CENTURY CASINOS INC /CO/ - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2019



OR



☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________



Commission file number  0-22900



CENTURY CASINOS, INC.

(Exact name of registrant as specified in its charter)





455 E. Pikes Peak Ave,  Suite 210,  Colorado Springs,  Colorado 80903

(Address of principal executive offices) (Zip Code)



(719)  527-8300

(Registrant’s telephone number, including area code)



Securities Registered Pursuant to Section 12(b) of the Act:



Securities Registered Pursuant to Section 12(g) of the Act:

None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
    Yes ☐ No ☑ 



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
    Yes ☐ No ☑  



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐    



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ 



The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2019, based upon the closing price of $9.70 for the Common Stock on the Nasdaq Capital Market on that date, was $262,149,824. For purposes of this calculation only, executive officers and directors of the registrant are considered affiliates.



As of March 1, 2020, the registrant had 29,500,327  shares of Common Stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference the registrant’s definitive Proxy Statement for its 2020 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after December 31, 2019. 

 

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INDEX



 

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS



This Annual Report on Form 10-K and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Private Securities Litigation Reform Act of 1995 and, as such, may involve risks and uncertainties. All statements included or incorporated by reference in this report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. 



The forward-looking statements included or incorporated by reference in this report are subject to additional risks and uncertainties further discussed under Item 1A. “Risk Factors” and are based on information available to us on the filing date of this report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. We assume no obligation to update any forward-looking statements. 



PART I



As used in this report, the terms “Company,” “we,” “our,” or “us” refer to Century Casinos, Inc. and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.



This report includes amounts translated into US dollars from certain foreign currencies. For a description of the currency conversion methodology and exchange rates used for certain transactions, see Note 2 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report. The following information should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.



Item 1. Business.

General

Century Casinos, Inc., a Delaware corporation founded in 1992, is a casino entertainment company that develops and operates gaming establishments as well as related lodging, restaurant, horse racing (including off-track betting) and entertainment facilities primarily in North America. Our main goal is to grow our business by actively pursuing the development or acquisition of new gaming opportunities and reinvesting in our existing operations.



On December 6, 2019, we completed an acquisition (the “Acquisition”) of the operations of Isle Casino Cape Girardeau, located in Cape Girardeau, Missouri, Lady Luck Caruthersville, located in Caruthersville, Missouri, and Mountaineer Casino, Racetrack and Resort located in New Cumberland, West Virginia (collectively, the “Acquired Casinos”), from Eldorado Resorts, Inc. for an aggregate purchase price of approximately $110.6 million (subject to an adjustment based on the Acquired Casinos’ working capital and cash at closing), Immediately prior to the Acquisition, the real estate assets underlying the Acquired Casinos were sold to an affiliate of VICI Properties Inc. (“VICI PropCo”). On the closing date, certain of our subsidiaries and subsidiaries of VICI PropCo entered into a triple net lease agreement (the “Master Lease”) for the three Acquired Casino properties.  The Master Lease has an initial annual rent of approximately $25.0 million and an initial term of 15 years, with four five-year renewal options.



Overview of Operations

We view each jurisdiction in which our casinos are located as separate operating segments and each casino within those jurisdictions as reportable units. Except as described below, we aggregate our operating segments into three reportable segments based on the geographical locations in which our casinos operate. We have additional business activities, including our Century Casino Bath operations, our concession, management and consulting agreements and certain other corporate and management operations that we report as Corporate and Other. The following are our reportable segments:





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United States

Colorado –



Century Casino & Hotel – Central City, Colorado (“CTL” or “Central City”). We opened this wholly-owned casino and hotel in July 2006, as part of a joint venture in which we owned a 65% interest. In December 2007, we acquired the remaining 35% interest in the joint venture. Central City is located approximately 35 miles west of Denver, serving a metropolitan population of over 2.8 million people. Century Casino & Hotel is located in Central City at the end of the Central City Parkway, a four lane highway that connects I-70, the main east/west interstate highway in Colorado, to Central City. The facility has 462 TITO slot machines, seven tables, 26 hotel rooms, a bar, two restaurants and a 500 space on-site covered parking garage.



Century Casino & Hotel – Cripple Creek, Colorado (“CRC” or “Cripple Creek”). We have owned and operated this wholly-owned casino and hotel since 1996. The town of Cripple Creek is located approximately 45 miles southwest of Colorado Springs, the second largest city in the state of Colorado, serving a metropolitan population of over 700,000 people. The facility has 431 TITO slot machines, six tables, 21 hotel rooms, two bars, a restaurant and 271 surface parking spaces neighboring the casino.



West Virginia –



Mountaineer Casino, Racetrack & Resort – New Cumberland, West Virginia (“MTR” or “Mountaineer”). We purchased this wholly-owned casino, hotel, entertainment and live thoroughbred horse racing facility in the Acquisition in December 2019. Mountaineer is located on the Ohio River bank at the northern tip of West Virginia’s northwestern panhandle approximately 30 miles from the Pittsburgh International Airport and a one hour drive from downtown Pittsburgh. The facility has 1,140 TITO slot machines, 32 tables, on-site pari-mutuel wagering, 357 hotel rooms, five dining venues and 5,248 surface parking spaces neighboring the casino. Mountaineer holds live thoroughbred races from March to December.



Missouri –



Century Casino Cape Girardeau – Cape Girardeau, Missouri (“CCG” or “Cape Girardeau”). We purchased this wholly-owned dockside casino in the Acquisition in December 2019. Cape Girardeau is located along the Mississippi River three and a half miles from Interstate 55 in southeast Missouri, approximately 120 miles south of St. Louis, Missouri. The facility has 844 TITO slot machines, 24 tables, three dining venues, a pavilion and entertainment center and 1,088 surface parking spaces neighboring the casino.



Century Casino Caruthersville – Caruthersville, Missouri (“CCV” or “Caruthersville”). We purchased this wholly-owned riverboat casino in the Acquisition in December 2019. Caruthersville is located in southeast Missouri on the Mississippi River approximately 95 miles north of Memphis, Tennessee. The facility has 511 TITO slot machines, nine tables, two dining venues, a 40,000 square foot pavilion, a 28 space RV park and 856 surface parking spaces neighboring the casino.



Canada

Edmonton – 



Century Casino & Hotel – Edmonton, Alberta, Canada (“CRA” or “Edmonton”). We opened this wholly-owned casino in November 2006 and the attached hotel in March 2007. Edmonton is the capital of the Canadian province of Alberta, serving a metropolitan population of over one million people. The facility has 800 ticket in/ticket out (“TITO”) slot machines, 35 tables (including a 24-hour poker room), 30 video lottery terminals and a full service off-track betting parlor. In addition, the property has 26 hotel rooms, a 10,700 square foot showroom that can seat approximately 500 customers, a 3,000 square foot showroom that can seat approximately 200 customers, where we host Yuk Yuks Comedy Club comedic performances, two restaurants, three bars, 600 surface parking spaces and a complimentary underground heated parking garage with 300 additional spaces.



Century Casino St. Albert – Edmonton, Alberta, Canada (“CSA” or “St. Albert”). We acquired this wholly-owned casino in October 2016. St. Albert is located 13 miles from CRA. The casino includes 407 TITO slot machines, 11 tables, 24 video lottery terminals and a full service off-track betting parlor. In addition, the property has a restaurant, a bar, a lounge, a banquet facility and 585 surface parking spaces. 



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Century Mile Racetrack and Casino – Edmonton, Alberta, Canada (“CMR” or “Century Mile”). We opened this wholly-owned horse racing facility in April 2019. Century Mile is a one-mile horse racetrack and a multi-level Racing and Entertainment Center (“REC”). The REC has  590 TITO slot machines, 14 video lottery terminals, a full-service restaurant, a buffet restaurant on race days,  two bars, two delis, an off-track betting parlor and grandstand. Century Mile holds a minimum of 100 racing days per year. CMR operates the northern Alberta pari-mutuel network under which CMR provides pari-mutuel content and live video to 20 off-track betting parlors throughout northern Alberta and has agreements with over 90 racetracks world-wide to broadcast races through the off-track betting network. The off-track betting parlors include the parlors at Century Mile, CRA and CSA. The REC is located on Edmonton International Airport land close to the city of Leduc, south of Edmonton.



Calgary – 



Century Casino Calgary – Calgary, Alberta, Canada (“CAL” or “Calgary”). We acquired this wholly-owned casino in January 2010. Calgary is the largest city in the province of Alberta, serving a metropolitan population of over one million people. The casino includes 504 TITO slot machines, 16 tables, 20 video lottery terminals and a full service off-track betting parlor. In addition, the property has a restaurant, a lounge, a 1,000 square foot showroom that can seat approximately 100 customers, a 30 lane bowling alley and 18 hole miniature golf course that we operate as Century Sports, 465 owned surface parking spaces and 41 leased surface parking spaces neighboring the casino.



Century Downs Racetrack and Casino – Calgary, Alberta, Canada (“CDR” or “Century Downs”). Our subsidiary Century Resorts Management GmbH (“CRM”) owns 75% of United Horsemen of Alberta Inc. dba Century Downs Racetrack and Casino, which in turn owns and operates a REC. The REC, which opened in April 2015, is located 17 miles from CAL and 4.5 miles from the Calgary International Airport. The casino includes 663 TITO slot machines and 10 video lottery terminals. In addition, the property has a 5.5 furlong (0.7 mile) racetrack, a bar, a lounge, a restaurant facility, an off-track betting area, an entertainment area and 700 surface parking spaces. We hold a minimum of 100 racing days per year during the horse racing season from March through November, and we host both standardbred and thoroughbred horse races. CDR is consolidated as a majority-owned subsidiary for which we have a controlling financial interest.



Century Bets! Inc. – Calgary, Alberta, Canada (“CBS” or “Century Bets”). Our subsidiary CRM formed Century Bets! Inc. in January 2015 and owned a 75% controlling financial interest until August 2019. In August 2019, we purchased the remaining 25% non-controlling financial interest in CBS from Rocky Mountain Turf Club. CBS operates the southern Alberta pari-mutuel network consisting of the sourcing of common pool pari-mutuel wagering content for racetracks throughout North America and world-wide. CBS provides pari-mutuel wagering content and live video to 12 off-track betting parlors throughout southern Alberta and has agreements with over 90 racetracks world-wide to broadcast races through the off-track betting network.



Poland

Casinos Poland – Poland (“CPL” or “Casinos Poland”). CPL has been in operation since 1989 and is the owner and operator of casinos throughout Poland.  In March 2007, our subsidiary CRM acquired 33.3% of the outstanding shares of Casinos Poland Ltd. In April 2013, CRM increased its ownership interest in CPL to 66.6% and we began consolidating CPL as a majority-owned subsidiary for which we have a controlling financial interest.



The following table summarizes information about the casinos that CPL operated as of December 31, 2019. 





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In Poland, casino licenses are granted for six years. Before a casino license expires, the Polish Minister of Finance notifies the public of its availability and interested parties can submit an application for the casino license. Following approval of a casino license by the Minister of Finance, there is a period in which applicants can appeal the decision. In April 2019, CPL combined the two licenses used to operate casinos in the Warsaw Marriott Hotel into one license and transferred the remaining license to the Hilton Hotel in Warsaw. This transfer extended the Hilton Hotel’s license to September 2022 and the Marriott Hotel’s license to July 2024. CPL opened a third casino in Warsaw at the LIM Center, where it had previously operated a casino, in August 2019.



Corporate and Other

Cruise Ships. Through concession agreements with TUI Cruises, we currently operate five ship-based casinos. The following table summarizes information about the ship-based casinos that we operated as of December 31, 2019.  







Our concession agreements to operate ship-based casinos onboard four Windstar Cruises ships ended in January 2019, March 2019, April 2019 and May 2019.  



In June 2019, we evaluated our agreement with Diamond Cruises related to the operation of the ship-based casino onboard the Glory Sea. We determined that it was more likely than not that the agreement was impaired and wrote-down $1.0 million in property and equipment and net receivables in June 2019. The Glory Sea is currently not sailing, and we have not determined whether we will continue to operate this ship-based casino if the ship begins sailing again.



Century Casino Bath (“CCB”). We opened this wholly-owned subsidiary in May 2018. CCB is located in the evening leisure district of Bath, serving a metropolitan population of 0.2 million people. The facility has 57 TITO slot and electronic roulette machines, 14 tables, three bars, and a lounge area. In December 2019, we determined that the long-lived assets, right-of-use operating lease asset and intangible asset at CCB were impaired. The impairment was determined after evaluating losses incurred by the casino since operations began and future forecasts of continued losses due to changes in the current regulatory environment for casinos in England requiring enhanced due diligence of customers.



Mendoza Central Entretenimientos S.A. (“MCE”). In October 2014, our subsidiary CRM purchased 7.5% of the shares of MCE for $1.0 million. The shares are reported on our consolidated balance sheet using the cost method of accounting. MCE has an exclusive agreement with the Instituto Provincial de Juegos y Casinos (“IPJC”) to lease slot machines and provide related services to Casino de Mendoza, a casino located in Mendoza, Argentina and owned by the Province of Mendoza. MCE may also pursue other gaming opportunities. MCE leases 600 TITO slot machines to Casino de Mendoza. CRM has appointed one director to MCE’s board of directors. In addition, CRM and MCE have entered into a consulting services agreement pursuant to which CRM provides advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of MCE’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). See Note 4 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report.



Terminated Projects

Golden Hospitality Limited (“GHL”) and Minh Chau Ltd. (“MCL”). In April 2018, our subsidiary CRM entered into a Shareholder’s Agreement with GHL and GHL’s shareholders, pursuant to which CRM purchased a 51% ownership interest in GHL. The remaining 49% of GHL was owned by unaffiliated shareholders.  As of May 2019, GHL owned approximately 9.21% of MCL, which owns a small hotel and 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. The sale of our equity interest in GHL also ended our equity interest in MCL.



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Additional Projects and Other Developments

In August 2017, we announced that, together with the owner of the Hamilton Princess Hotel & Beach Club in Hamilton, Bermuda, we had submitted a license application to the Bermudan government for a casino at the Hamilton Princess Hotel & Beach Club. The casino will feature approximately 200 slot machines, 17 live table games, one or more electronic table games and a high limit area and salon privé. In September 2017, the Bermuda Casino Gaming Commission granted a provisional casino gaming license, which is subject to certain conditions and approvals including the adoption of certain rules and regulations by the Parliament of Bermuda. The Parliament of Bermuda has not yet adopted these rules and regulations. CRM entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if the license is awarded. CRM will also provide a $5.0 million loan for the purchase of casino equipment if the license is awarded.



We have additional potential gaming projects and acquisition opportunities that we are currently exploring. 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. For more information on these and other risks related to our business, see Item 1A, “Risk Factors” below.  



Capital Needs, Uses and Cash Flow

As a gaming company, our operating results are highly dependent on the volume of customers at our casinos. Most of our revenue is essentially cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our industry is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow 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.



Marketing and Competition

We face intense competition from other casinos within the jurisdictions in which we operate. 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, enhancement of social networking initiatives and other marketing efforts. In addition to our players’ clubs, we also have various cash and prize promotions and market our casinos through a variety of media outlets including internet, television, radio, print and billboard advertising. Our marketing focuses on competition and other facts and circumstances of each market area in which we operate. Our primary marketing strategy centers on attracting new customers and rewarding repeat customers through our players’ club programs. All visitors to our properties are offered the opportunity to join our players’ club. We maintain a proprietary database that consists primarily of slot machine customers that allows us to create effective targeted marketing and promotional programs, cash and merchandise giveaways, coupons, downloadable promotional credits, preferred parking, food, lodging, game tournaments and other special events. In the United States, our players’ club cards allow us to update our database and track member gaming preferences, including, but not limited to, maximum, minimum, and total amounts wagered and frequency of visits. We have designed reward programs based on total amount wagered and frequency of visits to reward customer loyalty and attract new customers to our properties. Those who qualify for VIP status receive additional benefits compared to regular club membership, such as invitations to exclusive VIP events.



United States





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Canada







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Poland

There are 52 casino licenses available throughout Poland. The Polish government generally forbids the marketing of gaming activities outside of a casino, but the marketing of entertainment is permissible. CPL relies on the locations of its casinos, which are primarily in hotels in major cities throughout Poland, to attract customers. The Polish government issues casino licenses in Poland by district, and there are additional casinos in each district in which CPL operates. For example, five other casinos in the Warsaw district compete with our three casinos operating in Warsaw. The Polish Minister of Finance does not disclose individual casino data. Changes to the Polish gaming law that went into effect in April 2017 legalize online gaming and reintroduce slot arcades through a state-run company. Slot arcades began operating in June 2018 and online gaming began in December 2018. We have not experienced a negative impact to our results of operations in Poland from slot arcades or online gaming; however, the increased competition from slot arcades that are located in the cities in which our casinos are located as well as online gaming could occur and adversely affect our results of operations in the future. 



Corporate and Other







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Seasonality

United States  – Our casinos in Colorado attract more customers during the warmer months from May through September. We expect to attract fewer customers from October through April because weather conditions during this period are variable and can have a significant impact on daily business levels. In West Virginia, we attract more customers from March to August during the racing season. Our casinos in Missouri attract customers throughout the year with the highest business volumes in February and March.



Canada – Our Edmonton and Calgary casinos in Alberta, Canada attract more customers from September through April. During the remainder of the year, the casinos attract fewer customers because we compete with outdoor activities. Century Downs and Century Mile also attract additional customers during the racing season from March through November. Our off-track betting parlors attract more customers during the peak racing season from May through August.



Poland – CPL generally attracts more customers from October through March because domestic customers generally vacation during the summer months.



Corporate and Other







Governmental Regulation and Licensing

The ownership and operation of casino gaming facilities are subject to extensive state, local, foreign, provincial or federal regulations. We are required to obtain and maintain gaming licenses in each of the jurisdictions in which we conduct gaming operations. The limitation, conditioning, suspension, revocation or non-renewal of gaming licenses, or the failure to reauthorize gaming in certain jurisdictions, would materially adversely affect our gaming operations in that jurisdiction. In addition, changes in law that restrict or prohibit gaming operations in any jurisdiction could have a material adverse effect on our financial position, results of operations and cash flows.



Statutes and regulations can require us to meet various standards relating to, among other matters, business licenses, registration of employees, floor plans, background investigations of licensees and employees, historic preservation, building, fire and accessibility requirements, payment of gaming taxes, and regulations concerning equipment, machines, chips, gaming participants, and ownership interests. Civil and criminal penalties, including shutdowns or the loss of our ability to operate gaming facilities in a particular jurisdiction, can be assessed against us and/or our officers to the extent of their individual participation in, or association with, a violation of any of the state or local gaming statutes or regulations. Such laws and regulations apply in all jurisdictions in which we may do business. Management believes that we are in compliance with all applicable gaming and non-gaming regulations as described below.



United States

Colorado – The ownership and operation of gaming facilities in Colorado are subject to extensive state and local regulations. Licenses must be obtained from the Colorado Limited Gaming Control Commission (the “Gaming Commission”) prior to offering limited gaming to the public in the State of Colorado. In addition, the Division of Gaming (the “DOG”) within the Colorado Department of Revenue, licenses, implements, regulates, and supervises the conduct of limited stakes gaming. The Director of the DOG, under the supervision of the Gaming Commission, has been granted broad powers to ensure compliance with the laws and regulations. The Gaming Commission, DOG and DOG Director are collectively referred to as the “Colorado Gaming Authorities.”



The laws, regulations, and internal control minimum procedures of the Colorado Gaming Authorities seek to maintain public confidence and trust that licensed limited gaming is conducted honestly and competitively, that the rights of the creditors of licensees are protected, and that gaming is free from criminal and corruptive elements. The Colorado Gaming Authorities’ stated policy is that public confidence and trust can be maintained only by strict regulation of all persons, locations, practices, associations, and activities related to the operation of the licensed gaming establishments and the manufacture and distribution of gaming devices and equipment.



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The Gaming Commission is empowered to issue six types of licenses. In order to operate a casino, an operator is required to obtain a retail gaming license. Further, under Colorado gaming regulations, no person or entity can have an ownership interest in more than three retail licenses. We currently operate under the maximum of three retail gaming licenses in Colorado (Century Casino & Hotel in Cripple Creek operates under two gaming licenses). Licenses must be renewed every two years, with the next renewals scheduled for 2021 for our casinos in Central City and Cripple Creek. In addition, the Gaming Commission has broad discretion to revoke, suspend, condition, limit or restrict the licensee at any time.



Our Colorado casinos must meet specified architectural requirements and must not exceed specified gaming square footage limits as a total of each floor and the full building. Colorado casinos may operate 24-hours a day, and may permit only individuals 21 or older to gamble in the casino. Colorado law permits slot machines, blackjack, poker, craps and roulette with a maximum single bet of $100. Colorado casinos may not provide credit to gaming patrons.



The Colorado constitution permits a gaming tax of up to 40% on adjusted gross proceeds (“AGP”), and voter approval is required for any increase to this gaming tax rate. The current gaming tax in Colorado established by the Gaming Commission is a graduated rate of 0.25% to 20% on AGP, where casinos pay a higher percentage as their AGP increase.



Colorado law requires that every officer, director or stockholder holding a 5% or greater interest or controlling interest of a publicly traded corporation, or owner of an applicant or licensee, shall be a person of good moral character and submit to and pay the cost of a full background investigation conducted by the Gaming Commission. Persons found unsuitable by the Gaming Commission may be required to immediately terminate any interest in, association or agreement with, or relationship to, a gaming licensee. A finding of unsuitability with respect to any officer, director, employee, associate, lender or beneficial owner of a licensee or applicant may also jeopardize the licensee’s retail license or applicant’s license application. Licenses may, however, be conditioned upon termination of any relationship with unsuitable persons.



We may not issue any voting securities except in accordance with the provisions of the Colorado Limited Gaming Act (the “CLGA”) and the regulations promulgated thereunder. The issuance of any voting securities in violation of the CLGA will be void, and the voting securities will be deemed not to be issued and outstanding. No voting securities may be transferred, except in accordance with the provisions of the CLGA and the regulations promulgated thereunder. Any transfer in violation of these provisions will be void. If the Gaming Commission at any time determines that a holder of our voting securities is unsuitable to hold the securities, then we may, within sixty (60) days after the finding of unsuitability, purchase the voting securities of the unsuitable person at the lesser of (a) the cash equivalent of such person’s investment, or (b) the current market price as of the date of the finding of unsuitability, unless such voting securities are transferred to a suitable person within sixty (60) days after the finding of unsuitability. Until our voting securities are owned by persons found by the Gaming Commission to be suitable to own them, (a) we are not permitted to pay any dividends or interest with regard to the voting securities, (b) the holder of such voting securities will not be entitled to vote, and the voting securities will not for any purposes be included in the voting securities entitled to vote, and (c) we may not pay any remuneration in any form to the holder of the voting securities, except in exchange for the voting securities.



In November 2019, Colorado voters passed Proposition DD legalizing sports betting in Colorado. Only a limited number of master licenses to conduct sports betting are available, and only persons or entities such as our Company currently licensed to conduct limited gaming are eligible to hold the licenses. A master license entitles the licensee to contract with a licensed sports betting operator or internet sports betting operator, or both, for the operation of sports betting. The law allows licensees to offer mobile and online sports betting within the state borders. There will be no bet limit on sports betting, and it will be up to the operator to set bet amounts for each sporting event. We hold three retail gaming licenses and, as a result, we can hold three master licenses for sports betting in Colorado. We are currently negotiating agreements with potential partners to offer sports betting in our Colorado casinos and through an online/mobile platform and have signed an agreement for one of our licenses. The tax will be 10% of the net proceeds of sports betting activity, which will fund implementation of the state water plan and other public purposes. Sports betting is currently expected to begin in May 2020.



Missouri – Operating a riverboat gaming facility and conducting gambling activities in Missouri are subject to extensive regulation under the Missouri Riverboat Gambling Act (“MRGA”). The Missouri Gaming Commission (the “MGC”) is charged, under the MRGA, with regulatory authority over riverboat gaming operations in Missouri, including the issuance of gaming licenses to owners, operators, suppliers and certain affiliates of riverboat gaming facilities.



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The MGC is empowered to issue six types of licenses: (i) Class A, (ii) Class B, (iii) supplier or temporary supplier, (iv) key business entity, (v) key person, and (vi) occupational. Our Missouri properties each hold a Class B license and Century Casinos, Inc. holds a Class A license. To be licensed, companies and key persons are required to complete an application comprised of comprehensive questions regarding the nature and suitability of the applicant. Applicants submitting a Riverboat Gaming Application requesting a Class A license, issued to the parent organization or controlling entity, or Class B license, issued to conduct gambling activities at a specific riverboat gaming operation, undergo an extensive background investigation by the MGC. In addition, each key person associated with, and certain key business entities closely related to, the applicant (including directors, officers, managers and owners of a significant direct or indirect interest in the Class A or Class B licensee) must also be licensed and undergo a substantial background investigation. An applicant for a Class A or Class B license will not receive a license if the applicant and its key persons, including key business entities, have not established good repute and moral character, and no licensee may either employ or contract with any person who has pled guilty to, or been convicted of, a felony, to perform any duties directly connected with the licensee’s privileges under a license granted by the MGC. Every employee participating in a riverboat gaming operation must hold an occupational license. In addition, the MGC issues supplier's licenses, which authorize the supplier licensee to sell or lease gaming equipment and supplies to any licensee involved in the operation of gaming activities. Class A and Class B licensees may not be licensed as suppliers.



In determining whether to grant and allow the continued possession of a gaming license, the MGC considers the following factors, among others: (i) the integrity of the applicant; (ii) the types and variety of games the applicant may offer; (iii) the quality of the physical facility, together with improvements and equipment; (iv) the financial ability of the applicant to develop and operate the facility successfully; (v) the status of governmental actions required by the facility; (vi) the management ability of the applicant; (vii) compliance with applicable statutes, rules, charters and ordinances; (viii) the economic, ecological and social impact of the facility as well as the cost of public improvements; (ix) the extent of public support or opposition; (x) the plan adopted by the home dock city or county; and (xi) effects on competition.



Class A and Class B licenses must be renewed each year for the first two years followed by four-year terms. In conjunction with each renewal, the MGC may conduct an additional investigation of the licensee. The MGC also possesses the right to periodically conduct a comprehensive investigation on any licensee at any time following the date on which the last comprehensive investigation was conducted. The MGC also licenses the serving of alcoholic beverages on riverboats and related facilities operated by the Class A or Class B licensees.



A licensee is subject to the imposition of penalties, suspension or revocation of its license for any act that is injurious to the public health, safety, morals, good order and general welfare of the people of the State of Missouri, or that would discredit or tend to discredit the Missouri gaming industry or the State of Missouri, including without limitation: (i) failing to comply with or make provision for compliance with the MRGA, the rules promulgated thereunder or any related federal, state or local law or regulation; (ii) failing to comply with any rules, order or ruling of the MGC or its agents pertaining to gaming; (iii) receiving goods or services from a person or business entity who does not hold a supplier's license but who is required to hold such license by the MRGA or the rules; (iv) being suspended or ruled ineligible or having a license revoked or suspended in any state or gaming jurisdiction; (v) associating with, either socially or in business affairs, or employing persons of notorious or unsavory reputation or who have extensive police records, or who have failed to cooperate with any officially constituted investigatory or administrative body and would adversely affect public confidence and trust in gaming; (vi) employing in any Missouri gaming operation any person known to have been found guilty of cheating or using any improper device in connection with any gambling game; (vii) use of fraud, deception, misrepresentation or bribery in securing any license or permit issued pursuant to the MRGA; (viii) obtaining any fee, charge or other compensation by fraud, deception or misrepresentation; and (ix) incompetence, misconduct, gross negligence, fraud, misrepresentation or dishonesty in the performance of the functions or duties regulated by the MRGA.



Any transfer or issuance of ownership interests in a publicly held gaming licensee or its holding company that results in an entity or group of entities acting in concert owning, directly or indirectly, an aggregate ownership interest of 5% or more in the gaming licensee must be reported to the MGC within seven days. Further, any pledge or hypothecation of, or grant of a security interest in, 5% or more of the ownership interest in a publicly held gaming licensee or its holding company must be reported to the MGC within seven days. The MGC will impose certain licensing requirements upon a holder of an aggregate ownership interest of 5% or more in a publicly-traded Missouri Class A or Class B licensee, unless exemptions or waivers are obtained. No investor may increase holdings above 25% without triggering a change in control that requires prior approval by the MGC. In addition, any sale, transfer or lease of a Class B licensee's real estate (outside of the normal course of business) shall trigger a change in control that requires prior approval by the MGC.  



Riverboat gaming activities may only be conducted on, or within 1,000 feet of the main channel of, the Missouri River or Mississippi River. Minimum and maximum wagers on games are set by the licensee, and wagering may be conducted only with a cashless wagering system. No person under the age of 21 is permitted to wager, and wagers may only be taken from a person present on a licensed excursion gambling boat.



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The MRGA imposes a 21% wagering tax on adjusted gross receipts (generally defined as gross receipts less winnings paid) from gambling games. The tax imposed is to be paid by the licensee to the MGC within two days after the day when the wagers were made. Of the proceeds of the wagering tax, 10% of such proceeds go to the local government where the home dock is located, and the remainder goes to the State of Missouri. The MRGA also requires that licensees pay a two dollar admission tax to the MGC for each person admitted to a gaming cruise. One dollar of the admission fee goes to the State of Missouri, and one dollar goes to the home dock city in which the licensee operates.



In addition to all other regulations generally applicable to the gaming industry, our riverboat casino is also subject to regulations applicable to vessels operating on navigable waterways, including regulations of the U.S. Coast Guard, or alternative inspection requirements. These requirements set limits on the operation of the vessel, mandate that it must be operated by a minimum complement of licensed personnel, establish periodic inspections, including the physical inspection of the outside hull, and establish other mechanical and operations rules. In addition, the riverboat casinos may be subject to future U.S. Coast Guard regulations, or alternative security procedures, designed to increase homeland security which could affect our property and require significant expenditures to bring our property into compliance.



West Virginia  –The operation and management of casinos and racetracks are subject to extensive regulation by the West Virginia Racing Commission (the "WVRC") and the West Virginia Lottery Commission (the "WVLC"). The racing and pari-mutuel wagering activities are licensed and regulated by the WVRC. Racetrack video lottery games and lottery racetrack table games are licensed and regulated by the WVLC. Holding a valid racing license is required in order to be issued and hold a racetrack video lottery license and a lottery racetrack table games license cannot be issued unless the applicant for the license holds a racetrack video lottery license.



Horse Racing and Pari-Mutuel Wagering

The WVRC is comprised of three members appointed by the Governor of West Virginia who regulate live racing, simulcast racing, televised racing and pari-mutuel wagering. Racing and pari-mutuel wagering are governed by the applicable West Virginia statutes and legislative rules promulgated by the WVRC.  Licenses are renewed annually unless the WVRC rejects the application for renewal for good cause. As part of its application for renewal of its license, the licensee must disclose substantial information to the WVRC and notify the WVRC of changes in material information during the license year. The licensee pays an annual license tax as well as daily license taxes and pari-mutuel wagering taxes to the WVRC. Licenses are not transferable. The WVRC approves live racing days as well as simulcast and televised racing. The WVRC has broad powers to investigate, monitor and oversee all aspects of racing and pari-mutuel wagering.



Employees engaged in racing and/or pari-mutuel wagering must have permits issued by the WVRC before they engage in employment in a racing or pari-mutuel wagering occupation. The WVRC may suspend, revoke or not renew licenses and permits in the event the licensee or permit holder violates the racing statutes or rules promulgated by the WVRC. The WVRC may require fingerprints and background checks from all applicants for a permit as well as from officers, board members and key employees of the licensee. 



Regulations governing our horse racing operations are generally administered separately from the regulations governing gaming operations, with separate licenses and license fee structures. The racing authorities responsible for regulating our racing operations have broad oversight authority, which may include: annually reviewing and granting racing licenses and racing dates; approving the opening and operation of off-track wagering facilities; approving simulcasting activities; licensing all officers, directors, racing officials and certain other employees of a racing licensee; and approving certain contracts entered into by a racing licensee affecting racing, pari-mutuel wagering, account wagering and off-track wagering operations.



We are subject to various federal, state and local environmental, health and safety laws and regulations that govern activities that may have adverse environmental effects.  These laws and regulations are complex and frequently subject to change. Our horse racing facility is subject to laws and regulations that address the impacts of manure and wastewater generated by Concentrated Animal Feeding Operations (“CAFO”) on water quality, including, but not limited to, storm water discharges. CAFO regulations include permit requirements and water quality discharge standards. Enforcement of CAFO regulations has been receiving increased governmental attention. Compliance with these and other environmental laws can, in some circumstances, require significant capital expenditures. We may be required to manage, abate, remove or contain manure and wastewater generated by concentrated animal feeding operations due to our racetrack operations. Moreover, violations can result in significant fines or penalties and, in some instances, interruption or cessation of operations. 



Racetrack Video Lottery

Racetrack video lottery is regulated by the WVLC, which is comprised of seven members appointed by the Governor of West Virginia, including the executive director of the WVLC (the "WV Executive Director"). The WVLC has promulgated rules approved by the West Virginia legislature under which racetrack video lottery games are played and conducted.



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Under West Virginia law, a company’s racetrack video lottery license is not transferrable. Additionally, the transfer of more than five percent of the equity interest, or voting interest, in the licensee must be approved by the WVLC before the transfer is finalized.



In order to lawfully conduct racetrack video lottery games,  the licensee must maintain its racing license issued by the WVRC as well as its racetrack video lottery license. Only the holder of a racing license is authorized to hold a racetrack video lottery license. In applying for a video lottery license, the licensee must present WVLC evidence of agreements regarding the proceeds from video lottery terminals, between the licensee and the representative of a majority of the horse owners and trainers, the representative of a majority of the pari-mutuel clerks, and the representative of a majority of the breeders at the racetrack. The  racetrack video lottery license is renewed annually and the licensee must disclose substantial information to the WVLC and notify the WVLC of changes in material information during the license year. Employees involved with racetrack video lottery gaming are also required to obtain and maintain a license from the WVLC prior to being involved in racetrack video lottery gaming. An application for a racetrack video lottery gaming employee license may be denied if the applicant has been convicted of certain offenses involving moral turpitude, illegal gambling, fraud or misrepresentation or if the person is not qualified for the position for which the application for a license is submitted.



The WVLC and the WV Executive Director have discretion to suspend, revoke or reconsider the application for the licensee’s racetrack video lottery license. The racetrack video lottery license is subject to suspension, revocation or nonrenewal as provided for in the racetrack video lottery statutes and rules of the WVLC. Civil money penalties and criminal penalties may be imposed for certain violations of the lottery statutes and rules of the WVLC.



The WVLC and the WV Executive Director have broad powers under the racetrack video lottery statutes to investigate and monitor racetrack video lottery operations. All racetrack video lottery terminals in operation for play must be connected to the WVLC's computer system. The WV Executive Director and employees of the WVLC may at any time examine, inspect, test or access for any purposes all records, files, equipment, other documents, video lottery terminals, and hardware and software used in connection with video lottery. The WVLC also has the power and authority, for good cause and without notice or a warrant, at any time, to perform a wide range of inspections of the licensee.



Pursuant to the racetrack video lottery statutes, Mountaineer receives a commission equal to 46.5% of the net terminal income from the play of racetrack video lottery games. "Net terminal income" is generally defined as credits played less video lottery prize winnings, less an amount deducted by the WVLC to reimburse the WVLC for its actual costs for administering racetrack video lottery at the licensed racetrack.



Additionally, the West Virginia legislature has established a fund for modernization of racetrack video lottery terminals into which the WVLC annually deposits a portion of the amount it retains for administration of racetrack video lottery games.  A licensee may draw annually from its account matching dollars to help pay the expense of upgrading and modernizing its racetrack video lottery terminals. For every two dollars a licensee spends on certain equipment, it is authorized to receive one dollar in recoupment from the fund. In the event there remains a balance unspent by a licensee at the end of the year, that amount may be carried forward for one year, after which such amount reverts to the West Virginia State Lottery Fund. The West Virginia Licensed Racetrack Modernization Fund is currently authorized to be funded through the fiscal year ending June 30, 2020.



Lottery Racetrack Table Games

Lottery racetrack table games are regulated by the WVLC.  The WVLC has promulgated rules approved by the West Virginia legislature under which lottery racetrack table games are played. Under West Virginia law, a licensee’s lottery racetrack table games license is not transferrable. Additionally, the transfer of more than five percent of the equity interest or voting interest in a licensee or any parent corporation or holding company must be approved by the WVLC before the transfer is finalized.



In order to lawfully conduct lottery racetrack table games, a licensee must maintain its racing license issued by the WVRC and its racetrack video lottery license issued by the WVLC as well as its lottery table games license. Only the holder of a racing license and a racetrack video lottery license is authorized to hold a lottery racetrack table games license. The lottery racetrack table games license is renewed annually and the licensee must disclose substantial information to the WVLC and notify the WVLC of changes in material information during the license year. Employees involved with lottery racetrack table games are also required to obtain and maintain a license from the WVLC prior to being involved in racetrack table gaming activity. An application for a racetrack video lottery gaming employee license may be denied if the applicant has been convicted of certain offenses involving moral turpitude, illegal gambling, fraud or misrepresentation or if the person is not qualified for the position for which the application for a license is submitted.



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The WVLC and the WV Executive Director have the discretion to suspend, revoke or reconsider a licensee’s lottery racetrack table games license. The license is subject to suspension, revocation or nonrenewal as provided for in the lottery racetrack table games statutes and rules of the WVLC. Civil money penalties and criminal penalties may be imposed for certain violations of the lottery statutes and rules of the WVLC. The license may also be revoked if any officer or director or any employee engaged in gaming activity, or any officer or director or key employee of any parent corporation or holding company is convicted of criminal violations that may negatively impact the integrity of the West Virginia Lottery, or if any of them have experience, character or general fitness that the WV Executive Director believes would be inconsistent with the public interest, convenience or trust.



The WVLC and the WV Executive Director have broad powers under the lottery racetrack table game statutes to investigate and monitor racetrack table game operations. The WV Executive Director and employees of the WVLC may at any time examine, inspect, test or access for any purposes all records, files, equipment, and other documents used in connection with lottery racetrack tables games operation and play.



Pursuant to the lottery racetrack table games statute, a licensee must annually pay to the WVLC a lottery racetrack table games license fee of $2.5 million that is due when the application for renewal is filed with the WVLC. Additionally,  a licensee pays  a weekly tax equal to 35% of the adjusted gross receipts from table game activity during the preceding week.



Canada

AGLC - Gaming in Alberta is governed by the provincial government. The AGLC administers and regulates the gaming industry in Alberta. The AGLC operates in accordance with the Gaming and Liquor Act, the Gaming and Liquor Regulation and the Criminal Code of Canada.



The AGLC requires all gaming operations to be licensed but only allows a certain number of licenses to be granted. All available licenses have currently been granted and the AGLC has an indefinite moratorium on new casinos and RECs. If the AGLC increases the number of licenses available in the future, applicants for a gaming license must submit an application and run through a detailed approval process. Following the approval of the board of the AGLC, the applicant may operate the casino applied for in accordance with federal and provincial legislation, regulation, and policies as well as the municipal requirements, permits, licenses and authorization relating to the casino. Our licenses at all AGLC-regulated properties are renewable every five years with the next renewals scheduled in 2025. The AGLC monitors the casino operator and its compliance with all requirements. In the event of a violation of such requirements, civil and criminal charges can be assessed. The failure or inability of our casinos, or the failure or inability of others associated with these casinos, to maintain necessary gaming licenses or approvals for our casinos would have a material adverse effect on our operations.



The AGLC allows casinos to operate slot machines and table games a daily maximum of 17 consecutive hours commencing at 10:00 a.m. and ending no later than 3:00 a.m. and to operate casino poker rooms 24 hours a day. Casinos and RECs may permit only individuals 18 or older to gamble in the casino. The AGLC permits slot machines, video lottery terminals, baccarat, blackjack, poker, craps and roulette. There is a maximum single bet of $2,000 on table games and a maximum table aggregate bet of $12,000 on baccarat. There is also a maximum denomination bet of $5 for slot machines with a maximum single bet of $125.  



The AGLC provides casinos with slot machines, slot technicians and personnel to administer table game counts. In return, casino licensees provide the AGLC with a place to operate slot machines, market the casinos, and provide table game dealers, slot attendants, security and surveillance. Casino licensees do not incur lease expenditures to the AGLC. In lieu of these lease expenses and other expenses associated with operating slot machines (i.e. equipment and personnel), casino licensees retain only a portion of net sales. Net sales, as defined by the AGLC, are calculated as cash played, less cash won, less the cost to lease the equipment, if applicable. At our Edmonton, St. Albert and Calgary casinos, the AGLC retains 85% of slot machine net sales, of which it allocates 15% to charities designated by the AGLC and 70% to the Alberta Lottery Fund. At Century Downs and Century Mile, the AGLC retains 45% of slot machine net sales, which are allocated to the Alberta Lottery Fund. For all table games, excluding poker and craps, we are required to allocate 50% of our net win to a charity designated by the AGLC, with the exception of St. Albert, from which we allocate 35% of our net win to a charity designated by the AGLC. For poker and craps, we are required to allocate 25% of our net win to the charity. We record our revenue net of the amounts retained by the AGLC or allocated to the AGLC-designated charity or the Alberta Lottery Fund.



HRA - HRA was formed in June 2002 to facilitate long term industry renewal for horse racing. The objectives of HRA are to govern, direct, control, regulate, manage, market and promote horse racing in any or all of its forms; to protect the health, safety and welfare of racehorses and, with respect to horse racing, the safety and welfare of racing participants and racing officials; and to safeguard the interest of the general public in horse racing.



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HRA requires all horse racing operators to be licensed. A licensed operator is responsible for the general supervision of horse races at its facilities but must not interfere with the proper performance of the functions and responsibilities of racing officials. Only individuals 18 or older may place a bet on horse races. HRA also prohibits racing officials, HRA employees, jockeys, drivers of horses and any employee of any of them from betting on a race, encouraging others to bet on a race on their behalf or owning a pari-mutuel ticket. A licensed owner of a horse, its trainer and any authorized agent or employee of such owner or trainer may not bet or encourage others to place a bet on their behalf on a horse other than the horse owned or trained by such licensed owner or trainer.



A licensed operator must also provide and maintain a suitable racetrack, file with HRA a certificate of measurement of the track and provide services at race meetings, including first aid and ambulance facilities. HRA must approve the equipment, facility and any services the operator will provide. HRA also requires a licensed operator to establish and maintain complete records of each horse race conducted by the operator.



The HRA’s portion of slot machine net sales retained from Century Downs and Century Mile, which is currently 11.25%, is used to fund animal welfare programs, purses, breed improvement programs, marketing, administration and backstretch programs. For off-track betting and live racing wagers, CBS, CMR and CDR retain approximately 21.5% of each bet, from which they will distribute 5.4% to the HRA, 0.8% to the Canadian Pari-Mutuel Agency and use the remainder to pay expenses related to the conduct of pari-mutuel wagering.



Poland

Gaming in Poland is governed by the Minister of Finance, who operates in accordance with Polish gaming law and has the authority to grant casino licenses. Polish gaming law was enacted in 1992. Key items included in Polish gaming law include the following requirements:





Casino licenses in Poland are currently limited to 52 and are subject to regional limitations. The number of casino licenses can be increased or decreased due to population increases or changes to the voivodships in Poland. Before a casino license expires, the Minister of Finance notifies the public of its availability, and those interested can submit an application for the casino license. Applicants for a gaming license must complete a detailed approval process. Following approval from the Minister of Finance, there is a period in which applicants can appeal the decision. Once the license is awarded, the applicant may operate the casino for six years. The Minister of Finance monitors the casino operator and its compliance with all requirements. In the event of a violation, the Minister of Finance can assess charges and, in certain cases, withdraw casino licenses. 



Corporate and Other







The laws and regulations of the Gambling Commission seek to keep gambling crime free, ensure that gambling is conducted in a fair and open way, and protect children and other vulnerable people from being harmed or exploited by gambling. Casino operators must create corporate policies and procedures in compliance with the Gambling Commission’s License Conditions and Codes of Practice and other industry guidance. Operators must commit to conducting their licensing activities with integrity, maintaining a responsible gaming provision, providing regular training to advise and guide staff as well as ensuring that a healthy, responsible and informed environment is maintained.



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In order to operate a casino, an operator is required to obtain an operating license and personal licenses for those operating gambling facilities, both from the Gambling Commission and a premises license from the designated local authority. The operator must pay an annual fee to maintain an operating license, and the license may be suspended or revoked. Personal licenses are granted to individuals responsible for activities at licensed gambling operators and are renewed every five years. A premises license is granted to operate a casino on certain premises. Currently, no additional premise licenses can be awarded under the Gambling Act of 2005.



The Gambling Act of 2005 sets the gambling duty rate based on the type of gambling and gross gaming yield of the casino premises. The gaming duty rate is scaled from 15% to 50% based on the gross gaming yield in a three-month period.



The Gambling Act of 2005 requires that a personal declaration be completed by any stockholder holding a 10% or greater interest in a company that owns a casino. In addition, the Gambling Commission also requires that the company list all stockholders with a 3% or greater interest in the company.



Other Regulation

We are subject to certain foreign, federal, state, provincial and local safety and health, employment and environmental laws, regulations and ordinances that apply to our non-gaming operations. We have not made, and do not anticipate making, material expenditures with respect to these laws, regulations and ordinances. However, the coverage of, and attendant compliance costs associated with, such laws, regulations and ordinances may result in future additional costs to our operations.



Rules and regulations regarding the service of alcoholic beverages are strict. The loss or suspension of a liquor license could significantly impair our operations. Local building, parking and fire codes and similar regulations also could impact our operations and any proposed development of our properties.



We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering laws and regulations. Any violations of anti-money laundering laws or regulations by any of our properties could have an adverse effect on our business.



Employees

As of December 31, 2019, we had approximately 2,786 full-time employees and 729 part-time employees. During busier months, a casino may supplement its permanent staff with seasonal employees. Approximately 231 employees at our CPL casinos in Poland and 58 employees at Mountaineer belong to trade unions. The trade unions in Poland do not currently have any collective bargaining agreements with CPL, but changes in pay of union employees at CPL require approval of the unions. The trade unions in Mountaineer have collective bargaining agreements with Mountaineer.





Information about our Executive Officers



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Erwin Haitzmann holds a Doctorate and a Masters degree in Social and Economic Sciences from the University of Linz, Austria (1980), and has extensive casino gaming experience ranging from dealer through various casino management positions. Dr. Haitzmann has been employed full-time by us since 1993 and has been employed as either Chief Executive Officer or Co-Chief Executive Officer since March 1994. Dr. Haitzmann oversees our operations in the United States.



Peter Hoetzinger received a Masters degree from the University of Linz, Austria (1986). He thereafter was employed in several managerial positions in the gaming industry with Austrian casino companies. Mr. Hoetzinger has been employed full-time by us since 1993 and has been Co-Chief Executive Officer since March 2005.



Margaret Stapleton was appointed Chief Financial Officer, effective October 2019, and Corporate Secretary, effective May 2010. She holds a Bachelor of Science degree in Accounting from Regis University, Denver, Colorado (2004) and has over 30 years of experience in corporate accounting and internal audit. Mrs. Stapleton previously served as our Director of Internal Audit and Compliance from 2005 until May 2010 and as our Executive Vice President, Principal Financial/Accounting Officer from May 2010 to October 2019.



Timothy Wright was appointed Chief Accounting Officer effective October 2019 and Corporate Controller effective May 2010. Mr. Wright holds a Bachelor of Science degree in Accounting from the University of Colorado, Colorado Springs, Colorado (1995) and has over 30 years of experience in corporate accounting and finance. Mr. Wright has been employed by us since 2007, including previously serving as our Vice President of Accounting from May 2010 to October 2019.



Andreas Terler is a Graduate Engineer in Applied Mathematics from the University of Graz, Austria (1994). Mr. Terler has been employed by us since 2006. He has served as Chief Information Officer since February 2006, Managing Director of CRM since February 2007, and Senior Vice President, Operations – Missouri and West Virginia since October 2019. Mr. Terler previously served as Vice President of Operations from May 2011 to October 2019.



Nikolaus Strohriegel received a Masters degree from the University of Vienna, Austria (1996). Mr. Strohriegel has been employed by us since 2007. He has served as Managing Director of CRM since January 2009 and Senior Vice President, Operations – Europe since October 2019. Mr. Strohriegel previously served as Vice President of Operations from March 2017 to October 2019.



Geoff Smith holds an Honours Bachelor of Commerce degree from the University of Windsor, Ontario, Canada (1994). Mr. Smith has over 25 years of direct casino management experience across a variety of regulated gaming jurisdictions and operating models, including commercial casinos, charity casinos and horse racetrack casino establishments. Mr. Smith has been employed by us since 2006. He was appointed Senior Vice President, Operations – Canada in October 2019 and has served as Managing Director of Century Casino & Hotel in Edmonton since 2008. He previously served as the General Manager of Century Casino & Hotel in Edmonton from 2006 to 2008.



Available Information

Our internet address is www.cnty.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our website at www.cnty.com/investor/financials/sec-filings as soon as reasonably practicable after such report has been filed with, or furnished to, the SEC. None of the information posted to our website is incorporated by reference into this report.



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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.



Risks Related to our Business and Operations



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 as well as from 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. 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. We are particularly vulnerable to competition in our markets in the United States and Poland due to the large number of competitors in those markets. For example, a potential casino in south Illinois could increase competition at our Cape Girardeau casino. In addition, gaming facilities in Ohio that have commenced operations in recent years present significant competition for Mountaineer.



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. Changes to the Polish gaming law that went into effect in April 2017 legalized online gaming and reintroduced slot arcades through a state-run company. Slot arcades began operating in June 2018 and online gaming began in December 2018. 



Other potential changes in gaming laws in jurisdictions in which we have operations include:



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.



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We face extensive regulation from gaming and other regulatory authorities, which involve considerable expense and could harm our business.



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 any 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 have the suitability of certain of our directors, officers and employees approved.   Our current renewal schedules are listed below:





In Poland, gaming licenses are granted for six-year periods and are not renewable. When a gaming license in Poland expires, any gaming company can apply for the license and there can be no guarantee that we will be granted a new license at our existing casinos. We may not be able to obtain license renewals or approvals of new licenses. Regulatory authorities may also levy substantial fines against us or seize our assets or the assets of our subsidiaries or the people involved in violating gaming laws or regulations. Any of these events could force us to terminate operations at an existing gaming facility, either on a temporary or permanent basis, could result in us being fined or could prohibit us from successfully completing a project in which we invest. Closing facilities or an inability to expand may have a material adverse effect on our business, financial condition and results of operations.



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.



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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, which may not be successful.



On December 6, 2019, we entered into a new Credit Agreement (the “Macquarie Credit Agreement”) with Macquarie Capital Funding LLC, Macquarie Capital (USA) Inc. and the lenders party thereto.  The Macquarie Credit Agreement replaced our credit agreement with the Bank of Montreal (the “BMO Credit Agreement”).  We drew $170.0 million under the term loan on December 6, 2019 and used the proceeds to fund the Acquisition of the casino operations of Mountaineer, Cape Girardeau and Caruthersville, for the repayment of approximately $52.0 million outstanding under the BMO Credit Agreement and for general working capital and corporate purposes.  As of December 31, 2019, we had $170.0 million outstanding under our term loan facility due 2026. All of our $189.0 million face value debt outstanding as of December 31, 2019 is variable rate debt. Each one percentage point change associated with the variable rate debt would result in a $1.5 million change to our annual cash interest expenses. In connection with the Acquisition, we entered into the Master Lease with VICI PropCo subsidiaries to lease the real estate assets of Mountaineer, Cape Girardeau and Caruthersville.  Our annual rent payment under the Master Lease is approximately $25.0 million and is subject to annual escalation. These financial obligations could:





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. 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. 



We incurred significant costs in connection with the Acquisition.



We incurred significant transaction costs relating to the Acquisition. Additionally, we may incur significant costs in connection with integrating the operations of the Acquired Casinos into our business. We cannot identify the timing, nature and amount of all such costs. These integration costs could materially affect our results of operations in the period in which such charges are recorded.



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We have risks associated with the integration of Mountaineer, Cape Girardeau and Caruthersville into our business.



Although we only intend to engage in acquisitions that, if consummated, will be accretive to us and our stockholders, we cannot be sure that we will experience the return on investment that we expect. In particular, while we currently anticipate that the Acquisition will be accretive to our earnings per share in the future, this expectation is based on estimates and assumes certain synergies expected to be realized over a 12-month period following the completion of the Acquisition.  Such estimates and assumptions could materially change due to factors beyond our control and could delay, decrease or eliminate the expected accretive effect of the Acquisition and cause resulting dilution to our earnings per share or negatively impact the price of our common stock. 



Potential difficulties that we may encounter as part of the integration process include:



In addition, it is possible that the integration process could result in (i) the diversion of the attention of our management; (ii) the disruption of our ongoing business; and (iii) inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits, or could reduce our earnings or otherwise adversely affect our business and financial results.



We have made certain assumptions relating to the Acquisition and the Acquired Casinos that may prove to be materially inaccurate, and insufficient or lower-than-expected results generated from the Acquired Casinos or new developments may negatively affect our operating results and financial condition.



We have made certain assumptions relating to the Acquisition that may prove to be inaccurate, including the failure to realize the expected benefits of the Acquisition, failure to realize expected revenue growth rates, higher than expected operating, transaction and integration costs, as well as general economic and business conditions that may adversely affect us following the Acquisition. These assumptions relate to numerous matters, including:



Our acquisitions, including the recent Acquisition of 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 Acquisition, and new investments may take significantly longer than we expect and may negatively impact our operating results and financial condition. New facilities also may compete with existing facilities that we own and operate.



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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.



Our RECs and racetracks in Calgary and Edmonton are located on leased parcels of land. Our casinos in Poland and Bath, England 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 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 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 Lease even if one or more of such leased facilities 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. 



We face risks associated with growth and acquisitions.



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 entertainment 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. Additionally, there can be no assurance that we will receive gaming or other necessary licenses or approvals for new projects that we may pursue or that gaming will be approved in jurisdictions where it is not currently approved.



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 facility. 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.



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Our financial condition and results of operations may be adversely affected by 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 coronavirus 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. High winds, flooding, blizzards and sub-zero temperatures, such as those experienced in Colorado and Alberta from time to time, can limit access to our properties.



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. For example, our locations in Poland are in close proximity to Ukraine and Russia. While we have not experienced any material impact from the acts of hostility between the two countries, an increase in those hostilities could adversely affect our casinos in Poland. 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 coronavirus (also known as 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. As a result of the actions taken by the US government, our management located in Europe may be unable to travel to the US. While we have not seen a significant impact from the coronavirus in the local areas in which we operate except for a weakening of approximately ten percent in Poland,  the outbreak appears to be spreading to many parts of North America and Europe and we cannot predict the extent to which the coronavirus will directly or indirectly affect our business and operating results. The impact could be material.



We are currently negotiating agreements with potential partners to begin offering sports betting in our Colorado casinos and through an online and mobile platform. There can be no assurance that the market for such gaming activities will develop as expected or that we will be successful in this market.



In November 2019, Colorado voters passed Proposition DD, which legalized sports betting in Colorado. We have completed and are currently negotiating agreements with potential partners to begin offering sports betting in our Colorado casinos and through an online and mobile platform. We also may seek to provide sports betting in additional markets where we operate if regulations permitting sports betting are approved in those jurisdictions.  There can be no assurances when, or if, regulations enabling sports betting will be adopted, or the terms of such regulations, in certain of the jurisdictions in which we operate. 



The market for sports betting is rapidly evolving and highly competitive with an increasing number of competitors. Our success at offering sports betting will depend on a number of factors, including:



There can be no assurance that we will be able to compete effectively in this new market or that an expansion into this market will be successful and generate sufficient returns on our investment. 



Potential changes in the regulatory environment may adversely affect the results of our operations.



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 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. 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.



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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.



The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 and included significant changes to the US Internal Revenue Code, including, among other items, a reduction of the federal corporate tax rate from 35% to 21%, a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, and the creation of new taxes on certain foreign earnings. These changes are complex and will require the Internal Revenue Service (“IRS”) to issue interpretations and regulations that may significantly impact how the Tax Act is applied and ultimately may impact our results of operations.  If there are significant interpretations and regulations issued related to the Tax Act that would increase the tax rates on future US or foreign earnings, these changes could have a material adverse effect on our effective tax rate, financial condition, results of operations and cash flows.



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. For instance, the Colorado constitution permits a gaming tax of up to 40% on adjusted gross gaming proceeds. The current gaming tax in Colorado established by the Colorado Gaming Commission is a graduated rate of 0.25% to 20% on adjusted gross gaming proceeds, where casinos pay a higher percentage as their adjusted gross proceeds increase. In Missouri, the current gaming tax is 21% of adjusted gaming proceeds. In West Virginia, the current gaming tax on tables is 35% of adjusted gaming proceeds and on slot machines is 55.36% of adjusted gaming proceeds.  At our Edmonton, St. Albert and Calgary casinos, the AGLC retains 85% of slot machine net sales, of which the AGLC allocates 15% to licensed charities and 70% to the Alberta Lottery Fund. For all table games in Alberta, Canada, excluding poker and craps, we are required to allocate 50% of our net win to a charity designated by the AGLC, with the exception of our St. Albert casino, for which we are required to allocate 35% of our net win to a charity designated by the AGLC. For poker and craps in Alberta, Canada, we are required to allocate 25% of our net win to the charity. At Century Downs and Century Mile, the AGLC and HRA retain 56.25% of slot machine net sales, which are allocated to and used by the Alberta Lottery Fund and by HRA to fund purses, marketing, administration and animal welfare and other programs. Any change to the agreement between the AGLC and HRA on the division of the slot machine net sales at Century Downs and Century Mile could negatively impact our revenue, as HRA may increase the amount it retains in order to offset increased retention from the AGLC. The Polish Minister of Finance assesses a gaming tax rate on gross gaming revenue of 50%. In England, the gaming duty rate is scaled from 15% to 50% based on a casino’s gross gaming yield in a three-month period. 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. 



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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, especially for a smaller company such as ours. Risks associated with international operations include:





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”). This business model also increases our costs.



The evolution of the slot machine manufacturing industry could impose additional costs on us.



The majority of our revenue is generated from slot machines operated at our gaming facilities. In order to remain competitive, we seek to offer the most popular and up-to-date slot machine games to our customers. In recent years, slot machine manufacturers have frequently required new slot machines to be leased through participation arrangements instead of selling the machines. Participation arrangements typically require payments based on a percentage of coin‑in or net win. Generally, a participation arrangement is substantially more expensive over the long term than the cost to purchase a new machine. For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than costs associated with continuing to operate our existing slot machines. If the newer slot machines do not result in sufficient incremental revenue to offset the increased investment and costs, it may negatively impact our operating results. 



In addition, a substantial majority of the slot machines sold in the US in recent years were manufactured by a few select companies, and there has been extensive consolidation activity within the gaming equipment sector in recent years. A decrease in the competition in the slot machine manufacturing industry could lead to increased costs related to the acquisition or rental of slot machines and other gaming equipment.

   

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Our reputation and business may be harmed by cyber security 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 in other 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. Our insurance does not cover cyber security incidents. The loss, disclosure or misappropriation of our business information may adversely affect our businesses, operating results and financial condition. Furthermore, a cyber security breach could have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.



We may be adversely affected by reductions in discretionary consumer spending as a result of consumer concerns over economic conditions.



Our business may be adversely affected by international, national and local economic and political conditions. From time to time, the volatile global economic environment has had negative effects on our business because our business is largely impacted by discretionary consumer spending. Reductions in discretionary consumer spending or changes in consumer preferences brought about by factors such as increased unemployment, perceived or actual deterioration in general economic conditions, housing market instability, perceived or actual decline in disposable consumer income and wealth, and changes in consumer confidence in the economy could reduce customer demand for the leisure activities we offer and may adversely affect our revenue and operating cash flow. For example, Alberta is Canada’s largest oil and gas producer and a decrease in oil and gas prices could create higher unemployment and reduce discretionary consumer spending at our Canadian casinos, and we believe that concerns about Brexit have reduced discretionary consumer spending in the UK and adversely affected our results of operations at CCB.



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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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 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.



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.



Our business, financial condition, and results of operations may be harmed by work stoppages and other labor issues.



There are 231 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 58 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.



We intend to develop and operate additional properties in the future and if our development efforts are not successful, our business may be adversely affected.



We regularly review opportunities to develop new properties. We may not be successful in obtaining the rights to develop such 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 new 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 in obtaining suitable sites, liquor licenses, building permits, materials, competent and able contractors, supplies, employees, gaming devices and related matters.



We may engage in construction projects as part of our development of additional properties 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. 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.



Development activities involve substantial risks, such as uncertainties regarding our ability to secure various licenses, permits and government authorizations, and expenses related to such activities, as well as the risks of potential cost over-runs, construction delays and market deterioration.



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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, 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.



We may be required in the future to record impairment losses related to assets we currently carry on our balance sheet.



We have $727 million of tangible and intangible assets, including $33 million of goodwill, $43 million in casino licenses, $4 million in trademarks and $541 million in property and equipment as of December 31, 2019. 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 December 2019, we impaired the assets related to Century Casino Bath and wrote-down $16.5 million to impairment – intangible and tangible assets on our consolidated statement of (loss) earnings.



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.



In Poland, tax laws and other Polish laws and regulations change from time to time, sometimes with no reference to established regulations or cases. The current Polish laws and regulations also have ambiguities that lead to differences in interpretations between authorities and between authorities and companies. Taxes or other payments may frequently be inspected by Polish authorities that are authorized to impose significant fines, extra liabilities and interest for underpayments. As a result, our tax risk is higher in Poland than in countries with better-developed tax systems. Since Polish tax payments may be inspected for up to five years, the amounts included in our financial statements for Polish taxes may change at a later date after the final amounts are determined, and other Polish laws and regulations may lead to additional liabilities. We have open tax audits currently in litigation with the Polish Internal Revenue Service (“Polish IRS”), as described further in Item 3, “Legal Proceedings”. Additional tax obligations as a result of the tax audits by the Polish IRS could adversely affect our financial position.



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.



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Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us. 



A significant 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 Foreign Corrupt Practices Act (“FCPA”), the United Kingdom (“U.K.”) Bribery Act 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 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.



Risks Related to Our Common Stock



Our stock price has been volatile and may decline significantly and unexpectedly.



Our common stock trades in the US on the Nasdaq Capital Market, which consists of relatively small issuers and a lack of significant trading volumes relative to other US markets. These factors may result in volatility in the price of our common stock. For instance, the trading price of our common stock on the Nasdaq Capital Market in 2018 and 2019 varied from a high of $10.41 to a low of $5.77. 



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.



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Regulation Risk Related to Stockholders



Stockholders may be required to dispose of their shares of our common stock if they are found unsuitable by gaming authorities. 



Gaming authorities in the US, Canada and the United Kingdom 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.



We have not historically paid dividends and may not pay dividends in the future.



We do not currently expect to pay dividends on our common stock. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon, among other factors, our earnings, cash requirements, financial condition, requirements to comply with the covenants under the Macquarie Credit Agreement and our other debt instruments, legal considerations, and other factors that our board of directors deem relevant. The Macquarie Credit Agreement restricts our ability to pay dividends. If we do not pay dividends, then the return on an investment in our common stock will depend entirely upon any future appreciation of our stock price. There is no guarantee that our common stock will appreciate in value or maintain its value.



Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

The following table sets forth the location, applicable reportable segment, size and description of certain types of gaming facilities available at each of our casinos as of December 31, 2019:



Summary of Property Information









As of December 31, 2019,  our subsidiaries are pledged as collateral for our obligations under the Macquarie Credit Agreement. As of December 31, 2019, a parcel of land in Kolbaskowo, Poland owned by Casinos Poland was used to secure a bank guarantee with mBank. See Note 7 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report.



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Additional Property Information

Century Casino Calgary – In addition to the property described above, we lease approximately 13,049 square feet of land at our property in Calgary for additional parking.



Century Bets – Century Bets leases approximately 250 square feet of office space from Century Casino & Hotel Edmonton and 80 square feet of office space from Century Mile for administrative purposes.



Corporate Offices – We lease approximately 11,100 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.

 



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 follows.



Since 2011, the Polish IRS has conducted a series of tax audits of CPL to review the calculation and payment of personal income tax by CPL employees for periods ranging from 2007 to 2013. The Polish IRS has asserted that CPL should calculate, collect and remit to the Polish IRS personal income tax on tips received by CPL employees from casino customers and has prevailed in several court challenges by CPL. Through December 31, 2019, CPL has paid PLN 14.3 million ($4.2 million) to the Polish IRS related to these audits.



We adjusted the contingent liability related to the CPL taxes to remove the estimated taxes accrued for the 2014 tax year due to the expiration of the statute of limitations on this time period. The adjustment reduced the contingent liability by PLN 2.2 million ($0.6 million) in December 2019 and was recorded as gain on foreign currency transactions, cost recovery income and other on our consolidated statement of (loss) earnings for the year ended December 31, 2019. 



The balance of the potential contingent liability on our consolidated balance sheet for all open periods as of December 31, 2019 is PLN 1.3 million ($0.3 million based on the exchange rate in effect on December 31, 2019). We have evaluated the contingent liability recorded on our consolidated balance sheet as of December 31, 2019 and have concluded that it is properly accrued in light of our estimated obligation related to personal income tax on tips as of December 31, 2019. Additional court decisions and other proceedings by the Polish IRS may expose us to additional employment tax obligations in the future. Any additional tax obligations are not probable or estimable, and we have not recorded any additional obligation related to such taxes as of December 31, 2019. Additional tax obligations assessed in the future as a result of these matters, if any, may be material to our financial position, results of operations and cash flows. 



In October 2016, we filed a motion for arbitration in Poland against LOT Polish Airlines, which previously owned a 33.3% interest in CPL that it sold to us in 2013. We were seeking to collect amounts owed to us by LOT Polish Airlines in connection with the payments made to the Polish IRS for the tax periods December 1, 2007 to December 31, 2008 and January 1, 2011 to January 31, 2011 pursuant to an agreement with LOT Polish Airlines under which we acquired the additional 33.3% interest in CPL.  We were awarded PLN 1.2 million ($0.3 million) in amounts owed by LOT Polish Airlines related to this claim for the periods indicated. LOT Polish Airlines paid this amount, plus accrued interest, in July 2018.





Item 4. Mine Safety Disclosures.

Not applicable.

 

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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, 2014 through December 31, 2019, 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, 2014, 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, 2020, we had 139 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, 2019 is $14.7 million. The repurchase program has no set expiration or termination date. No repurchases were made during the year ended December 31, 2019.

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Item 6. Selected Financial Data.

The selected financial data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Part II, Item 8, “Financial Statements and Supplementary Data”, of this Form 10-K. 







We have not declared or paid dividends in any of the years presented above.



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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, (gain) loss 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 (“GAAP”). Adjusted EBITDA is not considered a measure of performance recognized under US GAAP.



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 operational 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 reporting 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.



















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Non-GAAP Measures – Constant Currency

The impact of foreign exchange rates is highly variable and difficult to predict. We use a constant currency basis to show the impact from foreign exchange rates on the current period results compared to the prior period results using the prior period’s foreign exchange rates. In order to properly understand the underlying business trends and performance of the Company’s ongoing operations, management believes that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our net operating revenue, earnings from operations and net earnings (loss) attributable to Century Casinos, Inc. shareholders. Constant currency results are calculated by dividing the current year to date local currency segment results by the prior year’s average exchange rate for the year and comparing them to actual US dollar results for the prior quarter or year. The current and prior year’s average exchange rates are presented in Note 2 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.  The constant currency results are presented below.









Gains and losses on foreign currency transactions are added back to net earnings in our Adjusted EBITDA calculations. As such, there is no foreign currency impact to Adjusted EBITDA when calculating constant currency results.



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.









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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 “Disclosure Regarding Forward-Looking Statements” 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), 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, management agreements, consulting 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. 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.









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Century Bets!, Inc. (“CBS” or “Century Bets”) operates the pari-mutuel off-track betting network in southern Alberta, Canada. Prior to August 2019, we had a 75% controlling financial interest in CBS 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.



We have controlling financial interests through our subsidiary CRM in the following reporting units:  







The following agreements make up the reporting unit Cruise Ships & Other in the Corporate and Other reportable segment:





In June 2019, we evaluated our agreement with Diamond Cruises related to the operation of the ship-based casino onboard the Glory Sea. We determined that it was more likely than not that the agreement was impaired and wrote-down $1.0 million in property and equipment and net receivables in June 2019. The Glory Sea is currently not sailing, and we have not determined whether we will continue to operate this ship-based casino if the ship begins sailing again.







Acquisition

On December 6, 2019, we completed the Acquisition of the operations of Cape Girardeau, Caruthersville and Mountaineer from Eldorado Resorts, Inc. for an aggregate purchase price of approximately $110.6 million (subject to an adjustment based on the Acquired Casinos’ working capital and cash at closing). Immediately prior to the 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. The Master Lease has an initial annual rent of approximately $25.0 million and an initial term of 15 years, with four five-year renewal options. 





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Additional Projects Under Development

In August 2017, we announced that, together with the owner of the Hamilton Princess Hotel & Beach Club in Hamilton, Bermuda, we had submitted a license application to the Bermudan government for a casino at the Hamilton Princess Hotel & Beach Club. The casino will feature approximately 200 slot machines, 17 live table games, one or more electronic table games and a high limit area and salon privé. In September 2017, the Bermuda Casino Gaming Commission granted a provisional casino gaming license, which is subject to certain conditions and approvals including the adoption of certain rules and regulations by the Parliament of Bermuda. The Parliament of Bermuda has not yet adopted these rules and regulations. CRM entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if the license is awarded. CRM will also provide a $5.0 million loan for the purchase of casino equipment if the license is awarded. 



Presentation of Foreign Currency Amounts - The average exchange rates to the US dollar used to translate balances during each reported period are as follows:





We recognize in our statement of earnings, foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than US dollars. Our casinos 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.



Recent Development: Coronavirus

In December 2019, a novel strain of coronavirus (also known as COVID-19) was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States and Europe.  The outbreak has continued to spread and is currently classified as a pandemic.  Efforts to contain the spread of this coronavirus have intensified. To date, COVID-19 has not had a significant impact on our US or Canadian markets, while the market in Poland has been weakening by approximately ten percent. Our customer base is very diversified within North America. Our casinos are ‘locals’ casinos in urban and suburban locations, with the vast majority of our business from customers who live within an hour from our facilities. Our casinos have negligible meeting and convention business and few of our customers travel by air to visit us. This may temper the impact of the coronavirus on our business, but this situation continues to evolve and therefore we cannot predict the extent to which the coronavirus will directly or indirectly affect our business and operating results.  The impact could be material. See “Our financial condition and results of operations may be adversely affected by 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 coronavirus pandemic” in Item 1A, “Risk Factors.”



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DISCUSSION OF RESULTS

Years ended December 31, 2019,  2018 and 2017

Century Casinos, Inc. and Subsidiaries











Factors impacting year-over-year comparability of the results include the following:



United States



Canada



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Poland



Corporate and Other



Net operating revenue increased by $49.3 million, or 29.2%, and by $14.9 million, or 9.7%, for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017, respectively. Following is a breakout of net operating revenue by segment for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017.  





Operating costs and expenses increased by $63.9 million, or 40.1%, and by $20.0 million, or 14.4%, for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017, respectively. Following is a breakout of operating costs and expenses by segment for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017.  





Earnings from operations decreased by ($14.7) million, or (155.2%), and by ($5.2) million, or (35.3%), for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017, respectively. Following is a breakout of earnings from operations by segment for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017.  





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Net earnings decreased by ($22.5) million, or (664.4%), and by ($2.9) million, or (45.8%), for the year ended December 31, 2019 compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017, respectively. Items deducted from or added to earnings from operations to arrive at net earnings include interest income, interest expense, gains (losses) on foreign currency transactions and other, income tax expense and non-controlling interests. For a discussion of these items, see “Non-Operating Income (Expense)” and “Taxes” below in this Item 7.



Reportable Segments



The following discussion provides further detail of consolidated results by reportable segment.









We acquired MTR in West Virginia and CCG and CCV in Missouri in the Acquisition in December 2019.



We continue to see growth at our Colorado properties and anticipate slow growth in these markets in the coming years.



Years ended December 31, 2019 and 2018



The following discussion highlights results for the year ended December 31, 2019 compared to the year ended December 31, 2018.  



Revenue Highlights



Operating Expense Highlights



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 in Item 6, “Selected Financial Data” of this report.



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In Edmonton, construction on the Century Mile project began in July 2017, and Century Mile opened on April 1, 2019.



Years ended December 31, 2019 and 2018



The following discussion highlights results for the year ended December 31, 2019 compared to the year ended December 31, 2018.  



Results in US dollars were impacted by a 2.4% exchange rate decrease in the average rate between the US dollar and Canadian dollar for the year ended December 31, 2019 compared to the year ended December 31, 2018.



Revenue Highlights



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Operating Expense Highlights

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 in Item 6, “Selected Financial Data” of this report.















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. Delays by the Polish government in awarding licenses following their expiration resulted in several casinos closing throughout Poland, lost gaming tax revenue for the government and additional costs and expenses for the casino operators, including CPL. CPL’s results were significantly impacted for the year ended December 31, 2018 compared to the year ended December 31, 2017 by the additional costs and expenses associated with the closure of several of its casinos during 2018.  CPL’s 2019 results were favorably impacted compared to 2018 due to casinos operating for additional months in 2019.



Effective April 2017, the Polish gaming laws permit online gaming and slot arcades operated through a state run company. The first slot arcades opened in Poland in June 2018 and online gaming began in December 2018. We have not experienced a negative impact to our results of operations in Poland from slot arcades or online gaming; however, increased competition could occur and adversely affect our results of operations in the future. 



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Years ended December 31, 2019 and 2018

The following discussion highlights results for the year ended December 31, 2019 compared to the year ended December 31, 2018.



Results in US dollars were impacted by a 6.3% exchange rate decrease in the average rate between the US dollar and Polish zloty for the year ended December 31, 2019 compared to the year ended December 31, 2018.



The following is a summary of changes in and comparability of the casinos in Poland operated by CPL for the year ended December 31, 2019 compared to the year ended December 31, 2018.





Revenue Highlights



Operating Expense Highlights

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 in Item 6, “Selected Financial Data” of this report.





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Years ended December 31, 2018 and 2017

The following discussion highlights results for the year ended December 31, 2018 compared to the year ended December 31, 2017.



Results in US dollars were impacted by a 4.4% exchange rate increase in the average rate between the US dollar and Polish zloty for the year ended December 31, 2018 compared to the year ended December 31, 2017.



The following is a summary of changes in and comparability of the casinos in Poland operated by CPL for the year ended December 31, 2018 compared to the year ended December 31, 2017.





For the year ended December 31, 2018, we estimate that the closures of four of the casinos listed above decreased CPL’s net operating revenue by PLN 35.2 million ($9.8 million based on the average exchange rate for the year ended December 31, 2018), net income attributable to Century Casinos, Inc. shareholders by PLN 7.4 ($2.1 million based on the average exchange rate for the year ended December 31, 2018), and Adjusted EBITDA by PLN 12.0 ($3.3 million based on the average exchange rate for the year ended December 31, 2018).



Revenue Highlights



Operating Expense Highlights



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 in Item 6, “Selected Financial Data” of this report.



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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, 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.



Years ended December 31, 2019 and 2018



We have mutually agreed with the cruise lines through which we have concession agreements not to extend certain agreements at their termination dates. The following is a summary of concession agreements that ended in 2018 and 2019. We are considering continuing to exit from operating ship-based casinos on cruise ships as the contracts expire.





In addition, we evaluated our agreement with Diamond Cruises related to the operation of the ship-based casino onboard the Glory Sea. We determined that it was more likely than not that the agreement was impaired and wrote-down $1.0 million in property and equipment and net receivables in June 2019. The ship is currently not sailing, and we have not determined whether we will continue to operate this ship-based casino if the ship begins sailing again.



The casino at CCB opened in May 2018. In December 2019, 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 wrote down the tangible and intangible long-lived assets. This impact resulted in $16.5 million in additional general and administrative expenses for the year ended December 31, 2019. 



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In April 2018, CRM purchased a 51% ownership interest in GHL. GHL entered into agreements with MCL, the owner of a hotel and international entertainment and gaming club in the Cao Bang province of Vietnam, under which GHL managed MCL and owned 9.21% of its outstanding shares. 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 sale of less than ($0.1) million in general and administrative expenses on our consolidated statement of (loss) earnings for the year ended December 31, 2019. We consolidated GHL as a majority-owned subsidiary for which we have a controlling financial interest and accounted for GHL’s interest in MCL as an equity investment through May 2019. The sale of our equity interest in GHL also ended our equity interest in MCL.



The following discussion highlights results for the year ended December 31, 2019 compared to the year ended December 31, 2018. Results at CCB were impacted by a 4.5% exchange rate decrease for the year ended December 31, 2019 compared to the year ended December 31, 2018. 



Revenue Highlights

Non-Corporate Reporting Units



Operating Expense Highlights

Non-Corporate Reporting Units

Corporate Reporting Units



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 in Item 6, “Selected Financial Data” of this report.



Non-Operating Income (Expense)



Non-operating income (expense) for the years ended December 31, 2019,  2018 and 2017 was as follows:







Interest income

Interest income is directly related to interest earned on our cash reserves.



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Interest expense

Interest expense is directly related to interest owed on our borrowings under our Macquarie Credit Agreement, the BMO Credit Agreement, the fair value adjustments for our interest rate swap agreements, our CPL and CCB borrowings, our capital lease agreements and interest expense related to CDR’s land lease.



Gain on foreign currency transactions, cost recovery income and other

Cost recovery income of $0.4 million and $0.6 million was received by CDR for the years ended December 31, 2019 and 2017, respectively, related to infrastructure built during the development of the Century Downs REC project. The distribution to CDR’s non-controlling shareholders through non-controlling interest is part of a credit agreement between CRM and CDR. There was no cost recovery income received by CDR for the year ended December 31, 2018.



We adjusted the contingent liability related to the CPL taxes to remove the estimated taxes accrued for the 2014 tax year due to the expiration of the statute of limitations for this tax year. This adjustment reduced the contingent liability by PLN 2.2 million ($0.6 million) in December 2019. 



Taxes



Our income tax expense by jurisdiction is summarized in the table below:



Our worldwide effective income tax rate for 2019 was 34.9%. Our effective income tax rate for 2019 was impacted by statutory to US GAAP adjustments, including foreign currency adjustments for foreign subsidiaries as well as the decrease of pre-tax income in the United States, Canada, Mauritius, and the United Kingdom. The comparison of pre-tax loss of ($12.0) million for the year ended December 31, 2019, compared to pre-tax income of $5.9 million for the year ended December 31, 2018 should be considered when comparing tax rates year-over-year. The federal corporate income tax rate in the United States for 2019 was 21%; additionally, we are subject to Colorado, Missouri and West Virginia state jurisdictions, which had corporate tax rates ranging from 4.5% to 6.5% in 2019. The effective tax rate in the United States for 2019 was (3.1%) due to permanent addbacks including the current tax on global intangible low-taxed income (“GILTI”) and nondeductible stock option expense. A majority of our earnings during the year ended December 31, 2019 were from our properties in Canada and Poland, which accounted for 80.9% of the total tax expense recorded. The effective tax rate of 31.1% related to 2019 earnings in Canada, which has a 26.5% income tax rate, was primarily due to the impact of foreign currency exchange rates. The effective tax rate of 23.4% related to 2019 earnings in Poland, which has a 19% income tax rate,  was primarily due to nondeductible payments to certain governing authorities as well as nondeductible meals, entertainment, gifts and giveaways.  The effective tax rate of (2.4%) related to 2019 earnings in the UK, which has a 19% income tax rate, was primarily due to a valuation allowance of deferred tax assets. The effective tax rate of 1.1% related to 2019 earnings in Mauritius, which has a 3% income tax rate, was due to various permanent addbacks.  The effective tax rate of 41.8% related to 2019 earnings in Austria, which has a 25% income tax rate, was due to various permanent addbacks.  The effective tax rate of 0.0% related to 2019 earnings in Hong Kong, which has a 16.5% income tax rate, was due to earnings derived from outside sources that were not subject to the jurisdiction’s tax. The movement of exchange rates for intercompany loans denominated in US dollars further impacts the effective income tax rate because foreign currency gains and losses generally are not taxed until realized. Therefore, the overall effective income tax rate was significantly impacted in 2019 and can be significantly impacted by foreign currency gains or losses in the future.



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The Tax Act, which was enacted on December 22, 2017, included significant changes to the Internal Revenue Code including, among other items, a reduction of the federal corporate tax rate from 35% to 21%, a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, and the creation of new taxes on certain foreign earnings. The Tax Act subjects a US stockholder to current tax on GILTI earned by certain foreign subsidiaries. Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to recognize the current tax on GILTI as an expense in the period the tax is incurred. See Note 14 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report for more discussion of provisional amounts related to the Tax Act.





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.



As of December 31, 2019, our total debt under bank borrowings and other agreements net of $10.0 million related to deferred financing costs was $179.0 million, of which $175.8 million was long-term debt and $3.2 million was the current portion of long-term debt. The current portion relates to payments due within one year under our Macquarie Credit Agreement, the CPL credit agreements and the CCB loan agreement. On December 6, 2019, we drew $170.0 million under the term loan portion of the Macquarie Credit Agreement and used the proceeds to fund the Acquisition, for the repayment of approximately $52.0 million outstanding under the BMO Credit Agreement and for general working capital and corporate purposes. We intend to repay the current portion of our debt obligations with available cash. For a description of our debt agreements, see Note 7 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report. Net Debt was $134.2 million as of December 31, 2019 compared to $14.4 million as of December 31, 2018, due to the increase in debt related to the Acquisition. For the definition and reconciliation of Net Debt to the most directly comparable GAAP measure, see “Non-GAAP Measures – Net Debt” in Item 6, “Selected Financial Data” of this report.



The following table lists the 2020 maturities of our debt:





A loan agreement with UniCredit Bank Austria AG for a revolving line of credit and the CPL credit facilities are not included in the table above because no amounts were borrowed as of December 31, 2019.



Cash Flows

Cash, cash equivalents and restricted cash totaled $55.6 million and working capital (current assets minus current liabilities) was $22.8 million at December 31, 2019 compared to cash, cash equivalents and restricted cash of $46.3 million and working capital of $5.0 million at December 31, 2018, and cash, cash equivalents and restricted cash of $76.4 million and working capital of $49.9 million at December 31, 2017. The increase in cash, cash equivalents and restricted cash from December 31, 2018 to December 31, 2019 is due to  $18.8 million of cash provided by operating activities; $124.7 million in proceeds from borrowings net of repayments and $0.3 million in proceeds from the exercise of stock options; offset by $96.6 million of cash used for the Acquisition, net of cash acquired; $24.0 million of cash used to purchase property and equipment; $10.1 million in deferred financing costs; $1.0 million of distributions to non-controlling interests; and $2.6 million in exchange rate changes. 



Net cash provided by operating activities was $18.8 million, $22.3 million and $19.4 million in 2019,  2018 and 2017, respectively. Our cash flows from operations have historically been positive and sufficient to fund ordinary operations. Trends in our operating cash flows tend to follow trends in earnings from operations, excluding non-cash charges. Please refer also to the consolidated statements of cash flows and to management’s discussion of the results of operations above in this Item 7 for a discussion of earnings from operations.



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Net cash used in investing activities of $120.7 million for the year ended December 31, 2019 consisted of $96.6 million related to the Acquisition, net of cash acquired; $15.0 million for construction costs related to the Century Mile project; $4.3 million related to leasehold improvements at 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.



Net cash used in investing activities of $57.7 million for the year ended December 31, 2018 consisted of $40.0 million for construction costs related to the Century Mile project; $7.8 million for the Century Casino Bath project; $5.1 million in leasehold improvements at the new casinos in Poland and additional assets for the casinos in Poland; $0.9 million in Calgary for racetrack improvements and a barn at CDR and surveillance upgrades at CAL; $0.8 million in Colorado for slot machines and carpet replacement; $2.4 million in other fixed asset additions at our properties; $0.3 million for CRM’s purchase of its ownership interest in GHL, net of cash acquired; and $0.6 million for GHL’s purchase of its ownership interest in MCL, offset by less than $0.1 million in proceeds from the disposition of assets.



Net cash provided by financing activities of $113.9 million for the year ended December 31, 2019 consisted of $124.7 million received from borrowings net of principal repayments and $0.3 million from the exercise of stock options, offset by $10.1 million of deferred financing costs paid and $1.0 million in distributions to non-controlling interests in CBS and CPL.



Net cash provided by financing activities of $7.2 million for the year ended December 31, 2018 consisted of $8.2 million received from borrowings net of principal repayments and $0.3 million from the exercise of stock options, offset by $0.3 million of principal repayments for capital leases, $0.4 million of deferred financing costs paid and $0.6 million in distributions to non-controlling interests in CBS and CPL.



Tax Act

The Tax Act, which was enacted on December 22, 2017, made significant changes to the Internal Revenue Code effective for 2018, although certain provisions affected our 2017 financial results. The changes impacting our 2018 and 2019 results include, but are not limited to, the reduction in the US federal corporate income tax rate from 35% to 21% and the tax on GILTI.  



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 Act.  The Tax Act permits a company to pay the one-time transition tax over eight years on an interest free basis. The Company paid $0.6 million of the transition tax in 2018. The remaining cash payments due related to the transition tax total $0.9 million as set forth in the Contractual Obligations and Contingencies table below. 



Common Stock Repurchase Program

Since 2000, we have had a discretionary program to repurchase our outstanding common stock. In November 2009, we increased the amount available to be repurchased to $15.0 million. We did not repurchase any common stock in 2019,  2018 or 2017. The total amount remaining under the repurchase program was $14.7 million as of December 31, 2019. The repurchase program has no set expiration or termination date.



Potential Sources and Uses of Liquidity, Short-Term Liquidity

Historically, our primary sources of liquidity and capital resources have been cash flow from operations, bank borrowings, sales of existing casino operations and proceeds from the issuance of equity securities upon the exercise of stock options. In November 2017, we closed a public offering of 4,887,500 shares of our common stock. The net proceeds from the offering were approximately $34.4 million. As discussed below, we used $24.2 million of the net proceeds for construction of the Century Mile project. We used the remaining net proceeds to invest in additional gaming projects and for working capital and other general corporate purposes.



We believe that our cash at December 31, 2019, as supplemented by cash flows from operations and, as necessary, borrowings under the $10.0 million revolving credit facility of the Macquarie Credit Agreement, will be sufficient to fund our anticipated operating costs, capital expenditures at existing properties, Master Lease payments and current debt repayment obligations for at least the next 12 months. We expect that the primary sources of cash will be from our gaming operations and additional borrowings under the Macquarie Credit Agreement and other credit arrangements. See Note 7 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this report for further information regarding our credit arrangements and the amounts available under those arrangements.  In addition to the payment of operating costs, expected uses of cash within one year include capital expenditures for our existing properties, interest and principal payments on outstanding debt, payments on the Master Lease, and other potential new projects, including acquisitions. We will continue to evaluate our planned capital expenditures at each of our existing locations in light of the operating performance of the facilities at such locations.



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The Century Mile project cost approximately CAD 61.5 million ($47.4 million based on the exchange rate in effect on December 31, 2019). We used $24.2 million of the net proceeds from the common stock offering, $23.3 million from the BMO Credit Agreement and available cash for construction of the Century Mile project.   



We have a shelf registration statement with the SEC that became effective in July 2017 under which we may issue, from time to time, up to $100 million of common stock, preferred stock, debt securities and other securities and under which we undertook the common stock offering in November 2017. 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. 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.



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 either 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 or raise capital in the US through debt or equity issuances. Under the Tax Act, a cash dividend from a foreign subsidiary to its US parent would generally be exempt from US income taxation. We estimate that approximately $24.6 million of our total $54.8 million in cash and cash equivalents at December 31, 2019 is held by our foreign subsidiaries and is not available to fund US operations unless repatriated. The determination of the additional deferred taxes that would be provided for undistributed earnings has not been determined because the hypothetical calculation is not practicable.



Contractual Obligations and Contingencies



The following table summarizes our future commitments and contingency payments as of December 31, 2019.





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Off-Balance Sheet Arrangements

The unrecorded contractual obligations above are not expected to have a material effect on our consolidated financial statements. We do not have any additional off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our consolidated financial statements.



Critical Accounting Estimates

Management's discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements. To prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we must make estimates and assumptions that affect the amounts reported in the consolidated financial statements. On an on-going 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 74% of our total assets as of December 31, 2019. Judgments are made in determining the estimated useful lives of assets, salvage values to be assigned to assets and if or when an asset has been impaired. The accuracy of these estimates affects the amount of depreciation expense recognized in our financial results and the extent to which we have a gain or loss on the disposal of the asset. We assign lives to our assets based on our standard policy, which we believe is representative of the useful life of each category of assets. We review the carrying value of our property and equipment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. The factors we consider in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. As of December 31, 2019,  we believe that our investments in property and equipment, excluding CCB, 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 (loss) earnings.  For the year ended December 31, 2017, we wrote down the leasehold improvements at Casinos Poland’s LIM Center casino due to the transfer of the license to the Hilton Warsaw casino and charged $0.1 million to operating costs and expenses.



Goodwill – We test goodwill for impairment as of October 1 each year, or more frequently as circumstances indicate it is necessary. Testing compares the estimated fair values of our reporting units to the reporting units’ carrying values. Our reporting units with goodwill balances as of December 31, 2019 are included within the United States, Canada and Poland reporting segments. We consider a variety of factors when estimating the fair value of our reporting units, including estimates about the future operating results of each reporting unit, multiples of earnings, various market analyses, and recent sales of comparable businesses, if such information is available to us. We make a variety of estimates and judgments about the relevance of these factors to the reporting units in estimating their fair values.  If the carrying value of a reporting unit exceeds its estimated fair value, the fair value of each reporting unit is allocated to the reporting unit’s assets and liabilities to determine the implied fair value of the reporting unit’s goodwill and whether impairment is necessary. No impairment charges related to goodwill were recorded for the years ended December 31, 2019,  2018 and 2017. As of December 31, 2019, the fair value of our goodwill at our CSA reporting unit was 27% in excess of its related carrying value. Goodwill related to our CSA reporting unit was $3.6 million as of December 31, 2019. Key assumptions in the valuation of goodwill 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.



Intangible Assets – Identifiable intangible assets include trademarks, player’s club lists and casino licenses. Our Century Casinos and Casinos Poland trademarks and our casino licenses, with the exception of Poland, are indefinite-lived intangible assets and therefore are not amortized. We test our trademarks and indefinite-lived casino licenses for impairment as of October 1 each year, or more frequently as circumstances indicate it is necessary. We test for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, we would recognize an impairment charge equal to the difference. For the year ended December 31, 2019, we wrote down the CCB casino license due to historical and forecasted losses at the casino and charged $1.2 million to impairment – intangible and tangible assets on our consolidated statement of (loss) earnings. No impairment charges related to our trademarks or indefinite-lived licenses were recorded for the years ended December 31, 2019, 2018 and 2017.  As of December 31, 2019, the fair value of our indefinite-lived intangible assets at our CSA reporting unit was 28% in excess of its related carrying value. Intangible assets related to our CSA reporting unit were $9.4 million as of December 31, 2019. 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.



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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 years ended December 31, 2019, 2018 and 2017.



Income Taxes – The determination of our provision for income taxes requires management’s judgment in the use of estimates and the interpretation and application of complex tax laws. Judgment is also required in assessing the timing and amounts of deductible and taxable items. We establish contingency reserves for material, known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the proper tax treatment of the item. Our reserves reflect our judgment as to the resolution of the issues involved if subject to judicial review. Several years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved or clarified. While we believe that our reserves are adequate to cover reasonably expected tax risks, issues raised by a tax authority may be finally resolved at an amount different from the related reserve. Such differences could materially increase or decrease our income tax provision in the current and/or future periods. When facts and circumstances change (including a resolution of an issue or statute of limitations expiration), these reserves are adjusted through the provision for income taxes in the period of change. To the extent we determine that we will not realize the benefit of some or all of the deferred tax assets, then these assets will be adjusted through our provision for income taxes in the period in which this determination is made.  The Tax Act created a new requirement that certain income, such as GILTI, earned by a controlled foreign corporation (“CFC”) must be included currently in the gross income of the CFC’s US shareholder, effective in 2018. Under US GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future US inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into our measurement of our deferred taxes (the “deferred method”). We have elected to account for GILTI in the year the tax is incurred as a period expense and recorded net tax expense of $0.5 million and less than $0.1 million for the years ended December 31, 2019 and 2018, respectively.



Our undistributed foreign earnings were subject to the one-time transition tax for the year ended December 31, 2017. We continue to consider our foreign earnings indefinitely reinvested. Based on our capital, debt and liquidity position, there is no expected need for cash repatriation from foreign subsidiaries, and all cash held in foreign jurisdictions is considered permanently reinvested. These foreign earnings could become subject to additional taxes, such as withholding taxes and local country taxes, if they are repatriated to the United States.



See Note 14 to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report for additional discussion of the Tax Act.



Business Combinations – In accordance with ASC 805, “Business Combinations” (“ASC 805”), the Acquisition was recorded using the acquisition method of accounting. We include the operating results of the Acquired Casinos from the date of acquisition. We recognize and measure the identifiable assets acquired, liabilities assumed and any non-controlling interest acquired at fair value at the acquisition date. The valuation of intangible assets requires management judgement, the utilization of independent valuation experts and often involves the use of significant estimates and assumptions with respect to timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other things. If the subsequent projections of the underlying business activity change compared with the assumptions and projections used to develop these fair values, we could record impairment charges. The valuation of intangible assets was determined using an income approach methodology. Our key assumptions used in valuing the intangible assets included projected future revenues, customer attrition rates and market recognition. The excess of total consideration transferred over the fair value of identifiable assets acquired and liabilities assumed was recognized as goodwill. Costs incurred as the result of the Acquisition other than costs related to the issuance of debt were recorded in the period the costs were incurred.





Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 

Our earnings, cash flows and financial position are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates. All of the potential changes noted below are based on information available at December 31, 2019.  All of our $189.0 million face value of debt outstanding as of December 31, 2019 is variable-rate debt. Each one percentage point change associated with the variable rate debt would result in a $1.5 million change to our annual cash interest expenses.



Foreign Currency Exchange Risk

As a result of our international business presence, we are exposed to foreign currency exchange risk. We transact in foreign currencies and have significant assets and liabilities denominated in foreign currencies. Therefore, our earnings experience volatility related to movements in foreign currency exchange rates. We have not hedged against foreign currency exchange rate changes related to our international operations. Our foreign subsidiaries transact in their local currencies and hold the majority of their assets and liabilities in their local currency.



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The majority of our foreign currency exposure is related to the US dollar versus the Canadian dollar and the Polish zloty. The assets and liabilities of our foreign subsidiaries that are measured in foreign currencies are translated at the applicable period-end exchange rate on our consolidated balance sheets. The resulting translation adjustment is included in accumulated other comprehensive loss as a component of shareholders’ equity. During the years ended December 31, 2019 and 2018, the change in the relative value of the US dollar against all foreign currencies in which our foreign subsidiaries operate resulted in a $5.0 million decrease and  $9.0 million increase in accumulated other comprehensive loss within shareholder’s equity, respectively.



We translate revenue and expenses at each period’s average exchange rate on our consolidated statement of (loss) earnings and the gains and losses from translation are included in the results of operations as incurred.  A depreciation in the value of the US dollar in relation to all foreign currencies in which our foreign subsidiaries operate would increase the earnings from our foreign operations when translated into US dollars. The timing of the changes in the relative value of the US dollar combined with the operations that are impacted by that change can affect the magnitude of the impact that fluctuations in foreign exchange rates have on our earnings from operations. In 2019,  losses from operations were ($5.2) million. As of December 31, 2019, a 10% depreciation in the value of the US dollar relative to the Canadian dollar and the Polish zloty would have resulted in an increase in earnings from operations of $2.4 million.  



As of December 31, 2019, our debt is primarily held in US dollars.



Item 8. Financial Statements and Supplementary Data.

See Index to Financial Statements on page F-1.



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.



Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures – Our management, with the participation of our principal executive officers and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2019. Based on such evaluation, our principal executive officers and principal financial officer have concluded that as of December 31, 2019, our disclosure controls and procedures were effective.



Management’s Annual Report on Internal Control over Financial Reporting – Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements. 



Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth in the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013). Based on this assessment, our management believes that, as of December 31, 2019, our internal control over financial reporting was effective based on those criteria. Our assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include internal controls of the Acquired Casinos, which were acquired on December 6, 2019. The Acquired Casinos’ represent approximately 56% of our consolidated total assets as of December 31, 2019, 8% of our net operating revenue and 6% of our net (loss) earnings attributable to Century Casinos, Inc. shareholders for the year ended December 31, 2019. We are in the process of integrating the Acquired Casinos and our internal control over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. We believe, however, that we will be able to maintain sufficient internal control over financial reporting throughout this integration process.



The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein on the following page.



Changes in Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of
Century Casinos, Inc.
Colorado Springs, Colorado

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Century Casinos, Inc. and subsidiaries (the "Company") as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated March 12, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in accounting principle.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the Acquired Casinos which were acquired on December 6, 2019. The Acquired Casinos constitute 56% of total assets, 8% of net operating revenue, and 6% of net (loss) income attributable to Century Casinos, Inc. shareholders, of the consolidated financial statement amounts as of and for the year ended December 31, 2019. Accordingly, our audit did not include the internal control over financial reporting at the Acquired Casinos.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP



Denver, Colorado
March 12, 2020

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Item 9B. Other Information.



None.

 

PART III



Item 10. Directors, Executive Officers and Corporate Governance.



The information required by this item will be included in our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2019 and is incorporated herein by reference. Information required by Regulation S-K Item 401 concerning executive officers is included in Part I of this Annual Report on Form 10-K under the caption “Information about our Executive Officers.”



We have adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including our Co-Chief Executive Officers, our Principal Financial Officer and our Principal Accounting Officer. A complete text of this Code of Business Conduct and Ethics is available on our web site (www.cnty.com/investor/governance/facts-overview/). Any future amendments to or waivers of the Code of Business Conduct and Ethics will be posted to the Corporate Governance section of our web site.





Item 11. Executive Compensation.



The information required by this item will be included in our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2019 and is incorporated herein by reference.





Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



The information required by this item relating to securities ownership of certain beneficial owners and management will be included in our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2019 and is incorporated herein by reference.



Information relating to securities authorized for issuance under equity compensation plans as of December 31, 2019 is as follows:









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Item 13. Certain Relationships and Related Transactions, and Director Independence.



The information required by this item will be included in our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2019 and is incorporated herein by reference.





Item 14. Principal Accounting Fees and Services.



The information required by this item will be included in our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2019 and is incorporated herein by reference.

 

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PART IV



Item 15. Exhibits and Financial Statement Schedules.





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* A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.



†  Filed herewith.

†† Furnished herewith.

PFiled on Paper



Item 16. Form 10-K Summary.



None.

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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 13, 2020.