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Acquisition And Equity Investment | 6 Months Ended
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Jun. 30, 2024
Acquisition And Equity Investment [Abstract] |
Acquisition And Equity Investment | 3. ACQUISITION AND EQUITY INVESTMENT Acquisition – Nugget On the Second Closing on April 3, 2023, the Company completed its previously announced Nugget Acquisition of 100% of the membership interests in Nugget Sparks, LLC from Marnell. Nugget Sparks, LLC operates the Nugget Casino Resort, located in Reno-Sparks, Nevada. The purchase price paid at the Second Closing was from proceeds of the term loan (“Goldman Term Loan”) under the credit agreement (“Goldman Credit Agreement”) with Goldman Sachs Bank USA (“Goldman”) deposited in escrow (“Acquisition Escrow”) on the First Closing date. In connection with the Nugget Acquisition, the Company made an initial payment to Marnell of $104.7 million on April 3, 2023 consisting of a base price of $100.0 million plus adjustments based on working capital of Nugget at closing. The Company made an additional working capital adjustment payment of $0.8 million on August 29, 2023. As of April 3, 2023, the Company began consolidating Nugget as a wholly-owned subsidiary. Nugget contributed $39.2 million in net operating revenue and ($12.8) million in net loss attributable to Century Casinos, Inc. shareholders for the six months ended June 30, 2024 and $27.0 million in net operating revenue and $2.8 million in net earnings attributable to Century Casinos, Inc. shareholders for the six months ended June 30, 2023. The Company accounted for the transaction as a business combination, and accordingly, the acquired assets of $256.6 million (including $6.8 million in cash) and liabilities of $194.8 million were included in the Company’s consolidated balance sheet at April 3, 2023. The Nugget Acquisition generated $43.7 million of tax deductible goodwill for the Company’s United States segment. The goodwill from the Nugget Acquisition is attributable to the business expansion opportunity for the Company. The fair value of the assets acquired and liabilities assumed (excluding cash received) was determined to be $55.1 million as of the acquisition date. The fair values of the acquired tangible and intangible assets were determined using variations of the income, market and cost approaches, including the following methods which the Company considered appropriate: •multi-period excess earnings method; •cost method; •capitalized cash flow method; •relief from royalty method; •discounted cash flow method; and •direct market value approach. Both the income and market approach valuation methodologies used for the identifiable net assets acquired in the Nugget Acquisition make use of Level 3 inputs and are provisional pending development of a final valuation. Trade receivables and payables, inventory and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented a reasonable approximation of the fair value of those items at the Nugget Acquisition date, based on management’s judgment and estimates. The personal property components of the fixed assets were primarily valued utilizing the market and cost approaches. Certain personal property with an active and identifiable secondary market value were valued using the market approach. This property included, but was not limited to, certain gaming/slot equipment, information and technology equipment and vehicles. The cost approach was utilized to value all other personal property. The cost approach estimates fair value as the current cost of replacing or reproducing the utility of an asset, or group of assets and adjusting it for any depreciation resulting from one or more of the following: physical deterioration, functional obsolescence, and/or economic obsolescence. The real estate assets that are owned by Smooth Bourbon were adjusted to fair value concurrently with the Nugget Acquisition. The fair value was determined utilizing the direct capitalization method of the income approach. The fair value of the acquired real estate assets was determined to be $184.7 million. The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use. The fair value of the customer relationships from the player’s club list was valued using the incremental cash flow method under the income approach. The incremental cash flow method is used to estimate the fair value of an intangible asset based on a residual cash flow notion. This method measures the benefits (e.g., cash flows) derived from ownership of an acquired intangible asset as if it were in place, as compared to the acquirer’s expected cash flows as if the intangible asset were not in place (i.e., with-and-without). The present value difference in the two cash flow streams is ascribable to the intangible asset. The Company has assigned a 10 year useful life to the player loyalty program based on estimated revenue attrition among the player’s club members, based on historical operations as estimated by management. The fair value of the Nugget trademark was valued using the relief from royalty method. The relief from royalty method presumes that, without ownership of the asset, the Company would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, the Company avoids any such payments and records the related intangible value of the trademark. The primary assumptions in the valuation included projected revenue, a pre-tax royalty rate, the trademark’s useful life, and tax expense. The Company has assigned the Nugget trademark a 10 year useful life after considering, among other things, the expected use of the asset, the expected useful life of other related assets or asset groups, any legal, regulatory, or contractual provisions that may limit the useful life, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to promote and support the trademark. The Company has finalized the allocation of the purchase price of the Nugget Acquisition. Details of the purchase price allocation for the Nugget Acquisition in the table below are based on fair values of assets and liabilities as of April 3, 2023. The Nugget Acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the Nugget Acquisition have been recorded at their fair values.
Amounts in thousands |  |
Cash |  | $ | 6,764
Receivables |  |  | 1,689
Prepaid expenses |  |  | 3,715
Inventories |  |  | 2,681
Property and equipment |  |  | 211,811
Intangible assets |  |  | 29,940
Accounts payable |  |  | (2,622)
Accrued liabilities |  |  | (4,092)
Accrued payroll |  |  | (2,348)
Taxes payable |  |  | (998)
Finance lease liabilities |  |  | (184,700)
Net identifiable assets acquired |  |  | 61,840
Add: Goodwill |  |  | 43,716
Net assets acquired |  | $ | 105,556
The following table details the purchase consideration net cash outflow.
Amounts in thousands |  |  |
Outflow of cash to acquire subsidiaries, net of cash acquired |  |  |
Cash consideration |  | $ | 100,000
Working capital adjustments |  |  | 5,556
Less: Cash balances acquired |  |  | (6,764)
Net cash used in investing activities |  | $ | 98,792
Acquisition-related costs The Company incurred acquisition costs of $0.3 million for the three and six months ended June 30, 2023 in connection with the Nugget Acquisition. These costs include legal and accounting fees and have been recorded as general and administrative expenses in the Corporate Other segment. Ancillary Agreements In connection with the Nugget Acquisition, the Company and the sellers entered into a consulting agreement in December 2022, whereby the sellers agreed to provide the Company with certain consulting services following the Nugget Acquisition. The agreement compensated the sellers for services following the Nugget Acquisition as performed by employees at a monthly rate. Fees incurred under the agreement were $0.2 million for the three and six months ended June 30, 2023. The agreement ended on September 30, 2023. ‎ Acquisition-Related Contingencies Nugget is party to various legal and administrative proceedings, which have arisen in the normal course of business and relate to underlying events that occurred on or before April 3, 2023. Estimated losses have been accrued as of the Nugget Acquisition date for these proceedings in accordance with Accounting Standards Codification Topic 450 “Contingencies” (“ASC Topic 450”), which requires that an amount be accrued if the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to the Company’s consolidated financial condition and those estimated losses are not expected to have a material impact on its results of operations. The Company estimated the range of these contingencies to be between $0.1 million and $0.2 million as of June 30, 2024. Acquisition – Rocky Gap On July 25, 2023, the Company completed its previously announced Rocky Gap Acquisition of 100% of the membership interests in Evitts Resort, LLC from Lakes Maryland. Evitts Resort, LLC operates Rocky Gap Casino, Resort & Golf, located in Flintstone, Maryland. Simultaneous with the closing of the Rocky Gap Acquisition, affiliates of VICI purchased the land and building associated with Rocky Gap. On July 25, 2023, the Company amended its Master Lease to add the Rocky Gap property. The Rocky Gap Acquisition was financed with $30.0 million borrowed under the revolving credit facility (“Revolving Facility”) under the Goldman Credit Agreement and cash on hand. In connection with the Rocky Gap Acquisition, the Company made an initial payment to Lakes Maryland of $59.1 million on July 25, 2023. This amount included a base price of $56.1 million plus an adjustment based on the estimated working capital of Rocky Gap at closing. The Company paid an additional $0.1 million in working capital adjustments on December 18, 2023. As of July 25, 2023, the Company began consolidating Rocky Gap as a wholly-owned subsidiary. Rocky Gap contributed $32.8 million in net operating revenue and ($8.4) million in net loss attributable to Century Casinos, Inc. shareholders for the six months ended June 30, 2024. The Company accounted for the transaction as a business combination, and accordingly, the acquired assets of $244.9 million (including $6.7 million in cash) and liabilities of $212.1 million were included in the Company’s consolidated balance sheet at July 25, 2023. The Rocky Gap Acquisition generated $26.5 million of tax deductible goodwill for the Company’s United States segment. The goodwill from the Rocky Gap Acquisition is attributable to the business expansion opportunity for the Company. The fair value of the assets acquired and liabilities assumed (excluding cash received) was determined to be $26.1 million as of the acquisition date. The fair values of the acquired tangible and intangible assets were determined using variations of the income, market and cost approaches, including the following methods which the Company considered appropriate: •multi-period excess earnings method; •cost method; •capitalized cash flow method; •relief from royalty method; •discounted cash flow method; and •direct market value approach. Both the income and market approach valuation methodologies used for the identifiable net assets acquired in the Rocky Gap Acquisition make use of Level 3 inputs and are provisional pending development of a final valuation. Trade receivables and payables, inventory and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented a reasonable approximation of the fair value of those items at the Rocky Gap Acquisition date, based on management’s judgment and estimates. The personal property components of the fixed assets were primarily valued utilizing the market and cost approaches. Certain personal property with an active and identifiable secondary market value were valued using the market approach. This property included, but was not limited to, certain gaming/slot equipment, information and technology equipment and vehicles. The cost approach was utilized to value all other personal property. The cost approach estimates fair value as the current cost of replacing or reproducing the utility of an asset, or group of assets, and adjusting it for any depreciation resulting from one or more of the following: physical deterioration, functional obsolescence, and/or economic obsolescence. The real estate assets that were sold to VICI PropCo Buyer and leased back to the Company were adjusted to fair value concurrently with the Rocky Gap Acquisition. The fair value was determined utilizing the direct capitalization method of the income approach. The fair value of the acquired real estate assets was determined to be $203.9 million. The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use. The fair value of the customer relationships from the player’s club list was valued using the incremental cash flow method under the income approach. The incremental cash flow method is used to estimate the fair value of an intangible asset based on a residual cash flow notion. This method measures the benefits (e.g., cash flows) derived from ownership of an acquired intangible asset as if it were in place, as compared to the acquirer’s expected cash flows as if the intangible asset were not in place (i.e., with-and-without). The present value difference in the two cash flow streams is ascribable to the intangible asset. The Company has assigned a 10 year useful life to the player loyalty program based on estimated revenue attrition among the player’s club members, from historical operations as estimated by management. The fair value of the Rocky Gap trademark was valued using the relief from royalty method. The relief from royalty method presumes that, without ownership of the asset, the Company would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, the Company avoids any such payments and records the related intangible value of the trademark. The primary assumptions in the valuation included projected revenue, a pre-tax royalty rate, the trademark’s useful life, and tax expense. The Company has assigned the Rocky Gap trademark a 10 year useful life after considering, among other things, the expected use of the asset, the expected useful life of other related assets or asset groups, any legal, regulatory, or contractual provisions that may limit the useful life, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to promote and support the trademark. The Company has finalized the allocation of the purchase price of the Rocky Gap Acquisition. Details of the purchase price allocation for the Rocky Gap Acquisition in the table below are based on estimated fair values of assets and liabilities as of July 25, 2023. The Rocky Gap Acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the Rocky Gap Acquisition have been recorded at their fair values.
Amounts in thousands |  |
Cash |  | $ | 6,653
Receivables |  |  | 79
Prepaid expenses |  |  | 876
Inventories |  |  | 724
Other current assets |  |  | 33
Property and equipment |  |  | 209,764
Leased right-of-use assets |  |  | 3,441
Intangible assets |  |  | 23,290
Deposits and other |  |  | 37
Accounts payable |  |  | (611)
Accrued liabilities |  |  | (2,564)
Accrued payroll |  |  | (1,393)
Taxes payable |  |  | (202)
Operating lease liabilities |  |  | (3,441)
Finance lease liabilities |  |  | (203,925)
Net identifiable assets acquired |  |  | 32,761
Add: Goodwill |  |  | 26,473
Net assets acquired |  | $ | 59,234
The following table details the purchase consideration net cash outflow.
Amounts in thousands |  |  |
Outflow of cash to acquire subsidiaries, net of cash acquired |  |  |
Cash consideration |  | $ | 56,075
Working capital adjustments |  |  | 3,159
Less: Cash balances acquired |  |  | (6,653)
Net cash used in investing activities |  | $ | 52,581
Acquisition-related costs The Company incurred acquisition costs of approximately $0.1 million for the three and six months ended June 30, 2023 in connection with the Rocky Gap Acquisition. These costs include legal and accounting fees and have been recorded as general and administrative expenses in the Corporate Other segment. Ancillary Agreements In connection with the Rocky Gap Acquisition, the Company and the sellers entered into a consulting agreement in July 2023, whereby the sellers agreed to provide the Company with certain transitional services following the Rocky Gap Acquisition. The agreement compensated the sellers for services following the Rocky Gap Acquisition as performed by employees at a monthly rate. The agreement ended on October 8, 2023. There were no fees incurred under the agreement for the six months ended June 30, 2023. Acquisition-Related Contingencies Rocky Gap is party to various legal and administrative proceedings, which have arisen in the normal course of business and relate to underlying events that occurred on or before the July 25, 2023 closing of the Rocky Gap Acquisition. Estimated losses have been accrued as of the Rocky Gap Acquisition date for these proceedings in accordance with ASC Topic 450, which requires that an amount be accrued if the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to the Company’s consolidated financial condition, and those estimated losses are not expected to have a material impact on its results of operations. The Company had no acquisition-related contingencies recorded as of June 30, 2024. Pro forma results (Unaudited) The following table provides unaudited pro forma information of the Company as if the Nugget Acquisition and Rocky Gap Acquisition had occurred at the beginning of the earliest comparable period presented. The unaudited pro forma financial results include adjustments for transaction-related costs that are directly attributable to the Nugget Acquisition and Rocky Gap Acquisition for the six months ended June 30, 2023, including (i) pro forma adjustments to record interest expense related to the Goldman Credit Agreement, borrowing of the Revolving Facility under the Goldman Credit Agreement, and interest on the VICI financing obligation, (ii) pro forma adjustments to record depreciation and amortization for assets acquired in the Nugget Acquisition and Rocky Gap Acquisition, (iii) an estimated tax impact, and (iv) pro forma adjustments to record Smooth Bourbon as a consolidated subsidiary as of January 1, 2023. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisitions been consummated during the periods for which the pro forma information is presented, or of future results.
|  | For the six months ended
|  | June 30,
Amounts in thousands, except for per share information |  | 2024 |  | 2023
Net operating revenue |  | $ | 282,451 |  | $ | 283,524
Net loss attributable to Century Casinos, Inc. shareholders |  | $ | (55,157) |  | $ | (10,750)
Equity Investment – Smooth Bourbon The Company purchased membership interests in Smooth Bourbon on April 1, 2022. The Company began consolidating Smooth Bourbon on April 3, 2023 after the Nugget Acquisition and therefore no longer reports its interest in Smooth Bourbon as an equity investment. Following is summarized financial information regarding Smooth Bourbon for the three and six months ended June 30, 2023:
Amounts in thousands |  | For the three months ended ‎June 30, 2023 |  | For the six months ended ‎June 30, 2023
Operating Results |  |  |  |  |  |
Net operating revenue |  | $ | 207 |  | $ | 4,059
Earnings from continuing operations |  | $ | 104 |  | $ | 3,833
Net earnings |  | $ | 60 |  | $ | 2,241
Net earnings attributable to Century Casinos, Inc. |  | $ | 30 |  | $ | 1,121

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