Item 1A. Risk Factors.
Our short and long-term success is subject to many factors beyond our control. If any of the following risks, or any risks described elsewhere in or incorporated by reference in this report, actually occur, our business, financial condition or results of operations could suffer. Additional risks not presently known to us or which we currently consider immaterial may also adversely affect our business, financial condition or results of operations.
COVID-19 Risks
The COVID-19 pandemic has had and is expected to continue to have an adverse effect on our business, operations, financial condition, operating results and liquidity, and the ultimate outcome of the pandemic is uncertain.
In late 2019, an outbreak of a new strain of coronavirus, COVID-19, was identified in China and has since spread rapidly around the world as a pandemic. The ongoing COVID-19 pandemic has prompted aggressive actions by local, state, federal and provincial governments in the US, Canada and elsewhere to control the spread of the coronavirus. COVID-19 has significantly affected virtually all facets of the United States and global economies and continues, with new, potentially more virulent strains emerging. This outbreak and the actions taken in response to this public health epidemic, pose the risk that we or our employees, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time. Restrictions on travel, quarantines and other measures imposed in response to the COVID-19 pandemic, as well as ongoing concern regarding the virus’ potential impact, have had and will likely continue to have a negative effect on economies and financial markets, including supply chain shortages and additional business disruptions. During 2020 and 2021, we were required to temporarily close our casinos, hotels and other facilities to comply with quarantine orders issued by governments to contain the spread of COVID-19 and may be required to temporarily close these facilities in the future. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report for additional information on the impact of closures on our financial results. While all of our casinos are currently operating, we have adjusted the operation of other amenities at our properties based on staffing and varying levels of demand. At our properties in Canada, visitors are required to show proof of vaccination or a negative COVID test before entering the casinos.
The COVID-19 pandemic has significantly increased demand uncertainty. Although our properties are again operating, some customers may choose for a period of time not to visit our properties as a result of continuing concerns related to COVID-19, which could lead to lower attendance and further disruptions in our business and results of operations. Governmental officials may impose restrictions on travel or introduce additional social distancing measures. If the coronavirus continues to spread in the jurisdictions in which we operate, or the virus recurs, we may elect on a voluntary basis to again close certain of our properties or portions thereof, or governmental officials may order additional closures, impose further restrictions on travel or introduce additional social distancing measures. The current and future impact of the COVID-19 pandemic, including its effect on the ability and desire of people to visit our properties, could impact our results, operations, outlooks, plans, goals, growth cash flows and liquidity. The extent of the effects of the outbreak on our business and the casino industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, future recurrences of the outbreak, the availability and effectiveness of COVID-19 vaccines, and the length of time it takes for normal economic and operating conditions to resume, if at all.
Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our costs, such as, for example, the need for enhanced health and hygiene requirements in one or more regions in attempts to counteract future outbreaks. Further, COVID-19 may also affect our operating and financial results in ways that are not presently known to us or that we currently do not consider present significant risks to our operations. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Business Environment and Competition Risks
General economic conditions affecting discretionary consumer spending may have an adverse impact on our business, financial condition or results of operations.
Our success depends to a large extent on discretionary consumer spending, which is heavily influenced by general economic conditions and the availability of discretionary income. The current outbreak and continued spread of COVID-19 continues to create economic uncertainty. Adverse changes in the economic climate, including inflation, higher unemployment rates, declines in income levels and loss of personal wealth resulting from business shutdowns and associated mass layoffs by businesses, and the adoption of social distancing and other policies to slow or control the spread of the virus, have had and are likely to continue to have a negative impact on demand for casinos, including ours, and these impacts could exist for an extensive period of time. In addition, the Russia-Ukraine situation could negatively impact our results of operations in Poland, which neighbors Ukraine, due to the potential impacts on tourism and other economic disruptions. Difficult economic conditions and recessionary periods may have an
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adverse impact on our business and our financial condition. Negative economic conditions, coupled with high volatility and uncertainty as to the future economic landscape, have at times had a negative effect on consumers’ discretionary income and consumer confidence, and similar impacts can be expected should such conditions recur. A decrease in discretionary spending due to decreases in consumer confidence in the economy or us, or a continued economic slowdown or deterioration in the economy, could adversely affect the frequency with which customers choose to visit our properties and the amount that our customers spend when they visit. The actual or perceived weakness in the economy could also lead to decreased spending by our customers. Both customer visits and customer spending at our casinos are key drivers of our revenue and profitability, and reductions in either could materially adversely affect our business, financial condition and results of operations.
We have certain properties that generate a significant percentage of our revenue and operating income, and our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.
We derived 61% of our net operating revenue and 90% of our earnings from operations from our properties in Missouri and West Virginia during the year ended December 31, 2021. Because our revenue and operating income are concentrated in two states, we are subject to greater risks from regional conditions than a gaming company with operating properties in a greater number of different geographic regions. Therefore, a decrease in revenue from, or an increase in costs for, one of these locations is likely to have a greater impact on our business and operations than it would for a gaming company with more geographically diverse operating properties. The cash flow from these properties services our triple net lease agreement (the “Master Lease”) entered into with subsidiaries of VICI Properties Inc. (“VICI PropCo”) in connection with the 2019 Acquisition, and our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.
We may experience construction delays during our expansion or development projects, including the development and construction costs associated with the projects in Missouri, which could adversely affect our operations.
From time to time we may commence construction projects at our properties. Construction on the projects in Missouri is expected to begin in 2022 and to be completed in late 2023 and early 2024. We may engage in additional construction projects in the future. Construction projects entail significant risks, which can substantially increase costs or delay completion of a project. Most of these factors are beyond our control.
Our current and future projects could also experience:
failure to obtain necessary licenses, permits, entitlements or other governmental approvals;
changes to plans and specifications, some of which may require the approval of regulatory agencies;
delays and significant cost increases;
shortages of materials;
shortages of skilled labor or work stoppages for contractors and subcontractors;
labor disputes or work stoppages;
disputes with and defaults by contractors and subcontractors;
health and safety incidents and site accidents;
engineering problems, including defective plans and specifications;
poor performance or nonperformance by our partners or other third parties on whom we place reliance;
changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming and other facilities, real estate development or construction projects;
unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems;
environmental issues, including the discovery of unknown environmental contamination;
weather interference, floods, fires or other casualty losses; and
other unanticipated circumstances or cost increases.
The occurrence of any of these development and construction risks could increase the total costs of our construction projects or delay or prevent the construction or opening or otherwise affect the design and features of our construction projects. This could materially adversely affect our plan of operations, financial condition and ability to satisfy our debt obligations. In addition, construction at our operating casinos may disrupt our customers’ experience and cause a decline in our revenue.
Actual costs and construction periods for any of our projects can differ significantly from initial expectations. We can provide no assurance that we will complete any project on time, if at all, or within established budgets, or that any project will result in increased earnings to us. If our initial budgets are not accurate, we may need to pursue additional financing to complete a proposed project, which may not be available on favorable terms or at all. Cost overruns on any construction projects we undertake may adversely impact our results of operations.
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We may seek to expand through investments in other businesses and properties or through alliances or acquisitions, and we may also seek to divest some of our properties and other assets, any of which may be unsuccessful.
As part of our business strategy, we regularly evaluate opportunities for growth and expansion through development of gaming operations in existing or new markets, through acquiring other gaming facilities, through redeveloping our existing gaming facilities, and through joint ventures in new markets. We cannot be sure that we will be able to identify attractive acquisition opportunities or that we will experience the return on investment that we expect. Acquisitions require significant management attention and resources to integrate new properties, businesses and operations. There can be no assurance that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations, into our existing operations without substantial costs, delays or other problems. Our acquisitions, including the 2019 Acquisition of Mountaineer, Cape Girardeau and Caruthersville (the “Acquired Casinos”), and new developments may not generate revenue that will be sufficient to pay related expenses, or, even if such revenue is sufficient to pay related expenses, the acquisitions and new developments may not yield an adequate return or any return on our significant investments. In addition, generating returns on acquisitions, including the 2019 Acquisition and the Nugget Acquisition, and new investments may take significantly longer than we expect and may negatively impact our operating results and financial condition. Furthermore, we may pursue any of these opportunities in alliance with third parties.
We may not be successful in obtaining the rights to develop new casino properties, and as a result, we may incur significant costs for which we will receive no return. Even if we are successful in obtaining the rights to develop such casino properties, commencing operations at new casino projects may require substantial development capital. Additional risks before commencing operations include the time and expense incurred and unforeseen difficulties from construction delays and cost overruns, in obtaining liquor licenses, building permits, materials, competent and able contractors, supplies, employees, gaming devices and related matters.
In addition, acquisitions require significant management attention and resources to integrate new properties, businesses and operations. Potential difficulties we may encounter as part of the integration process include:
the inability to successfully integrate acquired assets in a manner that permits us to achieve the full revenue and other benefits anticipated to result from the acquired operations;
complexities associated with managing the combined business, including difficulties addressing possible differences in cultures and management philosophies and the challenge of integrating complex systems, technology, networks and other assets of the company in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
potential unknown liabilities and unforeseen increased expenses associated with acquired operations;
diversion of the attention of our management;
the disruption of, or the loss of momentum in, our ongoing businesses; and
inconsistencies in standards, controls, procedures and policies;
any of which could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits, or could reduce our earnings or otherwise adversely affect our business and financial results.
We may pursue gaming opportunities that would require us to obtain a gaming license. While our management believes that we are licensable in any jurisdiction that allows gaming operations, each licensing process is unique and requires a significant amount of funds and management time. The licensing process in any particular jurisdiction can take significant time and expense through licensing fees, background investigation costs, legal fees and other associated preparation costs. Moreover, if we proceed with a licensing approval process with industry partners, such industry partners would be subject to regulatory review as well. We seek to find industry partners that are licensable, but cannot assure that such partners will, in fact, be licensable. Certain licenses include competitive situations where, even if we and our industry partners are licensable, other factors such as the economic impact of gaming, financial and operational capabilities of competitors must be analyzed by regulatory authorities. In addition, political factors may make the licensing process more difficult. If any of our gaming license applications are denied or we are otherwise unable to complete a project, we may have to write off costs related to our investment in such application processes, which could be significant. In addition, our ability to attract and retain competent management and employees for any new location is critical to our success. One or more of these risks may result in any new gaming opportunity not being successful. If we are not able to successfully commence operations at these properties, our results of operations may be adversely affected.
In addition, we periodically review our business to identify properties or other assets that we believe no longer complement our business, are in markets that may not benefit us or could be sold at significant premiums. From time to time, we may attempt to sell these identified properties and assets. There can be no assurance, however, that we will be able to complete dispositions on profitable, commercially reasonable terms or at all.
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We face significant competition, and if we are not able to compete successfully, our results of operations will be harmed.
We face intense competition from other casinos in jurisdictions in which we operate and from casinos in neighboring jurisdictions. Many of our competitors are larger and have substantially greater name recognition and financial and marketing resources than we do. We seek to compete through promotion of our players’ clubs and other marketing efforts. For example, for CRA, we emphasize the casino’s showroom, complimentary heated parking, players’ club program, and superior service. These marketing efforts may not be successful, which could hurt our competitive position.
The markets in which we operate are generally not destination resort areas and rely on a local customer base as well as tourists during peak seasons. The number of casinos in our markets may exceed demand, which could make it difficult for us to sustain profitability. We are particularly vulnerable to competition in our markets due to the large number of competitors in those markets. New or expanded operations by other entities in any of the markets in which we operate will increase competition for our gaming operations and could have a material adverse impact on us. For example, there are new casinos and expansions of existing casinos that could increase competition for our Cape Girardeau, Caruthersville, Cripple Creek and Century Downs properties, and recently opened gaming facilities in Ohio that present significant competition for Mountaineer. In addition, in January 2022, the AGLC removed the moratorium on gaming facilities. Consideration for additional gaming facilities will be based on a market analysis done by the AGLC. We anticipate the AGLC may award gaming facility licenses in underserved rural areas outside of the urban Calgary and Edmonton markets in which we are located, but any additional competition could adversely impact our results of operations in Alberta.
Changes to gaming laws in countries or states in which we have operations and in states near our operations could increase competition and could adversely affect our operations. Any such expansion of legalized gaming could adversely impact our properties. In Canada, a sports betting bill passed in August 2021 that removed the national prohibition on single-game sports betting and allows the Canadian provinces to regulate the industry. It is unclear what impact these changes will have on our Canadian casinos.
Potential changes in gaming laws in jurisdictions in which we have operations include:
In Missouri, a sports betting bill would allow Class B gaming licensees and daily fantasy sports licensees to conduct sports wagering including on mobile devices so long as such devices are located within the state of Missouri. This bill is in the early stages of the law-making process and subject to significant changes in proposed statutory language prior to enactment.
In Missouri, a video lottery terminal bill would allow the state lottery to operate video gaming terminals, similar to slot machines, at various locations distributed across the state including bars, veterans and fraternal organizations and convenience stores throughout the state. This bill is in the early stages of the law-making process and subject to significant changes in proposed statutory language prior to enactment.
It is unclear what impact these changes will have on our casinos in these markets, but they could be material.
Capital expenditures, such as those for new gaming equipment, room refurbishments and amenity upgrades may be necessary from time to time to preserve the competitiveness of our properties. If we are not successful in making these improvements, our facilities may be less attractive to our visitors than those of our competitors, which could have a negative impact on our business.
Operational Risks
Our financial condition and results of operations may be adversely affected by climate change, the occurrence of severe weather, natural or man-made disasters and other catastrophic events, including war, terrorism and other acts of violence, and disease, such as the current COVID-19 pandemic.
The operations of our facilities are subject to disruptions or reductions in the number of customers who visit our properties because of severe weather conditions. If weather conditions limit access to our casino properties or otherwise adversely impact our ability to operate our casinos at full capacity, our revenue will suffer, which will negatively impact our operating results. Extreme weather conditions, potentially exacerbated by climate change, may cause property damage or interrupt business, which could harm our business and results of operations. High winds, flooding, blizzards and sub-zero temperatures, such as those experienced in Colorado, Missouri and Alberta from time to time, can limit access to our properties. Extreme weather conditions may also interrupt the operations of critical suppliers, and may result in reduced availability or increased price volatility of certain critical supplies.
Events such as terrorist and war activities in the countries in which we are located and other acts of violence, such as the mass shooting in Las Vegas in 2017, could have a negative impact on travel and leisure expenditures, including gaming, lodging and tourism, especially if these events occur in a region in which we operate. The Russia-Ukraine situation could have an adverse impact on our results of operations in Poland, which borders Ukraine, and the collateral global impacts of that situation could adversely
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impact our results of operations at all of our properties. We cannot predict the extent to which terrorism, security alerts or war, or other acts of violence in the countries that we operate will directly or indirectly affect our business and operating results, but the impact could be material.
An outbreak of a contagious disease, such as the current COVID-19 pandemic or any similar illness, could have a negative impact on travel and leisure expenditures, including gaming, lodging and tourism, especially if an outbreak were to occur in or near the areas in which we operate. Negative impacts on the economy, travel restrictions and other restrictions by local or federal governments in the areas in which we operate could result in consumers reducing travel and leisure expenditures, including visits to our casinos. Our operating costs may increase due to additional health and safety requirements, we may experience disruptions due to employee illness, and we could be forced to close our locations for a period of time. Travel restrictions imposed by the US, European or other foreign governments may make it difficult or impossible for our management located in Europe to travel to the US or other countries where we have operations. We cannot predict the extent to which future outbreaks of a contagious disease will directly or indirectly affect our business and operating results, but the impact could be material.
Difficulties in managing our worldwide operations may have an adverse impact on our business.
We derive our revenue principally from operations located on two continents. Our management is located in North America and Europe, and our worldwide operations pose risks to our business. Risks associated with international operations include:
different time zones;
culture, management and language differences;
fluctuations in foreign currency exchange rates;
changes in laws and policies that govern our foreign operations;
possible failure to comply with anti-bribery laws such as the US Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in other jurisdictions;
difficulty in establishing staffing and managing non-United States operations;
different labor regulations;
changes in environmental, health and safety laws;
potentially negative consequences from changes in or interpretations of tax laws;
political instability and actual or anticipated military or political conflicts;
economic instability and inflation, recession or interest rate fluctuations; and
uncertainties regarding judicial systems and procedures.
These factors make it more challenging to manage and administer a globally-dispersed business and, as a result, we must devote greater resources to operating under several regulatory and legislative regimes (See “Governmental Regulation and Licensing” in Item 1, “Business” of this report). This business model also increases our costs.
Our insurance coverage may not be adequate to cover all possible losses that our properties could suffer, our insurance costs may increase and we may not be able to obtain the same insurance coverage in the future.
We may suffer damage to our property caused by a casualty loss (such as fire, natural disasters, acts of war, terrorism or other acts of violence) that could severely disrupt our business or subject us to claims by third parties who are injured or harmed. Although we maintain insurance customary in our industry, including property, casualty, terrorism, cybersecurity and business interruption insurance, that insurance is subject to deductibles and limits on maximum benefits, including limitations on the coverage period for business interruption. Due to these variables, we may not be able to fully insure such losses, or fully collect, if at all, on claims resulting from severe weather conditions. The lack of sufficient insurance for these types of acts could expose us to heavy losses if any damages occur, directly or indirectly, that could have a significant adverse impact on our operations.
We renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to further reduce our policy limits or agree to certain exclusions from our coverage or self-insure. Among other factors, regional political tensions, homeland security concerns, other catastrophic events or any change in government legislation governing insurance coverage for acts of terrorism could materially adversely affect available insurance coverage and result in increased premiums on available coverage (which may cause us to elect to reduce our policy limits), additional exclusions from coverage or higher deductibles. Among other potential future adverse changes, in the future we may elect to not, or may not be able to, obtain any coverage for losses due to acts of terrorism.
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We are dependent upon technology services and electrical power to operate our business, and if we experience damage or service interruptions, we may have to cease some or all of our operations, resulting in a decrease in revenue.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. Our security system and all of our slot machines are controlled by computers and reliant on electrical power to operate. A loss of electrical power or a failure of the technology services needed to run the computers would make us unable to run all or parts of our gaming operations. Any unscheduled interruption in our technology services or interruption in the supply of electrical power is likely to result in an immediate, and possibly substantial, loss of revenue due to a shutdown of our gaming operations. Although we have designed our systems around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events. Additionally, substantial increases in the cost of electricity and natural gas could negatively affect our results of operations.
Our reputation and business may be harmed by cybersecurity breaches, and we may be subject to legal claims if there is loss, disclosure or misappropriation of or access to our customers', our business partners' or our own information or other breaches of our information security.
We make use of online services and centralized data processing, including through third party service providers. The secure maintenance and transmission of customer information, including credit card numbers and other personally identifiable information for marketing and promotional purposes, is a critical element of our operations. Our collection and use of personal data are governed by state and federal privacy laws as well as the applicable laws of the countries in which we operate. Various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and regulations concerning privacy, data retention, data transfer, and data protection. For example, the European Union adopted the General Data Protection Regulation, which became effective in May 2018, that changed companies’ operational and compliance requirements and included significant penalties for non-compliance. Compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to market our products, properties and services to our guests.
Our information technology and other systems that maintain and transmit customer information, or those of service providers, or our employee or business information may be compromised by a malicious third party penetration of our network security, or that of a third party service provider or business partner, or by actions or inactions by our employees. As a result, information of our customers, third party service providers or business partners or our employee or business information may be lost, disclosed, accessed or taken without their or our consent. Non-compliance with applicable privacy regulations by us (or in some circumstances non-compliance by third parties engaged by us) or a breach of security on systems storing our data may result in a loss of customers and subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of data. The loss, disclosure or misappropriation of our business information may adversely affect our businesses, operating results and financial condition.
We are subject to risks related to corporate social responsibility and reputation.
Many factors influence our reputation and the value of our brand, including the perceptions held by our customers, business partners, other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social and governance factors, and we risk damage to our reputation and the value of our brand if we fail to act responsible in a number of areas including diversity and inclusion, community engagement and philanthropy, environmental sustainability, climate change, responsible gaming, supply chain management, workplace conduct, human rights and many others, some of which may be unforeseen. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.
Credit and Liquidity Risks
Our obligations under our indebtedness and our Master Lease are significant. We may not be able to generate sufficient cash to service all of our indebtedness and pay rent under the Master Lease and may be forced to take other actions to satisfy our obligations under our indebtedness and Master Lease, which may not be successful.
All of our $189.2 million face value debt outstanding as of December 31, 2021 is variable rate debt. Each one percentage point change associated with the variable rate debt would result in an estimated $1.7 million change to our annual cash interest expenses. In connection with the 2019 Acquisition, we entered into the Master Lease to lease the real estate assets of the Acquired Casinos. Our scheduled 2022 rent payments under the Master Lease are approximately $25.5 million. Our rent payments are subject to annual escalation. See Notes 6 and 7 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report for more information on our long-term debt and Master Lease. These financial obligations could:
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limit our ability to satisfy our obligations;
limit our ability to obtain additional indebtedness or financing to fund working capital requirements, capital expenditures, debt service, acquisitions, general corporate or other obligations;
limit our ability to use operating cash flow in other areas of our business because we must dedicate a significant portion of these funds to make principal and/or interest payments on our outstanding debt;
expose us to interest rate risk due to the variable interest rate on borrowings under our credit agreements;
place us at a competitive disadvantage compared to competitors that have less debt;
subject us to restrictive covenants that, among other things, limit our ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds, and make capital expenditures and other investments;
cause our failure to comply with financial and restrictive covenants contained in our current or future indebtedness, which could cause a default under such indebtedness and which, if not cured or waived, could have a material adverse effect on us;
increase our vulnerability to general adverse economic and industry changes;
limit our flexibility in planning for, or reacting to, changes in our businesses, changing market conditions, changes in our industry and economic downturns; and
affect our ability to renew gaming and other licenses necessary to conduct our business.
We were required to make rent payments under the Master Lease during the temporary closures in 2020 of the casinos covered by the Master Lease. We also were required to make scheduled payments of interest and principal under our debt obligations during these closures, with the exception of our debt in Poland that was amended to defer payments until the end of the agreements. We could be required to make rent payments under the Master Lease and scheduled debt payments if such closures occur in the future. In addition, the Master Lease requires us to make specific minimum investments in capital expenditures and, subject to certain caps, the rent escalations under the Master Lease will continue to apply regardless of the cash flows generated by the properties subject to the Master Lease and the obligations guaranteed by us. Further, if our properties subject to the Master Lease are impacted by a casualty event, the Master Lease requires us to repair or restore the affected properties even if the cost of such repair or restoration exceeds the insurance proceeds that we receive. Under such circumstances, the rent under the Master Lease is required to be paid during the period of repair or restoration even if all or a portion of the affected property is not operating. We cannot assure that we will maintain a level of cash flows from operating activities sufficient to permit us to pay rent under the Master Lease and the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service and rent obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service or rent obligations. If we are not able to meet our scheduled obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Additionally, the agreements governing our existing debt restrict sale of assets and limit the use of the proceeds from any disposition and our Master Lease limits our ability to dispose of leased properties; as a result, we may not be allowed, under these documents, to dispose of certain of our properties and use proceeds from such dispositions to satisfy all current debt service obligations.
Some of our casinos are located on leased property. If we default on one or more leases or if we are unable to secure renewals of those leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino.
We lease the land and buildings for our casinos in Missouri and West Virginia under a “triple-net” Master Lease. Accordingly, in addition to rent, we are required to pay, among other things, the following: (1) facility maintenance costs; (2) all insurance premiums for insurance with respect to the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We are responsible for incurring these costs notwithstanding the fact that many of the benefits received in exchange for such costs shall in part accrue to the lessor as the owner of the associated facilities. In addition, we remain obligated for lease payments and other obligations under the Master Lease even if one or more of such leased facilities is not operating or is unprofitable or if we decide to withdraw from those locations. We could incur special charges relating to the closing of such facilities, including lease termination costs, impairment charges and other charges that would reduce our net income and could have a material adverse effect on our business, financial condition and results of operations.
Our RECs and racetracks in Calgary and Edmonton are located on leased parcels of land, and our casinos in Poland are located within leased building spaces. If we were to default on any one or more of the leases or if we are unable to secure renewal terms for
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these locations, the lessors could terminate the affected leases and we could lose possession of the land or building and any improvements on the land and buildings, including the RECs that we have built in Canada. This would have a significant adverse effect on our business, financial condition and results of operations as we would then be unable to operate the affected facilities.
We may be unable to obtain the capital necessary to fund our operations or potential acquisitions.
Our industry is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development. While we have a significant amount of cash currently on hand, we may not be able to obtain funding when we need it on favorable terms or at all. If we are unable to finance our current or future expansion projects, we will have to adopt one or more alternatives, such as reducing or delaying planned expansion, development and renovation projects and capital expenditures, selling assets, restructuring debt, obtaining additional equity financing or joint venture partners, or modifying our bank credit facilities. The amount of capital that we are able to raise often depends on variables that are beyond our control, such as the share price of our stock and its trading volume. The availability of financing may be impacted by local, regional and global economic, credit and stock market conditions, all of which have been volatile. As a result, we may not be able to secure financing on terms attractive to us, in a timely manner or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet all of our future needs and, if it involves equity, may be highly dilutive to our stockholders. If we cannot raise adequate funds to satisfy our capital requirements, we may have to reduce, dispose of or eliminate certain operations.
Legal, Regulatory and Compliance Risks
We face extensive regulation from gaming and other regulatory authorities, which involve considerable expense and could harm our business, and potential changes in the regulatory environment may adversely impact us.
As owners and operators of gaming facilities, we are subject to extensive state, local, and international provincial regulation. State, local and provincial authorities require us and our subsidiaries to demonstrate suitability to obtain and retain various licenses and require that we have registrations, permits and approvals to conduct gaming operations. Various regulatory authorities may, for any reason set forth in applicable legislation, rules and regulations, limit, condition, suspend or revoke a license or registration to conduct gaming operations or prevent us from owning the securities of our gaming subsidiaries. Like all gaming operators in the jurisdictions in which we operate or plan to operate, we must periodically apply to renew our gaming licenses or registrations and in North America we must have the suitability of certain of our directors, officers and employees approved. We are scheduled for renewals for our casino licenses at Cape Girardeau and Mountaineer in 2022, and the casino license for our casino at the Hilton Hotel in Warsaw, Poland expires in 2022. A detailed description of the regulations to which we are subject, including the timing of license renewals for our properties, is contained in Exhibit 99.1 to this report, which is incorporated herein by reference. Failure to obtain license renewals would have an adverse effect on us.
In addition to gaming regulations, we are also subject to various federal, state, provincial, local and foreign laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, smoking, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Rules and regulations regarding the service of alcoholic beverages are strict. The loss or suspension of a liquor license could significantly impair our operations.
We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violations of anti-money laundering laws or regulations by any of our properties could have an adverse effect on our financial condition, results of operations or cash flows. Regulations adopted by the Financial Crimes Enforcement Network require us to report currency transactions at our US locations in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. US Treasury Department regulations also require us to report certain suspicious activity, including any transaction that exceeds $5,000, if we know, suspect or have reason to believe that the transaction involves funds from illegal activity or is designed to evade federal regulations or reporting requirements. Substantial penalties can be imposed if we fail to comply with these regulations. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted.
From time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations or that may otherwise adversely impact our operations in the jurisdictions in which we operate. Any new gaming laws or regulations in the jurisdictions in which we operate could have an adverse impact on our financial position and results of operations. Any expansion of the gaming industry that results in increased competition and any restriction on or prohibition of our gaming operations could have a material adverse effect on our operating results or cause us to record an impairment of our assets.
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We depend on agreements with our horsemen and pari-mutuel clerks. Failure to renew or modify agreements on satisfactory terms could materially affect our financial position and results of operations.
In the US, the Federal Interstate Horseracing Act of 1978, as amended (“FIHA”), and state law in West Virginia require that, in order to simulcast races, we have certain agreements with the horse owners and trainers at our racetrack. In addition, West Virginia requires applicants seeking to renew their gaming license to demonstrate they have an agreement regarding the proceeds of the gaming machines with a representative of a majority of (i) the horse owners and trainers, (ii) the pari-mutuel clerks, and (iii) the horse breeders. If we fail to present evidence of an agreement with horsemen at a track, we may not be permitted to conduct live racing and to export and import simulcasting at that track and through off-track wagering, and our video lottery license may not be renewed. In addition, our annual simulcast export agreements are subject to horsemen’s approval under the FIHA. Simulcast import and export agreements require horsemen approval per West Virginia law.
In Canada, the Pari-Mutuel Betting Supervision Regulations require that in order to conduct pari-mutuel betting we have certain agreements with approved horsepersons addressing the sharing of revenue. If we fail to present evidence of an agreement with approved horsepersons, we may not be permitted to conduct live racing, export simulcasting and teletheatre wagering. If we are unable to conduct live racing, our license to operate a REC may not be renewed.
If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on our financial position, results of operations and cash flows.
The enactment of legislation implementing changes in the US taxation of international business activities or the adoption of other tax reform laws or policies could materially affect our financial position and results of operations.
We are subject to taxation at the federal, state, provincial and local levels in the US and various other countries and jurisdictions. Our future effective tax rate could be affected by changes in the composition of earnings in jurisdictions with differing tax rates, changes in statutory rates and other legislative changes, changes in the valuation of our deferred tax assets and liabilities, or changes in determinations regarding the jurisdictions in which we are subject to tax. From time to time, the US federal, state and local and foreign governments make substantive changes to tax rules and their application, which could result in materially higher corporate taxes than would be incurred under existing tax law and could adversely affect our financial condition or results of operations.
We face extensive taxation from gaming and regulatory authorities. Potential changes to the tax laws in the jurisdictions in which we operate may adversely affect the results of our operations.
We believe that the prospect of significant revenue to a jurisdiction through taxation and fees is one of the primary reasons jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to normal federal, state, provincial and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. A detailed description of the gaming taxes and fees to which we are subject is contained in Exhibit 99.1 to this report, which is incorporated herein by reference. In addition, negative economic conditions could intensify the efforts of federal, state, provincial and local governments to raise revenue through increases in gaming taxes or introduction of additional gaming opportunities, which could adversely affect our results of operations and cash flows.
Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us.
A portion of our revenue is derived from operations outside the United States, which exposes us to complex foreign and US regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to compliance with the US FCPA and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws may result in severe criminal and civil sanctions as well as other penalties, and the SEC and US Department of Justice have increased their enforcement activities with respect to the FCPA. The occurrence or allegation of these types of risks may adversely affect our business, performance, prospects, value, financial condition, and results of operations.
Any failure to protect our trademarks could have a negative impact on the value of our brand names and adversely affect our business.
The development of intellectual property is part of our overall business strategy. While our business as a whole is not dependent on either of our trademarks or other intellectual property, we seek to establish and maintain our proprietary rights in our business operation through the use of trademarks. We file applications for, and obtain trademarks in, the United States and in foreign countries
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where we believe filing for such protection is appropriate. Despite our efforts to protect our proprietary rights, parties may infringe our trademarks and our rights may be invalidated or unenforceable. The laws of some foreign countries do not protect proprietary rights to as great an extent as the laws of the United States. Monitoring the unauthorized use of our intellectual property is difficult. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resources. We cannot assure you that all of the steps we have taken to protect our trademarks in the United States and foreign countries will be adequate to prevent imitation of our trademarks by others. The unauthorized use or reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages or goodwill, which could adversely affect our business.
Human Capital Risks
The loss of key personnel could have a material adverse effect on us.
We are highly dependent on the services of Erwin Haitzmann and Peter Hoetzinger, our founders and Co-Chief Executive Officers, and other members of our senior management team. The employment agreements with Erwin Haitzmann and Peter Hoetzinger provide that, under some circumstances, the departure of one executive could allow the other to leave for cause. Our ability to retain key personnel is affected by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability to compete effectively against other gaming companies and our growth prospects. The loss of the services of any of these individuals could have a material adverse effect on our business, financial condition and results of operations.
Our business, financial condition, and results of operations may be harmed by staff shortages, work stoppages and other labor issues.
Our ability to attract and retain employees may cause us to reduce casino operating hours or close certain amenities at our properties which could negatively impact guest loyalty and operating results. The COVID-19 pandemic has caused staffing issues to be more significant. In West Virginia, we continue to adjust operating hours for the casino, food and beverage outlets, hotel and convention spaces as we have been impacted by staffing challenges in this market. There are 226 employees at our CPL casinos in Poland who belong to trade unions. The trade unions do not currently have any collective bargaining agreements with CPL but changes in pay for union employees at CPL require approval from the trade unions. In the United States, there are 47 employees at our West Virginia casino who belong to unions. A lengthy strike or other work stoppage at our casino properties with unions could have an adverse effect on our business and results of operations. Our other employees in the US and Canada and in our Corporate and Other segment are not covered by collective bargaining agreements. From time to time, we have experienced attempts to unionize certain of our non-union employees. If a union seeks to organize any of our employees, we could experience disruption in our business and incur significant costs, both of which could have a material adverse effect on our results of operation and financial condition. If a union were successful in organizing any of our employees, we could experience significant increases in our labor costs which could also have a material adverse effect on our business, financial condition, and results of operations. In addition, changes to labor laws or prevailing market conditions could lead to increased labor costs that could have an adverse impact on our profitability.
Common Stock and Stockholder Risks
Certain anti-takeover measures we have adopted may limit our ability to consummate transactions that some of our security holders might otherwise support.
We have a fair price business combination provision in our certificate of incorporation, which requires approval of certain business combinations and other transactions by holders of 80% of our outstanding shares of voting stock. In addition, our certificate of incorporation allows our board of directors to issue shares of preferred stock without stockholder approval. These provisions generally have the effect of requiring that any party seeking to acquire us negotiate with our board of directors in order to structure a business combination with us. This may have the effect of depressing the price of our common stock due to the possibility that certain transactions that our stockholders might favor could be precluded by these provisions.
Stockholders may be required to dispose of their shares of our common stockif they are found unsuitable by gaming authorities.
Gaming authorities in the US and Canada generally can require that any beneficial owner of our common stock and other securities file an application for a finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to file a suitability application, the owner must apply for a finding of suitability within 30 days or at an earlier time prescribed by the gaming authority. The gaming authority has the power to investigate an owner's suitability, and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner may be required by law to dispose of our securities. Our certificate of incorporation also provides us with the right to repurchase shares of our common stock from certain beneficial owners declared by gaming regulators to be unsuitable holders of our equity securities, and the price we pay to any such beneficial owner may be below the price such beneficial owner would otherwise accept for his or her shares of our common stock.
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General Risk Factors
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our financial condition.
From time to time, we are defendants in various lawsuits and gaming regulatory proceedings relating to matters incidental to our business. As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can be expensive and time consuming. We may not be successful in the defense or prosecution of our current or future legal proceedings, which could result in settlements or damages that could significantly impact our business, financial condition and results of operations.
Fluctuations in currency exchange rates and currency controls in foreign countries could adversely affect our business.
The revenue generated and expenses incurred at our casinos in Canada and Poland are generally denominated in Canadian dollars and Polish zloty, respectively. Decreases in the value of these currencies in relation to the value of the US dollar have decreased the operating profit from our foreign operations when translated into US dollars, which has adversely affected our consolidated results of operations, and such decreases may occur in the future. In addition, we may expand our operations into other countries and, accordingly, we could face similar exchange rate risk with respect to the costs of doing business in such countries as a result of any increases in the value of the US dollar in relation to the currencies of such countries. We do not currently hedge our exposure to fluctuations of these foreign currencies, and there is no guarantee that we will be able to successfully hedge any future foreign currency exposure.
We may be required in the future to record impairment losses related to assets we currently carry on our balance sheet.
We have $703 million of tangible and intangible assets, including $10 million of goodwill, $31 million in casino licenses, $3 million in trademarks and $472 million in property and equipment as of December 31, 2021. Accounting rules require that we make certain estimates and assumptions related to our determinations as to the future recoverability of these assets. If we were to determine that the values of these assets carried on our balance sheet are impaired due to adverse changes in our business or otherwise, we may be required to record an impairment charge to write down the value of these assets, which would adversely affect our results during the period in which we recorded the impairment charge. In 2020, we impaired $35.1 million related to goodwill and other intangible assets, including our MCE cost investment, due to the impact from COVID-19. See Notes 1 and 5 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report for more information on our goodwill and other intangible assets.
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Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The following table sets forth the location, applicable reportable segment, size and description of certain types of gaming facilities at each of our casinos as of December 31, 2021:
Summary of Property Information
United States
Colorado
West Virginia
Missouri
Canada
Edmonton
Calgary
Century Sports 2010 — 8.0 — — — —
Poland
Corporate Other
Cruise Ships (total of 2) (6) N/A 11,900 — 34 — 2 —
(1)Machine and table counts are reported as the total number of machines as of December 31, 2021.
(2)The land, buildings and riverboat (as applicable) at these properties are leased under the Master Lease. For more information see “Master Lease” below.
(3)Century Mile runs the pari-mutuel network in Alberta. The off-track betting parlors are located throughout Alberta and include the parlors at Century Mile, Century Casino & Hotel – Edmonton and Century Casino St. Albert. The land on which the REC and racetrack are located is leased.
(4)The land on which the REC and racetrack are located was sold by CDR to 1685258 Alberta Ltd. (“Rosebridge”) prior to our acquisition of our ownership interest in CDR. CDR leases from Rosebridge the 57.3 acres on which the REC and racetrack are located.
(5)As of December 31, 2021, Casinos Poland owned eight separate casinos in leased building spaces, including hotels, throughout Poland. For the locations of these casinos, see “Additional Property Information” below.
(6)Operated under concession agreements. We do not own the ships on which our casinos operate. For additional information about these ships, see “Additional Property Information” below.
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Additional Property Information
As of December 31, 2021, our subsidiaries were pledged as collateral for our obligations under our credit facility (“Macquarie Credit Agreement”) with Macquarie Capital (“Macquarie”). As of December 31, 2021, a parcel of land in Kolbaskowo, Poland owned by Casinos Poland was used to secure a bank guarantee with mBank. See Note 6 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report.
Century Sports – In addition to the property described above, as of December 31, 2021, we leased approximately 13,049 square feet of land at our property in Calgary for additional parking. We sold the Calgary real estate in February 2022.
Corporate Offices– We lease approximately 13,200 square feet of office space in Colorado Springs, Colorado and approximately 2,500 square feet of office space in Vienna, Austria for corporate and administrative purposes.
Poland – The following table summarizes information about CPL’s casinos as of December 31, 2021.
City Location License Expiration Number of Slots Number of Tables
Bielsko-Biala Hotel President October 2023 48 5
Katowice Park Inn by Radisson October 2023 70 14
Wroclaw Double Tree Hilton Hotel November 2023 70 18
Krakow Dwor Kosciuszko Hotel May 2024 70 5
Lodz Manufaktura Entertainment Complex June 2024 65 10
(1)A detailed description of the regulations applicable to CPL licenses and our ability to obtain new licenses for our locations on their expiration is contained in Exhibit 99.1 to this report, which is incorporated herein by reference.
Cruise Ships – The following table summarizes information about the ship-based casinos for which we had concession agreements as of December 31, 2021.
TUI Cruises Mein Schiff Herz April 2023 17 1
TUI Cruises Mein Schiff 6 April 2022 17 1
(1)Estimated - The concession agreements for the casinos onboard Mein Schiff Herz and Mein Schiff 6 are scheduled to end in the second quarter of 2023 and the second quarter of 2022, respectively.
Master Lease
Mountaineer, Cape Girardeau and Caruthersville are subject to the Master Lease. The Master Lease provides for the lease of land, buildings, structures and other improvements on the land (including barges and riverboats), easements and similar appurtenances to the land and improvements relating to the operations of the leased properties. The scheduled 2022 rent payments under the Master Lease are approximately $25.5 million. The rent payments are subject to annual escalations during the lease term. The Master Lease has an initial term of 15 years with no purchase option. At our option, the Master Lease may be extended for up to four five year renewal terms beyond the initial 15 year term. The renewal terms are effective as to all, but not less than all, of the properties then subject to the Master Lease. We do not have the ability to terminate our obligations under the Master Lease prior to its expiration without the lessor’s consent.
The Master Lease has a triple-net structure, which requires us to pay substantially all costs associated with the Acquired Casino properties, including real estate taxes, insurance, utilities, maintenance and operational costs. The Master Lease contains certain covenants, including minimum capital improvement expenditures. Century Casinos, Inc. has provided a guarantee of our subsidiaries’ obligations under the Master Lease. For additional information regarding the Master Lease, see Note 7 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report.
Item 3. Legal Proceedings.
We are not a party to any pending litigation that, in management’s opinion, could have a material effect on our financial position or results of operations except as disclosed in Note 16 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report.
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Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded in the United States on the Nasdaq Capital Market under the symbol “CNTY”.
The following graph illustrates the cumulative shareholder return of our common stock during the period beginning December 31, 2016 through December 31, 2021, and compares it to the cumulative total return on the Nasdaq and the Dow Jones US Gambling Index. The comparison assumes a $100 investment on December 31, 2016, in our common stock and in each of the foregoing indices, and assumes reinvestment of dividends, if any. This table is not intended to forecast future performance of our common stock.
No dividends have been declared or paid by us. Declaration and payment of dividends, if any, in the future will be at the discretion of the board of directors. At the present time, we intend to use any earnings that may be generated to finance the growth of our business.
At March 3, 2022, we had 141 holders of record of our common stock.
In March 2000, our board of directors approved and announced a discretionary program to repurchase up to $5.0 million of our outstanding common stock. In November 2009, our board of directors approved an increase of the amount available to be repurchased under the program to $15.0 million. The amount available for repurchase as of December 31, 2021 is $14.7 million. The repurchase program has no set expiration or termination date. No repurchases were made during the year ended December 31, 2021.
Item 6. Removed and Reserved.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements, Business Environment and Risk Factors
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 betting, iGaming, 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 and Poland. We have additional business activities including concession agreements and certain other corporate and management operations that we report as Corporate and Other.
The table below provides information about the aggregation of our operating segments and reporting units into reportable segments as of December 31, 2021. 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 West Virginia and Missouri operating segments are owned by VICI PropCo and leased to us under the Master Lease. The land on which the REC and racetracks at Century Downs and Century Mile are located is leased.
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
Poland Poland Casinos Poland
Corporate and Other Corporate and Other Cruise Ships & Other
Corporate Other
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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 of December 31, 2021, owned and operated eight casinos throughout Poland.
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 in Balzac, a north metropolitan area of Calgary, Alberta, Canada.
Prior to August 2019, we had a 75% controlling financial interest in Century Bets through CRM. In August 2019, we purchased the remaining 25% non-controlling financial interest from Rocky Mountain Turf Club for CAD 0.2 million ($0.2 million based on the exchange rate in effect on August 5, 2019), resulting in CBS becoming a wholly-owned subsidiary. In September 2021, we transferred operation of the southern Alberta pari-mutuel network from CBS to CMR. CMR now operates both the northern and southern Alberta pari-mutuel off-track betting networks.
We also have a concession agreement for ship-based casinos which are detailed further under “Corporate and Other” below.
Recent Developments Related to COVID-19
The COVID-19 pandemic had an adverse effect on our 2020 results of operations and financial condition, and negatively impacted our results of operations to a lesser extent in 2021 because our United States properties were open and operating during this period. Our casinos have varied their operations based on the governmental health and safety requirements in the jurisdictions in which they are located. Our operations currently have limited health and safety requirements for entry.
Although all of our facilities are currently open, temporary closures of all of our facilities during 2020 and some of our facilities in the first half of 2021 due to COVID-19 negatively impacted results for the years ended December 31, 2021 and 2020. We estimate that, for the years ended December 31, 2021 and 2020, net operating revenue was adversely impacted by approximately $35.9 million and $100.5 million, respectively, and Adjusted EBITDA was adversely impacted by approximately $13.1 million and $36.0 million, respectively, due to the closures. See “Discussion of Results” below for a discussion of the impact of the closures in each operating segment.
The duration and impact of the COVID-19 pandemic otherwise remains uncertain. We cannot predict the negative impacts that 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 a material impact on us. The effects of COVID-19, ongoing governmental health and safety requirements and any future closures could have a material impact on us. We will continue to monitor our liquidity and make reductions to marketing and operating expenditures, where possible, if future government mandates or closures are required that would have an adverse impact on us.
2019 Acquisition
On December 6, 2019, we completed the 2019 Acquisition of the operations of Cape Girardeau, Caruthersville and Mountaineer from Eldorado Resorts, Inc. for an aggregate purchase price of approximately $111.9 million, which consisted of $110.7 million at closing and an additional $1.2 million in working capital adjustments. Immediately prior to the 2019 Acquisition, the real estate assets underlying the Acquired Casinos were sold to VICI PropCo, and we and VICI PropCo subsidiaries entered into a triple net Master Lease for the three Acquired Casino properties. See “Master Lease” in Item 2 for more information.
Other Acquisitions and Development Projects
Nugget Casino Resort in Sparks, Nevada
On February 22, 2022, we entered into a definitive agreement with Marnell Gaming, LLC (“Marnell”), pursuant to which a newly formed subsidiary of the Company will purchase from Marnell (i) 50% of the membership interests in Smooth Bourbon, LLC (“PropCo”), and (ii) 100% of the membership interests in Nugget Sparks, LLC (“OpCo”). OpCo owns and operates the Nugget Casino Resort in Sparks, Nevada, and PropCo owns the real property on which the casino is located. At the First Closing (as defined below), PropCo will enter into a lease with OpCo for an annual rent of $15.0 million.
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We will purchase 50% of the membership interests in PropCo for approximately $95.0 million (subject to certain adjustments) at the first closing, which is expected to occur early in the second quarter of 2022 (the “First Closing”). Subject to approval from the Nevada Gaming Commission, our purchase of 100% of the membership interests in OpCo for approximately $100.0 million (subject to certain adjustments) is expected to close within one year after the First Closing (the “Second Closing”). Following the Second Closing, we will own the operating assets of Nugget Casino Resort and 50% of the membership interests in PropCo (the “Nugget Acquisition”). We also will have a five-year option to acquire the remaining 50% of the membership interests in PropCo for $105 million plus 2% per annum.
Caruthersville Hotel – On July 16, 2021, we announced that we had purchased land and a small two-story hotel near Century Casino Caruthersville with plans to refurbish the existing hotel’s 36 rooms by mid-2022. We estimate the cost of the remodel to be $3.6 million. As of December 31, 2021, we have spent $0.6 million on this project.
Missouri –We plan to build hotels at our Cape Girardeau and Caruthersville locations. In July 2021, the Missouri law requiring each casino to be a floating facility was amended to allow casino facilities to be built as a standard building with a container with at least 2,000 gallons of water beneath the facility. This change provides an opportunity for Century Casino Caruthersville, the last remaining riverboat casino on open water in Missouri, to move to a non-floating facility. We plan to move the casino from the riverboat to a new land-based casino. In December 2021, a lawsuit was filed by the City of St. Louis to block the implementation of the omnibus bill that included the amendment to the definition of a floating facility. The land-based casino project is delayed pending a resolution of the lawsuit or a stand-alone bill amending the definition of a floating facility. We estimate the cost of the projects to be $73.0 million. We plan to finance the projects with cash on hand, financing, or a combination of the two. Construction in Cape Girardeau is expected to start in the summer of 2022 with completion expected in late 2023 and, subject to resolution of a pending lawsuit by the City of St. Louis, the Caruthersville project construction is expected to start in 2022 with completion expected in mid-2024.
Additional Gaming Projects
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.
Terminated Projects
Century Casino Calgary – In August 2020, we announced that we had entered into an agreement to sell the casino operations of Century Casino Calgary for CAD 10.0 million ($7.5 million based on the exchange rate on August 5, 2020) plus a three-year quarterly earn out as specified in the agreement. The transaction closed on December 1, 2020. During the first quarter of 2021, we paid CAD 0.1 million ($0.1 million based on the exchange rate on February 12, 2021) in working capital adjustments under the agreement. We recorded quarterly earn outs of CAD 0.1 million (less than $0.1 million based on the exchange rate in effect on December 31, 2021) to general and administrative expenses on our consolidated statement of earnings (loss) for the year ended December 31, 2021.
In January 2022, we announced that we had entered into an agreement to sell the land and building that we own in Calgary for CAD 8.1 million ($6.5 million based on the exchange rate on January 12, 2022). The transaction closed on February 10, 2022, at which time we ceased operating Century Sports and transferred the lease agreement for the casino premises to the buyer. The assets held for sale on our consolidated balance sheet as of December 31, 2021 included $4.8 million in land and $3.6 million in buildings and improvements net of accumulated depreciation.
Century Casino Bath (“CCB”) –In March 2020, CCB was closed due to COVID-19. Due to challenging conditions that included historical and forecasted losses due to changes in the regulatory environment for casinos in England requiring enhanced due diligence of customers, CCB’s board of directors determined that it would enter into creditors voluntary liquidation and control of CCB was relinquished. We deconsolidated CCB effective as of May 6, 2020. See Note 1 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report for further discussion of CCB.
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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
Source: Pacific Exchange Rate Service
We recognize in our statement of earnings (loss), 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 in Canada and Poland 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.
DISCUSSION OF RESULTS
Years ended December 31, 2021, 2020 and 2019
Century Casinos, Inc. and Subsidiaries
For the year
Amounts in thousands 2021 2020 2019 $ Change % Change $ Change % Change
Loss from Equity Investment — — (1) — — 1 100.0%
Earnings (Loss) Per Share Attributable to Century Casinos, Inc. Shareholders
(1)For a discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net earnings (loss) attributable to Century Casinos, Inc. shareholders, see “Non-GAAP Measures – Adjusted EBITDA” below in this Item 7.
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Items impacting year-over-year comparability of the results include the following:
COVID-19 – Closures of all or a portion of our facilities due to COVID-19 had a significant negative impact on our results for the year ended December 31, 2020 and, to a lesser extent, in 2021. See “Executive Overview-Recent Developments Related to COVID-19” above for details regarding the closures. In addition to the impacts on our revenue, expenses and results of operations, COVID-19 had the following impacts:
We impaired goodwill and intangible assets in the year ended December 31, 2020 due to a quantitative and qualitative impairment analysis performed related to the triggering events caused by COVID-19. We impaired $30.7 million in the United States segment and $3.4 million in the Canada segment.
We impaired the $1.0 million MCE investment in the Corporate and Other segment in the year ended December 31, 2020 due to assessments made related to the impact of COVID-19 on MCE.
We recorded valuation allowances on our net deferred tax assets in the United States, Canada and Corporate and Other segments in the year ended December 31, 2020, which resulted in $1.0 million, $1.5 million and $1.1 million of tax expense in the United States, Canada and Corporate and Other segments, respectively.
United States – We acquired the operations at MTR, CCG and CCV in the 2019 Acquisition in December 2019. MTR is reported in the West Virginia operating segment and CCG and CCV are reported in the Missouri operating segment. Results in these operating segments were as follows:
In West Virginia:
$115.0 million in net operating revenue and $6.2 million in net earnings for the year ended December 31, 2021.
$90.2 million in net operating revenue and ($5.9) million in net losses for the year ended December 31, 2020.
$8.7 million in net operating revenue and $0.4 million in net earnings for the year ended December 31, 2019, which consisted of the month of December 2019.
In Missouri:
$123.0 million in net operating revenue and $28.4 million in net earnings for the year ended December 31, 2021.
$79.6 million in net operating revenue and ($31.3) million in net losses for the year ended December 31, 2020.
$7.4 million in net operating revenue and $1.0 million in net earnings for the year ended December 31, 2019, which consisted of the month of December 2019.
Canada – In Edmonton, we began operating CMR in April 2019. Results from CMR, impacting the Edmonton operating segment, were as follows:
$14.8 million in net operating revenue and ($3.0) million in net losses for the year ended December 31, 2021.
$14.7 million in net operating revenue and ($3.9) million in net losses for the year ended December 31, 2020.
$18.9 million in net operating revenue and ($2.4) million in net losses for the year ended December 31, 2019.
Corporate and Other
We began operating CCB in May 2018. CCB was closed in March 2020 due to COVID-19 and CCB’s board of directors determined that CCB would enter into creditors voluntary liquidation, which occurred in May 2020. CCB was deconsolidated as a subsidiary in May 2020. We recorded a $7.4 million gain related to the deconsolidation to general and administrative expenses for the year ended December 31, 2020. Due to historical and forecast losses at CCB due to changes in the current regulatory environment for casinos in England requiring enhanced due diligence of customers, we determined that the long-lived assets, right-of-use (“ROU”) operating lease asset and intangible asset were impaired and wrote-off $16.5 million to impairment – intangible and tangible assets in December 2019. CCB contributed a total of $0.5 million in net operating revenue and $6.9 million in net earnings for the year ended December 31, 2020, primarily related to the gain on deconsolidation, and $3.2 million in net operating revenue and ($20.0) million in net losses for the year ended December 31, 2019.
We wrote-down $0.7 million related to the portion of the liability that we had sought to collect from LOT Polish Airlines (“LOT”) and a $0.3 million receivable related to MCE in the year ended December 31, 2020.
All cruise ships on which our ship-based casinos are located suspended operations in March 2020 due to COVID-19. One of our ship-based casinos began operating in September 2020, suspended operations in November 2020 and began operating again in June 2021.
We incurred $5.4 million in acquisition costs in 2019 related to the 2019 Acquisition.
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Net operating revenue increased by $84.2 million, or 27.7%, and by $86.0 million, or 39.4%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively. Following is a breakout of net operating revenue by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019.
United States increased by $84.9 million, or 42.8%, and by $148.3 million, or 296.7%.
Canada decreased by ($3.8) million, or (7.6%), and by ($30.4) million, or (37.7%).
Poland increased by $4.0 million, or 7.3%, and decreased by ($27.6) million, or (33.7%).
Corporate Other decreased by ($0.8) million, or (59.9%), and by ($4.3) million, or (75.1%).
Operating costs and expenses increased by $15.6 million, or 5.1%, and by $80.9 million, or 36.2%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively. Following is a breakout of operating costs and expenses by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019.
United States increased by $6.7 million, or 3.4%, and by $159.0 million, or 392.4%.
Canada increased by $1.0 million, or 2.5%, and decreased by ($23.6) million, or (36.6%).
Poland increased by $1.6 million, or 2.8%, and decreased by ($18.9) million, or (24.9%).
Corporate Other increased by $6.2 million, or 90.3%, and decreased by ($35.5) million, or (83.7%).
Earnings from operations increased by $68.6 million, or 54051.2%, and by $5.1 million, or 97.6%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively. Following is a breakout of earnings (loss) from operations by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019.
United States increased by $78.2 million, or 6566.9%, and decreased by ($10.7) million, or (112.6%).
Canada decreased by ($4.8) million, or (51.5%), and by ($6.8) million, or (42.0%).
Poland increased by $2.3 million, or 84.1%, and decreased by ($8.7) million, or (147.0%).
Corporate Other decreased by ($7.1) million, or (128.9%), and increased by $31.2 million, or 85.0%.
Net earnings increased by $68.6 million, or 143.0%, and decreased by ($28.8) million, or (150.6%), for the year ended December 31, 2021 compared to the year ended December 31, 2020 and for the year ended December 31, 2020 compared to the year ended December 31, 2019, 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.
Non-GAAP Measures – Adjusted EBITDA
We define Adjusted EBITDA as net earnings (loss) attributable to Century Casinos, Inc. shareholders before interest expense (income), net, income taxes (benefit), depreciation and amortization, non-controlling interests net earnings (loss) and transactions, pre-opening expenses, acquisition costs, non-cash stock-based compensation charges, asset impairment costs, loss (gain) on disposition of fixed assets, discontinued operations, (gain) loss on foreign currency transactions, cost recovery income and other, gain on business combination and certain other one-time transactions. Expense related to the Master Lease is included in the interest expense (income), net line item. Intercompany transactions consisting primarily of management and royalty fees and interest, along with their related tax effects, are excluded from the presentation of net earnings (loss) attributable to Century Casinos, Inc. shareholders and Adjusted EBITDA reported for each segment. Not all of the aforementioned items occur in each reporting period, but have been included in the definition based on historical activity. These adjustments have no effect on the consolidated results as reported under US generally accepted accounting principles (“US GAAP”). Adjusted EBITDA is not considered a measure of performance recognized under US GAAP.
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Management believes that Adjusted EBITDA is a valuable measure of the relative performance of the Company and its properties. The gaming industry commonly uses Adjusted EBITDA as a method of arriving at the economic value of a casino operation. Management uses Adjusted EBITDA to evaluate and forecast the operating performance of the Company and its properties as well as to compare results of current periods to prior periods. Management believes that presenting Adjusted EBITDA to investors provides them with information used by management for financial and operational decision making in order to understand the Company’s operating performance and evaluate the methodology used by management to evaluate and measure such performance. Management believes that using Adjusted EBITDA is a useful way to compare the relative operating performance of separate reportable segments by eliminating the above-mentioned items associated with the varying levels of capital expenditures for infrastructure required to generate revenue, and the often high cost of acquiring existing operations. Our computation of Adjusted EBITDA may be different from, and therefore may not be comparable to, similar measures used by other companies within the gaming industry.
The reconciliation of Adjusted EBITDA to net earnings (loss) attributable to Century Casinos, Inc. shareholders is presented below.
For the year ended December 31, 2021
Amounts in thousands United States Canada Poland Corporate and Other Total
Net earnings attributable to non-controlling interests — 932 224 — 1,156
Non-cash stock-based compensation — — — 2,652 2,652
Loss (gain) on disposition of fixed assets 341 43 44 (37) 391
(1)Expense of $28.2 million related to our Master Lease is included in interest expense (income), net in the United States segment. Expense of $1.8 million related to our CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to our Master Lease and CDR land lease were $25.3 million and $2.0 million, respectively, for the period presented.
(2)Income of $0.8 million is included in the United States segment related to the sale of excess land at Mountaineer, net of related expenses.
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For the year ended December 31, 2020
Amounts in thousands United States Canada Poland Corporate and Other Total
Non-cash stock-based compensation — — — (214) (214)
Loss (gain) on disposition of fixed assets 64 (43) 4 1 26
Acquisition costs — — — 266 266
(1)Expense of $28.4 million related to our Master Lease is included in interest expense (income), net in the United States segment. Expense of $1.5 million related to our CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to our Master Lease and CDR land lease were $25.0 million and $1.3 million, respectively, for the period presented.
(2)Income of $6.5 million is included in the Canada segment related to the gain on sale of the casino operations of Century Casino Calgary.
For the year ended December 31, 2019
Amounts in thousands United States Canada Poland Corporate and Other Total
Non-cash stock-based compensation — — — 1,303 1,303
Impairment - intangible and tangible assets — — — 16,486 16,486
Pre-opening expenses — 538 — — 538
(1)Expense of $1.6 million related to our Master Lease is included in interest expense (income), net in the United States segment. Expense of $2.2 million related to our CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to our Master Lease and CDR land lease were $3.8 million and $2.0 million, respectively, for the period presented.
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Non-GAAP Measures – Net Debt
We define Net Debt as total long-term debt (including current portion) plus deferred financing costs minus cash and cash equivalents. Net Debt is not considered a liquidity measure recognized under US GAAP. Management believes that Net Debt is a valuable measure of our overall financial situation. Net Debt provides investors with an indication of our ability to pay off all of our long-term debt if it becomes due simultaneously. The reconciliation of Net Debt is presented below.
Total long-term debt, including current portion $ 181,484 $ 184,550
REPORTABLE SEGMENTS
The following discussion provides further detail of consolidated results by reportable segment.
United States
For the year
Amounts in thousands 2021 2020 2019 $ Change % Change $ Change % Change
We acquired MTR in West Virginia and CCG and CCV in Missouri in the 2019 Acquisition in December 2019.
Sports wagering in Colorado became legal on May 1, 2020. We have partnered with sports betting operators that will conduct sports wagering under each of the three Colorado master licenses for sports wagering held by our Colorado subsidiaries. One of these mobile sports betting apps launched in July 2020 and a second launched in August 2021. The third sports betting app is expected to launch in mid-2022. Each agreement with the sports betting operators provides for a share of net gaming revenue and a minimum revenue guarantee each year.
New table games and unlimited betting began in May 2021 in Colorado.
In December 2020, we entered into an agreement with an iGaming partner to utilize our license with the state of West Virginia to operate an internet and mobile interactive gaming app. The iGaming app launched in April 2021. The agreement provides for a share of net gaming revenue.
In December 2021, we entered into an agreement to sell excess land at Mountaineer. The sale proceeds were shared between us and VICI PropCo and we recorded income related to the sale net of related expenses of $0.8 million in gain (loss) on foreign currency transactions, cost recovery income and other on our consolidated statement of earnings (loss) for the year ended December 31, 2021.
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The table below provides the closure and reopen dates for casinos in the United States due to COVID-19.
Operating Segment Closure Date Reopen Date
The results below are presented to illustrate the changes in net operating revenue, primarily due to COVID-19, in the United States segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 as well as the year ended December 31, 2020 compared to the year ended December 31, 2019. Because we did not acquire the West Virginia and Missouri properties until December 2019, the differences between 2020 and 2019 for those operating segments are not presented in the table below.
Amounts in millions Q1 Q2 Q3 Q4 YTD
Colorado
West Virginia
Missouri
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The results below are presented to illustrate the changes in operating expenses, primarily due to COVID-19, in the United States segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 as well as the year ended December 31, 2020 compared to the year ended December 31, 2019, excluding depreciation and amortization expense and impairment – intangible and tangible assets. Because we did not acquire the West Virginia and Missouri properties until December 2019, the differences between 2020 and 2019 for those operating segments are not presented in the table below.
Amounts in millions Q1 Q2 Q3 Q4 YTD
Colorado
West Virginia
Missouri
During the closures of our United States properties in 2020, we suspended marketing initiatives, furloughed employees and reduced operating costs and expenses as much as possible. Additional savings related to gaming-related expenses.
2020 COVID-19 Restrictions
Colorado – In Cripple Creek, table games were closed through December 2020 but the full slot floor was open by the end of the year. In Central City, table games were closed from June to September 2020 and closed again in December 2020. In addition, after reopening in 2020, CTL’s slot floor was operating at approximately 65% from June to December 2020. Both properties reopened table games in February 2021 with restrictions on the number of gaming positions through the first quarter of 2021.
West Virginia – During 2020, the gaming floor was operating with reduced hours and at approximately 85% capacity. Food and beverage outlets were operating with reduced hours and capacity, the hotel was operating at reduced capacity and the convention spaces were closed.
Missouri – After reopening in 2020, the casinos operated with reduced hours and approximately 94% of the gaming floors open. In addition, there were state-wide smoking restrictions in place.
2021 Results
Our United States properties operated with very few COVID-19 restrictions in 2021. In Colorado, gaming revenue has increased due to increased player visits and the elimination of betting limits. Colorado’s operating costs and expenses have increased due to increased payroll resulting from increased table game operation in 2021 as compared to the table game closures in 2020, the elimination of restrictions on food and beverage outlets as well as increased gaming-related expenses. In West Virginia, we continue to adjust operating hours for the casino, food and beverage outlets, hotel and convention spaces as we have been impacted by staffing challenges in this market. West Virginia’s operating costs and expenses have increased primarily due to gaming-related expenses. In Missouri, we saw an immediate increase in revenue, particularly in table game revenue, when the smoking restrictions were lifted in the second quarter of 2021. Missouri’s operating costs and expenses increased due to minimum wage increases in Missouri and gaming-related expenses.
A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-GAAP Measures – Adjusted EBITDA” discussion above in this Item 7.
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Canada
For the year
Amounts in thousands 2021 2020 2019 $ Change % Change $ Change % Change
In January 2019, CMR began operating the Northern Alberta off-track betting network. The CMR casino in Edmonton opened on April 1, 2019, and the first horse race was held on April 28, 2019. In September 2021, CMR assumed the contracts of CBS and began operating the Southern Alberta off-track betting network.
We sold the casino operations of CAL in December 2020, which impacts comparability of the Calgary operating segment in 2021. We sold the land and building of CAL in February 2022, as a result of which we transferred the lease agreement for the casino premises to the buyer and stopped operating Century Sports.
The AGLC approved the relocation of a competing casino to a new site approximately eight miles south of Century Downs. We anticipate the casino will open in late 2022. Currently, the closest competitor to Century Downs is 11 miles away. An increase in competitors close to our casino at Century Downs could have an impact on financial results at this location.
In addition, in January 2022, the AGLC removed the moratorium on gaming facilities. While we do not expect new gaming facilities in the markets in which we operate, an increase in competitors could have a negative impact on our results of operations in Alberta.
Results in US dollars were impacted by a 6.5% exchange rate increase and (1.1%) exchange rate decrease in the average rates between the US dollar and the Canadian dollar for the year ended December 31, 2021 compared to the year ended December 31, 2020 and the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively.
The table below provides the closure and reopen dates for casinos in Canada due to COVID-19.
Closure Date Reopen Date
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The results below are presented to illustrate changes in net operating revenue, primarily due to COVID-19, in the Canada segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively.
Amounts in millions Q1 Q2 Q3 Q4 YTD
Edmonton - CAD
Edmonton - USD
Amounts in millions Q1 Q2 Q3 Q4 YTD
Calgary - CAD
Calgary - USD
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The results below are presented to illustrate the changes in operating expenses, primarily due to COVID-19, in the Canada segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and the year ended December 31, 2020 compared to the year ended December 31, 2019, 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
Edmonton - USD
Amounts in millions Q1 Q2 Q3 Q4 YTD
Calgary - CAD
Calgary - USD
Net operating revenue for the years ended December 31, 2021 and 2020 compared to the year ended December 31, 2019 was impacted negatively by closures due to COVID-19 as detailed in the table above. Following the March 2020 closures, table games were reopened in mid-September 2020 and closed again in November 2020. Our casinos in Canada were operating with approximately 71% of the slot floor open prior to the second closures in December 2020. Closures of our showroom at CRA also negatively impacted food and beverage revenue at that property in 2021 and 2020. From September 2021 to early February 2022, we required patrons to provide proof of vaccination, a negative rapid test result or an original medical exception letter for entry in order to comply with a government mandate. In accordance with a government mandate, all patrons and employees are required to wear masks while indoors. In addition, we sold the casino operations of CAL in December 2020, which decreased net operating revenue in the Calgary operating segment by approximately $2.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.
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Operating expenses during the years ended December 31, 2021 and 2020 compared to the year ended December 31, 2019 were impacted by COVID-19. We received wage subsidies provided by the Canadian government through the Canada Emergency Wage Subsidy that was enacted in April 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 by CAD 3.1 million ($2.5 million based on the average exchange rate for the year ended December 31, 2021) and CAD 7.4 million ($5.5 million based on the average exchange rate for the year ended December 31, 2020) for the years ended December 31, 2021 and 2020, respectively. Government wage subsidies ended in October 2021. Due to the Omicron variant of COVID-19, the Canadian government temporarily reenacted wage subsidies from December 2021 to February 2022; however, we did not qualify for the subsidies during this time period. We also received rent subsidies provided by the Canadian government through the Canada Emergency Rent Subsidy that was enacted in November 2020 as a result of COVID-19 to help subsidize rent for businesses experiencing a drop in revenue for a limited period. The qualified government rent subsidies reduced operating expenses by CAD 1.6 million ($1.3 million based on the average exchange rate for the year ended December 31, 2021) and CAD 0.5 million ($0.4 million based on the average exchange rate for the year ended December 31, 2020). In addition, we sold the casino operations of CAL in December 2020, which decreased operating expenses in the Calgary operating segment by approximately $2.4 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The gain on sale of the casino operations reduced total operating costs and expenses in the Calgary operating segment by $6.5 million for the year ended December 31, 2020.
During the closures of our Canada properties, we suspended marketing initiatives, furloughed employees and reduced operating costs and expenses as much as possible. We believe that we have captured operating synergies, labor savings and cost savings following the reopening of our Canada properties in June 2021. We expect payroll costs to trend higher in 2022 due to the reopening of the casinos, growing business volumes, and the end of government wage subsidies.
A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-GAAP Measures – Adjusted EBITDA” discussion above in this Item 7.
Poland
For the year
Amounts in thousands 2021 2020 2019 $ Change % Change $ Change % Change
In Poland, 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 next license expiration for a CPL casino occurs in September 2022. The casino at the LIM Center in Warsaw reopened in August 2019. We expanded the gaming floor at the Marriott Hotel and added an additional six table games in May 2019.
Results in US dollars were impacted by a 1.0% exchange rate increase and (1.6%) exchange rate decrease in the average rates between the US dollar and the Polish zloty for the year ended December 31, 2021 compared to the year ended December 31, 2020 and the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively.
The table below provides the closure and reopen dates for casinos in Poland due to COVID-19.
Closure Date Reopen Date
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The results below are presented to illustrate changes in net operating revenue, primarily due to COVID-19, in the Poland segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively.
Amounts in millions Q1 Q2 Q3 Q4 YTD
PLN
USD
The results below are presented to illustrate the changes in operating expenses, primarily due to COVID-19, in the Poland segment for the year ended December 31, 2021 compared to the year ended December 31, 2020 and the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively, excluding depreciation and amortization expense and impairment – intangible and tangible assets.
Amounts in millions Q1 Q2 Q3 Q4 YTD
PLN
USD
The net operating revenue decreases during the first half of 2021 and 2020 relate primarily to temporary casino closures and reduced tourism in Warsaw, primarily due to COVID-19. During the closures of our Poland casinos, we reduced operating costs and expenses as much as possible. Since reopening in 2021, we have seen increased revenue from our Warsaw casinos as tourism has returned stronger than it did following the reopening in 2020. Operating costs and expenses in the Poland segment continued to be lower during the year ended December 31, 2020 compared to the year ended December 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 international travel and hotel occupancy in Poland which could have a negative impact on our results. In addition, Poland neighbors Ukraine and continued conflict in that region could have a negative impact on our results of operations.
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We currently operate three casinos in Warsaw. There is proposed legislation to split the Warsaw voivodship (or province), which could limit the number of casino licenses available in Warsaw in the future. If the legislation is passed, it is expected that as licenses in Warsaw 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.
A reconciliation of net earnings (loss) attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-GAAP Measures – Adjusted EBITDA” discussion above in this Item 7.
Corporate and Other
For the year
Amounts in thousands 2021 2020 2019 $ Change % Change $ Change % Change
Loss from Equity Investment — — (1) — — 1 100.0%
Net Loss Attributable to Non-controlling Interests — — 12 — — (12) (100.0%)
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 in May 2018. CCB was permanently closed in March 2020 due to COVID-19 and CCB’s board of directors determined that CCB would enter into creditors voluntary liquidation, which occurred in May 2020. CCB was deconsolidated as a subsidiary in May 2020. We recorded a $7.4 million gain related to the deconsolidation to general and administrative expenses for the year ended December 31, 2020. Due to historical and forecast losses at CCB from changes in the regulatory environment for casinos in England 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 in December 2019. For additional information related to CCB, see Note 1 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.
As of December 31, 2021, we had a concession agreement with TUI Cruises for two ship-based casinos. From March 2020 to June 2021, neither casino operated due to COVID-19. Only one ship-based casino is currently operating. Our agreement to operate that ship-based casino ends in the second quarter of 2022 and our agreement to operate the other ship-based casino ends in the second quarter of 2023.
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 2019 and 2021.
Cruise Ship Month of Contract Expiration
Wind Spirit January 2019
Star Pride March 2019
Star Breeze April 2019
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Through our subsidiary CRM, we had a 7.5% ownership interest in MCE that was sold in November 2021 for nominal consideration. In addition, the consulting services agreement under which CRM provided advice to MCE on casino matters was terminated in November 2021. In March 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 1 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 Golden Hospitality Ltd. (“GHL”), an entity that invested in Minh Chau Ltd. (“MCL”), owner of a hotel, entertainment and gaming club in Vietnam. We sold our interest in GHL to the unaffiliated shareholders of GHL in May 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 earnings (loss) for the year ended December 31, 2019. The sale of our equity interest in GHL also ended our related equity interest in MCL. For additional information related to GHL and MCL, see Note 1 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 in the GBP for the year ended December 31, 2020 compared to the year ended December 31, 2019.
Revenue Highlights
Years ended December 31, 2021 and 2020
Non-Corporate Reporting Units
Net operating revenue decreased due to the closure of CCB as detailed above. In addition, only one ship-based casino operated during a portion of 2021.
Years ended December 31, 2020 and 2019
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 2020 due to COVID-19 related shutdowns of the cruise ships on which they operate.
Operating Expense Highlights
Years ended December 31, 2021 and 2020
Non-Corporate Reporting Units
Total operating costs and expenses related to the ship operations decreased because only one ship operated in 2021 compared to multiple ships that operated at the beginning of 2020 until they ceased operating due to COVID-19. Total operating costs and expenses related to CCB increased due to the deconsolidation of CCB that resulted in a gain of $7.4 million that we recognized in general and administrative expenses on our statements of earnings (loss) for the year ended December 31, 2020 offset by decreased operating costs and expenses due to the closure of the casino in March 2020.
Corporate Reporting Units
General and administrative expenses increased by $1.8 million, or 16.6%, due primarily to increased payroll and stock compensation expense during the year ended December 31, 2021 offset by the write-down of a receivable related to MCE of $0.3 million during the year ended December 31, 2020. In addition, in March 2020, we assessed the collectability of a receivable from LOT, which previously owned a 33.3% interest in CPL that we acquired in 2013, related to the Poland 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 the Polish Internal Revenue Service (“Polish IRS”) for tax periods in January 2009 to March 2013. Due to COVID-19, LOT grounded flights in March 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 ended December 31, 2020. For additional information related to the Poland contingent liability, see Note 16 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.
In March 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 ended December 31, 2020.
Years ended December 31, 2020 and 2019
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 earnings (loss) for the year ended December 31, 2020.
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Corporate Reporting Units
General and administrative expenses decreased by ($5.1) million, or (30.4%). The decreases related to voluntary payroll decreases for certain of our corporate staff during the casino closures. In addition, in 2019, there were additional expenses totaling $6.0 million related to the 2019 Acquisition that did not reoccur in 2020. Offsetting these decreases were the additional expenses related to the impairment of MCE and the write-down of the LOT receivable detailed above.
A reconciliation of net loss attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-GAAP Measures – Adjusted EBITDA” discussion above in this Item 7.
Non-Operating Income (Expense)
Non-operating income (expense) for the years ended December 31, 2021, 2020 and 2019 was as follows:
Amounts in thousands 2021 2020 2019 $ Change % Change $ Change % Change
Interest income
Interest income is related to interest earned on our cash reserves. In addition, PLN 0.6 million ($0.2 million) in interest income relates to the Polish IRS reimbursement of CPL after CPL prevailed in a court challenge of a 2012 tax audit. See Note 16 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.
Interest expense
Interest expense is 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 $0.7 million, $0.2 million and $0.4 million was received by CDR for the years ended December 31, 2021, 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.
We adjusted the contingent liability related to the CPL tax audits to remove the estimated taxes accrued due to the expiration of the statute of limitations for each tax year. This adjustment reduced the contingent liability by PLN 1.8 million ($0.5 million), PLN 2.8 million ($0.7 million) and PLN 2.2 million ($0.6 million) for the years ended December 31, 2021, 2020 and 2019, respectively. In addition, PLN 0.8 million ($0.2 million) was reimbursed to CPL by the Polish IRS for the year ended December 31, 2021. See Note 16 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.
Taxes
Income tax expense is recorded relative to the jurisdictions that recognize book earnings. During the year ended December 31, 2021, we recognized income tax expense of $6.4 million on pre-tax income of $28.1 million, representing an effective income tax rate of 22.6%, compared to income tax expense of $4.8 million on pre-tax loss of ($43.3) million, representing an effective income tax rate of 11.2%, and income tax expense of $4.2 million on pre-tax loss of ($12.0) million, representing an effective income tax rate of 34.9% for the same periods in 2020 and 2019, respectively. For further discussion of 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 13 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.
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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 was 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.
Cash Flows – Summary
Our cash flows; cash, cash equivalents and restricted cash; and working capital consisted of the following:
For the year
ended December 31,
Net cash (used in) provided by financing activities (4,713) 3,129 113,869
(1)Working capital is defined as current assets minus current liabilities.
Operating Activities
Our cash flows from operations have historically been positive and sufficient to fund ordinary operations. Cash flows from operations improved in the year ended December 31, 2021 because our US facilities were open and operating for the entire period and our casinos in Canada and Poland reopened in June 2021 and May 2021, respectively. Cash flow from operations for the year ended December 31, 2020 was favorably impacted by the operations of the properties we acquired in the 2019 Acquisition and negatively impacted by the suspension of our operations due to COVID-19. 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 earnings (loss) from operations.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2021 consisted of $0.4 million for slot machine purchases, $0.2 million in energy efficiency upgrades, and $0.4 million in gaming floor upgrades at our West Virginia property; $1.3 million for slot machine purchases, $0.4 million in other gaming equipment, $0.4 million in surveillance equipment, $0.6 million in a restaurant remodel, $0.6 million in a hotel remodel, $0.3 million to build employee housing in Caruthersville, and $0.9 million related to our hotel and land-based casino project at our Missouri properties; $0.1 million in building and improvements, $0.1 million for slot machine purchases and $0.2 million in server upgrades at our Colorado properties; $0.6 million to build employee housing in Cripple Creek; $0.3 million for RV stalls at Century Mile and $3.2 million in other fixed asset additions at our properties and $0.1 million in working capital adjustments paid to the buyer of Century Casino Calgary, offset by less than $0.1 million in proceeds from the Century Casino Calgary sale earn out and less than $0.1 million in proceeds from the sale of fixed assets.
Net cash used in investing activities for the year ended December 31, 2020 consisted of a $1.2 million payment related to the working capital adjustment in the 2019 Acquisition; $0.6 million for slot machine purchases at our Colorado 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 our Missouri 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 our West 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 our Edmonton properties; $0.2 million for table game equipment at our Calgary properties; $0.3 million in casino improvements in Poland; and $2.5 million in other fixed asset additions at our properties; offset by $6.6 million from the sale of Century Casino Calgary, net of cash assumed by the buyer.
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Net cash used in investing activities for the year ended December 31, 2019 consisted of $96.6 million related to the 2019 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 the Marriott Hotel in Warsaw, Poland and additional assets for the casinos in Poland; $0.8 million in Colorado for slot machines, chairs and security upgrades; $1.2 million in Calgary for the building expansion at CDR and a bar at CAL; $0.3 million in Edmonton 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 in CBS.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2021 consisted of $4.2 million in principal payments and a $0.8 million distribution to non-controlling interests in CDR, offset by $0.2 million from the exercise of stock options.
Net cash provided by financing activities for the year ended December 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 for the year ended December 31, 2019 consisted of $124.7 million in proceeds 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 in CBS and CPL.
Borrowings and Repayments of Long-term Debt and Lease Agreements
As of December 31, 2021, our total debt under bank borrowings and other agreements net of $7.7 million related to deferred financing costs was $181.5 million, of which $177.5 million was long-term debt and $4.0 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 and term loans with UniCredit Bank Austria AG (“UniCredit”). We intend to repay the current portion of our debt obligations with available cash. For a description of our debt agreements, see Note 6 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report. Net Debt was $81.4 million as of December 31, 2021 compared to $130.4 million as of December 31, 2020. The decrease in Net Debt was primarily due to a $44.4 million increase in cash and cash equivalents. For the definition and reconciliation of Net Debt to the most directly comparable GAAP measure, see “Non-GAAP Measures – Net Debt” above in this Item 7.
The following table lists the 2022 maturities of our debt:
Amounts in thousands
Our Macquarie Credit Agreement matures in December 2026 at which time the $158.5 million principal balance will be due. We currently plan to refinance this debt as described below under “Potential Sources and Uses of Liquidity, and Short-Term and Long-Term Liquidity.”
Estimated interest payments based on principal amounts and expected maturities of long-term debt outstanding and management’s forecasted rates for our long-term debt agreements for the year ended December 31, 2022 are $13.0 million. Estimated interest payments do not reflect the impact of future foreign exchange rate changes. The estimate excludes the variable payments related to the CDR land lease and payments under the Master Lease.
The first option to purchase the land that is currently leased at CDR is on July 1, 2023.
The following table lists the amount of 2022 payments due under our operating and finance lease agreements and our Master Lease:
Amounts in thousands
Operating Leases Finance Leases Master Lease
Cash payments related to the Master Lease were $25.3 million for the year ended December 31, 2021.
Common Stock Repurchase Program
The total amount remaining under our stock repurchase program was $14.7 million as of December 31, 2021. We did not repurchase any common stock in 2021, 2020 or 2019. The repurchase program has no set expiration or termination date.
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Potential Sources and Uses of Liquidity, and Short-Term and Long-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.
Impact of COVID-19
The COVID-19 pandemic had an adverse effect on our results of operations, financial condition and liquidity for 2020 and the first half of 2021. Between March 13, 2020 and March 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 on May 18, 2020, and our North American operations reopened between June 1, 2020 and June 17, 2020. Additional closures of our Canada and Poland casinos were required in December 2020 to comply with quarantines issued by governments. Our Poland casinos reopened in February 2021, closed in March 2021, and reopened again on May 28, 2021. Our Canada casino properties reopened on June 10, 2021. 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 and that the net cash outflows related to Canada and Poland operations during the time they were fully suspended in 2021 were, on average, approximately $2.7 million per month. As described in “Results of Operations” above, our casinos have varied their operations based on the governmental health and safety requirements in the jurisdictions in which they are located.
In March 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 in July 2020 except for a $50,000 letter of credit that we repaid in May 2021. The $7.4 million credit agreement with UniCredit was refinanced in June 2021 to a EUR 6.0 million term loan repayable through December 31, 2025. As of December 31, 2021 we had $10.0 million available to borrow on the Macquarie revolving credit facility. CPL’s PLN 5.0 million line of credit, which had no outstanding balance as of December 31, 2021, is available through April 28, 2022. See Note 6 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 an amendment to the Macquarie Credit Agreement that, among other things, waived compliance with a financial covenant under the Macquarie Credit Agreement.
The duration and impact of the COVID-19 pandemic remains uncertain. We cannot predict the negative impacts that COVID-19 will have on our consumer demand, workforce, suppliers, contractors and other partners and whether future closures will be required. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19, governmental health and safety requirements and any future closures are expected to have a material impact on our business. We continue to monitor our liquidity and plan to make reductions to marketing and operating expenditures, where possible, if future government mandates or closures are required that would have an adverse impact on us.
Planned Projects, the Nugget Acquisition and Sources of Liquidity
Planned capital expenditures in 2022 include approximately $8.0 million in gaming equipment, renovations to various properties and security system upgrades. We are refurbishing a hotel near Century Casino Caruthersville at a cost of approximately $3.6 million. As of December 31, 2021, we have spent approximately $0.7 million on this project. We plan to move our Century Casino Caruthersville riverboat casino to a new land-based casino with a small hotel adjacent to and connected with the existing building and to build a hotel at our Cape Girardeau location. We estimate the projects will cost approximately $73.0 million and we plan to finance the costs of these projects with cash on hand, financing, or a combination of the two. As of December 31, 2021, we have spent approximately $1.0 million on these projects.
On February 22, 2022, we entered into a definitive agreement to purchase (i) 50% of the membership interests in PropCo, and (ii) 100% of the membership interests of OpCo. OpCo owns and operates the Nugget Casino Resort in Sparks, Nevada, and PropCo owns the real property on which the casino is located. At the First Closing, which is expected to occur early in the second quarter of 2022, we will purchase 50% of the membership interests in PropCo for approximately $95.0 million (subject to certain adjustments) and PropCo will enter into a lease with OpCo for an annual rent of $15.0 million. Subject to approval from the Nevada Gaming Commission, our purchase of 100% of the membership interests in OpCo for approximately $100.0 million (subject to certain adjustments) is expected to close within one year after the First Closing, at which point we will own the operating assets of Nugget Casino Resort and 50% of the membership interests in PropCo and have a five-year option to acquire the remaining 50% of the membership interests in PropCo for $105 million plus 2% per annum.
In connection with the Nugget Acquisition, we have received a commitment letter from Goldman Sachs Bank USA for (i) $350.0 million in senior secured term loan debt financing to support the Nugget Acquisition, refinance our existing debt under the Macquarie Credit Agreement and for general corporate purposes, and (ii) a $30.0 million senior secured revolving credit facility.
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We may be required to raise additional capital to address our liquidity and capital needs or in connection with acquisitions or other development opportunities. We have a shelf registration statement with the SEC that became effective in July 2020 under which we may issue, from time to time, up to $100 million of common stock, preferred stock, debt securities and other securities.
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 $32.1 million of our total $107.8 million in cash and cash equivalents at December 31, 2021 is held by our foreign subsidiaries and is not available to fund US operations unless repatriated.
Off-Balance Sheet Arrangements
We do not have any 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.
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 remaining cash payments due related to the transition tax total $0.9 million and are expected to be paid $0.2 million in 2023, $0.3 million in 2024, and $0.4 million in 2025.
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 in the 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.
Property and Equipment–We have significant capital invested in our property and equipment, which represented approximately 71% of our total assets as of December 31, 2021. Judgments are made in determining whether an expenditure is a maintenance expense or a capital asset, 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. As of December 31, 2021, we have made no changes to our estimates related to useful lives.
We use judgment in estimating future cash flows when 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. 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. The accuracy of these estimates affects the carrying value of our property and equipment on our consolidated balance sheets. As of December 31, 2021, we believe that our investments in property and equipment are recoverable. For the year ended December 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 earnings (loss).
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Goodwill and Intangible Assets– We test goodwill and indefinite-lived intangible assets for impairment as of October 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 of December 31, 2021 are included within Canada and Poland 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 5 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report. As of December 31, 2021, the estimated fair value of our CDR reporting unit exceeded its carrying value by 34%. Goodwill related to our CDR reporting unit was $0.1 million as of December 31, 2021. Key assumptions in the valuation of the CDR reporting unit relate to future earnings at CDR. A downturn in the Alberta economy could negatively affect the key assumptions management used in its analysis.
Our Century 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 5 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report. As of December 31, 2021, the fair value of our indefinite-lived intangible assets at our CSA reporting unit was 11% in excess of its related carrying value. Intangible assets related to our CSA reporting unit were $9.6 million as of December 31, 2021. Key assumptions in the valuation of intangible assets at the CSA reporting unit relate to future earnings at CSA. A downturn in the Alberta 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.
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.
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Additionally, evaluating the need for, and amount of, a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all the positive and negative evidence available to determine whether all or some portion of deferred tax assets will not be realized. Because management believes it is more likely than not that the benefit from certain deferred tax assets will not be realized, a valuation allowance of $10.2 million in the US and $10.1 million in foreign jurisdictions has been provided in recognition of these risks. If our assumptions change and it is determined that we will be able to realize tax benefits related to these deferred tax assets, we will realize a reduction in income tax expense in the year such valuation allowances are reversed. Management continues to monitor the profitability of the US operations, and the valuation allowance in the US may be released within the next 12 months. If this occurs, we would recognize a $10.2 million tax benefit for the year ended December 31, 2022.