10-K 1 pnk1231201610k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(Mark One)
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-37666
PINNACLE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
47-4668380
(I.R.S. Employer Identification No.)
3980 Howard Hughes Parkway
Las Vegas, Nevada 89169
(Address of principal executive offices) (Zip Code)
(702) 541-7777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value per share
 
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ 
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2016 was $640 million based on a closing price of $11.08 per share of common stock as reported on The NASDAQ Stock Market LLC.
The number of outstanding shares of the registrant’s common stock as of the close of business on February 23, 2017 was 55,973,160.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive 2017 proxy statement, anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.



PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS
 



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




PART I
Item 1.
Business
 
Pinnacle Entertainment, Inc. is an owner, operator and developer of casinos and related hospitality and entertainment businesses. References herein to “Pinnacle,” the “Company,” “we,” “our” or “us” refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where stated or the context otherwise indicates. References to “Former Pinnacle” refer to Pinnacle Entertainment, Inc. prior to the Spin-Off and Merger (as such terms are defined below).

We own and operate 16 gaming, hospitality and entertainment businesses, of which 15 operate in leased facilities. Our owned facilities are located in Ohio and our leased facilities are located in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, and Pennsylvania, subject to the Master Lease and the Meadows Lease (as such terms are defined below). We also hold a majority interest in the racing license owner, and we are a party to a management contract, for Retama Park Racetrack located outside of San Antonio, Texas. Additionally, we own and operate a live and televised poker tournament series under the trade name Heartland Poker Tour.

Our mission is to increase stockholder value. We seek to increase revenues through enhancing the guest experience by providing them with their favorite games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service and our mychoice customer loyalty program. We seek to improve cash flows by focusing on operational excellence and efficiency while meeting our guests’ expectations of value. Our long-term strategy includes disciplined capital expenditures to improve and maintain the existing facilities in which we operate, while growing the number of businesses we own and operate by pursuing opportunities to either acquire or develop gaming, hospitality and entertainment businesses. We intend to diversify our revenue sources by growing our portfolio of businesses and facilities, while remaining gaming, hospitality and entertainment centric. We intend to implement these strategies either alone or with third parties when we believe it benefits our stockholders to do so. In making decisions, we consider our stockholders, guests, team members and other constituents in the communities in which we operate.

Highlights of 2016 include the following:

In April 2016, Former Pinnacle completed the transactions under the terms of a definitive agreement (the “Merger Agreement”) with Gaming and Leisure Properties, Inc. (“GLPI”), a real estate investment trust. Pursuant to the terms of the Merger Agreement, Former Pinnacle separated its operating assets and liabilities (and its Belterra Park property and excess land at certain locations) into the Company, a newly formed subsidiary initially named PNK Entertainment, Inc., and distributed to its stockholders, on a pro rata basis, all of the issued and outstanding shares of common stock of the Company (such distribution referred to as the “Spin-Off”). Gold Merger Sub, LLC, a wholly owned subsidiary of GLPI (“Merger Sub”), then merged with and into Former Pinnacle (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of GLPI. Following the Merger, the Company was renamed Pinnacle Entertainment, Inc., and operates 14 of its gaming, hospitality and entertainment businesses under a triple-net master lease agreement for the facilities acquired by GLPI (the “Master Lease”). The Master Lease has an initial term of 10 years with five subsequent, five-year renewal periods at our option. The Company currently pays annual rent of $377 million to GLPI.

In April 2016, immediately prior to the consummation of the Spin-Off and Merger, Former Pinnacle’s amended and restated credit agreement (the “Former Senior Secured Credit Facilities”) was repaid in full and terminated and its 6.375% senior notes due 2021, 7.50% senior notes due 2021 and 7.75% senior subordinated notes due 2022 were redeemed. In addition, Former Pinnacle’s 8.75% senior subordinated notes due 2020 were satisfied and discharged in April 2016, and were subsequently redeemed in May 2016. During 2016, prior to the Spin-Off and Merger, we repaid $68.4 million of loans under the Former Senior Secured Credit Facilities, net of borrowings.

In connection with the Spin-Off and Merger, in April 2016, we entered into a credit agreement (the “Senior Secured Credit Facilities”) with certain lenders, which is comprised of (i) a $185.0 million term loan A facility, (ii) a $300.0 million term loan B facility and (iii) a $400.0 million revolving credit facility (the “Revolving Credit Facility”). Subsequent to their issuance, during 2016, we repaid $32.2 million of loans under the Senior Secured Credit Facilities, net of borrowings. In addition, during 2016, we issued $500.0 million in aggregate principal amount of 5.625% senior notes due 2024 (the “5.625% Notes”).

In May 2016, our Board of Directors authorized a share repurchase program of up to $50.0 million of our common stock, which we completed in July 2016. In August 2016, our Board of Directors authorized an additional share repurchase program of up to $50.0 million of our common stock. During the year ended December 31, 2016, we repurchased 6.2 million shares of common stock for $70.2 million under both programs.

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

Over the last several years, our operations have grown through strategic acquisitions, notably the August 2013 acquisition of Ameristar Casinos, Inc. (“Ameristar”) and the September 2016 acquisition of the Meadows as well as through the development and opening of three properties: Belterra Park in Cincinnati, Ohio; L’Auberge Baton Rouge in Baton Rouge, Louisiana; and River City in St. Louis, Missouri. We have also made strategic dispositions over the last several years, including the equity interests in subsidiaries that operated the Lumiére Place Casino, HoteLumiére, and the Four Seasons Hotel St. Louis (collectively, the “Lumiére Place Casino and Hotels”); the equity interest of Ameristar Casino Lake Charles, LLC; and the Boomtown Reno operations.

Additionally, our business was impacted by the Spin-Off and Merger transactions that occurred in April 2016, where we now operate 14 gaming, hospitality and entertainment businesses in leased gaming facilities subject to the Master Lease. Prior to the Spin-Off and Merger, the gaming facilities within which we operated our gaming, hospitality and entertainment businesses were owned by Former Pinnacle.


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Operating Properties

The following table presents selected statistical and other information concerning the properties where we operate our businesses as of December 31, 2016:
 
Location
 
Opening Year
 
Casino Square Footage
 
Slot Machines/Video Lottery Terminals
 
Table Games
 
Hotel Rooms (1)
 
Food & Beverage Outlets (2)
 
Parking Spaces
Midwest segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ameristar Council Bluffs (3)
Council Bluffs, IA
 
1996
 
38,500
 
1,465
 
24
 
444
 
8
 
3,027
Ameristar East Chicago (3)
East Chicago, IN
 
1997
 
56,000
 
1,729
 
68
 
288
 
6
 
2,468
Ameristar Kansas City (3)
Kansas City, MO
 
1997
 
140,000
 
2,154
 
71
 
184
 
12
 
8,320
Ameristar St. Charles (3)
St. Charles, MO
 
1994
 
130,000
 
2,410
 
104
 
397
 
15
 
6,775
Belterra (3)
Florence, IN
 
2000
 
47,000
 
1,165
 
47
 
662
 
6
 
2,528
Belterra Park
Cincinnati, OH
 
2014
 
51,800
 
1,376
 
 
 
6
 
2,318
Meadows (4)
Washington, PA
 
2009
 
131,000
 
3,114
 
67
 
 
15
 
3,912
River City (3)
St. Louis, MO
 
2010
 
90,000
 
1,938
 
52
 
200
 
10
 
4,122
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
South segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ameristar Vicksburg (3)
Vicksburg, MS
 
1994
 
70,000
 
1,404
 
42
 
149
 
4
 
3,063
Boomtown Bossier City (3)
Bossier City, LA
 
1996
 
30,000
 
865
 
16
 
187
 
4
 
1,867
Boomtown New Orleans (3)
New Orleans, LA
 
1994
 
30,000
 
1,206
 
33
 
150
 
5
 
1,907
L’Auberge Baton Rouge (3)
Baton Rouge, LA
 
2012
 
74,000
 
1,440
 
49
 
205
 
9
 
2,689
L’Auberge Lake Charles (3)
Lake Charles, LA
 
2005
 
70,000
 
1,547
 
75
 
995
 
10
 
3,236
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
West segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ameristar Black Hawk (3)
Black Hawk, CO
 
2001
 
56,000
 
1,180
 
62
 
535
 
5
 
1,500
Cactus Petes and Horseshu (3)
Jackpot, NV
 
1956
 
29,000
 
764
 
20
 
416
 
9
 
912
 
 
 
 
 
1,043,300
 
23,757
 
730
 
4,812
 
124
 
48,644
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Includes 284 rooms at Ameristar Council Bluffs operated by a third party and located on land leased by us and subleased to such third party and 54 rooms at Belterra relating to the Ogle Haus Inn, which is operated by us and located in close proximity to Belterra.
(2)
Includes one outlet each at Ameristar East Chicago, Ameristar Kansas City and Meadows that are subleased to and operated by third parties.
(3)
We lease the real estate associated with these gaming facilities under the terms of the Master Lease.
(4)
We acquired the Meadows on September 9, 2016. We lease the real estate associated with this gaming facility under the terms of the Meadows Lease.
Midwest Segment
Our Ameristar Council Bluffs business is located across the Missouri River from Omaha, Nebraska, and includes the largest riverboat in Iowa. This location serves the Omaha and southwestern Iowa markets. Ameristar Council Bluffs operates one of three gaming licenses issued in the Council Bluffs gaming market pursuant to an operating agreement with Iowa West Racing Association. The two other licenses are operated by a single company and consist of two land-based casinos.
Our Ameristar East Chicago business is located approximately 25 miles from downtown Chicago, Illinois and serves metropolitan Chicago and Northwest Indiana. Ameristar East Chicago’s core competitive markets include Northwest Indiana and Northeast Illinois.
Our Ameristar Kansas City business, located seven miles from downtown Kansas City, Missouri, has one of the largest casino floors in Missouri. The property attracts guests from the greater Kansas City area, as well as regional overnight guests. Ameristar Kansas City competes with several other gaming operations located in or around Kansas City, Missouri, and other regional Midwest markets.
Our Ameristar St. Charles and River City businesses are located in the St. Louis, Missouri metropolitan area. Ameristar St. Charles is located in St. Charles at the Missouri River, strategically situated to attract guests from the St. Charles and the

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greater St. Louis areas, as well as tourists from outside the region. The property, which is in close proximity to the St. Charles convention facility, is located on approximately 52 acres along the western bank of the Missouri River. Our River City business is located on approximately 56 acres just south of the confluence of the Mississippi River and the River des Peres in the south St. Louis community of Lemay, Missouri. Both of our St. Louis businesses compete with other gaming operations located in the metropolitan St. Louis area and other regional Midwest markets. Two of these competitors are located in Illinois.
Our southern Indiana business, Belterra, is located along the Ohio River near Vevay, Indiana, approximately 50 minutes from downtown Cincinnati, Ohio, 70 minutes from Louisville, Kentucky, and 90 minutes from Lexington, Kentucky. Belterra is also approximately two and one-half hours from Indianapolis, Indiana. Belterra currently competes with four dockside riverboat casinos; a casino-resort in French Lick, Indiana, approximately 100 miles west of Belterra, two racetrack casinos in the Indianapolis, Indiana metropolitan area, and multiple casino and racino developments in the state of Ohio, including our Belterra Park property.
Our Belterra Park business is located in Cincinnati, Ohio, situated on approximately 160 acres of land, 40 of which are undeveloped. Following an extensive re-development project, the property re-opened in May 2014 as a gaming and entertainment center offering live racing, pari-mutuel wagering, video lottery terminal (“VLT”) gaming, six restaurants, a VIP lounge, and new racing facilities. Belterra Park faces competition from casinos and racinos in Ohio and Indiana, including our Belterra business. The building and the land underlying Belterra Park are not subject to the Master Lease.
Our Meadows business is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. The Meadows is an integrated casino facility, which includes slot machines, table games, dining outlets, a simulcast betting parlor, an entertainment lounge, a harness racetrack and two multi-level parking garages. The Meadows faces competition from casinos and racinos in Ohio, Indiana, Pennsylvania and West Virginia. The building and the land underlying the Meadows are subject to the Meadows Lease.
South Segment
Our Ameristar Vicksburg business is located in Vicksburg, Mississippi along the Mississippi River approximately 45 miles west of Mississippi’s largest city, Jackson. Ameristar Vicksburg is the largest dockside casino in central Mississippi. The property caters primarily to guests from the Vicksburg and Jackson, Mississippi and Monroe, Louisiana areas, along with tourists visiting the area. Ameristar Vicksburg primarily competes with three other gaming operations located in Vicksburg, Mississippi. The property also faces competition from two casinos owned by a Native American tribe in Philadelphia, Mississippi, located about 70 miles east of Jackson and 115 miles east of Vicksburg and from gaming operations located in or immediately surrounding Biloxi, Mississippi and the broader Mississippi Gulf Coast area.
Our Boomtown Bossier City business is located in Bossier City, Louisiana. Boomtown Bossier City features a hotel adjoining a dockside riverboat casino and competes with five dockside riverboat casino-hotels, a racetrack slot operation and large Native American casinos in southern Oklahoma. Such Native American facilities are approximately 60 miles north of Dallas, Texas.
Our Boomtown New Orleans business is the only casino in the West Bank area, across the Mississippi River from downtown New Orleans, Louisiana. Boomtown New Orleans competes with a large land-based casino in downtown New Orleans, two riverboat casinos, a racetrack with slot machines and numerous truck stop casinos with video poker machines, as well as casinos on the Mississippi Gulf Coast.
Our L’Auberge Baton Rouge business is located on a portion of the 577 acres of land approximately ten miles southeast of downtown Baton Rouge, Louisiana. L’Auberge Baton Rouge offers a fully integrated casino entertainment experience. L’Auberge Baton Rouge competes directly with two casinos in the Baton Rouge area and other resort facilities regionally in New Orleans and the Mississippi Gulf Coast. Following the Spin-Off, we continue to own approximately 478 acres of excess land adjacent to this location.
Our L’Auberge Lake Charles business, located in Lake Charles, Louisiana, offers one of the closest full-scale casino-hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively.
L’Auberge Lake Charles competes with other full-service regional and destination resort casinos, including those in Lake Charles, Louisiana; New Orleans, Louisiana; Biloxi, Mississippi; and Las Vegas, Nevada. Our business also competes with a land-based Native American casino, which is approximately 43 miles northeast of Lake Charles; a racetrack slot operation located approximately 25 miles to the west; and numerous truck stops with slot machines in many parishes of Louisiana. Following the Spin-Off, we continue to own 54 acres of excess land near L’Auberge Lake Charles.

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West Segment
Our Ameristar Black Hawk business, located in the center of the Black Hawk gaming district, is approximately 40 miles west of Denver. The business caters primarily to patrons from the Denver metropolitan area and surrounding states and primarily competes with 23 other gaming operations located in the Black Hawk and Central City gaming market in Colorado.
Our Cactus Petes and Horseshu businesses (collectively, “the Jackpot Properties”) are located in Jackpot, Nevada, just south of the Idaho border. The Jackpot Properties serve guests primarily from Idaho, and secondarily from Oregon, Washington, Montana, northern California and the southwestern Canadian provinces. The Jackpot Properties compete primarily with three other hotels and motels (all of which also have casinos) in Jackpot and a Native American casino and hotel near Pocatello, Idaho.

Other Assets and Operations
    
We own and operate the Heartland Poker Tour, which is a live and televised poker tournament series that broadcasts its events on hundreds of network television, cable and satellite stations.

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

Financial information about segments and geographic areas is incorporated by reference from Notes 1 and 13 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Dispositions of Assets

In April 2016, we completed the sale of approximately 2 acres of land in Central City, Colorado for cash consideration of $0.3 million.

In April 2015, we completed the sale of approximately 40 acres of land in Springfield, Massachusetts, originally purchased by Ameristar for a possible future casino resort, for cash consideration of $12.0 million.

In April 2015, we completed the sale of approximately 783 acres of excess land surrounding Boomtown Reno for cash consideration of $13.1 million.

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

Government Regulation and Gaming Issues

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


5


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

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

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

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

Other

As of December 31, 2016, we employed 16,092 full-time and part-time employees.

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

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Item 1A.
Risk Factors

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

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

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

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

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

We face significant competition in all of the areas in which we operate. Increased competitive pressures may adversely affect our ability to continue to attract customers or affect our ability to compete efficiently.
Several of the facilities on which we operate are located in jurisdictions that restrict gaming to certain areas and/or may be affected by state laws that currently prohibit or restrict gaming operations. Economic difficulties faced by state governments could lead to intensified political pressures for the legalization of gaming in jurisdictions where it is currently prohibited. The legalization of gaming in such jurisdictions could be an expansion opportunity for us, or create competitive pressure, depending on where the legalization occurs and our ability to capitalize on it. Our ability to attract customers to the existing casinos on which we operate could be significantly and adversely affected by the legalization or expansion of gaming in certain jurisdictions, including, in particular, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Ohio, Oklahoma, Pennsylvania, Texas and West Virginia areas where our customers may also visit, and by the development or expansion of Native American casinos in areas where our customers may visit.
Voters and state legislatures may seek to supplement traditional tax sources of state governments by authorizing or expanding gaming in those jurisdictions. We also face the risk that existing casino licensees will expand their operations and the risk that Native American gaming will continue to grow.
In December 2014, a new casino resort, Golden Nugget Casino, opened adjacent to and in competition with L’Auberge Lake Charles. In addition, a new casino resort opened in December 2015 in D’lberville, Mississippi, which provides additional competition to the Boomtown New Orleans and L’Auberge Baton Rouge properties.

In Pennsylvania, there was an application to acquire a gambling license in Lawrence County near the Meadows, which was denied in July 2016. In the event a casino opens in Lawrence County, this would provide additional competition to the Meadows property.

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From time to time, our competitors refurbish, rebrand or expand their casino offerings, which could function to increase competition. In addition, changes in ownership may result in improved quality of our competitors’ facilities, which may make such facilities more competitive.
 
We face competition from racetracks that offer VLTs, including seven operating in Ohio, one of which is our property, Belterra Park. In addition, a racetrack located outside of Cincinnati recently added instant racing machines in 2016, which provided increased competition for our Belterra Park and Belterra properties.

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

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

We engage a number of third parties to provide gaming operating systems for the facilities we operate. As a result, we rely on such third parties to provide uninterrupted services to us in order to run our business efficiently and effectively. In the event one of these third parties experiences a disruption in its ability to provide such services to us (whether due to technological difficulties or power problems), this may result in a material disruption at the casinos on which we operate and have a material effect on our business, operating results and financial condition.

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

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

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

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

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

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

We are required to pay a significant portion of our cash flow from operations to GLPI pursuant to and subject to the terms and conditions of the Leases. Under the Master Lease, the current annual aggregate rent payable by Pinnacle MLS, LLC, the tenant under the Master Lease, is $377 million. In addition, under the Meadows Lease, the current annual aggregate rent payable by PNK Development 33, LLC, the tenant under the Meadows Lease, is $25.4 million. As a result of our significant lease payments, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the Leases may:

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

We lease 14 of the gaming facilities we operate pursuant to the Master Lease with GLPI and we lease the Meadows pursuant to the Meadows Lease with GLPI. The Leases provide that GLPI may terminate each lease for a number of reasons, including, subject to applicable cure periods, the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of either of the Leases could result in a default under our Senior Secured Credit Facilities and the bond indenture governing our 5.625% Notes (our “Debt Agreements”) and could have a material adverse effect on our business, financial position or results of operations. There can also be no assurance that we will be able to comply with our obligations under the Leases in the future.

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

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

We face risks associated with growth and acquisitions.

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

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

We derived 28.5% and 28.7% of our revenues for the year ended December 31, 2016 from our casinos located in Louisiana and Missouri, respectively, and are especially subject to certain risks, including economic and competitive risks, associated with the conditions in those areas and in the states from which we draw patrons.

Four of our sixteen gaming facilities on which we operate are located in Louisiana. During the year ended December 31, 2016, we derived 28.5% of our revenues from these four casinos, including 14.5% from one of them, L’Auberge Lake Charles in Lake Charles, Louisiana. In addition, we derived 28.7% of our revenues from three casinos in the Missouri region during the year ended December 31, 2016. These percentages are not reflective of a full year of revenue contributions from the Meadows.

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

regional economic conditions;

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

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

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

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

a decline in the number of visitors.

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

As of December 31, 2016, we had indebtedness of $952.9 million, including $500.0 million aggregate principal amount of 5.625% Notes, $107.2 million in borrowings under our revolving commitment under our Senior Secured Credit Facilities and $345.6 million in outstanding term loans under our Senior Secured Credit Facilities. In addition, we had $11.0 million in outstanding letters of credit under our Senior Secured Credit Facilities as of December 31, 2016.

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

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

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

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

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

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

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

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

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


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

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

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

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

Our indebtedness imposes restrictive covenants on us.

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

incur additional debt;

make payments on subordinated obligations;

make dividends or distributions and repurchase stock;

make investments;

grant liens on our property to secure debt;

enter into certain transactions with affiliates;

sell assets or enter into mergers or consolidations;

create dividend and other payment restrictions affecting our subsidiaries;

change the nature of our lines of business;

designate restricted and unrestricted subsidiaries; and

make material amendments to the Leases.

In addition, the Senior Secured Credit Facilities require us to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage and maximum consolidated senior secured net leverage ratios. The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default, which events of default include the occurrence of a change of control, revocation of material licenses by gaming authorities (subject to a cure period), termination of the Leases and a cross-default to certain events of default under the Leases. The terms of the bond indenture governing the 5.625% Notes also include customary covenants and defaults for debt issuances of that nature. Our ability to comply with the covenants contained in these instruments may be affected by general economic conditions, industry conditions, and other events beyond our control, including delay in the completion of new projects under construction. As a result, we cannot assure you that we will be able to comply with these covenants. Our failure to comply with the covenants contained in the Debt Agreements, including failure to comply as a result of events beyond our control, could result in an event of default under our

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debt instruments, which could materially and adversely affect our operating results and our financial condition. If there were an event of default under one of our debt instruments, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable, subject to applicable grace periods. This could trigger cross-defaults under our Debt Agreements. We cannot assure you that our assets or cash flow would be sufficient to repay borrowings under our debt instruments if accelerated upon an event of default, or that we would be able to repay, refinance or restructure the payments on any of those proposed debt instruments.

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

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

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

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

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

restrict our ability to capitalize on business opportunities;

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

place us at a competitive disadvantage.

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

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


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

We test goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter (October 1st test date), or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. A significant amount of judgment is involved in performing fair value estimates for goodwill and other indefinite-lived intangible assets because the results are based on estimated future cash flows and assumptions related thereto. Significant assumptions include estimates of future sales and expense trends, liquidity and capitalization, among other factors. We base our fair value estimates on projected financial information, which we believe to be reasonable. If we are required to recognize an impairment to some portion of our goodwill and other indefinite-lived intangible assets, it could adversely affect our financial condition and results of operations. Recently, given that the Spin-Off and Merger represented a significant financial restructuring event that increased our obligations as a result of the Master Lease, we concluded that an indicator of impairment existed as of April 28, 2016, the closing date of the transactions, and recorded non-cash impairments of goodwill and other intangible assets of $321.3 million and $129.5 million, respectively. In addition, as a result of our 2016 annual assessment for impairment, we recorded non-cash impairments of goodwill and gaming licenses in the amounts of $1.2 million and $17.0 million, respectively.

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

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

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

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

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

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

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

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

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


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

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

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

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

availability and costs associated with insurance;

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

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

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

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

Our slots and table games hold percentages may fluctuate.

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

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

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

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

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

shortage of materials;

shortage of skilled labor or work stoppages;


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

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

unanticipated cost increase or delays in completing the project;

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

changes to plans or specifications;

performance by contractors and subcontractors;

disputes with contractors;

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

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

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

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

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

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

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

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

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

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

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

Potential changes in the regulatory environment could harm our business.

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

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

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

In February 2014, the Indiana Supreme Court struck down an ordinance that extended a smoking ban to restaurants and bars, but exempted a local casino. The Indiana Supreme Court held that the ordinance violated the state constitution’s equal privileges and immunities clause. While the Indiana Supreme Court’s decision only applies to this ordinance, similar challenges may be made to invalidate exemptions for casinos in ordinances and laws in Indiana which may result in new laws and ordinances that prohibit smoking at Belterra and Ameristar East Chicago. If smoking was prohibited at the facilities we operate in Indiana, we believe that this will adversely affect our businesses.

In January 2015, the New Orleans City Council unanimously approved an ordinance in the City of New Orleans that prohibits smoking in casinos, bars and restaurants. The Boomtown New Orleans facility is located in the City of Harvey and not in the City of New Orleans, so the smoking ban does not apply to such facility. However, if a smoking ban was approved in the City of Harvey, we believe that this will adversely affect our business.
Our operations are largely dependent on the skill and experience of our management and key personnel. The loss of management and other key personnel could significantly harm our business, and we may not be able to effectively replace members of management who have left our company.
Our success and our competitive position are largely dependent upon, among other things, the efforts and skills of our senior executives and management team. Although we enter into employment agreements with certain of our senior executives and key personnel, we cannot guarantee that these individuals will remain employed by us. If we lose the services of any members of our management team or other key personnel, our business may be significantly impaired. We cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel.
 
We expect to experience strong competition in hiring and retaining qualified property and corporate management personnel, including competition from numerous Native American gaming facilities that are not subject to the same taxation regimes as we are and therefore may be willing and able to pay higher rates of compensation. From time to time, we expect to have a number of vacancies in key corporate and property management positions. If we are unable to successfully recruit and retain qualified management personnel at our facilities or at our corporate level, our results of operations could be adversely affected.

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

17


us to terminate the employment of any person who refuses to file appropriate applications. Either result could significantly impair our operations.

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

Our business depends upon our ability to draw customers from each of the geographic markets in which we operate. Adverse weather conditions or road construction can deter our customers from traveling to the facilities on which we operate or make it difficult for them to frequent the facilities on which we operate. In late 2013 and early 2014, there were severe cold temperatures in the Midwest, that we believe adversely affected our financial performance in our Midwest segment. In 2015, Boomtown Bossier City and Belterra Park both experienced flooding which resulted in temporary closures at both properties, repair and clean-up costs and lost business volume. In 2016, L’Auberge Lake Charles and L’Auberge Baton Rouge were both negatively impacted by lost business volume due to severe rain and flooding. Moreover, gasoline shortages or fuel price increases in regions that constitute a significant source of customers for the facilities on which we operate could make it more difficult for potential customers to travel to such facilities and deter customers from visiting. The dockside gaming facilities in Indiana, Iowa, Louisiana, Mississippi and Missouri, as well as any additional riverboat or dockside casino facilities that might be developed or acquired, are also subject to risks, in addition to those associated with land-based casinos, which could disrupt our operations. Although none of the vessels on which we operate leave their moorings in normal operations, there are risks associated with the movement or mooring of vessels on waterways, including risks of casualty due to river turbulence, flooding, collisions with other vessels and severe weather conditions.

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

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

In 2005, Hurricanes Katrina and Rita caused significant damage in the Gulf Coast region. Hurricane Katrina destroyed Pinnacle’s former Biloxi, Mississippi facility. In August 2005, the Boomtown New Orleans casino on which we operate was forced to close for 34 days as a result of Hurricane Katrina. In September 2005, Hurricane Rita caused significant damage in the Lake Charles, Louisiana area and forced our L’Auberge Lake Charles facility to close for 16 days, in addition to causing physical damage. In the third quarter of 2008, Hurricanes Gustav and Ike, which struck during two key weekends, affected our Louisiana operations and our Texas customer base. Hurricane Ike also caused flooding in St. Louis, necessitating the temporary closure of Pinnacle’s former President Casino, and caused a power outage over the course of two days at Belterra in Indiana. In March 2011, our Belterra Park racetrack was forced to delay the opening of live racing due to flooding from the Ohio River. In October 2012, Hurricane Isaac delayed the opening of L’Auberge Baton Rouge for approximately a week and caused a temporary closure of Boomtown New Orleans for five days. In 2015, Boomtown Bossier City and Belterra Park both experienced flooding, which resulted in temporary closures at both properties. In 2016, L’Auberge Lake Charles and L’Auberge Baton Rouge were both negatively impacted by lost business volume due to severe rain and flooding.

Catastrophic events, such as terrorist attacks in the United States and elsewhere, have had a negative effect on travel and leisure expenditures, including lodging, gaming (in some jurisdictions) and tourism. We cannot accurately predict the extent to which such events may affect us, directly or indirectly, in the future. We also cannot assure you that we will be able to obtain or choose to purchase any insurance coverage with respect to occurrences of terrorist acts and any losses that could result from these acts. If there is a prolonged disruption at our facilities due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition would be materially adversely affected.
We are exposed to a variety of natural disasters such as named windstorms, floods and earthquakes and this can make it challenging for us to obtain adequate levels of weather catastrophe occurrence insurance coverage for our facilities at reasonable rates, if at all.
Because of significant historical loss experience and the potential for future similar losses caused by hurricanes and other natural disasters, adequate insurance may be limited or may be cost prohibitive. Therefore, our policy contains sub-limits specifically for weather catastrophe occurrences. Our coverage for a named windstorm, flood and earthquake is $200 million

18


per occurrence, subject to a deductible, including business interruption. For other catastrophes, our coverage is $700 million per occurrence, subject to a deductible, including business interruption. In addition, as a result of the worldwide economic conditions, there may be uncertainty as to the viability of certain insurance companies and their ability to pay a claim. While we believe that the insurance companies will remain solvent, there is no certainty that this will be the case in the event of a loss.
We may incur property and other losses that are not adequately covered by insurance, which may harm our results of operations.
Although we maintain insurance that our management believes is customary and appropriate for our business, we cannot assure you that insurance will be available or adequate to cover all losses and damage to which our business or our assets might be subjected. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are uninsured or underinsured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property and reduce the funds available for payments of our obligations. The Leases require us, in the event of a casualty event, to rebuild a leased property to substantially the same condition as existed immediately before such casualty event. We renew our insurance policies (other than our builder’s risk insurance) on an annual basis. The cost of coverage may become so material that we may need to further reduce our policy limits, further increase our deductibles, or agree to certain exclusions from our coverage.

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

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

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

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

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

We cannot assure you that governments in jurisdictions in which we operate, or the federal government, will not enact legislation that increases gaming tax rates. Global economic pressures have reduced the revenues of state governments from traditional tax sources, which may cause state legislatures or the federal government to be more inclined to increase gaming tax rates.

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

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

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

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

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

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

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

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

The riverboats on which we operate must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel and safety. In addition, we are required to have third parties periodically inspect and certify all of our casino barges for stability and single compartment flooding integrity. The casino barges on which we operate also must meet local fire safety standards. We would incur additional costs if any of the gaming facilities on which we operate were not in compliance with one or more of these regulations.

We are also subject to a variety of other federal, state and local laws and regulations, including those relating to zoning, construction, land use, employment, marketing and advertising and the production, sale and service of alcoholic beverages. If

20


we are not in compliance with these laws and regulations, it could have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

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

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

21


be subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by ACDL could have a negative effect on us.

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

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

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

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

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

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

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

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

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

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

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

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

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

actual or anticipated variations in our quarterly results of operations;

change in market valuations of companies in our industry;

change in expectations of future financial performance;

regulatory changes;

fluctuations in stock market prices and volumes;

issuance of common stock market prices and volumes;

issuance of common stock or other securities in the future;

the addition or departure of key personnel; and

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

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


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FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. Except for the historical information contained herein, the matters addressed in this Annual Report on Form 10-K, as well as in other reports filed with or furnished to the SEC or statements made by us, may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may provide oral or written forward-looking statements in our other periodic reports on Form 10-Q, Form 8-K, press releases and other materials released to the public. All forward-looking statements made in this Annual Report on Form 10-K and any documents we incorporate by reference are made pursuant to the Act. Words such as, but not limited to, “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “could,” “may,” “will,” “should,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements, which may include, without limitation, statements regarding the expected results of operations and future operating performance and future growth; adequacy of resources to fund development and expansion projects; liquidity, financing options, including the state of the capital markets and our ability to access the capital markets; the state of the credit markets and economy; cash needs; cash reserves; operating and capital expenses; expense reductions; the sufficiency of insurance coverage; anticipated marketing costs at various projects; the future outlook of Pinnacle and the gaming industry and pending regulatory and legal matters; the potential occurrence of impairments to goodwill, other intangible assets or long-lived assets; extreme weather conditions or climate change; potential work stoppages or other labor problems; cyber security risks; the ability of the Company to continue to meet its financial and other covenants governing the Debt Agreements and the Leases; the expected synergies and benefits of the acquisition of the Meadows; the Company’s anticipated future capital expenditures; ability to implement strategies to improve revenues and operating margins at the Company’s properties; reduce costs and debt; the Company’s ability to successfully implement marketing programs to increase revenue at the Company’s properties; and the Company’s ability to improve operations and performance, are all subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by us. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. For more information on the potential factors that could affect our operating results and financial condition in addition to the risk factors described above, review our other filings (other than any portion of such filings that are furnished under applicable SEC rules rather than filed) with the SEC.

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

Item 1B.
Unresolved Staff Comments
None.

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Item 2.
Properties
The following table provides a brief description of the properties where our businesses are located as of December 31, 2016:
 
 
Approximate Number of
 
 
Slot Machines/Video
 
Table
 
Hotel
Locations
 
Lottery Terminals
 
Games
 
Rooms
Operating Properties by Segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
Midwest segment
 
 
 
 
 
 
Ameristar Council Bluffs
 
1,465

 
24

 
444

Ameristar East Chicago
 
1,729

 
68

 
288

Ameristar Kansas City
 
2,154

 
71

 
184

Ameristar St. Charles
 
2,410

 
104

 
397

Belterra
 
1,165

 
47

 
662

Belterra Park
 
1,376

 

 

Meadows
 
3,114

 
67

 

River City
 
1,938

 
52

 
200

 
 
 
 
 
 
 
South segment
 
 
 
 
 
 
Ameristar Vicksburg
 
1,404

 
42

 
149

Boomtown Bossier City
 
865

 
16

 
187

Boomtown New Orleans
 
1,206

 
33

 
150

L’Auberge Baton Rouge
 
1,440

 
49

 
205

L’Auberge Lake Charles
 
1,547

 
75

 
995

 
 
 
 
 
 
 
West segment
 
 
 
 
 
 
Ameristar Black Hawk
 
1,180

 
62

 
535

Cactus Petes and Horseshu
 
764

 
20

 
416

 
 
23,757

 
730

 
4,812


Ameristar Council Bluffs: Ameristar Council Bluffs is located on approximately 69 acres along the east bank of the Missouri River in Council Bluffs, Iowa. We lease the real estate at this site under the terms of the Master Lease. We sublease approximately one acre of the site to a third party for the operation of a 188-room limited service Holiday Inn Suites Hotel and a 96-room Hampton Inn Hotel.

Ameristar East Chicago: Ameristar East Chicago is located on approximately 28 acres in East Chicago, Indiana, approximately 25 miles from downtown Chicago, Illinois. We lease the casino vessel, hotel and other improvements on the site under the terms of the Master Lease and the land under a ground lease.

Ameristar Kansas City: Ameristar Kansas City is located on approximately 183 acres of land in Kansas City, Missouri. We lease the Ameristar Kansas City real estate under the terms of the Master Lease. The site is east of and adjacent to Interstate 435 along the north bank of the Missouri River.

Ameristar St. Charles: Ameristar St. Charles is located on approximately 52 acres of land along the west bank of the Missouri River immediately north of Interstate 70 in St. Charles, Missouri. The real estate at this site is leased under the terms of the Master Lease and includes undeveloped land held for possible future wetlands remediation.

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

Belterra Park: The Belterra Park site includes approximately 160 acres that we own in southeast Cincinnati, Ohio. We re-developed the site as a gaming and entertainment property that opened in May 2014.

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Meadows: We lease the real estate used in the operations of the Meadows, located on approximately 150 acres of land under the terms of the Meadows Lease. The Meadows is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. The Meadows also offers off track betting at a separate facility we lease in Pittsburgh, Pennsylvania.

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

Ameristar Vicksburg: Ameristar Vicksburg is located on two parcels, totaling approximately 52 acres, in Vicksburg, Mississippi, on either side of Washington Street near Interstate 20. In addition to the gaming and hotel facilities, we operate a recreational vehicle park and utilize buildings for warehousing and support services also located on these parcels. We lease the real estate at this location under the terms of the Master Lease.

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

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

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

L’Auberge Lake Charles: L’Auberge Lake Charles is located in Lake Charles, Louisiana, approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin, Texas and San Antonio, Texas, respectively. We lease approximately 238 acres upon which the L’Auberge Lake Charles casino-hotel resort is located, the casino facility, and other real estate improvements under the terms of the Master Lease and a ground lease. Additionally, we own approximately 54 acres of excess land surrounding the site.

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

Cactus Petes and Horseshu: Cactus Petes and Horseshu are located in Jackpot, Nevada, across from each other on either side of U.S. Highway 93. We lease the real estate at both locations and other property in the vicinity under the terms of the Master Lease, which includes approximately 34 acres for Cactus Petes, approximately 25 acres for Horseshu, a service station, and 288 housing units that support the primary operations of Cactus Petes and Horseshu.

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

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

Item 3.
Legal Proceedings

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

Item 4.
Mine Safety Disclosures

Not applicable.

26


PART II

Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information: Our common stock has been listed and quoted on the NASDAQ Global Select Market of The NASDAQ Stock Market LLC under the symbol “PNK” since April 29, 2016, the first day following the closing of the Spin-Off and Merger. In connection with the Merger, the common stock of Former Pinnacle ceased being listed and quoted on the NASDAQ Global Select Market of The NASDAQ Stock Market LLC (also under the symbol “PNK”). The last trading day of Former Pinnacle’s common stock was April 28, 2016. The table below sets forth the high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market for the periods indicated:
 
 
Price Range
 
 
High
 
Low
2016
 
 
 
 
Fourth Quarter
 
$
14.97

 
$
11.44

Third Quarter
 
$
12.56

 
$
10.70

Second Quarter (since April 29, 2016)
 
$
11.72

 
$
10.19

On February 23, 2017, the last sale price of our common stock as reported on the NASDAQ Global Select Market was $16.78.
Holders: As of February 23, 2017, there were 1,753 stockholders of record of our common stock.
Dividends: We did not pay any cash dividends in 2016. The bond indenture governing our 5.625% Notes and our Senior Secured Credit Facilities limit the amount of dividends that we are permitted to pay.
Sales of Unregistered Equity Securities: During the year ended December 31, 2016, we did not issue or sell any unregistered equity securities.


27


Stock Performance Graph: The stock performance graph and related information presented below is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.
Set forth below is a graph comparing the cumulative total stockholder return for Pinnacle’s common stock with the cumulative total returns for the NASDAQ Composite Index and the Dow Jones US Gambling Index. The total cumulative return calculations are for the period that commenced on April 29, 2016 and ended on December 31, 2016, and include the reinvestment of dividends. The stock price performance shown in this graph is neither necessarily indicative of, nor intended to suggest, future stock price performance.
stockperformancegraph2016a.jpg
 
 
4/29/2016*
 
12/31/2016
Pinnacle Entertainment, Inc.
 
$
100.00

 
$
131.34

NASDAQ Composite Index
 
$
100.00

 
$
112.82

Dow Jones US Gambling Index
 
$
100.00

 
$
122.01

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

28


Issuer Purchases of Equity Securities: In May 2016, the Company’s Board of Directors authorized a share repurchase program of up to $50.0 million of Pinnacle common stock, which was completed in July 2016 having repurchased 4.5 million shares. In August 2016, the Company’s Board of Directors authorized an additional share repurchase program of up to $50.0 million of Pinnacle common stock. The Company has repurchased 1.7 million shares of its common stock for $20.1 million under the additional share repurchase program.

The following table contains information with respect to purchases made by or on behalf of Pinnacle or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934), of its common stock during the fourth quarter ended December 31, 2016.

Period
 
Total Number of Shares (or Units) Purchased
 
Average Price Paid per Share (or Unit) (1)
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may be Purchased Under the Plans or Programs
October 1 - October 31, 2016
 
514,061

 
$
12.41

 
514,061

 
$
32,378,519

November 1 - November 30, 2016
 
206,422

 
$
11.90

 
206,422

 
$
29,922,918

December 1 - December 31, 2016
 

 
$

 

 
$
29,922,918

Total
 
720,483

 
$
12.27

 
720,483

 
$
29,922,918


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


29


Item 6.
Selected Financial Data

Former Pinnacle’s historical Consolidated Financial Statements and accompanying notes thereto have been determined to represent the Company’s historical Consolidated Financial Statements based on the conclusion that, for accounting purposes, the Spin-Off should be evaluated as the reverse of its legal form under the requirements of Accounting Standards Codification (“ASC”) Subtopic 505-60, Spinoffs and Reverse Spinoffs, resulting in the Company being considered the accounting spinnor. In addition, the Master Lease of the gaming facilities acquired by GLPI did not qualify for sale-leaseback accounting pursuant to ASC Topic 840, Leases. Therefore, the Master Lease is accounted for as a financing obligation and the gaming facilities remain on the Company’s Consolidated Financial Statements.
The following selected financial information for the years 2012 through 2016 was derived from our audited Consolidated Financial Statements. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited Consolidated Financial Statements and related notes thereto.
 
For the year ended December 31,
 
2016 (a)
 
2015 (b)
 
2014 (c)
 
2013 (d)
 
2012 (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except per share data)
 
 
Results of Operations:
 
 
 
 
 
 
 
 
 
Revenues
$
2,378.9

 
$
2,291.9

 
$
2,210.5

 
$
1,487.8

 
$
1,002.8

Operating income (loss)
$
(146.3
)
 
$
301.2

 
$
310.5

 
$
104.4

 
$
136.7

Income (loss) from continuing operations
$
(457.9
)
 
$
42.1

 
$
38.3

 
$
(133.4
)
 
$
(13.2
)
Income (loss) from discontinued operations, net of income taxes
$
0.4

 
$
5.5

 
$
5.5

 
$
(122.5
)
 
$
(18.6
)
Net income (loss) from continuing operations per common share:
 
 
 
 
 
 
 
 
 
Basic
$
(7.80
)
 
$
0.71

 
$
0.64

 
$
(2.27
)
 
$
(0.22
)
Diluted
$
(7.80
)
 
$
0.68

 
$
0.62

 
$
(2.27
)
 
$
(0.22
)
Other Data:
 
 
 
 
 
 
 
 
 
Capital expenditures and land additions
$
97.9

 
$
84.0

 
$
230.8

 
$
292.6

 
$
299.5

Ratio of earnings to fixed charges (f)

 
1.2x

 
1.2x

 

 
1.0x

Cash Flows Provided by (Used in):
 
 
 
 
 
 
 
 
 
Operating activities
$
255.7

 
$
408.2

 
$
328.5

 
$
161.1

 
$
186.9

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

 
$
(1,842.7
)
 
$
(302.1
)
Financing activities
$
(39.6
)
 
$
(329.0
)
 
$
(395.6
)
 
$
1,778.5

 
$
136.7

Balance Sheet Data—December 31:
 
 
 
 
 
 
 
 
 
Cash, restricted cash and equivalents (g)
$
188.9

 
$
164.0

 
$
170.3

 
$
203.5

 
$
100.5

Total assets
$
4,077.1

 
$
4,530.9

 
$
4,802.5

 
$
5,121.7

 
$
2,082.1

Long-term debt less current portion
$
924.4

 
$
3,616.7

 
$
3,944.4

 
$
4,326.4

 
$
1,410.4

Long-term financing obligation less current portion
$
3,113.5

 
$

 
$

 
$

 
$

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

 
$
289.4

 
$
225.2

 
$
447.1

(a)
The results of operations and financial position for 2016 include the impact of the Spin-Off and Merger in April 2016; including the termination of our Former Senior Secured Credit Facilities, early redemption of our senior notes and senior subordinated notes, entrance into our Senior Secured Credit Facilities and issuance of 5.625% Notes; and the acquisition of the Meadows in September 2016. In connection with these transactions, we incurred a $321.3 million impairment charge to goodwill, a $129.5 million impairment charge related to other intangible assets, a $5.2 million loss on early extinguishment of debt, $22.6 million of incremental share-based compensation expense attributable to the accelerated vesting of equity awards and $55.1 million in costs associated with the Spin-Off, Merger and the acquisition of the Meadows. Additionally, as a result of our 2016 annual assessment for impairment, we recognized non-cash impairments of goodwill and gaming licenses in the amounts of $1.2 million and $17.0 million, respectively.

30


(b)
The results of operations for 2015 include the impact of a $4.7 million impairment charge to goodwill, a $33.9 million impairment charge related to other intangible assets, a gain of $8.4 million related to the sale of approximately 40 acres of land in Springfield, Massachusetts, and a gain of $4.8 million related to the sale of approximately 783 acres of excess land associated with our former Boomtown Reno operations. Our financial position reflects the redemption of $336.5 million of net aggregate principal amount of debt under our Former Senior Secured Credit Facilities during the year.
(c)
The results of operations for 2014 include the full year impact of the acquisition of Ameristar. In addition, the results of operations include Belterra Park, which opened on May 1, 2014. In addition, our results of operations and financial position reflect the redemption of $514.3 million of aggregate principal amount of term loans, for a net reduction in total debt of $401.3 million under our Former Senior Secured Credit Facilities, a portion of which resulted in an $8.2 million loss on early extinguishment of debt.
(d)
The results of operations for 2013 include the impact of the acquisition of Ameristar in August 2013. In addition, we incurred $85.3 million in costs associated with the acquisition of Ameristar, we incurred a $30.8 million loss on early extinguishment of debt, a $144.6 million charge to discontinued operations for the impairment of the Lumiére Place Casino and Hotels classified as held for sale in 2013, a $10.0 million charge related to the impairment of our Boomtown Bossier City gaming license, a tax benefit from the release of $58.4 million of our valuation allowance as a result of the consolidation of our deferred tax assets with Ameristar’s deferred tax liabilities, and a $92.2 million impairment of our investment in ACDL.
(e)
The results of operations for 2012 include the opening of L’Auberge Baton Rouge on September 1, 2012. In addition, we incurred a $20.7 million loss on early extinguishment of debt, a $10.2 million charge related to cash and land donation commitments made for various projects in the city of St. Louis to satisfy obligations under our redevelopment agreement, and a $25.0 million impairment of our investment in ACDL.
(f)
In computing the ratio of earnings to fixed charges: (x) earnings were pre-tax income (loss) from continuing operations before losses from equity method investments and fixed charges, excluding capitalized interest; and (y) fixed charges were the sum of interest expense, amortization of debt issuance costs and debt discount/premium, capitalized interest and the estimated interest component included in rental expense. Due principally to our large non-cash charges deducted to compute such earnings, earnings so calculated were less than fixed charges by $99.5 million and $485.9 million for the years ended December 31, 2013 and December 31, 2016, respectively.
(g)
Excludes amounts of cash and cash equivalents associated with entities and operations included in discontinued operations in the respective year.

31


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

EXECUTIVE OVERVIEW

Pinnacle Entertainment, Inc. is an owner, operator and developer of casinos and related hospitality and entertainment businesses. References herein to “Pinnacle,” the “Company,” “we,” “our” or “us” refer to Pinnacle Entertainment, Inc. and its subsidiaries, except where stated or the context otherwise indicates. References to “Former Pinnacle” refer to Pinnacle Entertainment, Inc. prior to the Spin-Off and Merger (as such terms are defined below).

We own and operate 16 gaming, hospitality and entertainment businesses, of which 15 operate in leased facilities. Our owned facilities are located in Ohio and our leased facilities are located in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, and Pennsylvania, subject to the Master Lease and the Meadows Lease (as such terms are defined below). We also hold a majority interest in the racing license owner, and we are a party to a management contract, for Retama Park Racetrack located outside of San Antonio, Texas. Additionally, we own and operate a live and televised poker tournament series under the trade name Heartland Poker Tour (“HPT”). We view each of our operating businesses as an operating segment with the exception of our two businesses in Jackpot, Nevada, which we view as one operating segment. For financial reporting purposes, we aggregate our operating segments into the following reportable segments:
Midwest segment, which includes:
Location
Ameristar Council Bluffs (1)
Council Bluffs, Iowa
Ameristar East Chicago (1)
East Chicago, Indiana
Ameristar Kansas City (1)
Kansas City, Missouri
Ameristar St. Charles (1)
St. Charles, Missouri
Belterra (1)
Florence, Indiana
Belterra Park
Cincinnati, Ohio
Meadows (2)
Washington, Pennsylvania
River City (1)
St. Louis, Missouri
 
 
South segment, which includes:
Location
Ameristar Vicksburg (1)
Vicksburg, Mississippi
Boomtown Bossier City (1)
Bossier City, Louisiana
Boomtown New Orleans (1)
New Orleans, Louisiana
L’Auberge Baton Rouge (1)
Baton Rouge, Louisiana
L’Auberge Lake Charles (1)
Lake Charles, Louisiana
 
 
West segment, which includes:
Location
Ameristar Black Hawk (1)
Black Hawk, Colorado
Cactus Petes and Horseshu (1)
Jackpot, Nevada
(1)     We lease the real estate associated with these gaming facilities under the terms of the Master Lease.
(2)
The Meadows Racetrack and Casino (the “Meadows”) was acquired on September 9, 2016, as discussed below. We lease the real estate associated with this gaming facility under the terms of the Meadows Lease.

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

32



Our mission is to increase stockholder value. We seek to increase revenues through enhancing the guest experience by providing them with their favorite games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service and our mychoice customer loyalty program. We seek to improve cash flows by focusing on operational excellence and efficiency while meeting our guests’ expectations of value. Our long-term strategy includes disciplined capital expenditures to improve and maintain the existing facilities in which we operate, while growing the number of businesses we own and operate by pursuing opportunities to either acquire or develop gaming, hospitality and entertainment businesses. We intend to diversify our revenue sources by growing our portfolio of businesses and facilities, while remaining gaming, hospitality and entertainment centric. We intend to implement these strategies either alone or with third parties when we believe it benefits our stockholders to do so. In making decisions, we consider our stockholders, guests, team members and other constituents in the communities in which we operate.

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

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

Following the Spin-Off and Merger, we operate our gaming businesses under a triple-net master lease agreement for the facilities acquired by GLPI (the “Master Lease”). The Master Lease has an initial term of 10 years with five subsequent, five-year renewal periods at our option. The Company currently pays annual rent of $377 million to GLPI.

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

On September 9, 2016, we closed on a purchase agreement (the “Purchase Agreement”) with GLP Capital, L.P. (“GLPC”), a subsidiary of GLPI, pursuant to which we acquired all of the equity interests of the Meadows located in Washington, Pennsylvania for base consideration of $138.0 million, subject to certain adjustments. The purchase price, after giving effect to such adjustments, was $134.0 million and the cash paid for the Meadows business, net of cash acquired, was $107.5 million. As a result of the transaction, we own and operate the Meadows’ gaming, entertainment and harness racing business subject to a triple-net lease of its underlying real estate with GLPI (the “Meadows Lease”). The Meadows Lease provides for a 10-year initial term, including renewal terms at our option, up to a total of 29 years. The current annual rent is $25.4 million.

33


RESULTS OF OPERATIONS
The following table highlights our results of operations for the years ended December 31, 2016, 2015 and 2014. As discussed in Note 13, “Segment Information,” to our Consolidated Financial Statements, we report segment operating results based on revenues and Adjusted EBITDAR. Such segment reporting is on a basis consistent with how we measure our business and allocate resources internally. See Note 13, “Segment Information,” to our Consolidated Financial Statements for more information regarding our segment information. The following table highlights our Adjusted EBITDAR (defined below) for each segment and reconciles Consolidated Adjusted EBITDAR (defined below) to Income (loss) from continuing operations and Consolidated Adjusted EBITDAR margin to Income (loss) from continuing operations margin in accordance with generally accepted accounting principles in the United States (“GAAP”).
 
For the year ended December 31,
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
(in millions, except margin)
Revenues:
 
 
 
 
 
Midwest segment (a)
$
1,359.9

 
$
1,265.6

 
$
1,185.2

South segment (a)
777.1

 
793.3

 
801.9

West segment (a)
236.0

 
226.6

 
216.0

 
2,373.0

 
2,285.5

 
2,203.1

Corporate and other (c)
5.9

 
6.4

 
7.4

      Total revenues
$
2,378.9

 
$
2,291.9

 
$
2,210.5

Adjusted EBITDAR (b):
 
 
 
 
 
Midwest segment (a)
$
402.4

 
$
379.3

 
$
348.4

South segment (a)
246.1

 
239.0

 
244.4

West segment (a)
88.4

 
81.7

 
78.2

 
736.9

 
700.0

 
671.0

Corporate expenses and other (c)
(82.4
)
 
(83.0
)
 
(86.2
)
Consolidated Adjusted EBITDAR (b)
654.5

 
617.0

 
584.8

Lease Payments (d)
(264.0
)
 

 

Consolidated Adjusted EBITDA, net of Lease Payments (d)
390.5

 
617.0

 
584.8

Other benefits (costs) and adjustments:
 
 
 
 
 
Lease Payments (d)
264.0

 

 

Rent expense under the Meadows Lease
(5.1
)
 

 

Depreciation and amortization
(218.3
)
 
(242.5
)
 
(241.1
)
Pre-opening, development and other costs
(56.0
)
 
(14.2
)
 
(13.0
)
Non-cash share-based compensation
(35.5
)
 
(17.8
)
 
(13.9
)
Impairment of goodwill
(322.5
)
 
(4.7
)
 

Impairment of other intangible assets
(146.5
)
 
(33.9
)
 

Write-downs, reserves and recoveries, net
(16.9
)
 
(2.7
)
 
(6.4
)
Interest expense, net
(334.3
)
 
(244.4
)
 
(252.6
)
Loss from equity method investment
(0.1
)
 
(0.1
)
 
(0.2
)
Loss on early extinguishment of debt
(5.2
)
 

 
(8.2
)
Income tax benefit (expense)
28.0

 
(14.6
)
 
(11.1
)
Income (loss) from continuing operations
$
(457.9
)
 
$
42.1

 
$
38.3

Consolidated Adjusted EBITDAR margin
27.5
 %
 
26.9
%
 
26.5
%
Income (loss) from continuing operations margin
(19.2
)%
 
1.8
%
 
1.7
%

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


34


(b)
We define Consolidated Adjusted EBITDAR as earnings before interest income and expense, income taxes, depreciation, amortization, rent expense associated with the Meadows Lease, pre-opening, development and other costs, non-cash share-based compensation, asset impairment costs, write-downs, reserves, recoveries, gain (loss) on sale of certain assets, loss on early extinguishment of debt, gain (loss) on sale of equity security investments, income (loss) from equity method investments, non-controlling interest and discontinued operations. We define Adjusted EBITDAR for each reportable segment as earnings before interest income and expense, income taxes, depreciation, amortization, rent expense associated with the Meadows Lease, pre-opening, development and other costs, non-cash share-based compensation, asset impairment costs, write-downs, reserves, recoveries, inter-company management fees, gain (loss) on sale of certain assets, gain (loss) on early extinguishment of debt, gain (loss) on sale of discontinued operations and discontinued operations. During 2016, the Company altered the format of its presentation from EBITDA to EBITDAR as a result of the Meadows acquisition. We define Consolidated Adjusted EBITDAR margin as Consolidated Adjusted EBITDAR divided by revenues on a consolidated basis. We define Adjusted EBITDAR margin as Adjusted EBITDAR for the segment divided by segment revenues. We use Consolidated Adjusted EBITDAR and Adjusted EBITDAR for each segment to compare operating results among our businesses and between accounting periods. Consolidated Adjusted EBITDAR and Adjusted EBITDAR have economic substance because they are used by management as measures to analyze the performance of our business and are especially relevant in evaluating large, long-lived casino-hotel projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We eliminate the results from discontinued operations at the time they are deemed discontinued. We also review pre-opening, development and other costs separately, as such expenses are also included in total project costs when assessing budgets and project returns, and because such costs relate to anticipated future revenues and income. We believe that Consolidated Adjusted EBITDAR, Consolidated Adjusted EBITDAR margin and Adjusted EBITDAR are useful measures for investors because they are indicators of the performance of ongoing business operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value of companies within our industry. In addition, Consolidated Adjusted EBITDAR approximates the measures used in the debt covenants within the Company’s debt agreements. Consolidated Adjusted EBITDAR and Adjusted EBITDAR do not include depreciation or interest expense and, therefore, do not reflect current or future capital expenditures or the cost of capital. Consolidated Adjusted EBITDAR should not be considered as an alternative to operating income (loss) as an indicator of performance, or as an alternative to any other measure provided in accordance with GAAP. Our calculations of Consolidated Adjusted EBITDAR and Adjusted EBITDAR may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

(c)
Corporate and other includes revenues from HPT and management fees associated with Retama Park Racetrack. Corporate expenses represent payroll, professional fees, travel expenses and other general and administrative expenses not directly related to our casino and hotel operations. Corporate expenses that are directly attributable to a property are allocated to each applicable property. All other costs incurred relating to management and consulting services provided by corporate headquarters to the properties are allocated to those properties based on their respective share of the monthly consolidated net revenues in the form of a management fee. The corporate management fee is excluded in the calculation of segment Adjusted EBITDAR and is completely eliminated in any consolidated financial results. Other includes expenses relating to the operation of HPT and the management of Retama Park Racetrack.

(d)
Consolidated Adjusted EBITDA, net of Lease Payments is defined as Consolidated Adjusted EBITDAR (as defined in footnote b above), less Lease Payments. The Company defines Lease Payments as lease payments made to GLPI for the Master Lease and the Meadows Lease. We believe that Consolidated Adjusted EBITDA, net of Lease Payments is a useful measure to compare operating results between accounting periods. In addition, Consolidated Adjusted EBITDA, net of Lease Payments is a useful measure for investors because it is an indicator of the performance of ongoing business operations after incorporating the cash flow obligations associated with the Master Lease and the Meadows Lease. Consolidated Adjusted EBITDA, net of Lease Payments should not be considered as an alternative to operating income (loss) as an indicator of performance, or as an alternative to any other measure provided in accordance with GAAP. Our calculations of Consolidated Adjusted EBITDA, net of Lease Payments may be different from the calculation methods used by other companies; therefore, comparability may be limited. The Master Lease is accounted for as a financing obligation. Total lease payments under the Master Lease, which commenced on April 28, 2016, were $256.1 million for the year ended December 31, 2016, of which $225.1 million was recognized as interest expense and $31.0 million reduced the financing obligation. Total lease payments under the Meadows Lease, which commenced on September 9, 2016, were $7.9 million for the year ended December 31, 2016.


35


Consolidated Overview

During the year ended December 31, 2016, consolidated revenues increased by $87.0 million, or 3.8%, year over year to $2.4 billion and consolidated loss from continuing operations was $457.9 million. Consolidated Adjusted EBITDAR was $654.5 million, an increase of $37.5 million, or 6.1%, year over year and Consolidated Adjusted EBITDA, net of Lease Payments was $390.5 million. Consolidated loss from continuing operations margin was 19.2% for the year ended December 31, 2016. Consolidated Adjusted EBITDAR margin for the year ended December 31, 2016, was 27.5%, representing a year over year increase of 60 bps.

During the year ended December 31, 2015, consolidated revenues increased by $81.4 million, or 3.7%, year over year to $2.3 billion, consolidated income from continuing operations was $42.1 million and Consolidated Adjusted EBITDAR was $617.0 million, an increase of $32.2 million, or 5.5%, year over year. Consolidated income from continuing operations margin was 1.8% for the year ended December 31, 2015. Consolidated Adjusted EBITDAR margin for the year ended December 31, 2015, was 26.9%, representing a year over year increase of 40 bps.

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

The 2015 consolidated operating results were positively impacted by revenue growth, expense efficiency and the leveraging of the Ameristar Casinos, Inc. (“Ameristar”) acquisition integration work performed following the acquisition in 2013. Consolidated operating results during 2015 were benefited by the full year of operations at our Belterra Park property, which opened on May 1, 2014, but were negatively impacted by the addition of a new competitor in the Lake Charles market in December 2014. In addition, our 2015 consolidated operating results benefited from a $3.6 million refund received on a disputed vendor payment and negatively impacted by $2.0 million in costs associated with a team member retention program at L’Auberge Lake Charles and repair costs and lost business volume related to the flooding of the Red River in Bossier City.

The 2014 consolidated operating results were positively impacted by the substantial completion of the integration of the Ameristar properties into our operations, which included implementing operational changes to take advantages of synergies that were created as a part of our increased size and diversity as well as company-wide best practices.

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

We accrue a liability for the estimated cost of providing these mychoice program benefits as the benefits are earned. Estimates and assumptions are made regarding cost of providing the benefits, breakage rates, and the mixture of goods and services customers will choose. We use historical data to assist in the determination of estimated accruals. Changes in estimates or customer redemption habits could produce significantly different results. As of December 31, 2016 and 2015, we had accrued $25.1 million and $25.4 million, respectively, for the estimated cost of providing these benefits.
 
Our revenue consists mostly of gaming revenue, which is primarily from slot machines and to a smaller extent, table games. The slot revenue represented approximately 82%, 82% and 83% of gaming revenue in 2016, 2015 and 2014, respectively. In analyzing the performance of our businesses, the key indicators related to gaming revenue are slot handle and table games drop (which are volume indicators) and win or hold percentage.

Slot handle or video lottery terminal (“VLT”) handle represents the total amount wagered in a slot machine or VLT, and table games drop represents the total amount of cash and net markers issued that are deposited in gaming table drop boxes. Win represents the amount of wagers retained by us and recorded as gaming revenue, and hold represents win as a percentage of slot

36


handle, VLT handle or table games drop. Given the stability in our slot and VLT hold percentages, we have not experienced any significant impact on our results from operations as a result of changes in hold 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 drop box of each gaming table. Table game win is the amount of drop that is retained and recorded as gaming revenue, with liabilities recognized for funds deposited by customers.

Segment comparison of years ended December 31, 2016, 2015 and 2014

Midwest Segment 
 
 
For the year ended December 31,
 
Change
 
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except margin)
 
 
 
 
Gaming revenues
 
$
1,230.1

 
$
1,146.9

 
$
1,075.0

 
7.3
 %
 
6.7
%
Total revenues
 
$
1,359.9

 
$
1,265.6

 
$
1,185.2

 
7.5
 %
 
6.8
%
Operating income
 
$
25.5

 
$
218.9

 
$
209.3

 
(88.4
)%
 
4.6
%
Adjusted EBITDAR
 
$
402.4

 
$
379.3

 
$
348.4

 
6.1
 %
 
8.9
%
Adjusted EBITDAR margin
 
29.6
%
 
30.0
%
 
29.4
%
 
(40) bps
 
60 bps

In the Midwest segment, total revenues increased by $94.3 million, or 7.5%, year over year to $1.4 billion and Adjusted EBITDAR increased by $23.1 million, or 6.1%, year over year to $402.4 million for the year ended December 31, 2016. For the year ended December 31, 2015, total revenues increased by $80.4 million, or 6.8%, year over year to $1.3 billion and Adjusted EBITDAR increased by $30.9 million, or 8.9%, year over year to $379.3 million. The acquisition of the Meadows on September 9, 2016 contributed $83.9 million of total revenues and $12.9 million of Adjusted EBITDAR for the year ended December 31, 2016.

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

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

As compared to the year ended December 31, 2014, the Midwest segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2015 were driven by improved operating performance at River City, Belterra Park, Ameristar Kansas City and Ameristar East Chicago as well as continued operational efficiencies. Additionally, the Midwest segment operating results were benefited by the full year of operations at Belterra Park, which opened on May 1, 2014.

Additionally, the Midwest segment’s operating income and Adjusted EBITDAR for the year ended December 31, 2015 benefited from a $1.7 million refund received on a disputed vendor payment. Operating income for the year ended December 31, 2015 was negatively impacted by $27.5 million of non-cash impairment of other intangible assets as a result of our 2015 annual assessment for impairment. Operating income and Adjusted EBITDAR for the year ended December 31, 2014 were negatively impacted by a $3.1 million charge due to the expansion of the mychoice customer loyalty program at the Ameristar-branded properties in the second quarter 2014.


37


South Segment
 
 
For the year ended December 31,
 
Change
 
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except margin)
 
 
 
 
Gaming revenues
 
$
701.0

 
$
712.4

 
$
718.8

 
(1.6
)%
 
(0.9
)%
Total revenues
 
$
777.1

 
$
793.3

 
$
801.9

 
(2.0
)%
 
(1.1
)%
Operating income (loss)
 
$
(16.7
)
 
$
150.2

 
$
163.9

 
NM

 
(8.4
)%
Adjusted EBITDAR
 
$
246.1

 
$
239.0

 
$
244.4

 
3.0
 %
 
(2.2
)%
Adjusted EBITDAR margin
 
31.7
%
 
30.1
%
 
30.5
%
 
160 bps
 
(40) bps
NM — Not Meaningful

In the South segment, total revenues decreased by $16.2 million, or 2.0%, year over year to $777.1 million and Adjusted EBITDAR increased by $7.1 million, or 3.0%, year over year to $246.1 million for the year ended December 31, 2016. For the year ended December 31, 2015, total revenues decreased by $8.6 million, or 1.1%, year over year to $793.3 million and Adjusted EBITDAR decreased by $5.4 million, or 2.2%, year over year to $239.0 million.

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

As compared to the year ended December 31, 2014, the South segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2015 were driven by a decrease in operating performance at L’Auberge Lake Charles due to the addition of a new competitor that opened in December 2014. However, increases in the operating performance at Boomtown New Orleans and L’Auberge Baton Rouge partially offset the decrease at L’Auberge Lake Charles. Operating income and Adjusted EBITDAR for the year ended December 31, 2015 were negatively impacted by $2.0 million in costs related to the L’Auberge Lake Charles team member retention program that was implemented in 2014 and by repair costs and lost business volume related to the flooding of the Red River in Bossier City and benefited from a $1.3 million refund received on a disputed vendor payment. Operating income and Adjusted EBITDAR for the year ended December 31, 2014 were negatively impacted by $2.8 million in costs related to the L’Auberge Lake Charles team member retention program.

West Segment
 
 
For the year ended December 31,
 
Change
 
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions, except margin)
 
 
 
 
Gaming revenues
 
$
196.9

 
$
189.0

 
$
180.6

 
4.2
 %
 
4.7
%
Total revenues
 
$
236.0

 
$
226.6

 
$
216.0

 
4.1
 %
 
4.9
%
Operating income
 
$
25.2

 
$
56.0

 
$
51.1

 
(55.0
)%
 
9.6
%
Adjusted EBITDAR
 
$
88.4

 
$
81.7

 
$
78.2

 
8.2
 %
 
4.5
%
Adjusted EBITDAR margin
 
37.5
%
 
36.1
%
 
36.2
%
 
140 bps
 
(10) bps

38



In the West segment, total revenues increased by $9.4 million, or 4.1%, year over year to $236.0 million and Adjusted EBITDAR increased $6.7 million, or 8.2%, year over year to $88.4 million for the year ended December 31, 2016. For the year ended December 31, 2015, total revenues increased by $10.6 million, or 4.9%, year over year to $226.6 million and Adjusted EBITDAR increased by $3.5 million, or 4.5%, year over year to $81.7 million.

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

As compared to the year ended December 31, 2014, the West segment’s total revenues and Adjusted EBITDAR for the year ended December 31, 2015 were driven by improved visitation and volume at Ameristar Black Hawk and the Jackpot Properties. Operating income and Adjusted EBITDAR for the year ended December 31, 2015 benefited from a $0.4 million refund received on a disputed vendor payment. Operating income for the year ended December 31, 2015 was negatively impacted by $0.5 million of non-cash impairment of other intangible assets as a result of our 2015 annual assessment for impairment.

Other factors affecting income (loss) from continuing operations
 
 
For the year ended December 31,
 
Change
 
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
Other benefits (costs):
 
 
 
 
 
 
 
 
 
 
Corporate expenses and other
 
$
(82.4
)
 
$
(83.0
)
 
$
(86.2
)
 
(0.7
)%
 
(3.7
)%
Rent expense under the Meadows Lease
 
$
(5.1
)
 
$

 
$

 
NM

 
NM

Depreciation and amortization expense
 
$
(218.3
)
 
$
(242.5
)
 
$
(241.1
)
 
(10.0
)%
 
0.6
 %
Pre-opening, development and other costs
 
$
(56.0
)
 
$
(14.2
)
 
$
(13.0
)
 
NM

 
9.2
 %
Share-based compensation expense
 
$
(35.5
)
 
$
(17.8
)
 
$
(13.9
)
 
99.4
 %
 
28.1
 %
Impairment of goodwill
 
$
(322.5
)
 
$
(4.7
)
 
$

 
NM

 
NM

Impairment of other intangible assets
 
$
(146.5
)
 
$
(33.9
)
 
$

 
NM

 
NM

Write-downs, reserves and recoveries, net
 
$
(16.9
)
 
$
(2.7
)
 
$
(6.4
)
 
NM

 
(57.8
)%
Interest expense, net
 
$
(334.3
)
 
$
(244.4
)
 
$
(252.6
)
 
36.8
 %
 
(3.2
)%
Loss from equity method investment
 
$
(0.1
)
 
$
(0.1
)
 
$
(0.2
)
 
 %
 
(50.0
)%
Loss on early extinguishment of debt
 
$
(5.2
)
 
$

 
$
(8.2
)
 
NM

 
NM

Income tax benefit (expense)
 
$
28.0

 
$
(14.6
)
 
$
(11.1
)
 
NM

 
31.5
 %
NM — Not Meaningful
Corporate expenses and other is principally comprised of corporate overhead expense, HPT and the Retama Park Racetrack management operations. Corporate overhead expense decreased by $0.6 million year over year to $82.4 million for the year ended December 31, 2016 primarily attributable to lower professional services and from lower expense accruals from compensation program changes of $0.6 million. The decrease in corporate overhead expense of $3.2 million year over year to $83.0 million for the year ended December 31, 2015 was primarily driven by non-recurring costs incurred during the year ended December 31, 2014 including $8.1 million associated with the opposition of a Colorado referendum to expand casino gambling to racetracks and severance costs related to operational leadership changes with no similar costs of significance during the year ended December 31, 2015.
Rent expense under the Meadows Lease for the year ended December 31, 2016 relates to the rent expense recorded on the Meadows Lease, which commenced on September 9, 2016. Rent expense is recorded on a straight-line basis using minimum lease payments over the lease term. Lease payments made to GLPI under the Meadows Lease were $7.9 million for the year ended December 31, 2016.

39


Depreciation and amortization expense decreased during the year ended December 31, 2016 as compared to the year ended December 31, 2015 due to the timing of certain equipment that became fully depreciated during the year ended December 31, 2015 and the accelerated method of amortization on our customer relationships, which offset the increase attributable to the acquisition of the Meadows in September 2016.
Depreciation and amortization expense increased slightly during the year ended December 31, 2015 as compared to the year ended December 31, 2014 due to the opening of Belterra Park in May 2014 and the Boomtown New Orleans hotel in December 2014, which are offset by the timing of certain equipment that became fully depreciated during the year ended December 31, 2015 and the accelerated method of amortization on our customer relationships.

As a result of the Spin-Off and Merger, substantially all of the land, buildings, vessels and associated improvements used in the Company’s operations and included in our Consolidated Balance Sheets are subject to the Master Lease and owned by GLPI. Furthermore, these assets continue to be depreciated consistent with treatment prior to the Spin-Off and Merger.
Pre-opening, development and other costs consist of the following:
 
 
For the year ended December 31,
 
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(in millions)
Restructuring costs (1)
 
$
48.7

 
$
12.2

 
$
1.7

Meadows acquisition costs (2)
 
6.4

 

 

Belterra Park (3)
 

 

 
8.2

Other
 
0.9

 
2.0

 
3.1

Total pre-opening, development and other costs
 
$
56.0

 
$
14.2

 
$
13.0

(1)
Amounts comprised of costs associated with the Spin-Off and Merger.
(2)
Amounts comprised principally of legal, advisory and other costs associated with the acquisition and integration of the Meadows.
(3)
Belterra Park opened on May 1, 2014.

Share-based compensation expense for the year ended December 31, 2016, increased as compared to the prior year primarily due to $22.6 million of cost associated with the accelerated vesting of share-based payment awards recorded during the second quarter 2016 as a result of the Spin-Off and Merger.

For the year ended December 31, 2015, share-based compensation expense increased as compared to the prior year due to stock awards granted in 2015 and due to lower share-based compensation expense during 2014 as a result of the determination that certain performance share awards were no longer expected to vest, which resulted in the reversal of previously recognized share-based compensation expense.

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

During the year ended December 31, 2015, as a result of separate interim assessments for impairment, we recognized non-cash impairments of the goodwill of Pinnacle Retama Partners, LLC (“PRP”) and HPT in the amounts of $3.3 million and $1.4 million, respectively. For PRP, we determined that there was an indicator that impairment may exist on its goodwill and other intangible assets as a result of the lack of legislative progress and on-going negative operating results at Retama Park Racetrack. For HPT, we determined that there was an indicator that impairment may exist on its goodwill and other intangible assets due to its operating performance.
There were no impairments to goodwill for the year ended December 31, 2014.

Impairment of other intangible assets for the year ended December 31, 2016 consists of non-cash impairment charges to gaming licenses and trade names, in the amounts of $85.5 million and $61.0 million, respectively. Of the $85.5 million, $68.5 million is the result of an interim assessment for impairment performed as of April 28, 2016 due to the Spin-Off and Merger and $17.0 million is the result of our 2016 annual assessment for impairment. The gaming license impairments pertained to our

40


Midwest segment and the trade name impairments related to our Midwest, South and West segments, in the amounts of $35.3 million, $22.2 million and $3.5 million, respectively.

During the year ended December 31, 2015, as a result of our annual assessment for impairment, we recognized non-cash impairments of a gaming license and a trade name in the amounts of $27.5 million and $0.5 million, respectively. The gaming license impairment, which pertained to our Midwest segment, was primarily driven by operating results of one of our reporting units being below expectations, which resulted in revisions to our long-term operating projections for this property. The trade name impairment, which pertained to our West segment, was primarily the result of updated assumptions used in the analysis, such as the discount rate.
During the year ended December 31, 2015, as a result of separate interim assessments for impairment, we recognized non-cash impairments of the racing license of Retama Park Racetrack, the HPT trade name and the HPT player relationship, in the amounts of $5.0 million, $0.2 million and $0.7 million, respectively.
There were no impairments to other intangible assets for the year ended December 31, 2014.

Write-downs, reserves and recoveries, net, consist of the following:
 
 
For the year ended December 31,
 
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(in millions)
Loss on disposals of long-lived assets, net
 
$
16.2

 
$
0.3

 
$
3.5

Lease abandonment
 

 

 
3.0

Impairment of long-lived assets
 
0.2

 
3.2

 

Other
 
0.5

 
(0.8
)
 
(0.1
)
Write-downs, reserves and recoveries, net
 
$
16.9

 
$
2.7

 
$
6.4


Loss on disposals of long-lived assets, net: During the years ended December 31, 2016, 2015, and 2014, we recorded net losses of $16.2 million, $8.7 million, and $3.5 million, respectively, related primarily to disposals of furniture, fixtures and equipment at the properties in the normal course of business. Additionally, during the year ended December 31, 2015, we recorded a gain on the sale of land in Springfield, Massachusetts of $8.4 million.

Lease abandonment: During the year ended December 31, 2014, we recorded a $3.0 million lease abandonment charge from the consolidation of our Las Vegas headquarters.

Impairment of long-lived assets: During the year ended December 31, 2015, we recorded a total of $3.0 million in non-cash impairment charges on our land in Central City, Colorado to reduce the carrying amount of the asset to its estimated fair value less cost to sell. Additionally, during the years ended December 31, 2016 and 2015, we recorded non-cash impairments of furniture, fixtures and equipment at the properties.
Interest expense, net, was as follows:
 
 
For the year ended December 31,
 
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(in millions)
Interest expense from financing obligation (1)
 
$
225.1

 
$

 
$

Interest expense from debt (2)
 
108.0

 
244.7

 
255.9

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

 
(2.9
)
Other (3)
 
1.7

 

 

Interest expense, net
 
$
334.3

 
$
244.4

 
$
252.6

(1)
Total payments under the Master Lease, which commenced on April 28, 2016, were $256.1 million for the year ended December 31, 2016, of which $225.1 million was recognized as interest expense and $31.0 million reduced the financing obligation.
(2)
Interest expense associated with the Former Senior Secured Credit Facilities, the 6.375% Notes, the 7.50% Notes, the 7.75% Notes, and the 8.75% Notes (as such terms are defined in the “Liquidity and Capital Resources” section below), which were no longer obligations of the Company as of April 28, 2016, included in the year ended December 31, 2016 was $76.5 million.

41


(3)
Represents a nonrecurring expense associated with the GLPI transaction.

For the year ended December 31, 2016, interest expense increased as compared to the prior year due principally to the interest expense incurred under our financing obligation, which offset the decrease in interest expense incurred related to our debt borrowings. For the year ended December 31, 2015, interest expense decreased as compared to the prior year due to the reduction in total debt principal outstanding achieved principally with operating cash flows and proceeds from asset sales.

For the years ended December 31, 2016, 2015 and 2014, excluding the amortization of debt issuance costs and original issuance discounts/premiums, interest expense, net, was $327.0 million, $232.0 million and $242.9 million, respectively.

Loss on equity method investment represents losses recognized for the years ended December 31, 2016, 2015 and 2014, for our allocable share of an investment in a land re-vitalization project in downtown St. Louis.
 
Loss on early extinguishment of debt for the year ended December 31, 2016, represents a $5.2 million loss related to the repayment, in full, of the Former Senior Secured Credit Facilities. The year ended December 31, 2014 includes an $8.2 million loss from the redemption of our B-1 Term Loan (as defined in the “Liquidity and Capital Resources” section below). The loss for both periods included the write-off of previously unamortized debt issuance costs and original issuance discount.

Income tax benefit for the year ended December 31, 2016 was $28.0 million, as compared to an income tax expense of $14.6 million and $11.1 million for the years ended December 31, 2015, and 2014, respectively. For the years ended December 31, 2016, 2015 and 2014, the effective tax rates were 5.8%, 25.7% and 22.5%, respectively. The effective tax rate for the year ended December 31, 2016 was impacted by the impairment of goodwill and other intangible assets. Our effective tax rate may differ from the expected statutory tax rate of 35% due to the effect of permanent items, the recording of valuation allowance releases, deferred tax expense on tax amortization of indefinite-lived intangible assets, state taxes and reserves for unrecognized tax benefits. Our income tax rate for the years ended December 31, 2016 and 2015 included tax benefits from the release of uncertain tax positions in the amounts of $1.3 million and $5.4 million, respectively. For the year ended December 31, 2014, our income tax rate included a tax benefit from the release of $3.0 million of our valuation allowance as a result of additional deferred tax liabilities recognized from the preparation of the Ameristar pre-acquisition tax returns.

The Spin-Off described in the “Executive Overview” was a taxable transaction. A gain was recognized for tax purposes and the tax bases of the operating assets were stepped up to fair market value at the time of the transaction. Pursuant to ASC Topic 740, Income Taxes, the tax impact directly related to the transaction amongst shareholders was recorded to equity, consistent with the overall accounting treatment of the transaction. All changes in tax bases of assets and liabilities caused by the transactions were recorded to additional paid-in capital.

As previously noted, the failed sale-leaseback is accounted for as a financial obligation. As a result, the gaming facilities are presented on the Company’s Consolidated Balance Sheets at historical cost, net of accumulated depreciation, and the financing obligation is recognized and amortized over the lease term. For federal and state income tax purposes, the Spin-Off and the subsequent leaseback of the gaming facilities is an operating lease. As such, the Company recognizes no tax bases in the leased gaming facilities, which creates basis differences that give rise to deferred taxes under ASC Topic 740, Income Taxes.

Discontinued operations

Income from discontinued operations, net of income taxes, for the year ended December 31, 2016, 2015 and 2014 was $0.4 million, $5.5 million and $5.5 million, respectively. These amounts are primarily attributable to our former Lumiére Place Casino, HoteLumiére, and the Four Seasons Hotel St. Louis (collectively, the “Lumiére Place Casino and Hotels”) operations, excess land associated with our former Boomtown Reno operation, and our former Ameristar Lake Charles development project.

42


LIQUIDITY AND CAPITAL RESOURCES

We generally produce significant positive cash flows from operations, though this is not always reflected in our reported net income (loss) due to large non-cash charges, such as impairment of goodwill and other intangible assets and depreciation and amortization. However, our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, funding of construction of development projects, and our compliance with covenants contained in our debt agreements. As of December 31, 2016, we held $185.1 million of cash and cash equivalents. As of December 31, 2016, we had $107.2 million drawn on our $400.0 million Revolving Credit Facility (as defined below) and had $11.0 million committed under various letters of credit.
 
For the year ended December 31,
 
Change
 
2016
 
2015
 
2014
 
2016 vs. 2015
 
2015 vs. 2014
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
Net cash provided by operating activities
$
255.7

 
$
408.2

 
$
328.5

 
(37.4
)%
 
24.3
 %
Net cash provided by (used in) investing activities
$
(195.1
)
 
$
(79.9
)
 
$
33.2

 
NM

 
NM

Net cash used in financing activities
$
(39.6
)
 
$
(329.0
)
 
$
(395.6
)
 
(88.0
)%
 
(16.8
)%
NM — Not Meaningful
Operating Cash Flow
Our cash provided by operating activities for the year ended December 31, 2016, as compared to the prior year, decreased due primarily to interest payments made on the financing obligation of $225.1 million; expenses and other costs associated with the completion of the Spin-Off and Merger, including costs to obtain financing; acquisition costs related to the Meadows; and the timing of payments and receipts of working capital items, offset by the decrease in interest payments made on long-term debt and the increase attributable to improved operating results. Additionally, for the year ended December 31, 2016, net cash payments related to income taxes were $12.5 million, as compared to the prior-year period, in which we received $17.3 million of net cash refunds related to income taxes.
Cash provided by operating activities for the year ended December 31, 2015, as compared to the prior year, increased due primarily to an improvement in operating results; a reduction of cash paid for interest, net of amounts capitalized, of $10.5 million; and the receipt of $17.3 million of net cash refunds related to income taxes.
Investing Cash Flow
The following is a summary of our capital expenditures by segment:
 
For the year ended December 31,
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
(in millions)
Midwest segment
$
56.3

 
$
45.6

 
$
158.2

South segment
27.7

 
24.1

 
51.0

West segment
10.6

 
9.9

 
7.7

Other
3.3

 
4.4

 
13.9

Total capital expenditures
$
97.9

 
$
84.0

 
$
230.8


In addition to our capital expenditures summarized above, during the year ended December 31, 2016, we received $0.3 million in net proceeds from the disposition of land in Central City, Colorado, and $10.0 million from the collection of the deferred consideration in the form of a note receivable relating to our disposition of Ameristar Lake Charles, which was sold in November 2013. During the year ended December 31, 2015, we made our final installment payment of $25.0 million for Belterra Park’s VLT license and received $25.1 million in combined net proceeds from the dispositions of land in Springfield, Massachusetts, and Reno, Nevada, in separate transactions. During the year ended December 31, 2014, we made $25.0 million in payments for Belterra Park’s VLT license, received $25.0 million relating to an escrow refund and received $258.5 million in net proceeds primarily relating to the sale of our ownership interests in the subsidiaries that owned and operated the Lumiére Place Casino and Hotels.


43


On September 9, 2016, we closed on the purchase agreement with GLPC, a subsidiary of GLPI, pursuant to which we acquired all of the equity interests of the Meadows located in Washington, Pennsylvania for a base purchase price of $138.0 million, subject to certain adjustments. The purchase price, after giving effect to such adjustments, was $134.0 million and the cash paid for the Meadows business, net of cash acquired, was $107.5 million. As a result of the transaction, we own and operate the Meadows’ gaming, entertainment and harness racing business subject to the Meadows Lease.

The Meadows Lease provides for a 10-year initial term, including renewal terms at our option, up to a total of 29 years. The current annual rent is $25.4 million, payable in monthly installments, and comprised of a base rent of $14.0 million, which is subject to certain adjustments, and an initial percentage rent of $11.4 million. The base rent is fixed for the first year and, beginning in the second year of the lease, subject to an annual escalation of up to 5% for the initial 10-year term or until the lease year in which base rent plus percentage rent is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 1.8:1 during lease year two, 1.9:1 during lease year three and 2.0:1 during lease year four and thereafter. The percentage rent is fixed for the first two years and will be adjusted every two years to establish a new fixed amount for the next two-year period equal to 4% of the average annual net revenues during the trailing two-year period.

Our intention is to use existing cash resources, expected cash flows from operations and funds available under our Senior Secured Credit Facilities to fund operations, maintain existing facilities, make necessary debt service payments, make necessary Master Lease and Meadows Lease payments, fund any potential acquisition and development projects, and repurchase shares of our common stock. In the event that our future cash flows from operations do not match the levels we currently anticipate, whether due to downturns in the economy or otherwise, we may need to raise funds through the capital markets, if possible.

Our ability to borrow under our Senior Secured Credit Facilities is contingent upon, among other things, meeting customary financial and other covenants. If we are unable to borrow under our Senior Secured Credit Facilities, or if our operating results are adversely affected because of a reduction in consumer spending, or for any other reason, our ability to maintain our existing facilities or complete our ongoing projects may be affected unless we sell assets, enter into leasing arrangements, or take other measures to find additional financial resources. There is no certainty that we will be able to do so on terms that are favorable to the Company or at all.

Financing Cash Flow
Master Lease Financing Obligation

The Master Lease is accounted for as a financing obligation. The obligation was calculated at lease inception based on the future minimum lease payments due to GLPI under the Master Lease discounted at 10.5%. The discount rate represents the estimated incremental borrowing rate over the lease term of 35 years, which included renewal options that were reasonably assured of being exercised. As of April 28, 2016, the commencement date of the Master Lease, the financing obligation was determined to be $3.2 billion.

Fourteen of our sixteen gaming facilities are subject to the Master Lease with GLPI. Under the Master Lease, the current annual aggregate rent payable is $377 million and rent is payable in monthly installments. The rent is comprised of base rent, which includes a land and a building component, and percentage rent. In the first year of the lease, the land base rent, the building base rent, and the percentage rent are $44 million, $289 million, and $44 million, respectively.

The land base rent is fixed for the entire lease term. Beginning in the second year of the lease, the building base rent is subject to an annual escalation of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Master Lease) of 1.8:1. The percentage rent, which is fixed for the first two years, will be adjusted every two years to establish a new fixed amount for the next two-year period. Each new fixed amount will be calculated by multiplying 4% by the difference between (i) the average net revenues for the trailing two-year period and (ii) $1.1 billion.

Total payments under the Master Lease, which commenced on April 28, 2016, were $256.1 million for the year ended December 31, 2016, of which $225.1 million was recognized as interest expense and $31.0 million reduced the financing obligation.
Financing in Connection with the Spin-Off and Merger

In connection with the Spin-Off and Merger, on April 28, 2016, the Company made a dividend to Former Pinnacle in the amount of $808.4 million (the “Cash Payment”), which was equal to the amount of existing debt outstanding of Former

44


Pinnacle as of April 28, 2016, less approximately $2.7 billion that GLPI assumed pursuant to the Merger Agreement. Immediately prior to the consummation of the Spin-Off and Merger, Former Pinnacle’s amended and restated credit agreement (“Former Senior Secured Credit Facilities”) was repaid in full and terminated and its 6.375% senior notes due 2021 (“6.375% Notes”), 7.50% senior notes due 2021 (“7.50% Notes”) and 7.75% senior subordinated notes due 2022 (“7.75% Notes”) were redeemed. In addition, Former Pinnacle’s 8.75% senior subordinated notes due 2020 (“8.75% Notes”) were satisfied and discharged in April 2016, and were subsequently redeemed in May 2016. Following the consummation of the Spin-Off and Merger, the Company had no outstanding obligations under the Former Senior Secured Credit Facilities, the 6.375% Notes, the 7.50% Notes, the 7.75% Notes and the 8.75% Notes.

On April 28, 2016, the Company completed its debt financings in connection with the Merger, consisting of (i) $375.0 million aggregate principal amount of 5.625% senior notes due 2024 (the “Existing 5.625% Notes”) and (ii) the credit agreement among the Company and certain lenders thereto (the “Credit Agreement”), comprised of (x) a $185.0 million term loan A facility with a maturity of five years (the “Term Loan A Facility”), (y) a $300.0 million term loan B facility with a maturity of seven years (the “Term Loan B Facility”) and (z) a $400.0 million revolving credit facility with a maturity of five years (the “Revolving Credit Facility” and together with the Term Loan A Facility and the Term Loan B Facility, the “Senior Secured Credit Facilities”).

The proceeds of the Senior Secured Credit Facilities, together with the proceeds of the Existing 5.625% Notes were used on April 28, 2016 (i) to make the Cash Payment and (ii) to pay fees and expenses related to the issuance of the Senior Secured Credit Facilities and the Existing 5.625% Notes. Proceeds from loans under the Revolving Credit Facility are used for working capital, to fund permitted dividends, distributions and acquisitions, for general corporate purposes and for any other purpose not prohibited by the Credit Agreement.
Senior Secured Credit Facilities

As of December 31, 2016, we had $107.2 million drawn under the Revolving Credit Facility, $180.4 million of loans outstanding under the Term Loan A Facility, $165.2 million of loans outstanding under the Term Loan B Facility and had $11.0 million committed under various letters of credit. Subsequent to their issuance, during the year ended December 31, 2016, we repaid $32.2 million of loans under the Senior Secured Credit Facilities, net of borrowings, which was accomplished principally with cash provided by operations. As noted above, the acquisition of the Meadows was funded with proceeds from borrowings under the Revolving Credit Facility. In October 2016, the net proceeds from the issuance of Additional 5.625% Notes (as defined below) were used to repay a portion of the outstanding borrowings under the Revolving Credit Facility.

Loans under the Term Loan A Facility and Revolving Credit Facility bear interest at a rate per annum equal to, at our option, LIBOR plus an applicable margin from 1.50% to 2.50% or the base rate plus an applicable margin from