UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.
_______ 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 0-22290
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CENTURY CASINOS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1271317
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(State of incorporation) (IRS Employer ID No.)
200-220 E. Bennett Ave., Cripple Creek, Colorado 80813
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(Address of principal executive offices)
(719) 689-9100
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(Phone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No
----- -----
Number of shares of common stock, $.01 par value, outstanding as
of November 12, 2001:
13,711,284 [subject to change]
1
CENTURY CASINOS, INC.
FORM 10-QSB
INDEX
Page Number
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PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheet as of 3
September 30, 2001
Condensed Consolidated Statements of Earnings 4
for the Three Months Ended September 30, 2001 and 2000
Condensed Consolidated Statements of Earnings 5
for the Nine Months Ended September 30, 2001 and 2000
Condensed Consolidated Statements of Comprehensive 6
Earnings for the Three Months and Nine Months Ended
September 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows 7
for the Nine Months Ended September 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 17
PART II OTHER INFORMATION 21
SIGNATURES 21
2
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollar amounts in thousands)
----------------------------------------------------
September 30, 2001
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ASSETS
Current Assets:
Cash and cash equivalents $ 3,293
Accounts receivable 914
Prepaid expenses and other 734
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Total current assets 4,941
Property and Equipment, net 31,967
Goodwill, net 8,345
Deferred Income Tax Asset 1,457
Other Assets 2,059
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Total $48,769
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,035
Accounts payable and accrued expenses 4,115
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Total current liabilities 6,150
Long-Term Debt, less current portion 18,089
Interest Rate Swap Obligation 952
Minority Interest 902
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding -
Common stock; $.01 par value; 50,000,000 shares authorized;
14,485,776 shares issued; 13,742,784 shares outstanding 145
Additional paid-in capital 21,917
Accumulated other comprehensive loss (2,137)
Retained earnings 4,121
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24,046
Treasury stock - 742,992 shares, at cost (1,370)
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Total shareholders' equity 22,676
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Total $48,769
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See notes to condensed consolidated financial statements.
3
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollar amounts in thousands, except for share information)
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For the Three Months Ended September 30,
-----------------------------------------
2001 2000
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Operating Revenue:
Casino $ 7,992 $ 6,876
Food and beverage 576 369
Hotel 228 47
Other 227 89
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9,023 7,381
Less promotional allowances 1,122 927
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Net operating revenue 7,901 6,454
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Operating Costs and Expenses:
Casino 2,456 1,956
Food and beverage 306 224
Hotel 183 180
General and administrative 1,855 1,689
Depreciation and amortization 1,085 851
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Total operating costs and expenses 5,885 4,900
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Earnings from Operations 2,016 1,554
Other income (expense), net (390) (328)
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Earnings before Income Taxes and Minority Interest 1,626 1,226
Provision for income taxes 908 613
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Earnings Before Minority Interest 718 613
Minority interest in subsidiary (earnings) losses (31) 217
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Net Earnings $ 687 $ 830
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Earnings Per Share:
Basic $ 0.05 $ 0.06
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Diluted $ 0.05 $ 0.06
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See notes to condensed consolidated financial statements.
4
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollar amounts in thousands, except for share information)
--------------------------------------------------------------
For the Nine Months Ended September 30,
-----------------------------------------
2001 2000
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Operating Revenue:
Casino $ 22,909 $ 18,485
Food and beverage 1,456 912
Hotel 552 123
Other 571 247
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25,488 19,767
Less promotional allowances 2,885 2,635
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Net operating revenue 22,603 17,132
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Operating Costs and Expenses:
Casino 7,104 5,060
Food and beverage 862 467
Hotel 509 243
General and administrative 6,063 5,573
Depreciation and amortization 3,576 2,580
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Total operating costs and expenses 18,114 13,923
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Earnings from Operations 4,489 3,209
Other income (expense), net (1,463) 533
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Earnings before Income Taxes and Minority Interest 3,026 3,742
Provision for income taxes 1,431 1,785
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Earnings Before Minority Interest 1,595 1,957
Minority interest in subsidiary losses 134 248
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Net Earnings $ 1,729 $ 2,205
======== ========
Earnings Per Share:
Basic $ 0.13 $ 0.15
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Diluted $ 0.12 $ 0.15
======== ========
See notes to condensed consolidated financial statements.
5
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited)
(Dollar amounts in thousands)
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For the Three Months Ended September 30,
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2001 2000
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Net Earnings $ 687 $ 830
Foreign currency translation adjustments (663) (297)
Change in fair value of interest rate swap, net of income tax benefit (269) -
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Comprehensive Earnings (Loss) $ (245) $ 533
======== ========
For the Nine Months Ended September 30,
---------------------------------------
2001 2000
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Net Earnings $ 1,729 $ 2,205
Foreign currency translation adjustments (881) (617)
Cumulative effect of change in accounting principle related to
interest rate swap, net of income tax benefit (175) -
Change in fair value of interest rate swap, net of income tax benefit (422) -
-------- --------
Comprehensive Earnings $ 251 $ 1,588
======== ========
See notes to condensed consolidated financial statements.
6
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
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For the Nine Months Ended September 30,
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2001 2000
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Cash provided by operating activities $ 4,459 $ 3,094
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Cash (used in) investing activities (3,574) (7,166)
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Cash provided by (used in) financing activities (6,453) 4,909
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Effect of exchange rate changes on cash (216) -
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Increase (decrease) in cash and cash equivalents (5,784) 837
Cash and cash equivalents at beginning of period 9,077 2,508
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Cash and cash equivalents at end of period $ 3,293 $ 3,345
========= ==========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 677 $ 784
Income taxes paid $ 993 $ 1,336
Non-cash Investing and Financing Activities:
In connection with the Company's acquisition of CAL in 2000 (see Note 4), the
minority shareholder contributed fixed assets valued at $3,836 in exchange for a
note payable to the minority shareholder of $2,302 and an equity interest of
$1,534.
See notes to condensed consolidated financial statements.
7
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. and subsidiaries (the "Company") is an
international gaming company which owns and operates a limited-stakes
gaming casino in Cripple Creek, Colorado, owns 65% of and operates the
Caledon Casino, Hotel and Spa near Cape Town, South Africa, manages a
casino within a hotel located in Prague, Czech Republic, and serves as
concessionaire of small casinos on four luxury cruise vessels. The
Company regularly pursues additional gaming opportunities
internationally and in the United States.
The Company's operations in Cripple Creek, Colorado began with
the 1994 acquisition of Legends Casino ("Legends"), followed by the
1996 acquisition of Womack's Saloon & Gaming Parlor ("Womacks"), which
is immediately adjacent to Legends. Following the acquisition of
Womacks, interior renovations were undertaken on both properties to
facilitate the operation and marketing of the combined properties as
one casino under the name Womacks/Legends Casino.
In July 1999, the Company began providing management services and
leasing gaming equipment to the Casino Millennium, located in the
five-star Marriott Hotel in Prague, Czech Republic. In January 2000,
the Company entered into a memorandum of agreement to acquire a 50%
ownership interest in Casino Millennium. The Company is in the process
of negotiating a definitive purchase agreement.
In April 2000, the Company's South African subsidiary acquired a 50%
equity interest in Caledon Casino Bid Company (Pty) Limited ("CCBC").
In June, 2001 the company name for CCBC was changed to Century Casinos
Caledon (Pty) Ltd. ("CAL"). CAL owns a 92-room resort hotel, spa,
casino and approximately 600 acres of land (representing approximately
230 hectares) in Caledon, South Africa and was awarded a casino
license for the project. The Company has a long-term agreement to
manage the operations of the casino, which began in October 2000. In
November 2000, the Company, through its South African subsidiary,
increased its equity interest in CAL by 15%, raising its total
ownership to 65%.
In May 2000, the Company entered into a five-year agreement to
serve as concessionaire of small casinos providing unlimited-stakes
gaming operations on four luxury cruise vessels. The Company operates
the casinos for its own account and pays concession fees based on
gross gaming revenue, as defined, in excess of an
established per passenger per day amount. The agreement requires the
Company to provide all necessary gaming equipment. In September 2000,
the Company opened the first of four casinos aboard the luxury cruise
vessels, followed by the second and third casinos in October and
November 2000, respectively. The maiden voyage of the fourth vessel
occurred in June 2001. The Company has a total of approximately 160
gaming positions on the four combined shipboard casinos.
In August 2000, the Company entered into a five-year agreement to
serve as concessionaire of a small casino aboard a vessel designed to
be an exclusive residential community at sea. The Company will operate
the casino for its own account and pay concession fees based on gross
gaming revenue, as defined, in excess of an established amount
per month. The maiden voyage of the residential cruise liner is
expected early in 2002.
In September 2001, the Company, through its South African subsidiary,
CCA, entered into an agreement to secure a 50% ownership interest in
Rhino Resort Ltd. ("Rhino"), a consortium which includes Silverstar
Development Ltd. ("Silverstar"). Rhino has submitted an application
for a proposed 400 million rand ($45,000 at the exchange rate as of
September 30, 2001) hotel/casino resort development in the greater
Johannesburg area of South Africa. In the event that Rhino is awarded
a license, the Company, as part of the September 2001 agreement, would
be required to make an equity investment of approximately 40 million
rand or $4,400 at the exchange rate as of September 30, 2001. At the
present time, however, there can be no certainty regarding an award of
this gaming license or that this license will ultimately be awarded to
the Rhino consortium.
8
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
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 for
interim financial reporting and the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted
in the United States of America, have been condensed or omitted. In
the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for fair presentation of
financial position, results of operations and cash flows have been
included. These condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
2. INCOME TAXES
Income tax provisions are based on estimated full-year
earnings for financial reporting purposes adjusted for permanent
differences, which consist primarily of nondeductible goodwill
amortization.
3. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months ended
September 30, 2001 and 2000 were computed as follows
For the Three Months Ended September 30,
----------------------------------------
2001 2000
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Basic Earnings Per Share:
Net earnings $ 687 $ 830
============== ===============
Weighted average common shares 13,813,043 14,125,496
============== ===============
Basic earnings per share $ 0.05 $ 0.06
============== ===============
Diluted Earnings Per Share:
Net earnings, as reported $ 687 $ 830
Interest expense, net of income - 6
taxes, on convertible debenture
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Net earnings available to common $ 687 $ 836
shareholders
============== ===============
Weighted average common shares 13,813,043 14,125,496
Effect of dilutive securities:
Convertible debenture - 204,395
Stock options and warrants 1,119,927 681,710
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Dilutive potential common shares 14,932,970 15,011,601
============== ===============
Diluted earnings per share $ 0.05 $ 0.06
============== ===============
Excluded from computation of diluted
earnings per share due to antidilutive
effect:
Options and warrants to purchase 5,000 535,000
common shares
Weighted average exercise price $ 2.25 $ 2.43
9
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
Basic and diluted earnings per share for the nine months ended September 30,
2001 and 2000 were computed as follows:
For the Nine Months Ended September 30,
---------------------------------------
2001 2000
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Basic Earnings Per Share:
Net earnings $ 1,729 $ 2,205
============ ============
Weighted average common shares 13,856,842 14,308,060
============ ============
Basic earnings per share $ 0.13 $ 0.15
============ ============
Diluted Earnings Per Share:
Net earnings, as reported $ 1,729 $ 2,205
Interest expense, net of income 8 23
taxes, on convertible debenture
------------ ------------
Net earnings available to common $ 1,737 $ 2,228
shareholders
============ ============
Weighted average common shares 13,856,842 14,308,060
Effect of dilutive securities:
Convertible debenture 90,181 249,127
Stock options and warrants 1,076,118 516,019
------------ ------------
Dilutive potential common shares 15,023,141 15,073,206
============ ============
Diluted earnings per share $ 0.12 $ 0.15
============ ============
Excluded from computation of diluted
earnings per share due to
antidilutive effect:
Options and warrants to purchase 5,000 565,000
common shares
Weighted average exercise price $ 2.25 $ 2.39
4. CALEDON, SOUTH AFRICA
In April 2000, the Caledon Casino Bid Company (Pty) Limited
("CCBC") was awarded a gaming license for a casino at a 92-room resort
hotel and spa in Caledon, province of the Western Cape, South Africa
and the Company's South African subsidiary, Century Casinos Africa
(Pty) Ltd ("CCA"), acquired a 50% equity interest in CCBC. In June,
2001 the company name for CCBC was changed to
Century Casinos Caledon (Pty) Ltd. ("CAL"). The Company (through CCA)
made an initial equity investment of approximately $1,534 in and a
loan of approximately $2,302 to CAL with borrowings under its
revolving credit facility. In a concurrent transaction, CAL, the
Company and Caledon Overberg Investments (Proprietary) Limited
("COIL"), a minority shareholder in CAL, entered into a note agreement
as part of the purchase of CAL. Under the terms of the agreement, CAL,
in exchange for the contribution of certain fixed assets, entered into
a loan agreement with COIL in the amount of approximately $2,302. The
loan is due on demand subsequent to the repayment in full of the loan,
discussed below, between CAL and PSGIB. In November 2000, the Company,
through CCA, acquired an additional 15% of CAL, raising its ownership
in CAL to 65%. The acquisition was
10
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
completed with the payment of approximately $1,800 by the Company
to COIL in exchange for 15% of the total shares of common stock of CAL
(valued at approximately $1,200) and a shareholder loan to CAL,
previously held by COIL (with a value of approximately $600). The
acquisition of CAL by the Company and COIL has been recorded using the
purchase method of accounting.
In April 2000, CAL entered into a loan agreement with PSGIB, which
agreement provides for a principal loan of approximately $5,264 at the
exchange rate as of September 30, 2001 to fund development of the
Caledon project and a working capital facility of approximately $1,100
at the exchange rate as of September 30, 2001. CAL is required to make
principal payments beginning December 2001 and continuing over a
five-year period. Outstanding borrowings bear interest at 17.052%. The
shareholders of CAL have pledged all of the common shares held by them
in CAL to PSGIB as collateral. The loan is also collateralized by a
first mortgage bond over land and buildings and a general notorial
bond over all equipment. As of September 30, 2001, the entire amount
has been advanced against the loan agreement. The loan agreement
includes certain restrictive covenants, as defined in the agreement,
the most significant of which include, i) CAL must maintain a
debt/equity ratio of 44:56 after the first twelve months of operations
and a 40:60 debt/equity ratio after two years of operations, ii) CAL
must maintain an interest coverage ratio of at least 2.0 after the
first twelve months of operations, iii) CAL must maintain a debt
service coverage ratio of at least 1.3 for the principal loan and 1.7
for the working capital facility after the first twelve months of
operations, and iv) CAL must maintain a loan life coverage ratio of
1.5 for the principal loan and a loan life coverage ratio of 2.5 for
the working capital facility. The Company is required to be in
compliance with these covenants beginning October 31, 2001. In January
2001, CAL cancelled the working capital facility to obtain more
favorable terms. In April 2001, CAL entered into an addendum to the
loan agreement in which PSGIB provided CAL with a standby facility in
the amount of approximately $500 at the exchange rate as of September
30, 2001. CAL is required to make principal payments on the standby
facility in semi-annual installments, beginning December 2001 and
continuing over a five-year period. Outstanding borrowings under the
standby facility bear interest at 15.1%. As of September 30, 2001 CAL
had drawn the entire amount of the standby facility.
In December 1999, the Company, through CCA, entered into a
ten-year casino management agreement with CAL, which agreement may be
extended at CCA's option for multiple ten-year periods. The Company,
through CCA, will earn management fees based on percentages of annual
gaming revenue and earnings before interest, income taxes,
depreciation, amortization and certain other costs. The casino opened
on October 11, 2000 with 250 slot machines and 14 gaming tables. In
addition to the casino license, hotel and spa, CAL owns approximately
600 acres of land (representing approximately 230 hectares), which is
expected to be used for future expansion of the project.
11
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
5. PRAGUE, CZECH REPUBLIC
In January 2000, the Company entered into a memorandum of
agreement with B.H. Centrum a.s., the Company's Czech Republic
business partner in Casino Millennium, located in Prague, Czech
Republic. The memorandum of agreement provides for the two parties to
acquire the casino from third parties by either a joint acquisition of
Casino Millennium a.s. or the formation of a new joint venture. The
transaction, if completed, would result in the Company having a 50%
equity interest in Casino Millennium. Any funding required by the
Company to consummate this transaction would be met through a
combination of existing RCF borrowings (see Note 6), liquidity and
anticipated cash flow. The Company is in the process of negotiating a
definitive purchase agreement. As of September 30, 2001, the Company's
net fixed assets leased to the Casino Millennium approximated $870 and
management fee income for the nine months ended September 30, 2001 and
2000 was approximately $170 and $124 respectively.
6. REVOLVING CREDIT FACILITY
On April 26, 2000, the Company and Wells Fargo Bank (the "Bank")
entered into an Amended and Restated Credit Agreement (the "Agreement"
or "RCF") which increased the Company's aggregate borrowing commitment
from the Bank to $26,000 and extended the maturity date to April 2004.
The aggregate commitment available to the Company will be reduced
quarterly by $722, beginning October 2000 through the maturity date.
As of September 30, 2001, the aggregate commitment, net of the
quarterly reduction, available to the Company was $23,111. Interest on
the Agreement is variable based on the interest rate option selected
by the Company, plus an applicable margin based on the Company's
leverage ratio. The Agreement also requires a nonusage fee based on
the Company's leverage ratio on the unused portion of the commitment.
The principal balance outstanding under the loan agreement as of
September 30, 2001 was $11,939. The loan agreement includes certain
restrictive covenants, the most significant of which include i) WMCK
Venture Corp., a wholly-owned subsidiary of the Company, must maintain
a maximum leverage ratio no greater than 3.10 to 1.00, ii) WMCK
Venture Corp. must maintain a minimum interest coverage ratio no less
than 1.50 to 1.00, and iii) WMCK Venture Corp. must maintain a TFCC
ratio (a derivative of EBITDA, as defined in the agreement) of no less
than 1.10 to 1.00. In August 2001, the Agreement was amended, the most
significant change being a reduction in the aforementioned maximum
leverage ratio to no greater than 2.50 to 1.00, allowing the Company
to utilize the unused borrowing capacity to meet all of its future
business growth activities. As of September 30, 2001, the Company is
in compliance with all restrictive covenants. The consolidated
weighted average interest rate on borrowings under the RCF was 8.91%
for the first nine months of 2001.
7. SHAREHOLDERS' EQUITY
During the first nine months of 2001, the Company repurchased, on
the open market, an additional 278,500 shares of its common stock at
an average price per share of $1.98. The Company held 742,992 shares
in treasury as of September 30, 2001.
12
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
In connection with the granting of a gaming license to CAL by the
Western Cape Gambling and Racing Board in April 2000, CAL issued a
total of 200 preference shares, 100 shares each to two minority
shareholders. The preference shares are neither cumulative nor
redeemable. The preference shares entitle the holders of such shares
to dividends of 20% of the after-tax profits directly attributable to
the CAL casino business subject to working capital and capital
expenditure requirements and CAL loan obligations and liabilities as
determined by the directors of CAL. Should the casino business be sold
or otherwise dissolved, the preference shareholders are entitled to
20% of any surplus directly attributable to the CAL casino business,
net of all liabilities attributable to the CAL casino business. As of
September 30, 2001, no dividends have been declared for the preference
shareholders.
8. CHANGE IN ACCOUNTING PRINCIPLES AND RECENTLY ISSUED STANDARDS
The Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities", in the
first quarter of fiscal 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities.
The pronouncement requires that a company designate the intent of a
derivative to which it is a party, and prescribes measurement and
recognition criteria based on the intent and effectiveness of the
designation. SFAS No. 138 amends the accounting and reporting
standards for certain derivative instruments and certain hedging
activities, including amendments to normal purchases and normal sales,
interest rate risk, hedging recognized foreign currency denominated
assets and liabilities and intercompany derivative provisions of SFAS
No. 133. The cumulative effect of adopting SFAS No. 133 related to the
Company's interest rate swap agreements was to decrease shareholders'
equity as of January 1, 2001 by $175, net of related federal and state
income tax benefits of $104. The adoption of SFAS No. 138 had no
effect on the Company's financial statements.
For 2001, the Company has adopted Emerging Issues Task Force
(EITF) No. 00-14, "Accounting for Certain Sales Incentives" and EITF
No. 00-22, "Accounting for Points an Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or
Services to be Delivered in the Future". EITF No. 00-14 requires that
discounts which result in a reduction in or refund of the selling
price of a product or service in a single exchange transaction be
recorded as a reduction in revenue. As part of the Company's
promotional activities, the Company offers "free plays" or coupons to
its customers for gaming activity. The cost associated with these
activities was previously recorded by the Company as casino expense
when the "free plays" or coupons were used by customers. EITF No.
00-22, "Accounting for Points and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or
Services to be Delivered in the Future" requires that vendors
recognize the cash rebate or refund obligation associated with time-
or volume-based cash rebates as a reduction of revenue based on a
"systematic and rational allocation of the cost of honoring rebates or
refunds earned and claimed to each of the underlying revenue
transactions that result in progress by the customer toward earning
the rebate or refund." The liability for such obligations should be
based on the estimated amount of rebates or refunds to be ultimately
earned if it can be reasonably
estimated. The Company's players' clubs allow customers to earn
certain complimentary services and/or cash rebates based on the volume
of the customers' gaming activity. Prior to adopting EITF No. 00-22
the Company accounted for its players' clubs as a casino expense
instead of a reduction in revenue. In 2001, the Company changed its
classification of the charges which totaled $2,041 and $2,104 for the
nine months ended September 30, 2001 and 2000, respectively, and $769
and $736 for the three months ended September 30, 2001 and 2000,
respectively; prior period amounts have been reclassified to be
13
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
consistent with the current year periods. The reclassifications
associated with the adoption of EITF Nos. 00-14 and 00-22 did not have
any impact on net earnings or earnings per share amounts.
In June 2001, the Financial Accounting Standards Board (the
"FASB") adopted SFAS No. 141 Business Combinations and SFAS No. 142
Goodwill and Intangible Assets. SFAS No. 141 addresses the methods used
to account for business combinations and requires the use of the
purchase method of accounting for all combinations after June 30,
2001. SFAS No. 142 addresses the methods used to capitalize, amortize
and to assess impairment of intangible assets, including goodwill
resulting from business combinations accounted for under the purchase
method. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. Included in assets at September 30, 2001 is
unamortized goodwill of approximately $8,345. Upon adoption of SFAS
No. 142, the Company will no longer amortize goodwill, decreasing
amortization expense by approximately $1,425 per year. The Company
will be required to assess goodwill for impairment in the year of
adoption and at least annually thereafter. The Company will not be
able to determine the full effect of these pronouncements on its
financial position or results of its operations until it is able to
complete its analysis of the impairment provisions of the new
standards. In the event the Company's analysis under the new guidance
indicates goodwill is impaired, it will be required to record a charge
to its earnings in the year of adoption.
14
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
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9. SEGMENT INFORMATION
The Company is managed in four segments: United States, South
Africa, Cruise Ships, and Corporate operations. Corporate operations
include the revenue and expense of certain corporate gaming projects
for which the Company has secured long term management contracts.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) is not considered a measure of performance recognized as an
accounting principle generally accepted in the United States of
America. Management believes that EBITDA is a valuable measure of the
relative performance amongst its operating segments. Segment
information as of September 30, 2001 and for the three and nine months
ended September 30, 2001 is presented below. Comparable information is
not provided for 2000 because, during the first nine months of 2000,
the Company operated as one identifiable segment, Cripple Creek,
United States.
As of September 30, 2001: United South Cruise Corporate Intersegment Consolidated
States Africa Ships & Other Elimination
Property and equipment,
net of accumulated depreciation $ 19,326 $ 10,586 $ 232 $ 1,823 - $ 31,967
Total Assets $ 30,629 $ 15,857 $ 534 $ 4,822 ($3,073) $ 48,769
For the three months ended September 30, 2001:
Net operating revenue $ 5,731 $ 1,656 $ 426 $ 88 - $ 7,901
Depreciation & amortization $ 679 $ 339 $ 13 $ 54 - $ 1,085
Interest income $ 15 $ 19 - $ 88 ($85) $ 37
Interest expense,
including debt issuance cost $ 396 $ 105 - $ 13 ($85) $ 429
Earnings(loss) before income taxes
and minority interest $ 1,770 $ (120) $ 181 $ (205) - $ 1,626
Income tax expense $ 814 $ 64 - $ 30 - $ 908
Net earnings(loss) $ 956 $ (215) $ 181 $ (235) - $ 687
EBITDA $ 2,830 $ 274 $ 194 $ (226) - $ 3,072
15
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
United South Cruise Corporate Intersegment Consolidated
States Africa Ships & Other Elimination
For the nine months ended September 30, 2001:
Net operating revenue $ 15,831 $ 5,794 $ 758 $ 220 - $ 22,603
Depreciation & amortization $ 2,321 $ 1,049 $ 34 $ 172 - $ 3,576
Interest income $ 15 $ 45 - $ 267 ($256) $ 71
Interest expense,
including debt issuance cost $ 1,073 $ 640 - $ 37 ($256) $ 1,494
Earnings(loss) before income taxes
and minority interest $ 4,294 $ (505) $ 241 $ (1,004) - $ 3,026
Income tax expense(benefit) $ 1,975 $ (117) - $ (427) - $ 1,431
Net earnings(loss) $ 2,319 $ (254) $ 241 $ (577) - $ 1,729
EBITDA $ 7,673 $ 1,273 $ 275 $ (1,062) - $ 8,159
16
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
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Forward-Looking Statements, Business Environment and Risk Factors
Information contained in the following discussion of results of
operations and financial condition of the Company contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by
the use of words such as "may," "will," "expect," "anticipate,"
"estimate," or "continue," or variations thereon or comparable
terminology. In addition, all statements other than statements of
historical facts that address activities, events or developments that
the Company expects, believes or anticipates, will or may occur in the
future, and other such matters, are forward-looking statements.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere herein. The Company's future operating results may be
affected by various trends and factors, which are beyond the Company's
control. These include, among other factors, the competitive
environment in which the Company operates, the Company's present
dependence upon the Cripple Creek, Colorado gaming market, changes in
the rates of gaming-specific taxes, shifting public attitudes toward
the socioeconomic costs and benefits of gaming, actions of regulatory
bodies, dependence upon key personnel, the speculative nature of
gaming projects the Company may pursue, risks associated with
expansion, and other uncertain business conditions that may affect the
Company's business.
The Company cautions the reader that a number of important
factors discussed herein, and in other reports filed with the
Securities and Exchange Commission, could affect the Company's actual
results and cause actual results to differ materially from those
discussed in forward-looking statements.
Results of Operations
Nine Months Ended September 30, 2001 VS. 2000
----------------------------------------------------
Net operating revenue for the first nine months of 2001 was
$22,603 compared with $17,132 for the same period in 2000, an increase
of 31.9%. Casino revenue increased from $18,485 in 2000 to $22,909 in
2001, or 23.9%. The increase in casino revenue is attributable to the
addition of the Caledon Casino and the cruise ship casino operations
which provided $4,661 and $699, respectively. The Company's share of
the Cripple Creek casino market was 16.7% through the first nine
months of 2001 compared with 17.9% a year earlier. Womacks/Legends
Casino operated 14.1% of the slot machines in the Cripple Creek market
and achieved an average daily win per machine of $108 (one hundred and
eight dollars) versus the Cripple Creek average of $90 (ninety
dollars). Gross margin for the Company's casino activities (casino
revenues, net of applicable casino gaming incentives, less casino
expenses) decreased to 66.0% from 68.1% a year earlier, due primarily
to the effects of the margin of 53.8% at the Caledon Casino which
began operations in October 2000. The gross margin for the Company's
other casino operations increased to 70.5% due primarily to the
continued efforts to improve the casino operating efficiencies.
Food and beverage revenue increased by 59.6% to $1,456 for the
first nine months of 2001 compared with $912 in 2000. The increase is
principally due to the opening of the Caledon Casino Hotel and Spa.
The cost of food and beverage promotional allowances, which is
included in casino costs, increased slightly to $690 compared with
$613 in the prior year. Hotel revenue increased by 349% to $552 for
the first nine months of 2001 compared with $123 in 2000. The increase
is directly attributable to the opening of the Caledon Casino Hotel
and Spa. The increase in hotel costs is associated with the operations
of the hotel in Caledon, South Africa. Womacks/Legends Casino recently
added 10 rooms to the original 8, bringing the total number of rooms
in Cripple Creek to 18.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
---------------------------------------------------------------------------
General and administrative expense as a percentage of net
operating revenue was 26.8% for the first nine months of 2001 compared
with 32.5% in 2000. Included in first nine months of 2000 was the
write-off of a non-compete agreement with a former officer/director in
March 2000 and bonuses paid to certain officers/directors relating to
the final payment received in January 2000 from the previous sale of
the Company's interest in its Indiana riverboat gaming license.
Depreciation expense increased to $2,507 in the first nine months
of 2001 from $1,574 in same period of 2000, primarily due to the
acquisition of fixed assets for the Caledon Casino, Hotel and Spa
which opened in October 2000. Amortization of goodwill in the first
nine months of 2001 increased to $1,069 from $1,006 in the same period
of 2000 as a result of the goodwill recognized in the stock
acquisition of CAL in November 2000.
Other income (expense), net, for the first nine months of 2001
consists primarily of net interest costs of $1,423, plus $57 related
to the write-down of the value of non-operating casino property and
land which the Company owns, offset by gains on the disposal of fixed
assets totaling $14. Other income (expense), net, for the first nine
months of 2000 consists of $1,380 from the final payment received in
January by the Company from the sale of its interest in a riverboat
gaming license in Indiana and gains on the disposal of fixed assets
totaling $44, offset by net interest costs of $892. The increase in
interest expense is principally due to the increase in outstanding
long-term debt associated with the stock acquisition of CAL and
continued improvements to the property in Caledon, South Africa.
The income tax provisions for the nine months ended September 30,
2001 and 2000, are based on estimated full-year earnings for financial
reporting purposes adjusted for permanent book-tax differences,
consisting primarily of nondeductible goodwill amortization.
Liquidity and Capital Resources
Cash and cash equivalents totaled $3,293 at September 30, 2001,
and the Company had net deficit working capital of $1,209. Additional
liquidity is provided by the Company's revolving credit facility
("RCF") with Wells Fargo Bank, under which the Company had a total
commitment of $26,000 ($23,111, net of the quarterly reduction) and
unused borrowing capacity of approximately $11,172 at September 30,
2001. For the nine months ended September 30, 2001, cash provided by
operating activities was $4,459 compared with $3,094 in the prior-year
period. Cash used in investing activities of $3,574 for the first nine
months of 2001 consisted of $2,141 in improvements to the Caledon
Casino Hotel and Spa in South Africa, $997 to the Womacks/Legends
casino in Cripple Creek, Colorado, and the balance was due to
expenditures for other long-lived assets. Cash used in financing
activities for the first nine months of 2001 consisted of net
repayments of $6,701 under the RCF with Wells Fargo, net borrowings of
$1,298 under the PSG loan agreements, the repurchase of the company's
stock on the open market, with a cost of $552, and other net
repayments of $498.
An August 2001 amendment to the RCF eliminated the permitted
distribution carve outs, thereby allowing the Company to utilize the
unused borrowing capacity to meet all of its future business growth
activities.
18
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
---------------------------------------------------------------------------
In April 2000, the Century Casinos Caledon (Pty) Ltd. ("CAL") was
awarded a gaming license for a casino at a 92-room resort hotel and
spa in Caledon, province of the Western Cape, South Africa, and the
Company's subsidiary, Century Casinos Africa (Pty) Ltd ("CCA"),
acquired a 50% equity interest in CAL. The Company made an initial
equity investment of approximately $1,534 in and loans totaling
approximately $2,302 to CAL with borrowings obtained under the
Company's RCF. CCA has a ten-year casino management agreement with
CAL, which agreement may be extended at the Company's option for
multiple ten-year periods. The Company, through CCA, will earn
management fees based on percentages of annual gaming revenue and
earnings before interest, income taxes, depreciation, amortization and
certain other costs. The casino opened on October 11, 2000 with 250
slot machines and 14 gaming tables. In addition to the casino license,
hotel and spa, CAL owns approximately 600 acres of land (representing
approximately 230 hectares), which can be used for future expansion of
the Caledon project. In November 2000, the Company, through CCA,
acquired an additional 15% of CAL, raising its ownership in CAL to
65%. The acquisition of the additional interest was completed with the
payment of approximately $1,800 by Century to COIL in exchange for 15%
of the total shares of common stock of CAL (valued at approximately
$1,200) and a shareholder loan to CAL previously held by COIL (with a
value of approximately $600). In April 2000, CAL entered into a loan
agreement with PSG Investment Bank Limited("PSGIB"), which provides
for a principal loan of approximately $5,264 at the exchange rate as
of September 30, 2001 to fund development of the Caledon project and a
working capital facility of approximately $1,100 at the exchange rate
as of September 30, 2001. As of September 30, 2001, the entire amount
has been advanced against the loan. In January 2001, CAL cancelled the
working capital facility based on management's ability to obtain more
favorable terms. In April 2001, CAL entered into an addendum to the
loan agreement in which PSGIB provided CAL with a standby facility in
the amount of approximately $500 at the exchange rate as of September
30, 2001. CAL is required to make principal payments, beginning
December 2001, in semi-annual installments continuing over a five-year
period. Outstanding borrowings under the standby facility bear
interest at 15.1%. As of September 30, 2001, CAL had drawn the entire
amount of the standby facility.
The Company has a 20-year agreement with Casino Millennium a.s.,
a Czech company, to operate a casino in the five-star Marriott Hotel,
in Prague, Czech Republic. The hotel and casino opened in July 1999.
The Company provides casino management services in exchange for ten
percent of the casino's gross revenue and leases gaming equipment,
with an original cost of approximately $1,200, to the casino for 45%
of the casino's net profit. In January 2000, the Company entered into
a memorandum of agreement with B. H. Centrum, a Czech company which
owns the hotel and casino facility, to acquire the operations of the
casino by either a joint acquisition of Casino Millennium a.s. or the
formation of a new joint venture. The transaction, if completed, would
result in the Company having a 50% equity interest in Casino
Millennium. Any funding required by the Company to consummate this
transaction would be met through a combination of RCF borrowings,
existing liquidity and anticipated cash flow. The Company is in the
process of negotiating a definitive purchase agreement.
In May 2000, the Company entered into a five-year casino
concession agreement with a cruise line for casino operations aboard
four cruise vessels. The Company pays fees to the owner of the vessels
based on gross gaming revenue, as defined, in excess
of an established per passenger per day amount. In August 2000, the
Company entered into a similar agreement to serve as concessionaire of
a small casino aboard a vessel designed to be an exclusive residential
community at sea. On September 18, 2000 the Company announced the
opening of the first of four casinos aboard the cruise vessels. In
October 2000, the Company opened a second casino and, in November
2000, opened a third aboard a luxury cruise vessel. The maiden voyage
of the fourth vessel occurred in June 2001. Both agreements require
the Company to provide all necessary gaming equipment, $271 of which
the Company purchased during the second half of 2000 and the first
nine months of 2001. The Company estimates the remaining cost at
approximately $40.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
---------------------------------------------------------------------------
The Company's Board of Directors has approved a discretionary
program to repurchase up to $5,000 of the Company's outstanding common
stock. The Board believes that the Company's stock is undervalued in
the current trading market in relation to both its present operations
and its future prospects. During the first nine months of 2001, the
Company purchased 278,500 additional shares at an average cost per
share of $1.98. Beginning in 1998 and through September 30, 2001, the
Company has repurchased a total of 2,128,300 shares at a total cost of
approximately $2,834. Management expects to continue to review the
market price of the Company's stock and repurchase shares as
appropriate, with funds coming from existing liquidity or borrowings
under the RCF.
The Company is the contracted casino management partner and, as
of September 2001, through its South African subsidiary, CCA, entered
into an agreement to secure a 50% ownership interest in Rhino Resort
Ltd. ("Rhino"), a consortium which includes Silverstar Development
Ltd. ("Silverstar"). Rhino has submitted an application for a proposed
400 million rand ($44,500 at the exchange rate as of September 30,
2001) hotel/casino resort development in the greater Johannesburg area
of South Africa. The value of the proposed development fluctuates with
the USD/Rand exchange rate. In the event that Rhino is awarded a
license, the Company, as part of the September 2001 agreement, would
be required to make an equity investment of approximately 40 million
rand or $4,400 at the exchange rate as of September 30, 2001. This
funding requirement would be met through borrowings under the RCF. The
Company has also projected additional development costs of up to $500
which could be incurred by the Company related to this project. In
July 2001, the Gauteng Gambling Board held an official hearing
regarding the license application of Rhino. This is the only
application being considered for the sixth and final gaming license in
the Gauteng Province of South Africa. The Company anticipates that a
final determination on this license application could be made during
the fourth quarter of 2001. At the present time, however, there can be
no certainty regarding an award of this gaming license or that this
license will ultimately be awarded to the Rhino consortium.
Management believes that the Company's cash at September 30,
2001, together with expected cash flows from operations and borrowing
capacity under the RCF, will be sufficient to fund its anticipated
capital expenditures, pursue additional business growth opportunities
for the foreseeable future, and satisfy its debt repayment
obligations.
* * * * * * * * * * * * * * * *
20
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
The Company is not a party to, nor is it aware of, any pending
or threatened litigation which, in management's opinion, could
have a material adverse effect on the Company's financial
position or results of operations.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits:
11.01 First Amendment to the Amended and Restated
Credit Agreement, by and among, WMCK Venture
Corp., Century Casinos Cripple Creek, Inc.,
and WMCK Acquisition Corp. (collectively,
the "Borrowers"), Century Casinos, Inc. (the
"Guarantor") and Wells Fargo Bank, National
Association, dated August 22, 2001.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended September 30, 2001.
* * * * * * *
SIGNATURES:
Pursuant to 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/ Larry Hannappel
___________________________
Larry Hannappel
Chief Accounting Officer and duly authorized officer
Date: November 12, 2001
21