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 September 30, 2015

 

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) 

 

DELAWARE84-1271317

(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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  No    

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer  

 

Smaller reporting company

   

 

 

 

(Do not check if a smaller reporting company)

 

 

 

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:

24,404,263 shares of common stock, $0.01 par value per share, were outstanding as of October 26, 2015.

 

 

1


 

 

INDEX

 

 

 

Part I

FINANCIAL INFORMATION

Page

Item 1. 

Condensed Consolidated Financial Statements (Unaudited)

 

Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014

 

Condensed Consolidated Statements of Earnings (Loss) for the Three and Nine Months Ended September 30, 2015 and 2014

 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2015 and 2014

 

Condensed Consolidated Statements of Equity as of September 30, 2015 and 2014

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014

 

Notes to Condensed Consolidated Financial Statements

10 

Item 2. 

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

29 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

51 

Item 4. 

Controls and Procedures

51 

Part II

OTHER INFORMATION

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

51 

Item 6. 

Exhibits

52 

Signatures 

52 

 

 

 

 

2


 

 

PART I – FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

Amounts in thousands, except for share and per share information

 

2015

 

 

2014

ASSETS

 

(unaudited)

 

 

 

Current Assets:

 

 

 

 

 

 

 Cash and cash equivalents

 

$

29,799 

 

$

24,741 

 Receivables, net

 

 

3,892 

 

 

1,569 

 Prepaid expenses

 

 

1,031 

 

 

2,307 

 Inventories

 

 

553 

 

 

636 

 Deferred income taxes

 

 

351 

 

 

310 

 Restricted cash

 

 

 

 

257 

 Other current assets

 

 

25 

 

 

343 

Total Current Assets

 

 

35,651 

 

 

30,163 

 

 

 

 

 

 

 

Property and equipment, net

 

 

132,770 

 

 

134,627 

Goodwill

 

 

10,539 

 

 

11,629 

Deferred income taxes

 

 

4,876 

 

 

3,476 

Casino licenses

 

 

3,250 

 

 

4,026 

Trademark

 

 

1,712 

 

 

1,831 

Cost investment

 

 

1,000 

 

 

1,000 

Deposits and other

 

 

345 

 

 

360 

Deferred financing costs

 

 

298 

 

 

355 

Total Assets

 

$

190,441 

 

$

187,467 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 Current portion of long-term debt

 

$

5,522 

 

$

5,272 

 Accounts payable

 

 

2,101 

 

 

3,441 

 Accrued liabilities

 

 

6,058 

 

 

6,817 

 Accrued payroll

 

 

3,968 

 

 

4,082 

 Taxes payable

 

 

3,906 

 

 

4,799 

 Contingent liability (note 8)

 

 

3,153 

 

 

3,560 

 Deferred income taxes

 

 

157 

 

 

157 

Total Current Liabilities

 

 

24,865 

 

 

28,128 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

34,286 

 

 

32,977 

Taxes payable and other

 

 

591 

 

 

517 

Deferred income taxes

 

 

2,976 

 

 

3,419 

Total Liabilities

 

 

62,718 

 

 

65,041 

Commitments and Contingencies

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

Continued -

 

3


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

Amounts in thousands, except for share and per share information

 

2015

 

 

2014

Equity:

 

(unaudited)

 

 

 

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;  24,404,263 and 24,381,057 shares issued and outstanding

 

 

244 

 

 

244 

Additional paid-in capital

 

 

76,907 

 

 

76,169 

Retained earnings

 

 

56,821 

 

 

45,651 

Accumulated other comprehensive earnings

 

 

(10,873)

 

 

(3,636)

Total Century Casinos, Inc. shareholders' equity

 

 

123,099 

 

 

118,428 

Non-controlling interest

 

 

4,624 

 

 

3,998 

Total Equity

 

 

127,723 

 

 

122,426 

Total Liabilities and Equity

 

$

190,441 

 

$

187,467 

 

See notes to condensed consolidated financial statements.

 

4


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

 

For the nine months

   

 

ended September 30,

 

ended September 30,

Amounts in thousands, except for per share information

 

2015

 

2014

 

2015

 

2014

Operating revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

29,636 

 

$

26,377 

 

$

88,285 

 

$

81,676 

Hotel

 

 

476 

 

 

441 

 

 

1,263 

 

 

1,236 

Food and beverage

 

 

3,164 

 

 

2,680 

 

 

8,949 

 

 

8,124 

Termination of concession agreements

 

 

 

 

 

 

3,365 

 

 

Other

 

 

2,551 

 

 

1,035 

 

 

6,318 

 

 

3,891 

Gross revenue

 

 

35,827 

 

 

30,533 

 

 

108,180 

 

 

94,927 

Less: Promotional allowances

 

 

(2,301)

 

 

(2,410)

 

 

(6,377)

 

 

(6,137)

Net operating revenue

 

 

33,526 

 

 

28,123 

 

 

101,803 

 

 

88,790 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

13,284 

 

 

13,780 

 

 

42,179 

 

 

45,130 

Hotel

 

 

149 

 

 

156 

 

 

416 

 

 

445 

Food and beverage

 

 

2,698 

 

 

2,370 

 

 

7,679 

 

 

6,925 

General and administrative

 

 

11,235 

 

 

9,052 

 

 

31,728 

 

 

28,450 

Depreciation and amortization

 

 

2,078 

 

 

2,050 

 

 

5,780 

 

 

5,820 

Total operating costs and expenses

 

 

29,444 

 

 

27,408 

 

 

87,782 

 

 

86,770 

Earnings from operations

 

 

4,082 

 

 

715 

 

 

14,021 

 

 

2,020 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

11 

 

 

21 

 

 

72 

Interest expense

 

 

(816)

 

 

(707)

 

 

(2,527)

 

 

(2,090)

Gain on foreign currency transactions and other

 

 

240 

 

 

200 

 

 

1,142 

 

 

375 

Non-operating (expense), net

 

 

(570)

 

 

(496)

 

 

(1,364)

 

 

(1,643)

Earnings before income taxes

 

 

3,512 

 

 

219 

 

 

12,657 

 

 

377 

Income tax provision

 

 

373 

 

 

138 

 

 

402 

 

 

786 

Net earnings (loss)

 

 

3,139 

 

 

81 

 

 

12,255 

 

 

(409)

Net (earnings) loss attributable to non-controlling interests

 

 

(411)

 

 

715 

 

 

(1,085)

 

 

1,871 

Net earnings attributable to Century Casinos, Inc. shareholders

 

$

2,728 

 

$

796 

 

$

11,170 

 

$

1,462 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Century Casinos, Inc. shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11 

 

$

0.03 

 

$

0.46 

 

$

0.06 

Diluted

 

$

0.11 

 

$

0.03 

 

$

0.46 

 

$

0.06 

Weighted average shares outstanding - basic

 

 

24,399 

 

 

24,381 

 

 

24,389 

 

 

24,380 

Weighted average shares outstanding - diluted

 

 

24,440 

 

 

24,417 

 

 

24,430 

 

 

24,419 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

5


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

 

For the nine months

 

 

ended September 30,

 

ended September 30,

   

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands

 

2015

 

2014

 

2015

 

2014

   

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

3,139 

 

$

81 

 

$

12,255 

 

$

(409)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,631)

 

 

(3,649)

 

 

(7,770)

 

 

(3,977)

Other comprehensive (loss) income

 

 

(3,631)

 

 

(3,649)

 

 

(7,770)

 

 

(3,977)

Comprehensive (loss) income

 

$

(492)

 

$

(3,568)

 

$

4,485 

 

$

(4,386)

Comprehensive (income) loss attributable to non-controlling interests

 

 

(411)

 

 

715 

 

 

(1,085)

 

 

1,871 

Foreign currency translation adjustments

 

 

270 

 

 

534 

 

 

668 

 

 

617 

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

 

$

(633)

 

$

(2,319)

 

$

4,068 

 

$

(1,898)

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

6


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CENTURY CASINOS, INC.

STATEMENTS OF EQUITY

Amounts in thousands, except share information

Common Shares

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Other
Comprehensive
Income

 

 

Retained
Earnings

 

 

Total Century Casinos Shareholders' Equity

 

 

Noncontrolling Interest

 

 

Total Equity

BALANCE AT December 31, 2013

24,377,761 

 

$

244 

 

$

75,138 

 

$

2,008 

 

$

44,419 

 

$

121,809 

 

$

7,641 

 

$

129,450 

Net earnings (loss)

 

 

 

 

 

 

 

 

1,462 

 

 

1,462 

 

 

(1,871)

 

 

(409)

Foreign currency translation  adjustment

 

 

 

 

 

 

(3,360)

 

 

 

 

(3,360)

 

 

(617)

 

 

(3,977)

Amortization of stock-based compensation

 

 

 

 

56 

 

 

 

 

 

 

56 

 

 

 

 

56 

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

(281)

 

 

(281)

Exercise of stock options

3,296 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT September 30, 2014

24,381,057 

 

$

244 

 

$

75,197 

 

$

(1,352)

 

$

45,881 

 

$

119,970 

 

$

4,872 

 

$

124,842 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT December 31, 2014

24,381,057 

 

$

244 

 

$

76,169 

 

$

(3,636)

 

$

45,651 

 

$

118,428 

 

$

3,998 

 

$

122,426 

Net earnings

 

 

 

 

 

 

 

 

11,170 

 

 

11,170 

 

 

1,085 

 

 

12,255 

Foreign currency translation  adjustment

 

 

 

 

 

 

(7,102)

 

 

 

 

(7,102)

 

 

(668)

 

 

(7,770)

Amortization of stock-based compensation

 

 

 

 

1,230 

 

 

 

 

 

 

1,230 

 

 

 

 

1,230 

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

(507)

 

 

(507)

Exercise of stock options

23,206 

 

 

 

 

89 

 

 

 

 

 

 

89 

 

 

 

 

89 

Conversion of CDR equity (note 3)

 

 

 

 

(581)

 

 

(135)

 

 

 

 

(716)

 

 

716 

 

 

BALANCE AT September 30, 2015

24,404,263 

 

$

244 

 

$

76,907 

 

$

(10,873)

 

$

56,821 

 

$

123,099 

 

$

4,624 

 

$

127,723 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

7


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the nine months                                            ended September 30,

Amounts in thousands

 

2015

 

2014

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

Net earnings (loss)

 

$

12,255 

 

$

(409)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

5,780 

 

 

5,820 

Casino license impairment

 

 

 

 

198 

Loss on disposition of fixed assets

 

 

281 

 

 

590 

Unrealized loss on interest rate swaps

 

 

237 

 

 

Amortization of stock-based compensation expense

 

 

1,230 

 

 

56 

Amortization of deferred financing costs

 

 

77 

 

 

58 

Deferred taxes

 

 

(1,885)

 

 

(499)

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

Receivables

 

 

(2,469)

 

 

379 

Prepaid expenses and other assets

 

 

1,644 

 

 

(709)

Accounts payable

 

 

(1,833)

 

 

(1,314)

Accrued liabilities

 

 

(890)

 

 

(23)

Inventories

 

 

11 

 

 

(87)

Other operating liabilities

 

 

 

 

17 

Accrued payroll

 

 

27 

 

 

129 

Taxes payable

 

 

(1,026)

 

 

(2,046)

Contingent liability payment

 

 

(159)

 

 

Net cash provided by operating activities

 

 

13,287 

 

 

2,160 

Cash Flows used in Investing Activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(14,348)

 

 

(8,672)

Proceeds from disposition of assets

 

 

696 

 

 

Note receivable proceeds

 

 

 

 

500 

Net cash used in investing activities

 

 

(13,652)

 

 

(8,171)

Cash Flows provided by Financing Activities:

 

 

 

 

 

 

Proceeds from borrowings

 

 

11,243 

 

 

9,002 

Principal repayments

 

 

(4,484)

 

 

(2,289)

Distribution to non-controlling interest

 

 

(507)

 

 

(281)

Proceeds from exercise of stock options

 

 

89 

 

 

Net cash provided by financing activities

 

 

6,341 

 

 

6,435 

 

-

Continued –

See notes to condensed consolidated financial statements.

 

 

 

8


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the nine months                                            ended September 30,

Amounts in thousands

 

2015

 

2014

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash

 

$

(918)

 

$

(469)

 

 

 

 

 

 

 

Increase (Decrease) in Cash and Cash Equivalents

 

$

5,058 

 

$

(45)

 

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

$

24,741 

 

$

27,348 

Cash and Cash Equivalents at End of Period

 

$

29,799 

 

$

27,303 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

947 

 

$

383 

Income taxes paid

 

$

2,155 

 

$

2,225 

Non-Cash Investing Activities:

 

 

 

 

 

 

Purchase of property, plant and equipment on account

 

$

1,053 

 

$

2,305 

Conversion of CDR equity (note 3)

 

$

716 

 

$

 

See notes to 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. (“CCI” or the “Company”) is an international casino entertainment company. As of September 30, 2015, the Company owned casino operations in North America; held a majority ownership interest in nine casinos throughout Poland, a racetrack and entertainment center (“REC”) in Canada and the pari-mutuel off-track betting network in southern Alberta, Canada; managed cruise ship-based casinos on international waters; managed a  casino in Aruba and had an agreement to provide gaming services in Argentina. 

 

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

 

 

 

-  

The Century Casino & Hotel in Edmonton, Alberta, Canada;

-  

The Century Casino Calgary, Alberta, Canada;

-

The Century Casino & Hotel in Central City, Colorado; and

-

The Century Casino & Hotel in Cripple Creek, Colorado.

 

The Company’s subsidiary Century Casinos Europe GmbH (“CCE”) owns 66.6% of Casinos Poland Ltd (“CPL” or “Casinos Poland”). CPL is the owner and operator of nine casinos 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.

 

CCE owns 75% of the outstanding shares issued by 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 casino at CDR opened in April 2015 and the 2015 horse racing season is from April to November. See Note 3 for additional information related to CDR.

 

CCE owns 75% of the outstanding shares issued by Century Bets! Inc. (“CBS” or “Century Bets”) and 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. CBS began operating the pari-mutuel off-track horse betting network in southern Alberta in May 2015.

 

The Company has concession agreements to operate 11 ship-based casinos onboard ships of the following three cruise lines: TUI Cruises, Windstar Cruises, and Nova Star Cruises Ltd.  In 2015, the Company began operating the ship-based casinos onboard the following three newly launched cruise ships: Windstar Cruises Star Breeze and Star Legend and TUI Cruises Mein Schiff 4. In September 2015, the Company amended its concession agreement with TUI Cruises to include its operation of the ship-based casinos onboard Mein Schiff 5 and Mein Schiff 6,  two new 2,500 passenger cruise ships  that are currently being built and are expected to begin operations in the second quarter of 2016 and 2017, respectively. 

 

In March 2015, the Company mutually agreed with Norwegian Cruise Line Holdings (“Norwegian”) to terminate its concession agreements with Oceania Cruises (“Oceania”) and Regent Seven Seas Cruises (“Regent”), indirect subsidiaries of Norwegian, effective June 1, 2015 (the “Termination Agreement”). The Company transitioned operations of the eight ship-based casinos that it operated onboard Oceania and Regent vessels to Norwegian in the second quarter of 2015. As consideration for the early termination of the concession agreements, the Company received $4.0 million in June 2015. In the second quarter of 2015, the Company recorded this on its condensed consolidated statement of earnings (loss) under operating income less $0.6 million in assets that were sold to Norwegian as part of the Termination Agreement. The Company also entered into a two-year consulting agreement, which became effective on June 1, 2015, under which the Company is providing limited consulting services for the ship-based casinos of Oceania and Regent in exchange for receiving a consulting fee of $2.0 million, which is payable $250,000 per quarter.  

 

The Company has a long-term management agreement to direct the operation of the casino at the Hilton Aruba Caribbean Resort and Casino from which the Company receives a monthly management fee.

 

 

10


 

 

In October 2014, CCE purchased 7.5% of the shares of Mendoza Central Entretenimientos S.A., an Argentina company (“MCE”), for $1.0 million. The shares are reported on the condensed consolidated balance sheet using the cost method of accounting. MCE has an exclusive concession agreement with Instituto Provincial de Juegos y Casinos to lease slot machines and provide related services to Mendoza Casino, a casino located in Mendoza, Argentina and owned by the Province of Mendoza. In addition, CCE and MCE have entered into a Consulting Services Agreement pursuant to which CCE provides advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of MCE’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). See Note 4 for additional information related to MCE.

 

As a result of the Company’s recent and continuing expansion efforts, during the fourth quarter of 2014, the Company reorganized its internal management reporting structure. Although the Company’s condensed consolidated results of operations, financial position and cash flows were not impacted, certain reclassifications of previously reported amounts have been made to conform to the current year presentation in Note 12 “Segment Information”. These reclassifications did not impact previously reported amounts on the Company’s unaudited condensed consolidated balance sheets, statements of earnings (loss) or statements of cash flows.

 

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 and Rule 8-03 of Regulation S-X. 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 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, 2014. The results of operations for the period ended September 30, 2015 are not necessarily indicative of the operating results for the full year.

 

 

 

11


 

 

Presentation of Foreign Currency Amounts

 

The Company’s functional currency is the U.S. dollar (“USD” or “$”).  Foreign subsidiaries with a functional currency other than the U.S. 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”) and Polish zloty (“PLN”).  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 U.S. dollar used to translate balances at the end of the reported periods are as follows:

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

Ending Rates

 

2015

 

2014

 

2014

Canadian dollar (CAD)

 

1.3394 

 

1.1601 

 

1.1208 

Euros (€)

 

0.8959 

 

0.8264 

 

0.7919 

Polish zloty (PLN)

 

3.8040 

 

3.5401 

 

3.3140 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

 

 

For the nine months

 

 

 

 

ended September 30,

 

 

 

ended September 30,

 

 

Average Rates

 

2015

 

2014

 

% Change

 

2015

 

2014

 

% Change

Canadian dollar (CAD)

 

1.3083 

 

1.0890 

 

(20.1%)

 

1.2597 

 

1.0940 

 

(15.1%)

Euros (€)

 

0.8991 

 

0.7552 

 

(19.1%)

 

0.8973 

 

0.7381 

 

(21.6%)

Polish zloty (PLN)

 

3.7665 

 

3.1544 

 

(19.4%)

 

3.7291 

 

3.0820 

 

(21.0%)

Source: Pacific Exchange Rate Service

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014‑09”).  The objective of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for US GAAP and International Financial Reporting Standards.  ASU 2014‑09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.  In August 2015, the FASB issued ASU 2015-14 deferring the effective date of ASU 2014-09 for one year, which will extend the effective date for public entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within those periods, and permit early adoption of the standard on a limited basis.  The Company is currently evaluating the impact of adopting ASU 2014‑09, but does not expect the standard to have a material impact on its consolidated financial statements. 

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”). The objective of ASU 2014-15 is to provide guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for fiscal years beginning after December 15, 2016, and annual and interim periods thereafter. This new standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

12


 

 

In January 2015, the FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”).  The objective of ASU 2015-01 is to eliminate from US GAAP the concept of an extraordinary item. ASU 2015-01 is effective for fiscal years beginning after December 15, 2015, and interim periods within those annual periods. This new standard is not expected to have  a material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU No. 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02).  The objective of ASU 2015-02 is to change the consolidation analysis required under US GAAP. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and annual and interim periods thereafter.  Early adoption of ASU 2015-02 is permitted. This new standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The objective of ASU 2015-03 is to present debt issuance costs as a direct deduction from the related debt liability. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of ASU 2015-03 is permitted. This new standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). The objective of ASU 2015-05 is to provide guidance on accounting for cloud computing fees. ASU 2015-05 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of ASU 2015-05 is permitted. This new standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The objective of ASU 2015-11 is to simplify the current guidance under which an entity must measure inventory at the lower of cost or market by requiring entities to measure most inventory at the lower of cost and net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption of ASU 2015-11 is permitted. This new standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). The objective of ASU 2015-16 is to simplify the accounting for measurement-period adjustments. ASU 2015-16 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption of ASU 2015-16 is permitted. This new standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

3.CENTURY DOWNS RACETRACK AND CASINO

 

In November 2012, the Company’s subsidiary CCE signed credit and management agreements with CDR in connection with the development of a  REC project in Balzac, north metropolitan area of Calgary, Alberta, Canada, which the Company operates as Century Downs Racetrack and Casino. On November 29, 2013, CCE and CDR amended the credit agreement. Under the amended credit agreement with CDR, CCE acquired 15% of CDR, controls the CDR board of directors and manages the development and operation of the REC project and had the right to convert CAD 11 million of the amounts loaned to CDR into an additional ownership position in CDR of up to 60%. As of November 29, 2013, the Company began consolidating CDR as a minority owned subsidiary for which it has a controlling financial interest and, as a result, the loans between CDR and CCE are considered an intercompany transaction and eliminated upon consolidation.  On March 20, 2015, CCE converted CAD 11 million that it had loaned to CDR into an additional 60% ownership interest in CDR. As of March 20, 2015, the Company, through its subsidiary, CCE, had a 75% ownership interest in CDR.  Unaffiliated shareholders own the remaining 25% of CDR. The Company accounts for and reports the remaining 25% CDR ownership interest as a non-controlling financial interest.

 

 

13


 

 

The REC project has the only horse race track in the Calgary area and consists of a 5.5 furlongs (0.7 mile) racetrack, a gaming floor with 550 slot machines,  seven video lottery terminals, a bar, a lounge, restaurant facilities, an off-track-betting area and an entertainment area. The Alberta Gaming and Liquor Commission (“AGLC”) and HRA have issued licenses to the REC.  The casino at the REC opened on April 1, 2015, and the 2015 racing season is from April to November.  

 

Equity Conversion

On March 20, 2015, CCE converted CAD 11 million that it had loaned to CDR into an additional 60% ownership interest in CDR. As a result of the conversion, the Company recognized $0.6 million in additional paid-in capital and $0.1 million in accumulated other comprehensive income that was previously attributed to non-controlling interest.

 

Distribution to Non-Controlling Interest

CDR has an agreement with its non-controlling shareholders to distribute any funds received by CDR related to infrastructure built during the development of the REC project.  After CCE’s conversion of CAD 11 million that it had loaned to CDR into an additional 60% ownership interest in CDR,  all funds received related to the infrastructure are distributed to CDR’s non-controlling shareholders as stated in the Credit Agreement between CCE and CDR. In the second quarter of 2015, the Company distributed $0.5 million related to the infrastructure to CDR’s non-controlling shareholders.

 

 

4.ACQUISITIONS AND INVESTMENTS

 

Mendoza Central Entretenimientos S.A.

On October 31, 2014, CCE entered into the MCE Agreement with Gambling and Entertainment LLC and its affiliates, pursuant to which CCE purchased 7.5% of the shares of MCE, a company formed in Argentina, for $1.0 million. Pursuant to the MCE Agreement, CCE will work 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 Mendoza Casino, a casino located in Mendoza, Argentina, and owned by the Province of Mendoza. MCE may also pursue other gaming opportunities. Under the MCE Agreement, CCE has appointed one director to MCE’s board of directors. In addition, CCE has a three-year option to purchase up to 50% of the shares of MCE and to appoint additional directors to MCE’s board of directors based on its ownership percentage of MCE.

 

The Company accounts for the $1.0 million investment in MCE using the cost method. Acquisition costs of $0.2 million were incurred for the year ended December 31, 2014 in connection with the MCE investment. These costs include legal and accounting fees and have been recorded as general and administrative expenses in the fourth quarter of 2014.

 

Century Bets! Inc.

On January 6, 2015, CCE, together with RMTC, formed a new subsidiary, CBS, to operate the pari-mutuel off-track betting network in southern Alberta. CCE has a 75% ownership interest in CBS and RMTC has a 25% ownership interest in CBS. CCE has appointed three of the four directors on the board of directors of CBS. The Company accounts for and reports the 25% ownership interest of RMTC as a non-controlling financial interest.

 

Acquisition costs of less than $0.1 million were incurred in connection with forming CBS. These costs include legal fees and were recorded as general and administrative expenses in the fourth quarter of 2014.

 

14


 

 

 

5.GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

We test goodwill for impairment as of October 1 each year, or more frequently as circumstances indicate it is necessary. Testing compares the estimated fair values of our reporting units to the reporting units’ carrying values. Our reporting units with goodwill balances as of September 30, 2015 include our Edmonton casino property and our CDR and CPL operations. We consider a variety of factors when estimating the fair value of our reporting units, including estimates about the future operating results of each reporting unit, multiples of earnings, various market analyses, and recent sales of comparable businesses, if such information is available to us. 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. No impairment charges related to goodwill have been recorded at our Edmonton property, CDR or CPL.

Changes in the carrying amount of goodwill related to the Company’s Edmonton property, CDR and CPL for the nine months ended September 30, 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

Poland

 

 

 

Amounts in thousands

 

Edmonton

 

Century Downs

 

Casinos Poland

 

Total

Balance – January 1, 2015

 

$

4,237 

 

$

163 

 

$

7,229 

 

$

11,629 

Effect of foreign currency translation

 

 

(567)

 

 

(22)

 

 

(501)

 

 

(1,090)

Balance -- September 30, 2015

 

$

3,670 

 

$

141 

 

$

6,728 

 

$

10,539 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

As of September 30, 2015, the carrying amounts of the trademarks were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands

 

Century Casinos

 

Casinos Poland

 

Total

Balance – January 1, 2015

 

$

108 

 

$

1,723 

 

$

1,831 

Effect of foreign currency translation

 

 

 

 

(119)

 

 

(119)

Balance -- September 30, 2015

 

$

108 

 

$

1,604 

 

$

1,712 

 

 

 

 

 

 

 

 

 

 

 

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 annually 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. No impairment charges related to the Company’s Century Casinos and Casinos Poland trademarks have been recorded.

 

 

15


 

 

Casino Licenses

Casinos Poland

Casinos Poland currently has nine casino licenses, each with an original term of six years, which are reported as finite-lived intangible assets on the Company’s condensed consolidated balance sheets. The Company impaired $0.2 million in the second quarter of 2014 related to the Casinos Poland casino licenses. Changes in the carrying amount of the Casinos Poland licenses for the nine months ended September 30, 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

Amounts in thousands

 

 

Casinos Poland

Balance – January 1, 2015

 

$

1,284 

Amortization

 

 

(327)

Effect of foreign currency translation

 

 

(82)

Balance -- September 30, 2015

 

$

875 

 

 

 

 

 

As of September 30, 2015, estimated amortization expense for the CPL casino licenses over the next five years was as follows:

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands

 

 

 

2015

 

$

96 

2016

 

 

383 

2017

 

 

291 

2018

 

 

91 

2019

 

 

14 

 

 

$

875 

 

 

 

 

 

Such estimates do not reflect the impact of future foreign exchange rate changes or the renewal of the licenses. The weighted average period before the next renewal is 2.1 years.

 

Century Downs Racetrack and Casino

CDR currently has two licenses, one from the AGLC and one from HRA. The licenses were issued in November 2013 pending final approval of the REC project from the AGLC. The AGLC granted the final approval for the licenses on March 19, 2015. The licenses are reported as indefinite lived intangible assets on the Company’s condensed consolidated balance sheets. No impairment charges related to the CDR licenses have been recorded. Changes in the carrying amount of the CDR licenses for the nine months ended September 30, 2015 were as follows:

 

 

 

 

 

 

 

 

 

Amounts in thousands

 

Century Downs

Balance – January 1, 2015

 

$

2,742 

Effect of foreign currency translation

 

 

(367)

Balance -- September 30, 2015

 

$

2,375 

 

 

 

 

 

 

 

 

16


 

 

 

 

6.PROMOTIONAL ALLOWANCES

 

Hotel accommodations, and food and beverage furnished without charge to customers are included in gross revenue at retail value and are deducted as promotional allowances to arrive at net operating revenue. The Company issues coupons and downloadable promotional credits to customers for the purpose of generating future revenue. The value of coupons and downloadable promotional credits redeemed is applied against the revenue generated on the day of the redemption. The estimated cost of provided promotional allowances is included in casino expenses. For the three and nine months ended September 30, 2015 and 2014, the cost of providing promotional allowances were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

For the nine months

 

 

ended September 30,

 

ended September 30,

 

 

2015

 

2014

 

2015

 

2014

Amounts in thousands

 

 

 

 

 

 

 

 

 

 

 

 

Hotel

 

$

11 

 

$

25 

 

$

46 

 

$

66 

Food and beverage

 

 

277 

 

 

286 

 

 

774 

 

 

800 

 

 

$

288 

 

$

311 

 

$

820 

 

$

866