records certain sales incentives and points earned
in point-loyalty programs as a reduction of revenue.
The retail value of accommodations, food and beverage, and other services furnished to guests without
charge is included in gross revenues and then deducted as promotional allowances. The estimated cost of providing
such promotional allowances is primarily included in food, beverage and other expense.
The amounts included in promotional allowances for the years ended December 31, 2017, 2016 and 2015
are as follows (in thousands):
Year ended December 31,
Rooms
Food and beverage
Other
Total promotional allowances
2017
2016
2015
$ 41,213 $ 39,352 $ 34,708
111,144
9,135
$ 183,496 $ 174,661 $ 154,987
133,104
9,179
126,438
8,871
The estimated cost of providing such complimentary services for the years ended December 31, 2017, 2016
and 2015 are as follows (in thousands):
Year ended December 31,
Rooms
Food and beverage
Other
Total cost of complimentary services
Player Loyalty Programs
2015
2017
2016
$ 5,826 $ 5,291 $ 4,199
44,012
48,497
3,582
3,518
$ 60,723 $ 57,306 $ 51,793
51,460
3,437
The Company has a nationwide branded loyalty program, called Marquee Rewards. Marquee Rewards
allows customers to earn points that are redeemable for slot play and complementaries. Complimentaries are usually
in the form of monetary discounts and other rewards which generally can only be redeemed at our restaurant, hotel,
retail and spa facilities. These points expire on a monthly basis after six months of inactivity. Customers earn points
for their play across the vast majority of the Company’s casinos and can concurrently redeem them at our casinos.
The Company’s player loyalty liability recorded within accrued expenses on the consolidated balance
sheets was $13.0 million and $14.2 million at December 31, 2017 and 2016, respectively. These liabilities are based
on expected redemption rates and the estimated costs of the services or merchandise to be provided. These
assumptions are periodically evaluated by comparing historical redemption experience and projected trends.
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Gaming and Racing Taxes
The Company is subject to gaming and pari-mutuel taxes based on gross gaming revenue and pari-mutuel
revenue in the jurisdictions in which it operates. The Company primarily recognizes gaming and pari-mutuel tax
expense based on the statutorily required percentage of revenue that is required to be paid to state and local
jurisdictions in the states where or in which wagering occurs. In certain states in which the Company operates,
gaming taxes are based on graduated rates. The Company records gaming tax expense at the Company’s estimated
effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such
estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied
prospectively in the determination of gaming tax expense in future interim periods. For the years ended
December 31, 2017, 2016 and 2015, these expenses, which are recorded primarily within gaming expense in the
consolidated statements of operations, were $983.3 million, $962.7 million, and $921.6 million, respectively.
Payments related to the Master Lease
As of December 31, 2017, the Company leases the real estate associated with twenty of the Company’s
gaming and related facilities used in the Company’s operations under a Master Lease arrangement.
The Master Lease is commonly known as a triple-net lease. Accordingly, in addition to the required
payments to GLPI, the Company is required to pay the following, among other things: (1) all facility maintenance;
(2) all insurance required in connection with the leased properties and the business conducted on the leased
properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor);
and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted
on the leased properties. At the Company’s option, the Master Lease may be extended for up to four five-year
renewal terms beyond the initial fifteen-year term, on the same terms and conditions.
The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed
component, a portion of which is subject to an annual escalator of up to 2% if certain coverage ratio thresholds are
met, and a component that is based on the performance of the facilities, which is prospectively adjusted, subject to a
floor of zero (i) every five years by an amount equal to 4% of the average change to net revenues of all facilities
under the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the
preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood
Casino Columbus and Hollywood Casino Toledo during the preceding month.
On May 1, 2017, following the acquisition of RIH Acquisitions MS I, LLC and RIH Acquisitions MS II,
LLC, the holding companies for the gaming operations of 1st Jackpot and Resorts in Tunica, Mississippi, an
amendment to the Master Lease was entered into in order to add the two additional facilities. The Company is
operating both of these casino properties and it leases the underlying real estate associated with these two businesses
from GLPI with a total initial annual payment of $9.0 million subject to the provisions included in the terms of the
Master Lease. The transaction increased the Company’s Master Lease financing obligation by $82.6 million at the
acquisition date, which represents the purchase price GLPI paid for the underlying real estate assets.
Based on the performance of the facilities under the Master Lease, the Company has incurred escalators
which resulted in an increase to the Company’s annual payment of $2.4 million, $4.5 million and $5.0 million
starting on November 1, 2017, 2016 and 2015, respectively. Total payments made to GLPI under the Master Lease
were $455.4 million, $442.3 million and $437.0 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
Earnings Per Share
The Company calculates earnings per share (“EPS”) in accordance with ASC 260, “Earnings Per Share”
(“ASC 260”). Basic EPS is computed by dividing net income applicable to common stock by the weighted-average
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number of common shares outstanding during the period. Diluted EPS reflects the additional dilution for all
potentially-dilutive securities such as stock options and unvested restricted shares.
During 2016, the Company’s 8,624 outstanding shares of Series C Preferred Stock were sold by the holders
of these securities, and therefore automatically converted to 8,624,000 shares of common stock under previously
agreed upon terms. As a result there are no longer any outstanding shares of Series C Preferred Stock as of
December 31, 2017 and 2016. The Company determined that the preferred stock qualified as a participating security
as defined in ASC 260 since these securities participate in dividends with the Company’s common stock. In
accordance with ASC 260, a company is required to use the two-class method when computing EPS when a
company has a security that qualifies as a “participating security.” The two-class method is an earnings allocation
formula that determines EPS for each class of common stock and participating security according to dividends
declared (or accumulated) and participation rights in undistributed earnings. A participating security is included in
the computation of basic EPS using the two-class method. Under the two-class method, basic EPS for the
Company’s common stock is computed by dividing net income applicable to common stock by the
weighted-average common shares outstanding during the period. Diluted EPS for the Company’s common stock is
computed using the more dilutive of the two-class method or the if-converted method.
The following table sets forth the allocation of net income for the years ended December 31, 2017, 2016
and 2015 under the two class method:
Year ended December 31,
Net income
Net income applicable to preferred stock
Net income applicable to common stock
2017
$
$
473,463
—
473,463
2016
(in thousands)
$
109,310 $
8,662
100,648 $
$
2015
686
67
619
The following table reconciles the weighted-average common shares outstanding used in the calculation of
basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the years
ended December 31, 2017, 2016 and 2015:
Year ended December 31,
Determination of shares:
Weighted-average common shares outstanding
Assumed conversion of dilutive employee stock-based
awards
Assumed conversion of restricted stock
Diluted weighted-average common share outstanding
before participating security
Assumed conversion of preferred stock
Diluted weighted-average common shares outstanding
2017
2016
(in thousands)
2015
90,854
82,929
80,003
2,431
93
1,299
42
2,217
60
93,378
—
93,378
84,270
7,137
91,407
82,280
8,624
90,904
Options to purchase 51,803 shares, 3,036,819 shares and 1,635,929 shares were outstanding during the
years ended December 31, 2017, 2016 and 2015, respectively, but were not included in the computation of diluted
EPS because they were antidilutive.
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The following table presents the calculation of basic and diluted EPS for the Company’s common stock for
the years ended December 31, 2017, 2016 and 2015 (in thousands, except per share data):
Year ended December 31,
Calculation of basic EPS:
Net income applicable to common stock
Weighted-average common shares outstanding
Basic EPS
Calculation of diluted EPS using two class method:
Net income applicable to common stock
Diluted weighted-average common shares outstanding
before participating security
Diluted EPS
2017
2016
2015
$ 473,463 $ 100,648 $
90,854
5.21 $
$
619
82,929 80,003
1.21 $ 0.01
$ 473,463 $ 100,648 $
619
93,378
5.07 $
84,270 82,280
1.19 $ 0.01
$
Stock-Based Compensation
The Company accounts for stock compensation under ASC 718, “Compensation-Stock Compensation,”
which requires the Company to expense the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite
service period following the date of grant.
The fair value for stock options was estimated at the date of grant using the Black-Scholes option-pricing
model, which requires management to make certain assumptions. The risk-free interest rate was based on the U.S.
Treasury spot rate with a term equal to the expected life assumed at the date of grant. Expected volatility was
estimated based on the historical volatility of the Company’s stock price over a period of 5.30 years, in order to
match the expected life of the options at the grant date. Historically, at the grant date, there has been no expected
dividend yield assumption since the Company has not paid any cash dividends on its common stock since its initial
public offering in May 1994 and since the Company intends to retain all of its earnings to finance the development
of its business for the foreseeable future. The weighted-average expected life was based on the contractual term of
the stock option and expected employee exercise dates, which was based on the historical and expected exercise
behavior of the Company’s employees.
The following are the weighted-average assumptions used in the Black-Scholes option-pricing model for
the years ended December 31, 2017, 2016 and 2015:
Year ended December 31,
Risk-free interest rate
Expected volatility
Dividend yield
Weighted-average expected life (years)
Segment Information
2015
2017
2016
1.97 % 1.20 % 1.54 %
30.66 % 31.23 % 36.68 %
—
5.40
—
5.45
—
5.30
The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker
(“CODM”), as that term is defined in ASC 280, measures and assesses the Company’s business performance based
on regional operations of various properties grouped together based primarily on their geographic locations.
The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town
Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo,
Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley
Race Course, Plainridge Park Casino and the Company’s Casino Rama management service contract.
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The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood
Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, 1st Jackpot and
Resorts as well as our management contract with Hollywood Casino Jamul-San Diego.
The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora,
Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg,
Hollywood Casino St. Louis, and Prairie State Gaming, and includes the Company’s 50% investment in Kansas
Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.
The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway,
which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam
Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming
operations at these locations, they would be assigned to one of the Company’s regional executives and reported in
their respective reportable segment. The Other category also includes the Company’s corporate overhead operations,
which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category
includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming
initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under
ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net
revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less
than 2% of the Company’s total assets at December 31, 2017.
In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of
the operating performance of its segments, including the evaluation of operating personnel and believes it is
especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current
effects of operating decisions separated from the substantial non-operational depreciation charges and financing
costs of such projects. Adjusted EBITDA is a Non-GAAP financial measure which the Company defines as earnings
before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges,
insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of
our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted
EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-
operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment.
Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is
accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from
operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating
activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP.
The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt
principal repayments, which are not reflected in adjusted EBITDA.
See Note 15 to the consolidated financial statements for further information with respect to the Company’s
segments.
Statements of Cash Flows
The Company has presented the consolidated statements of cash flows using the indirect method, which
involves the reconciliation of net income to net cash flow from operating activities.
Acquisitions
The Company accounts for its acquisitions in accordance with ASC 805, “Business Combinations.” The
results of operations of acquisitions are included in the consolidated financial statements from their respective dates
of acquisition.
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Variable Interest Entities
In accordance with the authoritative guidance of ASC 810, “Consolidation” (“ASC 810”), the Company
consolidates a VIE if the Company is the primary beneficiary, defined as the party that has both the power to direct
the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of
or the right to receive benefits from the VIE that could potentially be significant to the VIE. A variable interest is a
contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets exclusive
of variable interests. To determine whether a variable interest the Company holds could potentially be significant to
the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of its
involvement with the VIE. The Company assesses whether it is the primary beneficiary of a VIE or the holder of a
significant variable interest in a VIE on an on-going basis for each such interest.
Certain Risks and Uncertainties
The Company faces intense gaming competition in most of the markets where its properties operate.
Certain states are currently considering or implementing legislation to legalize or expand gaming. Such legislation
presents potential opportunities for the Company to establish new properties; however, this also presents potential
competitive threats to the Company’s existing properties. For example, the Company’s facility in Charles Town,
West Virginia which generates approximately 10% or more of our net revenues has faced new sources of significant
competition. Namely, Hollywood Casino at Charles Town Races has faced increased competition from the
Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore and MGM National
Harbor. Additionally, recent gaming expansion in Pennsylvania has authorized up to 10 additional gaming licenses
for category 4 facilities which can have between 300 and 750 slot machines and up to 40 table games. We have
secured one of these licenses that will be placed in York County. However, this location is anticipated to increase
competition for our Hollywood Casino at Penn National Racecourse. Additionally, licenses have been awarded to
competitors whose placement of a new facility is anticipated to compete with our Hollywood Gaming at Mahoning
Valley Race Course.
The Company’s operations are dependent on its continued licensing by state gaming commissions. The loss
of a license, in any jurisdiction in which the Company operates, could have a material adverse effect on future
results of operations.
The Company is dependent on each gaming property’s local market for a significant number of its patrons
and revenues. If economic conditions in these areas deteriorate or additional gaming licenses are awarded in these
markets, the Company’s results of operations could be adversely affected.
The Company is dependent on the economy of the U.S. in general, and any deterioration in the national
economic, energy, credit and capital markets could have a material adverse effect on future results of operations.
The Company is dependent upon a stable gaming and admission tax structure in the locations that it
operates in. Any change in the tax structure could have a material adverse affect on future results of operations.
4.
New Accounting Pronouncements
Accounting Pronouncements Implemented in 2017
In January 2017, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment.” This new guidance removed step two of the goodwill impairment
test and specifies that an entity will recognize an impairment loss for the amount by which a reporting unit’s
carrying amount exceeds its fair value. The Company has elected to early adopt this change in accounting principle
effective July 1, 2017. The new standard has been applied to interim period goodwill impairment tests completed as
of September 30, 2017 as well as to the Company’s annual impairment test at October 1, 2017. See Note 8
“Goodwill Impairment” for the disclosure of our impairment analysis.
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In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting.” The amendments are intended to improve the
accounting for employee share-based payments and affect all organizations that issue share-based payment awards
to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c)
classification on the statement of cash flows. The Company adopted this change in accounting principle effective
January 1, 2017. As a result of adopting the change to accounting for income taxes, for the year ended December
31, 2017, the Company recognized an income tax benefit of $6.3 million related to excess tax deductions that would
have previously been recognized as additional paid in capital within Total Shareholders’ equity (deficit). The
Company did not record a cumulative effect adjustment to retained earnings due to having a full valuation allowance
against all deferred tax assets at January 1, 2017. Deferred tax assets and the valuation allowance increased by
$15.4 million at January 1, 2017 for the tax effect previously unrecognized for excess tax deductions. The Company
has elected to present the change in classification of excess /(deficient) tax deductions from a financing activity to an
operating activity within its consolidated statement of cash flows on a retrospective basis. The impact to the
comparative period ended December 31, 2016 and 2015 was an increase to net cash provided by operating activities
of $6.9 million and $14.8 million, respectively, and a decrease in net cash provided by (used in) financing activities
of $6.9 million and $14.8 million, respectively. The Company has also made an accounting policy election to
account for forfeitures when they occur which had no cumulative effect to retained earnings. Finally, effective
January 1, 2017, the Company adopted the change related to diluted EPS on a prospective basis such that the net
benefit/ (deficiency) attributable to taxes is no longer included in the computation of assumed proceeds.
New Accounting Pronouncements to be Implemented in the fiscal year 2018
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),”
amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial
statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers. The core principle of Topic 606 is that revenue should be recognized to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The new guidance is effective for fiscal years, and for interim
periods within those fiscal years, beginning after December 15, 2017 . Additional ASUs have been issued that are
part of the overall new revenue guidance including: (i) ASU No. 2016-08, “Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)”, (ii) ASU No. 2016-10, “Identifying Performance Obligations and
Licensing”, (iii) ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from
Contracts” and, (iv) ASU No. 2016-12, “Narrow Scope Improvements and Practical Expedients”, which clarified
guidance on certain items such as reporting revenue as a principal or agent, identifying performance obligations,
accounting for fixed odds wagering contracts associated with the Company’s racing operations, accounting for
intellectual property licenses and accessing collectability and presentation of sales tax. Management has completed
its assessment of the impact of the new standard on the Company’s consolidated financial statements and has elected
to adopt Topic 606 using the modified retrospective method on January 1, 2018. As a result of the adoption, the
following areas that are expected to result in significant changes to the Company’s accounting are:
(1) The new standard will change the accounting for loyalty points which are earned by our customers.
The Company’s loyalty reward programs allow members to utilize their rewards membership card to
earn loyalty points that are redeemable for slot play and complimentaries such as food and beverages at
our restaurants and products offered at our retail stores across the vast majority of the Company’s
casino properties. The estimated liability for unredeemed points is currently accrued based on expected
redemption rates and the estimated costs of the services or merchandise to be provided. Under the new
standard, the Company will use a deferred revenue model and defer revenue at the estimated fair value
when the loyalty points are earned by our customers and recognize revenue when the loyalty points are
deemed. The deferred revenue liability is based on the estimated standalone selling price of the loyalty
points earned after factoring in the likelihood of redemption. The modification will result in a
cumulative-effect adjustment to opening retained earnings, with an insignificant change to revenue on
a go-forward basis. At the January 1, 2018 adoption date, we expect to record a reduction to the
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opening balance of retained earnings of approximately $11.4 million on a pre-tax basis, and an
increase to accrued expenses.
(2) The new standard will change the accounting for promotional allowances. The Company will no
longer be permitted to report revenue for goods and services provided to customers for free as an
inducement to gamble as gross revenue with a corresponding reduction in promotional allowances to
arrive at net revenues. Under the new standard, amounts will be recorded as a reduction to gaming
revenues, and promotional allowances will no longer be netted on our consolidated statements of
operations.
Additionally, the Company has identified and implemented changes to its accounting policies and practices,
business processes, and controls to support the new revenue recognition standard. The Company is continuing its
assessment of potential changes to our disclosures under the new guidance internally and through following the
AICPA Revenue Recognition Task for Gaming Entities.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Clarification
of Certain Cash Receipts and Cash Payments.” The amendments are intended to address diversity in practice in how
certain cash receipts and cash payments are presented and classified in the statement of cash flows. The
amendments provide guidance on the following specific cash flow issues: (a) debt prepayment or debt
extinguishment costs; (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest
rates that are insignificant in relation to the effective interest rate of the borrowing; (c) contingent consideration
payments made after a business combination; (d) proceeds from the settlement of insurance claims; (e) proceeds
from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (f)
distributions received from equity method investees; (g) beneficial interest in securitization transactions; and (h)
separately identifiable cash flows and application of the predominance principle. The new guidance is effective for
fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The Company
plans to adopt this new guidance on January 1, 2018 on a retrospective basis. The Company does not expect the
adoption to have a material impact on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers
of Assets Other Than Inventory.” The new guidance requires that entities recognize the income tax consequences of
an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to
an outside party. The new guidance is effective for fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2017. The new guidance requires adoption on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The
Company does not expect the adoption to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the
Definition of a Business,” in an effort to clarify the definition of a business with the objective of adding guidance to
assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. The new guidance is effective for fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2017 and will be adopted on a prospective basis.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718):
Scope of Modification Accounting”, which clarifies when changes to the terms or conditions of a share-based
payment award must be accounted for as a modification. The new guidance requires the application of modification
accounting if the value, vesting conditions or classification of the award changes. The new guidance is effective for
fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 and will be
adopted on a prospective basis.
95
New Accounting Pronouncements to be Implemented in fiscal year 2019
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require, among
other items, lessees to recognize a right-of-use asset and a lease liability for most leases. Extensive quantitative and
qualitative disclosures, including significant judgments made by management, will be required to provide greater
insight into the extent of expenses recognized and expected to be recognized from existing contracts. The accounting
applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted
using a modified retrospective transition approach and provides for certain practical expedients. In January 2018, the
FASB issued ASU No. 2018-1, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic
842,” that provides an optional transitional practical expedient regarding land easements. The new guidance is
effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with
early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on
the Company’s consolidated financial statements, however, the Company has numerous operating leases which,
under the new standard, will need to be reported as an asset and a liability on our consolidated balance sheet. The
precise amount of this asset and liability will be determined based on the leases that exist at the Company on the
date of adoption. The adoption of this standard is expected to have a material impact on our consolidated financial
statements as the Company has significant operating lease commitments that are off-balance sheet in accordance
with current U.S. GAAP.
5.
Acquisitions and Other Recent Business Ventures
Anticipated Acquisition of Pinnacle
On December 18, 2017, Penn announced that it had entered into a definitive agreement under which it will
acquire Pinnacle in a cash and stock transaction valued at approximately $2.8 billion. Under the terms of the
agreement, Pinnacle shareholders will receive $20.00 in cash and 0.42 shares of Penn common stock for each
Pinnacle share.
Coincident with the closing of the merger, we plan to divest the membership interests of certain Pinnacle
subsidiaries which operate the casinos known as Ameristar Casino Resort Spa St. Charles (Missouri), Ameristar
Casino Hotel Kansas City (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio) to Boyd Gaming
Corp (“Boyd”) for approximately $575 million in cash. These divestitures are anticipated to occur immediately prior
to, and are conditioned upon, the completion of the Pinnacle acquisition. Additionally, at the closing of the merger,
(i) GLPI will acquire the real estate associated with the Plainridge Park Casino for $250 million, and concurrently it
will be leased back to Penn pursuant to the amended Pinnacle master lease for a fixed annual rent of $25 million and
(ii) GLPI will acquire the real estate assets of Belterra Park from Penn for approximately $65 million, which
subsequently will be included in an amended master lease between GLPI and Boyd. The amended Pinnacle Master
Lease will be adjusted for incremental rent of $13.9 million to adjust to market conditions. The acquisition is
expected to close in the second half of 2018.
1st Jackpot and Resorts
On May 1, 2017, the Company acquired RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC,
the holding companies for the gaming operations of 1st Jackpot and Resorts, in Tunica, Mississippi, for total cash
consideration of $47.0 million. The Company is operating both of these casino properties and it leases the
underlying real estate associated with these two businesses from GLPI with a total initial annual payment of $9.0
million subject to the provisions included in the terms of the Master Lease. The underlying real estate leased from
GLPI has been accounted for as a financing obligation, which is included in the total consideration for the
transaction and increased the Company’s Master Lease financing obligation by $82.6 million at the acquisition date,
which represents the purchase price GLPI paid for the underlying real estate assets.
96
The preliminary purchase price allocation has resulted in $35.9 million of goodwill which is deductible for
tax purposes. Property and equipment under the Master Lease is comprised of buildings and improvements and land
rights that are amortized on a straight-line basis over thirty-one years. This time period represents the remaining life
of the Master Lease with GLPI, including renewal options that are reasonably assured of being exercised.
Additionally, prior to the acquisition date, the Company incurred transaction costs $1.0 million, which were reported
in general and administrative expenses for the year ended December 31, 2017. This acquisition was not material to
the Company’s consolidated financial statements.
Cash
Other current assets
Property and equipment - non-master lease
Property and equipment - master lease
Goodwill
Other intangible assets
Total Assets
Current portion of financing obligation
Accrued expenses
Accrued salaries and wages
Other current liabilities
Long-term financing obligation
Total liabilities
Cash paid
Total consideration transferred
DSG Amusements and Advantage Gaming
May 1, 2017
$ 6,725
2,735
8,368
82,603
35,929
851
$ 137,211
$ 1,968
2,931
3,256
1,448
80,635
$ 90,238
46,973
$ 137,211
On February 1, 2017 and June 1, 2017, the Company acquired 100% of the assets of DSG Amusements,
Ltd. (‘DSG”), and Advantage Gaming, LLC (“Advantage”) for $1.9 million and $2.1 million, respectively, in all
cash transactions. The transactions were funded by revolving commitments under the Company’s amended senior
secured credit facility. The results of DSG and Advantage have been included in the Company’s consolidated
financial statements since the acquisition dates. The Company’s preliminary purchase price allocations included
$0.7 million in goodwill and $3.7 million in other intangible assets related to acquired customer contracts, as a result
of these transactions. The goodwill recognized for these two transactions is deductible for tax purposes. The
acquisitions of DSG and Advantage did not materially impact the 2017 consolidated results of operations.
Rocket Speed, Inc.
On August 1, 2016, the Company acquired 100% of the outstanding equity securities of social casino game
developer, Rocket Speed, Inc. (f/k/a Rocket Games, Inc., (“Rocket Speed”)), for initial cash consideration of $60.5
million subject to customary working capital adjustments. The Stock Purchase Agreement included contingent
consideration payments over the next two years that were based on a multiple of 6.25 times Rocket Games’ then-
trailing twelve months of earnings before interest, taxes, depreciation and amortization, subject to a cap of $110
million. Up to $10 million of the contingent consideration was accounted for as compensation as it was tied to
continued employment over a two year period. The acquisition was funded by Penn with cash on hand and revolving
commitments under the Company’s senior secured credit facility. The fair value of the contingent purchase price
was estimated to be $34.4 million at the acquisition date based on an income approach by applying an option pricing
method to the Company’s internal earning projections using a Monte Carlo simulation. This acquisition
complemented Penn’s interactive gaming strategy through its wholly-owned subsidiary Penn Interactive Ventures
97
which is included in the Other category. The purchase price allocation is detailed in the table below (in thousands).
Current assets includes $4.1 million of cash acquired.
During the third quarter of 2017, Penn Interactive Ventures reached an agreement with the former
shareholders of Rocket Speed to buy out the two year contingent purchase price consideration which resulted in a
benefit to general and administrative expense in the amount of $22.2 million.
Current assets
Fixed assets
Goodwill
Other intangible assets
Other assets
Total assets
Current liabilities
Deferred taxes
Other liabilities
Total liabilities
Cash paid
Contingent purchase price
Total consideration transferred
(cid:3)
Developed technology intangible
User base intangible
Non-compete agreements intangible
Other intangible assets
August 1, 2016
$ 7,738
235
67,164
35,383
73
$ 110,593
$ 5,350
10,268
100
15,718
60,489
34,386
$ 110,593
$ 17,969
11,563
5,851
$ 35,383
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
The developed technology intangible represents the intellectual property embodied by the developed,
completed gaming apps of Rocket Speed as of the acquisition date. The Company used a multiple period excess
earnings model under the income approach to estimate the fair value for this intangible asset and are amortizing the
asset over four years on an accelerated basis. The user base intangible asset represents the estimated value of the
acquired customer database. The Company used a replacement cost method to estimate the fair value for this
intangible asset and are amortizing it on an accelerated basis over two years. Non-compete agreements limit
specific employees from competing in related businesses. The Company used a with-and-without method under the
income approach to estimate the fair value for this intangible asset and will amortize it over four years consistent
with the length of the agreements.
The acquisition of Rocket Speed resulted in an increase the Company’s reported net revenues of $17.3
million for the year ended December 31, 2016. Additionally, prior to the acquisition date, the Company incurred
transactions costs of $1.0 million, which were reported in general and administrative expenses for the year ended
December 31, 2016.
Slot Kings and Bell Gaming
On October 3, 2016 and November 1, 2016, the Company acquired 100% of the assets of Slot Kings, LLC
and Bell Gaming, LLC for $17.1 million and $10.8 million, respectively, in all cash transactions. The transactions
were funded by revolving commitments under the Company’s existing senior secured credit facility. The results of
Slot Kings and Bell Gaming have been included in the Company’s consolidated financial statements since the
acquisition dates. The Company’s purchase price allocations included $10.5 million in goodwill and $16.6 million
in other intangible assets related to acquired customer contracts, as a result of these transactions. The goodwill
98
recognized for these two transactions is deductible for tax purposes. The acquisitions of Slot Kings and Bell
Gaming did not materially impact the 2016 consolidated results of operations.
Tropicana Las Vegas
On August 25, 2015, the Company acquired 100% of Tropicana Las Vegas Hotel and Casino in Las Vegas,
Nevada from Trilliant Gaming Nevada, Inc. for the purchase price of $357.7 million. The purchase price for this
cash transaction was funded by revolving commitments under the Company’s existing senior secured credit facility
and approximately $280 million of incremental commitments under an amended senior secured credit facility. The
results of the Tropicana Las Vegas facility have been included in the Company’s consolidated financial statements
since the acquisition date. The purchase price allocation is detailed in the table below (in thousands). Current assets
includes $8.0 million of cash acquired.
Tropicana Las Vegas, located on the strip in Las Vegas, Nevada, is situated on a 35-acre land parcel at the
corner of Tropicana Boulevard and Las Vegas Boulevard. The resort features 1,183,984 of property square footage
with 775 slot machines and 36 table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, three full
services restaurants, a food court, a 1,200-seat performance theater, a 300-seat comedy club, over 100,000 square
feet of exhibition and meeting space, and a five-acre tropical beach event area and spa. The Company believes this
acquisition fulfilled our strategic objective of obtaining a presence on the Las Vegas Strip.
Current assets
Property and equipment, net
Goodwill
Other assets
Total assets
Current liabilities
Other liabilities
Total liabilities
Cash paid / total consideration transferred
Prairie State Gaming
August 25, 2015
$ 15,966
365,492
14,821
4,553
$ 400,832
$ 25,755
17,417
43,172
357,660
On September 1, 2015, the Company acquired 100% of Prairie State Gaming from The Robert H. Miller
Trust and Illinois Funding, LLC in an all cash transaction. The transaction was funded by revolving commitments
under the Company’s existing senior secured credit facility. The results of Prairie State Gaming have been included
in the Company’s consolidated financial statements since the acquisition date. The Company recorded $22.9 million
and $15.7 million in goodwill and other intangible assets, respectively, from this transaction.
Prairie State Gaming is one of the largest slot-route operators in Illinois with operations that included, at
the time of acquisition, more than 1,100 video gaming terminals across a network of 270 bar and retail gaming
establishments throughout Illinois. The Company intends to leverage its gaming experience, relationships, and
purchasing power to improve Prairie State Gaming’s performance and expand its network.
The unaudited pro forma financial information for the periods set forth below gives effect to the 2015
acquisitions described above as if they had occurred as of January 1, 2015. This incorporates the impacts on
depreciation and amortization expense resulting from the Company’s purchase accounting adjustments to the
acquired assets and liabilities. The pro forma results for the 2017 and 2016 acquisitions are not materially different
than reported results. The pro forma information is presented for informational purposes only and is not necessarily
99
indicative of the results of operations that actually would have been achieved had the acquisitions been
consummated as of that time (in thousands):
Pro Forma Financial Information (Unaudited)
Year ended December 31,
Net Revenues
Income from continuing operations
$
2015
3,154,848
540,992
The acquisitions of Tropicana Las Vegas and Prairie State Gaming resulted in an increase to the
Company’s reported net revenues of $57.3 million and a decrease of $3.0 million to income from continuing
operations for the year ended December 31, 2015. Additionally, prior to the acquisition dates, the Company
incurred transaction costs of $1.9 million, which were reported in general and administrative expenses for the year
ended December 31, 2015.
Jamul Indian Village
On April 5, 2013, the Company announced that, subject to final National Indian Gaming Commission
approval, it and the Jamul Tribe had entered into definitive agreements to assist the Jamul Tribe in the development
of a Hollywood Casino-branded casino on the Jamul Tribe’s trust land in San Diego County, California. The
definitive agreements were entered into to: (i) secure the development, management, and branding services of the
Company to assist the Jamul Tribe during the pre-development and entitlement phase of the project; (ii) set forth the
terms and conditions under which the Company will provide a loan or loans to the JIVDC to fund certain
development costs; and (iii) create an exclusive arrangement between the parties.
The Jamul Tribe is a federally recognized Indian Tribe holding a government-to-government relationship
with the U.S. through the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent
powers of self-government. The Jamul Tribe is the beneficial owner of approximately six acres of reservation land
located within the exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe (the
“Property”). The Jamul Tribe exercises jurisdiction over the Property pursuant to its powers of self-government and
consistent with the resolutions and ordinances of the Jamul Tribe. The arrangement between the Jamul Tribe and
the Company provides the Jamul Tribe with the expertise, knowledge and capacity of a proven developer and
operator of gaming facilities and provides the Company with the exclusive right to administer and oversee planning,
designing, development, construction management, and coordination during the development and construction of the
project as well as the management of a gaming facility on the Property.
The Company considered whether the arrangement with the Jamul Tribe represents a variable interest that
should be accounted for pursuant to the VIE subsections of ASC 810. The Company noted that the scope and scope
exceptions of ASC 810-10-15-12(e) states that a reporting entity shall not consolidate a government organization or
financing entity established by a government organization (other than certain financing entities established to
circumvent the provisions of the VIE subsections of ASC 810). Based on the status of the Tribe as a government
organization, the Company concluded its arrangement with the Jamul Tribe is not within the scope defined by ASC
810.
Hollywood Casino Jamul – San Diego is a three-story gaming and entertainment facility of approximately
200,000 square feet featuring 1,731 slot machines, 40 live table games, multiple restaurants, bars and lounges and a
partially enclosed parking structure with over 1,800 spaces. In mid-January 2014, the Company announced the
commencement of construction activities at the site. The facility opened to the public on October 10, 2016. The
Company provided a portion of the financing to the JIVDC in connection with the project and, following the
opening, has managed and provided branding for the casino.
The Company is accounting for the development agreement and related loan commitment letter with the
JIVDC as a loan (the “Loan”) with accrued interest in accordance with ASC 310, “Receivables.” The Loan
100
represented advances made by the Company to the JIVDC for the development and construction of a gaming facility
for the Jamul Tribe on reservation land. As such, the Jamul Tribe owns the casino and its related assets and
liabilities. Repayment of funds advanced to the Jamul Tribe is primarily predicated on cash flows from the
operations of the facility.
In December 2015, the Company entered into an agreement to purchase a $60 million subordinated note
from the previous developer of the Jamul Indian Village project for $24 million. Interest on this subordinated note,
as of the effective date and at all times thereafter until the Loans has been paid in full, shall accrue as follows: as of
the effective date, no interest shall accrue initially; at the opening date, interest shall accrue at a simple fixed rate of
4.25% per annum. The subordinated note is subordinated to the Loan, and payments on the subordinated note may
only be made after all necessary payments are made on the Loan subject to certain limitations. The Company
recorded the subordinated Note at its acquisition price of $24 million, which was considered to be its fair value. The
Company has concluded that the $24 million carrying value, which is recorded within other assets on the
consolidated balance sheet at December 31, 2015, represents the expected cash flows to be received. As described
below, this subordinated note was repaid in connection with the Jamul Tribe refinancing of its existing indebtedness
and the Company received a $6 million premium which was accounted for as an origination fee on our new loan
with the JIVDC.
On October 20, 2016, the JIVDC obtained long term secured financing, consisting of revolving and term
loan credit facilities (the “Credit Facilities”) totaling approximately $460 million. The Credit Facilities, all of which
are due in 2022, consist of a $5 million revolving credit facility, a $340 million term loan B facility and a $98
million term loan C facility. The revolving credit facility was provided by various commercial banks; the term loan
B facility is held by an affiliate of Och-Ziff Real Estate; and the term loan C facility is held by the Company. The
Company will also provide up to an additional $15 million of delayed draw term loan C commitments to fund
certain roadway improvement costs. The various Credit Facilities rank pari passu with each other. However, if, on
the first anniversary of the opening of Hollywood Casino Jamul – San Diego (the “Casino”), the JIVDC has not
achieved a senior secured net leverage ratio equal to or less than 5.0 to 1.0, then all or a portion of the term loan C
facility will become subordinated to the other Credit Facilities to the extent necessary such that, after giving effect to
such conversion, such senior secured net leverage ratio is 5.0 to 1.0. The rights of the Company to receive
management and license fees are subordinated to the claims of the lenders under the Credit Facilities and are subject
to certain conditions contained in the Credit Facilities.
The Company was repaid on October 20, 2016, a net amount of approximately $274 million (consisting of
reimbursements totaling approximately $372 million less funds advanced of $98 million) of the advances to the
JIVDC for the development and construction of the property as well as previously purchased Jamul Tribal debt.
As a condition to the availability of the Credit Facilities, the Company provided a limited completion
guarantee, in favor of the administrative agent under the Credit Facilities, to provide up to $15 million of additional
loans related to the construction and opening of the Casino, as well as certain post opening construction costs. The
term loan C facility bears interest at LIBOR plus 8.50% with a 1% LIBOR floor (or, at the JIVDC’s election, a base
rate determined by reference to the prime rate, the federal funds effective rate or LIBOR, as applicable, plus 7.50%),
and the subordinated loans will bear interest at 14.0% (with 12.0% to be paid in cash and 2.0% to be paid-in-kind).
The Company is accounting for its term loan C with the JIVDC as a loan (the “Loan”) in accordance with
ASC 310, “Receivables.” The Loan represents advances made by the Company to the JIVDC for the development
and construction of Hollywood Casino Jamul-San Diego for the Jamul Tribe on reservation land. As such, the
Jamul Tribe owns the casino and its related assets and liabilities. Repayment of the Loan is primarily predicated on
cash flows from the operations of the facility.
Although Hollywood Casino Jamul San-Diego opened to strong business and earnings volumes in October
2016, which met our expectations, results began to soften earlier and with a steeper drop-off than anticipated. As a
result, we concluded the Loan was impaired at December 31, 2016 and at all time periods subsequent to this date. A
loan is considered impaired when, based on current information, events and projections, it is probable that the
101
Company will be unable to collect the scheduled payments of principal and/or interest when contractually due under
the terms of the loan agreement. The fair value of the Loan is not observable, nor secured by any significant levels
of collateral. Therefore, the Loan is not measured using a practical expedient (observable market rate of interest or
fair value of collateral) under ASC 310-10. As such, an impairment charge is being recorded to the extent the
present value of expected future cash flows discounted at the loan’s effective interest rate exceeds the carrying
amount of the loan. The Company records interest income on a cash basis to the extent a reserve is not required for
the impaired loan.
At June 30, 2017, the JIVDC was effectively in breach of a financial covenant requirement with respect to
debt to earnings ratios. At September 30, 2017, the JIVDC was in active negotiations with its lenders to modify
certain terms of its loan agreements including the elimination of its June 30, 2017 financial covenant requirement.
Amended terms that were negotiated during the three months ended December 31, 2017, were not accepted by the
Jamul Tribe. The JIVDC is currently in default on its obligations and our Loan is fully subordinated to the other
lenders that have extended credit to the JIVDC.
In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer
manage the facility or provide branding and development services on May 28, 2018. The company will provide a
transition that it anticipates will last through approximately late May. The Company performed a comprehensive
analysis of the future cash flows that we expect to receive on the Loan based upon our best estimates of the
operations of the facility and the concessions we will grant to the JIVDC. The expected cash flows to be received
by the Company on the Loan were then discounted at the Loan’s effective interest rate in accordance with ASC 310
which was less than its carrying value at December 31, 2017. Therefore, the Company recorded a charge of $86.0
million in the consolidated statements of operation for the year ended December 31, 2017, (see table below for
allowance for loan losses balance). The unpaid principal balance of the Loan at December 31, 2017 and December
31, 2016 was $98.3 million and $98.0 million, respectively. The net carrying value of the Loan totaled $20.9
million and $92.1 million at December 31, 2017 and December 31, 2016, respectively. The Company’s remaining
exposure at December 31, 2017 was $27.9 million inclusive of future unfunded commitments on the Loan.
Balance at January 1, 2017
Provisions
Balance at December 31, 2017
Allowance Reserve for unfunded
for loan loss loan commitments (1)
$
$
- $
64,052
64,052 $
-
21,996
21,996
(1) Amount is reflected in other non-current liabilities on the Consolidated Balance Sheets
In addition to the reserves above, the Company recorded charges of $3.8 million related to certain advances
made to the JIVDC.
102
Plainridge Racecourse Acquisition
In September 2013, the Company entered into an option and purchase agreement to purchase Plainridge
Racecourse in Massachusetts, with the sellers having no involvement in the business or operations from that date
forward. The Company subsequently began to operate Plainridge Racecourse effective January 1, 2014 pursuant to
a temporary operations agreement. On February 28, 2014, the Massachusetts Gaming Commission awarded the
Company a Category Two slots-only gaming license, and in early March 2014, the Company exercised its option to
purchase Plainridge Racecourse. This acquisition reflects the continuing efforts of the Company to expand its
gaming operations through the development of new gaming properties. The fixed portion of the purchase price was
paid on April 11, 2014. The option and purchase agreement also contained contingent purchase price consideration
that is calculated based on the actual earnings of the gaming operations over the first ten years of gaming operations,
which commenced on June 24, 2015. The first payment was made 60 days after the completion of the first four full
fiscal quarters of operation, and subsequent payments will be made every year for nine years after the first payment.
The fair value of this liability was determined to be $21.3 million, $10.7 million, and $13.8 million at December 31,
2017, 2016 and 2015, respectively, based on an income approach from the Company’s internal earning projections
and was discounted at a rate consistent with the risk a third party market participant would require holding the
identical instrument as an asset. This liability is included in other current and other non-current liabilities on the
consolidated balance sheet. At each reporting period, the Company assesses the fair value of this obligation and
changes in its value are recorded in earnings. The amount included in general and administrative expense related to
the change in fair value of this obligation was a charge of $12.5 million, and a reduction of $1.3 million and $5.4
million for the years ended December 31, 2017, 2016 and 2015, respectively. In August 2016 and 2017, the first and
second payment of $1.8 million and $2.0 million was made for the contingent purchase price.
6.
Investment In and Advances to Unconsolidated Affiliates
As of December 31, 2017, investment in and advances to unconsolidated affiliates primarily included the
Company’s 50% investment in Kansas Entertainment, which is a joint venture with International Speedway
Corporation (“International Speedway”), its 50% interest in Freehold Raceway, and its 50% joint venture with
MAXXAM, Inc. (“MAXXAM”) that owns and operates racetracks in Texas. These investments are more fully
described below.
Kansas Joint Venture
The Company has a 50% investment in Kansas Entertainment, which owns the Hollywood Casino at
Kansas Speedway. Hollywood Casino at Kansas Speedway is a Hollywood-themed facility, which features 244,791
of property square footage with 2,000 slot machines, 41 table games and 12 poker tables, a 1,253 space parking
structure, as well as a variety of dining and entertainment facilities. As of December 31, 2017 and 2016, the
Company’s investment balance was $88.3 million and $93.8 million, respectively. During the years ended
December 31, 2017, 2016, and 2015, the Company received distributions from Kansas Entertainment totaling $26.0
million, $25.8 million and $27.2 million, respectively, which the Company deemed to be returns on its investment
based on the source of those cash flows from the normal business operations of Kansas Entertainment.
The Company determined that Kansas Entertainment qualified as a VIE at December 31, 2017 and 2016.
The Company did not consolidate its investment in Kansas Entertainment as the Company determined that it did not
qualify as the primary beneficiary of Kansas Entertainment at, and for the years ended December 31, 2017 and 2016,
primarily as it did not have the ability to direct the activities of Kansas Entertainment that most significantly
impacted Kansas Entertainment’s economic performance without the approval of International Speedway. In
addition, the Company determined that International Speedway had substantive participating rights in Kansas
Entertainment at, and for the years ended, December 31, 2017 and 2016.
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For the year ended December 31, 2017, the Company’s investment in Kansas Entertainment met the
requirements of S-X Rule 4-08(g) to provide summarized financial information. The following table provides
summary income statement information for Kansas Entertainment as required under S-X Rule 1-02(bb) for the
comparative periods in the Company’s consolidated balance sheets and consolidated statements of operations (in
thousands):
(cid:3)
(cid:3)
Current assets
Noncurrent assets
Current liabilities
Net revenues
Operating expenses
Income from operations
Net income
Net income attributable to Penn
(cid:3)
(cid:3)
(cid:3) $
(cid:3) $
(cid:3) $
$
$
$
As of December 31,
2017
2016
18,452 (cid:3)
165,801 (cid:3)
17,861 (cid:3)
$
$
$
16,638 (cid:3)
176,050 (cid:3)
15,351 (cid:3)
$
$
$
2015
16,550
195,010
14,544
For the twelve months ended December 31,
2016
2017
2015
155,636
114,681
40,955
40,955
20,478
$
$
$
152,926
121,006
31,920
31,920
15,960
$
$
$
153,407
122,828
30,579
30,579
15,290
In addition to the assessment performed by the Company of its investment in Kansas Entertainment under
the requirements of S-X Rule 4-08(g), the Company also assessed its investment in Kansas Entertainment under the
requirements of S-X Rule 3-09(b) for the year ended December 31, 2017, and determined it was required to provide
the audited financial statements of Kansas Entertainment. The consolidated financial statements of Kansas
Entertainment for the years ended June 30, 2017, 2016 and 2015 are provided as exhibits to this document to comply
with this rule.
Texas Joint Venture
The Company has a 50% interest in a joint venture with MAXXAM, which owns and operates the Sam
Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a
racetrack in Austin, Texas. Sam Houston Race Park hosts thoroughbred and quarter horse racing and offers daily
simulcast operations, and Valley Race Park features dog racing and simulcasting.
The Company determined that the Texas joint venture did not qualify as a VIE at December 31, 2017 and
2016. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling
financial interest in the joint venture at, and for the years ended December 31, 2017 and 2016, primarily as it did not
have the ability to direct the activities of the joint venture that most significantly impacted the joint venture’s
economic performance without the input of MAXXAM. Therefore, the Company did not consolidate its investment
in the joint venture at, and for the years ended, December 31, 2017 and 2016.
New Jersey Joint Venture
Through its joint venture with Greenwood Limited Jersey, Inc. (“Greenwood”), the Company owns 50% of
Freehold Raceway, located in Freehold, New Jersey. The property features a half-mile standardbred race track and a
grandstand.
The Company determined that the New Jersey joint venture did not qualify as a VIE at December 31, 2017
and 2016. Using the guidance for entities that are not VIEs, the Company determined that it did not have a
controlling financial interest in the joint venture at, and for the years ended December 31, 2017 and 2016, primarily
as it did not have the ability to direct the activities of the joint venture that most significantly impacted the joint
104
venture’s economic performance without the input of Greenwood. Therefore, the Company did not consolidate its
investment in the joint venture at, and for the years ended December 31, 2017 and 2016.
7.
Property and Equipment
Property and equipment, net, consists of the following:
December 31, December 31,
2017
2016
(in thousands)
Property and equipment - non-master lease
Land and improvements
Building and improvements
Furniture, fixtures and equipment
Leasehold improvements
Construction in progress
Less Accumulated depreciation
Property and equipment - master lease
Land and improvements
Building and improvements
Less accumulated depreciation
Property and equipment, net
$
294,695 $
429,015
1,385,889
130,801
15,617
2,256,017
(1,345,147)
910,870
294,590
404,158
1,355,615
118,940
16,375
2,189,678
(1,224,596)
965,082
424,700
2,258,577
2,683,277
(837,478)
1,845,799
382,246
2,219,018
2,601,264
(745,963)
1,855,301
$ 2,756,669 $ 2,820,383
Property and equipment, net decreased by $63.7 million primarily due to depreciation expense partially
offset by the acquisition of 1st Jackpot and Resorts, additional video gaming terminals at Prairie State Gaming as
well as improvements at Tropicana Las Vegas, Hollywood Casino St. Louis, M Resort and Hollywood Casino
Lawrenceburg during the year ended December 31, 2017.
Depreciation expense, for property and equipment as well as capital leases, totaled $248.2 million,
$261.9 million, and $258.9 million in 2017, 2016 and 2015. Depreciation expense on the Master Lease assets was
$92.4 million, $91.1 million and $92.4 million for the years ended December 31, 2017, 2016, and 2015 respectively.
Interest capitalized in connection with major construction projects was $0.2 million, $0.1 million, and $1.8 million
in 2017, 2016 and 2015, respectively.
105
8.
Goodwill and Other Intangible Assets
A reconciliation of goodwill and accumulated goodwill impairment losses is as follows (in thousands):
Balance at December 31, 2015
Goodwill
Accumulated goodwill impairment losses
Goodwill, net
Goodwill acquired
Balance at December 31, 2016:
Goodwill
Accumulated goodwill impairment losses
Goodwill, net
Goodwill acquired
Goodwill impairment losses
Other
Balance at December 31, 2017:
Goodwill
Accumulated goodwill impairment losses
Goodwill, net
$
$
$
$
$
$
2,175,507
(1,263,565)
911,942
77,743
2,253,250
(1,263,565)
989,685
36,598
(18,026)
(160)
2,289,848
(1,281,751)
1,008,097
The Company’s goodwill was tested for impairment during the third quarter (before the annual impairment
date of October 1, 2017) due to a significant deferred tax valuation allowance reversal which resulted in an increase
to the carrying amounts of some of its reporting units, and, as such, was determined to be a triggering event. In
accordance with ASC 805 “Business Combinations”, the Company’s allocation of the purchase price for Tropicana
Las Vegas, which was acquired in August 2015, included a significant amount of net operating losses (“NOL’s”).
The Company did not record deferred tax assets (“DTA”) of approximately $68 million at the acquisition date due to
the recognition of a full valuation allowance at that time. The Company’s purchase price allocation resulted in
goodwill of $14.8 million being created which would not have been recorded if we had been able to recognize a
deferred tax asset. As of September 30, 2017, Tropicana Las Vegas failed the quantitative goodwill impairment test
as we determined its fair value was less than its carrying value. As a result, the Company determined that the
goodwill for the Tropicana Las Vegas reporting unit was fully impaired and recorded an impairment charge of $14.8
million within our South/West segment. Additionally, the Company’s Sanford Orlando Kennel Club reporting unit
within our Other category failed the quantitative goodwill impairment test as of September 30, 2017, and, as such, a
partial impairment charge of $3.2 million was recorded.
No goodwill impairment charges were recorded for the years ended December 31, 2016 and 2015.
Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course both
within the Company’s Northeast segment and Argosy Casino Alton within the Company’s Midwest segment have
negative carrying values with allocated goodwill of $1.4 million, $1.5 million and $9.9 million, respectively. All
three of these reporting units generate significant earnings and as such the Company does not believe impairment
charges are required.
106
Indefinite-life intangible assets consist primarily of gaming licenses. The table below presents the gross
carrying value, accumulated amortization, and net book value of each major class of other intangible assets at
December 31, 2017 and 2016:
December 31, 2017
December 31, 2016
Gross
(in thousands)
Gross
Indefinite-life intangible assets
Other intangible assets
Total
Carrying Accumulated
Amortization
Net Book
Value
Carrying Accumulated
Amortization
Value
Net Book
Value
Value
$ 375,405 $
131,483
— $ 375,405 $ 375,405 $
84,282
47,201
125,584
$ 506,888 $ 84,282 $ 422,606 $ 500,989 $
— $ 375,405
65,495
60,089
65,495 $ 435,494
Total other intangible assets decreased by $12.9 million for the year ended December 31, 2017 primarily
due to amortization of $18.9 million, partially offset by acquisitions of definite-lived other intangible assets related
to Illinois slot operator acquisitions. Other intangible assets have a weighted average remaining amortization period
of 4.9 years.
No other intangible asset impairment charges were recorded for the years ended December 31, 2017 and
2016.
For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges
of $40.0 million, as of the valuation date of October 1, 2015 (the date of our annual impairment test), related to the
write-off of our Plainridge Park Casino gaming license and a partial write-down of the gaming license at Hollywood
Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.
The Company’s intangible asset amortization expense was $18.9 million, $9.3 million, and $0.5 million for
the years ended December 31, 2017, 2016 and 2015, respectively.
The following table presents expected intangible asset amortization expense based on existing intangible
assets at December 31, 2017 (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
$ 13,614
8,505
5,844
3,599
3,596
12,043
$ 47,201
107
The Company’s remaining goodwill and other intangible assets by reporting unit at December 31, 2017 is
shown below (in thousands):
Reporting Unit
Hollywood Casino St. Louis
Hollywood Casino Aurora
Argosy Casino Riverside
Zia Park Casino
Hollywood Gaming at Dayton Raceway
Hollywood Gaming at Mahoning Valley Race Course
Penn Interactive Ventures
Hollywood Casino at Penn National Race Course
Prairie State Gaming
Hollywood Casino Lawrenceburg
Hollywood Casino Tunica
1st Jackpot Casino
Boomtown Biloxi
Argosy Casino Alton
Plainridge Park Casino
Hollywood Casino at Charles Town Races
Others
Total
Total Intangible
Goodwill
$ 205,783 $
207,207
154,332
142,359
15,339
—
67,004
1,497
34,185
63,189
44,042
35,929
22,365
9,863
3,052
1,354
597
$ 1,008,097 $
Assets
58,418
—
4,964
—
110,436
125,000
15,968
67,607
30,031
—
—
567
—
8,285
—
—
1,330
422,606
9.
Long-term Debt
Long-term debt, net of current maturities, is as follows:
Senior secured credit facility
$300 million 5.875% senior unsecured notes due November 1,
2021
$400 million 5.625% senior unsecured notes due January 15, 2027
Other long-term obligations
Capital leases
Less current maturities of long-term debt
Less discount on senior secured credit facility Term Loan B
Less debt issuance costs
December 31, December 31,
2017
2016
(in thousands)
$ 760,000 $ 976,845
—
400,000
119,310
891
1,280,201
(35,612)
(2,558)
(27,406)
300,000
—
154,084
1,760
1,432,689
(85,595)
(620)
(16,535)
$ 1,214,625 $ 1,329,939
108
The following is a schedule of future minimum repayments of long-term debt as of December 31, 2017 (in
thousands):
2018
2019
2020
2021
2022
Thereafter
Total minimum payments
Senior Secured Credit Facility
$
35,612
41,132
49,324
51,994
217,828
884,311
$ 1,280,201
On October 30, 2013, the Company entered into a new senior secured credit facility. The new senior
secured credit facility consists of a five year $500 million revolver, a five year $500 million Term Loan A facility,
and a seven year $250 million Term Loan B facility. The Term Loan A facility was priced at LIBOR plus a spread
(ranging from 2.75% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new
senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR
floor.
On April 28, 2015, the Company entered into an agreement to amend its senior secured credit facility. In
August 2015, the amendment to the senior secured credit facility went into effect increasing the capacity under an
existing five year revolver from $500 million to $633.2 million and increased the existing five year $500 million
Term Loan A facility by $146.7 million. The seven year $250 million Term Loan B facility remained unchanged.
On January 19, 2017, the Company entered into an amended and restated senior secured credit facility. The
amended and restated senior secured credit facility consists of a five year $700 million revolver, a five year $300
million Term Loan A facility, and a seven year $500 million Term Loan B facility (the “Amended Credit
Facilities”). The Term Loan A facility was priced at LIBOR plus a spread (ranging from 3.00% to 1.25%) based on
the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term
Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor. At December 31, 2017, the
Company’s senior secured credit facility had a gross outstanding balance of $760.0 million, consisting of a $288.8
million Term Loan A facility and a $471.2 million Term Loan B facility. The revolving credit facility had nothing
drawn at December 31, 2017. Additionally, at December 31, 2017 and 2016, the Company had conditional
obligations under letters of credit issued pursuant to the senior secured credit facility with face amounts aggregating
$22.1 million and $23.0 million, respectively, resulting in $677.9 million and $419.1 million of available borrowing
capacity as of December 30, 2017 and 2016, respectively, under the revolving credit facility. In connection with the
repayment of the previous senior secured credit facility, the Company recorded $1.7 million in refinancing costs and
a $2.3 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the write-
off of deferred debt issuance costs and the discount on the Term Loan B facility of the previous senior secured credit
facility.
The payment and performance of obligations under the senior secured credit facility are guaranteed by a
lien on and security interest in substantially all of the assets (other than excluded property such as gaming licenses)
of the Company and its subsidiaries.
5.875% Senior Unsecured Notes
On October 30, 2013, the Company completed an offering of $300 million 5.875% senior unsecured notes
that mature on November 1, 2021 (the “5.875% Notes”) at a price of par. Interest on the 5.875% Notes is payable on
May 1 and November 1 of each year. The 5.875% Notes are senior unsecured obligations of the Company. The
5.875% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in
109
the future issues certain subsidiary-guaranteed debt securities. The Company may redeem the 5.875% Notes at any
time, and from time to time, on or after November 1, 2016, at the declining redemption premiums set forth in the
indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the
redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from
time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a
“make-whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued
and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior
to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays
105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing
the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.
The Company used the proceeds of the new senior secured credit facility, new 5.875% Notes, and cash on
hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its
previously issued 83/4% senior subordinated notes (“83/4% Notes”)and the related consent solicitation to make
certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay
related fees and expenses and for working capital purposes.
Redemption of 5.875% Senior Subordinated Notes
In the first quarter of 2017, the Company redeemed all of its $300 million 5.875% senior subordinated
notes, which were due in 2021 (“5.875% Notes”). In connection with this redemption, the Company recorded a
$21.1 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the
difference between the reacquisition price of the 5.875% Notes compared to its carrying value.
5.625% Senior Unsecured Notes
On January 19, 2017, the Company completed an offering of $400 million 5.625% senior unsecured notes
that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on
January 15th and July 15th of each year. The 5.625% Notes are senior unsecured obligations of the Company. The
5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in
the future issues certain subsidiary-guaranteed debt securities. The Company may redeem the 5.625% Notes at any
time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the
5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture
governing the 5.625% Notes. In addition, prior to January 15, 2020, the Company may redeem the 5.625% Notes
with an amount equal to the net proceeds from one or more equity offerings, at a redemption price equal to
105.625% of the principal amount of the 5.625% Notes redeemed, together with accrued and unpaid interest to, but
not including, the redemption date, so long as at least 60% of the aggregate principal amount of the notes originally
issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the related
equity offering.
The Company used a portion of the proceeds from the issuance of the 5.625% Notes to retire its existing
5.875% Notes and to fund related transaction fees and expenses.
The Company used loans funded under the Amended Credit Facilities and a portion of the proceeds of the
5.625% Notes to repay amounts outstanding under its then existing Credit Agreement and to fund related transaction
fees and expenses and for general corporate purposes.
Other Long-Term Obligations
Other long term obligations at December 31, 2017 and 2016 of $119.3 million and $154.1 million,
respectively, included $105.4 million and $118.9 million, respectively, related to the relocation fees for Hollywood
Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course. At December 31, 2017 and
2016, $13.8 million and $14.4 million, respectively, related to the repayment obligation of a hotel and event center
110
located near Hollywood Casino Lawrenceburg. The December 31, 2016 long term obligations included $20.8
million related to a corporate airplane loan; all of which are more fully described below.
Ohio Relocation Fees
In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio,
which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing
racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two
racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value
of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the
agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility
and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This
obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense
related to this obligation was $5.5 million and $6.2 million for the year ended December 31, 2017 and 2016,
respectively.
Event Center
The City of Lawrenceburg Department of Redevelopment completed construction of a hotel and event
center located less than a mile away from Hollywood Casino Lawrenceburg. Effective in mid-January 2015, by
contractual agreement, a repayment obligation for the hotel and event center was assumed by a wholly-owned
subsidiary of the Company in the amount of $15.3 million, which was financed through a loan with the City of
Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property. The Company is
obligated to make annual payments on the loan of approximately $1 million for twenty years beginning January
2016. This obligation is accreted to interest expense at its effective yield of 3.0%. The amount included in interest
expense related to this obligation was $0.4 million for the years ended December 31, 2017 and 2016.
Corporate Airplane Loan
On September 30, 2016, the Company acquired a previously leased corporate airplane that was accounted
for as a capital lease and financed the purchase price with an amortizing loan at a fixed interest rate of 5.22% for a
term of five years with monthly payments of $220 thousand and a balloon payment of $12.6 million at the end of the
loan term. The loan was subsequently repaid in full on January 19, 2017.
Covenants
The Company’s senior secured credit facility and senior unsecured notes require us, among other
obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge
coverage, interest coverage, senior leverage and total leverage ratios. In addition, the Company’s senior secured
credit facility and senior unsecured notes restrict, among other things, its ability to incur additional indebtedness,
incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments,
engage in mergers or consolidations, and otherwise restrict corporate activities.
At December 31, 2017, the Company was in compliance with all required financial covenants.
10.
Master Lease Financing Obligation
The Company’s lease obligation with GLPI that is described in Note 3 to the consolidated financial
statements is accounted for as a financing obligation. The obligation was calculated at the inception of the
transaction based on the future minimum lease payments discounted at the Company’s estimated incremental
borrowing rate at lease inception over the lease term, including renewal options, that were reasonably assured of
being exercised and the funded construction of certain leased real estate assets in development at the date of the
Spin-Off. As of May 1, 2017, in connection with the acquisition of 1st Jackpot and Resorts, the Company’s Master
111
Lease Financing obligation was increased by $82.6 million which was the purchase price paid by GLPI for the
casinos underlying real estate assets. Total payments to GLPI under the Master Lease were $455.4 million, $442.3
million and $437.0 million for the years ended December 31, 2017, 2016 and 2015, respectively, of which $397.6
million, $391.7 million and $390.1 million respectively, were recognized as interest expense. The interest expense
recognized for the years ended December 31, 2017, 2016 and 2015 includes $46.8 million, $43.8 million and $43.5
million, respectively from contingent payments associated with the monthly variable components for Hollywood
Casino Columbus and Hollywood Casino Toledo.
The future minimum payments related to the Master Lease financing obligation with GLPI, at December
31, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total minimum payments
Less amounts representing interest
Plus residual values
Present value of future minimum payments
Less current portion of financing obligation
Long-term portion of financing obligation
11.
Commitments and Contingencies
Litigation
$
387,456
332,259
332,259
332,259
332,259
8,583,363
10,299,855
(7,148,946)
387,912
3,538,821
(56,248)
$ 3,482,573
The Company is subject to various legal and administrative proceedings relating to personal injuries,
employment matters, commercial transactions, development agreements and other matters arising in the ordinary
course of business. The Company does not believe that the final outcome of these matters will have a material
adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company
maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings.
However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be
given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial
condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance
coverage will be sufficient to cover losses arising from such matters.
Legal proceedings could result in costs, settlements, damages, or rulings that materially impact the
Company’s consolidated financial condition or operating results. The Company believes that it has meritorious
defenses, claims and/or counter-claims with respect to these proceedings, and intends to vigorously defend itself or
pursue its claims.
Operating Lease Commitments
The Company is liable under numerous operating leases for various assets, including but not limited to
ground leases, automobiles, and other equipment. The majority of these lease arrangements are cancelable within 30
days. Total rental expense under all operating lease agreements was $45.4 million, $40.3 million, and $37.9 million
for the years ended December 31, 2017, 2016 and 2015, respectively.
112
The future minimum lease commitments relating to the base lease rent portion of noncancelable operating
leases at December 31, 2017 are as follows (in thousands):
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total
Location Share Agreements
$
Total
8,609
6,387
4,692
4,026
3,504
60,517
$ 87,735
The Company’s subsidiary, Prairie State Gaming, enters into location share agreements with bar and retail
establishments in Illinois. These agreements are contracts which allow Prairie State Gaming to place VGTs in the
bar or retail establishment in exchange for a percentage of the variable revenue generated by the VGTs. Prairie
State Gaming holds the gaming license with the state of Illinois and the location share percentage is determined by
the state of Illinois. For the years ended December 31, 2017, 2016 and 2015, the total location share payments made
by Prairie State Gaming (recorded in gaming expenses) were $29.7 million, $21.2 million, and $6.0 million,
respectively.
Capital Expenditure Commitments
The Company currently has a capital expenditures budget of approximately $105.5 million for 2018, of
which the Company was contractually committed to spend approximately $4.8 million at December 31, 2017. The
Company’s properties that are subject to the Master Lease with GLPI are obligated to spend a minimum of 1% of
annual net revenues for the maintenance of those facilities. The Company historically spends well in excess of this
minimum threshold.
Purchase Obligations
The Company has obligations to purchase various goods and services totaling $73.6 million at
December 31, 2017, of which $44.1 million will be incurred in 2018.
Loan Commitments to the JIVDC
The Company has $29.0 million of unfunded loan commitments related to its loan to the JIVDC.
Employee Benefit Plans
The Company maintains a qualified retirement plan under the provisions of Section 401(k) of the Internal
Revenue Code of 1986, as amended, which covers all eligible employees. The plan enables participating employees
to defer a portion of their salary in a retirement fund to be administered by the Company. The Company makes a
discretionary match contribution, where applicable, of 50% of employees’ elective salary deferrals, up to a
maximum of 6% of eligible employee compensation. The matching contributions for the qualified retirement plan
for the years ended December 31, 2017, 2016 and 2015 were $6.0 million, $5.3 million, and $5.0 million,
respectively.
The Company also has a defined contribution plan, the Charles Town Races Future Service Retirement
Plan, covering substantially all of its union employees at Hollywood Casino at Charles Town Races. Hollywood
Casino at Charles Town Races makes annual contributions to this plan for the eligible union employees and to the
Penn National Gaming, Inc. 401(k) Plan for the eligible non-union employees for an amount equal to the amount
113
accrued for retirement expense, which is calculated as 0.25% of the daily mutual handle, 1.0% of net video lottery
revenue up to a base and, after the base is met, it reverts to 0.5% and 0.84% of table and poker revenue, respectively.
The contributions for the two plans at Hollywood Casino at Charles Town Races for the years ended December 31,
2017, 2016 and 2015 were $2.6 million, $2.8 million, and $2.9 million, respectively.
The Company maintains a non-qualified deferred compensation plan that covers most management and
other highly-compensated employees. This plan was effective March 1, 2001. The plan allows the participants to
defer, on a pre-tax basis, a portion of their base annual salary and/or their annual bonus, and earn tax-deferred
earnings on these deferrals. The plan also provides for matching Company contributions that vest over a five-year
period. The Company has established a Trust, and transfers to the Trust, on a periodic basis, an amount necessary to
provide for its respective future liabilities with respect to participant deferral and Company contribution amounts.
The Company’s matching contributions for the non-qualified deferred compensation plan for the years ended
December 31, 2017, 2016 and 2015 were $2.2 million, $2.2 million, and $2.0 million, respectively. The Company’s
deferred compensation liability, which was included in other current liabilities within the consolidated balance
sheets, was $64.7 million and $59.4 million at December 31, 2017 and 2016, respectively.
Labor Agreements
The Company is required to have agreements with the horsemen at the majority of its racetracks to conduct
its live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in
West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari-mutuel clerks
and breeders.
At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town
Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles
Town Races also renewed an agreement with the breeders that expires on June 30, 2018. Additionally, the
pari-mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia
Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month-to-month basis.
The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at
Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an
agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and
off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract was negotiated
and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year
collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.
The Company’s agreement with the Maine Harness Horsemen Association at Bangor Raceway continues
through the conclusion of the 2018 racing season.
In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the
Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September
2014 commencement of video lottery terminal operations at that facility.
In September 2015, Hollywood Gaming at Dayton Raceway entered into an agreement with the Ohio
Harness Horsemen’s Association for racing at the property. The term is for a period of ten years from the September
2015 effective date.
In January 2014, the Company entered into an agreement with the Harness Horsemen’s Association of New
England at Plainridge Park Casino which remains in effect through December 31, 2018.
Across certain of the Company’s properties, SEATU represents approximately 1,670 of the Company’s
employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various
times between June 2021 and October 2024.
114
SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy
Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton,
Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and
Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018, Hollywood Casino
Lawrenceburg has a wage reopener in June 2018, Hollywood Casino Kansas Speedway has a wage reopener in July
2018 and Hollywood Casino Joliet and Plainridge Park Casino have a wage reopener in November 2018; the
remainder of the SEATU agreements have expiration dates in 2019 and beyond.
At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents
approximately 167 employees under a collective bargaining agreement which expires on March 31, 2019. At
Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and
the United Steel Workers represents approximately 1,271 employees under a collective bargaining agreement which
ends on November 15, 2019.
On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which had seven
existing collective bargaining agreements with the following unions: (1) Culinary & Bartenders (expires on May 31,
2018.), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical
Workers (expires on February 28, 2021), (4) International Alliance of Theatrical Stage Employees (expires on
December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7)
Teamsters (front and back of the house, both expire on March 31, 2018).
The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego,
which the Company opened on October 10, 2016. Unite Here! International Union and Local 30 represents
employees in stewarding, facilities, food and beverage, and operations classifications, and the parties are in the
process of negotiating their first collective bargaining agreement.
In addition, at some of the Company’s properties, the Security Police and Fire Professionals of America,
the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local
1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United
Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel
Workers represent certain of the Company’s employees under collective bargaining agreements that expire at
various times between April 2018 and September 2025. None of these additional unions represent more than 77 of
the Company’s employees.
If the Company fails to maintain operative agreements with the horsemen at a track, it will not be permitted
to conduct live racing and export and import simulcasting at that track and OTWs and, in West Virginia, the
Company will not be permitted to operate its gaming machines and table games unless the state intervenes or
changes the statute. In addition, the Company’s simulcasting agreements are subject to the horsemen’s approval. If
the Company fails to renew or modify existing agreements on satisfactory terms, this failure could have a material
adverse effect on its business, financial condition and results of operations. Except for the closure of the facilities at
Penn National Race Course and its OTWs from February 16, 1999 to March 24, 1999 due to a horsemen’s strike,
and a few days at other times and locations, the Company has been able to maintain the necessary agreements. There
can be no assurance that the Company will be able to maintain the required agreements.
12.
Income Taxes
On December 22, 2017, the President of the United States signed into law comprehensive tax reform
legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the
United States tax law. The Tax Act provides numerous provisions including, but not limited to, a reduction to the
U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100%
expensing of qualifying capital improvements, a one-time transition tax on foreign earnings, a general elimination of
U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax
global intangible low-taxed income (“GILTI”).
115
Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which
provides accounting guidance for the Tax Act. SAB 118 provides a measurement period similar to a business
combination whereby recognizing provisional amounts to the extent that they are reasonably estimable and adjust
them over time as more information becomes available not to extend beyond one year from the Tax Act enactment
date. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the
accounting under ASC 740 is complete. To the extent the accounting related to the Tax Act is incomplete but a
reasonable estimate is attainable, a provisional estimate should be reflected in the financial statements.
The adjustments reflected in our financial statements related to the application of the Tax Act are
provisional amounts estimated based on published guidance and the interpretation of these provisions as of
December 31, 2017. The new law directs the United States Treasury to promulgate regulations as it deems
appropriate as well as provide guidance implementing the intent of Congress. The Company will recognize any
change to the provisional amounts in the period our computations are complete.
The Company calculated reasonable estimates of certain Tax Act provisions including the federal corporate
tax rate change, 100% expensing of capital improvements and the one-time transition tax on foreign earnings. In
connection with our initial analysis of the Tax Act impact, we have recorded a provisional decrease to net deferred
tax assets of $261.3 million with a corresponding increase to deferred tax expense. The Company recorded these
provisional amounts in our consolidated financial statements in the period of enactment – December 22, 2017. The
Company’s computations are not complete since the Tax Act is unclear in many respects subjecting the legislation to
potential technical corrections and interpretation from the United States Treasury and Internal Revenue Service. In
addition, there is uncertainty regarding how these U.S. federal income tax changes will affect state and local
taxation, which generally use federal taxable income as a starting point for computing the tax liability. The Tax Act
also provides for a 100% temporary tax deduction on all qualified assets placed into service after September 27,
2017 and before December 31, 2022 including significant improvements we regularly expend to construct, maintain
and renovate our properties. This provision phases out each year thereafter by 20% and will be completely phased
out as of January 1, 2027. Beginning in 2018, the new federal rate will also be reflected in the current federal tax
expense or benefit in our consolidated statement of operations.
Additionally, upon enactment, there is a one-time deemed repatriation tax on undistributed foreign earnings
and profits (“transition tax”). The application of the transition tax is relevant to certain undistributed and previously
untaxed post-1986 foreign earnings and profits from our management service contract with Casino Rama located in
Orillia, Ontario. The Company recognized a provisional tax expense of $2.6 million related to the transition tax in
2017 and the new law allows a Company to pay this liability over an eight-year period without interest. The
Company is continuing to gather additional information to refine the amount of transition tax. As of December 31,
2017, the Company changed its indefinite reinvestment assertion due to new favorable U.S. treatment of foreign
dividends and the anticipated termination of the Casino Rama management service contract during the second half
of 2018. Because our indefinite reinvestment assertion changed, we recorded foreign withholding taxes of
approximately $2.1 million. The Tax Act also contains a new GILTI tax provision and due to the complexity, the
Company is continuing to evaluate this provision and application of ASC 740. Therefore, the Company did not
record any amount related to GILTI in our financial statements or make a policy decision regarding whether to
record deferred taxes related to GILTI. The effects of other provisions within the Tax Act are not expected to have a
material impact on our consolidated financial statements for the year ended December 31, 2017.
The following table summarizes the tax effects of temporary differences between the financial statement
carrying value of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax
rate that will be in effect when these differences are settled or realized. These temporary differences result in
taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence
to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets.
In connection with the failed spin-off-leaseback, the Company continued to record real property assets and a
financing obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013, which resulted in a
substantial increase to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny
should be given to deferred taxes of an entity with cumulative pre-tax losses during the three most recent three
116
years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence
to conclude that a valuation allowance is not warranted.
The components of the Company’s deferred tax assets and liabilities are as follows:
2017
2016
(in thousands)
Deferred tax assets:
Stock-based compensation expense
Accrued expenses
Loan to the JIVDC
Financing obligation to GLPI
Unrecognized tax benefits
Net operating losses and tax credit carryforwards
Gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment, non-master lease
Property, plant and equipment, master lease
Investments in unconsolidated affiliates
Undistributed foreign earnings
Intangibles
Net deferred tax liabilities
Noncurrent deferred tax assets/(liabilities), net
$
15,038 $
39,474
26,237
900,311
6,565
59,842
1,047,467
(113,699)
933,768
17,773
64,175
2,268
1,359,193
9,377
78,021
1,530,807
(828,501)
702,306
(33,148)
(469,363)
(1,218)
(2,061)
(37,035)
(542,825)
(69,151)
(717,602)
(1,383)
(8,596)
(32,498)
(829,230)
390,943 $ (126,924)
$
The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation
allowance and by adjusting the amount of the allowance, if necessary. The Company gives appropriate consideration
to all available positive and negative evidence including projected future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and
negative evidence is a requirement pursuant to ASC 740 in determining the net deferred tax assets will be realized.
In the event the Company determines that the deferred income tax assets would be realized in the future in excess of
their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the
provision for income taxes.
The Company determined that a valuation allowance was no longer required against its federal and state net
deferred tax assets for the portion that will be realized. The most significant evidence that led to the reversal of the
valuation allowance during the three months ended September 30, 2017 includes the following:
(cid:120) Achievement and sustained growth in our three-year cumulative pretax earnings. During the fourth
quarter of 2016, we emerged from a three-year cumulative pretax loss position, generating a near break-
even cumulative amount of pretax income. This cumulative pretax income increased to $76.6 million as of
September 30, 2017 and was expected to rise substantially at year end since the Company had recorded a
$161.5 million pretax loss in the fourth quarter of 2014 due to impairment charges of $155.3 million in that
period.
(cid:120) Substantial pretax income in seven of the last eight quarters with the only loss reported eight
quarters ago.
(cid:120) Lack of significant goodwill and intangible asset impairment charges expected in 2017. The Company
had experienced significant impairment charges in connection with the spin-off of its real estate assets to
Gaming Leisure Properties, Inc. in November 2013. The Company recorded impairment charges totaling
117
$40.0 million, $159.9 million and $798.3 million for the years ended December 31, 2015, 2014 and 2013,
respectively. There were no impairments recorded in 2016 and for the nine months ended September 30,
2017, the Company recorded impairments of $29.9 million.
For the three months ended December 31, 2017, there were no material changes to our core business
operations that altered our prior interim conclusion to release the valuation allowance against the federal and state
net deferred tax assets for the portion that is more-likely-than-not to be realized. The Company continues to
experience significant three-year cumulative pretax income of $152.2 million at December 31, 2017 despite the
Jamul impairment charge of $77.9 million during the three months ended December 31, 2017. As such, the
Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017 due to the
positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-
than-not” realization standard. This reversal is reflected in our income tax benefit in the accompanying consolidated
statements of operations. The Company continues to maintain a valuation allowance of $113.7 million as of
December 31, 2017 for federal capital loss carryforwards, as well as certain state filing groups, where it continues to
be in a cumulative three-year pretax loss position.
Following the ownership change of the Tropicana Las Vegas, the Company has a total federal net operating
loss carry-forwards in the amount of $143.4 million for the year ended December 31, 2017, which will expire on
various dates from 2029 through 2034. These tax attributes are subject to limitations under the Internal Revenue
Code and underlying Treasury Regulations, however we believe it is more-likely-than-not that the benefit from these
tax attributes will be realized.
For state income tax reporting, the Company has gross state net operating loss carry-forwards aggregating
approximately $478.3 million available to reduce future state income taxes, primarily for the Commonwealth of
Pennsylvania and the States of Missouri, New Mexico, Maine, Illinois, and Ohio localities as of December 31, 2017.
The tax benefit associated with these net operating loss carry-forwards is approximately $28.7 million. Due to
statutorily limited operating loss carry-forwards and income and loss projections in the applicable jurisdictions, a
valuation allowance has been recorded to reflect the net operating losses which are not presently expected to be
realized in the amount of $28.3 million. If not used, substantially all the carry-forwards will expire at various dates
from December 31, 2018 to December 31, 2037.
Additionally, included in the Company’s valuation allowance is $0.1 million for realized federal capital
losses that will expire if not used via the realization of capital gains by December 31, 2018, as well as $26.2 million
for an unrealized capital loss associated with our loan to the JIVDC. Overall the Company’s valuation allowance at
December 31, 2017 decreased from December 31, 2016 by a net amount of $714.8 million primarily due to the
reversal of the federal valuation allowance, and a partial reversal of the state valuation allowance.
The domestic and foreign components of income before income tax expense for the years ended December
31, 2017, 2016 and 2015 was as follows:
Year ended December 31,
2017
2016
2015
Domestic
Foreign
Total
(29,538)
4,494
(25,044)
116,693
3,924
120,617
54,443
2,167
56,610
118
The provision for income taxes charged to operations for the years ended December 31, 2017, 2016 and
2015 was as follows:
Year ended December 31,
Current tax expense (benefit)
Federal
State
Foreign
Total current
Deferred tax (benefit) expense
Federal
State
Foreign
Total deferred
Total income tax (benefit) provision
2017
2016
(in thousands)
2015
$ 16,318 $ 8,721 $ (5,158)
133
3,713
(1,312)
3,489
(9,639)
2,571
6,062
(2,981)
19,399
(480,712)
(39,255)
2,061
(517,906)
51,817
5,419
—
57,236
$ (498,507) $ 11,307 $ 55,924
4,701
3,279
756
8,736
The negative pretax income magnifies the impact of one-time items including reversal of the valuation
allowance and the federal deferred rate change in the Company’s effective tax rate for the year ended December 31,
2017. The following table reconciles the statutory federal income tax rate to the actual effective income tax rate for
2017, 2016 and 2015:
Year ended December 31,
Percent of pretax income
Federal statutory rate
State and local income taxes - net of federal benefits
Nondeductible expenses
Goodwill impairment
Compensation
Contingent liability settlement
Foreign
Valuation allowance
Federal tax reform enactment - deferred rate change
Other miscellaneous items
Total effective tax rate
2017
2016
2015
35.0 %
6.3 %
(16.0)%
(20.5)%
29.5 %
22.9 %
11.3 %
35.0 %
1.2 %
0.3 %
— %
(1.5)%
0.6 %
(8.5)%
2,962.3 % (17.1)%
— %
(1,043.5)%
(0.6)%
3.3 %
9.4 %
1,990.6 %
35.0 %
6.1 %
3.0 %
— %
2.8 %
— %
5.2 %
55.3 %
— %
(8.6)%
98.8 %
The income tax (benefit)/expense differs from the federal statutory amount because the effect of the items detailed in
the table below.
Year ended December 31,
Amount of pretax income
Federal statutory rate
State and local income taxes - net of federal benefits
Nondeductible expenses
Goodwill impairment
Compensation
Contingent liability settlement
Foreign
Valuation allowance
Federal tax reform enactment - deferred rate change
Other miscellaneous items
Total income tax provision
119
2017
2016
(in thousands)
2015
$
(8,765) $ 42,216 $ 19,814
3,435
(1,567)
1,717
4,018
—
5,131
1,559
(7,376)
—
(5,740)
2,955
(2,840)
31,288
(741,872)
—
261,329
(4,844)
(825)
$ (498,507) $ 11,307 $ 55,924
1,498
371
—
(1,817)
756
(10,268)
(20,675)
—
(774)
A reconciliation of the beginning and ending amount for the liability for unrecognized tax benefits is as
follows:
Unrecognized tax benefits
Cumulative advance deposits on account
Balance at December 31, 2015
Additions based on current year positions
Additions based on prior year positions
Decreases due to settlements and/or reduction in reserves
Currency translation adjustments
Settlement payments
Unrecognized tax benefits at December 31, 2016
Additions based on current year positions
Additions based on prior year positions
Decreases due to settlements and/or reduction in reserves
Currency translation adjustments
Settlement payments
Unrecognized tax benefits at December 31, 2017
Unrecognized
tax benefits
(in thousands)
33,569
$
(31,371)
2,198
$
—
3,749
(9,091)
2,565
(4,000)
26,792
2,979
2,836
(1,322)
(119)
(216)
30,950
$
$
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and
penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts
recorded in the consolidated balance sheets. The Company will continue to classify any income tax related penalties
and interest accrued related to unrecognized tax benefits in income tax provisions within the consolidated statements
of operations.
The U.S. and Canadian competent authorities have effectively settled and issued refunds for the transfer
pricing dispute related to our Casino Rama management service agreement. During the year ended December 31,
2017, the Company received a cash refund of $9.5 million and $29.7 million from U.S. and Canada (inclusive of
advances on account listed in the table above), respectively, which was classified in other current assets at December
31, 2016.
During the year ended December 31, 2017, the Company recorded $3.6 million of tax reserves and accrued
interest and penalties related to current year uncertain tax positions. In regard to prior year tax positions, the
Company recorded $3.1 million of tax reserves and accrued interest and reversed $1.4 million of previously
recorded tax reserves and accrued interest for uncertain tax positions that have settled and/or closed. The
unrecognized tax benefits of $31.8 million is classified in other noncurrent tax liabilities. Overall, the Company
recorded a net tax expense of $8.0 million in connection with its uncertain tax positions for the year ended
December 31, 2017.
Included in the liability for unrecognized tax benefits at December 31, 2017 and 2016 were $25.1 million
and $9.4 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. Also included in
the reserve at December 31, 2017 and 2016 were $0.1 million and $1.7 million gain of currency translation related
to foreign currency tax positions and the settlement receivable on account, respectively.
During the years ended December 31, 2017 and 2016, the Company recognized approximately $1.7 million
and $0.3 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or
reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and
penalties of $0.1 million, net of deferred taxes. These accruals are included in noncurrent tax liabilities and prepaid
expenses within the consolidated balance sheets at December 31, 2017 and 2016, respectively.
120
The Company is currently in various stages of the examination process in connection with its open audits.
Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects
that its ASC 740 liabilities will not significantly change over the next twelve months.
As of December 31, 2017, the Company is subject to U.S. federal income tax examinations for the tax
years 2014, 2015, and 2016. The 2013 U.S. federal income tax return was audited by the Internal Revenue Service
and the examination concluded on September 27, 2017 with no adjustments other than the expected Canada
competent authority settlement. The 2013 income tax return statute of limitation was extended to June 30, 2018 to
accommodate the processing of this change. In addition, the Company is subject to state and local income tax
examinations for various tax years in the taxing jurisdictions in which the Company operates.
At December 31, 2017 and 2016, prepaid expenses within the consolidated balance sheets included prepaid
income taxes of $12.0 million and $30.1 million, respectively. The Company received federal income tax refunds of
$28.1 million including interest during the year related to net operating loss carryback, general business credit
carryback and a prior year overpayment.
13.
Shareholders’ Equity
Preferred Equity Investment
On June 15, 2007, the Company announced that it had entered into a merger agreement that, at the effective
time of the transactions contemplated thereby, would have resulted in the Company’s shareholders receiving $67.00
per share. Specifically, the Company, PNG Acquisition Company Inc. (“Parent”) and PNG Merger Sub Inc., a
wholly-owned subsidiary of Parent (“Merger Sub”), announced that they had entered into an Agreement and Plan of
Merger, dated as of June 15, 2007 (the “Merger Agreement”), that provided, among other things, for Merger Sub to
be merged with and into the Company, as a result of which the Company would have continued as the surviving
corporation and would have become a wholly-owned subsidiary of Parent. Parent is indirectly owned by certain
funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) and Centerbridge Partners, L.P.
(“Centerbridge”).
On July 3, 2008, the Company entered into an agreement with certain affiliates of Fortress and
Centerbridge, terminating the Merger Agreement. In connection with the termination of the Merger Agreement,
certain affiliates of Fortress and Centerbridge agreed to pay the Company a total of $1.475 billion, consisting of a
nonrefundable $225 million cash termination fee and a $1.25 billion, zero coupon, preferred equity investment (the
“Investment”). On October 30, 2008, the Company closed the sale of the Investment and issued 12,500 shares of the
Series B Preferred Stock. During the year ended December 31, 2010, the Company repurchased 225 shares of
Series B Preferred Stock for $11.2 million.
As part of the Spin-Off, the Company entered into an agreement (the “Exchange Agreement”) with FIF V
PFD LLC, an affiliate of Fortress, providing for the exchange of shares of the Company’s Series B Preferred Stock
for shares of a new class of preferred stock, Series C Preferred Stock, in contemplation of the Spin-Off.
The Exchange Agreement provided Fortress with the right to exchange its 9,750 shares of Series B
Preferred Stock for fractional shares of Series C Preferred Stock at an exchange ratio that treated each such
fractional share (and therefore each share of common stock into which such fractional share was convertible) as
worth $67 per share, which was the “ceiling price” at which the shares of Series B Preferred Stock were redeemable
by the Company at maturity. Any shares of Series B Preferred Stock that were not exchanged for shares of Series C
Preferred Stock prior to the second business day before October 16, 2013, the record date established for the
distribution of GLPI common stock in the Spin-Off, were automatically exchanged for shares of Series C Preferred
Stock on such date. Subsequently, the Company had the right to purchase from Fortress, prior to the record date for
the Spin-Off, a number of shares of Series C Preferred Stock, at a price of $67 per fractional share of Series C
Preferred Stock, such that, immediately following the consummation of the Spin-Off, Fortress would not own more
than 9.9% of GLPI’s common stock.
121
On October 11, 2013, the Company completed its exchange and repurchase transactions with Fortress and
repurchased all of the 2,300 shares of Series B Preferred Stock held by Centerbridge at par and issued to the affiliate
of Fortress 14,553 shares of non-voting Series C Preferred Stock in order to redeem all of the previously outstanding
shares of Series B Preferred Stock. The Company then repurchased 5,929 shares of Series C Preferred Stock from
Fortress. Additionally, in February 2013, the Company repurchased 225 shares of Series B Preferred Stock from WF
Investment Holdings, LLC at a slight discount to par. In these transactions, the Company paid a total of
$649.5 million, which was primarily funded by borrowings under the revolving credit facility, to the affiliates of
Fortress, Centerbridge and WF Investment Holdings, LLC. As a result of these transactions, there are currently no
outstanding shares of Series B Preferred Stock and Fortress held 8,624 shares of Series C Preferred Stock at
December 31, 2015.
During 2016, Fortress sold all 8,624 shares of Series C Preferred Stock, which converted upon sale into
8,624,000 shares of common stock under previously agreed upon terms. As a result, no shares of Series C Preferred
Stock were outstanding at December 31, 2017 and 2016.
Repurchase of Common Stock
On February 3, 2017, the Company announced a repurchase program pursuant to which the Board of
Directors authorized to repurchase up to $100 million of the Company’s common stock which can be executed over
a two year period. During the year ended December 31, 2017, the Company repurchased 1,264,149 shares of its
Common Stock in open market transactions for approximately $24.8 million at an average price of $19.59 per share.
All of the repurchased shares have been retired.
14.
Stock-Based Compensation
On April 16, 2003, the Company’s Board of Directors adopted and approved the 2003 Long Term
Incentive Compensation Plan (the “2003 Plan”). On May 22, 2003, the Company’s shareholders approved the 2003
Plan. The 2003 Plan was effective June 1, 2003 and permitted the grant of options to purchase common stock and
other market-based and performance-based awards. Up to 12,000,000 shares of common stock were available for
awards under the 2003 Plan. The 2003 Plan provided for the granting of both incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock options, which
do not so qualify. The exercise price per share may be no less than (i) 100% of the fair market value of the common
stock on the date an option is granted for incentive stock options and (ii) 85% of the fair market value of the
common stock on the date an option is granted for nonqualified stock options. However, the shares which remained
available for issuance under such plan as of November 12, 2008 are no longer available for issuance and all future
equity awards will be pursuant to the 2008 Long Term Incentive Compensation Plan (the “2008 Plan”) described
below.
On August 20, 2008, the Company’s Board of Directors adopted and approved the 2008 Plan. On
November 12, 2008, the Company’s shareholders approved the 2008 Plan. The 2008 Plan permits the Company to
issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”), restricted stock, phantom
stock units (“PSUs”) and other equity and cash awards to employees. Non- employee directors are eligible to receive
all such awards, other than incentive stock options. On June 9, 2011, the Company’s shareholders approved an
amendment to the 2008 Plan to increase the aggregate number of shares of common stock that may be issued by
2,350,000 to 9,250,000, and on June 12, 2014 the Company’s shareholders approved an amendment to increase the
aggregate number of shares of common stock that may be issued from 9,250,000 to 16,350,000. Awards of stock
options and stock appreciation rights will be counted against the 16,350,000 limit as one share of common stock for
each share granted. However, each share awarded in the form of restricted stock, or any other full value stock award,
will be counted as issuing 2.44 shares of common stock for purposes of determining the number of shares available
for issuance under the plan. Any awards that are not settled in shares of common stock shall not count against this
limit. At December 31, 2017, there were 1,436,348 shares available for future grants under the 2008 Plan.
122
On February 9, 2016, the Company’s Compensation Committee of the Board of Directors adopted a
Performance Share Program (the “Performance Share Program”) pursuant to the 2008 Plan, which contains
performance-based vesting for a meaningful portion of restricted stock awards. The Performance Share Program was
adopted to provide key executives with equity-based compensation tied directly to Company performance to further
align their interests with those of shareholders, and to provide compensation only if the designated performance goal
is met for the applicable performance period. The Company’s named executive officers and other key executives are
eligible to participate in the Performance Share Program. An aggregate of 172,245 and 189,085 performance shares
were awarded on February 17, 2017 and February 9, 2016, respectively, with each award having a three-year award
period consisting of three one-year performance periods and a three-year service period. The performance goal for
each performance period will be an adjusted EBITDA goal established for each one-year performance period. The
awards will potentially be earned between 0% and 150% of the shares awarded in one-third increments depending
on achievement of the annual performance goals, but remain subject to vesting for the full three-year service term.
At December 31, 2017, the adjusted EBITDA target for the third tranche of the 2016 performance awards
and the second and third tranches of the 2017 performance awards were not yet established and therefore the
Company concluded a grant date has not occurred under ASC 718. Stock based compensation expense will be
measured for each tranche based on the fair value of the restricted stock awards using Penn’s closing stock price on
the grant date since all key terms for the specific tranche were established and mutually understood by the Company
and the individuals receiving the awards. At each reporting period, accruals of stock based compensation expense
are based on the probable outcome of the performance condition.
Stock options that expire between July 8, 2018 and August 7, 2024, have been granted to officers, directors,
employees, and predecessor employees to purchase common stock at prices ranging from $6.96 to $20.75 per share.
All options were granted at the fair market value of the common stock on the date the options were granted (as
defined in the respective plan document) and have contractual lives ranging from 4 to 10 years. The Company issues
new authorized common shares to satisfy stock option exercises as well as lapses of forfeiture of restrictions on
restricted stock.
The following table contains information on stock options issued under the plans for the year ended
December 31, 2017:
Weighted-
Average
Remaining
Number of Option Weighted-Average Contractual
Aggregate
Intrinsic Value
Term (in years) (in thousands)
Outstanding at December 31, 2016
Granted
Exercised
Canceled
Outstanding at December 31, 2017
Shares
6,326,593 $
1,486,790
(1,226,345)
(35,724)
6,551,314 $
Exercise Price
11.17
14.26
8.81
14.38
12.29
3.98 $
124,709
The weighted-average grant-date fair value of options granted during the years ended December 31, 2017
and 2016 were $4.48 and $3.97, respectively. The aggregate intrinsic value of stock options exercised during the
years ended December 31, 2017, 2016, and 2015 was $15.8 million, $10.3 million, and $19.5 million, respectively.
At December 31, 2017, there were 3,106,177 shares that were exercisable, with a weighted-average exercise price of
$10.94, a weighted-average remaining contractual term of 2.67 years, and an aggregate intrinsic value of $63.3
million.
123
The following table summarizes information about stock options outstanding at December 31, 2017:
Exercise Price Range
$6.96 to
$10.41
$11.12 to
$16.02
$16.59 to
$20.75
Total
$6.96 to
$20.75
Outstanding options
Number outstanding
Weighted-average remaining contractual life (years)
Weighted-average exercise price
Exercisable options
Number outstanding
Weighted-average exercise price
1,178,054 5,283,711 89,549 6,551,314
3.98
4.67
12.29
5.48
13.11 $ 18.36 $
0.77
8.16 $
$
1,176,804
1,915,712
13,661
$
8.16 $
12.60 $ 16.59 $
3,106,177
10.94
The following table contains information on restricted stock awards issued under the plans for the year
ended December 31, 2017:
Outstanding at December 31, 2016
Awarded
Released
Canceled
Outstanding at December 31, 2017
Number of Award
Shares
175,886
176,865
(68,257)
(16,839)
267,655
Stock-based compensation expenses for the years ended December 31, 2017, 2016 and 2015 totaled
$7.8 million, $6.9 million and $8.2 million, respectively, and are included within the consolidated statements of
operations under general and administrative expense.
At December 31, 2017, 2016 and 2015, the total compensation cost related to nonvested awards not yet
recognized equaled $12.2 million, $11.6 million and $11.2 million, respectively, including $9.8 million, $9.9 million
and $8.8 million for stock options, respectively, and $2.4 million, $1.7 million and $2.4 million for restricted stock,
respectively. This cost is expected to be recognized over the remaining vesting periods, which will not exceed four
years.
The Company’s PSUs, which vest over a period of three to four years, entitle employees and directors to
receive cash based on the fair value of the Company’s common stock on the vesting date. The PSUs are accounted
for as liability awards and are re-measured at fair value each reporting period until they become vested with
compensation expense being recognized over the requisite service period in accordance with ASC 718-30,
“Compensation—Stock Compensation, Awards Classified as Liabilities.” The Company has a liability, which is
included in accrued salaries and wages within the consolidated balance sheets, associated with its PSUs of $4.8
million and $5.6 million at December 31, 2017 and 2016, respectively.
For PSUs held by Penn employees and directors, there was $5.7 million of total unrecognized
compensation cost at December 31, 2017 that will be recognized over the grants remaining weighted average vesting
period of 2.36 years. For the years ended December 31, 2017, 2016 and 2015, the Company recognized $11.9
million, $8.5 million, and $14.1 million of compensation expense associated with these awards, respectively. The
reason for the increase was primarily due to an increase in the stock price of Penn common stock during 2017.
Amounts paid by the Company for the years ended December 31, 2017, 2016, and 2015 on these cash-settled awards
totaled $12.7 million, $10.7 million, and $14.5 million, respectively.
For the Company’s SARs, the fair value of the SARs is calculated during each reporting period and
estimated using the Black-Scholes option pricing model based on the various inputs discussed in Note 3. The
Company’s SARs, which vest over a period of four years, are accounted for as liability awards since they will be
124
settled in cash. The Company has a liability, which is included in accrued salaries and wages within the consolidated
balance sheets, associated with its SARs of $24.0 million and $7.3 million at December 31, 2017 and 2016,
respectively.
For SARs held by Penn employees, there was $17.5 million of total unrecognized compensation cost at
December 31, 2017 that will be recognized over the awards remaining weighted average vesting period of 2.50
years. For the years ended December 31, 2017, 2016 and 2015, the Company recognized $21.9 million, $2.4 million
and $5.1 million of compensation expense associated with these awards. The reason for the increase was primarily
due to an increase in the stock price of Penn common stock during 2017. Amounts paid by the Company for the
years ended December 31, 2017, 2016 and 2015 on these cash-settled awards totaled $6.2 million, $3.3 million and
$3.4 million, respectively.
15.
Segment Information
The following tables present certain information with respect to the Company’s segments. Intersegment
revenues between the Company’s segments were not material in any of the periods presented below.
Year ended December 31,
Net Revenues
Northeast
South/West
Midwest
Other (1)
Total Reportable Segment Net Revenues
Adjusted EBITDA
Northeast
South/West
Midwest
Other (1)
Total Reportable Segment Adjusted EBITDA
Other operating costs and other expenses (income)
Depreciation and amortization
Unconsolidated non-operating costs - Kansas JV
Interest expense
Interest income
Loss (gain) on disposal of assets
Impairment losses, provision for loan loss and unfunded loan commitments to
the JIVDC
Insurance recoveries
Loss on early extinguishment of debt
Other
Contingent purchase price
Charge for stock compensation
Income before income taxes
Income taxes
Net income
125
2017
2016
(in thousands)
2015
$ 1,584,119 $ 1,568,514 $ 1,505,838
478,128
833,455
20,937
2,838,358
546,608
877,567
41,691
3,034,380
604,665
907,493
51,693
3,147,970
501,271
135,324
297,777
(88,426)
845,946
489,070
128,569
287,275
(61,085)
843,829
456,599
128,850
291,317
(80,417)
796,349
267,062
5,866
466,761
(3,552)
172
107,810
(289)
23,963
2,257
(6,840)
7,780
(25,044)
(498,507)
473,463 $
$
271,214
10,311
459,243
(24,186)
(2,471)
—
(726)
—
1,679
1,277
6,871
120,617
11,307
109,310 $
259,461
10,377
443,127
(11,531)
1,286
40,042
—
—
(5,872)
(5,374)
8,223
56,610
55,924
686
Year ended December 31, 2017
Capital expenditures
Year ended December 31, 2016
Capital expenditures
Year ended December 31, 2015
Capital expenditures
Balance sheet at December 31, 2017
Total assets
Investment in and advances to unconsolidated affiliates
Goodwill
Other intangible assets, net
Balance sheet at December 31, 2016
Total assets
Investment in and advances to unconsolidated affiliates
Goodwill
Other intangible assets, net
Northeast South/West Midwest
Other (1)
Total
(in thousands)
$ 22,632 $ 42,025 $
29,827 $
4,777 $
99,261
$ 30,677 $ 30,458 $
30,921 $
5,189 $
97,245
$ 155,413 $ 16,805 $
22,679 $
4,343 $ 199,240
102
$ 821,649 $ 794,274 $ 1,070,204 $ 2,548,685 $ 5,234,812
60,514
148,912
67,602 1,008,097
422,606
16,242
—
21,242 244,695
1,623
88,296
674,558
101,698
303,043
76
$ 861,951 $ 840,076 $ 1,103,231 $ 2,169,226 $ 4,974,484
156,176
989,685
435,494
—
21,242 223,586
1,133
93,768
673,889
101,488
62,332
70,968
29,830
303,043
(1) Total assets include the real property assets under the Master Lease with GLPI. Net revenues and adjusted
EBITDA relate to the Company’s stand-alone racing operations, namely Rosecroft Raceway, which the
Company sold on July 31, 2016, Sanford Orlando Kennel Club and the Company’s joint venture interests in
Texas and New Jersey (see Note 6 to the consolidated financial statements) which do not have gaming
operations. Other also includes corporate overhead operations as well as Penn Interactive Ventures, which is a
wholly-owned subsidiary that is pursuing the Company’s interactive gaming strategy.
126
16.
Summarized Quarterly Data (Unaudited)
The following table summarizes the quarterly results of operations for the years ended December 31, 2017
and 2016:
Fiscal Quarter
First (1)
Second (1,2)
Third
Fourth
(in thousands, except per share data)
2017
Net revenues
Income from operations
Net income (loss)
Earnings (loss) per common share:
$ 776,224 $ 796,463 $ 806,247 $ 769,036
26,775
(338,060)
143,663
789,340
134,989
17,079
140,287
5,104
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
$
$
0.06 $
0.06 $
0.19 $
0.18 $
8.68 $
8.43 $
(3.72)
(3.72)
Fiscal Quarter
First
Second
Third (3) Fourth (4)
(in thousands, except per share data)
2016
Net revenues
Income from operations
Net income
Earnings per common share:
Basic earnings per common share
Diluted earnings per common share
$ 756,451 $ 769,422 $ 765,597 $ 742,910
113,848
5,032
139,300
46,535
149,337
34,035
140,531
23,708
$
$
0.26 $
0.26 $
0.38 $
0.37 $
0.52 $
0.51 $
0.06
0.05
(1) On February 1, 2017 and June 1, 2017, the Company acquired DSG Amusement, Ltd. and Advantage Gaming
LLC, respectively.
(2) On May 1, 2017 the Company acquired 1st Jackpot and Resorts.
(3) On August 1, 2016 the Company acquired Rocket Speed.
(4) On October 3, 2016 and November 1, 2016 the Company acquired Slot Kings, LLC and Bell Gaming, LLC,
respectively.
For the second, third and fourth quarters of 2017, the Company recorded a $5.6 million, $6.3 million, and
$77.9 million of charges, respectively, for the Company’s loan and unfunded loan commitments to the JIVDC. In
addition, the Company recorded a goodwill impairment charges of $18.0 million for Tropicana Las Vegas and
Sanford Orlando Kennel Club in the third quarter of 2017.
In the third quarter of 2017, the Company determined that a valuation allowance was no longer required
against its federal net deferred tax assets for the portion that will be realized. As a result, the Company released
$766.2 million of its total valuation allowance due to the positive evidence outweighing the negative evidence. In
the fourth quarter of 2017, the Company wrote-off $257.0 million of deferred tax assets due to the passage of the tax
reform act in December of 2017. See Note 12 to the consolidated financial statements for more details.
During the first quarter of 2017, the Company recorded a $25.1 million loss on the early extinguishment of
debt and finance charges related to the January 2017 refinancing. See Note 9 to the consolidated financial
statements for more details.
127
During the third quarter of 2017, Penn Interactive Ventures reached an agreement with the former
shareholders of Rocket Speed to buy out the two year contingent purchase price consideration which resulted in a
benefit to general and administrative expense in the amount of $22.2 million.
17.
Related Party Transactions
The Company currently leases executive office buildings in Wyomissing, Pennsylvania from affiliates of
its Chairman of the Board of Directors. Rent expense for each of the years ended December 31, 2017, 2016 and
2015 amounted to $1.2 million, respectively. The leases for the office space expire in May 2019 and August 2024.
The future minimum lease commitments relating to these leases at December 31, 2017 are $4.5 million.
18.
Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures,” establishes a hierarchy that prioritizes fair value
measurements based on the types of inputs used for the various valuation techniques (market approach, income
approach, and cost approach). The levels of the hierarchy are described below:
(cid:120) Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
(cid:120) Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or
indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest
rates and yield curves that are observable at commonly quoted intervals.
(cid:120) Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if
any, related market activity.
The Company’s assessment of the significance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
The following methods and assumptions are used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate:
Cash and cash equivalents
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the
Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.
Loan to the JIVDC
The fair value of the Company’s loan to the JIVDC was based on the present value of the projected future
cash flows discounted at 14%, which we believe approximates the return a market participant would require. Since
the projections are based on management’s internal projections, the Company concluded that this instrument should
be classified as a Level 3 measurement. See Note 5 to the consolidated financial statements for further details,
including how the loans carrying amount was determined.
Long-term debt
The fair value of the Company’s Term Loan A and B components of its senior secured credit facility and
senior unsecured notes is estimated based on quoted prices in active markets and as such is a Level 1 measurement.
The fair value of the remainder of the Company’s senior secured credit facility approximates its carrying value as it
is revolving, variable rate debt and as such is a Level 2 measurement.
128
Other long term obligations at December 31, 2017 include the relocation fees for Hollywood Gaming at
Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course, and the repayment obligation of a hotel
and event center located near Hollywood Casino Lawrenceburg. The fair value of the relocation fees for Hollywood
Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course and the repayment obligation
for the hotel and event center are estimated based on rates consistent with the Company’s credit rating for
comparable terms and debt instruments and as such are Level 2 measurements.
Other Liabilities
Other liabilities at December 31, 2017 include the contingent purchase price consideration related to the
purchase of Plainridge Racecourse. The fair value of the Company’s contingent purchase price consideration related
to its Plainridge Racecourse acquisition is estimated based on an income approach using a discounted cash flow
model and as such is a Level 3 measurement. During the three months ended September 30, 2017, Penn Interactive
Ventures reached an agreement with the former owners of Rocket Speed to buy out the contingent purchase price
obligation which resulted in a $22.2 million benefit to general and administrative expense. At each reporting period,
the Company assesses the fair value of its contingent purchase price obligations and changes in its value are
recorded in earnings. The amount included in general and administrative expenses related to the change in fair value
of these obligations resulted in a reduction of $6.8 million for the year ended December 31, 2017 compared to a
charge of $1.3 million for the year ended December 31, 2016.
The carrying amounts and estimated fair values by input level of the Company’s financial instruments
during the years ended December 31, 2017 and 2016 are as follows (in thousands):
Carrying
December 31, 2017
Amount
Fair Value Level 1
Level 2
Level 3
Financial assets:
Cash and cash equivalents
Loan to the JIVDC
Financial liabilities:
Long-term debt
Senior secured credit facility
Senior unsecured notes
Other long-term obligations
Other liabilities
Financial assets:
Cash and cash equivalents
Loan to the JIVDC
Financial liabilities:
Long-term debt
Senior secured credit facility
Senior unsecured notes
Other long-term obligations
Other liabilities
$ 277,953 $ 277,953 $ 277,953 $
16,533
20,900
—
— $
—
—
16,533
730,787
399,249
119,310
22,696
760,456
412,000
113,460
22,696
760,456
412,000
—
—
—
—
113,460
—
—
—
—
22,696
December 31, 2016
Carrying
Amount
Fair Value Level 1
Level 2
(cid:3)
Level 3
$ 229,510 $ 229,510 $ 229,510 $
98,000
92,100
—
— $
—
—
98,000
962,703
296,895
154,084
48,244
976,092
312,000
152,132
48,244
785,092
312,000
—
—
191,000
—
152,132
—
—
—
—
48,244
129
The following table summarizes the changes in fair value of the Company’s Level 3 liabilities (in
thousands):
Balance at January 1, 2015
Included in earnings
Balance at December 31, 2015
Additions
Payments
Included in earnings
Balance at December 31, 2016
Additions
Payments
Included in earnings
Balance at December 31, 2017
Other Liabilities
Contingent
Purchase Price
$
$
$
$
19,189
(5,374)
13,815
34,945
(1,793)
1,277
48,244
905
(19,613)
(6,840)
22,696
The following table summarizes the significant unobservable inputs used in calculating fair value for our
Level 3 liabilities:
Contingent purchase price - Plainridge
Valuation
Technique
Unobservable
Input
Discount Rate
Discounted cash flow Discount rate
(cid:3)
(cid:3)
(cid:3)
8.30 %
(cid:3)
The following table sets forth the assets measured at fair value on a non-recurring basis during the year
ended December 31, 2017 (in thousands):
Balance
Sheet
Location Level 1 Level 2 Level 3
Balance at
Total Reduction in
Fair Value
December 31, Recorded during
2017
Total
the year ended
December 31, 2017,
Assets:
Goodwill
Goodwill
Goodwill $ — $ — $ 598 $
598 $
(18,026)
The valuation technique used to measure the fair value of goodwill and intangible assets was the income
approach. See Note 3 to the consolidated financial statements for a description of the inputs and the information
used to develop the inputs in calculating the fair value measurements of goodwill and indefinite-life intangible
assets.
The Company’s goodwill was tested for impairment during the third quarter (before the next annual
impairment test date of October 1, 2017) due to a significant deferred tax valuation allowance reversal which
resulted in an increase to the carrying amounts of some of its reporting units, and, as such, was determined to be a
triggering event. In accordance with ASC 805 “Business Combinations,” the Company’s allocation of the purchase
price for Tropicana Las Vegas, which was acquired in August 2015, included a significant amount of net operating
losses (“NOL’s”). The Company did not record deferred tax assets (“DTA”) of approximately $68 million at the
acquisition date due to the recognition of a full valuation allowance at that time. The Company’s purchase price
allocation resulted in goodwill of $14.8 million being created which would not have been recorded if we had been
130
able to recognize a deferred tax asset. As of September 30, 2017, Tropicana Las Vegas failed the quantitative
goodwill impairment test as we determined its fair value was less than its carrying value. As a result, the Company
determined that the goodwill for the Tropicana Las Vegas reporting unit was fully impaired and recorded an
impairment charge of $14.8 million within our South/West segment. Additionally, the Company’s Sanford Orlando
Kennel Club reporting unit within our Other category failed the quantitative goodwill impairment test as of
September 30, 2017, and, as such, a partial impairment charge of $3.2 million was recorded.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of our principal executive
officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as of December 31, 2017, which is the end of the period covered by this Annual
Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive
officer and principal financial officer concluded that the Company's disclosure controls and procedures were
effective as of December 31, 2017 to ensure that information required to be disclosed by the Company in reports we
file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable,
within the time periods specified in the United States Securities and Exchange Commission's rules and forms and
(ii) accumulated and communicated to the Company's management, including the Company's principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)). Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting, and concluded
that it was effective as of December 31, 2017. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated
Framework (2013 framework).
The Company completed its acquisition of 1st Jackpot and Resorts on May 1, 2017. Since the Company
has not yet fully incorporated the internal controls and procedures of 1st Jackpot and Resort into the Company’s
internal control over financial reporting, management excluded 1st Jackpot and Resorts from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. This acquisition
constituted approximately 1% of the Company’s total consolidated assets and approximately 1.5% of the Company’s
consolidated net revenues as of and for the year ended December 31, 2017, respectively.
131
Based on this assessment, management determined that the Company maintained effective internal control
over financial reporting as of December 31, 2017
.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm that audited the
consolidated financial statements for the year ended December 31, 2017, issued an attestation report on the
Company’s internal control over financial reporting which immediately follows this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, 2017, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
132
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of and Board of Directors of
Penn National Gaming, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Penn National Gaming, Inc. and Subsidiaries (the
“Company”) as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017 of the
Company and our report dated March 1, 2018 expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at 1st Jackpot Casino Tunica and Resorts Casino Tunica,
which were acquired on May 1, 2017 and whose financial statements constitute 1 % of total assets and 1.5 % of net
revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2017.
Accordingly, our audit did not include the internal control over financial reporting at 1st Jackpot Casino Tunica and
Resorts Casino Tunica.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
133
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 1, 2018
134
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The remaining information required by this item concerning directors is hereby incorporated by reference
to the Company’s definitive proxy statement for its Annual Meeting of Shareholders (the “2018 Proxy Statement”),
to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2017, pursuant to
Regulation 14A under the Securities Act. Information required by this item concerning executive officers is included
in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the 2018 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDERS MATTERS
The information required by this item is hereby incorporated by reference to the 2018 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item is hereby incorporated by reference to the 2018 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the 2018 Proxy Statement.
135
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1 and 2. Financial Statements and Financial Statement Schedules. The following is a list of the Consolidated
Financial Statements of the Company and its subsidiaries and supplementary data filed as part of
Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017,
2016 and 2015
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017,
2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
All other schedules are omitted because they are not applicable, or not required, or because the
required information is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits, Including Those Incorporated by Reference.
The exhibits to this Report are listed on the accompanying index to exhibits and are incorporated
herein by reference or are filed as part of this annual report on Form 10-K.
ITEM 16. SUMMARY INFORMATION
We have elected not to disclose the optional summary information.
136
Exhibit
Description of Exhibit
EXHIBIT INDEX
2.1 Agreement and Plan of Merger by and among Pinnacle Entertainment, Inc., Penn National
Gaming, Inc. and Franchise Merger Sub, Inc., dated as of December 17, 2017 (Incorporated by
reference to Exhibit 2.1 to the Company’s current report on Form 8-K, filed on December 20,
2017).
2.2
2.3
2.4
2.5
2.6
Membership Interest Purchase Agreement by and among Boyd Gaming Corporation, Boyd TCIV,
LLC, Penn National Gaming, Inc., and, solely following the execution of a joinder, Pinnacle
Entertainment, Inc. and Pinnacle MLS, LLC, dated as of December 17, 2017 (Incorporated by
reference to Exhibit 2.2 to the Company’s current report on Form 8-K, filed on December 20,
2017).
Consent Agreement by and among Gaming and Leisure Properties, Inc., Gold Merger Sub, LLC,
PA Meadows, LLC, WTA II, Inc., CCR Pennsylvania Racing, Inc., Penn National Gaming, Inc.,
PNK Development 33, LLC, Pinnacle Entertainment, Inc. and Pinnacle MLS, LLC, dated as of
December 17, 2017 (Incorporated by reference to Exhibit 2.3 to the Company’s current report on
Form 8-K, filed on December 20, 2017).
Master Lease Commitment and Rent Allocation Agreement by and among Boyd Gaming
Corporation, Boyd TCIV, LLC, Penn National Gaming, Inc., Gaming and Leisure Properties, Inc.
and Gold Merger Sub, LLC, dated as of December 17, 2017 (Incorporated by reference to Exhibit
2.4 to the Company’s current report on Form 8-K, filed on December 20, 2017).
Purchase Agreement by and between Plainville Gaming and Redevelopment, LLC (d/b/a
Plainridge Park Casino), Penn National Gaming, Inc. and Gold Merger Sub, LLC, dated as of
December 17, 2017 (Incorporated by reference to Exhibit 2.5 to the Company’s current report on
Form 8-K, filed on December 20, 2017).
Purchase Agreement by and between Penn National Gaming, Inc., Gold Merger Sub, LLC, and
upon their execution and delivery of the joinder, PNK (Ohio), LLC and Pinnacle Entertainment,
Inc., dated as of December 17, 2017 (Incorporated by reference to Exhibit 2.6 to the Company’s
current report on Form 8-K, filed on December 20, 2017).
3.1(a) Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the
Pennsylvania Department of State on October 15, 1996. (Incorporated by reference to Exhibit 3.1
to the Company’s registration statement on Form S-3, File No. 333 63780, dated June 25, 2001).
3.1(b) Articles of Amendment to the Amended and Restated Articles of Incorporation of Penn National
Gaming, Inc., filed with the Pennsylvania Department of State on November 13, 1996.
(Incorporated by reference to Exhibit 3.2 to the Company’s registration statement on Form S-3,
File No. 333 63780, dated June 25, 2001).
3.1(c) Articles of Amendment to the Amended and Restated Articles of Incorporation of Penn National
Gaming, Inc., filed with the Pennsylvania Department of State on July 23, 2001. (Incorporated by
reference to Exhibit 3.4 to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2001).
3.1(d) Articles of Amendment to the Amended and Restated Articles of Incorporation of Penn National
Gaming, Inc., filed with the Pennsylvania Department of State on December 28, 2007.
(Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K, filed on
January 2, 2008).
137
Exhibit
Description of Exhibit
3.1(e) Statement with Respect to Shares of Series C Convertible Preferred Stock of Penn National
Gaming, Inc. dated as of January 17, 2013. (Incorporated by reference to Exhibit 4.1 to the
Company’s current report on Form 8-K, filed on January 18, 2013).
3.2 Third Amended and Restated Bylaws of Penn National Gaming, Inc., as amended on December
10, 2014 (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K,
filed on December 11, 2014).
4.1 Specimen copy of Common Stock Certificate. (Incorporated by reference to Exhibit 3.6 to the
Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2003).
4.2 Indenture, dated as of October 30, 2013 between Penn National Gaming, Inc. and Wells Fargo
Bank, N.A., as Trustee, relating to the 5.875% Senior Notes due 2021. (Incorporated by reference
to Exhibit 4.1 to the Company’s current report on Form 8-K, filed on November 4, 2013).
4.3 Form of Note for 5.875% Senior Notes due 2021. (Incorporated by reference to Exhibit 4.2 to the
Company’s current report on Form 8-K, filed on November 4, 2013).
4.4 Investor Rights Agreement, dated as of July 3, 2008, by and among Penn National Gaming, Inc.,
FIF V PFD LLC, Centerbridge Capital Partners, L.P., DB Investment Partners, Inc. and Wachovia
Investment Holdings, LLC. (Incorporated by reference to Exhibit 4.2 to the Company’s current
report on Form 8-K, filed on July 9, 2008).
4.4(a) Supplementary Investor Rights Agreement, dated as of January 16, 2013, by and between Penn
National Gaming, Inc. and FIF V PFD LLC. (Incorporated by reference to Exhibit 4.2 to the
Company’s current report on Form 8-K, filed on January 18, 2013).
4.5 Indenture, dated as of January 19, 2017, between Penn National Gaming, Inc. and Wells Fargo
Bank, National Association as Trustee. (Incorporated by reference to Exhibit 4.1 to the
Company’s current report on Form 8-K, filed on January 20, 2017).
4.5(a) Form of Note for 5.625% Senior Notes due 2021. (included in Exhibit 4.5 above) (Incorporated
by reference to Exhibit 4.2 to the Company’s current report on Form 8-K, filed on January 20,
2017).
9.1 Form of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J. Carlino, David E.
Carlino, Susan F. Harrington, Anne de Lourdes Irwin, Robert M. Carlino, Stephen P. Carlino and
Rosina E. Carlino Gilbert. (Incorporated by reference to the Company’s registration statement on
Form S-1, File No. 33 77758, dated May 26, 1994).
10.1# Penn National Gaming, Inc. Deferred Compensation Plan, as amended. (Incorporated by reference
to Exhibit 10.27 to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2006).
10.1(a)# First Amendment to the Penn National Gaming, Inc. Deferred Compensation Plan. (Incorporated
by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter
ended March 31, 2016).
10.1(b)# Second Amendment to the Penn National Gaming, Inc. Deferred Compensation Plan.
(Incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for
the quarter ended March 31, 2016).
10.2# Penn National Gaming, Inc. 2003 Long Term Incentive Compensation Plan. (Incorporated by
reference to Appendix A of the Company’s Proxy Statement dated April 22, 2003 filed pursuant
to Section 14(a) of the Securities Exchange Act of 1934, as amended).
10.3# Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended.
(Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for
the quarter ended March 31, 2017).
138
Exhibit
Description of Exhibit
10.4# Form of Non-Qualified Stock Option Certificate for the Penn National Gaming, Inc. 2008 Long
Term Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.33 to the
Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008).
10.5# Form of Restricted Stock Award for the Penn National Gaming, Inc. 2008 Long Term Incentive
Compensation Plan. (Incorporated by reference to Exhibit 10.32 to the Company’s annual report
on Form 10-K for the fiscal year ended December 31, 2009).
10.6# Form of Notice of Award of Phantom Stock for Penn National Gaming, Inc. 2008 Long Term
Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.32 to the Company’s
annual report on Form 10-K for the fiscal year ended December 31, 2011).
10.7# Form of Stock Appreciation Rights for the Penn National Gaming, Inc. 2008 Long Term
Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s
quarterly report on Form 10-Q for the quarter ended March 31, 2014).
10.8# Penn National Gaming, Inc. Performance Share Program. (Incorporated by reference to Exhibit
10.1 to the Company’s current report on Form 8-K, filed on February 11, 2016).
10.9# Form of Performance Shares Award Certificate for the Penn National Gaming, Inc. 2008 Long
Term Incentive Compensation Plan, as amended. (Incorporated by reference to Exhibit 10.2 to the
Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2017).
10.10# Form of Notice of Restricted Stock for Performance Share Program for the Penn National
Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended. (Incorporated by
reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter ended
March 31, 2017).
10.11# Executive Agreement, dated June 1, 2016 and effective as of June 13, 2016, by and between Penn
National Gaming, Inc. and Timothy J. Wilmott. (Incorporated by reference to Exhibit 10.1 to the
Company’s current report on Form 8-K, filed on June 3, 2016).
10.12# Executive Agreement, dated June 21, 2017, by and between Penn National Gaming, Inc. and Jay
A. Snowden. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form
8-K, filed on June 22, 2017).
10.13# Executive Agreement, dated as of October 19, 2016, by and between Penn National Gaming, Inc.
and William J. Fair. (Incorporated by reference to Exhibit 10.1 to the Company’s current report
on Form 8-K, filed on October 20, 2016).
10.14# Executive Agreement, dated June 1, 2016 and effective as of June 13, 2016, by and between Penn
National Gaming, Inc. and Carl Sottosanti. (Incorporated by reference to Exhibit 10.3 to the
Company’s current report on Form 8-K, filed on June 3, 2016).
10.15 Exchange Agreement, dated as of January 16, 2013, by and between Penn National Gaming, Inc.
and FIF V PFD LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s current report
on Form 8-K, filed on January 18, 2013).
10.16 Separation and Distribution Agreement by and between Penn National Gaming, Inc. and Gaming
and Leisure Properties, Inc. dated November 1, 2013. (Incorporated by reference to Exhibit 2.1 to
the Company’s current report on Form 8-K, filed on November 7, 2013).
10.17 Tax Matters Agreement between Penn National Gaming, Inc. and Gaming and Leisure Properties,
Inc. dated as of November 1, 2013. (Incorporated by reference to Exhibit 10.2 to the Company’s
current report on Form 8-K, filed on November 7, 2013).
10.18 Employee Matters Agreement dated November 1, 2013 between Penn National Gaming, Inc. and
Gaming and Leisure Properties, Inc. (Incorporated by reference to Exhibit 10.4 to the Company’s
current report on Form 8-K, filed on November 7, 2013).
139
Exhibit
Description of Exhibit
10.19 Master Lease between GLP Capital L.P. and Penn Tenant LLC dated November 1, 2013.
(Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed on
November 7, 2013).
10.20(a) First Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.2 to the
Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2014).
10.20(b) Second Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.4 to the
Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2014).
10.20(c) Third Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.4 to the
Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2016).
10.20(d) Fourth Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.6 to the
Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2017).
10.21 Lease dated January 25, 2002 between Wyomissing Professional Center II, LP and Penn National
Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to
Exhibit 10.12 to the Company’s annual report on Form 10-K for the fiscal year ended December
31, 2004).
10.21(a) Commencement Agreement, dated May 21, 2002, in connection with Lease dated January 25,
2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion
of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.12(a) to the
Company’s annual report on Form 10-K for the fiscal year ended December 31, 2004).
10.21(b) First Lease Amendment, dated December 4, 2002, to Lease dated January 25, 2002 between
Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion of the
Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.12(b) to the Company’s
annual report on Form 10-K for the fiscal year ended December 31, 2004).
10.22 Lease dated August 22, 2003 between The Corporate Campus at Spring Ridge 1250, L.P. and
Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by
reference to Exhibit 10.13 to the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2004).
10.23 Amended and Restated Lease dated April 5, 2005 between Wyomissing Professional Center III,
Limited Partnership and Penn National Gaming, Inc. for portion of the Wyomissing Corporate
Office. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K,
filed on April 8, 2005).
10.24 Lease dated April 5, 2005 between Wyomissing Professional Center, Inc. and Penn National
Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to
Exhibit 10.2 to the Company’s current report on Form 8-K, filed on April 8, 2005).
10.25 Credit Agreement, dated October 30, 2013, by and among Penn National Gaming, Inc., the
Subsidiary Guarantors party thereto, the Lenders party thereto, the L/C Lenders Party thereto,
Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P. Morgan Securities LLC, and Fifth
Third Bank, as Joint Bookrunners for the Revolving Facility and the Term A Facility, J.P. Morgan
Securities LLC, Wells Fargo Securities, LLC and UBS Securities LLC, as Joint Bookrunners for
the Term B Facility and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P. Morgan
Securities LLC, Fifth Third Bank, Wells Fargo Securities, LLC, UBS Securities LLC, Credit
Agricole Corporate and Investment Bank, Goldman Sachs Bank USA, Manufactures & Traders
Trust Company, Nomura Securities International, Inc. RBS Securities Inc. and SunTrust Robinson
Humphrey, Inc., as Joint Lead Arrangers, Bank of America, N.A., as Administrative Agent and
Collateral Agent and U.S. Bank N.A., as Documentation Agent. (Incorporated by reference to
Exhibit 10.2 to the Company’s current report on Form 8-K, filed on November 4, 2013).
140
Exhibit
Description of Exhibit
10.26(a) First Amendment and Incremental Joinder Agreement, dated April 28, 2015, with certain
subsidiaries of Penn National Gaming, Inc. party thereto as guarantors and Bank of America,
N.A., as administrative agent, collateral agent, swingline lender and letter of credit issuer.
(Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K, filed on
April 29, 2015).
10.26(b) Second Amendment and Refinancing Agreement, dated as of January 19, 2017, by and among
Penn National Gaming, Inc., as borrower, the guarantors party thereto, the lenders party thereto,
Bank of America, N.A., as swingline lender, Bank of America, N.A., as administrative agent and
Bank of America, N.A., as collateral agent. (Incorporated by reference to Exhibit 10.2 to the
Company’s current report on Form 8-K, filed on January 20, 2017).
10.27 Amended and Restated Credit Agreement, dated as of January 19, 2017, by and among Penn
National Gaming, Inc., as borrower, the guarantors from time to time party thereto, the lenders
from time to time party thereto, Bank of America, N.A., as administrative agent, Bank of
America, N.A., as collateral agent and the other parties thereto. (Incorporated by reference to
Exhibit 10.3 to the Company’s current report on Form 8-K, filed on January 20, 2017).
10.28 Riverboat Gaming Development Agreement between the City of Lawrenceburg, Indiana and
Indiana Gaming Company, L.P. dated as of April 13, 1994, as amended by Amendment Number
One to Riverboat Development Agreement between the City of Lawrenceburg, Indiana and
Indiana Gaming Company L.P., dated as of December 28, 1995. (Incorporated by reference to
Argosy Gaming Company’s annual report on Form 10-K for the fiscal year ended December 31,
1995).
10.28(a) Second Amendment to Riverboat Gaming Development Agreement between City of
Lawrenceburg, Indiana, and the Indiana Gaming Company, L.P. dated August 20, 1996.
(Incorporated by reference to Exhibit 10.23(a) to the Company’s annual report on Form 10-K for
the fiscal year ended December 31, 2005).
10.28(b) Third Amendment to Riverboat Gaming Development Agreement between City of Lawrenceburg,
Indiana, and the Indiana Gaming Company, L.P. dated June 24, 2004. (Incorporated by reference
to Exhibit 10.2 of Argosy Gaming Company’s quarterly report on Form 10-Q for the quarter
ended September 30, 2004).
10.29 Lottery Gaming Facility Management Contract dated August 25, 2009 between the Kansas
Lottery and Kansas Entertainment, LLC. (Incorporated by reference to Exhibit 99.1 to the
Company’s current report on Form 8-K, filed on February 19, 2010).
10.30 Development Agreement dated as of September 8, 2009 by and between the Unified Government
of Wyandotte County/Kansas City, Kansas and Kansas Entertainment, LLC. (Incorporated by
reference to Exhibit 99.2 to the Company’s current report on Form 8-K, filed on February 19,
2010).
10.31 Agreement dated April 7, 2006 by and between PNGI Charles Town Gaming Limited Liability
Company and the West Virginia Union of Mutuel Clerks, Local 553, Service Employees
International Union, AFL—CIO. (Incorporated by reference to exhibit 10.1 to the Company’s
current report on Form 8-K, filed on April 24, 2006).
10.32 Agreement dated February 20, 2009 between PNGI Charles Town Gaming Limited Liability
Company and Charles Town HBPA, Inc. (Incorporated by reference to Exhibit 10.16 to the
Company’s annual report on Form 10-K for the fiscal year ended December 31, 2008).
141
Exhibit
Description of Exhibit
10.33 Agreement and Plan of Merger, dated April 28, 2015, by and among Penn National Gaming, Inc.,
Tropicana Las Vegas Hotel and Casino, Inc., LV Merger Sub, Inc. and Trilliant Gaming Nevada
Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K,
filed on April 29, 2015).
10.34 Stock Purchase Agreement, dated July 28, 2016, by and among Rocket Games, Inc., the sellers
party thereto, Shareholder Representative Services LLC, as the representative of the sellers, and
Penn Interactive Ventures, LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s
current report on Form 8-K, filed on August 3, 2016).
10.35 Revolving Credit and Term Loan Agreement, dated as of October 20, 2016, by and among the
Jamul Indian Village Development Corporation, as borrower, the Jamul Indian Village of
California, the Administrative Agent, the financial institutions from time to time party thereto in
the capacity of lenders and the other agents and arrangers party thereto. (Incorporated by
reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed on October 20,
2016).
21.1* Subsidiaries of the Registrant.
23.1* Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
23.2* Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
23.3* Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
23.4* Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1* CEO Certification pursuant to rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934.
31.2* CFO Certification pursuant to rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
32.1* CEO Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes- Oxley Act of 2002.
32.2* CFO Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
The Sarbanes- Oxley Act of 2002.
99.1* Description of Governmental Regulation.
99.2* Kansas Entertainment, LLC Financial Statements for the Years Ended June 30, 2017 and 2016.
99.3* Kansas Entertainment, LLC Financial Statements for the Years Ended June 30, 2016 and 2015.
101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets
at December 31, 2017 and 2016, (ii) the Consolidated Statements of Operations for the years
ended December 31, 2017, 2016 and 2015, (iii) the Consolidated Statements of Comprehensive
(Loss) Income for the years ended December 31, 2017, 2016 and 2015, (iv) the Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016 and
2015, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2017,
2016 and 2015 and (vi) the notes to the Consolidated Financial Statements, tagged as blocks of
text.
(cid:6) Compensation plans and arrangements for executives and others.
(cid:13) Filed herewith.
142
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
PENN NATIONAL GAMING, INC.
By:
/s/ TIMOTHY J. WILMOTT
Timothy J. Wilmott
Chief Executive Officer
Dated: March 1, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ TIMOTHY J. WILMOTT
Timothy J. Wilmott
Chief Executive Officer and Director
(Principal Executive Officer)
March 1, 2018
/s/ WILLIAM J. FAIR
Executive Vice President Finance and Chief
William J. Fair
Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
March 1, 2018
/s/ PETER M. CARLINO
Peter M. Carlino
/s/ DAVID A. HANDLER
David A. Handler
/s/ JOHN M. JACQUEMIN
John M. Jacquemin
/s/ RONALD J. NAPLES
Ronald J. Naples
/s/ BARBARA Z. SHATTUCK KOHN
Barbara Z. Shattuck Kohn
/s/ JANE SCACCETTI
Jane Scaccetti
Chairman of the Board
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
Director
Director
Director
Director
Director
143
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return for the Company’s Common Stock
since December 31, 2012 to the total returns of the NASDAQ Composite Index and a peer group index of competing
gaming companies that includes Boyd Gaming Corp., Caesars Entertainment Corp., Eldorado Resorts Inc., Las Vegas
Sands Corp., MGM Resorts International, Pinnacle Entertainment, Inc., Red Rock Resorts, Inc. and Wynn Resorts
Ltd. We added Eldorado Resorts Inc. to the peer group in 2017 as a result of its acquisition of Isle of Capri Casinos,
Inc., which was previously included in the peer group. The comparative returns shown in the graph assumes the
investment of $100 in the Company’s Common Stock, the NASDAQ Composite Index and the peer group indices on
December 31, 2012.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
$300
$250
$200
$150
$100
$50
$0
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Penn National Gaming, Inc.
NASDAQ Composite
Peer Group
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Penn National Gaming, Inc.
NASDAQ Composite Index
Peer Group
$ 100.00
$ 100.00
$ 100.00
$ 129.09
$ 141.63
$ 180.79
$ 123.68
$ 162.09
$ 142.24
$ 144.31
$ 173.33
$ 110.79
$ 124.22
$ 187.19
$ 140.74
$ 282.22
$ 242.29
$ 200.63
A. Cumulative total return assumes reinvestment of all dividends paid during the measurement period. The
Company has not paid any cash dividends on its Common Stock during this period.
B. Cumulative total return for the Company reflects the effect of the spin-off of the Company’s real estate assets
into a separate, publicly traded company known as Gaming and Leisure Properties, Inc. on November 1, 2013.
C. The indices are reweighted daily using the market capitalization on the previous trading day.
D. If the last day of the applicable year is not a trading day, the preceding trading day is used.
E. Historical returns are not indicative of future returns.
BOARD OF DIRECTORS
Peter M. Carlino, Chairman of the Board, CEO and Chairman of the Board of Gaming and Leisure Properties, Inc.
David A. Handler, Partner, Centerview Partners
John M. Jacquemin, President, Mooring Financial Corporation
Barbara Shattuck Kohn, Managing Director, Hammond, Hanlon & Camp, LLC
Ronald J. Naples, Director of P.H. Glatfelter Company, Glenmede Trust Company and the Philadelphia Contributionship
Saul Reibstein, Former Executive Vice President, Chief Financial Officer and Treasurer of Penn National Gaming, Inc.
Jane Scaccetti, Chief Executive Officer, Drucker & Scaccetti, P.C.
Timothy J. Wilmott, Chief Executive Officer, Penn National Gaming, Inc.
OFFICERS
Timothy J. Wilmott, Chief Executive Officer
Jay A. Snowden, President, Chief Operating Officer
William J. Fair, Executive Vice President, Chief Financial Officer
Carl Sottosanti, Executive Vice President, General Counsel and Secretary
Gene Clark, Senior Vice President, Human Resources
Al Britton, Senior Vice President, Regional Operations
John V. Finamore, Senior Vice President, Regional Operations
Todd George, Senior Vice President, Regional Operations
Nelson Parker, Senior Vice President, Corporate Development
Ameet Patel, Senior Vice President, Regional Operations
Richard Primus, Senior Vice President, Chief Information Officer
D. Eric Schippers, Senior Vice President, Public Affairs
Chris Sheffield, Senior Vice President, Managing Director Interactive Gaming
Jennifer Weissman, Senior Vice President, Chief Marketing Director
OTHER INFORMATION
Legal Counsel
Ballard Spahr LLP
1735 Market Street – 51st Floor
Philadelphia, PA 19103-7599
Transfer Agent and Registrar
Continental Stock Transfer & Trust Company
1 State Street, 30th Floor
New York, NY 10004
Company Website
www.pngaming.com
Market Information
The Common Stock of the Company is listed on the NASDAQ Global Select Market under the symbol PENN.
The Annual Report on Form 10-K filed with the United States Securities and Exchange Commission for the fiscal
year ended December 31, 2017 may be obtained free of charge upon written request to Carl Sottosanti, Executive
Vice President, General Counsel and Secretary, Penn National Gaming, Inc., 825 Berkshire Boulevard, Suite 200,
Wyomissing, PA 19610.