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CNTY > SEC Filings for CNTY > Form 10-Q on 15-May-2014All Recent SEC Filings

Show all filings for CENTURY CASINOS INC /CO/

Form 10-Q for CENTURY CASINOS INC /CO/


15-May-2014

Quarterly Report


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, 2013. 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. Certain terms used in this Item 2 without definition are defined in Item 1.

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.

In March 2007, our subsidiary CCE acquired 33.3% of the outstanding shares issued by CPL and we accounted for the investment under the equity method. In April 2013, CCE acquired from LOT Polish Airlines an additional 33.3% ownership interest in CPL. As of the date of this acquisition, we began consolidating our 66.6% ownership of CPL as a majority-owned subsidiary for which we have a controlling financial interest. Polish Airports owns the remaining 33.3% of CPL. We account for and report the 33.3% Polish Airports ownership interest as a non-controlling financial interest.

CPL has been in operation since 1989 and is the owner and operator of nine casinos throughout Poland with a total of 404 slot machines and 71 tables. The following table summarizes the Polish cities in which CPL operated as of March 31, 2014, each casino's location and the number of slots and tables at each casino.

City      Population  Location                         Number of     Number of
                                                       Slots         Tables
Warsaw    1.7 million Marriott Hotel                   70            22
Warsaw    1.7 million LIM Center                       45            3
Krakow    760,000     Dwor Kosciuszko Hotel            48            8
Lodz      730,000     Manufaktura Entertainment        38            7
                      Complex
Wroclaw   630,000     HP Park Plaza Hotel              60            12
Poznan    550,000     NH Hotel*                        28            3
Katowice  310,000     Altus Building                   50            10

Sosnowiec 220,000 Sosnowiec City Center 34 3 Plock 130,000 Hotel Plock 31 3

*The Poznan casino was relocated from the NH Hotel to the Hotel Andersia and began operations in the new location on April 12, 2014.


We also operate 12 ship-based casinos onboard four cruise lines: Oceania Cruises, TUI Cruises, Windstar Cruises and Regent Seven Seas Cruises. As of March 31, 2014, we had a total of 423 slot machines and 55 tables aboard the 12 cruise ships where we operated casinos. The following table summarizes the cruise lines for which we have entered into agreements and the associated ships on which we operated ship-based casinos as of March 31, 2014.

                 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

* The casino operation on board Insignia was suspended on April 5, 2012 as Oceania Cruises leased the vessel to a different cruise line. We will not operate this casino as long as the ship is leased to a different cruise line. We anticipate the Insignia will rejoin Oceania Cruises in May 2014, at which time we will again operate this ship-based casino.

In May 2014, Windstar Cruises launched the Star Pride, the first of three newly acquired all suite cruise ships. We operate the ship-based casino aboard this 212 passenger ship. Windstar Cruises is planning to begin operations on the other two vessels during the second quarter of 2015, and we expect to operate the planned ship-based casinos aboard each ship. In addition, in June 2014, TUI Cruises plans to launch the Mein Schiff 3. We will operate the ship-based casino aboard this 2,506 passenger ship.

In February 2014, we announced that we signed an exclusive agreement with Nova Star Cruises Ltd. to operate a ship-based casino on board the Nova Star, a round trip cruise ferry service connecting Portland, Maine and Yarmouth, Nova Scotia. The ferry is scheduled to commence operations May 15, 2014. Nova Star is a new ship with a capacity of 1,215 passengers and 336 vehicles. We will equip and operate the ship-based casino with 70 slot machines as well as live and electronic table games.

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.

Century Downs Racetrack and Casino - Calgary, Canada

On November 30, 2012, our subsidiary CCE signed credit and management agreements with UHA in connection with the development and operation of a REC project in Balzac, north metropolitan area of Calgary, Alberta, Canada, which we will operate as Century Downs Racetrack and Casino.


The REC project will be the only horse race track in the Calgary area and will consist of a 5.5 furlongs (0.7 miles) racetrack, a gaming floor with 550 proposed 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 this REC project pre-dates a three year moratorium imposed by the AGLC on new casinos and RECs that runs until 2015. The AGLC also has an option to extend the moratorium for an additional two years.

The project is located less than one mile north of the city limits of Calgary and 4.5 miles from the Calgary International Airport. The location will allow the REC to capture both the north and the northwest Calgary markets, where there is not currently a casino. The REC will be located approximately 17 miles from Century Casino Calgary and would serve what we believe is a different customer base, including customers who also are interested in horse racing.

The AGLC has approved development of the project and a preliminary license. The AGLC will not issue a final license until the REC opens. Horse Racing Alberta, the governing authority for horse racing in Alberta, has approved the REC project and approved a license. Construction commenced in March 2014 and we anticipate that UHA will complete the REC by the first quarter of 2015.

On November 29, 2013, CCE finalized amended credit and management agreements with UHA in connection with the development of the REC project. Under the amended credit agreement, CCE agreed to loan to UHA a total of CAD 24 million in two separate loans, Loan A and Loan B. Loan A would be for CAD 13 million and Loan B would be for CAD 11 million. Loan A has an interest rate of BMO prime plus 600 basis points and a term of five years, and CAD 11 million of the loan is convertible at CCE's option into an ownership position in UHA of up to 60%. Loan B has an interest rate equivalent to the rate charged under the BMO Credit Agreement plus an administrative fee and a term of five years. CCE will not advance funds from Loan B to UHA until CCE has advanced all monies from Loan A. Both loans are secured by a leasehold mortgage on the REC property and a pledge of UHA's stock by the majority of the UHA shareholders. Both loans are for the exclusive use of developing and operating the REC project. CCE intends to fund both loans with additional borrowings under our BMO Credit Agreement. The Company has a commitment letter with BMO for an additional CAD 11 million credit facility under the BMO Credit Agreement and has pledged its 15% ownership interest in UHA as collateral for the loan.

Under the amended management and credit agreements, CCE acquired 15% of UHA, controls the UHA board of directors, manages the development and operation of the REC project and has the right to convert CAD 11 million of Loan A into an additional 60% ownership interest in UHA. 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. However, as a condition of AGLC licensing, the Company anticipates converting the loan to a majority ownership interest on or before the REC is operational.

As of November 29, 2013, the Company began consolidating UHA as a minority owned subsidiary for which we have a controlling financial interest. Unaffiliated shareholders own the remaining 85% of UHA. The Company accounts for and reports the remaining 85% UHA ownership interest as a non-controlling financial interest.

Other Projects under Development

On June 10, 2013, we announced that we have applied for a casino license at the Hotel InterContinental in Vienna, Austria. The 450-room Hotel InterContinental is located in the city center of Vienna. We are one of four companies applying for the 15-year license.

We expect a decision by the Austrian Minister of Finance during the second quarter of 2014. 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 $7.9 million of an anticipated $18.0 million required to develop the casino inside the Hotel InterContinental. After a construction period estimated at six to eight months, the casino would offer approximately 300 slot machines and 25 tables on a 16,000 square foot gaming floor.

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 March 31,
Average Rates                            2014       2013    % Change
Canadian dollar (CAD)                    1.1026     1.0084    (9.3%)
Euros ()                                0.7299     0.7574     3.6%
Polish zloty (PLN)                       3.0533     3.1443     2.9%
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.

DISCUSSION OF RESULTS

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

Century Casinos, Inc. and Subsidiaries




                                        For the three months
                                           ended March 31,
Amounts in thousands                     2014          2013      Change  % Change
                                                                       $
Gaming Revenue                       $      26,116 $      15,696 10,420    66.4%
Hotel Revenue                                 400           388      12     3.1%
Food and Beverage Revenue                   2,706         2,578     128     5.0%
Other Revenue                               1,695         1,233     462    37.5%
Gross Revenue                              30,917        19,895  11,022    55.4%
Less Promotional Allowances                (1,807)       (1,904)    (97)   (5.1%)
Net Operating Revenue                      29,110        17,991  11,119    61.8%
Gaming Expenses                           (15,275)       (6,932)  8,343   120.4%
Hotel Expenses                               (149)         (182)    (33)  (18.1%)
Food and Beverage Expenses                 (2,238)       (2,118)    120     5.7%
General and Administrative Expenses        (8,655)       (5,424)  3,231    59.6%
Total Operating Costs and Expenses        (28,127)      (15,847) 12,280    77.5%
Loss from Equity Investment                     0           (96)    (96) (100.0%)
Earnings from Operations                      983         2,048  (1,065)  (52.0%)
Noncontrolling Interests                      284             0     284   100.0%
                                                                       $
Net Earnings                          $        510 $       1,662 (1,152)  (69.3%)

                                                 $             $
Basic and Diluted Earnings Per Share         0.02          0.07  ($0.05)  (71.4%)


The period over period increases relate primarily to the inclusion of operating results from CPL in the first quarter of 2014 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 $12.4 million in net operating revenue and less than $0.1 million in net earnings from January 1, 2014 through March 31, 2014. In addition, the consolidation of UHA as of November 29, 2013 as a minority owned subsidiary for which we have a controlling financial interest affects the comparability of 2014 and 2013 financial results.

Net operating revenue increased by $11.1 million, or 61.8% for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Following is a breakout of net operating revenue by property or category for the three months ended March 31, 2014 compared to the three months ended March 31, 2013:

Edmonton decreased by ($0.4) million, or (6.0%).

Calgary decreased by ($0.2) million, or (8.7%).

Central City decreased by ($0.5) million, or (11.4%).

Cripple Creek decreased by ($0.4) million, or (12.7%).

Casinos Poland added $12.4 million.

UHA added $0.3 million.

Ship-based casinos and other decreased by ($0.2) million, or (9.2%).

Operating costs and expenses increased by $12.3 million, or 77.5% for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Following is a breakout of total operating costs and expenses by property or category for the three months ended March 31, 2014 compared to the three months ended March 31, 2013:

Edmonton decreased by ($0.2) million, or (4.5%).

Calgary decreased by ($0.1) million, or (2.9%).

Central City decreased by ($0.2) million, or (4.9%).

Cripple Creek increased by less than $0.1 million, or 0.8%.

Casinos Poland added $12.4 million.

UHA added $0.1 million.

Ship-based casinos and other decreased by ($0.1) million, or (5.3%).

Corporate other increased by $0.3 million, or 20.1%.

Earnings from operations decreased by ($1.1) million, or (52.0%) for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Following is a breakout of earnings from operations by property or category for the three months ended March 31, 2014 compared to the three months ended March 31, 2013:

Edmonton decreased by ($0.2) million, or (9.0%).

Calgary decreased by ($0.1) million, or (122.8%).

Central City decreased by ($0.3) million, or (55.5%).

Cripple Creek decreased by ($0.4) million, or (81.2%).

Casinos Poland added less than $0.1 million.

UHA added $0.2 million.

Ship-based casinos and other decreased by ($0.1) million, or (39.0%).

Corporate other decreased by ($0.2) million, or (12.1%).

Net earnings decreased by ($1.2) million, or (69.3%) for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Items deducted from or added to earnings from operations to arrive at net earnings include interest income, interest expense, gains on foreign currency transactions, income tax expense and non-controlling interests.


Reportable Segments

We have aggregated our operating segments into one reportable segment based on similarities among the nature of economic characteristics, services, customers and regulatory environments in which each segment operates. Management views each property as an operating segment based on its business activities, financial information, and operating results, which our chief operating decision maker function uses to assess performance and allocate resources within the Company. Our properties provide gaming, hotel accommodations, dining facilities and other amenities to our customers, which we utilize to drive customer volume. Our operating results are highly dependent on the volume of customers at our resorts and customer volume affects the price we can charge for our hotel rooms, dining and other amenities. Our operating results are significantly affected by our ability to generate operating revenue.

We have additional business activities including certain other corporate and management operations. We report our operations that we do not segregate into operating segments as "corporate and other" in our consolidated results.

The following discussion provides further detail of consolidated results by operating segment.

Casinos

Edmonton




                                       For the three months
                                          ended March 31,
Amounts in thousands                    2014          2013      Change % Change
Gaming                              $       4,216 $       4,573 ($357)   (7.8%)
Hotel Revenue                                222           197     25    12.7%
Food and Beverage Revenue                  1,335         1,349    (14)   (1.0%)
Other                                        526           557    (31)   (5.6%)
Gross Revenue                              6,299         6,676   (377)   (5.6%)
Less Promotional Allowances                 (230)         (221)     9     4.1%
Net Operating Revenue                      6,069         6,455   (386)   (6.0%)
Gaming Expenses                           (1,633)       (1,620)    13     0.8%
Hotel Expenses                               (57)          (61)    (4)   (6.6%)
Food and Beverage Expenses                  (934)         (999)   (65)   (6.5%)
General and Administrative Expenses       (1,285)       (1,403)  (118)   (8.4%)
Total Operating Costs and Expenses        (4,147)       (4,343)  (196)   (4.5%)
Earnings from Operations                   1,922         2,112   (190)   (9.0%)
Net Earnings                        $       1,423 $       1,599 ($176)  (11.0%)

Three months ended March 31, 2014 and 2013

Net operating revenue at our property in Edmonton decreased by ($0.4) million, or (6.0%), for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The decrease in gaming revenue was due to a decrease in the average exchange rate between the U.S. dollar and Canadian dollar of 9.3% for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 (the "9.3% exchange rate decrease").

In CAD, net operating revenue increased by $0.2 million, or 2.7%, due to increases in all revenue categories for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase in revenue was primarily due to an increase in table games play for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.


Total operating costs and expenses decreased by ($0.2) million, or (4.5%), for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The decrease in operating costs was due to the 9.3% exchange rate decrease.

In CAD, total operating costs and expenses increased by $0.2 million, or 4.4% for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 due to increased food costs and hourly wages.

Because of the foregoing, earnings from operations decreased by ($0.2) million, or (9.0%), for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. In CAD, earnings from operations decreased by less than ($0.1) million, or (0.8%), for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.

Net earnings decreased by ($0.2) million, or (11.0%), for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

In CAD, net earnings increased by $0.1 million, or 5.3%, for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Calgary






                                       For the three months
                                          ended March 31,
Amounts in thousands                    2014          2013           Change         % Change
Gaming                              $       1,312 $       1,520            ($208)      (13.7%)
Food and Beverage Revenue                    485           484                 1         0.2%
Other                                        416           418                (2)       (0.5%)
Gross Revenue                              2,213         2,422              (209)       (8.6%)
Less Promotional Allowances                  (63)          (67)               (4)       (6.0%)
Net Operating Revenue                      2,150         2,355              (205)       (8.7%)
Gaming Expenses                             (651)         (730)               79       (10.8%)
Food and Beverage Expenses                  (393)         (402)               (9)       (2.2%)
General and Administrative Expenses         (914)         (876)               38         4.3%
Total Operating Costs and Expenses        (2,176)       (2,241)              (65)       (2.9%)
(Loss) Earnings from Operations              (26)          114               140       122.8%

Net Earnings $ 57 $ 125 $ (68) (54.4%)

Three months ended March 31, 2014 and 2013

Net operating revenue at our property in Calgary decreased by ($0.2) million, or (8.7%), for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The decrease in gaming revenue was due to the 9.3% exchange rate decrease.

In CAD, net operating revenue decreased by less than ($0.1) million, or (0.4%), due to decreases in gaming revenue for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Gaming revenue decreased primarily due to a decrease in Baccarat table games hold percentage and lower customer volumes of 7.7% for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The decrease in gaming revenue was offset by an increase in food and beverage and bowling revenue for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.


Total operating costs and expenses decreased by ($0.1) million, or (2.9%), for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The decrease in operating costs was due to the 9.3% exchange rate decrease.

In CAD, total operating costs and expenses increased by $0.1 million, or 6.1%, due to an increase in utility and property maintenance expenses for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

. . .

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