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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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.)
157 East Warren Ave., Cripple Creek, Colorado 80813
(Address of principal executive offices)
(Zip Code)
(719) 689-9100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes___ No _X_
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common stock, $0.01 par value, 13,660,500 shares outstanding as of August 4,
2003.
1
CENTURY CASINOS, INC.
FORM 10-Q
INDEX
Page
PART I FINANCIAL INFORMATION Number
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2003
and December 31, 2002 3
Condensed Consolidated Statements of Earnings
for the Three Months Ended June 30, 2003 and 2002 4
Condensed Consolidated Statements of Earnings
for the Six Months Ended June 30, 2003 and 2002 5
Condensed Consolidated Statements of Comprehensive
Earnings for the Three Months Ended June 30, 2003 and 2002 6
Condensed Consolidated Statements of Comprehensive
Earnings for the Six Months Ended June 30, 2003 and 2002 6
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2003 and 2002 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 47
Item 4. Controls and Procedures 48
PART II OTHER INFORMATION 49
Item 1. Legal Proceedings 49
Item 6. Exhibits and Reports on Form 8-K 49
SIGNATURES 49
2
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except for share information)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 2003 December 31, 2002
------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,854 $ 4,582
Restricted cash 533 491
Accounts receivable 209 133
Prepaid expenses and other 574 564
Deferred taxes 76 -
------------- -------------
Total current assets 5,246 5,770
Property and Equipment, net 35,457 33,965
Goodwill, net 7,994 7,899
Casino License Costs, net 1,483 1,298
Deferred Taxes 920 1,078
Other Assets 1,133 1,133
------------- -------------
Total $ 52,233 $ 51,143
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,821 $ 1,664
Accounts payable and accrued liabilities 1,704 2,309
Accrued payroll 870 1,098
Taxes payable 559 747
------------- -------------
Total current liabilities 4,954 5,818
Long-Term Debt, less current portion 17,064 16,531
Other Non-current Liabilities 601 788
Minority Interest - 903
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding
Common stock; $.01 par value; 50,000,000 shares authorized;
14,485,776 shares issued;
13,660,500 and 13,580,864 shares outstanding, respectively 145 145
Additional paid-in capital 21,537 21,874
Accumulated other comprehensive loss 375 (1,052)
Retained earnings 9,432 7,926
------------- -------------
31,489 28,893
Treasury stock - 825,276 and 904,912 shares at cost,
respectively (1,875) (1,790)
------------- -------------
Total shareholders' equity 29,614 27,103
------------- -------------
Total $ 52,233 $ 51,143
============= =============
See notes to condensed consolidated financial statements.
3
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollar amounts in thousands, except for share information)
- ------------------------------------------------------------------------------------------------------------------------------------
For The Three Months Ended June 30,
2003 2002
---- ----
Operating Revenue:
Casino $ 7,625 $ 7,816
Hotel, food and beverage 817 590
Other 174 142
------------- -------------
8,616 8,548
Less promotional allowances 1,063 1,119
------------- -------------
Net operating revenue 7,553 7,429
------------- -------------
Operating Costs and Expenses:
Casino 2,717 2,386
Hotel, food and beverage 581 350
General and administrative 1,925 1,985
Depreciation 663 553
------------- -------------
Total operating costs and expenses 5,886 5,274
------------- -------------
Earnings from Operations 1,667 2,155
Interest expense (525) (468)
Other income, net 71 35
------------- -------------
Earnings before Income Taxes and Minority Interest 1,213 1,722
Provision for income taxes 462 613
------------- -------------
Earnings before Minority Interest 751 1,109
Minority interest in subsidiary earnings - (6)
------------- -------------
Net Earnings $ 751 $ 1,103
============= =============
Earnings Per Share:
Basic $ 0.06 $ 0.08
============= =============
Diluted $ 0.05 $ 0.07
============= =============
See notes to condensed consolidated financial statements.
4
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollar amounts in thousands, except for share information)
- -----------------------------------------------------------------------------------------------------------------------------------
For The Six Months Ended June 30,
2003 2002
---- ----
Operating Revenue:
Casino $ 15,145 $ 15,022
Hotel, food and beverage 1,638 1,162
Other 295 293
------------- -------------
17,078 16,477
Less promotional allowances 2,144 2,156
------------- -------------
Net operating revenue 14,934 14,321
------------- -------------
Operating Costs and Expenses:
Casino 5,366 4,673
Hotel, food and beverage 1,150 646
General and administrative 3,742 3,724
Depreciation 1,311 1,150
------------- -------------
Total operating costs and expenses 11,569 10,193
------------- -------------
Earnings from Operations 3,365 4,128
Interest expense (1,052) (929)
Other income, net 129 58
------------- -------------
Earnings before Income Taxes and Minority Interest 2,442 3,257
Provision for income taxes 928 1,231
------------- -------------
Earnings before Minority Interest 1,514 2,026
Minority interest in subsidiary (earnings) losses (8) 2
------------- -------------
Net Earnings $ 1,506 $ 2,028
============= =============
Earnings Per Share:
Basic $ 0.11 $ 0.15
============= =============
Diluted $ 0.10 $ 0.13
============= =============
See notes to condensed consolidated financial statements.
5
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited)
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For The Three Months Ended June 30,
2003 2002
---- ----
Net Earnings $ 751 $ 1,103
Foreign currency translation adjustments 755 494
Change in fair value of interest rate swaps, net of income taxes 86 (93)
------------- -------------
Comprehensive Earnings $ 1,592 $ 1,504
============= =============
For The Six Months Ended June 30,
2003 2002
---- ----
Net Earnings $ 1,506 $ 2,028
Foreign currency translation adjustments 1,310 783
Change in fair value of interest rate swaps, net of income taxes 117 (7)
------------- -------------
Comprehensive Earnings $ 2,933 $ 2,804
============= =============
See notes to condensed consolidated financial statements.
6
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For The Six Months Ended June 30,
2003 2002
---- ----
Cash Flows from Operating Activities:
Net earnings $ 1,506 $ 2,028
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation 1,311 1,150
Amortization of deferred financing costs 56 43
Gain on disposition of assets (6) (2)
Deferred tax expense 66 93
Minority interest in subsidiary earnings (losses) 8 (2)
Other (43) (12)
Changes in operating assets and liabilities
Receivables (66) (103)
Prepaid expenses and other assets (58) 46
Accounts payable and accrued liabilities (637) (390)
Accrued payroll (255) 36
Taxes payable (226) (557)
------------- -------------
Net cash provided by operating activities 1,656 2,330
------------- -------------
Cash Flows from Investing Activities:
Purchases of property and equipment (1,370) (2,911)
Acquisition of subsidiary, net of $1,259 in cash acquired (918) -
Restricted cash decrease 38 3
Proceeds received from disposition of assets 7 2
------------- -------------
Net cash used in investing activities (2,243) (2,906)
------------- -------------
(continued)
7
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30,
2003 2002
---- ----
Cash Flows from Financing Activities:
Proceeds from borrowings $ 14,523 $ 10,968
Principal repayments (14,440) (10,530)
Proceeds from exercise of options 8 -
Purchases of treasury stock (431) (44)
Deferred financing costs - (19)
------------- -------------
Net cash provided by (used in) financing activities (340) 375
------------- -------------
Effect of exchange rate changes on cash 199 50
------------- -------------
Decrease in Cash and Cash Equivalents (728) (151)
Cash and Cash Equivalents at Beginning of Period 4,582 3,031
------------- -------------
Cash and Cash Equivalents at End of Period $ 3,854 $ 2,880
============= =============
Supplemental Disclosure of Noncash Financing Activities:
In January 2003, the Company, through its majority owned subsidiary CCA,
purchased the remaining 35% interest in CCAL for a total of $2.6 million, of
which $1.3 million was used to purchase a loan from the previous minority
shareholder and is included in principal repayments above, $1.0 million was
applied to the minority shareholder liability and $0.3 million increased the
carrying value of the land in Caledon.
In the second quarter of 2003, James Forbes, a director of the Company, in
accordance with the Company's Employee's Equity Incentive Plan ("EEIP"),
exercised all 618,000 of his outstanding options, carrying an average strike
price of $1.306. The shares were issued out of treasury stock and payment for
the options was made by transferring 357,080 shares of common stock that the
director has owned since 1994 to the Company at a per share price of $2.26
established at the close of market on April 16, 2003.
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $26 in 2003 and $40 in 2002 $ 1,055 $ 976
============= =============
Income taxes paid $ 580 $ 1,235
============= =============
See notes to condensed consolidated financial statements.
8
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. ("CCI", 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 96.5% owned
subsidiary of CCI, owns 100% of Century Casinos Caledon (Pty) Ltd.
("CCAL"), 55% of Century Casinos West Rand (Pty) Ltd. ("CCWR") and 50% of
Rhino Resort Ltd. ("RRL", a dormant subsidiary). 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 600 slot machines,
six limited stakes gaming tables, 21 hotel rooms and a restaurant.
CCA owns and operates The Caledon Casino, Hotel and Spa near Cape
Town, South Africa. The resort has 275 slot machines and eight gaming
tables, a 92-room hotel, mineral hot springs and spa facility, 3
restaurants, 2 bars, and conference facilities.
CCM manages Casino Millennium located within a five-star hotel in
Prague, Czech Republic. The Company and another entity have each
agreed to purchase a 50% ownership interest in Casino Millennium a.s.
In December 2002, the Company paid $236 towards a 10% ownership
interest, which was subject to the repayment of a CM loan by Strabag
AG, the Company's proposed partner, which was repaid in April 2003.
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 with a combined value
of $823.
CCI serves as concessionaire of small casinos on seven luxury cruise
vessels. The Company has a total of approximately 345 gaming positions
on the seven combined shipboard casinos currently in operation. On
March 28, 2003 the Company entered into a casino concession agreement
with Oceania Cruises to operate shipboard casinos, with approximately
66 gaming positions each, on two luxury cruise ships. On April 19,
2003, the Company successfully opened its casino aboard the Insignia,
a 684 passenger luxury cruise ship operated by Oceania. The vessel is
scheduled to cruise to various destinations in the western
Mediterranean until September 2003 and then resume operations in May
2004. The Silver Wind, a cruise ship operated by Silverseas, which was
taken out of service following the events of September 11, 2001,
resumed operations on May 23, 2003. On June 26, 2003, the Company
successfully opened its casino aboard the Regatta, another 684
passenger luxury cruise ship operated by Oceania.
The Company regularly pursues additional gaming opportunities
internationally and in the United States.
9
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 ($53.3 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. In November 2002, and upon the advice of legal counsel, Silverstar
(and not RRL), 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.
In January 2000, CCI entered into a brokerage agreement with Novomatic AG
in which CCI received an option to purchase seven eighths of the shares
that Novomatic AG purchased in Silverstar. The agreement was subsequently
amended in July 2003 giving Novomatic AG a put option under which Novomatic
AG can require that CCI buy seven eighths of its shares in Silverstar and
giving CCI a call option under which CCI can require Novomatic AG to sell
seven eights of its shares in Silverstar to CCI. The price of the option,
which cannot be quantified at this time, will be 75% of the fair market
value as determined at the time of the exercise.
Historical transactions that are denominated in a foreign currency are
translated and presented at the United States exchange rate in effect on
the date of the transaction. Commitments that are denominated in a foreign
currency and all balance sheet accounts other than shareholders' equity are
translated and presented based on the exchange rate at the end of the
reported periods. The exchange rates used to translate balances at the end
of the reported periods are as follows:
June 30, 2003 December 31, 2002
South African Rand 7.5044 8.5755
Euros 0.8693 0.9536
Certain reclassifications have been made to the 2002 financial information
in order to conform to the 2003 presentation.
The accompanying condensed consolidated financial statements and related
notes have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial reporting
and the instructions to Form 10-Q and Rule 10-01 of
10
Regulation S-X. The accompanying consolidated financial statements include
the accounts of CCI and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. The financial
statements of all foreign subsidiaries consolidated herein have been
converted to US GAAP for financial statement presentation purposes.
Accordingly the consolidated financial statements are presented in
accordance with US GAAP. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America,
have been condensed or omitted. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) considered
necessary for fair presentation of financial position, results of
operations and cash flows have been included. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002. The results of operations
for the period ended June 30, 2003 are not necessarily indicative of the
operating results for the full year.
2. CHANGE IN ACCOUNTING PRINCIPLES AND RECENTLY ISSUED STANDARDS
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 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 June 30, 2003, the Company has one stock-based employee compensation
plan. 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.
11
For the three months ended June 30,
2003 2002
Net earnings, as reported $ 751 $ 1,103
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related
tax effects 1 2
------------- -------------
Pro forma net earnings $ 750 $ 1,101
============= =============
Earnings per share
Basic As reported $ 0.06 $ 0.08
Pro forma $ 0.06 $ 0.08
Diluted As reported $ 0.05 $ 0.07
Pro forma $ 0.05 $ 0.07
For the six months ended June 30,
2003 2002
---- ----
Net earnings, as reported $ 1,506 $ 2,028
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related
tax effects 2 4
------------- -------------
Pro forma net earnings $ 1,504 $ 2,024
============= =============
Earnings per share
Basic As reported $ 0.11 $ 0.15
Pro forma $ 0.11 $ 0.15
Diluted As reported $ 0.10 $ 0.13
Pro forma $ 0.10 $ 0.13
On April 30, 2003, the Financial Accounting Standards Board (FASB) issued
SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". SFAS No. 149, among other things, clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative and when a derivative contains a financing
component that warrants special reporting in the statement of cash flows.
On May 15, 2003 FASB issued Statement No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 requires certain financial instruments, including mandatorily
redeemable preferred and common stocks, to be
12
presented as liabilities. The Company does not believe either SFAS No. 149
or No. 150 will have an effect on the Company's financial statements.
Additionally, the Company has reviewed recently issued, but not yet
effective, accounting pronouncements and does not believe that any such
pronouncements will have a material impact on its financial statements.
3. INCOME TAXES
The income tax provisions are based on estimated full-year earnings for
financial reporting purposes adjusted for permanent differences.
4. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months ended June 30,
2003 and 2002 were computed as follows:
For the Three Months Ended June 30,
2003 2002
---- ----
Basic Earnings Per Share:
Net earnings $ 751 $ 1,103
============= =============
Weighted average common shares 13,630,001 13,727,865
============= =============
Basic earnings per share $ 0.06 $ 0.08
============= =============
Diluted Earnings Per Share:
Net earnings, as reported $ 751 $ 1,103
============= =============
Weighted average common shares 13,630,001 13,727,865
Effect of dilutive securities:
Stock options and warrants 987,474 1,699,599
------------- -------------
Dilutive potential common shares 14,617,475 15,427,464
============= =============
Diluted earnings per share $ 0.05 $ 0.07
============= =============
Excluded from computation of diluted earnings per share
Due to antidilutive effect:
Options and warrants to purchase common shares 15,000 -
Weighted average exercise price $ 2.27 $ -
13
Basic and diluted earnings per share for the six months ended June 30, 2003
and 2002 were computed as follows:
For the Six Months Ended June 30,
2003 2002
---- ----
Basic Earnings Per Share:
Net earnings $ 1,506 $ 2,028
============= =============
Weighted average common shares 13,604,706 13,728,325
============= =============
Basic earnings per share $ 0.11 $ 0.15
============= =============
Diluted Earnings Per Share:
Net earnings, as reported $ 1,506 $ 2,028
============= =============
Weighted average common shares 13,604,706 13,728,325
Effect of dilutive securities:
Stock options and warrants 1,059,644 1,546,804
------------- -------------
Dilutive potential common shares 14,664,350 15,275,129
============= =============
Diluted earnings per share $ 0.10 $ 0.13
============= =============
Excluded from computation of diluted earnings per share
Due to antidilutive effect:
Options and warrants to purchase common shares 15,000 -
Weighted average exercise price $ 2.27 $ -
14
5. CRIPPLE CREEK, COLORADO
Womacks has completed its 6,022 square foot expansion, approximately half
of which is providing additional space for gaming and the other half
increasing the "back of house" area. On April 19, 2003 construction was
completed on the gaming space added to Womacks. In conjunction with the
expansion, the main floor of Womacks and the mezzanine section were
re-carpeted and significant changes were made to the floor layout,
providing our customers with an attractive and more comfortable area in
which to play. Altogether we have added a total of approximately 3,000
square feet of gaming area since September of 2002. Most importantly,
having spanned the alley behind the existing property, Womacks will be able
to continue building out the casino to the rear of the property on a single
level at a later date. In the most recent quarter, construction was focused
on a new entrance leading to parking at the back of the property which
opened for the July 4th weekend and on the "back of house" area.
The total construction cost, excluding new slot machines, was approximately
$2.0 million, of which $1.9 million has been disbursed as of June 30, 2003.
6. CALEDON, SOUTH AFRICA
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 may be used for
future expansion.
In January 2003, CCA purchased the remaining 35% interest in CCAL, becoming
the sole owner of all of the common stock of CCAL. The Company paid 21.5
million Rand or $2.6 million, based on the conversion rate at January 10,
2003. In accordance with FASB Statement No. 141, "Business Combinations",
the cost of acquisition was allocated to the assets acquired and the
liabilities assumed based on fair values at the date of acquisition. The
assets and liabilities of CCAL, which were carried in the Company's
consolidated financial statements at the date of acquisition, had fair
values which approximated their carrying value, with the exception of land
to which $341 of the acquisition price was allocated. Simultaneous with the
transaction, the Hotel Management Agreement between CCAL and Fortes King
Hospitality (Pty) Limited ("FKH") was cancelled and CCA assumed the
management of the hotel. Financing for the transaction was provided by the
RCF (Note 8).
Caledon has begun a number of capital improvement projects. They include
inprovements to the landscaping, converting an existing bar to a restaurant
to provide alternate food choices and 24 hour service, enlarging the hotel
restaurant facilities to accommodate the increasing conference demands, and
updating several of the hotel rooms.
7. PRAGUE, CZECH REPUBLIC
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, 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 by Strabag AG, which was repaid in April 2003.
As of June 30, 2003 and December 31, 2002,the initial payment of $236
15
is classified in other assets on the Company's consolidated balance sheet.
The Company will carry the investment at cost until such time that its
investment is at least 20%, but not more that 50%, at which time the
Company will include its percentage of the equity earnings or loss in CM in
its consolidated balance sheet, consolidated statement of earnings and
consolidated statement of cash flows. 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 with a combined value of
$823. Should we acquire a 51% or greater interest in CM, we would expect to
consolidate the financial statements of the subsidiary. In addition, we
will evaluate the professional literature on this matter at the time our
investment reaches a 50% interest, including the requirements of FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities".
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 was
severely limited and has negatively effected the casino operation.
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. In April 2003, Casino Millennium remitted $8 in
management fees. Management fee income for the three months ended June 30,
2003 and 2002 was $8 and $47, respectively. Management fee income for the
six months ended June 30, 2003 and 2002 was $8 and $107, respectively.
8. LONG-TERM DEBT
The principal balance outstanding under the Wells Fargo Bank Revolving Line
of Credit Facility ("RCF") as of June 30, 2003 was $13,468 compared to
$11,500 at December 31, 2002. The amount available under the RCF as of June
30, 2003 was $11,087, net of amounts outstanding as of that date, compared
to $14,500 at December 31, 2002. The loan agreement includes certain
restrictive covenants on financial ratios of WMCK. The Company is in
compliance with the covenants as of June 30, 2003. Interest rates at June
30, 2003 were 4.0% for $1,968 outstanding under prime based provisions of
the loan agreement and 3.59% for $11,500 outstanding under LIBOR based
provisions of the loan agreement.
The fair value of the Company's interest rate swap derivatives as of June
30, 2003 and December 31, 2002 of $601 and $788, respectively, is reported
as a liability in the consolidated balance sheets. The net gain (loss) on
the interest rate swaps of $86 and ($93), net of deferred income tax
expense (benefit) of $51 and ($55) for the three months ended June 30, 2003
and 2002 has been reported in accumulated other comprehensive loss in the
shareholders' equity section of the accompanying June 30, 2003 and December
31, 2002 condensed consolidated balance sheets, respectively. The net gain
(loss) on the interest rate swaps of $117 and ($7), net of deferred income
tax expense (benefit) of $70 and ($4) for the first six months of 2003 and
2002, has been reported in accumulated other comprehensive loss in the
shareholders' equity sections of the accompanying June 30, 2003 and
December 31, 2002 condensed consolidated balance sheets, respectively. Net
additional interest expense to the Company under the swap agreements was
$148 and $127 for the three months ended June 30, 2003 and 2002,
respectively, and $290 and $255 for the six months ended June 30, 2003 and
2002. Including the impact of the swaps and the amortization of the
deferred financing cost, the effective rate on the borrowings under the RCF
was 9.12% and 9.41% for the six months ended June 30, 2003 and 2002,
respectively.
16
In April 2000, CCAL entered into a loan agreement with PSG Investment Bank
Limited ("PSGIB"), which provided for a principal loan of approximately
$6,200, based on an exchange rate of 7.6613 rand per dollar at the time the
funds were advanced, to finance development of the Caledon project. The
outstanding balance and interest rate as of June 30, 2003 and December 31,
2002 was $4,251 and $4,179, respectively and 17.05% in both years. 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 $560,
based on an exchange rate of 8.0315 rand per dollar at the time. The
outstanding balance and interest rate on the standby facility with PSGIB as
of June 30, 2003 and December 31, 2002 was $424 and $418, respectively and
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 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 $533). In addition, one third of
the next quarterly principal and interest payment must be deposited on the
last day of each month into the fund and used for the next quarterly
installment. The loan agreement includes certain restrictive covenants for
CCAL. CCAL is in compliance with the covenants as of June 30, 2003. PSGIB
was acquired by ABSA Bank (ABSA) in March 2003. There have been no changes
in the terms or conditions of the current loan, as amended, with PSGIB.
An unsecured note payable, in the amount of $380, to a founding shareholder
bears interest at 6%, payable quarterly. The note holder, 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 current in the
accompanying condensed consolidated balance sheet as of June 30, 2003 and
December 31, 2002.
The remaining amount of $362 in debt, as of June 30, 2003, consists of
capital leases for various equipment.
The consolidated weighted average interest rate on all borrowings was
10.54% and 9.84% for the six months ended June 30, 2003 and 2002,
respectively.
9. SHAREHOLDERS' EQUITY
During the first half of 2003, the Company repurchased 59,100 shares of its
common stock on the open market at an average per share price of $2.24.
The Company re-issued 10,000 shares of treasury stock in January 2003 when
one of its directors exercised his options.
On April 16, 2003, in accordance with the Company's Employees' Equity
Incentive Plan ("EEIP"), then-director, James Forbes, elected to exercise
all 618,000 of his outstanding options, carrying an average strike price of
$1.306. The shares were issued out of treasury and payment for the options
was made by transferring 357,080 shares of common stock that the director
has owned since 1994 to the Company at a per share price of $2.26
established
17
at the close of the market on April 16, 2003. Additionally, on June 9, 2003
the Company repurchased 132,184 shares from the director at the per share
price of $2.26, established at the close of market on April 16, 2003. The
net effect of these transactions reduced treasury shares by 128,736 and
increased the outstanding shares by 128,736.
As of June 30, 2003, the Company held 825,276 shares in treasury at an
average price per share of $2.27. Subsequent to June 30, 2003, the Company
has not purchased any additional shares of its common stock on the open
market.
In connection with the granting of a gaming license to CCAL by the Western
Cape Gambling and Racing Board in April 2000, CCAL issued a total of 200
preference shares, 100 shares each to two minority shareholders each of
whom have one seat on the board of directors of CCAL, neither of whom are
officers, directors or affiliates of Century Casinos, Inc. The preference
shares are not cumulative, nor are they redeemable. The preference shares
entitle the holders of said shares to dividends of 20% of the after-tax
profits directly attributable to the CCAL casino business subject to
working capital and capital expenditure requirements and CCAL loan
obligations and liabilities as determined by the directors of CCAL. Should
the casino business be sold or otherwise dissolved, the preference
shareholders are entitled to 20% of any surplus directly attributable to
the CCAL casino business, net of all liabilities attributable to the CCAL
casino business. As of June 30, 2003, no dividend has been declared for the
preference shareholders.
In June 2003, the Company's EEIP was amended to permit the exchange of
non-statutory options for restricted stock awards ("RSA's) at the rate of
one RSA for one non-statutory option. As of June 30, 2003, no RSA's have
been awarded.
10. SEGMENT INFORMATION
The Company is managed in four segments; Colorado, South Africa, Cruise
Ships, and Corporate operations. The operating results of the Colorado
segment are those of WMCK-Venture Corp. and subsidiaries which own Womacks
Hotel and Casino ("Womacks") in Cripple Creek, Colorado. The operating
results of the South African segment are those of Century Casinos Africa
(Pty) Limited and its subsidiaries, primarily Century Casinos Caledon (Pty)
Limited which owns the Caledon Casino, Hotel and Spa.
Cruise Ship operations include the revenue and expense of the seven
combined shipboard operations for which the Company has casino concession
agreements.
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. The gaming industry commonly uses EBITDA as
a method of arriving at the economic value of a casino operation. It is
also used by our lending institutions to gauge operating performance.
Management uses EBITDA to compare the relative operating performance of
separate operating units by eliminating the interest income, interest
expense, income tax expense, and depreciation and amortization expense
associated with the varying levels of capital expenditures for
infrastructure required to generate revenue, and the oftentimes high cost
of acquiring existing operations.
18
Segment information as of, and for the three months ended June 30, 2003 and 2002
is presented below.
================================ =========================== ========================== =============================
Colorado South Africa Cruise Ships
================================ =========================== ========================== =============================
For the Three Months Ended 2003 2002 2003 2002 2003 2002
June 30,
================================ ============= ============= ============ ============= ============== ==============
Operating revenue $ 5,474 $ 6,513 $ 2,776 $ 1,788 $ 358 $ 200
Promotional allowances $ (906) $ (1,007) $ (157) $ (112) $ - $ -
Net operating revenue $ 4,568 $ 5,506 $ 2,619 $ 1,676 $ 358 $ 200
Operating expenses (excluding
depreciation) $ 2,696 $ 2,915 $ 1,862 $ 1,232 $ 270 $ 112
Depreciation $ 347 $ 324 $ 257 $ 160 $ 17 $ 15
Earnings (loss) from operations $ 1,525 $ 2,267 $ 500 $ 284 $ 71 $ 73
Interest income $ 4 $ 4 $ 54 $ 26 $ - $ -
Interest expense,
including debt issuance cost $ 374 $ 347 $ 231 $ 201 $ - $ -
Other income, net $ - $ 2 $ - $ - $ 5 $ -
Earnings (loss) before income
taxes and minority interest $ 1,155 $ 1,926 $ 323 $ 109 $ 76 $ 73
Income tax expense(benefit) $ 439 $ 886 $ 123 $ 35 $ 29 $ 27
Minority interest expense
(benefit) $ - $ - $ - $ (6) $ - $ -
Net earnings (loss) $ 716 $ 1,040 $ 200 $ 68 $ 47 $ 46
=====================================================================================================================
=====================================================================================================================
Reconciliation to EBITDA:
Net earnings (loss) (US GAAP) $ 716 $ 1,040 $ 200 $ 68 $ 47 $ 46
Interest income $ (4) $ (4) $ (54) $ (26) $ - $ -
Interest expense $ 374 $ 347 $ 231 $ 201 $ - $ -
Income taxes $ 439 $ 886 $ 123 $ 35 $ 29 $ 27
Depreciation $ 347 $ 324 $ 257 $ 160 $ 17 $ 15
EBITDA $ 1,872 $ 2,593 $ 757 $ 438 $ 93 $ 88
=====================================================================================================================
19
================================ ========================== =========================== =============================
Corporate and Other Inter-segment Elimination Consolidated
================================ ========================== =========================== =============================
For the Three Months
Ended June 30, 2003 2002 2003 2002 2003 2002
================================ ============= ============ ============= ============= ============== ==============
Operating revenue $ 8 $ 47 $ - $ - $ 8,616 $ 8,548
Promotional allowances $ - $ - $ - $ - $ (1,063) $ (1,119)
Net operating revenue $ 8 $ 47 $ - $ - $ 7,553 $ 7,429
Operating expenses (excluding
depreciation) $ 395 $ 462 $ - $ - $ 5,223 $ 4,721
Depreciation $ 42 $ 54 $ - $ - $ 663 $ 553
Earnings (loss) from operations $ (429) $ (469) $ - $ - $ 1,667 $ 2,155
Interest income $ 86 $ 90 $ (86) $ (86) $ 58 $ 34
Interest expense,
including debt issuance cost $ 6 $ 6 $ (86) $ (86) $ 525 $ 468
Other income, net $ 8 $ (1) $ - $ - $ 13 $ 1
Earnings (loss) before income
taxes and minority interest $ (341) $ (386) $ - $ - $ 1,213 $ 1,722
Income tax expense(benefit) $ (129) $ (335) $ - $ - $ 462 $ 613
Minority interest expense
(benefit) $ - $ - $ - $ - $ - $ (6)
Net earnings (loss) $ (212) $ (51) $ - $ - $ 751 $ 1,103
=====================================================================================================================
=====================================================================================================================
Reconciliation to EBITDA
Net earnings (loss) (USGAAP) $ (212) $ (51) $ - $ - $ 751 $ 1,103
Interest income $ (86) $ (90) $ 86 $ 86 $ (58) $ (34)
Interest expense $ 6 $ 6 $ (86) $ (86) $ 525 $ 468
Income taxes $ (129) $ (335) $ - $ - $ 462 $ 613
Depreciation $ 42 $ 54 $ - $ - $ 663 $ 553
EBITDA $ (379) $ (416) $ - $ - $ 2,343 $ 2,703
=====================================================================================================================
20
Segment information as of, and for the six months ended June 30, 2003 and 2002
is presented below.
================================ =========================== ========================== =============================
Colorado South Africa Cruise Ships
================================ =========================== ========================== =============================
As of and for the Six Months 2003 2002 2003 2002 2003 2002
Ended June 30,
================================ ============== ============ ============ ============= ============== ==============
Property and equipment, net $ 21,648 $ 20,905 $ 12,425 $ 9,653 $ 334 $ 221
Total assets $ 31,944 $ 31,499 $ 17,179 $ 13,004 $ 895 $ 438
=====================================================================================================================
====================================================================================================================
Operating revenue $ 11,088 $ 12,636 $ 5,294 $ 3,429 $ 688 $ 305
Promotional allowances $ (1,876) $ (1,937) $ (268) $ (219) $ - $ -
Net operating revenue $ 9,212 $ 10,699 $ 5,026 $ 3,210 $ 688 $ 305
Operating expenses (excluding
depreciation) $ 5,471 $ 5,740 $ 3,572 $ 2,332 $ 484 $ 208
Depreciation $ 699 $ 667 $ 496 $ 347 $ 32 $ 28
Earnings (loss) from operations $ 3,042 $ 4,292 $ 958 $ 531 $ 172 $ 69
Interest income $ 7 $ 8 $ 107 $ 42 $ - $ -
Interest expense,
including debt issuance cost $ 744 $ 691 $ 467 $ 397 $ - $ -
Other income, net $ - $ 2 $ - $ - $ 5 $ -
Earnings (loss) before income
taxes and minority interest $ 2,305 $ 3,611 $ 598 $ 176 $ 177 $ 69
Income tax expense(benefit) $ 876 $ 1,661 $ 234 $ 85 $ 67 $ 26
Minority interest expense
(benefit) $ - $ - $ (8) $ 2 $ - $ -
Net earnings (loss) $ 1,429 $ 1,950 $ 356 $ 93 $ 110 $ 43
=====================================================================================================================
=====================================================================================================================
Reconciliation to EBITDA:
Net earnings (loss) (US GAAP) $ 1,429 $ 1,950 $ 356 $ 93 $ 110 $ 43
Interest income $ (7) $ (8) $ (107) $ (42) $ - $ -
Interest expense $ 744 $ 691 $ 467 $ 397 $ - $ -
Income taxes $ 876 $ 1,661 $ 234 $ 85 $ 67 $ 26
Depreciation $ 699 $ 667 $ 496 $ 347 $ 32 $ 28
EBITDA $ 3,741 $ 4,961 $ 1,446 $ 880 $ 209 $ 97
=====================================================================================================================
21
================================ ========================== =========================== =============================
Corporate and Other Inter-segment Elimination Consolidated
================================ ========================== =========================== =============================
As of and for the Six Months 2003 2002 2003 2002 2003 2002
Ended June 30,
================================ ============= ============ ============= ============= ============== ==============
Property and equipment, net $ 1,050 $ 1,658 $ - $ - $ 35,457 $ 32,437
Total assets $ 2,215 $ 3,253 $ - $ - $ 52,233 $ 48,194
=====================================================================================================================
=====================================================================================================================
Operating revenue $ 8 $ 107 $ - $ - $ 17,078 $ 16,477
Promotional allowances $ - $ - $ - $ - $ (2,144) $ (2,156)
Net operating revenue $ 8 $ 107 $ - $ - $ 14,934 $ 14,321
Operating expenses (excluding
depreciation) $ 731 $ 763 $ - $ - $ 10,258 $ 9,043
Depreciation $ 84 $ 108 $ - $ - $ 1,311 $ 1,150
Earnings (loss) from operations $ (807) $ (764) $ - $ - $ 3,365 $ 4,128
Interest income $ 172 $ 178 $ (171) $ (171) $ 115 $ 57
Interest expense,
including debt issuance cost $ 12 $ 12 $ (171) $ (171) $ 1,052 $ 929
Other income, net $ 9 $ (1) $ - $ - $ 14 $ 1
Earnings (loss) before income
taxes and minority interest $ (638) $ (599) $ - $ - $ 2,442 $ 3,257
Income tax expense(benefit) $ (249) $ (541) $ - $ - $ 928 $ 1,231
Minority interest expense
(benefit) $ - $ - $ - $ - $ (8) $ 2
Net earnings (loss) $ (389) $ (58) $ - $ - $ 1,506 $ 2,028
=====================================================================================================================
=====================================================================================================================
Reconciliation to EBITDA
Net earnings (loss) (USGAAP) $ (389) $ (58) $ - $ - $ 1,506 $ 2,028
Interest income $ (172) $ (178) $ 171 $ 171 $ (115) $ (57)
Interest expense $ 12 $ 12 $ (171) $ (171) $ 1,052 $ 929
Income taxes $ (249) $ (541) $ - $ - $ 928 $ 1,231
Depreciation $ 84 $ 108 $ - $ - $ 1,311 $ 1,150
EBITDA $ (714) $ (657) $ - $ - $ 4,682 $ 5,281
=====================================================================================================================
22
11. OTHER INCOME, NET
Other income, net, consists of the following:
For the Three Months Ended June 30,
2003 2002
---- ----
Interest income $ 58 $ 34
Gain on disposition of assets 6 2
Foreign currency exchange gains 7 -
Other - (1)
------------- -------------
$ 71 $ 35
============= =============
For the Six Months Ended June 30,
2003 2002
---- ----
Interest income $ 115 $ 57
Gain on disposition of assets 6 2
Foreign currency exchange gains 8 -
Other - (1)
------------- -------------
$ 129 $ 58
============= =============
12. PROMOTIONAL ALLOWANCES
Promotional allowances presented in the condensed consolidated statement of
earnings for the three months ended June 30, 2003 and June 30, 2002 include
the following:
For the Three Months Ended June 30,
2003 2002
---- ----
Food & Beverage and Hotel Comps $ 307 $ 307
Free Plays or Coupons 418 423
Player Points 338 389
------------- -------------
Total Promotional Allowances $ 1,063 $ 1,119
============= =============
23
Promotional allowances presented in the condensed consolidated statement of
earnings for the six months ended June 30, 2003 and June 30, 2002 include
the following:
For the Six Months Ended June 30,
2003 2002
---- ----
Food & Beverage and Hotel Comps $ 634 $ 632
Free Plays or Coupons 819 805
Player Points 691 719
------------- -------------
Total Promotional Allowances $ 2,144 $ 2,156
============= =============
We issue free play or coupons for the purpose of generating future revenue.
The coupons are valid for a limited number of days (generally not exceeding
7 days). The net win from the coupons is expected to exceed the value of
the coupons issued. The cost of the coupons redeemed is applied against the
revenue generated on the day of the redemption.
Members of the casinos' players clubs earn points as a percentage of
coin-in. The cost of the points is offset against the revenue in the period
that the revenue generated the points. The value of the unused or
unredeemed points is included in the accounts payable and accrued
liabilities on our consolidated balance sheet.
13. TRANSACTIONS WITH RELATED PARTIES
Effective May 1, 2003, James Forbes resigned as a member of the Company's
Board of Directors, but will continue as a member of the Board of Directors
of Century Casinos Caledon Proprietary Limited, and will focus his
attention on the project in Johannesburg, in the Gauteng province of South
Africa, pursuant to the terms of a consulting agreement between Century
Casinos Inc. and Respond Limited, a management company controlled by James
Forbes. Under the terms of the Agreement of Termination of Management
Agreement Incorporating New Consulting Agreement ("Agreement") dated May 1,
2003, the Company's obligation to make monthly payments of $10 to Respond
Limited ceases on December 31, 2003. In the event that the Company becomes
a party to the project in Johannesburg, Respond Limited could receive
additional payments in accordance with sections 2.f and 2.g of the
Agreement, filed as Exhibit 10.128 in the Registrant's filing on Form 10-Q
for the period ended March 31, 2003. In addition, the Company and James
Forbes completed a series of stock transactions which are fully described
in Note 9.
24
CENTURY CASINOS, INC. AND SUBSIDIARIES
(Dollar amounts in thousands, except for share information, or as noted)
- --------------------------------------------------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Forward-Looking Statements, Business Environment and Risk Factors
Forward-Looking Statements, 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.
25
Results of Operations
Three Months Ended June 30, 2003 vs. 2002
Colorado
The operating results of the Colorado segment are those of WMCK-Venture Corp.
and subsidiaries which own Womacks Hotel and Casino ("Womacks") in Cripple
Creek, Colorado. Womacks' results of operations for the quarters ended June 30,
2003 and 2002 are as follows:
For the three months ended June 30,
2003 2002 Increase %
---- ---- (Decrease) Change
Operating Revenue
Casino $ 5,164 $ 6,211 $ (1,047) -16.9%
Hotel, food and beverage 283 273 10 3.7%
Other 27 29 (2) -6.9%
------------ ------------
5,474 6,513
Less promotional allowances 906 1,007 (101) -10.0%
------------ ------------
Net operating revenue 4,568 5,506 (938) -17.0%
------------ ------------
Costs and Expenses
Casino 1,572 1,712 (140) -8.2%
Hotel, food and beverage 76 61 15 24.6%
General and administrative 1,048 1,142 (94) -8.2%
Depreciation 347 324 23 7.1%
------------ ------------
3,043 3,239
------------ ------------
Earnings from operations 1,525 2,267 (742) -32.7%
Interest expense (374) (347) 27 7.8%
Other income, net 4 6 (2) -33.3%
------------ ------------
Earnings before income taxes 1,155 1,926 (771) -40.0%
Income tax expense 439 886 (447) -50.5%
------------ ------------
Net Earnings $ 716 $ 1,040 $ (324) -31.2%
============ ============
Overall operating results were impacted by the casino results detailed below.
26
Casino Margin and Market Data
For the three months ended June 30, 2003 2002 % Change
---- ----
Casino revenue $ 5,164 $ 6,211 -16.9%
Casino promotional allowances $ 673 $ 764 -11.9%
Casino revenue, net $ 4,491 $ 5,447 -17.6%
Casino expense $ 1,572 $ 1,712 -8.2%
Casino margin $ 2,919 $ 3,735 -21.8%
Casino margin as a % of casino revenue, net 65.0% 68.6%
Market share of the Cripple Creek AGP 14.5% 17.7%
Average number of slot machines 601 614
Market share of Cripple Creek gaming devices 14.4% 14.8%
Average slot machine win per day 93 dollars 110 dollars
Cripple Creek average slot machine win per day 92 dollars 91 dollars
When comparing 2003 to 2002, there was a 1.6% increase in the Cripple Creek
market. The casino has expanded the use of both radio and TV advertising,
in its efforts to compete for the limited pool of entertainment dollars.
However, the covered parking garages provided by two of its competitors
have provided them with a large amount of close proximity parking. A large
amount of close proximity parking is an advantage, heretofore held by
Womacks. Both competitors also have a larger number of hotel rooms,
providing them with an advantage especially during inclement weather and
the peak tourist season. The combined net impact of these factors has
contributed to the net decrease in Womacks' revenues for the period. The
Company has not yet decided on the next phase of expansion, but owns all of
the vacant property adjacent to the casino and is able to expand once it
feels comfortable that the additional cost of the expansion will improve
net earnings. In the second quarter of 2003, Womacks made significant
changes to the casino floor layout and reduced the number of slot machines
to its current level.
Even though every attempt has been made to control cost during a period in
which the casino has seen a decline in revenue, the relative percentage of
personnel cost and device fees to net casino revenue contributed
significantly to the erosion in the casino margin.
During the three months ended June 30, 2003, Womacks leased approximately
40 slot machines, compared to 38 in three months ended June 30, 2002, from
manufacturers, on which it pays a fee calculated as a percentage of the net
win. All of the leases have short term commitment periods not exceeding
three months and are classified as operating leases. The leases can be
cancelled with no more than 30 days written notice. On a portion of the
leases, the manufacturer is guaranteed a minimum fee per day that can range
from 15 dollars to 35 dollars for the duration of the lease. In most
instances, the branded games that are being introduced to the market are
not available for purchase. For financial reporting purposes, the net win
on the slot machines is included in our revenue and the amount due to the
manufacturer is recorded as an expense, in the period during which the
revenue is earned, as casino operating cost. Management makes its decisions
to introduce these machines based on the consumer demand for the product.
The amount paid under these agreements was $100 and $104 for the quarters
ended June 30, 2003 and 2002, respectively.
27
Management continues to focus on the marketing of the casino through the
expansion of the successful Gold Club.
Hotel, Food and Beverage Margin
2003 2002 % Change
---- ----
For the three months ended June 30,
Hotel, food and beverage revenue $ 283 $ 273 3.7%
Hotel, food and beverage expense $ 76 $ 61 24.6%
Hotel, food and beverage margin $ 207 $ 212 -2.4%
Hotel, food and beverage margin as % of hotel, food
and beverage revenue 73.1% 77.7%
Relocation of the restaurant to the first floor in July 2002 has increased
its visibility and is reflected in the increase in volume. All of the
revenue generated by the hotel operations is derived from comps to better
players and is included in promotional allowances for the casino. The
increase in expenses and corresponding decrease in margins is primarily the
result of increases in the cost of beer, wine & liquor.
Other
The increase in interest expense, including debt issuance cost, to $374 in
2003 from $347 in 2002, is attributable to the increase in the average
balance of the RCF to $13.5 million in the second quarter of 2003 from
$12.3 million in the second quarter of 2002. The major factor for the
increase in the average balance of the RCF is the $2.6 million borrowed in
January 2003 to fund the purchase of the remaining 35% interest in CCAL by
the Company. Since the second quarter of 2000 the Company has borrowed a
total of $9.5 million under the RCF to fund its projects in South Africa.
The interest on this amount has resulted in a charge of approximately $265
and $192 to the Company's Colorado operations for the second quarter of
2003 and 2002, respectively. The weighted-average interest rate on the
borrowings under the RCF, including effects of the swap agreements, has
marginally decreased to 9.02% in 2003 from 9.28% in 2002.
The increase in depreciation is attributable to the recent expansion of the
facility and due to the investment in new slot equipment.
The Colorado segment recognized income tax expense of $439 in 2003 versus
$886 in 2002, principally the result of a decrease in earnings before
income taxes.
28
South Africa
The operating results of the South African segment are those of Century
Casinos Africa (Pty) Limited and its subsidiaries, primarily Century
Casinos Caledon (Pty) Limited, which owns the Caledon Casino, Hotel and
Spa.
Improvement in the Rand versus the dollar when comparing the second quarter
of last year to the current year has had a positive impact on the reported
revenues and a negative impact on expenses.
Operational results in US dollars for the three months ended June 30, 2003
and 2002 are as follows: (See next page for results in Rand)
For the three months ended June 30, Increase %
(Decrease) Change
2003 2002
---- ----
Operating Revenue
Casino $ 2,115 $ 1,426 $ 689 48.3%
Hotel, food and beverage 534 317 217 68.5%
Other 127 45 82 182.2%
------------ ------------
2,776 1,788
Less promotional allowances 157 112 45 40.2%
------------ ------------
Net operating revenue 2,619 1,676 943 56.3%
------------ ------------
Costs and Expenses
Casino 878 562 316 56.2%
Hotel, food and beverage 505 289 216 74.7%
General and administrative 479 381 98 25.7%
Depreciation 257 160 97 60.6%
------------ ------------
2,119 1,392
------------ ------------
Earnings from operations 500 284 216 76.1%
Interest expense (231) (201) 30 14.9%
Other income, net 54 26 28 107.7%
------------ ------------
Earnings before income taxes 323 109 214 196.3%
Income tax expense 123 35 88 251.4%
Minority interest expense (benefit) - (6) (6) -100.0%
------------ ------------
Net Earnings $ 200 $ 68 $ 132 194.1%
============ ============
Net Earnings for South Africa $ 200 $ 68
Non-CCAL (income) expense:
General & administrative expenses 100 58
Interest Income (8) (3)
Income tax benefit (26) (4)
Minority interest expense (benefit) - 6
------------ ------------
66 57
------------ ------------
CCAL Net Earnings $ 266 $ 125
============ ============
- --------------------------------------------------------------------------------------------------------------
Average exchange rate (Rand/USD) 7.65 10.41 -26.5%
- --------------------------------------------------------------------------------------------------------------
29
Operational results in Rand for the three months ended June 30, 2003 and
2002 are as follows:
For the three months ended June 30, Increase %
(Decrease) Change
2003 2002
---- ----
Operating Revenue
Casino R 16,176 R 14,832 R 1,344 9.1%
Hotel, food and beverage 4,084 3,288 796 24.2%
Other 984 472 512 108.5%
------------ ------------
21,244 18,592
Less promotional allowances 1,200 1,164 36 3.1%
------------ ------------
Net operating revenue 20,044 17,428 2,616 15.0%
------------ ------------
Costs and Expenses
Casino 6,716 5,839 877 15.0%
Hotel, food and beverage 3,868 2,981 887 29.8%
General and administrative 3,659 3,960 (301) -7.6%
Depreciation 1,965 1,653 312 18.9%
------------ ------------
16,208 14,433
------------ ------------
Earnings from operations 3,836 2,995 841 28.1%
Interest expense (1,769) (2,081) (312) -15.0%
Other income, net 411 260 151 58.1%
------------ ------------
Earnings before income taxes 2,478 1,174 1,304 111.1%
Income tax expense 945 366 579 158.2%
Minority interest expense (benefit) - (69) 69 -100.0%
------------ ------------
Net Earnings R 1,533 R 739 R 794 107.4%
============ ============
Net Earnings for South Africa R 1,533 R 739
Non-CCAL (income) expense:
General & administrative expenses 768 601
Interest income (66) (35)
Income tax benefit (195) (38)
Minority interest expense (benefit) - 68
------------ ------------
507 596
------------ ------------
CCAL Net Earnings R 2,040 R 1,335
============ ============
30
Casino Margin (in USD)
For the three months ended June 30, 2003 2002 % Change
---- ----
Casino revenue $ 2,115 $ 1,426 48.3%
Casino promotional allowances $ 83 $ 48 72.9%
Casino revenue, net $ 2,032 $ 1,378 47.5%
Casino expense $ 878 $ 562 56.2%
Casino margin $ 1,154 $ 816 41.4%
---------------------------------------------------------------------------------------
Average exchange rate (Rand/USD) 7.65 10.41 -26.5%
---------------------------------------------------------------------------------------
Casino Margin and Market Data (in Rand)
For the three months ended June 30, 2003 2002 % Change
---- ----
Casino revenue R 16,176 R 14,832 9.1%
Casino promotional allowances R 639 R 483 32.3%
Casino revenue, net R 15,537 R 14,349 8.3%
Casino expense R 6,716 R 5,839 15.0%
Casino margin R 8,821 R 8,510 3.7%
Casino margin as a % of casino
revenue, net 56.8% 59.3%
Market share of the Western Cape AGP 5.9% 6.0%
Market share of Western Cape
gaming devices 10.5% 11.1%
Average number of slot machines 268 250
Average slot machine win per day 606 Rand 593 Rand 2.2%
Average number of tables 8 8
Average table win per day 1,947 Rand 1,850 Rand 5.2%
The 8.3% increase in the casino revenue, net is attributable to the
increased traffic generated by an increasing number of conferences, the
introduction of cash couponing, and the use of targeted marketing.
Subsequent to the purchase of the remaining 35% interest in CCAL, the
Company is focused on marketing the resort as a unified property, offering
its guests an array of amenities that complement the gaming experience.
These include a 92-room hotel, a variety of dining experiences, and the
historic mineral hot spring & spa. The increase in casino expenses in
excess of the increase in the corresponding revenue is primarily
attributable to the effect of inflation. Operating costs of the resort are
now fully allocated to the various departments, giving management a clear
picture of each profit center within the resort. CCAL competes against a
much larger competitor located in a more populous area of the Western Cape.
31
Hotel, Food and Beverage Margin (in USD)
For the three months ended June 30, 2003 2002 % Change
---- ----
Hotel, food and beverage revenue $ 534 $ 317 68.5%
Hotel, food and beverage expense $ 505 $ 289 74.7%
Hotel, food and beverage margin $ 29 $ 28 3.6%
--------------------------------------------------------------------------------------------------------------
Average exchange rate (Rand/USD) 7.65 10.41 -26.5%
--------------------------------------------------------------------------------------------------------------
Hotel, Food and Beverage Margin (in Rand)
For the three months ended June 30, 2003 2002 % Change
---- ----
Hotel, food and beverage revenue R 4,084 R 3,288 24.2%
Hotel, food and beverage expense R 3,868 R 2,981 29.8%
Hotel, food and beverage margin R 216 R 307 -29.6%
Hotel, food and beverage margin as
% of hotel food and beverage revenue 5.3% 9.3%
The majority of the increase in revenues occurred during May and June which
corresponds to the peak period for conference business in the first six
months of the year. The conferences helped increase the hotel occupancy
rate to 55% from 49% for the three months ended June 30, 2003 and 2002,
respectively. The 12% increase in occupancy was partially offset by the
reduced group rates offered to conference attendees that accounted for an
average of 48% of the guests in May and June 2003. Food and beverage
revenue has increased significantly due to a number of factors. Since the
first quarter of 2002, meal prices have been increased by approximately
12.5%. The increase in conferences held at the resort has resulted in an
increase in the number of theme dinners and banquets.
CCAL continues to make a number of repairs and improvements to the resort
on an ongoing basis (see Note 6). Additionally, continuing inflationary
pressures in South Africa have driven up base costs such as labor, supplies
and utilities.
Other
The weighted-average interest rate on the borrowings under the ABSA loan
agreement is 16.9% in the second quarter of 2003 and 2002. Excluding the effect
of fluctuations in the exchange rate, interest expense has decreased by 15.0% as
the principal balance of the term loans and capitalized leases are repaid. Other
revenue principally consists of revenue generated from the resort's ancillary
services, which include the adventure center, spa center, and conference room
rental. An insurance claim submitted by the casino for loss of revenue due to
water damage to a number of slot machines accounted for R472 of the increase in
other revenue.
32
Cruise Ships
Cruise ships' operational results for the periods ending June 30, 2003 and
2002 are as follows:
For the three months ended June 30, Increase % Change
(Decrease)
2003 2002
---- ----
Operating Revenue
Casino $ 346 $ 179 $ 167 93.3%
Other 12 21 (9) -42.9%
------------ ------------
358 200 158 79.0%
Less promotional allowances - -
------------ ------------
Net operating revenue 358 200
------------ ------------
Costs and Expenses
Casino 267 112 155 138.4%
General and administrative 3 - 3 N/A
Depreciation 17 15 2 13.3%
------------ ------------
287 127
------------ ------------
Earnings from operations 71 73 (2) -2.7%
Other income, net 5 - 5 N/A
------------ ------------
Earnings before income taxes 76 73 3 4.1%
Income tax expense 29 27 2 7.4%
------------ ------------
Net Earnings $ 47 $ 46 $ 1 2.2%
============ ============
Casino Margin
For the three months ended June 30, 2003 2002 % Change
---- ----
Casino revenues $ 346 $ 179 93.3%
Casino expenses $ 267 $ 112 138.4%
Casino margin $ 79 $ 67 17.9%
Casino margin as a % of casino revenue, net 22.8% 37.4%
In the second quarter of 2003, we operated casinos on a total of seven
ships: four from Silverseas, one on the World of ResidenSea and two on
Oceania Cruises. On April 19, 2003, the Company successfully opened its
casino aboard the Insignia, a 684 passenger luxury cruise ship operated by
Oceania Cruises. The Silver Wind, a cruise ship operated by Silverseas,
which was taken out of service following the events of the September 11,
2001, resumed operations on May 23, 2003. The casino aboard the Regatta,
another 684 passenger luxury cruise ship operated by Oceania Cruises, was
opened on June 26, 2003. In the second quarter of 2002 we operated casinos
on four ships: three on Silverseas and one on the World of ResidenSea.
We anticipate we will repeatedly experience severe fluctuations in the
revenue generated on each cruise depending on the quality of the players.
This is a condition that is beyond the control of the Company.
33
An increase in casino operating expenses is mainly attributable to start up
costs of casinos aboard Oceania cruise ships, i.e. travel and additional
staff cost, plus the cost to re-establish the casino on the Silver Wind.
Concession fees paid to the ship operators in accordance with the
agreements accounted for $94 and $22 of the total casino expenses incurred
in the three month periods ended June 30, 2003 and 2002, respectively.
Corporate & Other
For the three months ended June 30, Increase % Change
(Decrease)
2003 2002
---- ----
Operating Revenue
Other $ 8 47 $ (39) -83.0%
------------ ------------
8 47 (39) -83.0%
Less promotional allowances - -
------------ ------------
Net operating revenue 8 47
------------ ------------
Costs and Expenses
General and administrative 395 462 (67) -14.5%
Depreciation 42 54 (12) -22.2%
------------ ------------
437 516
------------ ------------
Loss from operations (429) (469) (40) -8.5%
Interest expense (6) (6) - 0.0%
Other income, net 94 89 5 5.6%
------------ ------------
Loss before income taxes (341) (386) (45) -11.7%
Income tax benefit (129) (335) 206 61.5%
------------ ------------
Net Loss $ (212) $ (51) 161 315.7%
============ ============
Net operating revenues consisted of management fees earned from operating
Casino Millennium in Prague, Czech Republic and were $8 and $47 in the
second quarter of 2003 and 2002, respectively.
Effective September 1, 2002, management fees and interest due to the
Company from CM will not be accrued until a certainty of cash flow is
attained for Casino Millennium, but instead will be recorded as received.
In April 2003, Casino Millennium remitted $8 in management fees.
34
Results of Operations
Six Months Ended June 30, 2003 vs. 2002
Colorado
The operating results of the Colorado segment are those of WMCK-Venture Corp.
and subsidiaries which own Womacks Hotel and Casino ("Womacks") in Cripple
Creek, Colorado. Womacks' results of operations for the six months ended June
30, 2003 and 2002 are as follows:
For the six months ended June 30, Increase %
(Decrease) Change
2003 2002
---- ----
Operating Revenue
Casino $ 10,457 $ 12,036 $ (1,579) -13.1%
Hotel, food and beverage 579 542 37 6.8%
Other 52 58 (6) -10.3%
------------ ------------
11,088 12,636
Less promotional allowances 1,876 1,937 (61) -3.1%
------------ ------------
Net operating revenue 9,212 10,699 (1,487) -13.9%
------------ ------------
Costs and Expenses
Casino 3,213 3,356 (143) -4.3%
Hotel, food and beverage 145 118 27 22.9%
General and administrative 2,113 2,266 (153) -6.8%
Depreciation 699 667 32 4.8%
------------ ------------
6,170 6,407
------------ ------------
Earnings from operations 3,042 4,292 (1,250) -29.1%
Interest expense (744) (691) 53 7.7%
Other income, net 7 10 (3) -30.0%
------------ ------------
Earnings before income taxes 2,305 3,611 (1,306) -36.2%
Income tax expense 876 1,661 (785) -47.3%
------------ ------------
Net Earnings $ 1,429 $ 1,950 $ (521) -26.7%
============ ============
Overall operating results were impacted by the casino results detailed below.
35
Casino Margin and Market Data
For the six months ended June 30, 2003 2002 % Change
---- ----
Casino revenue $ 10,457 $ 12,036 -13.1%
Casino promotional allowances $ 1,386 $ 1,453 -4.6%
Casino revenue, net $ 9,071 $ 10,583 -14.3%
Casino expense $ 3,213 $ 3,356 -4.3%
Casino margin $ 5,858 $ 7,227 -18.9%
Casino margin as a % of casino revenue, net 64.6% 68.3%
Market share of the Cripple Creek AGP 15.3% 17.6%
Average number of slot machines 634 613
Market share of Cripple Creek gaming devices 15.0% 14.8%
Average slot machine win per day 90 dollars 107 dollars
Cripple Creek average slot machine win per day 88 dollars 89 dollars
Growth in the Cripple Creek market during the first six months of 2003
compared to 2002 was limited to 0.4%. When comparing 2003 to 2002,
distractions from major construction in the casino, limited access to the
casino from the adjoining parking lot during the first four months of the
year, and poor weather conditions, particularly in March and April 2003,
had an adverse effect on casino revenue and overall operating results. The
covered parking garages provided by two of our competitors have impacted
the casino, particularly during inclement weather and provides both with a
significant number of close proximity parking places, an advantage
previously held by Womacks. Both competitors also have a large number of
hotel rooms, providing them with an advantage during inclement weather and
the peak tourist season. The Company has not yet decided on the next phase
of expansion, but owns all of the vacant property adjacent to the casino
and is able to expand once it feels comfortable that the additional cost of
the expansion will improve net earnings. In the second quarter of 2003,
Womacks made significant changes to the casino floor layout and reduced the
number of slot machines to its current level.
Even though every attempt has been made to control cost during a period in
which we have seen a decline in revenue, the relative percentage of
personnel cost and device fees to net casino revenue contributed
significantly to the erosion in the casino margin.
During the first two quarters Womacks has made significant changes to the
casino floor layout and reduced the number of slot machines to 600. During
the six months ended June 30, 2003, Womacks leased an average of 46 slot
machines, compared to 34 during the first six months ended June 30, 2002,
from manufacturers, on which it pays a fee calculated as a percentage of
the net win. All of the leases have short term commitment periods not
exceeding six months and are classified as operating leases. The leases can
be cancelled with no more than 30 days written notice. On a portion of the
leases, the manufacturer is guaranteed a minimum fee per day that can range
from 15 dollars to 35 dollars for the duration of the lease. In most
instances, the branded games that are being introduced to the market are
not available for purchase. For financial reporting purposes, the net win
on the slot machines is included in our revenue and the amount due to the
36
manufacturer is recorded as an expense, in the period during which the
revenue is earned, as casino operating cost. Management makes its decisions
to introduce these machines based on the consumer demand for the product.
The amount paid under these agreements was $217 and $152 for the six months
ended June 30, 2003 and 2002, respectively.
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 slot machine mix.
Hotel, Food and Beverage Margin
2003 2002 % Change
---- ----
For the six months ended June 30,
Hotel, food and beverage revenue $ 579 $ 542 6.8%
Hotel, food and beverage expense $ 145 $ 118 22.9%
Hotel, food and beverage margin $ 434 $ 424 2.4%
Hotel, food and beverage margin as % of hotel, food
and beverage revenue 75.0% 78.2%
Hotel revenue, included in Hotel, food and beverage revenue, increased by
0.8%, as a result of introducing 3 additional luxury rooms at the end of
the first quarter of 2002. All of the revenue generated by the hotel
operations is derived from comps to better players and is included in
promotional allowances for the casino.
In the first quarter of 2003, the Gold Mine restaurant was closed and Bob's
Grill was expanded in order to provide better service on the gaming floor
and improve accessibility.
Other
The increase in interest expense, including debt issuance cost, to $744 in
2003 from $691 in 2002 is attributable to the increase in the average
balance of the RCF to $13.1 million in the first half of 2003 from $11.9
million in the first half of 2002. The major factor for the increase in the
average balance of the RCF is the $2.6 million borrowed in January 2003 to
fund the purchase of the remaining 35% interest in CCAL by the Company.
Since the second quarter of 2000 the Company has borrowed a total of $9.5
million under the RCF to fund its investments in South Africa. The interest
on the investments has resulted in a charge of approximately $522 and $372
to the Company's Colorado operations for the first six months of the years
2003 and 2002, respectively. The weighted-average interest rate on the
borrowings under the RCF, including effects of the swap agreements, has
marginally decreased to 9.12% in 2003 from 9.41% in 2002.
The increase in depreciation is attributable to the recent expansion and to
the investment in new slot equipment.
The Colorado segment recognized income tax expense of $876 in 2003 versus
$1,661 in 2002, principally the result of a decrease in earnings before
income taxes.
37
South Africa
The operating results of the South African segment are those of Century
Casinos Africa (Pty) Limited and its subsidiaries, primarily Century
Casinos Caledon (Pty) Limited, which owns the Caledon Casino, Hotel and
Spa. Improvement in the Rand versus the dollar when comparing the first six
months of last year to the current year has had a positive impact on the
reported revenues and a negative impact on expenses.
Operational results in US dollars for the six months ended June 30, 2003
and 2002 are as follows: (See next page for results in Rand)
For the six months ended June 30, Increase %
(Decrease) Change
2003 2002
---- ----
Operating Revenue
Casino $ 4,019 $ 2,707 $ 1,312 48.5%
Hotel, food and beverage 1,059 620 439 70.8%
Other 216 102 114 111.8%
------------ ------------
5,294 3,429
Less promotional allowances 268 219 49 22.4%
------------ ------------
Net operating revenue 5,026 3,210 1,816 56.6%
------------ ------------
Costs and Expenses
Casino 1,672 1,109 563 50.8%
Hotel, food and beverage 1,005 528 477 90.3%
General and administrative 895 695 200 28.8%
Depreciation 496 347 149 42.9%
------------ ------------
4,068 2,679
------------ ------------
Earnings from operations 958 531 427 80.4%
Interest expense (467) (397) 70 17.6%
Other income, net 107 42 65 154.8%
------------ ------------
Earnings before income taxes 598 176 422 239.8%
Income tax expense 234 85 149 175.3%
Minority interest expense (benefit) (8) 2 10 500.0%
------------ ------------
Net Earnings $ 356 $ 93 $ 263 282.8%
============ ============
Net Earnings for South Africa $ 356 $ 93
Non-CCAL (income) expense:
General & administrative expenses 186 93
Interest Income (16) (4)
Income tax benefit (47) (8)
Minority interest expense (benefit) 8 (2)
------------ ------------
131 79
------------ ------------
CCAL Net Earnings $ 487 $ 172
============ ============
- ----------------------------------------------------------------------------------------------------------------
Average exchange rate (Rand/USD) 7.96 10.95 -27.3%
- ----------------------------------------------------------------------------------------------------------------
38
Operational results in Rand for the six months ended June 30, 2003 and 2002 are
as follows:
For the six months ended June 30, Increase %
(Decrease) Change
2003 2002
---- ----
Operating Revenue
Casino R 31,899 R 29,553 R 2,346 7.9%
Hotel, food and beverage 8,408 6,770 1,638 24.2%
Other 1,721 1,123 598 53.3%
------------ ------------
42,028 37,446
Less promotional allowances 2,118 2,397 (279) -11.6%
------------ ------------
Net operating revenue 39,910 35,049 4,861 13.9%
------------ ------------
Costs and Expenses
Casino 13,285 12,131 1,154 9.5%
Hotel, food and beverage 8,003 5,729 2,274 39.7%
General and administrative 7,098 7,566 (468) -6.2%
Depreciation 3,939 3,795 144 3.8%
------------ ------------
32,325 29,221
------------ ------------
Earnings from operations 7,585 5,828 1,757 30.1%
Interest expense (3,719) (4,340) (621) -14.3%
Other income, net 853 455 398 87.5%
------------ ------------
Earnings before income taxes 4,719 1,943 2,776 142.9%
Income tax expense 1,832 933 899 96.4%
Minority interest expense (benefit) (71) 18 (89) -494.4%
------------ ------------
Net Earnings R 2,816 R 1,028 R 1,788 173.9%
============ ============
Net Earnings for South Africa R 2,816 R 1,028
Non-CCAL (income) expense:
General & administrative expenses 1,473 1,007
Interest income (132) (42)
Income tax benefit (386) (88)
Minority interest expense (benefit) 71 (18)
------------ ------------
1,026 859
------------ ------------
CCAL Net Earnings R 3,842 R 1,887
============ ============
39
Casino Margin (in USD)
For the six months ended June 30, 2003 2002 % Change
---- ----
Casino revenue $ 4,019 $ 2,707 48.5%
Casino promotional allowances $ 124 $ 71 74.6%
Casino revenue, net $ 3,895 $ 2,636 47.8%
Casino expense $ 1,672 $ 1,109 50.8%
Casino margin $ 2,223 $ 1,527 45.6%
--------------------------------------------------------------------------------------------------
Average exchange rate (Rand/USD) 7.96 10.95 -27.3%
--------------------------------------------------------------------------------------------------
Casino Margin and Market Data (in Rand)
For the six months ended June 30, 2003 2002 % Change
---- ----
Casino revenue R 31,899 R 29,553 7.9%
Casino promotional allowances R 979 R 759 29.0%
Casino revenue, net R 30,920 R 28,794 7.4%
Casino expense R 13,285 R 12,131 9.5%
Casino margin R 17,635 R 16,663 5.8%
Casino margin as a % of casino revenue, net 57.0% 57.9%
Market share of the Western Cape AGP 6.0% 6.2%
Market share of Western Cape gaming devices 10.7% 11.2%
Average number of slot machines 271 250
Average slot machine win per day 596 Rand 579 Rand
Average number of tables 8 11
Average table win per day 1,826 Rand 1,676 Rand
The 7.4% increase in the casino revenue, net is attributable to the
increased traffic generated by an increasing number of conferences, the
introduction of cash couponing in the second quarter of 2003 and the 10%
increase in the number of slots which increased the potential of the
casino. Subsequent to the purchase of the remaining 35% interest in CCAL,
the Company is focused on marketing the resort as a unified property,
offering its guests an array of amenities that complement the gaming
experience. These include a 92-room hotel, a variety of dining experiences,
and the historic mineral hot spring & spa. Operating costs of the resort
are now fully allocated to the various departments, giving management a
clear picture of each profit center within the resort. CCAL competes
against a much larger competitor located in a more populous area of the
Western Cape.
40
Hotel, Food and Beverage Margin (in USD)
For the six months ended June 30, 2003 2002 % Change
---- ----
Hotel, food and beverage revenue $ 1,059 $ 620 70.8%
Hotel, food and beverage expense $ 1,005 $ 528 90.3%
Hotel, food and beverage margin $ 54 $ 92 -41.3%
----------------------------------------------------------------------------------------------------
Average exchange rate (Rand/USD) 7.96 10.95 -27.3%
----------------------------------------------------------------------------------------------------
Hotel, Food and Beverage Margin (in Rand)
For the six months ended June 30, 2003 2002 % Change
---- ----
Hotel, food and beverage revenue R 8,408 R 6,770 24.2%
Hotel, food and beverage expense R 8,003 R 5,729 39.7%
Hotel, food and beverage margin R 405 R 1,041 -61.1%
Hotel, food and beverage margin as % of hotel food
and beverage revenue 4.8% 15.4%
An increase in the number of business conferences held at the resort has
been a major factor in the significant increase in hotel, food & beverage
revenue. The conferences had a positive impact on the hotel occupancy rate
which increased to 56% in the first six months of 2003 compared to 53%
during the same period in 2002. Accordingly, marketing has been more
focused in this area in an attempt to gain additional exposure. CCAL
continues to make a number of repairs and improvements to the resort on an
ongoing basis (see Note 6). Additionally, continuing inflationary pressures
in South Africa have driven up base costs such as labor, supplies and
utilities. Finally, operating costs of the resort are now fully allocated
to the various departments, giving management a clear picture of each cost
center within the resort.
Food and beverage revenue has increased significantly due to a number of
factors. Since the first quarter of 2002, meal prices have been increased
by approximately 12.5%. Furthermore, dinner and breakfast are now included
with all rooms. The meals included in the hotel bill are allocated to food
and beverage revenue. Finally, there has also been a notable increase in
business conferences held at the resort, resulting in an increase in the
number of theme dinners and banquets.
Other
The weighted-average interest rate on the borrowings under the ABSA loan
agreement is 16.9% in the first six months of 2003 and 2002. Excluding the
effect of fluctuations in the exchange rate, interest expense has decreased
by 14.3% as the principal balance of the term loans and capitalized leases
are repaid. Other revenue principally consists of revenue generated from
the resort's ancillary services which include the adventure center, spa
center, and conference room rental. An insurance claim submitted by the
casino for loss of revenue
41
due to water damage to a number of slot machines accounted for R472 of the
increase in other revenue.
Cruise Ships
Cruise ships' operational results for the periods ending June 30, 2003 and 2002
are as follows:
For the six months ended June 30, Increase % Change
(Decrease)
2003 2002
---- ----
Operating Revenue
Casino $ 669 $ 279 $ 390 139.8%
Other 19 26 (7) -26.9%
------------ ------------
688 305
Less promotional allowances - -
------------ ------------
Net operating revenue 688 305 383 125.6%
------------ ------------
Costs and Expenses
Casino 481 208 273 131.3%
General and administrative 3 - 3 N/A
Depreciation 32 28 4 14.3%
------------ ------------
516 236
------------ ------------
Earnings from operations 172 69 103 149.3%
Other income, net 5 - 5 N/A
------------ ------------
Earnings before income taxes 177 69 108 156.5%
Income tax expense 67 26 41 157.7%
------------ ------------
Net Earnings $ 110 $ 43 $ 67 155.8%
============ ============
Casino Margin
For the six months ended June 30, 2003 2002 % Change
---- ----
Casino revenues $ 669 $ 279 139.8%
Casino expenses $ 481 $ 208 131.3%
Casino margin $ 188 $ 71 164.8%
Casino margin as a % of casino revenue, net 28.1% 25.4%
In the first half of 2003, we operated casinos on a total of seven ships:
four from Silverseas, one on the World of ResidenSea and two on Oceania
Cruises. On April 19, 2003, the Company successfully opened its casino
aboard the Insignia, a 684 passenger luxury cruise ship operated by Oceania
Cruises. The Silver Wind, a cruise ship operated by Silverseas, which was
taken out of service following the events of September 11, 2001,
resumed operations on May 23, 2003. The casino aboard the Regatta, another
684 passenger luxury cruise ship operated by Oceania Cruises, was opened on
June 26, 2003.
In the first half of 2002 we operated casinos on four ships: three on
Silverseas and one on the World of ResidenSea. The casino on the ResidenSea
opened for business on March 28, 2002.
42
We anticipate we will repeatedly experience severe fluctuations in the
revenue generated on each cruise depending on the quality of the players.
This is a condition that is beyond the control of the Company.
The increase in casino operating expenses relates to the increase in number
of casinos operated on cruise ships and to start up costs of casinos aboard
two Oceania cruise ships, i.e. travel and additional staff cost, plus the
cost to re-establish the casino on the Silver Wind.
Concession fees paid to the ship operators in accordance with the
agreements accounted for $212 and $28 of the total casino expenses incurred
in first six months ended June 30, 2003 and 2002, respectively.
Corporate & Other
For the six months ended June 30,
Increase %
2003 2002 (Decrease) Change
---- ----
Operating Revenue
Other $ 8 $ 107 $ (99) -92.5%
---------- ----------
8 107
Less promotional allowances - -
---------- ----------
Net operating revenue 8 107 (99) -92.5%
---------- ----------
Costs and Expenses
General and administrative 731 763 (32) -4.2%
Depreciation 84 108 (24) -22.2%
---------- ----------
815 871
---------- ----------
Loss from operations (807) (764) 43 5.6%
Interest expense (12) (12) - 0.0%
Other income, net 181 177 4 2.3%
---------- ----------
Loss before income taxes (638) (599) 39 6.5%
Income tax benefit (249) (541) (292) -54.0%
---------- ----------
Net Loss $ (389) $ (58) $ (331) -570.7%
========== ==========
Net operating revenues consisted of management fees earned from operating
Casino Millennium in Prague, Czech Republic and were $8 and $107 in the
first half of 2003 and 2002, respectively.
Effective September 1, 2002, management fees and interest due to the
Company from CM will not be accrued until a certainty of cash flow is
attained for Casino Millennium, but instead will be recorded as received.
In April 2003, Casino Millennium remitted $8 in management fees.
43
Liquidity and Capital Resources
Cash and cash equivalents totaled $3,854 plus restricted cash of $533 at
June 30, 2003, and the Company had net working capital of $292. Additional
liquidity may be provided by the Company's revolving credit facility
("RCF") with Wells Fargo Bank, under which the Company had a total
commitment of $26,000 ($24,556 net of the quarterly reduction) and unused
borrowing capacity of $11,087 at June 30, 2003.
For the six months ended June 30, 2003, cash provided by operating
activities was $1,656 compared with $2,330 in the prior-year period. Please
refer to management's discussion of the results of operations.
Cash used in investing activities of $2,243 for the first six months of
2003, consisted of: $504 towards the expansion of the Womacks casino at the
rear of the property that was completed in the second quarter of 2003,
providing additional gaming space; $219 for additional improvements to the
property in Caledon, South Africa, including $61 additional capitalized
building costs related to the original construction; $1,259 towards the
purchase of the remaining 35% interest in Century Casinos Caledon (Pty)
Limited, $918 of which was applied against the minority shareholder
liability and $341 of which increased the carrying value of the land in
Caledon; $153 principally for outfitting one of the two new casinos aboard
the luxury cruise ships operated by Oceania and to finish re-outfitting the
Silver Wind; $153 due to expenditures for other long-lived assets, net of
$7 in proceeds from the disposition of assets; and a decrease of $38 in
restricted cash. Cash used in investing activities of $2,906 for the first
six months of 2002, consisted of: $1.3 million towards the purchase and
improvements of the Palace Hotel and property; $544 towards the expansion
of the Womacks casino at the rear of the property, providing additional
gaming space; $110 towards the construction of a restaurant & grill on the
first floor of Womacks casino; $298 for additional improvements to the
property in Caledon, South Africa; $460, primarily for land purchased for
the proposed casino development in Johannesburg, South Africa; and the
balance of $194 is primarily due to expenditures for other long-lived
assets.
Cash used in financing activities of $340 for the first six months of 2003
consisted of net borrowings of $2.0 million under the RCF with Wells Fargo
plus $7 in proceeds from the exercise of stock options, less net repayments
of $556 under the loan agreement with ABSA, $1.2 million to acquire a loan
to CCAL held by the minority shareholder, Caledon Overberg Investments
(Proprietary) Limited ("COIL"); $132 towards the repurchase of Company's
stock on the open market at cost; $299 towards the purchase of 132,184
shares of common stock from a director, James Forbes, at a per share price
of $2.26; and other net repayments of $160. Cash provided by financing
activities of $375 for the first six months of 2002 consisted of net
borrowings of $835 under the RCF with Wells Fargo, less net repayments of
$354 under the loan agreement with ABSA, additional deferred financing
charges incurred by the Caledon Casino, Hotel & Spa, with a cost of $19,
the repurchase of company's stock, on the open market, with a cost of $44
and other net repayments of $43.
The Company entered into an amended RCF with Wells Fargo Bank in August
2002 which provides us with a total commitment of $26,000. Under the terms
of the agreement, the maturity date of the borrowing commitment was
extended to August 2007 and the funds available under the RCF are reduced
by $722 each quarter beginning with the first quarter of 2003. The Company
has the flexibility to use the funds for various business projects and
investments.
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. 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
44
Czech bank by Strabag AG, which has been repaid. The Company expects to
contribute gaming equipment and certain pre-operating costs, valued at
$823, 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.
In January 2000, CCI entered into a brokerage agreement with Novomatic AG
in which CCI received an option to purchase seven eighths of the shares
that Novomatic AG purchased in Silverstar at a price equal to 85% of their
fair market value at the time of excercise. The agreement was subsequently
amended in July 2003 giving Novomatic AG a put option under which Novomatic
AG can require that CCI buy seven eights of its shares in Silverstar and
giving CCI a call option under which CCI can require Novomatic AG sell
seven eighths of its shares in Silverstar to CCI. The price of the option,
which cannot be quantified at this time, will be 75% of the fair market
value as determined at the time of the exercise.
A proposed ballot issue has been submitted in Colorado that would approve
the installation of at least 500 video lottery terminals "VLT's" at each of
the five racetracks throughout Colorado, two of which are located in
Colorado Springs and Pueblo, the dominant markets for Cripple Creek. The
VLT's are almost identical to slot machines. The Colorado gaming industry
has organized to oppose the introduction of VLT's at the racetracks.
Management is unable to speculate on the outcome of the proposed November
2003 ballot issue which, if approved by the voters, could be expected to
have a negative impact on the Company's Cripple Creek gaming revenues.
The Company's Board of Directors has approved a discretionary program to
repurchase up to $5,000 of the Company's outstanding common stock. The
Board believes that the Company's stock is undervalued in the trading
market in relation to both its present operations and its future prospects.
During the first six months of 2003, the Company repurchased 59,100 shares
of its common stock on the open market, excluding 489,264 shares purchased
from one of its directors. Through June 30, 2003, the Company had
repurchased 2,559,004 shares of its common stock at a total cost of
approximately $3,768.
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.
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. The financial
statements of all foreign subsidiaries consolidated herein have been
converted to US GAAP for financial statement presentation purposes.
Accordingly, the consolidated financial statements are presented in
accordance with US GAAP.
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.
Goodwill and Other Intangible Assets - The Company's goodwill results from
the acquisitions of casino and hotel operations.
Effective January 1, 2002 the Company adopted Financial Accounting
Standards Board (the "FASB") SFAS No. 142 "Goodwill and Other Intangible
Assets".
45
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. Among other things, the Company also evaluated the
following criteria; 1) the high value of the assets it has placed in
service and the significant barrier that a high initial investment poses to
potential competitors, 2) the future potential of the resort property,
3)the unique attraction of the resort property, 4) the dependence of the
hotel and other amenities of the resort property upon the casino operation,
and 5) the intentions of the Company to operate the casino indefinitely.
Based on that evaluation, the Company has deemed the casino license costs
to have an indefinite life as of January 1, 2002. Included in assets at
June 30, 2003 is unamortized goodwill of approximately $7,994 and
unamortized casino license costs of approximately $1,483. The Company will
continue to assess goodwill and other intangibles for impairment at least
annually. Management has not identified any impairment indicators with
respect to the casino license or goodwill during the three and six months
ended June 30, 2003.
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 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.
The carrying value of the non-operating property held for sale in Wells
Nevada, is subject to periodic evaluation. The property has been listed for
sale since April 1998. In 2001 we attempted to reach agreement with an
interested third-party that would have recouped our investment through a
long-term lease agreement that contained a purchase option, which enabled
us to conclude that the carrying value was still reasonable. We could not
reach an agreement and, as the result of no further activity, reduced the
value of the property to its estimated fair value in 2002, which heretofore
was supported by an independent appraisal performed in January 2000.
Foreign Exchange - Current period transactions affecting the profit and
loss of operations conducted in foreign currencies are valued at the
average exchange rate for the period in which they are incurred. Except for
equity transactions and balances denominated in U.S. dollars, the balance
sheet is translated based on the exchange rate at the end of the period.
* * * * * * * * * * * * * * * *
46
Item 3. 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 June 30, 2003. 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, 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
and Spa. A hypothetical devaluation of 10% in the dollar vs. the Rand based
on the exchange rate as of June 30, 2003 would reduce the value of the
Company's investment by approximately $1.8 million.
* * * * * * * * * * * * * * * * * * * *
47
Item 4. 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.
* * * * * * * * * * * * * * * * * * * *
48
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
The Company is not a party to, nor is it aware of, any pending or
threatened litigation which, in management's opinion, could have a
material adverse effect on the Company's financial position or results
of operations.
Items 2 to 5 - None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits -The following exhibits are filed herewith:
10.129 Fifth Amendment to Restated Employees' Equity Incentive
Plan, dated June 4, 2003.
10.130 Brokerage Agreement between Novomatic AG and Century
Casinos, Inc. dated January 4, 2000 an Amendment No. 1 to
Brokerage Agreement dated July 24, 2003.
31.1 Certification Pursuant to Securities Exchange Act Rule
13a-15(f) and 15d-15(f), Chairman of the Board and Chief
Executive Officer.
31.2 Certification Pursuant to Securities Exchange Act Rule
13a-15(f) and 15d-15(f), Vice-Chairman and President.
31.3 Certification Pursuant to Securities Exchange Act Rule
13a-15(f) and 15d-15(f), Chief Accounting Officer.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Chairman of the Board and Chief Executive
Officer.
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Vice-Chairman and President.
32.3 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, Chief Accounting Officer.
(b) Reports on Form 8-K:
On May 13, 2003 the Registrant filed a Current Report on Form 8-K in
which it announced it had posted to its website a presentation of the
Review of Financial Results of Operations and Financial Condition as
of and for the quarter ended March 31, 2003, as a complementary
presentation of its First Quarter 2003 Form 10-Q and Earnings Release.
SIGNATURES:
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CENTURY CASINOS, INC.
/s/ Larry Hannappel
___________________________
Larry Hannappel
Chief Accounting Officer and duly authorized officer
Date: August 13, 2003