CENTURY CASINOS, INC. The following discussion should be read in conjunction with Part II, Item 8, "Financial Statements and Supplementary Data" of this report. Information contained in the following discussion of our results of operations and financial condition contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and, as such, is based on current expectations and is subject to certain risks and uncertainties. The reader should not place undue reliance on these forward-looking statements for many reasons, including those risks discussed under Item 1A, "Risk Factors," and elsewhere in this document. See "Cautionary Statement Regarding Forward-Looking Information" that precedes Part I of this report. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. References in this item to "we," "our," or "us" are to the Company and its subsidiaries on a consolidated basis unless the context otherwise requires. The term "USD" refers to US dollars, the term "CAD" refers to Canadian dollars, the term "PLN" refers to Polish zloty and the term "GBP" refers to British pounds. Certain terms used in this Item 7 without definition are defined in Item 1, "Business" of this report. Amounts presented in this Item 7 are rounded. As such, there may be rounding differences in period over period changes and percentages reported throughout this Item 7. EXECUTIVE OVERVIEW Overview Since our inception in 1992, we have been primarily engaged in developing and operating gaming establishments and related lodging, restaurant and entertainment facilities. Our primary source of revenue is from the net proceeds of our gaming machines and tables, with ancillary revenue generated from hotel, restaurant, horse racing (including off-track betting), sports wagering, bowling and entertainment facilities that are in most instances a part of the casinos. We view each market in which we operate as a separate operating segment and each casino within those markets as a reporting unit. We aggregate all operating segments into three reportable segments based on the geographical locations in which our casinos operate:United States ,Canada andPoland . We have additional business activities including concession agreements, management agreements, consulting agreements and certain other corporate and management operations that we report as Corporate and Other. ? 29
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The table below provides information about the aggregation of our operating
segments and reporting units into reportable segments. The reporting units
except for Century Downs Racetrack and Casino and Casinos Poland are owned,
operated and managed through wholly-owned subsidiaries. Our ownership and
operation of Century Downs Racetrack and Casino and Casinos Poland are discussed
below. The real estate assets at our
Reportable Segment Operating Segment Reporting Unit
United States Colorado Century Casino & Hotel - Central City
Century Casino & Hotel - Cripple Creek
West Virginia Mountaineer Casino, Racetrack & Resort
Missouri Century Casino Cape Girardeau
Century Casino Caruthersville
Canada Edmonton Century Casino & Hotel - Edmonton
Century Casino St. Albert
Century Mile Racetrack and Casino
Calgary Century Downs Racetrack and Casino
Century Sports
Century Bets! Inc.
Poland Poland Casinos PolandCorporate and Other Corporate and Other Cruise Ships & Other
Corporate Other
Century Bets operates the pari-mutuel off-track betting network in southern
OnMarch 17, 2020 , we announced that we had permanently closed CCB. CCB voluntarily surrendered its casino gaming license onApril 28, 2020 and entered into a creditors voluntary liquidation onMay 6, 2020 . For additional information related to CCB, see Note 1, "Description of Business and Basis of Presentation," to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report.
We have controlling financial interests through our subsidiary CRM in the following reporting units:
?We have a 66.6% ownership interest in CPL and we consolidate CPL as a majority-owned subsidiary for which we have a controlling financial interest. Polish Airports owns the remaining 33.3% in CPL. We account for and report the 33.3% Polish Airports ownership interest as a non-controlling financial interest. CPL has been in operation since 1989 and, as ofDecember 31, 2020 , owned eight casinos throughoutPoland . ?We have a 75% ownership interest in CDR and we consolidate CDR as a majority-owned subsidiary for which we have a controlling financial interest. We account for and report the remaining 25% ownership interest in CDR as a non-controlling financial interest. CDR operates Century Downs Racetrack and Casino, a REC inBalzac , a north metropolitan area ofCalgary, Alberta, Canada . We also have a concession agreement for ship-based casinos and ownership in and a consulting agreement with MCE, which are detailed further under "Corporate and Other" below. Acquisition OnDecember 6, 2019 , we completed the Acquisition of the operations ofCape Girardeau ,Caruthersville and Mountaineer fromEldorado Resorts, Inc. for an aggregate purchase price of approximately$111.7 million , which consisted of$110.6 million at closing and an additional$1.1 million in working capital adjustments. Immediately prior to the Acquisition, the real estate assets underlying theAcquired Casinos were sold to VICI PropCo, and we and VICI PropCo subsidiaries entered into a triple netMaster Lease for the threeAcquired Casino properties. See "Master Lease" in Item 2 for more information.
We currently are exploring additional potential gaming projects and acquisition
opportunities. Along with the capital needs of potential projects, there are
various other risks which, if they materialize, could affect our ability to
complete a proposed project or acquisition or could eliminate its feasibility
altogether.
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Presentation of Foreign Currency Amounts
The average exchange rates to the US dollar used to translate balances during each reported period are as follows:
For the year
ended December 31, % Change
Average Rates 2020 2019 2018 2020/2019 2019/2018
Canadian dollar (CAD) 1.3412 1.3268 1.2960 (1.1%) (2.4%)
Euros (EUR) 0.8776 0.8934 0.8473 1.8% (5.4%)
Polish zloty (PLN) 3.8989 3.8378 3.6103 (1.6%) (6.3%)
British pound (GBP) 0.7798 0.7836 0.7497 0.5% (4.5%)Source: Pacific Exchange Rate Service
We recognize in our statement of (loss) earnings, foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than US dollars. Our casinos inCanada andPoland represent a significant portion of our business, and the revenue generated and expenses incurred by these operations are generally denominated in Canadian dollars and Polish zloty. A decrease in the value of these currencies in relation to the value of the US dollar would decrease the earnings from our foreign operations when translated into US dollars. An increase in the value of these currencies in relation to the value of the US dollar would increase the earnings from our foreign operations when translated into US dollars. See Note 2 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report.
Recent Developments Related to COVID-19
In late 2019, an outbreak of COVID-19 was identified inChina and has since spread throughout much of the world. The COVID-19 pandemic had an adverse effect on our 2020 results of operations and financial condition, and we expect the situation will continue to have an adverse impact on our results into 2021. The duration and impact of the COVID-19 pandemic otherwise remains uncertain. The table below provides a summary of the time periods in 2020 in which we closed our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19 and the percentage of gaming floors currently open unless otherwise indicated. Operating Segment Closure Date Reopen Date Gaming Floor Open Colorado March 17 June 15 and June 17 82% (1) Missouri March 17 June 1 94% West Virginia March 17 June 5 85% Edmonton March 17 June 13 71% (2) December 13 Currently Closed Calgary March 17 June 13 71% (2) December 13 Currently Closed Poland March 13 May 18 69% (3) December 29 February 12, 2021(1)CRC 's slot floor is fully open. CTL's slot floor is 71% open due to a county variance requiring every other machine to be powered off. Table games at CRC were closed from June toDecember 2020 . Table games at CTL were closed from June toSeptember 2020 and closed again inDecember 2020 . When table games at CTL were open, there were restrictions on the number of gaming positions. CRC and CTL reopened table games inFebruary 2021 with restrictions on the number of gaming positions. (2)Percentage of the gaming floor open prior to the second closure inDecember 2020 . Prior to the second closure inDecember 2020 , slot floors were open with restrictions on the number of slot machines operating. Table games were open fromSeptember 2020 toNovember 2020 with restrictions on the number of gaming positions.
(3)CPL's slot floors are fully open. Table games are open with restrictions on the number of gaming positions.
Our casinos have varied their operations based on the governmental health and safety requirements in the jurisdictions in which they are located. InColorado , each city has different gaming floor restrictions, and table games in bothCripple Creek andCentral City were closed during portions of 2020 but were able to reopen inFebruary 2021 . The full slot floor is open inCripple Creek compared to approximately 65% inCentral City . For bothColorado cities, there are capacity restrictions within the casinos and alcohol sales must stop at2:00 a.m. but the casinos are able to operate 24 hours a day, seven days per week. InMissouri , the full gaming floor is open with restrictions on gaming positions, hours of operation are reduced, and food outlets that have reopened have limited operating hours. InWest Virginia , the majority of the gaming floor has reopened, the gaming floor is limited to machines that are six feet apart or with barriers, food and beverage outlets have reopened with limited hours of operation, the convention space remains closed, hours of operation are limited, there are capacity restrictions within the casino, and the hotel is 31
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operating with limited rooms available. In
Temporary closures of all our facilities throughout 2020 due to COVID-19 negatively impacted results for the year endedDecember 31, 2020 . We estimate that the closures during the first and second quarters of 2020 adversely impacted net operating revenue and Adjusted EBITDA by approximately$91.3 million and$34.3 million , respectively, and closures inDecember 2020 adversely impacted net operating revenue and Adjusted EBITDA by approximately$9.2 million and$1.7 million , respectively. We estimate that the net cash outflows related to operations during the time they were fully suspended were, on average, approximately$8.0 million per month. We continue to monitor our liquidity in light of the uncertainty resulting from COVID-19. We plan to continue to reduce marketing and operational expenditures where possible and to seek government subsidies in jurisdictions in which they are available and attainable. Planned capital expenditures in 2021 include approximately$8.0 million in gaming equipment, renovations to various properties and security system upgrades. Our planned capital expenditure projects in 2021 will be evaluated throughout the year and postponed to 2022 if necessary and permitted under our agreements. InMarch 2020 , as a proactive measure to increase our cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic, we borrowed$9.95 million on our revolving credit facility with Macquarie and$7.4 million on our credit facility withUniCredit Bank Austria AG ("UniCredit"). We repaid the revolving credit facility inJuly 2020 except for a$50,000 letter of credit that we cash collateralized. See Note 7 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report for further discussion of the Macquarie credit agreement and the UniCredit credit agreement, including discussion of a recent amendment to the Macquarie credit agreement that, among other things, waives compliance with a financial covenant under the Macquarie credit agreement. We cannot predict the negative impacts that the failure to suppress the spread of COVID-19 will continue to have on our consumer demand, workforce, suppliers, contractors and other partners and whether future closures will be required. Such closures have had and will continue to have a material impact on us. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19 and the requirements of health and safety protocols are expected to continue to have a material impact on us. ? 32
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DISCUSSION OF RESULTS
Years ended
For the year
ended December 31, 2020/2019 2019/2018
Amounts in thousands 2020 2019 2018 $ Change % Change $ Change % Change
Gaming Revenue $ 253,281 $ 176,866 $ 140,301 $ 76,415 43.2% $ 36,565 26.1%
Hotel Revenue 5,910 2,521 1,986 3,389 134.4% 535 26.9%
Food and Beverage Revenue 16,194 20,022 15,742 (3,828) (19.1%) 4,280 27.2%
Other Revenue 28,883 18,818 10,909 10,065 53.5% 7,909 72.5%
Net Operating Revenue 304,268 218,227 168,938 86,041 39.4% 49,289 29.2%
Gaming Expenses (131,563) (92,749) (73,328) 38,814 41.8% 19,421 26.5%
Hotel Expenses (2,125) (906) (727) 1,219 134.5% 179 24.6%
Food and Beverage Expenses (15,962) (19,482) (15,854) (3,520) (18.1%) 3,628 22.9%
General and Administrative
Expenses (99,547) (82,980) (60,194) 16,567 20.0% 22,786 37.9%
Depreciation and Amortization (26,534) (10,843) (9,399) 15,691 144.7% 1,444 15.4%
Impairment - Intangible and
Tangible Assets (35,121) (16,486) - 18,635 113.0% 16,486 100.0%
Gain on Sale of Casino
Operations 6,457 - - 6,457 100.0% - -
Total Operating Costs and
Expenses (304,395) (223,446) (159,502) 80,949 36.2% 63,944 40.1%
(Loss) Earnings from Equity
Investment - (1) 23 1 100.0% (24) (104.3%)
(Loss) Earnings from
Operations (127) (5,220) 9,459 5,093 97.6% (14,679) (155.2%)
Income Tax Expense (4,848) (4,174) (1,917) 674 16.1% 2,257 117.7%
Net Loss (Earnings)
Attributable to
Non-controlling Interests 134 (3,014) (612) (3,148) (104.4%) 2,402 392.5%
Net (Loss) Earnings
Attributable to Century
Casinos, Inc. Shareholders (48,002) (19,155) 3,394 (28,847) (150.6%) (22,549) (664.4%)
Adjusted EBITDA (1) $ 48,398 $ 30,281 $ 23,377 $
18,117 59.8%
(Loss) Earnings Per Share Attributable toCentury Casinos, Inc. Shareholders Basic (Loss) Earnings Per Share$ (1.62) $ (0.65) $ 0.12 $ (0.97) (149.2%)$ (0.77) (641.7%) Diluted (Loss) Earnings Per Share$ (1.62) $ (0.65) $ 0.11 $
(0.97) (149.2%)
(1)For a discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net (loss) earnings attributable toCentury Casinos, Inc. shareholders, see Item 6, "Selected Financial Data" of this report.
Factors impacting year-over-year comparability of the results include the following:
?We acquired the operations at MTR, CCG and CCV in the Acquisition inDecember 2019 . MTR is reported in theWest Virginia operating segment and CCG and CCV are reported in theMissouri operating segment. ?West Virginia contributed a total of$90.2 million in net operating revenue and($5.9) million in net losses for the year endedDecember 31, 2020 and$8.7 million in net operating revenue and$0.4 million in net earnings for the year endedDecember 31, 2019 , which consisted of the month ofDecember 2019 .
?
?InEdmonton , we began operating CMR inApril 2019 . CMR contributed a total of$14.7 million in net operating revenue and($3.9) million in net losses for the year endedDecember 31, 2020 ,$18.9 million in net operating revenue and($2.4) million in net losses for the year endedDecember 31, 2019 and($1.1) million in net losses for the year endedDecember 31, 2018 . ? 33
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?Casino closures due to license expirations and delays in license tender awards inPoland impacted comparability of results for CPL beginning in 2017. We estimate that casino closures throughout 2018 decreased CPL's net operating revenue by PLN 35.2 million ($9.8 million based on the average exchange rate for the year endedDecember 31, 2018 ), net income attributable toCentury Casinos, Inc. shareholders by PLN 7.4 ($2.1 million based on the average exchange rate for the year endedDecember 31, 2018 ), and Adjusted EBITDA by PLN 12.0 ($3.3 million based on the average exchange rate for the year endedDecember 31, 2018 ). See thePoland discussion below for additional information.
Corporate and Other
?We began operating CCB inMay 2018 . CCB was closed inMarch 2020 due to COVID-19 and CCB's board of directors determined that CCB would enter into creditors voluntary liquidation, which occurred inMay 2020 . CCB was deconsolidated as a subsidiary inMay 2020 . We recorded a$23.7 million gain related to the deconsolidation to general and administrative expenses for the year endedDecember 31, 2020 . Due to historical and forecast losses at CCB due to changes in the current regulatory environment for casinos inEngland requiring enhanced due diligence of customers, we determined that the long-lived assets, ROU operating lease asset and intangible asset were impaired and wrote-off$16.5 million to impairment - intangible and tangible assets inDecember 2019 . CCB contributed a total of$0.5 million in net operating revenue and$23.1 million in net earnings for the year endedDecember 31, 2020 , primarily related to the gain on deconsolidation. CCB contributed$3.2 million in net operating revenue and($20.0) million in net losses for the year endedDecember 31, 2019 , and$2.7 million in net operating revenue and($2.1) million in net losses for the year endedDecember 31, 2018 .
?We incurred
Net operating revenue increased by$86.0 million , or 39.4%, and by$49.3 million , or 29.2%, for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively. Following is a breakout of net operating revenue by segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 .
?
?
?
?Corporate Other decreased by
Operating costs and expenses increased by$80.9 million , or 36.2%, and by$63.9 million , or 40.1%, for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively. Following is a breakout of operating costs and expenses by segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 .
?
?
?
?Corporate Other decreased by
(Loss) earnings from operations increased by$5.1 million , or 97.6%, and decreased by($14.7) million , or (155.2%), for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively. Following is a breakout of (loss) earnings from operations by segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 .
?
?
?
?Corporate Other increased by
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Net (loss) earnings attributable to Century Casinos, Inc. shareholders decreased
by ($28.8) million , or (150.6%), and by ($22.5) million , or (664.4%), for the
year ended December 31, 2020 compared to the year ended December 31, 2019 and
for the year ended December 31, 2019 compared to the year ended December 31,
2018 , respectively. Items deducted from or added to earnings from operations to
arrive at net earnings include interest income, interest expense, gains (losses)
on foreign currency transactions and other, income tax expense and
non-controlling interests. For a discussion of these items, see "Non-Operating
Income (Expense)" and "Taxes" below in this Item 7.
REPORTABLE SEGMENTS
The following discussion provides further detail of consolidated results by reportable segment.United States For the year ended December 31, 2020/2019 2019/2018 Amounts in thousands 2020 2019 2018 $
Change % Change $ Change % Change Gaming$ 168,904 $ 42,285 $ 27,736 $ 126,619 299.4%$ 14,549 52.5% Hotel 5,826 2,030 1,444 3,796 187.0% 586 40.6% Food and Beverage 9,795 4,804 3,931 4,991 103.9% 873 22.2% Other Revenue 13,819 879 372 12,940 1472.1% 507 136.3% Net Operating Revenue 198,344 49,998 33,483 148,346 296.7% 16,515 49.3% Gaming Expenses (90,553) (21,495) (12,897) 69,058 321.3% 8,598 66.7% Hotel Expenses (2,056) (690) (522) 1,366 198.0% 168 32.2% Food and Beverage Expenses (8,871) (4,772) (3,935) 4,099 85.9% 837 21.3% General and Administrative Expenses (49,729) (11,233) (8,069) 38,496 342.7% 3,164 39.2% Depreciation and Amortization (17,580) (2,330) (2,178) 15,250 654.5% 152 7.0% Impairment - Intangible and Tangible Assets (30,746) - - 30,746 100.0% - - Total Operating Costs and Expenses (199,535) (40,520) (27,601) 159,015 392.4% 12,919 46.8% (Loss) Earnings from Operations (1,191) 9,478 5,882 (10,669) (112.6%) 3,596 61.1% Income Tax Expense (1,023) (2,018) (1,508) (995) (49.3%) 510 33.8% Net Earnings Attributable toCentury Casinos, Inc. Shareholders (30,571) 5,825 4,373 (36,396) (624.8%) 1,452 33.2% Adjusted EBITDA$ 47,199 $ 11,825 $ 8,061 $ 35,374 299.1%$ 3,764 46.7%
We acquired MTR in
Sports wagering inColorado became legal onMay 1, 2020 . We have partnered with sports betting operators that will conduct sports wagering under each of the threeColorado master licenses for sports wagering held by ourColorado subsidiaries. One of these mobile sports betting apps launched inJuly 2020 . Each agreement with the sports betting operators provides for a share of net gaming revenue and a minimum revenue guarantee each year. InNovember 2020 ,Colorado voters passed a constitutional amendment to allow voters inCripple Creek ,Black Hawk andCentral City to increase or remove betting limits and approve new casino games. Elected officials in all three cities approved no limits on single bets at the casinos and new games to beginMay 2021 . The changes are expected to encourage gamblers who might otherwise travel to destination casinos to gamble in localColorado casinos. InDecember 2020 , we entered into an agreement with a gaming partner to utilize our license with the state ofWest Virginia to operate an internet and mobile interactive gaming application. The application is estimated to launch in the second quarter of 2021. The agreement provides for a share of net gaming revenue. ? 35
-------------------------------------------------------------------------------- Our US operations closed due to COVID-19 onMarch 17, 2020 and reopened betweenJune 1, 2020 andJune 17, 2020 . The results below are presented to illustrate the estimated impact of COVID-19 on net operating revenue inthe United States segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 as well as the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 . We did not acquire theWest Virginia andMissouri properties untilDecember 2019 . Amounts in millions Q1 Q2 Q3 Q4 YTDColorado 2020 6.7 2.0 10.4 9.5 28.6 2019 8.1 8.8 9.2 7.8 33.9 2018 7.7 8.5 9.4 7.9 33.5 2020/2019 (1.4) (6.8) 1.2 1.7 (5.3) (17.3%) (77.3%) 13.3% 20.5% (15.7%) 2019/2018 0.4 0.3 (0.2) (0.1) 0.4 4.7% 3.9% (1.7%) (0.9%) 1.4% West Virginia 2020 25.1 12.2 28.4 24.5 90.2 2019 - - - 8.7 8.7 Missouri 2020 21.6 9.6 23.9 24.5 79.6 2019 - - - 7.4 7.4 The results below are presented to illustrate the estimated impact of COVID-19 on operating expenses inthe United States segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 as well as the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , excluding depreciation and amortization expense and impairment - intangible and tangible assets. Amounts in millions Q1 Q2 Q3 Q4 YTD Colorado 2020 5.9 1.7 5.7 6.1 19.4 2019 6.2 6.6 6.9 6.3 26.0 2018 6.0 6.4 6.7 6.3 25.3 2020/2019 (0.3) (4.9) (1.2) (0.2) (6.6) (4.8%) (74.2%) (17.4%) (3.3%) (25.5%) 2019/2018 0.2 0.3 0.2 - 0.7 3.0% 4.0% 3.0% 0.9% 2.7% West Virginia 2020 23.3 12.7 23.6 21.2 80.8 2019 - - - 7.4 7.4 Missouri 2020 15.5 7.3 14.2 14.1 51.1 2019 - - - 4.8 4.8 Duringthe United States closures we suspended marketing initiatives, furloughed employees and reduced operating costs and expenses as much as possible. Additional savings related to gaming-related expenses. COVID-19 continues to impact results, and we are seeking to maintain operating cost efficiencies during 2021. We anticipate increasing our promotional offerings as needed to compete in the competitive markets in which we operate our US casinos. We plan to continue to encourage social distancing and other measures in compliance with governmental health and safety requirements.
A reconciliation of net earnings attributable to
?
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Canada For the year ended December 31, 2020/2019 2019/2018 Amounts in thousands 2020 2019 2018 $ Change % Change $ Change % Change Gaming$ 30,319 $ 49,450 $ 40,470 $ (19,131) (38.7%)$ 8,980 22.2% Hotel 84 491 542 (407) (82.9%) (51) (9.4%) Food and Beverage 5,832 13,507 10,528 (7,675) (56.8%) 2,979 28.3% Other Revenue 14,005 17,202 9,821 (3,197) (18.6%) 7,381 75.2% Net Operating Revenue 50,240 80,650 61,361 (30,410) (37.7%) 19,289 31.4% Gaming Expenses (5,583) (13,999) (12,105) (8,416) (60.1%) 1,894 15.6% Hotel Expenses (69) (216) (205) (147) (68.1%) 11 5.4% Food and Beverage Expenses (4,921) (11,541) (8,610) (6,620) (57.4%) 2,931 34.0% General and Administrative Expenses (28,135) (34,240) (22,597) (6,105) (17.8%) 11,643 51.5% Depreciation and Amortization (5,264) (4,539) (3,211) 725 16.0% 1,328 41.4% Impairment - Intangible and Tangible Assets (3,375) - - 3,375 100.0% - - Gain on Sale of Casino Operations 6,457 - - 6,457 100.0% - - Total Operating Costs and Expenses (40,890) (64,535) (46,728) (23,645) (36.6%) 17,807 38.1% Earnings from Operations 9,350 16,115 14,633
(6,765) (42.0%) 1,482 10.1%
Income Tax Expense (3,765) (3,278) (2,536) 487 14.9% 742 29.3% Net Earnings Attributable to Non-controlling Interests (553) (1,295) (722) (742) (57.3%) 573 79.4% Net Earnings Attributable toCentury Casinos, Inc. Shareholders 2,551 6,669 7,715 (4,118) (61.7%) (1,046) (13.6%) Adjusted EBITDA$ 11,497 $ 21,212 $ 19,522 $ (9,715) (45.8%)$ 1,690 8.7% InEdmonton , construction on the Century Mile project began inJuly 2017 . InJanuary 2019 , CMR began operating theNorthern Alberta off-track betting network. The CMR casino inEdmonton opened onApril 1, 2019 , and the first horse race was held onApril 28, 2019 . Results in US dollars were impacted by (1.1%) and (2.4%) exchange rate decreases in the average rates between the US dollar and the Canadian dollar for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively. Our Canadian operations closed due to COVID-19 onMarch 17, 2020 and reopened onJune 13, 2020 . The Canadian operations closed again onDecember 13, 2020 due to COVID-19. The results below are presented to illustrate the estimated impact of COVID-19 on net operating revenue in theCanada segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively.
Amounts in millions Q1 Q2 Q3 Q4 YTD Edmonton - CAD
2020 13.1 3.9 13.5 10.2 40.7
2019 11.8 18.5 17.9 16.6 64.8
2018 9.5 9.7 9.7 10.4 39.3
2020/2019 1.3 (14.6) (4.4) (6.4) (24.1)
11.0% (78.9%) (24.6%) (38.1%) (37.1%)
2019/2018 2.3 8.8 8.2 6.2 25.5
24.4% 91.3% 85.4% 58.3% 64.9%
Edmonton - USD
2020 9.8 2.8 10.2 7.8 30.6
2019 8.9 13.8 13.6 12.5 48.8
2018 7.5 7.5 7.4 7.9 30.3
2020/2019 0.9 (11.0) (3.4) (4.7) (18.2)
10.1% (79.7%) (25.2%) (37.6%) (37.3%)
2019/2018 1.4 6.3 6.2 4.6 18.5
18.5% 84.7% 83.5% 58.6% 61.2%
?
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Amounts in millions Q1 Q2 Q3 Q4 YTDCalgary - CAD 2020 8.5 2.6 8.6 6.4 26.1 2019 9.9 10.9 11.2 10.2 42.2 2018 9.1 10.1 10.8 10.3 40.3 2020/2019 (1.4) (8.3) (2.6) (3.8) (16.1) (14.1%) (76.1%) (23.6%) (36.8%) (38.2%) 2019/2018 0.8 0.8 0.4 (0.1) 1.9 8.7% 7.7% 3.7% (0.4%) 4.8% Calgary - USD 2020 6.4 1.9 6.4 4.9 19.6 2019 7.4 8.2 8.5 7.7 31.8 2018 7.2 7.8 8.3 7.8 31.1 2020/2019 (1.0) (6.3) (2.1) (2.8) (12.2) (13.5%) (76.8%) (24.3%) (36.3%) (38.3%) 2019/2018 0.2 0.3 0.2 - 0.7 3.4% 4.0% 2.5% (0.3%) 2.4% The results below are presented to illustrate the estimated impact of COVID-19 on operating expenses in theCanada segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively, excluding depreciation and amortization expense, impairment - intangible and tangible assets and gain on sale of casino operations.
Amounts in millions Q1 Q2 Q3 Q4 YTD Edmonton - CAD
2020 11.6 4.1 10.3 7.8 33.8
2019 9.6 14.5 14.4 12.7 51.2
2018 6.8 7.0 7.0 7.5 28.2
2020/2019 2.0 (10.4) (4.1) (4.9) (17.4)
20.8% (71.7%) (28.5%) (38.6%) (33.9%)
2019/2018 2.9 7.5 7.4 5.2 23.0
42.3% 107.6% 106.1% 69.5% 81.4%
Edmonton - USD
2020 8.7 2.9 7.8 6.0 25.3
2019 7.3 10.8 10.9 9.6 38.6
2018 5.4 5.4 5.3 5.7 21.8
2020/2019 1.4 (7.9) (3.1) (3.7) (13.3)
19.2% (73.1%) (28.4%) (38.2%) (34.5%)
2019/2018 1.9 5.4 5.5 4.0 16.8
35.4% 100.3% 103.9% 69.8% 77.3%
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Amounts in millions Q1 Q2 Q3 Q4 YTDCalgary - CAD 2020 6.0 2.5 5.8 3.6 17.9 2019 6.1 7.0 8.3 7.0 28.4 2018 6.2 6.9 7.8 7.3 28.2 2020/2019 (0.1) (4.5) (2.5) (3.4) (10.5) (1.6%) (64.3%) (30.1%) (47.8%) (36.8%) 2019/2018 (0.1) 0.1 0.5 (0.3) 0.2 (2.2%) 1.3% 7.3% (4.6%) 0.6% Calgary - USD 2020 4.5 1.8 4.4 2.7 13.4 2019 4.6 5.2 6.3 5.3 21.4 2018 4.9 5.3 6.0 5.5 21.9 2020/2019 (0.1) (3.4) (1.9) (2.6) (8.0) (2.2%) (65.4%) (30.2%) (47.7%) (37.3%) 2019/2018 (0.3) (0.1) 0.3 (0.3) (0.4) (7.1%) (2.3%) 6.1% (4.6%) (1.6%) Net operating revenue during the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was impacted negatively by closures due to COVID-19. Following theMarch 2020 closures, table games were reopened inmid-September 2020 and closed again inNovember 2020 . Our casinos inCanada were operating with approximately 71% of the slot floor open prior to the second closures inDecember 2020 . Attendance restrictions for racing and closures of our showroom inEdmonton also negatively impacted food and beverage revenue in 2020. We do not expect theEdmonton showroom to reopen until at least the third quarter of 2021. In addition, we sold the casino operations of CAL inDecember 2020 , which will impact comparability of theCalgary operating segment in 2021. Net operating revenue during the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 was impacted in theEdmonton operating segment primarily due to opening CMR inApril 2019 and in theCalgary operating segment due to a casino expansion that added 70 slot machines to CDR's gaming floor inNovember 2019 . Operating expenses during the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 were impacted by COVID-19. We received wage subsidies provided by the Canadian government through theCanada Emergency Wage Subsidy that was enacted inApril 2020 as a result of COVID-19 to help employers offset a portion of their employee wages for a limited period. The qualified government wage subsidies reduced operating expenses byCAD 7.4 million ($5.5 million based on the average exchange rate for the year endedDecember 31, 2020 ). In addition, we sold the casino operations of CAL inDecember 2020 . The gain on sale of the casino operations reduced operating expenses in theCalgary operating segment by$6.5 million , and the sale of the casino operations will reduce operating expenses in theCalgary operating segment going forward.
Operating expenses in the
During the Canadian closures we suspended marketing initiatives, furloughed employees and reduced operating costs and expenses as much as possible. Because COVID-19 continues to impact results, we are continuing to focus on managing costs. We continue to look for synergies between our Canadian properties including prizes that are available to guests at all locations instead of at individual casinos only. We expect payroll costs will begin to trend higher as it is expected that table games will reopen when the casinos reopen, and government wage subsidies are not forecast to continue once operations resume in 2021. We plan to continue to update our properties with enhancements to encourage social distancing and other measures to allow us to reopen additional gaming space and other facilities that currently are closed due to COVID-19 restrictions.
A reconciliation of net earnings attributable to
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Poland For the year ended December 31, 2020/2019 2019/2018 Amounts in thousands 2020 2019 2018 $ Change % Change $ Change % Change Gaming$ 53,228 $ 80,829 $ 67,289 $ (27,601) (34.1%)$ 13,540 20.1% Food and Beverage 462 912 782 (450) (49.3%) 130 16.6% Other Revenue 581 153 138 428 279.7% 15 10.9% Net Operating Revenue 54,271 81,894 68,209 (27,623) (33.7%) 13,685 20.1% Gaming Expenses (34,700) (53,111) (44,632) (18,411) (34.7%) 8,479 19.0%
Food and Beverage Expenses (2,037) (2,237) (2,714) (200) (8.9%) (477) (17.6%) General and Administrative Expenses (17,193) (17,567) (17,653) (374) (2.1%) (86) (0.5%) Depreciation and Amortization (3,124) (3,064) (3,065) 60 2.0% (1) - Total Operating Costs and Expenses (57,054) (75,979) (68,064) (18,925) (24.9%) 7,915 11.6% (Loss) Earnings from Operations (2,783) 5,915 145 (8,698) (147.0%) 5,770 3979.3% Income Tax Benefit (Expense) 518 (1,617) (595) (2,135) (132.0%) 1,022 171.8% Net Loss (Earnings) Attributable to Non-controlling Interests 687 (1,731) 75 (2,418) (139.7%) 1,806 2408.0% Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders (1,373) 3,466 (153) (4,839) (139.6%) 3,619 2365.4% Adjusted EBITDA$ 344 $ 9,392 $ 4,890 $ (9,048) (96.3%)$ 4,502 92.1% InPoland , casino gaming licenses are granted for a term of six years. These licenses are not renewable. Before a gaming license expires, there is a public notification of the available license and any gaming company can apply for a new license for that city. The casino at the LIM Center inWarsaw reopened inAugust 2019 . We expanded the gaming floor at theMarriott Hotel and added an additional six table games inMay 2019 . Delays by the Polish government in awarding licenses following their expiration resulted in several casinos closing throughoutPoland , lost gaming tax revenue for the government and additional costs and expenses for the casino operators, including CPL, during the year endedDecember 31, 2018 . CPL's results were significantly impacted for the year endedDecember 31, 2018 compared to the year endedDecember 31, 2019 by the additional costs and expenses associated with the closure of several of its casinos during 2018. The next license expiration for a CPL casino occurs inSeptember 2022 . Results in US dollars were impacted by (1.6%) and (6.3%) exchange rate decreases in the average rates between the US dollar and the Polish zloty for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively. The casinos inPoland closed due to COVID-19 onMarch 13, 2020 and reopened onMay 18, 2020 . ThePoland casinos closed again inDecember 2020 and reopened inFebruary 2021 . The results below are presented to illustrate the estimated impact of COVID-19 on net operating revenue in thePoland segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively. Amounts in millions Q1 Q2 Q3 Q4 YTD PLN 2020 66.6 29.6 62.1 51.0 209.3 2019 74.8 76.6 79.0 83.9 314.3 2018 59.1 52.2 61.9 73.5 246.7 2020/2019 (8.2) (47.0) (16.9) (32.9) (105.0) (11.0%) (61.4%) (21.4%) (39.1%) (33.4%) 2019/2018 15.7 24.4 17.1 10.4 67.6 26.6% 46.8% 27.6% 14.1% 27.4% USD 2020 17.1 7.4 16.3 13.5 54.3 2019 19.8 20.1 20.3 21.7 81.9 2018 17.4 14.6 16.7 19.5 68.2 2020/2019 (2.7) (12.7) (4.0) (8.2) (27.6) (13.6%) (63.2%) (19.7%) (38.1%) (33.7%) 2019/2018 2.4 5.5 3.6 2.2 13.7 13.6% 38.0% 21.6% 11.6% 20.1% 40
-------------------------------------------------------------------------------- The results below are presented to illustrate the estimated impact of COVID-19 on operating expenses in thePoland segment for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively, excluding depreciation and amortization expense and impairment - intangible and tangible assets. Amounts in millions Q1 Q2 Q3 Q4 YTD PLN 2020 62.5 35.9 58.3 51.9 208.6 2019 65.5 69.0 69.8 73.3 277.6 2018 53.4 54.6 59.2 67.9 235.1 2020/2019 (3.0) (33.1) (11.5) (21.4) (69.0) (4.6%) (48.0%) (16.5%) (29.2%) (24.8%) 2019/2018 12.1 14.4 10.6 5.4 42.5 22.7% 26.3% 17.8% 8.0% 18.1% USD 2020 16.0 8.9 15.3 13.8 53.9 2019 17.3 18.1 18.0 19.6 72.9 2018 15.7 15.2 16.0 18.0 65.0 2020/2019 (1.3) (9.2) (2.7) (5.8) (19.0) (7.5%) (50.8%) (15.0%) (29.4%) (26.0%) 2019/2018 1.6 2.8 2.0 1.5 7.9 10.2% 18.5% 12.2% 8.5% 12.2%
The net operating revenue decreases during 2020 relate primarily to temporary
casino closures and reduced tourism in
The net operating revenue increases for the year ended
?The casino at the
?The casino at the
?The casino at the
?The casino at the Park Inn by
?The casino at the LIM Center in
?The casinos at the
?All other casinos were operational for the full year ended
?We expanded the gaming floor at the
During the closures of ourPoland casinos, we reduced operating costs and expenses as much as possible. Operating costs and expenses in thePoland segment continued to be lower during the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 because of lower payroll and marketing expenditures as well as lower gaming related expenses corresponding to decreased gaming revenue. COVID-19 continues to impact results, and we continue to focus on analyzing staffing needs to match customer volumes to continue to manage our costs. Operating expenses increases for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 were impacted by increased expenses related to additional months of operations in 2019 compared to 2018 as detailed above. Additional expense related to the disposal of assets at the Poznan and Plock casinos for the year endedDecember 31, 2018 . We currently operate three casinos inWarsaw . There is proposed legislation to split theWarsaw voivodship (or province), which could limit the number of casino licenses available inWarsaw in the future. If the legislation is passed, it is expected that as licenses inWarsaw expire a new tender would not be offered until the maximum number of licenses available is reached. Any change to the number of licenses available in a city could have a negative impact on results if we are unable to obtain new casino licenses.
We were in preliminary discussions with Totalizator Sportowy,
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A reconciliation of net earnings (loss) attributable toCentury Casinos, Inc. shareholders to Adjusted EBITDA can be found in the "Non-GAAP Measures - Adjusted EBITDA" discussion in Item 6, "Selected Financial Data" of this report. Corporate and Other For the year ended December 31, 2020/2019 2019/2018 Amounts in thousands 2020 2019 2018 $ Change % Change $ Change % Change Gaming$ 830 $ 4,302 $ 4,806 $ (3,472) (80.7%)$ (504) (10.5%) Food and Beverage Revenue 105 799 501 (694) (86.9%) 298 59.5% Other Revenue 478 584 578 (106) (18.2%) 6 1.0% Net Operating Revenue 1,413 5,685 5,885 (4,272) (75.1%) (200) (3.4%) Gaming Expenses (727) (4,144) (3,694) (3,417) (82.5%) 450 12.2% Food and Beverage Expenses (133) (932) (595) (799) (85.7%) 337 56.6% General and Administrative Expenses (4,490) (19,940) (11,875) (15,450) (77.5%) 8,065 67.9% Depreciation and Amortization (566) (910) (945) (344) (37.8%) (35) (3.7%) Impairment - Intangible and Tangible Assets (1,000) (16,486) - (15,486) (93.9%) 16,486 100.0% Total Operating Costs and Expenses (6,916) (42,412) (17,109) (35,496) (83.7%) 25,303 147.9% (Loss) Earnings from Equity Investment - (1) 23 1 100.0% (24) (104.3%) Losses from Operations (5,503) (36,728) (11,201)
31,225 85.0% (25,527) (227.9%)
Income Tax (Expense) Benefit (578) 2,739 2,722 (3,317) (121.1%)
17 0.6%
Net Loss Attributable to
Non-controlling Interests - 12 35 (12) (100.0%) (23) (65.7%)
Net Loss Attributable to
Century Casinos, Inc.
Shareholders (18,609) (35,115) (8,541) 16,506 47.0% (26,574) (311.1%)
Adjusted EBITDA $ (10,642) $ (12,148) $ (9,096) $ 1,506 12.4% $ (3,052) (33.6%)
The following operations and agreements make up the reporting unit Cruise Ships & Other in the Corporate and Other reportable segment:
?The casino at CCB opened inMay 2018 . CCB was permanently closed inMarch 2020 due to COVID-19 and CCB's board of directors determined that CCB would enter into creditors voluntary liquidation, which occurred inMay 2020 . CCB was deconsolidated as a subsidiary inMay 2020 . We recorded a$23.7 million gain related to the deconsolidation to general and administrative expenses for the year endedDecember 31, 2020 . Due to historical and forecast losses at CCB from changes in the current regulatory environment for casinos inEngland requiring enhanced due diligence of customers, we determined that the long-lived assets, ROU operating lease asset and intangible asset at CCB were impaired and wrote-off$16.5 million to impairment - intangible and tangible assets inDecember 2019 . For additional information related to CCB, see Note 1, "Description of Business and Basis of Presentation," to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report. ?As ofDecember 31, 2020 , we had a concession agreement withTUI Cruises for four ship-based casinos, none of which was operating. The agreement ends inJune 2022 . We have decreased our operation of ship-based casinos on cruise ships over the past few years, and mutually agreed with cruise lines with which we had concession agreements not to extend certain agreements at their termination dates. The following is a summary of concession agreements that ended between 2018 and 2020. Cruise Ship Month of Contract ExpirationMein Schiff 1April 2018 Marella DiscoveryOctober 2018 Wind Star November 2018 Wind SpiritJanuary 2019 Star PrideMarch 2019 Wind SurfApril 2019 Star BreezeApril 2019 Star LegendMay 2019 Mein Schiff 3May 2020 ? 42
-------------------------------------------------------------------------------- ?Through our subsidiary CRM, we have a 7.5% ownership interest in MCE. In addition, CRM provides advice to MCE on casino matters pursuant to a consulting agreement for a service fee consisting of a fixed fee plus a percentage of MCE's EBITDA. InMarch 2020 , due to the impact of COVID-19 on MCE, we impaired the$1.0 million MCE investment and wrote-down a$0.3 million receivable related to MCE. For additional information related to MCE, see Note 4, "Investments," to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report. ?Through our subsidiary CRM, we had a 51% ownership interest in GHL. We sold our interest in GHL to the unaffiliated shareholders of GHL inMay 2019 for a$0.7 million non-interest bearing promissory note. We recognized a loss on the sale of this investment of less than($0.1) million in general and administrative expenses on our consolidated statement of (loss) earnings for the year endedDecember 31, 2019 . The sale of our equity interest in GHL also ended our equity interest in MCL. For additional information related to GHL and MCL, see Note 4, "Investments," to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report. Results at CCB were impacted by a 0.5% exchange rate increase and (4.5%) exchange rate decrease for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 and the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , respectively.
Revenue Highlights
Years ended
Non-Corporate Reporting Units
Net operating revenue decreased due to the closure of CCB as detailed above. In addition, our four ship-based casinos were not operating for the majority of the year due to COVID-19 related shutdowns of the cruise ships on which they operate.
Years ended
Non-Corporate Reporting Units
Net operating revenue decreased by($0.2) million , or (3.4%), due to decreased revenue from Cruise Ships & Other resulting from the expiration of certain of our concession agreements for the operation of ship-based casinos as detailed above. This decrease was offset by increased net operating revenue at CCB, which operated for a full year in 2019 compared to eight months in 2018. Net operating revenue for CCB increased byGBP 0.5 million , or 22.5%, due to increased gaming and food and beverage revenue from operating for a full year in 2019 compared to eight months in 2018. Revenue growth was impacted by enforcement of anti-money laundering and social responsibility regulations that required us to limit customers' play until the required information is provided by the player. In addition, we believe that concerns about the withdrawal of theUnited Kingdom from theEuropean Union (commonly referred to as "Brexit") reduced discretionary consumer spending in the market. In US dollars, net operating revenue increased by$0.5 million , or 20.4%.
Operating Expense Highlights
Years ended
Non-Corporate Reporting Units
Total operating costs and expenses decreased due to casino closures at CCB and on the ships. In addition, the deconsolidation of CCB resulted in a gain of$7.4 million that we recognized in general and administrative expenses on our consolidated statements of (loss) earnings for the year endedDecember 31, 2020 .
Corporate Reporting Units
Total operating costs and expenses decreased by($5.8) million , or (35.5%). InMarch 2020 , we impaired the MCE investment due to an assessment of MCE's operations resulting from COVID-19. As a result of the impairment, we recorded$1.0 million to impairment - intangible and tangible assets during the year endedDecember 31, 2020 . In addition, we assessed the collectability of a receivable fromLOT Polish Airlines ("LOT"), which previously owned a 33.3% interest in CPL that we acquired in 2013, related to thePoland contingent liability and determined that, due to COVID-19, it was more likely than not that LOT would be unable to repay us for LOT's portions of payments made by CPL to thePolish IRS for tax periods inJanuary 2009 toMarch 2013 . Due to COVID-19, LOT grounded flights inMarch 2020 . Based on past efforts to collect on the receivable and analysis of LOT's ability to pay, we wrote-down the$0.7 million receivable to general and administrative expenses for the year endedDecember 31, 2020 . Offsetting these increases, during the closures certain of our corporate staff voluntarily decreased their salaries. In addition, in 2019 there were additional expenses related to the Acquisition that did not reoccur in 2020, as discussed below. 43
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Years ended
Non-Corporate Reporting Units
Total operating costs and expenses increased by$17.4 million , or 214.2%. InDecember 2019 , we impaired certain assets at CCB due to historical and forecast operating losses at this casino resulting from the factors discussed above. As a result of the impairment, we wrote down$16.5 million to impairment - intangible and tangible assets for the year endedDecember 31, 2019 . In addition, we evaluated our agreement withDiamond Cruises related to the operation of the ship-based casino onboard theGlory Sea . We determined that it was more likely than not that the agreement was impaired and wrote-down$0.9 million in receivables related to theGlory Sea along with increased expense of$0.3 million related to the loss on disposal of fixed assets related to theGlory Sea and disposal of assets from storage. These increased expenses were partially offset by decreased operating expenses related to the expiration of certain of our concession agreements for the operation of ship-based casinos as detailed above. Corporate Reporting Units Our corporate reporting units include certain other corporate and management operations. Total operating costs and expenses increased by$7.9 million , or 87.9%, due to one-time costs related to the Acquisition including$5.4 million in acquisition costs and a$0.6 million in bonuses. In addition, payroll costs and travel-related expenses increased. A reconciliation of net loss attributable toCentury Casinos, Inc. shareholders to Adjusted EBITDA can be found in the "Non-GAAP Measures - Adjusted EBITDA" discussion in Item 6, "Selected Financial Data" of this report.
Non-Operating Income (Expense)
Non-operating income (expense) for the years endedDecember 31, 2020 , 2019 and 2018 was as follows: For the year ? ended December 31, 2020/2019 2019/2018
Amounts in thousands 2020 2019 2018 $ Change
% Change $ Change % Change Interest Income$ 6 $ 21 $ 103 $ (15) (71.4%)$ (82) (79.6%) Interest Expense (43,104) (8,250) (4,217) 34,854 422.5% 4,033 95.6% (Loss) Gain on Foreign Currency Transactions, Cost Recovery Income and Other (63) 1,482 578 (1,545) (104.3%) 904 156.4% Non-Operating (Expense)$ (43,161) $ (6,747) $ (3,536) $ (36,414) (539.7%)$ (3,211) (90.8%) Interest income
Interest income is directly related to interest earned on our cash reserves.
Interest expense
Interest expense is directly related to interest owed on our borrowings under our Macquarie Credit Agreement, our financing obligation with VICI PropCo, our credit agreement with the Bank of Montreal that was replaced by the Macquarie Credit Agreement, the fair value adjustments for our interest rate swap agreements, our CPL and CRM borrowings, our capital lease agreements and interest expense related to the CDR land lease.
Gain on foreign currency transactions, cost recovery income and other
Cost recovery income of$0.2 million and$0.4 million was received by CDR for the years endedDecember 31, 2020 and 2019, respectively, related to infrastructure built during the development of the Century Downs REC project. The distribution to CDR's non-controlling shareholders through non-controlling interest is part of a credit agreement between CRM and CDR. There was no cost recovery income received by CDR for the year endedDecember 31, 2018 .
We adjusted the contingent liability related to the CPL taxes to remove the
estimated taxes accrued for the 2015 and 2014 tax years due to the expiration of
the statute of limitations for each tax year. This adjustment reduced the
contingent liability by PLN 2.8 (
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Taxes
Income tax expense is recorded relative to the jurisdictions that recognize book earnings. During the year endedDecember 31, 2020 , we recognized income tax expense of$4.8 million on pre-tax loss of($43.3) million , representing an effective income tax rate of 11.2%, compared to income tax expense of$4.2 million on pre-tax loss of($12.0) million , representing an effective income tax rate of 34.9% and income tax expense of$1.9 million on pre-tax income of$5.9 million , representing an effective income tax rate of 32.4% for the same periods in 2019 and 2018, respectively. For further discussion on our effective income tax rates and an analysis of our effective income tax rate compared to the US federal statutory income tax rate, see Note 14, "Income Taxes," to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow. We use the cash flows that we generate to maintain operations, fund reinvestment in existing properties for both refurbishment and expansion projects, repay third party debt, and pursue additional growth via new development and acquisition opportunities. When necessary and available, we supplement the cash flows generated by our operations with either cash on hand or funds provided by bank borrowings or other debt or equity financing activities. In 2020, our liquidity has been adversely affected by temporary closures of all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19, as discussed below. As ofDecember 31, 2020 , our total debt under bank borrowings and other agreements net of$9.3 million related to deferred financing costs was$184.6 million , of which$173.7 million was long-term debt and$10.8 million was the current portion of long-term debt. The current portion relates to payments due within one year under our Macquarie Credit Agreement, CPL credit agreements, UniCredit loan and credit agreement and the CRM credit facility. For a description of our debt agreements, see Note 7 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report. Net Debt was$130.4 million as ofDecember 31, 2020 compared to$134.2 million as ofDecember 31, 2019 . For the definition and reconciliation of Net Debt to the most directly comparable GAAP measure, see "Non-GAAP Measures - Net Debt" in Item 6, "Selected Financial Data" of this report. We intend to repay the current portion of our debt obligations with available cash.
The following table lists the 2021 maturities of our debt:
Amounts in thousands Macquarie Credit Casinos Poland Century
Downs UniCredit Credit
Agreement ?Credit Agreements UniCredit Loan ?Land Lease Agreement Total
$ 1,700 $ 1,072 $ 546 $ - $ 7,400 $ 10,718
There is no set repayment schedule for the CPL credit facility, and we classify
it as short-term debt due to the nature of the agreements. We plan to convert
the UniCredit credit agreement to a term loan in 2021.
The following table lists the amount of 2021 payments due under our lease
agreements:
Amounts in thousands
Operating Leases Finance Leases Total
$ 5,679 $ 137 $ 5,816
In addition to these payment obligations, our scheduled payments for 2021 under
the Master Lease are $23.1 million and under the CDR land lease financing
obligation are $1.6 million , excluding variable rent payments. Cash payments
related to the Master Lease and CDR land lease were $25.0 million and
$1.3 million , respectively, for the year ended December 31, 2020 .
Cash Flows
Cash, cash equivalents and restricted cash totaled$63.7 million and working capital (current assets minus current liabilities) was$34.5 million atDecember 31, 2020 compared to cash, cash equivalents and restricted cash of$55.6 million and working capital of$22.8 million atDecember 31, 2019 , and cash, cash equivalents and restricted cash of$46.3 million and working capital of$5.0 million atDecember 31, 2018 . The increase in cash, cash equivalents and restricted cash fromDecember 31, 2019 toDecember 31, 2020 is due to$9.0 million of cash provided by operating activities;$4.2 million in proceeds from borrowings net of repayments;$6.6 million in proceeds from the sale of the casino operations ofCentury Casino Calgary , net of cash assumed by the buyer; and$1.2 million in exchange rate changes; offset by$1.2 million of cash used for payment related to the working capital adjustment in the Acquisition;$10.7 million of cash used to purchase property and equipment;$0.9 million in deferred financing costs; and$0.2 million of distributions to non-controlling interests. ? 45
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Operating Activities
Net cash provided by operating activities was$9.0 million ,$18.8 million and$22.3 million in 2020, 2019 and 2018, respectively. Our cash flows from operations have historically been positive and sufficient to fund ordinary operations. Trends in our operating cash flows tend to follow trends in earnings from operations, excluding non-cash charges. Please refer also to the consolidated statements of cash flows in the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report and to management's discussion of the results of operations above in this Item 7 for a discussion of (loss) earnings from operations.
Investing Activities
Net cash used in investing activities of$5.3 million for the year endedDecember 31, 2020 consisted of a$1.2 million payment related to the working capital adjustment in the Acquisition;$0.6 million for slot machine purchases at ourColorado properties;$0.1 million for slot chairs at CTL;$1.0 million for slot machine purchases,$0.2 million in rebranding signage,$1.8 million for player tracking systems and upgrades to the slot accounting systems, and$0.6 million in computer upgrades at ourMissouri properties;$0.2 million for surveillance upgrades,$1.1 million for slot machine purchases,$0.2 million for racetrack reconditioning, and$0.3 million in computer upgrades at ourWest Virginia property;$0.5 million for table game equipment,$0.9 million in building updates, and$0.2 million in racetrack and barn updates at ourEdmonton properties;$0.2 million for table game equipment at ourCalgary properties;$0.3 million in casino improvements inPoland ; and$2.5 million in other fixed asset additions at our properties; offset by$6.6 million from the sale ofCentury Casino Calgary , net of cash assumed by the buyer. Net cash used in investing activities of$120.7 million for the year endedDecember 31, 2019 consisted of$96.6 million related to the Acquisition, net of cash acquired;$15.0 million for construction costs related to the Century Mile project;$4.3 million related to leasehold improvements at theMarriott Hotel inWarsaw, Poland and additional assets for the casinos inPoland ;$0.8 million inColorado for slot machines, chairs and security upgrades;$1.2 million inCalgary for the building expansion at CDR and a bar at CAL;$0.3 million inEdmonton for new carpet and surveillance equipment at CRA;$2.3 million in other fixed asset additions at our properties; and$0.2 million used to acquire the non-controlling interest inCBS . Net cash used in investing activities of$57.7 million for the year endedDecember 31, 2018 consisted of$40.0 million for construction costs related to the Century Mile project;$7.8 million for theCentury Casino Bath project;$5.1 million in leasehold improvements at the new casinos inPoland and additional assets for the casinos inPoland ;$0.9 million inCalgary for racetrack improvements and a barn at CDR and surveillance upgrades at CAL;$0.8 million inColorado for slot machines and carpet replacement;$2.4 million in other fixed asset additions at our properties;$0.3 million for CRM's purchase of its ownership interest in GHL, net of cash acquired; and$0.6 million for GHL's purchase of its ownership interest in MCL, offset by less than$0.1 million in proceeds from the disposition of assets.
Financing Activities
Net cash provided by financing activities of$3.1 million for the year endedDecember 31, 2020 consisted of$4.2 million in proceeds from borrowings net of principal payments, offset by$0.9 million in deferred financing costs and a$0.2 million distribution to non-controlling interests in CDR. Net cash provided by financing activities of$113.9 million for the year endedDecember 31, 2019 consisted of$124.7 million received from borrowings net of principal repayments and$0.3 million from the exercise of stock options, offset by$10.1 million of deferred financing costs paid and$1.0 million in distributions to non-controlling interests inCBS and CPL. Net cash provided by financing activities of$7.2 million for the year endedDecember 31, 2018 consisted of$8.2 million received from borrowings net of principal repayments and$0.3 million from the exercise of stock options, offset by$0.3 million of principal repayments for capital leases,$0.4 million of deferred financing costs paid and$0.6 million in distributions to non-controlling interests inCBS and CPL.
Tax Act
During 2018, the Company completed its accounting of the one-time transition tax on undistributed and previously untaxed post-1986 foreign earnings and profits imposed by the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act permits a company to pay the one-time transition tax over eight years on an interest free basis. The Company paid$0.6 million of the transition tax in 2018. The remaining cash payments due related to the transition tax total$0.9 million as set forth in the Contractual Obligations and Contingencies table below.
Common Stock Repurchase Program
The total amount remaining under our stock repurchase program was$14.7 million as ofDecember 31, 2020 . We did not repurchase any common stock in 2020, 2019 or 2018. The repurchase program has no set expiration or termination date. 46
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Potential Sources and Uses of Liquidity, Short-Term Liquidity
Historically, our primary source of liquidity and capital resources has been cash flow from operations. When necessary and available, we supplement the cash flows generated by our operations with funds provided by bank borrowings or other debt or equity financing activities. In addition, we have generated cash from sales of existing casino operations and proceeds from the issuance of equity securities upon the exercise of stock options. The COVID-19 pandemic has had an adverse effect on our results of operations, financial condition and liquidity for 2020, and we expect the situation will continue to have an adverse effect on our results of operations, financial condition and liquidity into 2021. The duration and impact of the COVID-19 pandemic remains uncertain. BetweenMarch 13, 2020 andMarch 17, 2020 , we closed all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. Our Polish locations reopened onMay 18, 2020 , and our North American operations reopened betweenJune 1, 2020 andJune 17, 2020 . Additional closures of ourCanada andPoland casinos were required inDecember 2020 to comply with quarantines issued by governments. OurPoland casinos reopened inFebruary 2021 , but ourCanada casinos remain closed. Our casinos have varied their operations based on the governmental health and safety requirements in the jurisdictions in which they are located. These include capacity and gaming floor restrictions and limited hours of operations. We estimate that the net cash outflows related to operations during the time they were fully suspended in the first two quarters of 2020 were, on average, approximately$8.0 million per month. We continue to monitor our liquidity in light of the uncertainty resulting from COVID-19. We plan to continue to reduce marketing and operating expenditures where possible. Planned capital expenditures in 2021 include approximately$8.0 million in gaming equipment, renovations to various properties and security system upgrades. Our 2021 planned capital expenditure projects will be evaluated throughout the year and postponed to 2022 if necessary and permitted under our agreements. InMarch 2020 , as a proactive measure to increase our cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic, we borrowed$9.95 million on our revolving credit facility with Macquarie and$7.4 million on our credit agreement with UniCredit. We repaid the Macquarie revolving credit facility inJuly 2020 except for a$50,000 letter of credit that we cash collateralized. See Note 7 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report for further discussion of the Macquarie credit agreement and the UniCredit credit agreement, including discussion of a recent amendment to the Macquarie credit agreement that, among other things, waives compliance with a financial covenant under the Macquarie credit agreement. We cannot predict the negative impacts that the failure to suppress the spread of COVID-19 will have on our consumer demand, workforce, suppliers, contractors and other partners and whether future closures will be required. Such closures have had and will continue to have a material impact on our business. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19 and the requirements of health and safety protocols are expected to continue to have a material impact on our business.
We may be required to raise additional capital to address our liquidity and
capital needs. We have a shelf registration statement with the
If necessary, we may seek to obtain further term loans, mortgages or lines of credit with commercial banks or other debt or equity financings to supplement our working capital and investing requirements. Our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders. The failure to raise the funds necessary to fund our debt service and rent obligations and finance our operations and other capital requirements could have a material and adverse effect on our business, financial condition and liquidity. In addition, we expect our US domestic cash resources will be sufficient to fund our US operating activities and cash commitments for investing and financing activities. While we currently do not have an intent nor foresee a need to repatriate funds, we could require more capital in the US than is generated by our US operations for operations, capital expenditures or significant discretionary activities such as acquisitions of businesses and share repurchases. If so, we could elect to repatriate earnings from foreign jurisdictions in the form of a cash dividend, which would generally be exempt from taxation with the exception of the adverse impact of withholding taxes. We also could elect to raise capital in the US through debt or equity issuances. We estimate that approximately$27.5 million of our total$63.4 million in cash and cash equivalents atDecember 31, 2020 is held by our foreign subsidiaries and is not available to fund US operations unless repatriated. 47
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Contractual Obligations and Contingencies
The following table summarizes our future commitments and contingency payments as ofDecember 31, 2020 . Payments due by Period Less than 1 Amounts in thousands Total Year 1-3 Years 3-5 Years After 5 Years Recorded contractual obligations and contingencies: Long-term debt (1)$ 193,811 $ 10,718 $ 4,580 $ 3,400 $ 175,113 Finance obligations - VICI Properties, Inc. subsidiaries (2) 1,161,675 23,146 51,324 52,484 1,034,721 Finance lease obligations 224 137 67 20 - Operating lease obligations 49,097 5,679 10,232 6,816 26,370 Other contingencies (3) 476 - - - - Unrecorded contractual obligations and contingencies: Estimated interest payments - long-term debt (4) 88,525 13,021 25,677 25,369 24,458 US Tax Act obligations (5) 948 - 233 715 - Contractual obligations$ 1,494,756 $ 52,701 $ 92,113 $ 88,804 $ 1,260,662 (1)Represents principal payments only. These amounts do not reflect the impact of future foreign exchange rate changes. The CDR land lease is excluded from long-term debt because we are not obligated to purchase the land. The CDR land lease is accounted for using the financing method, and no principal payments will be made unless the land is purchased. The first option to purchase the land at fair market value isJuly 1, 2023 . See Note 7 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this report for further information. (2)Represents minimum payments and estimates based on contingent rental payments due under the Master Lease. Variable payments and index rate adjustments over the minimum amount stated in the Master Lease are not included. See Note 8 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this report for further information. (3)Estimated contingencies related to the CPL contingent liability are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement. See Note 17 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this report for further information. (4)Estimated interest payments are based on principal amounts and expected maturities of long-term debt outstanding as ofDecember 31, 2020 and management's forecasted rates for our Macquarie Credit Agreement, CDR land lease, CPL credit agreements, UniCredit Loan and CRM credit facility. Estimated interest payments do not reflect the impact of future foreign exchange rate changes. Fixed payments related to the CDR land lease are presented as if we do not elect the purchase options. The table above excludes the variable payments related to the CDR land lease. (5)Amounts reflect remaining cash payments due for the transition tax. The next payment is dueApril 15, 2023 . See Note 14 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report for additional discussion of the effects of the Tax Act.
Off-Balance Sheet Arrangements
The unrecorded contractual obligations above are not expected to have a material effect on our consolidated financial statements. We do not have any additional off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our consolidated financial statements.
Critical Accounting Estimates
Management's discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements. To prepare our consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America , we must make estimates and assumptions that affect the amounts reported in the consolidated financial statements. On an ongoing basis, we evaluate these estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this report. Critical estimates inherent in these accounting policies are discussed in the following paragraphs. 48 -------------------------------------------------------------------------------- Property and Equipment - We have significant capital invested in our property and equipment, which represented approximately 76% of our total assets as ofDecember 31, 2020 . Judgments are made in determining the estimated useful lives of assets, salvage values to be assigned to assets and if or when an asset has been impaired. The accuracy of these estimates affects the amount of depreciation expense recognized in our financial results and the extent to which we have a gain or loss on the disposal of the asset. We assign lives to our assets based on our standard policy, which we believe is representative of the useful life of each category of assets. We review the carrying value of our property and equipment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. The factors we consider in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. As ofDecember 31, 2020 , we believe that our investments in property and equipment are recoverable. For the year endedDecember 31, 2019 , we wrote down the long-lived assets at CCB due to historical and forecast losses at the casino and charged$8.0 million to impairment - intangible and tangible assets on our consolidated statement of (loss) earnings.Goodwill and Intangible Assets - We test goodwill and indefinite-lived intangible assets for impairment as ofOctober 1 each year, or more frequently as circumstances indicate it is necessary. Our identifiable intangible assets include trademarks, player's club lists and casino licenses. Testing compares the estimated fair values of our reporting units to the reporting units' carrying values. Assessing goodwill and intangible assets for impairment requires significant judgment and involves detailed qualitative and quantitative business-specific analysis and many individual assumptions that may fluctuate between assessments. Our properties' estimated future cash flows are a primary assumption in the respective impairment analyses. Cash flow estimates include assumptions regarding factors such as recent and budgeted operating performance, growth percentages as well as competitive impacts from current and anticipated competition, operating margins and current regulatory, social and economic climates. The most significant of the assumptions used in our valuations include revenue growth/decline percentages, discount rates, future terminal values and capital expenditure assumptions. These assumptions are developed for each property based on historical trends, the current markets in which they operate and projections of future performance and competition. We believe we have used reasonable estimates and assumptions to calculate the fair value of our goodwill and indefinite-lived intangible assets; however, these estimates and assumptions could be materially different from actual results. Unforeseen events, changes in circumstances and market conditions and material differences in estimates of future cash flows could negatively affect the fair value of our assets. If actual market conditions are less favorable than those projected, or if events occur or circumstances change that could reduce the fair value of our goodwill of intangible assets below the carrying value, we will recognize an impairment for the amount by which the carrying value exceeds the reporting unit's fair value, which may be material. Our reporting units with goodwill balances as ofDecember 31, 2020 are included withinCanada andPoland reportable segments. For the quantitative goodwill impairment test, the current fair value of each reporting unit with goodwill balances is estimated using a combination of (i) the income approach using the discounted cash flow method for projected revenue, EBITDA and working capital, (ii) the market approach observing the price at which comparable companies or shares of comparable companies are bought or sold, and (iii) fair value measurements using either quoted market price or an estimate of fair value using a present value technique. The cost approach, estimating the cost of reproduction or replacement of an asset, was considered but not used because it does not adequately capture an operating company's intangible value. We make a variety of estimates and judgments about the relevance of these factors to the reporting units in estimating their fair values. During 2020, as a result of the COVID-19 pandemic and associated closures of our casinos, we determined that goodwill was impaired related to certain reporting units. For information about the 2020 impairments, see Note 6 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report. As ofDecember 31, 2020 , the estimated fair value of our CRA reporting unit exceeded its carrying value by 19%.Goodwill related to our CRA reporting unit was$3.9 million as ofDecember 31, 2020 . Key assumptions in the valuation of the CRA reporting unit relate to future earnings at CRA. A downturn in theAlberta economy could negatively affect the key assumptions management used in its analysis. OurCentury Casinos and Casinos Poland trademarks and our casino licenses, with the exception of CPL, are indefinite-lived intangible assets and therefore are not amortized. The fair values are determined primarily using the multi-period excess earnings methodology ("MPEEM") and the relief from royalty method under the income approach. For information about impairments in 2020 and 2019, see Note 6 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this report. As ofDecember 31, 2020 , the fair value of our indefinite-lived intangible assets at our CSA reporting unit was 2% in excess of its related carrying value. Intangible assets related to our CSA reporting unit were$9.6 million as ofDecember 31, 2020 . Key assumptions in the valuation of intangible assets at the CSA reporting unit relate to future earnings at CSA. A downturn in theAlberta economy could negatively affect the key assumptions management used in its analysis. Our casino licenses related to CPL, our Mountaineer trademark and our player's club lists are finite-lived intangible assets and are amortized over their respective useful lives. Finite-lived intangibles are evaluated for impairment annually or more frequently if necessary. There were no impairment charges recorded for the finite-lived intangible assets for the periods presented in this report. 49
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Income Taxes - The determination of our provision for income taxes requires
management's judgment in the use of estimates and the interpretation and
application of complex tax laws. Judgment is also required in assessing the
timing and amounts of deductible and taxable items. We establish contingency
reserves for material, known tax exposures relating to deductions, transactions
and other matters involving some uncertainty as to the proper tax treatment of
the item. Our reserves reflect our judgment as to the resolution of the issues
involved if subject to judicial review. Several years may elapse before a
particular matter, for which we have established a reserve, is audited and
finally resolved or clarified. While we believe that our reserves are adequate
to cover reasonably expected tax risks, issues raised by a tax authority may be
finally resolved at an amount different from the related reserve. Such
differences could materially increase or decrease our income tax provision in
the current and/or future periods. When facts and circumstances change
(including a resolution of an issue or statute of limitations expiration), these
reserves are adjusted through the provision for income taxes in the period of
change. To the extent we determine that we will not realize the benefit of some
or all of the deferred tax assets, then these assets will be adjusted through
our provision for income taxes in the period in which this determination is
made. The Tax Act created a new requirement that certain income, such as global
intangible low-taxed income ("GILTI"), earned by a controlled foreign
corporation ("CFC") must be included currently in the gross income of the CFC's
US shareholder, effective in 2018. We have elected to account for GILTI in the
year the tax is incurred as a current period expense and recorded net tax
expense of $0.5 million and less than $0.1 million for the years ended
December 31, 2019 and 2018, respectively. We did not record a net tax expense
related to GILTI for the year ended December 31, 2020 .
Our undistributed foreign earnings were subject to the one-time transition tax
for the year ended December 31, 2017 . We continue to consider our foreign
earnings indefinitely reinvested. Based on our capital, debt and liquidity
position, there is no expected need for cash repatriation from foreign
subsidiaries, and all cash held in foreign jurisdictions is considered
permanently reinvested. These foreign earnings could become subject to
additional taxes, such as withholding taxes and local country taxes, if they are
repatriated to the United States .
See Note 14 to the Consolidated Financial Statements included in Part II, Item
8, "Financial Statements and Supplementary Data" of this report for additional
discussion of the Tax Act.
Business Combinations - In accordance with Accounting Standards Codification
("ASC") 805, "Business Combinations" ("ASC 805"), the Acquisition was recorded
using the acquisition method of accounting. We include the operating results of
the Acquired Casinos from the date of acquisition. We recognize and measure the
identifiable assets acquired, liabilities assumed and any non-controlling
interest acquired at fair value at the acquisition date. The valuation of
intangible assets requires management judgment, the utilization of independent
valuation experts and often involves the use of significant estimates and
assumptions with respect to timing and amounts of future cash inflows and
outflows, discount rates, market prices and asset lives, among other things. If
the subsequent projections of the underlying business activity change compared
with the assumptions and projections used to develop these fair values, we could
record impairment charges. The valuation of intangible assets was determined
using an income approach methodology. Our key assumptions used in valuing the
intangible assets included projected future revenues, customer attrition rates
and market recognition. The excess of total consideration transferred over the
fair value of identifiable assets acquired and liabilities assumed was
recognized as goodwill. Costs incurred as the result of the Acquisition other
than costs related to the issuance of debt were recorded in the period the costs
were incurred.
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