Great Canadian Gaming Corporation

Transcription

1 200 ANNUAL REPORT Great Canadian Gaming Corporation

2 Great Canadian Gaming Corporation FINANCIAL HIGHLIGHTS Years ended December 31, (In millions, except for share information) Revenues $ $ $ EBITDA 1 $ $ 98.2 $ 76.6 Net Income (Loss) $ 35.8 $ (18.6) $ 15.7 Earnings per Share Basic $ 0.42 $ (0.22) $ 0.20 Earnings per Share Diluted $ 0.41 $ (0.22) $ 0.20 Issued & Outstanding Shares 84,815,476 86,146,631 79,449,720 Total Shareholders Equity $ $ $ Net Cash Inflow (Outflow) $ 50.3 $ (13.0) $ 30.9 Revenues (in millions) EBITDA 1 (in millions) $400 $120 $350 $300 $250 $100 $80 $200 $60 $150 $100 $ $40 $ RevenueS BY CATEGORY 2007 RevenueS BY LOCATION Facility Development Commission 6% BC Racinos 12% Table Games 29% Slot Machines 39% Other BC Casinos & Corporate 4% Vancouver Island Casinos 11% River Rock Casino Resort 28% Flamboro Downs 5% Georgian Downs 4% Hotel 3% Racetrack 8% Other 2% Food & Beverage 13% Nova Scotia Casinos 12% Great American Casinos 7% Boulevard Casino 17% 1 EBITDA is a non-gaap measure and is defined in the Introduction - Non-GAAP Measures section of the MD&A.

3 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N 1 LETTER FROM THE CHAIRMAN DEAR SHAREHOLDERS, For Great Canadian, 2007 marked a return to form. In 2005 and 2006, we took advantage of a variety of new opportunities for our business, and as a result enjoyed a period of unprecedented growth. However, we also struggled under both the financial and operational pressures of integration. To combat these challenges, we established an aggressive plan of recovery. Orchestrated by our new senior management team, this plan revolved around both an improved capital structure and a renewed focus on our core gaming operations. Together, these strategies turned Great Canadian s 2007 into a remarkable year. In February 2007, we replaced our Bridge Credit Facility with long-term credit facilities that totaled approximately $600 million. We also completed a $400 million swap facility. This new capital structure will prevent Great Canadian from returning to the difficulties we encountered in the first half of More importantly, it provides us with the flexibility required to maximize new opportunities for future growth. However, such resources only provide value if they are matched with a commensurate level of capital discipline. It is our responsibility to ensure that only the most attractive opportunities are pursued. Often, these are represented by the ability to further develop one of our existing properties. To this end, we commenced several new projects over the course of The majority of these projects are located here in British Columbia. On Vancouver Island, we ve begun the redevelopment of our View Royal Casino. By the middle of 2009, the facility will increase both its parking capacity and gaming and entertainment offerings. View Royal has witnessed a high level of demand for several years, and we re pleased to finally be able to offer our guests the casino they deserve. Our horseracing facilities here in British Columbia have also advanced to the next level of their development. In November, we introduced temporary slot machines at Hastings Racecourse and began construction on a permanent gaming facility for that property. By early 2009, Hastings will offer 600 slot machines, realizing the vision we had for the property when we initially acquired it in Also in November, we added table games and additional slot machines to our Fraser Downs racetrack in Surrey. That property is now the only racetrack in Canada to offer table games, and is steadily growing its presence in the community. Our final current development in British Columbia is the first expansion of our flagship facility, the River Rock Casino Resort. When the Canada Line portion of Vancouver s new mass transit system reaches completion in 2010, it will drastically change the municipality of Richmond. Between eighty to one hundred thousand passengers a day are expected to flow through Bridgeport Station, the section of the line that lies adjacent to River Rock. Fortunately, we ll be well prepared for this growth. This February 2008, we announced our intention to add a second hotel to River Rock s hospitality offerings. This facility will complement the new parking Ross J. McLeod Chairman & Chief Executive Officer

4 2 garage we previously announced in 2006, and ensure that River Rock can welcome new guests for years to come. We re also continuing to expand in other provinces. In Ontario, we entered into new Supplemental Agreements with the Ontario Lottery and Gaming Corporations during These Agreements will both increase Georgian Downs slot capacity to 1,000 machines and extend our Siteholder Agreement at that property by a minimum of ten years. We feel that the Great Canadian story in Ontario is only just beginning, and look forward to maximizing the potential of our properties in that province. Together, this exciting roster of development projects provides Great Canadian with a clear pipeline of sustainable growth. However, 2007 witnessed not only expansion, but also improvement. Last year I wrote to you about our ongoing search for new efficiencies within our business. Our goal was a return to our historical operating margin, an EBITDA level between 29% and 34%. Over the course of the year, we made steady progress in this area: our 2007 EBITDA of 27.9% represented a significant improvement from the 25.5% we generated in In 2008, Great Canadian will seek both further efficiencies and new opportunities for revenue growth, and I believe the combination of these efforts will allow us to reach our goal. Of course, none of this would have been possible without the limitless enthusiasm of our front-line personnel. They form the heart of our operations, and their dedication is as inspiring as it is remarkable. I d also like to thank our Board of Directors, whose wisdom has guided us into the clear skies we now enjoy. In particular, I d like to express my appreciation for Al Hintz, who is retiring from the Board. A dear friend, Al was one of the principal drivers behind British Columbia s current regulatory framework for community charity gaming. His experience has been invaluable to Great Canadian for more than a decade, and his insights will be difficult to replace. Last year, I promised that 2007 Great Canadian s Silver Anniversary would be our most spectacular year yet. Surveying both the strength of our existing property portfolio and the robust foundations we ve laid for the future, I feel that s a promise kept. It goes without saying, however, that I m just as excited about the years to come. Sincerely, ROSS J. McLEOD Chairman & Chief Executive Officer

5 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N F I N A N C I A L R E V I E W 4 MANAGEMENT S DISCUSSION & ANALYSIS 40 MANAGEMENT S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS 40 AUDITORS REPORT 41 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 42 CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) 43 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 43 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 44 CONSOLIDATED STATEMENTS OF CASH FLOWS 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IBC INVESTOR INFORMATION

6 4 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A LY S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) INTRODUCTION Basis of Discussion and Analysis This management s discussion and analysis ( MD&A ) of Great Canadian Gaming Corporation (the Company, we, our ) is dated as of March 10, This MD&A should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 2007 and 2006 ( Annual Financial Statements ). The Annual Financial Statements are prepared in accordance with Canadian Generally Accepted Accounting Principles ( GAAP ). Unless expressly stated otherwise, all financial information is expressed in Canadian dollars. Certain prior year comparative figures have been adjusted to conform to the current year s presentation. Capitalized terms are either defined when they first appear, or are defined at the end of this MD&A in the section titled Other Financial Information Definitions of Other Terms Used in the MD&A. Non-GAAP Measures The following non-gaap definitions are used in this MD&A because management believes that they provide useful information regarding our ongoing operations. Readers are cautioned that the definitions are not recognized measures under Canadian GAAP, do not have standardized meanings prescribed by GAAP, and should not be construed to be alternatives to net earnings determined in accordance with GAAP or as indicators of performance, liquidity or cash flows. Our method of calculating these measures may differ from the method used by other entities and accordingly our measures may not be comparable to similarly titled measures used by other entities. EBITDA as defined by the Company means Earnings Before Interest and financing costs (net of interest income), Income Taxes, Depreciation and Amortization, stock-based compensation, restructuring costs, goodwill impairment, foreign exchange loss, and non-controlling interests. EBITDA is derived from the consolidated statements of earnings (loss), and can be computed as revenues less human resources expenses and property, marketing and administration expenses. We believe EBITDA is a useful measure because it provides information to both management and investors with respect to the operating and financial performance of the Company. A reconciliation of EBITDA to net earnings (loss) under GAAP is shown in the Consolidated Results of Operations section in this MD&A. Gross revenues as defined by the Company means revenues on the consolidated statements of earnings (loss) plus the portion of the gaming win and other revenues retained by British Columbia Lottery Corporation ( BCLC ) and Nova Scotia Gaming Corporation ( NSGC ); gaming taxes paid to Washington State; accruals for payouts of progressive games; payments to horse racing pools; and promotional allowances. Gross revenues include slot commissions in Ontario which represent 10% of the win from slot machines operated by the Ontario Lottery and Gaming Corporation ( OLG ). The following non-gaap measures have common definitions in the gaming industry. Table drop means the collective amount of money customers deposit to purchase casino chips to wager on table games, and is commonly computed as the aggregate of money counted in the table games drop boxes. Generally, the table drop is an indicator of our gaming business, however over the short term, the table drop is subject to shifts in customer behaviour around buying, retaining and cashing-in of casino chips. Table hold is calculated as the table drop plus or minus the net change in casino chip inventory. Table hold percentage is the ratio of table hold divided by table drop. Table hold percentage fluctuates with the statistical variations or volatility inherent in casino games, as well as with changes in customer behaviour around buying, retaining and cashing-in of casino chips. Poker rake is the commission we earn from poker games at our casinos, and is calculated as a fixed percentage of the amount wagered by customers on every hand of poker played. Slot coin in is the aggregate of money customers have placed into slots or electronic machines. Slot win is the slot coin in less the payout or prizes to winning customers. Slot win per machine per day ( Slot Win/Slot/Day ) is the average daily slot win earned per slot machine, and is calculated as the slot win divided by the number of days in the period, divided by the average number of slot machines that operated during the period. Slot win percentage is the ratio of slot win divided by slot coin in.

7 5 Forward-Looking Statements This MD&A contains forward-looking statements which reflect management s current expectations regarding the Company s objectives, plans, goals, strategies, future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are not guarantees, but only predictions. Although the Company believes that these statements are based on information and assumptions which are current, reasonable and complete, these statements are necessarily subject to a number of factors that could cause actual results to vary significantly from current expectations. Such differences may be caused by factors which include, but are not limited to, limited terms of operational service agreements with gaming regulators, pending and proposed legislative or regulatory developments, competition from established competitors and new entrants in the gaming business, dependence on key personnel, no assurance that systems, procedures and controls will be adequate to support expanding operations, potential undisclosed liabilities and capital expenditures associated with acquisitions, negative connotations linked to the gaming industry, First Nations claims with respect to public lands on which we conduct our operations, impact of legal proceedings, impact of smoking bans, ongoing requirements to comply with financial covenants associated with credit facilities and long-term debt, interest and exchange rate fluctuations, non-realization of cost reductions and synergies, acceptance and demand for new products and services, fluctuations in operating results and general economic conditions. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in the Company s continuous disclosure documents filed with the Canadian securities regulatory authorities from time to time, including in the Risk Factors section of the Company s Annual Information Form for fiscal 2007, and as identified in the Company s disclosure record on The forward-looking statements contained herein are made as of the date of this MD&A and are expressly qualified in their entirety by this cautionary statement. Readers should not place undue reliance on the forward-looking statements, which reflect management s plans, estimates, projections and views only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. FINANCIAL HIGHLIGHTS Fourth Quarter Twelve Months of % Chg % Chg 2005 % Chg Revenues $ $ % $ $ % $ % EBITDA (1) $ 27.9 $ % $ $ % $ % Human resources as a % of Revenues before promotional allowances 43.6% 44.9% 44.1% 45.2% 47.3% EBITDA as a % of Revenues 27.7% 25.9% 27.9% 25.5% 26.0% Net earnings (loss) $ 13.0 $ (11.5 ) $ 35.8 $ (18.6 ) $ 15.7 Earnings (loss) per common share: Basic $ 0.15 $ (0.13 ) $ 0.42 $ (0.22 ) $ 0.20 Diluted $ 0.15 $ (0.13 ) $ 0.41 $ (0.22 ) $ 0.20 Total assets $ $ % $ % Long-term debt, excluding current portion $ $ (16% ) $ (11% ) (1) EBITDA is a non-gaap measure and is defined in the Introduction Non-GAAP measures section of this MD&A was a year of improvement for Great Canadian Gaming Corporation. Important strategic gaming and service expansions were completed, additional property development opportunities were initiated, and a financial structure was established to form a foundation for future growth.

8 6 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) In the three month ( fourth quarter of 2007 ) and twelve month period ( twelve months of 2007 ) ended December 31, 2007, the Company successfully executed operating efficiency improvement initiatives while continuing to realize increasing value from prior expansions and acquisitions. Revenues for the fourth quarter and twelve months of 2007 increased 3% over both the fourth quarter and twelve months of EBITDA for the same periods increased 10% and 13%, respectively. EBITDA as a percentage of revenues improved to 27.7% in the fourth quarter of 2007 and to 27.9% in the twelve months of 2007 compared to 25.9% in the fourth quarter of 2006 and 25.5% in the twelve months of 2006, respectively. Net earnings increased $24.5 in the fourth quarter of 2007 and $54.4 in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. The current and prior year s net earnings included some unusual items, the after-tax effects of which are summarized in the following table: Fourth Quarter Twelve Months of % Chg % Chg Net earnings (loss) $ 13.0 $ (11.5) $ 35.8 $ (18.6 ) Unusual items, net of tax Redemption costs of Series A & B Senior Secured Notes 20.4 Goodwill impairment charge on Hastings Restructuring charges Future income tax recoveries due to decreases in enacted statutory tax rates (10.5) (11.5) (5.2) Other future tax changes 2.0 (3.0 ) Adjusted net earnings (1) $ 4.8 $ % $ 22.0 $ % (1) A non-gaap measure After adjusting for the above unusual items, the Company s adjusted net earnings for the fourth quarter and twelve months of 2007 increased 60% and 63%, respectively, compared to the fourth quarter and twelve months of The increases in consolidated net earnings (loss) for the fourth quarter and twelve months of 2007 reflect a continued trend towards improved operating results driven by revenue growth and operational efficiencies. Net earnings decreased $34.3 to a net loss of $18.6 for the twelve months of 2006 compared to net earnings of $15.7 for the twelve months of This decrease is mainly the result of the 2006 unusual items of $32.1 summarized in the table above. For the twelve months of 2006, our revenues increased 31% to $385.2 and EBITDA increased 28% to $98.2 compared to the twelve months of The $90.8 revenue increase resulted primarily from a full year s benefit of acquisitions and expansions completed during 2005 and growth from existing operations. The $21.6 EBITDA increase resulted primarily from the same reasons revenues increased, a continued focus on improving operating efficiencies and the fact that 2005 was negatively effected by significant pre-opening and start up costs associated with the acquisitions and expansions in that year. This increase in EBITDA during 2006 was more than offset by $14.5 increased amortization and $10.7 increased net interest and financing costs that were mainly associated with the 2005 acquisitions and expansions. The refinancing the Company completed in February 2007 created the framework and flexibility necessary to pursue strategic growth opportunities. In 2007, these included the slot and table gaming expansion at Fraser Downs Racetrack and Casino ( Fraser Downs ), the introduction of slot machines at Hastings Racecourse ( Hastings ) and the completion of the conference centre at our River Rock Casino Resort ( River Rock ). The Company also announced development plans for several other properties, including a second phase slot expansion at Hastings and significant gaming expansions at the capacity constrained View Royal Casino and Georgian Downs racetrack. The Company believes this pipeline of expansion projects will both strengthen its competitive position and spur further revenue growth and earnings improvements. BUSINESS DESCRIPTION General Great Canadian Gaming Corporation is a multi-jurisdictional gaming and entertainment operator with operations in British Columbia ( BC ), Ontario and Nova Scotia, Canada, and Washington State, United States of America ( Washington ). We operate ten casinos, a thoroughbred racetrack that offers slot machines, four standardbred racetracks (two offer slot machines and one offers both slot machines and table games), a community gaming centre, a hotel & conference centre, two show theatres and various associated food and beverage and entertainment facilities. In Canada we operate our casinos in managed markets with high barriers to entry and under long-term agreements as partners with provincial lottery corporations. Under our operating agreements in BC and Nova Scotia we are reimbursed for the majority of our capital projects. As of December 31, 2007 the Company had approximately 5,500 employees.

9 7 Information on the Canadian and Washington State gaming industries, regulatory environment and our operating agreements in these jurisdictions are included in our Annual Information Form located on the SEDAR website at or on the Company s website at The Company s principal operating entities as at December 31, 2007 are: Ownership Entity Abbreviation interest Flamboro Downs Limited Flamboro Downs 100% Georgian Downs Limited Georgian Downs 100% Great American Gaming Corporation GAGC 100% Great Canadian Casinos Inc. GCC 100% Great Canadian Entertainment Centres Ltd. GCEC 100% Hastings Entertainment Inc. HEI 100% Metropolitan Entertainment Group MEG 100% Orangeville Raceway Limited Orangeville 100% TBC Teletheatre B.C. (1) TBC 50% (1) On March 18, 2005 the Company increased its ownership interest in TBC to 50% and effectively controlled it from that date. Business Strategy Our mission is to be the leading gaming and entertainment company in our chosen markets by providing superior destinations, experiences, products and services. To meet this objective, we have adopted the strategies set out below. As a gaming service supplier, we work closely with our Crown corporation partners to develop our business strategy. The agreement of our Crown corporation partners may be necessary to implement certain strategies, and would be required with respect to those strategies related to the deployment of gaming assets. Continuously improve our operating efficiency. We have implemented several initiatives within our business to help maintain and improve profitability. In particular, at our corporate head office and each operating facility we have implemented initiatives to realize operational synergies, workflow efficiencies and business process improvements. We have developed more focused marketing efforts (including joint marketing plans with our provincial Crown corporation partners); adopted more efficient products and technologies used in managing our business; and managed staffing levels appropriately. We continue to develop a performance based culture that recognizes outstanding service delivery, teamwork and individual achievement. In addition, we are working to continually improve our human resource policies and programs in an effort to increase our employee retention rates. Complete the build out of and grow our current assets. We have invested over $750 million over the last four years to expand and improve our operations. As a result, we have many assets that are new or newly-renovated and are well positioned to capture benefits (in the form of increased revenues and improved profitability) of the investments that have been made to date. Additionally, the current supply-constrained nature of many of our markets is in part due to the fact that the provincial Crown corporations responsible for gaming have been taking steps to limit the number of gaming facilities. As a result, the number of new operators in the industry has been limited, providing incumbent facilities operators like us with opportunities to better penetrate the market and capture unmet demand. Accordingly, we believe that there is potential for us to benefit from the relatively underpenetrated state of the market by expanding some of our existing facilities. Subject to Crown corporation approval, we may also seek ways to expand the gaming products and services we offer at our facilities. Look for appropriate expansion opportunities. The gaming industry in Canada, in its current form with large-scale, commercial casinos, is relatively new compared to that in the United States. We believe there are still significant growth opportunities in Canada. Our primary focus will continue to be the build-out of our current assets, but we may also consider further expansion opportunities and additional acquisition opportunities that may arise from time to time inside and outside of our current markets.

10 8 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N Operations in Canada M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) The following table summarizes our Canadian casino operations as at December 31, 2007: Operating Year Built/ Additional Facilities Slot Table Agreements Expiry Facility and Location Renovated and Activities Machines Games Date (1) BRITISH COLUMBIA River Rock Casino Resort, Casino: room hotel, 950 seat show June 23, 2014/ Richmond, B.C. Hotel & Theatre: 2005 theatre, 9 dining options, June 23, 2024 Conference Centre: 2007 conference facilities, pool/spa, Racebook, (2) marina Boulevard Casino, Casino: ,100 seat show theatre, November 16, 2015/ Coquitlam, B.C. Theatre: dining options, Racebook (2) November 16, 2025 View Royal Casino, dining options February 28, 2011/ Victoria, B.C. February 28, 2021 Nanaimo Casino, dining option February 28, 2011/ Nanaimo, B.C. February 28, 2021 Chances Gaming 2006 Bingo, 1 dining option, Racebook (2) 150 June 30, 2016/ Entertainment, June 30, 2026 Dawson Creek, B.C. Hastings Racecourse dining options, concession, 150 October 28, 2012/ (Thoroughbred Racing), Racebook (2) October 28, 2027 Vancouver, B.C. (3) Fraser Downs Racetrack dining options, show lounge, March 31, 2014/ and Casino (4) Racebook (2) March 31, 2024 (Standardbred Racing), Surrey, B.C. TBC Teletheatre B.C. (2) various 19 Racebooks (2) ONTARIO Georgian Downs dining options, concession 455 (6) November 30, 2021/ (Standardbred Racing), November 30, 2026 Innisfil, Ontario Flamboro Downs dining options,entertainment 750 (6) October 10, 2010/ (Standardbred Racing), lounge, conference facility October 10, 2015 Flamborough, Ontario NOVA SCOTIA (1) (2) (3) (4) (5) (6) Casino Nova Scotia Halifax (5), dining options, July 1, 2015/ Halifax, Nova Scotia entertainment lounge, July 1, 2025 (5) conference facility Casino Nova Scotia Sydney (5), dining options, lounge July 1, 2015/ Sydney, Nova Scotia July 1, 2025 (5) 5, Subject to renewal terms, at the option of Company, for ten years in BC and NS. Subject to renewal terms, at the option of the OLG, for five years in ON. We own or hold an interest in 19 Racebooks in British Columbia. We own and operate three Racebooks; one at each of Hastings Racecourse, Fraser Downs Racetrack and Casino, and Sandown Racetrack. The remaining 16 Racebooks, including those at River Rock Casino Resort, Boulevard Casino, and Chances Gaming Entertainment are operated by TBC Teletheatre B.C. We own a 50% interest in TBC Teletheatre B.C. and the remaining 50% interest is held by two horsemen s associations, the British Columbia Standardbred Association and the Horsemen s Benevolent and Protective Association. We have been granted approval by the City of Vancouver to install 600 slot machines. Our Orangeville subsidiary operates Fraser Downs Racetrack and Casino as well as Sandown Racetrack in North Saanich, B.C. The Casino Nova Scotia Halifax and Casino Nova Scotia Sydney operate under a single operating agreement. Slot machines at Georgian Downs and Flamboro Downs are owned and operated by OLG.

11 9 The following table summarizes our racetrack operations and the number of actual live race days in 2006 and 2007 as well as those expected for 2008: Live Race Days Name Location Expected Hastings Racecourse Vancouver, BC Fraser Downs Racetrack and Casino Surrey, BC Georgian Downs Innisfil, ON Flamboro Downs Flamborough, ON All of our racetrack operations are outfitted for simulcast wagering. This allows patrons to place wagers on live horse racing events from around the world. BRITISH COLUMBIA Regulatory In British Columbia, gaming activities are managed and conducted by the BCLC. BCLC in turn engages service suppliers, such as the Company, to operate the gaming activities pursuant to operational services agreements. The Company earns a commission based on the gaming win, but a significant portion of that gaming win is retained by BCLC. According to BCLC s annual report, the BCLC provides its share of the gaming win to the Province of British Columbia, which then dedicates the funds to many areas including: the general revenue fund, the Health Special Account for health care expenditures, and disbursements to charitable organizations. BCLC has adopted a growth strategy aimed at moving the per capita gaming win in British Columbia to a level closer to the Canadian average by establishing higher-quality facilities sized to fit the marketplace. In its 2008/ /2011 service plan, the BCLC estimated that British Columbia s casino gaming win would grow to $1,510 by its fiscal year ended March 31, 2011, up from a level of $1,209 for the fiscal year ended March 31, 2007, for an estimated compound annual growth rate of approximately 5%. We believe the market and regulatory environment favours the incumbent service suppliers in the province. BCLC s growth strategy has resulted in a substantial increase in the number of slot machines and, to a lesser extent, gaming tables in British Columbia. Subject to obtaining all required development and other approvals, other BCLC policy initiatives include permitting full beverage services and live entertainment on gaming floors, increasing betting limits and increasing the hours that the operators may stay open to 24 hours per day. As well, the Facility Development Commission ( FDC ) component of the operational services agreements encourages service suppliers such as the Company to receive additional commissions by investing capital in improving or expanding their gaming facilities. According to BCLC s annual report for its fiscal year ended March 31, 2007, for slot machines and table games the Company maintains a 49% market share in British Columbia (as measured by the gaming win), while its facilities housed 43% of the slot machines and 54% of the gaming tables in the province. For the BCLC nine-month period ended December 31, 2007 (BCLC s fiscal year ends March 31), the Company had 42% of the province s slot machines and generated 44% of the province s win from slot machines. During the same period, the Company had 49% of the province s table games and generated 59% of the province s win from table games. The Company s share of the province s total win from slot machines and table games was 48%. Seasonality While the Company s BC casinos operate year-round, its racetracks are subject to seasonal variations due to planned limited live racing seasons. Live racing at Hastings operates from late-april to early-november. Live racing at Fraser Downs operates from mid-september to late-june. Slot machines and Racebooks at both locations operate year-round. While Metro Vancouver and Vancouver Island, where our BC casinos are located, do not generally experience harsh weather during the summer or winter months like the rest of Canada, extreme weather conditions can have a negative impact on short-term attendance at our BC casinos.

12 10 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) ONTARIO Regulatory In Ontario, gaming activities are managed and conducted by the OLG. The OLG operates three different gaming models: commercial casinos (four sites, $1,667 of revenue in ); racetrack slots and charity casinos (17 racetrack sites and six casino sites, $1,924 revenue in ); and lotteries and bingo ($2,433 revenue in ). In Ontario, the Company operates two racetracks, with slot operations run by OLG pursuant to siteholder agreements. The Company earns a siteholder payment based on the win generated from the OLG slot machines, but a substantial portion of that win is retained by the OLG. According to the OLG website, it directs gaming proceeds to provincial hospitals, sport, recreational and cultural activities, and to charitable organizations and non-profit corporations through the Ontario Trillium Foundation, and other government priority programs such as health care and education. As a result of a comprehensive market assessment, the mandate for the OLG, as set out in its 2004/05 Annual Report, is to focus on social responsibility in gaming and to ensure the competitiveness of Ontario s gaming industry. In particular, but subject to local requirements made on a facility-by-facility basis to maximize revenues and contribute to local economies, the OLG has indicated that there will be no commercial gaming expansion or involvement in internet gaming. We believe that the incumbent operators in the province will focus their resources on the development of existing gaming operations rather than trying to capture market share by advocating for and promoting construction of new casinos. Focusing resources on existing gaming operations will improve the quality of gaming product in the province which, in turn, will lead to a higher proportion of the money spent on entertainment in the province of Ontario being directed towards the gaming industry. Seasonality The Company s Ontario racetracks operate year-round and are typically subject to seasonal variations associated with extreme weather conditions. NOVA SCOTIA Regulatory In Nova Scotia, gaming activities are managed and conducted by the NSGC. The NSGC operates two different gaming models: commercial casinos, of which we operate the only two in the province, and video lottery terminals, which are permitted in licensed liquor establishments, curling clubs and on First Nations land. The Company is a service supplier to the NSGC and earns a commission based our casinos revenue, but a significant portion of the revenues are retained by NSGC. According to the NSGC s website, revenue retained by it is directed to the provincial government s programs and services including investments in infrastruture, hospitals, and schools as well as community outreach and prevention programs. In 2004, the Government of Nova Scotia announced a plan to increase social responsibility toward gaming and to curtail the expansion of gaming in the province. The limitation on expansion was specifically targeted at reducing the accessibility to video lottery terminals by removing 1,000 machines (or approximately 30% of the video lottery terminals in existence prior to the reduction) in current retail locations. In addition, changes to the operation of video lottery terminals have also been implemented by reducing the machines speed of play by 30%, reducing the hours of video lottery terminal operations, and implementing other tools for players to monitor their gaming spend. The Company does not anticipate any impact on the number of slot machines in Casino Nova Scotia Halifax or Casino Nova Scotia Sydney from this initative. The NSGC, in its latest annual report, reported that gaming revenues from casinos and video lottery terminals were $240.7 in its fiscal year, compared to $277.9 in the prior year, representing a 13% decrease. Seasonality The gaming industry in Nova Scotia has historically peaked during the summer months, primarily as a result of the influx of tourists and weather conditions. As a result, revenues in these months are normally higher than in others.

13 11 WASHINGTON STATE The following table summarizes our Washington gaming operations as at December 31, 2007: Name Location Table Games Great American Casino Everett Everett, WA 15 Great American Casino Kent Kent, WA 14 Great American Casino Lakewood Lakewood, WA 15 Great American Casino Tukwila Tukwila, WA Regulatory In Washington State, gaming operations are regulated by the Washington State Gambling Commission ( WSGC ) and fall into three categories: charitable, commercial and tribal. The Company operates four commercial card rooms in the Greater Seattle area. The commercial gaming environment in Washington State is highly regulated but does not have the significant barriers to entry associated with our Canadian operations. Washington State card room operations are conducted pursuant to house banked card room licenses which limit the number of table games to fifteen per location. These card room licenses must be renewed annually with WSGC, and the Company s renewals have historically been granted automatically by the WSGC. MAJOR DEVELOPMENTS British Columbia The Company recently announced and implemented plans to expand and develop new gaming options at several of our British Columbia properties. These plans are consistent with the BCLC s vision for higher quality properties with exceptional entertainment amenities that are appropriately sized to serve the marketplaces in British Columbia. In December 2006, the Company announced that we had entered into a letter of intent with the Greater Vancouver Transportation Authority and Canada Line Rapid Transit Inc. (collectively, GVTA ) to construct a new minimum 1,200 space multi-level parking garage adjacent to River Rock. During the regular work day, the use of this parking garage will be reserved for transit commuters using the new rapid transit line connecting River Rock with downtown Vancouver, the Vancouver International Airport and the City of Richmond currently being constructed. Outside the regular work day, the parking garage will be used for River Rock customers, which will help alleviate parking shortages currently experienced during evenings and weekends. The Company expects approximately 600 of these spaces to be available during the third quarter of 2008, with the remainder completed by the fourth quarter of In July 2007, the Company opened the new conference centre facility at River Rock Casino Resort ( River Rock ). This additional service offering, combined with the hotel and show theatre, continues to attract new guests to the facility. In February 2008, we announced our plans to develop a new five story, 191 room hotel at River Rock. The planned expansion will also feature 360 additional parking spaces, 15,000 square feet of street level retail space and 6,000 square feet of office space. The new hotel and related structures and amenities will be built on top of the above-mentioned multi-level parking garage currently under construction. The new facilities, including the Canada Line mass transit station, will utilize an enclosed sky bridge to facilitate a full integration with our existing River Rock complex. Construction of the new hotel, additional parking spaces and retail and office space is expected to be completed late 2009 or early 2010, prior to the 2010 Vancouver Olympic Games. Construction of the new facilities, including the previously announced multi-level parking garage, is expected to total approximately $ In September 2007, the Company announced the commencement of the formal planning phase for the redevelopment of the View Royal Casino. View Royal currently has 437 slot machines and 19 table games. The redevelopment plans include increasing the existing floor area by approximately 37,000 square feet, or 115%, to accommodate new amenities including additional slot machines, a poker room, a simulcast facility, a live-entertainment lounge, new food and beverage offerings, and additional back-of-house operations. The Company also entered into an agreement to acquire approximately 1.5 acres of commercial property adjacent to the casino that will create parking capacity for an additional 380 vehicles. The redevelopment of the View Royal Casino and any change to the gaming facility are subject to local government and BCLC approvals. A development permit application has been submitted to the View Royal planning department.

14 12 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) In November 2007, the Company made a strategic move to secure our long-term revenue growth in Metro Vancouver. In connection with the negotiated closure of its Casino on Broadway on November 17, the Company received approval for a 30% increase in gaming positions at Fraser Downs Racetrack and Casino in Surrey and introduced 150 slot machines at Hastings in the City of Vancouver. In connection with the expansions at Fraser Downs and Hastings, the Company now receives BCLC service fees of 28% from slot win and 43% from table win, inclusive of FDC which is consistent with other casino operators. The conclusion of a Casino Operating Service Agreement ( COSA ) and the introduction of 150 slot machines at Hastings is the first phase of a re-development planned for the facility that will ultimately house a total of 600 slot machines. The initial gaming expansion at Fraser Downs required approximately $2.7 in capital improvements. The Company has commenced work on the second phase of expansion at Hastings. This phase should reach completion by early 2009, and includes an estimated $40.0 in capital improvements during the initial five-year term of the operating agreement with the City of Vancouver. The fifteen-year renewal term of the operating agreement provides for the construction of additional parking and backstretch facilities. The proposed installation of 450 additional slot machines is subject to approval by BCLC. Litigation brought against the City of Vancouver by the Hastings Park Conservancy related to the City of Vancouver rezoning by-law remains outstanding in the British Columbia Court of Appeal. The Company is confident that the appeal will not be successful and, although it is not party to the appeal, continues to monitor the litigation closely. In January 2008, the Company purchased for consideration of $1.0 the assets and undertaking of Ridge Meadows Bingo Association ( RMBA ) located in Maple Ridge, British Columbia. RMBA operates the Haney Bingo Plex, a 525-seat bingo gaming hall located in downtown Maple Ridge, 45 kilometres east of Vancouver. The agreement also provides for potential additional future consideration of up to $1.3 over ten years if the BCLC and the District of Maple Ridge approve the upgrading of this facility into a Community Gaming Centre. In addition, through TBC, the Company recently opened new Racebooks in Surrey and New Westminster during the first quarter of 2008 while closing one in Courtenay. TBC has licensed third parties the right to operate these Racebooks and will pay them a commission based on a percentage of the wagering generated. Ontario In July 2007, the Company reached an agreement with OLG pursuant to which the Company plans to construct space that will permit OLG to increase the number of slot machines at Georgian Downs to 1,000 units from the 455 currently installed. The new space will also allow for the long-term redevelopment of that facility. Slot machines at Georgian Downs are owned and operated by OLG. The Company will spend an estimated $30.3 to expand the existing Georgian Downs facility to accommodate the increased gaming capacity. The OLG has estimated it will spend $45.7 for the slot floor, food and beverage and back-ofhouse areas, bringing the total estimated project costs for the further development to $76.0. The total construction timeline is expected to span approximately 18 months. In addition, through supplemental agreements, the OLG has extended the term and guaranteed the Company s 10% slot machine revenue share through to November 30, The supplemental agreements include a provision for extension until November 30, 2026, at OLG s discretion. With an extension of its siteholder agreement for the property secured, the Company is moving forward with drafting a master plan for further development at Georgian Downs. Construction Considerations As described above, the Company is undertaking many capital projects to improve its facilities and future guest experiences. The construction necessary to improve our locations may have an unquantifiable impact on attendance in the short-term. However, the Company is confident that it is making expansion actions now that will increase revenues and meet market demand well into the future. Normal Course Issuer Bid Pursuant to the normal course issuer bid that commenced on July 23, 2007, during 2007 the Company purchased 2,273,200 of its common shares for an aggregate consideration of $31.3. Subsequent to December 31, 2007, the Company purchased an additional 629,600 common shares at a cost of $9.2. These purchases were financed through existing cash balances. The Company can purchase up to an additional 3.5 million of its common shares under our issuer bid through July 22, 2008 or earlier if the number of shares sought in the issuer bid have been obtained.

15 13 MARKET UPDATE British Columbia The Starlight Casino in New Westminster opened in December 2007 replacing the Royal City Star riverboat casino which closed in December The Company also anticipates additional gaming capacity in the Metro Vancouver area to come on line at the Villa Casino in Burnaby in the second half of The Company expects these openings will help to grow the under-penetrated gaming market in the province as a whole. Although the Company s properties are not in the same cities as these casinos, a targeted marketing campaign has been introduced to minimize any short-term impact that their openings may have on the existing River Rock (Richmond), Boulevard (Coquitlam), Hastings (Vancouver) and Fraser Downs (Surrey) properties. Community gaming centres have recently opened on Vancouver Island in Duncan, Port Alberni and Courtenay. Duncan is 50 kilometres south of Nanaimo and 53 kilometres north of View Royal. Port Alberni is 81 kilometres north of Nanaimo and 184 kilometres north of View Royal. Courtenay is 109 kilometres north of Nanaimo and 215 kilometres north of View Royal. Each of these community gaming centres currently houses approximately 75 slot machines. However, they lack the table games offered by our full-service Nanaimo and View Royal casinos. The Company believes its expansion plans for View Royal will help to better serve the capacity constrained market, and maintain that facility s reputation as the premier gaming and entertainment destination on Vancouver Island. A community gaming centre in Fort St. John, British Columbia housing 142 slots opened on September 21, This new facility is approximately 72 kilometres north-west of the Chances Gaming Entertainment Centre at Dawson Creek. Ontario There have been no recent gaming market developments affecting the Company s operations in Ontario. The Company operates two live horse racing facilities (with slots operated by OLG) that are located within a one hour drive of the Greater Toronto Area ( GTA ). The GTA has a population of approximately 5.9 million, or about 42% of the province of Ontario. In Ontario, direct competitors within a two hour drive of the GTA are Casino Niagara (slot machines and table games), Niagara Fallsview Casino Resort (slot machines and table games), Casino Rama (slot machines and table games), Woodbine Racetrack (thoroughbred racing, simulcast betting and slot machines), Brantford Charity Casino (slot machines and table games), Great Blue Heron Charity Casino (slot machines and table games), Mohawk Racetrack (standardbred racing, simulcast betting and slot machines), Grand River Raceway (standardbred racing, slot machines and simulcast betting) and Ajax Downs (quarterhorse racing, slot machines and simulcast betting). Nova Scotia In Nova Scotia, the Company is witnessing increased competition in the Sydney gaming market due to the expansion of and the allowance for smoking at the Membertou Entertainment Complex operated by the Membertou First Nation. The Membertou Entertainment Complex is 2.5 kilometres south-west of the Casino Nova Scotia Sydney facility. Washington State The Washington State gaming market is experiencing a shift from the lottery, charitable bingo and commercial housebanked card room segments to Tribal gaming facilities given their ability to offer a broader array of games such as slot machines, electronic gaming devices and table games with higher betting limits. The Company believes its house-banked card rooms in Washington State appeal to local customers that are not regularly attracted to the Tribal gaming facilities. Although three competing Tacoma casinos closed in late 2006, a new competitor s casino opened in the second quarter of 2007 near our Lakewood property. The Company continues to explore opportunities to improve both revenues and EBITDA in this market given the evolving market trends.

16 14 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes our consolidated operating results for the three and twelve-month periods ended December 31, 2007 with comparatives to prior periods. Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 70.5 $ % $ $ % Racetrack revenues (3% ) % Facility Development Commission % % Hospitality and other revenues % % % % Less: Promotional allowances (2.7 ) (2.4 ) 13% (10.3 ) (9.6 ) 7% Revenues % % Human resources % % Property, marketing and administration % (2% ) % % EBITDA % % Human resources as a % of revenues before promotional allowances 43.6% 44.9% 44.1% 45.2% EBITDA as a % of Revenues 27.7% 25.9% 27.9% 25.5% Amortization % % Stock-based compensation % % Restructuring costs (94% ) (90% ) Interest and financing costs, net (11% ) (51% ) Other expenses (99% ) (87% ) Income taxes (recovery) (5.1 ) (4.0 ) Net earnings (loss) $ 13.0 $ (11.5 ) $ 35.8 $ (18.6 ) Earnings (loss) per common share: Basic $ 0.15 $ (0.13 ) $ 0.42 $ (0.22 ) Diluted $ 0.15 $ (0.13 ) $ 0.41 $ (0.22 ) Weighted average number of common shares (in thousands): Basic 85,410 86,133 86,227 84,471 Diluted 86,662 86,133 86,786 84,471 Discussion of Results Our operating results are discussed in two sections. Revenues, human resources, property, marketing and administration, and EBITDA are discussed on a property or, where appropriate, group of similar properties basis. Items excluded from EBITDA are discussed on a consolidated basis. The following table reconciles the property results to the consolidated results of operations above.

17 15 REVENUES AND EBITDA Fourth Quarter Twelve Months of % Chg % Chg REVENUES Casinos River Rock Casino Resort $ 31.3 $ % $ $ % Boulevard Casino % % Vancouver Island Casinos % % Other BC Casinos (37%) % Nova Scotia Casinos (9%) (6%) Great American Casinos (19%) % % % Racinos BC Racinos % % Georgian Downs (5%) (11%) Flamboro Downs (12%) (7%) % % Corporate & Other % Total Revenues $ $ % $ $ % EBITDA Casinos River Rock Casino Resort $ 12.4 $ % $ 44.2 $ % Boulevard Casino % % Vancouver Island Casinos % % Other BC Casinos (50%) % Nova Scotia Casinos (77%) (22%) Great American Casinos (42%) (4%) % % Racinos BC Racinos % % Georgian Downs % (16%) Flamboro Downs (31%) (10%) % % Corporate & Other (6.4) (6.8) 6% (27.4) (29.7) 8% Total EBITDA $ 27.9 $ % $ $ %

18 16 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) CASINOS River Rock Casino Resort (1) Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 21.1 $ % $ 79.7 $ % Facility Development Commission % % Hospitality and other revenues % % Revenues before promotional allowances % % Less: Promotional allowances (0.7 ) (0.5 ) 40% (2.2 ) (1.8 ) 22% Revenues % % Human resources % % Property, marketing and administration (1% ) (10% ) EBITDA $ 12.4 $ % $ 44.2 $ % Human resources as a % of Revenues before promotional allowances 36.9% 39.7% 39.8% 38.9% EBITDA as a % of Revenues 39.6% 34.4% 38.6% 36.7% (1) The results of the Racebook (formerly known as teletheatre) at the River Rock are included in the results of our BC Racinos as it is operated by TBC Teletheatre B.C. Q Q Q Q Q Q Q Q Average Table Drop $ $ $ $ $ $ $ $ Table Hold $ 30.7 $ 25.8 $ 24.2 $ 32.8 $ 27.3 $ 30.7 $ 26.8 $ 26.7 Table Hold % 21.0% 21.2% 20.2% 24.4% 22.4% 25.0% 23.0% 23.1% 22.5% Poker Rake $ 1.7 $ 1.5 $ 1.7 $ 1.9 $ 2.1 $ 1.8 $ 1.6 $ 1.7 Slot Coin In $ $ $ $ $ $ $ $ Slot Win $ 29.7 $ 30.3 $ 27.9 $ 27.3 $ 27.1 $ 28.8 $ 27.8 $ 26.0 Slot Win/Slot/Day (2) $ 351 $ 358 $ 333 $ 330 $ 320 $ 340 $ 333 $ 315 Slot Win % 7.1% 7.1% 7.0% 7.3% 7.5% 7.6% 7.4% 7.6% 7.3% (2) Slot Win/Slot/Day is an average, presented in dollars. Revenues Gaming revenues for River Rock in the fourth quarter of 2007 increased by 9% compared to the fourth quarter of 2006 resulting primarily from improvement in both table game and slot performance. In addition, gaming revenues at River Rock for the fourth quarter of 2006 were impacted by unusual inclement weather. Table drop in the fourth quarter of 2007 increased by $24.0 or 20% compared to the fourth quarter of Slot coin-in in the fourth quarter of 2007 increased by $57.5 or 16% compared to the fourth quarter of The increased table drop and slot coin in reflects the benefit of additional entertainment offerings including the show theatre, more effective marketing and promotional programs as well as the conference centre that opened in July Table hold increased by $3.4 or 12% and slot win increased by $2.6 or 10% in the fourth quarter of 2007 compared to the fourth quarter of 2006, primarily due to the improved table drop and slot coin-in. Gaming revenues in the twelve months of 2007 increased by 2% compared to the twelve months of 2006 resulting from several initiatives during the year including improved mix of table and slot games, increased entertainment and service offerings, improvements to hospitality offerings, and more effective marketing and promotional programs. Hospitality and other revenues in the fourth quarter and twelve months of 2007 increased by 14% and 4% compared to the fourth quarter and twelve months of 2006, respectively. During the year, we made improvements to the food and beverage outlets, menus and services, achieved a prestigious Four Diamond rating from the American Automobile Association and Canadian Automobile Association for the hotel complex, and opened the new 5,314 square foot River Rock Conference Centre. River Rock s average daily revenue per available room ( REVPAR ) was $128 in the fourth quarter of 2007 compared to $113 in the fourth quarter of The year-over-year increase in REVPAR is primarily due to a 7.3 percentage point increase to 79% in the average hotel occupancy rate, coupled with a $5 increase to $162 in the average daily room rate. REVPAR in the twelve months of 2007 was $125 compared to $113 in the twelve months of 2006, due to a 3.0 percentage point increase to 77% in the average hotel occupancy rate, coupled with an $9 increase to $162 in the average daily room rate.

19 17 Expenses Human resources expenses increased 3% in the fourth quarter and 5% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily from market-driven compensation increases implemented earlier in the year and increased hourly labour in response to higher gaming activity and hospitality. Human resources expenses as a percentage of revenues before promotional allowances decreased by 2.8 percentage points in the fourth quarter and increased by 0.9 of a percentage point in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily due to the increased activity and improved labour efficiency. Property, marketing and administration expenses decreased by 1% in the fourth quarter and by 10% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. The decreases were primarily due to reduced food and beverage costs arising from the in-house management of our hospitality operations and reduced general, administrative and marketing spend by focusing on more targeted or cost-effective initiatives. In addition, the Company recorded a $0.6 property tax refund during the second quarter of 2007 that related to The 2007 property tax assessment was also lower than initially assessed for 2006, resulting in a property tax decrease of $0.5 for the twelve months of EBITDA EBITDA for River Rock increased by 27% in the fourth quarter and 8% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily due to the aforementioned increase in gaming revenues, an increase in FDC received, an increase in hospitality and other revenues and lower property, marketing and administration expenses. EBITDA as a percentage of revenues for the fourth quarter and twelve months of 2007 improved by 5.2 percentage points and 1.9 percentage points over the fourth quarter and twelve months of 2006, respectively. Boulevard Casino (1) Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 13.8 $ % $ 53.3 $ % Facility Development Commission % % Hospitality and other revenues % % Revenues before promotional allowances % % Less: Promotional allowances (0.5 ) (0.3 ) 67% (1.5 ) (1.4 ) 7% Revenues % % Human resources % % Property, marketing and administration (15% ) % EBITDA $ 8.7 $ % $ 30.6 $ % Human resources as a % of Revenues before promotional allowances 34.8% 36.3% 36.7% 38.9% EBITDA as a % of Revenues 48.6% 42.0% 45.0% 40.6% (1) The results of the Racebook (formerly known as teletheatre) at the Boulevard Casino are included in the results of our BC Racinos as it is operated by TBC Teletheatre B.C. Q Q Q Q Q Q Q Q Average Table Drop $ 50.4 $ 48.6 $ 50.4 $ 47.1 $ 51.4 $ 51.9 $ 52.2 $ 58.6 Table Hold $ 11.2 $ 9.9 $ 10.8 $ 9.5 $ 11.5 $ 10.3 $ 9.0 $ 11.8 Table Hold % 22.2% 20.4% 21.4% 20.2% 22.4% 19.8% 17.2% 20.1% 20.5% Poker Rake $ 1.4 $ 1.2 $ 1.4 $ 1.4 $ 1.4 $ 1.3 $ 1.1 $ 1.2 Slot Coin In $ $ $ $ $ $ $ $ Slot Win $ 33.8 $ 35.0 $ 33.1 $ 30.7 $ 28.9 $ 28.8 $ 28.5 $ 28.8 Slot Win/Slot/Day (2) $ 391 $ 414 $ 387 $ 364 $ 335 $ 330 $ 318 $ 325 Slot Win % 6.7% 6.8% 6.7% 6.9% 7.1% 7.1% 7.0% 7.2% 6.9% (2) Slot Win/Slot/Day is an average, presented in dollars. Revenues Gaming revenues for Boulevard Casino in the fourth quarter of 2007 increased by 8% compared to the fourth quarter of This is primarily attributable to an increase in slot win of $4.9 driven by an increase of $99.9, or 25%, in slot coin in, partially offset by a decline in slot win percentage. For the twelve months of 2007, gaming revenues increased by 8% compared to the twelve months of 2006 driven primarily by the $339.6 increase in slot coin in. This increase in slot play can be attributed to both expanded on-floor food and beverage services and the public s greater awareness of the Red Robinson Show Theatre, the only major venue for live entertainment in the eastern suburbs of Metro Vancouver.

20 18 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) During the third quarter of 2007, BCLC approved our accelerated FDC application, for an additional 2% of gaming revenues, retroactive to April 1, 2007, to reimburse the $32.0 of capital costs previously incurred to build the Red Robinson Show Theatre. As a result, FDC revenue increased by 83% in the fourth quarter and by 65% in the twelve months of 2007 compared to the fourth quarter and twelve months of Hospitality and other revenues increased by 20% in the fourth quarter and by 28% in the twelve months of 2007 compared to the fourth quarter and twelve months of These improvements reflect the increased visitation to the property driven by the factors mentioned above. Expenses Human resources as a percentage of revenues before promotional allowances for the fourth quarter of 2007 improved by 1.5 percentage points compared to the fourth quarter of 2006 due to the revenue increases mentioned earlier and continued efforts to improve labour efficiency. Human resources expenses as a percentage of revenues before promotional allowances in the twelve months of 2007 improved by 2.2 percentage points compared to the twelve months of EBITDA EBITDA for Boulevard Casino increased by 32% in the fourth quarter and by 27% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006 primarily due to the above-mentioned revenue increases. EBITDA as a percentage of revenues improved by 6.6 percentage points in the fourth quarter of 2007 compared to the fourth quarter of 2006 and by 4.4 percentage points in the twelve months of 2007 compared to the twelve months of Vancouver Island Casinos (View Royal Casino and Nanaimo Casino) Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 9.0 $ 8.5 6% $ 35.1 $ % Facility Development Commission % % Hospitality and other revenues % % Revenues before promotional allowances % % Less: Promotional allowances (0.2 ) (0.3 ) (33% ) (1.0 ) (1.0 ) 0% Revenues % % Human resources % % Property, marketing and administration % % EBITDA $ 5.9 $ 5.7 4% $ 23.2 $ % Human resources as a % of Revenues before promotional allowances 31.8% 32.4% 31.6% 32.0% EBITDA as a % of Revenues 54.6% 55.9% 54.8% 55.6% Q Q Q Q Q Q Q Q Average Table Drop $ 16.8 $ 14.9 $ 15.4 $ 15.3 $ 15.5 $ 16.6 $ 16.4 $ 15.6 Table Hold $ 3.8 $ 3.3 $ 3.6 $ 3.7 $ 3.7 $ 3.7 $ 4.0 $ 3.5 Table Hold % 22.6% 22.1% 23.4% 24.2% 23.9% 22.3% 24.4% 22.4% 23.2% Slot Coin In $ $ $ $ $ $ $ $ Slot Win $ 30.1 $ 30.8 $ 30.2 $ 29.0 $ 29.2 $ 30.1 $ 29.7 $ 28.6 Slot Win/Slot/Day (1) $ 414 $ 413 $ 409 $ 394 $ 388 $ 400 $ 399 $ 395 Slot Win % 7.4% 7.4% 7.5% 7.4% 7.3% 7.3% 7.3% 7.5% 7.4% (1) Slot Win/Slot/Day is an average, presented in dollars. Revenues, Expenses and EBITDA The Company s Vancouver Island casinos revenues and EBITDA for the fourth quarter and twelve months of 2007 showed modest improvement compared to the fourth quarter and twelve months of 2006, respectively. As evidenced by the relatively consistent quarterly levels of table drop and slot coin in during the past two years, the Vancouver Island Casinos are capacity constrained and we believe limited in terms of the additional revenues they can generate. The Company s initiatives to alleviate these constraints are described in the Major Developments section of this MD&A.

21 19 Other BC Casinos (Casino on Broadway and Chances Gaming Entertainment in Dawson Creek) Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 2.1 $ 3.6 (42% ) $ 13.2 $ % Facility Development Commission (33% ) % Hospitality and other revenues (25% ) % Revenues before promotional allowances 2.6 $ 4.3 (40% ) % Less: Promotional allowances $ (0.2 ) (100% ) (0.4 ) (0.7 ) (43% ) Revenues 2.6 $ 4.1 (37% ) % Human resources (33% ) % Property, marketing and administration (29% ) % EBITDA $ 0.5 $ 1.0 (50% ) $ 3.7 $ % Human resources as a % of Revenues before promotional allowances 61.5% 55.8% 58.1% 59.4% EBITDA as a % of Revenues 19.2% 24.4% 23.7% 20.3% Q Q Q Q Q Q Q Q Average Table Drop $ 14.7 $ 30.9 $ 32.1 $ 33.3 $ 31.0 $ 29.6 $ 29.7 $ 29.6 Table Hold $ 3.1 $ 6.1 $ 5.7 $ 6.6 $ 6.2 $ 5.3 $ 5.7 $ 5.9 Table Hold % 21.1% 19.7% 17.8% 19.8% 20.0% 17.9% 19.2% 19.9% 19.3% Poker Rake $ 0.1 $ 0.2 $ 0.2 $ 0.2 $ 0.4 $ 0.4 $ 0.5 $ 0.5 Slot Coin In $ 59.1 $ 66.6 $ 70.0 $ 63.4 $ 55.6 $ 54.0 $ 22.6 $ 23.0 Slot Win $ 3.1 $ 3.7 $ 3.9 $ 3.7 $ 3.1 $ 3.3 $ 1.7 $ 1.8 Slot Win/Slot/Day (1) $ 225 $ 268 $ 286 $ 274 $ 242 $ 278 $ 236 $ 250 Slot Win % 5.2% 5.6% 5.6% 5.8% 5.6% 6.1% 7.5% 7.8% 5.9% (1) Slot Win/Slot/Day is an average, presented in dollars. Revenues Revenues for the Company s other BC casinos decreased by 42% in the fourth quarter compared to the fourth quarter of 2006 primarily due to the permanent closure of the Casino on Broadway on November 17, As described in the Major Developments section of this MD&A, the closure of our Casino on Broadway was effected concurrent with BCLC s approval of our accelerated FDC submission for recovery of the construction costs of our Boulevard Casino s Red Robinson Show Theatre, the introduction of slots at Hastings, and the slot and table gaming expansion at Fraser Downs that included three percentage point increases in our BCLC service fees at each racing property. The resulting increase in financial performance at Fraser Downs in the fourth quarter of 2007 and the receipt of accelerated FDC revenue at Boulevard more than offset the decline in financial performance that resulted from the Casino on Broadway closure. The increases in slot coin in and slot win at Chances Gaming Entertainment in Dawson Creek ( Chances ) during 2007 compared to the prior year also contributed to the increase in revenues for the twelve months of 2007 despite the Casino on Broadway closure. Popular one-dollar slot machines and automated blackjack games offered at the facility, which are programmed to have a lower slot win percentage than our other offerings, produced a higher level of slot win in Expenses Human resources expenses decreased by 33% in the fourth quarter of 2007 due to the Casino on Broadway closure. Severance expenses for this closure were minimized since many of the Casino on Broadway staff were relocated to other properties. The twelve-month increase in human resources expense during 2007 resulted from the first full year of human resource expenses in Chances Gaming Entertainment, offset by savings from the Casino on Broadway closure. EBITDA Due to the above noted events, EBITDA for other BC casinos decreased by $0.5 or 50% in the fourth quarter and increased by $0.7 or 23% in the twelve months of 2007 compared to the fourth quarter and twelve months of EBITDA as a percentage of revenues decreased in the fourth quarter of 2007 compared to the fourth quarter of 2006 primarily due to the decline in gaming revenues experienced by the Casino on Broadway as that business wound down and the retention of most of its staff until the new expanded gaming operations at Fraser Downs and Hastings were completed.

22 20 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) The incremental gaming expansions and related revenues arising from new arrangements with BCLC for several of the Company s British Columbia properties (as described elsewhere in this MD&A) are expected to more than offset the foregone EBITDA generated by Casino on Broadway and any incremental costs associated with the property closing. Nova Scotia Casinos (Casino Nova Scotia Halifax and Casino Nova Scotia Sydney) Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 10.6 $ 11.7 (9% ) $ 44.6 $ 47.3 (6% ) Hospitality and other revenues % % Revenues before promotional allowances (8% ) (5% ) Less: Promotional allowances (0.8 ) (0.7 ) 14% (3.1 ) (2.4 ) 29% Revenues (9% ) (6% ) Human resources % (6% ) Property, marketing and administration % % EBITDA $ 0.5 $ 2.2 (77% ) $ 7.6 $ 9.7 (22% ) Human resources as a % of Revenues before promotional allowances 49.6% 45.8% 44.0% 44.7% EBITDA as a % of Revenues 4.4% 17.7% 16.0% 19.1% Q Q Q Q Q Q Q Q Average Table Drop $ 12.6 $ 13.9 $ 13.5 $ 13.0 $ 14.9 $ 17.0 $ 13.2 $ 14.6 Table Hold $ 2.4 $ 2.8 $ 2.8 $ 2.5 $ 2.9 $ 3.2 $ 2.7 $ 2.4 Table Hold % 19.0% 20.1% 20.7% 19.2% 19.5% 18.8% 20.5% 16.4% 19.3% Poker Rake $ 0.4 $ 0.5 $ 0.5 $ 0.5 $ 0.4 $ 0.5 $ 0.4 $ 0.4 Slot Coin In $ $ $ $ $ $ $ $ Slot Win $ 17.5 $ 21.6 $ 17.6 $ 16.6 $ 18.9 $ 21.9 $ 18.8 $ 16.7 Slot Win/Slot/Day (1) $ 181 $ 223 $ 184 $ 175 $ 195 $ 222 $ 184 $ 164 Slot Win % 7.8% 7.8% 7.5% 7.6% 7.6% 7.6% 7.3% 7.4% 7.6% (1) Slot Win/Slot/Day is an average, presented in dollars. Revenues Gaming revenues for the Nova Scotia casinos decreased by 9% in the fourth quarter and 6% in the twelve months of 2007 compared to the fourth quarter and twelve months of Six severe weather warnings and multiple heavy snowfalls during the fourth quarter of 2007 diminished guest attendance. The Nova Scotia casinos also suffered from both the ongoing impact of the province-wide smoking ban and the recent anti-gaming messages by the Nova Scotia Department of Health Promotion and Protection. The combination of these factors led to lower table drop and slot coin in for the fourth quarter and twelve months of 2007 than those experienced in the prior year. Expenses Human resources expenses as a percentage of revenues before promotional allowances increased by 3.8 percentage points in the fourth quarter of 2007 but decreased by 0.7 percentage points in the twelve months of 2007 relative to the fourth quarter and twelve months of 2006, respectively. Staffing levels in the fourth quarter were not appropriately adjusted for the decrease in revenues, and the Company is taking immediate steps towards modifying future labour expenses. Property, marketing and administration expenses in the fourth quarter of 2007 increased by 14% over the fourth quarter of 2006, primarily due to both the implementation of marketing and entertainment initiatives aimed at expanding the customer base and growing the revenues, and increases in food and beverage expenses related to higher levels of hospitality and other revenues. EBITDA EBITDA for the Nova Scotia casinos decreased by 77% in the fourth quarter and 22% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily due to the lower gaming revenues and higher human resources, marketing, food and beverage costs. The challenge of growing revenues in Nova Scotia has been exacerbated by expanded anti-gaming messaging. The Company is taking steps to ensure expenses in Nova Scotia are commensurate with the size of operations in that province, and will seek to improve the efficiency of both human resource and marketing efforts throughout 2008.

23 21 Union Certification Update On November 1, 2007, the Labour Relations Board of Nova Scotia issued an order effective September 7, 2007, certifying the Service Employees International Union, Local 902, as the bargaining agent for the bargaining unit consisting of all fulltime and regular part-time employees of Casino Nova Scotia Halifax excluding office and clerical workers, human resource employees, management information services employees, surveillance employees, security employees, supervisors and those above the rank of supervisor. Bargaining for the first collective agreement commenced during February On January 18, 2008, the Labour Relations Board of Nova Scotia issued an order effective December 21, 2007, certifying the Service Employees International Union, Local 902, as the bargaining agent for a second bargaining unit consisting of all fulltime and regular part-time security employees of Casino Nova Scotia Halifax excluding supervisors and those above the rank of supervisor. Collective bargaining has yet to commence. Great American Casinos Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 5.1 $ 6.3 (19% ) $ 22.7 $ 23.1 (2% ) Hospitality and other revenues (14% ) % Revenues before promotional allowances (18% ) (1% ) Less: Promotional allowances (0.2 ) (0.2 ) 0% (0.9 ) (1.4 ) (36% ) Revenues (19% ) % Human resources (15% ) (1% ) Property, marketing and administration % % EBITDA $ 1.1 $ 1.9 (42% ) $ 5.4 $ 5.6 (4% ) Human resources as a % of Revenues before promotional allowances 52.4% 50.6% 52.0% 52.0% EBITDA as a % of Revenues 18.0% 25.3% 20.3% 21.1% Q Q Q Q Q Q Q Q Average Table Drop $ 23.9 $ 22.7 $ 25.2 $ 23.7 $ 23.8 $ 21.5 $ 21.8 $ 21.4 Table Hold $ 5.7 $ 5.6 $ 5.7 $ 6.1 $ 6.0 $ 5.2 $ 5.6 $ 5.1 Table Hold % 23.8% 24.7% 22.6% 25.7% 25.2% 24.2% 25.7% 23.8% 24.5% Poker Rake $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 Revenues and EBITDA In U.S. dollar terms, revenues at the Company s Great American Casinos in the fourth quarter and twelve months of 2007 were consistent with those in the fourth quarter and twelve months of 2006, respectively. However, the 6% increase in the value of the Canadian dollar, relative to the U.S. dollar, resulted in slightly lower EBITDA for the twelve months of 2007 compared to the twelve months of Similarly, a 16% increase in the value of the Canadian dollar during the fourth quarter of 2007 compared to the fourth quarter of 2006, combined with a decrease in table hold percentage resulted in a $0.8 decrease in EBITDA in the fourth quarter of 2007 compared to the fourth quarter of The overall increase in table drop during 2007 is a result of several successful promotions and advertisements throughout the year. The Company will continue its efforts to improve the efficiency of its operations including the use of cost-efficient targeted marketing initiatives similar to those implemented in the first quarter of 2007.

24 22 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) RACINOS BC Racinos (Fraser Downs Racetrack and Casino, Hastings Racecourse and TBC Teletheatre B.C.) Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 3.8 $ % $ 12.5 $ % Facility Development Commission % % Racetrack revenues % % Hospitality and other revenues % (1% ) Revenues before promotional allowances % % Less: Promotional allowances (0.2 ) (0.2 ) 0% (0.9 ) (0.8 ) 13% Revenues % % Human resources % % Property, marketing and administration % % EBITDA $ 2.7 $ % $ 12.0 $ % Human resources as a % of Revenues before promotional allowances 41.1% 39.3% 36.5% 39.3% EBITDA as a % of Revenues 22.1% 19.0% 25.6% 19.5% Q Q Q Q Q Q Q Q Average Table Drop $ 1.8 Table Hold $ 0.3 Table Hold % 16.7% Poker Rake $ Slot Coin In $ $ $ $ $ $ $ $ Slot Win $ 16.8 $ 15.8 $ 15.5 $ 13.7 $ 13.0 $ 13.2 $ 13.0 $ 12.0 Average # Slots Slot Win/Slot/Day (1) $ 293 $ 391 $ 390 $ 349 $ 323 $ 331 $ 339 $ 317 Slot Win % 7.6% 7.5% 7.5% 7.4% 7.5% 7.8% 7.7% 7.3% 7.5% (1) Slot Win/Slot/Day is an average, presented in dollars. Revenues Gaming revenues for the BC Racinos increased by 46% in the fourth quarter and by 24% for the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily due to the addition of table games and the strong performance of slot machines at Fraser Downs and the addition of 150 slot machines at Hastings in November of Racetrack revenues increased 5% in the fourth quarter of 2007 and 9% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006 primarily due to increased phone and internet wagering and revenues generated by TBC Teletheatre B.C. following the expansion of the Racebooks at our River Rock and Boulevard casinos in The fourth quarter and twelve months of 2007 increases were partly offset by declines in wagering at Fraser Downs and at Hastings compared to 2006 due to increased off-track wagering at our River Rock and Boulevard Racebooks. Expenses With the November expansions of 12 table games and 90 slot machines at Fraser Downs and the addition of slot machines at Hastings, human resources expenses increased $0.9 or 21% in the fourth quarter of 2007 and $0.6 or 4% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. Human resources expenses as a percentage of revenues before promotional allowances increased by 1.8 percentage points in the fourth quarter of 2007 but improved by 2.8 percentage points in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. The annual improvement resulted from our continued efforts to improve labour efficiency at the BC Racinos, higher gaming revenues at Fraser Downs, and a higher proportion of revenue from TBC Teletheatre B.C. reflecting lower human resources costs as a percentage of revenues before promotional allowances than our traditional live racetrack operations. Property, marketing and administration expenses increased by $0.1 for the fourth quarter and by $0.4 for the twelve months of 2007 compared with the fourth quarter and twelve months of 2006, respectively. The increases were primarily due to higher property lease costs for Fraser Downs since they are adjusted for increased gaming revenues.

25 23 EBITDA EBITDA for the BC Racinos increased by $0.7 or 35% in the fourth quarter and by $3.8 or 46% in the twelve months of 2007 relative to the fourth quarter and twelve months of 2006, respectively. These increases were primarily due to increased slot revenue at Fraser Downs and increased off track wagering from the addition of Racebooks at River Rock and the Boulevard Casino. EBITDA as a percentage of revenues improved by 3.1 percentage points in the fourth quarter and by 6.1 percentage points in the twelve months of 2007 over the fourth quarter and twelve months of 2006, respectively. With the latest additions of table games at Fraser Downs and slot machines at Hastings, the Company will continue its efforts to improve the operating efficiency of these operations while growing gaming revenues. Georgian Downs Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 2.4 $ 2.3 4% $ 9.4 $ 9.8 (4%) Racetrack revenues (33%) (35%) Hospitality and other revenues (8%) (13%) Revenues (5%) (11%) Human resources (18%) (22%) Property, marketing and administration % % EBITDA $ 1.4 $ 1.4 0% $ 5.3 $ 6.3 (16%) Human resources as a % of Revenues 23.1% 26.8% 24.0% 27.2% EBITDA as a % of Revenues 35.9% 34.1% 35.3% 37.3% Revenues Despite poor weather conditions in December, gaming revenues for Georgian Downs increased by 4% in the fourth quarter and decreased by 4% in the twelve months of 2007 relative to the fourth quarter and twelve months of 2006, respectively. During the first quarter of 2007, Georgian Downs horse racing contract with the Ontario Harness Horse Association ( OHHA ) expired without being renewed, resulting in the cessation of live and simulcast racing at the property from January 1 to March 10, 2007, when a new agreement was reached and racing resumed. During that time, the slot floor operated by OLG remained open, but the absence of live racing, combined with demonstrations by members of OHHA resulted in significantly lower customer visitation and lower gaming revenues during the first quarter of Gaming revenues have subsequently recovered. Gaming revenues, racing revenues, and hospitality and other revenues for the twelve months of 2007 decreased relative to the twelve months of 2006 as a result of the racing stoppage. Expenses Human resources expenses as a percentage of revenues in the fourth quarter of 2007 improved 3.7 percentage points compared to the fourth quarter of 2006 as a result of controlling our staffing levels and related costs as demonstrated by the 18% decline in human resources expenses for that period. Human resources expenses as a percentage of revenues in the twelve months of 2007 improved by 3.2 percentage points relative to the twelve months of 2006, as the Company managed its human resources costs by temporarily reducing the level of racing staff during the racing stoppage in the first quarter of 2007 and further managing staffing levels when live racing resumed. Property, marketing and administration expenses in the fourth quarter and twelve months of 2007 remained consistent with the fourth quarter and twelve months of EBITDA EBITDA for Georgian Downs remained consistent in the fourth quarter and decreased by 1.0 or 16% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. The decrease is primarily due to the impact of the racing stoppage.

26 24 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) Flamboro Downs Fourth Quarter Twelve Months of % Chg % Chg Gaming revenues $ 2.6 $ 2.7 (4% ) $ 12.2 $ % Racetrack revenues (25% ) (18% ) Hospitality and other revenues (8% ) (19% ) Revenues before promotional allowances (10% ) (6% ) Less: Promotional allowances (0.1 ) (0.3 ) (0.1 ) 200% Revenues (12% ) (7% ) Human resources (11% ) (11% ) Property, marketing and administration % % EBITDA $ 1.1 $ 1.6 (31% ) $ 6.4 $ 7.1 (10% ) Human resources as a % of Revenues before promotional allowances 37.0% 37.3% 34.1% 36.2% EBITDA as a % of Revenues 24.4% 31.4% 31.7% 32.7% Revenues Gaming revenues for Flamboro Downs decreased by 4% in the fourth quarter and increased by 5% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. This was due to fewer gaming customers as a result of poor weather conditions in December 2007 and fewer live race days in the twelve months of 2007 compared to the twelve months of Both these factors were partially offset by strong slot activity in the market. Racetrack revenues in the fourth quarter of 2007 decreased by $0.3 compared to the fourth quarter of 2006 due to the inclement weather in the fourth quarter of 2007 that prevented customers from visiting the property. Racetrack revenues in the twelve months of 2007 decreased by $0.9 relative to the twelve months of 2006 primarily due to 33 fewer live race days compared to the twelve months of Hospitality and other revenues decreased by 8% in the fourth quarter and decreased by 19% in the twelve months of 2007 compared to the fourth quarter and twelve months of The decrease was primarily due to a reduction in OLG promotions directly linked to food and beverage offerings, as well as the closure of our less profitable food and beverage outlets at the property and fewer live racing days. Expenses Human resources expenses as a percentage of revenues before promotional allowances decreased by 0.3 percentage points in the fourth quarter and by 2.1 percentage points in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily due to fewer live racing days in EBITDA EBITDA for Flamboro Downs decreased by $0.5 in the fourth quarter of 2007 and $0.7 in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. EBITDA as a percentage of revenues decreased by 7.0 percentage points in the fourth quarter of 2007 compared to the fourth quarter of The Company continues to pursue opportunities to improve visitation. In particular, we plan to introduce a player rewards program at the property in the second quarter of 2008 that is expected to attract and retain customers. This new rewards program will also be rolled out to our online and phone wagering customers. CORPORATE & OTHER Fourth Quarter Twelve Months of % Chg % Chg Revenues $ 0.1 $ $ 0.6 $ % Human resources (2% ) (2% ) Property, marketing and administration (11% ) (16% ) EBITDA $ (6.4 ) $ (6.8 ) 6% $ (27.4 ) $ (29.7 ) 8% Expenses Property, marketing and administration expenses decreased by $1.5 or 16% in the twelve months of 2007 compared to the twelve months of 2006 primarily due to decreases in general and administration expenses such as professional fees and discretionary travel. We will continue to monitor and maintain control over our expenses.

27 25 Discussion of Items Excluded from EBITDA Amortization Amortization increased by $1.7 in the fourth quarter and decreased by $0.1 in the twelve months of 2007 relative to the fourth quarter and twelve months of Amortization in the fourth quarter and twelve months of 2006 included $0.6 and $3.1, respectively, in impairments of long-lived assets. After adjusting for these impairments, amortization increased in the fourth quarter and in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006 due to additions of property, plant and equipment. Stock-Based Compensation Stock-based compensation increased by $0.5 or 38% in the fourth quarter of 2007 and by $0.7 or 11% for the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively, primarily due to the annual grant of options at the end of the first quarter of Restructuring Costs Restructuring costs decreased $6.6 in the fourth quarter and $9.0 in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. Restructuring costs in 2007 related to severance and lease termination costs associated with the November 2007 closure of our Casino on Broadway in Vancouver, B.C. In the fourth quarter and twelve months of 2006, restructuring costs included $4.1 in severances, $5.6 for the voluntary buyout of our hospitality services from a third party service provider and other obligations associated with departed employees. Interest and Financing Costs, net In February 2007, as part of our debt refinancing we entered into an undrawn $200.0 Senior Secured Revolving Credit Facility, a US$170.0 Senior Secured Term Loan B and US$170.0 Senior Subordinated Notes (described in the Capital Resources section of this MD&A). As this debt is denominated in U.S. dollars and our revenues are primarily in Canadian dollars, the Company entered into cross-currency interest rate swap agreements to effectively convert this debt into Canadian dollar fixed interest rate debt. Interest and financing costs, net of interest income decreased by $0.7 in the fourth quarter of 2007 compared to the fourth quarter of The decrease related primarily to $1.3 lower amortization of debt refinancing costs in the fourth quarter of 2007 compared to those recognized in the fourth quarter of The prior year had unusually high costs associated with our former Bridge Credit Facility that we completed on September 29, 2006 and which was repaid on February 14, This decrease was offset by a $0.7 increase in interest expense during the fourth quarter of 2007 compared to the fourth quarter of 2006 that resulted from higher average debt levels and higher interest rates on our Senior Secured Term Loan B and Senior Subordinated Notes. Interest and financing costs, net of interest income, decreased by $26.2 in the twelve months of 2007 compared to the twelve months of The decrease primarily related to the $30.9 pre-tax one-time cost associated with the early redemption of our Series A and Series B Senior Secured Notes and the write-off of associated debt refinancing costs in the third quarter of 2006 and $1.4 lower amortization of debt refinancing costs related to our debt as mentioned above. Interest expense increased $5.8 in the twelve months of 2007 compared to the twelve months of 2006 due to higher average debt levels and higher interest rates on the Company s Senior Secured Term Loan B and Senior Subordinated Notes. In addition, the first quarter of 2007 included $1.6 in underwriting fees and amortized debt refinancing transaction costs related to the Bridge Credit Facility that were offset by $1.7 increased interest income due to higher average levels of short-term cash equivalent investments. Other Expenses Other expenses decreased in the fourth quarter and twelve months of 2007 by $10.3 and $11.6 respectively, relative to the fourth quarter and twelve months of 2006, respectively. This was primarily due to the non-cash $9.9 goodwill impairment recognized for Hastings during the fourth quarter of In addition, non-cash foreign exchange loss decreased $1.0 and non-controlling interest decreased $0.7 in the twelve months of 2007 compared to the twelve months of 2006.

28 26 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) Income Taxes (Recovery) Income taxes decreased $6.6 in the fourth quarter and increased $4.6 in the twelve months of 2007, compared to the fourth quarter and twelve months of 2006, respectively. Several items affected the comparability of income taxes over these periods: The fourth quarter of 2006 income tax benefit of $10.6 on the $30.9 in costs associated with the redemption of our Series A and Series B Senior Secured Notes; the non-cash future income tax recoveries of $5.2, $1.0 and $10.5 in the second quarter of 2006, the second quarter of 2007 and the fourth quarter of 2007, respectively, arising from decreases in enacted tax rates; and the $3.0 non-cash future income tax recoveries in the twelve months of 2007 due to the effect of tax rate differentials on and adjustments related to prior years income tax provisions. Net Earnings (Loss) Net earnings increased $24.5 in the fourth quarter and $54.4 in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. After adjusting for unusual items (see Financial Highlights section), adjusted net earnings increased $1.8 or 60% in the fourth quarter and $8.5 or 63% in the twelve months of 2007 compared to the fourth quarter and twelve months of 2006, respectively. These increases in our consolidated net earnings reflect a continued trend towards improved operating results driven by revenue growth and operational efficiencies. CONSOLIDATED QUARTERLY RESULTS TREND Q Q Q Q Q Q Q Q Revenues $ $ $ 97.7 $ 95.6 $ 98.1 $ $ 95.6 $ 91.3 EBITDA $ 27.9 $ 30.9 $ 26.8 $ 25.4 $ 25.4 $ 27.0 $ 24.1 $ 21.7 EBITDA as a % of Revenues 27.7% 29.9% 27.4% 26.6% 25.9% 26.9% 25.2% 23.8% Net earnings (loss) $ 13.0 $ 12.6 $ 5.9 $ 4.3 $ (11.5 ) $ (14.1 ) $ 6.1 $ 0.9 Earnings (loss) per common share: Basic $ 0.15 $ 0.15 $ 0.07 $ 0.05 $ (0.13 ) $ (0.16 ) $ 0.07 $ 0.01 Diluted $ 0.15 $ 0.15 $ 0.07 $ 0.05 $ (0.13 ) $ (0.16 ) $ 0.07 $ 0.01 The fourth quarter of 2007 showed continued progress towards our goals of driving revenue growth and operating efficiencies at both the site and head office levels. Revenues in the fourth quarter of 2007 increased by 3% and our EBITDA increased 10% over the fourth quarter of This translated to an increase in our EBITDA as a percentage for revenues for the fourth quarter of 2007 to 27.7% compared to 25.9% in the fourth quarter of LIQUIDITY AND CAPITAL RESOURCES Financial Position As at As at December 31, 2007 December 31, 2006 % Change Cash and cash equivalents $ $ % Other current assets (21% ) Property, plant and equipment % Due from Nova Scotia Gaming Corporation (89% ) Other long-term assets (3% ) $ $ % Current liabilities % Long-term debt, excluding current portion (16% ) Other long-term liabilities % Shareholders equity % $ $ % Cash and cash equivalents have increased since December 31, 2006 primarily due to cash inflows from operations. Cash equivalents at December 31, 2007 were $63.5 and comprised $17.0 invested in Canadian treasury bills, $38.9 invested in bearer deposit notes, and $7.6 invested in banker s acceptances. As at December 31, 2007, the Company had no exposure to asset backed commercial paper. Other current assets have decreased since December 31, 2006 primarily due to the reduction of income tax receivables to a net payable position at December 31, 2007.

29 27 The additions to property, plant and equipment in 2007 were almost fully offset by amortization expense. The long-term balance due from Nova Scotia Gaming Corporation has decreased from December 31, 2006 due to payments received. Current liabilities have increased since December 31, 2006, primarily due to increases in accounts payable and accrued liabilities, as well as income taxes payable and current portion of long-term debt. As at December 31, 2006, long-term debt, excluding current portion, consisted primarily of the Company s former Bridge Credit Facility and Flamboro Promissory Note. As at December 31, 2007 long-term debt, excluding current portion, consisted primarily of the Company s Term Loan B and Senior Subordinated Notes that replaced our former Bridge Credit Facility on February 14, The Flamboro Promissory Note was repaid during the third quarter of Other long-term liabilities have increased since December 31, 2006 due primarily to increases in the Company s derivative liabilities, which represent the fair value of the Company s cross currency interest rate swaps as at December 31, Changes in Cash Flows Fourth Quarter Twelve Months of Cash inflow from operating activities $ 24.3 $ 19.0 $ 96.6 $ 31.1 Cash outflow from investing activities (4.4 ) (29.5 ) (21.2 ) (71.1 ) Cash inflow (outflow) from financing activities (21.1 ) (20.2 ) (23.6 ) 26.5 Effect of foreign exchange on cash and cash equivalents (1.5 ) 0.5 Increase (decrease) in cash $ (0.7 ) $ (30.1 ) $ 50.3 $ (13.0 ) The increase in the cash inflow from operating activities in the fourth quarter and twelve months of 2007 relative to the fourth quarter and twelve months of 2006 was primarily due to increased EBITDA and reductions in non-cash working capital, particularly income taxes. The decrease in the cash outflow from investing activities in the fourth quarter and twelve months of 2007 relative to the fourth quarter and twelve months of 2006 was primarily due to the significant construction projects that were in progress in the prior year. These included the Nova Scotia casinos renovations, the new Chances in Dawson Creek, and the Red Robinson Show Theatre at the Boulevard Casino. The main construction projects underway in 2007 included the River Rock Conference Centre (opened in July), the Fraser Downs table and slot expansion (opened in November) and the phase one Hastings slot room (opened in November). Cash outflow from financing activities in the twelve months of 2007 relates to the net cash flows from the debt refinancing that was completed in the first quarter of 2007, the repayment of the Flamboro Promissory Note and the purchase of the Company s common shares. Cash outflows from financing activities in the fourth quarter and twelve months of 2006 relate to principal repayments of long-term debt. Capital Resources Long-Term Debt and Equity Transactions December 31, December 31, Term Loan B, net of unamortized transaction costs of $3.0 $ $ Senior Subordinated Notes and $1.9 unamortized premium net of unamortized transaction costs of $ Hastings Promissory Note Obligations under capital leases and other debt Bridge Credit Facility Revolving Credit Facility 95.0 Bridge Credit Facility Non-Revolving Credit Facility Flamboro Promissory Note 41.7 $ $ 391.5

30 28 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) The expected repayments of long-term debt for the five following years ended December 31 are as follows: 2008 $ Thereafter Total repayments Less: unamortized premium and transaction costs 7.3 Total long-term debt (including current portion) $ Debt Refinancing On February 14, 2007, the Company completed its debt refinancing to retire the Bridge Credit Facility. This debt refinancing was the final step of a restructuring process that began in 2006 with the establishment of a Bridge Credit Facility, which was used to redeem the former Series A and Series B Senior Secured Notes. The new debt facilities provide the Company with a more flexible debt structure, a leverage more typical of the industry, the capacity to fund future growth and expansion opportunities, and the opportunity to lower our overall cost of capital. The debt refinancing consisted of three components: (i) an undrawn $200.0 million Senior Secured Revolving Credit Facility ( Revolving Credit Facility ); (ii) a US$170.0 million Senior Secured Term Loan B ( Term Loan B ); and (iii) US$170.0 of million Senior Subordinated Notes ( Subordinated Notes ). The gross proceeds of the Term Loan B and the Subordinated Notes were $401.9 million. The proceeds were used to repay the Bridge Credit Facility of $340.8 million, provide cash that was used to repay the Flamboro Promissory Note of $41.7 million, pay costs and fees of the refinancing and provide for working capital. The Company and its debt facilities are rated as follows: Moody s Standard & Poor s Corporate Ba3 Stable BB Stable Revolving Credit Facility and Term Loan B Ba2 BBB- (1) Subordinated Notes B2 B+ (1) Initial rating of the Company s Senior Secured Revolving Credit Facility and Secured Term Loan B was BB as of January 19, On July 7, 2007, Standard & Poor s upgraded this rating to BBB-. The Revolving Credit Facility and the Term Loan B are guaranteed and secured by substantially all of the assets of the Company and its subsidiaries. Both the Revolving Credit Facility and the Term Loan B require the Company to comply with operational and financial covenants. The financial covenants (which are defined in the underlying debt agreements and are tested quarterly) are: Total Debt to Adjusted EBITDA ratio of 5.0 or less; Senior Debt to Adjusted EBITDA ratio of 3.5 or less, and Interest Coverage ratio of 2.0 or greater for the first three years and 2.25 or greater thereafter. Subject to compliance with all operational and financial covenants, the Company has the option to increase the Revolving Credit Facility or issue additional term loans by up to $150.0 million on the same terms and conditions in the case of the Revolving Credit Facility and on the same terms and conditions except with limitations on the interest rate margin in the case of the Term Loan B. The undrawn Revolving Credit Facility has a term of 5 years from the issuance date. The interest rate (on advanced amounts) and the commitment fee (on the unused facility) on the Revolving Credit Facility will be based on the Company s Total Debt to Adjusted EBITDA ratio (defined in the underlying credit agreement) which is calculated quarterly and is currently between 3.00 and 3.50.

31 29 The following table summarizes the interest rate and commitment fee on the Revolving Credit Facility that apply, depending on the Company s quarterly Total Debt to Adjusted EBITDA ratio calculated for the most recent trailing twelve months: Margin on Bankers Acceptances Margin on Canadian Prime Total Debt / Adjusted or Eurodollar Rate Advances Rate or U.S. Base Rate EBITDA & Letters of Credit Advances Commitment Fee >= % 1.00% 0.50% 4.00 to < % 0.63% 0.40% 3.50 to < % 0.38% 0.35% 3.00 to < % 0.13% 0.30% 2.50 to < % 0.00% 0.25% 2.00 to < % 0.00% 0.20% < % 0.00% 0.18% The Term Loan B is denominated in US dollars (US$170.0 million) and bears interest at a floating rate (LIBOR plus 1.50%), payable quarterly. The Company hedged both the currency risk and the floating interest rate risk to result in an initial principal of $200.8 million in Canadian dollars and a fixed interest rate of approximately 6.1% per annum. The Term Loan B has a term of 7 years and is repayable without premium or penalty, subject to customary costs, at any time. Principal repayments of 0.25% are required quarterly, with the balance due on maturity, which is February 13, The Subordinated Notes are guaranteed by the Company and substantially all of its subsidiaries, and are unsecured. The Subordinated Notes are denominated in US dollars (US$170.0 million) and bear interest at a rate of 7.25%, payable semiannually. The Company has hedged the currency risk and the U.S. fixed interest rate to result in an initial principal of $201.1 million in Canadian dollars and a fixed interest rate of approximately 6.6% per annum. The Subordinated Notes have a term of 8 years with the principal amount of the notes repayable on maturity, which is February 15, There are provisions for early redemptions, at our option, of the Subordinated Notes during defined periods prior to maturity with payment of defined premiums. The Senior Subordinated Notes require the Company to comply with operational and financial covenants. The financial covenant requires the Company to maintain a Fixed Charge Coverage ratio of greater than 2.0 (capitalized term is defined in the underlying note agreement and is tested on the occurrence of specified events). The Subordinated Notes have been structured so that interest payments are not subject to Canadian withholding taxes. To the extent that Canadian tax regulations change to impose a withholding tax on the interest payments, the Company has agreed to gross-up the interest payments to ensure the holder of the Subordinated Notes receives the same amount in the absence of the withholding tax, subject to certain requirements and limitations. All the debt facilities have: (i) mandatory repayments in the case of proceeds from certain asset sales or receipt of insurance proceeds that are not re-invested in the Company within certain time limits; (ii) restrictions on certain asset sales, acquisitions, and distributions; (iii) limitations on the incurrence of additional debt or indebtedness or liens; and (iv) provisions for the Company to re-purchase and re-issue portions of the Term Loan B and/or Subordinated Notes should the holder be required to register with a gaming authority having jurisdiction over the Company and either refuses or is found to be unsuitable for registration. The debt refinancing transaction costs of establishing the Revolving Credit Facility, Term Loan B and the Subordinated Notes have been recorded as a reduction of the balance of the related debt and expensed to interest and financing costs, net on the consolidated statements of earnings (loss) over the term of the related debt using the effective interest method. Cross-Currency Interest Rate and Currency Swap Agreements & Hedge Accounting We have entered into cross-currency interest rate swap agreements with creditworthy financial institutions to effectively convert both the $170.0 U.S. dollar floating interest rate Term Loan B and the $170.0 U.S. dollar fixed interest rate Senior Subordinated Notes into Canadian dollar fixed interest rate debt.

32 30 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) The cross-currency interest rate agreements as at December 31, 2007 are as follows: Notional Principal Interest Rate Debt Receive (USD) Pay (CAD) Receive (USD) Pay (CAD) Maturity Date Term Loan B $168.7 (1) $199.3 (1) US LIBOR+1.50% 6.1% February 13, 2014 Subordinated Notes $170.0 $ % 6.6% February 15, 2015 (1) The Term Loan B cross currency interest rate swap s notional principal reduces by 0.25% of the original principal of $170.0 USD quarterly to match the scheduled principal reductions on the Term Loan B. These cross-currency interest rate swaps have been evaluated by the Company and have been designated as effective hedges of the cash flows associated with the Term Loan B and the Subordinated Notes. Accordingly, the Company has applied hedge accounting to these swaps. As at December 31, 2007, the cross-currency interest rate swaps have been recorded as long-term derivative liabilities at their fair value of $62.8. The cross-currency interest rate swaps were determined to be effective hedges of the cash flows associated with the Term Loan B and the Subordinated Notes, and accordingly 100% of the changes in fair values, net of taxes, have been recorded in other comprehensive income as changes in fair values of derivatives designated as cash flow hedges. The fair values of our cross-currency interest rate swaps at December 31, 2007 were determined based on a discounted cash flow model. This model makes assumptions regarding the U.S. dollar exchange rate and discount rates, which are based on the prevailing U.S. dollar exchange rates and prevailing interest rates in Canada and the U.S. at December 31, Embedded Derivative The Company s Subordinated Notes agreement has provisions for early redemption during defined periods prior to maturity with the payment of defined premiums. On issuance of the Subordinated Notes on February 14, 2007, the $2.1 fair value of this embedded derivative was recorded as a derivative asset included in other assets and as a premium on the long-term debt on the consolidated statements of financial position. The fair value of this embedded derivative included in other assets as at December 31, 2007 is $1.5 and the change in the fair value was recorded in interest and financing, net on the consolidated statements of earnings (loss). The premium is amortized over the term of the Subordinated Notes using the effective interest method. Private Placement of Units On March 28, 2006, we completed an equity offering of a private placement of 6,206,361 units at a price of $12.89 per unit for gross proceeds of $80.0 (net proceeds of $79.7). Each unit comprised one common share and one share purchase warrant that is exercisable into one common share at an exercise price of $12.89 until March 28, The Company s Chairman and Chief Executive Officer participated in the private placement for $50.0 of the total offering. Outstanding Share Data As at December 31, 2007, there were 84,815,476 common shares outstanding as compared to 86,146,631 as at December 31, The decrease in outstanding common shares was primarily the result of 2,273,200 common shares purchased in 2007 by the Company at a cost of $31.3 through our normal course issuer bid announced in July Subsequent to December 31, 2007, the Company purchased an additional 629,600 common shares at a cost of $9.2 and granted 1,997,500 stock options having an exercise price of $ As at December 31, 2007, there were 6,023,423 stock options outstanding at a weighted average exercise price of $12.74, and 6,206,361 warrants outstanding at a weighted average exercise price of $ As at March 11, 2008, there were 84,198,476 common shares outstanding, 7,987,497 stock options outstanding and 6,206,361 warrants outstanding. Capital Spending and Development The majority of our capital expenditures on gaming operations in British Columbia and Nova Scotia are eligible for reimbursement by the provincial gaming authorities. In British Columbia the BCLC s FDC program permits an additional commission of 3% of gross gaming win from casinos, racetracks and community gaming centres. In addition, the BCLC introduced a new accelerated FDC program in 2006 that will provide an additional 2% of gross gaming win towards sitespecific reimbursements of new gaming redevelopments. According to our operating agreement with the province of Nova Scotia, we will receive approximately $1.0 per month until April 2009 as reimbursement of the prior capital expenditures on our Nova Scotia Casinos. In addition, approved expenditures incurred to improve or maintain the casino facilities are reimbursed from a capital replacement account ( CRA ). We are required to make contributions to the CRA equal to 5% of the annual gross operation revenues from the two Nova Scotia casinos. If the CRA is in a deficit balance, the amount owed to us accrues interest at a rate of bank prime plus 2% per annum.

33 31 During the twelve months of 2007 our capital expenditures totalled $32.8. Maintenance capital expenditures in 2007 included items related to company wide property upgrades, surveillance equipment and information technology. Expansion capital expenditures in 2007 primarily related to the multi-level parking garage at River Rock, the building costs for slot machines at Georgian Downs and Hastings Racecourse, the building costs for slot machines and tables at Fraser Downs and preliminary construction at View Royal. For 2008 we estimate approved expansion capital expenditures will total approximately $ As at December 31, 2007, the Company has $342.3 (December 31, 2006 $350.4) in Approved Amounts (a term defined in the Company s COSAs with the BCLC) to be recovered by future FDC payments. Approved Amounts have not been recorded in the consolidated statements of financial position. Since FDC is earned as a fixed percentage of gaming win, subject to the Company incurring sufficient Approved Amounts, recovery of Approved Amounts requires that our operating agreements with BCLC remain in good standing. Contingencies We have issued letters of credit to guarantee performance, primarily under construction contracts and gaming cash floats in the aggregate amount of $32.3 at December 31, As part of certain acquisition agreements, including those entered into on the acquisition of Orangeville Raceway Ltd. (Fraser Downs) and Bear Mountain Community Gaming Centre (now Chances ), we have agreed to make future contingent payments dependent on operations at these locations. Litigation In 2005, as part of the acquisition of Georgian Downs, the Company entered into an agreement that provided a consultant a deemed contribution for a notional equity interest in Georgian Downs as consideration for certain consulting services for its operations in the Province of Ontario. The notional equity interest entitled the consultant to future remuneration depending on the operating results of Georgian Downs provided that certain services were performed. The consultant had an option to sell his notional equity interest in Georgian Downs to the Company for consideration calculated using a predefined formula based on Georgian Down s operating results for the twelve month period preceding the option s exercise. The Company had a call option to purchase the consultant s notional equity interest from June 2012 for consideration calculated using the same predefined formula. On July 30, 2007, the Company terminated the agreement and tendered the sum of $1.6 being the full amount that the Company determined to be validly due and payable to the consultant. The consultant and the Company have significantly different views as to the consultant s monetary entitlement under the agreement. The consultant refused payment of the Company s assessment of the consultant s monetary entitlement and filed an application in the Ontario Superior Court of Justice that disputes the validity of the termination of the agreement. The Company has also filed a suit in the Ontario Superior Court of Justice seeking a declaration that the agreement has been properly terminated by the Company. The Company is of the belief that it has acted appropriately with respect to both the termination and the tendering of payment to the consultant and intends to vigorously defend its position. At this stage, liability or quantum with respect to this litigation cannot be reasonably determined. A community group called the Hastings Park Conservancy, opposing the introduction of slot machines at Hastings Racecourse, challenged in the Supreme Court of British Columbia a City of Vancouver by-law amendment permitting 600 slot machines at Hastings. This challenge was unsuccessful, as the Supreme Court upheld the City of Vancouver by-law amendment. The community group subsequently filed an appeal with the British Columbia Court of Appeal that was heard in January The Court of Appeal has reserved judgement on the matter. We believe that the appeal filed by the community group is without merit and is unlikely to result in the Supreme Court s original ruling being overturned. If the Hastings Park Conservancy is successful in the appeal, this could impact our planned redevelopment of Hastings Racecourse. If we are unable to install 600 slot machines at Hastings Racecourse, our investment in that operation would be adversely affected. The Company is involved in various other disputes, claims and litigation. Management believes the amount of the ultimate liability for these will not materially affect the financial position of the Company.

34 32 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) Guarantees and Indemnifications The Company may provide guarantees and indemnifications in conjunction with transactions in the normal course of operations. These are recorded as liabilities when reasonable estimates of the obligations can be made. Guarantees and indemnifications that the Company has provided include obligations to indemnify: directors and officers of the Company and its subsidiaries for potential liability while acting as a director or officer of the Company, together with various expenses associated with defending and settling such suits or actions due to association with the Company, the risk of which is mitigated by the Company s directors and officers liability insurance; of the transaction; offering documents; Commitments Expected Payments by Period as at December 31, 2007 Within 1 year 2-3 years 4-5 years More than 5 years Total Long-term debt $ 3.2 $ 5.8 $ 5.3 $ $ Derivative liabilities Operating leases and contracts Total $ 9.2 $ 16.6 $ 15.2 $ $ The long-term debt contractual obligations include primarily the principal repayments of the Term Loan B and the Subordinated Notes and the repayment of the debts assumed on the acquisition of Hastings, as well as capital lease obligations. Operating leases and contracts include property leases for our head office, a ground lease with the City of Surrey, BC for Fraser Downs, a ground lease with the City of Sydney, NS for our Casino Nova Scotia Sydney, an operating agreement with the City of Vancouver, BC for Hastings Racecourse and commitments to NSGC to fund responsible gaming programs. Future Cash Requirements We believe that our current approved capital plans and operational requirements can be funded from existing cash, cash generated from operations, our existing credit and debt facilities, and proceeds from the exercise of stock options or warrants. If we have increased cash requirements and do not want to delay, limit, or eliminate some of our plans, we may raise additional funds through the refinancing of existing debt or the issuance of non-debt securities or additional equity securities. If we raise additional funds through the issuance of equity securities or the exercise of stock options or warrants, the current shareholders ownership percentages will be reduced and such equity securities may have rights, preferences, or privileges senior to our common shares. OTHER FINANCIAL INFORMATION Related Party Transactions The following table summarizes related party transactions and balances that are in addition to those noted elsewhere in this MD&A. Twelve Months of Consolidated Statements of Ear nings (Loss) Other Income ATM revenues from a company that has a director who is a member of senior management of the Company (1) $ 0.2 $ 1.5 Human Resources Amounts for dealer training services provided by a company controlled by a director of the Company $ 0.9 $ 0.8 (1) During 2007, the member of senior management resigned as a director and the related party sold the ATM service contract to an unrelated service provider. These related party transactions were recorded at the exchange amount, which is the amount of consideration paid or received as established and agreed to by the related parties.

35 33 Change in Accounting Policies On January 1, 2007, the Company adopted new accounting policies for financial instruments by adopting the following new standards of the Canadian Institute of Chartered Accountants ( CICA ): Handbook Section 1530 Comprehensive Income; Handbook Section 3251 Equity; Handbook Section 3855 Financial Instruments Recognition and Measurement; Handbook Section 3861 Financial Instruments Disclosure and Presentation; and Handbook Section 3865 Hedges. These new standards have been applied retrospectively without prior period restatement, except for the presentation of the cumulative foreign currency translation adjustment on the statements of financial position as a component of other comprehensive income (loss). The change in accounting policies had no other material impact on the Company s consolidated financial statements at January 1, 2007 and December 31, Comprehensive Income CICA Handbook Section 1530 introduces comprehensive income, which consists of net earnings on the consolidated statements of earnings (loss) and other comprehensive income (loss) ( OCI ). OCI represents changes in shareholders equity in a period arising from the portion of the change in the fair values of the Company s derivatives designated as cash flow hedges that are determined to be effective, gains and losses on derivatives designated as cash flow hedges transferred to net earnings in the current period, and the unrealized effect of foreign currency translation of foreign operations. Financial Instruments CICA Handbook Sections 3855 and 3861 establish standards for the recognition, measurement, presentation and disclosure of financial instruments. Financial instruments are initially recognized at fair value. The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm s-length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values of financial instruments are based on independent prices quoted in active markets. In the absence of an active market, fair values are determined based on valuation models, such as discounted cash flows models, which require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. Subsequent measurement depends on management s classification of the financial assets as held-fortrading, available-for-sale, held-to-maturity, or as loans and receivables, and financial liabilities as held-for-trading or as other liabilities. The classification of financial instruments depends on the nature of and the purpose of the financial instruments, management s choice and in some circumstances, management s intentions. Held-for-Trading Financial instruments classified as held-for-trading are measured at fair value with the realized and unrealized changes in fair value recognized each reporting period in the consolidated statements of earnings (loss). The Company had no transition adjustments at January 1, 2007 for held-for-trading financial instruments, as the Company s held-for-trading financial instruments were already carried at fair value. Available-for-Sale Financial assets classified as available-for-sale are measured at fair value with the unrealized changes in fair value recorded each reporting period in OCI. Investments in equity instruments classified as available-for-sale that do not have a quoted price in an active market are recorded at cost. Each reporting period, available-for-sale assets are written down to fair value through the consolidated statements of earnings (loss) to reflect impairments that are considered to be other than temporary. The Company had no transition adjustments at January 1, 2007, as its available-for-sale financial instruments were carried at their fair value of $nil to reflect an impairment. Held-to-Maturity and Loans and Receivables Financial instruments classified as held-to-maturity and loans and receivables are measured at amortized cost using the effective interest method. The Company had no material transition adjustments at January 1, 2007 for held-to-maturity financial instruments, loans and receivables, or other liabilities as their historical cost as at January 1, 2007 approximated their amortized cost. Embedded Derivatives Other than the embedded derivative related to the early redemption option on the Senior Subordinated Notes, the Company does not have any material embedded derivatives that require separate accounting. Hedges CICA Handbook Section 3865 specifies the criteria that must be satisfied in order for a financial instrument to be considered an effective hedge and for hedge accounting to be applied. It also defines the accounting treatment for each of the permitted hedging strategies: fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in self-

36 34 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) sustaining foreign operations. The Company assesses the effectiveness of its hedging instruments at each reporting period. Hedge accounting is discontinued prospectively when the hedging relationship no longer qualifies as an effective hedge, or it is terminated upon the early termination of the hedged item. When hedge accounting is discontinued, changes in fair value of these financial instruments are recorded as interest and financing, net on the consolidated statements of earnings (loss). The Company had no transition adjustments for hedges, as it had no hedging relationships at January 1, In anticipation of refinancing the Company s debt in the current period, the Company entered into cross-currency interest rate swaps to hedge the U.S. dollar exchange rate and interest rate risks associated with the issued debt. The Company designated these cross-currency interest rate swaps as cash flow hedges. These hedging instruments are presented on the consolidated statements of financial position at fair value. The portion of the change in fair values of the cross-currency interest rate swaps that is determined to be effective is recorded in OCI as changes in fair value of derivatives designated as cash flow hedges and any ineffective portion is recorded as interest and financing, net in the consolidated statements of earnings (loss). The hedged debt is translated to Canadian dollars at the exchange rate in effect on the last day of the reporting period. Translation of Foreign Operations As specified in CICA Handbook Section 1530, on transition, the Company presented the unrealized effect of foreign currency translation of foreign operations as a component of OCI for the current and prior periods. Debt Refinancing Transaction Costs In accordance with its accounting policy election under CICA Handbook Section 3855, the Company recorded debt refinancing transaction costs for the Subordinated Notes and the Term Loan B as a reduction of the related debt, and amortizes these costs using the effective interest method over the term of the related debt. Debt refinancing transaction costs related to the Revolving Credit Facility are included in other assets on the consolidated statements of financial position and are amortized on a straight-line basis over the term of the Revolving Credit Facility. Critical Accounting Estimates Our reported financial position and results of operations are dependent on our selection of accounting policies that are based on Canadian generally accepted accounting principles and accounting estimates that underlie the preparation of our consolidated financial statements. Our consolidated financial statements contain a summary of our significant accounting policies and accounting estimates. Estimates by their nature are subject to risks, uncertainties and assumptions, which could cause our financial position and operating results to differ materially from those presented in our consolidated financial statements. Future changes in accounting estimates are applied on a prospective basis. The critical accounting estimates that we believe are the most judgmental or are material to our consolidated financial statements, are those relating to business combinations, long-lived asset and goodwill impairment, stock-based compensation, income taxes, contingencies and the fair value of our derivative asset and liabilities. Business Combinations The cost of an acquired company ( purchase price ) is assigned to the identifiable tangible and intangible assets purchased and liabilities assumed on the basis of their fair values at the date of acquisition. The identification of assets purchased and liabilities assumed and the valuation thereof is specialized and judgmental. Where appropriate, the Company engages business valuators to assist in the valuation of tangible and intangible assets acquired. Any excess of purchase price over the fair value of the identifiable tangible and intangible assets purchased and liabilities assumed is allocated to goodwill. When a business combination involves contingent consideration, an amount equal to management s estimate of the contingent consideration that will become due beyond a reasonable doubt is recognized as a liability at the time of acquisition. When the contingency is resolved and the consideration is issued or becomes issuable, any difference in the fair value of the contingent consideration issued or issuable over the amount initially recognized will be recognized as an adjustment to the cost of the purchase. Intangible assets are amortized in the consolidated statements of earnings (loss) over the estimated useful life of the intangible asset. Judgment is used to estimate an intangible asset s useful life and is based on an analysis of all pertinent factors including, amongst others, our expected use of the intangible asset, contractual provisions that enable renewal or extension of the intangible asset s legal or contractual life without substantial cost, and renewal history. Long-Lived Assets and Goodwill Impairment Tests Long-lived assets, including intangible assets, are tested for impairment whenever management believes events or circumstances indicate that the carrying values of those assets may not be fully recoverable (a triggering event ). A long-

37 35 lived asset impairment loss is recognized when the carrying value of that asset exceeds our estimate of the sum of the undiscounted cash flows expected from its use and eventual disposition. The impairment loss is measured as the excess of the carrying value of the asset over its estimated fair value. Goodwill is tested for impairment at least annually, at year-end, and whenever a triggering event indicates that the carrying values of goodwill may not be fully recoverable. The impairment test consists of allocating goodwill to the Company s reporting units and then comparing the carrying value of the reporting units, including goodwill, to their fair values. The Company determines fair value using price-to-earnings multiples or discounted cash flows, whichever is the most appropriate under the circumstances. The excess of the carrying value amount over the fair value of goodwill, if any, is charged to operations in the period the impairment occurred. Stock-Based Compensation Companies that issue equity based compensation, such as options, are required to record the fair value of the options granted as an operating expense in the consolidated statements of earnings (loss) over the expected life of the option. At the date of the option grant, the Company estimates the fair value of the option using the Black-Scholes pricing model. That model takes into account the exercise price of the option, an estimate of the expected life of the option, the current price of the underlying stock, an estimate of the stock s volatility, an estimate of future dividends on the underlying stock and the risk-free rate of return expected for an instrument with a term equal to the expected life of the option. Once the fair value is determined and the period of expensing established, the charge is not adjusted for subsequent changes in the original assumptions. Income Taxes Our future income tax assets and liabilities are due to temporary differences between the carrying amount and tax basis of certain assets and liabilities, as well as undeducted tax losses. Estimation is required for the timing of the reversal of these temporary differences and the tax rate applied. The carrying amounts of assets and liabilities are based upon amounts recorded in the financial statements and are subject to any accounting estimates inherent in those balances. The tax basis of assets and liabilities and the amount of undeducted tax losses are based upon the applicable income tax legislation, regulations and interpretations. The timing of the reversal of the temporary differences and the timing of deduction of tax losses are based upon estimations of our future financial results. If future operating results differ from our current expectations, if enacted tax rates change, if tax legislation or regulations change, or if our interpretations of income tax legislation changes, then our expectations of future timing difference reversals may also change and require material future income tax adjustments. Derivative Assets and Liabilities The fair values of our derivative asset and liabilities are based on discounted cash flow models that make assumptions regarding the U.S. dollar exchange rate and discount rates, which are based on the prevailing U.S. dollar exchange rates and prevailing interest rates in Canada and the U.S. The fair value of our derivative asset also requires estimates of the probability that we will exercise our early redemption option on the Subordinated Notes over the remaining term of the debt. Financial Instruments and Other Instruments The Company s risk management strategy is to minimize exposure to currencies other than Canadian dollars and, with the exception of revolving lines of credit, to fix substantially all of its floating interest rate debt. The financial instruments that give rise or may give rise to the most significant exposure to foreign currency and floating interest rate risk are the Term Loan B, the Subordinated Notes, and the Revolving Credit Facility. The Company entered into a series of cross-currency interest rate swaps to hedge the currency and interest rate risks associated with the Term Loan B and the Subordinated Notes. Refer to the Capital Resources section of this MD&A for discussion on our financing and the hedging activities used to manage the foreign currency and interest rate risks. Recent Accounting Pronouncements In December, 2006, the CICA issued Handbook Section 1535, Capital Disclosures. The new standard requires disclosure of qualitative and quantitative information that enables users of financial statements to evaluate the Company s objectives, policies and processes for managing capital. These recommendations are effective for the Company s interim and annual reporting periods beginning January 1, This new standard will require incremental disclosures, however, it is not expected to have a material effect on the Company s consolidated financial statements.

38 36 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) In December 2006, the CICA issued Handbook Sections 3862, Financial Instruments Disclosures, and 3863, Financial Instruments Presentation, which will replace Section 3861, Financial Instruments Disclosure and Presentation. The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements and are effective for the Company s interim and annual reporting periods beginning January 1, These new standards will require revised disclosure, however, they are not expected to have a material effect on the Company s consolidated financial statements. In March 2007, the CICA issued Handbook Section 3031, Inventories, which has replaced Section 3030 with the same title. The new Section establishes that inventories should be measured at the lower of cost and net realizable value, with guidance on the determination of cost. These recommendations are effective for the Company s interim and annual reporting periods beginning January 1, This new standard is not expected to have a material effect on the Company s consolidated financial statements. In January 2006, the CICA Accounting Standards Board ( AcSB ) adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, accounting standards in Canada for public companies will converge with International Financial Reporting Standards ( IFRS ) no later than the end of The impact of the transition to IFRS on the Company s consolidated financial statements has not yet been determined. The Company will monitor the requirements of the IFRS transition and adopt the new standards as required. Disclosure Controls and Procedures and Internal Controls over Financial Reporting The Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining the Company s disclosure controls and procedures and internal controls over financial reporting to provide reasonable assurance a) that material information about the Company and its subsidiaries would have been made known to them and b) regarding the reliability of financial reporting and the preparation of financial statements for external purposes. The Chief Executive Officer and Chief Financial Officer have evaluated and conclude that the Company s disclosure controls and procedures are adequately designed and effective for providing reasonable assurance that material information relating to the Company, including its consolidated subsidiaries, would have been made known to them as of the end of the fiscal year ended December 31, As well, as of the end of the fiscal year ended December 31, 2007, the Chief Executive Officer and Chief Financial Officer have evaluated and conclude that the Company s internal controls over financial reporting have been adequately designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. However, control systems, no matter how well designed and operated, have inherent limitations, therefore, those systems, although determined adequately designed, can provide only reasonable assurance that the objectives of the system are met. During 2007, there was no change in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

39 37 Definitions of Other Terms Used in the MD&A Racebook an off-racetrack wagering facility (previously described as a teletheatre). Revenues means the sum of the following: table games and 75% of the slot machine win) and is net of accruals for anticipated payouts of progressive slot machine jackpots and progressive table game payouts. are 75% of the win on slots, and 40% to 75% of the weekly bingo win) and is net of prizes. provincial and federal taxes, and includes the host track share of wagering on the Company s races simulcast to other associations. 13% for card and progressive jackpot games, 5% on pull-tabs and 2% on amusement games. are operated by OLG. revenues in Nova Scotia are recorded at retail price less the % revenue retained by the NSGC. been included in food and beverage revenues, are deducted. Win the amount wagered on gaming activities, less the payout or prizes to winning customers. Win, as a percentage of the coin-in or drop, can fluctuate with the statistical variations of casino games. Additional Information Additional information relating to the Company, including the Company s Annual Financial Statements and Annual Information Form, can be located on the SEDAR website at or on the Company s website at Shareholders of the Company may obtain a copy of the Company s TSX Form 12 Notice of Intention to Make a Normal Course Issuer Bid as filed with and as accepted by the TSX, at no charge, by contacting the Company.

40 38 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N M A N A G E M E N T S D I S C U S S I O N & A N A L Y S I S For the year ended December 31, 2007 (Expressed in millions, except for share information) SUPPLEMENTAL FINANCIAL INFORMATION Consolidated Quarterly Results Trend Gaming Revenues Q Q Q Q Q River Rock Casino Resort $ 21.1 $ 19.0 $ 18.1 $ 21.5 $ 19.3 Boulevard Casino Vancouver Island Casinos Other BC Casinos Nova Scotia Casinos Great American Casinos BC Racinos Georgian Downs Flamboro Downs Corporate & Other 0.3 Racetrack Revenues BC Racinos Georgian Downs Flamboro Downs Facility Development Commission River Rock Casino Resort Boulevard Casino Vancouver Island Casinos Other BC Casinos BC Racinos Hospitality and Other Revenues River Rock Casino Resort Boulevard Casino Vancouver Island Casinos Other BC Casinos Nova Scotia Casinos Great American Casinos BC Racinos Georgian Downs Flamboro Downs Corporate & Other Promotional Allowances (2.7 ) (2.7 ) (2.4 ) (2.5 ) (2.4 ) Revenues $ $ $ 97.7 $ 95.6 $ 98.1 EBITDA River Rock Casino Resort $ 12.4 $ 10.2 $ 9.9 $ 11.7 $ 9.8 Boulevard Casino Vancouver Island Casinos Other BC Casinos Nova Scotia Casinos Great American Casinos BC Racinos Georgian Downs Flamboro Downs Corporate & Other (6.4 ) (6.9 ) (7.0 ) (7.1 ) (6.8 ) $ 27.9 $ 30.9 $ 26.8 $ 25.4 $ 25.4

41 39 Presentation of Gross Revenues Gross revenues, a non-gaap measure, is revenues on the consolidated statements of earnings (loss) plus the portion of gaming win and other revenues retained by BCLC and NSGC, gaming taxes paid to Washington State, accruals for payouts of progressive games, payments to horse racing purse pools and promotional allowances. Gross revenues include slot commissions in Ontario, which represent 10% of the win from slot machines operated by the OLG. A reconciliation of gross revenues to revenues is presented below. Fourth Quarter Twelve Months of % Chg % Chg Gross table win $ 61.4 $ 63.3 (3%) $ $ (1%) Gross slot win % % Gross racetrack % % Revenue from FDC % % Food and beverage % (1%) Hotel revenues % % Other revenues % % Gross revenues (a non-gaap measure) % 1, % Less: Gaming, taxes and other commissions (128.7) (119.7) 8% (505.6) (474.8) 6% Racetrack purses (26.2) (23.8) 10% (105.8) (89.5) 18% Promotional allowances (2.7) (2.4) 13% (10.3) (9.6) 7% Revenues $ $ % $ $ %

42 40 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N MANAGEMENT S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The Company s management is responsible for the preparation and presentation of the accompanying consolidated financial statements of Great Canadian Gaming Corporation. All related financial information presented elsewhere in this Annual Report, including the Management s Discussion and Analysis, is also the responsibility of management and is consistent with the information contained in the consolidated financial statements. The Company s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, and include certain amounts that are based on management s estimates and judgments relating to matters not concluded by year end. Actual results may differ from management s estimates because future events and circumstances may not occur as expected. In discharging its responsibility for the integrity, consistency, objectivity and reliability of the consolidated financial statements, management maintains and relies upon systems of internal controls designed to provide reasonable assurance that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition, and liabilities are recognized. These controls include quality standards in hiring and training of employees, formal policies and procedures, a corporate code of conduct and accountability for performance within appropriate and well-defined areas of responsibility. The systems of internal controls are further supported by our staff of internal auditors who conduct periodic audits of various aspects of the Company s operations. The Board of Directors oversees management s responsibilities for financial reporting and the systems of internal controls through its Audit & Risk Committee, which is composed entirely of independent directors. The Audit & Risk Committee meets with management on a regular basis to review the Company s consolidated financial statements and its systems of internal controls. The Company s consolidated financial statements have been audited on behalf of shareholders by Deloitte & Touche LLP, who have full and free access to the Company, its records and the Audit & Risk Committee to discuss audit, financial reporting, internal controls and related matters. Their report, which expresses an unqualified opinion on the Company s consolidated financial statements, can be found below. Ross J. McLeod Chairman & Chief Executive Officer Milton C. Woensdregt Chief Financial Officer A U D I T O R S R E P O R T To the Shareholders of Great Canadian Gaming Corporation We have audited the consolidated statements of financial position of Great Canadian Gaming Corporation as at December 31, 2007 and 2006 and the consolidated statements of earnings (loss), retained earnings, comprehensive income (loss) and accumulated other comprehensive income (loss) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Deloitte & Touche LLP Chartered Accountants Vancouver, British Columbia March 4, 2008

43 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N 41 C O N S O L I D AT E D S TAT E M E N T S O F F I N A N C I A L P O S I T I O N (Expressed in millions, except for share information) As at December 31, ASSETS Current Cash and cash equivalents Note 4 $ $ 56.8 Restricted cash Note Accounts receivable Income taxes receivable 9.9 Due from Nova Scotia Gaming Corporation, current Note Prepaids, deposits and other assets Property, plant and equipment Note Intangible assets Note Goodwill Note Due from Nova Scotia Gaming Corporation Note Future income taxes Note Other assets $ $ LIABILITIES Current Accounts payable and accrued liabilities $ 69.5 $ 62.0 Income taxes payable 3.6 Long-term debt, deferred credit and other liabilities, current Note Long-term debt Note Derivative liabilities Note Deferred credit, other liabilities and non-controlling interest Future income taxes Note SHAREHOLDERS EQUITY Share capital and contributed surplus Note Accumulated other comprehensive loss (9.1) (5.3) Retained earnings $ $ APPROVED BY THE BOARD: Ross J. McLeod, Director Adrian R. Thomas, Director See accompanying notes to the Consolidated Financial Statements

44 42 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N C O N S O L I D AT E D S TAT E M E N T S O F E A R N I N G S ( L O S S ) (Expressed in millions, except for share information) For the years ended December 31, REVENUES Note 12 $ $ EXPENSES Human resources Property, marketing and administration Amortization Stock-based compensation Note Restructuring costs Note Interest and financing costs, net Note 9(d) Goodwill impairment Note 2/8 9.9 Foreign exchange loss EARNINGS (LOSS) BEFORE INCOME TAXES 37.8 (20.5) Income taxes (recovery) Note (4.0) EARNINGS (LOSS) BEFORE NON-CONTROLLING INTERESTS 37.2 (16.5) Non-controlling interests NET EARNINGS (LOSS) $ 35.8 $ (18.6) EARNINGS (LOSS) PER COMMON SHARE Note 15 Basic $ 0.42 $ (0.22) Diluted $ 0.41 $ (0.22) WEIGHTED AVERAGE NUMBER OF COMMON SHARES Note 15 Basic 86,226,888 84,471,204 Diluted 86,785,571 84,471,204 See accompanying notes to the Consolidated Financial Statements

45 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N 43 C O N S O L I D AT E D S TAT E M E N T S O F R E TA I N E D E A R N I N G S (Expressed in millions, except for share information) For the years ended December 31, Retained earnings, beginning of year $ 64.3 $ 82.9 Net earnings (loss) 35.8 (18.6) Repurchase of common shares Note 11 (22.1) Retained earnings, end of year $ 78.0 $ 64.3 C O N S O L I D AT E D S TAT E M E N T S O F C O M P R E H E N S I V E I N C O M E ( L O S S ) A N D A C C U M U L AT E D O T H E R C O M P R E H E N S I V E I N C O M E ( L O S S ) For the years ended December 31, Net earnings (loss) $ 35.8 $ (18.6 ) Other comprehensive income (loss), net of tax Changes in fair values of derivatives designated as cash flow hedges, net of tax of $21.4 (41.4 ) Loss on derivatives designated as cash flow hedges transferred to net earnings in the current period, net of tax of $ Unrealized effect of foreign currency translation of foreign operations (5.1 ) 1.9 Other comprehensive (loss) income (3.8 ) 1.9 Comprehensive income (loss) $ 32.0 $ (16.7 ) Accumulated other comprehensive loss, beginning of year $ (5.3 ) $ (7.2 ) Other comprehensive (loss) income (3.8 ) 1.9 Accumulated other comprehensive loss, end of year $ (9.1 ) $ (5.3 ) See accompanying notes to the Consolidated Financial Statements

46 44 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S (Expressed in millions, except for share information) For the years ended December 31, Cash Flows from Operating Activities Net earnings (loss) $ 35.8 $ (18.6) Adjustments to reconcile net earnings to net cash provided by operating activities: Amortization Goodwill impairment 9.9 Stock-based compensation and non-cash restructuring costs Non-cash interest and financing costs Future income taxes (8.8) (4.0) Other (0.4) 1.1 Changes in non-cash operating working capital Note (13.8) Net cash provided by operating activities Cash Flows from Investing Activities Purchase of property, plant and equipment, net of related accounts payable (32.8) (82.7) Funds received from Nova Scotia Gaming Corporation Funds due from Nova Scotia Gaming Corporation for purchases of plant and equipment (4.0) (15.1) Restricted cash Acquisitions related contingent payments (5.9) (1.1) Promissory notes Net cash used in investing activities (21.2) (71.1) Cash Flows from Financing Activities Proceeds from long-term debt Repayment of long-term debt (388.9) (446.8) Transaction costs (13.0) (4.1) Common shares issued for cash, net of issuance costs Purchase of common shares (31.3) Net cash (used in) provided by financing activities (23.6) 26.5 Effect of foreign exchange on cash and cash equivalents (1.5) 0.5 Net Cash Inflow (Outflow) 50.3 (13.0) Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year $ $ 56.8 Supplemental Disclosure Interest received $ 5.2 $ 4.7 Interest paid $ 21.2 $ 57.6 Income taxes (received) paid $ (4.9) $ 9.2 See accompanying notes to the Consolidated Financial Statements

47 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N 45 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 1. NATURE OF BUSINESS Great Canadian Gaming Corporation is a multi-jurisdictional gaming and entertainment operator with operations in British Columbia, Ontario and Nova Scotia, Canada, and Washington State, United States of America. The Company operates ten casinos, a thoroughbred racetrack that offers slot machines, four standardbred racetracks (two offer slot machines and one offers both slot machines and table games), a community gaming centre, a hotel & conference centre, two show theatres and various associated food and beverage and entertainment facilities. 2. SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements are presented in accordance with Canadian generally accepted accounting principles and reflect the following significant accounting policies: a) Principles of consolidation These consolidated financial statements include the accounts of the Company, its subsidiaries and variable interest entities. Variable interest entities are entities subject to control by the Company on a basis other than by ownership of voting interests where the Company has an obligation to absorb the majority of an entity s expected losses or the right to receive the expected residual returns. Significant inter-company balances and transactions with subsidiaries and variable interest entities are eliminated upon consolidation. b) Principal operating entities Ownership interest % as at Entity Abbreviation December 31, 2007 and 2006 Flamboro Downs Limited Flamboro Downs 100% Georgian Downs Limited Georgian Downs 100% Great American Gaming Corporation GAGC 100% Great Canadian Casinos Inc. GCC 100% Great Canadian Entertainment Centres Ltd. GCEC 100% Hastings Entertainment Inc. HEI 100% Mayfield Consulting Canada Inc. Mayfield 0% (1) Metropolitan Entertainment Group MEG 100% Orangeville Raceway Limited Orangeville 100% TBC Teletheatre B.C. TBC 50% (2) (1) In 2006 Mayfield and certain associated companies of Mayfield Consulting Canada Inc. (hereinafter called Mayfield) were contracted by the Company to provide food and beverage, and hotel management services in certain locations. Under the terms of the various management services contracts, the Company was the primary beneficiary of Mayfield, even though the Company had no share ownership in Mayfield, as the Company bore the principal risks and rewards of Mayfield s operations. Mayfield was consolidated from the inception date of each applicable management services contract as a variable interest entity up until December 31, The Mayfield companies that were consolidated provided services only to the Company. See also Note 13. (2) On March 18, 2005, the Company increased its ownership interest in TBC to 50% and effectively controlled and consolidated its operating results from that date. c) Uncertainty in management estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Estimates are used for, but not limited to, the fair value of net assets acquired in business combinations, impairment of goodwill and long-lived assets, estimated useful lives of property, plant and equipment and intangible assets, stock-based compensation, determination of fair value of derivatives, income taxes and contingencies. Actual results may differ from those estimates. d) Cash and cash equivalents Cash and cash equivalents include cash and liquid investments with an original maturity of three months or less.

48 46 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 2. SIGNIFICANT ACCOUNTING POLICIES ( continued) e) Facility Development Commission The Facility Development Commission ( FDC ) is a compensation component of the Company s Casino Operational Services Agreements ( COSAs ) with the British Columbia Lottery Corporation ( BCLC ). FDC is earned (payable by BCLC to the Company) as a fixed percentage of gross gaming win, subject to the Company incurring sufficient Approved Amounts (a defined term in the COSAs and generally consists of approved capital and operating expenditures related to the development or improvement of gaming properties), and is paid weekly to the Company. Approved Amounts are reduced by the FDC receipts. FDC is recorded as part of revenues on the consolidated statements of earnings (loss) when earned, limited to the extent that sufficient Approved Amounts have previously been made by the Company. Currently, these FDC percentages range from 3% to 5% of the gross win from gaming activities. In 2006, BCLC announced it would provide for an additional accelerated FDC amount equal to 2% of the gross win from a redeveloped casino property on projects approved by the BCLC after July 1, The accelerated FDC is payable weekly beginning on the later of April 1, 2007 or the opening of a redeveloped property. The accelerated FDC is a onetime initiative that is limited to the initial redevelopment of a property and continues to be received until the approved eligible costs of the redevelopment are recovered. f) Marketing fees to BCLC The Company contributes between 0.5% and 1.5% of the gaming win in four of its BC casinos and two of its racing properties to BCLC as prepayment for marketing programs. The Company records the contribution to BCLC as a prepaid expense and expenses the prepayment based on confirmation of expenditures made by BCLC from this fund. In the event of and to the extent that the amounts contributed are not expended on marketing programs within the defined periods, the Company will be entitled to repayment of the contribution. g) Capital Reserve Account The Amended and Restated Operating Contract ( AROC ) with the Nova Scotia Gaming Corporation ( NSGC ) includes a provision for reimbursement of certain of the Company s qualifying expenditures under the Capital Reserve Account. The Company is required under the AROC to make contributions to the Capital Reserve Account equal to 5% of the annual gross operational revenues from the two Nova Scotia casinos. Reimbursement of qualifying expenditures is received from the Capital Reserve Account, or if there is an insufficient balance in the Capital Reserve Account, is recorded as a receivable from NSGC and recorded as a reduction in the historical cost of the related expenditures at the time approval is given by NSGC. As provided for in the AROC, to the extent a receivable balance exists, the Company earns interest on the balance at a rate of prime plus 2% per annum. Management believes this interest rate to be the market rate of interest of a similar instrument with similar terms and conditions. As a result, the Company does not discount the receivable. The replacement assets acquired using funds from the Capital Reserve Account are the property of the Company until the end of the AROC, at which time, the assets revert to NSGC. h) Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated amortization and amounts approved under the Capital Reserve Account. Amortization is expensed on a straight-line basis from the month assets are put in use over the estimated useful lives of the assets generally at the following rates: Land Buildings Equipment Leasehold improvements and interests not amortized 20 to 40 years 1 to 5 years lesser of useful life or lease term During the construction period of significant facilities, the Company capitalizes construction and overhead costs, including interest, directly attributable to the construction project. The costs of construction of the Company s gaming and ancillary facilities are classified as properties under development. When the property or portion thereof is substantially complete and ready for use, costs cease to be capitalized, are transferred from properties under development to their respective asset categories, and are amortized over the assets estimated useful lives.

49 47 i) Intangible assets The Company s finite-lived intangible assets consist primarily of electronic gaming rights, operational service agreements, siteholder agreements and horse racing licences. Intangible assets are amortized over their estimated useful lives ranging from five to twenty years. Judgment is used to estimate an intangible asset s useful life and is based on an analysis of all pertinent factors, including expected use of the intangible asset, contractual provisions that enable renewal or extension of the intangible asset s legal or contractual life without substantial cost, and renewal history. Changes in the estimate of an intangible asset s useful life are treated as a change in accounting estimate and are applied prospectively. Intangible assets are tested for impairment consistent with the method described for long-lived assets below (Note 2(k)). The intangible assets impairment test had no impact on the Company s results for the years ended December 31, 2007 and j) Goodwill Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of the tangible and intangible net assets acquired. Goodwill is tested for impairment at least annually and whenever events or circumstances indicate that its carrying value may not be fully recoverable. The impairment test requires comparing the carrying values of the reporting units, including goodwill, to their fair values. The Company determines fair value using price-to-earnings multiples or discounted cash flows, whichever is the most appropriate in the circumstances. The excess of the carrying value amount over the fair value of goodwill, if any, is charged to operations in the period the impairment occurred. The goodwill impairment test resulted in an impairment charge for the prior year ended December 31, 2006 (Note 8). k) Impairment of long-lived assets Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying value of a long-lived asset intended for use exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. The impairment loss is measured as the excess of the carrying value of the asset over its fair value. l) Debt refinancing transaction costs Debt refinancing transaction costs relate to the costs associated with securing long-term financing and credit facilities. These costs are expensed to interest and financing costs, net on the consolidated statements of earnings over the term of the related debt using the effective interest method. When a debt facility is retired by the Company, any remaining balance of related debt refinancing transaction costs is expensed to interest and financing costs, net on the consolidated statements of earnings in the period that the debt facility is retired. During the year ended December 31, 2006, the Company redeemed the Series A and Series B Senior Secured Notes, and in the same period, wrote off the balance of associated debt refinancing transaction costs (Note 9(a)). m) Hedges The Company changed its hedging accounting policy as required by CICA Handbook Section The hedging accounting policy is described in Note 3. n) Translation of foreign operations and foreign currency transactions The Company s financial statements are presented in Canadian dollars. The Company s non-canadian operations are translated into Canadian dollars using the current rate method. Under this method, assets and liabilities are translated into Canadian dollars using the exchange rates in effect on the dates of the Consolidated Statements of Financial Position. Revenue and expenses are translated at average exchange rates prevailing during the year. The resulting translation gains and losses are included as a separate component of comprehensive income (loss). Transactions completed in foreign currencies are translated into Canadian dollars at the rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies are reflected in the consolidated financial statements at the exchange rates prevailing at the dates of the consolidated statements of financial position with the resulting gain or loss included in the consolidated statements of earnings (loss) in the period in which it occurs. o) Stock-based compensation The Company applies the fair value method of accounting for all stock option awards. Under this method, the Company recognizes compensation expense for stock options awarded using the Black-Scholes model based on the fair value of the options at the later of the date of grant or the date of shareholder approval of any new share option plan from which options were granted. The Company assumes that all awards will vest and recognizes the effect of forfeitures as they occur. The fair value of the options is expensed over the vesting period of the options.

50 48 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) p) Revenue recognition The Company records revenues in the following manner: Gaming revenues, which include revenues from table games, slot machines, bingo games, FDC from BCLC, and the siteholder payments from Ontario Lottery and Gaming Corporation ( OLG ) are recorded when earned and payable to the Company after deduction for the portion of gaming and other revenues payable to BCLC, OLG, and NSGC, accruals for payouts on progressive games, and gaming taxes payable to Washington State. Racetrack revenues are recorded when earned and payable to the Company, net of amounts returned as winning wagers, provincial and federal taxes, and purses for wagering. Racetrack revenues also include the net amount of the host track share of wagering on races simulcast to other associations. Hotel, food and beverage, entertainment and other operating revenues are recognized as goods are delivered and services are performed. q) Income taxes The Company follows the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated tax payable for the current year. Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values. Future income tax assets, if any, are recognized only to the extent that, in the opinion of the Company, it is more likely than not that the future income tax assets will be realized. To the extent that the Company does not consider it more likely than not that a future income tax asset will be recovered, it provides a valuation allowance against the excess. Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment or substantive enactment. r) Earnings per common share Basic earnings per common share are calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per common share are presented using the treasury stock method and are calculated by dividing net earnings applicable to common shares by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued. s) Comparative figures Certain of the prior period s comparative figures have been reclassified to conform to the current period s presentation. 3. CHANGE IN ACCOUNTING POLICIES On January 1, 2007, the Company adopted new accounting policies for financial instruments by adopting the following new standards of the Canadian Institute of Chartered Accountants ( CICA ): Handbook Section 1530, Comprehensive Income; Handbook Section 3251, Equity; Handbook Section 3855, Financial Instruments Recognition and Measurement; Handbook Section 3861, Financial Instruments Disclosure and Presentation; and Handbook Section 3865, Hedges. These new standards have been applied retrospectively without prior period restatement, except for the presentation of the cumulative unrealized effect of foreign currency translation of foreign operations on the consolidated statements of financial position as a component of accumulated other comprehensive income or loss. The change in accounting policies had no other material impact on the Company s consolidated financial statements at January 1, a) Comprehensive Income CICA Handbook Section 1530 introduces comprehensive income, which consists of net earnings on the consolidated statements of earnings (loss) and other comprehensive income (loss) ( OCI ). OCI represents changes in shareholders equity in a period arising from the portion of the change in the fair values of the Company s derivatives designated as cash flow hedges that are determined to be effective, gains and losses on derivatives designated as cash flow hedges transferred to net earnings in the current period, and the unrealized effect of foreign currency translation of foreign operations.

51 49 b) Financial Instruments CICA Handbook Sections 3855 and 3861 establish standards for the recognition, measurement, presentation and disclosure of financial instruments. Financial instruments are initially recognized at fair value. The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm s-length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values of financial instruments are based on independent prices quoted in active markets. In the absence of an active market, fair values are determined based on valuation models such as discounted cash flows, which require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. Subsequent measurement depends on management s classification of the financial assets as held-for-trading, available-for-sale, held-to-maturity or as loans and receivables, and financial liabilities as held-fortrading or as other liabilities. The classification of financial instruments depends on the nature of and the purpose of the financial instruments, management s choice and in some circumstances, management s intentions. Held-for-Trading Financial instruments classified as held-for-trading are measured at fair value with the realized and unrealized changes in fair value recognized each reporting period through interest and financing costs, net on the consolidated statement of earnings. The Company had no transition adjustments at January 1, 2007 for held-for-trading financial instruments, as the Company s held-for-trading financial instruments were already carried at fair value. Available-for-Sale Financial assets classified as available-for-sale are measured at fair value with the unrealized changes in fair value recorded each reporting period in OCI. Investments in equity instruments classified as available-for-sale that do not have a quoted price in an active market are recorded at cost. Each reporting period, available-for-sale assets are written down to fair value through interest and financing costs, net on the consolidated statement of earnings to reflect impairments that are considered to be other than temporary. The Company had no transition adjustments at January 1, 2007, as its availablefor-sale financial instruments were carried at their fair value of $nil to reflect an impairment. Held-to-Maturity, Loans and Receivables and Other Liabilities Financial instruments classified as held-to-maturity, loans and receivables and other liabilities are measured at amortized cost using the effective interest method. The Company had no material transition adjustments at January 1, 2007 for held-to-maturity financial instruments, loans and receivables, or other liabilities since their carrying value as at January 1, 2007 approximated their amortized cost. The following table summarizes the Company s selected financial instrument classifications based on its intentions: Financial instrument Cash Cash equivalents Restricted cash Accounts receivable Due from Nova Scotia Gaming Corporation Accounts payable and accrued liabilities Long-term debt Derivative liability Classification Held for trading Held to maturity Held for trading Held for trading Held to maturity Held for trading Held to maturity Held to maturity c) Embedded derivatives The Company assessed the existence of embedded derivatives in its financial instruments. Other than the embedded derivative related to the early redemption option on the Senior Subordinated Notes (Note 10), the Company does not have any material embedded derivatives that require separate accounting. Changes in the fair value of the Company s embedded derivatives are recorded in interest and financing costs, net on the consolidated statements of earnings. d) Hedges CICA Handbook Section 3865 specifies the criteria that must be satisfied in order for a financial instrument to be considered an effective hedge and for hedge accounting to be applied. It also defines the accounting treatment for each of the permitted hedging strategies: fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in

52 50 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 3. CHANGE IN ACCOUNTING POLICIES (continued) self-sustaining foreign operations. The Company assesses the effectiveness of its hedging instruments at each reporting period. Hedge accounting is discontinued prospectively when the hedging relationship no longer qualifies as an effective hedge, or it is terminated upon the early termination of the hedged item. When hedge accounting is discontinued, changes in fair value of these financial instruments are recorded as interest and financing costs, net on the consolidated statements of earnings (loss). The Company had no transition adjustments for hedges, as it had no hedging relationships at January 1, In anticipation of refinancing the Company s debt on February 14, 2007, the Company entered into cross-currency interest rate swaps (Note 10) to hedge the U.S. dollar exchange rate and interest rate risks associated with the issued debt. The Company designated these cross-currency interest rate swaps as cash flow hedges. These hedging instruments are presented on the consolidated statements of financial position at December 31, 2007 at fair value. The portion of the changes in fair values of the cross-currency interest rate swaps that is determined to be effective is recorded in OCI as changes in fair value of derivatives designated as cash flow hedges, and any ineffective portion is recorded as interest and financing costs, net in the consolidated statements of earnings. The hedged debt is translated to Canadian dollars at the exchange rate in effect on the last day of the reporting period, and through the application of hedge accounting, the resulting foreign exchange gains or losses included in the foreign exchange loss line of the consolidated statements of earnings are effectively offset by the gains or losses on derivatives designated as cash flow hedges. e) Translation of foreign operations As specified in CICA Handbook Section 1530, since transition on January 1, 2007, the Company presented the unrealized effect of foreign currency translation of foreign operations as a component of accumulated OCI for the current and prior periods. f) Debt refinancing transaction costs In accordance with CICA Handbook Section 3855, the Company recorded debt refinancing transaction costs for the Term Loan B and the Senior Subordinated Notes (Note 9) as a reduction of the carrying value of the related debt, and amortizes these costs using the effective interest method over the term of the related debt. Transaction costs related to the Revolving Credit Facility are included in other assets on the consolidated statements of financial position and are amortized on a straight-line basis over the term of the Revolving Credit Facility through the interest and financing costs, net line of the consolidated statements of earnings. RECENT ACCOUNTING PRONOUNCEMENTS In December, 2006, the CICA issued Handbook Section 1535, Capital Disclosures. The new standard requires disclosure of qualitative and quantitative information that enables users of financial statements to evaluate the Company s objectives, policies and processes for managing capital. These recommendations are effective for the Company s interim and annual reporting periods beginning January 1, This new standard will require incremental disclosures, however, it is not expected to have a material effect on the Company s consolidated financial statements. In December 2006, the CICA issued Handbook Sections 3862, Financial Instruments Disclosures, and 3863, Financial Instruments Presentation, which will replace Section 3861, Financial Instruments Disclosure and Presentation. The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements and are effective for the Company s interim and annual reporting periods beginning January 1, These new standards will require revised disclosures, however, they are not expected to have a material effect on the Company s consolidated financial statements. In March 2007, the CICA issued Handbook Section 3031, Inventories, which has replaced Section 3030 with the same title. The new Section establishes that inventories should be measured at the lower of cost and net realizable value, with guidance on the determination of cost. These recommendations are effective for the Company s interim and annual reporting periods beginning January 1, This new standard is not expected to have a material effect on the Company s consolidated financial statements. In January 2006, the CICA Accounting Standards Board ( AcSB ) adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, accounting standards in Canada for public companies will converge with International Financial Reporting Standards ( IFRS ) no later than the end of The impact of the transition to IFRS on the Company s consolidated financial statements has not yet been determined. The Company will monitor the requirements of the IFRS transition and adopt the new standards as required.

53 51 4. CASH AND CASH EQUIVALENTS December 31, December 31, Cash in bank $ 32.5 $ 30.0 Cash floats Cash equivalents $ $ 56.8 Cash equivalents includes investments in term deposits, commercial paper, bankers acceptances, money market investments and guaranteed investment certificates with original maturities within three months of December 31, At December 31, 2007 the Company did not hold any cash equivalents in asset-backed commercial paper. Cash and cash equivalents excludes cash floats of $15.6 (2006 $16.5) provided by BCLC for use in BC casino operations. Since these cash floats are owned by BCLC, they are not reflected in the Company s cash and cash equivalents balances. The Company has issued letters of credit in favour of BCLC as security for these amounts (Note 21). Restricted cash is composed primarily of $0.1 (2006 $0.3) related to payments for construction projects, $1.2 (2006 $0.5) held for capital expenditures that require approval from OLG, and $2.2 (2006 $1.5) for horsemen s purse pools. 5. DUE FROM NOVA SCOTIA GAMING CORPORATION Due from NSGC includes the Operator s Capital Investment, Mandatory Deferrals, and Capital Reserve Account receivables from NSGC. December 31, December 31, Mandatory Deferral $ 10.8 $ 21.9 Capital Reserve Account Operator s Capital Investment Less: current portion $ 1.9 $ 17.7 On July 1, 2005, the Company entered into an agreement with NSGC to operate the two Nova Scotia casinos. As provided for in the agreement, the Company is entitled to the repayment of the initial capital investment in building the Nova Scotia casinos through the Operator s Capital Investment and Mandatory Deferrals receivables which accrue interest on the outstanding balances at 12% and prime plus 1% per annum, respectively. The Operator s Capital Investment receivable was repaid in April The Mandatory Deferral receivable will be repaid in monthly instalments of $0.9. The Capital Reserve Account receivable accrues interest on the outstanding balance at prime plus 2% per annum, and is repaid based on 5% of the annual gross operational revenues from the two Nova Scotia casinos. 6. PROPERTY, PLANT AND EQUIPMENT As at December 31, 2007 Historical Accumulated Net Book Cost Amortization Value Land $ 61.8 $ $ 61.8 Buildings Properties under development Equipment Leasehold improvements and interests $ $ $ As at December 31, 2006 Historical Accumulated Net Book Cost Amortization Value Land $ 62.5 $ $ 62.5 Buildings Properties under development Equipment Leasehold improvements and interests $ $ 76.3 $ 565.8

54 52 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 7. INTANGIBLE ASSETS December 31, December 31, Cost $ $ Accumulated amortization (24.0 ) (14.4 ) $ $ Intangible assets relate primarily to gaming licenses. Intangible assets are amortized over their estimated useful lives, primarily 20 years, resulting in amortization expense of $9.6 ( $9.5) for the year ended December 31, GOODWILL December 31, December 31, Balance, beginning of year $ 30.6 $ 37.5 Additions for contingent consideration Impairment charge (9.9 ) Foreign exchange translation (1.2 ) Balance, end of year $ 37.0 $ 30.6 The additions to goodwill in 2007 relate to further contingent consideration based on financial performance relating to previous years acquisitions. The impairment charge in 2006 reflects the full write-off of goodwill associated with the investment in HEI, the Company s subsidiary that operates Hastings Racecourse. The write-off resulted from a year-end review of our operations and the associated impairment tests. 9. LONG-TERM DEBT December 31, December 31, Term Loan B, net of unamortized transaction costs of $3.0 $ $ Senior Subordinated Notes and $1.9 unamortized premium net of unamortized transaction costs of $ Hastings Promissory Note Obligations under capital leases and other debt Bridge Credit Facility Revolving Credit Facility (Note 9) 95.0 Bridge Credit Facility Non-Revolving Credit Facility (Note 9) Flamboro Promissory Note (Note 9) Less: current portion $ $ The expected repayments of long-term debt for the five following years ended December 31 are as follows: 2008 $ Thereafter Total repayments Less: unamortized premium and transaction costs 7.3 Total long-term debt (including current portion) $ a) Debt refinancing On February 14, 2007, the Company completed its debt refinancing. The refinancing consisted of three components: (i) an undrawn $200.0 Senior Secured Revolving Credit Facility; (ii) a US$170.0 Senior Secured Term Loan B; and (iii) US$170.0 of Senior Subordinated Notes. The gross proceeds of the debt refinancing were $ The net proceeds were $388.7 after transaction costs of $13.2, and were used to repay and retire the Bridge Credit Facility, provide cash that was used to repay the Flamboro Promissory Note on July 3, 2007 (Note 9(c)) and provide cash for future capital expenditures and working capital purposes.

55 53 The Senior Secured Revolving Credit Facility (the Revolving Credit Facility ) and the Senior Secured Term Loan B (the Term Loan B ) are guaranteed and secured by substantially all of the assets of the Company and its subsidiaries. Both the Revolving Credit Facility and the Term Loan B require the Company to comply with certain operational covenants and the following financial covenants (which are defined in the underlying debt agreements): Total Debt to Adjusted EBITDA ratio of 5.0 or less; Senior Debt to Adjusted EBITDA ratio of 3.5 or less, and Interest Coverage ratio of greater than 2.0 for the first three years following February 14, 2007 and greater than 2.25 thereafter. Subject to compliance with all operational and financial covenants, the Company has the option to increase the Revolving Credit Facility or issue additional term loans by up to $150.0 on the same terms and conditions except with limitations on the market interest rate margin applicable at that time in the case of the term loans. The Revolving Credit Facility has a five-year term. The interest rate on advanced amounts and the commitment fee on the unused facility are based on the Company s Total Debt to Adjusted EBITDA ratio, which is calculated quarterly. The Term Loan B is denominated in U.S. dollars (US$168.7 as at December 31, 2007) and bears interest at a floating rate (LIBOR plus 1.50%), payable quarterly. The Company has hedged both the currency risk and the floating interest rate risk to effectively result in a principal of $199.3 as at December 31, 2007 in Canadian dollars and a fixed interest rate of 6.1% per annum. The Term Loan B has a term of 7 years and is repayable without premium or penalty, subject to customary costs, at any time. Principal repayments of $0.5 in Canadian dollars are required quarterly, with the balance due at maturity on February 13, The Senior Subordinated Notes (the Subordinated Notes ) are unsecured and guaranteed by the Company and substantially all of its subsidiaries. The Subordinated Notes are denominated in U.S. dollars (US$170.0) and bear interest at a rate of 7.25%, payable semi-annually. The Company has hedged the currency risk to effectively result in a principal of $201.1 in Canadian dollars at a fixed interest rate of 6.6% per annum. The Subordinated Notes have a term of 8 years with the principal amount of the notes repayable at maturity on February 15, There are provisions for early redemptions of the Subordinated Notes during defined periods prior to maturity with payment of defined premiums. These provisions for early redemption were recorded at their fair value on February 14, 2007 as a derivative asset and as a premium on the Subordinated Notes (Note 10(b)). The Subordinated Notes require the Company to comply with operational and financial covenants. The financial covenant requires the Company to maintain a Fixed Charge Coverage Ratio, as defined in the underlying note agreement, of greater than 2.0 until March 31, 2010 and 2.25 thereafter, and is tested on the occurrence of specified events. All the debt facilities have: (i) mandatory repayments in the case of proceeds from certain asset sales or receipt of insurance proceeds that are not re-invested by the Company within certain time limits; (ii) restrictions on certain asset sales, acquisitions, and distributions; (iii) limitations on the incurrence of additional debt or indebtedness or liens; and (iv) provisions for the Company to re-purchase and re-issue portions of the Term Loan B and/or Subordinated Notes should the holder be required to register with a gaming authority having jurisdiction over the Company and either refuses or is found to be unsuitable for registration. The transaction costs of establishing the Term Loan B and the Subordinated Notes were $10.5 and were recorded as a reduction of the balance of the related debt, and are expensed to interest and financing costs, net on the consolidated statements of earnings over the term of the related debt using the effective interest method. The transaction costs of establishing the Revolving Credit Facility were $2.7 and are recorded as a component of other assets on the consolidated statements of financial position, and are expensed to interest and financing costs, net on the consolidated statements of earnings over the term of the Revolving Credit Facility. b) Bridge Credit Facility Using the proceeds from the issuance of the Term Loan B and Subordinated Notes, the Bridge Credit Facility was retired on February 14, Debt refinancing transaction costs of $1.6 associated with the Bridge Credit Facility were expensed to interest and financing costs, net on the consolidated statement of earnings during the year ended December 31, c) Flamboro Promissory Note On July 3, 2007, the Flamboro promissory note of $41.7 was repaid using proceeds from the issuance of the Term Loan B and Subordinated Notes.

56 54 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 9. LONG- TERM DEBT ( continued) d) Interest and financing costs, net Interest and financing costs, net consists of: December 31, December 31, Interest expense on long-term debt $ (31.2 ) $ (24.8 ) Interest income Interest expense, net (24.8 ) (20.1 ) Series A and B Notes prepayment fees (25.2 ) Series A and B Notes deferred financing costs (7.2 ) Series B Note interest rate hedge gain 1.5 Series A and B Notes redemption costs (30.9 ) $ (24.8 ) $ (51.0 ) Interest and financing costs capitalized to property, plant and equipment for the year ended December 31, 2007 were $nil (2006 $1.6). 10. DERIVATIVES a) Cross-currency interest rate swaps The Company s risk management strategy is to minimize exposure to currencies other than the Canadian dollar and, with the exception of revolving lines of credit, to fix substantially all of its floating interest rate debt. The Company s interest rate risk is limited to the floating interest rate risk associated with the Revolving Credit Facility. In anticipation of issuance of the Company s debt refinancing, the Company entered into a series of cross-currency interest rate swaps that effectively converted both the U.S. dollar floating interest rate Term Loan B and the U.S. dollar fixed interest rate Subordinated Notes into Canadian dollar fixed interest rate debt. The cross-currency interest rate swap agreements are: Notional Principal Interest Rate Debt Receive (USD) Pay (CAD) Receive (USD) Pay(CAD) Maturity Date Term Loan B $ (1) $ (1) US LIBOR+1.50% 6.1% February 13, 2014 Subordinated Notes $ $ % 6.6% February 15, 2015 (1) The Term Loan B cross currency interest rate swap s notional principal reduces by 0.25% of the original principal of $170.0 USD quarterly to match the scheduled principal reductions on the Term Loan B. These cross-currency interest rate swaps have been evaluated by the Company and have been designated as effective hedges of the cash flows associated with the Term Loan B and the Subordinated Notes. The Company has applied hedge accounting to these swaps, as it believes hedge accounting to be representative of the economic substance of the underlying transactions. As at December 31, 2007, the cross-currency interest rate swaps have been recorded as a long-term liability at their fair value of $62.8. The cross-currency interest rate swaps were determined to be fully effective hedges of the cash flows associated with the Term Loan B and the Subordinated Notes and, accordingly the changes in fair values have been recorded in other comprehensive income. The fair values of the Company s cross-currency interest rate swaps at December 31, 2007 were determined based on a discounted cash flow model. This model makes assumptions regarding the U.S. dollar exchange rate and discount rates, which are based on the prevailing U.S. dollar exchange rates and prevailing interest rates in Canada and the U.S. at December 31, b) Embedded derivative The Company s Subordinated Notes agreement has provisions for early redemption during defined periods prior to maturity with the payment of defined premiums. On issuance of the Subordinated Notes on February 14, 2007, the $2.1 fair value of this embedded derivative was recorded as a derivative asset in other assets and as a premium on the longterm debt on the consolidated statements of financial position. The fair value of this embedded derivative included in other assets as at December 31, 2007 is $1.5 and the change in the fair value was recorded in interest and financing, net on the consolidated statements of earnings. The premium is amortized over the term of the Subordinated Notes using the effective interest method.

57 55 11.SHARE CAPITAL AND CONTRIBUTED SURPLUS a) Share capital and contributed surplus Share Capital And Common Shares Contributed Contributed Number (1) Amount Surplus Surplus At December 31, ,450 $ $ 7.9 $ Treasury offering, net of tax effected issuance costs of $0.3 6, Stock based compensation and restructuring costs Exercise of incentive stock options (0.4 ) 1.0 At December 31, ,147 $ $ 14.9 $ Stock based compensation Exercise of incentive stock options (2.4 ) 7.6 Common shares purchased (Note 11(c)) (2,273 ) (8.7 ) (0.5 ) (9.2 ) At December 31, ,816 $ $ 19.0 $ (1) Share information is presented in thousands of common shares. The Company is authorized to issue an unlimited number of common shares with no par value. b) Private placement of units On March 28, 2006, the Company completed a private placement of 6,206,361 units at a price of $12.89 per unit for net proceeds of $79.7 after share issuance costs of $0.3. The Company s Chairman and Chief Executive Officer participated in the private placement for $50.0 of the total offering. Each unit comprised one common share and one share purchase warrant, which is exercisable into one common share at an exercise price of $12.89 until March 28, The net proceeds of the unit have been allocated between the common share and share purchase warrant based on the residual value method. The fair value of the common share component was determined to be $12.89 based on its trading price prior to closing. A residual value of $nil was assigned to the share purchase warrant component. These share purchase warrants were the only warrants outstanding at December 31, c) Normal course issuer bid On July 19, 2007, the Company announced its intention to commence a normal course issuer bid for up to 6.4 million of its common shares, representing approximately 10% of the public float of the common shares of the Company. Purchases will be by way of open market purchases through the facilities of the TSX, and conducted at the market price at the time of acquisition. All shares purchased by the Company will be subsequently cancelled. The Company received approval from the TSX to commence this bid on July 23, The bid will end on July 22, 2008 or earlier if the number of common shares sought in the issuer bid have been obtained. The Company has reserved the right to terminate the bid earlier if it feels it is appropriate to do so. Pursuant to TSX policies, daily purchases made by the Company will not exceed 70,103 common shares, subject to certain prescribed exceptions. During 2007 the Company purchased 2,273,200 of its common shares for an aggregate consideration of $31.3. Subsequent to December 31, 2007, the Company purchased an additional 629,600 common shares at a cost of $9.2. d) Stock Option Plan Under the Company s stock option plan, the maximum number of stock options reserved for issuance is limited to 10% of the common shares issued and outstanding at any given time. As at December 31, 2007, 2,475,995 common shares remain available for granting. Also under the plan, no one individual may receive stock options in excess of 5% of the issued and outstanding common shares of the Company. Stock options granted vest over three years and expire five years from the date of grant.

58 56 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 11. SHARE CAPITAL AND CONTRIBUTED SURPLUS (continued) Outstanding stock options under the plan are as follows: Weighted-Average Weighted-Average Options (1) Exercise Price Options (1) Exercise Price Outstanding at beginning of year 5,146 $ ,624 $ Granted 1, , Forfeited (129 ) (1,637 ) Exercised (942 ) 8.10 (491 ) 2.09 Outstanding at end of year 6,023 $ ,146 $ (1) Option information is presented as options for thousands of common shares. Options outstanding and exercisable at December 31, 2007 are as follows: Weighted- Average Weighted- Weighted- Remaining Average Average Number Contractual Exercise Number Exercise Exercise Price Outstanding (1) Life Price Exercisable (1) Price $6.74 $ years $ $ 8.49 $11.60 $ , years , $17.37 $ years $18.47 $ years (1) Option information is presented as options for thousands of common shares. 6, years $ ,401 $ The fair values of stock options granted during 2007 were determined using the Black-Scholes option pricing model with the following assumptions: no dividends are to be paid; expected volatility of 45% ( % to 45%); risk-free interest rate of 4.0% ( % to 4.4%); and expected lives of three years (2006 three years). During the year ended December 31, 2007, the total compensation expense related to the fair value of stock options was $7.0 (2006 $6.3), of which $6.5 (2006 $6.1) was to employees and directors and $0.5 (2006 $0.2) was to consultants. Subsequent to December 31, 2007, 1,997,500 stock options were granted at an exercise price of $ e) Employee share purchase plan Eligible employees of the Company may elect to participate in the Employee Share Purchase Plan (the Share Purchase Plan ) by contributing up to 5% of their gross pay with the Company matching 25% of the contributions. As at December 31, 2007, 369,677 ( ,979) common shares were held under the Share Purchase Plan and 40% of employees participated in the Plan ( %). 12. REVENUES Year ended December 31, Gross table win $ $ Gross slot win Gross racetrack Facility Development Commission Food and beverage Hotel revenues Other revenues Less: 1, Gaming, taxes and other commissions (505.6 ) (474.8 ) Racetrack purses (105.8 ) (89.5 ) Less: Promotional allowances (10.3 ) (9.6 ) Revenues $ $ 385.2

59 RESTRUCTURING COSTS Restructuring costs in 2007 related to severance and lease termination costs associated with the November 2007 closure of Casino on Broadway in Vancouver, B.C. In 2006, restructuring costs included $4.1 in severances, $5.6 for the voluntary buyout of hospitality services from a third party service provider and other obligations associated with departed employees. 14. INCOME TAXES (RECOVERY) The Company s income tax expense (recovery) is as follows: Year ended December 31, Current income tax expense (recovery) $ 8.7 $ (0.1 ) Future income tax expense (recovery) (8.1 ) (3.9 ) $ 0.6 $ (4.0 ) Basic blended federal and provincial statutory income tax rate 33.82% 35.12% Expected income tax provision (recovery) for the period $ 12.8 $ (7.2 ) Effect of: Changes in tax rates for future income taxes (11.5 ) (4.4 ) Non-deductible stock-based compensation Tax rate differential on and adjustments related to prior years income tax provisions (3.0 ) - Non-deductible goodwill impairment 3.5 Benefit of capital losses not previously recognised 1.6 $ 0.6 $ (4.0 ) Temporary differences and carry-forwards which give rise to future income tax assets and liabilities at December 31 are as follows: Future income tax asset (liability) arising from: Intangible assets $ (56.6) $ (67.8) Property, plant and equipment (20.2) (6.5) Deferred partnership income (3.4) (8.1) Due from Nova Scotia Gaming Corporation (1.4) (10.4) Share issue costs Debt refinancing transaction costs Tax loss carry-forwards Series A and B Notes redemption costs Other (0.4) 0.6 $ (67.7) $ (75.8) Presented on the Consolidated Balance Sheet as: Future income tax assets $ 3.4 $ 10.7 Future income tax liabilities (71.1) (86.5) Future income tax liabilities, net $ (67.7) $ (75.8) The Company has non-capital loss carry-forwards for tax purposes of approximately $17.4 (2006 $17.8) available to reduce future years income for tax purposes. The loss carry-forwards expire in varying amounts and in varying years to 2027.

60 58 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 15. EARNINGS (LOSS) PER COMMON SHARE The following table sets out the computation of basic and diluted earnings per common share: Year ended December 31, Net earnings (loss), as reported (A) $ 35.8 $ (18.6 ) Weighted average number of common shares outstanding (B) (1) 86,227 84,471 Dilutive adjustment for stock options (1) 415 Dilutive adjustment for warrants (1) 144 Diluted weighted-average number of common shares (C) (1) 86,786 84,471 Earnings (loss) per common share Basic (A/B) $ 0.42 $ (0.22 ) Diluted (A/C) $ 0.41 $ (0.22) (1) Share information is presented in thousands of common shares. In a period where there is a net loss, the diluted weighted average number of common shares is equivalent to the basic weighted average number of common shares, as the effect of the conversion of options and warrants would be antidilutive to the loss per common share. 16. CHANGES IN NON-CASH OPERATING WORKING CAPITAL December 31, December 31, Accounts receivable $ $ (0.1 ) Income taxes receivable or payable 13.5 (9.1 ) Prepaids, deposits and other assets (0.5 ) (4.0 ) Accounts payable and accrued liabilities 7.2 (0.6 ) 17. SEGMENTED INFORMATION $ 20.2 $ (13.8 ) The Company and its subsidiaries operate primarily in one industry segment, the gaming industry. The Company conducts business in two geographic segments: Canada and the United States ( US ). Revenues and assets attributable to each geographic segment as at or for the year ended December 31, are as follows: Canada US Total Canada US Total Revenues $ $ 26.6 $ $ $ 26.5 $ Property, plant and equipment Goodwill Total assets RELATED PARTY TRANSACTIONS The following table summarizes related party transactions and balances that are in addition to those noted elsewhere in the consolidated financial statements. The Company had the following transactions with related parties: Year ended December 31, Consolidated Statements of Ear nings (Loss) Other Income ATM revenues from a company that had a director who was a member of senior management of the Company (1) $ 0.2 $ 1.5 Human Resources Amounts for dealer training services provided by a company controlled by a director of the Company $ 0.9 $ 0.8 (1) During 2007, the member of senior management resigned as a director and the related party sold the ATM service contract to an unrelated service provider. These related party transactions were recorded at the exchange amount, which is the amount of consideration paid or received as established and agreed to by the related parties.

61 FACILITY DEVELOPMENT COMMISSION APPROVED AMOUNTS As at December 31, 2007, the Company had $342.3 (December 31, 2006 $350.4) in Approved Amounts (a term defined in the Company s COSAs with the BCLC) to be recovered by future FDC receipts. Approved Amounts have not been recorded in the consolidated statements of financial position. Since FDC is earned as a fixed percentage of gaming win, subject to the Company incurring sufficient Approved Amounts, recovery of Approved Amounts requires that our operating agreements with BCLC remain in good standing. 20. EMPLOYEE FUTURE BENEFITS The Company maintains a defined contribution pension plan for its Canadian employees. Under this plan, eligible employees contribute a minimum of 2% to a maximum of 15% of their base salary. The Company makes contributions representing 2% of eligible employees base pay. Contributions made by the Company during the year ended December 31, 2007 totalled $1.6 (2006 $1.6). 21. CONTINGENCIES AND LITIGATION a) Letters of credit As at December 31, 2007, letters of credit in the amount of $32.3 ( $25.4) were outstanding as security in connection with gaming cash floats and construction projects. b) Litigation In 2005, as part of the acquisition of Georgian Downs, the Company entered into an agreement that provided a consultant a deemed contribution for a notional equity interest in Georgian Downs as consideration for certain consulting services for its operations in the Province of Ontario. The notional equity interest entitled the consultant to future remuneration depending on the operating results of Georgian Downs provided that certain services were performed. The consultant had an option to sell his notional equity interest in Georgian Downs to the Company for consideration calculated using a predefined formula based on Georgian Down s operating results for the twelve month period preceding the option s exercise. The Company had a call option to purchase the consultant s notional equity interest from June 2012 for consideration calculated using the same predefined formula. On July 30, 2007, the Company terminated the agreement and tendered the sum of $1.6 being the full amount that the Company determined to be validly due and payable to the consultant. The consultant and the Company have significantly different views as to the consultant s monetary entitlement under the agreement. The consultant refused payment of the Company s assessment of the consultant s monetary entitlement and filed an application in the Ontario Superior Court of Justice that disputes the validity of the termination of the agreement. The Company has also filed a suit in the Ontario Superior Court of Justice seeking a declaration that the agreement has been properly terminated by the Company. The Company is of the belief that it has acted appropriately with respect to both the termination and the tendering of payment to the consultant and intends to vigorously defend its position. At this stage, liability or quantum with respect to this litigation cannot be reasonably determined. The Company is involved in various other disputes, claims and litigation. Management believes the amount of the ultimate liability for these will not materially affect the financial position of the Company. c) Slot machine expansion at Hastings Racecourse A community group called the Hastings Park Conservancy, opposing the introduction of slot machines at Hastings Racecourse, challenged in the Supreme Court of British Columbia a City of Vancouver by-law amendment permitting 600 slot machines at Hastings Racecourse. This challenge was unsuccessful, as the Supreme Court upheld the City of Vancouver by-law amendment. The community group subsequently filed an appeal with the British Columbia Court of Appeal that was heard in January The Court of Appeal has reserved judgement on the matter. If the Hastings Park Conservancy is successful in the appeal, this could impact the Company s planned redevelopment of Hastings Racecourse. If the Company is unable to install 600 slot machines at Hastings Racecourse, the investment in that operation would be adversely affected.

62 60 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S For the years ended December 31, 2007 and 2006 (Expressed in millions, except for share information) 21. CONTINGENCIES AND LITIGATION (continued) d) Guarantees and indemnifications The Company provides guarantees and indemnifications in conjunction with transactions in the normal course of operations. These are recorded as liabilities when reasonable estimates of the obligations can be made. Guarantees and indemnifications that the Company has provided include obligations to indemnify: i. directors and officers of the Company and its subsidiaries for potential liability while acting as a director or officer of the ii. Company together with various expenses associated with defending and settling such suits or actions due to association with the Company, the risk of which is mitigated by the Company s directors and officers liability insurance; certain vendors of acquired companies or property for obligations that may or may not have been know at the date of the transaction; iii. certain financial institutions for costs that they may incur as a result of representations made in our debt offering documents; iv. lessors of leased properties for personal injury claims that may arise at the facilities we operate; and v. Mayfield Canada Inc. for certain claims that may arise related to their former employees. 22. COMMITMENTS a) Commitments Under the terms of various operating leases and contracts, the Company is committed to future minimum contractual payments as follows: 2008 $ Thereafter 23.8 $ 48.4 The above commitments primarily relate to property leases for the Company s head office location, Fraser Downs Racetrack, and Nova Scotia casinos in Halifax and Sydney, an operating agreement for Hastings Racecourse, and payments to fund responsible gaming centres at two of our casino locations. b) Contingent payments on acquisition As a condition of various acquisition agreements, the Company is committed to make future contingent consideration payments as follows: i) Orangeville Payments to the former owners for a period of up to four years from March 18, 2005 based on defined levels of net gaming and racing revenues of the acquired operations. ii) Vetter Management Services Ltd. Payments to the former owners of Bear Mountain Bingo (now operated as Chances Gaming Entertainment in Dawson Creek) based on a percentage of the gross slot revenues over a specified minimum level for the first three years following the relocation to the new facility in July The payments were treated as additional costs of the respective acquisitions and recorded as goodwill (Note 8). 23. FINANCIAL INSTRUMENTS The fair values of cash and cash equivalents, restricted cash, accounts receivable, due from Nova Scotia Gaming Corporation, accounts payable and accrued liabilities, derivative liabilities and long-term debt approximate their carrying values. 24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ), which differ from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with generally accepted accounting principles in the United States ( U.S. GAAP ). Material variations between financial statement items under Canadian GAAP and the amounts determined under U.S. GAAP are presented in the following reconciliation, which was prepared to comply with the requirements of Item 17 of Form 20-F of the United States Securities and Exchange Commission.

63 61 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (expressed in millions of Canadian dollars) As at December 31, 2007 Notes Under CDN Under U.S. GAAP a b c d GAAP $ $ $ $ $ $ ASSETS Current Cash and cash equivalents Restricted cash Accounts receivable 13.3 (0.1 ) 13.2 Income taxes receivable Due from Nova Scotia Gaming Corporation, current Prepaids, deposits, and other assets (0.1 ) Property, plant and equipment (0.1 ) Intangible assets Goodwill Due from Nova Scotia Gaming Corporation Future income taxes Other assets LIABILITIES Current (0.1 ) Accounts payable and accrued liabilities Income taxes payable Long-term debt, deferred credit and other liabilities, current Long-term debt Derivative liabilities Deferred credit, other liabilities and non-controlling interests Future income taxes SHAREHOLDERS EQUITY Share capital and contributed surplus (12.5 ) Accumulated other comprehensive loss (9.1 ) (2.0 ) 0.1 (11.0 ) Retained earnings (0.1 ) (0.1 ) (0.1 ) (0.1 ) See accompanying notes.

64 62 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (expressed in millions of Canadian dollars, except for share information) For the year ended December 31, 2007 Notes Under CDN Under U.S. GAAP a b c d GAAP $ $ $ $ $ $ REVENUES EXPENSES Human resources Property, marketing and administration Amortization 40.1 (0.2 ) 39.9 Stock-based compensation Restructuring costs (0.2 ) EARNINGS FROM OPERATIONS Interest and financing costs, net Goodwill impairment Foreign exchange loss EARNINGS BEFORE INCOME TAXES Income tax expense EARNINGS BEFORE NON-CONTROLLING INTERESTS Non-controlling interests NET EARNINGS EARNINGS PER COMMON SHARE Basic Diluted WEIGHTED AVERAGE NUMBER OF COMMON SHARES Basic 86,226,888 86,226,888 Diluted 86,785,571 86,785,571 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Changes in fair values of derivatives (41.4 ) (41.4 ) Loss on derivatives Unrealized effect of foreign currency translation (5.1) (5.1) OTHER COMPREHENSIVE LOSS (3.8 ) (3.8 ) COMPREHENSIVE INCOME See accompanying notes.

65 63 CONSOLIDATED STATEMENT OF CASH FLOWS (expressed in millions of Canadian dollars) For the year ended December 31, 2007 Cash Flows from Operating Activities Notes Under CDN Under U.S. GAAP a b c d GAAP $ $ $ $ $ $ Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Amortization 40.1 (0.2 ) 39.9 Goodwill impairment Stock-based compensation and non-cash restructuring costs Non-cash interest and financing costs Future income taxes (8.8 ) (8.8 ) Other (0.4 ) (0.4 ) Changes in non-cash operating working capital Net cash provided by operating activities Cash Flows from Investing Activities Purchase of property, plant and equipment, net of related accounts payable (32.8) (32.8) Funds received from Nova Scotia Gaming Corporation Funds due from Nova Scotia Gaming Corporation to purchase plant and equipment (4.0) (4.0) Restricted cash Acquisitions related contingent payments (5.9 ) (5.9 ) Promissory notes Net cash used in investing activities (21.2 ) (21.2 ) Cash Flows from Financing Activities Proceeds from long-term debt Repayment of long-term debt (388.9 ) (388.9 ) Transaction costs (13.0 ) (13.0 ) Common shares issued for cash, net of issuance costs Purchase of common shares (31.3 ) (31.3 ) Net cash used in financing activities (23.6 ) (23.6 ) Effect of foreign exchange on cash and cash equivalents (1.5) (1.5) Net Cash Inflow Cash and cash equivalents, Beginning of year Cash and cash equivalents, End of year Supplemental Disclosure Interest received Interest paid Income taxes received See accompanying notes.

66 64 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) CONSOLIDATED STATEMENT OF FINANCIAL POSITION (expressed in millions of Canadian dollars) As at December 31, 2006 Notes Under CDN Under U.S. GAAP a b c d GAAP $ $ $ $ $ $ ASSETS Current Cash and cash equivalents Restricted cash Accounts receivable 13.3 (0.1 ) 13.2 Income taxes receivable Due from Nova Scotia Gaming Corporation, current Prepaids, deposits, and other assets (0.1 ) Property, plant and equipment (0.3 ) Intangible assets Goodwill Due from Nova Scotia Gaming Corporation Future income taxes Other assets (0.2 ) (0.1 ) LIABILITIES Current Accounts payable and accrued liabilities Income taxes payable Long-term debt, deferred credit and other liabilities, current Long-term debt Derivative liabilities Deferred credit, other liabilities and non-controlling interests Future income taxes 86.5 (0.1 ) (0.1 ) SHAREHOLDERS EQUITY Share capital and contributed surplus (12.5) Accumulated other comprehensive loss (5.3) (2.0) 0.1 (7.2) Retained earnings (0.2) (0.1) (0.1) (0.1) (0.2) (0.1) See accompanying notes.

67 65 CONSOLIDATED STATEMENT OF LOSS AND COMPREHENSIVE LOSS (expressed in millions of Canadian dollars, except for share information) For the year ended December 31, 2006 Notes Under CDN Under U.S. GAAP a b c d GAAP $ $ $ $ $ $ REVENUES EXPENSES Human resources Property marketing and administration Amortization 40.2 (0.2 ) 40.0 Stock-based compensation Restructuring costs (0.2 ) EARNINGS FROM OPERATIONS Interest and financing costs, net Goodwill impairment Foreign exchange loss LOSS BEFORE INCOME TAXES (20.5 ) (22.3 ) Income tax recovery (4.0 ) 0.1 (3.9 ) LOSS BEFORE NON-CONTROLLING INTERESTS (16.5 ) (18.4 ) Non-controlling interests NET LOSS (18.6 ) (20.5 ) LOSS PER COMMON SHARE Basic (0.22 ) (0.19 ) Diluted (0.22 ) (0.19 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES Basic 84,471,204 84,471,204 Diluted 84,471,204 84,471,204 OTHER COMPREHENSIVE INCOME, NET OF TAX Unrealized effect of foreign currency translation OTHER COMPREHENSIVE INCOME COMPREHENSIVE LOSS (16.7 ) (18.6 ) See accompanying notes.

68 66 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) CONSOLIDATED STATEMENT OF CASH FLOWS (expressed in millions of Canadian dollars) For the year ended December 31, 2006 Cash Flows from Operating Activities Notes Under CDN Under U.S. GAAP a b c d GAAP $ $ $ $ $ $ Net loss (18.6 ) (16.5 ) Adjustments to reconcile net income to net cash provided by operating activities: Amortization 40.2 (0.1 ) 40.1 Goodwill impairment Stock-based compensation and non-cash restructuring costs Non-cash interest and financing costs Future income taxes (4.0 ) (4.0 ) Other 1.1 (2.0 ) (0.9 ) Changes in non-cash operating working capital (13.8 ) (13.8 ) Net cash provided by operating activities Cash Flows from Investing Activities Purchase of property, plant and equipment, net of related accounts payable (82.7) (82.7) Funds received from Nova Scotia Gaming Corporation Funds due from Nova Scotia Gaming Corporation to purchase plant and equipment (15.1) (15.1) Restricted cash Acquisitions related contingent payments (1.1) (1.1 ) Promissory notes Net cash used in investing activities (71.1 ) (71.1 ) Cash Flows from Financing Activities Proceeds from long-term debt Repayment of long-term debt (446.8 ) (446.8 ) Transaction costs (4.1 ) (4.1 ) Common shares issued for cash, net of issuance costs Purchase of common shares Net cash provided by financing activities Effect of foreign exchange on cash and cash equivalents Net Cash Outflow (13.0) (13.0) Cash and cash equivalents, Beginning of year Cash and cash equivalents, End of year Supplemental Disclosure Interest received Interest paid Income taxes paid See accompanying notes.

69 67 Notes to the Reconciliation Between Canadian and U.S. GAAP as at and for the Years Ended December 31, 2006 and 2007 a) Stock-based compensation Prior to 2006, under Canadian GAAP, the Company applied the fair value method of accounting for all stock option awards, recognizing compensation expense that was recorded as a charge against earnings. Under U.S. GAAP, the Company accounted for those awards under the recognition and measurement provisions of APB No. 25, Accounting for Stock Issued to Employees (APB 25), and its related interpretations. Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based Payment ( SFAS No. 123(R) ), using the modified-prospective application transition method. Results for prior periods have not been restated. Because the fair value recognition provisions of SFAS No. 123, Stock-Based Compensation, and SFAS No. 123(R) were materially consistent under our equity plans, the adoption of SFAS No. 123(R) did not have a significant impact on our financial position or our results of operations. Prior to our adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized compensation costs were reported as operating cash flow. b) Foreign exchange loss Under Canadian GAAP, a proportionate amount of the cumulative foreign currency translation account is recognized in net income on a partial realization or disposition of an investment in a self-sustaining foreign subsidiary. Under U.S. GAAP such recognition occurs only when there has been a substantially complete realization of the investment. c) Pre-Opening costs Under Canadian GAAP, incremental costs incurred by the Company from the opening of a new gaming facility are capitalized and are amortized over a period not exceeding five years. Under U.S. GAAP, these costs are required to be expensed as incurred. d) Accounting for variable interest entities Under Canadian GAAP, AcG-15 requires the consolidation of variable interest entities with transition provisions requiring consolidation for interim periods beginning on or after November 1, 2004 with no prior period restatement required. Under U.S. GAAP, the Company was required to consolidate its variable interest entities for its fiscal 2004 year. For U.S. GAAP purposes, the Company identified two variable interest entities in 2004 of which the Company was the primary beneficiary, Mayfield Consulting Canada Inc. and Weinlager & Amici Caffe Ltd. In accordance with FASB Interpretation 46 ( FIN 46 ), the Company has consolidated these entities with a restatement of prior periods with a cumulative-effect adjustment as of the beginning of For Canadian GAAP, since 2005 Mayfield was consolidated as a variable interest entity under AcG-15, and Weinlager & Amici Caffe Ltd. was consolidated as a subsidiary of the Company attained 100% ownership since January e) Presentation of consolidated financial statements There are also presentation adjustments related to stock-based compensation and gain on sale of property and longlived assets, which have no impact on shareholder s equity and net earnings (loss). Recent accounting pronouncements In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). This Statement defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, The Company expects that adoption of SFAS 157 will not have a material impact on its consolidated financial statements. In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 permits companies to record the cumulative effect of initially applying this approach in the first fiscal year ending after November 15, 2006 by recording necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. The adoption of SAB 108 did not have a material impact on the Company s consolidated financial statements. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS 159). This statement gives entities the option to measure certain financial assets and liabilities at fair value, with changes in fair value recorded in earnings. SFAS 159 is effective for fiscal years beginning after November 15, The Company expects that adoption of SFAS 159 will not have a material impact on its consolidated financial statements.

70 68 G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N G R E A T C A N A D I A N G A M I N G C O R P O R A T I O N B O A R D M E M B E R S From left to right: (seated) E.H. (Al) Hintz, Ross J. McLeod, Adrian R. Thomas; (standing) Richard S. Buski, Thomas W. Gaffney, R. Ronald Sheppard, Earnest C. Beaudin, Ralph Flett, Peter G. Meredith. Absent: David L. Prupas I d like to express my appreciation for Al Hintz, who is retiring from the Board. A dear friend, Al was one of the principal drivers behind British Columbia s current regulatory framework for community charity gaming. His experience has been invaluable to Great Canadian for more than a decade, and his insights will be difficult to replace. ROSS J. McLEOD, Chairman & Chief Executive Officer

71 Great Canadian Gaming Corporation CORPORATE INFORMATION Corporate Headquarters Registrar and Transfer Agent Stock Exchange Listing Great Canadian Gaming Corporation Computershare Investor Services Inc. Toronto Stock Exchange (TSX) Suite Commerce Parkway 510 Burrard Street trading Symbol: GC Richmond, British Columbia, Vancouver, British Columbia, Canada V6V 2V4 Canada V6C 3B9 Telephone: Facsimile: Banker Auditors Legal HSBC Bank Canada Deloitte & Touche LLP Lang Michener LLP Suite West Georgia Street p.o. Box Four Bentall Centre Barristers & Solicitors Vancouver, British Columbia, Suite Dunsmuir Street p.o. Box Canada V6C 3E9 Vancouver, British Columbia, Suite West Georgia Street Canada V7X 1P4 Vancouver, British Columbia, Canada V6E 4N7 DIRECTORS Ross J. McLeod, Chairman & Chief Executive Officer Thomas W. Gaffney R. Ronald Sheppard Earnest C. Beaudin, Lead Director e.h. (Al) Hintz Adrian R. Thomas Richard S. Buski Peter G. Meredith Ralph Flett David L. Prupas COMMITTEES OF THE BOARD OF DIRECTORS Audit & Risk Committee Compensation Committee Corporate Governance Committee Richard S. Buski, Chair peter G. Meredith, Chair Earnest C. Beaudin, Chair Ralph Flett ralph Flett richard S. Buski Peter G. Meredith adrian R. Thomas David L. Prupas Corporate Compliance & Security Committee Finance & Business Development Committee R. Ronald Sheppard, Chair adrian R. Thomas, Chair Earnest C. Beaudin thomas W. Gaffney Thomas W. Gaffney ross J. McLeod E.H. (Al) Hintz David L. Prupas G. Wayne Oliver (Consultant) OFFICERS & SENIOR EXECUTIVES Ross J. McLeod Bruce Black Howard S. Hum Chairman Vice-President, Vice-President, & Chief Executive Officer Corporate Finance & Business Development Operations Finance Vincent G. Trudel Howard A. Blank Chuck Keeling Chief Operating Officer Vice-President, Vice-President, media, Entertainment & Responsible Gaming Racing Operations Milton C. Woensdregt Carl V. Bolton Kiran Rao Chief Financial Officer Vice-President, Vice-President, Corporate Security & Compliance Finance & Controller Joanna E. Brierley Michael C. Cooke Walter Soo Corporate Secretary Vice-President, Vice-President, information Technology player Development Brian E. Egli Executive Vice-President, Gaming Operations Thomas N. Bell Vice-President, Corporate Development & Investor Relations W. David Fretz Vice-President, American Operations; president, Great American Gaming Corporation Peter M. Goudron Vice-President, Planning & Development

72 Great Canadian Gaming Corporation Suite Commerce Parkway Richmond, British Columbia, Canada V6V 2V4 Tel: Fax: