Description Of Business And Basis Of Presentation

6 Months Ended

Jun. 30, 2020

Description Of Business And Basis Of Presentation [Abstract]

Description Of Business And Basis Of Presentation

1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Century Casinos, Inc. (the “Company”) is a casino entertainment company with operations primarily in North America. The Company’s operations as of June 30, 2020 are detailed below.

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

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

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

Mountaineer Casino, Racetrack & Resort in New Cumberland, West Virginia (“Mountaineer” or “MTR”)

The Century Casino Cape Girardeau, Missouri (“Cape Girardeau” or “CCG”)

The Century Casino Caruthersville, Missouri (“Caruthersville” or “CCV”)

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

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

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

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

On March 17, 2020, the Company announced that it had permanently closed Century Casino Bath (“CCB”). CCB voluntarily surrendered its casino gaming license on April 28, 2020 and entered into a creditors voluntary liquidation (“CVL”) on May 6, 2020. See below for additional information about CCB.

Mountaineer, Cape Girardeau and Caruthersville (the “Acquired Casinos”) were acquired on December 6, 2019 from Eldorado Resorts, Inc. (“Eldorado Resorts”) (the “Acquisition”). See Note 3 for additional information about the Acquired Casinos and the Acquisition.

Century Bets!, Inc. (“CBS” or “Century Bets”) operates the pari-mutuel off-track betting network in southern Alberta, Canada. Prior to August 2019, the Company had a 75% controlling financial interest in CBS through its wholly-owned subsidiary Century Resorts Management GmbH (“CRM”). In August 2019, the Company purchased the remaining 25% non-controlling financial interest from Rocky Mountain Turf Club for CAD 0.2 million ($0.2 million based on the exchange rate in effect on August 5, 2019), resulting in CBS becoming a wholly-owned subsidiary.

The Company has a controlling financial interest through its wholly-owned subsidiary CRM in the following majority-owned subsidiaries:

The Company owns 66.6% of Casinos Poland Ltd (“CPL” or “Casinos Poland”). As of June 30, 2020, CPL owned and operated eight casinos throughout Poland. CPL is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. Polish Airports Company (“Polish Airports”) owns the remaining 33.3% of CPL, which is reported as a non-controlling financial interest.

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

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

As of June 30, 2020, the Company had a concession agreement with TUI Cruises for one ship-based casino. The ship has not sailed since March 2020 due to the coronavirus (“COVID-19”) pandemic. The Company’s concession agreements for four of the ship-based casinos that the Company operated prior to their COVID-19 related closures in March 2020 ended on May 12, 2020. The Company is negotiating a concession agreement with TUI Cruises to operate three ship-based casinos through May 2021.

The Company, through its subsidiary CRM, has a 7.5% ownership interest in Mendoza Central Entretenimientos S.A., an Argentinian company (“MCE”). In addition, CRM provides advice to MCE on casino matters pursuant to a consulting agreement in exchange for a fixed fee plus a percentage of MCE’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). In March 2020, the Company impaired the $1.0 million MCE investment and wrote-down a $0.3 million receivable related to MCE due to assessments made related to the impact of COVID-19 on MCE. See Note 4 for additional information related to MCE.

The Company, through its subsidiary CRM, had a 51% ownership interest in Golden Hospitality Ltd. (“GHL”). The Company sold its interest in GHL to the unaffiliated shareholders of GHL in May 2019 for a $0.7 million non-interest bearing promissory note. The Company recognized a loss on the sale of its investment of less than $0.1 million in general and administrative expenses on its condensed consolidated statement of (loss) earnings for the year ended December 31, 2019. The sale of the Company’s equity interest in GHL also ended its equity interest in Minh Chau Ltd. (“MCL”). See Note 4 for additional information related to GHL and MCL.

Recent Developments Related to COVID-19

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

In late 2019, an outbreak of COVID-19 was identified in China and has since spread throughout much of the world. The COVID-19 pandemic has had an adverse effect on the Company’s first and second quarter 2020 results of operations and financial condition, and the Company expects this situation will continue to have an adverse impact on its results for the remainder of 2020. The duration and impact of the COVID-19 pandemic otherwise remains uncertain. Between March 13, 2020 and March 17, 2020, the Company closed all of its casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. The Company’s Polish locations reopened on May 18, 2020 and its North American operations reopened between June 1, 2020 and June 17, 2020. The reopening approaches varied, with casinos in some jurisdictions reopening fully and others permitted to operate with reduced levels of gaming space or without table games. In addition, some locations are operating with limited restaurant operating hours or continued closure of restaurants, requirements to wear face masks, including the requirement of guests to wear face masks, increased frequency of disinfecting surfaces and other measures to account for varying levels of demand.

During the temporary closures of its casinos, hotels and other facilities, the Company took actions to reduce operating costs, including furloughing most of its personnel, implementing reduced work weeks for other personnel until operations resumed, and temporarily reducing salaries to senior management on a voluntary basis. During the closures, the Company continued to pay benefits to its United States and Canadian employees, including part time employees. In Poland, all employees were paid reduced salaries based on local employment laws.

The Company cannot predict the negative impacts that the failure to suppress the spread of COVID-19 will have on its consumer demand, workforce, suppliers, contractors and other partners and, although all locations have reopened, whether future closures will be required. Such closures have had and will continue to have a material impact on the Company. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19 and the requirements of health and safety protocols are expected to continue to have a material impact on the Company.

In March 2020, as a proactive measure to increase its cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic, the Company borrowed an additional $9.95 million on its revolving credit facility (the “Revolving Facility”) under its credit facility with Macquarie Capital (the “Macquarie Credit Agreement”) and $7.4 million on its credit agreement with UniCredit Bank Austria AG (“UniCredit”). See Note 6 for further discussion of the Macquarie Credit Agreement and the UniCredit credit agreement. The Company did not use any portion of the $9.95 million borrowed under the Revolving Facility to fund operations, and maintained such borrowings in cash and cash equivalents until repaid as described below.

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The Revolving Facility includes a springing leverage ratio (the “Financial Covenant”) tested as of the last day of each fiscal quarter in which borrowings under the Revolving Facility as of such day equal or exceed $3.5 million. In March 2020, based on the anticipated timing of reopening the Company’s casinos, hotels and other operations that had been closed due to the COVID-19 pandemic, and based on the anticipated use of all or a portion of the $9.95 million borrowed under the Revolving Facility to fund operations prior to such reopening, the Company projected that, if it was unable to repay the Revolving Facility below $3.5 million on or before the last day of a fiscal quarter, a potential future violation of the Financial Covenant could occur. Prior to June 30, 2020, the Company projected that it would be in compliance with the Financial Covenant as of June 30, 2020 and therefore elected not to pay the Revolving Facility below $3.5 million on or before such date.

The Company and the lender are currently reviewing the Financial Covenant calculation as of June 30, 2020 to determine whether the Company was in compliance with the covenant or was in default as of such date. If a default exists under the Financial Covenant as of June 30, 2020, the Company will not be able to borrow under the Revolving Facility or take certain actions that would otherwise be permitted under the Revolving Facility, and the lender may exercise other remedies, until such default is waived by the lender or the Macquarie Credit Agreement is amended. The Company repaid the Revolving Facility down to $0 as of July 30, 2020, except for a $50,000 letter of credit that it is in the process of cash collateralizing. The Company does not project a need for borrowing under the Revolving Facility in the future. As a result, compliance with the Financial Covenant under the Revolving Facility would not be required in future periods. If a default under the Financial Covenant has occurred, management intends to discuss a waiver of the default or amendment to the Macquarie Credit Agreement. The Company was in compliance with all financial covenants under its other credit agreements as of June 30, 2020.

Additional Projects and Other Developments

Bermuda

In August 2017, the Company announced that, together with the owner of the Hamilton Princess Hotel & Beach Club in Hamilton, Bermuda, it had submitted a license application to the Bermudan government for a casino at the Hamilton Princess Hotel & Beach Club. The casino would feature approximately 200 slot machines, 17 live table games, one or more electronic table games and a high limit area and salon privé. The Company’s subsidiary, CRM, entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if a license is awarded. CRM would also provide a $5.0 million loan for the purchase of casino equipment if the license is awarded. In September 2017, the Bermuda Casino Gaming Commission granted a provisional casino gaming license, which is subject to certain conditions and approvals including the adoption of certain rules and regulations by the Parliament of Bermuda. The Parliament of Bermuda has not yet adopted these rules and regulations, and the Company does not currently expect this project to go forward.

Century Casino Bath

In March 2020, Century Casino Bath was closed due to COVID-19. Due to challenging conditions that included historical and forecast losses due to changes in the regulatory environment for casinos in England requiring enhanced due diligence of customers, CCB’s board of directors determined that it would enter into the CVL and control of CCB was relinquished. Under Accounting Standards Codification (“ASC”) 810, Consolidation, specifically ASC 810-10-15, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners. Accordingly, when a subsidiary is in legal reorganization or files for bankruptcy, it is appropriate for the parent to deconsolidate the subsidiary. The Company will not regain control of CCB and determined that it was appropriate to deconsolidate CCB effective as of May 6, 2020. The Company will not retain any ownership in CCB and CCB will be dissolved as a company following its liquidation. The Company recognized a gain of $7.4 million in general and administrative expenses on its statement of (loss) earnings for the three and six months ended June 30, 2020.

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Preparation of Financial Statements

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

In the opinion of management, all adjustments considered necessary for the fair presentation of financial position, results of operations and cash flows of the Company have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the quarter ended June 30, 2020 are not necessarily indicative of the operating results for the full year.

Cash, Cash Equivalents and Restricted Cash

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

	June 30,		June 30,
Amounts in thousands	2020		2019
Cash and cash equivalents	$	51,641	$	47,000
Restricted cash included in deposits and other		827		740
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	52,468	$	47,740

As of June 30, 2020, restricted cash included $0.6 million in deposits and other related to a cash guarantee under the UniCredit loan agreement with CCB that CRM assumed in February 2020, $0.2 million in deposits and other related to payments of prizes and giveaways for Casinos Poland and less than $0.1 million in deposits and other related to an insurance policy.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Management’s use of estimates includes estimates for property and equipment, goodwill, intangible assets and income tax.

Presentation of Foreign Currency Amounts

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

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

	June 30,	December 31,
Ending Rates	2020	2019
Canadian dollar (CAD)	1.3628	1.2988
Euros (EUR)	0.8904	0.8906
Polish zloty (PLN)	3.9628	3.7873
British pound (GBP)	0.8097	0.7563

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

	For the three months			For the six months
	ended June 30,			ended June 30,
Average Rates	2020	2019	% Change	2020	2019	% Change
Canadian dollar (CAD)	1.3863	1.3376	(3.6%)	1.3646	1.3335	(2.3%)
Euros (EUR)	0.9085	0.8898	(2.1%)	0.9080	0.8853	(2.6%)
Polish zloty (PLN)	4.0959	3.8090	(7.5%)	4.0090	3.7980	(5.6%)
British pound (GBP)	0.8060	0.7782	(3.6%)	0.7938	0.7732	(2.7%)
Source: Pacific Exchange Rate Service