UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2019



OR



   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ____________ to ___________



Commission file number          0-22900



CENTURY CASINOS, INC.

(Exact name of registrant as specified in its charter) 





 

DELAWARE

84-1271317

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 



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

(Address of principal executive offices, including zip code)



(719) 527-8300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Per Share Par Value

CNTY

Nasdaq Capital Market, Inc.



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No    

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

Large accelerated filer

 

Accelerated filer

Non-accelerated filer  

 

Smaller reporting company



 

Emerging growth company



 

 

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

29,448,179  shares of common stock, $0.01 par value per share, were outstanding as of August 2, 2019.

 

1


 

 

INDEX



 

 

Part I

FINANCIAL INFORMATION

Page

Item 1.

Condensed Consolidated Financial Statements (Unaudited)



Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018



Condensed Consolidated Statements of (Loss) Earnings for the Three and Six Months Ended June 30, 2019 and 2018



Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018



Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2019 and 2018



Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 



Notes to Condensed Consolidated Financial Statements

10 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

54 

Item 4.

Controls and Procedures

54 

Part II

OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54 

Item 6.

Exhibits

55 

Signatures

56 



 

2


 

 

PART I – FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)



 

 

 

 

 

 



 

June 30,

 

 

December 31,

Amounts in thousands, except for share and per share information

 

2019

 

 

2018

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 Cash and cash equivalents

 

$

47,000 

 

$

45,575 

 Receivables, net

 

 

8,318 

 

 

6,035 

 Prepaid expenses

 

 

2,360 

 

 

1,650 

 Inventories

 

 

1,020 

 

 

898 

 Other current assets

 

 

884 

 

 

816 

Total Current Assets

 

 

59,582 

 

 

54,974 



 

 

 

 

 

 

Property and equipment, net

 

 

201,097 

 

 

187,017 

Leased right-of-use assets, net

 

 

42,796 

 

 

Goodwill

 

 

14,346 

 

 

13,993 

Deferred income taxes

 

 

1,520 

 

 

1,545 

Casino licenses

 

 

15,282 

 

 

14,628 

Trademarks

 

 

1,743 

 

 

1,730 

Cost investment

 

 

1,000 

 

 

1,000 

Equity investment

 

 

 

 

659 

Note receivable, net of current portion and unamortized discount (Note 1)

 

 

425 

 

 

Deposits and other

 

 

2,538 

 

 

3,279 

Total Assets

 

$

340,329 

 

$

278,825 



 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 Current portion of long-term debt

 

$

17,841 

 

$

17,482 

 Current portion of operating lease liabilities

 

 

4,168 

 

 

 Current portion of finance lease liabilities

 

 

281 

 

 

 Accounts payable

 

 

4,381 

 

 

3,304 

 Accrued liabilities

 

 

15,043 

 

 

15,664 

 Accrued payroll

 

 

7,047 

 

 

7,171 

 Taxes payable

 

 

5,196 

 

 

5,570 

Contingent liability (Note 6)

 

 

885 

 

 

829 

Total Current Liabilities

 

 

54,842 

 

 

50,020 



 

 

 

 

 

 

Long-term debt, net of current portion and deferred financing costs (Note 5)

 

 

54,216 

 

 

42,041 

Operating lease liabilities, net of current portion

 

 

39,703 

 

 

Finance lease liabilities, net of current portion

 

 

952 

 

 

Taxes payable and other

 

 

2,548 

 

 

3,381 

Total Liabilities

 

 

152,261 

 

 

95,442 

Commitments and Contingencies (Note 6)

 

 

 

 

 

 



See notes to unaudited condensed consolidated financial statements.



-  Continued -

 

3


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)





 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

 

December 31,

Amounts in thousands, except for share and per share information

 

2019

 

 

2018

Equity:

 

 

 

 

 

 

Preferred stock; $0.01 par value; 20,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

Common stock; $0.01 par value; 50,000,000 shares authorized; 29,448,179 and 29,439,179 shares issued and outstanding

 

 

294 

 

 

294 

Additional paid-in capital

 

 

114,880 

 

 

114,214 

Retained earnings

 

 

76,327 

 

 

76,056 

Accumulated other comprehensive loss

 

 

(10,826)

 

 

(14,243)

Total Century Casinos, Inc. Shareholders' Equity

 

 

180,675 

 

 

176,321 

Non-controlling interests

 

 

7,393 

 

 

7,062 

Total Equity

 

 

188,068 

 

 

183,383 

Total Liabilities and Equity

 

$

340,329 

 

$

278,825 



See notes to unaudited condensed consolidated financial statements.

 

4


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS (Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

 

For the six months

   

 

ended June 30,

 

ended June 30,

Amounts in thousands, except for per share information

 

2019

 

2018

 

2019

 

2018

Operating revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

41,986 

 

$

32,605 

 

$

79,326 

 

$

66,612 

Hotel

 

 

494 

 

 

505 

 

 

940 

 

 

959 

Food and beverage

 

 

5,054 

 

 

3,781 

 

 

8,805 

 

 

7,340 

Other

 

 

4,911 

 

 

2,757 

 

 

8,986 

 

 

5,359 

Net operating revenue

 

 

52,445 

 

 

39,648 

 

 

98,057 

 

 

80,270 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

21,718 

 

 

16,435 

 

 

41,284 

 

 

34,176 

Hotel

 

 

187 

 

 

180 

 

 

365 

 

 

354 

Food and beverage

 

 

4,550 

 

 

3,924 

 

 

8,480 

 

 

7,560 

General and administrative

 

 

20,963 

 

 

15,942 

 

 

37,015 

 

 

29,607 

Depreciation and amortization

 

 

2,443 

 

 

2,170 

 

 

4,868 

 

 

4,323 

Total operating costs and expenses

 

 

49,861 

 

 

38,651 

 

 

92,012 

 

 

76,020 

Earnings (loss) from equity investment

 

 

14 

 

 

(1)

 

 

(1)

 

 

(1)

Earnings from operations

 

 

2,598 

 

 

996 

 

 

6,044 

 

 

4,249 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

14 

 

 

 

 

33 

Interest expense

 

 

(1,398)

 

 

(1,089)

 

 

(2,656)

 

 

(2,120)

Gain on foreign currency transactions, cost recovery income and other

 

 

523 

 

 

190 

 

 

770 

 

 

249 

Non-operating (expense) income, net

 

 

(870)

 

 

(885)

 

 

(1,877)

 

 

(1,838)

Earnings before income taxes

 

 

1,728 

 

 

111 

 

 

4,167 

 

 

2,411 

Income tax expense

 

 

(1,370)

 

 

(14)

 

 

(2,086)

 

 

(993)

Net earnings

 

 

358 

 

 

97 

 

 

2,081 

 

 

1,418 

Net (earnings) loss attributable to non-controlling interests

 

 

(923)

 

 

220 

 

 

(1,578)

 

 

(174)

Net (loss) earnings attributable to Century Casinos, Inc. shareholders

 

$

(565)

 

$

317 

 

$

503 

 

$

1,244 



 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share attributable to Century Casinos, Inc. shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02)

 

$

0.01 

 

$

0.02 

 

$

0.04 

Diluted

 

$

(0.02)

 

$

0.01 

 

$

0.02 

 

$

0.04 

Weighted average shares outstanding - basic

 

 

29,440 

 

 

29,376 

 

 

29,440 

 

 

29,369 

Weighted average shares outstanding - diluted

 

 

29,440 

 

 

29,974 

 

 

30,114 

 

 

29,984 



 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.





 

5


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

 

For the six months



 

ended June 30,

 

ended June 30,

Amounts in thousands

 

2019

 

2018

 

2019

 

2018

   

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

358 

 

$

97 

 

$

2,081 

 

$

1,418 



 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,239 

 

 

(4,004)

 

 

3,607 

 

 

(5,345)

Other comprehensive income (loss)

 

 

2,239 

 

 

(4,004)

 

 

3,607 

 

 

(5,345)

Comprehensive income (loss)

 

$

2,597 

 

$

(3,907)

 

$

5,688 

 

$

(3,927)



 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

Net (earnings) loss attributable to non-controlling interests

 

 

(923)

 

 

220 

 

 

(1,578)

 

 

(174)

Foreign currency translation adjustments

 

 

(251)

 

 

649 

 

 

(190)

 

 

645 

Comprehensive income (loss) attributable to Century Casinos, Inc. shareholders

 

$

1,423 

 

$

(3,038)

 

$

3,920 

 

$

(3,456)



 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.





 

 

6


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)











 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months

 

For the six months



 

ended June 30,

 

ended June 30,

Amounts in thousands, except for share information

 

2019

 

2018

 

2019

 

2018

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

294 

 

$

294 

 

$

294 

 

$

294 

Balance, end of period

 

 

294 

 

 

294 

 

 

294 

 

 

294 



 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid-in Capital

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

114,475 

 

$

113,178 

 

$

114,214 

 

$

113,068 

Amortization of stock-based compensation

 

 

360 

 

 

232 

 

 

621 

 

 

347 

Incremental costs of common stock issuance

 

 

 

 

(54)

 

 

 

 

(59)

Exercise of options

 

 

45 

 

 

155 

 

 

45 

 

 

155 

Balance, end of period

 

 

114,880 

 

 

113,511 

 

 

114,880 

 

 

113,511 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(12,814)

 

$

(7,472)

 

$

(14,243)

 

$

(6,127)

Foreign currency translation adjustment

 

 

1,988 

 

 

(3,355)

 

 

3,417 

 

 

(4,700)

Balance, end of period

 

 

(10,826)

 

 

(10,827)

 

 

(10,826)

 

 

(10,827)



 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

76,892 

 

$

73,588 

 

$

76,056 

 

$

72,662 

Net (loss) earnings

 

 

(565)

 

 

318 

 

 

503 

 

 

1,244 

Cumulative effect of accounting change (1)

 

 

 

 

 

 

(232)

 

 

Balance, end of period

 

 

76,327 

 

 

73,906 

 

 

76,327 

 

 

73,906 



 

 

 

 

 

 

 

 

 

 

 

 

Total Century Casinos, Inc. Shareholders Equity

 

$

180,675 

 

$

176,884 

 

$

180,675 

 

$

176,884 



 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling Interests

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

7,570 

 

$

7,787 

 

$

7,062 

 

$

7,421 

Net earnings (loss)

 

 

923 

 

 

(219)

 

 

1,578 

 

 

174 

Foreign currency translation adjustment

 

 

251 

 

 

(648)

 

 

190 

 

 

(645)

Distribution to non-controlling interest

 

 

(952)

 

 

 

 

(989)

 

 

(30)

Cumulative effect of accounting change (1)

 

 

 

 

 

 

(49)

 

 

Fair value of non-controlling interest

 

 

(399)

 

 

445 

 

 

(399)

 

 

445 

Balance, end of period

 

 

7,393 

 

 

7,365 

 

 

7,393 

 

 

7,365 



 

 

 

 

 

 

 

 

 

 

 

 

Total Equity

 

$

188,068 

 

$

184,249 

 

$

188,068 

 

$

184,249 



 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued

 

 

9,000 

 

 

36,250 

 

 

9,000 

 

 

39,198 





See notes to unaudited condensed consolidated financial statements.



(1)

Cumulative effect of accounting change relates to the adoption of Accounting Standards Update 2016-02 (“ASU 2016-02”). See Note 2 to the unaudited condensed consolidated financial statements for further details on the adoption of this accounting standard. 



 

7


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



 

 

 

 

 

 

   

 

For the six months



 

ended June 30,

Amounts in thousands

 

2019

 

2018



 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

Net earnings

 

$

2,081 

 

$

1,418 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,868 

 

 

4,323 

Loss on disposition of fixed assets

 

 

655 

 

 

1,054 

Adjustment of contingent liability (Note 6)

 

 

50 

 

 

73 

Unrealized loss (gain) on interest rate swaps

 

 

143 

 

 

(9)

Amortization of stock-based compensation expense

 

 

621 

 

 

347 

Amortization of deferred financing costs and discount on note receivable

 

 

56 

 

 

62 

Deferred taxes

 

 

25 

 

 

686 

Loss from unconsolidated subsidiary

 

 

 

 

Loss on sale of Golden Hospitality Ltd. (Note 1 and Note 3)

 

 

16 

 

 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

Receivables, net

 

 

(2,012)

 

 

1,490 

Prepaid expenses and other assets

 

 

(68)

 

 

(1,595)

Accounts payable

 

 

1,014 

 

 

95 

Accrued liabilities

 

 

1,964 

 

 

1,424 

Inventories

 

 

(103)

 

 

(129)

Other operating liabilities

 

 

(1,271)

 

 

850 

Accrued payroll

 

 

(279)

 

 

(245)

Taxes payable

 

 

(272)

 

 

(3,582)

Contingent liability payment

 

 

 

 

(1,330)

Net cash provided by operating activities

 

 

7,489 

 

 

4,933 



 

 

 

 

 

 

Cash Flows used in Investing Activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(15,870)

 

 

(24,266)

Acquisition of Golden Hospitality Ltd., net of $0.2 million cash acquired (Note 1 and Note 3)

 

 

 

 

(337)

Investment in Minh Chau Ltd. (Note 1 and Note 3)

 

 

 

 

(445)

Proceeds from disposition of assets

 

 

 

 

Note receivable proceeds

 

 

25 

 

 

Net cash used in investing activities

 

 

(15,845)

 

 

(25,042)

 Continued –

See notes to unaudited condensed consolidated financial statements.





8


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)



 

 

 

 

 

 

   

 

For the six months



 

ended June 30,

Amounts in thousands

 

2019

 

2018



 

 

 

 

 

 

Cash Flows provided by (used in) Financing Activities:

 

 

 

 

 

 

Proceeds from borrowings

 

 

13,680 

 

 

2,958 

Principal payments

 

 

(3,669)

 

 

(2,691)

Payment of deferred financing costs

 

 

 

 

(23)

Distribution to non-controlling interest

 

 

(458)

 

 

(642)

Proceeds from exercise of stock options

 

 

45 

 

 

155 

Net cash provided by (used in) financing activities

 

 

9,598 

 

 

(243)



Effect of Exchange Rate Changes on Cash

 

$

214 

 

$

(931)



 

 

 

 

 

 

Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

 

$

1,456 

 

$

(21,283)



 

 

 

 

 

 

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

 

$

46,284 

 

$

76,444 

Cash, Cash Equivalents and Restricted Cash at End of Period

 

$

47,740 

 

$

55,161 



 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

2,271 

 

$

2,409 

Income taxes paid

 

$

1,346 

 

$

1,792 



 

 

 

 

 

 

Non-Cash Investing Activities:

 

 

 

 

 

 

Purchase of property and equipment on account

 

$

1,100 

 

$

8,076 



 

 

 

 

 

 

Non-Cash Financing Activities:

 

 

 

 

 

 

Right of use assets obtained in exchange for new finance lease liabilities

 

$

1,144 

 

$

Right of use assets obtained in exchange for new capitalized operating lease liabilities

 

$

45 

 

$

Distributions payable to non-controlling shareholders

 

$

531 

 

$



See notes to unaudited condensed consolidated financial statements.



9


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION



Century Casinos, Inc. (the “Company”) is an international casino entertainment company. The Company’s operations as of June 30, 2019 are detailed below.



The Company owns, operates and manages the following casinos through wholly-owned subsidiaries in North America and England:



·

The Century Casino & Hotel in Edmonton, Alberta, Canada (“Century Resorts Alberta” or “CRA”)

·

The Century Casino St. Albert in Edmonton, Alberta, Canada (“CSA”)

·

Century Mile Racetrack and Casino in Edmonton, Alberta, Canada (“CMR” or “Century Mile”)

·

The Century Casino Calgary, Alberta, Canada (“CAL”)

·

The Century Casino & Hotel in Central City, Colorado (“CTL”)

·

The Century Casino & Hotel in Cripple Creek, Colorado (“CRC”); and

·

The Century Casino Bath in Bath, England (“CCB”)



Century Mile is a multi-level racing and entertainment center (“REC”) in the Edmonton market area that the Company opened on April 1, 2019. Century Mile includes a one-mile horse racetrack. Century Mile held its first horse race on April 28, 2019. In addition, Century Mile operates the pari-mutuel off-track betting network in Northern Alberta, Canada. The project cost CAD 61.5 million ($47.0 million based on the exchange rate in effect on June 30, 2019) and was financed with cash from the Company’s equity offering in November 2017 and additional financing from the Company’s credit agreement with the Bank of Montreal (“BMO”). See Note 5 for additional information on the Company’s credit agreement with BMO.



The Company has a controlling financial interest through its wholly-owned subsidiary Century Resorts Management GmbH (“CRM”) in the following majority-owned subsidiaries:



·

The Company owns 66.6% of Casinos Poland Ltd (“CPL” or “Casinos Poland”). As of June 30, 2019, CPL owned licenses for eight casinos,  seven of which were operating, throughout Poland. CPL is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. Polish Airports Company (“Polish Airports”) owns the remaining 33.3% of CPL, which is reported as a non-controlling financial interest. CPL plans to open a third casino in Warsaw in August 2019 in the LIM Center, where it previously operated a casino.



·

The Company owns 75% of United Horsemen of Alberta Inc. dba Century Downs Racetrack and Casino (“CDR” or “Century Downs”). CDR operates Century Downs Racetrack and Casino, a REC in Balzac, a north metropolitan area of Calgary, Alberta, Canada. CDR is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. The remaining 25% of CDR is owned by unaffiliated shareholders and is reported as a non-controlling financial interest.



·

The Company owns 75% of Century Bets! Inc. (“CBS” or “Century Bets”). CBS operates the pari-mutuel off-track betting network in Southern Alberta, Canada. CBS is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. Rocky Mountain Turf Club (“RMTC”) owns the remaining 25% of CBS, which is reported as a non-controlling financial interest.



The Company has the following concession, management and consulting service agreements:



·

As of June 30, 2019, the Company operated five ship-based casinos through concession agreements with TUI Cruises. The Company’s concession agreements to operate the ship-based casinos onboard the Wind Spirit and Star Pride ended in January 2019 and March 2019, respectively. The concession agreements to operate the ship-based casinos onboard the Wind Surf and Star Breeze ended in April 2019, and the concession agreement to operate the ship-based casino onboard the Star Legend ended in May 2019.



10


 

 

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



·

The Company, through its subsidiary CRM, has a 7.5% ownership interest in Mendoza Central Entretenimientos S.A., an Argentinian company (“MCE”). In addition, CRM provides advice to MCE on casino matters pursuant to a consulting agreement in exchange for a fixed fee plus a percentage of MCE’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). See Note 3 for additional information related to MCE.



·

The Company, through its subsidiary CRM, had a 51% ownership interest in Golden Hospitality Ltd. (“GHL”). The Company sold its interest in GHL to the unaffiliated shareholders of GHL in May 2019 for a  $0.7 million non-interest bearing promissory note. The Company recognized a loss on the sale of its investment of less than ($0.1) million in general and administrative expenses on its condensed consolidated statement of earnings for the three and six months ended June 30, 2019. The sale of the Company’s equity interest in GHL also ended its equity interest in Minh Chau Ltd. (“MCL”). See the discussion in Note Receivable, Net of Current Portion and Unamortized Discount” below and Note 3 for additional information related to GHL and MCL.



Additional Projects and Other Developments



United States

On June 17, 2019, the Company entered into a definitive agreement to acquire the operations of Isle Casino Cape Girardeau (“Cape Girardeau”), Lady Luck Caruthersville (“Caruthersville”) and Mountaineer Casino, Racetrack and Resort (“Mountaineer”) from Eldorado Resorts, Inc. (“Eldorado Resorts”) for approximately $107.0 million (the “Acquisition”), which it expects to finance through a new credit facility or refinancing of its existing credit facility. Simultaneous with the closing of the Acquisition, VICI Properties Inc. (“VICI”) will acquire the real estate assets of the three properties for approximately $278.0 million and the Company will enter into a triple net lease agreement with VICI for the three casino properties. The lease will have an initial annual rent of approximately $25.0 million and an initial term of 15 years, with four five-year renewal options. The transaction, which is expected to close in early 2020, is subject to approvals of the Missouri Gaming Commission and the West Virginia Lottery as well as other customary closing conditions.



Bermuda

In August 2017, the Company announced that, together with the owner of the Hamilton Princess Hotel & Beach Club in Hamilton, Bermuda, it had submitted a license application to the Bermudan government for a casino at the Hamilton Princess Hotel & Beach Club. The casino will feature approximately 200 slot machines, 17 live table games, one or more electronic table games and a high limit area and salon privé. In September 2017, the Bermuda Casino Gaming Commission granted a provisional casino gaming license, which is subject to certain conditions and approvals including the adoption of certain rules and regulations by the Parliament of Bermuda.  The Company’s subsidiary, CRM, entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if a license is awarded. CRM will also provide a $5.0 million loan for the purchase of casino equipment if the license is awarded.



Preparation of Financial Statements



The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial reporting, the rules and regulations of the Securities and Exchange Commission which apply to interim financial statements and the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated.



In the opinion of management, all adjustments considered necessary for the fair presentation of financial position, results of operations and cash flows of the Company have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the quarter ended June 30, 2019 are not necessarily indicative of the operating results for the full year.



11


 

 

Cash, Cash Equivalents and Restricted Cash



A reconciliation of cash, cash equivalents and restricted cash as stated in the Company’s condensed consolidated statements of cash flows is presented in the following table:





 

 

 

 

 

 



 

June 30,

 

June 30,

Amounts in thousands

 

2019

 

2018

Cash and cash equivalents

 

$

47,000 

 

$

54,435 

Restricted cash included in deposits and other

 

 

740 

 

 

726 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

47,740 

 

$

55,161 



As of June 30, 2019, restricted cash included $0.6 million in deposits and other related to a cash guarantee for the Company’s CCB loan agreement and $0.1 million in deposits and other related to payments of prizes and giveaways for Casinos Poland.



Note Receivable, Net of Current Portion and Unamortized Discount



In May 2019, the Company sold its interest in GHL for a non-interest bearing promissory note of $0.7 million. The remaining balance will be repaid with annual payments of $0.1 million due under the note beginning in June 2020 with a final payment of $0.3 million in June 2023. The current portion of the note receivable is presented in other current assets on the Company’s condensed consolidated balance sheets.



A reconciliation of the note receivable, net of current portion and unamortized discount in the Company’s condensed consolidated balance sheets is presented in the following table:







 

 

 



 

June 30,

Amounts in thousands

 

2019

Non-interest bearing note issued

 

$

650 

Less payments

 

 

(25)

Non-interest bearing note due June 2023

 

$

625 

Less unamortized discount based on imputed interest rate of 6%

 

 

(100)

Note receivable less unamortized discount

 

$

525 

Less current portion of note receivable

 

 

(100)

Note receivable, net of current portion and unamortized discount

 

$

425 





Presentation of Foreign Currency Amounts



The Company’s functional currency is the US dollar (“USD” or “$”).  Foreign subsidiaries with a functional currency other than the US dollar translate assets and liabilities at current exchange rates at the end of the reporting periods, while income and expense accounts are translated at average exchange rates for the respective periods.  The Company and its subsidiaries enter into various transactions made in currencies different from their functional currencies.  These transactions are typically denominated in the Canadian dollar (“CAD”), Euro (“EUR”), Polish zloty (“PLN”) and British pound (“GBP”).  Gains and losses resulting from changes in foreign currency exchange rates related to these transactions are included in income from operations as they occur. 



The exchange rates to the US dollar used to translate balances at the end of the reported periods are as follows:











 

 

 

 



 

June 30,

 

December 31,

Ending Rates

 

2019

 

2018

Canadian dollar (CAD)

 

1.3087 

 

1.3642 

Euros (EUR)

 

0.8791 

 

0.8738 

Polish zloty (PLN)

 

3.7343 

 

3.7606 

British pound (GBP)

 

0.7872 

 

0.7823 



12


 

 

The average exchange rates to the US dollar used to translate balances during each reported period are as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months

 

 

 

For the six months

 

 



 

ended June 30,

 

 

 

ended June 30,

 

 

Average Rates

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Canadian dollar (CAD)

 

1.3376 

 

1.2912 

 

(3.6%)

 

1.3335 

 

1.2778 

 

(4.4%)

Euros (EUR)

 

0.8898 

 

0.8393 

 

(6.0%)

 

0.8853 

 

0.8264 

 

(7.1%)

Polish zloty (PLN)

 

3.8090 

 

3.5769 

 

(6.5%)

 

3.7980 

 

3.4881 

 

(8.9%)

British pound (GBP)

 

0.7782 

 

0.7353 

 

(5.8%)

 

0.7732 

 

0.7270 

 

(6.4%)

Source: Pacific Exchange Rate Service

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 









2. SIGNIFICANT ACCOUNTING POLICIES



Recently Issued Accounting Pronouncements - In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The objective of ASU 2017-04 is to simplify the subsequent measurement of goodwill by entities performing their annual goodwill impairment tests by comparing the fair value of a reporting unit, including income tax effects from any tax-deductible goodwill, with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds fair value. ASU 2017-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption of ASU 2017-04 is permitted on goodwill impairment tests performed after January 1, 2017. ASU 2017-04 should be applied on a prospective basis. The Company is currently evaluating the impact of adopting ASU 2017-04; however, the standard is not expected to have a material impact on its consolidated financial statements.



In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). The objective of ASU 2018-13 is to modify disclosure requirements on fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be adopted using the prospective method for certain disclosures within the guidance and retrospectively upon the effective date. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.



In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”). The objective of ASU 2018-15 is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments can be applied either retrospectively or prospectively. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.



In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). The objective of ASU 2018-17 is to improve (i) the application of variable interest entity guidance to private companies under common control and (ii) consideration of indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.



13


 

 

Changes Related to Adoption of ASU 2016-02

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The objective of ASU 2016-02 and subsequent amendments is to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous US GAAP. The Company adopted ASU 2016-02 and the subsequent amendments retrospectively on January 1, 2019 in its condensed consolidated financial statements for the three and six months ended June 30, 2019.  The Company used the alternative modified retrospective method, also known as the transition relief method permitted under ASU 2018-11, Leases (Topic 842) Targeted Improvements, which did not require the restatement of prior periods and instead recognized a $0.3 million cumulative-effect adjustment to retained earnings upon transition. See Note 11 for additional information related to the Company’s lease obligations.



When adopting the leasing standard, the Company made the following policy elections:

·

The Company elected the practical expedient to account for lease and non-lease components as a single lease component for all asset classes;

·

The Company elected the short-term lease measurement and recognition exemption and did not establish right-of-use (“ROU”) assets or lease liabilities for operating leases with terms of 12 months or less;

·

The Company used its original assumptions for operating leases entered into prior to adoption, electing not to use the hindsight practical expedient;

·

The Company elected to use the package of practical expedients for transition and did not reassess (i) whether expired or existing contracts were leases or contained leases, (ii) the classification of its existing leases, or (iii) initial direct costs for existing leases; and

·

The Company elected not to evaluate existing or expired land easements under the leasing standard prior to the date of adoption.



The impact of adopting the leasing standard on the Company’s condensed consolidated balance sheet as of January 1, 2019 was as follows:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Amounts in thousands

 

Prior to Adoption

 

Changes Related to Adoption of ASU 2016-02

 

Post Adoption

Operating Leases

 

 

 

 

 

 

 

 

 

Leased right-of-use assets, net

 

$

 

$

38,276 

 

$

38,276 

Prepaid expenses

 

 

1,650 

 

 

(136)

 

 

1,514 

Accrued liabilities

 

 

15,664 

 

 

(639)

 

 

15,025 

Operating lease liabilities, net of current portion

 

 

 

 

40,410 

 

 

40,410 

Taxes payable and other

 

 

3,381 

 

 

(1,350)

 

 

2,031 

Retained earnings

 

 

76,056 

 

 

(232)

 

 

75,824 

Non-controlling interests

 

 

7,062 

 

 

(49)

 

 

7,013 



 

 

 

 

 

 

 

 

 

Finance Leases

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

187,017 

 

 

(362)

 

 

186,655 

Leased right-of-use assets, net

 

 

 

 

362 

 

 

362 

Current portion of long-term debt

 

 

17,482 

 

 

(123)

 

 

17,359 

Current portion of finance lease liabilities

 

 

 

 

123 

 

 

123 

Long-term debt, net of current portion and deferred financing costs

 

 

42,041 

 

 

(310)

 

 

41,731 

Finance lease liabilities, net of current portion

 

$

 

$

310 

 

$

310 



14


 

 

As of December 31, 2018, maturities related to operating leases were reported as follows:





 

 

 

Amounts in thousands

 

 

 

2019

 

$

4,079 

2020

 

 

2,783 

2021

 

 

2,748 

2022

 

 

2,700 

2023

 

 

2,646 

Total

 

$

14,956 

















3.INVESTMENTS



Cost Investment

Mendoza Central Entretenimientos S.A.

In October 2014, CRM entered into an agreement (the “MCE Agreement”) with Gambling and Entertainment LLC and its affiliates, pursuant to which CRM purchased 7.5% of the shares of MCE for $1.0 million. Pursuant to the MCE Agreement, CRM is working with MCE to utilize MCE’s exclusive concession agreement with Instituto Provincial de Juegos y Casinos to lease slot machines and provide related services to Casino de Mendoza, a casino located in Mendoza, Argentina that is owned by the Province of Mendoza. MCE may also pursue other gaming opportunities. Under the MCE Agreement, CRM has appointed one director to MCE’s board of directors and had a three-year option through October 2017 to purchase up to 50% of the shares of MCE, which the Company did not exercise. The Company accounts for the $1.0 million investment in MCE using the cost method.



Equity Investment

Minh Chau Ltd.

In April 2018, CRM acquired a 51% ownership interest in GHL for $0.6 million. GHL entered into an agreement with MCL and its owners, pursuant to which GHL agreed to purchase up to a total of 51% of MCL over a three-year period for approximately $3.6 million. GHL had the option to purchase an additional 19% ownership interest in MCL for a total of 70% of MCL under certain conditions. As of June 30, 2019, GHL had paid $0.6 million for a total ownership interest in MCL of 9.21%. GHL and MCL also entered into a management agreement, which provided that GHL would manage the operations at MCL’s hotel and international entertainment and gaming club in exchange for receiving a portion of MCL’s net profit. The Company accounted for GHL’s interest in MCL as an equity investment. The Company excluded the presentation of MCL’s stand-alone financial information after it determined that it is not significant compared to the Company’s consolidated results.



In May 2019, the Company sold its ownership interest in GHL to the unaffiliated shareholders of GHL for  a $0.7 million non-interest bearing promissory note. The Company derecognized the equity investment in MCL on its condensed consolidated balance sheets as a result of the sale and is no longer an indirect party to the agreements between GHL and MCL.  



15


 

 



4.GOODWILL AND INTANGIBLE ASSETS



Goodwill

The Company tests goodwill for impairment as of October 1 each year, or more frequently as circumstances indicate it is necessary. Testing compares the estimated fair values of our reporting units to the reporting units’ carrying values. The reporting units with goodwill balances as of June 30, 2019 include the operations at CRA, CDR, CSA and CPL. The Company considers a variety of factors when estimating the fair value of its reporting units, including estimates about the future operating results of each reporting unit, multiples of earnings, various market analyses, and recent sales of comparable businesses, if such information is available. The Company makes a variety of estimates and judgments about the relevance and comparability of these factors to the reporting units in estimating their fair values. If the carrying value of a reporting unit exceeds its estimated fair value, the fair value of each reporting unit is allocated to the reporting unit’s assets and liabilities to determine the implied fair value of the reporting unit’s goodwill and whether impairment is necessary. There have been no indications of impairment at CRA, CDR, CSA or CPL since the Company’s last annual analysis that would necessitate additional impairment testing by the Company.

Changes in the carrying amount of goodwill related to CRA, CDR, CSA and CPL are as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Canada

 

Poland

 

 

 

Amounts in thousands

 

Century Resorts Alberta

 

Century Downs

 

Century Casino St. Albert

 

Casinos Poland

 

Total

Balance – December 31, 2018

 

$

3,603 

 

$

139 

 

$

3,446 

 

$

6,805 

 

$

13,993 

Effect of foreign currency translation

 

 

153 

 

 

 

 

146 

 

 

48 

 

 

353 

Balance -- June 30, 2019

 

$

3,756 

 

$

145 

 

$

3,592 

 

$

6,853 

 

$

14,346 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Intangible Assets

Trademarks

The Company currently owns two trademarks, the Century Casinos trademark and the Casinos Poland trademark, which are reported as intangible assets on the Company’s condensed consolidated balance sheets. Changes in the carrying amount of the trademarks are as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Amounts in thousands

 

Century Casinos

 

Casinos Poland

 

Total

Balance – December 31, 2018

 

$

108 

 

$

1,622 

 

$

1,730 

Effect of foreign currency translation

 

 

 

 

13 

 

 

13 

Balance -- June 30, 2019

 

$

108 

 

$

1,635 

 

$

1,743 



 

 

 

 

 

 

 

 

 

The Company has determined both trademarks have indefinite useful lives and therefore the Company does not amortize the trademarks. Rather, the Company tests its trademarks for impairment as of October 1 each year, or more frequently as circumstances indicate it is necessary. The Company tests trademarks for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company would recognize an impairment charge equal to the difference. There have been no indications of impairment related to the Century Casinos and Casinos Poland trademarks since the Company’s last annual analysis that would necessitate additional impairment testing by the Company.



16


 

 

Casino Licenses

Casino licenses consist of the following: