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, 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:

24,468,618  shares of common stock, $0.01 par value per share, were outstanding as of August 1, 2017.

 

1


 

 

INDEX



 

 

Part I

FINANCIAL INFORMATION

Page

Item 1.

Condensed Consolidated Financial Statements (Unaudited)



Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016



Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2017 and 2016



Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2017 and 2016



Condensed Consolidated Statements of Equity as of June 30, 2017 and 2016



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

53 

Item 4.

Controls and Procedures

53 

Part II

OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54 

Item 6.

Exhibits

55 

Signatures

55 







 

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

 

2017

 

 

2016

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 Cash and cash equivalents

 

$

38,810 

 

$

38,837 

 Receivables, net

 

 

3,234 

 

 

4,706 

 Prepaid expenses

 

 

1,283 

 

 

1,224 

 Inventories

 

 

618 

 

 

568 

 Restricted cash

 

 

974 

 

 

 Other current assets

 

 

70 

 

 

613 

Total Current Assets

 

 

44,989 

 

 

45,948 



 

 

 

 

 

 

Property and equipment, net

 

 

143,745 

 

 

140,763 

Goodwill

 

 

14,468 

 

 

13,387 

Deferred income taxes

 

 

1,798 

 

 

1,705 

Casino licenses

 

 

13,404 

 

 

12,140 

Trademarks

 

 

1,756 

 

 

1,558 

Cost investment

 

 

1,000 

 

 

1,000 

Deposits and other

 

 

2,474 

 

 

1,337 

Total Assets

 

$

223,634 

 

$

217,838 



 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 Current portion of long-term debt

 

$

5,407 

 

$

5,583 

 Accounts payable

 

 

2,080 

 

 

1,864 

 Accrued liabilities

 

 

7,019 

 

 

9,088 

 Accrued payroll

 

 

5,319 

 

 

5,313 

 Taxes payable

 

 

2,931 

 

 

4,661 

 Contingent liability (note 8)

 

 

2,433 

 

 

2,099 

Total Current Liabilities

 

 

25,189 

 

 

28,608 



 

 

 

 

 

 

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

 

 

49,268 

 

 

50,026 

Taxes payable and other

 

 

854 

 

 

620 

Total Liabilities

 

 

75,311 

 

 

79,254 

Commitments and Contingencies

 

 

 

 

 

 



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

 

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; 24,468,618 and 24,451,582 shares issued and outstanding

 

 

245 

 

 

245 

Additional paid-in capital

 

 

78,424 

 

 

78,174 

Retained earnings

 

 

70,365 

 

 

66,386 

Accumulated other comprehensive loss

 

 

(8,996)

 

 

(12,609)

Total Century Casinos, Inc. shareholders' equity

 

 

140,038 

 

 

132,196 

Non-controlling interest

 

 

8,285 

 

 

6,388 

Total Equity

 

 

148,323 

 

 

138,584 

Total Liabilities and Equity

 

$

223,634 

 

$

217,838 



See notes to unaudited condensed consolidated financial statements.

 

4


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

 

For the six months

   

 

ended June 30,

 

ended June 30,

Amounts in thousands, except for per share information

 

2017

 

2016

 

2017

 

2016

Operating revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

33,412 

 

$

30,901 

 

$

65,900 

 

$

59,060 

Hotel

 

 

494 

 

 

490 

 

 

932 

 

 

935 

Food and beverage

 

 

3,413 

 

 

3,028 

 

 

6,754 

 

 

5,920 

Other

 

 

2,582 

 

 

2,988 

 

 

5,156 

 

 

6,725 

Gross revenue

 

 

39,901 

 

 

37,407 

 

 

78,742 

 

 

72,640 

Less: Promotional allowances

 

 

(2,571)

 

 

(2,206)

 

 

(5,013)

 

 

(4,212)

Net operating revenue

 

 

37,330 

 

 

35,201 

 

 

73,729 

 

 

68,428 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

16,056 

 

 

14,251 

 

 

31,702 

 

 

27,616 

Hotel

 

 

154 

 

 

134 

 

 

297 

 

 

273 

Food and beverage

 

 

3,099 

 

 

2,659 

 

 

6,065 

 

 

5,222 

General and administrative

 

 

12,362 

 

 

11,499 

 

 

23,429 

 

 

22,569 

Depreciation and amortization

 

 

2,018 

 

 

2,117 

 

 

4,103 

 

 

4,127 

Total operating costs and expenses

 

 

33,689 

 

 

30,660 

 

 

65,596 

 

 

59,807 

Earnings from operations

 

 

3,641 

 

 

4,541 

 

 

8,133 

 

 

8,621 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

27 

 

 

14 

 

 

48 

 

 

31 

Interest expense

 

 

(915)

 

 

(802)

 

 

(1,837)

 

 

(1,580)

Gain on foreign currency transactions, cost recovery income and other

 

 

281 

 

 

1,560 

 

 

485 

 

 

1,758 

Non-operating (expense) income, net

 

 

(607)

 

 

772 

 

 

(1,304)

 

 

209 

Earnings before income taxes

 

 

3,034 

 

 

5,313 

 

 

6,829 

 

 

8,830 

Income tax expense

 

 

(864)

 

 

(987)

 

 

(1,859)

 

 

(1,765)

Net earnings

 

 

2,170 

 

 

4,326 

 

 

4,970 

 

 

7,065 

Net earnings attributable to non-controlling interests

 

 

(368)

 

 

(2,077)

 

 

(1,008)

 

 

(2,536)

Net earnings attributable to Century Casinos, Inc. shareholders

 

$

1,802 

 

$

2,249 

 

$

3,962 

 

$

4,529 



 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.07 

 

$

0.09 

 

$

0.16 

 

$

0.18 

Diluted

 

$

0.07 

 

$

0.09 

 

$

0.16 

 

$

0.18 

Weighted average shares outstanding - basic

 

 

24,466 

 

 

24,432 

 

 

24,460 

 

 

24,445 

Weighted average shares outstanding - diluted

 

 

24,962 

 

 

24,548 

 

 

24,911 

 

 

24,616 



 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

5


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

 

For the six months



 

ended June 30,

 

ended June 30,

   

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands

 

2017

 

2016

 

2017

 

2016

   

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

2,170 

 

$

4,326 

 

$

4,970 

 

$

7,065 



 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,000 

 

 

(1,309)

 

 

4,560 

 

 

2,419 

Other comprehensive income (loss)

 

 

3,000 

 

 

(1,309)

 

 

4,560 

 

 

2,419 

Comprehensive income

 

$

5,170 

 

$

3,017 

 

$

9,530 

 

$

9,484 



 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to non-controlling interests

 

 

(368)

 

 

(2,077)

 

 

(1,008)

 

 

(2,536)

Foreign currency translation adjustments

 

 

(563)

 

 

383 

 

 

(947)

 

 

Comprehensive income attributable to Century Casinos, Inc. shareholders

 

$

4,239 

 

$

1,323 

 

$

7,575 

 

$

6,950 



 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited 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

 

 

 

 

 

 

 

 

4,529 

 

 

4,529 

 

 

2,536 

 

 

7,065 

Foreign currency translation adjustment

 

 

 

 

 

 

2,421 

 

 

 

 

2,421 

 

 

(2)

 

 

2,419 

Amortization of stock-based compensation

 

 

 

 

381 

 

 

 

 

 

 

381 

 

 

 

 

381 

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

(1,626)

 

 

(1,626)

Exercise of stock options

20,488 

 

 

 

 

46 

 

 

 

 

 

 

46 

 

 

 

 

46 

BALANCE AT June 30, 2016

24,434,571 

 

$

244 

 

$

77,745 

 

$

(10,262)

 

$

61,700 

 

$

129,427 

 

$

5,645 

 

$

135,072 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

3,962 

 

 

3,962 

 

 

1,008 

 

 

4,970 

Foreign currency translation adjustment

 

 

 

 

 

 

3,613 

 

 

 

 

3,613 

 

 

947 

 

 

4,560 

Amortization of stock-based compensation

 

 

 

 

235 

 

 

 

 

 

 

235 

 

 

 

 

235 

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

(58)

 

 

(58)

Exercise of stock options

17,036 

 

 

 

 

32 

 

 

 

 

 

 

32 

 

 

 

 

32 

BALANCE AT June 30, 2017

24,468,618 

 

$

245 

 

$

78,424 

 

$

(8,996)

 

$

70,365 

 

$

140,038 

 

$

8,285 

 

$

148,323 

See notes to unaudited 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 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

 

2017

 

2016



 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

Net earnings

 

$

4,970 

 

$

7,065 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,103 

 

 

4,127 

Loss on disposition of fixed assets

 

 

255 

 

 

37 

Unrealized (gain) loss on interest rate swaps

 

 

(35)

 

 

23 

Amortization of stock-based compensation expense

 

 

235 

 

 

381 

Amortization of deferred financing costs

 

 

86 

 

 

57 

Deferred taxes

 

 

45 

 

 

(197)

Changes in Operating Assets and Liabilities, Net of Acquisition:

 

 

 

 

 

 

Receivables, net

 

 

1,602 

 

 

(381)

Prepaid expenses and other assets

 

 

(2,458)

 

 

(847)

Accounts payable

 

 

246 

 

 

(257)

Accrued liabilities

 

 

33 

 

 

717 

Inventories

 

 

(23)

 

 

Other operating assets

 

 

 

 

(489)

Other operating liabilities

 

 

47 

 

 

Accrued payroll

 

 

(169)

 

 

(296)

Taxes payable

 

 

(1,696)

 

 

(1,038)

Net cash provided by operating activities

 

 

7,241 

 

 

8,907 



 

 

 

 

 

 

Cash Flows used in Investing Activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,064)

 

 

(3,805)

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

 

 

(1,494)

 

 

Acquisition of Saw Close Casino, Ltd. Licenses (Note 1)

 

 

(126)

 

 

Proceeds from disposition of assets

 

 

 

 

10 

Net cash used in investing activities

 

 

(4,683)

 

 

(3,795)

 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

 

2017

 

2016



 

 

 

 

 

 

Cash Flows used in Financing Activities:

 

 

 

 

 

 

Proceeds from borrowings

 

 

 

 

379 

Principal payments

 

 

(2,952)

 

 

(2,426)

Distribution to non-controlling interest

 

 

(644)

 

 

(1,626)

Proceeds from exercise of stock options

 

 

32 

 

 

46 

Net cash used in financing activities

 

 

(3,564)

 

 

(3,627)



Effect of Exchange Rate Changes on Cash

 

$

979 

 

$

416 



 

 

 

 

 

 

(Decrease) Increase in Cash and Cash Equivalents

 

$

(27)

 

$

1,901 



 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

$

38,837 

 

$

29,366 

Cash and Cash Equivalents at End of Period

 

$

38,810 

 

$

31,267 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

3,120 

 

$

1,459 

Income taxes paid

 

$

1,774 

 

$

1,896 



 

 

 

 

 

 

Non-Cash Investing Activities:

 

 

 

 

 

 

Purchase of property and equipment on account

 

$

437 

 

$

740 

Non-Cash Financing Activities:

 

 

 

 

 

 

Assets acquired under capital lease obligation

 

$

20 

 

$



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. (“CCI” or the “Company”) is an international casino entertainment company. As of June 30, 2017, the Company owned casino operations in North America; was developing a casino in England; held a majority ownership interest in six 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 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 six 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 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:



·

The Company operates 14 ship-based casinos through concession agreements with four cruise ship owners. The Company began operating the ship-based casino onboard Mein Schiff 6, a new 2,500 passenger cruise ship, in May 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.



 

10


 

 

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 provided limited consulting services for the ship-based casinos of Oceania and Regent in exchange for receiving a consulting fee of $2.0 million, which was payable $250,000 per quarter through May 2017.  



·

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 Racetrack and Casino. In March 2017, the Company received approval for the Century Mile project from the Alberta Gaming and Liquor Commission (“AGLC”). Century Mile will be a one-mile horse racetrack and a multi-level REC. The multi-level REC is expected to have 550 slot machines, restaurants, bars, delis, an off-track betting parlor and grandstand and to hold a minimum of 100 horse races per year. The project is located on Edmonton International Airport land 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 60.0 million ($46.2 million based on the exchange rate in effect on June 30, 2017). Construction of the Century Mile project began in July 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. The Company is seeking to obtain financing for the Century Mile project.



On June 20, 2017, the Company’s subsidiary, Century Casinos Europe GmbH (“CCE”), entered into a Share Purchase Agreement (the “Agreement”), by and among Global Gaming Ventures (Group) Limited, Saw Close Casino Ltd. (“SCCL”), Anthony Wollenberg and CCE pursuant to which CCE has acquired 100% of the outstanding common stock of SCCL as well as casino licenses held by SCCL (the “SCCL License Acquisition”) for a total consideration of GBP 0.6 million ($0.8 million based on the exchange rate in effect on June 30, 2017) as well as assumed liabilities of GBP 0.2 million ($0.2 million based on the exchange rate in effect on June 30, 2017). The Company will utilize the casino licenses to develop and operate a casino in Bath, England. The Company paid GBP 0.1 million ($0.1 million) at closing. Payment of the remaining purchase consideration will be made after the receipt of certain regulatory and governmental approvals and the opening of the casino. Payment of the assumed liabilities is subject to certain performance criteria being met once the casino is in operation. The Company estimates that construction of the casino will cost GBP 5.0 million ($6.5 million based on the exchange rate in effect on June 30, 2017) and that the casino will open in the first half of 2018.



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.



 

11


 

 

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 June 30, 2017 are not necessarily indicative of the operating results for the full year.



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”), 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 U.S. dollar used to translate balances at the end of the reported periods are as follows:







 

 

 

 

 

 



 

June 30,

 

December 31,

Ending Rates

 

2017

 

2016

Canadian dollar (CAD)

 

1.2977 

 

1.3427 

Euros (EUR)

 

0.8761 

 

0.9476 

Polish zloty (PLN)

 

3.7027 

 

4.2065 

British pound (GBP)

 

0.7696 

 

0.8106 



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 six months

 

 



 

ended June 30,

 

 

 

ended June 30,

 

 

Average Rates

 

2017

 

2016

 

% Change

 

2017

 

2016

 

% Change

Canadian dollar (CAD)

 

1.3451 

 

1.2890 

 

(4.4%)

 

1.3343 

 

1.3311 

 

(0.2%)

Euros (EUR)

 

0.9096 

 

0.8856 

 

(2.7%)

 

0.9240 

 

0.8961 

 

(3.1%)

Polish zloty (PLN)

 

3.8354 

 

3.8726 

 

1.0% 

 

3.9459 

 

3.9141 

 

(0.8%)

British pound (GBP)

 

0.7822 

 

0.6976 

 

(12.1%)

 

0.7947 

 

0.6979 

 

(13.9%)

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 and six month periods ended June 30, 2016, the Company determined 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 six months ended June 30, 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 six months ended June 30, 2016.



The prior period amounts within the Company’s condensed consolidated financial statements for the six months ended June 30, 2016 have been revised to reflect the correct balances as presented below.







 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Earnings for the six months ended June 30, 2016:

Amounts in thousands, except for per share information

 

As Previously Reported

 

Correction

 

As Corrected

Operating Revenue:

 

 

 

 

 

 

 

 

 

Other

 

$

6,028 

 

$

697 

 

$

6,725 

Gross revenue

 

 

71,943 

 

 

697 

 

 

72,640 

Net operating revenue

 

 

67,731 

 

 

697 

 

 

68,428 

Earnings from operations

 

 

7,924 

 

 

697 

 

 

8,621 

Earnings before income taxes

 

 

8,133 

 

 

697 

 

 

8,830 

Income tax expense

 

 

(1,584)

 

 

(181)

 

 

(1,765)

Net earnings

 

 

6,549 

 

 

516 

 

 

7,065 

Net earnings attributable to non-controlling interests

 

 

(2,407)

 

 

(129)

 

 

(2,536)

Net earnings attributable to Century Casinos, Inc. shareholders

 

 

4,142 

 

 

387 

 

 

4,529 



 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

0.17 

 

$

0.01 

 

$

0.18 



 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income for the six months ended June 30, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Net earnings

 

$

6,549 

 

$

516 

 

$

7,065 



 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,447 

 

 

(28)

 

 

2,419 

Other comprehensive income

 

 

2,447 

 

 

(28)

 

 

2,419 

Comprehensive income

 

$

8,996 

 

$

488 

 

$

9,484 



 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

Net earnings attributable to non-controlling interests

 

 

(2,407)

 

 

(129)

 

 

(2,536)

Foreign currency translation adjustments

 

 

(5)

 

 

 

 

Comprehensive income attributable to Century Casinos, Inc. shareholders

 

$

6,584 

 

$

366 

 

$

6,950 



 

 

 

 

 

 

 

 

 



 

13


 

 





 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Equity for the six months ended June 30, 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

 

 

2,442 

 

 

(21)

 

 

2,421 



 

 

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

 

 

 

Retained earnings balance at January 1, 2016

 

 

57,558 

 

 

(387)

 

 

57,171 

Net earnings

 

 

4,142 

 

 

387 

 

 

4,529 



 

 

 

 

 

 

 

 

 

Total Century Casinos shareholders' equity

 

 

 

 

 

 

 

 

 

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

 

 

122,416 

 

 

(366)

 

 

122,050 

Net earnings

 

 

4,142 

 

 

387 

 

 

4,529 

Foreign currency translation adjustment

 

 

2,442 

 

 

(21)

 

 

2,421 



 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

Non-controlling interest balance at January 1, 2016

 

 

4,859 

 

 

(122)

 

 

4,737 

Net earnings

 

 

2,407 

 

 

129 

 

 

2,536 

Foreign currency translation adjustment

 

 

 

 

(7)

 

 

(2)



 

 

 

 

 

 

 

 

 

Total equity

 

 

 

 

 

 

 

 

 

Total equity balance at January 1, 2016

 

 

127,275 

 

 

(488)

 

 

126,787 

Net earnings

 

 

6,549 

 

 

516 

 

 

7,065 

Foreign currency translation adjustment

 

 

2,447 

 

 

(28)

 

 

2,419 



 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Net earnings

 

$

6,549 

 

$

516 

 

$

7,065 

Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

 

Receivables, net

 

 

278 

 

 

(659)

 

 

(381)

Taxes payable

 

 

(1,209)

 

 

171 

 

 

(1,038)

Net cash provided by operating activities

 

 

8,879 

 

 

28 

 

 

8,907 

Effect of Exchange Rate Changes on Cash

 

 

444 

 

 

(28)

 

 

416 



 

 

 

 

 

 

 

 

 



 

14


 

 





























 

 

 

 

 

 

 

 

 

Note 12: Segment and Geographic Information for the six months ended June 30, 2016:

Amounts in thousands

 

As Previously Reported

 

Correction

 

As Corrected

Canada

 

 

 

 

 

 

 

 

 

Net operating revenue

 

$

25,462 

 

$

697 

 

$

26,159 

Net earnings attributable to Century Casinos, Inc. shareholders

 

 

3,604 

 

 

387 

 

 

3,991 

Income taxes

 

 

1,118 

 

 

181 

 

 

1,299 

Non-controlling interest

 

 

1,735 

 

 

129 

 

 

1,864 

Adjusted EBITDA

 

 

7,938 

 

 

697 

 

 

8,635 



 

 

 

 

 

 

 

 

 



Consolidated results in Note 12 “Segment and Geographic Information” for the six months ended June 30, 2016 have been updated as presented in the condensed consolidated statement of earnings table above. Consolidated Adjusted EBITDA for the six months ended June 30, 2016 was corrected by $0.7 million, adjusting the previously reported Consolidated Adjusted EBITDA of $12.5 million to $13.2 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 continues to analyze the impact that the new standard will have on the Company’s consolidated financial statements, including results of operations, cash flows and related disclosures. Upon adoption, management expects the presentation of goods and services presented without charge that is currently presented in total revenue with an offset in promotional allowances will be presented on a net basis within related revenue categories. Management also anticipates a change in the manner in which the Company assigns value to accrued customer benefits related to its player clubs; however, this is not expected to have a material impact on the Company’s consolidated financial statements or results of operations.



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