Description Of Business And Basis Of Presentation | 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Century Casinos, Inc. (“CCI” or the “Company”) is an international casino entertainment company. As of March 31, 2017 , the Company owned casino operations in North America; held a majority ownership interest in eight casinos throughout Poland, a racetrack and entertainment center (“REC”) in Canada and the pari-mutuel off-track betting network in southern Alberta, Canada; managed cruise ship-based casinos on international waters; managed a casino in Aruba and provide d gaming services in Argentina. The Company currently owns, operates and manages the following casinos through wholly-owned subsidiaries in North America: · The Cen tury Casino & Hotel in Edmonton, Alberta, Canada (“Century Resorts Alberta” or “CRA”) · The Century Casino St. Albert in Edmonton, Alberta, Canada (“CSA”) · The Century Casino Calgary, Alberta, Canada (“CAL”) · The Century Casino & Hotel in Central City, Colorado (“CTL”); and · The Century Casino & Hotel in Cripple Creek, Colorado (“CRC”) The Company currently has a controlling financial interest through its subsidiary Century Casinos Europe GmbH (“CCE”) in the following majority-owned subsidiaries: · T he Company owns 66.6% of Casinos Poland Ltd (“CPL” or “Casinos Poland”). CPL is the owner and operator of eight casinos throughout Poland. CPL is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. Polish Airports Company (“Polish Airports”) owns the remaining 33.3% of CPL, which is reported as a non-controlling financial interest. · The Company owns 75% of United Horsemen of Alberta Inc. dba Century Downs Racetrack and Casino (“CDR” or “Century Downs”). CDR operates Century Downs Racetrack and Casino, a REC in Balzac, a north metropolitan area of Calgary, Alberta, Canada. CDR is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. The remaining 25% of CDR is owned by unaffiliated shareholders and is reported as a non-controlling financial interest. · The Company owns 75% of Century Bets! Inc. (“CBS” or “Century Bets”) . CBS is consolidated as a majority-owned subsidiary for which the Company has a controlling financial interest. Rocky Mountain Turf Club (“RMTC”) owns the remaining 25% of CBS, which is reported as a non-controlling financial interest. The Company has the following concession, management and consulting service agreements: · The Company operates 13 ship-based casinos through concession agreements with four cruise ship owners. Under an amended concession agreement with TUI Cruises , the Company plans to operate the ship-based casino onboard Mein Schiff 6, a new 2,500 passenger cruise ship that is expected to begin operati ng in the second quarter of 2017. In connection with a concession agreement with Diamond Cruise International Co., Ltd. (“Diamond”) for the operation of the ship-based casino onboard Glory Sea, the Company has a Cooperation Agreement with Dynamic Partners International, Ltd. (“Dynamic”). Under this agreement, Dynamic markets and promotes the casino to VIP players along with facilitating the concession agreement between Diamond and the Company, for which the Company pays Dynamic a portion of the net profit from the casino onboard Glory Sea. In March 2015, in connection with an agreement with Norwegian Cruise Line Holdings (“Norwegian”) to terminate the Company’s concession agreements with Oceania Cruises (“Oceania”) and Regent Seven Seas Cruises (“Regent”), t he Company entered into a two -year consulting agreement, which became effective on June 1, 2015, under which the Company is providing limited consulting services for the ship-based casinos of Oceania and Regent in exchange for receiving a consulting fee of $2.0 million, which is payable $250,000 per quarter through May 2017 . · The Company has a management agreement to direct the operation of the casino at the Hilton Aruba Caribbean Resort & Casino from which the Company receives a monthly management fee. The management agreement ends in December 2017 and the Company does not anticipate extending this agreement. · The Company, through its subsidiary CCE, has a 7.5% ownership interest in Mendoza Central Entretenimientos S.A., an Argentina company (“MCE”) . The shares are reported on the condensed consolidated balance sheet using the cost method of accounting. MCE has an exclusive concession agreement with Instituto Provincial de Juegos y Casinos to lease slot machines and provide related services to Casino de Mendoza , a casino located in Mendoza, Argentina and owned by the Province of Mendoza. In addition, CCE and MCE have entered into a c onsulting s ervices a greement pursuant to which CCE provides advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of MCE’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). See Note 4 for additional information related to MCE. Additional Projects and Other Developments In September 2016, the Company was selected by Horse Racing Alberta (“HRA”) as the successful applicant to own, build and operate a horse racing facility in the Edmonton market area, which the Company is planning to operate as Century Mile. Century Mile will be a one-mile horse racetrack and a multi-level REC. The proposed location is on Edmonton International Airport land and close to the city of Leduc, south of Edmonton. Century Mile will be approximately 30 miles from both CRA and CSA. The Company estimates this project will cost approximately CAD 50.0 million ( $37.5 million based on the exchange rate in effect on March 31, 2017). The Company estimates that construction of this project will take approximately 15 months and that it will be completed by the fourth quarter of 2018 or the first quarter of 2019. In March 2017, the Company received approval for the Century Mile project from the Alberta Gaming and Liquor Commission (“AGLC”). Commencement of construction of the Century Mile project is subject to the Company’s obtaining financing. The Company has postponed the planned restoration and expansion project at the Palace Hotel that it owns in Cripple Creek, Colorado. Preparation of Financial Statements The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial reporting, the rules and regulations of the Securities and Exchange Commission which apply to interim financial statements and the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments considered necessary for the fair presentation of financial position, results of operations and cash flows of the Company have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 201 6 . The results of operations for the period ended March 31, 2017 are not necessarily indicative of the operating results for the full year. Presentation of Foreign Currency Amounts The Company’s functional currency is the U.S. dollar (“USD” or “$”). Foreign subsidiaries with a functional currency other than the U.S. dollar translate assets and liabilities at current exchange rates at the end of the reporting periods, while income and expense accounts are translated at average exchange rates for the respective periods. The Company and its subsidiaries enter into various transactions made in currencies different from their functional currencies. These transactions are typically denom inated in the Canadian dollar (“ CAD ”) , Euro (“EUR”) and Polish zloty (“PLN”). Gains and losses resulting from changes in foreign currency exchange rates related to these transactions are included in income from operations as they occur. The exchange rates to the U.S. dollar used to translate balances at the end of the reported periods are as follows: March 31, December 31, Ending Rates 2017 2016 Canadian dollar (CAD) 1.3322 1.3427 Euros (EUR) 0.9348 0.9476 Polish zloty (PLN) 3.9637 4.2065 The average exchange rates to the U.S. dollar used to translate balances during each reported period are as follows: For the three months ended March 31, Average Rates 2017 2016 % Change Canadian dollar (CAD) 1.3234 1.3732 3.6% Euros (EUR) 0.9384 0.9065 (3.5%) Polish zloty (PLN) 4.0563 3.9556 (2.5%) Source: Pacific Exchange Rate Service Correction of Prior Period Balances Subsequent to the issuance of the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, the Company identified that it had erroneously recognized a reduction in pari-mutuel revenue for CBS totaling $0.7 million in its condensed consolidated statement of earnings for the three months ended March 31, 2016. This error also affected the Company’s income tax expense, net earnings attributable to non-controlling interests and consolidated statements of comprehensive income (loss), equity, cash flows and Note 12 “Segment and Geographic Information” for the three months ended March 31, 2016. The prior period amounts within the Company’s condensed consolidated financial statements have been revised to reflect the correct balances. The information below presents the impact of these corrections on the Company’s 2016 condensed consolidated financial statements as previously reported. Condensed Consolidated Statement of Earnings for the three months ended March 31, 2016: Amounts in thousands, except for per share information As Previously Reported Correction As Corrected Operating Revenue: Other $ 3,040 $ 697 $ 3,737 Gross revenue 34,536 697 35,233 Net operating revenue 32,530 697 33,227 Earnings from operations 3,385 697 4,082 Earnings before income taxes 2,822 697 3,519 Income tax expense (598) (181) (779) Net earnings 2,224 516 2,740 Net earnings attributable to non-controlling interests (330) (129) (459) Net earnings attributable to Century Casinos, Inc. shareholders 1,894 387 2,281 Earnings per share attributable to Century Casinos, Inc. shareholders: Basic and Diluted $ 0.08 $ 0.01 $ 0.09 Condensed Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2016: Amounts in thousands As Previously Reported Correction As Corrected Net earnings $ 2,224 $ 516 $ 2,740 Other comprehensive income Foreign currency translation adjustments 3,757 (28) 3,729 Other comprehensive income 3,757 (28) 3,729 Comprehensive income $ 5,981 $ 488 $ 6,469 Comprehensive income attributable to non-controlling interests Net earnings attributable to non-controlling interests (330) (129) (459) Foreign currency translation adjustments (389) 7 (382) Comprehensive income attributable to Century Casinos, Inc. shareholders $ 5,262 $ 366 $ 5,628 Condensed Consolidated Statement of Equity for the three months ended March 31, 2016: Amounts in thousands As Previously Reported Correction As Corrected Accumulated other comprehensive income Accumulated other comprehensive income (loss) balance at January 1, 2016 $ (12,704) $ 21 $ (12,683) Foreign currency translation adjustment 3,368 (21) 3,347 Retained earnings Retained earnings balance at January 1, 2016 57,558 (387) 57,171 Net earnings 1,894 387 2,281 Total Century Casinos shareholders' equity Total Century Casinos shareholders' equity balance at January 1, 2016 122,416 (366) 122,050 Net earnings 1,894 387 2,281 Foreign currency translation adjustment 3,368 (21) 3,347 Non-controlling interest Non-controlling interest balance at January 1, 2016 4,859 (122) 4,737 Net earnings 330 129 459 Foreign currency translation adjustment 389 (7) 382 Total equity Total equity balance at January 1, 2016 127,275 (488) 126,787 Net earnings 2,224 516 2,740 Foreign currency translation adjustment 3,757 (28) 3,729 Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2016: Amounts in thousands As Previously Reported Correction As Corrected Cash Flows from Operating Activities: Net earnings $ 2,224 $ 516 $ 2,740 Changes in Operating Assets and Liabilities: Receivables, net 716 (659) 57 Taxes payable (350) 171 (179) Net cash provided by operating activities 3,263 28 3,291 Effect of Exchange Rate Changes on Cash 688 (28) 660 Note 12: Segment and Geographic Information for the three months ended March 31, 2016: Amounts in thousands As Previously Reported Correction As Corrected Canada Net operating revenue $ 12,298 $ 697 $ 12,995 Net earnings attributable to Century Casinos, Inc. shareholders 1,648 387 2,035 Income taxes 444 181 625 Non-controlling interest (2) 129 127 Adjusted EBITDA 3,518 697 4,215 Consolidated results in Note 12 “Segment and Geographic Information” for the three months ended March 31, 2016 have been updated as presented in the Consolidated Statement of Earnings table above. Consolidated Adjusted EBITDA for the three months ended March 31, 2016 was corrected by $0.7 million, adjusting the previously reported Consolidated Adjusted EBITDA of $5.6 million to $6.3 million. |