UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2001.
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____________ TO ___________
.
Commission file number 0-22290
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CENTURY CASINOS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1271317
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(State of incorporation) (IRS Employer ID No.)
200-220 E. Bennett Ave., Cripple Creek, Colorado 80813
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(Address of principal executive offices)
(719) 689-9100
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(Phone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Number of shares of common stock, $.01 par value, outstanding as
of August 08, 2001:
13,817,384
1
CENTURY CASINOS, INC.
FORM 10-QSB
INDEX
Page Number
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PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited) 3
Condensed Consolidated Balance Sheet as of
June 30, 2001
Condensed Consolidated Statements of 4
Earnings for the Three Months Ended
June 30, 2001 and 2000
Condensed Consolidated Statements of Earnings 5
for the Six Months Ended June 30, 2001 and 2000
Condensed Consolidated Statements of 6
Comprehensive Earnings for the Three Months and
Six Months Ended June 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows 7
for the Six Months Ended June 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 17
PART II OTHER INFORMATION 21
SIGNATURES 21
2
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollar amounts in thousands)
----------------------------------------------------
June 30, 2001
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ASSETS
Current Assets:
Cash and cash equivalents $ 2,935
Accounts receivable 745
Prepaid expenses and other 491
------------
Total current assets 4,171
Property and Equipment, net 32,957
Goodwill, net 8,701
Other Assets 3,780
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Total $ 49,609
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,338
Accounts payable and accrued expenses 2,792
------------
Total current liabilities 5,130
Long-Term Debt, Less Current Portion 20,016
Other Non-Current Liabilities 522
Minority Interest 871
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding -
Common stock; $.01 par value; 50,000,000 shares authorized;
14,485,776 shares issued; 13,817,384 shares outstanding 145
Additional paid-in capital 21,915
Accumulated other comprehensive loss (1,205)
Retained earnings 3,434
------------
24,289
Treasury stock - 668,392 shares, at cost (1,219)
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Total shareholders' equity 23,070
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Total $ 49,609
============
See notes to condensed consolidated financial statements.
3
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollar amounts in thousands, except for share information)
------------------------------------------------------------------
For the Three Months Ended June 30,
-----------------------------------
2001 2000
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Operating Revenue:
Casino $ 7,459 $ 5,951
Food and beverage 491 315
Hotel 168 56
Other 199 64
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8,317 6,386
Less promotional allowances 924 872
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Net operating revenue 7,393 5,514
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Operating Costs and Expenses:
Casino 2,295 1,552
Food and beverage 280 144
Hotel 166 49
General and administrative 2,114 1,785
Depreciation and amortization 1,254 932
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Total operating costs and expenses 6,109 4,462
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Earnings from Operations 1,284 1,052
Other income (expense), net (561) (288)
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Earnings before Income Taxes and 723 764
Minority Interest
Provision for income taxes 196 399
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Earnings before Minority Interest 527 365
Minority interest in subsidiary losses 62 31
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Net Earnings $ 589 $ 396
=============== ===============
Earnings Per Share:
Basic $ 0.05 $ 0.03
=============== ===============
Diluted $ 0.04 $ 0.03
=============== ===============
See notes to condensed consolidated financial statements.
4
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollar amounts in thousands, except for share information)
------------------------------------------------------------------
For the Six Months Ended June 30,
---------------------------------
2001 2000
---- ----
Operating Revenue:
Casino $ 14,917 $ 11,609
Food and beverage 880 543
Hotel 324 76
Other 344 158
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16,465 12,386
Less promotional allowances 1,763 1,708
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Net operating revenue 14,702 10,678
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Operating Costs and Expenses:
Casino 4,648 3,104
Food and beverage 556 243
Hotel 326 63
General and administrative 4,208 3,817
Depreciation and amortization 2,491 1,796
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Total operating costs and expenses 12,229 9,023
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Earnings from Operations 2,473 1,655
Other income (expense), net (1,073) 861
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Earnings before Income Taxes and 1,400 2,516
Minority Interest
Provision for income taxes 523 1,172
-------------- ---------------
Earnings before Minority Interest 877 1,344
Minority interest in subsidiary losses 165 31
-------------- ---------------
Net Earnings $ 1,042 $ 1,375
============== ===============
Earnings Per Share:
Basic $ 0.08 $ 0.10
============== ===============
Diluted $ 0.07 $ 0.09
============== ===============
See notes to condensed consolidated financial statements.
5
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited)
(Dollar amounts in thousands)
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For the Three Months Ended June 30,
-----------------------------------
2001 2000
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Net Earnings $ 589 $ 396
Foreign currency translation adjustments (320) (294)
Change in fair value of interest rate swap 17 -
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Comprehensive Earnings $ 286 $ 102
======== ========
For the Six Months Ended June 30,
---------------------------------
2001 2000
---- ----
Net Earnings $ 1,042 $ 1,375
Foreign currency translation adjustments (218) (320)
Cumulative effect of change in accounting
principle related to interest rate swap,
net of income tax benefit (175) -
Change in fair value of interest rate swap (153) -
-------- --------
Comprehensive Earnings $ 496 $ 1,055
======== ========
See notes to condensed consolidated financial statements.
6
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
-----------------------------------------------------------------
For the Six Months Ended June 30,
---------------------------------
2001 2000
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Cash provided by operating activities $ 1,966 $ 1,474
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Cash (used in) investing activities (3,454) (4,496)
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Cash provided by (used in) (4,736) 4,037
financing activities
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Effect of exchange rate changes on cash 82 -
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Increase (decrease) in cash and cash (6,142) 1,015
equivalents
Cash and cash equivalents at beginning 9,077 2,508
of period
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Cash and cash equivalents at $ 2,935 $ 3,523
end of period
========= ==========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 613 $ 432
Income taxes paid $ 930 $ 910
Non-cash Investing and Financing Activities:
In connection with the Company's acquisition of CAL in 2000
(see Note 4), the minority shareholder contributed fixed assets valued at
$3,836 in exchange for a note payable to the minority shareholder of
$2,302 and an equity interest of $1,534.
See notes to condensed consolidated financial statements
7
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. and subsidiaries (the "Company") is an international
gaming company which owns and operates a limited-stakes gaming casino
in Cripple Creek, Colorado, manages a casino within a hotel located in
Prague, Czech Republic, owns 65% of, is developing, and manages the
casino operations of a hotel, spa and casino resort in Caledon, South
Africa, and serves as concessionaire of small casinos on four luxury
cruise vessels. The Company regularly pursues additional gaming
opportunities internationally and in the United States.
The Company's operations in Cripple Creek, Colorado began with the 1994
acquisition of Legends Casino ("Legends"), followed by the 1996
acquisition of Womack's Saloon & Gaming Parlor ("Womacks"), which is
immediately adjacent to Legends. Following the acquisition of Womacks,
interior renovations were undertaken on both properties to facilitate
the operation and marketing of the combined properties as one casino
under the name Womacks/Legends Casino.
In July 1999, the Company began providing management services and leasing
gaming equipment to the Casino Millennium, located in the five-star
Marriott Hotel in Prague, Czech Republic. In January 2000, the Company
entered into a memorandum of agreement to acquire a 50% ownership
interest in Casino Millennium. The Company is in the process of
negotiating a definitive purchase agreement.
In April 2000, the Company's South African subsidiary acquired a 50%
equity interest in Caledon Casino Bid Company (Pty) Limited ("CCBC").
In June, 2001 the company name for CCBC was changed, with board
approval, to Century Casinos Caledon (Pty) Ltd. ("CAL"). CAL owns a
92-room resort hotel and spa and approximately 600 acres of land in
Caledon, South Africa and was awarded a casino license for the
project. The Company has a long-term agreement to manage the
operations of the casino, which began in October 2000. In November
2000, the Company, through its South African subsidiary, increased its
equity interest in CAL by 15%, raising its total ownership to 65%.
In May 2000, the Company entered into a five-year agreement to serve as
concessionaire of small casinos providing unlimited-stakes gaming
operations on four luxury cruise vessels. The Company operates the
casinos for its own account and pays concession fees based on
passenger count and gross gaming revenue, as defined, in excess of an
established per passenger per day amount. The agreement requires the
Company to provide all necessary gaming equipment. In September 2000,
the Company opened the first of four casinos aboard the luxury cruise
vessels, followed by the second and third casinos in October and
November 2000, respectively. The maiden voyage of the fourth vessel
occurred in June 2001. The Company has a total of approximately 160
gaming positions on the four combined shipboard casinos.
In August 2000, the Company entered into a five-year agreement to serve
as concessionaire of a small casino aboard a vessel designed to be an
exclusive residential community at sea. The Company will operate the
casino for its own account and pay concession fees based on gross
gaming revenue, as defined, in excess of an established per passenger
per day amount. The maiden voyage of the residential cruise liner is
expected early in 2002.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
The accompanying condensed consolidated financial statements and related
notes have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
financial reporting and the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted
in the United States of America, have been condensed or omitted. In
the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for fair presentation of
financial position, results of operations and cash flows have been
included. These condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
2. INCOME TAXES
The income tax provisions are based on estimated full-year earnings for
financial reporting purposes adjusted for permanent differences, which
consist primarily of nondeductible goodwill amortization.
3. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months ended June 30,
2001 and 2000 were computed as follows:
For the Three Months Ended June 30,
-----------------------------------
2001 2000
---- ----
Basic Earnings Per Share:
Net earnings $ 589 $ 396
============== ===============
Weighted average common shares 13,821,593 14,318,779
============== ===============
Basic earnings per share $ 0.05 $ 0.03
============== ===============
Diluted Earnings Per Share:
Net earnings, as reported $ 589 $ 396
Interest expense, net of income 3 8
taxes, on convertible debenture
-------------- ---------------
Net earnings available to common $ 592 $ 404
shareholders
============== ===============
Weighted average common shares 13,821,593 14,318,779
Effect of dilutive securities:
Convertible debenture 109,293 271,739
Stock options and warrants 1,076,118 752,521
-------------- ---------------
Dilutive potential common shares 15,007,004 15,343,039
============== ===============
Diluted earnings per share $ 0.04 $ 0.03
============== ===============
Excluded from computation of diluted
earnings per share due to antidilutive
effect:
Options and warrants to purchase 155,000 535,000
common shares
Weighted average exercise price $ 2.36 $ 2.43
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CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
Basic and diluted earnings per share for the six months ended June 30, 2001 and
2000 were computed as follows:
For the Six Months Ended June 30,
---------------------------------
2001 2000
---- ----
Basic Earnings Per Share:
Net earnings $ 1,042 $ 1,375
============ ============
Weighted average common shares 13,878,741 14,399,342
============ ============
Basic earnings per share $ 0.08 $ 0.10
============ ============
Diluted Earnings Per Share:
Net earnings, as reported $ 1,042 $ 1,375
Interest expense, net of income 8 16
taxes, on convertible debenture
------------ ------------
Net earnings available to common $ 1,050 $ 1,391
shareholders
============ ============
Weighted average common shares 13,878,741 14,399,342
Effect of dilutive securities:
Convertible debenture 136,019 271,739
Stock options and warrants 1,057,988 440,414
------------ ------------
Dilutive potential common shares 15,072,748 15,111,495
============ ============
Diluted earnings per share $ 0.07 $ 0.09
============ ============
Excluded from computation of diluted
earnings per share due to
antidilutive effect:
Options and warrants to purchase 155,000 565,000
common shares
Weighted average exercise price $ 2.36 $ 2.39
4. CALEDON, SOUTH AFRICA
In April 2000, the Caledon Casino Bid Company (Pty) Limited ("CCBC") was
awarded a gaming license for a casino at a 92-room resort hotel and
spa in Caledon, province of the Western Cape, South Africa and the
Company's South African subsidiary, Century Casinos Africa (Pty) Ltd
("CCA"), acquired a 50% equity interest in CCBC. In June, 2001 the
company name for CCBC was changed, with board approval, to Century
Casinos Caledon (Pty) Ltd. ("CAL"). The Company (through CCA) made an
initial equity investment of approximately $1,534 in and a loan of
approximately $2,302 to CAL with borrowings under its revolving credit
facility. In a concurrent transaction, CAL, the Company and Caledon
Overberg Investments (Proprietary) Limited ("COIL"), a minority
shareholder in CAL, entered into a note agreement as part of the
purchase of CAL. Under the terms of the agreement, CAL, in exchange
for the contribution of certain fixed assets, entered into a loan
agreement with COIL in the amount of approximately $2,302.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
The loan bears interest at the rate of 2% over the prime/base rate
established by PSG Investment Bank Limited ("PSGIB"), and is due on
demand subsequent to the repayment in full of the loan, discussed
below, between CAL and PSGIB. In November 2000, the Company, through
CCA, acquired an additional 15% of CAL, raising its ownership in CAL
to 65%. The acquisition was completed with the payment of
approximately $1,800 by the Company to COIL in exchange for 15% of the
total shares of common stock of CAL (valued at approximately $1,200)
and a shareholder loan to CAL, previously held by COIL (with a value
of approximately $600). The acquisition of CAL by the Company and COIL
has been recorded using the purchase method of accounting.
In April 2000, CAL entered into a loan agreement with PSGIB, which
agreement provides for a principal loan of approximately $6,200 to
fund development of the Caledon project and a working capital facility
of approximately $2,100. CAL is required to make principal payments
beginning December 2001 and continuing over a five-year period.
Outstanding borrowings bear interest at the bank's base rate plus
2.75-3.75%. The shareholders of CAL have pledged all of the common
shares held by them in CAL to PSGIB as collateral. The loan is also
collateralized by a first mortgage bond over land and buildings and a
general notorial bond over all equipment. As of June 30, 2001, $5,700
has been advanced against the loan agreement. The loan agreement
includes certain restrictive covenants, as defined in the agreement,
the most significant of which include, i) CAL must maintain a
debt/equity ratio of 44:56 after the first twelve months of operations
and a 40:60 debt/equity ratio after two years of operations, ii) CAL
must maintain an interest coverage ratio of at least 2.0 after the
first twelve months of operations, iii) CAL must maintain a debt
service coverage ratio of at least 1.3 for the principal loan and 1.7
for the working capital facility after the first twelve months of
operations, and iv) CAL must maintain a loan life coverage ratio of
1.5 for the principal loan and a loan life coverage ratio of 2.5 for
the working capital facility. The Company is required to be in
compliance with these covenants beginning October 31, 2001. In January
2001, CAL cancelled the working capital facility to obtain more
favorable terms. In April 2001, CAL entered into an addendum to the
loan agreement in which PSGIB provided CAL with a standby facility in
the amount of approximately $600. CAL is required to make principal
payments on the standby facility in semi-annual installments,
beginning December 2001 and continuing over a five-year period.
Outstanding borrowings under the standby facility bear interest at 3%
over a base rate of 12.10%. As of June 30, 2001 CAL had drawn $560 on
the standby facility.
In December 1999, the Company, through CCA, entered into a ten-year casino
management agreement with CAL, which agreement may be extended at CCA's
option for multiple ten-year periods. The Company, through CCA, will
earn management fees based on percentages of annual gaming revenue and
earnings before interest, income taxes, depreciation, amortization and
certain other costs. The casino opened on October 11, 2000 with 250
slot machines and 14 gaming tables. In addition to the casino license,
hotel and spa, CAL owns approximately 600 acres of land, which is
expected to be used for future expansion of the project.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
5. PRAGUE, CZECH REPUBLIC
In January 2000, the Company entered into a memorandum of agreement with
B.H. Centrum a.s., the Company's Czech Republic business partner in
Casino Millennium, located in Prague, Czech Republic. The memorandum
of agreement provides for the two parties to acquire the casino from
third parties by either a joint acquisition of Casino Millennium a.s.
or the formation of a new joint venture. The transaction, if
completed, would result in the Company having a 50% equity interest in
Casino Millennium. Any funding required by the Company to consummate
this transaction would be met through a combination of existing RCF
borrowings (see Note 6), liquidity and anticipated cash flow. The
Company is in the process of negotiating a definitive purchase
agreement. As of June 30, 2001, the Company's net fixed assets leased
to the Casino Millennium approximated $918 and management fee income
for the six months ended June 30, 2001 was approximately $132.
6. REVOLVING CREDIT FACILITY
On April 26, 2000, the Company and Wells Fargo Bank (the "Bank") entered
into an Amended and Restated Credit Agreement (the "Agreement" or
"RCF") which increased the Company's aggregate borrowing commitment
from the Bank to $26,000 and extended the maturity date to April 2004.
The aggregate commitment available to the Company will be reduced
quarterly by $722, beginning October 2000 through the maturity date.
As of June 30, 2001, the aggregate commitment, net of the quarterly
reduction, available to the Company was $23,834. 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 June 30,
2001 was $13,304. The loan agreement includes certain restrictive
covenants, the most significant of which include i) WMCK Venture
Corp., a wholly-owned subsidiary of the Company, must maintain a
maximum leverage ratio no greater than 3.10 to 1.00, ii) WMCK Venture
Corp. must maintain a minimum interest coverage ratio no less than
1.50 to 1.00, and iii) WMCK Venture Corp. must maintain a TFCC ratio
(a derivative of EBITDA, as defined in the agreement) of no less than
1.10 to 1.00. As of June 30, 2001, the Company is in compliance with
all restrictive covenants. The consolidated weighted average interest
rate on borrowings under the RCF was 8.17% for the first six months of
2001.
7. SHAREHOLDERS' EQUITY
During the first half of 2001, the Company repurchased, on the open market,
an additional 203,900 shares of its common stock at an average price
per share of $1.97. The Company held 668,392 shares in treasury as of
June 30, 2001.
12
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
In connection with the granting of a gaming license to CAL by the Western
Cape Gambling and Racing Board in April 2000, CAL issued a total of
200 preference shares, 100 shares each to two minority shareholders.
The preference shares are neither cumulative nor redeemable. The
preference shares entitle the holders of such shares to dividends of
20% of the after-tax profits directly attributable to the CAL casino
business subject to working capital and capital expenditure
requirements and CAL loan obligations and liabilities as determined by
the directors of CAL. Should the casino business be sold or otherwise
dissolved, the preference shareholders are entitled to 20% of any
surplus directly attributable to the CAL casino business, net of all
liabilities attributable to the CAL casino business. As of June 30,
2001, no dividends have been declared for the preference shareholders.
8. ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, in the first
quarter of fiscal 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities.
The pronouncement requires that a company designate the intent of a
derivative to which it is a party, and prescribes measurement and
recognition criteria based on the intent and effectiveness of the
designation. SFAS No. 138 amends the accounting and reporting
standards for certain derivative instruments and certain hedging
activities, including amendments to normal purchases and normal sales,
interest rate risk, hedging recognized foreign currency denominated
assets and liabilities and intercompany derivative provisions of SFAS
No. 133. The cumulative effect of adopting SFAS No. 133 related to the
Company's interest rate swap agreements was to decrease shareholders'
equity as of January 1, 2001 by $175, net of related federal and state
income tax benefits of $104. The adoption of SFAS No. 138 had no
effect on the Company's financial statements.
13
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
For 2001, the Company has adopted Emerging Issues Task Force (EITF) No.
00-14, Accounting for Certain Sales Incentives and EITF No. 00-22,
Accounting for Points an Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to be
Delivered in the Future. EITF No. 00-14 requires, among other things,
that discounts which result in a reduction in or refund of the selling
price of a product or service in a single exchange transaction be
recorded as a reduction in revenue. As part of the Company's
promotional activities, the Company offers "free plays" or coupons to
its customers for gaming activity. The cost associated with these
activities was previously recorded by the Company as casino expense
instead of a reduction in revenue. Issue No. 3 of EITF No. 00-22,
requires that vendors recognize the cash rebate or refund obligation
associated with time-based or volume-based cash rebates as a reduction
of revenue based on a "systematic and rational allocation of the cost
of honoring rebates or refunds earned and claimed to each of the
underlying revenue transactions that result in progress by the
customer toward earning the rebate or refund". The liability for such
obligations is based on the estimated amount of rebates or refunds to
be ultimately earned, including an estimation of "breakage", if it can
be reasonably estimated. The Company's players' clubs allow customers
to earn certain complimentary services and/or cash rebates based on
the volume of the customers' gaming activity. Prior to adopting EITF
No. 00-22 the Company accounted for its players' clubs as a casino
expense instead of a reduction in revenue; however, the liability for
such obligations was previously recorded in a manner consistent with
EITF No. 00-22. In 2001, the Company changed its classification of the
afore mentioned promotional charges from recording the charges as
expense to recording the charges as a reduction of revenue. The
changes totaled $1,272 and $1,368 for the six months ended June 30,
2001 and 2000, respectively, and $654 and $697 for the three months
ended June 30, 2001 and 2000, respectively; prior period amounts have
been reclassified to be consistent with the current year periods. The
reclassifications associated with the adoption of EITF Nos. 00-14 and
00-22 did not have any impact on net earnings or earnings per share
amounts.
In June 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 addresses the methods used
to account for business combinations and requires the use of the
purchase method of accounting for all combinations after June 30,
2001. SFAS No. 142 addresses the methods used to amortize intangible
assets and to assess impairment of those assets, including goodwill
resulting from business combinations accounted for under the purchase
method. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001; however, any goodwill or intangible assets with
indefinite lives acquired after June 30, 2001 will not be amortized.
Included in assets at June 30, 2001 is unamortized goodwill of
approximately $8,701. The Company will continue to amortize goodwill
recognized prior to July 1, 2001, under its current method until
January 1, 2002, at which time annual and quarterly goodwill
amortization of $356 and $1,425 will no longer be recognized. The
Company is required to assess goodwill for impairment in the year of
adoption. The Company will not be able to determine the full effect of
SFAS No. 142 on its financial position or results of its operations
until it is able to complete its analysis of the impairment provisions
of the new standard during 2002. In the event the Company's analysis
under the new guidance indicates goodwill is impaired, it will be
required to record a charge to its earnings in the year of adoption.
14
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
9. SEGMENT INFORMATION
The Company is managed in four segments: United States, South Africa,
Cruise Ships, and Corporate operations. Corporate operations include
the revenue and expense of certain corporate gaming projects for which
the Company has secured long term management contracts. Earnings
before interest, taxes, depreciation and amortization (EBITDA) is not
considered a measure of performance recognized as an accounting
principle generally accepted in the United States of America.
Management believes that EBITDA is a valuable measure of the relative
performance amongst its operating segments. Segment information as of
June 30, 2001 and for the three and six months ended June 30, 2001 is
presented below. Comparable information is not provided for 2000
because, during the first half of 2000, the Company operated as one
identifiable segment, Cripple Creek, United States.
As of June 30, 2001: United South Cruise Corporate Intersegment Consolidated
States Africa Ships & Other Elimination
Property and equipment,
net of accumulated depreciation $ 19,046 $ 11,834 $ 231 $ 1,846 - $ 32,957
Total Assets $ 30,090 $ 17,578 $ 441 $ 4,134 ($2,634) $ 49,609
For the three months ended June 30, 2001:
Net operating revenue $ 5,171 $ 1,998 $ 150 $ 74 - $ 7,393
Depreciation & amortization $ 819 $ 362 $ 10 $ 63 - $ 1,254
Interest income $ - $ 13 - $ 89 ($85) $ 17
Interest expense,
including debt issuance cost $ 355 $ 311 - $ 11 ($85) $ 592
Earnings(loss) before income taxes
and minority interest $ 1,396 $ (275) $ 24 $ (422) - $ 723
Income tax expense(benefit) $ 642 $ (181) - $ (265) - $ 196
Net earnings(loss) $ 754 $ (32) $ 24 $ (157) - $ 589
EBITDA $ 2,570 $ 447 $ 34 $ (437) - $ 2,614
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CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
(Dollar amounts in thousands, except for share information)
-----------------------------------------------------------------
United South Cruise Corporate Intersegment Consolidated
States Africa Ships & Other Elimination
For the six months ended June 30, 2001:
Net operating revenue $ 10,100 $ 4,138 $ 332 $ 132 - $ 14,702
Depreciation & amortization $ 1,642 $ 710 $ 21 $ 118 - $ 2,491
Interest income $ - $ 26 - $ 179 ($171) $ 34
Interest expense,
including debt issuance cost $ 677 $ 535 - $ 24 ($171) $ 1,065
Earnings(loss) before income taxes
and minority interest $ 2,524 $ (385) $ 60 $ (799) - $ 1,400
Income tax expense(benefit) $ 1,161 $ (181) - $ (457) - $ 523
Net earnings(loss) $ 1,363 $ (39) $ 60 $ (342) - $ 1,042
EBITDA $ 4,843 $ 999 $ 81 $ (836) - $ 5,087
16
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
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Forward-Looking Statements, Business Environment and Risk Factors
Information contained in the following discussion of results of operations and
financial condition of the Company contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of words such as "may", "will", "expect", "anticipate",
"estimate", or "continue", or variations thereon or comparable terminology. In
addition, all statements other than statements of historical facts that address
activities, events or developments that the Company expects, believes or
anticipates, will or may occur in the future, and other such matters, are
forward-looking statements.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere herein.
The Company's future operating results may be affected by various trends and
factors, which are beyond the Company's control. These include, among other
factors, the competitive environment in which the Company operates, the
Company's present dependence upon the Cripple Creek, Colorado gaming market,
changes in the rates of gaming-specific taxes, shifting public attitudes toward
the socioeconomic costs and benefits of gaming, actions of regulatory bodies,
dependence upon key personnel, the speculative nature of gaming projects the
Company may pursue, risks associated with expansion, and other uncertain
business conditions that may affect the Company's business.
The Company cautions the reader that a number of important factors discussed
herein, and in other reports filed with the Securities and Exchange Commission,
could affect the Company's actual results and cause actual results to differ
materially from those discussed in forward-looking statements.
Results of Operations
Six Months Ended June 30, 2001 VS. 2000
----------------------------------------------
Net operating revenue for the first six months of 2001 was $14,702 compared with
$10,678 for the same period in 2000, an increase of 37.7%. Casino revenue
increased from $11,609 in 2000 to $14,917 in 2001, or 28.5%. The increase is
attributable to the addition of the Caledon Casino and the cruise ship casino
operations which provided $4,138 and $332, respectively. The Company's share
of the Cripple Creek casino market was 16.9% through the first six months of
2001 compared with 18.0% a year earlier. Womacks/Legends Casino operated 14.0%
of the slot machines in the Cripple Creek market and achieved an average daily
win per machine of $105 (one hundred and five dollars) versus the Cripple Creek
average of $86 (eighty six dollars). Gross margin for the Company's casino
activities (casino revenues, net of applicable casino gaming incentives, less
casino expenses) decreased to 65.9% from 69.7% a year earlier, due primarily to
the effects of the lower margin, 53.7%, achieved by the Caledon Casino which
began operations in October 2000. The gross margin for the Company's other
casino operations increased to 70.0% due primarily to the continued improvement
in casino operating efficiencies.
Food and beverage revenue increased by 62.1% to $880 for the first half of 2001
compared with $543 in 2000. The increase is principally due to the opening of
the Caledon Casino Hotel and Spa. The cost of food and beverage promotional
allowances, which is included in casino costs, increased slightly to $423
compared with $408 in the prior year. Hotel revenue increased by 326% to $324
for the first half of 2001 compared with $76 in 2000. The increase is directly
attributable to the opening of the Caledon Casino Hotel and Spa. The increase
in hotel costs is associated with the operations of the hotel in Caledon, South
Africa.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
---------------------------------------------------------------------------
General and administrative expense as a percentage of net operating revenue was
28.6% for the first six months of 2001 compared with 35.7% in 2000. Included in
first six months of 2000 was the write-off of a non-compete agreement with a
former officer/director in March 2000 and bonuses paid to certain
officers/directors relating to the final payment received in January 2000 from
the previous sale of the Company's interest in its Indiana riverboat gaming
license.
Depreciation expense increased to $1,778 in the first six months of 2001 from
$1,125 in same period of 2000, primarily due to the acquisition of fixed assets
for the Caledon Casino, Hotel and Spa which opened in October 2000 and ongoing
improvements to Womacks/Legends Casino. Amortization of goodwill in the first
six months of 2001 increased to $713 from $671 in the same period of 2000 as a
result of the goodwill recognized in the stock acquisition of CAL in November
2000.
Other income (expense), net, for the first six months of 2001 consists primarily
of net interest costs of $1,031, plus $57 related to the write-down of the value
of non-operating casino property and land which the Company owns. Other income
(expense), net, for the first six months of 2000 consists of $1,380 from the
final payment received in January by the Company from the sale of its interest
in a riverboat gaming license in Indiana, offset by net interest costs of $514.
The increase in interest expense is principally due to the increase in
outstanding long-term debt associated with the stock acquisition of CAL and
continued improvements to the property in Caledon, South Africa.
The income tax provisions for the six months ended June 30, 2001 and 2000, are
based on estimated full-year earnings for financial reporting purposes adjusted
for permanent book-tax differences, consisting primarily of nondeductible
goodwill amortization.
Liquidity and Capital Resources
Cash and cash equivalents totaled $2,935 at June 30, 2001, and the Company had
net deficit working capital of $959. Additional liquidity is provided by the
Company's revolving credit facility ("RCF") with Wells Fargo Bank, under which
the Company had a total commitment of $26,000 ($23,834, net of the quarterly
reduction) and unused borrowing capacity of approximately $10,530 at June 30,
2001. For the six months ended June 30, 2001, cash provided by operating
activities was $1,966 compared with $1,474 in the prior-year period. Cash used
in investing activities of $3,454 for the first six months of 2001, consisted of
a $250 loan provided by the Company to a non-gaming retailer in Cripple Creek,
Colorado, $1,954 was due to improvements to the Caledon Casino Hotel and Spa in
South Africa and Womacks/Legends casino in Cripple Creek, Colorado and the
balance was due to increases in other non-current assets. Cash used in
financing activities for the first six months of 2001 consisted of net
repayments of $5,336 under the RCF with Wells Fargo, net borrowings of $698
under the PSG loan agreements, the repurchase of the company's stock on the open
market, with a cost of $402, and other net receipts of $304.
The RCF, which has a maturity date of April 2004, provides for the availability
of funds, not to exceed a total of $10,500, for the Company's South Africa and
Casino Millennium investments and repurchase of the Company's common stock.
Through June 30, 2001, the Company had used $6,200 for such purposes.
18
CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
---------------------------------------------------------------------------
In April 2000, the Century Casinos Caledon (Pty) Ltd. ("CAL") was awarded a
gaming license for a casino at a 92-room resort hotel and spa in Caledon,
province of the Western Cape, South Africa, and the Company's subsidiary,
Century Casinos Africa (Pty) Ltd. ("CCA"), acquired a 50% equity interest in CAL
The Company made an initial equity investment of approximately $1,534 in and
loans totaling approximately $2,302 to CAL with borrowings obtained under the
Company's RCF. CCA has a ten-year casino management agreement with CAL, which
agreement may be extended at the Company's option for multiple ten-year periods.
The Company, through CCA, will earn management fees based on percentages of
annual gaming revenue and earnings before interest, income taxes, depreciation,
amortization and certain other costs. The casino opened on October 11, 2000
with 250 slot machines and 14 gaming tables. In addition to the casino license,
hotel and spa, CAL owns approximately 600 acres of land, which is expected to be
used for future expansion of the Caledon project. In November 2000, the
Company, through CCA, acquired an additional 15% of CAL, raising its ownership
in CAL to 65%. The acquisition of the additional interest was completed with the
payment of approximately $1,800 by Century to COIL in exchange for 15% of the
total shares of common stock of CAL (valued at approximately $1,200) and a
shareholder loan to CAL previously held by COIL (with a value of approximately
$600). In April 2000, CAL entered into a loan agreement with PSG Investment
Bank Limited("PSGIB"), which provides for a principal loan of approximately
$6,200 to fund development of the Caledon project and a working capital facility
of approximately $2,100. As of June 30, 2001, $5,700 has been advanced against
the loan. In January 2001, CAL cancelled the working capital facility based on
management's ability to obtain more favorable terms. In April 2001, CAL entered
into an addendum to the loan agreement in which PSGIB provided CAL with a
standby facility in the amount of approximately $600. CAL is required to make
principal payments, beginning December 2001, in semi-annual installments
continuing over a five-year period. Outstanding borrowings under the standby
facility bear interest at 3% over a base rate of 12.10%. As of June 30, 2001,
CAL had drawn $560 on the standby facility.
The Company has a 20-year agreement with Casino Millennium a.s., a Czech
company, to operate a casino in the five-star Marriott Hotel, in Prague, Czech
Republic. The hotel and casino opened in July 1999. The Company provides
casino management services in exchange for ten percent of the casino's gross
revenue and leases gaming equipment, with an original cost of approximately
$1,200, to the casino for 45% of the casino's net profit. In January 2000, the
Company entered into a memorandum of agreement with B. H. Centrum, a Czech
company which owns the hotel and casino facility, to acquire the operations of
the casino by either a joint acquisition of Casino Millennium a.s. or the
formation of a new joint venture. The transaction, if completed, would result
in the Company having a 50% equity interest in Casino Millennium. Any funding
required by the Company to consummate this transaction would be met through a
combination of RCF borrowings, existing liquidity and anticipated cash flow.
The Company is in the process of negotiating a definitive purchase agreement.
In May 2000, the Company entered into a five-year casino concession agreement
with a cruise line for casino operations aboard four cruise vessels. The
Company pays fees to the owner of the vessels based on a percentage of gross
gaming revenue, as defined, in excess of an established per passenger per day
amount. In August 2000, the Company entered into a similar agreement to serve
as concessionaire of a small casino aboard a vessel designed to be an exclusive
residential community at sea. On September 18, 2000 the Company announced the
opening of the first of four casinos aboard the cruise vessels. In October
2000, the Company opened a second casino and, in November 2000, opened a third
aboard a luxury cruise vessel. The maiden voyage of the fourth vessel occurred
in June 2001. Both agreements require the Company to provide all necessary
gaming equipment, $260 of which the Company purchased during the second half of
2000 and the first half of 2001. The Company estimates the remaining cost at
approximately $50.
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CENTURY CASINOS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
(Dollar amounts in thousands, except for share information, or as noted)
---------------------------------------------------------------------------
The Company's Board of Directors has approved a discretionary program to
repurchase up to $5,000 of the Company's outstanding common stock. The Board
believes that the Company's stock is undervalued in the current trading market
in relation to both its present operations and its future prospects. During the
first six months of 2001, the Company purchased 203,900 additional shares at an
average cost per share of $1.97. Beginning in 1998 and through June 30, 2001,
the Company has repurchased a total of 2,053,700 shares at a total cost of
approximately $2,683. Management expects to continue to review the market
price of the Company's stock and repurchase shares as appropriate, with funds
coming from existing liquidity or borrowings under the RCF.
The Company is the contracted casino management partner with and has the right
to a minority equity interest in Rhino Resort Ltd. ("Rhino"), a consortium which
includes Silverstar Development Ltd. ("Silverstar"). Rhino has submitted an
application for a proposed $50,000, hotel/casino resort development in the
greater Johannesburg area of South Africa. The value of the proposed
development fluctuates with the USD/Rand exchange rate. The Company currently
estimates the development cost at approximately 400 million Rand. In the event
that Rhino is awarded a license, the Company would be required to make an equity
investment of approximately 9 million Rand or $1,100 at the current exchange
rate. This funding requirement would be met through borrowings under the RCF.
The Company has also projected additional development costs of up to $500 which
could be incurred by the Company related to this project. In July 2001, the
Gauteng Gambling Board held an official hearing regarding the license
application of Rhino. This is the only application being considered for the
sixth and final gaming license in the Gauteng Province of South Africa. The
Company anticipates that a final determination on this license application could
be made during the third or early fourth quarter of 2001. At the present time,
however, there can be no certainty regarding an award of this gaming license or
that this license will ultimately be awarded to the Rhino consortium.
Management believes that the Company's cash at June 30, 2001, together with
expected cash flows from operations and borrowing capacity under the RCF, will
be sufficient to fund its anticipated capital expenditures, pursue additional
business growth opportunities for the foreseeable future, and satisfy its debt
repayment obligations.
* * * * * * * * * * * * * * * *
20
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
The Company is not a party to, nor is it aware of, any pending
or threatened litigation which, in management's opinion,
could have a material adverse effect on the Company's
financial position or results of operations.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits:
No exhibits are being filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed
during the quarter ended June 30, 2001.
* * * * * * *
SIGNATURES:
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CENTURY CASINOS, INC.
/s/ Larry Hannappel
___________________________
Larry Hannappel
Chief Accounting Officer and duly authorized officer
Date: August 13, 2001
21