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 March 31, 2017



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)

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, 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

(Do not check if a 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:

24,461,268 shares of common stock, $0.01 par value per share, were outstanding as of April 28, 2017.

 

1


 

 

INDEX



 

 

Part I

FINANCIAL INFORMATION

Page

Item 1.

Condensed Consolidated Financial Statements (Unaudited)



Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016



Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2017 and 2016



Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2017 and 2016



Condensed Consolidated Statements of Equity as of March 31, 2017 and 2016



Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 



Notes to Condensed Consolidated Financial Statements

10 

Item 2.

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

33 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49 

Item 4.

Controls and Procedures

49 

Part II

OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49 

Item 6.

Exhibits

50 

Signatures

50 







 

2


 

 

PART I – FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)



 

 

 

 

 

 



 

March 31,

 

 

December 31,

Amounts in thousands, except for share and per share information

 

2017

 

 

2016

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 Cash and cash equivalents

 

$

39,743 

 

$

38,837 

 Receivables, net

 

 

3,168 

 

 

4,706 

 Prepaid expenses

 

 

1,355 

 

 

1,224 

 Inventories

 

 

571 

 

 

568 

 Other current assets

 

 

64 

 

 

613 

Total Current Assets

 

 

44,901 

 

 

45,948 



 

 

 

 

 

 

Property and equipment, net

 

 

141,327 

 

 

140,763 

Goodwill

 

 

13,817 

 

 

13,387 

Deferred income taxes

 

 

1,848 

 

 

1,705 

Casino licenses

 

 

12,184 

 

 

12,140 

Trademarks

 

 

1,647 

 

 

1,558 

Cost investment

 

 

1,000 

 

 

1,000 

Deposits and other

 

 

1,349 

 

 

1,337 

Total Assets

 

$

218,073 

 

$

217,838 



 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 Current portion of long-term debt

 

$

5,396 

 

$

5,583 

 Accounts payable

 

 

1,899 

 

 

1,864 

 Accrued liabilities

 

 

6,364 

 

 

9,088 

 Accrued payroll

 

 

5,036 

 

 

5,313 

 Taxes payable

 

 

4,314 

 

 

4,661 

 Contingent liability (note 8)

 

 

2,228 

 

 

2,099 

Total Current Liabilities

 

 

25,237 

 

 

28,608 



 

 

 

 

 

 

Long-term debt, net of current portion and deferred financing costs (note 7)

 

 

49,212 

 

 

50,026 

Taxes payable and other

 

 

606 

 

 

620 

Total Liabilities

 

 

75,055 

 

 

79,254 

Commitments and Contingencies

 

 

 

 

 

 



See notes to condensed consolidated financial statements.





-  Continued -

 

3


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

 

December 31,

Amounts in thousands, except for share and per share information

 

2017

 

 

2016

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; 24,460,004 and 24,451,582 shares issued and outstanding

 

 

245 

 

 

245 

Additional paid-in capital

 

 

78,292 

 

 

78,174 

Retained earnings

 

 

68,562 

 

 

66,386 

Accumulated other comprehensive loss

 

 

(11,433)

 

 

(12,609)

Total Century Casinos, Inc. shareholders' equity

 

 

135,666 

 

 

132,196 

Non-controlling interest

 

 

7,352 

 

 

6,388 

Total Equity

 

 

143,018 

 

 

138,584 

Total Liabilities and Equity

 

$

218,073 

 

$

217,838 



See notes to condensed consolidated financial statements.

 

4


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)









 

 

 

 

 

 



 

 

 

 

 

 

   

 

For the three months

   

 

ended March 31,

Amounts in thousands, except for per share information

 

2017

 

2016

Operating revenue:

 

 

 

 

 

 

Gaming

 

$

32,487 

 

$

28,160 

Hotel

 

 

437 

 

 

444 

Food and beverage

 

 

3,341 

 

 

2,892 

Other

 

 

2,575 

 

 

3,737 

Gross revenue

 

 

38,840 

 

 

35,233 

Less: Promotional allowances

 

 

(2,442)

 

 

(2,006)

Net operating revenue

 

 

36,398 

 

 

33,227 

Operating costs and expenses:

 

 

 

 

 

 

Gaming

 

 

15,646 

 

 

13,355 

Hotel

 

 

143 

 

 

139 

Food and beverage

 

 

2,965 

 

 

2,574 

General and administrative

 

 

11,069 

 

 

11,067 

Depreciation and amortization

 

 

2,085 

 

 

2,010 

Total operating costs and expenses

 

 

31,908 

 

 

29,145 

Earnings from operations

 

 

4,490 

 

 

4,082 

Non-operating income (expense):

 

 

 

 

 

 

Interest income

 

 

21 

 

 

17 

Interest expense

 

 

(922)

 

 

(778)

Gain on foreign currency transactions, cost recovery income and other

 

 

203 

 

 

198 

Non-operating (expense) income, net

 

 

(698)

 

 

(563)

Earnings before income taxes

 

 

3,792 

 

 

3,519 

Income tax expense

 

 

(995)

 

 

(779)

Net earnings

 

 

2,797 

 

 

2,740 

Net earnings attributable to non-controlling interests

 

 

(638)

 

 

(459)

Net earnings attributable to Century Casinos, Inc. shareholders

 

$

2,159 

 

$

2,281 



 

 

 

 

 

 

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

 

 

 

 

 

 

Basic

 

$

0.09 

 

$

0.09 

Diluted

 

$

0.09 

 

$

0.09 

Weighted average shares outstanding - basic

 

 

24,455 

 

 

24,436 

Weighted average shares outstanding - diluted

 

 

24,856 

 

 

24,662 



 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

5


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)









 

 

 

 

 

 



 

 

 

 

 

 

   

 

For the three months



 

ended March 31,

   

 

 

 

 

 

 

Amounts in thousands

 

2017

 

2016

   

 

 

 

 

 

 

Net earnings

 

$

2,797 

 

$

2,740 



 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

1,560 

 

 

3,729 

Other comprehensive loss

 

 

1,560 

 

 

3,729 

Comprehensive income

 

$

4,357 

 

$

6,469 



 

 

 

 

 

 

Comprehensive income attributable to non-controlling interests

 

 

 

 

 

 

Net earnings attributable to non-controlling interests

 

 

(638)

 

 

(459)

Foreign currency translation adjustments

 

 

(384)

 

 

(382)

Comprehensive income attributable to Century Casinos, Inc. shareholders

 

$

3,335 

 

$

5,628 



 

 

 

 

 

 

See notes to condensed consolidated financial statements.











 

 

6


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands, except share information

Common Shares

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Retained
Earnings

 

 

Total Century Casinos Shareholders' Equity

 

 

Noncontrolling Interest

 

 

Total Equity

BALANCE AT January 1, 2016

24,414,083 

 

$

244 

 

$

77,318 

 

$

(12,683)

 

$

57,171 

 

$

122,050 

 

$

4,737 

 

$

126,787 

Net earnings

 

 

 

 

 

 

 

 

2,281 

 

 

2,281 

 

 

459 

 

 

2,740 

Foreign currency translation adjustment

 

 

 

 

 

 

3,347 

 

 

 

 

3,347 

 

 

382 

 

 

3,729 

Amortization of stock-based compensation

 

 

 

 

190 

 

 

 

 

 

 

190 

 

 

 

 

190 

Exercise of stock options

17,037 

 

 

 

 

43 

 

 

 

 

 

 

43 

 

 

 

 

43 

BALANCE AT March 31, 2016

24,431,120 

 

$

244 

 

$

77,551 

 

$

(9,336)

 

$

59,452 

 

$

127,911 

 

$

5,578 

 

$

133,489 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT January 1, 2017

24,451,582 

 

$

245 

 

$

78,174 

 

$

(12,609)

 

$

66,386 

 

$

132,196 

 

$

6,388 

 

$

138,584 

Cumulative effect of accounting
change (1)

 

 

 

 

(17)

 

 

 

 

17 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

2,159 

 

 

2,159 

 

 

638 

 

 

2,797 

Foreign currency translation adjustment

 

 

 

 

 

 

1,176 

 

 

 

 

1,176 

 

 

384 

 

 

1,560 

Amortization of stock-based compensation

 

 

 

 

103 

 

 

 

 

 

 

103 

 

 

 

 

103 

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

(58)

 

 

(58)

Exercise of stock options

8,422 

 

 

 

 

32 

 

 

 

 

 

 

32 

 

 

 

 

32 

BALANCE AT March 31, 2017

24,460,004 

 

$

245 

 

$

78,292 

 

$

(11,433)

 

$

68,562 

 

$

135,666 

 

$

7,352 

 

$

143,018 

See notes to condensed consolidated financial statements.



(1)

Cumulative effect of accounting change relates to the adoption of Accounting Standards Update 2016-09. See Note 2 of the 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 three months



 

ended March 31,

Amounts in thousands

 

2017

 

2016



 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

Net earnings

 

$

2,797 

 

$

2,740 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

2,085 

 

 

2,010 

Loss on disposition of fixed assets

 

 

 

 

26 

Unrealized loss on interest rate swaps

 

 

25 

 

 

Amortization of stock-based compensation expense

 

 

103 

 

 

190 

Amortization of deferred financing costs

 

 

48 

 

 

28 

Deferred taxes

 

 

(6)

 

 

(41)

Changes in Operating Assets and Liabilities, Net of Acquisition:

 

 

 

 

 

 

Receivables, net

 

 

1,569 

 

 

57 

Prepaid expenses and other assets

 

 

450 

 

 

(833)

Accounts payable

 

 

(131)

 

 

(539)

Accrued liabilities

 

 

(824)

 

 

245 

Inventories

 

 

 

 

21 

Other operating liabilities

 

 

 

 

Accrued payroll

 

 

(329)

 

 

(440)

Taxes payable

 

 

(435)

 

 

(179)

Net cash provided by operating activities

 

 

5,366 

 

 

3,291 



 

 

 

 

 

 

Cash Flows used in Investing Activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,107)

 

 

(2,245)

Acquisition of Century Casino St. Albert (net of cash acquired) (Note 3)

 

 

(1,494)

 

 

Net cash used in investing activities

 

 

(2,601)

 

 

(2,245)

 Continued –

See notes to condensed consolidated financial statements.





 

8


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

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



 

 

 

 

 

 

   

 

For the three months



 

ended March 31,

Amounts in thousands

 

2017

 

2016



 

 

 

 

 

 

Cash Flows used in Financing Activities:

 

 

 

 

 

 

Principal payments

 

 

(1,553)

 

 

(1,183)

Distribution to non-controlling interest

 

 

(644)

 

 

Proceeds from exercise of stock options

 

 

32 

 

 

43 

Net cash used in financing activities

 

 

(2,165)

 

 

(1,140)



Effect of Exchange Rate Changes on Cash

 

$

306 

 

$

660 



 

 

 

 

 

 

Increase in Cash and Cash Equivalents

 

$

906 

 

$

566 



 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

$

38,837 

 

$

29,366 

Cash and Cash Equivalents at End of Period

 

$

39,743 

 

$

29,932 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

836 

 

$

712 

Income taxes paid

 

$

903 

 

$

933 



 

 

 

 

 

 

Non-Cash Investing Activities:

 

 

 

 

 

 

Purchase of property and equipment on account

 

$

669 

 

$

324 

Non-Cash Financing Activities:

 

 

 

 

 

 

Assets acquired under capital lease obligation

 

$

20 

 

$



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 March 31, 2017, the Company owned casino operations in North America; held a majority ownership interest in eight 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 provided gaming services in Argentina.



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



·

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

·

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

·

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

·

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

·

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



The Company currently has a controlling financial interest through its subsidiary Century Casinos Europe GmbH (“CCE”) in the following majority-owned subsidiaries:



·

The Company owns 66.6% of Casinos Poland Ltd (“CPL” or “Casinos Poland”). CPL is the owner and operator of eight 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.



·

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 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:



·

The Company operates 13 ship-based casinos through concession agreements with four cruise ship owners. Under an amended concession agreement with TUI Cruises, the Company plans to operate the ship-based casino onboard Mein Schiff 6, a new 2,500 passenger cruise ship that is expected to begin operating in the second quarter of 2017.



In connection with a concession agreement with Diamond Cruise International Co., Ltd. (“Diamond”) for the operation of the ship-based casino onboard Glory Sea, the Company has a Cooperation Agreement with Dynamic Partners International, Ltd. (“Dynamic”). Under this agreement, Dynamic markets and promotes the casino to VIP players along with facilitating the concession agreement between Diamond and the Company, for which the Company pays Dynamic a portion of the net profit from the casino onboard Glory Sea.



In March 2015, in connection with an agreement with Norwegian Cruise Line Holdings (“Norwegian”) to terminate the Company’s concession agreements with Oceania Cruises (“Oceania”) and Regent Seven Seas Cruises (“Regent”), the Company 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 through May 2017.  

 

10


 

 

·

The Company has a management agreement to direct the operation of the casino at the Hilton Aruba Caribbean Resort & Casino from which the Company receives a monthly management fee. The management agreement ends in December 2017 and the Company does not anticipate extending this agreement.



·

The Company, through its subsidiary CCE, has a 7.5% ownership interest in Mendoza Central Entretenimientos S.A., an Argentina company (“MCE”). 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 Casino de Mendoza, 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.



Additional Projects and Other Developments



In September 2016, the Company was selected by Horse Racing Alberta (“HRA”) as the successful applicant to own, build and operate a horse racing facility in the Edmonton market area, which the Company is planning to operate as Century Mile. Century Mile will be a one-mile horse racetrack and a multi-level REC. The proposed location is on Edmonton International Airport land and close to the city of Leduc, south of Edmonton.  Century Mile will be approximately 30 miles from both CRA and CSA. The Company estimates this project will cost approximately CAD 50.0 million ($37.5 million based on the exchange rate in effect on March 31, 2017). The Company estimates that construction of this project will take approximately 15 months and that it will be completed by the fourth quarter of 2018 or the first quarter of 2019. In March 2017, the Company received approval for the Century Mile project from the Alberta Gaming and Liquor Commission (“AGLC”).  Commencement of construction of the Century Mile project is subject to the Company’s obtaining financing.



The Company has postponed the planned restoration and expansion project at the Palace Hotel that it owns in Cripple Creek, Colorado.



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, 2016. The results of operations for the period ended March 31, 2017 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:







 

 

 

 

 

 

 

 



 

March 31,

 

December 31,

Ending Rates

 

2017

 

2016

Canadian dollar (CAD)

 

1.3322 

 

1.3427 

Euros (EUR)

 

0.9348 

 

0.9476 

Polish zloty (PLN)

 

3.9637 

 

4.2065 



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





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

For the three months

 

 

 



 

ended March 31,

 

 

 

Average Rates

 

2017

 

2016

 

% Change

 

Canadian dollar (CAD)

 

1.3234 

 

1.3732 

 

3.6% 

 

Euros (EUR)

 

0.9384 

 

0.9065 

 

(3.5%)

 

Polish zloty (PLN)

 

4.0563 

 

3.9556 

 

(2.5%)

 

Source: Pacific Exchange Rate Service

 

 

 

 

 

 

 



 

 

 

 

 

 

 





 

12


 

 

Correction of Prior Period Balances

Subsequent to the issuance of the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, the Company identified that it had erroneously recognized a reduction in pari-mutuel revenue for CBS totaling $0.7 million in its condensed consolidated statement of earnings for the three months ended March 31, 2016. This error also affected the Company’s income tax expense, net earnings attributable to non-controlling interests and consolidated statements of comprehensive income (loss), equity, cash flows and Note 12 “Segment and Geographic Information” for the three months ended March 31, 2016.



The prior period amounts within the Company’s condensed consolidated financial statements have been revised to reflect the correct balances. The information below presents the impact of these corrections on the Company’s 2016 condensed consolidated financial statements as previously reported.







 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Earnings for the three months ended March 31, 2016:

Amounts in thousands, except for per share information

 

As Previously Reported

 

Correction

 

As Corrected

Operating Revenue:

 

 

 

 

 

 

 

 

 

Other

 

$

3,040 

 

$

697 

 

$

3,737 

Gross revenue

 

 

34,536 

 

 

697 

 

 

35,233 

Net operating revenue

 

 

32,530 

 

 

697 

 

 

33,227 

Earnings from operations

 

 

3,385 

 

 

697 

 

 

4,082 

Earnings before income taxes

 

 

2,822 

 

 

697 

 

 

3,519 

Income tax expense

 

 

(598)

 

 

(181)

 

 

(779)

Net earnings

 

 

2,224 

 

 

516 

 

 

2,740 

Net earnings attributable to non-controlling interests

 

 

(330)

 

 

(129)

 

 

(459)

Net earnings attributable to Century Casinos, Inc. shareholders

 

 

1,894 

 

 

387 

 

 

2,281 



 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

0.08 

 

$

0.01 

 

$

0.09 



 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Net earnings

 

$

2,224 

 

$

516 

 

$

2,740 



 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,757 

 

 

(28)

 

 

3,729 

Other comprehensive income

 

 

3,757 

 

 

(28)

 

 

3,729 

Comprehensive income

 

$

5,981 

 

$

488 

 

$

6,469 



 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

Net earnings attributable to non-controlling interests

 

 

(330)

 

 

(129)

 

 

(459)

Foreign currency translation adjustments

 

 

(389)

 

 

 

 

(382)

Comprehensive income attributable to Century Casinos, Inc. shareholders

 

$

5,262 

 

$

366 

 

$

5,628 



 

 

 

 

 

 

 

 

 



 

13


 

 





 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Equity for the three months ended March 31, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss) balance at January 1, 2016

 

$

(12,704)

 

$

21 

 

$

(12,683)

Foreign currency translation adjustment

 

 

3,368 

 

 

(21)

 

 

3,347 



 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

Retained earnings balance at January 1, 2016

 

 

57,558 

 

 

(387)

 

 

57,171 

Net earnings

 

 

1,894 

 

 

387 

 

 

2,281 



 

 

 

 

 

 

 

 

 

Total Century Casinos shareholders' equity

 

 

 

 

 

 

 

 

 

Total Century Casinos shareholders' equity balance at January 1, 2016

 

 

122,416 

 

 

(366)

 

 

122,050 

Net earnings

 

 

1,894 

 

 

387 

 

 

2,281 

Foreign currency translation adjustment

 

 

3,368 

 

 

(21)

 

 

3,347 



 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

Non-controlling interest balance at January 1, 2016

 

 

4,859 

 

 

(122)

 

 

4,737 

Net earnings

 

 

330 

 

 

129 

 

 

459 

Foreign currency translation adjustment

 

 

389 

 

 

(7)

 

 

382 



 

 

 

 

 

 

 

 

 

Total equity

 

 

 

 

 

 

 

 

 

Total equity balance at January 1, 2016

 

 

127,275 

 

 

(488)

 

 

126,787 

Net earnings

 

 

2,224 

 

 

516 

 

 

2,740 

Foreign currency translation adjustment

 

 

3,757 

 

 

(28)

 

 

3,729 



 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Net earnings

 

$

2,224 

 

$

516 

 

$

2,740 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

 

Receivables, net

 

 

716 

 

 

(659)

 

 

57 

Taxes payable

 

 

(350)

 

 

171 

 

 

(179)

Net cash provided by operating activities

 

 

3,263 

 

 

28 

 

 

3,291 

Effect of Exchange Rate Changes on Cash

 

 

688 

 

 

(28)

 

 

660 



 

 

 

 

 

 

 

 

 



 

14


 

 





























 

 

 

 

 

 

 

 

 

Note 12: Segment and Geographic Information for the three months ended March 31, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Canada

 

 

 

 

 

 

 

 

 

Net operating revenue

 

$

12,298 

 

$

697 

 

$

12,995 

Net earnings attributable to Century Casinos, Inc. shareholders

 

 

1,648 

 

 

387 

 

 

2,035 

Income taxes

 

 

444 

 

 

181 

 

 

625 

Non-controlling interest

 

 

(2)

 

 

129 

 

 

127 

Adjusted EBITDA

 

 

3,518 

 

 

697 

 

 

4,215 



 

 

 

 

 

 

 

 

 



Consolidated results in Note 12 “Segment and Geographic Information” for the three months ended March 31, 2016 have been updated as presented in the Consolidated Statement of Earnings table above. Consolidated Adjusted EBITDA for the three months ended March 31, 2016 was corrected by $0.7 million, adjusting the previously reported Consolidated Adjusted EBITDA of $5.6 million to $6.3 million.





















2. SIGNIFICANT ACCOUNTING POLICIES



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 under 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; provided, however, that in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (“ASU 2015-14”), which deferred the effective date of ASU 2014-09 for one year. ASU 2015-14 is effective for fiscal years and interim periods beginning after December 15, 2017. The standards permit retrospective application using either of the following methodologies: (i) restatement of each prior reporting period presented or (ii) recognition of a cumulative-effect adjustment as of the date of initial application. In addition, the FASB has issued four related ASUs on principal versus agent guidance (ASU 2016-08), identifying performance obligations and the licensing implementation guidance (ASU 2016-10),  a revision of certain SEC Staff Observer comments (ASU 2016-11) and implementation guidance (ASU 2016-12).  The Company plans to adopt the new revenue standards effective January 1, 2018 by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity. The Company does not expect adoption of the new revenue standards to have a material impact on its 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 or net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company has adopted ASU 2015-11. The Company will continue to measure inventory using the first-in, first-out method and will state inventory at the lower of cost or net realizable value. At  March 31, 2017 and December 31, 2016, all inventory was stated at cost.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The objective of ASU 2016-02 is to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires lessees to account for leases as finance leases or operating leases.  Both finance and operating leases will result in the lessee recognizing a right-of-use asset and corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of use asset and, for operating leases, the lessee would recognize a straight-line lease expense. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. The Company is currently evaluating the impact of adopting ASU 2016-02. Adoption of this standard may have a material impact on the Company’s consolidated financial statements.



 

15


 

 

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The objective of ASU 2016-09 is to simplify the accounting for share-based payment transactions, including recording all excess tax benefits and tax deficiencies through income tax on the statement of earnings and eliminating the requirement that excess tax benefits be realized before they can be recognized. ASU 2016-09 also simplifies several other aspects of the accounting for employee share-based payments, including forfeitures, statutory tax withholdings requirements and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company has adopted ASU 2016-09. The Company has elected to account for forfeitures of share-based payments as they occur. 



In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The objective of ASU 2016-15 is to reduce diversity in the classification of cash receipts and payments for specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination and proceeds from the settlement of insurance claims. ASU 2016-15 is effective for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption of ASU 2016-15 is permitted. The Company is currently evaluating the impact of adopting ASU 2016-15; however, the standard is not expected to have a material impact on its consolidated financial statements.



In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The objective of ASU 2016-16 is to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption of ASU 2016-16 is permitted. The Company is currently evaluating the impact of adopting ASU 2016-16; however, the standard is not expected to have a material impact on its consolidated financial statements.



In November 2016, the FASB issued ASU 2016-18, Restricted Cash (“ASU 2016-18”). The objective of ASU 2016-18 is to require the statement of cash flows to include restricted cash in explaining the change during the period in the total of cash and cash equivalents. ASU 2016-18 is effective for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption of ASU 2016-18 is permitted. The Company is currently evaluating the impact of adopting ASU 2016-18; however, the standard is not expected to have a material impact on its consolidated financial statements.



In January 2017, the FASB issued 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 31, 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. 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.



Accounting Policies



Inventories –  Inventories, which consist primarily of food, beverage retail merchandise and operating supplies, are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method.



Stock-Based Compensation - Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. The Company accounts for forfeitures as they occur. The Company uses the Black-Scholes option pricing model for all non-performance option grants and the Monte Carlo option pricing model for all performance option grants to determine the fair value of all option grants.

 

16


 

 

3.APEX ACQUISITION



On October 1, 2016, the Company’s subsidiary, Century Casino St. Albert Inc.,  acquired 100% of the issued and outstanding shares of Casino St. Albert Inc. (“CSAI”), Action ATM Inc. (“AAI”) and MVP Sports Bar Ltd. (“MVP”), collectively operating the Apex Casino in St. Albert, Edmonton, Canada as well as acquiring the related land and real property held by Game Plan Developments Ltd. (the “Apex Acquisition”). The Company merged CSAI, AAI and MVP with Century Casino St. Albert Inc., the surviving company, and renamed the casino Century Casino St. Albert. CSA is a 34,500 square foot casino facility located on approximately six acres of land that includes 381 slot machines, 7 live table games, 12 video lottery terminals, a restaurant, a bar, a lounge and a banquet facility that can accommodate up to 175 guests.



The Company paid for the acquisition using additional financing from the second amended and restated credit agreement with the Bank of Montreal (the “BMO Credit Agreement”) (see Note 7). The total consideration of CAD 31.9 million  ($24.3 million based on the exchange rate in effect on October 1, 2016) (the “Purchase Price”) for the Apex Acquisition consisted of the following:



A)

CAD 27.7 million  ($21.1 million), which was paid at closing on October 1, 2016.

B)

CAD 2.0 million ($1.5 million) in excess working capital paid as part of the Purchase Price pursuant to the purchase agreement, which was paid in February 2017.

C)

The remaining CAD 2.2 million  ($1.7 million) of the Purchase Price remains subject to certain holdbacks for indemnities that are set forth in the purchase agreement. The holdbacks will be held in an escrow account until the expiration of the agreed upon timelines.



As of October 1, 2016, the Company began consolidating Century Casino St. Albert Inc. as a wholly owned subsidiary. CSA contributed $2.0 million in net operating revenue and $0.1 million in net earnings attributable to Century Casinos, Inc. shareholders for the three months ended March 31, 2017.  



The Company accounted for the transaction as a business combination, and accordingly, CSA’s assets of $22.4 million (including $3.1 million in cash) and liabilities of $1.7 million were included in the Company’s consolidated balance sheet at October 1, 2016. Goodwill of $3.6 million is attributable to the business expansion opportunity for the Company. The acquisition leverages the Company’s management specialties and expertise in the gaming industry, expands the Company’s casino offerings in the Edmonton market and creates operational synergies. Goodwill is not a tax deductible item for the Company.



The fair value of the assets acquired and liabilities assumed (excluding cash received) was determined to be $21.2 million as of the acquisition date. The fair value was determined using the following methods, which the Company believes provide the most appropriate indicators of fair value:



·

multi-period excess earnings method;

·

cost method;

·

capitalized cash flow method;

·

discounted cash flow method; and

·

direct market value approach.



 

17


 

 

Details of the purchase in the table below are based on estimated fair values of assets and liabilities as of October 1, 2016. The acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their preliminary fair values. Certain estimated values for the acquisition are not yet finalized pending the final purchase price allocations, and as a result, the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized. The Company expects to finalize the allocation of the purchase price within one year of the acquisition.







 

 

 

Amounts in thousands

 

 

Cash

 

$

3,060 

Accounts receivable

 

 

331 

Prepaid expenses and other

 

 

136 

Inventories

 

 

39 

Property and equipment

 

 

9,542 

Casino license

 

 

9,318 

Accounts payable

 

 

(63)

Accrued liabilities

 

 

(383)

Accrued payroll

 

 

(37)

Deferred tax liability

 

 

(1,238)

Net identifiable assets acquired

 

 

20,705 



 

 

 

Add: Goodwill

 

 

3,584 

Net assets acquired

 

$

24,289 





The following table details the purchase consideration net cash outflow.







 

 

 

Outflow of cash to acquire subsidiary, net of cash acquired

 

 

 

Cash consideration

 

$

24,289 

Less: cash balances acquired

 

 

(3,060)

Net cash

 

$

21,229 





Acquisition-related costs

The Company incurred acquisition costs of less than $0.1 million for the three months ended March 31, 2017 and $0.2 million for the year ended December 31, 2016 in connection with the Apex Acquisition. These costs include legal and accounting fees.



Pro forma results

The following table provides unaudited pro forma information of the Company as if the Apex Acquisition had occurred at the beginning of the earliest comparable period presented. This proforma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisition been consummated during the periods for which the pro forma information is presented, or of future results.





 

 

 



 

 



 

For the three months ended March 31,

Amounts in thousands, except for per share information

 

2016



 

(Unaudited)

Net operating revenue

 

$

35,029 

Net earnings attributable to Century Casinos, Inc. shareholders

 

$

2,533 

Basic and diluted earnings per share

 

$

0.10 











 

18


 

 



4.COST INVESTMENT



Mendoza Central Entretenimientos S.A.

On October 31, 2014, CCE entered into an agreement (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 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, 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 and has the right to appoint additional directors to MCE’s board of directors based on its ownership percentage of MCE. In addition, CCE has a three-year option through October 2017 to purchase up to 50% of the shares of MCE.   The option can be exercised by CCE in tranches of shares, with each tranche representing not less than ten percent of the total outstanding shares of MCE. The exercise price of the shares is based upon the value of MCE at the time the option is exercised, which value is determined by a multiple of MCE’s EBITDA for the immediate past four full calendar quarters multiplied by five less certain outstanding debt of MCE, including but not limited to lease payments to slot machine suppliers, plus current financial assets (cash and banks, receivables and commercial credits) of MCE. There are no conditions that limit CCE’s ability to exercise this option. CCE has not exercised any options to purchase shares of MCE. The Company accounts for the $1.0 million investment in MCE using the cost method.





5.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 March 31, 2017 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 or CPL since the Company’s last annual analysis, or at CSA since the valuation as part of the acquisition, 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