c9226cb054ca4d4

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

 

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

incorporation or organization)

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

 

2860 South Circle Drive, Suite 350, Colorado Springs, Colorado 80906

(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 þ  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 þ  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 þ

   

 

 

 

(Do not check if a smaller reporting company)

 

 

 

1

 


 

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

 

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

 

24,128,114 shares of common stock, $0.01 par value per share, were outstanding as of July 26, 2013.

 

 

 

2

 


 

 

INDEX

 

 

 

Part I

FINANCIAL INFORMATION

Page

Item 1. 

Condensed Consolidated Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012

 

Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2013 and 2012

 

Condensed Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended June 30, 2013 and 2012

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012

 

Notes to Condensed Consolidated Financial Statements

10 

Item 2. 

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

21 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

40 

Item 4. 

Controls and Procedures

40 

Part II

OTHER INFORMATION

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

40 

Item 6. 

Exhibits

41 

SIGNATURES 

41 

 

 

 

3

 


 

 

PART I – FINANCIAL INFORMATION

Item 1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

June 30,

 

December 31,

Amounts in thousands, except for share and per share information

 

2013

 

2012

ASSETS

 

(unaudited)

 

 

Current assets:

 

 

 

 

 Cash and cash equivalents

 

$
28,170 

 

$
24,747 

 Receivables, net

 

1,129 

 

700 

 Prepaid expenses

 

707 

 

608 

 Inventories

 

494 

 

311 

 Other current assets

 

90 

 

86 

 Deferred income taxes

 

494 

 

83 

Total current assets

 

31,084 

 

26,535 

 

 

 

 

 

Property and equipment, net

 

112,756 

 

99,526 

Goodwill

 

12,511 

 

4,941 

Equity investment

 

 

3,346 

Deferred income taxes

 

3,056 

 

2,145 

Casino license

 

2,296 

 

Trademark

 

1,937 

 

104 

Notes receivable

 

500 

 

Other assets

 

994 

 

478 

Restricted cash

 

258 

 

261 

Total assets

 

$
165,392 

 

$
137,336 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

 Current portion of long-term debt

 

$
6,279 

 

$
372 

 Accounts payable and accrued liabilities

 

6,629 

 

6,379 

 Accrued payroll

 

3,928 

 

2,806 

 Taxes payable

 

3,362 

 

3,413 

 Contingent liability

 

5,505 

 

 Deferred income taxes

 

101 

 

101 

Total current liabilities

 

25,804 

 

13,071 

 

 

 

 

 

Long-term debt, less current portion

 

10,147 

 

3,192 

Taxes payable

 

237 

 

237 

Deferred income taxes

 

3,701 

 

2,680 

Other liabilities

 

96 

 

Total liabilities

 

$
39,985 

 

$
19,180 

Commitments and Contingencies

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

 

-

Continued -

 

4

 


 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

Amounts in thousands, except for share and per share information

 

2013

 

2012

 

 

(unaudited)

 

 

Shareholders’ 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; 24,243,926 shares issued; 24,128,114 shares outstanding

 

243 

 

243 

 Additional paid-in capital

 

75,391 

 

75,388 

 Retained earnings

 

43,557 

 

38,238 

 Accumulated other comprehensive earnings

 

1,118 

 

4,569 

 Treasury stock – 115,812 shares at cost

 

(282)

 

(282)

Total Century Casinos shareholders' equity

 

120,027 

 

118,156 

 Non-controlling interest

 

5,380 

 

Total equity

 

125,407 

 

118,156 

Total liabilities and shareholders’ equity

 

$
165,392 

 

$
137,336 

See notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

5

 


 

 

 

 

 

 

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

 

2013

 

2012

 

2013

 

2012

Operating revenue:

 

 

 

 

 

 

 

 

 Gaming

 

$
26,149 

 

$
15,709 

 

$
41,844 

 

$
30,968 

 Hotel, bowling, food and beverage

 

3,162 

 

3,135 

 

$
6,413 

 

6,456 

 Other

 

932 

 

1,103 

 

1,879 

 

2,046 

           Gross revenue

 

30,243 

 

19,947 

 

50,136 

 

39,470 

Less: Promotional allowances

 

(1,895)

 

(2,156)

 

(3,799)

 

(4,110)

Net operating revenue

 

28,348 

 

17,791 

 

46,337 

 

35,360 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 Gaming

 

13,510 

 

7,459 

 

20,443 

 

14,692 

 Hotel, bowling, food and beverage

 

2,646 

 

2,420 

 

5,095 

 

4,857 

 General and administrative

 

8,282 

 

5,320 

 

13,556 

 

10,624 

 Depreciation and amortization

 

1,795 

 

1,180 

 

2,986 

 

2,358 

Total operating costs and expenses

 

26,233 

 

16,379 

 

42,080 

 

32,531 

Earnings (losses) from equity investment

 

(32)

 

283 

 

(128)

 

438 

Earnings from operations

 

2,083 

 

1,695 

 

4,129 

 

3,267 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 Gain on business combination

 

2,074 

 

 

2,074 

 

 Interest income

 

 

23 

 

11 

 

29 

 Interest expense

 

(264)

 

(395)

 

(344)

 

(543)

 Gains on foreign currency transactions and other

 

161 

 

22 

 

168 

 

17 

Non-operating income (expense), net

 

1,976 

 

(350)

 

1,909 

 

(497)

Earnings before income taxes and non-controlling interest

 

4,059 

 

1,345 

 

6,038 

 

2,770 

Income tax provision

 

236 

 

197 

 

553 

 

489 

Net earnings

 

3,823 

 

1,148 

 

5,485 

 

2,281 

  Less: Net earnings attributable to non-controlling interest

 

166 

 

 

166 

 

Net earnings attributable to Century Casinos, Inc. shareholders

 

$
3,657 

 

$
1,148 

 

$
5,319 

 

$
2,281 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Century Casinos, Inc. - basic and diluted:

 

 

 

 

 

 

 

 

 Basic

 

$
0.15 

 

$
0.05 

 

$
0.22 

 

$
0.10 

 Diluted

 

$
0.15 

 

$
0.05 

 

$
0.22 

 

$
0.09 

Weighted average shares outstanding - basic

 

24,128 

 

23,890 

 

24,128 

 

23,884 

Weighted average shares outstanding - diluted

 

24,209 

 

24,060 

 

24,183 

 

24,055 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

6

 


 

 

 

 

 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

For the three months

ended June 30,

 

For the six months

ended June 30,

Amounts in thousands

 

2013

 

2012

 

2013

 

2012

   

 

 

 

 

 

 

 

 

Net earnings

 

$
3,823 

 

$
1,148 

 

$
5,485 

 

$
2,281 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) earnings, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(2,238)

 

(1,357)

 

(3,451)

 

(290)

Other comprehensive (loss)

 

(2,238)

 

(1,357)

 

(3,451)

 

(290)

Comprehensive earnings (loss)

 

$
1,585 

 

($209)

 

$
2,034 

 

$
1,991 

  Less: Comprehensive (loss) attributable to non- 

  controlling interest

 

(109)

 

 

(109)

 

Comprehensive earnings (loss) attributable to Century Casinos shareholders

 

$
1,694 

 

($209)

 

$
2,143 

 

$
1,991 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 


 

 

 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

 

 

 

 

 

 

 

   

 

For the six months ended June 30,

 

For the six months ended June 30,

Amounts in thousands

 

2013

 

2012

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Net earnings

 

$
5,319 

 

$
2,281 

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

 

 

 

 

Depreciation and amortization

 

2,986 

 

2,358 

Gain on business combination

 

(2,074)

 

Loss on disposition of fixed assets

 

15 

 

22 

Amortization of stock-based compensation

 

 

(2)

Amortization of deferred financing costs

 

42 

 

110 

Deferred taxes

 

(1,359)

 

Net earnings attributable to noncontrolling interest

 

166 

 

Earnings (losses) from unconsolidated subsidiary

 

128 

 

(438)

Changes in Operating Assets and Liabilities, Net of Assets/Liabilities Acquired in Business Combination:

 

 

 

 

Receivables

 

178 

 

29 

Prepaid expenses and other assets

 

100 

 

(43)

Accounts payable and accrued liabilities

 

(1,087)

 

(1,217)

Inventories

 

(61)

 

(60)

Other operating assets

 

 

(77)

Other operating liabilities

 

(194)

 

Accrued payroll

 

(455)

 

Taxes payable

 

(951)

 

(923)

Net cash provided by operating activities

 

2,756 

 

2,046 

Cash Flows used in Investing Activities:

 

 

 

 

Purchases of property and equipment

 

(1,308)

 

(1,620)

Acquisition of Casinos Poland, net of cash acquired

 

(4,580)

 

Proceeds from disposition of assets

 

13 

 

Funds advanced for projects

 

(500)

 

Net cash used in investing activities

 

(6,375)

 

(1,618)

Cash Flows used in Financing Activities:

 

 

 

 

Proceeds from borrowings

 

8,301 

 

3,626 

Payment of deferred financing costs

 

 

(394)

Principal repayments

 

(755)

 

(9,092)

Proceeds from exercise of options

 

 

240 

Net cash provided by (used in) financing activities

 

$                 7,546 

 

$                (5,620)

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

-

Continued

 

8

 


 

 

 

CENTURY CASINOS, INC. AND SUBSIDIARIES

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

 

 

 

 

 

   

 

For the six months ended June 30,

 

For the six months ended June 30,

Amounts in thousands

 

2013

 

2012

 

 

 

 

 

Effect of Exchange Rate Changes on Cash

 

($504)

 

($256)

 

 

 

 

 

Increase (Decrease) in Cash and Cash Equivalents

 

$
3,423 

 

($5,448)

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

$
24,747 

 

$
25,192 

Cash and Cash Equivalents at End of Period

 

$
28,170 

 

$
19,744 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

Interest paid

 

$
158 

 

$
486 

Income taxes paid

 

$
1,510 

 

$
88 

Please refer to Note 2 of the Company’s condensed consolidated financial statements for details of the Company’s acquisition of an additional interest in Casinos Poland.

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 June 30, 2013, the Company owned casino operations in North America, managed cruise ship-based casinos on international waters, and had a management contract to manage the casino in the Radisson Aruba Resort, Casino & Spa. In addition, on  April 8, 2013, the Company’s subsidiary Century Casinos Europe GmbH (“CCE”) signed the final share sale agreement with LOT Polish Airlines to complete the purchase of an additional 33.3% ownership interest in Casinos Poland Ltd (“CPL”).  The Company now owns a 66.6% ownership interest in CPL, and on April 8, 2013 began consolidating CPL as a majority-owned subsidiary for which the Company has a controlling financial interest  (Note 2).

 

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, 2012. The results of operations for the period ended June 30, 2013 are not necessarily indicative of the operating results for the full year.

 

Presentation of Foreign Currency Amounts

 

Dollar amounts reported in this quarterly report are in U.S. dollars (“USD” or “$”) unless otherwise indicated. Transactions that are denominated in a foreign currency, which include the Canadian dollar (“CAD”), Euro (“EUR”) and Polish zloty (“PLN”) are translated and recorded at the exchange rate in effect on the date of the transaction. Commitments that are denominated in a foreign currency and all balance sheet accounts other than shareholders’ equity are translated and presented based on the exchange rate between such foreign currency and the U.S. dollar at the end of the reported periods.  Current period transactions affecting the profit and loss of operations conducted in foreign currencies are valued at the average exchange rate between such foreign currency and the U.S. dollar for the period in which they are incurred.

 

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

 

June 30

Ending Rates

 

2013

 

2012

 

2012

Canadian dollar (CAD)

 

1.0512 

 

0.9949 

 

1.0191 

Euros (EUR)

 

0.7687 

 

0.7584 

 

0.7894 

Polish zloty (PLN)

 

3.3276 

 

3.0996 

 

3.3885 

Source: Pacific Exchange Rate Service

 

 

 

 

 

 

 

10

 


 

 

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 June 30,

 

 

 

For the six months

ended June 30,

 

 

Average Rates

 

2013

 

2012

 

% Change

 

2013

 

2012

 

% Change

Canadian dollar (CAD)

 

1.0237 

 

1.0104 

 

(1.3%)

 

1.0161 

 

1.0060 

 

(1.0%)

Euros (EUR)

 

0.7658 

 

0.7796 

 

1.8% 

 

0.7616 

 

0.7712 

 

1.2% 

Polish zloty (PLN)

 

3.2156 

 

3.3181 

 

3.1% 

 

3.1800 

 

3.2724 

 

2.8% 

Source: Pacific Exchange Rate Service

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.          ACQUISITION

 

Casinos Poland

On April 8, 2013, the Company’s subsidiary CCE signed a final share sale agreement with LOT Polish Airlines to complete the purchase of an additional 33.3% ownership interest in CPL for cash consideration of $6.8 million. CPL is the owner and operator of nine casinos throughout Poland with a total of 317 slot machines and 77 gaming tables.  The Company paid for the purchase consideration with borrowings under its credit agreement with the Bank of Montreal (“BMO Credit Agreement”) (Note 5). There was no contingent consideration for the transaction.

 

Prior to April 8, 2013, the Company owned 33.3% of CPL and accounted for the ownership interest as an equity investment. The Company now owns a 66.6% ownership interest in CPL and on April 8, 2013 began consolidating CPL financial information as a majority-owned subsidiary for which the Company has a controlling financial interest. As a result, the Company changed its accounting for CPL from an equity method investment to a consolidated subsidiary. CPL contributed a total of $10.9 million in net operating revenue and $0.3 million in earnings from the date of acquisition through June 30, 2013. Polish Airports Company (“Polish Airports”) owns the remaining 33.3% ownership interest in CPL and the Company accounts for and reports the Polish Airports ownership interest as a non-controlling financial interest.

 

Upon consolidation, the fair value of the Company’s initial 33.3% equity investment was determined to be $5.2 million as of the acquisition date. The $5.2 million was greater than the carrying value of the equity investment, resulting in a gain of $2.1 million, net of the foreign currency translation.  The Company recorded the gain in “Gain on business combination” in the second quarter 2013 consolidated statement of earnings. The fair value was determined based on the controlling interest obtained through the additional 33.3% interest acquired and on the Company’s internal valuation of CPL using the following methods, which the Company believes provide the most appropriate indicators of fair value:    

·

relief from royalty method; 

·

replacement cost method; 

·

direct market value approach and direct and indirect cost approach; and

·

sales comparison approach, income approach and cost approach.

 

 

 

 

Amounts in thousands (in USD)

Total

Investment fair value - April 8, 2013

$
5,214 

Investment value at April  8, 2013

(3,027)

Gain on business combination including foreign currency translation

2,187 

Less: foreign currency translation

(113)

Gain on business combination

$
2,074 

 

 

 

11

 


 

 

Details of the purchase in the table below are based on estimated fair values of assets and liabilities as of April 8, 2013, the date of acquisition.  The fair values set forth are subject to adjustment as the Company obtains additional information during the measurement period (a period up to one year from the date of acquisition) that would change the fair value allocation as of the acquisition date.

 

 

 

Acquisition Date

April 8, 2013

 

 

Amounts in thousands

 

Purchase consideration:

 

Cash paid

$
6,780 

Acquisition-date fair value of the previously held equity interest

5,214 

Total purchase consideration

$
11,994 

The assets and liabilities recognized as a result of the acquisition are as follows:

 

 

 

 

Cash

$
2,200 

Accounts receivable

638 

Deferred tax assets - current

201 

Prepaid expenses

222 

Inventory

155 

Other current assets

Property and equipment

17,922 

Licenses

2,533 

Trademark

1,924 

Deferred tax assets, non-current

1,034 

Other long-term assets

448 

Current portion of long-term debt

(4,033)

Accounts payable and accrued liabilities

(2,236)

Contingent liability

(5,500)

Accrued payroll

(1,272)

Taxes payable

(2,073)

Long-term debt, less current portion

(1,921)

Deferred income taxes, non-current

(1,258)

Net identifiable assets acquired

8,987 

 

 

Less: Non-controlling interest

(5,214)

Add: Goodwill

8,221 

Net assets acquired

$
11,994 

 

The Company accounted for the transaction as a step acquisition, and accordingly, CPL's assets of $27.3 million (including $2.2 million in cash) and liabilities of $18.3 million were included in the Company's consolidated balance sheet at April 8, 2013.  The goodwill is attributable to the expected synergies and economies of scale of incorporating CPL with the Company.  The acquisition also combines the specialties of the Company’s management expertise in the gaming industry with the brand awareness of Casinos Poland. Goodwill is not a tax deductible item for the Company.    

 

12

 


 

 

Non-controlling interest

The Company recognized the Polish Airports non-controlling interest in CPL at its fair value as of the acquisition. The Company estimated the fair value of the non-controlling interest by determining the value of a controlling interest in the entity. Having control over a company gives additional rights to the holder of the controlling interest as opposed to the holder of the non-controlling interest. The Company then applied a 22.5% discount or reverse control premium to determine the value of the non-controlling interest.

 

The discount for lack of control was estimated based on an analysis of the transactions in the casinos and gaming industry in the past five years. The resulting value of the non-controlling interest was PLN 16.5 million ($5.2 million).

 

Purchase Consideration – cash outflow

 

 

 

 

Outflow of cash to acquire subsidiary, net of cash acquired

 

Cash consideration

$
6,780 

Less: cash balances acquired

(2,200)

Outflow of cash - investing activities

$
4,580 

 

Acquisition-related costs

The Company has incurred acquisition costs of approximately $0.1 million and expects to incur an additional $0.1 million during the third quarter of 2013.  These costs include legal, accounting and valuation fees and have been recorded as general and administrative expenses.

 

Contingent liability

In March 2011, the Polish Internal Revenue Service (“Polish IRS”) conducted a tax audit of CPL to review the calculation and payment of personal income tax by CPL employees covering January 2011. Based on this audit, the Polish IRS concluded that CPL should calculate, collect and remit to the Polish IRS personal income tax on tips received by CPL employees from casino customers. After proceedings between CPL and the Polish IRS, the Director of the Tax Chamber in Warsaw confirmed the opinion of the Polish IRS on November 19, 2012, and on November 30, 2012 CPL paid PLN 125,269 (less than $0.1 million) to the Polish IRS resulting from the decision. CPL appealed the decision to the Regional Administrative Court in Warsaw on December 21, 2012. If the case is decided against CPL, the Company believes that the Polish IRS may seek to assess a liability for all periods from January 2007 to present. A final decision is not expected in 2013. Similar litigation involving competitors concerning the treatment of tips is ongoing.

 

Management has determined that it is reasonably possible that the litigation will be unfavorable for CPL. Accounting guidance requires pre-acquisition contingent liabilities to be recognized at fair value at the acquisition date if the liability can be determined. Based on management’s assessment using a probability weighted cash flow analysis, the fair value of the potential liability for all open periods is estimated at PLN 18.3 million ($5.5 million). As a result, PLN 18.3 million ($5.5 million) has been recorded as a contingent liability as of June 30, 2013 on the condensed consolidated balance sheets.  

 

Pro Forma Results

The following table provides unaudited pro forma information of the Company as if the acquisition of CPL had occurred at the beginning of the earliest comparable period presented. This pro forma 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 six months

ended June 30,

 

For the six months

ended June 30,

 

 

2013

 

2012

Net operating revenue

 

$
59,397 

 

$
56,717 

Net earnings

 

$
5,153 

 

$
2,143 

Basic and diluted earnings per share

 

$
0.21 

 

$
0.09 

13

 


 

 

 

 

3.          GOODWILL AND INTANGIBLE ASSET

 

Goodwill

Changes in the carrying amount of goodwill related to the Company’s Edmonton property and CPL for the six months ended June 30, 2013 are as follows:

 

 

 

 

 

Amounts in thousands

Edmonton

Casinos Poland

Total

Balance – January 1, 2013

$
4,941 
$
$
4,941 

Purchase of Casinos Poland

8,221 
8,221 

Effect of foreign currency translation

(265)
(386)
(651)

Balance – June 30, 2013

$
4,676 
$
7,835 
$
12,511 

 

Goodwill related to the purchase of additional ownership in CPL was $8.2 million as of June 30, 2013 (Note 2).  

 

Intangible Asset

Casinos Poland currently has nine casino licenses each with a term of six years. As of April 8, 2013, the Company began reporting the Polish casino licenses as intangible assets on the Company’s condensed consolidated balance sheets. Changes in the carrying amount of the Casinos Poland licenses from the date of acquisition to June 30, 2013 are as follows:

 

 

 

 

Amounts in thousands

 

Balance – April 8, 2013

$
2,533 

Amortization

(121)

Effect of foreign currency translation

(116)

Balance – June 30, 2013

$
2,296 

 

As of June 30, 2013, estimated amortization expense for the CPL casino licenses over the next five years is as follows:

 

 

 

 

Amounts in thousands

 

2013

$
258 

2014

$
516 

2015

$
516 

2016

$
482 

2017

$
393 

 

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 4.5 years. 

 

 

4.            PROMOTIONAL ALLOWANCES

 

Hotel accommodations, bowling and food and beverage furnished without charge to customers are included in gross revenue at a value which approximates retail and are then deducted as complimentary services to arrive at net operating revenue.

 

14

 


 

 

The Company issues coupons for the purpose of generating future revenue. The cost of the coupons redeemed is applied against the revenue generated on the day of the redemption. In addition, members of the Company’s casinos’ player clubs earn points based on, among other things, their volume of play at the Company’s casinos. Players can accumulate points over time that they may redeem at their discretion under the terms of the program. Points can be redeemed for cash and/or various amenities at the casino, such as meals, hotel stays and gift shop items. The cost of the points is offset against the revenue in the period in which the points were earned. The value of unused or unredeemed points is included in accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheets. The expiration of unused points results in a reduction of the liability. As of June 30, 2013, the outstanding balance of this liability was $0.9 million.  

 

Promotional allowances presented in the condensed consolidated statements of earnings include the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

ended June 30

 

For the six months

ended June 30

 

 

2013

 

2012

 

2013

 

2012

Amounts in thousands

 

 

 

 

 

 

 

 

Hotel, bowling, food & beverage

 

$
908 

 

$
984 

 

$
1,796 

 

$
1,898 

Coupons

 

498 

 

487 

 

1,014 

 

941 

Player points

 

489 

 

685 

 

989 

 

1,271 

Total promotional allowances

 

$
1,895 

 

$
2,156 

 

$
3,799 

 

$
4,110 

 

 

 

 

5.         LONG-TERM DEBT

 

Long-term debt as of June 30, 2013 and December 31, 2012 consisted of the following:

 

 

 

 

 

 

June 30,

 

December 31,

Amounts in thousands

2013

 

2012

Credit agreement  Bank of Montreal

$
9,998 

 

$
3,564 

Credit agreements - Casinos Poland

2,985 

 

 -

Credit facilities - Casinos Poland

3,204 

 

 -

Capital leases - Casinos Poland

239 

 

 -

Total long-term debt

16,426 

 

3,564 

Less current portion

(6,279)

 

(372)

Long-term portion

$
10,147 

 

$
3,192 

 

As of June 30, 2013, scheduled maturities related to long-term debt are as follows:

 

 

 

 

 

 

 

 

Amounts in thousands

Edmonton

 

Casinos Poland

2013

$
610 

 

$
4,249 

2014

1,047 

 

1,444 

2015

1,047 

 

717 

2016

1,047 

 

18 

2017 and thereafter

6,247 

 

-

Total

$
9,998 

 

$
6,428 

 

The consolidated weighted average interest rate on all Company debt was 6.7% for the six months ended June 30, 2013.

15

 


 

 

Credit Agreement – Bank of Montreal

On May 23, 2012, the Company, through its Canadian subsidiaries, entered into a CAD 28.0 million ($27.5 million) credit agreement with the Bank of Montreal (the “BMO Credit Agreement).  On May 23, 2012, the Company borrowed $3.7 million from the BMO Credit Agreement to repay the Company’s mortgage loan related to the Edmonton property (the “Edmonton Mortgage”). The Company can also use the proceeds to pursue the development or acquisition of new gaming opportunities and for general corporate purposes. The BMO Credit Agreement has a term of five years and is guaranteed by the Company. On February 21, 2013, the Company borrowed an additional $7.3 million to pay for the additional 33.3% investment in CPL (Note 2). The BMO Credit Agreement contains a number of financial covenants applicable to the Canadian subsidiaries, in addition to covenants restricting their incurrence of additional debt. The Company was in compliance with all covenants of the BMO Credit Agreement as of June 30, 2013. As of June 30, 2013, the amount outstanding was $10.0 million and the Company had approximately $14.9 million available under the BMO Credit Agreement. The $11.0 million the Company has borrowed cannot be re-borrowed once it is repaid.

 

Deferred financing charges related to the BMO Credit Agreement, which are reported as a component of other assets in the condensed consolidated balance sheets, are summarized as follows:

 

 

 

 

 

 

 

Credit agreement  Bank of Montreal

June 30,

 

December 31,

Amounts in thousands

2013

 

2012

Deferred financing charges - current

$
80 

 

$
85 

Deferred financing charges - long-term

232 

 

288 

Total

$
312 

 

$
373 

 

Amortization expenses relating to deferred financing charges were less than $0.1 million for the six months ended June 30, 2013 and $0.1 million for the six months ended June 30, 2012. These costs are included in interest expense in the condensed consolidated statements of earnings.

 

The Company currently pays a floating interest rate on its borrowings under the BMO Credit Agreement. As of June 30, 2013, the interest rate under the BMO Credit Agreement was 4.0%.

 

Casinos Poland

Because of the CPL acquisition, the Company acquired an additional $6.4 million in debt as of June 30, 2013. The debt includes two bank loans, two bank lines of credit and nine capital lease agreements.

 

The first bank loan is with Bank Pocztowy. CPL entered into the four-year term loan in 2011 at an interest rate of Warsaw Interbank Offered Rate (“WIBOR”) plus 3.0%.  Proceeds from the loan were used to refinance the loan provided to CPL by ING Bank Slaski and finance current operations.  As of June 30, 2013, the amount outstanding was $1.7 million, and CPL had no further borrowing availability under the loan. The loan matures in November 2015. The second bank loan is with BRE Bank. CPL entered into the 2-year term loan in 2012 at an interest rate of WIBOR plus 2.5%.  Proceeds from the loan were used to finance current operations.  As of June 30, 2013, the amount outstanding was $1.3 million, and CPL has no further borrowing availability under the loan.  The BRE Bank loan matures in August 2014. The BRE Bank loan agreement contains a number of financial covenants applicable to CPL, in addition to covenants restricting incurrence of additional debt. CPL complied with all covenants of the BRE Bank agreement as of June 30, 2013

 

16

 


 

 

The two bank lines of credit are short-term facilities.  CPL used both lines of credit to finance current operations. The first line of credit is with BRE Bank. It is a short-term revolving credit facility entered into in 2004 and renewed on a yearly basis, with the last appendix signed in February 2013 at an interest rate of WIBOR plus 2.0%. As of June 30, 2013, the amount outstanding was $0.6 million and CPL had approximately $0.2 million available under the agreement. The BRE Bank facility contains a number of financial covenants applicable to CPL, in addition to covenants restricting incurrence of additional debt. CPL complied with all covenants of the BRE Bank line of credit as of June 30, 2013.  The second line of credit is with BPH Bank. It is also a short-term revolving credit facility entered into in 2012 at an interest rate of WIBOR plus 1.95%. As of June 30, 2013, the amount outstanding was $2.6 million and CPL has approximately $0.8 million available under the agreement. The BPH Bank facility contains a number of financial covenants applicable to CPL, in addition to covenants restricting incurrence of additional debt. CPL complied with all covenants of the BPH Bank line of credit as of June 30, 2013.

 

CPL’s remaining debt consists of nine capital lease agreements. The lease agreements are for various vehicles and television systems that are replaced on an ongoing basis. As of June 30, 2013, the amount outstanding was $0.2 million.

 

6.         FINANCING ARRANGEMENTS FOR PROJECT INVESTMENTS

 

Calgary

On November 30, 2012, CCE signed credit and management agreements with United Horsemen of Alberta Inc. (“UHA”) in connection with the development of a proposed Racing Entertainment Center (“REC”) in Balzac, north metropolitan area of Calgary, Alberta, Canada. We would manage the REC upon completion. Both the credit and management agreements are subject to development approvals and licensing from the Alberta Gaming and Liquor Commission (“AGLC”) as discussed below.

 

The REC project is subject to development approvals and licensing from the AGLC. UHA and CCE have submitted the relevant applications.  Horse Racing Alberta, the governing authority for horseracing in Alberta, has already approved the REC project and issued a license. We anticipate that the REC would be completed 12 to 18 months following completion of the approval process. There is no assurance that the needed approvals will be obtained or as to the timing of such approvals.

 

CCE has agreed to loan to UHA up to CAD 13 million (USD 13 million) for the exclusive use of developing the REC project. The loan has an interest rate of LIBOR plus 800 basis points and a term of five years and is convertible at CCE’s option once the project becomes operational into an ownership position in UHA of up to 60%. The loan is secured by a leasehold mortgage on the REC property and a pledge of UHA’s stock by the majority of UHA shareholders. We intend to fund the loan with borrowings under our BMO Credit Agreement. We have paid $0.1 million in deferred financing costs related to legal fees incurred for the UHA loan. In addition, we have placed $0.3 million in escrow related to the UHA loan. No amounts have been advanced as of June 30, 2013. Once the REC is developed and operational and for as long as CCE has not converted the UHA loan into a majority ownership position in UHA, CCE will receive 60% of UHA’s net profit before tax as a management fee.

 

Since the agreements between UHA and CCE were entered into, litigation was brought by another party against UHA relating to prior business arrangements between that party and UHA. CCE is not a party to the litigation and is presently considering its position and alternative strategies to address this situation. 

 

Southeast Asia

On February 5, 2013, the Company signed a credit agreement and loaned $0.5 million to an Asian company in connection with a proposed casino project in Southeast Asia. The credit agreement has an interest rate of LIBOR plus 8% and a term of three years. Interest is payable quarterly with the first payment of less than $0.1 million recorded as interest revenue received on June 30, 2013. Principal payments are payable quarterly with the first payment due on June 30, 2014.  The $0.5 million loan is included in notes receivable on the condensed consolidated balance sheets. The Company has completed due diligence on the project and has decided not to move forward with the project. Repayment terms of the $0.5 million loan in connection with the project will remain the same.

 

 

17

 


 

 

7.          INCOME TAXES

 

The Company records deferred tax assets and liabilities based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted statutory tax rate in effect for the year these differences are expected to be taxable or reversed. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The recorded deferred tax assets are reviewed for impairment on a quarterly basis by reviewing the Company’s internal estimates for future taxable income.

 

As of June 30, 2013, the Company had a valuation allowance for its U.S. deferred tax assets of $4.9 million, a $0.8 million valuation allowance on its Calgary property and a $0.9 million valuation allowance on the CCE deferred tax assets due to the uncertainty of future taxable income. The Company assesses the continuing need for a valuation allowance that results from uncertainty regarding its ability to realize the benefits of the Company’s deferred tax assets. The ultimate realization of deferred income tax assets depends on generation of future taxable income in the jurisdiction where the assets are present during the periods in which those temporary differences become deductible. If the Company concludes that its prospects for the realization of its deferred tax assets changes, the Company will then adjust its valuation allowance as appropriate after considering the following factors:

 

·

The level of historical taxable income and projections for future taxable income in the jurisdiction where the assets are present over periods in which the deferred tax assets would be deductible; 

·

Accumulation of net income before tax utilizing a look-back period of three years, and

·

Implementation of all tax planning strategies.

The Company’s provision for income taxes from operations consists of the following:

 

 

 

 

 

 

 

Amounts in thousands

 

For the six months

ended June 30,

 

 

2013

 

2012

U.S. Federal - Current

 

$

 

$
122 

U.S. Federal - Deferred

 

 

Provision for U.S. federal income taxes

 

 

122 

 

 

 

 

 

Foreign - Current

 

$
849 

 

$
366 

Foreign - Deferred

 

(302)

 

Provision for foreign income taxes

 

547 

 

367 

Total provision for income taxes

 

$
553 

 

$
489 

 

 

The Company’s pre-tax income (loss) by jurisdiction is summarized in the table below:

 

 

 

 

 

 

 

For the six months

 

For the six months

Amounts in thousands

 

ended June 30, 2013

 

ended June 30, 2012

   

 

Pre-tax income

 

Pre-tax income

Canada

 

$
2,773 

 

$
1,563 

United States

 

393 

 

144 

Mauritius

 

193 

 

147 

Austria

 

238 

 

539 

Poland

 

2,441 

 

377 

Total

 

$
6,038 

 

$
2,770 

 

 

 

 

 

 

 

 

 

 

18

 


 

 

The Company’s worldwide effective income tax rate is 9.2%. A substantial portion of the Company’s earnings are from Canada, which has a 25%  income tax rate.  In addition, the effective income tax rate in Poland is significantly lower than the statutory rate of 19% due to the $2.1 million gain related to the CPL acquisition, which is not taxable.  Finally,  the movement of exchange rates for intercompany loans denominated in U.S. dollars further impacts the Company’s effective income tax rate because foreign currency gains and losses generally are not taxed until realized. Therefore, the Company’s overall effective income tax rate can be significantly impacted by foreign currency gains or losses.  

 

8.          EARNINGS PER SHARE

 

The calculation of basic earnings per share considers only weighted average outstanding common shares in the computation. The calculation of diluted earnings per share gives effect to all potentially dilutive securities. The calculation of diluted earnings per share is based upon the weighted average number of common shares outstanding during the period, plus, if dilutive, the assumed exercise of stock options using the treasury stock method. Weighted average shares outstanding for the three and six months ended June 30, 2013 and 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

For the three months

ended June 30

 

For the six months

ended June 30

   

2013

 

2012

 

2013

 

2012

Weighted average common shares, basic

24,128,114 

 

23,890,405 

 

24,128,114 

 

23,883,919 

Dilutive effect of stock options

80,739 

 

169,917 

 

55,023 

 

170,985 

Weighted average common shares, diluted

24,208,853 

 

24,060,322 

 

24,183,137 

 

24,054,904 

 

The following stock options are anti-dilutive and have not been included in the weighted average shares outstanding calculation:

 

 

 

 

 

 

 

 

 

 

 

For the three months

ended June 30

 

For the six months

ended June 30

   

2013

 

2012

 

2013

 

2012

Stock options

37,500 

 

886,710 

 

37,500 

 

886,710 

 

 

 

9.          SEGMENT INFORMATION

 

The Company has determined that its operation of casino facilities, which includes the provision of gaming, hotel accommodations, dining facilities and other amenities, can be aggregated as one reportable segment.

 

The following summary provides information regarding the Company’s principal geographic areas:

 

 

 

 

 

 

 

 

 

Long Lived Assets

 

 

At June 30,

 

At December 31,

Amounts in thousands

 

2013

 

2012

   

 

 

 

 

United States

 

$
54,888 

 

$
55,442 

International:

 

 

 

 

   Canada

 

$
46,476 

 

$
49,754 

Europe

 

31,701 

 

4,157 

   International waters

 

985 

 

1,187 

Total international

 

79,162 

 

55,098 

Total

 

$
134,050 

 

$
110,540 

19

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Net Operating Revenue

   

 

For the three months

ended June 30, 

 

For the six months

ended June 30, 

Amounts in thousands

 

2013

 

2012

 

2013

 

2012

United States

 

$
7,578 

 

$
7,731 

 

$
14,916 

 

$
15,119 

International:

 

 

 

 

 

 

 

 

   Canada

 

$
8,318 

 

$
8,404 

 

$
17,127 

 

$
16,947 

   Europe

 

10,870 

 

 

10,870 

 

   International waters

 

1,488 

 

1,578 

 

3,237 

 

3,138 

  Aruba

 

94 

 

78 

 

187 

 

156 

Total international

 

20,770 

 

10,060 

 

31,421 

 

20,241 

Total

 

$
28,348 

 

$
17,791 

 

$
46,337 

 

$
35,360 

 

20

 


 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements, Business Environment and Risk Factors

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In addition, Century Casinos, Inc. (together with its subsidiaries, the “Company”) may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management at the time such statements are made.  These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

References in this item to “we,” “our,” or “us” are to the Company and its subsidiaries on a consolidated basis unless the context otherwise requires. The term “CAD” refers to Canadian dollars and the term “PLN” refers to Polish zloty.

 

Amounts presented in this Item 2 are rounded. As such, rounding differences could occur in period over period changes and percentages reported throughout this Item 2.

 

EXECUTIVE OVERVIEW

 

Overview

 

Since our inception in 1992, we have been primarily engaged in developing and operating gaming establishments and related lodging, restaurant and entertainment facilities. Our primary source of revenue is from the net proceeds of our gaming machines and tables, with ancillary revenue generated from hotel, restaurant, bowling and entertainment facilities that are a part of the casinos.

 

We currently own, operate and manage the following casinos through wholly-owned subsidiaries:

-  

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.

 

On April 8, 2013, the Company’s subsidiary Century Casinos Europe (“CCE”) signed a final share sale agreement with LOT Polish Airlines to complete the purchase of an additional 33.3% ownership interest in Casinos Poland Ltd (“CPL”).  Prior to April 8, 2013, the Company owned 33.3% of CPL and accounted for the ownership interest as an equity investment. The Company now owns a 66.6% ownership interest in CPL, and on April 8, 2013 began consolidating CPL as a majority-owned subsidiary for which the Company has a controlling financial interest. Polish Airports Company (“Polish Airports”) owns the remaining 33.3% ownership interest in CPL, and the Company accounts for and reports the Polish Airports ownership interest as a non-controlling financial interest.

 

21

 


 

 

The total cash consideration for the transaction was  $6.8 million, which was paid with borrowings under the credit agreement with the Bank of Montreal (the “BMO Credit Agreement”) There was no contingent consideration for the transaction.

 

The following table summarizes the Polish cities in which CPL operated as of June 30, 2013, each casino’s location, number of slots and tables.

 

 

 

 

 

 

 

 

 

 

 

City

Population

Location

Number of Slots

Number of Tables

Warsaw

1.7 million

Marriott Hotel

70

23

Warsaw

1.7 million

Hyatt Hotel

25

12

Krakow

760,000

Dwor Kosciuszko Hotel

33

8

Lodz

730,000

Manufaktura Entertainment Complex

32

8

Wroclaw

630,000

HP Park Plaza Hotel

49

12

Poznan

550,000

NH Hotel

23

6

Katowice

310,000

Altus Building

44

10

Gdynia*

250,000

Gdynia City Center

40

6

Sosnowiec

220,000

Sosnowiec City Center

26

4

Plock

130,000

Hotel Plock

27

4

 

*  On March 7, 2013, the management board of CPL decided to close the Gdynia casino effective August 14, 2013 due to poor performance.  

 

We also operate 12 ship-based casinos onboard four cruise lines: Oceania Cruises, TUI Cruises, Windstar Cruises and Regent Seven Seas Cruises. The following table summarizes the cruise lines for which we have entered into agreements and the associated ships on which we operate ship-based casinos.

 

 

 

Cruise Line

Ship

Oceania Cruises

Regatta

Oceania Cruises

Nautica

Oceania Cruises

Insignia*

Oceania Cruises

Marina

Oceania Cruises

Riviera

TUI Cruises

Mein Schiff 1

TUI Cruises

Mein Schiff 2

Windstar Cruises

Wind Surf

Windstar Cruises

Wind Star

Windstar Cruises

Wind Spirit

Regent Seven Seas Cruises

Seven Seas Voyager

Regent Seven Seas Cruises

Seven Seas Mariner

Regent Seven Seas Cruises

Seven Seas Navigator

22

 


 

 

 

*  Our casino operation on board Insignia was suspended on April 5, 2012, because the vessel was leased by Oceania Cruises to a different cruise line. We will not operate this ship-based casino as long as the vessel is leased to a different cruise line.

 

In December 2010, we entered into a long-term management agreement to direct the operation of the casino at the Radisson Aruba Resort, Casino & Spa. We receive a management fee consisting of a fixed fee, plus a percentage of the casino’s EBITDA. We were not required to invest any amounts under the management agreement.

 

Projects under Development

 

Calgary

 

On November 30, 2012, CCE signed credit and management agreements with United Horsemen of Alberta Inc. (“UHA”) in connection with the development of a proposed Racing Entertainment Center (“REC”) in Balzac, north metropolitan area of Calgary, Alberta, Canada. We would manage the REC upon completion. Both the credit and management agreements are subject to development approvals and licensing from the AGLC as discussed below.

 

The proposed project would be located less than one mile north of the city limits of Calgary and 4.5 miles from the Calgary International Airport. The location is ideally positioned at an exit off the Queen Elizabeth II Highway, which is the main corridor between Calgary and Edmonton and one of the most heavily used highways in Western Canada. The location is also next to the CrossIron Mills shopping mall, a major regional attraction. The location would allow the REC to capture both the north and the northwest Calgary markets, where there is not currently a casino. The REC would be located approximately 17 miles from Century Casino Calgary and would serve what we believe is a broader customer base, including customers who also are interested in horse racing.

 

The REC project would be the only horse race track in the Calgary area and would consist of a 5.5 furlongs (0.7 miles) race track, a gaming floor with 550 slot machines initially approved by AGLC, with the opportunity to grow to 650 slot machines, a bar, a lounge, restaurant facilities, an off-track-betting area and an entertainment area. The REC license is the only license still available in any metropolitan area of Alberta. The license application for the REC project pre-dates a recent three-year moratorium imposed by the AGLC on new casinos and RECs. The AGLC also has an option to extend the moratorium for an additional two years.

 

The REC project is subject to development approvals and licensing from the AGLC. UHA and CCE have submitted the relevant applications.  Horse Racing Alberta, the governing authority for horse racing in Alberta, has already approved the REC project and issued a license. We anticipate that the REC would be completed 12 to 18 months following completion of the approval process. There is no assurance that the needed approvals will be obtained or as to the timing of such approvals.

 

CCE has agreed to loan to UHA up to CAD 13 million ($13 million) for the exclusive use of developing the REC project. The loan has an interest rate of LIBOR plus 800 basis points and a term of five years and is convertible at CCE’s option once the project becomes operational into an ownership position in UHA of up to 60%. The loan is secured by a leasehold mortgage on the REC property and a pledge of UHA’s stock by the majority of UHA shareholders. We intend to fund the loan with borrowings under our BMO Credit Agreement. We have paid $0.1 million in deferred financing costs related to legal fees incurred for the UHA loan. In addition, we have placed $0.3 million in escrow related to the UHA loan. No amounts have been advanced as of June 30, 2013.  Once the REC is developed and operational and for as long as CCE has not converted the UHA loan into a majority ownership position in UHA, CCE will receive 60% of UHA’s net profit before tax as a management fee.

 

Since the agreements between UHA and CCE were entered into, litigation was brought by another party against UHA relating to prior business arrangements between that party and UHA. CCE is not a party to the litigation and is presently considering its position and alternative strategies to address this situation. 

23

 


 

 

 

 

 

Austria

On June 10, 2013, we announced that we have applied for a casino license at the Hotel InterContinental in Vienna, Austria. We are one of at least four companies applying for the 15-year license. We expect a decision by the Austrian Minister of Finance during the fourth quarter of 2013. There is no assurance that we will be granted the license.

We have a contingent 26% share in and management agreement with “Century Betriebs AG”, an entity that would develop and own the Hotel InterContinental casino. If we are granted the license, we expect to invest approximately $18.0 million to develop the casino inside the 450-room Hotel InterContinental. After a construction period estimated at nine months, the casino would offer approximately 300 slot machines and 25 gaming tables on a 16,000 square foot gaming floor. The Hotel InterContinental is located in the city center of Vienna.  

 

Presentation of Foreign Currency Amounts - 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 June 30,

 

 

 

For the six months

ended June 30,

 

 

Average Rates

 

2013

 

2012

 

% Change

 

2013

 

2012

 

% Change

Canadian dollar (CAD)

 

1.0237 

 

1.0104 

 

(1.3%)

 

1.0161 

 

1.0060 

 

(1.0%)

Euros (EUR)

 

0.7658 

 

0.7796 

 

1.8% 

 

0.7616 

 

0.7712 

 

1.2% 

Polish zloty (PLN)

 

3.2156 

 

3.3181 

 

3.1% 

 

3.1800 

 

3.2724 

 

2.8% 

Source: Pacific Exchange Rate Service

 

 

 

 

 

 

 

 

 

 

 

 

We recognize in our statement of earnings, foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than U.S. dollars. Our casinos in Canada and Poland represent a significant portion of our business, and the revenue generated and expenses incurred by these operations are generally denominated in Canadian dollars and Polish zloty. A decrease in the value of these currencies in relation to the value of the U.S. dollar would decrease the earnings from our foreign operations when translated into U.S. dollars, and an increase in the value of these currencies in relation to the value of the U.S. dollar would increase the earnings from our foreign operations when translated into U.S. dollars. 

 

 

24

 


 

 

DISCUSSION OF RESULTS

Consolidated results are discussed in further detail in the following pages.

Century Casinos, Inc. and Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

For the six months

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

Gaming Revenue

$
26,149 
$
15,709 
$
10,440 
66.5% 
$
41,844 
$
30,968 
$
10,876 
35.1% 

Hotel, Bowling, Food and Beverage Revenue

3,162 
3,135 
27 
0.9% 
6,413 
6,456 
(43)
(0.7%)

Other Revenue

932 
1,103 
(171)
(15.5%)
1,879 
2,046 
(167)
(8.2%)

Gross Revenue

30,243 
19,947 
10,296 
51.6% 
50,136 
39,470 
10,666 
27.0% 

Less Promotional Allowances

(1,895)
(2,156)
(261)
(12.1%)
(3,799)
(4,110)
(311)
(7.6%)

Net Operating Revenue

28,348 
17,791 
10,557 
59.3% 
46,337 
35,360 
10,977 
31.0% 

Gaming Expenses

(13,510)
(7,459)
6,051 
81.1% 
(20,443)
(14,692)
5,751 
39.1% 

Hotel, Bowling, Food and Beverage Expenses

(2,646)
(2,420)
226 
9.3% 
(5,095)
(4,857)
238 
4.9% 

General and Administrative Expenses

(8,282)
(5,320)
2,962 
55.7% 
(13,556)
(10,624)
2,932 
27.6% 

Total Operating Costs and Expenses

(26,233)
(16,379)
9,854 
60.2% 
(42,080)
(32,531)
9,549 
29.4% 

(Losses) Earnings from Equity Investment

(32)
283 
(315)
(111.3%)
(128)
438 
(566)
(129.2%)

Earnings from Operations

2,083 
1,695 
388 
22.9% 
4,129 
3,267 
862 
26.4% 

Non-controlling Interest

(166)
(166)
100.0% 
(166)
(166)
100.0% 

Net Earnings

$
3,657 
$
1,148 
$
2,509 
218.6% 
$
5,319 
$
2,281 
$
3,038 
133.2% 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

$
0.15 
$
0.05 
$
0.10 
200.0% 
$
0.22 
$
0.10 
$
0.12 
120.0% 

Basic Diluted Earnings Per Share

$
0.15 
$
0.05 
$
0.10 
200.0% 
$
0.22 
$
0.09 
$
0.13 
144.4% 

 

The period over period increases relate primarily to the inclusion of operating results from CPL in the second quarter of 2013  as a result of the Company’s purchase of an additional 33.3% ownership interest in CPL in April 2013. Prior to the acquisition of this additional interest in CPL, the Company owned 33.3% of CPL and accounted for the CPL ownership interest as an equity investment. Consolidation of CPL will increase our overall net operating revenue and operating costs and expenses. CPL contributed a total of $10.9 million in net operating revenue and $0.3 million in earnings from the date of acquisition through June 30, 2013.

 

Net operating revenue increased by $10.6 million, or 59.3% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 and increased by $11.0 million, or 31.0% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. Following is a breakout of net operating revenue by property or category for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012:  

 

·

Edmonton increased by $0.2 million, or 3.4%, and increased by $0.7 million, or 6.0%.

·

Calgary decreased by ($0.3) million, or    (12.0%), and decreased by  ($0.5) million, or    (10.7%).  

·

Central City decreased by ($0.2) million, or  (3.7%), and decreased by  ($0.2) million, or  (2.6%).  

·

Cripple Creek increased by less than $0.1 million, or 0.6%, and increased by less than $0.1 million, or 0.5%.  

·

Casinos Poland added $10.9 million.

·

Ship-based casinos and other decreased by ($0.1) million, or (4.5%), and increased by $0.1 million, or  3.9%.   

 

25

 


 

 

Operating costs and expenses increased by $9.9 million, or 60.2% and $9.5 million, or 29.4%, for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012. Following is a breakout of total operating costs and expenses by property or category for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012

 

·

Edmonton decreased by ($0.1) million, or (1.6%), and decreased by less than ($0.1) million, or (0.2%).

·

Calgary decreased by  ($0.5)  million, or  (17.6%), and decreased by  ($0.8) million, or  (14.9%).  

·

Central City decreased by less than ($0.1) million, or  (0.6%), and decreased by less than ($0.1) million, or  (0.6%).  

·

Cripple Creek decreased by  ($0.1)  million, or  (4.0%), and decreased by  ($0.3) million, or  (5.6%).  

·

Casinos Poland added $10.3 million. 

·

Ship-based casinos and other decreased by ($0.1) million, or  (6.5%), and increased by less than $0.1 million, or  1.0%,  

·

Corporate other increased by $0.3 million, or  21.2%, and increased by $0.3 million, or  12.2%,  

 

Earnings from operations increased by $0.4 million, or 22.9% and $0.9 million, or 26.4%  for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012. Following is a breakout of earnings from operations by property or category for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012

 

·

Edmonton increased by $0.3 million, or 15.7%, and increased by $0.7 million, or 21.7%.

·

Calgary increased by  $0.2  million, or  92.2%, and increased by  $0.2 million, or  177.7%.  

·

Central City decreased by  ($0.1)  million, or  (22.8%), and decreased by  ($0.2) million, or  (14.9%).  

·

Cripple Creek increased by  $0.1  million, or  25.7%, and increased by  $0.3 million, or  43.4%.  

·

Casinos Poland added $0.6  million. 

·

Ship-based casinos and other increased by less than $0.1 million, or  25.7%, and increased by  $0.1 million, or  40.2%,

·

Corporate other decreased by $0.6 million, or 55.9%, and decreased by $0.9 million, or 40.0%.

 

Net earnings increased by $2.5 million, or 218.6% and $3.0 million, or 133.2% for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012. Items deducted from or added to earnings from operations to arrive at net earnings include gain on the business combination related to the acquisition of the additional equity interest in CPL,  interest income, interest expense, gains on foreign currency transactions,  income tax expense and non-controlling interest.  For the three months ended June 30, 2013, the Company recognized a gain of $2.1 million as a result of measuring at fair value its 33.3% equity interest in CPL held prior to the acquisition of the additional equity interest in CPL. As a result, the Corporate Other category reported net earnings of $1.1 million for the three months ended June 30, 2013.  For a discussion of certain of these items, see “Non-Operating Income (Expense) and Taxes”  below. 

 

Results by property or category are discussed in further detail in the following pages.

26

 


 

 

Casinos

Edmonton

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

For the six months

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

Gaming

$
4,491 
$
4,290 
$
201 
4.7% 
$
9,062 
$
8,468 
$
594 
7.0% 

Hotel, Food and Beverage

1,466 
1,433 
33 
2.3% 
3,010 
2,911 
99 
3.4% 

Other

468 
569 
(101)
(17.8%)
1,027 
1,097 
(70)
(6.4%)

Gross Revenue

6,425 
6,292 
133 
2.1% 
13,099 
12,476 
623 
5.0% 

Less Promotional Allowances

(217)
(286)
(69)
(24.1%)
(438)
(528)
(90)
(17.0%)

Net Operating Revenue

6,208 
6,006 
202 
3.4% 
12,661 
11,948 
713 
6.0% 

Gaming Expenses

(1,513)
(1,681)
(168)
(10.0%)
(3,133)
(3,390)
(257)
(7.6%)

Hotel, Food and Beverage Expenses

(1,047)
(1,032)
15 
1.5% 
(2,106)
(2,024)
82 
4.1% 

General and Administrative Expenses

(1,395)
(1,324)
71 
5.4% 
(2,798)
(2,674)
124 
4.6% 

Total Operating Costs and Expenses

(4,212)
(4,281)
(69)
(1.6%)
(8,554)
(8,574)
(20)
(0.2%)

Earnings from Operations

1,996 
1,725 
271 
15.7% 
4,107 
3,374 
733 
21.7% 

Net Earnings

$
1,421 
$
1,075 
$
346 
32.2% 
$
3,019 
$
2,153 
$
866 
40.2% 

Three Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Edmonton increased by $0.2 million, or 3.4%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

In CAD, net operating revenue increased by $0.3 million, or 4.8%, due to increases in gaming and hotel, food and beverage revenue offset by a decrease in other revenue for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

The increase in gaming revenue was due to 30 additional slot machines added to the gaming floor, an increase in table games play and an increase in customer volume for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  The increase in hotel, food and beverage revenue was due to increased customer volumes on the gaming floor for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The decrease in other revenue is due to a decrease in lottery revenue for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

Total operating costs and expenses decreased by ($0.1) million, or (1.6%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

In CAD, total operating costs and expenses decreased by less than ($0.1) million, or 0.3% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  The decrease was due to a decrease in marketing costs for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

Because of the foregoing, earnings from operations increased by $0.3 million, or 15.7%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. In CAD, earnings from operations increased by $0.3 million, or 17.4%, for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012.  

Net earnings increased by $0.3 million, or 32.2%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

27

 


 

 

In CAD, net earnings increased by $0.6 million, or 64.5%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The increase in net earnings in CAD of $0.6 million compared to the increase in earnings from operations in CAD of $0.3 million was due to a  decrease in foreign currency exchange rate loss of $0.2 million and a decrease in interest expense of $0.3 million offset by an increase in income tax expense of $0.2 million for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

Six Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Edmonton increased by $0.7 million, or 6.0%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

In CAD, net operating revenue increased by $0.9 million, or 7.2%, due to increases in gaming and hotel, food and beverage revenue offset by a decrease in other revenue for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

The increase in gaming revenue was due to 30 additional slot machines added to the gaming floor, an increase in Baccarat table games play and increase in customer volume for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  The increase in hotel, food and beverage was due to higher hotel room occupancy and increased customer volumes on the gaming floor for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The decrease in other revenue is due to decreased lottery and ATM revenue for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Total operating costs and expenses decreased by less than ($0.1) million, or (0.2%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

In CAD, total operating costs and expenses increased by $0.1 million, or 0.8% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The increase was due to higher food and payroll costs offset by a decrease in marketing costs for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

Because of the foregoing, earnings from operations increased by $0.7 million, or 21.7%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. In CAD, earnings from operations increased by $0.8 million, or 23.3%, for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012.

Net earnings increased by $0.9 million, or 40.2%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

In CAD, net earnings increased by $0.2 million, or 9.0%, for the six  months ended June 30, 2013 compared to the six  months ended June 30, 2012. The increase in net earnings in CAD of $0.2 million compared to the increase in earnings from operations in CAD of $0.8 million was due to an increase in foreign currency exchange rate loss of $0.2 million and an increase in income tax expense of $0.7 million offset by a decrease in interest expense of $0.3 million for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

28

 


 

 

Calgary

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

 

For the six months

 

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

Gaming

$
1,418 
$
1,588 

($170)

(10.7%)
$
2,938 
$
3,266 

($328)

(10.0%)

Bowling, Food and Beverage

608 
683 
(75)
(11.0%)
1,378 
1,533 
(155)
(10.1%)

Other

146 
283 
(137)
(48.4%)
278 
457 
(179)
(39.2%)

Gross Revenue

2,172 
2,554 
(382)
(15.0%)
4,594 
5,256 
(662)
(12.6%)

Less Promotional Allowances

(62)
(156)
(94)
(60.3%)
(128)
(257)
(129)
(50.2%)

Net Operating Revenue

2,110 
2,398 
(288)
(12.0%)
4,466 
4,999 
(533)
(10.7%)

Gaming Expenses

(680)
(1,089)
(409)
(37.6%)
(1,410)
(2,052)
(642)
(31.3%)

Bowling, Food and Beverage Expenses

(476)
(517)
(41)
(7.9%)
(1,028)
(1,106)
(78)
(7.1%)

General and Administrative Expenses

(738)
(762)
(24)
(3.1%)
(1,464)
(1,558)
(94)
(6.0%)

Total Operating Costs and Expenses

(2,124)
(2,577)
(453)
(17.6%)
(4,365)
(5,129)
(764)
(14.9%)

(Loss) Earnings from Operations

(14)
(179)
165 
92.2% 
101 
(130)
231 
177.7% 

Net Earnings (Loss)

$
46 

($92)

$              138 

150.0% 
$
171 

($84)

$
255 
303.6% 

 

Three Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Calgary decreased by ($0.3) million, or (12.0%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

In CAD, net operating revenue decreased by ($0.3) million, or (10.8%), due to decreases in gaming,  food and beverage and other revenue for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. 

 

Gaming revenue decreased primarily due to flooding that occurred in the city of Calgary from June 21 - 27, 2013. Table games at the property were closed for three days from June 21 – 23, 2013 and slots were closed on June 21, 2013. In addition, road closures due to flooding were in effect from June 21 - 27, 2013, making it difficult for customers to get to the casino. Beginning in the first quarter of 2013, the property began hosting showroom performances from third party vendors only. The decreases in gaming and food, beverage and other revenue are due to the lower number of showroom events and decreased ticket sales from the showroom events for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  The decrease in other revenue was offset by an increase in bowling revenue due to higher bowling customer volumes for open bowling as well as league play.

Total operating costs and expenses decreased by ($0.5) million, or (17.6%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

In CAD, total operating costs and expenses decreased by ($0.4) million, or (16.5%), due to lower marketing and promotional expenses when the property began hosting showroom performances from third party vendors only. In addition, operating costs decreased due to lower payroll and utility costs for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

 

Because of the foregoing, loss from operations decreased by $0.2 million, or 92.2%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. In CAD, loss from operations decreased by $0.2 million, or 91.8%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012

 

Net earnings increased by $0.1 million, or 150.0%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. 

29

 


 

 

In CAD, net earnings increased by $0.1 million, or 21.6%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The increase in net earnings in CAD of $0.1 million compared to the increase in earnings from operations in CAD of $0.2 million was due to an increase in foreign currency exchange rate loss of $0.1 million for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

Six Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Calgary decreased by ($0.5) million, or (10.7%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

In CAD, net operating revenue decreased by ($0.5) million, or (9.7%), due to decreases in gaming, bowling, and food and beverage revenue for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

 

Gaming revenue decreased due to a decrease in Baccarat table games hold percentage during the six months ended June 30, 2013 compared to the six months ended June 30, 2012 and flooding that occurred in the city of Calgary from June 21 - 27, 2013. Table games at the property were closed for three days from June 21 – 23, 2013 and slots were closed on June 21, 2013. In addition, road closures due to flooding were in effect until from June 21 - 27, 2013 making it difficult for customers to get to the casino. The decrease in food and beverage revenue was due to a lower number of showroom events offset by an increase in bowling revenue due to higher bowling customer volumes for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Total operating costs and expenses decreased by ($0.8) million, or (14.9%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

In CAD, total operating costs and expenses decreased by ($0.7) million, or (14.0%), primarily due to lower marketing and promotional expenses when the property began hosting showroom performances from third party vendors only. In addition, operating costs decreased due to lower payroll and utility costs for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Because of the foregoing, earnings from operations increased by $0.2 million, or 177.7%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. In CAD, earnings from operations increased by $0.2 million, or 179.5%, for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012.

Net earnings increased by $0.3 million, or 303.6%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

In CAD, net earnings decreased by ($0.1) million, or (72.1%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The decrease in net earnings in CAD of ($0.1) million compared to the increase in earnings from operations in CAD of $0.2 million was due to an increase in foreign currency exchange rate loss of $0.3 million for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

30

 


 

 

Central City

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

 

For the six months

 

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

Gaming

$
4,767 
$
4,947 

($180)

(3.6%)
$
9,599 
$
9,755 

($156)

(1.6%)

Hotel, Food and Beverage

630 
637 
(7)
(1.1%)
1,235 
1,294 
(59)
(4.6%)

Other

44 
48 
(4)
(8.3%)
85 
99 
(14)
(14.1%)

Gross Revenue

5,441 
5,632 
(191)
(3.4%)
10,919 
11,148 
(229)
(2.1%)

Less Promotional Allowances

(1,031)
(1,051)
(20)
(1.9%)
(2,063)
(2,058)
0.2% 

Net Operating Revenue

4,410 
4,581 
(171)
(3.7%)
8,856 
9,090 
(234)
(2.6%)

Gaming Expenses

(2,094)
(2,119)
(25)
(1.2%)
(4,163)
(4,186)
(23)
(0.5%)

Hotel, Food and Beverage Expenses

(512)
(520)
(8)
(1.5%)
(1,012)
(1,052)
(40)
(3.8%)

General and Administrative Expenses

(978)
(956)
22 
2.3% 
(1,953)
(1,900)
53 
2.8% 

Total Operating Costs and Expenses

(3,917)
(3,942)
(25)
(0.6%)
(7,791)
(7,839)
(48)
(0.6%)

Earnings from Operations

493 
639 
(146)
(22.8%)
1,065 
1,251 
(186)
(14.9%)

Net Earnings

$
305 
$
396 

($91)

(23.0%)
$
660 
$
776 

($116)

(14.9%)

 

Three Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Central City decreased by ($0.2) million, or (3.7%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The decrease in net operating revenue was due to a decrease in gaming revenue from lower customer volumes for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

 

The Central City market decreased by 7.2% and our market share at our property in Central City increased by 4.3% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Our increase in market share is due to an increase in table gaming market share and a slight increase in slot machine market share.

 

Total operating costs and expenses decreased by less than ($0.1) million, or (0.6%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The decrease in total operating costs and expenses was due to a decrease in marketing costs for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

 

Because of the foregoing, earnings from operations decreased by ($0.1) million, or (22.8%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012, and net earnings decreased by ($0.1) million, or (23.0%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

Six Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Central City decreased by ($0.2) million, or (2.6%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The decrease in net operating revenue was due to a decrease in gaming, and hotel, food and beverage revenue for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

 

The decrease in gaming revenue was due to lower customer volumes for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

 

31

 


 

 

The Central City market decreased by 7.3% and our market share at our property in Central City increased by 4.7% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. Our increase in market share is due to an increase in table gaming market share.

 

The decrease in hotel, food and beverage revenue was due to increased food offerings and specials from competitor casinos for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

 

Total operating costs and expenses decreased by less than ($0.1) million, or (0.6%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The decrease in total operating costs and expenses was due to a decrease in marketing and depreciation expenses for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

 

Because of the foregoing, earnings from operations decreased by ($0.2) million, or (14.9%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012, and net earnings decreased by ($0.1) million, or (14.9%), for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

 

Cripple Creek

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

 

For the six months

 

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

Gaming

$
3,383 
$
3,403 

($20)

(0.6%)
$
6,505 
$
6,527 

($22)

(0.3%)

Hotel, Food and Beverage

346 
382 
(36)
(9.4%)
678 
718 
(40)
(5.6%)

Other

24 
28 
(4)
(14.3%)
47 
51 
(4)
(7.8%)

Gross Revenue

3,753 
3,813 
(60)
(1.6%)
7,230 
7,296 
(66)
(0.9%)

Less Promotional Allowances

(585)
(663)
(78)
(11.8%)
(1,170)
(1,267)
(97)
(7.7%)

Net Operating Revenue

3,168 
3,150 
18 
0.6% 
6,060 
6,029 
31 
0.5% 

Gaming Expenses

(1,193)
(1,308)
(115)
(8.8%)
(2,312)
(2,559)
(247)
(9.7%)

Hotel, Food and Beverage Expenses

(366)
(351)
15 
4.3% 
(704)
(675)
29 
4.3% 

General and Administrative Expenses

(766)
(755)
11 
1.5% 
(1,485)
(1,534)
(49)
(3.2%)

Total Operating Costs and Expenses

(2,561)
(2,667)
(106)
(4.0%)
(4,976)
(5,273)
(297)
(5.6%)

Earnings from Operations

607 
483 
124 
25.7% 
1,084 
756 
328 
43.4% 

Net Earnings

$
376 
$
300 
$
76 
25.3% 
$
672 
$
469 
$
203 
43.3% 

 

Three Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Cripple Creek was relatively flat for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

 

The Cripple Creek market increased by 3.7% and our market share at our property in Cripple Creek City decreased by 4.0% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  We believe that our decrease in market share is primarily due to a decrease in market share in April 2013 offset by maintained gaming revenues with changes to slot machine mix and locations and continuation of consistent and enhanced marketing promotions and advertising.

 

Total operating costs and expenses decreased by ($0.1) million, or (4.0%), due to the overall management of marketing and operating costs for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

 

32

 


 

 

Because of the foregoing, earnings from operations increased by $0.1 million, or 25.7%, and net earnings increased by $0.1 million, or 25.3%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

Six Months Ended June 30, 2013 and 2012

Net operating revenue at our property in Cripple Creek was relatively flat for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

 

The Cripple Creek market decreased by less than 1.0% and our market share at our property in Cripple Creek decreased by 1.0% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

 

Total operating costs and expenses decreased by ($0.3) million, or (5.6%), due to the overall management of marketing and operating costs for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

 

Because of the foregoing, earnings from operations increased by $0.3 million, or 43.4%, and net earnings increased by $0.2 million, or 43.3% for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

Casinos Poland

 

 

 

For the three months

 

ended June 30,

Amounts in thousands

2013  *

Gaming

$
10,694 

Food and Beverage

112 

Other

64 

Net Operating Revenue

10,870 

Gaming Expenses

(6,828)

Food and Beverage Expenses

(245)

General and Administrative Expenses

(2,640)

Total Operating Costs and Expenses

(10,320)

Earnings from Operations

550 

Non-controlling Interest

$            (166)

Net Earnings

$
333 

 

*We acquired a controlling interest in Casinos Poland on April 8, 2013.

 

Three Months Ended June 30, 2013

 

Through April 7, 2013, CCE owned 33.3% of all shares issued by CPL and our portion of CPL’s earnings was recorded as earnings from equity investment. We recorded a decrease in earnings from our investment in CPL of less than $0.1 million from April 1, 2013 through April 7, 2013.  

 

The decrease was primarily due to the decision to close the Gdynia property. The property will close effective August 14, 2013 and operations were minimal beginning June 30, 2013. CPL recognized $0.3 million in closing expenses for the three months ended June 30, 2013, which reduced earnings from CPL. 

33

 


 

 

On April 8, 2013, CCE signed the final share sale agreement with LOT Polish Airlines and completed the purchase of an additional 33.3% ownership interest in CPL. We now own a 66.6% ownership interest in CPL. As of April 8, 2013, we began consolidating CPL as a majority-owned subsidiary for which we have a controlling financial interest rather than reporting as an equity investment. We account for and report the 33.3% Polish Airports ownership interest as a non-controlling financial interest. Earnings from operations are reduced by the non-controlling interest to arrive at net earnings.

 

On April 3, 2013, CPL was awarded a second license in Warsaw and opened a casino in the Hyatt hotel on  April 24, 2013.

 

In March 2011, the Polish Internal Revenue Service (“Polish IRS”) conducted a tax audit of CPL to review the calculation and payment of personal income tax by CPL employees covering January 2011. Based on this audit, the Polish IRS concluded that CPL should calculate, collect and remit to the Polish IRS personal income tax on tips received by CPL employees from casino customers. After proceedings between CPL and the Polish IRS, the Director of the Tax Chamber in Warsaw confirmed the opinion of the Polish IRS on November 19, 2012, and on November 30, 2012 CPL paid PLN 125,269 (less than $0.1 million) to the Polish IRS resulting from the decision. CPL appealed the decision to the Regional Administrative Court in Warsaw on December 21, 2012. If the case is decided against CPL, the Company believes that the Polish IRS may seek to assess a liability for all periods from January 2007 to present. A final decision is not expected in 2013. Similar litigation involving competitors concerning the treatment of tips is ongoing.

 

Management has determined that it is reasonably possible that the litigation will be unfavorable for CPL. Accounting guidance requires pre-acquisition contingent liabilities to be recognized at fair value at the acquisition date if the liability can be determined. Based on management’s assessment using a probability weighted cash flow analysis, the fair value of the potential liability for all open periods is estimated at PLN 18.3 million ($5.5 million). As a result, PLN 18.3 million ($5.5 million), has been recorded as a contingent liability as of June 30, 2013 on the condensed consolidated balance sheets.

Casinos Poland currently has nine casino licenses each with a term of six years. As of June 30, 2013, we had $2.3 million recorded as intangible assets on our condensed consolidated balance sheets for the licenses. The weighted average period before the next renewal is 4.5 years.  

 

Cruise Ships & Other

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

 

For the six months

 

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

Gaming

$
1,396 
$
1,481 

($85)

(5.7%)
$
3,046 
$
2,952 
$
94 
3.2% 

Other

186 
175 
11 
6.3% 
378 
342 
36 
10.5% 

Net Operating Revenue

1,582 
1,656 
(74)
(4.5%)
3,424 
3,294 
130 
3.9% 

Gaming Expenses

(1,202)
(1,262)
(60)
(4.8%)
(2,596)
(2,505)
91 
3.6% 

General and Administrative Expenses

(147)
(191)
(44)
(23.0%)
(281)
(348)
(67)
(19.3%)

Total Operating Costs and Expenses

(1,450)
(1,551)
(101)
(6.5%)
(3,079)
(3,048)
31 
1.0% 

Earnings from Operations

132 
105 
27 
25.7% 
345 
246 
99 
40.2% 

Net Earnings

$
108 
$
91 
$
17 
18.7% 
$
307 
$
219 
$
88 
40.2% 

 

Three Months Ended June 30, 2013 and 2012

Net operating revenue from our ship-based casinos and Aruba management agreement decreased by ($0.1) million, or (4.5%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The decrease was primarily due to lower revenues from the Marina and Mein Schiff 1 offset by an increase in management fee revenue from the Aruba management agreement.

 

34

 


 

 

Total operating costs and expenses decreased by  ($0.1) million, or (6.5%), for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The decrease was due to a decrease in concession fees paid to the Navigator and Regatta for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

 

Because of the foregoing, net earnings increased by less than $0.1 million, or 18.7%,  for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.  

Six Months Ended June 30, 2013 and 2012

Net operating revenue from our ship-based casinos and Aruba management agreement increased by $0.1 million, or 3.9%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The increase was primarily due to additional revenue from the Riviera ship-based casino, which began operations on May 3, 2012, and an increase in management fee revenue from the Aruba management agreement.

 

Total operating costs and expenses increased by less than $0.1 million, or 1.0%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The increase was due to an increase in concession and annual fees paid to cruise ship operators and an increase in payroll costs for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

 

Because of the foregoing, net earnings increased by $0.1 million, or 40.2%,  for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.  

 

Corporate Other

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

 

For the six months

 

 

 

ended June 30,

 

 

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

2013

2012

Change

% Change

General and Administrative Expenses

($1,618)

($1,332)

286 
21.5% 

($2,935)

($2,610)

325 
12.5% 

Total Operating Costs and Expenses

(1,649)
(1,361)
288 
21.2% 
(2,994)
(2,668)
326 
12.2% 

Losses from Operations

(1,681)
(1,079)
602 
55.8% 
(3,122)
(2,230)
892 
40.0% 

Net Earnings (Loss)

$
1,068 

($623)

($1,691)

(271.5%)
$
157 

($1,252)

($1,409)

(112.5%)

 

Three and Six Months Ended June 30, 2013 and 2012

General and administrative expenses for Corporate Other consist primarily of legal and accounting fees, corporate travel expenses, corporate payroll, the amortization of stock-based compensation and other expenses not directly related to any of our individual properties. General and administrative expenses increased by $0.3 million, or 21.5%,  and $0.3 million, or 12.5%,  for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012 due to acquisition costs related to the CPL business combination and higher payroll costs.

 

Non-Operating Income (Expense)

Non-operating income (expense) for the three and six months ended June 30, 2013 and 2012 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

ended June 30,

 

 

 

For the six months

ended June 30,

 

 

Amounts in thousands

2013

2012

Change

% Change

 

2013

2012

Change

% Change

Gain on business combination

$
2,074 
$
$
2,074 
100.0% 

 

$
2,074 
$
$
2,074 
100.0% 

Interest Income

$
$
23 

($18)

(78.3%)

 

$
11 
$
29 

($18)

(62.1%)

Interest Expense

(264)
(395)
(131)
(33.2%)

 

(344)
(543)
(199)
(36.6%)

Gains (Losses) on Foreign Currency Transactions & Other

161 
22 
139 
631.8% 

 

168 
17 
151 
888.2% 

Non-Operating Income (Expense)

$
1,976 

($350)

2,326 
664.6% 

 

$
1,909 

($497)

2,406 
484.1% 

35

 


 

 

 

Gain on business combination

The Company recognized a gain of $2.1 million as a result of measuring at fair value its 33.3% equity interest in CPL held prior to the acquisition date.

 

Interest income

Interest income is directly related to interest earned on our cash reserves and interest earned on the loan in connection with the proposed casino project in Southeast Asia. The decrease in interest income is due to lower interest earned on our cash reserves during the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012.

 

Interest expense

The decrease in interest expense of ($0.1) million and ($0.2) million for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012 was due to interest expense savings from a lower average debt balance and lower average interest rate on the BMO Credit Agreement for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012.

 

Taxes

Our pre-tax income (loss) by jurisdiction is summarized in the table below:

 

 

 

 

 

 

 

 

 

 

For the six months

 

For the six months

Amounts in thousands

 

ended June 30, 2013

 

ended June 30, 2012

   

 

Pre-tax income

 

Pre-tax income

Canada

 

$
2,773 

 

$
1,563 

United States

 

393 

 

144 

Mauritius

 

193 

 

147 

Austria

 

238 

 

539 

Poland

 

2,441 

 

377 

Total

 

$
6,038 

 

$
2,770 

 

 

 

 

 

 

 

 

 

 

Our worldwide effective income tax rate is 9.2%. A substantial portion of our earnings is from Canada, which has a 25%  income tax rate.  In addition, the effective income tax rate in Poland is significantly lower than the statutory rate of 19% due to the $2.1 million gain related to the CPL acquisition, which is not taxable..  Finally, the movement of exchange rates for intercompany loans denominated in U.S. dollars further impacts our effective income tax rate because foreign currency gains and losses generally are not taxed until realized. Therefore, our overall effective income tax rate can be significantly impacted by foreign currency gains or losses.

 

36

 


 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows

 

Our business is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow. We use the cash flows that we generate to maintain operations, fund reinvestment in existing properties for both refurbishment and expansion projects, repay third party debt, and pursue additional growth via new development and acquisition opportunities. When necessary and available, we supplement the cash flows generated by our operations with either cash on hand or funds provided by bank borrowings or other debt or equity financing activities.

 

On May 23, 2012, the Company through its Canadian subsidiaries entered into the CAD 28.0 million ($27.5 million) BMO Credit Agreement. On May 23, 2012, we borrowed $3.7 million from the BMO Credit Agreement to repay the Edmonton Mortgage. We can also use proceeds to pursue the development or acquisition of new gaming opportunities and for general corporate purposes. The BMO Credit Agreement has a term of five years and is guaranteed by the Company. On February 21, 2013, we borrowed an additional $7.3 million from the BMO Credit Agreement to pay for the additional 33.3% investment in CPL. The BMO Credit Agreement contains a number of financial covenants applicable to the Canadian subsidiaries, in addition to covenants restricting their incurrence of additional debt. We complied with all covenants of the BMO Credit Agreement as of June 30, 2013.  As of June 30, 2013, the amount outstanding under the BMO Credit Agreement was $10.0 million and we had approximately $14.9 million available under the BMO Credit Agreement. The $11.0 million we have borrowed cannot be re-borrowed once it is repaid.

 

Because of the CPL acquisition, the Company acquired an additional $6.4 million in debt as of June 30, 2013. The debt includes two bank loans, two bank lines of credit and nine capital lease agreements.

 

The first bank loan is with Bank Pocztowy. CPL entered into the four-year term loan in 2011 at an interest rate of Warsaw Interbank Offered Rate (“WIBOR”) plus 3.0%. Proceeds from the loan were used to refinance the loan provided to CPL by ING Bank Slaski and finance current operations. As of June 30, 2013, the amount outstanding was $1.7 million, and CPL had no further borrowing availability under the loan. The loan matures in November 2015. The second bank loan is with BRE Bank. CPL entered into the 2-year term loan in 2012 at an interest rate of WIBOR plus 2.5%. Proceeds from the loan were used to finance current operations. As of June 30, 2013, the amount outstanding was $1.3 million, and CPL has no further borrowing availability under the loan. The BRE Bank loan matures in August 2014. The BRE Bank loan agreement contains a number of financial covenants applicable to CPL, in addition to covenants restricting incurrence of additional debt. CPL complied with all covenants of the BRE Bank agreement as of June 30, 2013

 

The two bank lines of credit are short-term facilities. CPL used both lines of credit to finance current operations. The first line of credit is with BRE Bank. It is a short-term revolving credit facility entered into in 2004 and renewed on a yearly basis, with the last appendix signed in February 2013 at an interest rate of WIBOR plus 2.0%. As of June 30, 2013, the amount outstanding was $0.6 million and CPL had approximately $0.2 million available under the agreement. The BRE Bank facility contains a number of financial covenants applicable to CPL, in addition to covenants restricting incurrence of additional debt. CPL complied with all covenants of the BRE Bank line of credit as of June 30, 2013. The second line of credit is with BPH Bank. It is also a short-term revolving credit facility entered into in 2012 at an interest rate of WIBOR plus 1.95%. As of June 30, 2013, the amount outstanding was $2.6 million and CPL has approximately $0.8 million available under the agreement. The BPH Bank facility contains a number of financial covenants applicable to CPL, in addition to covenants restricting incurrence of additional debt. CPL complied with all covenants of the BPH Bank line of credit as of June 30, 2013.

 

CPL’s remaining debt consists of nine capital lease agreements.  The lease agreements are for various vehicles and television systems that are replaced on an ongoing basis. As of June 30, 2013, the amount outstanding was $0.2 million.

 

Cash and cash equivalents totaled $28.2 million at June 30, 2013, and we had working capital (current assets minus current liabilities) of $5.3 million compared to cash and cash equivalents of $24.8 million and working capital of $13.4 million at December 31, 2012. The increase in cash and cash equivalents is due to $2.8 million cash provided by operating activities and $7.6 million in proceeds from borrowings net of principal payments. These sources of cash were offset by $4.6 million used in the acquisition of the additional equity interest in CPL,  a $0.5 million loan for a proposed casino project in Southeast Asia, $1.3 million for various capital expenditures and a $0.5 million effect of exchange rate changes on cash.  

37

 


 

 

 

Net cash provided by operating activities was $2.8 million and $2.0 million for the six months ended June 30, 2013 and 2012, respectively. Our cash flows from operations have historically been positive and sufficient to fund ordinary operations. Trends in our operating cash flows tend to follow trends in earnings from operations, excluding non-cash charges. Please refer to the condensed consolidated statements of cash flows and to management’s discussion of the results of operations above for a discussion of earnings from operations.

 

Net cash used in investing activities of $6.4 million for the six months ended June 30, 2013 consisted of $4.6 million used to acquire CPL, $0.5 million loaned to pursue the proposed casino project in Southeast Asia, $0.7 million to purchase slot machines for our properties in Central City and Cripple Creek, $0.3 million to install new carpet at the casinos in Edmonton and Calgary, $0.1 million to purchase slot machines at our casino in Central City and $0.2 in cumulative additions at our remaining properties.  

 

Net cash used in investing activities of $1.6 million for the six months ended June 30, 2012 consisted of $0.6 million used to construct a new poker room and remodel the casino entrance in Calgary, $0.4 million used to purchase slot machines and a kiosk for our two Colorado properties, $0.3 million used to replace the carpet and a server at the casino in Edmonton, $0.1 million used to purchase slot machines for the ship-based casinos and $0.2 million used in cumulative additions at our remaining properties.

 

Net cash provided by financing activities of $7.6 million for the six months ended June 30, 2013 consisted of $7.6 million cash received from various loan agreements net of principal repayments. 

 

Net cash used in financing activities of $5.6 million for the six months ended June 30, 2012 consisted of $9.1 million in the repayment and prepayment of our Edmonton Mortgage and $0.4 million payment of deferred financing costs related to the BMO Credit Agreement offset by $3.7 million cash received from the BMO Credit Agreement and $0.2 million cash received for the exercise of stock options.

 

Common Stock Repurchase Program

 

Since 2000, we have had a discretionary program to repurchase our outstanding common stock. In November 2009, we increased the amount available to be repurchased to $15.0 million. We did not repurchase any common stock during the three months ended June 30, 2013. The total amount remaining under the repurchase program was $14.7 million as of June 30, 2013. The repurchase program has no set expiration or termination date.

 

Potential Sources of Liquidity, Short-Term Liquidity

 

Historically, our primary sources of liquidity and capital resources have been cash flow from operations, bank borrowings, sales of existing casino operations and proceeds from the issuance of equity securities.

 

We expect that the primary source of cash will be from our gaming operations. In addition to the payment of operating costs, expected uses of cash within one year include capital expenditures for our existing properties, interest and principal payments on outstanding debt and potential new projects or dividends, if declared by the Board of Directors. If necessary, we may seek to obtain term loans, mortgages or lines of credit with commercial banks or other debt or equity financings to supplement our working capital and investing requirements.

 

We believe that our cash at June 30, 2013 as supplemented by cash flows from operations will be sufficient to fund our anticipated operating costs, capital expenditures at existing properties and current debt repayment obligations for at least the next 12 months. We will continue to evaluate our planned capital expenditures at each of our existing locations in light of the operating performance of the facilities at such locations. From time to time we expect to have cash needs for the development or purchase of new properties that exceed our current borrowing capacity and we may be required to seek additional debt, equity or bank financing.

 

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In addition, we expect our U.S. domestic cash resources will be sufficient to fund our U.S. operating activities and cash commitments for investing and financing activities.  While we currently do not have an intent nor foresee a need to repatriate funds, if we require more capital in the U.S. than is generated by our U.S. operations either for operations, capital expenditures or significant discretionary activities such as acquisitions or businesses and share repurchases, we could elect to repatriate earnings from foreign jurisdictions or raise capital in the U.S. through debt or equity issuances, which could have adverse tax consequences as we have not accrued taxes for un-repatriated earnings of our foreign subsidiaries. We estimate that approximately $7.0 million held by our European foreign subsidiary is not available to fund U.S. operations unless repatriated. The determination of the additional deferred taxes that would be provided for undistributed earnings has not been determined because the hypothetical calculation is not practicable.

 

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk. 

 

We had no significant changes in our exposure to market risks from that previously reported in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 4.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures –  Our management, with the participation of our principal executive officers and principal financial/accounting officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, for the period covered by this report. Based on such evaluation, our principal executive officers and principal financial/accounting officer have concluded that as of such date, our disclosure controls and procedures were effective. 

 

Changes in Internal Control Over Financial Reporting – Except as set forth below, there were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

On April 8, 2013, CCE signed a final share sale agreement with LOT Polish Airlines to complete the purchase of an additional 33.3% ownership interest in CPL. The acquisition of the additional 33.3% ownership interest in CPL represents a material change in our internal control over financial reporting since management’s last assessment. We are currently integrating policies, processes, people, technology and operations in relation to CPL. Management will continue to evaluate our internal control over financial reporting as we execute integration activities and anticipate we will complete an evaluation as to whether or not to include CPL as a part of management’s next assessment of our internal control over financial reporting as of December 31, 2013.  

 

PART II - OTHER INFORMATION

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In March 2000, our board of directors approved a discretionary program to repurchase up to $5.0 million of our outstanding common stock. In November 2009, our board of directors approved an increase of the amount available to be repurchased under the program to $15.0 million. The repurchase program has no set expiration or termination date and had approximately $14.7 million remaining as of June 30, 2013. There were no repurchases of common stock during the three months ended June 30, 2013.

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PART IV

 

Item 6.    Exhibits

 

 

 

 

 

 

3.1

Certificate of Incorporation of Century Casinos, Inc. is hereby incorporated by reference to the Company’s Proxy Statement in respect of the 1994 Annual Meeting of Stockholders.

3.2

Amended and Restated Bylaws of Century Casinos, Inc., is hereby incorporated by reference to Exhibit 11.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

 

 

 

 

31.1

Certification of Erwin Haitzmann, Co Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2

Certification of Peter Hoetzinger, President and Co Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.3

Certification of Margaret Stapleton, Principal Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1

Certification of Erwin Haitzmann, Co Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Peter Hoetzinger, President and Co Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.

32.3

Certification of Margaret Stapleton, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350.

 

 

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

 

CENTURY CASINOS, INC.

/s/ Margaret Stapleton

Margaret Stapleton

Principal Financial/Accounting Officer

Date: August 14, 2013

 

 

 

 

 

 

 

 

 

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CENTURY CASINOS, INC.

INDEX TO EXHIBITS

 

 

Exhibit No.

Document

3.1

Certificate of Incorporation of Century Casinos, Inc. is hereby incorporated by reference to the Company’s Proxy Statement for the 1994 Annual Meeting of Stockholders.

3.2

Amended and Restated Bylaws of Century Casinos, Inc. is hereby incorporated by reference from Exhibit 11.14 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002.

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Co Chief Executive Officer.

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Co Chief Executive Officer and President.

31.3

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Principal Financial Officer.

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Co Chief Executive Officer.

32.2

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Co Chief Executive Officer and President.

32.3

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
Principal Financial Officer.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

42