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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
___X___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 E. Warren Avenue, Cripple Creek, Colorado 80813
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(719) 689-9100
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K . [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ___ No _X_
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of June 30, 2003, based upon the average
bid and asked price of $2.24 for the common stock on NASDAQ Stock Market on that
date, was $ 22,449,553.
As of February 9, 2004, the Registrant had 13,680,500 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference from the
Registrant's Definitive Proxy Statement for its 2004 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
2003.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
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(Dollar amounts in thousands, except for share information)
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INDEX
Part I Page
Item 1. Business 3
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 18
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37
Item 8. Financial Statements and Supplementary Data 38
Report of Independent Certified Public Accountants - Grant Thornton LLP F1
Report of Independent Certified Public Accountants - PricewaterhouseCoopers Inc. F2
Consolidated Balance Sheets as of December 31, 2003 and 2002 F3
Consolidated Statements of Earnings for the Years Ended
December 31, 2003, 2002 and 2001 F4
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for
the Years Ended December 31, 2003, 2002, and 2001 F5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001 F6
Notes to Consolidated Financial Statements F8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38
Item 9A. Controls and Procedures 38
Part III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions 39
Item 14. Principal Accountant Fees and Services 39
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 40
SIGNATURES 49
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PART I
Item 1. Business.
General
Century Casinos, Inc. ("CCI" or 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 Resorts Limited ("CRL"), 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"). CRL owns 55% of Century Resorts Alberta, Inc. ("CRA"). Century Casinos
Africa (Pty) Ltd. ("CCA"), a 96.5% owned subsidiary of CCI, owns 100% of Century
Casinos Caledon (Pty) Ltd. ("CCAL") (100% as of January 2003), 55% of Century
Casinos West Rand (Pty) Ltd. ("CCWR") and 50% of Rhino Resort Ltd. ("RRL"). CRL
provides technical casino services to Casino Millennium located within a hotel
in Prague, Czech Republic, and serves as concessionaire of small casinos on
luxury cruise vessels operated by Silversea Cruises, The World of ResidenSea and
Oceania Cruises. The Company regularly pursues additional gaming opportunities
internationally and in the United States.
The Company was formed in 1992 to acquire ownership interests in, and to
obtain management contracts with respect to, gaming establishments. The Company
was founded by a team of career gaming executives who had worked primarily for
an Austrian gaming company that owned and operated casinos throughout the world.
The Company, formerly known as Alpine Gaming, is the result of a business
combination completed on March 31, 1994, pursuant to which CCM shareholders
acquired approximately 76% of the then issued and outstanding voting stock of
the Company, and all officer and board positions of the Company were assumed by
the management team of Century Management. Effective June 7, 1994, the Company
reincorporated in Delaware under the name "Century Casinos, Inc."
As a result of the March 31, 1994 merger, the Company acquired Legends
Casino ("Legends") in Cripple Creek, Colorado. On July 1, 1996, the Company
acquired the net assets of Gold Creek Associates, L.P. ("Gold Creek"), the owner
of Womack's Saloon & Gaming Parlor, which was adjacent to Legends. Following
this acquisition, both properties were renovated to facilitate the marketing of
the combined properties as one casino under the name "Womacks Casino and Hotel"
("Womacks").
In April 2000, the Company's South African subsidiary acquired a 50% equity
interest in Caledon Casino Bid Company (Pty) Limited ("CCBC"). In June 2001, the
company name for CCBC was changed to Century Casinos Caledon (Pty) Ltd.
("CCAL"). CCAL was awarded a casino license and owns a 92-room resort hotel,
spa, casino and approximately 600 acres of land (representing approximately 230
hectares) in Caledon, South Africa. The Company has a long-term agreement to
manage the operations of the casino, which began in October 2000. In November
2000, the Company, through its South African subsidiary, increased its equity
interest in CCAL to 65%. In January 2003, the Company, through its South African
subsidiary, increased its equity interest by 35% and now owns 100% of the common
stock of CCAL. In addition, the Company acquired a long-term contract, from the
previous minority shareholder to manage the operations of the hotel.
On September 25, 2003, the Company formed CRL for the purpose of managing
and providing technical casino services to some of the Company's foreign and
offshore operations. In February 2004, the Company formed Century Resorts
International Ltd. ("CRI") for the purposes of providing technical casino
services to Casino Millennium, managing casinos on the cruise ships and to other
foreign operations. CRI will own 96.5% of CRL, which will manage any South
African and Indian Ocean operations. The remaining minority interest in CRL will
be held by certain officers of the
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Company. These minority shareholders will give up their 3.5% ownership in CCA
for their 3.5% ownership in CRL. CRL will own 100% of CCA. The Company believes
that CRL and CRI will provide favorable U.S. tax benefits for the Company.
On September 30, 2003, the Company subscribed to 55% of the outstanding
shares of Century Resorts Alberta Inc. ("CRA"), formed in conjunction with its
application for a gaming license in Edmonton, Alberta, Canada, at a price of 1
Canadian dollar per share. A total of 100 shares have been authorized and
issued. The proposed project, The Celebrations Casino and Hotel, is planned to
include a casino, food and beverage amenities, a dinner theater, and a 40-room
hotel. CRA is owned by CRL and by 746306 Alberta Ltd, the current owners of the
7.25 acre property and existing hotel which will be developed into the
Celebrations project, if a license is awarded and all other approvals and
funding are obtained. The Celebrations Casino and Hotel Project proposed by CRA
is estimated to cost 16.5 million Canadian dollars ($12.8 million), including
the 2.5 million Canadian dollars ($1.9 million) contribution of the existing
hotel and property by 746306 Alberta Ltd. CRL also entered into a long-term
agreement to manage the casino if a gaming license is awarded. The Company
expects to transfer ownership of CRA from CRL to CRI in 2004. The Celebrations
Casino and Hotel project is one of six applications submitted to the Alberta
Gaming and Liquor Commission ("AGLC") for an additional casino facility license
in the greater Edmonton area. There is no assurance that the Celebrations
project will be awarded a license or completed.
The Company's operating revenue for 2003, 2002 and 2001 was derived
principally from Womacks and CCAL as reported in Note 7, Segment Information, of
the Consolidated Financial Statements. See the Consolidated Financial Statements
and the notes thereto included herein for operating revenue, earnings (loss),
and total assets information, by segment, for 2003, 2002 and 2001. Information
on operating results for the three most recent fiscal years is set forth in Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
As of December 31, 2003, the Company owned, operated or managed the
properties noted in the table below.
Summary of Property Information
============================ ==================== ================ ==================== ==================== ===================
Property Casino Space Number of Slot Number of Table Number of Hotel Number of
Sq Ft (1) Machines Games Rooms Restaurants
============================ ==================== ================ ==================== ==================== ===================
Womacks 23,000 614 6 21 1
============================ ==================== ================ ==================== ==================== ===================
Caledon 12,260 275 8 92 3
============================ ==================== ================ ==================== ==================== ===================
Casino Millennium (2) 6,200 48 15 - -
============================ ==================== ================ ==================== ==================== ===================
Cruise Ships (total of 6,300 166 27 - -
seven) (3)
============================ ==================== ================ ==================== ==================== ===================
(1) Approximate.
(2) Operated under a casino services agreement. In January 2004, the Company
purchased 40% of the operation, bringing its ownership interest to 50% as
of that date.
(3) Operated under concession agreement.
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Information contained in this Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of words such as "may," "will," "expect,"
"anticipate," "estimate" or "continue," or variations thereon or comparable
terminology. In addition, all statements, other than statements of historical
fact, that address activities, events or developments that the Company expects,
believes or anticipates will or may occur in the future, and other such matters,
are forward-looking statements.
The future results of the Company may vary materially from those
anticipated by management, and may be affected by various trends and factors,
which are beyond the control of the Company. These risks include the competitive
environment in which the Company operates, the Company's dependence upon the
Cripple Creek, Colorado and Caledon, South Africa gaming markets, the effects of
governmental regulation and other risks described herein.
For more information about Century Casinos Inc. please visit us on the
Internet at http://www.cnty.com. Our most recent annual report on Form 10-K and
certain of our other filings with the Securities and Exchange Commission (SEC)
are available through our Investor Relations website at
http://www.cnty.com/latestnews.htm free of charge. Our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports are also available on the SEC website at http://www.sec.gov.
None of the information posted to the Company's website is incorporated by
reference into this Annual Report.
Womacks Casino and Hotel, Cripple Creek, Colorado
On July 1, 1996, the Company purchased substantially all of the assets, and
assumed substantially all of the liabilities, of Gold Creek, the owner of
Womacks Saloon & Gaming Parlor in Cripple Creek, Colorado. Following the
Company's acquisition of Gold Creek, the property was consolidated with the
Company's Legends Casino, and the combined properties have been marketed since
then as one casino under the name "Womacks Casino and Hotel." Management
implemented certain consolidation, expansion and capital improvement programs.
The Company created openings in the common walls in order to open up and
integrate the gaming areas of the two casinos; expanded the existing player
tracking system of Womacks Saloon and Gaming Parlor to include all of the
Legends gaming devices; made general interior enhancements; installed additional
gaming devices and replaced older generation equipment; and added additional
hotel rooms.
Womacks Casino is located at 200 to 220 East Bennett Avenue in Cripple
Creek, Colorado. The lots comprising 200 to 210 East Bennett Avenue are owned by
wholly-owned subsidiaries of the Company and are collateralized by a first
mortgage held by Wells Fargo Bank. See Note 5, Long-Term Debt, to the
Consolidated Financial Statements for further information.
The Company holds a subleasehold interest in the real property and
improvements located at 220 East Bennett Avenue. The sublease, as assigned to
ACQ, provides for monthly rental payments of $16, and expires on June 20, 2005
unless terminated by the Company with 12 months' advance notice. The Company has
an option to acquire the property at the expiration of the sublease at an
exercise price of $1,500.
Womacks currently has approximately 614 slot machines, six limited stakes
gaming tables, 21 hotel rooms, and 1 restaurant. It has 150 feet of frontage on
Bennett Avenue, the main gaming thoroughfare in Cripple Creek, and 125 feet of
frontage on Second Street, also known as Highway 67, with approximately 23,000
square feet of floor space. Gaming in Colorado is "limited stakes" which
restricts any single wager to a maximum of 5 dollars. While this limits the
revenue potential of table
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games, management believes that slot machine play, which accounts for over 97%
of total gaming revenues at Womacks and in Cripple Creek, is currently impacted
only marginally by the 5 dollar limitation.
Management believes that an integral component in attracting gaming patrons
to Cripple Creek is the availability of adequate, nearby parking spaces. The
Company presently owns or leases nearly 400 spaces.
In 1997, the Company exercised its purchase option to acquire three lots
(formerly known as the "Wright Property"), consisting of 9,375 square feet of
land across the street from Womacks for $785 in cash. This property provides the
Company with paved customer parking.
In June 1998, the Company acquired 22,000 square feet of land (the "Hicks
Property") from an unaffiliated third party. The property, which is zoned for
gaming, is adjacent to Womacks. A partially-completed building structure that
occupied a portion of the land was subsequently razed, and the entire property
has been paved for customer parking.
The Company leases 10 city lots from the City of Cripple Creek for parking.
Annual rent payments total $90. The lease agreement, as amended on February 17,
2000, expires on May 31, 2010. The agreement contains a purchase option whereby
the Company may purchase the property for $3.25 million, less cumulative lease
payments, at any time during the remainder of the lease term. The Company has
paved the property and currently uses it for customer parking.
In March 1999, the Company entered into a purchase option agreement for a
piece of property located in Cripple Creek across Bennett Avenue from Womacks.
The agreement, as amended in February 2000, provided for an option period
through March 31, 2004 and an exercise price of $1.5 million, less 50% of
cumulative option payments through the exercise date. Subsequent to December 31,
2003, the Company sold the option to an unrelated party for a sum of $200. As a
result of the transaction, the Company will recognize a pre-tax gain of $35 in
2004.
In May 2000, the Company completed its acquisition of two parcels of land
located near Womacks for $1.85 million. The two parcels provide more than 100
paved parking spaces for casino patrons.
In August 2000, the Company completed construction of and opened the
Womacks Events Center located near Womacks. Through an arrangement with the City
of Cripple Creek, the Events Center was available to them for the first three
years. The agreement expired in June 2003. The second floor of the building
houses much of the Company's administration and accounting departments.
In May 2002, WMCK acquired the Palace Casino building and adjoining
property (a total of five city lots) for $1.2 million. WMCK has spent an
additional $155 to convert the majority of the property, which is across Second
Street and west of Womacks, into an additional 41 parking spaces.
In September 2002, the Company opened the first phase of its 6,022 square
foot expansion, increasing its gaming space by approximately 2,000 square feet.
In April 2003, construction was completed and an additional 3,000 square feet of
gaming space was added to Womacks. 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. The total
construction cost, excluding new slot machines, was approximately $2.3 million.
-6-
Century Casinos Caledon (Pty) Ltd. - Caledon, South Africa
An application for a casino license in Caledon South Africa, a province of
the Western Cape, was filed in October 1999 with the Western Cape Gambling and
Racing Board by Caledon Casino Bid Company (Pty) Limited ("CCBC") doing business
as The Caledon Casino, Hotel and Spa. The Company's subsidiary, Century Casinos
Africa (Pty) Ltd. ("CCA"), originally had a 50% equity interest in CCBC, by
virtue of an agreement entered into between CCA and CCBC, together with various
affiliated entities.
On February 16, 2000, the Western Cape Gambling and Racing Board awarded
Successful Applicant status to CCBC. On April 13, 2000, CCBC was awarded the
final license and the Company, through CCA, invested approximately $3.8 million
(based on the exchange rate at that time) consisting of approximately $1.5
million (Rand ("R") 10 million) in equity and $2.3 million in debt (R15
million).
In December 2000, the Company through CCA, acquired an additional 15% of
The Caledon Hotel, Spa & Casino, raising its ownership in CCBC to 65%. Terms of
the agreement included the payment of approximately $1.8 million by CCA to its
partners in exchange for 15% of the total common stock of CCBC (valued at
approximately $1.2 million) and a shareholder loan to CCBC previously held by
its partners (with a value of approximately $600).
In June 2001, the company name for CCBC was changed to Century Casinos
Caledon (Pty) Ltd. ("CCAL").
In January 2003, the Company, through CCA, acquired the remaining 35%
interest in CCAL becoming the sole owner of all of the common stock of CCAL. 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. In addition to 4,000 shares of common
stock, there are a total of 200 preference shares issued to two minority
shareholders (100 each). See a further explanation in Note 6, Shareholders'
Equity, to the Consolidated Financial Statements.
Casino gaming in South Africa is "unlimited wagering" where each casino can
set its own limits. As a result, the relationship between table games revenues
and slot revenues resembles more traditional gaming markets (unlike Womacks and
Cripple Creek, where over 97% of gaming revenues are derived from the slot
machines).
Casino Millennium, Prague, Czech Republic
In January 1999, the Company, through CCM, entered into a 20-year agreement
with Casino Millennium a.s., a Czech company ("CM"), and with B.H. Centrum a.s.,
a Czech subsidiary of Bau Holding AG, one of the largest construction and
development companies in Europe, to operate a casino in the five-star Marriott
Hotel in Prague, Czech Republic. During 2001, Bau Holding AG changed its name to
Strabag AG. The Company provided technical casino services in exchange for 10%
of the casino's gross revenue, and provided gaming equipment for 45% of the
casino's net profit. The hotel and casino opened in July 1999.
In January 2000, the Company entered into a memorandum of agreement to
either acquire a 50% ownership interest in CM or to form a new joint venture
with B.H. Centrum a.s., which joint venture would acquire all of the assets of
CM. The Company and Strabag AG each agreed to
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purchase a 50% ownership interest. Approval for this transaction has been
obtained, as required, from the Ministry of Finance of the Czech Republic. The
first step in acquiring the 50% ownership interest was taken in December 2002
with the payment of $236 in cash in exchange for a 10% ownership in CM.
Effective January 3, 2004, the Company through its wholly-owned Austrian
subsidiary, CMB, acquired an additional 40% of CM by contributing gaming
equipment, advances and receivables valued at approximately $711. The Company
expects to account for the 50% investment in CM on the equity method. In
addition to the 50% ownership, the Company retains its rights under the 1999
casino services agreement.
Silversea Cruises
In May 2000, the Company signed a five-year casino concession agreement
with Silversea Cruises, a world-renowned, six-star cruise line based in Fort
Lauderdale, Florida. The agreement gives the Company the exclusive right to
install and operate casinos aboard four Silversea vessels. The Company operates
each shipboard casino for its own account and pays concession fees based on
gross gaming revenue.
Starting in late September 2000 with the new, 388-passenger Silver Shadow,
the Company began its shipboard casino operations. Within 60 days thereafter,
the Company installed casinos on the 296-passenger vessels Silver Wind and
Silver Cloud. In June 2001, the Company installed its fourth casino aboard the
new, 388-passenger Silver Whisper. The Silver Wind was taken out of service
following the events of September 11, 2001 and resumed operations on May 23,
2003. The Company has a total of 74 slot machines and 14 tables on the four
Silverseas shipboard casinos.
The World of ResidenSea
On August 30, 2000, the Company signed a five year casino concession
agreement with ResidenSea Ltd., the operator of The World of ResidenSea, which
is the world's first luxury residential resort community at sea continuously
circumnavigating the globe. The ResidenSea vessel has a total of 110 residences
and 88 guest suites with purchase prices starting at $2.2 million.
The Company has equipped the casino with 20 slot machines and 3 tables and
operates the casino aboard the vessel, which departed for its maiden voyage in
March 2002. The Company operates the casino for its own account and pays
concession fees based on gross gaming revenue. In addition, the Company has a
right of first refusal to install casinos aboard any new ships built or acquired
by ResidenSea during the term of the agreement.
Oceania Cruises
On March 28, 2003, the Company signed a five year casino concession
agreement with Oceania Cruises, Inc., a Miami-based operator in the upper
premium segment of the cruise industry. The agreement gives the Company the
exclusive right to install and operate casinos aboard two 684-passenger cruise
vessels, the Insignia and the Regatta, as well as the exclusive right to become
Oceania's exclusive casino concessionaire for any new ships that Oceania might
bring into service.
In April 2003, the Company successfully opened a casino aboard the
Insignia. The opening of the casino aboard the Regatta followed in June 2003.
Each of the casinos is equipped with 36 slot machines and five gaming tables.
-8-
Additional Company Projects
In addition to the projects described above, the Company has a number of
potential gaming projects in various stages of development. Along with the
capital needs of these potential projects, there are various other risks which,
if they materialize, could have a materially adverse affect on a proposed
project or eliminate its feasibility altogether. For example, in order to
conduct gaming operations in most jurisdictions, the Company must first obtain
gaming licenses or receive regulatory clearances. To date, the Company has
obtained gaming licenses or approval to operate gaming facilities in Colorado,
Louisiana, on an American Indian reservation in California, the Czech Republic,
and the Western Cape province of South Africa. While management believes that
the Company is licensable in any jurisdiction, each licensing process is unique
and requires a significant amount of funds and management time. The licensing
process in any particular jurisdiction can take significant time and expense
through licensing fees, background investigation costs, fees of counsel and
other associated preparation costs. Moreover, should the Company proceed with a
licensing approval process with industry partners, such industry partners would
be subject to regulatory review as well. The Company seeks to satisfy itself
that industry partners are licensable, but cannot assure that such partners
will, in fact, be licensable. Additional risks before commencing operations
include the time and expense incurred and unforeseen difficulties in obtaining
suitable sites, liquor licenses, building permits, materials, competent and able
contractors, supplies, employees, gaming devices and related matters. In
addition, certain licenses include competitive situations where, even if the
Company is licensable, other factors such as the economic impact of gaming and
financial and operational capabilities of competitors must be analyzed by
regulatory authorities. All of these risks should be viewed in light of the
Company's limited staff and limited capital.
Also, the Company's ability to expand to additional locations will depend
upon a number of factors, including, but not limited to: (i) the identification
and availability of suitable locations, and the negotiation of acceptable
purchase, lease, joint venture or other terms; (ii) the securing of required
state and local licenses, permits and approvals, which in some jurisdictions are
limited in number; (iii) political factors; (iv) the risks typically associated
with any new construction project; (v) the availability of adequate financing on
acceptable terms; and (vi) for locations outside the United States, all the
risks of foreign operations, including currency controls, unforeseen local
regulations, political instability and other related risks. Certain
jurisdictions issue licenses or approval for gaming operations by inviting
proposals from all interested parties, which may increase competition for such
licenses or approvals. The development of dockside and riverboat casinos in the
United States of America may require approval from the Army Corps of Engineers
and will be subject to significant Coast Guard regulations governing design and
operation. Most of these factors are beyond the control of the Company. As a
result, there can be no assurance that the Company will be able to expand to
additional locations or, if such expansion occurs, that it will be successful.
Further, the Company anticipates that it will continue to expense certain costs,
which have been substantial in the past and may continue to be substantial in
the future, in connection with the pursuit of expansion projects.
The following describes other activities of the Company.
South Africa - During September 2001, CCA entered into an agreement to
secure a 50% ownership interest in Rhino Resort Ltd. ("RRL"), a consortium which
includes Silverstar Development Ltd. ("Silverstar"). RRL submitted an
application for a proposed hotel/casino resort development in that region of the
greater Johannesburg area of South Africa known as the West Rand at a cost of
approximately 400 million Rand ($59.8 million). In November 2001, RRL was
awarded the sixth and final casino license serving the Gauteng province in South
Africa. In February 2002, Tsogo Sun Holdings (Pty) Ltd. ("Tsogo"), a competing
casino, filed a Review Application seeking to overturn the license award by the
Gauteng Gambling Board ("GGB"). In September 2002, the High Court of South
Africa overturned the license award. As a result of these developments, in 2002
the Company
-9-
recorded a $399 write-off for all advances made, and pre-construction cost
incurred, in conjunction with the Johannesburg project. In November 2002, and
upon the advice of legal counsel, Silverstar, with the support and agreement of
all other parties to the original two applications for the West Rand license,
including CCA, made representation to the GGB requesting that the sole remaining
license for the province of Gauteng now be awarded to Silverstar pursuant to its
original 1997 application. The GGB in December 2002 denied Silverstar's request.
As a result, 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. On October 20, 2003 the
Company announced that judgment had been handed down in the High Court of South
Africa compelling the GGB to award a casino license to Silverstar for the
western periphery of metropolitan Johannesburg upon the terms of its original
1997 application. On November 11, 2003 the Company announced that the GGB's
subsequent application for leave to appeal the October 20 judgment had been
denied by the High Court. On December 3, 2003, the Company announced that the
GGB had served notice to petition the South African Supreme Court of Appeal
requesting a further appeal against the judgment of the High Court. On February
5, 2004, the Supreme Court of Appeal of South Africa granted the GGB's request
for leave to appeal. Silverstar has informed the Company that it does not have
any indication with regard to the timing of the appeals process.
CCA, through its majority-owned subsidiary, Century Casinos West Rand (Pty)
Ltd., remains contracted to Silverstar by a resort management agreement and
retains a right of long standing to take up a minority equity interest in the
venture although its final level of equity interest remains to be determined.
Pursuant to its 1997 application, the Silverstar project provides for up to
1,350 slot machines and 50 gaming tables in a phased development that includes a
hotel and other entertainment, dining, and recreational activities with a first
phase of 950 slot machines and 30 gaming tables.
While there can be no certainty as to the eventual outcome of Silverstar's
efforts, CCA maintains the ownership of the land (book value of $659) that
remains central to the Silverstar casino project. The Company has allocated
minor funding towards further pursuit of this opportunity.
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 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. Silverstar has no value until a gaming license is issued. If the
transaction were to be completed, CCI would acquire a 7% interest in Silverstar
from Novomatic AG.
Edmonton, Canada - In October 2003, the Company, through CRA, submitted a
casino facility license application to the Alberta Gaming and Liquor Commission
(AGLC) for a casino in Edmonton, Alberta, Canada. The proposed project, The
Celebrations Casino and Hotel, is planned to include a casino, food and beverage
amenities, a dinner theater, and a 40-room hotel. CRA is owned by CRL and by
746306 Alberta Ltd, the current owners of the 7.25 acre property and existing
hotel which will be developed into the Celebrations project. CRL also entered
into a long-term agreement to manage the casino. The Celebrations Casino and
Hotel project is one of six applications submitted to the AGLC for an additional
casino facility license in the greater Edmonton area. In January 2004, CRA was
afforded the opportunity to make a live presentation to the AGLC. The AGLC is
expected to award the casino license in the first half of 2004.
-10-
Edmonton is one of the fastest growing cities in Canada, with a strong
economic climate. Tourism is a significant part of the economy, and Edmonton
offers a wide range of activities, with the top activities being sports/outdoor
activities, sightseeing, and nightlife/casino. Edmonton is also home of the
world's largest shopping mall. (Source: Tourism in Canadian Cities - A
Statistical Outlook 2001.) The Innovation Group, Littleton, Colorado, estimates
that by combining the local and tourist markets, 2005 gaming revenues for the
greater Edmonton area are projected to be $376 million Canadian, an average
annual increase of 13.3% over 2002/2001. There are currently six casinos in the
Edmonton area, including one racino.
If a casino license is awarded to the Company, The Celebrations Casino and
Hotel project is planned in two phases. The first phase is projected to be open
within 12 months of license award and finalizing funding arrangements and would
see the existing facility expanded to include a casino with 600 slot machines,
30 house-banked table games, and a 12-table poker room. The first phase of the
Celebrations Casino and Hotel Project proposed by CRA is estimated to cost 16.5
million Canadian dollars ($12.8 million), including the 2.5 million Canadian
dollars ($1.9 million) contribution of the existing hotel and property by 746306
Alberta Ltd.
Subject to satisfactory performance of the first phase, phase two of the
Celebrations Casino and Hotel is planned to open 36 months later, and would
include an additional 80 hotel rooms and a 10,000 square foot convention center,
for an additional capital investment of approximately $4 million Canadian, or
$3.1 million US. There is no assurance that the Celebrations project will be
awarded a license or completed.
Revolving Credit Facility
The Company maintains a revolving line of credit facility (the "RCF") and
had two swap agreements, as more fully described in Note 5, Long-Term Debt, to
the Consolidated Financial Statements, with Wells Fargo Bank ("Wells Fargo") to
fund current operations and future investments. Currently, the $26 million RCF
matures in August 2007 and decreases quarterly. At December 31, 2003, the
maximum available under the RCF was $23.1 million and the unused borrowing
capacity was approximately $11.4 million. The Company's weighted-average
interest rate on the RCF was 8.06% in 2003, 9.15% in 2002 and 9.04% in 2001. In
an environment of falling interest rates, as we have seen in the last two years,
the swap agreements are disadvantageous. Without the swap agreements the
weighted-average interest rate on the RCF would have been 3.98% in 2003, 4.68%
in 2002 and 7.18% in 2001. A portion of the proceeds of borrowings under the RCF
was used for the development of The Caledon Hotel, Spa & Casino. The RCF is
secured by substantially all of the real and personal property of Womacks. Under
the RCF, the Company is required to comply with certain customary financial
covenants, and is subject to certain capital expenditure requirements and
restrictions on investments.
Marketing Strategy
Womacks Casino and Hotel - The marketing strategy of Womacks highlights
promotion of the Womacks Gold Club, a players club with a database containing
profiles on over 100,000 members. Gold Club members receive benefits from
membership, such as cash, coupons, merchandise, preferred parking, food and
lodging. Those who qualify for VIP status receive additional benefits in
addition to regular club membership. Status is determined through player
tracking. Members receive information about upcoming events and parties, and,
depending on player ranking, also receive invitations to special events.
Caledon Hotel, Spa & Casino - As with Womacks, the marketing strategy of
The Caledon Hotel, Spa & Casino highlights promotion of its players club and
building its player information
-11-
database. Players club members receive benefits such as cash, coupons,
merchandise, food and lodging. Players club members who qualify for VIP status
receive additional benefits. Status is determined through player tracking.
Members receive newsletters of upcoming events and parties, and, depending on
player ranking, also receive invitations to special events.
Competition
The Cripple Creek Market - Cripple Creek is a small mountain town located
approximately 45 miles southwest of Colorado Springs, Colorado on the western
boundary of Pikes Peak. Cripple Creek is a historic mining town, dating back to
the late 1800's. Cripple Creek is a tourist town and its heaviest traffic is in
the summer months. Traffic generally decreases to its low point in the winter
months.
Cripple Creek is one of only three Colorado cities, exclusive of Indian
gaming operations, where casino gaming is legal, the others being Black Hawk and
Central City. As of December 31, 2003, there were 18 casinos operating in
Cripple Creek, which represented 27% of the gaming devices and generated 20% of
gaming revenues from these three cities, for the year then ended.
The tables below set forth information obtained from the Colorado Division
of Gaming regarding gaming revenue by market and slot machine data for Cripple
Creek from calendar year 2000 through 2003. Adjusted Gross Profit ("AGP") is the
net win from gaming activities reported to the licensing jurisdiction. The
Company uses AGP to measure performance relative to competitors within its
respective markets. This data is not intended by the Company to imply, nor
should the reader infer, that it is any indication of future Colorado or Company
gaming revenue.
GAMING REVENUE BY MARKET
% change % change % change % change
Over Over Over Over
2003 Prior Year 2002 Prior Year 2001 Prior Year 2000 Prior Year
-----------------------------------------------------------------------------------------
CRIPPLE CREEK $142,525 0.0% $142,436 2.8% $138,618 3.0% $134,630 9.8%
Black Hawk $505,851 -3.5% $524,465 9.6% $478,326 10.3% $433,769 22.2%
Central City $49,909 -5.5% $52,800 -11.6% $59,730 -5.9% $63,453 -14.0%
-----------------------------------------------------------------------------------------
COLORADO TOTAL $698,285 -3.0% $719,701 6.4% $676,674 7.1% $631,852 14.6%
======== ===== ======== ==== ========= ==== ========= =====
-12-
CRIPPLE CREEK SLOT DATA
% change % change % change % change
Over Over Over Over
2003 Prior Year 2002 Prior Year 2001 Prior Year 2000 Prior Year
-----------------------------------------------------------------------------------------------
Total Slot Revenue $138,560 0.0% $138,645 3.2% $134,330 3.7% $129,500 10.3%
Average Number
Of Slots 4,228 1.0% 4,187 .4% 4,170 .5% 4,148 2.2%
Average Win Per
Slot Per Day 90 dollars -1.1% 91 dollars 2.5% 88 dollars 3.5% 85 dollars 4.7%
WOMACKS CASINO AND HOTEL DATA
% change % change % change % change
Over Over Over Over
2003 Prior Year 2002 Prior Year 2001 Prior Year 2000 Prior Year
------------------------------------------------------------------------------------------------
Total Slot Revenue $20,625 -12.5% $23,563 1.8% $23,142 -2.2% $23,670 6.5%
Average Number
Of Slots 622 -2.8% 640 7.9% 593 -5.4% 627 5.9%
Average Win Per
Slot Per Day 91 dollars -9.9% 101 dollars -5.6% 107 dollars 3.6% 103 dollars -
Market Share of
Cripple Creek AGP 14.9% -12.4% 17.0% -1.3% 17.2% -5.7% 18.3% -3.1%
Gaming in Colorado is "limited stakes," which restricts any single wager to
a maximum of 5 dollars. While this limits the revenue potential of table games,
management believes that slot machine play, which accounts for over 97% of total
gaming revenues at Womacks and in Cripple Creek, is currently impacted only
marginally by the 5 dollar limitation.
The Company faces intense competition from other casinos in Cripple Creek,
including a handful of casinos of similar size and many other smaller casinos.
There can be no assurance that other casinos in Cripple Creek will not undertake
expansion efforts similar to or more substantial than those recently undertaken
by the Company, thereby further increasing competition, or that large,
established gaming operators will not enter the Cripple Creek market. The
Company seeks to compete against these casinos through promotion of Womacks Gold
Club and other marketing efforts. Management believes that the casinos likely to
be more successful and best able to take advantage of the market potential of
Cripple Creek will be the larger casinos that have reached a certain critical
mass.
The Company competes, to a far lesser extent, with 20 casinos in Black Hawk
and five casinos in Central City. Black Hawk and Central City are also small
mountain tourist towns, which adjoin each other and are approximately 30 miles
from Denver and a two and one-half hour drive from Cripple Creek. The main
market for Cripple Creek is the Colorado Springs metropolitan area, and the main
market for Black Hawk and Central City is the Denver metropolitan area.
-13-
There can be no assurance that the number of casino and hotel operations
will not exceed market demand or that additional hotel rooms or casino capacity
will not adversely affect the operations of the Company.
The Caledon, South Africa Market - Caledon is a small agricultural
community located approximately 60 miles east of Cape Town. Caledon lies on the
N-2 highway - the main thoroughfare between Cape Town and Durban - and is known
for its wild flower shows, wineries and the natural historic hot springs located
on the Caledon Hotel, Spa & Casino site. Caledon experiences its heaviest
traffic during the December holiday season (summer in South Africa). Traffic
will be somewhat slower in the winter months (June through September), but
management believes that the enhanced hot springs facilities will increasingly
attract additional patrons during these months.
The Caledon Hotel, Spa & Casino operates its casino under one of only four
licenses awarded in the Western Cape Province, which has a population of
approximately 4 million. Although the competition is limited by the number of
casino licenses and the casinos are geographically distributed, management
believes that the Caledon Hotel, Spa & Casino faces intense competition from a
large casino located in Cape Town approximately one hour from Caledon and, to a
much lesser degree, two other casinos. The Company competes against these
casinos by emphasizing Caledon's destination resort appeal in its marketing
campaign, by promotion of its players club and by superior service to its
players.
Many of the Company's competitors have greater financial, operational and
personnel resources than the Company. There can be no assurance that the number
of casino and hotel operations will not exceed market demand or that additional
hotel rooms or casino capacity will not adversely affect the operations of the
Company.
The National Gambling Board has approved the introduction of Limited Payout
Machines ("LPM") and has approved 105 such devices for the Overberg region of
the Western Cape, the market in which CCAL operates. An approved operator, which
can have a maximum of 5 devices, will be permitted to operate the devices
without the overhead of a typical casino. They will, however, be subject to
central monitoring.
Casino gaming in South Africa is "unlimited wagering" where each casino can
set its own limits. As a result, the relationship between table games revenues
and slot revenues resembles more traditional gaming markets (unlike Cripple
Creek where over 97% of gaming revenues are derived from the slot machines). The
casino has 275 slot machines and 8 table games including blackjack, roulette and
poker.
-14-
GAMING REVENUE BY MARKET
% change % change % change
Over Over Over
2003 Prior Year 2002 Prior Year 2001 Prior Year
(2) (2) (1)
_______________________________________________________________________________________________
CALEDON CASINO Rand R67,976 11.3% R61,100 21.3% R50,368 N/A
USD equivalent $9,211 $5,899 $5,892
Other three casinos Rand R1,058,619 12.2% R943,346 26.5% R745,943 N/A
USD equivalent $143,298 $91,162 $87,530
WESTERN CAPE TOTAL(1) Rand R1,126,595 12.2% R1,004,446 26.1% R796,311 N/A
USD equivalent $152,509 $97,061 $93,422
======== ======= =======
(1) Western Cape information not available for 2000. (2) Excluding effects of
fluctuations in foreign exchange rate.
THE CALEDON HOTEL SPA & CASINO DATA
% change % change
Over Over
2003 Prior Year 2002 Prior Year 2001 (2)
--------------------------------------------------------------
Total Slot Revenue R62,345 12.8% R55,276 26.3% R43,750
$8,443 58.0% $5,343 4.7% $5,104
Market Share in % (1) 6.0% -1.6% 6.1% -3.2% 6.3%
Average Number
Of Slots 274 7.9% 254 1.6% 250
Average Win Per Slot Per Day 623 rand 4.5% 596 rand 24.4% 479 rand
84 dollars 44.8% 58 dollars 3.6% 56 dollars
# of Slot Machines % of Total
Western Cape Market 10.9% -2.7% 11.2% 0.9% 11.1%
Average Number
Of Tables 8 0.0% 8 -42.9% 14
# of Tables % of Total
Western Cape Market 8.8% -11.1 % 9.9% -34.9% 15.2%
(1) Based on the total Adjusted Gaming Revenue of Western Cape.
(2) Western Cape information not available for 2000. The Caledon Casino opened
for business on October 11, 2000 and was in operation for 82 days in the
year 2000. The Caledon casino reported a decline in the average slot per
day in 2001 compared to 2000, due largely to the December 2000 opening of a
major competitor in Cape Town, approximately one hour from Caledon, with
approximately 1,400 slot machines and the devaluation of the Rand versus
the U.S. dollar throughout 2001 and a majority of 2002.
-15-
Employees
Womacks Casino and Hotel - The Company employs approximately 200 persons in
Cripple Creek, Colorado on a full-time equivalent basis, including cashiers,
dealers, food and beverage service personnel, facilities maintenance staff,
security, accounting and marketing personnel. No labor unions represent any
employee group. A standard package of employee benefits is provided to full-time
employees along with training and job advancement opportunities. In March 1998,
the Company adopted a 401(k) Savings and Retirement Plan for its employees.
Caledon Hotel, Spa & Casino - The Caledon Hotel, Spa & Casino employs
approximately 340 persons on a full-time equivalent basis, including cashiers,
dealers, room service, food and beverage service personnel, facilities
maintenance staff, security, accounting and marketing personnel. A standard
package of employee benefits is provided to full-time employees along with
training and job advancement opportunities.
Casino and hotel employees are represented by the T.E.U.S.A. (Technical
Employee Union of South Africa). Membership in the union is not mandatory and
less than 50% of eligible employees are currently members. On November 24, 2001,
the T.E.U.S.A. initiated a strike action against the hotel and casino. An
application for a temporary interdict was granted by the Labor Court with cost
to the union and union officials. Employees returned to work on December 15,
2001 and on January 29, 2002 the temporary interdict was made final. There was
no further industrial action and there have been no strikes since that time. The
Company notified T.E.U.S.A. on January 27, 2004 that it was no longer
representative of the employees of the casino and hotel. T.E.U.S.A. has 60 days
to remedy this position. A new union, the SACCAWU, has started recruiting
members, but not recruited the 50% necessary to represent them as a union;
therefore, management does not believe there is a risk of a strike in the
near term.
Seasonality
Womacks Casino and Hotel - The Company's business in Cripple Creek,
Colorado is at its highest levels during the tourist season (i.e., from May
through September). Its base level (i.e., October through April) is expected to
remain fairly constant although weather conditions during this period could have
a significant impact on business levels in Colorado.
Caledon Hotel, Spa & Casino - The Company's business in Caledon is at its
highest levels of business during the holiday season in December. Caledon has a
very mild climate and management believes that it can maintain steady traffic to
The Caledon Hotel, Spa & Casino in the winter months (June through September)
due to its modern historic hot springs facilities.
Governmental Regulation and Licensing
Womacks Casino and Hotel - The Company's gaming operations are subject to
strict governmental regulations at state and local levels. Statutes and
regulations can require the Company to meet various standards relating to, among
other matters, business licenses, registration of employees, floor plans,
background investigations of licensees and employees, historic preservation,
building, fire and accessibility requirements, payment of gaming taxes, and
regulations concerning equipment, machines, tokens, gaming participants, and
ownership interests. Civil and criminal penalties can be assessed against the
Company and/or its officers or stockholders to the extent of
-16-
their individual participation in, or association with, a violation of any of
the state and local gaming statutes or regulations. Such laws and regulations
apply in all jurisdictions within the United States in which the Company may do
business. Management believes that the Company is in compliance with applicable
gaming regulations. For purposes of the discussion below, the term "the Company"
includes its applicable subsidiaries.
The Colorado Limited Gaming Control Commission ("Commission") has adopted
regulations regarding the ownership of gaming establishments by publicly held
companies (the "Regulations"). The Regulations require the prior clearance of,
or notification to, the Commission before any public offering of any securities
of any gaming licensee or any affiliated company. The Regulations require all
publicly traded or publicly owned gaming licensees to comply with numerous
regulatory gaming requirements including, but not limited to, notifying / filing
with the Colorado Division of Gaming any proxy statements, lists of
shareholders, new officers and directors of the Company, any shareholders
obtaining 5% or more of the Company's common stock and any issuance of new
voting securities. Management believes that the Company is in compliance with
applicable gaming regulations.
Other state regulatory agencies also impact the Company's operations,
particularly its license to serve alcoholic beverages. Rules and regulations in
this regard are strict, and loss or suspension of a liquor license could
significantly impair, if not ruin, a licensee's operation. Local building,
parking and fire codes and similar regulations could also impact the Company's
operations and proposed development of its properties.
Caledon Hotel, Spa & Casino - Caledon's gaming operations are subject to
strict regulations by the Western Cape Gambling and Racing Board under national
and provincial legislation. Statutes and regulations require the Company to meet
various standards relating to, among other matters, business licenses, licensing
of employees, historic preservation, building, fire and accessibility
requirements, payment of gaming taxes, and regulations concerning equipment,
machines, tokens, gaming participants, and ownership interests. Civil and
criminal penalties can be assessed against the Company and/or its officers to
the extent of their individual participation in, or association with, a
violation of any of these gaming statutes or regulations. Management believes
that the Company is in compliance with applicable gaming regulations.
Casino Millennium - Casino Millennium's gaming operations are subject to
strict regulations by the Czech Republic under national legislation. Statutes
and regulations require the Company to meet various standards relating to, among
other matters, business licenses, building, fire and accessibility requirements,
payment of gaming taxes, and regulations concerning equipment, machines, tokens,
gaming participants, and ownership interests. Civil and criminal penalties can
be assessed against the Company and/or its officers to the extent of their
individual participation in, or association with, a violation of any of these
gaming statutes or regulations. Management believes that the Company is in
compliance with applicable gaming regulations.
Silversea Cruise Ships, The World of ResidenSea, Oceania Cruise Ships - The
casinos onboard the cruise ships only operate when they are in international
waters. Therefore, the gaming operations are not regulated by any national or
local regulatory body. However, the Company follows standardized rules and
practices in the daily operation of the casinos. This segment of the Company's
operations accounted for almost 6% of the Company's total net operating revenue
for 2003, compared to less than 3% for 2002.
-17-
Item 2. Properties.
The Company's U.S. offices are located at 157 East Warren Avenue, Cripple
Creek, Colorado. See Item 1. "Business -- Property and Project Descriptions"
herein for a description of the Company's other properties. See also Note 5,
Long-Term Debt, to the Consolidated Financial Statements for complete disclosure
of the debt instruments which are secured by Company's property.
Item 3. Legal Proceedings.
The Company is not a party to, nor is it aware of, any pending or
threatened litigation which, in management's opinion, could have a material
adverse effect on the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
The 2003 annual meeting of the stockholders of the Company was held on June
16, 2003. At the annual meeting the two Class III directors to the Board, Erwin
Haitzmann and Gottfried Schellmann were re-elected to the Board for a three year
term. On this proposal to elect the Class III directors, the votes were: Erwin
Haitzmann, 10,646,586, for, 0 (zero) against, and 407,709 abstained; Gottfried
Schellmann, 10,656,811, for, 0 (zero) against, and 397,484 abstained. No other
proposals were brought for a vote of the stockholders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Company began trading in the NASDAQ SmallCap Market
on November 10, 1993. The following table sets forth the low and high sale price
per share quotations as reported on the NASDAQ Stock Market of the common stock
for the periods indicated. These quotations reflect inter-dealer prices, without
retail markup, markdown or commission and may not necessarily represent actual
transactions. Actual prices may vary.
Quarter Ended Low High
March 31, 2002 $2.02 $3.81
June 30, 2002 $2.60 $3.44
September 30, 2002 $1.95 $3.13
December 31, 2002 $1.63 $2.30
March 31, 2003 $1.85 $2.50
June 30, 2003 $1.88 $2.49
September 30, 2003 $2.11 $3.00
December 31, 2003 $2.20 $3.93
At December 31, 2003, the Company had approximately 100 stockholders of
record of its common stock. Management estimates that the number of beneficial
owners is approximately 2,200.
At the present time, management of the Company intends to use any earnings
that may be generated to finance the growth of the Company's business. The RCF
currently prohibits the payment of dividends, consequently, no dividends have
been declared or paid by the Company, and it does not presently intend to pay
dividends.
-18-
The following table provides the information as of December 31, 2003
relating to securities authorized for issuance under equity compensation plans.
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under equity
warrants and rights compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Equity compensation plans 2,160,300 $1.29 1,665,309
approved by security holders
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Equity compensation plans not
approved by security holders - - -
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Total 2,160,300 $1.29 1,665,309
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
The Company has an Employees' Equity Incentive Plan (the "Plan") that
provides for the grant of awards to eligible employees in the form of stock,
restricted stock, stock options, stock appreciation rights, performance shares
or performance units, all as defined in the Plan. The Plan provides for the
issuance of up to 4,500,000 shares of common stock to eligible employees through
the various forms of awards permitted. Through December 31, 2003, only incentive
stock option awards, for which the option price may not be less than fair market
value at the date of grant, or non-statutory options, which may be granted at
any option price, have been granted under the Plan. All options must have an
exercise period not to exceed ten years. Options granted to date have one-year,
two-year or four-year vesting periods. The Company's Incentive Plan Committee
has the power and discretion to, among other things, prescribe the terms and
conditions for the exercise of, or modification of, any outstanding awards in
the event of merger, acquisition or any other form of acquisition other than a
reorganization of the Company under United States Bankruptcy Code or liquidation
of the Company. The Plan also allows limited transferability of any
non-statutory stock options to legal entities that are 100% - owned or
controlled by the optionee or to the optionee's family trust. The Company last
granted options to any officers in 1999. As of December 31, 2003 there were
2,160,300 options outstanding under the Plan and 1,665,309 available under the
plan. Subsequent to December 31, 2003, 1,352,710 options were granted by the
independent members of the Company's Incentive Plan Committee to eight officers
and employees of the Company with an exercise price of $2.93. The Plan expires
in April 2004. At this time, the Company does not intend to propose a new
employee equity incentive plan, thus will not ask the stockholders for approval
of a new plan at its 2004 annual stockholders meeting.
-19-
Item 6. Selected Financial Data
For the Year Ended December 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(1), (2) (2), (3) (4) (1)
Results of Operations:
Net Operating Revenue $ 31,402 $ 29,337 $ 29,456 $ 26,232 $ 20,929
Net Earnings 3,246 3,079 2,455 3,253 2,221
Net Earnings per Share:
Basic $ 0.24 $ 0.23 $ 0.18 $ 0.23 $ 0.15
Diluted $ 0.22 $ 0.20 $ 0.16 $ 0.22 $ 0.15
Balance Sheet:
Cash and Cash Equivalents $ 4,729 $ 4,582 $ 3,031 $ 9,077 $ 2,508
Total Assets 54,817 51,143 44,819 56,122 34,023
Long-Term Debt 14,913 16,531 15,991 20,314 10,459
Total Liabilities 21,769 24,040 22,641 33,152 12,892
Total Shareholders' Equity 33,048 27,103 22,178 22,970 21,131
(1) In April 2000, the Company, through CCA, purchased 50% interest in CCAL,
which was awarded a casino license in April 2000. The Caledon Hotel, Spa &
Casino opened for business in October 2000. In December 2000, the Company,
through CCA, acquired an additional 15% of The Caledon Hotel, Spa & Casino,
raising its ownership of the project to 65%. In January 2003, the Company,
through CCA, acquired the remaining 35% interest in CCAL.
(2) Effective 2002, in accordance with SFAS No. 142, the Company no longer
amortizes goodwill and other intangible assets with indefinite useful
lives. The goodwill amortization expense, net of income taxes, for the
years ended December 31, 2001, 2000, and 1999 was $1,171, $1,118, and $841,
respectively.
(3) In 2002, the Company wrote down the value of the non-operating casino
property and land held for sale in Nevada by $447 and recorded a $399
write-off for advances made and pre-construction costs incurred in
conjunction with the Johannesburg project and a $299 write-off for unpaid
casino technical service fees from Casino Millennium. See Note 12, Property
Write-Down and Other Write-Offs, to the Consolidated Financial Statements.
(4) In 2001, the reduction in total assets is principally the result of the
effects of the change in the exchange rate on CCAL assets.
-20-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
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 and Caledon South
Africa gaming markets, 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.
-21-
Results of Operations
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, among other items, the revenue and
expense of corporate gaming projects for which the Company has secured long-term
service contracts.
Comparison of the Years ended December 31, 2003, 2002 and 2001
Consolidated Results of Operations
The Company reported net operating revenue of $31,402 for the year ended
December 31, 2003, compared to $29,337 in 2002 and $29,456 in 2001.
The casino revenue, for the Company, was $31,869 in 2003 compared to
$30,607 in 2002 and $30,096 in 2001. The casino expense was $11,667, $9,897 and
$9,401 for 2003, 2002 and 2001, respectively. General and administrative expense
was $7,745 for 2003 compared to $7,191 in 2002 and $7,530 in 2001. Depreciation
and amortization expense was $2,668 in 2003, $2,304 in 2002 and $3,147 in 2001.
Total Company earnings from operations for the year ended December 31, 2003
was $6,804 compared to $7,291 in 2002 and $6,156 in 2001. The change from 2002
to 2003 is primarily an increase in earnings from operations from Caledon of
$1,085, a decrease from Womacks of $2,782, and a charge of $1,145, for property
write-down and other write-offs in 2002.
Tax expense was $1,777 for 2003 compared to $2,454 in 2002 and $1,794 in
2001. The decrease in 2003 when compared to 2002 is mainly attributable to lower
pre-tax income and lower effective tax rate in South Africa in 2003.
The Company's net earnings for 2003 were $3,246, or $0.24 per share
compared to net earnings of $3,079 or $0.23 per share in 2002 and $2,455 or
$0.18 per share in 2001.
A discussion by business segment follows below.
-22-
Colorado Segment
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 years ended December 31,
2003, 2002 and 2001 are as follows:
2003 2002 2001 % Change % Change
2003 v. 2002 2002 v. 2001
Casino $ 20,981 $ 23,922 $ 23,385 -12.3% 2.3%
Hotel, food and beverage 1,267 1,193 1,276 6.2% -6.5%
Other (including
promotional allowances) (3,846) (3,855) (3,639) -0.2% 5.9%
------------- ------------- ------------
Net operating revenue 18,402 21,260 21,022 -13.4% 1.1%
------------- ------------- ------------
Costs and Expenses
Casino 6,702 7,038 6,324 -4.8% 11.3%
Hotel, food and beverage 357 277 399 28.9% -30.6%
General and administrative 3,686 3,521 3,477 4.7% 1.3%
Depreciation 1,349 1,334 2,997 1.1% -55.5%
------------- ------------- ------------
12,094 12,170 13,197 -0.6% -7.8%
------------- ------------- ------------
Earnings from operations 6,308 9,090 7,825 -30.6% 16.2%
Interest expense 1 269 544 -99.6% -50.6%
Other income, net 42 25 42 68.0% -40.5%
------------- ------------- ------------
Earnings before income taxes 6,349 8,846 7,323 -28.2% 20.8%
Income tax expense 2,413 4,069 3,368 -40.7% 20.8%
------------- ------------- ------------
Net Earnings $ 3,936 $ 4,777 $ 3,955 -17.6% 20.8%
============= ============= ============
Excluded from the above results are, corporate bonuses that were previously
charged to Womacks but which are attributable to the consolidated results of
operations, the interest on debt incurred to fund the purchase of CCAL and the
repurchase of the Company's stock, and the related tax effects. A corresponding
reclassification adjustment has been made to the Corporate & Other segment.
There is no affect on the consolidated results.
Effect of reclassifications on segment
Segment net earnings before
reclassifications (*) $ 2,703 $ 3,827 $ 3,168
Reclassifications
Bonuses-General and administrative 590 608 569
Interest expense 1,399 1,152 889
Income tax expense (756) (810) (671)
------------- ------------- ------------
Segment net earnings after
reclassifications $ 3,936 $ 4,777 $ 3,955
============= ============= ============
* The reclassifications in 2003 are presented for informational purposes only.
-23-
Overall operating results were impacted by the casino results detailed below.
Market Data
2003 2002 2001
Market share of the Cripple Creek AGP 14.9% 16.9% 17.0%
Average number of slot machines 622 640 593
Market share of Cripple Creek gaming devices 14.8% 15.3% 14.2%
Average slot machine win per day 91 dollars 101 dollars 107 dollars
Cripple Creek average slot machine win per day 90 dollars 91 dollars 88 dollars
When comparing 2003 to 2002, there was no growth in the Cripple Creek
market. For the Company, 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 casino has expanded the use of both radio and TV advertising in its
efforts to compete for the pool of entertainment dollars. Management continues
to focus on the marketing of the casino through the expansion of the successful
Gold Club. However, covered parking garages provided by two of our competitors,
completed by September 2002, have impacted the casino, particularly during
inclement weather providing 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 if it concludes that the expansion is in the
Company's best interest.
When comparing 2002 to 2001, there was a 2.8% increase in the Cripple Creek
market. In the fourth quarter of 2001, the Company undertook a 6,022 square foot
expansion to the rear of the property, of which half of the project increased
space for gaming. The first half of the project was completed in September 2002.
Distractions from construction, limited access to the casino from adjoining
parking lot for all of 2002 had adverse effect on the casino revenues.
During 2003, Womacks leased approximately 37 slot machines, compared to 42
during the same period in 2002 and an average of 11 in 2001, 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 $424, $417 and $131 in 2003,
2002 and 2001, respectively.
-24-
Hotel, Food and Beverage
When comparing 2003 and 2002, an increase of 7.8% in restaurant revenues is
primarily a result of the visibility obtained by opening Bob's Grill on the
gaming floor. In the third quarter of 2002 Womacks introduced Bob's Grill on the
first floor of the casino and operated the Gold Mine restaurant on a limited
schedule. Relocation of the restaurant to the first floor increased its
visibility. In February 2003, we doubled the capacity of Bob's Grill and limited
the use of the former Gold Mine restaurant, which is located on the second
floor, to weekend and holiday buffets.
When comparing 2002 to 2001, a decrease of 16.5% in restaurant revenues is
primarily attributable to reduced operating hours of Gold Mine restaurant. In
July 2002, Womacks introduced Bob's Grill on the main gaming floor to improve
customer convenience and converted the upstairs restaurant to a fine dining
restaurant with limited operating hours.
All of the revenue generated by the hotel operations is derived from comps
to better players. Womacks hotel occupancy rate was 84% in 2003 compared to 85%
in 2002 and 81% in 2001.
Other
Comparing 2003 to 2002, the increase in general and administrative costs is
primarily attributable to Womacks' contributions to the campaign organized by
Colorado's gaming industry against the proposed introduction of video lottery
terminals ("VLT's")(see "Liquidity and Capital Resources"). Womacks'
contribution to the campaign totaled $127 in 2003.
The decrease in interest expense, including debt issuance cost, to $1 in
2003, net of $1,399 in interest allocated to the Corporate & Other segment, from
$269, net of $1,152 in interest allocated to the Corporate & Other segment in
2002, is attributable to the decrease in the weighted-average interest rate on
the borrowings under the RCF, including effects of the swap agreements, to 8.72%
from 9.75%. The average balance of the RCF increased to $12.6 million in 2003
from $11.7 million in 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 and an additional $3.8 million to fund the
repurchase of shares of the Company's stock. The interest on the combined amount
has resulted in a charge of approximately $1,399 and $1,152, to the Company's
Corporate & Other segment and recognized as interest income in the Company's
Colorado segment in 2003 and 2002, respectively.
When comparing 2002 to 2001, interest expense, including debt issuance
cost, decreased to $269, net of $1,152 in interest allocated to the Corporate &
Other segment in 2002 from $544, net of $889 in interest allocated to the
Corporate & Other segment in 2001. Since the second quarter of 2000 and through
December 31, 2002, the Company has borrowed a total of $7 million under the RCF
to fund its investments in South Africa and an additional $3.4 million to fund
the repurchase of the Company's stock. The resulting charge of approximately
$1,152 in 2002 and $889 in 2001 has been charged against the Company's Corporate
segment and recognized as interest income in the Company's Colorado segment.
The Colorado segment recognized income tax expense of $2,413 in 2003 versus
$4,069 in 2002, principally the result of a decrease in earnings before income
taxes. The segment recognized income tax expense of $4,069 in 2002 compared to
$3,368 in 2001 due to an increase in pre-tax earnings.
-25-
South African Segment
The operating results of the South African segment are those of CCA and its
subsidiaries, primarily CCAL, which owns the Caledon Hotel, Spa & Casino.
Inter-company transactions, including management and incentive fees,
shareholder's interest and their related tax effects have been excluded from the
Caledon and CCA results within the South African segment.
Improvement in the Rand versus the dollar when comparing 2003 to 2002 has
had a positive impact on the reported revenues and a negative impact on
expenses. When comparing 2002 to 2001, the deterioration in Rand versus the
dollar had a negative impact on the reported revenues and a positive impact on
expenses.
Operational results in US dollars for the years ended December 31, 2003,
2002 and 2001 are as follows: (See next page for results in Rand)
CALEDON
2003 2002 2001 % Change % Change
2003 v. 2002 2002 v. 2001
Operating Revenue
Casino $ 9,211 $ 5,899 $ 5,892 56.1% 0.1%
Hotel, food and beverage 2,301 1,437 1,376 60.1% 4.4%
Other (including promotional
allowances) (363) (253) 20 43.5% 1,365.0%
------------ ----------- -----------
Net operating revenue 11,149 7,083 7,288 57.4% -2.8%
------------ ----------- -----------
Costs and Expenses
Casino 3,993 2,322 2,844 72.0% -18.4%
Hotel, food and beverage 1,996 1,232 1,349 62.0% -8.7%
General and administrative 1,552 1,342 1,288 15.6% 4.2%
Depreciation 1,070 734 1,219 45.8% -39.8%
------------ ----------- -----------
8,611 5,630 6,700 52.9% -16.0%
------------ ----------- -----------
Earnings from operations 2,538 1,453 588 74.7% 147.1%
Interest expense 929 804 881 15.5% -8.7%
Other income, net 154 146 56 5.5% 160.7%
------------ ----------- -----------
Earnings (loss) before income taxes 1,763 795 (237) 121.8% 435.4%
Income tax expense (benefit) 581 256 (87) 127.0% 394.3%
------------ ----------- -----------
Net Earnings (Loss) $ 1,182 $ 539 $ (150) 119.3% 459.3%
============ =========== ===========
CENTURY CASINOS AFRICA
Costs and Expenses
General and administrative $ 352 $ 154 $ 131 128.6% 17.6%
Depreciation and amortization 3 - 75 n/a -100.0%
Write off of advances - 400 - -100% n/a
------------ ----------- -----------
355 554 206 -35.9% 168.9%
------------ ----------- -----------
Loss from operations (355) (554) (206) -35.9% 168.9%
Other income (loss), net 28 23 (27) 21.7% 185.2%
------------ ----------- -----------
Loss before income taxes (327) (531) (233) -38.4% 127.9%
Income tax (expense) benefit 94 (160) 70 -158.8% -328.6%
------------ ----------- -----------
Net Loss $ (233) $ (691) $ (163) -66.3% 323.9%
============ =========== ===========
MINORITY INTEREST (EXPENSE) BENEFIT $ (22) $ (31) $ 32 -29.0% -196.9%
------------ ----------- -----------
SOUTH AFRICA NET EARNINGS (LOSS) $ 927 $ (183) $ (281) 606.6% -34.9%
============ =========== ===========
Average exchange rate (Rand/USD) 7.43 10.41 8.47 28.6% -22.9%
-26-
Operational results in Rand for the years ended December 31, 2003, 2002 and 2001
are as follows:
CALEDON 2003 2002 2001 % Change % Change
2003 v. 2002 2002 v. 2001
Operating Revenue
Casino R 67,976 R 61,100 R 50,368 11.3% 21.3%
Hotel, food and beverage 17,061 14,863 11,862 14.8% 25.3%
Other (including promotional
allowances) (2,584) (2,619) (810) -1.3% 223.3%
------------ ----------- -----------
Net operating revenue 82,453 73,344 61,420 12.4% 19.4%
------------ ----------- -----------
Costs and Expenses
Casino 29,365 24,131 24,124 21.7% 0.0%
Hotel, food and beverage 14,998 12,717 11,516 17.9% 10.4%
General and administrative 11,484 13,847 10,387 -17.1% 33.3%
Depreciation 7,950 7,532 10,320 5.5% -27.0%
------------ ----------- -----------
63,797 58,227 56,347 9.6% 3.3%
------------ ----------- -----------
Earnings from operations 18,656 15,117 5,073 23.4% 198.0%
Interest expense 6,950 8,394 7,549 -17.2% 11.2%
Other income, net 1,167 1,495 481 -21.9% 210.8%
------------ ----------- -----------
Earnings (loss) before income taxes 12,873 8,218 (1,995) 56.6% 511.9%
Income tax expense (benefit) 4,284 2,618 (312) 63.6% 939.1%
------------ ----------- -----------
Net Earnings (Loss) R 8,589 R 5,600 R (1,683) 53.4% 432.7%
============ =========== ===========
CENTURY CASINOS AFRICA
Costs and Expenses
General and administrative R 2,640 R 1,677 R 1,084 57.4% 54.7%
Depreciation and amortization 18 - 635 n/a -100.0%
Other - - - n/a n/a
Write off of advances - 4,182 - -100.0% n/a
------------ ----------- -----------
2,658 5,859 1,719 -54.6% 240.8%
------------ ----------- -----------
Loss from operations (2,658) (5,859) (1,719) -54.6% 240.8%
Other income, net 215 242 36 -11.2% 572.2%
------------ ----------- -----------
Loss before income taxes (2,443) (5,617) (1,683) -56.5% 233.7%
Income tax benefit 713 1,005 1,266 -29.1% -20.6%
------------ ----------- -----------
Net Loss R (1,730) R (4,612) R (417) -62.5% 1,006.0%
============ =========== ===========
MINORITY INTEREST (EXPENSE) BENEFIT R (176) R (490) R 549 -64.1% -189.3%
------------ ----------- -----------
SOUTH AFRICA NET EARNINGS (LOSS) R 6,683 R 498 R (1,551) 1,242.0% -132.1%
============ =========== ===========
Casino Market Data (in Rand)
2003 2002 2001
Market share of the Western Cape AGP 6.0% 6.1% 6.3%
Market share of Western Cape gaming devices 10.9% 11.2% 11.1%
Average number of slot machines 274 254 250
Average slot machine win per day 623 Rand 596 Rand 479 Rand
Average number of tables 8 8 14
Average table win per day 1,928 Rand 1,995 Rand 1,295 Rand
-27-
The results discussed below are all based on the Rand to eliminate the
effect of fluctuations in foreign currency exchange rates.
When comparing 2003 and 2002, the 11.3% increase in the gross casino
revenue is attributable to a number of factors including an increase in the
number of slot machines, the introduction of cash couponing and other successful
marketing efforts, an expanded smoking section, improved management and employee
training. Since the purchase of the remaining 35% interest in CCAL in January
2003, the Company has 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 attributable to the increased cost of
marketing the casino, period cost associated with routine maintenance to the
property, and to the effect of inflation. CCAL competes against a much larger
competitor located in a more populous area of the Western Cape.
When comparing 2002 and 2001, the 21.3% increase in the gross casino
revenue is primarily the result of the increase in number of slot machines and
successful marketing efforts. The relatively nominal increase in casino
expenses, resulting in an improved casino margin was a result of management's
ability to contain costs while increasing gaming revenue.
Hotel, Food and Beverage
Hotel occupancy was 57% for 2003 compared to 58% in 2002. Conference sales
showed a 10% improvement for 2003 compared to 2002, while leisure sales
decreased by 6% in the corresponding period. Food and beverage revenue has
increased by 17.9%, primarily due to the increase in the number of theme dinners
and banquets, as well as a general price increase.
Hotel occupancy was 58% in 2002 compared to 49% in 2001. Conference sales
showed a 28% improvement for 2002 compared to 2001 due to a casino promotion
held in January 2002. The total conference sales for 2002 accounted for 16% of
total hotel occupancy. Conference and leisure sales showed a combined growth of
18% in 2002 over 2001.
CCAL continues to make a number of repairs and improvements to the resort
on an ongoing basis. Additionally, continuing inflationary pressures in South
Africa have driven up base costs such as labor and supplies. When comparing 2003
and 2002, hotel repair cost increased by 40.1%, accounting for R84 of the
increase in expenses. Labor cost, including health insurance and uniforms, has
increased by 39.4%, accounting for R1,871 of the increase in expenses. When
comparing 2002 and 2001, labor costs, including health insurance and uniforms,
increased by 6.2%, accounting for R278 increase in expenses. Increases in cost
of goods sold account for R1,104 increase, or 37.2%.
Other
Other operating revenue principally consists of promotional allowances and
revenue generated from the resort's ancillary services, which include the
adventure center, spa center, and conference room rental. Administrative support
for South Africa which was paid by Caledon and CCI in 2002 and 2001 has been
transferred to CCA in 2003, accounting for a portion of the decrease in
Caledon's and Corporate's general and administrative expenses and the
corresponding increase in CCA's administrative expenses.
-28-
The weighted-average interest rate on the borrowings under the ABSA Bank
loan agreement is 16.9% in 2003, 2002 and 2001. When comparing 2003 and 2002 and
excluding the effect of fluctuations in the exchange rate, interest expense has
decreased by 17.2%, as the principal balance of the term loans and capitalized
leases are repaid.
Cruise Ships Segment
The Cruise ships' segment operational results for the years ended December
31, 2003, 2002 and 2001 are as follows:
2003 2002 2001 % Change % Change
2003 v. 2002 2002 v. 2001
Operating Revenue
Casino $ 1,677 $ 786 $ 819 113.4% -4.0%
Other (including promotional
allowances) 60 38 72 57.9% -47.2%
------------ ----------- -----------
Net operating revenue 1,737 824 891 110.8% -7.5%
------------ ----------- -----------
Costs and Expenses
Casino 1,172 537 624 118.2% -13.9%
General and administrative 3 1 1 200.0% 0.0%
Depreciation 74 45 47 64.4% -4.3%
------------ ----------- -----------
1,249 583 672 114.2% -13.2%
------------ ----------- -----------
Earnings from operations 488 241 219 102.5% 10.0%
Other income, net 17 - - n/a -
------------ ----------- -----------
Earnings before income taxes 505 241 219 109.5% 10.0%
Income tax expense 150 88 82 70.5% 7.3%
------------ ----------- -----------
Net Earnings $ 355 $ 153 $ 137 132.0% 11.7%
============ =========== ===========
In 2003 the Company operated casinos on a total of seven ships: four from
Silversea, one on the World of ResidenSea and two on Oceania Cruises. In 2002,
the Company operated casinos on four ships: three on Silversea and one on the
World of ResidenSea. In May 2003, Silver Wind, which was taken out of service in
October 2001 after the events of September 11, 2001, returned to operation. In
April 2003, the Company opened the casino aboard Oceania Cruises' Insignia.
Opening of the casino aboard Regatta, another vessel operated by Oceania
Cruises, followed in June 2003.
When comparing 2002 and 2001 operational results, in 2002 the Company
operated casinos on four ships: three on Silversea and one on the World of
ResidenSea. In 2001 we operated four casinos all aboard Silversea's cruise
ships. Following the events of September 11, 2001, the cruise ships saw a
substantial decrease in the amount of passenger traffic. In October 2001,
SilverSea Cruises removed from service one of the four ships on which the
Company has casino operations. In 2002, cruise ship operations started to
rebound as the travel industry began to recover. In March 2002, the World of
ResidenSea embarked on her maiden voyage.
-29-
Concession fees paid to the ship operators in accordance with the
agreements accounted for $588, $138 and $258 of the total casino expenses
incurred in 2003, 2002 and 2001, respectively.
Casino expenses, excluding concession fees, dropped to 34.8% of casino
revenue in 2003 compared to 50.8% in 2002, reflecting the Company's ability to
leverage its cruise ship operations. In 2001, the casino expenses, excluding
concession fees, constituted 44.7% of casino revenues.
We anticipate we will repeatedly experience severe fluctuations in the
revenue generated on each cruise depending on the number of passengers and the
quality of the players. This is a condition that is beyond the control of the
Company.
-30-
Corporate & Other Segment
2003 2002 2001 % Change % Change
2003 v. 2002 2002 v. 2001
Operating Revenue
Other $ 114 $ 170 $ 255 -32.9% -33.1%
-------------- -------------- -----------
Net operating revenue 114 170 255 -32.9% -33.1%
-------------- -------------- -----------
Costs and Expenses
General and administrative 2,152 2,172 2,242 -0.9% -3.1%
Property write-down and other
write offs net of (recoveries) (35) 746 57 -104.7% 1208.8%
Depreciation 172 191 226 -9.9% -15.5%
-------------- -------------- -----------
2,289 3,109 2,525 -26.4% 23.1%
-------------- -------------- -----------
Loss from operations (2,175) (2,939) (2,270) -26.0% 29.5%
Interest expense 1,422 1,171 934 21.4% 25.4%
Other income, net 352 323 349 9.0% -7.4%
-------------- -------------- -----------
Loss before income taxes (3,245) (3,787) (2,855) -14.3% 32.6%
Income tax benefit (1,273) (2,119) (1,499) -39.9% 41.4%
-------------- -------------- -----------
Net Loss $ (1,972) $ (1,668) $ (1,356) 18.2% 23.0%
============== ============== ===========
Included in the above results are corporate bonuses that were previously
charged to Womacks but are attributable to the consolidated results of
operations, the interest on debt incurred to fund the purchase of CCAL and the
repurchase of the Company's stock, and the related tax effects. A corresponding
reclassification adjustment has been made to the Colorado segment. There is no
effect on the consolidated results.
Effect of reclassifications on segment
Segment net loss before
reclassifications (*) $ (739) $ (718) $ (569)
Reclassifications
Bonuses-General and
Administrative (590) (608) (569)
Interest expense (1,399) (1,152) (889)
Income tax expense 756 810 671
------------- ------------- ------------
Segment net loss after
reclassifications $ (1,972) $ (1,668) $ (1,356)
============= ============= ============
* The reclassifications in 2003 are presented for informational purposes only.
Net operating revenue principally consisted of casino technical service
fees earned from operating Casino Millennium in Prague, Czech Republic of $114,
$149 and $205 in 2003, 2002 and 2001, respectively. In August 2002, Prague,
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 for months following the disaster and
negatively affected the casino operation. Effective September 1, 2002, casino
technical service fees and interest due to the Company will not be accrued until
a certainty of cash flow is attained for Casino Millennium, but rather will be
recognized when payment is certain.
-31-
Property write-down and other write-offs, net of (recoveries) in 2003
include $35 in unpaid casino technical service fees recovered from Casino
Millennium, which was written off in 2002. Property write-down and other
write-offs in 2002 includes a pre-tax charge in the amount of $447 to reduce the
value of a non-operating property held by the Company in Nevada to its fair
value, less costs to sell, based on the current assessment of the property and a
pre-tax charge of $299 to write off unpaid casino technical service fees and
loans related to its operations in Prague, Czech Republic. An additional $26 in
interest income on the unpaid casino technical service fees and loans was also
written off, bringing the total pre-tax charge for the segment to $772. Property
write-down and other write-offs in 2001 include a charge of $57 for the
write-down in value of non-operating property and land held by the Company in
Nevada.
Other income, net is primarily derived from interest earned on a $5.7
million note between WMCK Venture Corp. and CCI. The interest income is
eliminated in consolidation.
Liquidity and Capital Resources
Cash and cash equivalents totaled $5.3 million (including $598 of
restricted cash) at December 31, 2003, and the Company had net deficit working
capital of $164. Additional liquidity may be provided by the Company's revolving
credit facility ("RCF") with Wells Fargo Bank, under which the Company has a
total commitment of $26,000 ($23,111 net of the quarterly reduction) and unused
borrowing capacity of approximately $11,354 at December 31, 2003.
For the year ended December 31, 2003, cash provided by operating activities
was $5.8 million compared with $7.4 million in 2002 and $6.5 million in 2001.
Please refer to management's discussion of the results of operations.
Cash used in investing activities of $3.5 million for the year ended
December 31, 2003, consisted of: $675 towards the expansion of the Womacks
casino at the rear of the property that was completed in the second quarter of
2003, providing a larger, more player friendly gaming space and the ability to
increase Womacks' slot machine capacity; $391 for new slot machines; $843 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; $190 towards outfitting the two new casinos aboard the luxury cruise
ships operated by Oceania and to finish re-outfitting the Silver Wind; $486 due
to expenditures for other long-lived assets, less $308 in proceeds from the
disposition of assets; and a decrease of $64 in restricted cash.
Cash used in investing activities of $4.4 million for the year ended
December 31, 2002, consisted of $1,355 towards the purchase and improvements of
the Palace Hotel in Cripple Creek and property, $1,200 towards the expansion of
the Womacks casino at the rear of the property, $130 towards the construction of
a restaurant and grill on the first floor of the Womacks casino, $812 on new
gaming equipment, $477 for additional improvements to the property in Caledon,
South Africa, $460 primarily for land purchased for the proposed casino
development in Johannesburg, South Africa and $284 due to expenditures for other
long-lived assets, less $263 in proceeds from the disposition of assets and $7
from a decrease in restricted cash.
Cash used in investing activities of $3.9 million for the year ended
December 31, 2001, consisted principally of $920 in cost related to the
construction and furnishing of new hotel space at Womacks, including the
associated cost of re-constructing the casino floor, $400 towards the expansion
of the casino at the rear of the property that opened in 2002, which provided
additional
-32-
gaming space as well as hotel rooms, $555 towards the sinking fund required by
the ABSA loan agreement, $1.6 million towards improvements at The Caledon Hotel,
Spa & Casino in South Africa and the balance of $408 due to expenditure for
other long lived assets, less $9 in proceeds from the disposition of assets.
Cash used in financing activities of $2.6 million for the year ended
December 31, 2003 consisted of net borrowings of $258 under the RCF with Wells
Fargo plus $850 in proceeds from the exercise of stock options and other net
borrowings of $43, less net repayments of $1,250 under the loan agreement with
ABSA Bank, $1,259 to acquire a loan to CCAL held by the minority shareholder,
Caledon Overberg Investments (Proprietary) Limited ("COIL"); $132 towards the
repurchase of the Company's common stock on the open market at cost; and $1,106
towards the purchase of 489,264 shares of common stock from a former director,
James Forbes, at a per share price of $2.26.
Cash used in financing activities of $1.5 million for the year ended
December 31, 2002 consisted of net repayments of $301 under the RCF with Wells
Fargo, plus net repayments of $607 under the loan agreement with ABSA Bank,
additional deferred financing charges incurred by the Caledon Hotel, Spa &
Casino, with a cost of $23, additional deferred financing charges incurred by
the Company to amend the RCF, with a cost of $92, the repurchase of the
Company's common stock on the open market with a cost of $392 and other net
repayments of $111, less $26 in proceeds from the exercise of stock options.
Cash used in financing activities of $8.4 million for the year ended
December 31, 2001 consisted of net repayments of $6.8 million under the RCF with
Wells Fargo, net repayments of $417 under the loan agreement with ABSA Bank,
repurchase of the Company's common stock on the open market with a cost of $674,
and other net payments of $613, less $68 in proceeds from the exercise of stock
options.
The Company entered into an amended RCF with Wells Fargo Bank, more fully
described in Note 5 to the Consolidated Financial Statements, in August 2002
which provides the Company 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.
In April 2000, Century Casinos Caledon (Pty) Ltd. ("CCAL") was awarded a
gaming license for a casino at a 92-room resort hotel and spa in Caledon, a
province of the Western Cape, South Africa, and the Company's subsidiary,
Century Casinos Africa (Pty) Ltd. ("CCA"), acquired a 50% equity interest in
CCAL. The Company made an initial equity investment of approximately $1,534 in,
and loans totaling approximately $2,302 to, CCAL with borrowings obtained under
the Company's RCF. CCA has a ten-year casino management agreement with CCAL,
which may be extended at the Company's option for multiple ten-year periods. In
November 2000, the Company, through CCA, acquired an additional 15% of CCAL,
raising its ownership in CCAL to 65%. The acquisition of the additional interest
was completed with the payment of approximately $1,800 by Century through CCA to
COIL in exchange for 15% of the total shares of common stock of CCAL (valued at
approximately $1,200) and a shareholder loan to CCAL previously held by COIL
(with a value of approximately $600). In January 2003, the Company through CCA,
acquired the remaining 35% interest in CCAL. The acquisition of the remaining
interest was completed with the payment of approximately $2.6 million by Century
through CCA to COIL in exchange for 35% of the total shares of common stock of
CCAL (valued at approximately $1.4 million) and a shareholder loan held by COIL
(valued at approximately $1.2 million).
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CCAL has entered into a loan agreement with PSG Investment Bank Limited
("PSGIB") which was subsequently acquired by ABSA Bank ("ABSA"), more fully
described in Note 5 to the Consolidated Financial Statements, which provided a
principal loan to fund the development of the Caledon project and a standby
facility to provide working capital. Outstanding borrowings under the principal
loan and standby facility bear interest at 17.05% and 15.1%, respectively. As
of December 31, 2003, the entire amount has been advanced against the loan and
the standby facility.
The Company has a 20-year agreement with Casino Millennium a.s. ("CM"), a
Czech company, to provide technical casino services to 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 CM or the formation of a new joint venture. In December 2002, the
Company, through CMB, paid $236 towards an initial equity investment of 10% in
Casino Millennium a.s., subject to the repayment of a CM loan to a Czech bank by
Strabag AG, which has been repaid. In January 2004, the Company contributed
gaming equipment and certain pre-operating costs, valued at $711, in exchange
for the additional 40% interest in Casino Millennium, bringing its total equity
investment to 50%.
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 exercise. 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 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. Silverstar has no value until a gaming license is issued. If the
transaction were to be completed, CCI would acquire a 7% interest in Silverstar
from Novomatic AG.
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 ($59.8 million). In November 2001, RRL was
awarded the sixth and final casino license serving the Gauteng province in South
Africa. In February 2002, Tsogo Sun Holdings (Pty) Ltd. ("Tsogo"), a competing
casino, filed a Review Application seeking to overturn the license award by the
Gauteng Gambling Board ("GGB"). In September 2002, the High Court of South
Africa overturned the license award. As a result of these developments, the
Company recorded a $399 write-off for all advances made, and pre-construction
cost incurred, in conjunction with the Johannesburg project. In November 2002,
and upon the advice of legal counsel, Silverstar, with the support and agreement
of all other parties to the original two applications for the West Rand license,
including CCA, made representation to the GGB requesting that the sole remaining
license for the province of Gauteng now be awarded to Silverstar pursuant to its
original 1997 application. The GGB in December 2002 denied Silverstar's request.
As a result, Silverstar on March 4, 2003 initiated legal action against the GGB
in the High Court of South Africa seeking, inter alia, that the court compel the
authorities to award the license to Silverstar. On October 20, 2003 the High
Court of South Africa handed down a judgment compelling the GGB to award the
license to Silverstar. The GGB's request for leave to appeal the judgment was
initially denied by the Pretoria High Court on November 11, 2003, but the High
Court ruling was overturned and the request for leave to appeal was subsequently
granted by the Supreme Court of Appeal of South Africa on February 5, 2004.
Silverstar informed the Company that it does not yet have any indication with
regard to the timing of the appeal process. CCA, through its majority-owned
subsidiary - Century Casinos West Rand (Pty) Ltd. - remains contracted to
Silverstar by a resort management agreement and retains a right of long standing
to take up a minority equity
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in the venture although its final level of equity interest remains to be
determined. Pursuant to its 1997 application, the Silverstar project provides
for up to 1,350 slot machines and 50 gaming tables in a phased development that
includes a hotel and other entertainment, dining, and recreational activities
with a first phase of 950 slot machines and 30 gaming tables.
While there can be no certainty as to the eventual outcome of Silverstar's
efforts, CCA maintains the ownership of the land (book value of $659) that
remains central to the Silverstar casino project. The Company has allocated
minor funding towards further pursuit of this opportunity.
CRA has submitted an application to the Alberta Gaming and Liquor
Commission ("AGLC") for an additional casino facility license in the greater
Edmonton area. The proposed project, The Celebrations Casino and Hotel, is
planned to include a casino, food and beverage amenities, a dinner theater, and
a 40-room hotel. CRA is owned by CRL, a wholly-owned subsidiary of Century
Casinos, Inc. and by 746306 Alberta Ltd, the owners of the 7.25 acre property
and existing hotel which will be developed into the Celebrations project, should
a license be awarded and all other approvals and funding be obtained. The
Celebrations Casino and Hotel Project proposed by CRA is estimated to cost 16.5
million Canadian dollars ($12.8 million), including the 2.5 million Canadian
dollars ($1.9 million) contribution of the existing hotel and property by 746306
Alberta Ltd.
In November 2003, a Colorado ballot issue, which, had it been approved,
would have permitted 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,
was soundly defeated. The VLT's are almost identical to slot machines. There can
be no assurance that future attempts will not be made to pass similar ballot
issues in Colorado. Womacks contributed $127 to the campaign against this
proposal in 2003.
The Company's Board of Directors has approved a discretionary program to
repurchase up to $5,000 of the Company's outstanding common stock. During 2003,
the Company repurchased 59,100 shares of its common stock on the open market at
an average cost of $2.24. The Company also purchased 489,264 shares from one of
its former directors at a price of $2.26 per share. Beginning in 1998 and
through 2003, the Company had repurchased 2,559,004 shares of its common stock
at a total cost of approximately $3.8 million.
Management believes that the Company's cash at December 31, 2003, together
with expected cash flows from operations and borrowing capacity under the RCF,
will be sufficient to fund its anticipated capital expenditures, pursue
additional business growth opportunities for the foreseeable future, and satisfy
its debt repayment obligations.
Contractual Obligations and Commercial Commitments
- ---------------------------------- ---------------------------------------------------------------------------------------
Contractual Obligations Payments Due by Period
- ---------------------------------- ---------------------------------------------------------------------------------------
Total Less than 1 year 1-3 years 4-5 years More than 5
years
- ---------------------------------- ----------------- ----------------- ---------------- ---------------- -----------------
Long-Term Debt $ 16,694 $ 1,978 $ 2,959 $ 11,757 $ -
- ---------------------------------- ---- ------------ --- ------------- --- ------------ ---- ----------- ---- ------------
Capital Lease Obligations 431 196 205 30 -
- ---------------------------------- ---- ------------ --- ------------- --- ------------ ---- ----------- ---- ------------
Operating Leases 1,411 579 522 182 128
- ---------------------------------- ---- ------------ --- ------------- --- ------------ ---- ----------- ---- ------------
Total Contractual Cash
Obligations $ 18,536 $ 2,753 $ 3,686 $ 11,969 $ 128
- ---------------------------------- ---- ------------ --- ------------- --- ------------ ---- ----------- ---- ------------
Subsequent to December 31, 2003 the Company signed commitments for gaming
equipment and upgrades to its slot accounting system at Womacks totaling
approximately $3.0 million.
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Critical Accounting Policies
In accordance with recent Securities and Exchange Commission guidance,
those material accounting policies that the Company believes are the most
critical to an investor's understanding of the Company's financial results and
condition and/or require complex management judgment have been expanded and are
discussed below. Information regarding the Company's other accounting policies
is included in Note 2 to the Company's consolidated financial statements.
Revenue Recognition - Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Management and
consulting fees are recognized as revenue as services are provided. The
incremental amount of unpaid progressive jackpots is recorded as a liability and
a reduction of casino revenue in the period during which the progressive jackpot
increases. Promotional allowances reduce revenues in determining net operating
revenue.
Goodwill and Other Intangible Assets - The Company's goodwill results from
the acquisitions of casino and hotel operations. Effective January 1, 2002 the
Company adopted Statement of Financial Accounting Standards Board (SFAS) No. 142
"Goodwill and Other Intangible Assets". SFAS No. 142 addresses the methods used
to capitalize, amortize and to assess impairment of intangible assets, including
goodwill resulting from business combinations accounted for under the purchase
method. Effective with the adoption of SFAS No. 142, the Company no longer
amortizes goodwill and other intangible assets with indefinite useful lives,
principally unamortized casino license costs. In evaluating the Company's
capitalized casino license cost related to CCAL, which comprises principally all
of its other intangible assets, management considered all of the criteria set
forth in SFAS No. 142 in determining its useful life. Of particular significance
in that evaluation was the existing regulatory provision for annual renewal of
the license at minimal cost and the current practice of the Western Cape
Gambling and Racing Board ("Board") of granting such renewals as long as all
applicable laws are complied with as well as compliance with the original
conditions of the casino operator license as set forth by the Board. Based on
that evaluation, the Company has deemed the casino license costs to have an
indefinite life. Included in assets at December 31, 2003 is unamortized goodwill
of approximately $8,088 and unamortized casino license costs of approximately
$1,760.
The Company completed its initial impairment test on each of the reporting
units for which it has recorded goodwill in 2002. The Company contracted
third-party valuation firms to complete the analysis of each reporting unit and
continues to use the same methodology when updating its assessment on an annual
basis. In completing its analysis of the fair value of WMCK Venture Corporation,
parent company of Womacks Casino and Hotel, the Company uses the Discounted Cash
Flow ("DCF") Method in which the reporting unit is valued by discounting the
projected cash flows, to a period in which the annual growth rate is expected to
stabilize, to their present value based on a risk-adjusted discount rate. In
completing its assessment in 2003, cash flows were projected through 2009, based
on historical results, adjusted based on management's conservative projection of
future revenue growth given existing market conditions. A risk adjusted discount
rate which estimates the return demanded by third-party investors, taking into
account market risks, and the cost of equity and after-tax debt in the optimal
hypothetical capital structure, was used in the DCF calculation of WMCK Venture
Corp. In completing its analysis of the fair market value of Century Casinos
Caledon (Pty) Ltd, the owner of The Caledon Hotel, Spa & Casino, the Company
also applied the DCF method and the results were compared to other methods of
valuation, most notably the net asset value of Caledon in order to further
justify the range of values. Cash flows were projected through the end of 2015.
A risk adjusted rate, taking into account risk free rates of return, the return
demanded by the South African equity market and a risk factor which measures the
volatility of Caledon relative to the equity markets, was used in the DCF
calculation of Caledon. The Company also tests intangible assets deemed to have
an indefinite useful life (unamortized casino license costs), for impairment
using the same methodology that it follows to assess goodwill. The Company has
completed its assessment of the goodwill and other intangibles for
-36-
the goodwill and other intangibles for impairment at December 31, 2003 and
determined that there have been no significant changes in the fair value of the
assets, no adverse changes in the projected cash flows or any events or
circumstances that would lead management to believe that the fair value of the
assets is less than the current carrying value of the reporting units. The
Company will continue to assess goodwill and other intangibles for impairment at
least annually hereafter.
Foreign Exchange - Current period transactions affecting the profit and
loss of operations conducted in foreign currencies are valued at the average
exchange rate for the period in which they are incurred. Except for equity
transactions and balances denominated in U.S. dollars, the balance sheet is
re-valued based on the exchange rate at the end of the period.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk principally related to changes in interest
rates and foreign currency exchange rates. To mitigate some of these risks, we
utilize derivative financial instruments to hedge these exposures. We do not use
derivative financial instruments for speculative or trading purposes. All of the
potential changes noted below are based on information available at December 31,
2003. Actual results may differ materially.
Interest Rate Sensitivity
The Company is subject to interest rate risk on the outstanding borrowing
under the RCF 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 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 matured on October 1, 2003 on $7.5 million notional
amount of debt under the RCF, whereby the Company paid a LIBOR-based fixed rate
of 5.55% and received a LIBOR-based floating rate reset quarterly based on a
three-month rate. In May 2000, the Company entered into a second five-year
interest rate swap agreement which matures on July 1, 2005 on $4.0 million
notional amount of debt under the RCF, whereby the Company pays a LIBOR-based
fixed rate of 7.95% and receives a LIBOR-based floating rate reset quarterly
based on a three-month rate. Generally, the swap arrangement is advantageous to
the Company to the extent that interest rates increase in the future and
disadvantageous to the extent that they decrease. Therefore, by entering into
the interest rate swap agreements, we have a cash flow risk when interest rates
drop. For example, for each hypothetical 100 basis points decrease in the three
month LIBOR rate below the fixed rate paid by the Company less the applicable
margin results in an increased use of $115 in cash on an annual basis. With the
expiration of the swap agreement on the $7.5 million notional amount of debt on
October 1, 2003, the same hypothetical 100 basis point increase results in an
increased use of $40 in cash on an annual basis. In an environment of falling
interest rates, as we have seen in the last two years, the swap agreements are
disadvantageous. Without the swap agreements the weighted-average interest rate
on the RCF would have been 3.98% in 2003, 4.68% in 2002 and 7.18% in 2001. The
Company has not entered into any new swap agreements subsequent to October 1,
2003.
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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 Hotel, Spa & Casino. A hypothetical devaluation of 10% in the dollar
vs. the Rand based on the exchange rate as of December 31, 2003 would reduce the
value of the Company's investment by approximately $1.6 million.
Foreign currency fluctuations also have an impact on reported earnings,
primarily those of the Company's South African subsidiaries. The Company has
reported its significant foreign currency activity, primarily South Africa, in
both Rand and in U.S. dollars, in its discussion and analysis of the South
African segment beginning on page 26 hereof.
Item 8. Financial Statements and Supplementary Data
See "Index to Financial Statements" on page 2 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
There were no changes in accountants, nor any disagreements on accounting
and financial disclosure with the Company's independent auditors.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures - Our Management, with the
participation of our principal executive officer and principal financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(2) and 15d-15(e) under the Securities
Exchange Act of 1937, as amended (the "Exchange Act")), as of the end of the
period covered by this Annual Report on Form 10-K. Based on such evaluation ,
our principal executive officer and principal financial officer have concluded
that as of such date, our disclosure controls and procedures were designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable SEC rules and forms and were
effective.
Changes in Internal Control Over Financial Reporting - There was no change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) that occurred during the quarter ended
December 31, 2003 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item will be included in the Company's
Proxy Statement with respect to its 2004 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 2003, under the
captions "Information Concerning Directors and Executive Officers" and
"Compliance with Section 16(a) of the Securities Exchange Act" and is
incorporated herein by reference.
Century Casinos, Inc. has adopted a Code of Ethics that applies to all
directors, officers and employees, including our Chief Executive Officer,
President, and Principal Accounting Officer. A complete text of this Code of
Ethics is attached as Exhibit 14 in this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information required by this item will be included in the Company's
Proxy Statement with respect to its 2004 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 2003, under the
caption "Information Concerning Directors and Executive Officers" and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information required by this item will be included in the Company's
Proxy Statement with respect to its 2004 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 2003, under the
caption "Voting Securities" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information in this item is incorporated by reference from the
Company's Definitive Proxy material with respect to the 2004 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
2003, under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information in this item is incorporated by reference from the
Company's Definitive Proxy material with respect to the 2004 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
2003, under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
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PART IV
Item 15. Exhibits , Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements of the Company (including related notes to
consolidated financial statements) filed as part of this report are listed
below:
Consolidated Balance Sheets as of December 31, 2003 and 2002.
Consolidated Statements of Earnings for the Years Ended December 31, 2003,
2002 and 2001.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(Loss) for the years ended December 31, 2003, 2002 and 2001.
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001.
(a) 2. Financial Statement Schedule
None
(a) 3. Exhibits Filed Herewith or Incorporated by Reference to Previous Filings
with the Securities and Exchange Commission:
The following exhibits were included with the filing of the Alpine's Form
10-KSB for the fiscal year ended December 31, 1993 and are incorporated
herein by reference:
Exhibit No. Description
10.14 Plan of Reorganization and Agreement Among Alpine Gaming, Inc.,
Alpine Acquisition, Inc. and Century Casinos Management, Inc. - Filed
with Form 8-K dated December 24, 1993 and incorporated by reference
therein.
10.15 Amendments One, Two and Three to Plan of Reorganization and Agreement
Among Alpine Gaming, Inc., Alpine Acquisition, Inc. and Century
Casinos Management, Inc.
The following exhibits were filed with the Form 10-KSB for the fiscal year
ended December 31, 1995 and are incorporated herein by reference:
Exhibit No. Description
3.1 Certificate of Incorporation (filed with Proxy Statement in respect of
1994 Annual Meeting of Stockholders and incorporated herein by
reference).
3.2 Bylaws (filed with Proxy Statement in respect of 1994 Annual Meeting
of Stockholders and incorporated herein by reference).
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10.51 Asset Purchase Agreement dated as of September 27, 1995 by and among
Gold Creek Associates, L.P., WMCK Acquisition Corp. and Century
Casinos, Inc., including Exhibits and Schedules, along with First
Amendment thereto.
10.57 Stock Purchase Agreement dated December 21, 1995 between Switzerland
County Development Corp. ("Buyer") and Century Casinos Management,
Inc. and Cimarron Investment Properties Corp. ("Sellers").
10.58 Consultancy Agreement - Chalkwell Limited.
The following exhibits were filed with the Form 8-K Current Report dated
July 1, 1996 and are incorporated herein by reference:
Exhibit No. Description
10.60 Promissory Note dated March 19, 1992, made by Chrysore, Inc. in the
original amount of $1,850,000 payable to R. & L Historic Enterprises,
together with Assignment dated September 14, 1992 of said Promissory
Note to TJL Enterprises, Inc. and Assignment dated May 16, 1996 of
said Promissory Note to Century Casinos, Inc.
10.61 Promissory Note dated July 1, 1996, made by WMCK Acquisition Corp. in
the original principal amount of $5,174,540 payable to Gold Creek
Associates, L.P., together with Guaranty dated July 1, 1996, of said
Promissory Note by Century Casinos, Inc.
10.62 Building Lease dated as of July 1, 1996, among TJL Enterprises, Inc.,
WMCK Acquisition Corp. and Century Casinos, Inc., together with
Memorandum of Building Lease with Option to Purchase dated as of July
1, 1996, among the same parties.
10.63 Four Party Agreement, Assignment and Assumption of Lease, Consent to
Assignment of Lease, Confirmation of Option Agreement and Estoppel
Statements dated as of July 1, 1996, among Harold William Large,
Teller Realty, Inc., Gold Creek Associates, L.P., and WMCK Acquisition
Corp.
10.64 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and James A. Gulbrandsen.
10.65 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and Gary Y. Findlay.
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended March 31, 1997 and is incorporated herein by reference:
Exhibit No. Description
10.68 Credit Agreement dated as of March 31, 1997, between Wells Fargo
Bank, N.A. ("Lender"); WMCK Venture Corp., Century Casinos Cripple
Creek, Inc., and WMCK Acquisition Corp. ("Borrowers"); and Century
Casinos, Inc. ("Guarantor").
The following exhibits were filed with the Form 10-KSB for the fiscal year
ended December 31, 1997 and are incorporated herein by reference:
-41-
Exhibit No. Description
10.69 First Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 11, 1997.
10.70 Second Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated January 28, 1998.
The following exhibits were filed with the Form 10-QSB for the quarterly
period ended June 30, 1998 and are incorporated herein by reference:
Exhibit No. Description
10.71 Termination of Stock Transfer and Registration Rights Agreement dated
May 1, 1998, between Century Casinos, Inc. and Gary Y. Findlay
10.72 Promissory Note dated April 30, 1998, between Century Casinos, Inc.
and Gary Y. Findlay
10.73 Termination of Stock Transfer and Registration Rights Agreement dated
June 2, 1998, between Century Casinos, Inc. and James A. Gulbrandsen
10.74 Promissory Note dated June 2, 1998, between Century Casinos, Inc. and
James A. Gulbrandsen
10.76 Casino Consulting Agreement dated March 25, 1998, by and between
Rhodes Casino S.A., Century Casinos, Inc. and Playboy Gaming
International Ltd.
The following exhibits were filed with the Form 10-KSB for the fiscal year
ended December 31, 1998 and are incorporated herein by reference:
Exhibit No. Description
10.77 Third Amendment to the Credit Agreement dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 4, 1998.
10.78 Parking Lease - Option to Purchase dated June 1, 1998, between the
City of Cripple Creek ("Lessor") and WMCK Venture Corporation
("Lessee")
The following exhibits were filed with the Form 10-QSB for the quarterly
period ended March 31, 1999 and are incorporated herein by reference:
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Exhibit No. Description
10.79 Casino Services Agreement dated January 4, 1999 by and between Casino
Millennium a.s., Century Casinos Management, Inc. and B.H. Centrum
a.s.
10.80 Option to Purchase Real Property dated March 25, 1999, by and between
Robert J. Elliott ("Optionor") and WMCK Venture Corp. ("Optionee").
10.81 Letter Amendment to Note Agreement dated April 1, 1999, by and
between Century Casinos, Inc. and Thomas Graf
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended June 30, 1999 and is incorporated herein by reference:
Exhibit No. Description
10.82 Master Lease Agreement dated January 4, 1999 by and between Casino
Millennium a.s. and Century Management und Beteiligungs GmbH
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended September 30, 1999 and is incorporated by reference:
Exhibit No. Description
10.83 Waiver and Release and Consulting Agreement dated October 15, 1999 by
and between Norbert Teufelberger and Century Casinos, Inc.
The following exhibits were filed with the Form 10-KSB for the fiscal year
ended December 31, 1999 and are incorporated herein by reference:
Exhibit No. Description
10.84 Marketing and Investor Relations Agreement, dated November 5, 1999,
by and between Century Casinos, Inc. and advice! Investment Services
GmbH, and related Warrant Agreement
10.85 Fourth Amendment to the Credit Agreement, dated as of March 31, 1997,
between Wells Fargo Bank, N.A. ("Lender"); WMCK Venture Corp., Century
Casinos Cripple Creek, Inc., and WMCK Acquisition Corp. ("Borrowers");
and Century Casinos, Inc. ("Guarantor"), dated November 15, 1999
10.86 Casino Management Agreement, dated December 3, 1999, by and between
Caledon Casino Bid Company (Pty) Limited and Century Casinos Africa
(Pty) Ltd.
10.87 Shareholders Agreement, dated December 3, 1999, and Addendum to the
Agreement, dated December 9, 1999, by and between Caledon Casino Bid
Company (Pty) Limited, Caledon Overberg Investments (Pty) Limited,
Century Casinos Africa (Pty) Ltd., Century Casinos, Inc. (not as a
shareholder or party, but for clauses 4.2.3 and 6.7 of this agreement
only), Caledon Hotel Spa and Casino Resort (Pty) Limited, Fortes King
Hospitality (Pty) Limited, The Overberger Country Hotel and Spa (Pty)
Limited, and Senator Trust
10.88 Memorandum of Agreement, dated January 7, 2000, by and between B. H.
Centrum a.s.(a subsidiary of Ilbau and Bau Holding) and Century
Casinos, Inc.
-43-
10.89 Assumption and Modification Agreement, dated February 7, 2000, by and
between Marcie I. Elliott ("Optionor") and WMCK Venture Corporation
("Optionee")
10.90 Commercial Contract to Buy and Sell Real Estate, dated November 17,
1999, by and between WMCK Venture Corporation ("Buyer") and
Saskatchewan Investments, Inc. ("Seller")
10.91 Prepayment and Release, dated January 19, 2000, by and between
Switzerland County Development Corp. and Century Casinos Management,
Inc.
10.92 Amendment No. 1 to Parking Lease - Option to Purchase, dated February
17, 2000, by and between City of Cripple Creek ("Lessor") and WMCK
Venture Corporation ("Lessee")
The following exhibits were filed with the Form 10-QSB for the quarterly
period ended March 31, 2000 and are incorporated herein by reference:
Exhibit No. Description
10.93 Amended and Restated Credit Agreement, by and among, WMCK Venture
Corp., Century Casinos Cripple Creek, Inc., and WMCK Acquisition Corp.
(collectively, the "Borrowers"), Century Casinos, Inc. (the
"Guarantor") and Wells Fargo Bank, National Association, dated April
21, 2000.
10.94 Loan Agreement between Century Casinos Africa (Proprietary) Limited,
Caledon Casino Bid Company (Proprietary) Limited, Caledon Overberg
Investments (Proprietary) Limited, and Century Casinos, Inc. (for
purposes of clause 14.6 only), dated March 31, 2000.
10.95 Subscription Agreement between Century Casinos Africa (Proprietary)
Limited, Caledon Casino Bid Company (Proprietary) Limited, Caledon
Overberg Investments (Proprietary) Limited, and Century Casinos, Inc.
(for purposes of clause 10.6 only), dated March 31, 2000.
The following exhibits were filed with the Form 10-QSB for the quarterly
period ended June 30, 2000 and are incorporated herein by reference:
Exhibit No. Description
10.96 Loan Agreement, dated April 13, 2000, between PSG Investment Bank
Limited and Caledon Casino Bid Company (Proprietary) Limited
10.97 Subordination, Cession and Pledge Agreement, dated April 13, 2000,
between PSG Investment Bank Limited, Century Casinos Africa
(Proprietary) Limited, Caledon Overberg Investments (Proprietary)
Limited, and Caledon Casino Bid Company (Proprietary) Limited
The following exhibits were filed with the Form 10-KSB for the fiscal year
ended December 31, 2000 and are incorporated herein by reference:
-44-
Exhibit No. Description
10.98 Shareholders Agreement, dated November 4, 2000, by and between
Caledon Casino Bid Company (Pty) Limited, Caledon Overberg Investments
(Pty) Limited, Century Casinos Africa (Pty) Ltd., Century Casinos,
Inc. (not as a shareholder or party, but for clauses 8.5, 15.1 and
15.2 of this agreement only), Overberg Empowerment Company Limited and
The Overberg Community Trust
10.99 Sale of Shares Agreement, dated November 4, 2000 by and between
Caledon Casino Bid Company (Pty) Limited, Caledon Overberg Investments
(Pty) Limited and Century Casinos Inc.
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended March 31, 2001 and is incorporated herein by reference:
Exhibit No. Description
10.100 April 21, 2001 Addendum to Loan Agreement, dated April 13, 2000,
between PSG Investment Bank Limited and Caledon Casino Bid Company
(Proprietary) Limited
The following exhibit was filed with the Form 10-QSB for the quarterly
period ended September 30, 2001 and is incorporated herein by reference:
Exhibit No. Description
10.101 First Amendment to the Amended and Restated Credit Agreement, by and
among, WMCK Venture Corp., Century Casinos Cripple Creek, Inc., and
WMCK Acquisition Corp. (collectively, the "Borrowers"), Century
Casinos, Inc. (the "Guarantor") and Wells Fargo Bank, National
Association, dated August 22, 2001.
The following exhibits were filed with the Form 10-KSB for the fiscal year
ended December 31, 2001 and are incorporated herein by reference:
Exhibit No. Description
10.102 Management Agreement by and between Century Casinos Inc. and Focus
Casino Consulting A.G. dated March 1, 2001.
10.103 Management Agreement by and between Century Casinos Inc. and Flyfish
Casino Consulting A.G. dated March 1, 2001.
10.104 Equity Subscription Agreement by and between Rhino Resort Limited,
Silverstar Development Limited and Century Casinos Africa (Pty) Ltd.
dated September 7, 2001.
10.105 Memorandum of Agreement by and between Century Casinos Caledon (Pty)
Ltd. (previously known as Caledon Casino Bid Company (Pty) Ltd.) and
Century Casinos Africa (Pty) Ltd. and Fortes King Hospitality (Pty)
Ltd. (and/or its successor to the Hotel Management Agreement - FKH)
dated September 20, 2001.
-45-
10.106 Amendment to Loan Agreement between Century Casinos Africa (Pty)
Limited and Century Casinos Caledon (Pty) Ltd. (previously known as
Caledon Casino Bid Company (Pty) Ltd.), Caledon Overberg Investments
(Pty) Limited and Century Casinos Inc. dated September 20, 2001.
10.107 Adjustment/Amendment No. 1 to Management Agreement by and between
Century Casinos Inc. and Focus Casino Consulting A.G. dated October
11, 2001.
10.108 Adjustment/Amendment No. 1 to Management Agreement by and between
Century Casinos Inc. and Flyfish Casino Consulting A.G. dated October
11, 2001.
10.109 Employment Agreement by and between Century Casinos, Inc. and Erwin
Haitzmann dated October 12, 2001.
10.110 Employment Agreement by and between Century Casinos Inc. and Peter
Hoetzinger dated October 12, 2001.
10.111 Amendment Number 1 to the Equity Subscription Agreement entered into
on September 7, 2001 by and between Rhino Resort Limited, Silverstar
Development Limited and Century Casinos Africa (Pty) Ltd. dated March
2, 2002.
10.112 Second Addendum to Loan Agreement dated April 13, 2000, between PSG
Investment Bank Limited and Caledon Casino Bid Company (Proprietary)
Limited completed on March 26, 2002.
The following exhibit was filed with the Form 10-Q for the quarterly period
ended March 31, 2002 and is incorporated herein by reference:
Exhibit No. Description
10.113 Hotel Management Agreement dated December 3, 1999 between Century
Casinos Caledon (Pty) Ltd. (previously known as Caledon Casino Bid
Company (Pty) Ltd.) and Fortes King Hospitality (Pty) Ltd.
The following exhibits were filed with the Form 10-Q for the quarterly
period ended June 30, 2002 and are incorporated herein by reference:
Exhibit No. Description
3.2.2 Amended and Restated Bylaws of Century Casinos, Inc.
10.114 Second Supplement to Rights Agreement dated July 2002, between
Century Casinos, Inc and Computershare Investor Services, Inc. as
rights agent.
The following exhibits were filed with the Form 10-Q for the quarterly
period ended September 30, 2002 and are incorporated herein by reference:
Exhibit No. Description
10.115 Second Amendment to the Amended and Restated Credit Agreement, by
and among, WMCK Venture Corp., Century Casinos Cripple Creek, Inc.,
and WMCK Acquisition Corp. (collectively, the "Borrowers"), Century
Casinos, Inc. (the "Guarantor") and Wells Fargo Bank, National
Association, dated August 28, 2002.
-46-
The following exhibits were filed with the Form 10-K for the fiscal year
ended December 31, 2002 and are incorporated herein by reference:
Exhibit No. Description
10.116 First Amendment to the Employee's Equity Incentive Plan as Amended
and Restated dated May 01, 2000.
10.117 Second Amendment to the Employee's Equity Incentive Plan as Amended
and Restated dated March 12, 2001.
10.118 Third Amendment to the Employee's Equity Incentive Plan as Amended
and Restated dated June 1, 2001.
10.119 The Management Agreement by and between Century Casinos, Inc. and
Respond Limited, dated January 1 ,2002.
10.120 Employment Agreement by and between Century Casinos Inc. and Erwin
Haitzmann as restated on February 18, 2003.
10.121 Employment Agreement by and between Century Casinos Inc. and Peter
Hoetzinger as restated on February 18, 2003.
10.122 Adjustment/Amendment No. 2 to Management Agreement by and between
Century Casinos Inc. and Focus Casino Consulting A.G. dated October
12, 2002.
10.123 Adjustment/Amendment No. 2 to Management Agreement by and between
Century Casinos Inc. and Flyfish Casino Consulting A.G. dated October
12, 2002.
10.124 Sale Agreement between Century Casinos Africa (Pty) Limited and
Caledon Overberg Investments (Pty) Limited dated January 7, 2003.
10.125 Cancellation Agreement between NEX Management (Pty) Ltd. and Century
Casinos Caledon (Pty) Ltd. dated January 10, 2003.
10.126 Fourth Amendment to the Employee's Equity Incentive Plan as Amended
and Restated dated March 10, 2003.
The following exhibits were filed with the Form 10-Q for the quarterly
period ended March 31, 2003 and are incorporated herein by reference:
Exhibit No. Description
10.127 Waiver and Release Agreement by and between Century Casinos, Inc.
and James D. Forbes (director) dated May 01, 2003.
10.128 Agreement of Termination of Management Agreement Incorporating New
Consulting Agreement by and between Century Casinos Inc and Respond
Limited dated May 01, 2003
-47-
The following exhibits were filed with the Form 10-Q for the quarterly
period ended June 30, 2003 and are incorporated herein by reference:
Exhibit No. Description
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 and Amendment No. 1 to Brokerage Agreement dated
July 24, 2003.
The following exhibits are filed herewith:
Exhibit No. Description
14 Code of Ethics
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
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 Filed During the Registrant's Fourth Fiscal Quarter:
On October 29, 2003 the Registrant furnished 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 period ended September 30, 2003, as a
complementary presentation of its Third Quarter 2003 Form 10-Q and
Earnings Release.
-48-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ac t of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CENTURY CASINOS, INC.
By:/s/ Erwin Haitzmann
-----------------------------
Erwin Haitzmann, Chairman of the Board and
Chief Executive Officer
/s/ Larry Hannappel
------------------------------
Larry Hannappel, Chief Accounting Officer
(Principal Accounting Officer)
Date: March 8, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Erwin Haitzmann, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Form 10-K, and to file the same, with all exhibits thereto,
and other documentation in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities indicated on March 8, 2004.
Signature Title
/s/ Erwin Haitzmann
- --------------------- Chairman of the Board and
Erwin Haitzmann Chief Executive Officer
/s/ Peter Hoetzinger
- --------------------- Vice Chairman of the Board
Peter Hoetzinger and President
/s/ Gottfried Schellmann Director
- ------------------------
Gottfried Schellmann
/s/ Robert S. Eichberg Director
- ----------------------
Robert S. Eichberg
/s/ Dinah Corbaci Director
- -----------------
Dinah Corbaci
-49-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Century Casinos, Inc.
We have audited the consolidated balance sheets of Century Casinos, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of earnings, shareholders' equity and comprehensive income (loss) and
cash flows for each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Century
Casinos Africa (Proprietary) Limited. (CCA), a 96.5% owned subsidiary, as of and
for the years ended December 31, 2003 and 2002, which statements reflect total
assets of 36 percent and 29 percent as of December 31, 2003 and 2002,
respectively, and total revenues of 36 percent and 24 percent, respectively, for
the years then ended. Those statements were audited by other auditors, whose
report thereon has been furnished to us, and our opinion, insofar as it relates
to the amounts included for CCA for 2003 and 2002, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Century Casinos, Inc.
and subsidiaries as of December 31, 2003 and 2002, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Colorado Springs, Colorado
February 13, 2004 (except for Note 6, as to which
the date is March 4, 2004)
-F1-
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF CENTURY CASINOS AFRICA
(PROPRIETARY) LIMITED
We have audited the consolidated balance sheets of Century Casinos Africa
(Proprietary) Limited and its subsidiaries as at 31 December 2003 and 31
December 2002 and related consolidated income statements, cash flow statements
and statements of changes in shareholders' equity for the years then ended.
These financial statements are the responsibility of the directors of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
Scope
We conducted our audit in accordance with auditing standards generally accepted
in South Africa and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes:
- examining, on a test basis, evidence supporting the amounts and
disclosures included in the financial statements,
- assessing the accounting principles used and significant estimates
made by management, and
- evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Century
Casinos Africa (Proprietary) Limited and its subsidiaries at 31 December 2003
and 31 December 2002 and the consolidated results of their operations, cash flow
and changes in shareholders' equity for the years then ended in conformity with
South African Statements of Generally Accepted Accounting Practice, and in the
manner required by the South African Companies Act, 1973.
Accounting principles generally accepted in South Africa differ in certain
significant respects from accounting principles generally accepted in the United
States of America and as allowed by Item 17 to Form 20-F. The application of the
latter would have affected the determination of consolidated net income
expressed in South African Rand for the years ended 31 December 2003 and 31
December 2002 and the determination of consolidated shareholders' equity
expressed in South African Rand at 31 December 2003 and 31 December 2002 to the
extent summarised in Note 28 to the financial statements.
/s/ PricewaterhouseCoopers Inc.
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants and Auditors
Cape Town
1 March 2004
-F2-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
December 31, 2003 December 31, 2002
ASSETS
Current Assets:
Cash and cash equivalents $ 4,729 $ 4,582
Restricted cash 598 491
Receivables 269 133
Prepaid expenses 441 403
Inventories 131 84
Other current assets 28 23
Deferred income taxes 111 54
----------------- ----------------
Total current assets 6,307 5,770
Property and Equipment, net 36,796 33,965
Goodwill, net 8,088 7,899
Casino License Acquisition Costs, net 1,760 1,298
Deferred Income Taxes 666 1,078
Other Assets 1,200 1,133
----------------- ----------------
Total $ 54,817 $ 51,143
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,136 $ 1,664
Accounts payable and accrued liabilities 1,979 2,309
Accrued payroll 1,268 1,098
Taxes payable 1,088 747
----------------- ----------------
Total current liabilities 6,471 5,818
Long-Term Debt, less current portion 14,913 16,531
Other Non-current Liabilities 371 788
Minority Interest 14 903
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding - -
Common stock; $.01 par value; 50,000,000 shares authorized;
14,485,776 shares issued; 13,680,500 and 13,580,864 shares
outstanding, respectively 145 145
Additional paid-in capital 21,529 21,874
Accumulated other comprehensive income (loss) 2,034 (1,052)
Retained earnings 11,172 7,926
----------------- ----------------
34,880 28,893
Treasury stock - 805,276 and 904,912 shares at cost,
respectively (1,832) (1,790)
----------------- ----------------
Total shareholders' equity 33,048 27,103
----------------- ----------------
Total $ 54,817 $ 51,143
================= ================
See notes to consolidated financial statements
-F3-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
For the Year Ended December 31,
2003 2002 2001
---- ---- ----
Operating Revenue:
Casino $ 31,869 $ 30,607 $ 30,096
Hotel, food and beverage 3,568 2,630 2,652
Other 622 524 771
--------------- --------------- ----------------
36,059 33,761 33,519
Less promotional allowances (4,657) (4,424) (4,063)
--------------- --------------- ----------------
Net operating revenue 31,402 29,337 29,456
--------------- --------------- ----------------
Operating Costs and Expenses:
Casino 11,667 9,897 9,401
Hotel, food and beverage 2,553 1,509 1,748
General and administrative 7,745 7,191 7,530
Property write-down and other write offs, net of
(recoveries) (35) 1,145 57
Depreciation and amortization 2,668 2,304 4,564
--------------- --------------- ----------------
Total operating costs and expenses 24,598 22,046 23,300
--------------- --------------- ----------------
Earnings from Operations 6,804 7,291 6,156
--------------- --------------- ----------------
Non-operating income (expense)
Interest expense (2,011) (1,903) (2,018)
Other income, net 252 176 79
--------------- --------------- ----------------
Non-operating income (expense), net (1,759) (1,727) (1,939)
--------------- --------------- ----------------
Earnings before
Income Taxes and Minority Interest 5,045 5,564 4,217
Provision for income taxes 1,777 2,454 1,794
--------------- --------------- ----------------
Earnings before Minority Interest 3,268 3,110 2,423
Minority interest in subsidiary (earnings) losses (22) (31) 32
--------------- --------------- ----------------
Net Earnings $ 3,246 $ 3,079 $ 2,455
=============== =============== ================
Earnings Per Share, Basic $ 0.24 $ 0.23 $ 0.18
=============== =============== ================
Earnings Per Share, Diluted $ 0.22 $ 0.20 $ 0.16
=============== =============== ================
See notes to consolidated financial statements
-F4-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Retained Treasury Stock Comprehensive
Shares Amount Capital Income(Loss) Earnings Shares Amount Total Income (Loss)
----------------- -------- ------------ --------- ----------------- ----- -------------
BALANCE AT DECEMBER 31, 2000 14,485,776 $ 145 $ 21,910 $ (659) $ 2,392 464,492 $ (818) $ 22,970
Purchases of treasury stock - - - - - 340,000 (690) (690)
Options exercised - - (16) - - (47,500) 84 68
Foreign currency
translation adjustment - - - (2,078) - - - (2,078) $ (2,078)
Cumulative effect of change in
accounting principle related
to interest rate swap,
net of income tax benefit - - - (175) - - - (175) (175)
Change in fair value of interest
rate swap, net of income
tax expense - - - (379) - - - (379) (379)
Other equity changes - - 7 - - - - 7
Net earnings - - - - 2,455 - - 2,455 2,455
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 14,485,776 $ 145 $ 21,901 $ (3,291) $ 4,847 756,992 $ (1,424) $ 22,178 $ (177)
=========
Purchases of treasury stock - - - - - 177,920 (419) (419)
Options exercised - - (27) - - (30,000) 53 26
Foreign currency
translation adjustment - - - 2,179 - - - 2,179 $ 2,179
Change in fair value of
interest rate swap,
net of income tax expense - - - 60 - - - 60 60
Net earnings - - - - 3,079 - - 3,079 3,079
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 14,485,776 $ 145 $ 21,874 $ (1,052) $ 7,926 904,912 $ (1,790) $ 27,103 $ 5,318
=========
Purchases of treasury stock - - - - - 59,100 (131) (131)
Purchase of treasury stock
from former director - - - - - 489,264 (1,106) (1,106)
Options exercised - - (345) - - (648,000) 1,195 850
Foreign currency
translation adjustment - - - 2,824 - - - 2,824 $2,824
Change in fair value of
interest rate swap,
net of income tax expense - - - 262 - - - 262 262
Net earnings - - - - 3,246 - - 3,246 3,246
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003 14,485,776 $ 145 $ 21,529 $ 2,034 $ 11,172 805,276 $ (1,832) $ 33,048 $ 6,332
========== ====== ======== ========= ======== ======= ========= ========= =========
See notes to consolidated financial statements
-F5-
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except for share information)
- --------------------------------------------------------------------------------
For the Year Ended December 31,
2003 2002 2001
---- ---- ----
Cash Flows from Operating Activities:
Net earnings $ 3,246 $ 3,079 $ 2,455
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 2,668 2,304 3,147
Amortization of goodwill - - 1,417
Amortization of deferred financing costs 113 94 82
Gain on disposition of assets (28) (34) (13)
Deferred income tax expense (benefit) 199 78 (207)
Minority interest in subsidiary earnings (losses) 22 31 (32)
Write down asset value (Note 12) - 447 57
Write off receivables and advances (Note 12) - 698 -
Other 20 (81) 5
Changes in operating assets and liabilities
Receivables (118) (341) 38
Prepaid expenses and other assets (236) 94 138
Accounts payable and accrued liabilities (394) 362 (388)
Accrued Payroll 110 96 (27)
Taxes Payable 219 569 (177)
------------------ ------------------- --------------------
Net cash provided by operating activities 5,821 7,396 6,495
------------------ ------------------- --------------------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,585) (4,482) (3,051)
Acquisition of remaining interest in subsidiary (1,259) - -
Expenditures for deposits and other assets - (236) (277)
Restricted cash (increase) decrease 64 7 (555)
Proceeds received from disposition of assets 308 263 9
------------------ ------------------- --------------------
Net cash used in investing activities (3,472) (4,448) (3,874)
------------------ ------------------- --------------------
-Continued on following page-
-F6-
For the Year Ended December 31,
2003 2002 2001
---- ---- ----
Cash Flows from Financing Activities:
Proceeds from borrowings $ 27,269 $ 15,556 $ 21,321
Principal repayments (29,478) (16,575) (29,151)
Deferred financing costs - (115) -
Proceeds from exercise of options 850 26 68
Purchases of treasury stock (1,237) (392) (674)
--------------- --------------- ----------------
Net cash used in financing activities (2,596) (1,500) (8,436)
--------------- --------------- ----------------
Effect of exchange rate changes on cash 394 103 (231)
--------------- --------------- ----------------
Increase (Decrease) in Cash and Cash Equivalents 147 1,551 (6,046)
Cash and Cash Equivalents at Beginning of Year 4,582 3,031 9,077
--------------- --------------- ----------------
Cash and Cash Equivalents at End of Year $ 4,729 $ 4,582 $ 3,031
=============== =============== ================
Supplemental Disclosure of Noncash Investing and 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, Caledon Overberg Investments (Proprietary) Limited ("COIL"), 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 at the
time, 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 had 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 $46 in
2003, $63 in 2002 and $219 in 2001 $ 2,057 $ 1,899 $ 2,037
=============== ============== =============
Income taxes paid $ 1,090 $ 1,865 $ 2,376
=============== ============== =============
See notes to consolidated financial statements
-F7-
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Dollar amounts in thousands, except for share information)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. ("CCI", the "Company") is an international gaming
company. Wholly-owned subsidiaries of CCI include Century Casinos Management,
Inc. ("CCM"), Century Casinos Nevada, Inc. ("CCN", a dormant subsidiary),
Century Resorts Limited ("CRL"), 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"). CRL owns 55% of Century Resorts Alberta Inc. ("CRA"). 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"). 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 614 slot machines, 6 limited
stakes gaming tables, 21 hotel rooms and 1 restaurant.
CCA owns and operates The Caledon Hotel, Spa & Casino near Cape Town, South
Africa. The resort has 275 slot machines and 8 gaming tables, a 92-room
hotel, mineral hot springs and spa facility, 3 restaurants, 2 bars, and
conference facilities.
CMB acquired a 10% equity interest in Casino Millennium located within a
five-star hotel in Prague, Czech Republic through a $236 cash contribution
in December 2002. Subsequent to December 31, 2003, the Company, through
CMB, acquired an additional 40% of Casino Millennium, bringing its total
ownership to 50%. The investment by the Company for the incremental 40%
stake amounted to $711 and was paid by contributing gaming equipment and
advances receivable for original pre-opening costs. See Note 8,
Commitments, Contingencies and Other Matters, to the Consolidated Financial
Statements for further information.
CRL serves as concessionaire of small casinos on seven luxury cruise
vessels, two of which are temporarily out of service and provides technical
casino services to Casino Millennium located within a five-star hotel in
Prague, Czech Republic. The Company has a total of 115 slot machines and 19
table games, or approximately 246 gaming positions on the five combined
shipboard casinos currently in operation. The Insignia was taken out of
service after it completed its cruise schedule to various destinations in
the western Mediterranean as of September 26th, 2003 and is expected to
resume operations in May 2004. The Silver Cloud was taken out of service
for periodic maintenance and is expected to return to service in April
2004.
CCI serves as a holding company, providing corporate administrative and
governance services to its subsidiaries.
The Company regularly pursues additional gaming opportunities
internationally and in the United States.
On October 20, 2003 the Company announced that judgment had been handed
down in the High Court of South Africa compelling the Gauteng Gambling Board
("GGB") to award a casino license to Silverstar Development Limited
("Silverstar") for the western periphery of metropolitan Johannesburg in terms
of its original 1997 application (Note 8). On November 11, 2003 the Company
announced that the GGB's subsequent application for leave to appeal the October
20 judgment had been denied by the High Court. On December 3, 2003 the Company
announced that the GGB served notice that it had petitioned the South African
Supreme Court of Appeal requesting a further appeal against the judgment of the
High Court. On February 5, 2004,
-F8-
On February 5, 2004, the Supreme Court of Appeal of South Africa overturned the
ruling of the High Court and granted the GGB's request for leave to appeal.
Silverstar informed the Company that it does not have any indication with regard
to the timing of the appeals process.
CCA, through its majority-owned subsidiary, Century Casinos West Rand (Pty)
Ltd., remains contracted to Silverstar by a resort management agreement and
retains a right of long standing to take up a minority equity interest in the
venture although its final level of equity interest remains to be determined.
Pursuant to its 1997 application, the Silverstar project provides for up to
1,350 slot machines and 50 gaming tables in a phased development that includes a
hotel and other entertainment, dining, and recreational activities with a first
phase of 950 slot machines and 30 gaming tables. The proposed 400 million Rand
($59.8 million) hotel/casino resort development would be located in the greater
Johannesburg area of South Africa known as the West Rand.
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 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 because Silverstar has no value until a gaming license is issued.
If the transaction were to be completed, CCI would acquire a 7% interest in
Silverstar from Novomatic AG.
On September 25, 2003 the Company formed CRL for the purpose of managing
all of the Company's foreign and offshore operations. CRL will maintain offices
in Mauritius, an independent island republic in the western Indian Ocean.
Forming the management company in Mauritius will provide favorable tax benefits
to the Company. Taxable income, mostly management fees and interest earned by
the Mauritius company would be taxed at an effective rate of 0%. There was no
effect on net earnings and related per share amounts for the years ended
December 31, 2003, 2002, and 2001 due to the change in reporting entity because
the activity was previously reported by CCI.
On September 30, 2003, the Company subscribed to 55% of the outstanding
shares of Century Resorts Alberta Inc. ("CRA"), formed in conjunction with its
application for a gaming license in Edmonton, Alberta, Canada, at a price of 1
Canadian dollar per share. A total of 100 shares have been authorized and
issued. The proposed project, The Celebrations Casino and Hotel, is planned to
include a casino, food and beverage amenities, a dinner theater, and a 40-room
hotel. CRA is owned by CRL, a wholly-owned subsidiary of Century Casinos, Inc.
and by 746306 Alberta Ltd, the owners of the 7.25 acre property and existing
hotel which will be developed into the Celebrations project, should a license be
awarded and all other approvals and funding be obtained. The Celebrations Casino
and Hotel Project proposed by CRA is estimated to cost 16.5 million Canadian
dollars ($12.8 million), including the 2.5 million Canadian dollars ($1.9
million) contribution of the existing hotel and property by 746306 Alberta Ltd.
CRL also entered into a long-term agreement to manage the casino if a gaming
license is awarded. The Celebrations Casino and Hotel project is one of six
applications submitted to the Alberta Gaming and Liquor Commission ("AGLC") for
an additional casino facility license in the greater Edmonton area.
-F9-
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CCI and its majority-owned subsidiaries.
Investments in unconsolidated affiliates which are 20% to 50% owned, are
accounted for under the equity method. All significant intercompany transactions
and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents. Minimum
deposits required in connection with CCAL's lending facility (Note 5) are
designated as restricted cash on the consolidated balance sheets.
Fair Value of Financial Instruments - The Company calculates the fair value
of financial instruments and includes this additional information in the notes
to its financial statements when the fair value does not approximate the
carrying value of those financial instruments. The Company's financial
instruments include cash and cash equivalents, long-term debt and interest rate
swap agreements. Fair value is determined using quoted market prices whenever
available. When quoted market prices are not available, the Company uses
alternative valuation techniques such as calculating the present value of
estimated future cash flows utilizing risk-adjusted discount rates. The
Company's carrying value of financial instruments approximates fair value at
December 31, 2003 and 2002.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of assets in service is provided using the straight-line method
over the estimated useful lives of the assets. Leased property and equipment
under capital leases is amortized over the lives of the respective leases or
over the service lives of the assets, whichever is shorter. The interest cost
associated with major development and construction projects is capitalized and
included in the cost of the project. When no debt is incurred specifically for a
project, interest is capitalized on amounts expended on the project using the
weighted-average cost of the Company's outstanding borrowings. Capitalization of
interest ceases when the project is substantially complete or development
activity is suspended for more than a brief period.
Assets are depreciated over their respective service lives as follows:
Buildings and improvements 7 - 39 yrs
Gaming Equipment 3 - 7 yrs
Furniture and office equipment 5 - 7 yrs
Other Equipment 3 - 7 yrs
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of the net identifiable assets acquired in a business combination.
Effective January 1, 2002 the Company adopted Financial Accounting
Standards Board (the "FASB") SFAS No. 142 "Goodwill and Other Intangible Assets"
(see Note 10).
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
-F10-
Company no longer amortizes goodwill and other intangible assets with indefinite
useful lives, principally deferred casino license costs, but instead reviews
goodwill and indefinite-lived intangible assets for impairment at least annually
and between annual test dates in certain circumstances.
The Company completed the necessary transition impairment reviews for
goodwill and indefinite-lived intangible assets in 2002, and no impairments were
indicated. The Company performs its annual impairment test for goodwill and
indefinite-lived intangible assets in the fourth quarter of each fiscal year. No
impairments were indicated as a result of the annual impairment reviews for
goodwill and indefinite-lived intangible assets in 2003 or 2002.
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.
Revenue Recognition - Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Management and
consulting fees are recognized as revenue as services are provided. The
incremental amount of unpaid progressive jackpot is recorded as a liability and
a reduction of casino revenue in the period during which the progressive jackpot
increases.
Promotional Allowances - Food and beverage furnished without charge to
customers is included in gross revenue at a value which approximates retail and
then deducted as complimentary services to arrive at net revenue. The estimated
cost of such complimentary services is charged to casino operations, and was
$907, $954 and $949 in 2003, 2002 and 2001, respectively.
As part of its promotional activities, the Company offers "free plays" or
coupons to its customers for gaming activity and the Company's players club
allows customers to earn certain complimentary services and/or cash rebates
based on the volume of a customer's gaming activity. These promotional
activities, totaling $3,288, $3,110 and $2,866 were reported as a reduction of
revenue for 2003, 2002 and 2001, respectively.
Foreign Currency Translation - Adjustments resulting from the translation
of the accounts of the Company's foreign subsidiaries from the local functional
currency to U.S. dollars are recorded as other comprehensive income or loss in
the consolidated statements of shareholders' equity and comprehensive income
(loss). Foreign currency transaction gains or losses resulting from the
translation of other casino operations and other transactions which are
denominated in a currency other than U.S. dollars are recognized in the
statements of earnings. Gains and losses from intercompany foreign currency
transactions that are of a long-term investment nature and are between entities
of the consolidated group are not included in determining net earnings, but
rather are reported as translation adjustments within other
-F11-
comprehensive income or loss in the consolidated statements of shareholders'
equity and comprehensive income (loss).
Income Taxes - The Company accounts for income taxes using the liability
method, which provides that deferred tax assets and liabilities are recorded
based on the difference between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes, at a rate expected to
be in effect when the differences become deductible or payable.
Stock-Based Compensation - In 2002 the Company adopted Statement of
Financial Accounting Standards No. 148 (SFAS 148), "Accounting for Stock-Based
Compensation-Transition and Disclosure" which amends the disclosure requirements
of Statement of Financial 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 by the
Company at this time. SFAS 123 encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation for
employees using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees", and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
that stock. The Company values stock-based compensation granted to non-employees
at fair value.
At December 31, 2003, the Company had one stock-based employee compensation
plan (see Note 6). The Company accounts for this plan under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. No
stock-based compensation cost is reflected in net earnings, as all options
granted under the plan had an exercise price equal to the market value of the
underlying common stock on the date of the grant. The following table
illustrates the effect on net earnings and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock Based Compensation", to stock-based employee compensation.
-F12-
2003 2002 2001
---- ---- ----
Net earnings, as reported $ 3,246 $ 3,079 $ 2,455
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects 4 9 8
----------- ----------- -----------
Pro forma net earnings $ 3,242 $ 3,070 $ 2,447
=========== =========== ===========
Earnings per share,
Basic As reported $ 0.24 $ 0.23 $ 0.18
Pro forma $ 0.24 $ 0.22 $ 0.18
Diluted As reported $ 0.22 $ 0.20 $ 0.16
Pro forma $ 0.22 $ 0.20 $ 0.16
The fair value of options granted under the Plan was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions:
2003 2002 2001
---- ---- ----
Weighted-average risk-free interest rate - 5.32% 5.08%
Weighted-average expected life - 10 yrs 10 yrs
Weighted-average expected volatility - 26.8% 43.6%
Weighted-average expected dividends - $ 0 $0
No options were granted to employees under the Plan in 2003. The
weighted-average fair value of options granted was $1.16 in 2002 and $1.21 in
2001. A total of 10,000 and 20,000 options were issued in 2002 and 2001,
respectively.
Earnings Per Share - Basic earnings per share considers only
weighted-average outstanding common shares in the computation. Diluted earnings
per share gives effect to all potentially dilutive securities. Diluted earnings
per share is based upon the weighted average number of common shares outstanding
during the period, plus, if dilutive, the assumed exercise of stock options
using the treasury stock method and the assumed conversion of other convertible
securities (using the "if converted" method) at the beginning of the year, or
for the period outstanding during the year for current year issuances.
Comprehensive Income - Comprehensive income for the Company includes the
effect of fluctuations in foreign currency rates on value of the Company's
foreign investments and the interest rate swap agreements it has maintained to
hedge against increases in the interest rate on its RCF.
Operating Segments - 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.
-F13-
Corporate operations include, among other items, the revenue and expense of
corporate gaming projects for which the Company has secured long-term service
contracts.
Hedging Activities - The Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as subsequently amended by SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities", in the first quarter of fiscal 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. The pronouncements require that a company designate the intent of a
derivative to which it is a party, and prescribes measurement and recognition
criteria based on the intent and effectiveness of the designation.
SFAS No. 133 requires companies to recognize all of its derivative
instruments as either assets or liabilities in the balance sheet at fair value.
The accounting for changes in the fair value (i.e. gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging
instruments, a company must designate the hedging instrument, based upon the
exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge
of a net investment in a foreign operation.
For derivative instruments that are designated and qualify as a cash flow
hedge (i.e. hedging the exposure to variability in expected future cash flows
that is attributable to a particular risk), the effective portion of the gain or
loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of change. The Company currently does not
have fair value hedges or hedges of a net investment in a foreign operation. For
derivative instruments not designated as hedging instruments, the gain or loss
is recognized in current earnings during the period of change.
The cumulative effect of adopting SFAS No. 133 related to the Company's
interest rate swap agreements (see Note 5, Long-Term Debt, to the Consolidated
Financial Statements) was to decrease shareholders' equity as of January 1, 2001
by $175, net of related federal and state income tax benefits of $104. As of
December 31, 2003 the interest rate swap agreements decreased shareholders'
equity (accumulated other comprehensive loss) by $232, net of federal and state
income tax benefits of $138. At December 31, 2002 the interest rate swap
agreements decreased shareholders' equity (accumulated other comprehensive loss)
by $494, net of federal and state income tax benefits of $294. At December 31,
2001, the interest rate swap agreements decreased shareholders' equity
(accumulated other comprehensive loss) by $554, net of federal and state income
tax benefits of $329.
Advertising Costs - Costs incurred for producing and communicating
advertising are expensed when incurred. Advertising expense was $559, $413 and
$319 for the years ended December 31, 2003, 2002 and 2001, respectively.
Preopening Expense - Preopening, pre-operating and organization activities
are expensed as incurred.
Reclassifications - Certain reclassifications have been made to the 2002
and 2001 financial information in order to conform to the 2003 presentation.
Other - Financial interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities", issued in January 2003, had no effect on operations
at December 31, 2003. The Company is evaluating FIN 46's effect, if any, on its
Casino Millennium holding acquired subsequent to December 31, 2003. The Company
has reviewed all other recently issued accounting pronouncements and does not
believe that any such pronouncements will have a material impact on its
financial statements.
-F14-
3. RECEIVABLES FROM OFFICERS/DIRECTORS
At December 31, 2003 and 2002, the Company had no receivables from officers
and/or directors.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2003 and 2002 consist of the
following:
Estimated
Service Life
2003 2002 in Years
---- ---- --------
Buildings and improvements $ 22,648 $ 19,340 7 - 39
Gaming equipment 10,731 9,644 3 - 7
Furniture and office equipment 3,599 3,014 5 - 7
Other equipment 1,881 1,694 3 - 7
Capital projects in process 575 359
-------------- ---------------
39,434 34,051
Less accumulated depreciation (16,639) (13,393)
-------------- ---------------
22,795 20,658
Land 13,580 12,886
Non-operating casino and land held for sale 421 421
-------------- ---------------
Property and equipment, net $ 36,796 $ 33,965
============== ===============
The non-operating casino and land is located in Nevada and is carried at
estimated net realizable value.
CCAL has entered into a series of lease agreements for the purchase of
capital equipment. The average effective interest rate is 13.8% on the lease
obligations which are repayable over a term of 60 months (see Note 5).
Assets under lease included in property and equipment as of December 31,
2003 and 2002 are as follows:
Original Book Value Accumulated Depreciation
2003 2002 2003 2002
---- ---- ---- ----
Gaming & security equipment $ 623 $ 522 $ 411 $ 241
Furniture and office equipment 283 219 130 88
----------- ----------- ----------- -----------
Total $ 906 $ 741 $ 541 $ 329
=========== =========== =========== ==========+
Depreciation and amortization expense for the years ended December 31,
2003, 2002 and 2001 was $2,668, $2,304 and $3,147, respectively.
-F15-
5. LONG-TERM DEBT
Long-term debt at December 31, 2003 and 2002 consists of the following:
2003 2002
---- ----
Borrowings under revolving line of credit facility
with Wells Fargo Bank $ 11,757 $ 11,500
Borrowings under loan agreement with ABSA Bank 4,550 4,597
Note payable to minority shareholder - 1,280
Capital leases for various equipment 355 369
Note payable to founding shareholder, unsecured 380 380
Other unsecured note payables 7 69
------------- ------------
Total long-term debt 17,049 18,195
Less current portion (2,136) (1,664)
------------- ------------
Long-term portion $ 14,913 $ 16,531
============= ============
On April 26, 2000, the Company and Wells Fargo Bank (the "Bank") entered
into an Amended and Restated Credit Agreement (the "Agreement") which increased
the Company's aggregate borrowing commitment from the Bank under a Revolving
Line of Credit Facility ("RCF") to $26 million and extended the maturity date to
April 2004. The Agreement was further amended on August 22, 2001 to give greater
flexibility to the ability to use the borrowed funds for projects for the
Company. On August 28, 2002, the RCF was further amended to increase the
facility to its original amount of $26 million, an increase of $5,777, revise
the quarterly reduction schedule and extend the maturity date to August 2007.
The aggregate commitment available to the Company is reduced quarterly by $722
beginning January 2003 through the maturity date. The commitment available as of
December 31, 2003, net of quarterly reductions, is $23,111 and unused borrowing
capacity is $11,354. Interest on the Agreement is variable based on the interest
rate option selected by the Company, plus an applicable margin based on the
Company's leverage ratio. The Agreement also requires a nonusage fee based on
the Company's leverage ratio on the unused portion of the commitment. The
principal balance outstanding under the loan agreement as of December 31, 2003
and 2002 was $11,757 and $11,500 respectively. The commitment available, net of
quarterly reductions under the RCF as of December 31, 2003 is $23,111 and the
unused borrowing capacity is $11,354. The loan agreement includes certain
restrictive covenants on financial ratios of WMCK. The most significant
covenants include i) a maximum leverage ratio no greater than 2.5 to 1.00, ii) a
minimum interest coverage ratio no less than 2.00 to 1.00, and iii) a TFCC ratio
(a derivative of EBITDA, as defined in the agreement) of no less than 1.10 to
1.00. The Company is in compliance with the restrictive covenants on the
financial ratios of WMCK contained in the RCF as of December 31, 2003. The loan
is collateralized by a deed of trust and a security agreement with assignments
of lease, rents and furniture, fixtures and equipment of all Colorado property.
The interest rate at December 31, 2003 was 3.47375% for $10,000 outstanding
under LIBOR based provisions of the loan agreement. The remaining balance of the
outstanding debt is subject to interest under the PRIME based provisions of the
loan agreement at a rate of 4.0%.
In 1998, the Company entered into a five-year interest rate swap agreement
on $7.5 million notional amount of debt under the RCF, whereby the Company pays
a LIBOR-based fixed rate of 5.55% and receives a LIBOR-based floating rate reset
quarterly based on a three-month rate. The swap agreement expired October 1,
2003. In May 2000, the Company entered into a second five-year interest rate
swap agreement on $4.0 million notional amount of debt under the RCF, whereby
the Company pays a LIBOR-based fixed rate of 7.95% and receives a LIBOR-based
floating rate reset quarterly based on a three-month rate. Generally, the swap
arrangement is advantageous to the Company to the extent that interest rates
increase in the future and
-F16-
disadvantageous to the extent that they decrease. The net amount paid or
received by the Company on a quarterly basis results in an increase or decrease
to interest expense. The fair value of the derivatives as of December 31, 2003
and 2002 of $371 and $788, respectively, is reported as a liability in the
consolidated balance sheet. The Company's objective for entering into the
interest rate swap agreements, derivative instruments designated as cash flow
hedging instruments, was to eliminate the variability of cash flows in the
interest payments for a portion of the RCF. The Company has determined that the
cash flow hedges were highly effective. Accordingly no net gain or loss has been
recognized in earnings during 2003, 2002 or 2001 and none of the derivative
instruments' loss has been excluded from the assessment of the hedge
effectiveness. The net gain (loss) on the interest rate swaps of $262, $60 and
($379), net of income tax expense (benefit) of $155, $36 and ($225) has been
reported in comprehensive income (loss) on the statement of shareholders' equity
and comprehensive income for 2003, 2002 and 2001, respectively. If the interest
rate swaps' critical terms (notional amount, interest rate reset dates,
maturity/expiration date or underlying index) change significantly, such event
would result in reclassifying the losses that are reported in accumulated other
comprehensive income (loss). The Company estimates that during 2004 it will
recognize additional interest expense of approximately $212 in connection with
the remaining interest rate swap agreement. Accordingly, no gain or loss has
been reclassified to earnings for such discontinuance of a cash flow hedge. Net
additional interest expense to the Company under the swap agreement was $515,
$524 and $231 in 2003, 2002 and 2001, respectively.
In April 2000, CCAL entered into a loan agreement with PSG Investment Bank
Limited ("PSGIB"), which provides 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 fund development of the Caledon project. The outstanding balance as
of December 31, 2003 and 2002 was $4,139 and $4,179, respectively, and the
interest rate was 17.05% in both years. The shareholders of CCAL have pledged
all of the common shares held by them in CCAL to PSGIB as collateral. The loan
is also collateralized by a first mortgage bond over land and buildings and a
general notorial bond over all equipment. In April 2001, CCAL entered into an
addendum to the loan agreement in which PSGIB provided CCAL with a standby
facility in the amount of approximately $560, based on an exchange rate of
8.0315 rand per dollar at the time. The outstanding balance as of December 31,
2003 and 2002 was $411 and $418, respectively, and the interest rate was 15.1%
in both years. Under the original terms of the agreement CCAL made its first
principal payment in December 2001, based on a repayment schedule that required
semi-annual installments continuing over a five-year period. On March 26, 2002,
CCAL and PSGIB entered into an amended agreement that changed the repayment
schedule to require quarterly installments beginning on March 31, 2002 and
continuing over the remaining term of the original five-year agreement. The
amendment also changed the requirements for the sinking fund. The 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
$598 at the exchange rate as of December 31, 2003). 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.
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. The loan
agreement includes certain restrictive covenants for CCAL, including the
maintenance of the following ratios; i) debt/equity ratio of 45:55 after the
first twelve months of operations and a 40:60 debt/equity ratio after two years
of operations, ii) interest coverage ratio of at least 2.0 after the first
twelve months of operations, iii) debt service coverage ratio of at least 1.34
for the principal loan and 1.7 for the standby facility after the first twelve
months of operations, and iv) loan life coverage ratio of 1.5 for
-F17-
the principal loan and a loan life coverage ratio of 2.5 for the standby
facility. As of December 31, 2003, the Company was in compliance with the loan
covenants specified by ABSA.
In April 2000, CCA, CCAL, CCI and Caledon Overberg Investments
(Proprietary) Limited ("COIL"), the minority shareholder in CCAL, entered into a
note agreement as part of the purchase of CCAL. Under the terms of the
agreement, CCAL, in exchange for the contribution of certain fixed assets,
entered into a loan agreement with COIL in the amount of approximately $2,300,
as valued at the time of the agreement. Under the terms of the original
agreement, the loan bears interest at the rate of 2% over the prime/base rate
established by ABSA, and is due on demand subsequent to the repayment in full of
the loan between CCAL and ABSA. In November 2000, as part of CCA's additional
equity investment in CCAL, CCA acquired a portion of COIL's note receivable from
CCAL valued at approximately $600, as valued at the time of the original
agreement. In January 2003, CCA acquired the balance of the note in conjunction
with the purchase of the outstanding common shares held by its partner. The
outstanding balance on note agreement based on the exchange rate on December 31,
2003 and 2002 is approximately $0 and $1,280, respectively.
In September 2001, CCA, CCAL, CCI and COIL amended the loan agreement to
reduce the rate of interest charged on the loan to 0% (zero), effective with the
original date of the agreement. $107, net of $46 of income tax benefit, of
accrued interest dating from the original date of the agreement was written off
by CCAL as a reduction in interest expense in 2001. The loan from CCA and COIL
are proportionate to each shareholder's percentage of ownership. The additional
net income reported by CCAL, as a result of reducing the interest charged, is
shared proportionately by each shareholder, therefore, there is no change in the
consolidated net income of the South African segment nor the consolidated net
income of the Company. Each shareholder had the option to re-instate the
interest rate to be charged from January 1, 2002 forward. After completing the
purchase of the remaining 35% of CCAL in January 2003, CCA exercised its option
to reinstate the shareholder interest effective January 1, 2002. As of December
31, 2003 and 2002, CCAL accrued $0 and $403 in accrued interest, respectively.
The accrued interest is eliminated in consolidation; therefore, there is no
effect on consolidated net earnings.
The unsecured note payable to a founding shareholder bears interest at 6%,
payable quarterly. The noteholder, at his option, may elect to receive any or
all of the unpaid principal by notifying CCI on or before April 1 of any year.
Payment of the principal amount so specified would be required by the Company on
or before January 1 of the following year. The entire outstanding principal is
otherwise due and payable on April 1, 2004. Accordingly, the note is classified
as current in the accompanying consolidated balance sheets as of December 31,
2003 and noncurrent as of December 31, 2002.
The consolidated weighted average interest rate on all borrowings was
10.35%, 10.12% and 9.00% for the years ended December 31, 2003, 2002 and 2001,
respectively, excluding the write-off of deferred financing charges.
-F18-
As of December 31, 2003, scheduled maturities of all long-term debt are as
follows:
Future minimum Total
lease payment long-term
of capital leases Other debt debt
----------------- ---------- ----------
2004 - $ 196 $ 1,978 $ 2,174
2005 - 171 1,905 2,076
2006 - 34 1,054 1,088
2007 - 17 11,757 11,774
2008 - 13 - 13
Thereafter - - -
---------- ---------- ----------
431 16,694 17,125
Less amounts representing interest 76 - 76
---------- ---------- ----------
Total $ 355 $ 16,694 $ 17,049
========== ========== ==========
6. SHAREHOLDERS' EQUITY
Company's Board of Directors has approved a discretionary program to
repurchase up to $5 million of the Company's outstanding common stock. Through
December 31, 2003, the Company had repurchased 2,559,004 shares of its common
stock at an average cost per share of $1.49, of which 1,385,000 shares, with an
average cost of $1.06 per share, were retired in 2000.
In 2003, 30,000 shares were re-issued to satisfy outside directors' option
exercises.
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 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.
There were 805,276 shares remaining in treasury as of December 31, 2003, at
an average cost per share of $2.28. Subsequent to December 31, 2003, the Company
has not purchased any additional shares of its common stock on the open market.
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 December 31, 2003, no RSA's have been
issued.
In July 2002, the Company amended the Rights Agreement between Century
Casinos, Inc. and Computershare Investor Services, Inc., adopted in April 1999
as amended and approved by the Shareholders in 2000, to increase the defined
purchase price from $4 to $10 per share and increased the redemption period, the
time during which the Company may elect to redeem all of the outstanding rights,
from 20 to 90 days. The purchase price is the exercise amount at which a
registered holder is entitled to purchase a given amount of shares of
non-redeemable Series A Preferred Stock of the Company, subject to certain
adjustments.
The Board of Directors of the Company has adopted the Employees' Equity
Incentive Plan (the "Plan"). The Plan as subsequently amended provides for the
grant of awards to eligible employees in the form of stock, restricted stock,
stock options, stock appreciation rights, performance shares or performance
units, all as defined in the Plan. The Plan provides for the issuance of up to
4,500,000 shares of common stock to eligible employees through the various forms
of awards permitted. Through December 31, 2003, only incentive stock option
awards, for which the option price may not be less than fair market value at the
date of grant, or non-statutory
-F19-
options, which may be granted at any option price, have been granted under the
Plan. All options must have an exercise period not to exceed ten years. Options
granted to date have one-year, two-year or four-year vesting periods. The
Company's Incentive Plan Committee has the power and discretion to, among other
things, prescribe the terms and conditions for the exercise of, or modification
of, any outstanding awards in the event of merger, acquisition or any other form
of acquisition other than a reorganization of the Company under United States
Bankruptcy Code or liquidation of the Company. The Plan also allows limited
transferability of any non-statutory stock options to legal entities that are
100% - owned or controlled by the optionee or to the optionee's family trust.
The Company last granted options to any officers in 1999. As of December 31,
2003 there were 2,160,300 options outstanding under the Plan and 1,665,309
available under the plan.
As of December 31, 2003 there were an additional 70,000 options outstanding
to directors of the Company. These options have a weighted average exercise
price of $1.48. Subsequent to December 31, 2003, 60,000 options were issued to
the Company's outside directors with an exercise price of $3.26.
Transactions regarding the Plan are as follows:
2003 2002 2001
--------------------------- --------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------------- --------------------------- ---------------------------
Employee Stock Options:
Outstanding at January 1 2,790,700 $1.30 2,784,800 $1.30 2,812,300 $1.29
Granted - - 10,000 2.28 20,000 1.93
Exercised (618,000) 1.31 - - (47,500) 1.42
Cancelled or forfeited (12,400) 1.98 (4,100) 1.41 - -
------------ ------------ ------------
Outstanding at December 31 2,160,300 1.29 2,790,700 1.30 2,784,800 1.30
============ ============ ============
Options exercisable at
December 31 2,144,300 $1.29 2,762,700 $1.29 2,764,800 $1.29
============ ============ ============
Summarized information regarding all employee options outstanding at December
31, 2003, is as follows:
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price At Year End Term in Years At Year End
-------------------------- ------------------- -------------------- ----------------------
$0.75 613,500 4.8 613,500
$1.50 1,521,800 1.7 1,521,800
$1.75 10,000 7.3 3,000
$2.25 5,000 1.5 5,000
$2.28 10,000 8.2 1,000
------------------- ----------------------
2,160,300 2.6 2,144,300
=================== ======================
-F20-
Subsequent to December 31, 2003, 1,352,710 options were granted by the
independent members of the Company's Incentive Plan Committee to eight officers
and employees of the Company with an exercise price of $2.93. The Plan expires
in April 2004. At this time, the Company does not intend to propose a new
employee equity incentive plan, thus will not ask the stockholders for approval
of a new plan at its 2004 annual stockholders meeting.
Subsidiary Preference Shares - In connection with the granting of a gaming
license to CCAL by the Western Cape Gambling and Racing Board in April 2000,
CCAL issued a total of 200 preference shares, 100 shares each to two minority
shareholders. The preference shares are not cumulative, nor are they redeemable.
The preference shareholders are entitled to receive annual dividends of 20% of
the after-tax profits directly attributable to the CCAL casino business subject
to working capital and capital expenditure requirements and CCAL loan
obligations and liabilities as determined by the directors of CCAL. Should the
CCAL casino business be sold or otherwise dissolved, the preference shareholders
are entitled to 20% of any surplus directly attributable to the CCAL casino
business, net of all liabilities attributable to the CCAL casino business. No
preference dividends were paid or are payable in the year 2003, 2002 or 2001.
As of December 31, 2003 and 2002, accumulated other comprehensive income (loss)
is comprised of the following:
2003 2002
Interest rate swap hedge $ (232) $ (494)
Foreign currency translation adjustment 2,266 (558)
--------------- --------------
Other comprehensive income (loss) $ 2,034 $ (1,052)
=============== ==============
7. 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, among other items, the revenue and expense of
corporate gaming projects for which the Company has secured long-term service
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.
-F21-
Reclassification adjustments for 2002 and 2001 have been made to the
Colorado and Corporate segment presentations for corporate bonuses that were
charged to Colorado but are attributable to the consolidated results of
operation, the interest on debt incurred to fund the purchase of CCAL and the
repurchase of the Company's stock, and the related tax effects. There is no
affect on the consolidated results. A reconciliation to the results as
previously reported prior to reclassifications has been provided.
-F22-
Segment information as of and for the years ended December 31, 2003, 2002
and 2001 is presented below.
=================================================================================================================
Colorado South Africa
================================ ======================================== =======================================
As of and for the Year Ended 2003 2002 2001 2003 2002 2001
December 31,
================================ ============== ============ ============ =========== ============= =============
Property and equipment, net $ 21,392 $ 21,816 $ 19,444 $ 14,020 $ 10,807 $ 7,911
Total assets $ 32,200 $ 33,047 $ 30,553 $ 19,771 $ 15,004 $ 10,743
Net operating revenue $ 18,402 $ 21,260 $ 21,022 $ 11,149 $ 7,083 $ 7,288
Operating expenses (excluding
property write-downs, other
write offs and depreciation) $ 10,745 $ 10,836 $ 10,200 $ 7,893 $ 5,051 $ 5,612
Property write-downs and other
write-offs $ - $ - $ - $ - $ 399 $ -
Depreciation and amortization $ 1,349 $ 1,334 $ 2,997 $ 1,073 $ 734 $ 1,294
Earnings from operations $ 6,308 $ 9,090 $ 7,825 $ 2,183 $ 899 $ 382
Interest income $ 12 $ 16 $ 20 $ 189 $ 126 $ 61
Interest expense,
including debt issuance cost $ 1 $ 269 $ 544 $ 929 $ 804 $ 881
Other income (expense), net $ 30 $ 9 $ 22 $ (7) $ 43 $ (32)
Earnings before income taxes
and minority interest $ 6,349 $ 8,846 $ 7,323 $ 1,436 $ 264 $ (470)
Income tax expense (benefit) $ 2,413 $ 4,069 $ 3,368 $ 487 $ 416 $ (157)
Minority interest in
subsidiary (earnings) losses $ - $ - $ - $ (22) $ (31) $ 32
Net Earnings (loss) $ 3,936 $ 4,777 $ 3,955 $ 927 $ (183) $ (281)
=================================================================================================================
Effect of reclassifications on segment
=================================================================================================================
Net Earnings (loss) $ 3,936 $ 4,777 $ 3,955 $ 927 $ (183) $ (281)
Operating expenses $ (590) $ (608) $ (569) $ - $ - $ -
Interest expense $ (1,399) $ (1,152) $ (889) $ - $ - $ -
Income tax expense (benefit) $ 756 $ 810 $ 671 $ - $ - $ -
Net earnings (loss) before
reclassifications $ 2,703 $ 3,827 $ 3,168 $ 927 $ (183) $ (281)
=================================================================================================================
Reconciliation to EBITDA:
=================================================================================================================
Net earnings (loss) $ 3,936 $ 4,777 $ 3,955 $ 927 $ (183) $ (281)
Interest income $ (12) $ (16) $ (20) $ (189) $ (126) $ (61)
Interest expense $ 1 $ 269 $ 544 $ 929 $ 804 $ 881
Income taxes $ 2,413 $ 4,069 $ 3,368 $ 487 $ 416 $ (157)
Depreciation and amortization $ 1,349 $ 1,334 $ 2,997 $ 1,073 $ 734 $ 1,294
EBITDA $ 7,687 $ 10,433 $ 10,844 $ 3,227 $ 1,645 $ 1,676
=================================================================================================================
-F23-
=================================================================================================================
Cruise Ships Corporate & Other
================================ ======================================== =======================================
As of and for the Year Ended 2003 2002 2001 2003 2002 2001
December 31,
================================ ============== ============ ============ =========== ============= =============
Property and equipment, net $ 327 $ 213 $ 236 $ 1,057 $ 1,129 $ 1,747
Total assets $ 731 $ 472 $ 435 $ 2,115 $ 2,620 $ 3,088
Net operating revenue $ 1,737 $ 824 $ 891 $ 114 $ 170 $ 255
Operating expenses (excluding
property write-downs, other
write offs and depreciation) $ 1,175 $ 538 $ 625 $ 2,152 $ 2,172 $ 2,242
Property write-downs and other
write-offs net of (recoveries) $ - $ - $ - $ (35) $ 746 $ 57
Depreciation and amortization $ 74 $ 45 $ 47 $ 172 $ 191 $ 226
Earnings from operations $ 488 $ 241 $ 219 $ (2,175) $ (2,939) $ (2,270)
Interest income $ 1 $ - $ - $ 343 $ 324 $ 350
Interest expense,
including debt issuance cost $ - $ - $ - $ 1,422 $ 1,171 $ 934
Other income (expense), net $ 16 $ - $ - $ 9 $ (1) $ (1)
Earnings before income taxes
and minority interest $ 505 $ 241 $ 219 $ (3,245) $ (3,787) $ (2,855)
Income tax expense (benefit) $ 150 $ 88 $ 82 $ (1,273) $ (2,119) $ (1,499)
Minority interest in
subsidiary (earnings) losses $ - $ - $ - $ - $ - $ -
Net Earnings (loss) $ 355 $ 153 $ 137 $ (1,972) $ (1,668) $ (1,356)
=================================================================================================================
Effect of reclassifications on segment
=================================================================================================================
Net Earnings $ 355 $ 153 $ 137 $ (1,972) $ (1,668) $ (1,356)
Operating expenses $ - $ - $ - $ 590 $ 608 $ 569
Interest expense $ - $ - $ - $ 1,399 $ 1,152 $ 889
Income tax expense (benefit) $ - $ - $ - $ (756) $ (810) $ (671)
Net earnings (loss) before
reclassifications $ 355 $ 153 $ 137 $ (739) $ (718) $ (569)
=================================================================================================================
Reconciliation to EBITDA:
=================================================================================================================
Net earnings (loss) $ 355 $ 153 $ 137 $ (1,972) $ (1,668) $ (1,356)
Interest income $ (1) $ - $ - $ (343) $ (324) $ (350)
Interest expense $ - $ - $ - $ 1,422 $ 1,171 $ 934
Income taxes $ 150 $ 88 $ 82 $ (1,273) $ (2,119) $ (1,499)
Depreciation and amortization $ 74 $ 45 $ 47 $ 172 $ 191 $ 226
EBITDA $ 578 $ 286 $ 266 $ (1,994) $ (2,749) $ (2,045)
=================================================================================================================
-F24-
=================================================================================================================
Intersegment Elimination Consolidated
================================ ======================================== =======================================
As of and for the Year Ended 2003 2002 2001 2003 2002 2001
December 31,
================================ ============== ============ ============ =========== ============= =============
Property and equipment, net $ - $ - $ - $ 36,796 $ 33,965 $ 29,338
Total assets $ - $ - $ - $ 54,817 $ 51,143 $ 44,819
Net operating revenue $ - $ - $ - $ 31,402 $ 29,337 $ 29,456
Operating expenses (excluding
property write-downs, other
write offs and depreciation) $ - $ - $ - $ 21,965 $ 18,597 $ 18,679
Property write-downs and other
write-offs net of (recoveries) $ - $ - $ - $ (35) $ 1,145 $ 57
Depreciation and amortization $ - $ - $ - $ 2,668 $ 2,304 $ 4,564
Earnings from operations $ - $ - $ - $ 6,804 $ 7,291 $ 6,156
Interest income $ (341) $ (341) $ (341) $ 204 $ 125 $ 90
Interest expense,
including debt issuance cost $ (341) $ (341) $ (341) $ 2,011 $ 1,903 $ 2,018
Other income (expense), net $ - $ - $ - $ 48 $ 51 $ (11)
Earnings before income taxes
and minority interest $ - $ - $ - $ 5,045 $ 5,564 $ 4,217
Income tax expense (benefit) $ - $ - $ - $ 1,777 $ 2,454 $ 1,794
Minority interest in
subsidiary (earnings) losses $ - $ - $ - $ (22) $ (31) $ 32
Net Earnings (loss) $ - $ - $ - $ 3,246 $ 3,079 $ 2,455
=================================================================================================================
Effect of reclassifications on segment
=================================================================================================================
Net Earnings (loss) $ - $ - $ - $ 3,246 $ 3,079 $ 2,455
Operating expenses $ - $ - $ - $ - $ - $ -
Interest expense $ - $ - $ - $ - $ - $ -
Income tax expense (benefit) $ - $ - $ - $ - $ - $ -
Net earnings (loss) before
reclassifications $ - $ - $ - $ 3,246 $ 3,079 $ 2,455
=================================================================================================================
Reconciliation to EBITDA:
=================================================================================================================
Net earnings (loss) $ - $ - $ - $ 3,246 $ 3,079 $ 2,455
Interest income $ 341 $ 341 $ 341 $ (204) $ (125) $ (90)
Interest expense $ (341) $ (341) $ (341) $ 2,011 $ 1,903 $ 2,018
Income taxes $ - $ - $ - $ 1,777 $ 2,454 $ 1,794
Depreciation and amortization $ - $ - $ - $ 2,668 $ 2,304 $ 4,564
EBITDA $ - $ - $ - $ 9,498 $ 9,615 $ 10,741
=================================================================================================================
-F25-
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Cripple Creek, Colorado - Subsequent to December 31, 2003 the Company
signed commitments for gaming equipment and upgrades to slot accounting system
totaling approximately $3.0 million.
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 each agreed to
purchase a 50% ownership interest. Approval for this transaction has been
obtained, as required, from the Ministry of Finance of the Czech Republic. The
first step in acquiring a 50% ownership interest was taken in December 2002 with
the payment of $236 in cash in exchange for a 10% ownership in CM. Effective
January 3, 2004, the Company through its wholly-owned Austrian subsidiary,
Century Management und Beteiligungs GmbH, acquired an additional 40% of CM by
contributing gaming equipment, advances and receivables valued at approximately
$711. The Company carries its 10% investment at cost and expects to account for
the 50% investment in CM on the equity method.
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 is severely limited and
has negatively affected and will likely continue to negatively affect the casino
operation. As a result, the Company, in September 2002, wrote off unpaid
technical casino service fees and loans from Casino Millennium, which resulted
in a pre-tax charge of $325. $299 of the write-off is reported in property
write-down and other write-offs (Note 12) and $26 is reported as a reduction of
other (expense), net. Effective September 1, 2002, technical casino service fees
and interest due to the Company have not been accrued until a certainty of cash
flow is attained for Casino Millennium. In 2003, the Company recovered $35 of
the unpaid technical casino service fees earned prior to the write-off in
September 2002 as reported in Note 12.
South Africa - Caledon - In January 2003, CCA purchased an additional 35%
of CCAL, bringing CCA's ownership of all of the common and outstanding shares of
CCAL to 100%. The purchase price was 21.5 million Rand or $2.6 million, based on
the conversion rate at January 10, 2003, in exchange for the equity ownership
valued at 11.0 million Rand or $1.4 million and shareholder loan held by the
previous 35% equity owner, valued at 10.5 million Rand or $1.2 million.
Simultaneous with the transaction the Hotel Management Agreement between CCAL
and FKH was cancelled and CCA assumed the management of the hotel. Financing for
the transaction was provided by the RCF.
South Africa - Gauteng - Legislation enacted in 1996 in South Africa
provides for the award of up to 40 casino licenses throughout the country. In
addition to its Caledon operations, the Company has entered into agreements with
various local consortia to provide consulting services during the application
phase, as well as casino management services should the Company's partners be
awarded one or more licenses.
Six casino licenses were allocated to the province of Gauteng (primarily
for the Greater Johannesburg area), of which five casinos have been operating
since 1998. With respect to the sixth and final license, Silverstar Development
Ltd. ("Silverstar"), a consortium owned by trusts, corporations and individuals
from the province, chose the Company as equity and management partner for its
proposed casino, hotel and entertainment resort in the West Rand province
(western portion of greater Johannesburg). Since joining forces more than five
years ago, the Company has helped Silverstar work through a series of legal
issues regarding the award of this
-F26-
gaming license - culminating in March 2000 with the entering into of an
agreement with the sole competing license applicant. This agreement settled all
past claims and brought both parties and the Company together in an effort to
jointly secure the sixth and final gaming license in the province.
During September 2001, CCA entered into an agreement to secure a 50%
ownership interest in Rhino Resort Ltd. ("RRL"), a consortium which includes
Silverstar Development Ltd. ("Silverstar"). RRL submitted an application for a
proposed hotel/casino resort development in that region of the greater
Johannesburg area of South Africa known as the West Rand at a cost of
approximately 400 million Rand ($59.8 million). In November 2001, RRL was
awarded the sixth and final casino license serving the Gauteng province in South
Africa. In February 2002, Tsogo Sun Holdings (Pty) Ltd ("Tsogo"), a competing
casino, filed a Review Application seeking to overturn the license award by the
Gauteng Gambling Board ("GGB"). In September 2002, the High Court of South
Africa overturned the license award. As a result of these developments, the
Company recorded a $399 write-off for all advances made, and pre-construction
cost incurred, in conjunction with the Johannesburg project in 2002. In November
2002, and upon the advice of legal counsel, Silverstar, with the support and
agreement of all other parties to the original two applications for the West
Rand license, including CCA, made representation to the GGB requesting that the
sole remaining license for the province of Gauteng now be awarded to Silverstar
pursuant to its original 1997 application. Notwithstanding Silverstar's belief
as to the legal and public-policy framework that would now justify such an
award, the GGB in December 2002 denied Silverstar's request. In consequence,
Silverstar on March 4, 2003 initiated legal action against the GGB in the High
Court of South Africa seeking, inter alia, that the court now compel the
authorities to award the license to Silverstar. On October 20, 2003 the High
Court of South Africa handed down a judgment compelling the GGB to award the
license to Silverstar. The GGB's request for leave to appeal the judgment was
initially denied by the Pretoria High Court on November 11, 2003, but the High
Court ruling was overturned and the request for leave to appeal was subsequently
granted by the Supreme Court of Appeal of South Africa on February 5, 2004.
Silverstar informed the Company that it does not yet have any indication with
regard to the timing of the appeal process. CCA, through its majority-owned
subsidiary - Century Casinos West Rand (Pty) Ltd. - remains contracted to
Silverstar by a resort management agreement and retains a right of long standing
to take up a minority equity interest in the venture although its final level of
equity interest remains to be determined. Pursuant to its 1997 application, the
Silverstar project provides for up to 1,350 slot machines and 50 gaming tables
in a phased development that includes a hotel and other entertainment, dining,
and recreational activities with a first phase of 950 slot machines and 30
gaming tables. The proposed 400 million Rand ($59.8 million) hotel/casino resort
development would be located in the greater Johannesburg area of South Africa
known as the West Rand.
While there can be no certainty as to the eventual outcome of Silverstar's
efforts, CCA maintains the ownership of the land (book value of $659) that
remains central to the Silverstar casino project. The Company has allocated
minor funding towards further pursuit of this opportunity.
As a result of these developments, the Company recorded a $377 write-off in
the 3rd quarter and a $22 write-off in the 4th quarter of 2002 for all advances
made and pre-construction cost incurred, in conjunction with the Johannesburg
project (Note 12). CCA maintains the ownership of the land that was intended for
the casino project.
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
-F27-
Silverstar and giving CCI a call option under which CCI can require Novomatic AG
to 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. Silverstar has no value until a
gaming license is issued. If the transaction were to be completed, CCI would
acquire a 7% interest in Silverstar from Novomatic AG.
Edmonton, Canada - In October 2003 the Company, through CRA, submitted a
casino facility license application to the Alberta Gaming and Liquor Commission
(AGLC) for a casino in Edmonton, Alberta, Canada. The proposed project, The
Celebrations Casino and Hotel, is planned to include a casino, food and beverage
amenities, a dinner theater, and a 40-room hotel. CRA is owned by Century
Casinos Resorts Ltd, a wholly-owned subsidiary of Century Casinos, Inc. and by
746306 Alberta Ltd, the owners of the 7.25 acre property and existing hotel
which will be developed into the Celebrations project. Century Casinos Resorts
Ltd. also entered into a long-term agreement to manage the casino. The
Celebrations Casino and Hotel project is one of six applications submitted to
the AGLC for an additional casino facility license in the greater Edmonton area.
In January 2004, CRA was afforded the opportunity to make a live presentation in
front of the AGLC. The AGLC is expected to award the casino license in the first
half of 2004.
If a casino license is awarded to the Company, The Celebrations Casino and
Hotel project is planned in two phases. The first phase is projected to be open
within twelve months of license award and finalizing funding arrangements and
would see the existing facility expanded to include a casino with 600 slot
machines, 30 house-banked table games, and a 12-table poker room. The first
phase of the Celebrations Casino and Hotel Project proposed by CRA is estimated
to cost 16.5 million Canadian dollars ($12.8 million), including the 2.5 million
Canadian dollars ($1.9 million) contribution of the existing hotel and property,
by 746306 Alberta Ltd.
Subject to satisfactory performance of the first phase, phase two of the
Celebrations Casino and Hotel is planned to open 36 months later, and would
include an additional 80 hotel rooms and a 10,000 square foot convention center,
for an additional capital investment of approximately $4 million Canadian, or
$3.1 million US.
Other Properties - The Company is currently holding non-operating casino
property and land for sale in Wells, Nevada. The property and land was acquired
in 1994 from an unaffiliated party at a cost of $921. Included in property
write-down and other write-offs for 2002, is a pre-tax charge in the amount of
$447, to reduce the value of the property to its fair value, less costs to sell,
based on an assessment of the property (Note 12). An appraisal of the property,
which was completed on January 26, 2004, continues to support the net fair value
of the assets as recorded in the Consolidated Balance Sheet as of December 31,
2003.
Employee Benefit Plan - In March 1998, the Company adopted a 401(k) Savings
and Retirement Plan (the "Plan"). The Plan allows eligible employees to make
tax-deferred contributions that are matched by the Company up to a specified
level. The Company contributed $17, $21 and $22 to the Plan in 2003, 2002 and
2001, respectively.
-F28-
Operating Lease Commitments and Purchase Options - The Company has entered
into certain noncancelable operating leases for real property and equipment.
Rental expense was $400 in 2003, $349 in 2002 and $357 in 2001.
-------------------------------------------------------------------------------------------------------------------
Contractual Obligations Payments Due by Period
-------------------------------------------------------------------------------------------------------------------
Total Less than 1 year 1-3 years 4-5 years More than 5
years
-------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 16,694 $ 1,978 $ 2,959 $ 11,757 $ -
-------------------------------------------------------------------------------------------------------------------
Capital Lease Obligations 431 196 205 30 -
-------------------------------------------------------------------------------------------------------------------
Operating Leases 1,411 579 522 182 128
-------------------------------------------------------------------------------------------------------------------
Total Contractual Cash
Obligations $ 18,536 $ 2,753 $ 3,686 $ 11,969 $ 128
-------------------------------------------------------------------------------------------------------------------
In June 1998, the Company began leasing parking spaces from the City of
Cripple Creek under a five-year agreement which requires annual lease payments
of $90. The Company may purchase the property for $3,250, less cumulative lease
payments ($503 through December 31, 2003), at any time during the lease term. In
February 2000, the agreement was amended to extend the term to 2010.
In March 1999, the Company entered into a purchase option agreement for a
property in Cripple Creek, Colorado, situated across the street from its
Womacks/Legends Casino on Bennett Avenue. The agreement, as amended on February
7, 2000, provides for an option period through March 31, 2004 and an exercise
price of $1,500, less 50% of cumulative monthly option payments. Subsequent to
December 31, 2003, the Company sold the option to an unrelated party for a sum
of $200. As a result of the transaction, the Company will recognize a pre-tax
gain of $35 in 2004.
The Company holds a subleasehold interest in the real property and
improvements located at 220 East Bennett Avenue. The sublease, as assigned to
WMCK-Acquisition Corp., provides for monthly rental payments of $16, and expires
on June 20, 2005 unless terminated by the Company with 12 months advance notice.
The Company has an option to acquire the property at the expiration of the
sublease at an exercise price of $1,500.
Stock Redemption Requirement - Colorado gaming regulations require the
disqualification of any shareholder who may be determined by the Colorado
Division of Gaming to be unsuitable as an owner of a Colorado casino. Unless a
sale of such common stock to an acceptable party could be arranged, the Company
would repurchase the common stock of any shareholder found to be unsuitable
under the regulations. The Company could effect the repurchase with cash,
Redemption Securities, as such term is defined in the Company's Certificate of
Incorporation and having terms and conditions as shall be approved by the Board
of Directors, or a combination thereof.
-F29-
9. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
2003 2002 2001
---- ---- ----
Federal - Current $ 948 $ 1,740 $ 1,856
Federal - Deferred 203 55 (131)
-------------- -------------- --------------
Provision for federal income taxes 1,151 1,795 1,725
-------------- -------------- --------------
State - Current 128 235 234
State - Deferred 28 8 (8)
-------------- -------------- --------------
Provision for state income taxes 156 243 226
-------------- -------------- --------------
Foreign - Current 502 401 (89)
Foreign - Deferred (32) 15 (68)
-------------- -------------- --------------
Provision for foreign income taxes 470 416 (157)
-------------- -------------- --------------
Total Provision for income taxes $ 1,777 $ 2,454 $ 1,794
============== ============== ==============
Reconciliation of federal income tax statutory rate and the Company's effective
tax rate is as follows:
2003 2002 2001
---- ---- ----
Federal income tax statutory rate 34.0% 34.0% 34.0%
State income tax (net of federal benefit) 2.3% 2.9% 3.9%
Non-deductible write-offs and expenses - 2.7% 6.0%
Foreign income taxes - 1.7% (0.5%)
Permanent and other items (1.1%) 2.8% (0.9%)
-------------- -------------- --------------
Total Provision for income taxes 35.2% 44.1% 42.5%
============== ============== ==============
The provision for income taxes differs from the expected amount of income tax
calculated by applying the statutory rate to pretax income as follows:
2003 2002 2001
---- ---- ----
Expected income tax provision at statutory rate of 34% $ 1,715 $ 1,891 $ 1, 434
Increase (decrease) due to:
Non-deductible goodwill amortization - - 252
Effect of foreign operations taxed at different
rates 1 92 (19)
State income taxes, net of federal benefit 117 160 163
Effect of non-deductible write offs & expenses - 152 -
Other, net (56) 159 (36)
-------------- -------------- --------------
Provision for income taxes $ 1,777 $ 2,454 $ 1,794
============== ============== ==============
-F30-
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets and
liabilities at December 31, 2003 and 2002, consist of the following:
Deferred tax assets (liabilities) - federal and state: 2003 2002
---- ----
Property and equipment $ 642 $ 668
Amortization of goodwill for tax (440) (222)
Write-down of non-operating casino property 169 187
Swap agreements not deducted for tax 138 294
Other non-current tax assets (liabilities) 85 84
---------------- -----------------
Tax assets (liabilities) - non-current 594 1,011
Accrued liabilities and other - current 56 76
---------------- -----------------
650 1,087
---------------- -----------------
Deferred tax assets and (liabilities) - foreign:
Property and equipment - non-current 72 67
Accrued liabilities and other 83 15
Prepaid expenses (28) (37)
---------------- -----------------
Tax assets and (liabilities) - current 55 (22)
---------------- -----------------
127 45
---------------- -----------------
Net deferred tax assets $ 777 $ 1,132
================ =================
Net deferred tax assets of $111 and $666 are classified as current and
non-current, respectively, in the accompanying consolidated balance sheet as of
December 31, 2003.
Net deferred tax assets of $54 and $1,078 are classified as current and
non-current, respectively, in the accompanying consolidated balance sheet as of
December 31, 2002.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the years ended December 31,
2003 and 2002 are as follows by segment:
Cripple Creek, CO South Africa Total
Balance as of January 1, 2002 $ 7,232 $ 477 $ 7,709
Effect of foreign currency translation - 190 190
-------------------- ------------------ -----------------
Balance as of December 31, 2002 7,232 667 7,899
Effect of foreign currency translation - 189 189
-------------------- ------------------ -----------------
Balance as of December 31, 2003 $ 7,232 $ 856 $ 8,088
==================== ================== =================
Intangible assets, not subject to amortization, include casino license
costs as follows as of December 31:
As of December 31,
2003 2002
---- ----
Century Casinos Caledon (Pty) Ltd. - South Africa $ 1,665 $ 1,298
The Celebrations Casino and Hotel - Canada (pending application) 95 -
------------------ -----------------
Total casino license acquisition costs $ 1,760 $ 1,298
================== =================
-F31-
A reconciliation of previously reported net earnings, basic earnings per
share and diluted earnings per share to the amounts adjusted for the exclusion
of amortization related to goodwill and other intangible assets with indefinite
useful lives, net of related tax effect, follows:
For The Year Ended December 31,
2003 2002 2001
---- ---- ----
Reported net earnings $ 3,246 $ 3,079 $ 2,455
Add back: Goodwill amortization,
net of income taxes - - 1,171
Add back: Casino license amortization, net of
income taxes - - 177
-------------- -------------- -----------------
Adjusted net earnings $ 3,246 $ 3,079 $ 3,803
============== ============== =================
Basic earnings per share:
Reported net earnings $ 0.24 $ 0.23 $ 0.18
Goodwill amortization - - 0.09
Casino license amortization - - 0.01
-------------- -------------- -----------------
Adjusted net earnings $ 0.24 $ 0.23 $ 0.28
============== ============== =================
Diluted earnings per share:
Reported net earnings $ 0.22 $ 0.20 $ 0.16
Goodwill amortization - - 0.08
Casino license amortization - - 0.01
-------------- -------------- -----------------
Adjusted net earnings $ 0.22 $ 0.20 $ 0.25
============== ============== =================
11. OTHER INCOME, NET
Other income, net, consists of the following:
For the Year Ended December 31,
2003 2002 2001
---- ---- ----
Interest income $ 204 $ 125 $ 90
Foreign currency exchange gains (losses) 20 - (29)
Gain on disposal of assets 28 34 13
Other - 17 5
------------ ------------ ------------
$ 252 $ 176 $ 79
============ ============ ============
-F32-
12. PROPERTY WRITE-DOWN AND OTHER WRITE-OFFS
Property write-down and other write-offs consist of the following:
For the Year Ended December 31,
2003 2002 2001
---- ---- ----
Write down non-operating casino property and land held for sale
in Nevada (Note 8) $ - $ 447 $ 57
Write off, (recoveries) of receivables and advances related to
a casino acquisition project and casino properties under
management (Note 8) (1) (35) 698 -
----------- ------------ -------------
$ (35) $ 1,145 $ 57
=========== ============ =============
(1) $399 for Johannesburg (Note 1) and $299 for Prague (Note 8) for 2002.
13. EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31, 2003, 2002
and 2001 were computed as follows:
2003 2002 2001
---- ---- ----
Basic Earnings Per Share:
Net earnings $ 3,246 $ 3,079 $ 2,455
================= ================= =================
Weighted average common shares 13,633,092 13,680,884 13,823,468
================= ================= =================
Basic earnings per share $ 0.24 $ 0.23 $ 0.18
================= ================= =================
Diluted Earnings Per Share:
Net earnings, as reported $ 3,246 $ 3,079 $ 2,455
Interest expense, net of income taxes, on convertible
debenture - - 8
----------------- ----------------- -----------------
Net earnings available to common shareholders $ 3,246 $ 3,079 $ 2,463
================= ================= =================
Weighted average common shares 13,633,092 13,680,884 13,823,468
Effect of dilutive securities (1):
Convertible debenture - - 67,451
Stock options and warrants 1,154,905 1,430,823 1,094,028
----------------- ----------------- -----------------
Dilutive potential common shares 14,787,997 15,111,707 14,984,947
================= ================= =================
Diluted earnings per share $ 0.22 $ 0.20 $ 0.16
================= ================= =================
(1) Excluded from computation of diluted earnings per share
due to anti-dilutive effect:
Options and warrants to purchase common shares - - 15,000
Weighted average exercise price - - $ 2.15
-F33-
14. PROMOTIONAL ALLOWANCES
Promotional allowances presented in the condensed consolidated statement of
earnings for 2003, 2002 and 2001 include the following:
2003 2002 2001
---- ---- ----
Food & Beverage and Hotel Comps $ 1,369 $ 1,314 $ 1,197
Free Plays or Coupons 1,882 1,648 1,526
Player Points 1,406 1,462 1,340
----------------- ----------------- -----------------
Total Promotional Allowances $ 4,657 $ 4,424 $ 4,063
================= ================= =================
-F34-
15. UNAUDITED SUMMARIZED QUARTERLY DATA
Summarized quarterly financial data for 2003, 2002 and 2001 is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------- ------------------- ------------------ -----------------
Year ended December 31, 2003
Net operating revenue $ 7,381 $ 7,553 $ 8,278 $ 8,190
Earnings from operations $ 1,698 $ 1,667 $ 1,776 $ 1,663
Net earnings $ 755 $ 751 $ 914 $ 826
Basic earnings per share (3) $ 0.06 $ 0.06 $ 0.07 $ 0.06
Diluted earnings per share (3) $ 0.05 $ 0.05 $ 0.06 $ 0.06
Year ended December 31, 2002
Net operating revenue $ 6,892 $ 7,429 $ 7,885 $ 7,131
Earnings from operations $ 1,973 $ 2,155 $ 1,281 $ 1,882
Net earnings (2) $ 925 $ 1,103 $ 453 $ 598
Basic earnings per share (3) $ 0.07 $ 0.08 $ 0.03 $ 0.04
Diluted earnings per share (3) $ 0.06 $ 0.07 $ 0.03 $ 0.04
Year ended December 31, 2001
Net operating revenue $ 7,277 $ 7,354 $ 7,876 $ 6,949
Earnings from operations (2) $ 1,132 $ 1,284 $ 2,016 $ 1,724
Net earnings (1) $ 453 $ 589 $ 687 $ 726
Basic earnings per share (3) $ 0.03 $ 0.05 $ 0.05 $ 0.05
Diluted earnings per share (3) $ 0.03 $ 0.04 $ 0.05 $ 0.04
(1) Starting 2002, effective with the adoption of SFAS No. 142, the Company no
longer amortizes goodwill and other intangible assets with indefinite
useful lives. The following goodwill amortization expense (net of income
taxes) was recorded for each quarter in 2001:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------- -------------------- ------------------- --------------------
2001 $294 $294 $294 $289
(2) The Company is currently holding non-operating casino property and land for
sale in Wells, Nevada. In the 3rd quarter of 2002 and the 1st quarter 2001
the Company reduced the value of the property to its fair value by $447 and
$57, respectively. See Note 8, Commitments, Contingencies and Other
Matters, to the Consolidated Financial Statements for complete disclosure.
In the 3rd quarter of 2002, the Company recorded a $299 write-off for
unpaid technical casino service fees and loans related to its operations in
Prague, Czech Republic, as devastating floods in Prague, Czech Republic in
August 2002 had an adverse impact on casino operation. See Note 8,
Commitments, Contingencies and Other Matters, to the Consolidated Financial
Statements for complete disclosure.
-F35-
In the 3rd quarter of 2002, the Company recorded a $377 write-off for all
advances made, and pre-construction cost incurred, in conjunction with the
Johannesburg project. See Note 8, Commitments, Contingencies and Other
Matters, to the Consolidated Financial Statements for complete disclosure.
$22 in additional expenses related to the Johannesburg project were written
off in the 4th quarter of 2002, bringing the total to $399.
(3) Sum of quarterly results may differ from annual results presented in Note
13, Earnings per Share, to the Consolidated Financial Statements, and the
Statement of Earnings because of rounding.
16. TRANSACTIONS WITH RELATED PARTIES
At December 31, 2003, the Company had an unsecured note payable that
matures on April 1, 2004, in the principal amount of $380,000 to Thomas Graf, a
founding stockholder of the Company (Note 5).
The Company has entered into compensation agreements with certain members
of the Board of Directors. Specifically, the Company has entered into separate
management agreements with Flyfish Casino Consulting AG, a management company
controlled by Erwin Haitzmann and with Focus Casino Consulting AG, a management
company controlled by Peter Hoetzinger, to secure the services of each director,
respectively. Included in the consolidated statements of earnings for the years
ended December 31, 2003, 2002 and 2001 are payments to Flyfish Casino Consulting
in the amounts of $406, $392 and $349, respectively, and payments to Focus
Casino Consulting in the amounts of $372, $363, $323, respectively.
Erwin Haitzmann and Peter Hoetzinger maintain a minority interest in CCA.
Each own 1,087 shares of CCA, approximately 1.8% of the outstanding shares of
common stock, or approximately 3.5% combined. Subsequent to December 31, 2003,
Erwin Haitzmann and Peter Hoetzinger will give up their 3.5% ownership in CCA
for a 3.5% ownership in CRL.
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 ceased on December 31, 2003. In
addition, the Company and James Forbes completed a series of stock transactions
which are fully described in Note 6.
There have been no transactions with management, except as otherwise
disclosed herein.
-F36-