Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
___X___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K . [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of February 12, 2003 based upon the
average bid and asked price of $2.17 for the common stock on NASDAQ Stock Market
on that date, was $ 20,950,683.
As of February 12, 2003, the Registrant had 13,573,064 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference from the
Registrant's Definitive Proxy Statement for its 2003 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
2002.
-1-
CENTURY CASINOS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(Dollar amounts in thousands, except for share information)
INDEX
Part 1 Page
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 17
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 30
Report of Independent Certified Public Accountants - Grant Thornton LLP F1
Report of Independent Certified Public Accountants - PricewaterhouseCoopers Inc. F2
Consolidated Balance Sheets as of December 31, 2002 and 2001 F3
Consolidated Statements of Earnings for the Years Ended
December 31, 2002, 2001 and 2000 F4
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for
the Years Ended December 31, 2002, 2001, and 2000 F5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000 F6
Notes to Consolidated Financial Statements F8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30
Part III
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 31
Item 13. Certain Relationships and Related Transactions 31
Part IV
Item 14. Controls and Procedures 31
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32
SIGNATURES
SECURITIES EXCHANGE ACT RULE 13a-14 AND 15d-14 CERTIFICATIONS OF CEO, PRESIDENT AND CFO
-2-
CENTURY CASINOS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(Dollar amounts in thousands, except for share information)
PART I
Item 1. Business.
General
Century Casinos, Inc. ("CCI", the "Company") 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 94.8% owned subsidiary of CCI, owns 65% of Century Casinos
Caledon (Pty) Ltd. ("CCAL") (100% as of January 2003), 55% of Century Casinos
West Rand (Pty) Ltd. ("CCWR") and 50% of Rhino Resort Ltd. ("RRL"). CCM manages
Casino Millennium located within a hotel in Prague, Czech Republic, and the
Company serves as concessionaire of small casinos on luxury cruise vessels
operated by Silversea Cruises and The World of ResidenSea. The Company regularly
pursues additional gaming opportunities internationally and in the United
States.
The Company was formed in 1992 to acquire ownership interests in, and to
obtain management contracts with respect to, gaming establishments. The Company
was founded by a team of career gaming executives who had worked primarily for
an Austrian gaming company that owned and operated casinos throughout the world.
The Company, formerly known as Alpine, is the result of a business combination
completed on March 31, 1994, pursuant to which CCM shareholders acquired
approximately 76% of the then issued and outstanding voting stock of the
Company, and all officer and board positions of the Company were assumed by the
management team of Century Management. Effective June 7, 1994, the Company
reincorporated in Delaware under the name "Century Casinos, Inc." Because the
Company is the result of this transaction, the Company's business has been
combined with that of Century Management, and references herein to the Company
refer to the combined entities, unless the context otherwise requires.
On March 31, 1994, the Company through a merger with Alpine Gaming, Inc.
acquired Legends Casino ("Legends"). On July 1, 1996, the Company acquired the
net assets of Gold Creek Associates, L.P., the owner of Womack's Saloon & Gaming
Parlor, which was adjacent to Legends. Following this acquisition, both
properties were renovated to facilitate the marketing of the combined properties
as one casino under the name "Womacks Casino and Hotel" ("Womacks").
In April 2000, the Company's South African subsidiary acquired a 50% equity
interest in Caledon Casino Bid Company (Pty) Ltd. ("CCBC"). In June 2001, the
company name for CCBC was changed to Century Casinos Caledon (Pty) Ltd.
("CCAL"). CCAL was awarded a casino license and owns a 92-room resort hotel,
spa, casino and approximately 600 acres of land (representing approximately 230
hectares) in Caledon, South Africa. 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 CCAL by 15%, raising its total ownership to 65%. In January 2003,
the Company, through its South African subsidiary, increased its equity interest
by 35% and now owns 100% of the common stock of CCAL.
The Company's operating revenue for 2002, 2001 and 2000 was derived
principally from Womacks and CCAL as reported in Note 7, Segment Information, of
the Consolidated Financial Statements. See the Consolidated Financial Statements
and the notes thereto included herein for operating revenue, earnings (loss),
and total assets information, by segment, for 2002, 2001 and 2000. Information
on operating results for the three most recent fiscal years is set forth in Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
-3-
As of December 31, 2002, the Company owned, operated or managed the
properties noted in the table below.
Summary of Property Information
============================ ================== ================== ==================== ==================== ===================
Property Casino Space Number of Slot Number of Table Number of Hotel Number of
Machines Games Rooms Restaurants
Sq Ft (1)
============================ ================== ================== ==================== ==================== ===================
Womacks 20,000 682 6 21 2
============================ ================== ================== ==================== ==================== ===================
Caledon 11,400 275 8 92 2
============================ ================== ================== ==================== ==================== ===================
Casino Millennium (2) 6,200 48 15 - -
============================ ================== ================== ==================== ==================== ===================
Cruise Ships (total of 4,100 94 17 - -
five) (2)
============================ ================== ================== ==================== ==================== ===================
(1) Approximate.
(2) Operated under concession agreement.
Information contained in this Form 10-K 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 future results of the Company may vary materially from those
anticipated by management, and may be affected by various trends and factors,
which are beyond the control of the Company. These risks include the competitive
environment in which the Company operates, the Company's dependence upon the
Cripple Creek, Colorado and Caledon, South Africa gaming markets, the effects of
governmental regulation and other risks described herein.
Womacks Casino and Hotel, Cripple Creek, Colorado
On July 1, 1996, the Company purchased substantially all of the assets, and
assumed substantially all of the liabilities, of Gold Creek, the owner of
Womacks Saloon and Gaming Parlor in Cripple Creek, Colorado. Following the
Company's acquisition of Gold Creek, the property was consolidated with the
Company's Legends Casino, and the combined properties have been marketed since
then as one casino under the name "Womacks Casino and Hotel." Management
implemented certain consolidation, expansion and capital improvement programs.
The Company created openings in the common walls in order to open up and
integrate the gaming areas of the two casinos, expanded the existing player
tracking system of Womacks Saloon and Gaming Parlor to include all of the
Legends gaming devices; made general interior enhancements; installed additional
gaming devices and replaced older generation equipment; and added additional
hotel rooms.
Womacks Casino is located at 200 to 220 East Bennett Avenue in Cripple Creek,
Colorado. The lots comprising 200 to 210 East Bennett Avenue are owned by
wholly-owned subsidiaries of the Company
-4-
and are collateralized by a first mortgage held by Wells Fargo Bank. See Note 5,
Long-Term Debt, to the Consolidated Financial Statements for further
information.
The Company holds a subleasehold interest in the real property and improvements
located at 220 East Bennett Avenue. The sublease, as assigned to
WMCK-Acquisition Corp., provides for monthly rental payments of $16, and expires
on June 20, 2005 unless terminated by the Company with 12 months' advance
notice. The Company has an option to acquire the property at the expiration of
the sublease at an exercise price of $1,500.
Womacks currently has approximately 682 slot machines, six limited stakes gaming
tables, 21 hotel rooms, and 2 restaurants. It has 150 feet of frontage on
Bennett Avenue, the main gaming thoroughfare in Cripple Creek, and 125 feet of
frontage on Second Street, with approximately 20,000 square feet of floor space.
Gaming in Colorado is "limited stakes" which restricts any single wager to a
maximum of five dollars. While this limits the revenue potential of table games,
management believes that slot machine play, which accounts for over 97% of total
gaming revenues, is currently impacted only marginally by the five dollar
limitation.
Management believes that an integral component in attracting gaming patrons to
Cripple Creek is the availability of adequate, nearby parking spaces. The
Company presently owns or leases nearly four hundred parking spaces.
In 1997, the Company exercised its purchase option to acquire three lots
(formerly known as the "Wright Property"), consisting of 9,375 square feet of
land across the street from Womacks for $785 in cash. This property provides the
Company with customer parking. The Company subsequently paved the property and
currently uses it for customer parking.
In June 1998, the Company acquired 22,000 square feet of land (the "Hicks
Property") from an unaffiliated third party. The property, which is zoned for
gaming, is adjacent to Womacks. A partially-completed building structure that
occupied a portion of the land was subsequently razed, and the entire property
has been improved to provide the first paved customer parking spaces in the
Cripple Creek market. The purchase price of $3.6 million was financed through
the Company's revolving credit facility with Wells Fargo Bank.
The Company leases 10 city lots from the City of Cripple Creek for parking.
Annual rent payments total $90 and the lease agreement, as amended on February
17, 2000, expires on May 31, 2010. The agreement contains a purchase option
whereby the Company may purchase the property for $3.25 million, less cumulative
lease payments, at any time during the remainder of the lease term. The Company
has paved the property and currently uses it for customer parking.
In March 1999, the Company entered into a purchase option agreement for a piece
of property, located in Cripple Creek across Bennett Avenue from Womacks. The
agreement, as amended in February 2000, provides for an option period through
March 31, 2004 and an exercise price of $1.5 million, less 50% of cumulative
option payments through the exercise date.
In May 2000, the Company completed its acquisition of two parcels of land
located near Womacks for $1.85 million. The two parcels provide more than 100
parking spaces for casino patrons. The Company has paved the property.
In August 2000, the Company completed construction of and opened the Womacks
Events Center located near its Womacks/Legends Casino. Through an arrangement
with the City of Cripple Creek, the Events Center is available to them for the
first three years. The agreement expires in June 2003. The second floor of the
building houses much of the Company's administration and accounting
-5-
departments, thereby freeing up valuable floor-space in Womacks, which allowed
for additional hotel and casino expansion.
In May 2002, Womacks acquired the Palace Casino building and adjoining property
for $1.2 million. Womacks has spent an additional $155 to convert the majority
of the property, which is adjacent to the Womacks Casino and Hotel, into an
additional 41 parking spaces.
In September 2002, the Company opened the first phase of its 6,022 square foot
expansion, increasing its gaming space by approximately 2,000 square feet. The
second and final phase of the construction is expected to be completed in the
second quarter of 2003.
Century Casinos Caledon (Pty) Ltd. - Caledon, South Africa
An application for a casino license in Caledon, South Africa, a province of the
Western Cape, was filed in October 1999 with the Western Cape Gambling and
Racing Board by Caledon Casino Bid Company (Pty) Limited ("CCBC") doing business
as The Caledon Casino, Hotel and Spa. The Company's subsidiary, Century Casinos
Africa (Pty) Ltd ("CCA"), originally had a 50% equity interest in CCBC, by
virtue of an agreement entered into between CCA and CCBC, together with various
affiliated entities. In December 1999, in anticipation of a successful
application, the Company entered into a ten-year casino management agreement
with CCBC, which agreement may be extended at the Company's option for multiple
ten-year periods, whereby the Company will earn management fees based on
percentages of annual gaming revenue and earnings before interest, income taxes,
depreciation, amortization and certain other costs.
On February 16, 2000, the Western Cape Gambling and Racing Board awarded
Successful Applicant status to CCBC. On April 13, 2000, CCBC was awarded the
final license and the Company, through CCA, invested approximately $3.8 million
(based on the exchange rate at that time) consisting of approximately $1.5
million (Rand ("R") 10 million) in equity and $2.3 million in debt (R15
million).
In December 2000, the Company through CCA, acquired an additional 15% of The
Caledon Casino, Hotel and Spa - raising its ownership in CCBC to 65%. Terms of
the agreement included the payment of approximately $1.8 million by CCA to its
partners in exchange for 15% of the total common stock of CCBC (valued at
approximately $1.2 million) and a shareholder loan to CCBC previously held by
its partners (with a value of approximately $600).
In June 2001, the company name for CCBC was changed to Century Casinos Caledon
(Pty) Ltd. ("CCAL").
In January 2003, the Company, through CCA, acquired the remaining 35% interest
in CCAL becoming the sole owner of all of the common stock of CCAL. In addition
to 4,000 shares of common stock, there are a total of 200 preference shares
issued to two minority shareholders (100 each). See a further explanation in
Note 6, Shareholders' Equity, to the Consolidated Financial Statements.
CCAL is located approximately one hour's drive from Cape Town on approximately
600 acres (230 hectares) of land adjacent to the N-2 highway, the main
thoroughfare between Cape Town and Durban. This highway is known as the Garden
Route, passing through an established tourist area known for its popular coastal
towns, whale watching and wineries. Caledon is home to a 100 year-old annual
wild flower show and a well-known 200 year-old national landmark with mineral
hot springs located on the CCAL resort site. Casino gaming in South Africa is
"unlimited wagering" where each casino can set its own limits. As a result, the
relationship between table games revenues and slot revenues resembles more
traditional gaming markets (unlike Cripple Creek where over 97% of gaming
revenues are derived from the slot machines).
-6-
Casino Millennium, Prague, Czech Republic
In January 1999, the Company, through CCM, entered into a 20-year agreement with
Casino Millennium a.s., a Czech company ("CM"), and with B.H. Centrum a.s., a
Czech subsidiary of Bau Holding AG, one of the largest construction and
development companies in Europe, to operate a casino in the five-star Marriott
Hotel in Prague, Czech Republic. During 2001, Bau Holding AG changed its name to
Strabag AG. The Company provides casino management services in exchange for 10%
of the casino's gross revenue, and has provided gaming equipment for 45% of the
casino's net profit. The hotel and casino opened in July 1999.
In January 2000, the Company entered into a memorandum of agreement to either
acquire a 50% ownership interest in CM or to form a new joint venture with B.H.
Centrum a.s., which joint venture would acquire all of the assets of CM. The
Company and Strabag AG have each agreed to purchase a 50% ownership interest.
The documentation for this transaction has been submitted, as required, to the
Ministry of Finance of the Czech Republic for approval in principle, which has
been obtained. The first step in acquiring a 50% ownership interest was taken in
December 2002 with the payment of $236 in cash. This payment will allow the
Company a 10% ownership in CM, subject to the repayment of a CM loan to a Czech
bank by Strabag AG, which has not been repaid. The balance of the acquisition is
expected to be completed in 2003 by contributing assets valued at approximately
$852.
Silversea Cruises
In May 2000, the Company signed a five-year casino concession agreement with
Silversea Cruises, a world-renowned, six-star cruise line based in Fort
Lauderdale, Florida. The agreement gives the Company the exclusive right to
install and operate casinos aboard four Silversea vessels. The Company operates
each shipboard casino for its own account and pays concession fees based on
gross gaming revenue.
Starting in late September 2000 with the new, 388-passenger Silver Shadow, the
Company began its shipboard casino operations. Within 60 days thereafter, the
Company installed casinos on the 296-passenger vessels Silver Wind and Silver
Cloud. In June 2001, the Company installed its fourth casino aboard the new,
388-passenger Silver Whisper. In October 2001, the Silver Wind was taken out of
service. It is expected to resume operations in June 2003. The Company has a
total of 74 slot machines and 14 tables on the four combined shipboard casinos.
The World of ResidenSea
On August 30, 2000, the Company signed a five-year casino concession agreement
with ResidenSea Ltd., the operator of The World of ResidenSea, which is the
world's first luxury residential resort community at sea continuously
circumnavigating the globe. ResidenSea is the first to offer private residences
on board a ship for purchase by customers. The ResidenSea vessel has a total of
110 residences and 88 guest suites with purchase prices starting at $2.2
million.
The Company has equipped the casino with 20 slot machines and 3 tables and
operates the shipboard casino which departed for its maiden voyage in March
2002. The Company operates the shipboard casino for its own account and pays
concession fees based on gross gaming revenue. In addition, the Company has a
right of first refusal to install casinos aboard any new ships built or acquired
by ResidenSea during the term of the agreement.
-7-
Additional Company Projects
In addition to Womacks in Cripple Creek, Colorado; Caledon Casino, Hotel and Spa
in Caledon, South Africa; Casino Millennium in Prague, Czech Republic; Silversea
Cruises and the ResidenSea, the Company has a number of potential gaming
projects in various stages of development. Along with the capital needs of these
potential projects, there are various other risks which, if they materialize,
could have a materially adverse affect on a proposed project or eliminate its
feasibility altogether. For example, in order to conduct gaming operations in
most jurisdictions, the Company must first obtain gaming licenses or receive
regulatory clearances. To date, the Company has obtained gaming licenses or
approval to operate gaming facilities in Colorado, Louisiana, on an American
Indian reservation in California, the Czech Republic, and the Western Cape
province of South Africa. While management believes that the Company is
licensable in any jurisdiction, each licensing process is unique and requires a
significant amount of funds and management time. The licensing process in any
particular jurisdiction can take significant time and expense through licensing
fees, background investigation costs, fees of counsel and other associated
preparation costs. Moreover, should the Company proceed with a licensing
approval process with industry partners, such industry partners would be subject
to regulatory review as well. The Company seeks to satisfy itself that industry
partners are licensable, but cannot assure that such partners will, in fact, be
licensable. Additional risks before commencing operations include the time and
expense incurred and unforeseen difficulties in obtaining suitable sites, liquor
licenses, building permits, materials, competent and able contractors, supplies,
employees, gaming devices and related matters. In addition, certain licenses
include competitive situations where, even if the Company is licensable, other
factors such as the economic impact of gaming and financial and operational
capabilities of competitors must be analyzed by regulatory authorities. All of
these risks should be viewed in light of the Company's limited staff and limited
capital.
Also, the Company's ability to expand to additional locations will depend upon a
number of factors, including, but not limited to: (i) the identification and
availability of suitable locations, and the negotiation of acceptable purchase,
lease, joint venture or other terms; (ii) the securing of required state and
local licenses, permits and approvals, which in some jurisdictions are limited
in number; (iii) political factors; (iv) the risks typically associated with any
new construction project; (v) the availability of adequate financing on
acceptable terms; and (vi) for locations outside the United States, all the
risks of foreign operations, including currency controls, unforeseen local
regulations, political instability and other related risks. Certain
jurisdictions issue licenses or approval for gaming operations by inviting
proposals from all interested parties, which may increase competition for such
licenses or approvals. The development of dockside and riverboat casinos in the
United States of America may require approval from the Army Corps of Engineers
and will be subject to significant Coast Guard regulations governing design and
operation. Most of these factors are beyond the control of the Company. As a
result, there can be no assurance that the Company will be able to expand to
additional locations or, if such expansion occurs, that it will be successful.
Further, the Company anticipates that it will continue to expense certain costs,
which have been substantial in the past and may continue to be substantial in
the future, in connection with the pursuit of expansion projects.
The following describes other activities of the Company.
South Africa - 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 that region of the greater
Johannesburg area of South Africa known as the West Rand at a cost of
approximately 400 million Rand ($46.6 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
-8-
Holdings (Pty) Ltd ("Tsogo"), a competing casino, filed a Review Application
seeking to overturn the license award by the Gauteng Gambling Board ("GGB"). In
September 2002, the High Court of South Africa overturned the license award. As
a result of these developments, the Company has recorded a $377 write-off for
all advances made, and pre-construction cost incurred, in conjunction with the
Johannesburg project. In November 2002, and upon the advice of legal counsel,
Silverstar, with the support and agreement of all other parties to the original
two applications for the West Rand license, including CCA, made representation
to the GGB requesting that the sole remaining license for the province of
Gauteng now be awarded to Silverstar pursuant to its original 1997 application.
Notwithstanding Silverstar's belief as to the legal and public-policy framework
that would now justify such an award, the GGB in December 2002 denied
Silverstar's request. In consequence, Silverstar on March 4, 2003 initiated
legal action against the GGB in the High Court of South Africa seeking, inter
alia, that the court now compel the authorities to award the license to
Silverstar. Due process in terms of such an action will likely result in the
matter not being heard by the High Court before the third quarter of 2003. CCA,
through its majority-owned subsidiary - Century Casinos West Rand (Pty) Ltd. -
remains contracted to Silverstar by a resort management agreement. Under the
circumstances, the conditions to CCA's previous funding commitment of 50 million
Rand to the project are rendered incapable of fulfillment without specific
waiver by CCA, and the appropriateness of any waiver of conditions will be
determined by CCA, at such time as CCA believes sufficient progress on
Silverstar's efforts is achieved.
While there can be no certainty as to the eventual outcome of Silverstar's
efforts, CCA maintains the ownership of the land (book value of $514) that
remains central to the Silverstar casino project, and the Company has allocated
minor funding towards further pursuit of this opportunity.
Punta Del Este, Uruguay - In 2001, a local consortium, including the Company as
its casino management partner, has submitted an official expression of interest
to the Uruguayan government for the development and operation of a Resort,
Convention Center and Casino in the internationally recognized Uruguayan beach
resort Punta del Este.
The consortium considered making a formal application to the Uruguayan
Authorities in due course, but the application process has been halted by the
Uruguayan Authorities and there can be no certainty that a final application
will ever be made.
Revolving Credit Facility
In March 1997, the Company entered into a four-year revolving line of
credit facility (the "RCF") with Wells Fargo Bank ("Wells Fargo"). Various
provisions of the RCF were subsequently amended, including an increase in the
facility to $20 million in 1998, an increase to $26 million in April 2000
whereby the line of credit decreases quarterly beginning in the fourth quarter
of 2000 and an extension of the maturity date to April 2004. In August 2002, the
RCF was further amended to increase the facility to its original amount of $26
million, an increase of $5,777, revise the quarterly reduction schedule and
extend the maturity date to August 2007. At December 31, 2002, the maximum
available under the RCF was $26.0 million. An annual commitment fee of between
three-eighths and one-half percent, payable quarterly, is charged on the unused
portion of the RCF. The RCF also contains an interest rate matrix that ties the
interest rate charged on outstanding borrowings to the Company's leverage ratio,
as defined. The Company's weighted-average interest rate on the RCF was 9.15% in
2002, 9.04% in 2001 and 8.58% in 2000. The Company has entered into two interest
rate swap agreements as more fully described in Note 5, Long-Term Debt, to the
Consolidated Financial Statements. In an environment of falling interest rates,
as we have seen in the last two years, the swap agreements are disadvantageous.
Without the swap agreements the weighted-average interest rate on the RCF would
have been 4.68% in 2002, 7.18% in 2001 and 9.11% in 2000. At December 31, 2002,
the Company's unused borrowing capacity under the RCF was approximately $14.5
million. A portion of the proceeds of borrowings under the RCF was used for the
development
-9-
of The Caledon Casino, Hotel & Spa. The RCF is secured by substantially all of
the real and personal property of Womacks. Under the RCF, the Company is
required to comply with certain customary financial covenants, and is subject to
certain capital expenditure requirements and restrictions on investments. The
Company has entered into two interest rate swap agreements that effectively fix
the interest rates at 5.55% on $7.5 million of the variable rate debt and 7.95%
on $4.0 million of the variable rate debt. The swap on $7.5 million will mature
on October 1, 2003. The swap on $4.0 million will mature on July 1, 2005. See
Note 5, Long-Term Debt, to the Consolidated Financial Statements for further
information.
Marketing Strategy
Womacks Casino and Hotel - The marketing strategy of Womacks highlights
promotion of the Womacks Gold Club, a players club with a database containing
profiles on over 100,000 members. Gold Club members receive benefits from
membership, such as cash, coupons, merchandise, preferred parking, food and
lodging. Those who qualify for VIP status receive additional benefits in
addition to regular club membership. Status is determined through player
tracking. Members receive information about upcoming events and parties, and,
depending on player ranking, also receive invitations to special events.
Caledon Casino, Hotel & Spa - As with Womacks described above, the marketing
strategy of The Caledon Casino, Hotel & Spa highlights promotion of its players
club and building its player information database. Players club members receive
benefits such as cash, coupons, merchandise, food and lodging. Those who qualify
for VIP status receive additional benefits in addition to regular club
membership. Status is determined through player tracking. Members receive
newsletters of upcoming events and parties, and, depending on player ranking,
also receive invitations to special events.
Competition
The Cripple Creek Market - Cripple Creek is a small mountain town located
approximately 45 miles southwest of Colorado Springs, Colorado on the western
boundary of Pikes Peak. Cripple Creek is an historic mining town, originally
founded in the late 1800's following a large gold strike. Cripple Creek is a
tourist town and its heaviest traffic is in the summer months. Traffic generally
decreases to its low point in the winter months.
Cripple Creek is one of only three Colorado cities, exclusive of Indian gaming
operations, where casino gaming is legal, the others being Black Hawk and
Central City. Cripple Creek operated approximately 27% of the gaming devices and
generated 20% of gaming revenues for these three cities during the year ended
December 31, 2002. As of December 31, 2002, there were 17 casinos operating in
Cripple Creek.
-10-
The tables below set forth information obtained from the Colorado Division
of Gaming regarding gaming revenue by market and slot machine data for Cripple
Creek from calendar year 1999 through 2002. This data is not intended by the
Company to imply, nor should the reader infer, that it is any indication of
future Colorado or Company gaming revenue.
GAMING REVENUE BY MARKET
% change % change % change % change
Over Over Over Over
1999 Prior Year 2000 Prior Year 2001 Prior Year 2002 Prior Year
---------------------------------------------------------------------------------------------
CRIPPLE CREEK $122,611 8.3% $134,630 9.8% $138,618 3.0% $142,436 2.8%
Black Hawk $354,914 30.5 % $433,769 22.2% $478,326 10.3% $524,465 9.6%
Central City $73,794 -21.5% $63,453 -14.0% $59,730 -5.9% $52,800 -11.6%
--------- --------- --------- --------
COLORADO TOTAL $551,319 15.0% $631,852 14.6% $676,674 7.1% $719,701 6.4%
========= ===== ========= ===== ========= ==== ======== ====
CRIPPLE CREEK SLOT DATA
% change % change % change % change
Over Over Over Over
1999 Prior Year 2000 Prior Year 2001 Prior Year 2002 Prior Year
--------------------------------------------------------------------------------------------------
Total Slot Revenue $117,385 9.0% $129,500 10.3% $134,330 3.7% $138,645 3.2%
Average Number
Of Slots 4,071 -7.1% 4,148 2.2% 4,170 0.5% 4,187 0.4%
Average Win Per
Slot Per Day 79 dollars 19.9% 85 dollars 4.7% 88 dollars 3.5% 91 dollars 2.5%
Gaming in Colorado is "limited stakes," which restricts any single wager to a
maximum of five dollars. While this limits the revenue potential of table games,
management believes that slot machine play, which accounts for over 97% of total
gaming revenues, is currently impacted only marginally by the five dollar
limitation.
The Company faces intense competition from other casinos in Cripple Creek,
including a handful of casinos of similar size and many other smaller casinos.
There can be no assurance that other casinos in Cripple Creek will not undertake
expansion efforts similar to or more substantial than those recently undertaken
by the Company, thereby further increasing competition, or that large,
established gaming operators will not enter the Cripple Creek market. The
Company seeks to compete against these casinos through promotion of Womacks Gold
Club and superior service to players. Management believes that the casinos
likely to be more successful and best able to take advantage of the market
potential of Cripple Creek will be the larger casinos that have reached a
certain critical mass.
-11-
CENTURY CASINOS' PROPERTY IN CRIPPLE CREEK
("Womacks Casino and Hotel")
% change % change % change % change
Over Over Over Over
1999 Prior Year 2000 Prior Year 2001 Prior Year 2002 Prior Year
------------------------------------------------------------------------------------------------
Total Slot Revenue $22,235 19.6% $23,670 6.5% $23,142 -2.2% $23,563 1.8%
Average Number
Of Slots 592 4.8% 627 5.9% 593 -5.4% 640 7.9%
Average Win Per
Slot Per Day 103 dollars 13.7% 103 dollars - 107 dollars 3.6% 101 dollars -5.6%
Market Share in % 18.9% 8.3% 18.3% -3.1% 17.2% -5.7% 17.0% -1.3%
The Company competes, to a far lesser extent, with 20 casinos in Black Hawk and
5 casinos in Central City. Black Hawk and Central City are also small mountain
tourist towns, which adjoin each other and are approximately 30 miles from
Denver and a two and one-half hour drive from Cripple Creek. The main market for
Cripple Creek is the Colorado Springs metropolitan area, and the main market for
Black Hawk and Central City is the Denver metropolitan area.
In addition, there is intense competition among companies in the gaming industry
generally, and many gaming operators have greater name recognition and financial
and marketing resources than the Company. The Company competes with many
established operators in gaming venues other than Cripple Creek. Many of these
operators have greater financial, operational and personnel resources than the
Company. There can be no assurance that the number of casino and hotel
operations will not exceed market demand or that additional hotel rooms or
casino capacity will not adversely affect the operations of the Company.
The Caledon, South Africa Market - Caledon is a small agricultural community
located approximately 60 miles east of Cape Town. Caledon lies on the N-2
highway - the main thoroughfare between Cape Town and Durban - and is known for
its wild flower shows, wineries and the natural historic hot springs located on
the Caledon Casino, Hotel and Spa site. Caledon experiences its heaviest traffic
during the December holiday season (summer in South Africa). Traffic will be
somewhat slower in the winter months (June through September), but management is
optimistic that the enhanced hot springs facilities will increasingly attract
additional patrons during this time.
The Caledon Casino, Hotel and Spa operates its casino under one of only four
licenses awarded in the Western Cape Province, which has a population of
approximately 4 million. Although the competition is limited by the number of
casino licenses and the casinos are geographically distributed, management
continues to believe that the Caledon Casino, Hotel and Spa faces intense
competition from a large casino located in Cape Town approximately one hour from
Caledon and, to a much lesser degree, two other casinos. The Company will strive
to compete against these casinos by emphasizing Caledon's destination resort
appeal in its marketing campaign, by promotion of its players club and by
superior service to its players.
In addition, there is intense competition among companies in the South African
gaming industry, and the gaming industry in general, and many gaming operators
have greater name recognition,
-12-
financial and marketing resources than the Company. The Company competes with
many established operators in gaming venues other than the Western Cape
Province. Many of these operators have greater financial, operational and
personnel resources than the Company. There can be no assurance that the number
of casino and hotel operations will not exceed market demand or that additional
hotel rooms or casino capacity will not adversely affect the operations of the
Company.
The National Gambling Board has approved the introduction of Limited Payout
Machines ("LPM"). The National Gambling Board has approved 375 such devices for
the Overberg region of the Western Cape, the market in which CCAL operates. An
approved operator will be permitted to operate the devices without the overhead
of a typical casino. They will however, be subject to central monitoring.
Casino gaming in South Africa is "unlimited wagering" where each casino can set
its own limits. As a result, the relationship between table games revenues and
slot revenues resembles more traditional gaming markets (unlike Cripple Creek
where over 97% of gaming revenues are derived from the slot machines). The
casino has 275 slot machines and 8 table games including blackjack, roulette and
poker.
-13-
2002 AND 2001 GAMING REVENUE
% change % change
Over Over
2002 Prior Year (2) 2001 Prior Year (1)
CALEDON CASINO Rand R61,100 21.3% R50,368 N/A
USD equivalent $5,899 $5,892
Other (3 casinos) Rand R861,821 15.5% R745,943 N/A
USD equivalent $83,438 $87,530
WESTERN CAPE TOTAL(1) Rand R922,921 15.9% R796,311 N/A
USD equivalent $89,337 $93,422
======= =======
(1) Western Cape information not available for 2000.
(2) Excluding effects of fluctuations in foreign exchange rate.
CALEDON MARKET POSITION
% change % change
Over Over
2002 Prior Year 2001 Prior Year (2)
--------------------------------------------------
Market Share in % (1) 6.6% 4.8% 6.3% N/A
--------------------------------------------------
Average Number
Of Slots 254 1.6% 250 N/A
Slot Machine % of Total
Western Cape Market 11.2% 0.9% 11.1% N/A
Average Number
Of Tables 8 -42.9% 14 N/A
Table % of Total
Western Cape Market 9.9% -34.9% 15.2% N/A
(1) Based on the total Adjusted Gaming Revenue of Western Cape.
(2) Western Cape information not available for 2000.
-14-
CENTURY CASINOS' PROPERTY IN CALEDON
("The Caledon Casino, Hotel & Spa")
2000 2001 2002
------------------------------- ---------------------------------- ----------------------------------
Rand US $ Rand US $ Rand US $
------------------------------- ---------------------------------- ----------------------------------
Total Slot Revenue R21,478 $2,838 R43,750 $5,104 R55,276 $5,343
Average Number
Of Slots 250 250 254
Average Win Per
Slot Per Day 1,047 Rand * 138 dollars * 479 Rand 56 dollars 596 Rand 58 dollars
* Partial year - The Caledon Casino opened for business on October 11, 2000.
It was in operation for 82 days in the year 2000.
The decline in the average slot per day is largely due to the December 2000
opening of a major competitor in Cape Town, approximately one hour from Caledon,
with approximately 1,400 slot machines and the devaluation of the Rand versus
the U.S. dollar throughout 2001 and a majority of 2002. The Company is focusing
its marketing efforts on increasing the gaming revenue by increasing its market
share.
Employees
Womacks Casino and Hotel - The Company employs approximately 200 persons in
Cripple Creek, CO on a full-time equivalent basis, including cashiers, dealers,
food and beverage service personnel, facilities maintenance staff, security,
accounting and marketing personnel. No labor unions represent any employee
group. A standard package of employee benefits is provided to full-time
employees along with training and job advancement opportunities. In March 1998,
the Company adopted a 401(k) Savings and Retirement Plan for its employees.
Caledon Casino, Hotel & Spa - The Caledon Casino, Hotel & Spa employs
approximately 350 persons on a full-time equivalent basis, including cashiers,
dealers, room service, food and beverage service personnel, facilities
maintenance staff, security, accounting and marketing personnel. A standard
package of employee benefits is provided to full-time employees along with
training and job advancement opportunities.
Casino & hotel employees are represented by the T.E.U.S.A. (Technical
Employee Union of South Africa). Membership in the union is not mandatory and
less than 50% of eligible employees are currently members. On November 24, 2001
the T.E.U.S.A. initiated a strike action against the hotel and casino. An
application for a temporary interdict was granted by the Labor Court with cost
to the union and union officials. Employees returned to work on December 15,
2001 and on January 29, 2002 the temporary interdict was made final. There was
no further industrial action.
-15-
Seasonality
Womacks Casino and Hotel - The Company's business in Cripple Creek, CO is
at its highest levels during the tourist season (i.e., from May through
September). Its base level (i.e., October through April) is expected to remain
fairly constant although weather conditions during this period could have a
significant impact on business levels in Colorado.
Caledon Casino, Hotel & Spa - The Company's business in Caledon is
seasonal; the highest levels of business activity will occur in the holiday
season in December. Caledon has a very mild climate and management is optimistic
that it can maintain steady traffic to The Caledon Casino, Hotel & Spa in the
winter months (June through September) due to its enhanced historic hot springs
facilities.
Governmental Regulation and Licensing
Womacks Casino and Hotel - The Company's gaming operations are subject to
strict governmental regulations at state and local levels. Statutes and
regulations can require the Company to meet various standards relating to, among
other matters, business licenses, registration of employees, floor plans,
background investigations of licensees and employees, historic preservation,
building, fire and accessibility requirements, payment of gaming taxes, and
regulations concerning equipment, machines, tokens, gaming participants, and
ownership interests. Civil and criminal penalties can be assessed against the
Company and/or its officers or stockholders to the extent of their individual
participation in, or association with, a violation of any of the state and local
gaming statutes or regulations. Such laws and regulations apply in all
jurisdictions within the United States in which the Company may do business.
Management believes that the Company is in compliance with applicable gaming
regulations. For purposes of the discussion below, the term "the Company"
includes its applicable subsidiaries.
The Colorado Limited Gaming Control Commission ("Commission") has adopted
regulations regarding the ownership of gaming establishments by publicly held
companies (the "Regulations"). The Regulations require the prior clearance of,
or notification to, the Commission before any public offering of any securities
of any gaming licensee or any affiliated company. The Regulations require all
publicly traded or publicly owned gaming licensees to comply with numerous
regulatory gaming requirements including, but not limited to, notifying / filing
with the Colorado Division of Gaming any proxy statements, lists of
shareholders, new officers and directors of the Company, any shareholders
obtaining 5% or more of the Company's common stock and any issuance of new
voting securities. Management believes that the Company is in compliance with
applicable gaming regulations.
Other state regulatory agencies also impact the Company's operations,
particularly its license to serve alcoholic beverages. Rules and regulations in
this regard are strict, and loss or suspension of a liquor license could
significantly impair, if not ruin, a licensee's operation. Local building,
parking and fire codes and similar regulations could also impact the Company's
operations and proposed development of its properties.
Caledon Casino, Hotel & Spa - Caledon's gaming operations are subject to
strict regulations by the Western Cape Gambling and Racing Board under national
and provincial legislation. Statutes and regulations require the Company to meet
various standards relating to, among other matters, business licenses, licensing
of employees, historic preservation, building, fire and accessibility
requirements, payment of gaming taxes, and regulations concerning equipment,
machines, tokens, gaming participants, and ownership interests. Civil and
criminal penalties can be
-16-
assessed against the Company and/or its officers to the extent of their
individual participation in, or association with, a violation of any of these
gaming statutes or regulations. Management believes that the Company is in
compliance with applicable gaming regulations.
Casino Millennium - Casino Millennium's gaming operations are subject to
strict regulations by the Czech Republic under national legislation. Statutes
and regulations require the Company to meet various standards relating to, among
other matters, business licenses, building, fire and accessibility requirements,
payment of gaming taxes, and regulations concerning equipment, machines, tokens,
gaming participants, and ownership interests. Civil and criminal penalties can
be assessed against the Company and/or its officers to the extent of their
individual participation in, or association with, a violation of any of these
gaming statutes or regulations. Management believes that the Company is in
compliance with applicable gaming regulations.
Silversea Cruise Ships and The World of ResidenSea - The casinos onboard
the cruise ships only operate when they are in international waters. Therefore,
the gaming operations are not regulated by any national or local regulatory
body. However, the Company follows standardized rules and practices in the daily
operation of the casinos. This segment of the Company's operations accounted for
less than 3% of the Company's total net operating revenue for 2002.
Item 2. Properties.
The Company's U.S. offices are located at 200-220 East Bennett Avenue,
Cripple Creek, Colorado. See Item 1. "Business -- Property and Project
Descriptions" herein for a description of the Company's other properties. See
also Note 5, Long-Term Debt, to the Consolidated Financial Statements for
complete disclosure of the debt instruments which are secured by Company's
property.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders.
The 2002 annual meeting of the stockholders of the Company was held on July
5, 2002. At the annual meeting the two Class II directors to the Board, Peter
Hoetzinger and James Forbes were re-elected to the Board for a three year term.
On this proposal to elect the Class II directors, the votes were: Peter
Hoetzinger, 12,154,035 for, 0 (zero) against, and 19,536 abstained; James
Forbes, 12,154,035 for, 0 (zero) against, and 19,536 abstained. No other
proposals were brought for a vote of the stockholders.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The common stock of the Company began trading in the NASDAQ SmallCap Market
on November 10, 1993. The following table sets forth the low and high sale price
per share quotations as reported on the NASDAQ Stock Market of the common stock
for the periods indicated. These quotations reflect inter-dealer prices, without
retail markup, mark down or commission and may not necessarily represent actual
transactions. Actual prices may vary.
-17-
Quarter Ended Low High
March 31, 2001 $1.63 $2.53
June 30, 2001 $1.69 $2.24
September 30, 2001 $1.65 $2.22
December 31, 2001 $1.86 $2.39
March 31, 2002 $2.02 $3.81
June 30, 2002 $2.60 $3.44
September 30, 2002 $1.95 $3.13
December 31, 2002 $1.63 $2.30
At December 31, 2002, the Company had approximately 100 shareholders of
record of its common stock; management estimates that the number of beneficial
owners is approximately 1,409.
At the present time, management of the Company intends to use any earnings
that may be generated to finance the growth of the Company's business.
Accordingly, while payment of dividends rests within the discretion of the Board
of Directors, no dividends have been declared or paid by the Company, and it
does not presently intend to pay dividends.
The following table provides the information as of December 31, 2002
relating to securities authorized for issuance under equity compensation plans.
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under equity
warrants and rights compensation plans
(excluding securities reflected
in column (a))
(a) (b) (c )
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Equity compensation plans 2,790,700 $1.30 1,652,909
approved by security holders
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Equity compensation plans not - - -
approved by security holders
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Total 2,790,700 $1.30 1,652,909
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
The Company has adopted the Employees' Equity Incentive Plan (the "Plan").
The Plan as subsequently amended provides for the grant of awards to eligible
employees in the form of stock, restricted stock, stock options, stock
appreciation rights, performance shares or performance units, all as defined in
the Plan. The Plan provides for the issuance of up to 4,500,000 shares of common
stock to eligible employees through the various forms of awards permitted.
Through December 31, 2002, only incentive stock option awards, for which the
option price may not be less than fair market value at the date of grant, or
non-statutory options, which may be granted at any option price, have been
granted under the Plan. All options must have an exercise period not to exceed
ten years. Options granted to date have one-year, two-year or four-year vesting
periods. The Company's Incentive Plan Committee has the power and discretion to,
amongst other things, prescribe the terms
-18-
and conditions for the exercise of, or modification of, any outstanding awards
in the event of merger, acquisition or any other form of acquisition other than
a reorganization of the Company under United States Bankruptcy Code or
liquidation of the Company. The Plan also allows limited transferability of any
non-statutory stock options to legal entities that are 100% - owned or
controlled by the optionee or to the optionee's family trust. As of December 31,
2002 there were 2,790,700 options outstanding under the Employee's Equity
Incentive Plan.
Item 6. Selected Financial Data
For the Year Ended December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(2), (3) (4) (1)
Results of Operations:
Net Operating Revenue $ 29,337 $ 29,576 $ 26,232 $ 20,929 $ 17,281
Net Earnings 3,079 2,455 3,253 2,221 1,928
Net Earnings per Share:
Basic $ 0.23 $ 0.18 $ 0.23 $ 0.15 $ 0.13
Diluted $ 0.20 $ 0.16 $ 0.22 $ 0.15 $ 0.13
Balance Sheet:
Cash and Cash
Equivalents $ 5,073 $ 3,365 $ 9,077 $ 2,508 $ 2,176
Total Assets 51,143 44,819 56,122 34,023 34,684
Long-Term Obligations 16,531 15,991 20,314 10,459 12,229
Total Liabilities 24,040 22,641 33,152 12,892 15,536
---------------------------------------------------------------------------------
Total Shareholders' Equity 27,103 22,178 22,970 21,131 19,148
---------------------------------------------------------------------------------
(1) In April 2000, the Company, through CCA, purchased 50% interest in CCAL,
which was awarded a casino license in April 2000. The Caledon Casino, Hotel
and Spa opened for business in October 2000. In December 2000, the Company,
through CCA, acquired an additional 15% of The Caledon Casino, Hotel and
Spa, raising its ownership of the project to 65%.
(2) Effective 2002, in accordance with SFAS No. 142, the Company no longer
amortizes goodwill and other intangible assets with indefinite useful
lives. The goodwill amortization expense for the years ended December 31,
2001, 2000, 1999 and 1998 was $1,171, $1,118, $841 and $841, respectively.
(3) In 2002, the Company wrote down the value of the non-operating casino
property and land held for sale in Nevada by $447 and has recorded a $399
write-off for advances made and pre-construction costs incurred in
conjunction with the Johannesburg project and a $298 write-off for unpaid
management fees from Casino Millennium. See Note 12, Property Write-Down
and Other Write-Offs, to the Consolidated Financial Statements.
(4) In 2001, the reduction in total assets is principally the result of the
effects of the change in the exchange rate on CCAL assets.
-19-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
Results of Operations
Comparison of the year ended December 31, 2002 with the year ended December 31,
2001
Cripple Creek, Colorado
Womacks is located in Cripple Creek, Colorado. Net operating revenue, derived
principally from its gaming operations, increased to $21,260 in 2002 from
$21,022 in 2001. Womacks casino revenue increased to $20,983 in 2002 from
$20,645 in 2001, or 1.7%. In the fourth quarter of 2001, the Company undertook a
6,022 square foot expansion to the rear of the property, of which half will
increase space for gaming. The first half of the project was completed in
September 2002 and the last half of the project is expected to be completed in
the second quarter of 2003. The average number of gaming devices in 2002 were
640 compared to an average of 593 in 2001. The Company's share of the overall
Cripple Creek market was 16.9% in 2002 compared to 17.0% in 2001. Womacks Casino
operated approximately 15.3% of the gaming devices in the Cripple Creek market
in 2002, with an average win per day per machine of $101 dollars compared with a
city average of $91 dollars. In 2001, Womacks operated approximately 14.2% of
the gaming devices in the Cripple Creek market, with an average win per machine
per day being $107 dollars compared with the city average of $88 dollars. Gross
margin for the Cripple Creek casino activities (casino revenues, net of
applicable casino gaming incentives, less casino expenses) decreased to 66.5%
compared to 69.4% a year earlier. In 2002, Womacks paid a higher amount of
royalties on participation machines. With participation machines, Womacks pays a
fee to the manufacturer based on a percentage of the win. In most instances, the
branded games that are being introduced to the market are not available for
-20-
purchase. They can only be installed in the casino via revenue sharing or
participation agreements. Management makes its decisions to introduce these
machines based on the consumer demand for the product. 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 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.
Food and Beverage revenues in 2002 decreased to $945 from $1,132 in 2001, or
16.5%, primarily the result of reducing the operating hours in the Goldmine
restaurant. In July 2002, Womacks introduced Bob's Grill on the main gaming
floor to improve customer convenience and converted the upstairs restaurant to a
fine dining restaurant with limited operating hours. The cost of food and
beverage promotional allowances, which are included in casino costs, slightly
increased to $954 in 2002 from $950 in 2001.
Hotel revenue increased to $248 from $144, or 71.7% as the result of introducing
10 new luxury rooms in July of 2001 and 3 additional luxury rooms at the end of
the first quarter of 2002. All of the revenue generated by the hotel operation
is derived from comps to better players.
General and administrative expenses increased to $4,129 in 2002 from $4,046 in
2001, or 2.1%.
Depreciation decreased to $1,334 in 2002 from $1,655 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 $1,342 in amortization expense.
Interest expense, including debt issuance cost, decreased to $1,421 in 2002 from
$1,433 in 2001. Since the second quarter of 2000 the Company has borrowed a
total of $7 million under the RCF to fund its investments in South Africa. The
resulting interest charge of approximately $777 in 2002 and $926 in 2001 has
been charged against the Cripple Creek segment and has not been allocated to the
South African segment during 2002 and 2001, respectively, in order to comply
with the reporting requirements established by the Company's lender.
The Cripple Creek segment recognized income tax expense of $3,259 in 2002 versus
$2,697 in 2001 due to an increase in pre-tax earnings.
South Africa
When comparing 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 provided by the segment decreased to $7,083 in 2002 from
$7,408 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 $5,728 in 2002 from $5,772 in
2001, or 0.8%. Excluding the effect of the Rand conversion rate from year to
year, casino revenue increased by 20.3%. Gross margin for the Caledon casino
activities (casino revenues, less casino expenses) increased to 62.8% from 55.4%
a year earlier, as a result of management's ability to contain costs while it
has increased gaming revenue through its marketing efforts.
Food and beverage revenue increased to $804 in 2002 from $765 in 2001, or 5.0%.
Excluding the effect of the change in the Rand conversion rate from year to
year, food and beverage revenue increased by 26.1%.
-21-
Hotel revenue increased to $633 in 2002 from $611 in 2001. Excluding the effect
of the change in the Rand conversion rate from year to year, hotel revenue
increased by 24.3%, primarily due to the increase in the number of rooms comped
by the casino to its better players.
General and administrative expenses decreased to $1,685 in 2002 from $1,810 in
2001, or 6.9%. Excluding the effect of the change in the Rand conversion rate
from year to year, general and administrative expenses increased by 13%.
Depreciation expense incurred in South Africa decreased to $734 in 2002 from
$1,219 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 $75 in amortization expense.
Interest expense, including debt issuance cost, decreased to $804 in 2002 from
$881 in 2001. The weighted-average interest rate on the borrowings under the PSG
loan agreement is 16.9% in both 2002 and 2001.
Property write-down and other write-offs in 2002 includes a pre-tax charge of
$377 to write off advances made, and pre-construction costs incurred, in
conjunction with the Johannesburg project.
The South African segment recognized an income tax expense of $416 in 2002
versus an income tax benefit of $157 in 2001. The South African Revenue Service
(SARS) is currently auditing the tax returns of Century Casinos Caledon (Pty)
Ltd (CCAL) filed for calendar years 2000 and 2001. SARS is questioning the
deductibility of certain licensing and pre-opening costs, among others, deducted
for tax purposes. The Company has recorded a $56 charge as an estimated
additional tax as a result of the audit.
Cruise Ships
Net operating revenue decreased to $824 in 2002 from $891 in 2001. Gross margin
for the casino activities (casino revenues, less casino expenses) increased to
31.7% from 23.9% a year earlier. Following the tragedy of the September 11, 2001
attacks on the World Trade Center, the cruise ships have seen a substantial
decrease in the amount of passenger traffic. In October 2001, Silversea Cruises
removed from service one of the four ships on which the Company has casino
operations. In 2002, cruise ship casino operations started to rebound as the
travel industry began to recover. In March 2002, The World of ResidenSea
embarked on her maiden voyage. The Silver Wind, which was removed from operation
when passenger traffic declined during the last year, is being refurbished and
is expected to return to operation in June 2003. In 2002, the Company operated
an average of 165 gaming positions on the four cruise liners in service.
Depreciation expense has slightly decreased to $45 in 2002 from $47 in 2001.
$88 has been allocated to the cruise ships for income taxes in the year 2002
compared to $82 in 2001.
Corporate & Other
Net operating revenue of $170 for 2002 and $255 for 2001 consists principally of
management fees earned from operating Casino Millennium in Prague, Czech
Republic. The management fees decreased to $149 in 2002 from $205 in 2001. In
August 2002, Prague, Czech Republic experienced a devastating flood throughout
the city. Although the Casino Millennium property was not damaged, public access
to the city in the vicinity of the casino has been severely limited for months
following the disaster and has negatively affected the casino operation.
Effective September 1, 2002,
-22-
management fees and interest due to the Company will not be accrued until a
certainty of cash flow is attained for Casino Millennium.
General and administrative expense decreased to $1,565 in 2002 from $1,673 in
2001, or 6.4%,
Depreciation expense decreased to $191 in 2002 from $226 in 2001.
Property write-down and other write-offs in 2002 includes a pre-tax charge in
the amount of $447 to reduce the value of a non-operating property held by the
Company in Nevada to its fair value, less costs to sell, based on the current
assessment of the property and a pre-tax charge of $298 to write off unpaid
management fees and loans related to its operations in Prague, Czech Republic.
An additional $27 in interest income on the unpaid management fees and loans was
also written off, bringing the total pre-tax charge for the segment to $772.
Property write-down and other write-offs in 2001 include a charge of $57 for the
write-down in value of non-operating property and land held by the Company in
Nevada. The current book value of the property is $421. By agreement (see
Footnote No. 8, Commitments, Contingencies and Other Matters, to the
Consolidated Financial Statements), $196 remaining in the value of the
receivable, will be contributed as part of the Company's proposed investment in
the property.
Comparison of the year ended December 31, 2001 with the year ended December 31,
2000
Cripple Creek, Colorado
Net operating revenue, derived principally from its gaming operations, decreased
marginally to $21,022 in 2001 from $21,612 in 2000. Womacks casino revenue
decreased to $20,645 in 2001 from $21,211 in 2000, or 2.7%. During the first
quarter of 2001, the Company undertook an extensive remodeling of the second
floor of its property, transforming previously used gaming space into much
needed hotel space. The number of gaming devices was reduced to an average of
593 in 2001 from an average of 627 during 2000. The construction was a necessary
step towards the future expansion of gaming space to the rear of the property.
The Company's share of the overall Cripple Creek market decreased to 17.0% in
2001 from 17.9% in 2000. Womacks Casino operated approximately 14.2% of the
gaming devices in the Cripple Creek market in 2001, with an average win per day
per machine of $107 dollars compared with the city average of $88 dollars. Gross
margin for the Cripple Creek casino activities (casino revenues, net of
applicable casino gaming incentives, less casino expenses) remained relatively
flat at 69.4% compared to 70.0% a year earlier.
Food and Beverage revenues in 2001 increased to $1,132 from $1,002 in 2000, or
12.9% as the Company continued to focus on improving service. The cost of food
and beverage promotional allowances, which are included in casino costs,
increased to $950 in 2001 from $829 in 2000.
Hotel revenue increased to $144 in 2001 from $81 in 2000, or 77.7% as the result
of introducing 10 new luxury rooms in July of 2001. All of the revenue generated
by the hotel operation is derived from comps to its better players.
General and administrative expenses decreased to $4,046 in 2001 from $5,127 in
2000, or 21%. Expenses associated with the cost of check processing totaling
$229 have been reclassified to casino cost. In addition, the cost of casino
management allocated from corporate operations has been reduced by $430 in 2001.
Additional reductions in payroll cost further reduced the administrative
expenses by $217.
-23-
Depreciation decreased to $1,655 in 2001 from $1,899 in 2000. Amortization
remained unchanged at $1,342 in both 2000 and 2001.
Interest expense, including debt issuance cost, decreased to $1,433 in 2001 from
$1,510 in 2000. In April 2000, the Company borrowed $3.8 million under the RCF
to fund its investment in Caledon, South Africa. An additional $1,800 was
borrowed in November 2000 to fund the acquisition of an additional 15% interest
in the South African operation. The investment has resulted in the incursion of
approximately $926 in cumulative interest charged to the Company's Cripple Creek
operations. The weighted-average interest rate on the borrowings under the RCF,
including effects of the swap agreements, has increased to 9.04% in 2001 from
8.58% in 2000. The average outstanding balance borrowed under the RCF was
$11,716 in 2002 compared to $12,435 in 2001.
The Cripple Creek segment recognized income tax expense of $2,697 in 2001 versus
$2,262 in 2000 due to an increase in pre-tax earnings.
South Africa
The acquisition of The Caledon Casino, Hotel & Spa contributed significant
revenues to the consolidated results of the Company. The Caledon Casino, Hotel
and Spa began operations in October 2000. Net operating revenue provided
increased to $7,408 in 2001 from $4,155 in 2000. Deterioration in the Rand
versus the dollar over the span of 2001 had a negative impact on the reported
revenues. The Caledon Casino, Hotel & Spa also faces intense competition from a
significantly larger casino operation in Cape Town, S.A., approximately one hour
away. Gross margin for the Caledon casino activities (casino revenues, net of
applicable casino gaming incentives, less casino expenses) decreased to 55.4%
from 71.0% a year earlier. Management reduced expenses to an average of $224 per
month in 2001 from an average of $426 per month in 2000 to offset the reduced
level of revenue.
Food and beverage revenue provided by a full year of operation increased to $765
in 2001 from $375 in 2000, or 104%.
Hotel revenue provided by a full year of operation increased to $611 in 2001
from $176 in 2000. All of the revenue generated from the hotel operation is
derived from comps to its better players.
General and administrative expenses increased to $1,810 in 2001 from $1,232 in
2000, or 46.9%. The 2000 results include approximately $652 in one time costs
associated with the startup of the casino in October 2000.
Depreciation expense incurred in South Africa increased to $1,219 in 2001 from
$290 in 2000 as a result of a full year of operation and early 2001 construction
of the new spa. The amortization of goodwill resulting from the Company's late
2000 purchase of an additional 15% interest resulted in a charge of $75 in 2001.
Interest expense, including debt issuance cost, increased to $881 in 2001 from
$367 in 2000. As of December 31, 2001, CCAL incurred approximately $3.9 million
in debt at the exchange rate as of December 31, 2001 to fund the capital
improvements to the Hotel, Casino & Spa. The weighted-average interest rate on
the borrowings under the PSG loan agreement is 16.9% in both 2001 and 2000.
The South African segment recognized an income tax benefit of $157 in 2001
versus an income tax expense of $193 in 2000.
-24-
Cruise Ships
Beginning in the fourth quarter of 2000 the Company installed casino operations
on four six-star vessels belonging to Silversea Cruises. Net operating revenue
increased to $891 in 2001 from $189 in 2000. Gross margin for the casino
activities (casino revenues, less casino expenses) decreased to 23.9% from 81.6%
a year earlier. Following the tragedy of the September 11, 2001 attacks on the
World Trade Center, the cruise ships have seen a substantial decrease in the
amount of passenger traffic. In October 2001, Silversea Cruises removed from
service one of the four ships on which the Company has casino operations. This,
combined with the cost of transporting personnel to and from the ships, along
with the cost of transporting new equipment and supplies for installation of
gaming equipment on the ResidenSea, severely impacted the profitability in the
fourth quarter.
Depreciation expense increased to $47 in 2001 from $6 in 2000 as a result of a
full year of operation.
$82 was allocated to the cruise ships for income taxes in the year 2001 and $5
in 2000.
Corporate & Other
Management fees earned from operating Casino Millennium in Prague, Czech
Republic increased to $205 in 2001 from $177 in 2000. Overall net operating
revenues reported by the segment decreased to $255 in 2001 from $276 in 2000.
Depreciation increased slightly to $226 in 2001 from $216 in 2000.
General and administrative expense increased to $1,673 in 2001 from $1,509 in
2000, or 10.9%,
Property write-down and other write-offs in 2001 include a charge of $57 for the
write-down in value of non-operating property and land held by the Company in
Nevada.
Other income for 2000 includes a $1,380 in income from the sale of the Company's
casino rights in an Indiana riverboat gaming license.
Liquidity and Capital Resources
Cash and cash equivalents totaled $5.1 million (including $491 of restricted
cash) at December 31, 2002, and the Company had net deficit working capital of
$20. Additional liquidity may be provided by the Company's revolving credit
facility ("RCF") with Wells Fargo Bank, under which the Company has a total
commitment of $26,000 and unused borrowing capacity of approximately $14,500 at
December 31, 2002.
For the year ended December 31, 2002, cash provided by operating activities was
$7.4 million compared with $6.4 million in 2001 and $7.1 million in 2000.
Cash used in investing activities of $4.5 million for the year ended 2002,
consisted of $1,355 towards the purchase and improvements of the Palace Hotel
and property, $1,200 towards the expansion of the Womacks casino at the rear of
the property that is expected to be completed in 2003, which will provide
additional gaming space, $130 towards the construction of a restaurant & grill
on the first floor of Womacks casino, $812 on new gaming equipment, $477 for
additional improvements to the property in Caledon, South Africa, $460,
primarily for land purchased for the proposed casino development in
Johannesburg, South Africa, less $263 received from the disposition of property,
and the balance of $284 due to expenditures for other long-lived assets. Cash
used in investing activities of $3.3 million for the year ended 2001, consisted
principally of $920 in cost related to the construction and furnishing of new
hotel space at Womacks, including the associated cost of re-constructing the
casino floor, $400 towards the expansion of the casino at the rear of the
property that
-25-
opened in 2002, which provided additional gaming space as well as hotel rooms,
$1.6 million towards improvements at The Caledon Casino, Hotel & Spa in South
Africa and the balance of $277 due to expenditure for other long-lived assets.
Cash used by investing activities was $13.9 million for the year 2000 and
included $1.4 million in capitalized licensing cost related to The Caledon
Casino, Hotel & Spa, $2.0 million for the purchase of land for additional
parking in Cripple Creek, $1.8 million towards the construction of the Womacks
Event Center and the purchase of other fixed assets, $7.8 million towards
construction of The Caledon Casino, Hotel & Spa and $1.8 million towards the
purchase of its 65% equity interest in CCBC, offset by $1.4 million from the
sale of the Company's interest in an Indiana riverboat gaming license.
Cash used in financing activities of $1.5 million for the year ended 2002
consisted of net repayments of $301 under the RCF with Wells Fargo, plus net
repayments of $607 under the loan agreement with PSG, additional deferred
financing charges incurred by the Caledon Casino, Hotel & Spa, with a cost of
$23, additional deferred financing charges incurred by the Company to amend the
RCF, with a cost of $92, the repurchase of company's stock, on the open market,
with a cost of $366 and other net repayments of $111. Net cash used in financing
activities of $8.4 million for the year ended 2001 consisted of net repayments
of $6.8 million under the RCF with Wells Fargo, net repayments of $417 under the
loan agreement with PSG, repurchase of Company's stock, on the open market, with
a cost of $606, and other net payments of $613. Cash provided by financing
activities of $13.6 million in 2000 consisted of net borrowings of $9.5 million
under the RCF with Wells Fargo, and $5.6 million borrowed under the loan
agreement with PSG, offset by the repurchase of company's stock, on the open
market, with a cost of $818, and other net payments of $800.
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 $17.2 million to $26 million 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. Under the terms of the previous agreements the borrowing
commitment under the RCF reduced by $722 each quarter. The agreement was again
amended in August 2002 to increase the available funds to $26,000 and to extend
the maturity date of the RCF to August 2007. Prior to signing the current
amendment the borrowing commitment had been reduced to $20,222.
In April 2000, Century Casinos Caledon (Pty) Ltd. ("CCAL") was awarded a gaming
license for a casino at a 92-room resort hotel and spa in Caledon, a province of
the Western Cape, South Africa, and the Company's subsidiary, Century Casinos
Africa (Pty) Ltd ("CCA"), acquired a 50% equity interest in CCAL. The Company
made an initial equity investment of approximately $1,534 in, and loans totaling
approximately $2,302 to, CCAL with borrowings obtained under the Company's RCF.
CCA has a ten-year casino management agreement with CCAL, which may be extended
at the Company's option for multiple ten-year periods. In November 2000, the
Company, through CCA, acquired an additional 15% of CCAL, raising its ownership
in CCAL to 65%. The acquisition of the additional interest was completed with
the payment of approximately $1,800 by Century through CCA to COIL in exchange
for 15% of the total shares of common stock of CCAL (valued at approximately
$1,200) and a shareholder loan to CCAL previously held by COIL (with a value of
approximately $600). In January 2003, the Company through CCA, acquired the
remaining 35% interest in CCAL. The acquisition of the remaining interest was
completed with the payment of approximately $2.6 million by Century through CCA
to COIL in exchange for 35% of the total shares of common stock of CCAL (valued
at approximately $1.4 million) and a shareholder loan held by COIL (valued at
approximately $1.2 million).
In April 2000, CCAL entered into a loan agreement with PSG Investment Bank
Limited ("PSGIB"), which provides for a principal loan of approximately $5,539
at the exchange rate as of December 31, 2001 to fund development of the Caledon
project. In April 2001, CCAL entered into an addendum to
-26-
the loan agreement in which PSGIB provided CCAL with a standby facility in the
amount of approximately $525 at the exchange rate as of December 31, 2002. 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 26, 2002 and continuing over
the remaining term of the original 5 year agreement. Outstanding borrowings
under the standby facility bear interest at 15.1%. As of December 31, 2002, the
entire amount has been advanced against the loan and 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 which began in January 1999. 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 $1.3 million, 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, when completed,
will result in the Company having a 50% equity interest in Casino Millennium. In
December 2002, the Company, through CMB, paid $236 towards an initial equity
investment of 10% in Casino Millennium, subject to the repayment of a CM loan to
a Czech bank by Strabag AG, which has not been repaid. The Company expects to
contribute gaming equipment and certain pre-operating costs in exchange for the
additional 40% interest in Casino Millennium. The balance of the transaction is
expected to be completed in 2003, subject to certain contingencies and contract
conditions.
The Company's Board of Directors has approved a discretionary program to
repurchase up to $5 million 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 2002,
the Company purchased 177,920 additional shares, or 1.2%, of its common stock at
an average cost per share of $2.35. Beginning in 1998 and through 2002, the
Company has repurchased a total of 2,367,720 shares at a total cost of
approximately $3.3 million. 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. 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 that region of the greater Johannesburg area of South Africa
known as the West Rand at a cost of approximately 400 million Rand ($46.6
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"). In
September 2002, the High Court of South Africa overturned the license award. As
a result of these developments, the Company has recorded a $377 write-off for
all advances made, and pre-construction cost incurred, in conjunction with the
Johannesburg project. In November 2002, and upon the advice of legal counsel,
Silverstar, with the support and agreement of all other parties to the original
two applications for the West Rand license, including CCA, made representation
to the GGB requesting that the sole remaining license for the province of
Gauteng now be awarded to Silverstar pursuant to its original 1997 application.
Notwithstanding Silverstar's belief as to the legal and public-policy framework
that would now justify such an award, the GGB in December 2002 denied
Silverstar's request. In consequence, Silverstar on March 4, 2003 initiated
legal action against the GGB in the High Court of South Africa seeking, inter
alia, that the court now
-27-
compel the authorities to award the license to Silverstar. Due process in terms
of such an action will likely result in the matter not being heard by the High
Court before the third quarter of 2003. CCA, through its majority-owned
subsidiary - Century Casinos West Rand (Pty) Ltd. - remains contracted to
Silverstar by a resort management agreement. Under the circumstances, the
conditions to CCA's previous funding commitment of 50 million Rand to the
project are rendered incapable of fulfillment without specific waiver by CCA,
and the appropriateness of any waiver of conditions will be determined by CCA,
at such time as CCA believes sufficient progress on Silverstar's efforts is
achieved.
In the fourth quarter 2001, Womacks began a 6,022 square foot expansion.
Approximately half of the space will provide additional gaming space. The other
half will increase the "back of house" area. The total construction cost,
excluding additional slot machines, is expected to be $2.0 million. The project
is expected to be completed in the first half of 2003.
Management believes that the Company's cash at December 31, 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.
Contractual Obligations and Commercial Commitments-
--------------------------- --------------------------------------------------------------
Contractual Obligations Payments Due by Period
------------- -------------- ----------------- ---------------
Total Less than 1 1-3 years 4-5 years After 5
year years
--------------------------- ----------- ----------- ------------ ---------- -----------
Long-Term Debt $ 17,826 $ 1,555 $ 2,716 $ 12,330 $ 1,225
--------------------------- ----------- ----------- ----------- ----------- -----------
Capital Lease Obligations 448 152 282 14 -
--------------------------- ----------- ----------- ----------- ----------- -----------
Operating Leases 1,136 287 452 180 217
--------------------------- ----------- ----------- ----------- ----------- -----------
Total Contractual Cash $ 19,410 $ 1,994 $ 3,450 $ 12,524 $ 1,442
Obligations
--------------------------- ----------- ----------- ----------- ----------- -----------
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.
Information regarding the Company's other accounting policies is included in
Note 2 to the Company's consolidated financial statements.
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 jackpot
increases. Promotional allowances reduce revenues in determining net operating
revenue.
Goodwill and Other Intangible Assets - The Company's goodwill results from the
acquisitions of casino and hotel operations.
-28-
Effective January 1, 2002 the Company adopted Statement of Financial Accounting
Standards Board (SFAS) No. 142 "Goodwill and Other Intangible Assets". 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 unamortized 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 December
31, 2002 is unamortized goodwill of approximately $7,899 and unamortized casino
license costs of approximately $1,298.
In accordance with SFAS No. 142, the Company completed step one of the
impairment test on each of the reporting units for which it has recorded
goodwill as of January 1, 2002 during the second quarter of 2002. The Company
contracted third-party valuation firms to complete the analysis of each
reporting unit. 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 The Caledon Casino, Hotel & 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. The Company also tested for impairment
as of January 1, 2002 its previously recognized intangible asset deemed to have
an indefinite useful life (unamortized casino license costs). As a result of the
analysis, the Company has determined that there is no impairment of goodwill or
other intangible assets. In accordance with the SFAS No. 142, the Company has
completed its assessment of the goodwill and other intangibles for impairment at
December 31, 2002 and determined that there have been no significant changes in
the fair value of the assets, no adverse changes in the projected cash flows or
any events or circumstances that would lead management to believe that the fair
value of the assets as determined at January 1, 2002 is less than the current
carrying value of the reporting units. The Company will continue 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 re-valued based
on the exchange rate at the end of the period.
-29-
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk principally related to changes in interest rates
and foreign currency exchange rates. To mitigate some of these risks, we utilize
derivative financial instruments to hedge these exposures. We do not use
derivative financial instruments for speculative or trading purposes.
All of the potential changes noted below are based on information available at
December 31, 2002. Actual results may differ materially.
Interest Rate Sensitivity
The Company is subject to interest rate risk on the outstanding borrowing under
a Revolving Line of Credit Facility with Wells Fargo Bank. Interest on the
agreement is variable based on the interest rate option selected by the Company,
whereby the interest on the outstanding debt is subject to fluctuations in the
prime interest rate as set by Wells Fargo, or LIBOR.
In order to minimize the risk of increases in the prime rate or LIBOR the
Company has entered into two interest-rate swap agreements on a total of $11.5
million notional amount of debt. In 1998, the Company entered into a five-year
interest rate swap agreement which matures on October 1, 2003 on $7.5 million
notional amount of debt under the RCF, whereby the Company pays a LIBOR-based
fixed rate of 5.55% and receives a LIBOR-based floating rate reset quarterly
based on a three-month rate. In May 2000, the Company entered into a second
five-year interest rate swap agreement which matures on July 1, 2005 on $4.0
million notional amount of debt under the RCF, whereby the Company pays a
LIBOR-based fixed rate of 7.95% and receives a LIBOR-based floating rate reset
quarterly based on a three-month rate. Generally, the swap arrangement is
advantageous to the Company to the extent that interest rates increase in the
future and disadvantageous to the extent that they decrease. Therefore, by
entering into the interest rate swap agreements, we have a cash flow risk when
interest rates drop. For example, for each hypothetical 100 basis points
decrease in the three month LIBOR rate below the fixed rate paid by the Company
less the applicable margin results in an increased use of $115 in cash on an
annual basis.
Foreign Currency Exchange Risk
The majority of our revenue, expense, and capital purchasing activities are
transacted in U.S. dollars. However, since a portion of our operations are
conducted outside of the U.S., we enter into transactions in other currencies,
primarily the South African Rand.
Fluctuations in the Rand affect the value of the Company's investment in The
Caledon Casino, Hotel & Spa. A hypothetical devaluation of 10% in the dollar vs.
the Rand based on the exchange rate as of December 31, 2002 would reduce the
value of the Company's investment by approximately $600.
Foreign currency fluctuations also have an impact on reported earnings,
primarily those of the Company's South African Subsidiary. Fluctuations in
foreign currency rates did not have a material impact on the consolidated
results of operations during the years 2002, 2001 and 2000.
Item 8. Financial Statements and Supplementary Data
See "Index to Financial Statements" on page F-1 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
There were no changes in accountants, nor any disagreements on accounting and
financial disclosure with Grant Thornton LLP, the Company's independent
auditors.
-30-
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item will be included in the Company's Proxy
Statement with respect to its 2003 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of December 31, 2002, under the captions
"Information Concerning Directors and Executive Officers" and "Compliance with
Section 16(a) of the Securities Exchange Act" and is incorporated herein by
reference.
Item 11. Executive Compensation.
The information required by this item will be included in the Company's Proxy
Statement with respect to its 2003 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of December 31, 2002, under the caption
"Information Concerning Directors and Executive Officers" and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information required by this item will be included in the Company's Proxy
Statement with respect to its 2003 Annual Meeting of Stockholders to be filed
with the Commission within 120 days of December 31, 2002, under the caption
"Voting Securities" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information in this item is incorporated by reference from the Company's
Definitive Proxy material with respect to the 2003 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
2002, under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
PART IV
Item 14. Controls and Procedures
Under the supervision and with the participation of management, including its
principal executive officer and principal financial officer, the Company has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (which are designed to ensure that information required
to be disclosed in the reports submitted under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the
SEC's rules and forms). Based on their evaluation, the Company's principal
executive officer and principal financial officer have concluded that these
controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. There were no significant deficiencies or material weaknesses,
and therefore there were no corrective actions taken.
-31-
Item 15. Exhibits , Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements of the Company (including related notes to
consolidated financial statements) filed as part of this report are
listed below:
Consolidated Balance Sheets as of December 31, 2002 and 2001.
Consolidated Statements of Earnings for the Years Ended December
31, 2002, 2001 and 2000.
Consolidated Statements of Shareholders' Equity and Comprehensive
Income (Loss) for the years ended December 31, 2002, 2001 and
2000.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.
(a) 2. Financial Statement Schedule
None
(a) 3. Exhibits Filed Herewith or Incorporated by Reference to Previous
Filings with the Securities and Exchange Commission:
The following exhibits were included with the filing of the Alpine's Form 10-KSB
for the fiscal year ended December 31, 1993 and are incorporated herein by
reference:
Exhibit No. Description
10.14 Plan of Reorganization and Agreement Among Alpine Gaming, Inc., Alpine
Acquisition, Inc. and Century Casinos Management, Inc. - Filed with
Form 8-K dated December 24, 1993 and incorporated by reference
therein.
10.15 Amendments One, Two and Three to Plan of Reorganization and Agreement
Among Alpine Gaming, Inc., Alpine Acquisition, Inc. and Century
Casinos Management, Inc.
The following exhibits were filed with the Form 10-KSB for the fiscal year ended
December 31, 1995 and are incorporated herein by reference:
Exhibit No. Description
3.1 Certificate of Incorporation (filed with Proxy Statement in respect of
1994 Annual Meeting of Stockholders and incorporated herein by
reference).
3.2 Bylaws (filed with Proxy Statement in respect of 1994 Annual Meeting
of Stockholders and incorporated herein by reference).
10.51 Asset Purchase Agreement dated as of September 27, 1995 by and among
Gold Creek Associates, L.P., WMCK Acquisition Corp. and Century
Casinos, Inc., including Exhibits and Schedules, along with First
Amendment thereto.
-32-
10.57 Stock Purchase Agreement dated December 21, 1995 between Switzerland
County Development Corp. ("Buyer") and Century Casinos Management,
Inc. and Cimarron Investment Properties Corp. ("Sellers").
10.58 Consultancy Agreement - Chalkwell Limited.
The following exhibits were filed with the Form 8-K Current Report dated July 1,
1996 and are incorporated herein by reference:
Exhibit No. Description
10.60 Promissory Note dated March 19, 1992, made by Chrysore, Inc. in the
original amount of $1,850,000 payable to R. & L Historic Enterprises,
together with Assignment dated September 14, 1992 of said Promissory
Note to TJL Enterprises, Inc. and Assignment dated May 16, 1996 of
said Promissory Note to Century Casinos, Inc.
10.61 Promissory Note dated July 1, 1996, made by WMCK Acquisition Corp. in
the original principal amount of $5,174,540 payable to Gold Creek
Associates, L.P., together with Guaranty dated July 1, 1996, of said
Promissory Note by Century Casinos, Inc.
10.62 Building Lease dated as of July 1, 1996, among TJL Enterprises, Inc.,
WMCK Acquisition Corp. and Century Casinos, Inc., together with
Memorandum of Building Lease with Option to Purchase dated as of July
1, 1996, among the same parties.
10.63 Four Party Agreement, Assignment and Assumption of Lease, Consent to
Assignment of Lease, Confirmation of Option Agreement and Estoppel
Statements dated as of July 1, 1996, among Harold William Large,
Teller Realty, Inc., Gold Creek Associates, L.P., and WMCK Acquisition
Corp.
10.64 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and James A. Gulbrandsen.
10.65 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and Gary Y. Findlay.
The following exhibit was filed with the Form 10-QSB for the quarterly period
ended March 31, 1997 and is incorporated herein by reference:
Exhibit No. Description
10.68 Credit Agreement dated as of March 31, 1997, between Wells Fargo Bank,
N.A. ("Lender"); WMCK Venture Corp., Century Casinos Cripple Creek,
Inc., and WMCK Acquisition Corp. ("Borrowers"); and Century Casinos,
Inc. ("Guarantor").
The following exhibits were filed with the Form 10-KSB for the fiscal year ended
December 31, 1997 and are incorporated herein by reference:
-33-
Exhibit No. Description
10.69 First Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 11, 1997.
10.70 Second Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated January 28, 1998.
The following exhibits were filed with the Form 10-QSB for the quarterly period
ended June 30, 1998 and are incorporated herein by reference:
Exhibit No. Description
10.71 Termination of Stock Transfer and Registration Rights Agreement dated
May 1, 1998, between Century Casinos, Inc. and Gary Y. Findlay
10.72 Promissory Note dated April 30, 1998, between Century Casinos, Inc.
and Gary Y. Findlay
10.73 Termination of Stock Transfer and Registration Rights Agreement dated
June 2, 1998, between Century Casinos, Inc. and James A. Gulbrandsen
10.74 Promissory Note dated June 2, 1998, between Century Casinos, Inc. and
James A. Gulbrandsen
10.76 Casino Consulting Agreement dated March 25, 1998, by and between
Rhodes Casino S.A., Century Casinos, Inc. and Playboy Gaming
International Ltd.
The following exhibits were filed with the Form 10-KSB for the fiscal year ended
December 31, 1998 and are incorporated herein by reference:
Exhibit No. Description
10.77 Third Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 4, 1998.
10.78 Parking Lease - Option to Purchase dated June 1, 1998, between the
City of Cripple Creek ("Lessor") and WMCK Venture Corporation
("Lessee")
The following exhibits were filed with the Form 10-QSB for the quarterly period
ended March 31, 1999 and are incorporated herein by reference:
Exhibit No. Description
-34-
10.79 Casino Services Agreement dated January 4, 1999 by and between Casino
Millennium a.s., Century Casinos Management, Inc. and B.H. Centrum
a.s.
10.80 Option to Purchase Real Property dated March 25, 1999, by and between
Robert J. Elliott ("Optionor") and WMCK Venture Corp. ("Optionee").
10.81 Letter Amendment to Note Agreement dated April 1, 1999, by and between
Century Casinos, Inc. and Thomas Graf
The following exhibit was filed with the Form 10-QSB for the quarterly period
ended June 30, 1999 and is incorporated herein by reference:
Exhibit No. Description
10.82 Master Lease Agreement dated January 4, 1999 by and between Casino
Millennium a.s. and Century Management und Beteiligungs GmbH
The following exhibit was filed with the Form 10-QSB for the quarterly period
ended September 30, 1999 and is incorporated by reference:
Exhibit No. Description
10.83 Waiver and Release and Consulting Agreement dated October 15, 1999 by
and between Norbert Teufelberger and Century Casinos, Inc.
The following exhibits were filed with the Form 10-KSB for the fiscal year ended
December 31,1999 and are incorporated herein by reference:
Exhibit No. Description
10.84 Marketing and Investor Relations Agreement, dated November 5, 1999, by
and between Century Casinos, Inc. and advice! Investment Services
GmbH, and related Warrant Agreement
10.85 Fourth Amendment to the Credit Agreement, dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 15, 1999
10.86 Casino Management Agreement, dated December 3, 1999, by and between
Caledon Casino Bid Company (Pty) Limited and Century Casinos Africa
(Pty) Ltd.
10.87 Shareholders Agreement, dated December 3, 1999, and Addendum to the
Agreement, dated December 9, 1999, by and between Caledon Casino Bid
Company (Pty) Limited, Caledon Overberg Investments (Pty) Limited,
Century Casinos Africa (Pty) Ltd., Century Casinos, Inc. (not as a
shareholder or party, but for clauses 4.2.3 and 6.7 of this agreement
only), Caledon Hotel Spa and Casino Resort (Pty) Limited, Fortes King
Hospitality (Pty) Limited, The Overberger Country Hotel and Spa (Pty)
Limited, and Senator Trust.
-35-
10.88 Memorandum of Agreement, dated January 7, 2000, by and between B. H.
Centrum a.s (a subsidiary of Ilbau and Bau Holding) and Century
Casinos, Inc.
10.89 Assumption and Modification Agreement, dated February 7, 2000, by and
between Marcie I. Elliott ("Optionor") and WMCK Venture Corporation
("Optionee")
10.90 Commercial Contract to Buy and Sell Real Estate, dated November 17,
1999, by and between WMCK Venture Corporation ("Buyer") and
Saskatchewan Investments, Inc. ("Seller")
10.91 Prepayment and Release, dated January 19, 2000, by and between
Switzerland County Development Corp. and Century Casinos Management,
Inc.
10.92 Amendment No. 1 to Parking Lease - Option to Purchase, dated February
17, 2000, by and between City of Cripple Creek ("Lessor") and WMCK
Venture Corporation ("Lessee")
The following exhibits were filed with the Form 10-QSB for the quarterly period
ended March 31, 2000 and are incorporated herein by reference:
Exhibit No. Description
10.93 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 April
21, 2000.
10.94 Loan Agreement between Century Casinos Africa (Proprietary) Limited,
Caledon Casino Bid Company (Proprietary) Limited, Caledon Overberg
Investments (Proprietary) Limited, and Century Casinos, Inc. (for
purposes of clause 14.6 only), dated March 31, 2000.
10.95 Subscription Agreement between Century Casinos Africa (Proprietary)
Limited, Caledon Casino Bid Company (Proprietary) Limited, Caledon
Overberg Investments (Proprietary) Limited, and Century Casinos, Inc.
(for purposes of clause 10.6 only), dated March 31, 2000.
The following exhibits were filed with the Form 10-QSB for the quarterly period
ended June 30, 2000 and are incorporated herein by reference:
Exhibit No. Description
10.96 Loan Agreement, dated April 13, 2000, between PSG Investment Bank
Limited and Caledon Casino Bid Company (Proprietary) Limited
10.97 Subordination, Cession and Pledge Agreement, dated April 13, 2000,
between PSG Investment Bank Limited, Century Casinos Africa
(Proprietary) Limited, Caledon Overberg Investments (Proprietary)
Limited, and Caledon Casino Bid Company (Proprietary) Limited
-36-
The following exhibits were filed with the Form 10-KSB for the fiscal year ended
December 31, 2000 and are incorporated herein by reference:
Exhibit No. Description
10.98 Shareholders Agreement, dated November 4, 2000, by and between Caledon
Casino Bid Company (Pty) Limited, Caledon Overberg Investments (Pty)
Limited, Century Casinos Africa (Pty) Ltd., Century Casinos, Inc. (not
as a shareholder or party, but for clauses 8.5, 15.1 and 15.2 of this
agreement only), Overberg Empowerment Company Limited and The Overberg
Community Trust
10.99 Sale of Shares Agreement, dated November 4, 2000 by and between
Caledon Casino Bid Company (Pty) Limited, Caledon Overberg Investments
(Pty) Limited and Century Casinos Inc.
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended March 31, 2001 and is incorporated herein by reference:
Exhibit No. Description
10.100 April 21, 2001 Addendum to Loan Agreement, dated April 13, 2000,
between PSG Investment Bank Limited and Caledon Casino Bid Company
(Proprietary) Limited
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended September 30, 2001 and is incorporated herein by reference:
Exhibit No. Description
10.101 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.
The following exhibits were filed with the Form 10-KSB for the fiscal
year ended December 31, 2001 and are incorporated herein by reference:
Exhibit No. Description
10.102 Management Agreement by and between Century Casinos Inc. and Focus
Casino Consulting A.G. dated March 1, 2001.
10.103 Management Agreement by and between Century Casinos Inc. and Flyfish
Casino Consulting A.G. dated March 1, 2001.
10.104 Equity Subscription Agreement by and between Rhino Resort Limited,
Silverstar Development Limited and Century Casinos Africa (Pty) Ltd
dated September 7, 2001.
-37-
10.105 Memorandum of Agreement by and between Century Casinos Caledon (Pty)
Ltd. (previously known as Caledon Casino Bid Company (Pty) Ltd.) and
Century Casinos Africa (Pty) Ltd. and Fortes King Hospitality (Pty
Ltd. (and/or its successor to the Hotel Management Agreement - FKH)
dated September 20, 2001.
10.106 Amendment to Loan Agreement between Century Casinos Africa (Pty)
Limited and Century Casinos Caledon (Pty) Ltd. (previously known as
Caledon Casino Bid Company (Pty) Ltd.), Caledon Overberg Investments
(Pty) Limited and Century Casinos Inc. dated September 20, 2001.
10.107 Adjustment/Amendment No. 1 to Management Agreement by and between
Century Casinos Inc. and Focus Casino Consulting A.G. dated October
11, 2001.
10.108 Adjustment/Amendment No. 1 to Management Agreement by and between
Century Casinos Inc. and Flyfish Casino Consulting A.G. dated October
11, 2001.
10.109 Employment Agreement by and between Century Casinos Inc. and Erwin
Haitzmann dated October 12, 2001.
10.110 Employment Agreement by and between Century Casinos Inc. and Peter
Hoetzinger dated October 12, 2001.
10.111 Amendment Number 1 to the Equity Subscription Agreement entered into
on September 7, 2001 by and between Rhino Resort Limited, Silverstar
Development Limited and Century Casinos Africa (Pty) Ltd dated March
2, 2002.
10.112 Second Addendum to Loan Agreement dated April 13, 2000, between PSG
Investment Bank Limited and Caledon Casino Bid Company (Proprietary)
Limited completed on March 26, 2002.
The following exhibit was filed with the Form 10-Q for the quarterly period
ended March 31, 2002 and is incorporated herein by reference:
Exhibit No. Description
10.113 Hotel Management Agreement dated December 3, 1999 between Century
Casinos Caledon (Pty) Ltd. (previously known as Caledon Casino Bid
Company (Pty) Ltd.) and Fortes King Hospitality (Pty) Ltd.
The following exhibits were filed with the Form 10-Q for the quarterly period
ended June 30, 2002 and are incorporated herein by reference:
Exhibit No. Description
3.2.2 Amended and Restated Bylaws of Century Casinos, Inc.
10.114 Second Supplement to Rights Agreement dated July 2002, between Century
Casinos, Inc and Computershare Investor Services, Inc. as rights
agent.
-38-
The following exhibits were filed with the Form 10-Q for the quarterly period
ended September 30, 2002 and are incorporated herein by reference:
Exhibit No. Description
10.115 Second 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 28, 2002.
The following exhibits are filed herewith:
Exhibit No. Description
10.116 First Amendment to the Employee's Equity Incentive Plan as Amended and
Restated dated May 1, 2000.
10.117 Second Amendment to the Employee's Equity Incentive Plan as Amended
and Restated dated March 12, 2001.
10.118 Third Amendment to the Employee's Equity Incentive Plan as Amended and
Restated dated June 1, 2001.
10.119 The Management Agreement by and between Century Casinos, Inc. and
Respond Limited, dated January 1 ,2002.
10.120 Employment Agreement by and between Century Casinos Inc. and Erwin
Haitzmann as restated on February 18, 2003.
10.121 Employment Agreement by and between Century Casinos Inc. and Peter
Hoetzinger as restated on February 18, 2003.
10.122 Adjustment/Amendment No. 2 to Management Agreement by and between
Century Casinos Inc. and Focus Casino Consulting A.G. dated October
12, 2002.
10.123 Adjustment/Amendment No. 2 to Management Agreement by and between
Century Casinos Inc. and Flyfish Casino Consulting A.G. dated October
12, 2002.
10.124 Sale Agreement between Century Casinos Africa (Pty) Limited and
Caledon Overberg Investments (Pty) Limited dated January 7, 2003.
10.125 Cancellation Agreement between NEX Management (Pty) Ltd. And Century
Casinos Caledon (Pty) Ltd. dated January 10, 2003.
10.126 Fourth Amendment to the Employee's Equity Incentive Plan as Amended
and Restated dated March 10, 2003.
-39-
21. Subsidiaries of the Registrant
23.1 Consent of Independent Certified Public Accountants
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, Chairman of the Board and Chief Executive Officer.
99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, Vice-Chairman and President.
99.3 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, Chief Accounting Officer.
b. Reports on Form 8-K Filed During the Registrant's Fourth Fiscal Quarter:
No reports on Form 8-K were filed by the Company during the fourth quarter
of its fiscal year ended December 31, 2002.
-40-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of 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.
By:/s/ Erwin Haitzmann
---------------------
Erwin Haitzmann, Chairman of the Board and
Chief Executive Officer
/s/ Larry Hannappel
----------------------
Larry Hannappel, Chief Accounting Officer
(Principal Accounting Officer)
Date: March 11, 2003
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Erwin Haitzmann, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-K, and to file the
same, with all exhibits thereto, and other documentation in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on March 11, 2003.
Signature Title Signature Title
/s/ Erwin Haitzmann Chairman of the Board and /s/ Gottfried Schellmann Director
- -------------------- Chief Executive Officer ------------------------
Erwin Haitzmann Gottfried Schellmann
/s/ Peter Hoetzinger Vice Chairman of the Board /s/ Robert S. Eichberg Director
- -------------------- and President ------------------------
Peter Hoetzinger Robert S. Eichberg
/s/ James D. Forbes Director /s/ Dinah Corbaci Director
- -------------------- ------------------------
James D. Forbes Dinah Corbaci
-41-
CERTIFICATION
I, Erwin Haitzmann, Chief Executive Officer of Century Casinos, Inc.
certify that:
1. I have reviewed this annual report on Form 10-K of Century Casinos, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 11, 2003
/s/ Erwin Haitzmann
- ---------------------
Erwin Haitzmann
Chairman of the Board and Chief Executive Officer
-42-
CERTIFICATION
I, Peter Hoetzinger, Vice-Chairman and President of Century Casinos, Inc.
certify that:
1. I have reviewed this annual report on Form 10-K of Century Casinos, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 11, 2003
/s/ Peter Hoetzinger
- ---------------------
Peter Hoetzinger
Vice-Chairman and President
-43-
CERTIFICATION
I, Larry Hannappel, Chief Accounting Officer of Century Casinos, Inc. certify
that:
1. I have reviewed this annual report on Form 10-K of Century Casinos, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 11, 2003
/s/ Larry Hannappel
- -----------------------
Larry Hannappel
Chief Accounting Officer
-44-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Century Casinos, Inc.
We have audited the consolidated balance sheets of Century Casinos, Inc. and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of earnings, shareholders' equity and comprehensive income (loss) and
cash flows for each of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Century
Casinos Africa (Proprietary) Limited (CCA), a 94.8% owned subsidiary, as of and
for the year ended December 31, 2002, which statements reflect total assets of
29 percent as of December 31, 2002 and total revenues of 24 percent for the year
then ended. Those statements were audited by other auditors whose report thereon
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for CCA for 2002, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Century Casinos, Inc.
and subsidiaries as of December 31, 2002 and 2001, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142) on January 1, 2002.
GRANT THORNTON LLP
Colorado Springs, Colorado
February 27, 2003
-F1-
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF CENTURY CASINOS AFRICA
(PROPRIETARY) LIMITED
We have audited the consolidated balance sheets of Century Casinos Africa
(Proprietary) Limited and subsidiaries as at December 31, 2002 and related
consolidated income statements, cash flow statements and statements of changes
in shareholders' equity for the year then ended (not presented herein). These
financial statements are the responsibility of the directors of the Company. Our
responsibility is to express an opinion on these financial statements based on
our audit.
Scope
We conducted our audit in accordance with auditing standards generally accepted
in South African and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements (not presented herein) are free of
material misstatement. An audit includes:
- - examining, on a test basis, evidence supporting the amounts and disclosures
included in the financial statements,
- - assessing the accounting principles used and significant estimates made by
management, and
- - evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Century
Casinos Africa (Proprietary) Limited and its subsidiaries at December 31, 2002
and the consolidated results of their operations, cash flow and changes in
shareholders' equity for the year then ended in conformity with South African
Statements of Generally Accepted Accounting Practice, and in the manner required
by the South African Companies Act, 1973.
Accounting principles generally accepted in South Africa differ in certain
significant respects from accounting principles generally accepted in the United
States of America and as allowed by Item 17 to Form 20-F. The application of the
latter would have affected the determination of consolidated net income
expressed in South African Rand for the year ended 31 December 2002 and the
determination of consolidated shareholders' equity expressed in South African
Rand at 31 December 2002 to the extent summarised in Note 28 (not presented
herein) to the financial statements.
/s/ PricewaterhouseCoopers Inc.
PRICEWATERHOUSE COOPERS INC.
Chartered Accountants (SA)
Registered Accountants and Auditors
Cape Town
12 March 2003
-F2-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
December 31, 2002 December 31, 2001
ASSETS
Current Assets:
Cash and cash equivalents (including restricted cash of $491 and
$334, respectively) $ 5,073 $ 3,365
Receivables 133 433
Prepaid expenses and other 592 591
------------- -------------
Total current assets 5,798 4,389
Property and Equipment, net 33,965 29,338
Goodwill, net 7,899 7,709
Casino License Acquisition Costs, net 1,298 1,010
Deferred Taxes 1,050 1,440
Other Assets 1,133 933
------------- -------------
Total $ 51,143 $ 44,819
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,664 $ 1,554
Accounts payable and accrued liabilities 2,309 1,841
Accrued payroll 1,098 957
Taxes payable 747 714
------------- -------------
Total current liabilities 5,818 5,066
Long-Term Debt, less current portion 16,531 15,991
Other Non-current Liabilities 788 979
Minority Interest 903 605
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding - -
Common stock; $.01 par value; 50,000,000 shares authorized;
14,485,776 shares issued; 13,580,864 and 13,728,784 shares
outstanding, respectively 145 145
Additional paid-in capital 21,874 21,901
Accumulated other comprehensive loss (1,052) (3,291)
Retained earnings 7,926 4,847
------------- -------------
28,893 23,602
Treasury stock - 904,912 and 756,992 shares at cost, (1,790) (1,424)
respectively
------------- -------------
Total shareholders' equity 27,103 22,178
------------- -------------
Total $ 51,143 $ 44,819
============= =============
See notes to consolidated financial statements
-F3-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
For the Year Ended December 31,
2002 2001 2000
---- ---- ----
Operating Revenue:
Casino $ 30,607 $ 30,096 $ 27,703
Food and beverage 1,749 1,897 1,377
Hotel 881 755 257
Other 524 771 427
------------- ------------- -------------
33,761 33,519 29,764
Less promotional allowances (4,424) (3,943) (3,532)
------------- ------------- -------------
Net operating revenue 29,337 29,576 26,232
------------- ------------- -------------
Operating Costs and Expenses:
Casino 9,708 9,521 7,425
Food and beverage 945 1,075 761
Hotel 564 673 416
General and administrative 7,380 7,530 8,004
Property write-down and other write offs 1,145 57 -
Depreciation and amortization 2,304 4,564 3,753
------------- ------------- -------------
Total operating costs and expenses 22,046 23,420 20,359
------------- ------------- -------------
Earnings from Operations 7,291 6,156 5,873
Other (expense), net (1,727) (1,939) (20)
------------- ------------- -------------
Earnings before Income Taxes and Minority Interest 5,564 4,217 5,853
Provision for income taxes 2,454 1,794 2,542
------------- ------------- -------------
Earnings before Minority Interest 3,110 2,423 3,311
Minority interest in subsidiary (earnings) losses (31) 32 (58)
------------- ------------- -------------
Net Earnings $ 3,079 $ 2,455 $ 3,253
============= ============= =============
Earnings Per Share, Basic $ 0.23 $ 0.18 $ 0.23
============= ============= =============
Earnings Per Share, Diluted $ 0.20 $ 0.16 $ 0.22
============= ============= =============
See notes to consolidated financial statements
-F4-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
Accumulated Retained
Additional Other Earnings
Common Stock Paid-in Comprehensive (Accumulated Treasury Stock Comprehensive
Shares Amount Capital Income (Loss) Deficit) Shares Amount Total Income (Loss)
Balance at January 1, 2000 15,861,885 $ 159 $ 23,329 $ (32) $ (861) 1,385,000 $ (1,464) $ 21,131
Purchases of Treasury Stock - - - - - 464,800 (818) (818)
Options exercised 8,891 - 2 - - - - 2
Re-issued treasury shares - - - - - (308) - -
Retired treasury shares (1,385,000) (14) (1,449) - - (1,385,000) 1,464 1
Foreign currency
translation adjustment - - - (627) - - - (627) $ (627)
Other equity changes - - 28 - - - - 28
Net earnings - - - - 3,253 - - 3,253 3,253
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 14,485,776 145 21,910 (659) 2,392 464,492 (818) 22,970 $ 2,626
==========
Purchases of treasury stock - - - - - 340,000 (690) (690)
Options exercised - - (16) - - (47,500) 84 68
Foreign currency
translation adjustment - - - (2,078) - - - (2,078) $ (2,078)
Cumulative effect of change in
accounting principle related to
interest rate swap, net of
income tax benefit - - - (175) - - - (175) (175)
Change in fair value of
interest rate swap,
net of income tax benefit - - - (379) - - - (379) (379)
Other equity changes - - 7 - - - - 7
Net earnings - - - - 2,455 - - 2,455 2,455
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 14,485,776 $ 145 $ 21,901 $ (3,291) $ 4,847 756,992 $ (1,424) $ 22,178 $ (177)
=========
Purchases of treasury stock - - - - - 177,920 (419) (419)
Options exercised - - (27) - - (30,000) 53 26
Foreign currency
translation adjustment - - - 2,179 - - - 2,179 $ 2,179
Change in fair value of
interest rate swap,
net of income tax expense - - - 60 - - - 60 60
Net earnings - - - - 3,079 - - 3,079 3,079
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 14,485,776 $ 145 $ 21,874 $ (1,052) $ 7,926 904,912 $ (1,790) $ 27,103 $ 5,318
========== ====== ======= ========== ========= ========= ========== ======== =========
See notes to consolidated financial statements
-F5-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
For the Year Ended December 31,
2002 2001 2000
---- ---- ----
Cash Flows from Operating Activities:
Net earnings $ 3,079 $ 2,455 $ 3,253
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation 2,304 3,147 2,411
Amortization of goodwill - 1,417 1,342
Amortization of deferred financing costs 94 82 88
Income from sale of casino project rights - - (1,380)
Gain on disposition of assets (34) (13) (80)
Deferred income tax expense (benefit) 78 (207) (446)
Minority interest in subsidiary earnings (losses) 31 (32) 58
Write down asset value (Note 8) 447 - -
Write off receivables and advances (Note 8) 702 - -
Other (85) 5 34
Changes in operating assets and liabilities
Receivables (341) 38 (164)
Prepaid expenses and other assets 94 138 (358)
Accounts payable and accrued liabilities 1,027 (592) 2,304
------------ ------------ ------------
Net cash provided by operating activities 7,396 6,438 7,062
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment (4,482) (2,994) (12,863)
Sales (purchases) of short-term investment securities, net - - 8
Proceeds from sale of casino project rights - - 1,380
Expenditures for deposits and other assets (236) (277) (1,179)
Proceeds received from disposition of assets 263 9 571
Acquisition of subsidiary, net of cash acquired - - (1,858)
------------ ------------ ------------
Net cash used in investing activities (4,455) (3,262) (13,941)
------------ ------------ ------------
-Continued on following page-
-F6-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollar amounts in thousands,except for share information)
- --------------------------------------------------------------------------------
For the Year Ended December 31,
2002 2001 2000
---- ---- ----
Cash Flows from Financing Activities:
Proceeds from borrowings $ 15,556 $ 21,321 $ 31,401
Principal repayments (16,575) (29,151) (16,754)
Deferred financing costs (115) - (273)
Purchases of treasury stock (366) (606) (818)
------------ ------------ ------------
Net cash provided by (used in) financing activities (1,500) (8,436) 13,556
------------ ------------ ------------
Effect of exchange rate changes on cash 267 (452) (108)
------------ ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents 1,708 (5,712) 6,569
Cash and Cash Equivalents at Beginning of Year 3,365 9,077 2,508
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 5,073 $ 3,365 $ 9,077
============ ============ ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
In connection with the subsidiary acquired, liabilities were assumed as follows:
Fair value of assets acquired, including cash of $881 $ - $ - $ 6,707
Cash Paid - - (2,739)
------------ ------------ ------------
Liabilities assumed $ - $ - $ 3,968
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid , net of capitalized interest of $63 in 2002, $ 1,899 $ 2,037 $ 1,416
$219 in 2001 and $0 in 2000
============ ============= ============
Income taxes paid $ 1,865 $ 2,376 $ 2,461
============ ============= ============
See notes to consolidated financial statements
-F7-
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. ("CCI", the "Company") 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 94.8% owned
subsidiary of CCI, owns 65% of Century Casinos Caledon (Pty) Ltd. ("CCAL")
(100% as of January 2003), 55% of Century Casinos West Rand (Pty) Ltd.
("CCWR") and 50% of Rhino Resort Ltd. ("RRL"). The Company owns and/or
manages casino operations in the United States, 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 682 slot machines,
six limited stakes gaming tables, 21 hotel rooms and 2 restaurants.
CCA owns 65% of The Caledon Casino, Hotel & Spa near Cape Town, South
Africa and has a management contract to operate the casino. The resort
has 275 slot machines and eight gaming tables, a 92-room hotel,
mineral hot springs and spa facility, 2 restaurants, 3 bars, and
conference facilities. Subsequent to December 31, 2002, CCA acquired
the remaining 35% of CCAL common stock, thus bringing CCA's ownership
of the common stock of CCAL to 100%. See Note 8, Commitments,
Contingencies and Other Matters, to the Consolidated Financial
Statements for further information.
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. In December 2002, the Company
paid $236 towards a 10% ownership interest, subject to the repayment
of a CM loan by Strabag AG, the Company's proposed partner, which has
not been repaid. The balance of the acquisition is expected to be
completed in 2003 by contributing assets of the casino currently owned
by the Company and certain pre-operating costs paid 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 171 gaming positions on the four combined
shipboard casinos currently in operation.
The Company regularly pursues additional gaming opportunities
internationally and in the United States.
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 that region
of the greater Johannesburg area of South Africa known as the West Rand at
a cost of approximately 400 million Rand ($46.6 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"). In
September 2002, the High Court of South Africa overturned the license
award. As a result of these developments, the Company has recorded a $377
write-off for all advances made, and pre-construction cost incurred, in
conjunction with the Johannesburg project. In November 2002, and upon the
advice of legal counsel, Silverstar, with the support and agreement of all
other parties to the original two
-F8-
applications for the West Rand license, including CCA, made representation
to the GGB requesting that the sole remaining license for the province of
Gauteng now be awarded to Silverstar pursuant to its original 1997
application. Notwithstanding Silverstar's belief as to the legal and
public-policy framework that would now justify such an award, the GGB in
December 2002 denied Silverstar's request. In consequence, Silverstar on
March 4, 2003 initiated legal action against the GGB in the High Court of
South Africa seeking, inter alia, that the court now compel the authorities
to award the license to Silverstar. Due process in terms of such an action
will likely result in the matter not being heard by the High Court before
the third quarter of 2003. CCA, through its majority-owned subsidiary -
Century Casinos West Rand (Pty) Ltd. - remains contracted to Silverstar by
a resort management agreement. Under the circumstances, the conditions to
CCA's previous funding commitment of 50 million Rand to the project are
rendered incapable of fulfillment without specific waiver by CCA, and the
appropriateness of any waiver of conditions will be determined by CCA, at
such time as CCA believes sufficient progress on Silverstar's efforts is
achieved.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements include
the accounts of CCI and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents - All highly liquid investments with an original maturity
of three months or less are considered to be cash equivalents. Minimum
deposits required in connection with CCAL's lending facility are designated
as restricted cash on the consolidated balance sheets.
Fair Value of Financial Instruments - In accordance with the reporting and
disclosure requirements of Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments,"
the Company calculates the fair value of financial instruments and includes
this additional information in the notes to its financial statements when
the fair value does not approximate the carrying value of those financial
instruments. The Company's financial instruments include cash and cash
equivalents, long-term debt and interest rate swap agreements. Fair value
is determined using quoted market prices whenever available. When quoted
market prices are not available, the Company uses alternative valuation
techniques such as calculating the present value of estimated future cash
flows utilizing risk-adjusted discount rates. The Company's carrying value
of financial instruments approximates fair value at December 31, 2002 and
2001.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of assets in service is provided using the straight-line
method over the estimated useful lives of the assets. Leased property and
equipment under capital leases is amortized over the lives of the
respective leases or over the service lives of the assets, whichever is
shorter.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of the net identifiable assets acquired in a business
combination.
Effective January 1, 2002 the Company adopted Financial Accounting
Standards Board (the "FASB") SFAS No. 142 "Goodwill and Other Intangible
Assets" (see Note 10).
-F9-
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 December 31, 2002 is unamortized goodwill of
approximately $7,899 and unamortized casino license costs of approximately
$1,298.
In accordance with SFAS No. 142, the Company completed step one of the
impairment test on each of the reporting units for which it has recorded
goodwill as of January 1, 2002 during the second quarter of 2002. The
Company contracted third-party valuation firms to complete the analysis of
each reporting unit. 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 The Caledon Casino, Hotel & 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. The Company also
tested for impairment as of January 1, 2002 its previously recognized
intangible asset deemed to have an indefinite useful life (unamortized
casino license costs). As a result of the testing, the Company has
determined that there is no impairment of goodwill or other intangible
assets. In accordance with the SFAS No. 142, the Company has completed its
assessment of the goodwill and other intangibles for impairment at December
31, 2002 and determined that there have been no significant changes in the
fair value of the assets, no adverse changes in the projected cash flows or
any events or circumstances that would lead management to believe that the
fair value of the assets as determined at January 1, 2002 is less than the
current carrying value of the reporting units. The Company will continue to
assess goodwill and other intangibles for impairment at least annually
hereafter.
Impairment of Long-Lived Assets - The Company reviews long-lived assets for
possible impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. If there is an
indication of impairment, which is estimated as the difference between
anticipated undiscounted future cash flows and carrying value, the carrying
amount of the asset is written down to its estimated fair value by a charge
to operations. Fair value is estimated based on the present value of
estimated future cash flows using a discount rate
-F10-
commensurate with the risk involved. Estimates of future cash flows are
inherently subjective and are based on management's best assessment of
expected future conditions. During 2001 FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" which is
effective for fiscal years beginning after December 15, 2001. SFAS No. 144
supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". While SFAS No. 144 retains
many of the provisions of SFAS No. 121 it provides guidance on estimating
future cash flows to test recoverability, among other things. The adoption
of SFAS No. 144 did not have a material impact on the Company's financial
statements.
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 jackpot is recorded as a liability
and a reduction of casino revenue in the period during which the
progressive jackpot increases.
Promotional Allowances - Food and beverage furnished without charge to
customers is included in gross revenue at a value which approximates retail
and then deducted as complimentary services to arrive at net revenue. The
estimated cost of such complimentary services is charged to casino
operations, and was $954, $949 and $829 in 2002, 2001 and 2000,
respectively.
As part of its promotional activities, the Company offers "free plays" or
coupons to its customers for gaming activity and the Company's players club
allows customers to earn certain complimentary services and/or cash rebates
based on the volume of a customer's gaming activity. The Company follows
Emerging Issues Task Force (EITF) No. 00-14, "Accounting for Certain Sales
Incentives", which 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, and 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", which 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". In accordance with these
accounting standards, $2,939, $2,740 and $2,777 was reported as a reduction
of revenue for 2002, 2001 and 2000, respectively.
Foreign Currency Translation - Adjustments resulting from the translation
of the accounts of the Company's foreign subsidiaries from the local
functional currency to U.S. dollars are recorded as other comprehensive
income or loss in the consolidated statements of shareholders' equity and
comprehensive income (loss). Adjustments resulting from the translation of
other casino operations and other transactions which are denominated in a
currency other than U.S. dollars are recognized in the statements of
earnings. Gains and losses from intercompany foreign currency transactions
that are of a long-term investment nature and are between entities of the
consolidated group are not included in determining net earnings, but rather
are reported as translation adjustments within other comprehensive income
or loss in the consolidated statements of shareholders' equity and
comprehensive income (loss).
Income Taxes - The Company accounts for income taxes using the liability
method, which provides that deferred tax assets and liabilities are
recorded based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes, at
a rate expected to be in effect when the differences become deductible or
payable.
Stock-Based Compensation - In 2002 the Company adopted Statement of
Financial Accounting Standards No. 148 (SFAS 148), "Accounting for
Stock-Based Compensation-Transition and Disclosure" which amends the
disclosure requirements of Statement of Financial
-F11-
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation" to require prominent disclosure in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. SFAS 148 also provides alternative methods of transition for a
voluntary change to fair value based methods of accounting which have not
been adopted at this time. SFAS 123 encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to account for stock-based
compensation for employees using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees", and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire that stock. The Company
values stock-based compensation granted to non-employees at fair value.
At December 31, 2002, the Company had one stock-based employee compensation
plan (see Note 6). The Company accounts for this plan under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. No
stock-based compensation cost is reflected in net earnings, as all options
granted under the plan had an exercise price equal to the market value of
the underlying common stock on the date of the grant. The following table
illustrates the effect on net earnings and earnings per share if the
Company had applied the fair value recognition provisions of FASB Statement
No. 123, "Accounting for Stock Based Compensation", to stock-based employee
compensation.
2002 2001 2000
---- ---- ----
Net earnings, as reported $ 3,079 $ 2,455 $ 3,253
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects 9 8 20
----------- ----------- -----------
Pro forma net earnings $ 3,070 $ 2,447 $ 3,233
=========== =========== ===========
Earnings per share,
Basic As reported $ 0.23 $ 0.18 $ 0.23
Pro forma $ 0.22 $ 0.18 $ 0.23
Diluted As reported $ 0.20 $ 0.16 $ 0.22
Pro forma $ 0.20 $ 0.16 $ 0.22
The fair value of options granted under the Plan was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions:
2002 2001
---- ----
Weighted-average risk-free interest rate 5.32% 5.08%
Weighted-average expected life 10 yrs. 10 yrs.
Weighted-average expected volatility 26.8% 43.6%
Weighted-average expected dividends $0 $ 0
-F12-
The weighted-average fair value of options granted was $1.16 in 2002 and
$1.21 in 2001. A total of 10,000 and 20,000 options were issued in 2002 and
2001, respectively. No options were granted to employees under the Plan in
2000.
Earnings Per Share - The Company follows the provisions of SFAS No. 128,
"Earnings per Share," in calculating basic and diluted earnings per share.
Basic earnings per share considers only weighted-average outstanding common
shares in the computation. Diluted earnings per share gives effect to all
potentially dilutive securities. Diluted earnings per share is based upon
the weighted average number of common shares outstanding during the period,
plus, if dilutive, the assumed exercise of stock options using the treasury
stock method and the assumed conversion of other convertible securities
(using the "if converted" method) at the beginning of the year, or for the
period outstanding during the year for current year issuances.
Comprehensive Income - The Company follows SFAS No. 130, "Reporting
Comprehensive Income," which provides for a more inclusive financial
reporting measure than net income, and includes all changes in equity
during the period, except those resulting from investments by, and
distributions to, shareholders of the Company.
Operating Segments - The Company follows SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes
standards for public business enterprises to report information about
operating segments in annual financial statements and in condensed interim
financial reports issued to shareholders.
Hedging Activities - 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 and No. 138
establish accounting and reporting standards for derivative instruments and
hedging activities. The pronouncements require 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. 133 requires companies to recognize all of its derivative
instruments as either assets or liabilities in the balance sheet at fair
value. The accounting for changes in the fair value (i.e. gains or losses)
of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of
hedging relationship. For those derivative instruments that are designated
and qualify as hedging instruments, a company must designate the hedging
instrument, based upon the exposure being hedged, as either a fair value
hedge, cash flow hedge or a hedge of a net investment in a foreign
operation.
For derivative instruments that are designated and qualify as a cash flow
hedge (i.e. hedging the exposure to variability in expected future cash
flows that is attributable to a particular risk), the effective portion of
the gain or loss on the derivative instrument is reported as a component of
other comprehensive income and reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings. The
remaining gain or loss on the derivative instrument in excess of the
cumulative change in the present value of future cash flows of the hedged
item, if any, is recognized in current earnings during the period of
change. The Company currently does not have fair value hedges or hedges of
a net investment in a foreign operation. For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in
current earnings during the period of change.
The cumulative effect of adopting SFAS No. 133 and No. 138 related to the
Company's interest rate swap agreements (see Note 5, Long-Term Debt, to the
Consolidated Financial Statements) was to decrease shareholders' equity as
of January 1, 2001 by $175, net of related federal and state income tax
benefits of $104. As of December 31, 2002 the interest rate swap agreements
decreased shareholders' equity (accumulated other comprehensive loss) by
$494, net of federal
-F13-
and state income tax benefits of $294. At December 31, 2001 the interest
rate swap agreements decreased shareholders' equity (accumulated other
comprehensive loss) by $554, net of federal and state income tax benefits
of $329.
Advertising Costs - Costs incurred for producing and communicating
advertising are expensed when incurred. Advertising expense was $413, $319
and $232 for the years ended December 31, 2002, 2001 and 2000,
respectively.
Reclassifications - Certain reclassifications have been made to the 2000
and 2001 financial information in order to conform to the 2002
presentation.
Other - The Company has reviewed all recently issued accounting
pronouncements and does not believe that any such pronouncements will have
a material impact on its financial statements.
3. RECEIVABLES FROM OFFICERS/DIRECTORS
At December 31, 2002, the Company had no receivables from officers and/or
directors.
At December 31, 2001, the Company had unsecured, non-interest bearing
receivables from Erwin Haitzmann, chief executive officer, and Peter
Hoetzinger, president, of $30 each, both of which have been paid in the
first quarter of 2002.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 and 2001 consist of the
following:
Estimated
Service Life
2002 2001 in Years
---- ---- --------
Buildings and improvements $ 19,340 $ 15,447 7 - 39
Gaming equipment 9,644 8,276 3 - 7
Furniture and office equipment 3,014 2,581 5 - 7
Other equipment 1,694 1,401 3 - 7
Capital projects in process 359 425
------------ ------------
34,051 28,130
Less accumulated depreciation (13,393) (10,667)
------------ ------------
20,658 17,463
Land 12,886 11,011
Non-operating casino and land held for sale 421 864
------------ ------------
Property and equipment, net $33,965 $ 29,338
============ ============
The non-operating casino and land is located in Nevada and is carried at
estimated net realizable value.
During the years 2001 and 2000, CCAL entered into a series of lease
agreements for the purchase of capital equipment. The average effective
interest rate is 13.9% on the lease obligations which are repayable over a
term of 60 months (see Note 5).
-F14-
Assets under lease included in property and equipment as of December 31,
2002 and 2001 are as follows:
Original Book Value Accumulated Depreciation
2002 2001 2002 2001
---- ---- ---- ----
Gaming equipment $ 455 $ 325 $ 212 $ 90
Furniture and office equipment 219 157 88 32
Other equipment 67 48 29 11
----------- ----------- ----------- -----------
Total $ 741 $ 530 $ 329 $ 133
=========== =========== =========== ===========
Depreciation expense for the years ended December 31, 2002, 2001 and 2000
was $2,304, $3,147 and $2,411, respectively.
5. LONG-TERM DEBT
Long-term debt at December 31, 2002 and 2001 consists of the following:
2002 2001
---- ----
Borrowings under revolving line of credit facility with Wells Fargo Bank $ 11,500 $11,801
Borrowings under loan agreement with PSG Investment Bank Limited 4,597 3,924
Note payable to minority shareholder 1,280 914
Capital leases for various equipment 369 331
Note payable to founding shareholder, unsecured 380 380
Note payable to director, unsecured - 163
Other unsecured note payables 69 32
----------- -----------
Total long-term debt 18,195 17,545
Less current portion (1,664) (1,554)
----------- -----------
Long-term portion $16,531 $15,991
=========== ===========
On April 26, 2000, the Company and Wells Fargo Bank (the "Bank") entered
into an Amended and Restated Credit Agreement (the "Agreement") which
increased the Company's aggregate borrowing commitment from the Bank under
a Revolving Line of Credit Facility ("RCF") to $26 million and extended the
maturity date to April 2004. The Agreement was further amended on August
22, 2001 to give greater flexibility to the ability to use the borrowed
funds for projects for the Company. On August 28, 2002, the RCF was further
amended to increase the facility to its original amount of $26 million, an
increase of $5,777, revise the quarterly reduction schedule and extend the
maturity date to August 2007. The aggregate commitment available to the
Company will be reduced quarterly by $722 beginning January 2003 through
the maturity date. 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 December 31, 2002 and 2001 was $11,500 and $11,801 respectively. The
amount available under the RCF as of December 31, 2002 was $14,500, net of
amounts outstanding as of that date. The loan agreement includes certain
restrictive covenants on financial ratios of WMCK. The most significant
covenants include i) a maximum leverage ratio no greater than 2.5 to 1.00,
ii) a minimum interest coverage ratio no
-F15-
less than 2.00 to 1.00, and iii) a TFCC ratio ( a derivative of EBITDA, as
defined in the agreement) of no less than 1.10 to 1.00. The Company is in
compliance with the covenants as of December 31, 2002. The loan is
collateralized by a deed of trust and a security agreement with assignments
of lease, rents and furniture, fixtures and equipment of all Colorado
property. The interest rate at December 31, 2002 was 4.10625% for $11,500
outstanding under LIBOR based provisions of the loan agreement.
In 1998, the Company entered into a five-year interest rate swap agreement
on $7.5 million notional amount of debt under the RCF, whereby the Company
pays a LIBOR-based fixed rate of 5.55% and receives a LIBOR-based floating
rate reset quarterly based on a three-month rate. In May 2000, the Company
entered into a second five-year interest rate swap agreement on $4.0
million notional amount of debt under the RCF, whereby the Company pays a
LIBOR-based fixed rate of 7.95% and receives a LIBOR-based floating rate
reset quarterly based on a three-month rate. Generally, the swap
arrangement is advantageous to the Company to the extent that interest
rates increase in the future and disadvantageous to the extent that they
decrease. The net amount paid or received by the Company on a quarterly
basis results in an increase or decrease to interest expense. The fair
value of the derivatives as of December 31, 2002 and 2001 of $788 and $883,
respectively, is reported as a liability in the consolidated balance sheet.
The Company's objective for entering into the interest rate swap
agreements, derivative instruments designated as cash flow hedging
instruments, was to eliminate the variability of cash flows in the interest
payments for $11,500 of the RCF. The Company has determined that the cash
flow hedges were highly effective. Accordingly no net gain or loss has been
recognized in earnings during 2002 or 2001 and none of the derivative
instruments' loss has been excluded from the assessment of the hedge
effectiveness. The net gain (loss) on the interest rate swaps of $60 and
($379), net of income tax expense (benefit) of $36 and ($225) has been
reported in comprehensive loss on the statement of shareholders' equity and
comprehensive income (loss) for 2002 and 2001 respectively. If the interest
rate swaps' critical terms (notional amount, interest rate reset dates,
maturity/expiration date or underlying index) change significantly, such
event would result in reclassifying the losses that are reported in
accumulated other comprehensive income (loss). The Company estimates that
no such reclassification will occur in 2003. There were no discontinuances
of cash flow hedges because of the probability that the forecasted
transactions will not occur. Accordingly, no gain or loss has been
reclassed to earnings for such discontinuance of a cash flow hedge. Net
additional (reduction in) interest expense to the Company under the swap
agreement was $524, $231 and ($64) in 2002, 2001 and 2000, respectively.
In April 2000, CCAL entered into a loan agreement with PSG Investment Bank
Limited ("PSGIB"), which provides for a principal loan of approximately
$5,539 at the exchange rate as of December 31, 2002 to fund development of
the Caledon project. The outstanding balance as of December 31, 2002 and
2001 was $4,179 and $3,565, respectively, and the interest rate was 17.05%
in both years. The shareholders of CCAL have pledged all of the common
shares held by them in CCAL 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. In April 2001, CCAL entered into
an addendum to the loan agreement in which PSGIB provided CCAL with a
standby facility in the amount of approximately $525 at the exchange rate
as of December 31, 2002. The outstanding balance as of December 31, 2002
and 2001 was $418 and $359, respectively, and the interest rate was 15.1%
in both years. 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
-F16-
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 $466 at the exchange rate as of December 31,
2002). 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,
including the maintenance of the following ratios; i) debt/equity ratio of
45:55 after the first twelve months of operations and a 40:60 debt/equity
ratio after two years of operations, ii) interest coverage ratio of at
least 2.0 after the first twelve months of operations, iii) debt service
coverage ratio of at least 1.34 for the principal loan and 1.7 for the
standby facility after the first twelve months of operations, and iv) loan
life coverage ratio of 1.5 for the principal loan and a loan life coverage
ratio of 2.5 for the standby facility. As of December 31, 2002, the Company
was in compliance with the loan covenants.
In April 2000, CCA, CCAL, CCI and Caledon Overberg Investments
(Proprietary) Limited ("COIL"), the minority shareholder in CCAL, entered
into a note agreement as part of the purchase of CCAL. Under the terms of
the agreement, CCAL, in exchange for the contribution of certain fixed
assets, entered into a loan agreement with COIL in the amount of
approximately $2,300, as valued at the time of the agreement. Under the
terms of the original agreement, the loan bears interest at the rate of 2%
over the prime/base rate established by PSGIB, and is due on demand
subsequent to the repayment in full of the loan between CCAL and PSGIB. In
November 2000, as part of CCA's additional equity investment in CCAL, CCA
acquired a portion of COIL's note receivable from CCAL valued at
approximately $600, as valued at the time of the original agreement. The
outstanding balance on note agreement based on the exchange rate on
December 31, 2002 and 2001 is approximately $1,280 and $914, respectively.
In January 2003, CCA acquired the balance of the note in conjunction with
the purchase of the outstanding common shares held by its partner.
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. $107, net of $46 of income tax
benefit, of accrued interest dating from the original date of the agreement
was written off by CCAL as a reduction in interest expense. 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 income
of the South African segment nor the consolidated net income of the
Company. Each shareholder had the option to re-instate the interest rate to
be charged from January 1, 2002 forward. After completing the purchase of
the remaining 35% of CCAL in January 2003, CCA exercised its option to
reinstate the shareholder interest effective January 1, 2002. As of
December 31, 2002, CCAL accrued $403 in accrued interest. The accrued
interest is eliminated in consolidation; therefore, there is no effect on
consolidated net earnings.
The unsecured note payable 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
consolidated balance sheets as of December 31, 2002 and 2001.
The consolidated weighted average interest rate on all borrowings was
10.12% and 9.0% for the years ended December 31, 2002 and 2001,
respectively.
-F17-
As of December 31, 2002, scheduled maturities of all long-term debt are as
follows:
Future minimum Total
lease payment long-term
of capital leases Other debt debt
----------------- ---------- -------------
2003 - $ 152 $ 1,555 $ 1,707
2004 - 151 1,241 1,392
2005 - 131 1,475 1,606
2006 - 14 830 844
2007 - - 11,500 11,500
Thereafter - 1,225 1,225
---------- ---------- ----------
448 17,826 18,274
Less amounts representing interest 79 - 79
---------- ---------- ----------
Total $ 369 $ 17,826 $ 18,195
========== ========== ==========
6. SHAREHOLDERS' EQUITY
The Company's Board of Directors has approved a discretionary program to
repurchase up to $5 million of the Company's outstanding common stock.
Through December 31, 2002, the Company had repurchased 2,367,720 shares of
its common stock at an average cost per share of $1.43, of which 1,385,000
shares, with an average cost of $1.06 per share, were retired in 2000. In
2002, 30,000 shares were re-issued to satisfy outside directors' option
exercises. There were 904,912 shares remaining in treasury as of December
31, 2002, at an average cost per share of $1.98.
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.
The Board of Directors of the Company has adopted the Employees' Equity
Incentive Plan (the "Plan"). The Plan as subsequently amended provides for
the grant of awards to eligible employees in the form of stock, restricted
stock, stock options, stock appreciation rights, performance shares or
performance units, all as defined in the Plan. The Plan provides for the
issuance of up to 4,500,000 shares of common stock to eligible employees
through the various forms of awards permitted. As of December 31, 2002
there were 1,652,909 remainining shares available to be issued. Through
December 31, 2002, only incentive stock option awards, for which the option
price may not be less than fair market value at the date of grant, or
non-statutory options, which may be granted at any option price, have been
granted under the Plan. All options must have an exercise period not to
exceed ten years. Options granted to date have one-year, two-year or
four-year vesting periods. The Company's Incentive Plan Committee has the
power and discretion to, amongst other things, prescribe the terms and
conditions for the exercise of, or modification of, any outstanding awards
in the event of merger, acquisition or any other form of acquisition other
than a reorganization of the Company under United States Bankruptcy Code or
liquidation of the Company. The Plan also allows limited transferability of
any non-statutory stock options to legal entities that are 100% - owned or
controlled by the optionee or to the employees' family trusts.
-F18-
As of December 31, 2002 there were an additional 100,000 options
outstanding to directors of the Company. These options have a weighted
average exercise price of $1.46. Subsequent to year end an outside director
exercised 10,000 options at an exercise price of $0.75.
Transactions regarding the Plan are as follows:
2002 2001 2000
-------------------------- ---------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------- ---------- --------------- ------------ -------------- -----------
Employee Stock Options:
Outstanding at January 1 2,784,800 $1.30 2,812,300 $1.29 2,906,500 $1.29
Granted 10,000 2.28 20,000 1.93 - -
Exercised - - (47,500) 1.42 (8,891) 0.82
Cancelled or forfeited (4,100) 1.41 - - (85,309) 1.44
-------------- --------------- --------------
Outstanding at December 31 2,790,700 1.30 2,784,800 1.30 2,812,300 1.29
============== =============== ==============
Options exercisable at 2,762,700 $1.29 2,764,800 $1.29 2,812,300 $1.29
December 31 ============== =============== ==============
Summarized information regarding all employee options outstanding at
December 31, 2002, is as follows:
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price At Year End Term in Years At Year End
------------------------------------------------------------
$0.75 773,500 5.8 773,500
$1.50 1,982,200 2.7 1,982,200
$1.75 10,000 8.3 1,000
$2.10 10,000 8.6 1,000
$2.25 5,000 2.5 5,000
$2.28 10,000 9.2 -
-------------- ---------------
2,790,700 3.6 2,762,700
============== ===============
-F19-
Subsidiary Preference Shares:
During the year ended December 31, 2000, the Company's South African
subsidiary acquired a 65% equity interest in CCAL (Note 1). 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. The preference shares
are not cumulative, nor are they redeemable. The preference shareholders
are entitled to receive annual 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 CCAL 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.
No preference dividends were paid or are payable in the year 2002, 2001 or
2000.
-F20-
7. 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 as
of and for the years ended December 31, 2002, 2001 and 2000 is presented
below.
Dollar amounts in Cripple Creek CO South Africa Cruise Ships
thousands
2002 2001 2000 2002 2001 2000 2002 2001 2000
Property and
equipment,
net of accumulated
depreciation $ 21,816 $ 19,444 $ 19,275 $10,807 $ 7,911 $ 11,759 $ 213 $ 236 $ 213
Total assets $ 33,047 $ 30,553 $ 36,340 $15,004 $ 10,743 $ 15,970 $ 472 $ 435 $ 439
Net operating revenue $ 21,260 $ 21,022 $ 21,612 $ 7,083 $ 7,408 $ 4,155 $ 824 $ 891 $ 189
Depreciation &
amortization $ 1,334 $ 2,997 $ 3,241 $ 734 $ 1,294 $ 290 $ 45 $ 47 $ 6
Interest income $ 16 $ 20 $ 2 $ 126 $ 61 $ 112 - - -
Interest expense,
including debt
issuance cost $ 1,421 $ 1,433 $ 1,510 $ 804 $ 881 $ 367 - - -
Earnings (loss)
before income taxes
and minority interest $ 7,086 $ 5,865 $ 4,916 $ 264 ($470) $ 666 $ 241 $ 219 $ 12
Income tax
expense(benefit) $ 3,259 $ 2,697 $ 2,262 $ 416 ($157) $ 193 $ 88 $ 82 $ 5
Net earnings (loss) $ 3,827 $ 3,168 $ 2,654 ($183) ($281) $ 416 $ 153 $ 137 $ 7
EBITDA $ 9,825 $ 10,275 $ 9,665 $ 1,645 $ 1,676 $ 1,154 $ 286 $ 266 $ 18
-F21-
Dollar amounts in Corporate & Other Intersegment Elimination Consolidated
thousands
2002 2001 2000 2002 2001 2000 2002 2001 2000
Property and
equipment,
net of accumulated
depreciation $1,129 $1,747 $2,021 - - - $33,965 $29,338 $33,268
Total assets $2,620 $3,088 $3,373 - - - $51,143 $44,819 $56,122
Net operating revenue $ 170 $ 255 $ 276 - - - $29,337 $29,576 $26,232
Depreciation &
amortization $ 191 $ 226 $ 216 - - - $ 2,304 $ 4,564 $ 3,753
Interest income $ 324 $ 350 $ 372 ($ 341) ($ 341) ($ 341) $ 125 $ 90 $ 145
Interest expense,
including debt
issuance cost $ 19 $ 45 $ 81 ($ 341) ($ 341) ($ 341) $ 1,903 $ 2,018 $ 1,617
Earnings (loss)
before income taxes
and minority interest ($2,027) ($1,397) $ 259 - - - $ 5,564 $ 4,217 $ 5,853
Income tax
expense(benefit) ($1,309) ($ 828) $ 82 - - - $ 2,454 $ 1,794 $ 2,542
Net earnings (loss) ($718) ($ 569) $ 176 - - - $ 3,079 $ 2,455 $ 3,253
EBITDA ($2,141) ($ 1,476) $ 183 - - - $ 9,615 $10,741 $11,020
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Cripple Creek, Colorado - In the fourth quarter of 2001, Womacks began a
6,022 square foot expansion. Approximately half of the space will provide
additional space for gaming. The other half will increase the "back of
house" area. Contracts for the project totaling $1.5 million were secured
in the fourth quarter of 2001. The total construction cost, excluding new
slot machines, is expected to be $2.0 million, of which $1.5 million has
been spent as of December 31, 2002. The project is expected to be completed
by the second quarter of 2003.
Prague, Czech Republic - As discussed in Note 1, in January 2000, the
Company entered into a memorandum of agreement to either acquire a 50%
ownership interest in CM or to form a new joint venture with B.H. Centrum
a.s., which joint venture would acquire all of the assets of CM. The
Company and Strabag AG have each agreed to purchase a 50% ownership
interest. The documentation for this transaction has been submitted, as
required, to the Ministry of Finance of the Czech Republic for approval.
The first step in acquiring a 50% ownership interest was taken in December
2002 with the payment of $236 in cash. This payment will allow the Company
a 10% ownership in CM, subject to the repayment of a CM loan by Strabag AG,
which loan has not been repaid. The balance of the acquisition is expected
to be completed in 2003 by contributing assets leased to CM and certain
pre-operating costs paid by the Company in the amount of $196. As of
December 31, 2002 and 2001, the Company's net fixed assets leased under
operating leases to the Casino Millennium approximated $656 and $822,
respectively.
In August 2002, Prague, Czech Republic experienced a devastating flood
throughout the city. Although the Casino Millennium property was not
damaged, public access to the city in the vicinity
-F22-
of the casino is severely limited and has negatively affected and will
likely continue to negatively affect the casino operation. As a result, the
Company, in September 2002, wrote off unpaid management fees and loans from
Casino Millennium, which resulted in a pre-tax charge of $325. $299 of the
write-off is reported in property write-down and other write-offs (Note 12)
and $26 is reported as a reduction of other (expense), net. Effective
September 1, 2002, management fees and interest due to the Company will not
be accrued until a certainty of cash flow is attained for Casino
Millennium.
South Africa - Caledon - In December 1999, the Company entered into a
ten-year casino management agreement for the operation of the casino
property in Cape Town South Africa, which provides for a percentage of
gross revenues and other earnings as defined in the agreement. The
Company's joint venturer in the property has a ten-year agreement for
management of the hotel and spa operations of the resort. The agreement may
be extended at the Company's joint venturer's option for multiple ten-year
periods. The Company will receive a management fee consisting of the
following: (i) an amount equal to 3% (increasing to 4% and 5% in the second
fiscal year of operations, variable based on levels of annual gross
revenues) of annual gross revenues, as defined, and (ii) an amount equal to
7.5% of the casino's annual earnings before interest, income taxes,
depreciation, amortization and certain other costs. In December 1999, CCAL
entered into a ten-year management agreement with Fortes King Hospitality
(Pty) Limited ("FKH"), an affiliate of the Company's partner, which
agreement may be extended at FKH's option. FKH will receive a management
fee consisting of the following: (i) an amount equal to 6.5% of the annual
hotel gross income, as defined, and (ii) an amount equal to 10% (increasing
to 15% after twelve months of operations) of net operating profit, as
defined. The casino opened on October 11, 2000 and currently operates 275
slot machines and 8 gaming tables. In addition to the casino license, hotel
and spa, CCAL owns approximately 600 acres of land, which is expected to be
used for future expansion of the project. In September 2001, CCA, CCAL and
FKH entered into a Memorandum of Agreement 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. $552, net of
$236 of income tax benefit, of accrued management fee expense was written
off by CCAL as a reduction in casino costs in 2001. 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 liability in the consolidated balance
sheet at December 31, 2002 and the minority interest in subsidiary
(earnings) losses in the consolidated statement of earnings for the year
ended December 31, 2002 include $92, net of $39 of income tax benefit,
representing the management fees that would have been payable to FKH. The
minority interest liability in the consolidated balance sheet at December
31, 2001 and the minority interest in subsidiary (earnings) losses in the
consolidated statement of earnings for the year ended December 31, 2001
include $120, net of $51 income tax benefit, representing the management
fees that would have been payable to FKH. Beginning January 1, 2002, either
CCA or FKH had the option to declare the fees calculable and payable.
CCA elected to declare the fees calculable and payable to themselves for
the period January 1, 2002 through December 31, 2002. This resulted in
management fee income of $501 pre-tax to CCA and a corresponding expense to
CCAL.
In January 2003, CCA purchased an additional 35% of CCAL, bringing CCA's
ownership of all of the common and outstanding shares of CCAL to 100%. The
purchase price was 21.5 million Rand or $2.6 million, based on the
conversion rate at January 10, 2003, in exchange for the equity ownership
valued at 11.0 million Rand or $1.4 million and shareholder loan held by
the previous 35% equity owner, valued at 10.5 million Rand or $1.2 million.
Simultaneous with the
-F23-
transaction the Hotel Management Agreement between CCAL and FKH was
cancelled and CCA assumed the management of the hotel. Financing for the
transaction was provided by the RCF.
Initial start up costs of the casino, resort hotel and spa resulted in a
pre-tax charge of $652 against the income for the year ended December 31,
2000.
South Africa - Gauteng - Legislation enacted in 1996 in South Africa
provides for the award of up to 40 casino licenses throughout the country.
In addition to its Caledon operations, the Company has entered into
agreements with various local consortia to provide consulting services
during the application phase, as well as casino management services should
the Company's partners be awarded one or more licenses.
Six casino licenses were allocated to the province of Gauteng (primarily
for the Greater Johannesburg area) by which five casinos have been
operating since 1998. With respect to the sixth and final license,
Silverstar Development Ltd. ("Silverstar"), a consortium owned by trusts,
corporations and individuals from the province, chose the Company as equity
and management partner for its proposed casino, hotel and entertainment
resort in the West Rand province (western portion of greater Johannesburg).
Since joining forces more than five years ago, the Company has helped
Silverstar work through a series of legal issues regarding the award of
this gaming license - culminating in March 2000 with the entering into of
an agreement with the sole competing license applicant. This agreement
settled all past claims and brought both parties and the Company together
in an effort to jointly secure the sixth and final gaming license in the
province.
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 that region
of the greater Johannesburg area of South Africa known as the West Rand at
a cost of approximately 400 million Rand ($46.6 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"). In
September 2002, the High Court of South Africa overturned the license
award. As a result of these developments, the Company has recorded a $377
write-off for all advances made, and pre-construction cost incurred, in
conjunction with the Johannesburg project. In November 2002, and upon the
advice of legal counsel, Silverstar, with the support and agreement of all
other parties to the original two applications for the West Rand license,
including CCA, made representation to the GGB requesting that the sole
remaining license for the province of Gauteng now be awarded to Silverstar
pursuant to its original 1997 application. Notwithstanding Silverstar's
belief as to the legal and public-policy framework that would now justify
such an award, the GGB in December 2002 denied Silverstar's request. In
consequence, Silverstar on March 4, 2003 initiated legal action against the
GGB in the High Court of South Africa seeking, inter alia, that the court
now compel the authorities to award the license to Silverstar. Due process
in terms of such an action will likely result in the matter not being heard
by the High Court before the third quarter of 2003. CCA, through its
majority-owned subsidiary - Century Casinos West Rand (Pty) Ltd. - remains
contracted to Silverstar by a resort management agreement. Under the
circumstances, the conditions to CCA's previous funding commitment of 50
million Rand to the project are rendered incapable of fulfillment without
specific waiver by CCA, and the appropriateness of any waiver of conditions
will be determined by CCA, at such time as CCA believes sufficient progress
on Silverstar's efforts is achieved.
-F24-
As a result of these developments, the Company has recorded a $377
write-off in the 3rd quarter and a $22 write-off in the 4th quarter of 2002
for all advances made and pre-construction cost incurred, in conjunction
with the Johannesburg project (Note 12). CCA maintains the ownership of the
land that was intended for the casino project.
Other Properties - The Company is currently holding non-operating casino
property and land for sale in Wells, Nevada. The property and land was
acquired in 1994 from an un-affiliated party at a cost of $921. Included in
property write-down and other write-offs, is a pre-tax charge in the amount
of $447, to reduce the value of the property to its fair value, less costs
to sell, based on the current assessment of the property (Note 12)
Employee Benefit Plan - In March 1998, the Company adopted a 401(k) Savings
and Retirement Plan (the "Plan"). The Plan allows eligible employees to
make tax-deferred contributions that are matched by the Company up to a
specified level. The Company contributed $21, $22 and $26 to the Plan in
2002, 2001 and 2000, respectively.
Operating Lease Commitments and Purchase Options - The Company has entered
into certain non-cancelable operating leases for real property and
equipment. Rental expense was $349 in 2002, $357 in 2001 and $505 in 2000.
--------------------------- --------------------------------------------------------------
Contractual Obligations Payments Due by Period
------------- -------------- ----------------- ---------------
Total Less than 1 1-3 years 4-5 years After 5
year years
--------------------------- ----------- ----------- ------------ ---------- -----------
Long-Term Debt $ 17,826 $ 1,555 $ 2,716 $ 12,330 $ 1,225
--------------------------- ----------- ----------- ----------- ----------- -----------
Capital Lease Obligations 448 152 282 14 -
--------------------------- ----------- ----------- ----------- ----------- -----------
Operating Leases 1,136 287 452 180 217
--------------------------- ----------- ----------- ----------- ----------- -----------
Total Contractual Cash $ 19,410 $ 1,994 $ 3,450 $ 12,524 $ 1,442
Obligations
--------------------------- ----------- ----------- ----------- ----------- -----------
In June 1998, the Company began leasing parking spaces from the City of
Cripple Creek under a five-year agreement which requires annual lease
payments of $90. The Company may purchase the property for $3,250, less
cumulative lease payments ($413 through December 31, 2002), at any time
during the lease term. In February 2000, the agreement was amended to
extend the term to 2010.
In March 1999, the Company entered into a purchase option agreement for a
property in Cripple Creek, Colorado, situated across the street from its
Womacks/Legends Casino on Bennett Avenue. The agreement, as amended on
February 7, 2000, expires March 31, 2004 and provides for option payments
as follows: 2000 - $37; 2001 - $49; 2002 - $24; 2003 - $24; and 2004 - $6.
The Company may exercise its option to purchase the property at any time
during that period for a price of $1,500, less 50% of cumulative monthly
option payments.
The Company holds a sub-leasehold interest in the real property and
improvements located at 220 East Bennett Avenue. The sublease, as assigned
to WMCK-Acquisition Corp., provides for monthly rental payments of $16, and
expires on June 20, 2005 unless terminated by the Company with 12 months
advance notice. The Company has an option to acquire the property at the
expiration of the sublease at an exercise price of $1,500.
Stock Redemption Requirement - Colorado gaming regulations require the
disqualification of any shareholder who may be determined by the Colorado
Division of Gaming to be unsuitable as an owner of a Colorado casino.
Unless a sale of such common stock to an acceptable party could be
arranged, the Company would repurchase the common stock of any shareholder
found
-F25-
to be unsuitable under the regulations. The Company could effect the
repurchase with cash, Redemption Securities, as such term is defined in the
Company's Certificate of Incorporation and having terms and conditions as
shall be approved by the Board of Directors, or a combination thereof.
9. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
2002 2001 2000
---- ---- ----
Current:
Federal $1,740 $ 1,856 $ 2,261
State 235 234 341
Foreign 401 (89) 386
----------- ----------- -----------
2,376 2,001 2,988
----------- ----------- -----------
Deferred:
Federal 55 (131) (219)
State 8 (8) (34)
Foreign 15 (68) (193)
----------- ----------- -----------
78 (207) (446)
----------- ----------- -----------
$2,454 $1,794 $2,542
=========== =========== ===========
The provision for income taxes differs from the expected amount of income
tax calculated by applying the statutory rate to pretax income as follows:
2002 2001 2000
---- ---- ----
Expected income tax provision at statutory
rate of 34% $ 1,891 $1, 434 $1,990
Increase (decrease) due to:
Non-deductible goodwill amortization - 252 252
Effect of foreign operations taxed at
different rates 92 (19) (18)
State income taxes, net of federal benefit 160 163 201
Effect of non-deductible write offs 152 - -
Other, net 159 (36) 117
----------- ----------- -----------
Provision for income taxes $ 2,454 $1,794 $2,542
=========== =========== ===========
-F26-
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred
tax assets and liabilities at December 31, 2002 and 2001, consist of the
following:
2002 2001
---- ----
Deferred tax assets:
Property and equipment - non-current $1,078 $ 1,176
Accrued liabilities and other - current 91 1,082
----------- -----------
1,169 2,258
Deferred tax liabilities:
Prepaid expenses - current (37) (704)
----------- -----------
Net deferred tax assets $ 1,132 $ 1,554
=========== ===========
Net deferred tax assets of $54 and $1,078 are classified as current and
non-current, respectively, and included in prepaid expenses and other
assets in the accompanying consolidated balance sheet as of December 31,
2002.
Net deferred tax assets of $378 and $1,176 are classified as current and
non-current, respectively, and included in prepaid expenses and other
assets in the accompanying consolidated balance sheet as of December 31,
2001.
CCA, a 94.8% owned subsidiary of the Century Casinos Inc., has
approximately $3 in net operating loss carryforwards as of December 31,
2002, which carry no expiration date.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the years ended December 31, 2002
and 2001 are as follows by segment:
Cripple Creek, CO South Africa Total
Balance as of January 1, 2001 $ 8,574 $ 840 $ 9,414
Amortization in 2001 (1,342) (75) (1,417)
Effect of foreign currency revaluation - (288) (288)
----------- ----------- -----------
Balance as of December 31, 2001 7,232 477 7,709
Effect of foreign currency revaluation - 190 190
----------- ----------- -----------
Balance as of December 31, 2002 $ 7,232 $ 667 $ 7,899
=========== =========== ===========
-F27-
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 Year Ended December 31 ,
2002 2001 2000
---- ---- ----
Reported net earnings $ 3,079 $ 2,455 $ 3,253
Add back: Goodwill amortization,
net of income taxes - 1,171 1,118
Add back: Casino license amortization,
net of income taxes - 177 40
----------- ------------ -----------
Adjusted net earnings $ 3,079 $ 3,803 $ 4,411
=========== ============ ===========
Basic earnings per share:
Reported net earnings $ 0.23 $ 0.18 $ 0.23
Goodwill amortization - 0.09 0.08
Casino license amortization - 0.01 -
----------- ------------ -----------
Adjusted net earnings $ 0.23 $ 0.28 $ 0.31
=========== ============ ===========
Diluted earnings per share:
Reported net earnings $ 0.20 $ 0.16 $ 0.22
Goodwill amortization - 0.08 0.08
Casino license amortization - 0.01 -
----------- ------------ -----------
Adjusted net earnings $ 0.20 $ 0.25 $ 0.30
=========== ============ ===========
The Company's other intangible assets are comprised soley of casino acquisition
costs associated with CCAL's license, which is shown separately on the Company's
consolidated balance sheet.
11. OTHER EXPENSE, NET
Other (expense), net, consists of the following:
For the Year Ended December 31,
2002 2001 2000
---- ---- ----
Interest income $ 125 $ 90 $ 145
Interest expense (1,809) (1,936) (1,529)
Income from sale of casino project rights - - 1,380
Foreign currency exchange gains (losses) - (29) (1)
Amortization of deferred financing costs (94) (82) (88)
Gain on disposal of equipment 34 13 80
Other 17 5 (7)
----------- ----------- -----------
$ (1,727) $ (1,939) $ (20)
=========== =========== ===========
-F28-
12. PROPERTY WRITE-DOWN AND OTHER WRITE-OFFS
Property write-down and other write-offs consist of the following:
For the Year Ended December 31,
2002 2001 2000
----- ---- ----
Write down non-operating casino property and land held for sale $ 447 $ 57 $ -
in Nevada (Note 8)
Write off receivables and advances related to a casino acquisition
project and casino properties under management (Note 8) (1) 698 - -
----------- ----------- -----------
$ 1,145 $ 57 $ -
=========== =========== ===========
(1) $399 for Johannesburg (Note 1) and $299 for Prague (Note 8).
-F29-
13. EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31, 2002,
2001 and 2000 were computed as follows:
2002 2001 2000
---- ---- ----
Basic Earnings Per Share:
Net earnings $ 3,079 $ 2,455 $ 3,253
============ ============ ============
Weighted average common shares 13,680,884 13,823,468 14,240,990
============ ============ ============
Basic earnings per share $ 0.23 $ 0.18 $ 0.23
============ ============ ============
Diluted Earnings Per Share:
Net earnings, as reported $ 3,079 $ 2,455 $ 3,253
Interest expense, net of income taxes, on convertible
debenture - 8 28
------------ ------------ ------------
Net earnings available to common shareholders $ 3,079 $ 2,463 $ 3,281
============ ============ ============
Weighted average common shares 13,680,884 13,823,468 14,240,990
Effect of dilutive securities (1):
Convertible debenture - 67,451 227,489
Stock options and warrants 1,430,823 1,094,028 567,362
------------ ------------ ------------
Dilutive potential common shares 15,111,707 14,984,947 15,035,841
============ ============ ============
Diluted earnings per share $ 0.20 $ 0.16 $ 0.22
============ ============ ============
Excluded from computation of diluted earnings per
share due to anti-dilutive effect (1):
Options and warrants to purchase common shares - 15,000 205,000
Weighted average exercise price - $ 2.15 $ 2.19
-F30-
14. UNAUDITED SUMMARIZED QUARTERLY DATA
Summarized quarterly financial data for 2002, 2001 and 2000 is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------- ------------------- ------------------ ----------------
Year ended December 31, 2002
Net operating revenue $6,892 $7,429 $7,885 $7,131
Earnings from operations $1,973 $2,155 $1,281 $1,882
Net earnings (1), (2) $ 925 $1,103 $ 453 $ 598
Basic earnings per share (6) $ 0.07 $ 0.08 $ 0.03 $ 0.04
Diluted earnings per share (6) $ 0.06 $ 0.07 $ 0.03 $ 0.04
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------- ------------------- ------------------ ----------------
Year ended December 31, 2001
Net operating revenue $7,309 $7,393 $7,901 $6,973
Earnings from operations (2) $1,132 $1,284 $2,016 $1,724
Net earnings $ 453 $ 589 $ 687 $ 726
Basic earnings per share (6) $ 0.03 $ 0.05 $ 0.05 $ 0.05
Diluted earnings per share (6) $ 0.03 $ 0.04 $ 0.05 $ 0.04
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------- ------------------- ----------------- -----------------
Year ended December 31, 2000
Net operating revenue (3) $5,164 $5,514 $6,454 $9,100
Earnings from operations $ 603 $1,052 $1,554 $2,664
Net earnings (4), (5) $ 979 $ 396 $ 830 $1,048
Basic earnings per share (6) $ 0.07 $ 0.03 $ 0.06 $ 0.07
Diluted earnings per share (6) $ 0.07 $ 0.03 $ 0.06 $ 0.06
(1) In 2002, effective with the adoption of SFAS No. 142, the Company no
longer amortizes goodwill and other intangible assets with indefinite
useful lives. The following goodwill amortization expense (net of
income taxes) was recorded for each quarter in 2001 and 2000:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------- -------------------- ------------------- --------------------
2001 $294 $294 $294 $289
2000 $279 $280 $279 $280
(2) The Company is currently holding non-operating casino property and
land for sale in Wells, Nevada. In the 3rd quarter of 2002 and the 1st
quarter 2001 the Company reduced the value of the property to its fair
value by $447 and $57, respectively. See Note 8, Commitments,
Contingencies and Other Matters, to the Consolidated Financial
Statements for complete disclosure. The $57 write-off in 2001 was
reclassified from non-operating to operating expenses in the current
year report.
-F31-
In the 3rd quarter of 2002, the Company has recorded a $299 write-off
for unpaid management fees and loans related to its operations in
Prague, Czech Republic, as devastating floods in Prague, Czech
Republic in August 2002 had an adverse impact on casino operation. See
Note 8, Commitments, Contingencies and Other Matters, to the
Consolidated Financial Statements for complete disclosure.
In the 3rd quarter of 2002, the Company has recorded a $377 write-off
for all advances made, and pre-construction cost incurred, in
conjunction with the Johannesburg project. See Note 8, Commitments,
Contingencies and Other Matters, to the Consolidated Financial
Statements for complete disclosure. $22 in additional expenses related
to the Johannesburg project were written off in the 4th quarter of
2002, bringing the total to $399.
(3) In 2001, the Company changed its classification of promotional charges
which totaled $2,740 and $2,777 for the years ended December 31, 2001
and 2000, respectively. The following promotional expenses, which are
now accounted for as a reduction of revenue were previously classified
as casino expenses.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------- -------------------- ------------------- --------------------
2000 $670 $698 $736 $673
(4) During the 1st quarter of 2000, the Company received $1,380, from the
sale of its riverboat gambling license in Indiana. This was offset by
charges of $302 related to the write-off of a noncompete agreement
with a former officer/director and bonuses paid to certain
officers/directors related to the final payment received on the sale
of the Company's riverboat gambling license in Indiana.
(5) The Caledon Casino opened for business on October 11, 2000. During the
4th quarter of 2000, net operating revenue for the casino was $3,536.
Consolidated net earnings, after eliminating all intercompany
transactions, for CCA, the Company's South African subsidiary, of
which the Caledon Casino is a part, was $748 for the 4th quarter of
2000.
(6) Sum of quarterly results may differ from annual results presented in
Note 13, Earnings per Share, to the Consolidated Financial Statements,
and the Statement of Earnings because of rounding.
-F32-