Annual Reports

 
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  • 10-Q (Aug 10, 2017)
  • 10-Q (May 11, 2017)
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  • 10-Q (Aug 11, 2016)
  • 10-Q (May 12, 2016)
  • 10-Q (Nov 9, 2015)

 
8-K

 
Other

Pinnacle Entertainment, Inc. 10-Q 2017

Documents found in this filing:

  1. 10-Q
  2. Ex-11
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________ 
FORM 10-Q
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 001-37666
____________________________
PINNACLE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
47-4668380
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
3980 Howard Hughes Parkway
Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 541-7777
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 x 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 x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
Emerging growth company o
 
 
(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

As of the close of business on August 7, 2017, the number of outstanding shares of the registrant’s common stock was 57,777,646.



PINNACLE ENTERTAINMENT, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT




PART I
Item 1. Financial Statements
PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Gaming
$
581,974

 
$
505,698

 
$
1,156,143

 
$
1,026,539

Food and beverage
33,974

 
29,746

 
67,229

 
61,741

Lodging
13,475

 
13,134

 
25,462

 
24,381

Retail, entertainment and other
24,219

 
17,654

 
44,782

 
33,596

Total revenues
653,642

 
566,232

 
1,293,616

 
1,146,257

Expenses and other costs:
 
 
 
 
 
 
 
Gaming
316,234

 
266,659

 
629,473

 
533,792

Food and beverage
32,277

 
28,182

 
63,691

 
58,092

Lodging
6,501

 
6,175

 
12,563

 
11,783

Retail, entertainment and other
11,638

 
6,887

 
19,930

 
11,400

General and administrative
114,659

 
127,006

 
227,274

 
231,868

Depreciation and amortization
56,157

 
53,973

 
112,175

 
108,069

Pre-opening, development and other costs
1,795

 
44,028

 
2,594

 
49,357

Impairment of goodwill

 
332,900

 

 
332,900

Impairment of other intangible assets

 
129,500

 

 
129,500

Write-downs, reserves and recoveries, net
7,928

 
4,750

 
8,452

 
7,640

Total expenses and other costs
547,189

 
1,000,060

 
1,076,152

 
1,474,401

Operating income (loss)
106,453

 
(433,828
)
 
217,464

 
(328,144
)
Interest expense, net
(96,630
)
 
(85,047
)
 
(190,738
)
 
(144,840
)
Loss on early extinguishment of debt

 
(5,207
)
 

 
(5,207
)
Loss from equity method investment
(90
)
 
(90
)
 
(90
)
 
(90
)
Income (loss) from continuing operations before income taxes
9,733

 
(524,172
)
 
26,636

 
(478,281
)
Income tax benefit (expense)
(1,307
)
 
34,970

 
(1,002
)
 
29,972

Income (loss) from continuing operations
8,426

 
(489,202
)
 
25,634

 
(448,309
)
Income from discontinued operations, net of income taxes

 
271

 

 
396

Net income (loss)
8,426

 
(488,931
)
 
25,634

 
(447,913
)
Less: Net loss attributable to non-controlling interest
951

 
7

 
960

 
15

Net income (loss) attributable to Pinnacle Entertainment, Inc.
$
9,377

 
$
(488,924
)
 
$
26,594

 
$
(447,898
)
Net income (loss) per common share—basic
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.17

 
$
(8.04
)
 
$
0.47

 
$
(7.34
)
Income from discontinued operations, net of income taxes

 
0.00

 

 
0.01

Net income (loss) per common share—basic
$
0.17

 
$
(8.04
)
 
$
0.47

 
$
(7.33
)
Net income (loss) per common share—diluted
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.15

 
$
(8.04
)
 
$
0.43

 
$
(7.34
)
Income from discontinued operations, net of income taxes

 
0.00

 

 
0.01

Net income (loss) per common share—diluted
$
0.15

 
$
(8.04
)
 
$
0.43

 
$
(7.33
)
Number of shares—basic
56,648

 
60,791

 
56,314

 
61,077

Number of shares—diluted
61,884

 
60,791

 
61,463

 
61,077


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

3



PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
8,426

 
$
(488,931
)
 
$
25,634

 
$
(447,913
)
Comprehensive income (loss)
8,426

 
(488,931
)
 
25,634

 
(447,913
)
Less: Comprehensive loss attributable to non-controlling interest
951

 
7

 
960

 
15

Comprehensive income (loss) attributable to Pinnacle Entertainment, Inc.
$
9,377

 
$
(488,924
)
 
$
26,594

 
$
(447,898
)

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

4



PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
 
June 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
159,117

 
$
185,093

Accounts receivable, net of allowance for doubtful accounts of $5,949 and $5,282
34,808

 
42,997

Inventories
10,596

 
9,967

Prepaid expenses and other assets
32,672

 
17,760

Total current assets
237,193

 
255,817

Land, buildings, vessels and equipment, net
2,696,084

 
2,768,491

Goodwill
610,889

 
610,889

Other intangible assets, net
388,028

 
392,398

Other assets, net
50,027

 
49,472

Total assets
$
3,982,221

 
$
4,077,067

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
42,302

 
$
69,069

Accrued interest
5,134

 
5,286

Accrued compensation
58,002

 
72,939

Accrued taxes
52,893

 
58,207

Current portion of long-term debt
10,758

 
12,258

Current portion of long-term financing obligation
44,988

 
49,770

Other accrued liabilities
85,655

 
91,062

Total current liabilities
299,732

 
358,591

Long-term debt less current portion
875,856

 
924,442

Long-term financing obligation less current portion
3,094,275

 
3,113,529

Deferred income taxes
13,398

 
13,242

Other long-term liabilities
38,708

 
40,143

Total liabilities
4,321,969

 
4,449,947

Commitments and contingencies (Note 8)

 

Stockholders’ Deficit:
 
 
 
Preferred stock—$0.01 par value, 250,000 shares authorized, none issued or outstanding

 

Common stock—$0.01 par value, 150,000,000 authorized, 57,777,646 and 55,812,425 shares issued and outstanding, net of treasury shares
640

 
620

Additional paid-in capital
927,452

 
919,974

Accumulated deficit
(1,207,225
)
 
(1,233,819
)
Accumulated other comprehensive income
326

 
326

Treasury stock, at cost, 6,220,969 and 6,209,541 of treasury shares
(70,166
)
 
(70,166
)
Total Pinnacle stockholders’ deficit
(348,973
)
 
(383,065
)
Non-controlling interest
9,225

 
10,185

Total stockholders’ deficit
(339,748
)
 
(372,880
)
Total liabilities and stockholders’ deficit
$
3,982,221

 
$
4,077,067


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

5



PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(amounts in thousands)
 
Capital Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Treasury
Stock
 
Total Pinnacle Stockholders’ Deficit
 
Non-Controlling Interest
 
Total
Stockholders’
Deficit
Balance as of January 1, 2017
55,812

 
$
620

 
$
919,974

 
$
(1,233,819
)
 
$
326

 
$
(70,166
)
 
$
(383,065
)
 
$
10,185

 
$
(372,880
)
Net income (loss)

 

 

 
26,594

 

 

 
26,594

 
(960
)
 
25,634

Share-based compensation

 

 
6,711

 

 

 

 
6,711

 

 
6,711

Common stock issuance and option exercises
1,977

 
20

 
2,463

 

 

 

 
2,483

 

 
2,483

Forfeiture of restricted stock awards
(11
)
 

 

 

 

 

 

 

 

Tax withholding related to vesting of restricted stock units

 

 
(1,696
)
 

 

 

 
(1,696
)
 

 
(1,696
)
Balance as of June 30, 2017
57,778

 
$
640

 
$
927,452

 
$
(1,207,225
)
 
$
326

 
$
(70,166
)
 
$
(348,973
)
 
$
9,225

 
$
(339,748
)

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

6



PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
 
For the six months ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
25,634

 
$
(447,913
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
112,175

 
108,069

Loss on sales or disposals of long-lived assets, net
4,750

 
6,925

Loss from equity method investment
90

 
90

Loss on early extinguishment of debt

 
5,207

Impairment of goodwill

 
332,900

Impairment of other intangible assets

 
129,500

Impairment of held-to-maturity securities
3,844

 

Impairment of long-lived assets

 
215

Amortization of debt issuance costs and debt discounts/premiums
5,189

 
4,952

Share-based compensation expense
6,711

 
30,039

Change in income taxes
(1,793
)
 
(35,304
)
Changes in operating assets and liabilities:
 
 
 
Receivables, net
8,189

 
4,181

Prepaid expenses and other
(19,825
)
 
(15,176
)
Accounts payable, accrued expenses and other
(53,939
)
 
(36,634
)
Net cash provided by operating activities
91,025

 
87,051

Cash flows from investing activities:
 
 
 
Capital expenditures
(38,684
)
 
(47,555
)
Net proceeds from disposition of asset held for sale

 
325

Proceeds from sales of furniture, fixtures and equipment
74

 
51

Loans receivable
(1,250
)
 
(750
)
Restricted cash
865

 

Net cash used in investing activities
(38,995
)
 
(47,929
)
Cash flows from financing activities:
 
 
 
Proceeds from Senior Secured Credit Facilities
324,700

 
600,800

Repayments under Senior Secured Credit Facilities
(379,195
)
 
(136,800
)
Proceeds from Former Senior Secured Credit Facilities

 
134,500

Repayments under Former Senior Secured Credit Facilities

 
(1,011,285
)
Proceeds from issuance of long-term debt

 
375,000

Repayments under financing obligation
(24,036
)
 
(7,791
)
Proceeds from common stock options exercised
2,483

 
373

Purchase of treasury stock

 
(23,729
)
Debt issuance costs and debt discount

 
(13,812
)
Other
(1,958
)
 
(1,038
)
Net cash used in financing activities
(78,006
)
 
(83,782
)
Change in cash and cash equivalents
(25,976
)
 
(44,660
)
Cash and cash equivalents at the beginning of the period
185,093

 
164,034

Cash and cash equivalents at the end of the period
$
159,117

 
$
119,374

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Cash paid for interest, net of amounts capitalized
$
185,904

 
$
149,716

Cash payments related to income taxes, net
$
2,677

 
$
4,339

Increase in construction-related deposits and liabilities
$
1,578

 
$
2,926

Non-cash issuance of common stock
$

 
$
686

Non-cash retirement of debt in connection with Spin-Off and Merger
$

 
$
(2,761,287
)
Non-cash settlement of accrued interest in connection with Spin-Off and Merger
$

 
$
(34,133
)
Non-cash recognition of financing obligation
$

 
$
3,194,287


See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

7



PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1—Organization and Summary of Significant Accounting Policies

Organization: Pinnacle Entertainment, Inc. is an owner, operator and developer of casinos and related hospitality and entertainment businesses. References in these footnotes 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 facility is located in Ohio and our leased facilities are located in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada and Pennsylvania, subject to either the Master Lease or 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. 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 Resort (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.

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, and distributed to its stockholders, on a pro rata basis, all of the issued and outstanding shares of common stock of the Company (such distribution referred to as the “Spin-Off”). As a result, Former Pinnacle stockholders received one share of the Company’s common stock, with a par value of $0.01 per share, for each share of Former Pinnacle common stock that they owned. Gold Merger Sub, LLC, a wholly owned subsidiary of GLPI (“Merger Sub”), then merged with and into Former Pinnacle (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of GLPI. Immediately following the Merger, the Company was renamed Pinnacle Entertainment, Inc., and operates its gaming businesses in the facilities acquired by GLPI under a triple-net master lease agreement (the “Master Lease”). For more information regarding the Spin-Off and Merger, see Note 2, “Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease.”


8



Former Pinnacle’s historical consolidated financial statements and accompanying notes thereto were determined to represent the Company’s historical consolidated financial statements based on the conclusion that, for accounting purposes, the Spin-Off was to 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 unaudited Condensed 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 property with GLPI (the “Meadows Lease”). See Note 2, “Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease,” and Note 7, “Investment and Acquisition Activities.”

Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions of the Securities and Exchange Commission (the “SEC”) to the Quarterly Report on Form 10-Q and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”). The results for the periods indicated are unaudited, but reflect all adjustments, which are of a normal recurring nature, that management considers necessary for a fair presentation of operating results. The results of operations for interim periods are not indicative of a full year of operations. These unaudited Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2016.

Principles of Consolidation: The unaudited Condensed Consolidated Financial Statements include the accounts of Pinnacle Entertainment, Inc. and its subsidiaries. Investments in the common stock of unconsolidated affiliates in which we have the ability to exercise significant influence are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates: The preparation of unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by us include, among other things, the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable, estimated income tax provisions, the evaluation of the future realization of deferred tax assets, determining the adequacy of reserves for self-insured liabilities and our guest loyalty programs, the initial measurement of the financing obligation associated with the Master Lease, estimated cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and other intangible assets, contingencies and litigation, and estimates of the forfeiture rate and expected term of share-based awards and stock price volatility when computing share-based compensation expense. Actual results may differ from those estimates.

Fair Value: Fair value measurements affect our accounting and impairment assessments of our long-lived assets, investments in unconsolidated affiliates, assets acquired in an acquisition, goodwill, and other intangible assets. Fair value measurements also affect our accounting for certain financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: “Level 1” inputs, such as quoted prices in an active market for identical assets or liabilities; “Level 2” inputs, which are observable inputs for similar assets; or “Level 3” inputs, which are unobservable inputs.


9



The following table presents a summary of fair value measurements by level for certain financial instruments not measured at fair value on a recurring basis in the unaudited Condensed Consolidated Balance Sheets for which it is practicable to estimate fair value:
 
 
 
 
 
Fair Value Measurements Using:
 
Total Carrying Amount
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
(in millions)
As of June 30, 2017
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
$
10.4

 
$
10.4

 
$

 
$
7.5

 
$
2.9

Promissory notes
$
16.9

 
$
17.2

 
$

 
$
17.2

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
$
886.6

 
$
914.5

 
$

 
$
914.5

 
$

Other long-term liabilities
$
5.3

 
$
5.3

 
$

 
$
5.3

 
$

As of December 31, 2016
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
$
14.3

 
$
16.4

 
$

 
$
13.4

 
$
3.0

Promissory notes
$
15.6

 
$
19.8

 
$

 
$
19.8

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
$
936.7

 
$
953.2

 
$

 
$
953.2

 
$

Other long-term liabilities
$
5.5

 
$
5.6

 
$

 
$
5.6

 
$


The estimated fair values for certain of our long-term held-to-maturity securities and our long-term promissory notes were based primarily on Level 2 inputs using observable market data. The estimated fair values of certain of our other long-term liabilities were based on Level 2 inputs using a present value of future cash flow valuation technique, which is based on contractually obligated payments and terms.

The estimated fair values for certain of our long-term held-to-maturity securities were based on Level 3 inputs using a present value of future cash flow valuation technique that relies on management assumptions and qualitative observations. Key significant unobservable inputs in this technique include discount rate risk premiums and probability-weighted cash flow scenarios.

The estimated fair values of our long-term debt, which include our 5.625% Notes and Senior Secured Credit Facilities (as such terms are defined in Note 3, “Long-Term Debt”), were based on Level 2 inputs of observable market data on comparable debt instruments on or about June 30, 2017 and December 31, 2016, as applicable.

The fair values of our short-term financial instruments approximate the carrying amounts due to their short-term nature.

Land, Buildings, Vessels and Equipment: Land, buildings, vessels and equipment are stated at cost. We capitalize the costs of improvements that extend the life of the asset. We expense repair and maintenance costs as incurred. Gains or losses on the disposition of land, buildings, vessels and equipment are included in the determination of income.

We review the carrying amounts of our land, buildings, vessels and equipment used in our operations whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from its use and eventual disposition. If the undiscounted cash flows exceed the carrying amount, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying amount, then an impairment charge is recorded based on the fair value of the asset.

Development costs directly associated with the acquisition, development, and construction of a project are capitalized as a cost of the project during the periods in which activities necessary to get the property ready for its intended use are in progress. The costs incurred for development projects are carried at cost. Interest costs associated with development projects are capitalized as part of the cost of the constructed asset. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted-average cost of borrowing. Capitalization of interest ceases when the project, or discernible portion of the project, is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed.

10




As a result of the Spin-Off and Merger transactions, substantially all of the real estate assets used in the Company’s operations are subject to the Master Lease and owned by GLPI. See Note 2, “Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease.”

The following table presents a summary of our land, buildings, vessels and equipment, including those subject to the Master Lease:
 
June 30,
2017
 
December 31,
2016
 
 
 
 
 
(in millions)
Land, buildings, vessels and equipment:
 

 
 

Land and land improvements
$
429.0

 
$
426.7

Buildings, vessels and improvements
2,694.2

 
2,689.0

Furniture, fixtures and equipment
795.0

 
805.9

Construction in progress
32.0

 
32.7

Land, buildings, vessels and equipment, gross
3,950.2

 
3,954.3

Less: accumulated depreciation
(1,254.1
)
 
(1,185.8
)
Land, buildings, vessels and equipment, net
$
2,696.1

 
$
2,768.5


Goodwill and Other Intangible Assets: Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations and has been allocated to our reporting units. We consider each of our operating segments to represent a reporting unit. Other indefinite-lived intangible assets include gaming licenses and trade names for which it is reasonably assured that we will continue to renew indefinitely. Goodwill and other indefinite-lived intangible assets are subject to an annual assessment for impairment during the fourth quarter (October 1st test date), or more frequently if there are indications of possible impairment. Amortizing intangible assets include player relationships and favorable leasehold interests. We review amortizing intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Spin-Off and Merger transactions, which closed on April 28, 2016, represented a significant financial restructuring event that increased our cash flow obligations in connection with the Master Lease, which we concluded represented an indicator that impairment may exist on our goodwill and other intangible assets. Consequently, during the second quarter 2016, we performed a preliminary impairment assessment on goodwill and completed impairment assessments on gaming licenses and trade names. As a result of these impairment assessments, during the three and six months ended June 30, 2016, we recognized non-cash impairments to goodwill, gaming licenses and trade names totaling $332.9 million, $68.5 million and $61.0 million, respectively. During the third quarter 2016, we completed our impairment assessment on goodwill, which resulted in the reversal of $11.6 million of non-cash impairment to goodwill.

Guest Loyalty Programs: We offer incentives to our guests through our mychoice guest loyalty program (“mychoice program”). Under the mychoice program, guests earn points based on their level of play that may be redeemed for various benefits, such as cash back, dining, or hotel stays, among others. The reward credit balance under the mychoice program will be forfeited if the guest does not earn or use any reward credits over the prior six-month period. In addition, based on their level of play, guests can earn additional benefits without redeeming points, such as a car lease, among other items. We have not yet implemented the mychoice program at the Meadows. The Meadows continues to operate its own guest loyalty program.
We accrue a liability for the estimated cost of providing these benefits as the benefits are earned. Estimates and assumptions are made regarding cost of providing the benefits, breakage rates, and the combination of goods and services guests will choose. We use historical data to assist in the determination of estimated accruals. Changes in estimates or guest redemption patterns could produce different results. As of June 30, 2017 and December 31, 2016, we had accrued $22.4 million and $25.1 million, respectively, for the estimated cost of providing these benefits, which are included in “Other accrued liabilities” in our unaudited Condensed Consolidated Balance Sheets.


11



Revenue Recognition: Gaming revenues consist of the net win from gaming activities, which is the difference between amounts wagered and amounts paid to winning patrons. Cash discounts and other cash incentives to guests related to gaming play are recorded as a reduction to gaming revenue. Food and beverage, lodging, retail, entertainment, and other operating revenues are recognized as products are delivered or services are performed. Advance deposits on lodging are recorded as accrued liabilities until services are provided to the guest.

The retail value of food and beverage, lodging and other services furnished to guests on a complimentary basis is included in revenues and then deducted as promotional allowances in calculating total revenues. The estimated cost of providing such promotional allowances is primarily included in gaming expenses. Complimentary revenues that have been excluded from the accompanying unaudited Condensed Consolidated Statements of Operations were as follows:

 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Food and beverage
$
36.0

 
$
33.7

 
$
71.1

 
$
67.5

Lodging
16.2

 
16.3

 
31.3

 
32.1

Other
4.3

 
3.9

 
8.3

 
7.6

Total promotional allowances
$
56.5

 
$
53.9

 
$
110.7

 
$
107.2


The costs to provide such complimentary benefits were as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Promotional allowance costs included in gaming expense
$
41.4

 
$
38.3

 
$
82.2

 
$
76.5


Gaming Taxes: We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate, subject to applicable jurisdictional adjustments. These gaming taxes are an assessment on our gaming revenues and are recorded as a gaming expense in our unaudited Condensed Consolidated Statements of Operations. These taxes were as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Gaming taxes
$
177.6

 
$
142.7

 
$
353.8

 
$
288.5


Leases: The Company has certain long-term lease obligations, including the Meadows Lease, ground leases at certain properties and agreements relating to slot machines. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date of possession of the leased property. At lease inception, the lease term is determined by assuming the exercise of those renewal options that are reasonably assured. The lease term is used to determine whether a lease is capital or operating and is used to calculate the straight-line rent expense. Additionally, the depreciable life of capital lease assets and leasehold improvements is limited by the expected lease term if less than the useful life of the asset. Rent expenses are included in “General and administrative” in our unaudited Condensed Consolidated Statements of Operations.

12



Pre-opening, Development and Other Costs: Pre-opening, development and other costs consist of payroll costs to hire, employ and train the workforce prior to opening an operating facility; marketing campaigns prior to and in connection with the opening; legal and professional fees related to the project but not otherwise attributable to depreciable assets; and lease payments, real estate taxes, and other general and administrative costs prior to the opening of an operating facility. In addition, pre-opening, development and other costs include acquisition and restructuring costs. Pre-opening, development and other costs are expensed as incurred. Pre-opening, development and other costs consist of the following:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Restructuring costs (1)
$
0.5

 
$
43.2

 
$
0.8

 
$
46.8

Meadows acquisition costs (2)
0.1

 
0.4

 
0.2

 
2.1

Other
1.2

 
0.4

 
1.6

 
0.5

Total pre-opening, development and other costs
$
1.8

 
$
44.0

 
$
2.6

 
$
49.4

(1)
Amounts comprised of costs associated with the Spin-Off and Merger. See Note 2, “Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease.”
(2)
Amounts comprised principally of legal, advisory and other costs associated with the acquisition and integration of the Meadows. See Note 7, “Investment and Acquisition Activities.”

Earnings Per Share: The computation of basic and diluted earnings per share (“EPS”) is based on net income (loss) attributable to Pinnacle Entertainment, Inc. divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. Diluted EPS reflects the addition of potentially dilutive securities, which includes in-the-money share-based awards. We calculate the effect of dilutive securities using the treasury stock method. A total of 0.0 million, 0.2 million, 1.0 million and 1.4 million out-of-the-money share-based awards were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2017, and 2016, respectively, because including them would have been anti-dilutive.

For the three and six months ended June 30, 2016, we recorded a net loss from continuing operations. Accordingly, the potential dilution from the assumed exercise of stock options is anti-dilutive. As a result, basic EPS is equal to diluted EPS for such periods. Share-based awards that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS were 2.9 million and 2.7 million for the three and six months ended June 30, 2016, respectively.

Treasury Stock: In May 2016, the Company’s 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. The cost of the shares acquired is treated as a reduction to stockholders’ equity. The Company did not repurchase any of its common stock during the three months ended June 30, 2017. As of August 7, 2017, under the current share repurchase program, we have repurchased 1.7 million shares of our common stock for $20.1 million.

Recently Issued Accounting Pronouncements: In May 2014, as part of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which is a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised services or goods in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date, which defers the implementation of this new standard to be effective for fiscal years beginning after December 15, 2017. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU No. 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, which amend certain aspects of the new revenue recognition standard pursuant to ASU No. 2014-09. In December 2016, the FASB issued ASU No. 2016-19 and ASU No. 2016-20, Technical Corrections and Improvements, which further clarified and corrected certain elements of this new standard.


13



The Company currently anticipates adopting these accounting standards relating to revenue recognition during the first quarter 2018 using the full retrospective approach. Although we are still evaluating the full impact of this standard on our unaudited Condensed Consolidated Financial Statements, the Company has concluded that the adoption of this standard will affect how we account for our mychoice program as well as the classification of revenues between gaming, food and beverage, lodging, and retail, entertainment and other. Under our mychoice program, guests earn points based on their level of play, which may be redeemed for various benefits, such as cash back, dining, or hotel stays, among others. We currently determine our liability for unredeemed points based on the estimated costs of services or merchandise to be provided and estimated redemption rates. Under the new standard, points awarded under our mychoice program are considered a material right given to the guests based on their gaming play and the promise to provide points to guests will need to be accounted for as a separate performance obligation. The new standard will require us to allocate the revenues associated with the guests’ activity between gaming revenue and the value of the points and to measure the liability based on the estimated standalone selling price of the points earned after factoring in the likelihood of redemption. As a result, we expect that gaming revenues will be reduced with a corresponding increase, in total, to food and beverage, lodging, and retail, entertainment and other revenues. The revenue associated with the points earned will be recognized in the period in which they are redeemed. The quantitative effects of these changes have not yet been determined and are still being analyzed.

In February 2016, the FASB issued ASU No. 2016-02, Recognition and Measurement of Leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The Company currently anticipates adopting this accounting standard during the first quarter 2019. Operating leases, including the Meadows Lease, ground leases at certain properties, and agreements relating to slot machines, will be recorded in our unaudited Condensed Consolidated Balance Sheets as a right-of-use asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. The right-of-use asset will be depreciated on a straight-line basis and recognized as lease expense. The full qualitative and quantitative effects of these changes have not yet been determined and are still being analyzed.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplified several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this guidance during the first quarter 2017 and it did not have a material impact on our unaudited Condensed Consolidated Financial Statements. In adopting this guidance, the Company made an accounting policy election to continue to estimate the number of awards that are expected to vest as opposed to accounting for forfeitures as they occur. Prior periods were not required to be adjusted as a result of the adoption of this guidance.

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which provides clarity and intends to reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation. More specifically, ASU No. 2017-09 provides guidance on which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. The effective date for this update is for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update are to be applied on a prospective basis. We are currently evaluating the impact of adopting this accounting standard on our unaudited Condensed Consolidated Financial Statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Given the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of any such proposed or revised standards would have on our unaudited Condensed Consolidated Financial Statements.


14



Note 2—Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease

Overview of the Spin-Off and Merger: On April 28, 2016, Former Pinnacle completed the transactions under the terms of the Merger Agreement with GLPI. 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, and distributed to its stockholders, on a pro rata basis, all of the issued and outstanding shares of common stock of the Company. 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. Merger Sub then merged with and into Former Pinnacle, with Merger Sub surviving the Merger as a wholly owned subsidiary of GLPI. Immediately following the Merger, the Company was renamed Pinnacle Entertainment, Inc., and operates its gaming businesses under the Master Lease for the facilities acquired by GLPI.

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) were canceled and converted into the right to receive 0.85 shares of common stock, par value $0.01 per share, of GLPI.

In connection with the Spin-Off and Merger, on April 28, 2016, we made a dividend to Former Pinnacle of $808.4 million (the “Cash Payment”), which was equal to the amount of debt outstanding of Former Pinnacle as of April 28, 2016, less $2.7 billion that GLPI assumed pursuant to the Merger Agreement. Immediately prior to the consummation of the Spin-Off and Merger, the August 2013 amended and restated credit agreement (“Former Senior Secured Credit Facilities”) was repaid in full and terminated and the 6.375% senior notes due 2021 (“6.375% Notes”), the 7.50% senior notes due 2021 (“7.50% Notes”) and the 7.75% senior subordinated notes due 2022 (“7.75% Notes”) were redeemed. Former Pinnacle’s indenture governing its 8.75% senior subordinated notes due 2020 (“8.75% Notes”) was redeemed on May 15, 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. For a description of the Company’s existing long-term debt, see Note 3, “Long-Term Debt.”

Failed Spin-Off-Leaseback: The Spin-Off and the subsequent leaseback of the gaming facilities under the terms of the Master Lease did not meet all of the requirements for sale-leaseback accounting treatment under ASC Topic 840, Leases, and therefore is accounted for as a financing obligation. Specifically, the Master Lease contains provisions that indicate prohibited forms of continuing involvement in the leased assets.

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. The Master Lease has an initial term of 10 years with five subsequent, five-year renewal periods at our option. The rent, which is payable in monthly installments, is comprised of base rent, which includes a land and a building component, and percentage rent. The land base rent is fixed for the entire lease term. 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 building base rent was adjusted by the annual escalation beginning in May 2017. 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.

As of June 30, 2017, annual rent under the Master Lease was $382.8 million, which was comprised of the land base rent, the building base rent and the percentage rent, which were $44.1 million, $294.6 million and $44.1 million, respectively.


15



Total lease payments under the Master Lease were as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Reduction of financing obligation
$
12.2

 
$
7.8

 
$
24.0

 
$
7.8

Interest expense attributable to financing obligation
82.7

 
58.3

 
163.9

 
58.3

Total lease payments under the Master Lease
$
94.9

 
$
66.1

 
$
187.9

 
$
66.1


Meadows Lease: The Meadows Lease, which is accounted for as an operating lease, provides for a 10-year initial term, including renewal terms at our option, up to a total of 29 years. As of June 30, 2017, annual rent under the Meadows Lease was $25.4 million, payable in monthly installments, and comprised of a base rent of $14.0 million, which is subject to certain adjustments, and a 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 the second year of the lease, 1.9:1 during the third year of the lease and 2.0:1 during the fourth year of the lease and thereafter. The percentage rent is fixed for the first two years and will be adjusted every two years to establish a new fixed amount for the next two-year period equal to 4% of the average annual net revenues during the trailing two-year period.

Note 3—Long-Term Debt

Long-term debt consisted of the following:
 
June 30, 2017
 
Outstanding Principal
 
Unamortized Discount and Debt Issuance Costs
 
Long-Term Debt, Net
 
 
 
 
 
 
 
(in millions)
Senior Secured Credit Facilities:
 
 
 
 
 
Revolving Credit Facility due 2021
$
202.6

 
$

 
$
202.6

Term Loan A Facility due 2021
175.7

 
(2.8
)
 
172.9

Term Loan B Facility due 2023
20.0

 
(1.4
)
 
18.6

5.625% Notes due 2024
500.0

 
(7.6
)
 
492.4

Other
0.1

 

 
0.1

Total debt including current maturities
898.4

 
(11.8
)
 
886.6

Less: current maturities
(10.8
)
 

 
(10.8
)
Total long-term debt
$
887.6

 
$
(11.8
)
 
$
875.8

 
December 31, 2016
 
Outstanding Principal
 
Unamortized Discount and Debt Issuance Costs
 
Long-Term Debt, Net
 
 
 
 
 
 
 
(in millions)
Senior Secured Credit Facilities:
 
 
 
 
 
Revolving Credit Facility due 2021
$
107.2

 
$

 
$
107.2

Term Loan A Facility due 2021
180.4

 
(3.2
)
 
177.2

Term Loan B Facility due 2023
165.2

 
(4.9
)
 
160.3

5.625% Notes due 2024
500.0

 
(8.1
)
 
491.9

Other
0.1

 

 
0.1

Total debt including current maturities
952.9

 
(16.2
)
 
936.7

Less: current maturities
(12.3
)
 

 
(12.3
)
Total long-term debt
$
940.6

 
$
(16.2
)
 
$
924.4


16




Senior Secured Credit Facilities: On April 28, 2016, in connection with the Spin-Off and Merger, we entered into a credit agreement with certain lenders (the “Credit Agreement”). The Credit Agreement is comprised of (i) a $185.0 million term loan A facility with a maturity of five years (the “Term Loan A Facility”), (ii) a $300.0 million term loan B facility with a maturity of seven years (the “Term Loan B Facility”) and (iii) 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”). As of June 30, 2017, we had $202.6 million drawn under the Revolving Credit Facility and $9.2 million committed under various letters of credit. Subsequent to June 30, 2017, the Company fully repaid the outstanding principal amount of the Term Loan B 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 0.50% to 1.50%, in each case, depending on the Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) as of the most recent fiscal quarter. Loans under the Term Loan B Facility bore interest at a rate per annum equal to, at our option, LIBOR plus 3.00% or the base rate plus 2.00% and in no event was LIBOR to be less than 0.75%. In addition, we pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate that ranges from 0.30% to 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.

The Term Loan A Facility amortizes in equal quarterly amounts equal to a percentage of the original outstanding principal amount at closing as follows: (i) 5% per annum in the first two years, (ii) 7.5% per annum in the third year and (iii) 10% per annum in the fourth and fifth year. The remaining principal amount is payable on April 28, 2021. The Term Loan B Facility amortized in equal quarterly amounts equal to 1% per annum of the original outstanding principal amount at closing. The Revolving Credit Facility is not subject to amortization and is due and payable on April 28, 2021.

5.625% Notes due 2024: On April 28, 2016, we issued $375.0 million in aggregate principal amount of 5.625% senior notes due 2024 (the “Existing 5.625% Notes”). The Existing 5.625% Notes were issued at par, mature on May 1, 2024, and bear interest at the rate of 5.625% per annum. Interest on the Existing 5.625% Notes is payable semi-annually on May 1st and November 1st of each year.

On April 28, 2016, the proceeds of the Senior Secured Credit Facilities, together with the proceeds from the Existing 5.625% Notes were used (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.

On October 12, 2016, we issued an additional $125.0 million in aggregate principal amount of 5.625% senior notes due 2024 (the “Additional 5.625% Notes” and together with the Existing 5.625% Notes, the “5.625% Notes”), under the bond indenture governing the Existing 5.625% Notes issued on April 28, 2016, as amended and supplemented by that certain first supplemental indenture, dated as of October 12, 2016. The Additional 5.625% Notes were issued at par plus a premium of 50 basis points.
Interest expense, net, was as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Interest expense from financing obligation (1)
$
82.7

 
$
58.3

 
$
163.9

 
$
58.3

Interest expense from debt (2)
14.0

 
24.4

 
27.0

 
84.3

Interest income
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.2
)
Capitalized interest

 
(0.1
)
 

 
(0.1
)
Other (3)

 
2.5

 

 
2.5

Interest expense, net
$
96.6

 
$
85.0

 
$
190.7

 
$
144.8

(1)
See Note 2, “Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease,” for information on total lease payments under the Master Lease.
(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, which were no longer obligations of the Company as of April 28, 2016, included in the three and six months ended June 30, 2016, was $16.8 million and $76.5 million, respectively.
(3)
Represents a nonrecurring expense associated with the GLPI transaction.


17



Note 4—Income Taxes

Our effective tax rate for continuing operations for the three and six months ended June 30, 2017, was 13.4%, or an expense of $1.3 million, and 3.8%, or an expense of $1.0 million, respectively, as compared to an effective tax rate of 6.7%, or a benefit of $35.0 million, and 6.3%, or a benefit of $30.0 million, respectively, for the corresponding prior year periods. The rates include the tax impact of certain discrete items, including changes in the tax status of certain of our legal entities. In general, our effective tax rate differs from the statutory rate of 35.0% due to the effects of permanent items, deferred tax expense on tax amortization of indefinite-lived intangible assets, changes in unrecognized tax benefits, changes in valuation allowance and state taxes.

The Spin-Off described in Note 1, “Organization and Summary of Significant Accounting Policies,” 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 real estate gaming facility assets acquired by GLPI are presented on the Company’s unaudited Condensed 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.

Note 5—Employee Benefit Plans
Share-based Compensation: As of June 30, 2017, we had 9.2 million share-based awards outstanding, including stock options, restricted stock units, performance stock units, and restricted stock, which are detailed below. Our 2016 Equity and Performance Incentive Plan had 4.9 million share-based awards available for grant as of June 30, 2017.
As a result of the Spin-Off and Merger on April 28, 2016, each outstanding vested and non-vested share-based award granted by Former Pinnacle on or prior to July 16, 2015 (“Pre-July 2015 Former Pinnacle Awards”) were converted into a combination of (1) corresponding share-based awards of the Company, which continue to vest on the same schedule as Pre-July 2015 Former Pinnacle Awards based on service with the Company and (2) adjusted Pre-July 2015 Former Pinnacle Awards, which immediately became fully-vested and settled in shares of GLPI common stock as a result of the Merger. Share-based compensation expense for the three and six months ended June 30, 2016 includes $22.6 million of incremental expense attributable to the accelerated vesting of adjusted Pre-July 2015 Former Pinnacle Awards, which were settled in shares of GLPI common stock.
We recorded share-based compensation expense as follows:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Share-based compensation expense
$
4.3

 
$
25.7

 
$
6.7

 
$
30.1


Stock options: The following table summarizes information related to our common stock options:
 
Number of
Stock Options
 
Weighted Average
Exercise Price
Options outstanding as of January 1, 2017
6,387,115

 
$
6.16

Exercised
(702,828
)
 
$
4.19

Canceled or forfeited
(68,127
)
 
$
8.92

Options outstanding as of June 30, 2017
5,616,160

 
$
6.37

Options exercisable as of June 30, 2017
3,991,404

 
$
4.86

Expected to vest as of June 30, 2017
1,332,920

 
$
10.13



18



The unamortized compensation costs not yet expensed related to stock options totaled $4.9 million as of June 30, 2017. The weighted average period over which the costs are expected to be recognized is 1.4 years. The aggregate amount of cash we received from the exercise of stock options was $2.5 million and $0.4 million for the six months ended June 30, 2017, and 2016, respectively. The associated shares were newly issued common stock. The following information is provided for our stock options:
 
For the six months ended June 30,
 
2017
 
2016
 
 
 
 
 
(in millions)
Weighted-average grant date fair value
$

 
$
4.05


Restricted Stock Units: The following table summarizes information related to our restricted stock units:
 
Number of
Units
 
Weighted Average
Grant Date Fair Value
Non-vested as of January 1, 2017
2,183,056

 
$
9.65

Granted
563,563

 
$
19.00

Vested
(405,529
)
 
$
10.18

Canceled or forfeited
(80,482
)
 
$
11.25

Non-vested as of June 30, 2017
2,260,608

 
$
11.83


The unamortized compensation costs not yet expensed related to non-vested restricted stock units totaled $21.6 million as of June 30, 2017. The weighted average period over which the costs are expected to be recognized is 1.4 years.

Restricted Stock: The Company grants restricted stock awards, which are subject to either market or performance conditions. The grant-date fair value of the awards subject to market conditions was determined using the Monte Carlo simulation. The grant-date fair value of the awards subject to performance conditions was determined as the closing price of the Company’s common stock on the grant date. To the extent that restricted stock awards are forfeited, the forfeited shares will be included in treasury stock. The following table summarizes information related to our restricted stock:
 
Number of
Shares
 
Weighted Average
Grant Date Fair Value
Non-vested as of January 1, 2017
340,620

 
$
14.24

Granted
713,470

 
$
20.92

Canceled or forfeited
(11,428
)
 
$
18.70

Non-vested as of June 30, 2017
1,042,662

 
$
18.77


The unamortized compensation costs not yet expensed related to restricted stock totaled $12.1 million as of June 30, 2017. The weighted average period over which the costs are expected to be recognized is 2.0 years.

Performance Stock Units: The following table summarizes information related to our performance stock units:
 
Number of
Units
 
Weighted Average
Grant Date Fair Value
Non-vested as of January 1, 2017
108,855

 
$
7.84

Vested
(108,855
)
 
$
7.84

Non-vested as of June 30, 2017

 
$



19



Note 6—Write-downs, Reserves and Recoveries, Net

Write-downs, reserves and recoveries, net consist of the following:
 
For the three months ended June 30,
 
For the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Loss on sales or disposals of long-lived assets, net
$
4.4

 
$
4.2

 
$
4.8

 
$
6.9

Impairment of held-to-maturity securities
3.8

 

 
3.8

 

Impairment of long-lived assets

 

 

 
0.2

Other
(0.3
)
 
0.6

 
(0.1
)
 
0.5

Write-downs, reserves and recoveries, net
$
7.9

 
$
4.8

 
$
8.5

 
$
7.6


Loss on sales or disposals of long-lived assets, net: During the three and six months ended June 30, 2017 and 2016, we recorded net losses related primarily to sales or disposals of building improvements and furniture, fixtures and equipment in the normal course of business.

Impairment of held-to-maturity securities: During the three and six months ended June 30, 2017, as a result of the lack of legislative progress and on-going negative operating results at Retama Park Racetrack, we recorded an other-than-temporary impairment on our local government corporation bonds issued by Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas. For further information, see Note 7, “Investment and Acquisition Activities.”

Note 7—Investment and Acquisition Activities

Acquisition of the Meadows Business: On September 9, 2016, we closed on the purchase agreement with GLPC 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 the Meadows Lease, which is discussed in Note 2, “Spin-Off, Merger, Master Lease Financing Obligation and Meadows Lease.” The Company believes that this acquisition provides additional economies of scale and further geographical diversification and will provide long-term growth for our stockholders.

We are required to allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values is recorded as goodwill, of which $8.2 million is deductible for income tax purposes. The goodwill recognized is primarily the result of expected cash flows of the Meadows business, including anticipated synergies. The determination of the fair values of the acquired assets and assumed liabilities requires significant judgment. During the second quarter 2017, management finalized the purchase price allocation, which did not result in any adjustments to the recorded goodwill balance.


20



The following table reflects the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill (in thousands). The goodwill has been assigned to our Midwest segment.
Current and other assets
$
35,953

Property and equipment
39,265

Goodwill
18,822

Other intangible assets
71,300

Other non-current assets
3,001