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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.
OR
_______ 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
------------
CENTURY CASINOS, INC.
(Exact name of registrant as specified in its charter)
-
DELAWARE 84-1271317
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
200-220 E. Bennett Ave., Cripple Creek, Colorado 80813
------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(719) 689-9100
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
-------------- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, $0.01 par value, 13,664,384 shares outstanding as of July 25,
2002.
1
CENTURY CASINOS, INC.
FORM 10-Q
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Earnings for the Three
Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Earnings for the Six
Months Ended June 30, 2002 and 2001 5
Condensed Consolidated Statements of Comprehensive Earnings for the Three Months
Ended June 30, 2002 and 2001 6
Condensed Consolidated Statements of Comprehensive Earnings for the Six Months
Ended June 30, 2002 and 2001 6
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 22
PART II OTHER INFORMATION 32
Item 1. Legal Proceedings 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 32
2
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
June 30, 2002 December 31, 2001
------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents
(including restricted cash of $387 and $334, respectively) $ 3,267 $ 3,365
Accounts receivable 574 433
Prepaid expenses and other 615 591
--------------- ---------------
Total current assets 4,456 4,389
Property and Equipment, net 32,437 29,338
Goodwill, net 7,784 7,709
Casino License Costs, net 1,100 1,010
Other Assets 2,417 2,373
--------------- ---------------
Total $ 48,194 $ 44,819
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,492 $ 1,554
Accounts payable and accrued expenses 2,666 3,512
--------------- ---------------
Total current liabilities 4,158 5,066
Long-Term Debt, less current portion 17,297 15,991
Other Non-current Liabilities 1,103 979
Minority Interest 698 605
Commitments and Contingencies - -
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;
13,713,484 and 13,728,784 shares outstanding, respectively 145 145
Additional paid-in capital 21,901 21,901
Accumulated other comprehensive loss (2,515) (3,291)
Retained earnings 6,875 4,847
--------------- ---------------
26,406 23,602
Treasury stock - 772,292 and 756,992 shares, respectively,
at cost (1,468) (1,424)
--------------- ---------------
Total shareholders' equity 24,938 22,178
--------------- ---------------
Total $ 48,194 $ 44,819
=============== ===============
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)
- --------------------------------------------------------------------------------
For The Three Months Ended June 30,
2002 2001
---- ----
Operating Revenue:
Casino $ 7,816 $ 7,459
Food and beverage 389 491
Hotel 201 168
Other 142 199
--------------- ---------------
8,548 8,317
Less promotional allowances 1,119 924
--------------- ---------------
Net operating revenue 7,429 7,393
--------------- ---------------
Operating Costs and Expenses:
Casino 2,342 2,295
Food and beverage 212 280
Hotel 138 166
General and administrative 2,029 2,114
Depreciation and amortization 553 1,254
--------------- ---------------
Total operating costs and expenses 5,274 6,109
--------------- ---------------
Earnings from Operations 2,155 1,284
Other (expense), net (433) (561)
--------------- ---------------
Earnings before Income Taxes and Minority Interest 1,722 723
Provision for income taxes 613 196
--------------- ---------------
Earnings before Minority Interest 1,109 527
Minority interest in subsidiary results of operations (6) 62
--------------- ---------------
Net Earnings $ 1,103 $ 589
=============== ===============
Earnings Per Share:
Basic $ 0.08 $ 0.05
=============== ===============
Diluted $ 0.07 $ 0.04
=============== ===============
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 Six Months Ended June 30,
2002 2001
---- ----
Operating Revenue:
Casino $ 15,022 $ 14,917
Food and beverage 756 880
Hotel 406 324
Other 293 344
--------------- ---------------
16,477 16,465
Less promotional allowances 2,156 1,763
--------------- ---------------
Net operating revenue 14,321 14,702
--------------- ---------------
Operating Costs and Expenses:
Casino 4,575 4,648
Food and beverage 402 556
Hotel 244 326
General and administrative 3,822 4,208
Depreciation and amortization 1,150 2,491
--------------- ---------------
Total operating costs and expenses 10,193 12,229
--------------- ---------------
Earnings from Operations 4,128 2,473
Other (expense), net (871) (1,073)
--------------- ---------------
Earnings before Income Taxes and Minority Interest 3,257 1,400
Provision for income taxes 1,231 523
--------------- ---------------
Earnings before Minority Interest 2,026 877
Minority interest in subsidiary results of operations 2 165
--------------- ---------------
Net Earnings $ 2,028 $ 1,042
=============== ===============
Earnings Per Share:
Basic $ 0.15 $ 0.08
=============== ===============
Diluted $ 0.13 $ 0.07
=============== ===============
See notes to condensed consolidated financial statements.
5
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited)
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
For The Three Months Ended June 30,
2002 2001
---- ----
Net Earnings $ 1,103 $ 589
Foreign currency translation adjustments 494 (320)
Change in fair value of interest rate swaps, net of income taxes (93) 17
--------------- ---------------
Comprehensive Earnings $ 1,504 $ 286
=============== ===============
For The Six Months Ended June 30,
2002 2001
---- ----
Net Earnings $ 2,028 $ 1,042
Foreign currency translation adjustments 783 (218)
Cumulative effect of change in accounting principle related to interest
rate swaps, net of income taxes - (175)
Change in fair value of interest rate swaps, net of income taxes (7) (153)
--------------- ---------------
Comprehensive Earnings $ 2,804 $ 496
=============== ===============
See notes to condensed consolidated financial statements.
6
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
For The Six Months Ended June 30,
2002 2001
---- ----
Cash Flows from Operating Activities:
Net earnings $ 2,028 $ 1,042
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation 1,150 1,778
Amortization of goodwill - 713
Amortization of deferred financing costs 43 32
(Gain) loss on disposition of assets (2) (14)
Deferred tax expense (benefit) 93 (125)
Minority interest in subsidiary losses (2) (165)
Other (12) 16
Changes in operating assets and liabilities
Receivables (103) 114
Prepaid expenses and other assets 46 437
Accounts payable and accrued liabilities (911) (1,613)
--------------- ---------------
Net cash provided by operating activities 2,330 2,215
--------------- ---------------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,911) (1,962)
Expenditures for deposits and other assets - (1,501)
Proceeds received from disposition of assets 2 9
--------------- ---------------
Net cash used in investing activities (2,909) (3,454)
--------------- ---------------
(continued)
7
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30,
2002 2001
---- ----
Cash Flows from Financing Activities:
Proceeds from borrowings $ 10,968 $ 12,981
Principal repayments (10,530) (17,581)
Deferred financing costs (19) 17
Purchases of treasury stock (44) (402)
--------------- ---------------
Net cash provided by (used in) financing activities 375 (4,985)
--------------- ---------------
Effect of exchange rate changes on cash 106 82
--------------- ---------------
Decrease in Cash and Cash Equivalents (98) (6,142)
Cash and Cash Equivalents at Beginning of Period 3,365 9,077
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 3,267 $ 2,935
=============== ===============
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $40 in 2002 and $169 in 2001 $ 976 $ 613
=============== ===============
Income taxes paid $ 1,235 $ 930
=============== ===============
See notes to condensed consolidated financial statements.
8
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. ("CCI") is an international gaming company. Wholly
owned subsidiaries of CCI include Century Casinos Management, Inc. ("CCM"),
Century Casinos Nevada, Inc. ("CCN", a dormant subsidiary), Century
Management u. Beteiligungs GmbH ("CMB"), and WMCK-Venture Corp. ("WMCK").
Wholly owned subsidiaries of WMCK include WMCK-Acquisition Corp ("ACQ") and
Century Casinos Cripple Creek, Inc. ("CCC"). Century Casinos Africa (Pty)
Ltd. ("CCA"), a 96.7% owned subsidiary of CCI, owns 65% of Century Casinos
Caledon (Pty) Ltd. ("CCAL"), 55% of Century Casinos West Rand (Pty) Ltd.
("CCWR") and 50% of Rhino Resort Ltd. ("RRL"). CCI and subsidiaries (the
"Company") own and/or manage casino operations in the United States of
America, South Africa, the Czech Republic, and international waters as
follows:
WMCK owns and operates Womacks Casino and Hotel ("Womacks"), a
limited-stakes gaming casino in Cripple Creek, Colorado. Womacks is
one of the largest gaming facilities in Cripple Creek and is currently
the core operation of the Company. The facility has 612 slots, five
limited stakes gaming tables, 21 hotel rooms, 2 restaurants and is
currently expanding the gaming space to accommodate an additional 115
gaming devices.
CCA owns 65% of the Caledon Casino, Hotel and Spa near Cape Town,
South Africa and has a management contract to operate the casino. The
resort has 250 slot/video machines and eight gaming tables, a 92-room
hotel, mineral hot springs and spa facility, 2 restaurants, 3 bars,
and conference facilities.
CCM manages Casino Millennium located within a five-star hotel in
Prague, Czech Republic. Subject to the approval by regulators, the
Company and another entity have each agreed to purchase a 50%
ownership interest in Casino Millennium. The acquisition is expected
to be completed in late 2002 or early 2003 and is expected to cost
approximately $200 in cash plus the contribution of operating assets
of the casino currently owned by the Company.
CCI serves as concessionaire of small casinos on five luxury cruise
vessels, one of which is temporarily out of service. The Company has a
total of approximately 167 gaming positions on the four combined
shipboard casinos currently in operation.
The Company regularly pursues additional gaming opportunities
internationally and in the United States.
9
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
During September 2001, CCA entered into an agreement to secure a 50%
ownership interest in Rhino Resort Ltd. ("RRL"), a consortium which
includes Silverstar Development Ltd. ("Silverstar"). RRL submitted an
application for a proposed hotel/casino resort development in the
greater Johannesburg area of South Africa at a cost of approximately
400 million Rand ($38.6 million). In November 2001, RRL was awarded
the sixth and final casino license serving the Gauteng province in
South Africa. In February 2002, Tsogo Sun Holdings (Pty) Ltd
("Tsogo"), a competing casino, filed a Review Application seeking to
overturn the license award by the Gauteng Gambling Board ("GGB"),
which will be heard by the Pretoria High Court in September 2002. Both
RRL and the GGB are vigorously defending this action which focuses
primarily on claims by Tsogo that the processes leading to the award
were procedurally deficient. A judgment handed down on this matter
could be subject to a Request for Leave to Appeal. Should Leave to
Appeal be denied, recourse is then limited to an approach for an
appeal hearing before the Supreme Court of Appeals; the grant, or
otherwise, of such hearing being at the discretion of the country's
Chief Justice. Upon favorable resolution of the pending court action,
CCA, as part of the September 2001 agreement, would be required to
make an equity and loan contribution of approximately 50 million Rand
($4.8 million). In addition to the equity ownership in RRL, CCWR will
receive management fees as the manager of the casino, hotel and
resort. Management fees will be based on a percentage of gross
revenues as well as a percentage of EBITDA (defined as earnings before
interest, taxes, depreciation, amortization and other specifically
defined costs).
Commitments that are denominated in a foreign currency and all balance
sheet accounts other than shareholders' equity are translated and
presented based on the exchange rate at the end of the period.
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-Q and Rule
10-01 of Regulation S-X. 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, 2001. The results of operations for the period ended June
30, 2002 are not necessarily indicative of the operating results for
the full year.
2. INCOME TAXES
The 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 prior
to the adoption of SFAS No. 142 (Note 9).
10
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
3. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months ended June
30, 2002 and 2001 were computed as follows:
For the Three Months Ended June 30,
2002 2001
---- ----
Basic Earnings Per Share:
Net earnings $ 1,103 $ 589
=============== ===============
Weighted average common shares 13,727,865 13,821,593
=============== ===============
Basic earnings per share $ 0.08 $ 0.05
=============== ===============
Diluted Earnings Per Share:
Net earnings, as reported $ 1,103 $ 589
Interest expense, net of income taxes,
on convertible debenture - 3
--------------- ---------------
Net earnings available to common shareholders $ 1,103 $ 592
=============== ===============
Weighted average common shares 13,727,865 13,821,593
Effect of dilutive securities:
Convertible debenture - 109,293
Stock options and warrants 1,699,599 1,076,118
--------------- ---------------
Dilutive potential common shares 15,427,464 15,007,004
=============== ===============
Diluted earnings per share $ 0.07 $ 0.04
=============== ===============
Excluded from computation of diluted earnings per share
Due to antidilutive effect:
Options and warrants to purchase common shares - 155,000
Weighted average exercise price $ - $ 2.36
11
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
Basic and diluted earnings per share for the six months ended June 30,
2002 and 2001 were computed as follows:
For the Six Months Ended June 30,
2002 2001
---- ----
Basic Earnings Per Share:
Net earnings $ 2,028 $ 1,042
=============== ===============
Weighted average common shares 13,728,325 13,878,741
=============== ===============
Basic earnings per share $ 0.15 $ 0.08
=============== ===============
Diluted Earnings Per Share:
Net earnings, as reported $ 2,028 $ 1,042
Interest expense, net of income taxes,
on convertible debenture - 8
--------------- ---------------
Net earnings available to common shareholders $ 2,028 $ 1,050
=============== ===============
Weighted average common shares 13,728,325 13,878,741
Effect of dilutive securities:
Convertible debenture - 136,019
Stock options and warrants 1,546,804 1,057,988
--------------- ---------------
Dilutive potential common shares 15,275,129 15,072,748
=============== ===============
Diluted earnings per share $ 0.13 $ 0.07
=============== ===============
Excluded from computation of diluted earnings per share
Due to antidilutive effect:
Options and warrants to purchase common shares - 155,000
Weighted average exercise price $ - $ 2.36
12
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
4. CRIPPLE CREEK, COLORADO
On May 1, 2002 WMCK-Venture Corp. acquired the Palace Casino building
and adjoining property for $1.2 million. Womacks has spent an
additional $64 to complete the acquisition and begin converting the
majority of the property, which is adjacent to the Womacks Casino and
Hotel, into additional 41 parking spaces.
5. CALEDON, SOUTH AFRICA
The casino opened on October 11, 2000 and currently operates 250 slot
machines and 8 gaming tables. In addition to the casino license, hotel
and spa, CCAL owns approximately 600 acres of land, which may be used
for future expansion. In September 2001, CCA, CCAL and Fortes King
Hospitality (Pty) Limited ("FKH") entered into a Memorandum of
Agreement, which amends the casino and hotel management agreements
signed in December 1999, such that any and all management fees shall
be deemed to equal zero from the inception of those agreements and
shall remain so until no earlier than January 1, 2002. By agreement,
the management fees that would have been payable to CCA and FKH are
given preferential treatment in the event of the sale or liquidation
of CCAL. Consequently, the minority interest in subsidiary results of
operation in the consolidated statement of earnings for the six months
ended June 2002 included $32, net of $14 of income tax benefit,
representing the management fees that would have been payable to FKH.
As a result, the consolidated net earnings for the South African
segment or the consolidated net earnings for the Company were not
affected by this agreement. Beginning January 1, 2002, either CCA or
FKH have the option to declare the fees calculable and payable. As of
June 30, 2002, neither party has exercised their option.
6. PRAGUE, CZECH REPUBLIC
The Company has a memorandum of agreement to acquire a 50% ownership
interest in Casino Millennium a.s., a Czech company. Subject to
approval by the Ministry of Finance of the Czech Republic, the Company
anticipates closing the transaction in late 2002 or early 2003 at an
expected cost of approximately $200 in cash plus the contribution of
the casino equipment currently owned by the Company. As of June 30,
2002, the Company's net fixed assets leased to the Casino Millennium
approximated $726 and management fee income for the three months ended
June 30, 2002 and 2001 was approximately $47 and $74, respectively.
Management fee income for the six months ended June 30, 2002 and 2001
was approximately $107 and $132, respectively.
7. LONG-TERM DEBT
The principal balance outstanding under the Wells Fargo Bank Revolving
Line of Credit Facility ("RCF") as of June 30, 2002 was $12,636. The
amount available under the RCF as of June 30, 2002 was $8,308, net of
amounts outstanding as of that date. The loan agreement includes
certain restrictive covenants on financial ratios of WMCK. The Company
is in compliance with the covenants as of June 30, 2002. Interest
rates at June 30, 2002 were 4.75% for $1,136 outstanding under prime
based provisions of the loan agreement and 4.33% for $11,500
outstanding under LIBOR based provisions of the loan agreement.
13
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
The fair value of the Company's interest rate swap derivatives as of
June 30, 2002 of $895 is reported as a liability in the consolidated
balance sheet. The net loss on the interest rate swaps of $7, net of
deferred income tax expense of $4 for the first six months of 2002 has
been reported in accumulated other comprehensive loss in the
shareholders' equity section of the accompanying June 30, 2002
condensed consolidated balance sheet. Net additional interest expense
to the Company under the swap agreement was $127 and $0 for the three
months ended June 30, 2002 and 2001, respectively, and $255 and $0 for
the six months ended June 30, 2002 and 2001, respectively.
In April 2000, CCAL entered into a loan agreement with PSG Investment
Bank Limited ("PSGIB"), for a principal loan to fund development of
the Caledon project. The outstanding balance and interest rate as of
June 30, 2002 was $3,803 and 17.05%, respectively. In April 2001, CCAL
entered into an addendum to the loan agreement in which PSGIB provided
CCAL with a standby facility to provide additional funding for the
Caledon project. The outstanding balance and interest rate on the
standby facility with PSGIB as of June 30, 2002 was $382 and 15.1%,
respectively. Under the original terms of the agreement CCAL made its
first principal payment in December 2001, based on a repayment
schedule that required semi-annual installments continuing over a
five-year period. On March 26, 2002 CCAL and PSGIB entered into an
amended agreement that changed the repayment schedule to require
quarterly installments beginning on March 31, 2002 and continuing over
the remaining term of the original five-year agreement. The amendment
also changed the requirements for the sinking fund. The original
agreement required CCAL to have on deposit a "sinking fund" in the
amount equal to the next semi-annual principal and interest payment.
The amended agreement changes the periodic payments from semi-annual
to quarterly and requires a minimum deposit in the sinking fund equal
to four million Rand (approximately $387). In addition, one third of
the next quarterly principal and interest payment must be deposited on
the last day of each month into the fund and used for the next
quarterly installment. The loan agreement includes certain restrictive
covenants for CCAL. CCAL is in compliance with the covenants as of
June 30, 2002.
The dollar value of CCAL's outstanding note agreement with Caledon
Overberg Investments (Proprietary) Limited ("COIL") as of June 30,
2002 is approximately $1,058. In September 2001, CCA, CCAL, CCI and
COIL amended the loan agreement to reduce the rate of interest charged
on the loan to 0% (zero), effective with the original date of the
agreement. The loan from CCA and COIL are proportionate to each
shareholder's percentage of ownership. The additional net income
reported by CCAL, as a result of reducing the interest charged, is
shared proportionately by each shareholder, therefore, there is no
change in the consolidated net earnings of the South African segment
or the consolidated net earnings of the Company. Each shareholder has
the option to reinstate the interest rate to be charged from January
1, 2002 forward. As of June 30, 2002, neither party has exercised
their option.
An unsecured note payable, in the amount of $380, to a founding
shareholder bears interest at 6%, payable quarterly. The noteholder,
at his option, may elect to receive any or all of the unpaid principal
by notifying CCI on or before April 1 of any year. Payment of the
principal amount so specified would be required by the Company on or
before January 1 of the following year. The entire outstanding
principal is otherwise due and payable on April 1, 2004. Accordingly,
the note is classified as noncurrent in the accompanying condensed
consolidated balance sheet as of June 30, 2002 and December 31, 2001.
The remaining amount of $530 in debt, as of June 30, 2002, consists
primarily of capital leases totaling $490.
14
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
The consolidated weighted average interest rate on all borrowings was
9.84% for the six months ended June 30, 2002.
8. SHAREHOLDERS' EQUITY
During the first half of 2002, the Company repurchased, on the open
market, an additional 15,300 shares of its common stock at an average
price per share of $2.85. The Company held 772,292 shares in treasury
as of June 30, 2002 at an average share price of $1.90. Subsequent to
June 30, 2002, the Company purchased, on the open market, 49,100
additional shares of its common stock at an average per share price of
$2.60.
In July 2002, the Company amended the Rights Agreement between Century
Casinos, Inc. and Computershare Investor Services, Inc., adopted in
April 1999 as amended and approved by the Shareholders in 2000, to
increase the defined purchase price from $4 to $10 per share and
increased the redemption period, the time during which the Company may
elect to redeem all of the outstanding rights, from 20 to 90 days. The
purchase price is the exercise amount at which a registered holder is
entitled to purchase a given amount of shares of non-redeemable Series
A Preferred Stock of the Company, subject to certain adjustments.
In connection with the granting of a gaming license to CCAL by the
Western Cape Gambling and Racing Board in April 2000, CCAL issued a
total of 200 preference shares, 100 shares each to two minority
shareholders each of whom have one seat on the board of directors of
CCAL. The preference shares are not cumulative, nor are they
redeemable. The preference shares entitle the holders of said shares
to dividends of 20% of the after-tax profits directly attributable to
the CCAL casino business subject to working capital and capital
expenditure requirements and CCAL loan obligations and liabilities as
determined by the directors of CCAL. Should the casino business be
sold or otherwise dissolved, the preference shareholders are entitled
to 20% of any surplus directly attributable to the CCAL casino
business, net of all liabilities attributable to the CCAL casino
business. As of June 30, 2002, no dividend has been declared for the
preference shareholders.
9. CHANGE IN ACCOUNTING PRINCIPLES AND RECENTLY ISSUED STANDARDS
Effective January 1, 2002 the Company adopted the Financial Accounting
Standards Board (the "FASB") SFAS No. 141 "Business Combinations",
SFAS No. 142 "Goodwill and Other Intangible Assets", and SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets".
SFAS No. 141 addresses financial accounting and reporting for business
combinations. SFAS No. 141 requires that all business combinations be
accounted for using the purchase method of accounting. The use of the
pooling-of-interest method of accounting for business combinations is
prohibited. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001. The Company will account
for any future business combinations in accordance with SFAS No. 141.
15
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
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.
Effective with the adoption of SFAS No. 142, the Company no longer
amortizes goodwill and other intangible assets with indefinite useful
lives. Other intangible assets consist of deferred license costs.
Included in assets at June 30, 2002 is unamortized goodwill of
approximately $7,784 and unamortized casino license costs of
approximately $1,100.
In accordance with SFAS No. 142, the Company has completed step one of
the impairment test on each of the reporting units for which it has
recorded goodwill. In completing its analysis of the fair value of
WMCK-Venture Corporation, parent company of Womacks Casino and Hotel,
the Company used the Discounted Cash Flow ("DCF") Method in which the
reporting unit is valued by discounting the projected cash flows, to a
period in which the annual growth rate is expected to stabilize, to
their present value based on a risk-adjusted discount rate. Projected
cash flows through 2008, are based on historical results, adjusted
based on management's conservative projection of future revenue growth
given existing market conditions. A risk adjusted discount rate of
10%, which estimates the return demanded by third-party investors,
taking into account market risks, and the cost of equity and after-tax
debt in the optimal hypothetical capital structure, was used in the
DCF calculation of WMCK-Venture Corp. In completing its analysis of
the fair value of Century Casinos Caledon (Pty) Ltd, the owner of
Caledon Casino, Hotel and Spa, the Company also applied the DCF method
and the results were compared to other methods of valuation, most
notably the net asset value of Caledon in order to further justify the
range of values. Cash flows were projected through the end of 2015. A
risk adjusted rate of 23.2%, taking into account risk free rates of
return, the return demanded by the South African equity market and a
risk factor which measures the volatility of Caledon relative to the
equity markets, was used in the DCF calculation of Caledon. As a
result of the testing, the Company has determined that there is no
impairment of goodwill or other intangible assets. The Company will be
required to assess goodwill and other intangibles for impairment at
least annually hereafter.
16
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
A reconciliation of previously reported net earnings, basic earnings
per share and diluted earnings per share to the amounts adjusted for
the exclusion of amortization related to goodwill and other intangible
assets with indefinite useful lives, net of related tax effect,
follows:
For The Three Months Ended June 30,
2002 2001
Reported net earnings $ 1,103 $ 589
Add back: Goodwill amortization, net of income taxes - 294
Add back: Casino license amortization, net of income taxes - 47
--------------- --------------
Adjusted net earnings $ 1,103 $ 930
=============== ==============
Basic earnings per share:
Reported net earnings $ 0.08 $ 0.05
Goodwill amortization - 0.02
Casino license amortization - -
--------------- --------------
Adjusted net earnings $ 0.08 $ 0.07
=============== ==============
Diluted earnings per share:
Reported net earnings $ 0.07 $ 0.04
Goodwill amortization - 0.02
Casino license amortization - -
--------------- --------------
Adjusted net earnings $ 0.07 $ 0.06
=============== ==============
17
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
For The Six Months Ended June 30,
2002 2001
Reported net earnings $ 2,028 $ 1,042
Add back: Goodwill amortization, net of income taxes - 588
Add back: Casino license amortization, net of income taxes - 95
--------------- ---------------
Adjusted net earnings $ 2,028 $ 1,725
=============== ===============
Basic earnings per share:
Reported net earnings $ 0.15 $ 0.08
Goodwill amortization - 0.04
Casino license amortization - -
--------------- ---------------
Adjusted net earnings $ 0.15 $ 0.12
=============== ===============
Diluted earnings per share:
Reported net earnings $ 0.13 $ 0.07
Goodwill amortization - 0.04
Casino license amortization - -
--------------- ---------------
Adjusted net earnings $ 0.13 $ 0.11
=============== ===============
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS No. 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation, which resulted in
two accounting models for long-lived assets to be disposed of. SFAS
No. 144 establishes a single accounting model for long-lived assets to
be disposed of by sale and requires that those long-lived assets be
measured at the lower of the carrying amount or fair value less cost
to sell, whether reported in continuing operations or in discontinued
operations.
Adoption of SFAS No. 141 and SFAS No. 144 did not have an affect on
the Company's financial statements.
The Company has reviewed all recently issued, but not yet effective,
accounting pronouncements and does not believe that any such
pronouncements will have a material impact on its financial
statements.
18
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- -------------------------------------------------------------------------------
10. SEGMENT INFORMATION
The Company has adopted FASB Statement No. 131 "Disclosures about
Segments of an Enterprise and Related Information". The Company is
managed in four segments; Cripple Creek, Colorado, 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 for
the three months ended June 30, 2002 and 2001 is presented below.
Cripple Creek CO South Africa Cruise Ships
For the Three Months Ended June 30, 2002 2001 2002 2001 2002 2001
Net operating revenue $ 5,506 $ 5,171 $ 1,676 $ 1,998 $ 200 $ 150
Depreciation & amortization $ 324 $ 819 $ 160 $ 362 $ 15 $ 10
Interest income $ 4 - $ 26 $ 13 - -
Interest expense,
including debt issuance cost $ 347 $ 355 $ 201 $ 311 - -
Earnings (loss) before income
taxes and minority interest $ 1,926 $ 1,396 $ 109 $ (275) $ 73 $ 24
Income tax expense(benefit) $ 886 $ 642 $ 35 (181) $ 27 11
Net earnings (loss) $ 1,040 $ 754 $ 68 $ (32) $ 46 $ 13
EBITDA $ 2,593 $ 2,570 $ 438 $ 447 $ 88 $ 34
..
Corporate and Other Inter-segment Elimination Consolidated
For the Three Months Ended June 30, 2002 2001 2002 2001 2002 2001
Net operating revenue $ 47 $ 74 - - $ 7,429 $ 7,393
Depreciation & amortization $ 54 $ 63 - - $ 553 $ 1,254
Interest income $ 90 $ 89 $ (86) $ (85) $ 34 $ 17
Interest expense,
including debt issuance cost $ 6 $ 11 $ (86) $ (85) $ 468 $ 592
Earnings (loss) before income
taxes and minority interest $ (386) $ (422) - - $ 1,722 $ 723
Income tax expense(benefit) $ (335) $ (276) - - $ 613 $ 196
Net earnings (loss) $ (51) $ (146) - - $ 1,103 $ 589
EBITDA $ (416) $ (437) - - $ 2,703 $ 2,614
19
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
Segment information as of, and for the six months ended June 30, 2002
and 2001 is presented below.
Cripple Creek CO South Africa Cruise Ships
As of and for the Six Months 2002 2001 2002 2001 2002 2001
Ended June 30,
Property and equipment, net $ 20,905 $ 19,046 $ 9,653 $ 11,834 $ 221 $ 231
Goodwill, net (1) $ 7,233 $ 7,903 $ 551 $ 798 - -
Total assets $ 31,499 $ 30,090 $ 18,429 $ 17,578 $ 438 $ 441
Net operating revenue $ 10,699 $ 10,100 $ 3,210 $ 4,138 $ 305 $ 332
Depreciation & amortization $ 667 $ 1,642 $ 347 $ 710 $ 28 $ 21
Interest income $ 8 - $ 42 $ 26 - -
Interest expense,
including debt issuance cost $ 691 $ 677 $ 397 $ 535 - -
Earnings (loss) before income
taxes and minority interest $ 3,611 $ 2,524 $ 176 $ (385) $ 69 $ 60
Income tax expense(benefit) $ 1,661 $ 1,161 $ 85 (181) 26 $ 27
Net earnings (loss) $ 1,950 $ 1,363 $ 93 $ (39) $ 43 $ 33
EBITDA $ 4,961 $ 4,843 $ 880 $ 999 $ 97 $ 81
Corporate and Other Inter-segment Elimination Consolidated
As of and for the Six Months 2002 2001 2002 2001 2002 2001
Ended June 30,
Property and equipment, net $ 1,658 $ 1,846 - - $ 32,437 $ 32,957
Goodwill, net (1) - - - - $ 7,784 $ 8,701
Total assets $ 2,077 $ 4,134 $(4,249) $(2,634) $ 48,194 $ 49,609
Net operating revenue $ 107 $ 132 - - $ 14,321 $ 14,702
Depreciation & amortization $ 108 $ 118 - - $ 1,150 $ 2,491
Interest income $ 178 $ 179 $ (171) $ (171) $ 57 $ 34
Interest expense,
including debt issuance cost $ 12 $ 24 $ (171) $ (171) $ 929 $ 1,065
Earnings (loss) before income
taxes and minority interest $ (599) $ (799) - - $ 3,257 $ 1,400
Income tax expense(benefit) $ (541) $ (484) - - $ 1,231 $ 523
Net earnings (loss) $ (58) $ (315) - - $ 2,028 $ 1,042
EBITDA $ (657) $ (836) - - $ 5,282 $ 5,087
(1) The only change in goodwill, net, for the six months ended June
30, 2002 was $75 for the translation effects related to goodwill
denominated in a foreign currency.
20
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
11. OTHER EXPENSE, NET
Other (expense), net, consists of the following:
For the Three Months Ended June 30,
2002 2001
---- ----
Interest income $ 34 $ 17
Interest expense (440) (576)
Gain (loss) on disposition of assets 2 14
Amortization of deferred financing costs (28) (16)
Other (1) -
--------------- ---------------
$ (433) $ (561)
=============== ===============
For the Six Months Ended June 30,
2002 2001
---- ----
Interest income $ 57 $ 34
Interest expense (885) (1,033)
Gain (loss) on disposition of assets 2 14
Foreign currency exchange gains - 1
Amortization of deferred financing costs (43) (32)
Write-down value of non-operating property - (57)
Other (2) -
--------------- ---------------
$ (871) $ (1,073)
=============== ===============
21
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Forward-Looking Statements, Business Environment and Risk Factors
Forward-Looking Statements and Business Environment 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.
22
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Results of Operations
Three Months Ended June 30, 2002 vs. 2001
Cripple Creek, Colorado
Womacks is located in Cripple Creek, Colorado. Net operating revenue for
the second quarter, derived principally from its gaming operations,
increased to $5,506 in 2002 from $5,171 in 2001. Womacks casino revenue for
the second quarter increased to $5,446 in 2002 from $5,066 in 2001, or
7.5%. During the first quarter of 2002, the Company broke ground on the
construction of its 6,022 square foot addition to the casino and back of
house operations. In the second quarter of the year Womacks expended $212,
bringing the total cost of construction to $944 through June 30, 2002.
Womacks' share of the overall Cripple Creek market increased to 17.7% in
2002 from 16.7% in 2001. Womacks Casino operated approximately 14.8% of the
gaming devices in the Cripple Creek market in the second quarter of 2002
compared to 14.3% in 2001. The average win per day per machine was 110
dollars in 2002 and 104 dollars in 2001 compared with a market average of
91 dollars in 2002 and 89 dollars in 2001. Gross margin for the Cripple
Creek casino activities in the second quarter (casino revenues, net of
applicable casino gaming incentives, less casino expenses) decreased to
68.6% compared with 71.6% a year earlier. In the second quarter of 2002,
Womacks paid a higher amount of royalties on participation machines, but
this increased cost is in lieu of depreciation expense that would have been
incurred had the machines been purchased. With participation machines,
Womacks pays a fee to the manufacturer, in lieu of purchasing the machines,
based on a percentage of the win. Gaming tax in Colorado is calculated on a
graduated scale, therefore the effective rate increases as casino revenue
improves. The increase in the gaming tax has had a negative impact on the
margin. Management continues to focus on the marketing of the casino
through the expansion of the highly successful Gold Club. Management
continues to place emphasis on further refining the product mix, upgrading
both the interior of the facilities, as well as the slot machine mix.
Management has recently added an additional 41 parking spaces through the
purchase of the Palace Hotel property and introduced valet parking to its
list of customer benefits, expanding on the convenient and expansive
parking facilities currently provided by the casino.
Food and Beverage revenue in the second quarter of 2002 decreased to $208
from $269 in 2001. In July 2002, Womacks introduced Bob's Grill on the main
gaming floor to improve customer convenience. The cost of food and beverage
promotional allowances, which are included in casino costs, increased
slightly to $230 in 2002 from $228 in 2001. Hotel revenue also increased to
$65 in 2002 from $19 in 2001, or 243% as the result of introducing 10 new
luxury rooms in July of 2001. Womacks added 3 additional luxury rooms at
the end of the first quarter of 2002. The casino does not generate any cash
revenue from the hotel operation. All rooms are comped to its better
players.
General and administrative expenses increased to $1,142 in the second
quarter of 2002 from $1,082 in same period of 2001, or 5.5%.
Depreciation decreased to $324 in 2002 from $484 in 2001. As a result of
adopting SFAS No. 142 the Company no longer amortizes the remaining balance
in goodwill resulting in a reduction of $335 in amortization expense.
Interest expense, including debt issuance cost, decreased to $347 in 2002
from $355 in 2001. Since the second quarter of 2000 the Company has
borrowed a total of $6.5 million under the RCF to fund its investments in
South Africa. The resulting interest charge of approximately $180 and $151
has not been allocated to the South African segment during the second
quarter of the years 2002 and 2001 respectively.
23
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
The Cripple Creek segment recognized income tax expense of $886 in 2002
versus $642 in 2001 due to an increase in pre-tax earnings.
South Africa
When comparing the second quarter of last year to the current year, the
deterioration in the Rand versus the dollar has had a negative impact on
the reported revenues and a positive impact on expenses.
Net operating revenue decreased to $1,676 in 2002 from $1,998 in 2001. The
Caledon Casino Hotel and Spa also faces intense competition from a
significantly larger casino operation in Cape Town, S.A. approximately one
hour away. Caledon casino revenue decreased to $1,378 in 2002 from $1,604
in 2001, or 14%. Excluding the effect of the change in the Rand conversion
rate from year to year, casino revenue increased by 14%. Gross margin for
the Caledon casino activities (casino revenues, less casino expenses)
increased to 62.4% from 53.7% a year earlier as a result of eliminating the
casino management fees which totaled $84 in the second quarter of 2001 and
overall control of costs.
Food and beverage revenue decreased to $181 during the second quarter of
2002 from $222 during the second quarter of 2001, or 18.5%. Excluding the
effect of the change in the Rand conversion rate from year to year, food
and beverage revenue increased by 5%. Hotel revenue decreased to $136
during the second quarter of 2002 compared to $150 during the second
quarter of 2001. Excluding the effect of the change in the Rand conversion
rate from year to year, hotel revenue increased by 17%.
General and administrative expenses decreased to $425 in 2002 from $511 in
2001, a reduction of 16.8%. Excluding the effect of the change in the Rand
conversion rate from year to year, general and administrative expenses
decreased by 9% as a result of management's continuing effort to improve
the efficiency of the operation.
Depreciation expense incurred in South Africa decreased to $160 in 2002
from $341 in 2001 due in part to the effect of the currency devaluation. As
a result of adopting SFAS No. 142 the Company no longer amortizes the
remaining balance in goodwill resulting in a reduction of $21 in
amortization expense.
Interest expense, including debt issuance cost, decreased to $201 in 2002
from $311 in 2001. The weighted-average interest rate on the borrowings
under the PSG loan agreement is 16.9% in the second quarter of 2002 and
2001.
The South African segment recognized an income tax expense of $35 in 2002.
Cruise Ships
Net operating revenue increased to $200 in 2002 from $150 in 2001. Gross
margin for the casino activities (casino revenues, less casino expenses)
increased to 37.4% from 14.8% a year earlier. Following the tragedy of
September 11, 2001 attacks on the World Trade Center, the cruise ships had
seen a substantial decrease in the amount of passenger traffic, but the
Company has begun to see a recovery in the second quarter. During the
second quarter of 2002, the Company operated casinos on a total of four
ships, three on Silverseas and the one on "The World of Residensea",
compared to a total of three in the same period during the prior year, all
on Silverseas.
Depreciation expense has increased to $15 in 2002 from $10 in 2001.
24
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Corporate & Other
Net operating revenues consisted solely of management fees earned from
operating Casino Millennium in Prague, Czech Republic which decreased to
$47 in 2002 from $74 in 2001.
Depreciation decreased to $54 in 2002 from $63 in 2001.
General and administrative expense decreased to $462 in 2002 from $506 in
2001, or 8.8%. The majority of the savings is directly attributable to a
reduction in the cost of professional services.
Six Months Ended June 30, 2002 vs. 2001
Cripple Creek, Colorado
Womacks is located in Cripple Creek, Colorado. Net operating revenue,
derived principally from its gaming operations, increased to $10,699 in
2002 from $10,100 in 2001. Womacks casino revenue increased to $10,583 in
2002 from $9,941 in 2001, or 6.5%. During the first half of 2002, the
Company broke ground on the construction of its 6,022 square foot addition
to the casino and back of house operations. In the first half of the year
the Company expended $544, bringing the total cost of construction to $944
through June 30, 2002. Womacks' share of the overall Cripple Creek market
increased to 17.6% in the first half of 2002 from 16.9% in 2001. Womacks
Casino operated approximately 14.8% of the gaming devices in the Cripple
Creek market in 2002 compared to 14.0% in 2001. The average win per day per
machine was 107 dollars in 2002 and 105 dollars in 2001 compared with a
market average of 89 dollars in 2002 and 86 dollars in 2001. Gross margin
for the Cripple Creek casino activities (casino revenues, net of applicable
casino gaming incentives, less casino expenses) decreased to 68.3% compared
with 70.5% a year earlier. In the first half of 2002, Womacks paid a higher
amount of royalties on participation machines, but this increased cost is
in lieu of depreciation expense that would have been incurred had the
machines been purchased. Gaming tax in Colorado is calculated on a
graduated scale, therefore the effective rate increases as casino revenue
improves. Management continues to focus on the marketing of the casino
through the expansion of the highly successful Gold Club. Management
continues to place emphasis on further refining the product mix, upgrading
both the interior of the facilities, as well as the slot machine mix and
introducing valet service on the Palace Hotel property.
Food and Beverage revenue in 2002 decreased to $422 from $465 in 2001, or
9.2%. In July 2002, Womacks introduced Bob's Grill on the main gaming floor
to improve customer convenience. The cost of food and beverage promotional
allowances, which are included in casino costs, increased to $453 in 2002
from $423 in 2001. Hotel revenue increased to $120 in 2002 from $36 in
2001, or 233% as the result of introducing 10 new luxury rooms in July of
2001. Womacks added 3 additional luxury rooms at the end of the first
quarter of 2002. The casino does not generate any cash revenue from the
hotel operation. All rooms are comped to its better players.
General and administrative expenses increased to $2,266 in 2002 from $2,177
in 2001, or 4%. The cost of casino management allocated from corporate
operations has been reduced to $76 in 2002 from $115 in 2001.
Depreciation decreased to $667 in 2002 from $971 in 2001. As a result of
adopting SFAS No. 142 the Company no longer amortizes the remaining balance
in goodwill resulting in a reduction of $671 in amortization expense.
25
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Interest expense, including debt issuance cost, increased to $691 in 2002
from $677 in 2001. Since the second quarter of 2000 the Company has
borrowed a total of $6.5 million under the RCF to fund its investments in
South Africa. The resulting interest charge of approximately $350 and $297
has not been allocated to the South African segment for the first six
months of the years 2002 and 2001 respectively. The weighted-average
interest rate on the borrowings under the RCF, including effects of the
swap agreements, has increased slightly to 8.87% in 2002 from 8.17% in
2001.
The Cripple Creek segment recognized income tax expense of $1,661 in 2002
versus $1,161 in 2001 due to an increase in pre-tax earnings.
South Africa
When comparing the first half of last year to the current year, the
deterioration in the Rand versus the dollar has had a negative impact on
the reported revenues and a positive impact on expenses.
Net operating revenue decreased to $3,210 in 2002 from $4,138 in 2001. The
Caledon Casino Hotel and Spa faces intense competition from a significantly
larger casino operation in Cape Town, S.A. approximately one hour away.
Caledon casino revenue decreased to $2,635 in 2002 from $3,403 in 2001, or
22.6%. Excluding the effect of the Rand conversion rate from year to year,
casino revenue increased by 10%. Gross margin for the Caledon casino
activities (casino revenues, less casino expenses) increased to 61.6% from
56.7% a year earlier as a result of eliminating the casino management fees
which totaled $186 in the first half of 2001 and overall control of costs.
Food and beverage revenue decreased to $334 during the first six months of
2002 from $416 during the first six months of 2001, or 19.5%. Excluding the
effect of the change in the Rand conversion rate from year to year, food
and beverage revenue increased by 11%. Hotel revenue decreased only
slightly to $286 during the first six months of 2002 compared to $288
during the first six months of 2001. Excluding the effect of the change in
the Rand conversion rate from year to year, hotel revenue increased by 38%,
primarily due to the increase in the amount of rooms comped by the casino
to its better players.
General and administrative expenses decreased to $793 in 2002 from $1,120
in 2001, a reduction of 29.1%. Excluding the effect of the change in the
Rand conversion rate from year to year, general and administrative expenses
decreased by 9%,as a result of management's emphasis on improving the
efficiency of the operation.
Depreciation expense incurred in South Africa decreased to $347 in 2002
from $668 in 2001 due in part to the effect of the currency devaluation. As
a result of adopting SFAS No. 142 the Company no longer amortizes the
remaining balance in goodwill resulting in a reduction of $42 in
amortization expense.
Interest expense, including debt issuance cost, decreased to $397 in 2002
from $535 in 2001. The weighted-average interest rate on the borrowings
under the PSG loan agreement is 16.9% in the first six months of 2002 and
2001.
The South African segment recognized an income tax expense of $85 in 2002
compared to a tax benefit of $181 in 2001.
26
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Cruise Ships
Net operating revenue decreased slightly to $305 in 2002 from $332 in 2001.
Gross margin for the casino activities (casino revenues, less casino
expenses) increased to 25.7% from 17.3% a year earlier. Following the
tragedy of September 11, 2001 attacks on the World Trade Center, the cruise
ships have seen a substantial decrease in the amount of passenger traffic,
but the operations have already begun to see a recovery in the second
quarter of 2002. In October 2001, Silversea Cruises removed one of the four
ships from service.
Depreciation expense has increased to $28 in 2002 from $21 in 2001.
Corporate & Other
Net operating revenues consisted solely of management fees earned from
operating Casino Millennium in Prague, Czech Republic which decreased to
$107 in 2002 from $132 in 2001. Depreciation decreased to $108 in 2002 from
$118 in 2001.
General and administrative expense decreased to $763 in 2002 from $910 in
2001, or 16.2%.The majority of the savings is attributable to a
re-allocation of corporate personnel cost and the cost of professional
services.
Other expense for 2001 includes a charge of $57 for the write-down in value
of non-operating property and land held by the Company in Nevada.
27
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
Cash and cash equivalents totaled $3,267 (including $387 of restricted
cash) at June 30, 2002, and the Company had net working capital of $259.
Additional liquidity may be provided by the Company's revolving credit
facility ("RCF") with Wells Fargo Bank, under which the Company had a total
commitment of $26,000 ($20,944 net of the quarterly reduction) and unused
borrowing capacity of approximately $8,308 at June 30, 2002. For the six
months ended June 30, 2002, cash provided by operating activities was
$2,330 compared with $1,966 in the prior-year period. Cash used in
investing activities of $2,909 for the first six months of 2002, consisted
of $1.3 million towards the purchase and improvements of the Palace Hotel
and property, $544 towards the expansion of the Womacks casino at the rear
of the property that is expected to be completed in 2002, which will
provide additional gaming space, $110 towards the construction of a
restaurant & grill on the first floor of Womacks casino, $298 for
additional improvements to the property in Caledon, South Africa, $460,
primarily for land purchased for the proposed casino development in
Johannesburg, South Africa and the balance of $197 due to expenditures for
other long lived assets. Cash used in investing activities of $3,454 for
the first six months of 2001, consisted of a $250 loan provided by the
Company to an unrelated party in Cripple Creek, Colorado , $1,954 was due
to improvements to the Caledon Casino Hotel and Spa in South Africa and the
balance was principally due to improvements to the Womacks/Legends casino
in Cripple Creek, Colorado. Cash provided by financing activities for the
first six months of 2002 consisted of net borrowings of $835 under the RCF
with Wells Fargo, less net repayments of $354 under the loan agreement with
PSG, additional deferred financing charges incurred by the Caledon Casino,
Hotel & Spa, with a cost of $19, the repurchase of company's stock, on the
open market, with a cost of $44 and other net repayments of $43. Cash used
in financing activities for the first six months of 2001 consisted of net
repayments of $5,336 under the RCF with Wells Fargo, net borrowings of $698
under the PSG loan agreements, the repurchase of company's stock, on the
open market, with a cost of $402, and other net receipts of $55.
Effective April 26, 2000, the Company and Wells Fargo Bank entered into an
amended and restated credit agreement, which increased the borrowing
commitment as of that date from $17,200 to $26,000 and extended the
maturity date of the RCF until April 2004. The agreement was further
amended in August 2001 to give greater flexibility to the ability to use
the borrowed funds for projects for the Company.
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 $1.2 million, to the casino for 45% of the casino's net
profit. The Company has a memorandum of agreement to acquire a 50%
ownership interest in Casino Millennium a.s., a Czech company. 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 acquisition is expected to be completed in late 2002 or early
2003, subject to certain contingencies and contract conditions, and is
expected to cost approximately $200 in cash plus contributed assets.
28
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(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 trading
market in relation to both its present operations and its future prospects.
During the first six months of 2002, the Company repurchased, on the open
market, an additional 15,300 shares of its common stock at an average price
per share of $2.85. Through June 30, 2002, the Company had repurchased
2,205,100 shares of its common stock at a total cost of approximately
$3,015. 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 of, 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. ("RRL"),
a consortium which includes Silverstar Development Ltd. ("Silverstar"). RRL
submitted an application for a proposed hotel/casino resort development in
the greater Johannesburg area of South Africa at a cost of approximately
400 million Rand ($38.6 million). The dollar value of the proposed
development fluctuates with the USD/Rand exchange rate. In November 2001,
the Gauteng Gambling Board ("GGB"), with the concurrence of the Executive
Council of the provincial government, awarded RRL the sixth, and final,
casino license for 700 slot machines and 30 gaming tables conditional upon
the satisfaction of certain requirements within three months of award. In
February 2002, RRL filed documentation with the GGB in order to satisfy
those conditions, including evidence of the continuing commitment of Nedcor
Investment Bank (one of South Africa's leading financial institutions) to
provide the necessary debt financing and project guarantees required under
the license. In the event of favorable resolution of the pending court
action initiated in February 2002 by a competing casino, Tsogo Sun
Holdings, challenging the license award, the Company, as part of the
September 2001 agreement, as amended, would be required to make an equity
investment of 50 million Rand or approximately $4.8 million. As of June 30,
2002, advances totaling approximately $481, which will reduce the funding
requirement, have been made to RRL. The remaining funding requirement would
be met through borrowings under the RCF.
In the fourth quarter 2001, Womacks began a 6,022 square foot expansion.
Approximately half of the space will provide additional gaming for
approximately 115 slot machines on the street level. The other half will
increase the "back of house" area. Contracts for the project totaling $1.5
million have been signed as of June 30, 2002. The total construction cost,
including additional slot machines, is expected to be $2.5 million, of
which $944 has been spent through June 30, 2002. The project is expected to
be completed by the end of 2002 or in the first quarter of 2003.
Management believes that the Company's cash at June 30, 2002, 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.
29
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Critical Accounting Policies
In accordance with recent Securities and Exchange Commission guidance,
those material accounting policies that we believe are the most critical to
an investor's understanding of the Company's financial results and
condition and/or require complex management judgment have been expanded and
are discussed below.
Revenue Recognition - Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Management and
consulting fees are recognized as revenue as services are provided. The
incremental amount of unpaid progressive jackpots is recorded as a
liability and a reduction of casino revenue in the period during which the
progressive jackpots increase.
Goodwill and Other Intangible Assets - The Company's goodwill results from
the acquisitions of casino and hotel operations.
Effective January 1, 2002 the Company adopted Financial Accounting
Standards Board (the "FASB") SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business
combinations. SFAS No. 141 requires that all business combinations be
accounted for using the purchase method of accounting. The use of the
pooling-of-interest method of accounting for business combinations is
prohibited. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001. The Company will account for
any future business combinations in accordance with SFAS No. 141.
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. Effective
with the adoption of SFAS No. 142, the Company no longer amortizes goodwill
and other intangible assets with indefinite useful lives, principally
deferred casino license costs. In evaluating the Company's capitalized
casino license cost related to CCAL, which comprises principally all of its
other intangible assets, management considered all of the criteria set
forth in SFAS No. 142 in determining its useful life. Of particular
significance in that evaluation was the existing regulatory provision for
annual renewal of the license at minimal cost and the current practice of
the Western Cape Gambling and Racing Board ("Board") of granting such
renewals as long as all applicable laws are complied with as well as
compliance with the original conditions of the casino operator license as
set forth by the Board. Based on that evaluation, the Company has deemed
the casino license costs to have an indefinite life as of January 1, 2002.
Included in assets at June 30, 2002 is unamortized goodwill of
approximately $7,784 and unamortized deferred license costs of
approximately $1,100.
30
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
In accordance with SFAS No. 142, the Company has completed step one of the
impairment test on each of the reporting units for which it has recorded
goodwill. In completing its analysis of the fair value of WMCK-Venture
Corporation, parent company of Womacks Casino and Hotel, the Company used
the Discounted Cash Flow ("DCF") Method in which the reporting unit is
valued by discounting the projected cash flows, to a period in which the
annual growth rate is expected to stabilize, to their present value based
on a risk-adjusted discount rate. Projected cash flows through 2008 are
based on historical results, adjusted based on management's conservative
projection of future revenue growth given existing market conditions. A
risk adjusted discount rate of 10%, which estimates the return demanded by
third-party investors, taking into account market risks, and the cost of
equity and after-tax debt in the optimal hypothetical capital structure,
was used in the DCF calculation of WMCK-Venture Corp. In completing its
analysis of the fair market value of Century Casinos Caledon (Pty) Ltd, the
owner of Caledon Casino, Hotel and Spa, the Company also applied the DCF
method and the results were compared to other methods of valuation, most
notably the net asset value of Caledon in order to further justify the
range of values. Cash flows were projected through the end of 2015. A risk
adjusted rate of 23.2%, taking into account risk free rates of return, the
return demanded by the South African equity market and a risk factor which
measures the volatility of Caledon relative to the equity markets, was used
in the DCF calculation of Caledon. As a result of the testing, the Company
has determined that there is no impairment of goodwill or other intangible
assets. The Company will be required to assess goodwill and other
intangibles for impairment at least annually hereafter.
Foreign Exchange - Current period transactions affecting the profit and
loss of operations conducted in foreign currencies are valued at the
average exchange rate for the period in which they are incurred. Except for
equity transactions and balances denominated in U.S. dollars, the balance
sheet is translated based on the exchange rate at the end of the period.
Reclassifications - Certain reclassifications have been made to the 2001
financial information in order to conform to the 2002 presentation.
* * * * * * * * * * * * * * * *
31
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.
Items 2 to 4 - None
Item 5 - Other Information
The Board of Directors unanimously adopted, ratified, confirmed and
approved the Amended and Restated Bylaws of Century Casinos, Inc. as
of May 10, 2002.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed herewith:
11.13 Second Supplement to Rights Agreement dated July 2002,
between Century Casinos, Inc and Computershare Investor
Services, Inc. as rights agent.
11.14 Amended and Restated Bylaws of Century Casinos, Inc.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June
30, 2002.
* * * * * * *
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: July 26, 2002
32