CENTURY CASINOS INC /CO/ - Annual Report: 2005 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
fiscal year ended December
31, 2005.
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
transition period from ____________ to ___________
Commission
file number 0-22290
CENTURY
CASINOS, INC.
(Exact
name of registrant as specified in its charter)
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DELAWARE
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84-1271317
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1263
Lake Plaza Drive, Suite A, Colorado Springs, Colorado 80906
(Address
of principal executive offices) (Zip Code)
(719)
527-8300
(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 if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
o No
x
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
o
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o 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, 2005, based upon the closing
price of $7.48 for the Common Stock on the NASDAQ Capital Market on that date,
was $85,536,792.
As
of
March 8, 2006, the registrant had 22,380,567 shares of Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE: Part
III incorporates by reference from the registrant’s definitive Proxy Statement
for its 2006 Annual Meeting of Stockholders to be filed with the Commission
within 120 days of December 31, 2005.
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DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K and certain information incorporated herein by
reference contain forward-looking statements within the meaning of Section
21E
of the Securities and Exchange Act of 1934, and, as such, may involve risks
and
uncertainties. All statements included or incorporated by reference in this
Annual Report on Form 10-K, other than statements that are purely historical,
are forward-looking statements. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential”
“continue,” or similar terminology. Forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties
that
could cause actual results to differ materially from the results contemplated
by
the forward-looking statements.
The
forward-looking statements in the Annual Report on Form 10-K are subject to
additional risks and uncertainties further discussed under “Item 1A. Risk
Factors” and are based on information available to us on the filing date of this
Annual Report on Form 10-K. We assume no obligation to update any
forward-looking statements. Readers are cautioned not to place undue reliance
on
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. Readers should also consult the forward-looking statements
and risk factors listed from time to time in our reports on Forms 10-Q, 8-K,
10-K and in our Annual Report to Stockholders.
This
report includes amounts translated into U.S. dollars from certain foreign
currencies. For a description of the currency conversion methodology and
exchange rates used for certain transactions, see Note 1 to the Consolidated
Financial Statements included elsewhere in this
report.
As
used in this report, the terms “Company,” “we,” “our,” or “us” refer to Century
Casinos, Inc., and each of its consolidated subsidiaries, taken as a whole,
unless the context otherwise indicates.
PART
I
The
following information should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in “Item 8 - Financial
Statements and Supplementary Data” of this Annual Report on Form
10-K.
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Business.
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General
Century
Casinos, Inc. (“CCI”) is an international casino entertainment company involved
in developing and operating gaming establishments and related lodging and
restaurant facilities. We currently own and operate two gaming facilities and
manage and facilitate eight other casino establishments. Our owner/operator
facilities include Womacks Casino and Hotel (Womacks) in Cripple Creek, Colorado
and the Caledon Hotel, Spa and Casino (Caledon) in Caledon, South Africa. We
also own 50% of Casino Millennium, which is located within the Marriott Hotel
in
Prague, Czech Republic, and we provide technical casino services to the casino
for a fixed monthly fee. We also provide gaming services and equipment to seven
luxury cruise vessels on three cruise lines that include the six-star Silversea
Cruises, The World of ResidenSea and Oceania Cruises. Furthermore, we own
majority interests in, and have begun construction on, casino and hotel
development projects in Central City, Colorado and Edmonton, Alberta, Canada.
The Company continues to pursue other international projects in various stages
of development.
CCI
is a
Delaware corporation and was founded in 1992. For more information about
Century
Casinos, Inc. please visit us on the Internet at http://www.cnty.com. Prior
to
December 31, 2005, we made our annual reports on Form 10-K, quarterly reports
on
Form 10-Q, current reports on Form 8-K, and amendments to these filings
available free of charge through our Investor Relations website at http://www.cnty.com/index.php?id=28
within
two business days from the day we filed the report with the Securities and
Exchange Commission. Going forward, we plan on making these respective filings
available on our website as soon as reasonably practicable after we file
these
reports with the Commission. 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.
Overview
of Business Segments
Our
operations are conducted through six business segments: Cripple Creek, Colorado;
Central City, Colorado; Edmonton, Canada; South Africa; Cruise Ship Operations;
and Corporate and Other operations. As of December 31, 2005, we owned, operated
or managed the following properties:
Womacks
Casino and Hotel - Cripple Creek, Colorado
Since
1996 we have owned and operated Womacks Casino and Hotel in Cripple Creek,
Colorado through our wholly owned subsidiary, WMCK Venture Corporation. Womacks
has 590 slot machines (of which 323 are cashless gaming machines), six limited
stakes gaming tables, 21 hotel rooms, and one 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
five dollars. While this limits the revenue potential of table games, management
believes that slot machine play, which accounts for over 98% of total gaming
revenues at Womacks and over 96% in Cripple Creek, is currently impacted only
marginally by the five dollar limitation.
Management
believes that an integral component in attracting gaming patrons to Cripple
Creek is the availability of adequate, nearby parking spaces. We presently
own
310 parking spaces and lease an additional 90 spaces for a total of 400 spaces.
We believe we have sufficient close proximity parking, but covered parking
garages maintained by two of our competitors provide them with an advantage
during inclement weather.
Expansion
projects at Womacks in 2002 and 2003 increased gaming space by approximately
5,000 square feet. Most importantly, because the construction spanned an alley
behind the existing property, Womacks will be able to continue a single level
expansion of the casino to the rear of the property, if desired, at a later
date. The total construction cost of both projects, excluding new slot machines,
was approximately $2.3 million.
Our
future plans include the possibility of upgrading existing hotel rooms,
increasing the number of hotel rooms and expanding the gaming floor space.
Any
future upgrades or expansion will be dependant on market
development.
Caledon
Hotel, Spa and Casino - Caledon, South Africa
We
own
and operate the Caledon Hotel, Spa and Casino through our subsidiary Century
Casinos Caledon (Pty) Limited (“CCAL”). Caledon lies on the N-2 highway - the
main thoroughfare between Cape Town and Durban - and is known for its wildflower
shows, wineries and the natural historic hot springs located on the Caledon
Hotel, Spa and Casino site. Caledon experiences its heaviest traffic during
the
December holiday season (summer in South Africa), which offers us some
protection from seasonality because Womack’s revenues are higher during summer.
The Caledon Hotel, Spa and Casino has 350 slot machines, nine unlimited stakes
gaming tables, 81 hotel rooms, and three restaurants. Casino gaming in South
Africa is “unlimited wagering” where each casino can set its own
limits
We
are in
the process of subdividing approximately 450 out of 500 acres of
undeveloped land that we own adjacent to the Caledon Hotel, Spa and Casino.
We
intend to sell or lease the land to an independent contractor and have them
develop a 27 hole signature golf estate on the transferred property with
approximately 450 residential homes and to link the property to the existing
nine-hole municipal golf course by adding another nine holes surrounded with
resort housing elements. We expect that the development of the golf estate
will
encourage additional visits to the existing casino operation.
Casino
Millennium - Prague, Czech Republic
In
January 1999, we, through our wholly owned subsidiary Century Casinos
Management, Inc., entered into a 20-year agreement to operate a casino in the
five star Marriott Hotel in Prague, Czech Republic. The Casino Services
Agreement, as amended, provides for a casino service fee payable to Century
Resorts International Ltd. of €7,250 per month (approximately $8,600 per month
as of December 31, 2005), plus VAT (if applicable). The hotel and casino opened
in July 1999, and we have since acquired a 50% interest in the
project.
Cruise
Ships
Silversea
Cruises
On
May
27, 2000, we signed a casino concession agreement with Silversea Cruises,
a
luxury, six-star cruise line based in Fort Lauderdale, Florida for five years
of
casino operation on each ship. The agreement gives us the exclusive right
to
install and operate casinos aboard four Silversea vessels. We
operate each shipboard casino for our own account and pay concession fees
based
on gross gaming revenue. We discontinued operations on the Silver Shadow
cruise
ship at the end of September 2005. On March 8, 2006, we received notification
from Silversea Cruises that the concession agreement with the Silver Whisper
will not be renewed as of July 2, 2006 and that the concession agreement
with
the Silver Wind will not be renewed as of May 3, 2007. In addition, we also
received notification that the concession agreement with the Silver Cloud
will
not be renewed as of March 30, 2006; however, the Company deems that we did
not
receive timely written notification of the Silversea’s intention to discontinue
this agreement on the Silver Cloud, as required by the original concession
agreement. As a result, the operation of the casino aboard the Silver Cloud
subsequent to March 30, 2006 is uncertain at this time. Currently, we have
a
total of 52 slot machines and 10 tables on these three remaining ships.
The
World of ResidenSea
On
August
30, 2000, we 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 165 residences consisting of 106 private
apartments, 19 studio apartments and 40 studios with purchase prices ranging
from $0.8 million to $6.3 million.
We
have
equipped the casino with 20 slot machines and three gaming tables and operate
the casino aboard the vessel, which had its maiden voyage in March 2002. We
operate the casino for our own account and pay concession fees based on gross
gaming revenue. In addition, we have a right of first refusal to install casinos
aboard any new ships built or acquired by ResidenSea during the term of the
agreement. Under the terms of the current agreement, the casino concession
aboard the World of ResidenSea will expire in March 2007.
Oceania
Cruises
On
March
28, 2003, we signed a five year casino concession agreement with Oceania
Cruises, Inc., a Miami-based operator in the upper premium segment of the
cruise
industry. In October 2005, we extended the agreement until the year 2012.
Under
the agreement with Oceania, we have 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, we opened a casino aboard the Insignia. The opening of the casino aboard
the Regatta followed in June 2003. In April 2004, we opened a casino aboard
an
additional Oceania vessel, the Nautica. We have a total of 108 slots machines
and 15 tables on the Oceania cruise ships.
Additional
Company Projects
In
addition to the operations described above, we have 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 effect on a proposed project or eliminate its
feasibility altogether. For example, in order to conduct gaming operations
in
most jurisdictions, we must first obtain gaming licenses or receive regulatory
clearances. To date, we have obtained gaming licenses or approval to operate
gaming facilities in Colorado, Louisiana, on an American Indian reservation
in
California, the Czech Republic, the Western Cape province of South Africa and
in
Alberta, Canada. While management believes that we are 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 we proceed with a licensing approval process with
industry partners, such industry partners would be subject to regulatory review
as well. We seek to satisfy ourselves 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 we are licensable, other factors such as the economic
impact of gaming, financial and operational capabilities of competitors must
be
analyzed by regulatory authorities. All of these risks should be viewed in
light
of our limited staff and limited capital. For more information on these and
other risks related to our business, see Item 1A, “Risk Factors”.
Central
City, Colorado
- On
October 13, 2004, our wholly owned subsidiary, Century Casinos Tollgate, Inc.,
entered into an agreement with Tollgate Venture LLC to develop and operate
a
proposed casino and hotel in Central City, Colorado. The $48.7 million
development is planned to include a 60,000 square foot casino and back of house
with 625 slot machines, six table games, 27 hotel rooms, retail, food and
beverage amenities and a 500-space on-site covered parking garage. We
contributed $3.5 million cash equity to the project through Century Casinos
Tollgate, Inc., in exchange for a controlling 65% interest, and Tollgate Venture
LLC contributed three existing non-operating casino buildings, land and land
options valued at $5.7 million, net of mortgages, for a 35% interest. Of the
$48.7 million in overall project costs, $3.5 million were originally contributed
by us, $39.5 million will be financed externally, and the balance of $5.7
million is the net value of the minority partner’s contribution. On August 2,
2005, we secured $4.5 million in additional funding from a private investor,
which was subsequently paid from the proceeds of our Austrian Depositary
Certificate offering (See Item 8 - Note 8 for additional information). On
November 21, 2005, we entered into a $35 million loan agreement with Wells
Fargo
Bank and a syndicate of institutional lenders (See Item 8 - Note 6 for
additional information). The newly formed entity that owns the project, CC
Tollgate LLC, is in the process of obtaining licensing from the Colorado
Division of Gaming. Another of our wholly owned subsidiaries, Century Casinos
Management, Inc., has entered into a Casino Services Agreement to manage the
property once the project is operational. Casino licenses in Colorado are not
limited in number by state gaming laws and are primarily subject to successful
background investigations by the Colorado Division of Gaming. We currently
are
licensed in Colorado for gaming at Womacks Casino and Hotel in Cripple Creek.
The principals of Tollgate Venture LLC currently have gaming licenses in the
State of Colorado as well. We expect the licensing process with the Colorado
Division of Gaming to be routine and that the license will be granted upon
the
completion of the casino. Construction is expected to be completed by the third
quarter 2006.
Central
City and Black Hawk are historical mining towns situated adjacent to each other
and located in the Rocky Mountains approximately 35 miles west of Denver. Each
city offers limited stakes gaming, and the first casinos opened in both cities
in 1991. On November 19, 2004, a new $45.2 million four lane highway (Central
City Parkway) opened to the public. We believe this road offers a safer and
faster alternative route from the greater Denver area to Central City and Black
Hawk, Colorado. The Central City Parkway is entirely new construction and
connects I-70, the main east/west interstate highway in Colorado, first to
Central City and then on to Black Hawk. We believe that the alternate route,
which is a narrow two lane highway that enters these cities first at Black
Hawk,
is a more dangerous drive than the Central City Parkway. We believe Central
City
is now a prime location for limited stakes gambling establishments because
the
new parkway provides easy access from I-70 and because the parkway goes through
Central City before going on to Black Hawk. All traffic entering Central City
via this parkway must go directly past our proposed casino’s main entrance and
parking structure. The Colorado Division of Gaming reports an increase in
Adjusted Gross Proceeds (AGP) of 36.5% for Central City casinos and a 1.5%
increase for Black Hawk for 2005 as compared to 2004. We believe the substantial
increase in AGP for Central City is attributable to the Central City
Parkway.
Edmonton,
Canada
- On
February 24, 2005, through our wholly owned subsidiary, Century Resorts
International, we acquired a 56.4% interest in Century Resorts Alberta, Inc.
for
approximately $2.4 million ($3.0 million Canadian). Our local partner, 746306
Alberta, Ltd., contributed a 7.25 acre parcel of land and an existing 40 room
hotel for the remaining 43.6% interest. On January 12, 2006, we purchased the
remaining 43.6% minority shareholder interest in CRA for approximately $6.3
million ($7.3 million Canadian). We paid approximately $5.0 million ($5.8
million Canadian) at closing with the remainder payable on the first anniversary
of the opening of the casino. Century Resorts Alberta, Inc. is developing a
Century casino and hotel in Edmonton, Alberta, Canada. Excluding the costs
to
purchase the minority shareholder’s interest, the $30.5 million ($35.8 million
Canadian) project is expected to include a casino with 600 gaming machines,
31
gaming tables, food and beverage amenities, a dinner theater, a 300 space
underground parking facility, approximately 600 surface parking spaces and
a
26-room hotel. Of the $30.5 million in overall project costs, we contributed
$2.4 million ($3.0 million Canadian) for our interest in CRA, $17.2 million
($20.0 million Canadian) will be financed through a loan from Canadian Western
Bank, $9.0 million ($10.5 million Canadian) will be provided by us as a
shareholder loan, and the balance of $1.9 million ($2.3 million Canadian) is
the
net value of the minority partner’s contribution. On September 23, 2005, CRA
agreed to the terms of a $17.2 million ($20.0 million Canadian) credit facility
with Canadian Western Bank (“CWB”) for the development of the casino property
(See Item 8 - Note 6 for additional information). Construction is expected
to be
completed by the fourth quarter 2006. Upon completion of construction, Century
Resorts Alberta, Inc. expects to receive its gaming license from the Alberta
Gaming and Liquor Commission (AGLC). On December 17, 2004, the AGLC granted
approval to begin construction of the casino property. As is customary, the
issuance of the license does not occur until completion of construction and
after all federal and provincial legislation, regulation and policies, and
municipal requirements, permits, licenses and/or authorizations have been met.
We have also entered into a long-term agreement to manage the facility.
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, including sports and outdoor activities, sightseeing, and
nightlife/casinos. Edmonton is also home of the world’s largest shopping mall.
(Source: Tourism in Canadian Cities - A Statistical Outlook 2001.) There
are
currently six casinos in the Edmonton area, including one racino.
Newcastle,
South Africa
- In
November 2005, we entered into an agreement for the purchase of a 60%
controlling stake in Balele Leisure (Pty) Ltd (“Balele”) which owns the Monte
Vista Casino in Newcastle, South Africa and to manage Balele’s entire casino,
resort and hotel operations. Balele has secured approximately 70 acres of land
in a more prominent and higher traffic area in Newcastle with plans to develop
a
new location for the Monte Vista Casino. The construction of this new location
will cost up to 61.0 million Rand (approximately $9.6 million), excluding VAT.
The purchase price for the controlling 60% stake was 57.5 million Rand
(approximately $8.6 million). An additional 2.5 million Rand (approximately
$0.4
million) would be payable if the casino revenue during the first twelve months
of operation in the new location exceeds 95 million Rand (approximately $14.2
million). The terms of the management agreement provide for a payment to Century
Casinos of 3.75% of total revenues, plus 7.5% of Balele’s EBITDA (earnings
before interest, tax, depreciation and amortization). The transaction is
expected to close in the second quarter of 2006, subject to regulatory
approvals.
The
current casino in a temporary facility has 200 slot machines and seven gaming
tables. The initial gaming mix in the permanent facility will be 225 slot
machines and seven gaming tables. Newcastle has a population of approximately
350,000 and is situated halfway between Johannesburg and Durban in the province
of Kwazulu Natal, the most populous province of South Africa with over 10
million inhabitants.
United
Kingdom
- In
December 2005, we announced plans to develop and operate a casino in Croydon,
London, United Kingdom. Century Casinos’ partner in the project is the Westmead
Business Group Limited, owner and operator of the Airport House and the
Aerodrome Hotel in Croydon. The project will comprise a Large Casino (as defined
in the UK Gambling Act 2005) with a customer area of at least 16,000 square
feet
for a minimum of 30 gaming tables and 150 slot machines, an expansion of the
hotel to 150 rooms, two restaurants and several bars, a health club, an events
and conference center for 300 guests, the existing airport museum as well as
fully serviced office suites. Westmead Business Group and the Company will
cooperate to secure planning and zoning permission for the proposed development
and make applications for operating and personal casino licenses under the
new
UK Gambling Act as soon as the newly established Gambling Commission accepts
such applications (estimated in the second half of 2006).
Gauteng,
South Africa
- In
1997, together with Silverstar Development Ltd, we applied to the Gauteng
Gambling Board (GGB) for a casino license in Gauteng, South Africa. After a
preliminary determination to award a license to the project and a subsequent
series of legal challenges and lawsuits, the license has still not been issued,
resulting in Silverstar not being able to commence with the casino development.
On March 29, 2005, the Supreme Court of Appeal upheld an earlier High Court
decision to award the license to Silverstar, but the project remains subject
to
regulatory and related approvals being secured by Silverstar and a group led
by
Akani Leisure Investments, Ltd.
In
December 2004, we entered into agreements to sell a portion of our interest
in
the Gauteng project and granted options to Silverstar and the Akani group
to
purchase our remaining interests in the Gauteng project. We received an initial
payment of approximately $1.7 million (10.0 million Rand) for the sale of
100%
of the outstanding common stock of one of our indirect wholly-owned
subsidiaries, the only asset of which was land related to this project, and
for
funds previously advanced to Silverstar. Also in conjunction with the
agreements, we loaned Silverstar $0.5 million (3.0 million Rand), of which
the
entire amount was fully reserved, repayable in six equal annual installments
with interest commencing January 1, 2007. We have, therefore, only recognized
net cash proceeds of $1.2 million (7.0 million Rand) in the
transaction.
The
exercise price of the purchase options totals approximately $6.8 million
(40.3
million Rand). Exercisability of the purchase options is contingent on
regulatory and related approvals being secured by Silverstar and the Akani
group. Notwithstanding the decision by the Supreme Court of Appeal on March
29,
2005, the outcome of these approvals is unknown at this time; therefore the
amounts have not been recorded.
A
resort
management agreement that we executed to manage the project once it becomes
operational remains in effect. We also have retained an option granted to us
by
Silverstar to purchase a minority equity interest in the project. In the event
Silverstar or the Akani group exercise the options we granted them to purchase
our remaining interest in the project, the management agreement and equity
options we own would be terminated.
Upon
satisfaction of the conditions necessary to exercise their purchase option,
the
Akani group has agreed to provide the funds necessary for Silverstar to complete
the project in the event the license is ultimately issued. With the financial
backing of the Akani group, we believe funding is now available for Silverstar
to complete its tasks and provide a higher level of assurance that we will
ultimately get a return, via the exercise of the option, on our efforts to
date.
Pursuant to the Supreme Court’s decision, the Silverstar project provides for up
to 700 slot machines and 30 gaming tables. Should the option not be exercised,
CCI’s involvement in the project will be restored to the previous level of
ownership and management.
Marketing
Strategy
We
do not
follow a specific marketing strategy throughout the Company but instead focus
on
local circumstances and the respective market areas. Our marketing strategy
centers around rewarding repeat customers through our player’s club programs. We
maintain a proprietary database of primarily slot machine customers that allows
us to create effective targeted marketing and promotional programs, cash and
merchandise giveaways, coupons, preferred parking, food, lodging, game
tournaments and other special events. These programs are designed to reward
customer loyalty and attract new customers to our properties through a
multi-tiered reward program that rewards players based on total amount wagered
and frequency of visits. Currently, our player’s club cards allow us to update
our database and track member gaming preferences, maximum, minimum, and total
amount wagered and frequency of visits. All visitors to our properties are
offered the opportunity to join our player’s club.
Womacks
Casino and Hotel.
Womacks
is a well established and well known casino operation in the region. However,
marketing efforts focus on attracting new customers and turning them into repeat
customers. As competition in Cripple Creek is intense, approximately 25% of
Womacks gaming revenues are allocated to marketing measures. The marketing
strategy of Womacks highlights promotion of the Womacks Gold Club, a player’s
club with a database containing profiles on over 100,000 members. Gold
Club
members receive benefits from membership, such as cash, coupons and food and
lodging shown as promotional allowances in the consolidated statement of
operations, and merchandise and preferred parking. 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. We
also
market
Womacks
through
a variety of media outlets including radio, print and billboard advertising
which target Colorado Springs and Pueblo, the dominant markets for Cripple
Creek. As one of the larger casinos in Cripple Creek, we are able to provide
more choice to the customers in type of slot machines and promotional offers
to
our customers. We also continue to refine the interior of the facilities and
modify the slot machine mix. In addition, we have the capacity to expand Womacks
in the rear of the property on a single level at a later date.
Caledon
Hotel, Spa & Casino.
As with
Womacks, the marketing strategy of The Caledon Hotel, Spa & Casino
highlights promotion of its player’s club, which currently has over 52,000
active members, and building its player information database. Player’s club
members receive benefits such as cash, coupons and food and lodging shown
as
promotional allowances in the consolidated statement of operations, and
merchandise and preferred parking. Player’s
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. We market an array of amenities at the resort to our guests
as a complement to the gaming experience. These currently include an 81-room
hotel, a variety of dining experiences, the historic mineral hot spring and
spa,
as well as the outdoor experience (a team building facility). We are reviewing
plans to re-use the former equestrian center, which was not in service during
the second quarter, in conjunction with a proposed golf course
development.
Central
City, Colorado.
Central
City is a larger catchment area than Cripple Creek due to its proximity to
Denver, Colorado. Due to our casino’s prominent location on the new road into
Central City from I-70, we intend to draw the attention of people passing by.
Our main entrance to our parking structure will be located on this main road
and
the parking structure will be the main parking facility for Central City
customers. Additionally, this parking garage will be paid for, in part, by
Central City in exchange for allowing public parking. The pedestrian exit from
the parking garage will be through our casino.
Edmonton,
Canada.
Our
casino and hotel in Edmonton will operate under the name “Century Casino and
Hotel.” Although it is not yet in operation, we expect that it will be the only
casino in Edmonton with a hotel and a dinner theatre. Apart from another casino
that is part of a shopping mall, we will be the only casino with a parking
garage as well. Therefore, our main marketing activities will focus on package
offers combining the casino with the hotel and/or the dinner theatre. The casino
will be located in a highly populated area with the closest competing full
casino approximately 20 minutes away.
Casino
Millennium and Cruise Ships.
We
generally do not advertise or otherwise formulate the marketing strategy for
these casinos, which we operate under management or concessionaire agreements.
Competition
The
Cripple Creek, Colorado Market
-
Cripple Creek, located approximately 45 miles southwest of Colorado Springs,
Colorado, is a historic mining town dating back to the late 1800’s that has
developed into a tourist stop. Traffic generally is heaviest in the summer
months and 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 Central City and
Black Hawk. As of December 31, 2005, there were 19 casinos operating in Cripple
Creek, which represented 29% 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 2003 through 2005. Adjusted Gross Proceeds (“AGP”) is the net win
from gaming activities reported to the licensing jurisdiction. We use AGP to
measure performance relative to competitors within our respective markets.
This
data is not intended by us to imply, nor should the reader infer, that it is
any
indication of future Colorado or Company gaming revenue.
ANNUAL
GAMING REVENUE BY MARKET
Amounts
shown in thousands
|
2005
|
%
change
Over
Prior
Year
|
2004
|
%
change
Over
Prior
Year
|
2003
|
%
change
Over
Prior
Year
|
||||||||||||||
|
CRIPPLE
CREEK
|
$
|
151,011
|
1.6%
|
|
$
|
148,689
|
4.3%
|
|
$
|
142,525
|
0.0%
|
|
|||||||
|
Black
Hawk
|
$
|
531,878
|
1.5%
|
|
$
|
524,035
|
3.6%
|
|
$
|
505,851
|
-3.5%
|
|
|||||||
|
Central
City
|
$
|
72,610
|
36.5%
|
|
$
|
53,179
|
6.6%
|
|
$
|
49,909
|
-5.5%
|
|
|||||||
|
COLORADO
TOTAL
|
$
|
755,499
|
4.1%
|
|
$
|
725,903
|
4.0%
|
|
$
|
698,285
|
-3.0%
|
|
|||||||
ANNUAL
CRIPPLE CREEK SLOT DATA
Amounts
shown in thousands, except slot data
|
2005
|
%
change
Over
Prior
Year
|
2004
|
%
change
Over
Prior
Year
|
2003
|
%
change
Over
Prior
Year
|
||||||||||||||
|
Total
Slot Revenue
|
$
|
146,275
|
1.7%
|
|
$
|
143,802
|
3.8%
|
|
$
|
138,560
|
0.0%
|
|
|||||||
|
Average
Number Of Slots
|
4,752
|
2.9%
|
|
4,618
|
9.2%
|
|
4,228
|
1.0%
|
|
||||||||||
|
Average
Win Per Slot Per Day
|
84
dollars
|
-1.2%
|
|
85
dollars
|
-5.6%
|
|
90
dollars
|
-1.1%
|
|
||||||||||
ANNUAL
WOMACKS CASINO SLOT DATA
Amounts
shown in thousands except slot data
|
2005
|
%
change
Over
Prior
Year
|
2004
|
%
change
Over
Prior Year
|
2003
|
%
change
Over
Prior Year
|
||||||||||||||
|
Total
Slot Revenue
|
$
|
18,733
|
-2.7%
|
|
$
|
19,262
|
-6.6%
|
|
$
|
20,625
|
-12.5%
|
|
|||||||
|
Average
Number Of Slots
|
618
|
-4.8%
|
|
649
|
4.3%
|
|
622
|
-2.8%
|
|
||||||||||
|
Average
Win Per Slot Per Day
|
83
dollars
|
2.5%
|
|
81
dollars
|
-11.0%
|
|
91
dollars
|
-9.9%
|
|
||||||||||
|
Market
Share of Cripple Creek AGP
|
12.8
|
%
|
-4.5%
|
|
13.4
|
%
|
-10.1%
|
|
14.9
|
%
|
-12.4%
|
|
|||||||
Gaming
in
Colorado is “limited stakes,” which restricts any single wager to a maximum of
five dollars. While this limits the revenue potential of table games, management
believes that slot machine play, which accounts for over 98% of total gaming
revenues at Womacks and 96% in Cripple Creek, is currently impacted only
marginally by the five dollar limitation.
We
face
intense competition from other casinos in Cripple Creek, including a handful
of
casinos of similar size to or larger than Womacks, and many other smaller
casinos. We attribute the reduction in our revenue and the decrease in our
market share in Cripple Creek during the past two years to the opening of two
additional casinos in Cripple Creek over the same time period. We seek to
compete against other casinos through promotion of Womacks Gold Club and other
marketing efforts. We believe 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, such as Womacks, that have reached a certain critical mass.
Covered
parking garages provided by two of our competitors impact the casino,
particularly during inclement weather, providing both with a significant number
of close proximity parking spaces. Both competitors also have a large number
of
hotel rooms, providing them with an advantage during inclement weather and
the
peak tourist season. We have not yet decided on the next phase of expansion,
but
we own all of the vacant property adjacent to the casino and are able to expand
if we conclude that expansion is in our best interest.
Womacks
competes, to a far lesser extent, with 21 casinos in Black Hawk and six casinos
in Central City. Black Hawk and Central City are also small mountain tourist
towns, which adjoin each other and are approximately 35 miles from Denver and
a
two and one-half hour drive from Cripple Creek. The primary market for Cripple
Creek is the Colorado Springs metropolitan area, and the primary market for
Black Hawk and Central City is the Denver metropolitan area.
The
Caledon, South Africa Market
-
Caledon
is a small agricultural community located approximately 60 miles east of Cape
Town. It lies on the N-2 highway - the main thoroughfare between Cape Town
and
Durban - and is known for its wildflower shows, wineries and the natural
historic hot springs located on the Caledon Hotel, Spa and Casino site. Caledon
experiences its heaviest traffic during the December holiday season (summer
in
South Africa). Casino gaming in South Africa operates on an “unlimited wagering”
basis where each casino sets its own limits. Caledon has 350 slot machines
and 9
table games including blackjack, roulette and poker.
The
Caledon Hotel, Spa and Casino is one of four casinos currently operating in
the
Western Cape Province, which has a population of approximately four million.
Construction of a competitor’s casino approximately 45 minutes away in
Worcester, the fifth and last casino permitted in the Western Cape under the
Gaming Act, began in November 2005 with an opening projected by the second
half
of 2006. Although the competition is limited by the number of casino licenses
and the casinos are geographically distributed, management believes that the
Caledon Hotel, Spa and 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. We compete against these casinos by emphasizing
Caledon’s destination resort appeal in its marketing campaign, by promotion of
its players club and by superior service to its players.
The
National Gambling Board in South Africa has approved the introduction of Limited
Payout Machines, or LPMs. A total of 2,000 LPMs will be introduced in the
Western Cape and no more than 200 of these devices are expected for the Overberg
region of the Western Cape, the market in which Caledon operates. An approved
operator, which can have a maximum of five LPMs, will be permitted to operate
the devices without the overhead of a typical casino. They will, however, be
subject to central monitoring.
The
tables below set forth information obtained from the Western Cape Gambling
and
Racing Board regarding gaming revenue by market and slot machine data for the
Western Cape market from calendar year 2003 through 2005. AGP is the net win
from gaming activities reported to the licensing jurisdiction. We use AGP to
measure performance relative to competitors within this market. This data is
not
intended by us to imply, nor should the reader infer, that it is any indication
of future South African or Company gaming revenue.
ANNUAL
GAMING REVENUE BY MARKET
Amounts
shown in thousands
|
2005
|
%
change Over
Prior
Year
|
2004
|
%
change Over
Prior
Year
|
2003
|
%
change Over
Prior
Year
|
|||||||||||||||||
|
(1)
|
(1)
|
(1)
|
||||||||||||||||||||
|
CALEDON
CASINO
|
Rand
|
R |
91,817
|
14.6%
|
|
R |
80,088
|
17.8%
|
|
R |
67,976
|
11.3%
|
|
|||||||||
|
|
USD
equivalent
|
$
|
14,549
|
$
|
12,540
|
$
|
9,211
|
|||||||||||||||
|
Other
three casinos
|
Rand
|
R
|
1,550,909
|
21.2%
|
|
R
|
1,279,219
|
20.8%
|
|
R
|
1,058,619
|
12.2%
|
|
|||||||||
|
USD
equivalent
|
$
|
262,569
|
$
|
200,346
|
$
|
143,298
|
||||||||||||||||
|
WESTERN
CAPE TOTAL(1)
|
Rand
|
R
|
1,643,143
|
20.9%
|
|
R
|
1,359,307
|
20.7%
|
|
R
|
1,126,595
|
12.2%
|
|
|||||||||
|
|
USD
equivalent
|
$
|
278,118
|
$
|
212,886
|
$
|
152,509
|
|||||||||||||||
|
(1)
|
Excluding
effects of fluctuations in foreign exchange
rate.
|
THE
CALEDON HOTEL SPA AND CASINO ANNUAL DATA
Amounts
shown in thousands, except slot data
|
2005
|
%
change Over
Prior
Year
|
2004
|
%
change Over
Prior
Year
|
2003
|
%
change Over
Prior
Year
|
||||||||||||||
|
Total
Slot Revenue
|
R |
85,856
|
17.5
|
%
|
R |
73,066
|
17.2
|
%
|
R |
62,345
|
12.8
|
%
|
|||||||
|
$
|
13,607
|
18.9
|
%
|
$
|
11,440
|
35.5
|
%
|
$
|
8,443
|
58.0
|
%
|
||||||||
|
Market
Share of Western Cape AGP
|
5.6
|
%
|
-5.1
|
%
|
5.9
|
%
|
-1.7
|
%
|
6.0
|
%
|
-1.6
|
%
|
|||||||
|
Average
Number Of Slots
|
307
|
6.6
|
%
|
288
|
5.1
|
%
|
274
|
7.9
|
%
|
||||||||||
|
Average
Win Per Slot Per Day
|
766
Rand
|
10.5
|
%
|
693
Rand
|
11.3
|
%
|
623
Rand
|
4.5
|
%
|
||||||||||
|
|
121
dollars
|
11.0
|
%
|
109
dollars
|
29.8
|
%
|
84
dollars
|
44.8
|
%
|
||||||||||
|
Market
Share of Western Cape # of Slot Machines
|
9.4
|
%
|
-16.8
|
%
|
11.3
|
%
|
3.7
|
%
|
10.9
|
%
|
-2.7
|
%
|
|||||||
|
Average
Number Of Tables
|
9
|
0.0
|
%
|
9
|
12.5
|
%
|
8
|
0.0
|
%
|
||||||||||
|
Market
Share of Western Cape # of Tables
|
9.5
|
%
|
-3.1
|
%
|
9.8
|
%
|
11.4
|
%
|
8.8
|
%
|
-11.1
|
%
|
|||||||
Central
City, Colorado
- Our
casino under development in Central City will have a prime location at the
end
of the Central City Parkway and a parking garage offering free parking. Due
to
the advantageous location, we believe that we will be a strong competitor in
the
Central City-Black Hawk market. However, there are a number of large, well
established casinos in the market.
Edmonton,
Alberta, Canada
- In the
Edmonton market, we expect to have six competitors (five casinos and one
racino). We believe we will have a competitive edge over our competitors as
we
intend to be the only casino operator with a hotel and a dinner theater.
Furthermore, we anticipate being one of two casinos with a parking garage.
We
have a good market area as the next full casino is approximately 20 minutes
away.
Casino
Millennium and Cruise Ships
- For
Casino Millennium and the Cruise Ships, which we operate under management or
concessionaire agreements, market data is not available. However, in Prague
there are a large number of casinos of similar size and we face intense
competition.
Employees
Womacks
Casino and Hotel
- We
employ
approximately 175 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.
Caledon
Hotel, Spa and Casino
- The
Caledon Hotel, Spa and Casino employs approximately 289 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. 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.
Cruise
Ships -
We
employ approximately 33 persons onboard the cruise ships. Employees are hired
on
a short-term contract basis. No labor unions represent the group. Training
and
supervision is provided by management at Casino Millennium.
Corporate
Segment -
We
employ approximately 20 persons collectively in our Colorado Springs, Colorado,
Vienna, Austria and Capetown, South Africa offices on a full-time equivalent
basis, including administrative, accounting, finance and management personnel.
No labor unions represent the group. A standard package of employee benefits
is
provided to full-time employees along with training and job advancement
opportunities.
Seasonality
Colorado
- Our
business in Cripple Creek, Colorado is at its highest levels during the tourist
season (i.e., from May through September). Our 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.
The
same will apply to Central City, Colorado.
Caledon
Hotel, Spa and Casino - Our
business in Caledon is at its highest levels of business during the holiday
season in December. Caledon has a comparatively mild climate.
Edmonton,
Alberta, Canada - Our
future business in Edmonton, Alberta, Canada will be best during the tourist
season (May through September) and December. The rest of the year should remain
rather constant due to the hotel and the dinner theater which are part of our
complex.
Casino
Millennium - Our
business in Prague, Czech Republic fluctuates significantly with the quality
of
the players. Unlike our other land based operations in Cripple Creek and
Caledon, Casino Millennium derives the majority of its gaming revenue from
live
table games. The quality of the player has more of an impact on the live game
results when compared to the income derived from slot machines.
Cruise
Ships -
Our
business on the ships is generally not impacted by the time of
year.
Governmental
Regulation and Licensing
The
ownership and operation of casino gaming facilities are subject to extensive
state and local regulations. We are required to obtain and maintain gaming
licenses in each of the jurisdictions in which we conduct gaming. The
limitation, conditioning, suspension, revocation or non-renewal of gaming
licenses, or the failure to reauthorize gaming in certain jurisdictions would
materially adversely affect our gaming operation in that jurisdiction. In
addition, changes in law that restrict or prohibit gaming operations in any
jurisdiction could have a material adverse effect on our financial position,
results of operations and cash flows.
Statutes
and regulations can require us 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 us
and/or our officers or shareholders to the extent of their individual
participation in, or association with, a violation of any of the state and
local
gaming statutes or regulations. Such laws and regulations apply in all
jurisdictions within the United States in which we may do business. Management
believes that we are in compliance with applicable gaming
regulations.
Colorado,
United States
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. We believe 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.
This
applies to our operations in both Cripple Creek and Central City.
Caledon,
South Africa
Caledon’s
gaming operations are subject to regulation by the Western Cape Gambling and
Racing Board under national and provincial legislation. Statutes and regulations
require us 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 us and/or our officers to the
extent of their individual participation in, or association with, a violation
of
any of these gaming statutes or regulations. We believe that we are in
compliance with applicable gaming regulations.
Edmonton,
Canada
Gaming
in
Alberta is governed by the provincial government. The Alberta Gaming and Liquor
Commission (“AGLC”) administers and regulates the gaming industry in Alberta.
Generally, the criminal code prohibits all gaming in Canada except forms of
gaming that it specifically allows. Applicants for a gaming license must submit
an application and run through an eight-step approval process. Following the
approval of the board of the AGLC, the applicant may operate the casino applied
for in accordance with federal and provincial legislation, regulation, and
policies as well as the municipal requirements, permits, licenses and
authorization relating to the casino. The AGLC will monitor the casino operator
and his compliance with all requirements. In the event of a violation of such
requirements, civil and criminal charges can be assessed.
Newcastle,
South Africa
Newcastle’s
gaming operations are subject to regulations by the KwaZulu-Natal Gambling
Board
under national and provincial legislation. Statutes and regulations require
us
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 assesses against us and/or our officers to the extent
of their individual participation in, or association with, a violation of any
of
these gaming statutes or regulations. We have been informed by Balele that
they
are substantially in compliance with applicable gaming regulations.
Prague,
Czech Republic
Casino
Millennium’s gaming operations are subject to regulation by the Czech Republic
under national legislation. Statutes and regulations require us 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 us and/or our
officers to the extent of their individual participation in, or association
with, a violation of any of these gaming statutes or regulations. We believe
that we are in compliance with applicable gaming regulations.
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, we follow standardized rules and practices
in
the daily operation of the casinos.
Non-Gaming
Regulation
We
are
subject to certain federal, state and local safety and health, employment and
environmental laws, regulations and ordinances that apply to our non-gaming
operations. We have not made, and do not anticipate making material expenditures
with respect to such employment and environmental laws and regulations. However,
the coverage and attendant compliance costs associated with such laws,
regulations and ordinances may result in future additional costs to our
operations.
A
minimum
of 80% of the labor force in Caledon must be comprised of designated persons.
A
designated person is any person of color plus white females. Currently, 89%
of
the labor force in Caledon is comprised of designated persons. The license
holder must undertake to allocate 20% of net profit of the casino, as defined
in
the casino license agreement, to Black Empowerment Partners. Caledon is obliged
to allocate at least 50% of its procurement costs to Black Empowerment companies
by December 31, 2006.
Financial
Information By Segment
See
“Item
8 - Financial Statements and Supplementary Data” - Note 12 of the Notes to
Consolidated Financial Statements for certain financial information concerning
each of the Company’s operating segments.
|
Risk
Factors.
|
Factors
That May Affect Future Results
Substantially
all of our net operating revenue is derived from our Cripple Creek, Colorado
and
Caledon, South Africa casinos, and any factors that adversely impact one or
both
of these facilities may have a significant impact on our results of operations.
Approximately
91% of our net operating revenue for the year ended December 31, 2005 was
derived from our casinos in Cripple Creek and Caledon. We expect that a
substantial portion of our revenue for the immediate future will continue to
be
derived from our operations at these two facilities. If new competitors enter
one of these markets or economic conditions in one of these regions deteriorate
or a business interruption to one of these facilities occurs, our revenue could
decline significantly, which may have a material adverse effect on the price
of
our common stock or Austrian Depositary Certificates (“ADCs”).
We
face significant competition, and if we are not able to compete successfully
our
results of operations will be harmed.
We
face
intense competition from other casinos in Cripple Creek, Colorado and in the
Western Cape region of South Africa. Competitors in Cripple Creek include some
casinos of similar size to or larger than ours and many other smaller casinos.
In South Africa, we compete with a much larger casino in Cape Town, and to
a
lesser extent with two smaller casinos. By the end of 2006, we expect to be
competing against a new casino in Worcester, an approximate 45 minute drive
from
Caledon. We seek to compete in the Colorado market through promotion of the
Womacks Gold Club and other marketing efforts, and in South Africa by
emphasizing Caledon’s destination resort appeal, players’ club programs, and by
superior service. Some or all of these efforts may not be successful, which
could hurt our competitive position. In addition, the primary market served
by
our Cripple Creek facility is Colorado Springs, Colorado, which is 45 miles
away, and Cripple Creek is generally not a destination resort. The number of
casino and hotel operations in Cripple Creek may exceed market demand, which
could make it difficult for us to sustain profitability.
The
gaming industry is highly fragmented and characterized by a high degree of
competition among a large number of participants, many of which have financial
and other resources that are greater than our resources. Competitive gaming
activities include casinos, video lottery terminals and other forms of legalized
gaming in the U.S. and other jurisdictions. Legalized gaming is currently
permitted in various forms throughout much of the world. Other jurisdictions
may
legalize gaming or liberalize their gaming rules in the near future. If
additional gaming opportunities become available near our operating facilities,
such gaming opportunities could attract players that might otherwise visit
our
casinos. The resulting loss of revenue at our casino may have a material adverse
effect on our business, financial condition and results of operations. We are
particularly vulnerable to competition at our Cripple Creek facility. If other
gaming operations were to open closer to Colorado Springs, our operations in
Cripple Creek could be substantially harmed, which would have a material adverse
effect on our operations. In
addition, established gaming jurisdictions could award additional gaming
licenses or permit the expansion of existing gaming operations. New or expanded
operations by other entities will increase competition for our gaming operations
and could have a material adverse impact on us.
We
face extensive regulation and taxation from gaming and other regulatory
authorities, which involve considerable expense and could harm our business.
Licensing
requirements.
As
owners and operators of gaming facilities, we are subject to extensive state,
local, and in South Africa, provincial regulation. State, local and provincial
authorities require us and our subsidiaries to demonstrate suitability to obtain
and retain various licenses and require that we have registrations, permits
and
approvals to conduct gaming operations. Various regulatory authorities,
including the Colorado Division of Gaming or the Western Cape Gambling and
Racing Board, may for any reason set forth in applicable legislation, rules
and
regulations limit, condition, suspend or revoke a license or registration to
conduct gaming operations or prevent us from owning the securities of any of
our
gaming subsidiaries. Like all gaming operators in the jurisdictions in which
we
operate or plan to operate, we must periodically apply to renew our gaming
licenses or registrations and have the suitability of certain of our directors,
officers and employees approved. We may not be able to obtain such renewals
or
approvals. For instance, we expended substantial funds to develop a riverboat
gaming operation in Franklin County, Iowa and did not receive a gaming license
from the appropriate regulatory agency. As a result, we were forced to terminate
the project. In addition, we have invested in a casino project in the West
Rand
Area outside Johannesburg, South Africa and the granting of the license for
this
project has been delayed by litigation. It is uncertain when, if ever, the
licensing process for this project will be completed. Our licenses for Edmonton,
Alberta, Canada and Central City, Colorado are pending and may not be issued.
Regulatory authorities may also levy substantial fines against us or seize
our
assets or the assets of our subsidiaries or the people involved in violating
gaming laws or regulations. Any of these events could force us to terminate
operations at an existing gaming facility, or could prohibit us from
successfully completing a project in which we invest. Closing facilities or
an
inability to expand may have a material adverse effect on our business,
financial condition and results of operations.
Gaming
authorities in the U.S. generally can require that any beneficial owner of
our
common stock and other securities, including ADCs or common stock underlying
the
ADCs, file an application for a finding of suitability. If a gaming authority
requires a record or beneficial owner of our securities to file a suitability
application, the owner must apply for a finding of suitability within 30 days
or
at an earlier time prescribed by the gaming authority. The gaming authority
has
the power to investigate an owner's suitability and the owner must pay all
costs
of the investigation. If the owner is found unsuitable, then the owner may
be
required by law to dispose of our securities. Our certificate of incorporation
also provides us with the right to repurchase shares of our common stock
(including shares of common stock underlying ADCs) from certain beneficial
owners declared by gaming regulators to be unsuitable holders of our equity
securities, and the price we pay to any such beneficial owner may be below
the
price such beneficial owner would otherwise accept for his or her shares of
our
common stock.
Potential
changes in regulatory environment.
From
time to time, legislators and special interest groups have proposed legislation
that would expand, restrict or prevent gaming operations or that may otherwise
adversely impact our operations in the jurisdictions in which we operate. Any
expansion of gaming or restriction on or prohibition of our gaming operations
could have a material adverse effect on our operating results. For instance,
in
November 2003, a Colorado ballot issue was proposed that would have permitted
the installation of at least 500 video lottery terminals or “VLTs” at each of
the five racetracks throughout Colorado, two of which are located in Colorado
Springs and Pueblo, the dominant markets for Cripple Creek. If this ballot
issue
had passed, our casino operations in Cripple Creek might have suffered from
reduced player visits and declining revenue. There can be no assurance that
future attempts will not be made to pass similar ballot issues in Colorado
or
other markets in which we operate.
Taxation
and fees. We
believe that the prospect of significant revenue is one of the primary reasons
jurisdictions permit legalized gaming. As a result, gaming companies are
typically subject to significant taxes and fees in addition to normal federal,
state, local and provincial income taxes, and such taxes and fees are subject
to
increase at any time. We pay substantial taxes and fees with respect to our
operations. From time to time, federal, state, provincial and local legislators
and officials have proposed changes in tax laws, or in the administration of
such laws, affecting the gaming industry. In addition, worsening economic
conditions could intensify the efforts of state provincial and local governments
to raise revenues through increases in gaming taxes. It is not possible to
determine with certainty the likelihood of changes in tax laws or in the
administration of such laws. Such changes, if adopted, could materially increase
our tax expenses and impair our profitability.
We
intend to develop and operate additional casino properties in the future, and
if
our development efforts are not successful our business may be
harmed.
We
are
currently developing and intend to operate a casino and hotel in Edmonton,
Alberta, Canada, a casino and hotel in Central City, Colorado, a casino and
hotel in Newcastle, South Africa, and we have invested in a proposed casino
project in an area known as West Rand, outside Johannesburg, South Africa.
We
have also agreed in principle to the joint development of a project in Croydon,
United Kingdom. Each of these projects have pending applications for gaming
licenses, and we would be required to obtain a gaming license for any additional
facility we attempt to open. 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
applications and fees, background investigations and related costs, fees of
counsel, possible legal challenges and other associated processes and
preparation costs. In addition, political factors may make the licensing process
more difficult in one or more jurisdictions. If any of our gaming license
applications are denied, we may have to write off costs, which could be
significant. For instance, we invested approximately $0.2 million in the
proposed project we were jointly pursuing in Franklin County, Iowa before the
license for the project was denied.
Even
if
we receive licenses to open and operate proposed new facilities, commencing
operations at our proposed new casino projects will require substantial
development. Development activities involve expenses and risks, including
expenses involved in securing licenses, permits or authorizations other than
those required from gaming regulators, and the risk of potential cost over-runs,
construction delays, and market deterioration. One or more of these risks may
result in any of our currently proposed properties not being successful. If
we
are not able to successfully commence operations at these properties, our
results of operations will be harmed.
We
may face disruption in integrating and managing facilities we open or acquire
in
the future, which could adversely impact our operations.
We
continually evaluate opportunities to open new properties, some of which are
potentially significant in relation to our size. We expect to continue pursuing
expansion opportunities, and we could face significant challenges in managing
and integrating expanded or combined operations resulting from our expansion
activities. The integration of any new properties we open or acquire in the
future will require the dedication of management resources that may temporarily
divert attention from the day-to-day business of our existing operations, which
may interrupt the activities of those operations and could result in
deteriorating performance from those operations. Management of new properties,
especially in new geographic areas, may require that we increase our managerial
staff, which would increase our expenses.
Difficulties
in managing our worldwide operations may have an adverse impact on our
business.
We
derive
our revenue from operations located on three continents and on cruise ships
operating around the world. Our management is located in the U.S., South Africa
and Continental Europe (Czech Republic and Austria). As a result of long
distances, different time zones, culture, management and language differences,
our worldwide operations pose risks to our business. These factors make it
more
challenging to manage and administer a globally-dispersed business, and increase
the resources we must devote to operating under several different regulatory
and
legislative regimes. Moreover, economic or political instability in one or
more
of our markets could adversely affect our operations in those
markets.
A
downturn in general economic conditions may adversely affect our results of
operations.
Our
business operations are subject to changes in international, national and local
economic conditions, including changes in the economy related to future security
alerts in connection with threatened or actual terrorist attacks, such as those
that occurred on September 11, 2001, and related to the war with Iraq, which
may
affect our customers' willingness to travel. A recession or downturn in the
general economy, or in a region constituting a significant source of customers
for our properties, could result in fewer customers visiting our properties,
which would adversely affect our results of operations.
The
Cripple Creek market, which is important to our business, is subject to seasonal
fluctuations.
Because
Cripple Creek is a mountain tourist town, its gaming market is subject to
seasonal fluctuations. Typically, gaming revenues are greater in the summer
tourist season and are lower from October through April. During the year ended
December 31, 2005, the revenue attributable to our Cripple Creek operations
fluctuated from a high of $5.0 million in the third quarter to a low of $3.8
million in the first quarter. If we are not able to offset seasonal declines
in
our Cripple Creek operations with additional revenue from other sources, our
quarterly results may vary considerably from period to period, which could
cause
the price of our common stock or ADCs to be volatile.
Inclement
weather and other conditions could seriously disrupt our business, which may
hamper our financial condition and results of operations.
The
operations of our facilities are subject to disruptions or reduced patronage
as
a result of severe weather conditions. For instance, in August 2002, Prague
experienced a devastating flood throughout the city. Public access to the city
in the vicinity of the Casino Millennium, which we operate, was severely limited
for months following the disaster and negatively affected casino operations.
High winds and blizzards limit access to our property in Cripple Creek from
time
to time, and hurricanes or severe storms may impact the operations of our cruise
ship casino facilities. Weather also could adversely affect our casinos in
Central City, Colorado and Edmonton, Alberta, Canada. In the event weather
conditions limit access to our casino properties or otherwise adversely impact
our ability to operate our casinos at full capacity, our revenue will suffer,
which will negatively impact our operating results.
Construction
delays and budget overruns could adversely affect our development of new casino
projects and may harm our business.
We
currently are engaged in the development of new casino projects in Central
City,
Colorado and Edmonton, Alberta, Canada and have plans to commence construction
on new facilities in Newcastle, South Africa and Croydon, United Kingdom. We
also evaluate other opportunities to expand our portfolio of casino properties
as they become available, and we may in the future engage in additional
construction projects. The anticipated costs and construction periods are based
upon budgets, conceptual design documents and construction schedule estimates
prepared by us in consultation with our architects and contractors.
Unanticipated cost increases or other factors may result in the estimated
budgets we use to plan our investment in new facilities not accurately
forecasting the costs of those facilities, in which case our operating results
will be adversely impacted by the new projects to a greater degree than we
initially planned. In addition, if our initial budgets are not accurate, we
may
need to pursue additional financing to complete a proposed project, which may
not be available on favorable terms or at all. For example, prior to our
execution of a fixed cost contract for the construction of the Edmonton project,
our construction costs for the project increased from initial estimates by
approximately $3.5 million ($4.0 million Canadian), or 22.0%. The adverse impact
on our results of operations resulting from cost overruns on any construction
projects we undertake may harm our stock or ADC prices.
Construction
projects entail significant risks, which can cause substantial delays in
completing a project in addition to increasing the costs of the project. Such
risks include shortages of materials or skilled labor, unforeseen engineering,
environmental or geological problems, work stoppages, and weather interference.
Most of these factors are beyond our control. In addition, difficulties or
delays in obtaining any of the requisite licenses, permits or authorizations
from regulatory authorities can increase the cost or delay the completion of
an
expansion or development. Significant delays with respect to development
projects could result in a delay in our ability to recognize revenue from a
new
project, even though we would recognize a portion of the development costs
of
the project as construction was ongoing. This could adversely affect our results
of operations.
Fluctuations
in currency exchange rates could adversely affect our
business.
Our
facility in Caledon, South Africa represents a significant portion of our
business, and the revenue generated and expenses incurred by the Caledon
facility are generally denominated in South African Rand. A decrease in the
value of the Rand in relation to the value of the U.S. dollar would decrease
the
revenue and operating profit from our South African operations when translated
into U.S. dollars, which would adversely affect our consolidated results and
could cause the price of our common stock and ADCs to decrease. In addition,
we
expect to expand our operations into other countries and, accordingly, we will
face similar exchange rate risk with respect to the costs of doing business
in
such countries as a result of any increases in the value of the U.S. dollar
in
relation to the currencies of such countries. We do not currently hedge our
exposure to fluctuations in the Rand, and there is no guarantee that we will
be
able to successfully hedge any future foreign currency exposure.
The
loss of key personnel could have a material adverse effect on us.
We
are
highly dependent on the services of Erwin Haitzmann, our Chairman and Co Chief
Executive Officer, Peter Hoetzinger, our Vice Chairman and Co Chief Executive
Officer, and other members of our senior management team. Our ability to retain
key personnel is affected by the competitiveness of our compensation packages
and the other terms and conditions of employment, our continued ability to
compete effectively against other gaming companies and our growth prospects.
The
loss of the services of any of these individuals could have a material adverse
effect on our business, financial condition and results of operations.
The
availability and cost of financing could have an adverse effect on our business.
We
intend
to finance our current and future expansion and renovation projects primarily
with cash flow from operations, borrowings under our bank credit facility and
equity or debt financings. If we are unable to finance our current or future
expansion projects, we will have to adopt one or more alternatives, such as
reducing or delaying planned expansion, development and renovation projects
as
well as capital expenditures, selling assets, restructuring debt, or obtaining
additional equity financing or joint venture partners, or modifying our bank
credit facility. These sources of funds may not be sufficient to finance our
expansion, and other financing may not be available on acceptable terms, in
a
timely manner or at all. In addition, our existing indebtedness contains certain
restrictions on our ability to incur additional indebtedness. If we are unable
to secure additional financing, we could be forced to limit or suspend
expansion, development and renovation projects, which may adversely affect
our
business, financial condition and results of operations.
Our
indebtedness imposes restrictive covenants on us, which limits our operating
flexibility.
Our
revolving credit facility requires us, among other obligations, to maintain
specified financial ratios and satisfy certain financial tests, primarily
through our Colorado operating subsidiary, including maximum leverage ratios
and
total fixed cost coverages. In addition, our revolving credit facility
restricts, among other things, our ability to incur additional indebtedness,
repay indebtedness or amend debt instruments, pay dividends, create liens on
assets, make investments, make acquisitions, engage in mergers or
consolidations, make capital expenditures or engage in certain transactions
with
subsidiaries and affiliates. If we fail to comply with the restrictions
contained in our revolving credit facility, the resulting event of default
could
result in our lender accelerating the indebtedness under the credit facility.
These restrictions limit our operating flexibility and may cause us not to
engage in transactions that we would otherwise consider to be advantageous
to
our stockholders.
Our
casino management agreements may be terminated at any
time.
In
addition to our casinos in Cripple Creek and Caledon, we currently operate
casinos on seven cruise ships and the Casino Millennium in Prague. We operate
the casinos on the cruise ships pursuant to casino concessionaire agreements
with three different cruise ship charter companies and we operate the Casino
Millennium in Prague according to a casino services agreement. The contracts
with the cruise ship operators and the casino services agreement for the
operation of the Casino Millennium all provide for cancellation with a limited
notice period in the event of our default under the respective agreements.
Accordingly, we could lose the revenue stream associated with these contracts
on
short notice, which may adversely affect our operating results.
Energy
and fuel price increases may adversely affect our costs of operations and our
revenues.
Our
casino properties use significant amounts of electricity, natural gas and other
forms of energy. While we have not experienced any shortages of energy that
have
hampered our operations, the substantial increases in the cost of electricity
and natural gas in the U.S. may negatively affect our results of operations.
The
extent of the impact is subject to the magnitude and duration of the energy
and
fuel price increases. Dramatic increases in fuel prices may also adversely
affect customer visits to our casino properties.
We
may be required in the future to record impairment losses related to the
goodwill we currently carry on our balance sheet.
We
had
$8.7 million of goodwill as of December 31, 2005 and $8.8 million of goodwill
as
of December 31, 2004. Accounting rules require that we make certain estimates
and assumptions related to our determinations as to the future recoverability
of
the goodwill we report on our balance sheet. If we were to determine that the
value of the goodwill carried on our balance sheet is impaired, we may be
required to record an impairment charge to write down the value of our goodwill,
which would adversely affect our results during the period in which we recorded
the impairment charge.
Certain
anti-takeover measures we have adopted may limit our ability to consummate
transactions that some of our security holders might otherwise
support.
We
have a
fair price business combination provision in our certificate of incorporation,
which requires approval of certain business combinations and other transactions
by holders of 80% of our outstanding shares of voting stock. We also have
adopted a stockholder rights plan that allows our stockholders to purchase
significant amounts of our common stock at a discount in the event any third
party acquires a significant ownership interest in us or attempts to acquire
us
without the approval of our Board of Directors. In addition, our certificate
of
incorporation allows our Board of Directors to issue shares of preferred stock
without stockholder approval. These provisions generally have the effect of
requiring that any party seeking to acquire us negotiate with our Board of
Directors in order to structure a business combination with us. This may have
the effect of depressing the price of our common stock, and may similarly
depress the price of the ADCs, due to the possibility that certain transactions
that our stockholders might favor could be precluded by these
provisions.
Certain
provisions in our certificate of incorporation may require one or more holders
to sell their stock or ADCs to us, even if the holder would not otherwise want
to divest itself of our common stock or ADCs.
Gaming
regulations in various jurisdictions in which we operate impose certain
restrictions on the equity ownership of licensed casino operators. In order
to
facilitate compliance with these regulations and to preserve our ability to
be
awarded additional gaming licenses in the future, our certificate of
incorporation includes a provision which allows our Board of Directors to redeem
shares of stock (including shares of common stock underlying the ADCs) held
by
one or more stockholders to the extent necessary to keep us in compliance with
existing gaming regulations or to allow us to secure additional gaming licenses.
As a result, a stockholder or holder of ADCs could be required to sell our
stock
at a time when such stockholder or holder of ADCs may consider our securities
to
be undervalued or may otherwise not want to sell our securities.
The
U.S. Internal Revenue Service or other taxing authorities may assert that we
owe
additional taxes.
The
U.S.
Internal Revenue Service ("IRS") is in the process of conducting an examination
of our U.S. federal income tax returns for the year ended December 31, 2003.
We
do not expect a settlement that might result from the audit to be materially
in
excess of amounts accrued. We may also be examined by tax authorities in other
jurisdictions in which we operate. Our Company’s Return of Income: Company and
Close Corporation filed for South Africa for 2000 and 2001 is being audited
by
the South African Revenue Service. We do not expect any settlement that might
result from this audit to be materially in excess of amounts accrued. In the
event the IRS or other taxing authorities determine that we have not paid the
proper amount of income taxes, we may be required to pay additional taxes as
well as interest, penalties, and fees. Payment of any such amounts could have
a
material adverse effect on our results of operations during the period in which
we make the payments.
Service
of process and enforceability of certain foreign judgments
is limited.
We
are
incorporated in the U.S. and a substantial portion of our assets are located
in
the U.S. and South Africa. In addition, some of our directors and officers
named
in this prospectus are residents of the U.S. and all or a substantial portion
of
their assets are located in the U.S. As a result, it may be difficult for
European investors who hold ADCs to effect service of process within Austria
upon the Company or such persons or to enforce judgments
obtained
against them in such courts based on civil liability provisions of the European
securities laws.
Outside
investors own preference shares in our Caledon, South Africa operation, which
may reduce our return on investment from that property.
Century
Resorts Limited (“CRL”) owns 100% of the common equity of CCAL, our South
African subsidiary that owns and operates the Caledon Hotel, Spa and Casino.
Unrelated third parties own preference shares that entitle them to a priority
on
distributions in certain circumstances. The preference shares are not
cumulative, nor are they redeemable. The preference shares entitle the holders
of such shares to dividends of 20% of the after-tax profits of each financial
year directly attributable to the Caledon casino business in that year, subject
to, as determined by the directors of CCAL in their sole and absolute
discretion, any working capital, capital expenditure requirements, loan
obligations and liabilities attributable to the casino business. Although no
dividends have been paid out so far, these dividend rights would reduce the
return that we would otherwise receive from our investment in this property.
Furthermore, should the casino business be sold or otherwise dissolved, the
preferred shareholders would be entitled to 20% of any surplus directly
attributable to the casino business, net of all liabilities attributable to
the
casino business.
In
January 2006, CCAL authorized a new class of preferred shares with a lower
dividend rate and liquidation preference than the existing class of preferred
shares, and CCAL is offering the new class of preferred shares for the shares
currently outstanding. However, the existing shareholders may elect not to
exchange their shares, and in that case would retain the preferred shares with
the 20% dividend rate and liquidation preference.
Risks
Related to our Common Stock and the ADCs
We
do not anticipate paying cash dividends on our shares of common stock or ADCs
in
the foreseeable future.
We
have
never declared or paid any cash dividends on our shares of common stock. We
intend to retain any future earnings to fund the operation and expansion of
our
business and, therefore, we do not anticipate paying cash dividends on our
shares of common stock, or the ADCs, in the foreseeable future. Our revolving
credit facility prohibits us from paying cash dividends on our shares of common
stock if payment of such dividends would cause us to violate financial covenants
stated in the credit agreement.
Our
stock price has been volatile and may decline significantly and unexpectedly.
Our
common stock trades in the U.S. on the NASDAQ Capital Market, which is
characterized by small issuers and a lack of significant trading volumes
relative to other U.S. markets. These factors may result in volatility in the
price of our common stock. For instance, the trading price of our common stock
on the NASDAQ Capital Market varied from a low of $6.02 to a high of $10.91
during 2005. Our common stock also trades on the Vienna Stock Exchange in the
form of ADCs. For a small company such as ours, having listings on two
securities markets could decrease the trading volume on each market to levels
that might increase the volatility of the trading price of our securities.
Increased trading focus of our securities on one trading market could affect
and
significantly decrease the liquidity on the other market, which could make
it
difficult or impossible for an investor to sell our common stock or ADCs on
the
market with declining value.
Investors
in our ADCs will not have, and our stockholders do not have, any preemptive
rights relating to future issues of ADCs or shares of our common
stock.
Neither
the Delaware General Corporation Law nor our certificate of incorporation
provides for statutory preemptive rights for stockholders or ADC holders.
Therefore, in the event we decide to issue further shares or other securities
our existing stockholders and our ADC holders will not have statutory preemptive
rights to purchase such shares or other securities.
Because
we are a foreign corporation to the Vienna Stock Exchange, the Austrian and
other European takeover regimes do not apply to our
company.
Austrian
takeover law does not apply to foreign corporations listed on the Vienna Stock
Exchange. Should an investor decide to take over our Company, Delaware law
(including laws relating to the enforceability of our stockholder rights plan)
would apply, and neither our stockholders nor our ADC holders could rely on
the
Austrian or any other European takeover regime to apply to such a takeover.
As a
result, if you are a holder of ADCs you may be forced to sell the ADCs at a
price that is less than you paid or that is less than you otherwise would
accept.
Investors
whose currency is not denominated in the same currency as to which their common
stock or ADCs are traded will incur exposure to fluctuating exchange
rates.
For
investors whose currency is not denominated in the same currency as to which
their common stock or ADCs are traded, fluctuations in the value of the common
stock or ADCs currency against the investor’s currency will affect the market
value of our shares and the ADCs, expressed in the investor’s currency. In
addition, such fluctuations may also affect the conversion into the investor’s
currency of cash dividends and other distributions paid on our shares and ADCs,
if any, including proceeds received upon a sale or other disposition of our
common stock and ADCs.
|
Unresolved
Staff Comments.
|
None.
|
Properties.
|
Summary
of Property Information
|
Property
|
Casino
Space
Sq
Ft (1)
|
Acreage
|
Number
of
Slot Machines
|
Number
of
Table Games
|
Number
of
Hotel Rooms
|
Number
of Restaurants
|
|||||||||||||
|
Womacks
|
23,000
|
3.5
|
590
|
6
|
21
|
1
|
|||||||||||||
|
Caledon
|
13,660
|
600
|
350
|
9
|
81
|
3
|
|||||||||||||
|
Casino
Millennium (2)
|
6,200
|
-
|
38
|
16
|
-
|
-
|
|||||||||||||
|
Cruise
Ships (total of seven) (3)
|
6,770
|
-
|
180
|
28
|
-
|
-
|
|||||||||||||
|
(1)
|
Approximate.
|
|
(2)
|
Operated
under a casino services agreement. In January 2004, we purchased
40% of
the operation, bringing our ownership interest to 50% as of that
date.
|
|
(3)
|
Operated
under concession agreements.
|
Cripple
Creek, Colorado, United States
We
own
approximately 3.5 acres in Cripple Creek, Colorado used in connection with
the
operations of Womacks Casino and Hotel which includes buildings and parking
spaces related to our casino and hotel operations. This property is
collateralized by a first mortgage held by Wells Fargo Bank in connection with
our revolving credit facility. See Note 6, “Long-Term Debt”, to the Consolidated
Financial Statements for further information.
We
lease
10 city lots from the City of Cripple Creek, Colorado for parking. The lease
terms include annual rental payments of approximately $0.1 million and an
expiration date of May 31, 2010. The agreement contains a purchase option for
us
to purchase the property for $3.3 million, less cumulative lease payments,
at
any time during the remainder of the lease term.
Central
City, Colorado, United States
We
own a
65% interest in a venture that owns approximately 1.1 acres in Central City,
Colorado to be used for the development of a casino, hotel and parking garage.
All together, the new development is expected to contain approximately 60,000
square feet of casino and back of house and 500 parking spaces within a 155,000
square feet, four story, parking structure.
Caledon,
South Africa
We
own
approximately 600 acres in Caledon, South Africa. This property contains a
180,000 square foot building for our casino, hotel and spa operations and is
collateralized by a first mortgage bond over land, buildings and equipment
held
by Nedbank Limited of South Africa. Approximately 500 acres of this property
is
undeveloped at this time.
Edmonton,
Alberta, Canada
Effective
January 2006, we own 100% of the project in Edmonton, Alberta, Canada. The
project is on a 7.25 acre facility site and when completed is expected to
include a casino with 600 slot machines and approximately 31 table games, food
and beverage amenities, a dinner theatre, a 300 space underground parking garage
and a 26-room hotel.
Corporate
Offices
We
currently lease office spaces for corporate and administrative purposes in
Colorado Springs, Colorado; Vienna, Austria; and Cape Town, South
Africa.
In
the
opinion of management, the space and equipment owned or leased by the Company
are adequate for existing operating needs.
|
Legal
Proceedings.
|
We
are
not a party to, nor are we aware of, any pending or threatened litigation which,
in management’s opinion, could have a material adverse effect on our financial
position or results of operations.
|
Submission
of Matters to a Vote of Security
Holders.
|
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 2005.
PART
II
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
|
Our
common stock began trading on the NASDAQ Capital Market on November 10, 1993.
The following table sets forth the low and high sale price per share quotations
of the common stock as reported on the NASDAQ Capital Market 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, 2004
|
$
|
2.76
|
$
|
3.50
|
|||
|
June
30, 2004
|
$
|
3.26
|
$
|
6.30
|
|||
|
September
30, 2004
|
$
|
3.75
|
$
|
6.20
|
|||
|
December
31, 2004
|
$
|
5.27
|
$
|
9.97
|
|||
|
March
31, 2005
|
$
|
7.08
|
$
|
9.62
|
|||
|
June
30, 2005
|
$
|
6.25
|
$
|
10.91
|
|||
|
September
30, 2005
|
$
|
6.02
|
$
|
7.82
|
|||
|
December
31, 2005
|
$
|
6.80
|
$
|
8.96
|
|||
In
October 2005, we issued 7,132,667 new shares of our common stock, in the form
of
Austrian Depositary Certificates (“ADCs”), to retail and institutional investors
in the Republic of Austria and in a private placement to institutional investors
in Europe outside of the Republic of Austria. Each ADC, which is traded on
the
Vienna Stock Exchange, is equivalent to one share of our common stock. For
the
quarter ended December 31, 2005, the market price of the ADCs ranged from a
low
of €5.78 ($6.90 on October 11, 2005) to a high of €7.65 ($9.12 on December 13,
2005) (Source: Wiener Börse).
At
December 31, 2005, we had approximately 68 holders
of record of our common stock. We estimate that the number of beneficial
owners
is approximately 2,570. At this time, there is an indeterminate number of
beneficial owners of our common stock represented by ADCs trading on the
Vienna
Stock Exchange.
At
the
present time, we intend to use any earnings that may be generated to finance
the
growth of the Company’s business. Our credit facilities currently limit the
payment of dividends. No dividends have been declared or paid by the Company,
and we do not presently intend to pay dividends.
The
following table provides the information as of December 31, 2005 relating to
securities authorized for issuance under equity compensation plans.
|
Plan
category
|
Number
of securities to be
issued upon exercise of
outstanding options, warrants
and rights
|
Weighted-average
exercise price
of outstanding options,
warrants and rights
|
Number
of securities remaining
available for future
issuance under equity
compensation plans
(excluding
securities
underlying outstanding
options, warrants
and rights)
|
|||||||
|
Equity
compensation plans approved by security holders
|
1,986,210
|
|
$2.33
|
1,965,000
|
||||||
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|||||||
|
Total
|
1,986,210
|
|
$2.33
|
1,965,000
|
||||||
The
Board
of Directors of the Company adopted an Employees’ Equity Incentive Plan (the
“EEIP”) in April 1994, which expired in April 2004. The EEIP continues to be
administered for previously issued and outstanding options. Stockholders
approved a new equity incentive plan (the “2005 Plan”) at the 2005 annual
meeting. The 2005 Plan provides for the grant of awards to eligible individuals
in the form of stock, restricted stock, stock options, performance units or
other stock-based awards, all as defined in the 2005 Plan. The 2005 Plan
provides for the issuance of up to 2,000,000 shares of common stock to eligible
individuals through the various forms of awards permitted. The 2005 Plan limits
the number of options that can be awarded to an individual to 200,000 per year.
Stock options may not be issued at an option price lower than fair market value
at the date of grant. All stock options must have an exercise period not to
exceed ten years. Through December 31, 2005, 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 (as
permitted under the EEIP), have been granted under the EEIP and 2005 Plan.
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. Both plans also
allow limited transferability of any non-statutory stock options to legal
entities that are 100% - owned or controlled by the optionee or to the
optionee’s family trust. As of December 31, 2005 there were 1,986,210 options
outstanding, of which 1,951,210 options were issued under the EEIP and 35,000
options have been issued under the 2005 Plan.
|
Selected
Financial Data.
|
The
selected financial data below should be read in conjunction with Part II, Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, and Part II, Item 8, “Financial Statements and Supplementary Data”,
of this Form 10-K.
|
For
the Year Ended December 31,
|
||||||||||||||||
|
Amounts
shown in thousands except for share information
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
(1)
|
||||||||||||||||
|
Results
of Operations:
|
||||||||||||||||
|
Net
Operating Revenue
|
$
|
37,445
|
$
|
35,765
|
$
|
31,430
|
$
|
29,337
|
$
|
29,456
|
||||||
|
Net
Earnings (2) (3) (7)
|
4,481
|
4,738
|
3,246
|
3,079
|
2,455
|
|||||||||||
|
Net
Earnings per Share:
|
||||||||||||||||
|
Basic
|
$
|
0.28
|
$
|
0.35
|
$
|
0.24
|
$
|
0.23
|
$
|
0.18
|
||||||
|
Diluted
|
$
|
0.25
|
$
|
0.30
|
$
|
0.22
|
$
|
0.20
|
$
|
0.16
|
||||||
|
Balance
Sheet:
|
||||||||||||||||
|
Cash
and Cash Equivalents (6)(8)
|
$
|
37,167
|
$
|
8,411
|
$
|
4,729
|
$
|
4,582
|
$
|
3,031
|
||||||
|
Total
Assets (4) (8)
|
123,563
|
71,204
|
54,817
|
51,143
|
44,819
|
|||||||||||
|
Long-Term
Debt
|
17,934
|
17,970
|
14,913
|
16,531
|
15,991
|
|||||||||||
|
Total
Liabilities (6)
|
32,232
|
30,825
|
21,769
|
24,040
|
22,641
|
|||||||||||
|
Total
Shareholders’ Equity (8)
|
91,331
|
40,379
|
33,048
|
27,103
|
22,178
|
|||||||||||
|
Cash
Dividends Per Common Share (5)
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
||||||
|
(1)
|
In
January 2003, we, through CCA, acquired the remaining 35% interest
in
CCAL.
|
|
(2)
|
Effective
2002, in accordance with SFAS No. 142, we no longer amortize goodwill
and
other intangible assets with indefinite useful lives. The goodwill
amortization expense, net of income taxes, for the year ended December
31,
2001 was $1.2 million.
|
|
(3)
|
In
2002, we wrote down the value of the non-operating casino property
and
land held for sale in Nevada by approximately $0.5 million and recorded
an
approximate $0.4 million write-off for advances made and pre-construction
costs incurred in conjunction with the Gauteng project and an approximate
$0.3 million write-off for unpaid casino technical service fees from
Casino Millennium.
|
|
(4)
|
In
2004, the increase in total assets is primarily the result of the
contribution of $9.2 million in land and buildings to the Central
City
project by the minority partner, approximately $3 million in capital
improvements at Womacks, including new slot machines and new slot
accounting software and increases in foreign denominated assets resulting
from fluctuations in currency exchange rates.
|
|
(5)
|
We
have not declared any cash dividends on our common stock and do not
expect
to pay any such dividends in the foreseeable
future.
|
|
(6)
|
Approximately
$3.5 million was borrowed against the Wells Fargo revolving credit
facility on December 30, 2004 to finance our cash contribution to
the
Central City Project. A $4.2 million increase in the minority interest
liability in 2004 is directly related to the Central City
project.
|
|
(7)
|
In
2004, we recovered approximately $0.2 million in receivables that
had been
written off in 2002 and a foreign currency gain of $0.4 million recognized
on the disposition of Verkrans.
|
|
(8)
|
In
2005, we raised $46.2 million in net proceeds by way of a stock offering
on the Vienna Stock Exchange. As of December 31, 2005, cash and cash
equivalents includes $26.2 million from the stock offering.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion should be read in conjunction with “Item 8. Financial
Statements and Supplementary Data” included elsewhere herein. Information
contained in the following discussion of results of operations and financial
condition of the Company contains forward-looking statements within the meaning
of Section 21E of the Securities and Exchange Act of 1934, and as such, are
based on current expectations and are subject to certain risks and
uncertainties. The reader should not place undue reliance on these
forward-looking statements for many reasons including those risks discussed
under Item 1A, “Risk Factors,” and elsewhere in this document. Forward-looking
statements may be identified by the use of forward-looking words or phrases
such
as “may,” “will,” “believe,” “expect,” “intend,” “anticipate,” “could,”
“should,” “plan,” “estimate,” “potential” or “continue”, or variations thereon
or comparable terminology. In addition, all statements other than statements
of
historical facts are forward-looking statements.
Results
of Operations
Overview
Since
our
inception, we have been primarily engaged in developing and operating gaming
establishments and the related lodging and restaurant facilities. We derive
revenue from the net proceeds of our gaming machines and tables, and from hotel
and restaurant facilities.
We
are
managed in six segments: (i) Cripple Creek, Colorado, the operations of Womacks
Casino and Hotel; (ii) Central City, Colorado, the development of a new casino,
(iii) Edmonton, Canada, the development of a new casino, (iv) South Africa,
primarily related to the operations of the Caledon Hotel, Spa and Casino; (v)
cruise ship casino operations for several vessels; and (vi) Corporate and other
operations including corporate gaming projects for which we have long-term
service contracts.
We
continue to experience strong competition in both our Cripple Creek, Colorado
and South African segments. We face competition in both segments from both
larger and smaller casinos in the area. In our Cripple Creek, Colorado segment
two of our competitors provide covered parking garages adjacent to their
facilities which provide them with an advantage during inclement weather and
peak tourist season. We continue to aggressively market in both Cripple Creek,
Colorado and South Africa, primarily through the use of our player’s club
programs.
Results
of Operations for the Years ended December 31, 2005, 2004 and 2003
We
reported net operating revenue of $37.5 million for the year ended December
31,
2005, compared to $35.8 million in 2004 and $31.4 million in 2003. For 2005,
2004 and 2003, Womacks represented 46%, 49% and 59% of total net operating
revenue, respectively, while Caledon represented 45%, 42% and 36% for the same
periods.
Casino
revenue increased $1.8 million, or 5.1%, to $36.4 million in 2005 as compared
to
2004. Casino revenue in 2004 increased $2.8 million, or 8.7%, to $34.6 million
as compared to 2003. These increases are primarily the result of gains made
in
the South African market. Hotel, food and beverage revenue increased $0.2
million, or 4.6%, to $4.5 million during 2005 as compared to 2004. Hotel, food
and beverage revenue increased $0.8 million or 21.1% to $4.3 million in 2004
as
compared to 2003. The increases in hotel, food and beverage revenue during
the
three year period is primarily attributable to renovating and relocating certain
restaurant facilities in Cripple Creek, Colorado and increased theme dinners
and
banquets at our South Africa property. Other revenue decreased by $0.3 million
or 28.3% to $0.8 million in 2005 as compared to 2004. The higher revenue in
2004
is primarily due to the foreign currency gain of $0.4 million recognized on
the
disposition of Verkrans. Other revenue increased by $0.4 million or 69.2% to
$1.1 million in 2004 as compared to 2003, primarily as the result of the foreign
currency gain recognized on the disposition of Verkrans. Promotional allowances,
which are made up of complimentary revenue, cash points and coupons, are rewards
we give our loyal customers to encourage them to continue to patronize our
properties. Such awards reduced gross revenues by approximately 10% in 2005,
11%
in 2004 and 13% in 2003.
Casino
operating expenses were $14.3 million, $13.8 million and $11.7 million for
2005,
2004 and 2003, respectively. The increase of $0.5 million, or 3.9%, from 2005
to
2004 is primarily the result of revenue growth and currency exchange rate
fluctuations in the South African segment. Casino operating expenses in 2004
increased $2.1 million, or 17.9%, as compared to 2003 primarily due to growth
in
the South African and ship segments and fluctuation in the currency exchange
rate.
Hotel,
food and beverage expenses were $2.8 million in 2005, $3.1 million in 2004
and
$2.6 million in 2003. The decrease of $0.3 million from 2004 to 2005 resulted
from a decrease in hotel occupancy in the South African segment. Hotel, food
and
beverage expenses increased $0.5 million, from 2003 to 2004 because of the
corresponding increase in food and beverage revenues generated at additional
outlets opened or expanded between 2003 and 2004.
General
and administrative expenses were $11.1 million in 2005 compared to $8.9 million
in 2004 and $7.7 million in 2003. The $2.0 million increase in general and
administrative expenses in 2005 was due primarily to the implementation of
section 404 of the Sarbanes-Oxley Act of 2002 and staff additions to aid in
its
implementation, coupled with expenditures associated with the development of
the
Central City and Edmonton projects. General and administrative expenses
increased $1.4 million in 2004 over 2003 primarily as a result of staff
increases at the corporate level to support the expansion efforts and compliance
requirements, expenditures incurred in conjunction with new Company projects
and
the effect of foreign currency fluctuations, primarily the Rand.
Depreciation
expense was $3.3 million in 2005, $3.0 million in 2004 and $2.7 million in
2003.
Changes in depreciation expenses during the three year period ended December
31,
2005 relate to on-going property improvement projects.
Our
earnings from operations for the year ended December 31, 2005 were $5.8 million
compared to $7.0 million in 2004 and $6.8 million in 2003. Earnings from
operations decreased $1.2 million, or 16.6% in 2005, primarily as a result
of a
decrease in earnings in Cripple Creek, Colorado, the increase in expenditures
at
the Corporate & Other segment associated with the Sarbanes-Oxley section 404
implementation, and the addition of expenditures associated with the Central
City, Colorado and Edmonton, Canada development projects. The change from 2003
to 2004 is primarily a result of an increase in earnings from operations in
Caledon, the gain recognized on the sale of Verkrans and the recovery of
receivables from the sale of our interest in Gauteng, South Africa offset by
a
decrease in earnings from operations in Cripple Creek, Colorado.
Interest
expense was $2.3 million in 2005, $1.6 million in 2004 and $2.0 million in
2003
and results primarily from our credit facilities with Wells Fargo and the
outstanding notes to Nedbank Limited and ABSA Bank in South Africa. Please
see
Note 6, “Long-term Debt” of the Notes to Consolidated Financial Statements for
further information.
Income
tax expense was $0.3 million for 2005 compared to $0.7 million in 2004 and
$1.8
million in 2003. The decrease in the tax expense is the result of a reduction
in
pre-tax earnings and the tax benefit recognized on the exercise of non-statutory
stock options in 2005. The decrease of $1.1 million in 2004 as compared to
2003
is primarily related to the inclusion of management fees paid by our South
African operations to their Mauritian parent in 2004, which are taxed at a
rate
of 3%. In 2004, approximately $2.1 million of our pre-tax income totaling $5.2
million is attributable to our Mauritian subsidiary and was taxed at an
effective rate of 3%.
Our
net
earnings for 2005 were $4.5 million, or $0.28 per share compared to net earnings
of $4.7 million, or $0.35 per share in 2004 and $3.2 million, or $0.24 per
share
in 2003. The additional shares issued in conjunction with the ADC offering
in
October 2005 diluted the reported earnings per share for 2005 by
$0.03.
A
discussion by business segment follows below.
Cripple
Creek, Colorado Segment
The
operating results of the Cripple Creek, Colorado segment, primarily the
operations of Womacks, for the years ended December 31, 2005, 2004 and 2003
are
as follows:
|
Dollar
amounts shown in thousands
|
2005
|
2004
|
2003
|
%
Change
2005
v. 2004
|
%
Change
2004
v. 2003
|
|||||||||||
|
Operating
Revenue
|
||||||||||||||||
|
Casino
|
$
|
18,934
|
$
|
19,486
|
$
|
20,981
|
-2.8
|
%
|
-7.1
|
%
|
||||||
|
Hotel,
food and beverage
|
1,472
|
1,544
|
1,267
|
-4.7
|
%
|
21.9
|
%
|
|||||||||
|
Other
(net of promotional allowances)
|
(3,295
|
)
|
(3,469
|
)
|
(3,818
|
)
|
-5.0
|
%
|
-9.1
|
%
|
||||||
|
Net
operating revenue
|
17,111
|
17,561
|
18,430
|
-2.6
|
%
|
-4.7
|
%
|
|||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
Casino
|
6,514
|
6,828
|
6,702
|
-4.6
|
%
|
1.9
|
%
|
|||||||||
|
Hotel,
food and beverage
|
619
|
586
|
357
|
5.6
|
%
|
64.1
|
%
|
|||||||||
|
General
and administrative
|
3,804
|
3,641
|
3,686
|
4.5
|
%
|
-1.2
|
%
|
|||||||||
|
Depreciation
|
1,703
|
1,512
|
1,349
|
12.6
|
%
|
12.1
|
%
|
|||||||||
|
12,640
|
12,567
|
12,094
|
0.6
|
%
|
3.9
|
%
|
||||||||||
|
Earnings
from operations
|
4,471
|
4,994
|
6,336
|
-10.5
|
%
|
-21.2
|
%
|
|||||||||
|
Interest
income
|
13
|
12
|
12
|
8.3
|
%
|
-
|
%
|
|||||||||
|
Interest
(expense)
|
(1,066
|
)
|
(784
|
)
|
(1,059
|
)
|
36.0
|
%
|
-26.0
|
%
|
||||||
|
Interest
expense on non-Cripple Creek debt allocated to Corporate and Other
Segment
|
1,325
|
907
|
1,058
|
46.1
|
%
|
-14.3
|
%
|
|||||||||
|
Other
income, net
|
-
|
-
|
2
|
-
|
%
|
-100.0
|
%
|
|||||||||
|
Earnings
before income taxes
|
4,743
|
5,129
|
6,349
|
-7.5
|
%
|
-19.2
|
%
|
|||||||||
|
Income
tax expense
|
1,802
|
1,949
|
2,413
|
-7.5
|
%
|
-19.2
|
%
|
|||||||||
|
Net
Earnings
|
$
|
2,941
|
$
|
3,180
|
$
|
3,936
|
-7.5
|
%
|
-19.2
|
%
|
||||||
Overall
operating results for the segment were impacted by the casino results detailed
below.
Market
Data
|
2005
|
2004
|
2003
|
||||||||
|
Market
share of the Cripple Creek Slot AGP
|
12.8
|
%
|
13.4
|
%
|
14.9
|
%
|
||||
|
Average
number of slot machines
|
618
|
649
|
622
|
|||||||
|
Market
share of Cripple Creek gaming devices
|
13.0
|
%
|
14.1
|
%
|
14.7
|
%
|
||||
|
Average
slot machine win per day
|
83
dollars
|
81
dollars
|
91
dollars
|
|||||||
|
Cripple
Creek average slot machine win per day
|
84
dollars
|
85
dollars
|
90
dollars
|
|||||||
When
comparing 2005 to 2004, the Cripple Creek market grew by 1.6%. Management
continues to focus on the marketing of the Womacks Casino through the Gold
Club.
Womacks’ market share of slot AGP decreased in 2005 by 4.5%, primarily due to
increasing competition within the market. Womacks has continued the effort
to
improve the customer experience by converting 323 slot machines, over 50% of
the
total machines on the floor, to cashless gaming devices. These ongoing
improvements are expected to further improve customer service.
During
this period, the relative percentage of personnel cost and the cost of
participation machines to net operating revenue contributed to the erosion
in
earnings from operations. Management regularly evaluates these overhead costs
to
maintain a satisfactory cost benefit relationship.
When
comparing 2004 to 2003, the Cripple Creek market grew by 4.3%. In December
2003
and in June 2004, additional casinos opened in Cripple Creek, bringing the
total
number of casino licenses to 19 as of December 31, 2004 compared to 17 for
the
majority of 2003 and reduced Womacks’ market share of gaming devices by 5%. We
spent approximately $3 million in 2004 to upgrade the product mix on the gaming
floor, improve the player tracking system and introduce cashless gaming
machines. During 2004, Womacks replaced approximately 149 slot machines and
added 20 slot machines on the floor.
In
order
to outfit Womacks with the most popular gaming machines, Womacks leased
approximately 35 slot machines from manufacturers in 2005, compared to 39 in
2004 and an average of 37 in 2003, 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
$0.5
million, $0.5 million and $0.4 million in 2005, 2004 and 2003,
respectively.
Hotel,
Food and Beverage
When
comparing 2005 and 2004, hotel revenue, included in hotel, food and beverage
revenue, decreased by 7.6% as a result of decrease in the hotel occupancy to
83%
from 92% in 2004. Hotel occupancy decreased due to a restructuring of the player
comp policy. When comparing 2004 and 2003, hotel, food and beverage revenue
increased by 21.9%, as a result of an increase in the hotel occupancy rate
to
92% in 2004 from 85% in 2003, and the opening of an additional food outlet.
All
of the revenue generated by the hotel operations is derived from comps to better
players, the value of which is included in promotional allowances.
Womacks
operated two restaurants, “Bob’s Grill” and the “Cut Above Buffet” to provide an
alternative to patrons of the casino. The “Cut Above Buffet” was opened in May
2004 and operated on the second floor of the casino. As a means to attracting
new customers, the “Cut Above Buffet” was operated at a lower food and beverage
operating margin than “Bob’s Grill”. Although the “Cut Above Buffet” attracted
new customers to Womacks Gold Club, it was not a significant stimulus to
gaming
revenue, resulting in its closure on July 30, 2005.
Other
Comparing
2005 to 2004, Womacks casino incurred approximately $0.1 million in fees from
consultants that assisted in the implementation of Sarbanes-Oxley section 404
controls, but was otherwise able to limit increases in administrative expenses.
Comparing 2004 to 2003, we were able to control general and administrative
costs
through effective cost control measures.
The
$0.2
million increase in depreciation expense when comparing 2005 to 2004 is
primarily the result of the addition of gaming equipment during 2004. The $0.2
million increase in depreciation expense when comparing 2004 to 2003 results
from an increase of approximately $0.2 million in depreciation on new additions
less the reduction in depreciation on assets that are fully depreciated.
The
segment allocated $1.3 million, $0.9 million and $1.1 million in net interest
expense to the Corporate & Other segment during the years ended December 31,
2005, 2004 and 2003, respectively. Interest expense on the amounts advanced
by
Womacks, but not repaid, to fund the Company’s acquisitions and the repurchase
of the Company’s common stock is calculated using the effective rate on all
borrowings under Womacks’ revolving credit facility. In December 2005, CCI
repaid these funds to Womacks.
The
Cripple Creek, Colorado segment recognized income tax expense of $1.8 million
in
2005 versus $1.9 million in 2004, and $2.4 million in 2003, principally the
result of a decrease in earnings before income taxes. The effective tax rate
has
remained stable at 38% over the three year period.
South
African Segment
The
operating results of the South African segment are primarily those related
to
the operations of the Caledon Hotel, Spa and Casino. Intercompany transactions,
including fees to its Mauritian parent, shareholder’s interest and their related
tax effects have been eliminated within the segment’s results. Improvement in
the Rand versus the dollar when comparing 2005 to 2004 and 2004 to 2003 has
had
a positive impact on the reported revenues and a negative impact on expenses.
Operational results in US dollars for the years ended December 31, 2005, 2004
and 2003 are as follows: (See next page for results in Rand).
CALEDON
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
%
Change
2005
v. 2004
|
%
Change
2004
v. 2003
|
|||||||||||
|
Operating
Revenue
|
||||||||||||||||
|
Casino
|
$
|
14,549
|
$
|
12,540
|
$
|
9,211
|
16.0
|
%
|
36.1
|
%
|
||||||
|
Hotel,
food and beverage
|
3,050
|
2,778
|
2,301
|
9.8
|
%
|
20.7
|
%
|
|||||||||
|
Other
(net of promotional allowances)
|
(584
|
)
|
(348
|
)
|
(363
|
)
|
67.8
|
%
|
-4.1
|
%
|
||||||
|
Net
operating revenue
|
17,015
|
14,970
|
11,149
|
13.7
|
%
|
34.3
|
%
|
|||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
Casino
|
5,637
|
5,096
|
3,993
|
10.6
|
%
|
27.6
|
%
|
|||||||||
|
Hotel,
food and beverage
|
2,157
|
2,548
|
1,996
|
-15.3
|
%
|
27.7
|
%
|
|||||||||
|
General
and administrative
|
2,529
|
2,170
|
1,552
|
16.5
|
%
|
39.8
|
%
|
|||||||||
|
Depreciation
|
1,471
|
1,343
|
1,070
|
9.5
|
%
|
25.5
|
%
|
|||||||||
|
11,794
|
11,157
|
8,611
|
5.7
|
%
|
29.6
|
%
|
||||||||||
|
Earnings
from operations
|
5,221
|
3,813
|
2,538
|
36.9
|
%
|
50.2
|
%
|
|||||||||
|
Interest
income
|
51
|
112
|
161
|
-54.5
|
%
|
-30.4
|
%
|
|||||||||
|
Interest
expense
|
(651
|
)
|
(788
|
)
|
(929
|
)
|
-17.4
|
%
|
-15.2
|
%
|
||||||
|
Early
debt repayment expense
|
(181
|
)
|
-
|
-
|
100.0
|
%
|
-
|
%
|
||||||||
|
Loss
on foreign currency translation
|
-
|
-
|
(7
|
)
|
-
|
%
|
100.0
|
%
|
||||||||
|
Earnings
before income taxes
|
4,440
|
3,137
|
1,763
|
41.5
|
%
|
77.9
|
%
|
|||||||||
|
Income
tax expense
|
1,308
|
943
|
581
|
38.7
|
%
|
62.3
|
%
|
|||||||||
|
Net
Earnings
|
$
|
3,132
|
$
|
2,194
|
$
|
1,182
|
42.8
|
%
|
85.6
|
%
|
||||||
CENTURY
CASINOS AFRICA
|
Operating
Revenue
|
||||||||||||||||
|
Other
(including promotional allowances) (1)
|
$
|
-
|
$
|
364
|
$
|
-
|
-100.0
|
%
|
100.0
|
%
|
||||||
|
Net
operating revenue
|
-
|
364
|
-
|
-100.0
|
%
|
100.0
|
%
|
|||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
General
and administrative
|
196
|
161
|
352
|
21.7
|
%
|
-54.3
|
%
|
|||||||||
|
Recovery
of receivables previously written off
|
-
|
(175
|
)
|
-
|
-100.0
|
%
|
100.0
|
%
|
||||||||
|
Depreciation
|
2
|
-
|
3
|
100.0
|
%
|
-100.0
|
%
|
|||||||||
|
198
|
(14
|
)
|
355
|
1514.3
|
%
|
-103.9
|
%
|
|||||||||
|
Loss
from operations
|
(198
|
)
|
378
|
(355
|
)
|
-152.4
|
%
|
206.5
|
%
|
|||||||
|
Interest
expense, net
|
(32
|
)
|
-
|
-
|
100.0
|
%
|
-
|
%
|
||||||||
|
Other
income, net
|
147
|
39
|
28
|
276.9
|
%
|
39.3
|
%
|
|||||||||
|
Loss
before income taxes
|
(83
|
)
|
417
|
(327
|
)
|
-119.9
|
%
|
227.5
|
%
|
|||||||
|
Income
tax (benefit)
|
(53
|
)
|
(37
|
)
|
(94
|
)
|
43.2
|
%
|
-60.6
|
%
|
||||||
|
Net
Loss
|
$
|
(30
|
)
|
$
|
454
|
$
|
(233
|
)
|
-106.6
|
%
|
294.8
|
%
|
||||
|
MINORITY
INTEREST EXPENSE
|
$
|
-
|
$
|
-
|
$
|
(22
|
)
|
-
|
%
|
-100.0
|
%
|
|||||
|
SOUTH
AFRICA NET EARNINGS (LOSS)
|
$
|
3,102
|
$
|
2,648
|
$
|
927
|
17.1
|
%
|
185.7
|
%
|
|
Average
exchange rate (Rand/USD)
|
6.33
|
6.45
|
7.43
|
-1.9%
|
-13.2%
|
|
(1)
|
2004
includes foreign currency translation adjustment for sale of Verkrans,
net
of cost of disposition.
|
Operational
results in Rand for the years ended December 31, 2005, 2004 and 2003 are
as
follows:
CALEDON
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
%
Change
2005
v. 2004
|
%
Change
2004
v. 2003
|
|||||||||||
|
Operating
Revenue
|
||||||||||||||||
|
Casino
|
R
|
91,817
|
R
|
80,088
|
R
|
67,976
|
14.6
|
%
|
17.8
|
%
|
||||||
|
Hotel,
food and beverage
|
19,257
|
17,753
|
17,061
|
8.5
|
%
|
4.1
|
%
|
|||||||||
|
Other
(net of promotional allowances)
|
(3,
716
|
)
|
(2,260
|
)
|
(2,584
|
)
|
64.4
|
%
|
-12.5
|
%
|
||||||
|
Net
operating revenue
|
107,358
|
95,581
|
82,453
|
12.3
|
%
|
15.9
|
%
|
|||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
Casino
|
35,629
|
32,555
|
29,365
|
9.4
|
%
|
10.9
|
%
|
|||||||||
|
Hotel,
food and beverage
|
13,633
|
16,247
|
14,998
|
-16.1
|
%
|
8.3
|
%
|
|||||||||
|
General
and administrative
|
16,043
|
13,813
|
11,484
|
16.1
|
%
|
20.3
|
%
|
|||||||||
|
Depreciation
|
9,328
|
8,595
|
7,950
|
8.5
|
%
|
8.1
|
%
|
|||||||||
|
74,633
|
71,210
|
63,797
|
4.8
|
%
|
11.6
|
%
|
||||||||||
|
Earnings
from operations
|
32,725
|
24,371
|
18,656
|
34.3
|
%
|
30.6
|
%
|
|||||||||
|
Interest
income
|
322
|
724
|
1,216
|
-55.5
|
%
|
-40.5
|
%
|
|||||||||
|
Interest
expense
|
(4,099
|
)
|
(5,072
|
)
|
(6,950
|
)
|
-19.2
|
%
|
-27.0
|
%
|
||||||
|
Early
debt repayment expense
|
(1,200
|
)
|
-
|
-
|
100.0
|
%
|
-
|
%
|
||||||||
|
Gain
(loss) on foreign currency translation
|
1
|
5
|
(49
|
)
|
-80.0
|
%
|
-110.2
|
%
|
||||||||
|
Earnings
before income taxes
|
27,749
|
20,028
|
12,873
|
38.6
|
%
|
55.6
|
%
|
|||||||||
|
Income
tax expense
|
8,187
|
6,018
|
4,284
|
36.0
|
%
|
40.5
|
%
|
|||||||||
|
Net
Earnings
|
R
|
19,562
|
R
|
14,010
|
R
|
8,589
|
39.6
|
%
|
63.1
|
%
|
||||||
CENTURY
CASINOS AFRICA
|
Operating
Revenue
|
||||||||||||||||
|
Other
(including promotional allowances)
|
R
|
-
|
R
|
(86
|
)
|
R
|
-
|
100.0
|
%
|
-100.0
|
%
|
|||||
|
Net
operating revenue (loss)
|
-
|
(86
|
)
|
-
|
100.0
|
%
|
-100.0
|
%
|
||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
General
and administrative
|
1,281
|
992
|
2,640
|
29.1
|
%
|
-62.4
|
%
|
|||||||||
|
Recovery
of receivables previously written off
|
-
|
(1,003
|
)
|
-
|
-100.0
|
%
|
-100.0
|
%
|
||||||||
|
Depreciation
|
16
|
-
|
18
|
100.0
|
%
|
-100.0
|
%
|
|||||||||
|
1,297
|
(11
|
)
|
2,658
|
-11890.9
|
%
|
100.4
|
%
|
|||||||||
|
Loss
from operations
|
(1,297
|
)
|
(75
|
)
|
(2,658
|
)
|
-1629.3
|
%
|
97.2
|
%
|
||||||
|
Interest
expense, net
|
(202
|
)
|
-
|
-
|
100.0
|
%
|
-
|
%
|
||||||||
|
Other
income, net
|
936
|
238
|
215
|
293.3
|
%
|
10.7
|
%
|
|||||||||
|
Loss
before income taxes
|
(563
|
)
|
163
|
(2,443
|
)
|
-445.4
|
%
|
106.7
|
%
|
|||||||
|
Income
tax (benefit)
|
(338
|
)
|
(234
|
)
|
(713
|
)
|
44.4
|
%
|
-67.2
|
%
|
||||||
|
Net
(Loss) Earnings
|
R
|
(225
|
)
|
R
|
397
|
R
|
(1,730
|
)
|
-156.7
|
%
|
122.9
|
%
|
||||
|
MINORITY
INTEREST EXPENSE
|
R
|
-
|
R
|
-
|
R
|
(176
|
)
|
-
|
%
|
-100.0
|
%
|
|||||
|
SOUTH
AFRICA NET EARNINGS
|
R
|
19,337
|
R
|
14,407
|
R
|
6,683
|
34.2
|
%
|
115.6
|
%
|
Casino
Market Data (in Rand)
|
2005
|
2004
|
2003
|
||||||||
|
Market
share of the Western Cape AGP
|
5.6
|
%
|
5.9
|
%
|
6.0
|
%
|
||||
|
Market
share of Western Cape gaming devices
|
9.4
|
%
|
11.3
|
%
|
10.9
|
%
|
||||
|
Average
number of slot machines
|
307
|
288
|
274
|
|||||||
|
Average
slot machine win per day
|
766
Rand
|
693
Rand
|
623
Rand
|
|||||||
|
Average
number of tables
|
9
|
9
|
8
|
|||||||
|
Average
table win per day
|
1,942
Rand
|
2,132
Rand
|
1,928
Rand
|
|||||||
The
results discussed below are all based on the Rand to eliminate the effect of
fluctuations in foreign currency exchange rates.
When
comparing 2005 and 2004, the 14.6% increase in the gross casino revenue is
attributable to the continued marketing efforts. We market an array of amenities
at the resort to our guests as a complement to the gaming experience. These
currently include an 81-room hotel, a variety of dining experiences, three
bars,
the historic mineral hot spring and spa, the outdoor experience (a team building
facility) and a conference facility. Additionally, Caledon increased the average
number of slot machines by 6.6% over the same period. Revenue growth was slowed
for 2005 due to the closure of a significant portion of the main east/west
highway to Caledon from April 11, 2005 to May 27, 2005, a result of severe
flooding in the area. In addition, the South African government introduced
new
currency notes during the second quarter of 2005 and the casino experienced
an
initial rejection rate of 80% on these new notes, which diminished as the
Company installed new bill validation software for the wide variety of slot
machines maintained by the Company.
When
comparing 2004 and 2003, the 17.8% increase in gross gaming revenue is
attributable to a number of factors including an increase in the number of
slot
machines to 300 from 290 and one additional table, the continuous marketing
of
cash coupons and improved management.
Hotel,
Food and Beverage
Hotel
occupancy was 44% for 2005 compared to 48% in 2004. Hotel revenue increased
38.6% due mainly to upgraded rooms (i.e. standard rooms becoming suites) and
their corresponding increases in room rates. Leisure sales increased by 44.9%
in
2005 compared to 2004. These increases in revenue were offset by a decrease
in
conference sales of 20.3% in the corresponding period. Food and beverage revenue
decreased by 0.7% primarily due to a decrease in hotel occupancy, the closure
of
a restaurant in the third quarter and the decrease in the convention
business.
When
comparing 2004 and 2003, hotel revenue increased 5.6%. Hotel occupancy was
48%
for 2004 compared to 57% for 2003. Conference sales decreased 19.4%, while
gift
and leisure sales improved 110.1%. In June 2004, Caledon added a fourth
restaurant to the already varied selection. This restaurant offers patrons
Italian cuisine. Food and beverage revenue increased 6.2% in 2004 compared
to
2003, as a result of the additional food and beverage facility plus changes
to
operating hours and a general price increase.
The
2.6
million Rand reduction in hotel, food and beverage expenses results primarily
from the elimination of a separate hotel marketing staff, which decreased
advertising and promotion costs for the hotel. In previous years, CCAL
advertised the casino and hotel operations separately. Current marketing efforts
have focused on emphasizing the overall resort qualities of the operation,
inclusive of both the casino and hotel. This has helped reduce Caledon’s overall
marketing costs.
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.
The
conversion to cashless gaming in March 2005 has resulted in a significant
increase in the accumulation of points earned by players reported as an offset
to operating revenue, other. All patrons of the casino are required to create
a
personal players account and play with a card on which they always earn points.
Although gaming revenue increased, the point liability accrued for over 52,000
active player accounts affected the reported results by approximately 0.5
million Rand, net of taxes.
Interest
expense for CCAL has decreased due to the early repayment of the term loan
with
ABSA in July 2005 and the early repayment of a series of capital leases in
February 2005, offset by additional interest due on a 60 million Rand term
loan
borrowed by Caledon in August 2005. In order to repay ABSA Bank, CCAL entered
into an overdraft facility with Nedbank Limited in the amount of 18.8 million
Rand under which Nedbank extended temporary financing until the long term loan
agreement was completed. Caledon incurred a 1.2 million Rand charge relating
to
the early repayment of the ABSA Bank loan. As a result of the transaction,
Caledon was able to significantly lower its effective interest rate on
outstanding term loans from 16.9% to a current 9.0%. When comparing 2004 to
2003, interest expense has decreased by 27.0% as the principal balance of the
term loans and capitalized lease are repaid. The weighted-average interest
rate
on the borrowings under term loan agreements for our South African subsidiaries
was 10.5% in 2005 and 16.9% in 2004 and 2003.
Depreciation
expense has increased because of the completion of a number of improvement
projects at CCAL in 2004 and 2005. Depreciable assets increased by 6.4 million
Rand in 2005 due primarily to our expansion of the casino’s gaming space, and by
5.3 million Rand in 2004 due to ongoing improvements at the
property.
General
and administrative expenses at Caledon increased 16.1% in 2005 and 20.3% in
2004
as a result of departmental payroll increases related to the casino expansion
and increases in service contracts related to the maintenance on the player
tracking system and external security. In 2005, the Company recorded 0.4 million
Rand of miscellaneous income for Caledon based upon the estimated amount
recoverable on a business interruption claim filed with Caledon’s insurance
company related to the road closure in the 2nd
quarter.
In
2004,
we recovered approximately 1.0 million Rand of previously written off
receivables in connection with the sale of our interests in Gauteng, South
Africa.
We
recognized a foreign currency translation gain on the disposition of Verkrans,
resulting from the difference between the exchange rate at the time of purchase
in March 2002 and the exchange rate at the time of sale in December 2004. The
reported results include a gain of $0.4 million in US dollars, but no
corresponding gain in Rand.
Cruise
Ships Segment
The
Cruise ships segment operating results for the years ended December 31, 2005,
2004 and 2003 are as follows:
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
%
Change
2005
v. 2004
|
%
Change
2004
v. 2003
|
|||||||||||
|
Operating
Revenue
|
||||||||||||||||
|
Casino
|
$
|
2,911
|
$
|
2,615
|
$
|
1,677
|
11.3
|
%
|
55.9
|
%
|
||||||
|
Other
(net of promotional allowances)
|
240
|
154
|
60
|
55.8
|
%
|
156.7
|
%
|
|||||||||
|
Net
operating revenue
|
3,151
|
2,769
|
1,737
|
13.8
|
%
|
59.4
|
%
|
|||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
Casino
|
2,142
|
1,836
|
1,172
|
16.7
|
%
|
56.7
|
%
|
|||||||||
|
General
and administrative
|
-
|
-
|
3
|
-
|
%
|
-100.0
|
%
|
|||||||||
|
Depreciation
|
144
|
110
|
74
|
30.9
|
%
|
48.6
|
%
|
|||||||||
|
2,286
|
1,946
|
1,249
|
17.5
|
%
|
55.8
|
%
|
||||||||||
|
Earnings
from operations
|
865
|
823
|
488
|
5.1
|
%
|
68.6
|
%
|
|||||||||
|
Other
income, net
|
-
|
-
|
17
|
-
|
%
|
-100.0
|
%
|
|||||||||
|
Earnings
before income taxes
|
865
|
823
|
505
|
5.1
|
%
|
63.0
|
%
|
|||||||||
|
Income
tax expense
|
26
|
25
|
150
|
4.0
|
%
|
-83.3
|
%
|
|||||||||
|
Net
Earnings
|
$
|
839
|
$
|
798
|
$
|
355
|
5.1
|
%
|
124.8
|
%
|
||||||
At
the
end of 2005, we operated casinos on a total of seven ships: three from
Silversea, one on the World of ResidenSea and three on Oceania Cruises. The
casino concession agreement with the Silver Shadow (part of the Silversea
family) terminated at the end of September 2005 and was not renewed. For
2005,
the Silver Shadow contributed $0.4 million of net operating revenue and $0.2
million of net income to the consolidated statement of earnings. Also in
2005,
the Company extended the casino concession agreement with Oceania Cruises
until
the year 2012. On March 8, 2006, we received notification from Silversea
Cruises
that the concession agreement with the Silver Whisper will not be renewed
as of
July 2, 2006 and that the concession agreement with the Silver Wind will
not be
renewed as of May 3, 2007. In addition, we also received notification that
the
concession agreement with the Silver Cloud will not be renewed as of March
30,
2006; however, the Company deems that we did not receive timely written
notification of the Silversea’s intention to discontinue this agreement on the
Silver Cloud, as required by the original concession agreement. As a result,
the
operation of the casino aboard the Silver Cloud subsequent to March 30, 2006
is
uncertain at this time.
In
2004
we operated casinos on eight ships, four on Silversea, one on the World of
ResidenSea and three on Oceania Cruises. In 2003 we operated seven casinos,
four
aboard Silversea, one on the World of ResidenSea and two on Oceania Cruises.
During 2003 the Silversea’s Silver Wind ship returned to service in May after
periodic maintenance operations. During the same year we opened casinos aboard
the Oceania Insignia and Regatta. Following six months of routine maintenance
operations, Silversea’s Silver Cloud and Oceania’s Insignia returned to
operations in March 2004. In April 2004, we opened a casino aboard Oceania’s
Nautica. The Nautica remained in service until November 2004, when it went
into
dry dock for routine maintenance. The Nautica returned to service in November
2005.
Concession
fees paid to the ship operators in accordance with the agreements accounted
for
approximately $1.3 million, $1.0 million and $0.1 million of the total casino
expenses incurred in 2005, 2004 and 2003, respectively.
Casino
expenses, excluding concession fees, dropped to 29.3% of revenue in 2005
and
compared to 30.8% of casino revenue in 2004 and 34.8% in 2003, reflecting
our
ability to leverage cruise ship operations. In addition, several of the cruise
ships were inactive for periods of 2004. We cannot operate our casinos while
the
ships are in port.
Revenue
generated on each cruise fluctuates significantly depending on the number of
passengers and the quality of the players. This is a condition that is beyond
our control, but does not significantly impact our consolidated results due
to
the relatively small size of the cruise ship operations in relation to our
other
operations.
The
cruise ship concession agreements were assigned to CRI as of October 1, 2003
and
have since been subject to an effective tax rate of 3% in Mauritius.
Additionally, for the remaining term of the original concession agreements,
any
income earned under these agreements are subject to an imputed royalty for
US
income tax purposes (reported in the corporate and other segment). As a result,
the effective tax rate on net income generated by the cruise ships is 6.2%,
6.2%
and 32.9% for 2005, 2004 and 2003, respectively.
Corporate
& Other Segment
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
%
Change
2005
v. 2004
|
%
Change
2004
v. 2003
|
|||||||||||
|
Operating
Revenue
|
||||||||||||||||
|
Other
|
$
|
105
|
$
|
101
|
$
|
114
|
4.0
|
%
|
-11.4
|
%
|
||||||
|
Net
operating revenue
|
105
|
101
|
114
|
4.0
|
%
|
-11.4
|
%
|
|||||||||
|
Costs
and Expenses
|
||||||||||||||||
|
General
and administrative
|
3,741
|
3,120
|
2,117
|
19.9
|
%
|
47.4
|
%
|
|||||||||
|
Depreciation
|
26
|
28
|
172
|
-7.1
|
%
|
-83.7
|
%
|
|||||||||
|
3,767
|
3,148
|
2,289
|
19.7
|
%
|
37.5
|
%
|
||||||||||
|
Income
from unconsolidated subsidiary
|
(109
|
)
|
55
|
-
|
-298.2
|
%
|
100.0
|
%
|
||||||||
|
Loss
from operations
|
(3,771
|
)
|
(2,992
|
)
|
(2,175
|
)
|
26.0
|
%
|
37.6
|
%
|
||||||
|
Interest
income
|
253
|
6
|
2
|
4116.7
|
%
|
200.0
|
%
|
|||||||||
|
Interest
expense
|
(1,328
|
)
|
(922
|
)
|
(1,081
|
)
|
44.0
|
%
|
-14.7
|
%
|
||||||
|
Other
income, net
|
-
|
-
|
9
|
-
|
%
|
-100.0
|
%
|
|||||||||
|
Non-operating
items from unconsolidated subsidiary
|
(4
|
)
|
(5
|
)
|
-
|
20.0
|
%
|
-100.0
|
%
|
|||||||
|
Loss
before income taxes
|
(4,850
|
)
|
(3,913
|
)
|
(3,245
|
)
|
23.9
|
%
|
20.6
|
%
|
||||||
|
Income
tax benefit
|
(2,655
|
)
|
(2,131
|
)
|
(1,273
|
)
|
24.6
|
%
|
67.4
|
%
|
||||||
|
Loss
before minority interest
|
(2,195
|
)
|
(1,782
|
)
|
(1,972
|
)
|
23.2
|
%
|
-9.6
|
%
|
||||||
|
Minority
Interest
|
(130
|
)
|
(106
|
)
|
-
|
22.6
|
%
|
100.0
|
%
|
|||||||
|
Net
Loss
|
$
|
(2,325
|
)
|
$
|
(1,888
|
)
|
$
|
(1,972
|
)
|
23.1
|
%
|
-4.3
|
%
|
|||
Net
operating revenue principally consists of casino technical service fees earned
from operating Casino Millennium in Prague, Czech Republic. Effective September
1, 2002, casino technical service fees and interest due to us are not being
accrued until a certainty of cash flow is attained for Casino Millennium. These
fees will be recognized when payment is certain.
General
and administrative expenses have increased largely due to costs associated
with
new expansion projects, increases in corporate staffing and costs associated
with Sarbanes-Oxley Act compliance. Compliance with the Sarbanes-Oxley Act
have
also resulted in increased auditing costs.
We
increased our staffing levels in advance of our two new projects in order to
effectively integrate these operations into our corporate structure. In
addition, we have also increased staffing to better comply with the requirements
of the Sarbanes-Oxley Act.
Interest
income in 2005 is primarily derived from interest earned on the remaining
proceeds from the ADC offering in October 2005 in addition to the interest
earned on the cash balance in the prime account related to the exercise of
stock
options.
The
Cripple Creek segment allocated $1.3 million, $0.9 million and $1.1 million
in
interest expense to the Corporate & Other segment during the years ended
December 31, 2005, 2004 and 2003, respectively. Interest expense on the amounts
advanced by Womacks, but not repaid, to fund the Company’s acquisitions and the
repurchase of the Company’s common stock is calculated using the effective rate
on all borrowings under Womacks’ revolving credit facility. In December 2005,
CCI repaid these funds to Womacks.
The
Corporate and Other Segment includes earnings and losses sustained by multiple
companies taxed at their respective country’s rates. The mix of earnings and
losses impacts the effective rate reported in the segment.
Other
Projects Under Development
Central
City, Colorado
We
are developing
a casino and hotel project in Central City, Colorado. The $48.7 million
development is planned to include a 60,000 square foot casino and back of house
with 625 slot machines, six table games, 27 hotel rooms, retail, food and
beverage amenities and a 500 space on-site covered parking garage. We
contributed $3.5 million cash equity to the project in exchange for a
controlling 65% interest, and Tollgate Venture LLC contributed three existing
non-operating casino buildings, land and land options valued at $5.7 million,
net of mortgages, for a 35% interest. Of the $48.7 million in overall project
costs, $3.5 million were contributed by us as cash equity, $39.5 million was
financed externally, and the balance of $5.7 million is the net value of the
minority partner’s contribution. We have also entered into a Casino Services
Agreement to manage the property once the project is operational. On August
2,
2005, we secured $4.5 million in funding from a private investor, which was
subsequently paid off in October 2005 from the proceeds of our ADC offering
in
October 2005. On November 21, 2005, we entered into a $35 million loan agreement
with Wells Fargo Bank and a syndicate of institutional lenders. Construction
on
the Century Casino project is expected to be completed by the third quarter
of
2006. We incurred approximately $0.9 million in pre-opening expenses for the
project in 2005, of which the entire amount has been allocated to the minority
partner in the project by agreement.
Edmonton,
Alberta, Canada
On
February 24, 2005, we acquired a 56.4% interest in Century Resorts
Alberta Inc. (“CRA”) for approximately $2.4 million. Our local partner,
746306 Alberta, Ltd., contributed a 7.25-acre parcel of land and an
existing 40 room hotel for the remaining 43.6% interest. On January 12, 2006,
we
purchased the remaining 43.6% minority shareholder interest in CRA for $7.3
million Canadian (approximately $6.3 million). We paid $5.8 million Canadian
(approximately $5.0 million) at closing with the remainder payable on the first
anniversary of the opening of the casino. CRA is developing a Century casino
and
hotel project in Edmonton, Alberta, Canada. Excluding the costs to purchase
the
minority shareholder’s interest, the $30.5 million ($35.8 million Canadian)
development is expected to include a casino with 600 gaming machines, 31 gaming
tables, food and beverage amenities, a dinner theater, a 300 space underground
parking facility, approximately 600 surface parking spaces and a 26-room hotel.
Of the $30.5 million in overall project costs, we contributed $2.4 million
($3.0
million Canadian) for our interest in CRA, $17.2 million ($20 million Canadian)
will be financed through external financing, $9.0 million ($10.5 million
Canadian) will be provided by us as a shareholder loan, and the balance of
$1.9
million ($2.3 million Canadian) is the net value of the minority partner’s
contribution. On September 23, 2005, CRA agreed to the terms of a 20.0 million
Canadian ($17.2 million) credit facility with Canadian Western Bank (“CWB”) for
the development of the casino property. On December 17, 2004, the
Alberta Gaming and Liquor Commission granted approval to begin construction
of
the casino property. As is customary, the issuance of the license does not
occur
until completion of construction and after all federal and provincial
legislation, regulation and policies, and municipal requirements, permits,
licenses and/or authorizations have been met. CRI has entered into a long-term
agreement to manage the facility. Construction is expected to be completed
by
the fourth quarter of 2006. We incurred approximately $0.1 million in
pre-opening expenses, net of taxes, for the project in 2005, of which a portion
of the expenses have been allocated to the minority partner in accordance based
on their ownership percentage in CRA.
Liquidity
and Capital Resources
We
generate substantial cash flows from operating activities, as reflected in
the
Consolidated Statement of Cash Flows. These cash flows reflect the impact on
our
consolidated operations of our marketing programs and on-going cost containment
focus.
We
use
the cash flows generated by the Company to fund reinvestment in existing
properties for both refurbishment and expansion projects, and to pursue
additional growth opportunities via new development opportunities. When
necessary, we supplement the cash flows generated by our operations with either
cash on hand or funds provided by financing activities to balance our cash
requirements.
Cash
and
cash equivalents totaled $37.2 million plus restricted cash of $0.9 million
at
December 31, 2005. Net working capital totaled $30.5 million. Additional
liquidity at Womacks may be provided by the Company’s revolving credit facility
with Wells Fargo Bank, under which we had a total commitment of $26 million
($20.3 million net of the quarterly reduction) and unused borrowing capacity
of
approximately $19.8 million at December 31, 2005. The maturity date of the
borrowing commitment is August 2007. The available balance was reduced by $0.6
million on January 1, 2006, will be reduced
by $0.6 million on April 1, 2006 and then further reduced by $0.7 million at
the
beginning of each quarter beginning July 1, 2006 until maturity in August 2007.
Borrowings under the credit facility may be used for capital expenditures and
working capital at Cripple Creek and corporate headquarters. Womacks is also
permitted to make cash distributions to the Company up to the amount of the
Company’s capital contributions (currently $14.5 million). Additionally, in July
2005, the Company filed a shelf registration statement with the SEC, under
which
we could issue up to $50 million in aggregate issue price of common stock,
preferred stock, debt securities and depositary certificates. In October 2005,
under this shelf registration, we issued 7,132,667 shares of common stock,
in
the form of Austrian Depositary Certificates, through our underwriter, to retail
and institutional investors in the Republic of Austria and in a private
placement to institutional investors in Europe outside of the Republic of
Austria. Net proceeds from this issuance were approximately $46.2 million.
A
total of $19.0 million of the proceeds were used to repay outstanding debt.
We
plan to use the proceeds from this issuance to make investments in additional
gaming projects and for working capital and other general corporate
purposes.
On
November 21, 2005, Century Tollgate, LLC (“CTL”) entered into a $35 million loan
agreement with Wells Fargo Bank and a syndicate of institutional lenders. The
loan agreement consists of a $32.5 million construction loan and a $2.5 million
revolving line of credit (“CC Revolver”). The $32.5 million construction loan
will convert to a 60-month term loan on the earlier of the 12 month anniversary
of the closing of the loan or at such time as the Central City casino has been
opened to the public. The $32.5 million construction loan and the CC Revolver
will both mature on the fifth anniversary of conversion of the construction
loan. The amount outstanding under the term loan is subject to quarterly
reductions, beginning at $0.6 million for the first full quarter following
the
conversion date of the loan, increasing to $1.1 million on the 17th
full
quarter from the conversion date of the loan, until maturity. Availability
under
the line of credit will be conditional upon CTL being in compliance with all
of
the financial and other covenants contained in the loan agreement at the time
of
a particular drawdown, and our continued ability to make certain representations
and warranties. We are required to enter into an interest rate hedge for at
least 75% of the outstanding amount of the loan on the conversion date, ending
on the maturity date of the loan. As of December 31, 2005, the principal balance
outstanding under the loan agreement is $8.9 million.
Cash
provided by operating activities was $9.5 million, $8.5 million and $5.8 million
for 2005, 2004 and 2003 respectively. For a description of the operating
activities of the Company, please refer to the consolidated statements of cash
flows and management’s discussion of the results of operations by
segment.
Cash
used
in investing activities of $23.6 million for the year ended December 31, 2005
consisted of a $2.4 million contribution by us towards our investment in
CRA, less $1.7 million in net cash acquired, $1.9 million in property and
equipment additions at Womacks, of which $1.5 million related to the exercise
of
a purchase option of previously leased property; $2.8 million in property
improvements, gaming equipment and security equipment additions at Caledon,
South Africa; $0.6 million in expenditures to upgrade some of the cruise ships
with ticket-out slot machines and other gaming equipment; $11.9 million towards
construction in Central City, Colorado; and $5.9 million in additional
expenditures towards construction on the property in Edmonton, Alberta, Canada.
These were offset by $0.3 million in proceeds from the disposition of property.
Cash
used
in investing activities of $7.1 million for the year ended December 31, 2004
consisted of: $3.5 million investment by us for Century Casinos Tollgate, Inc.
(“CTI”); $0.4 million towards the upgrade of the slot accounting system, $1.9
million towards new slot games, $1.5 million in improvements to the property
in
Caledon, South Africa; $0.2 million in expenditures to outfit the cruise ships;
and $0.5 million in expenditures for other long-lived assets, less $0.2 million
in proceeds from the disposition of assets and $0.8 million, 4.4 million Rand,
in proceeds from the disposition of the common stock of Verkrans.
Cash
used
in investing activities of $3.5 million for the year ended December 31, 2003,
consisted of: $0.7 million 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; $0.4 million for new slot machines; $0.8 million for
additional improvements to the property in Caledon, South Africa; $1.3 million
towards the purchase of the remaining 35% interest in Century Casinos Caledon
(Pty) Limited, $0.9 million of which was applied against the minority
shareholder liability and $0.3 million of which increased the carrying value
of
the land in Caledon; $0.2 million towards outfitting the two new casinos aboard
the luxury cruise ships operated by Oceania and to finish re-outfitting the
Silver Wind and $0.5 million due to expenditures for other long-lived assets,
less $0.3 million in proceeds from the disposition of assets.
Cash
provided by financing activities of $43.9 million for the year ended December
31, 2005, primarily due to the $46.2 million ADC offering, $2.3 million from
the
exercise of stock options, net borrowings of $8.9 million associated with our
construction loan with Wells Fargo Bank for the Central City project, net
borrowings of $8.9 million associated with our loan with Nedbank Limited and
$0.6 million from the release of restricted cash associated with the ABSA loan
for Caledon. These inflows of cash were offset by net repayments of $15.1
million (of which $14.5 million was obtained from the proceeds of the ADC
offering) under the revolving credit facilities with Wells Fargo, $3.0 million
under the Caledon loan agreement we entered into with ABSA, $1.1 million to
our
minority investor in Central City for a distribution of their interest and
the
repayment of an unsecured note payable, deferred financing charges of $2.4
million, a restricted cash deposit of $1.0 million required for our listing
on
the Vienna Stock Exchange and other net repayments of $0.4 million.
Cash
provided by financing activities of $1.9 million for the year ended December
31,
2004 consisted of: net borrowings of $3.9 million under the Womacks revolving
credit facility, primarily for the $3.5 million capital contribution to the
Central City, Colorado project, net repayments of $1.3 million under the loan
agreement with ABSA, repayment of a $0.4 million note payable to a founding
shareholder, and other net repayments of $0.2 million, less net borrowing of
$0.1 million from a former director, which was subsequently repaid in 2004
and
additional deferred financing and licensing charges incurred by the Company
with
a cost of $0.1 million.
Cash
used
in financing activities of $2.5 million for the year ended December 31, 2003
consisted of: net borrowings of $0.3 million under the revolving credit facility
with Wells Fargo plus $0.9 million in proceeds from the exercise of stock
options, less net repayments of $1.3 million under the loan agreement with
ABSA
Bank, $1.3 million to acquire a loan to CCAL held by the minority shareholder,
Caledon Overberg Investments (Proprietary) Limited (“COIL”); $0.1 million
towards the repurchase of the Company’s common stock on the open market at cost;
and $1.1 million towards the purchase of 489,264 shares of common stock from
a
former director, James Forbes, at a per share price of $2.26.
On
April
8, 2005, CC Tollgate LLC entered into a loan agreement with Colorado Business
Bank securing $5.0 million to finance the predevelopment construction costs
associated with the development of the Central City, Colorado project. Under
the
amended terms of the agreement, the loan was to mature on
January 4, 2006 at which time the principal was due with interest
calculated at prime plus 0.5%. The note was secured by the existing property
and
improvements and by guarantees provided by the Company and Tollgate Venture
LLC.
On November 22, 2005, the company repaid the outstanding balance of $3.6 million
with funds from the Wells Fargo Bank financing, plus accrued
interest.
On
August
2, 2005, we secured $4.5 million in funding from a private lender, which bears
interest at a rate of 16.7% per annum and was to mature in August 2007. In
exchange for the funds, the Company pledged all the outstanding stock of CTI
and
its equity interest in CTL. Proceeds from these borrowings were used in the
development of the casino and hotel in Central City, Colorado. On October 21,
2005, the Company repaid the $4.5 million with proceeds from the ADC offering,
plus accrued interest, without penalty.
On
September 23, 2005, through our subsidiary CRA, we agreed to terms with Canadian
Western Bank for a $20 million Canadian (approximately $17.1 million) credit
facility for the development of a casino and hotel in Edmonton, Alberta, Canada.
The facility is initially structured as a construction loan maturing within
the
earlier of 18 months or upon receipt of a certified architectural completion
certificate, certificate of occupancy and casino license. Upon maturity of
the
construction loan, Canadian Western Bank will issue a term loan to CRA, maturing
within one to five years at the election of CRA. The loan facility is secured
by
the assets of CRA and guaranteed by the Company.
The
Company’s Board of Directors has approved a discretionary program to repurchase
up to $5 million of the Company’s outstanding common stock. The Company did
not
purchase
any shares of its common stock on the open market in 2005.
Since the inception of the program through December 31, 2005, the Company
has repurchased 2,559,004 shares of its common stock at a total cost of
approximately $3.8 million.
The
primary source of our future operating cash flows will be from gaming. We will
continue to rely on revolving lines of credit and term loans with commercial
banks or other debt instruments to supplement our working capital and investing
requirements. We believe that our cash at December 31, 2005, together with
expected cash flows from operations and borrowing capacity under the various
credit facilities, will be sufficient to fund our anticipated operating costs,
capital expenditures at existing properties and satisfy our current debt
repayment obligations. We will continue to evaluate our planned capital
expenditures at each of our existing locations in light of the operating
performance of the facilities at such locations. From time to time we expect
to
have cash needs for the development of new properties that exceed our current
borrowing capacity and we may be required to seek additional financing in the
debt or equity markets. We may be unable to obtain additional debt or equity
financing on acceptable terms. As a result, limitations on our capital resources
could delay or cause us to abandon certain plans for the development of new
properties.
Contractual
Obligations and Commercial Commitments
The
following is a schedule of our contractual obligations and commercial
commitments as of December 31, 2005:
|
Payments
Due by Period
Amounts
shown in thousands
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1-3
years
|
4-5
years
|
More
than 5 years
|
|||||||||||
|
Long-Term
Debt
|
$
|
19,638
|
$
|
1,741
|
$
|
10,460
|
$
|
7,437
|
$
|
-
|
||||||
|
Capital
Lease Obligations
|
154
|
68
|
46
|
40
|
-
|
|||||||||||
|
Operating
Leases
|
751
|
351
|
255
|
145
|
-
|
|||||||||||
|
Total
Contractual Cash Obligations
|
$
|
20,543
|
$
|
2,160
|
$
|
10,761
|
$
|
7,622
|
$
|
-
|
||||||
We
do not
maintain any off-balance sheet arrangements, transactions, obligations or
other
relationships with unconsolidated entities that would be expected to have
a
material current or future effect upon our financial statements.
Critical
Accounting Estimates
The
preparation of financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate these estimates, including those related to goodwill and
other intangible assets and property and equipment. We base our estimates on
historical experience and on various other assumptions that are believed to
be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ materially
from these estimates under different assumptions or conditions. Our significant
accounting policies are discussed in Note 2 of the Notes to Consolidated
Financial Statements; critical estimates inherent in these accounting policies
are discussed in the following paragraphs.
Goodwill
and Other Intangible Assets
- Our
goodwill results from the acquisitions of casino and hotel operations and
represents excess of the purchase price over the fair value of identifiable
net
tangible and intangible assets acquired. Goodwill and intangible assets with
indefinite lives are required to be tested for impairment at least annually
or
more frequently if an event occurs or circumstances change that may reduce
the
fair value of the asset below its carrying value. We have completed our
assessment of goodwill and other intangibles with indefinite lives for
impairment at December 31, 2005 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 are less than the current carrying
value of the reporting units. For reporting units with goodwill and/or
intangible assets with indefinite lives, this test requires the comparison
of
the implied fair value of each reporting unit to its carrying value. The implied
fair value includes estimates of future cash flows, as well as estimates of
critical valuation inputs such as discount rates, terminal values and similar
data based on reasonable and supportable assumptions that represent our best
estimates. Changes in estimates or application of alternative assumptions and
definitions could produce significantly different results. We will continue
to
assess goodwill and other intangibles with indefinite lives for impairment
at
least annually hereafter. We will also continue to assess the propriety of
our
assignment of indefinite useful lives to intangible assets through analysis
of
all pertinent factors used in making such estimates. Included in assets at
December 31, 2005 is goodwill of approximately $8.7 million and casino licenses
of approximately $1.8 million.
Property
and Equipment
- At
December 31, 2005, we had property and equipment totaling $69.6 million,
representing 56% of total assets. We capitalize the cost of property and
equipment. Maintenance and repairs that neither materially add to the value
of
the property nor appreciably prolong its life are charged to expense as
incurred. We depreciate property and equipment on a straight-line basis over
their estimated useful lives. The estimated useful lives are based on the nature
of the assets and our current operating expectations. Future events such as
property expansions, new competition and new regulations could result in a
change in the manner in which we are using certain assets requiring a change
in
the estimated useful lives of such assets. We evaluate long-lived assets for
impairment whenever events or changes in circumstances indicate that such
carrying values may not be recoverable. Under current standards, the assets
must
be carried at historical cost if the projected cash flows from their use will
recover their carrying amounts on an undiscounted basis and without considering
interest. However, if projected cash flows are less than their carrying value,
the long-lived assets must be reduced to their estimated fair value.
Considerable judgment is required to project such cash flows and, if required,
estimate the fair value of the impaired long-lived asset. The estimated future
cash flows are based upon, among other things, assumptions about expected future
operating performance and may differ from actual cash flows. There can be no
assurance that future long-lived asset impairments will not occur. We capitalize
the cost of property and equipment that is contributed in a business combination
at the fair value of the assets that are contributed. Capital assets contributed
by our minority interest partners in CC Tollgate LLC and Century Resorts Alberta
Inc. were recorded at estimated fair value.
Stock-Based
Compensation
- We use
the Black-Scholes option pricing model to estimate the fair value of stock
options. The Black-Scholes model requires management to estimate certain
variables. Such estimates include the estimated lives of options from grant
date
to exercise date, the volatility of the underlying shares and estimated future
dividend rates. The two most significant estimates in the Black-Scholes model
are volatility and expected life. An increase in the volatility rate increases
the value of stock options and a decrease causes a decline in value. The Company
estimated expected volatility using an average of our common stock price over
the preceding twelve month period. For expected lives, an increase in the
expected life of an option increases its value. Based on the nature of our
options and the individuals that they are being issued to, we have estimated
that the expected lives of our options are equal to their contractual
terms.
|
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,
2005. Actual results may differ materially.
Interest
Rate Sensitivity
We
are
subject to interest rate risk on the outstanding borrowing under the credit
facility with Wells Fargo. Interest on the credit facility is variable based
on
the interest rate option selected by us, whereby the interest on the outstanding
debt is subject to fluctuations in the prime interest rate as set by Wells
Fargo, or LIBOR index charges.
In
order
to minimize the risk of increases in the prime rate or LIBOR, we previously
entered into two interest-rate swap agreements in a total of $11.5 million
notional amount of debt. In 1998, we entered into a five-year interest-rate
swap
agreement, which matured on October 11, 2003 on $7.5 million of debt under
the
credit facility, whereby we 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, we entered into a five-year interest rate swap agreement, which matured
on
July 1, 2005 on $4.0 million notional amount of debt under the credit facility,
whereby we paid a LIBOR-based fixed rate of 7.95% and received a LIBOR-based
floating rate reset quarterly based on a three-month rate. Generally, the
swap
arrangements were advantageous to us to the extent that interest rates increased
in the future and disadvantageous to the extent that they decreased. Therefore,
by entering into the interest rate swap agreements, we had a cash flow risk
when
interest rates dropped. Without
the swap agreements, the weighted-average interest rate on the credit facility
would have been 6.4% in 2005, 4.1% in 2004, and 4.0% in 2003.
As
of and subsequent to December 31, 2005, the Company has no outstanding interest
rate swap agreements. However,
the
Company is required to enter into an interest rate hedge for at least 75%
of the
outstanding amount of the loan with Wells Fargo for the construction of the
Central City project on the date the loan converts from a construction loan
to a
term loan, ending on the maturity date of the loan. We expect that this
agreement will have the effect of converting the floating interest rate on
the
Central City debt to a fixed rate on the hedged portion.
We
are
also subject to interest rate risk on the outstanding borrowings with Canadian
Western Bank, Nedbank Limited and the revolving credit facility associated
with
the Central City, Colorado project. Interest on amounts outstanding under these
loan agreements are variable and thus subject to fluctuations in their various
prime rates. Based on our current outstanding borrowings, a
1.0%
movement in the weighted average interest rate would result in an approximate
$0.2 million annualized increase or decrease in interest expense.
Foreign
Currency Exchange Risk
A
total
of 45.4% of our net operating revenues for the year ended December 31, 2005
was
derived from our South African operations and principally denominated in South
African Rand. A total of 41.0% of our expenses for the year ended December
31,
2005 were paid in currencies other than US dollars of which 38.1% was paid
in
South African Rand, 0.8% was paid in Canadian dollars and 2.1% was paid in
Euros. Our US operations generate revenues denominated in US dollars. If an
arrangement provides for us to receive payments in a foreign currency, revenue
realized from such an arrangement may be lower if the value of such foreign
currency declines. Similarly, if an arrangement provides for us to make payments
in a foreign currency, cost of services and operating expenses for such an
arrangement may be higher if the value of such foreign currency increases.
For
example, a 10% change in the relative value of such foreign currency could
cause
a related 10% change in our previously expected revenue, cost of services,
and
operating expenses. If the international portion of our business continues
to
grow, more revenue and expenses will be denominated in foreign currencies,
which
increase our exposure to fluctuations in currency exchange rates. We have not
hedged against foreign currency exchange rate changes related to our
international operations.
|
Financial
Statements and Supplementary
Data.
|
See
“Index” on page 2 hereof.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
None.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures - Our
management, with the participation of our principal executive officers,
principal financial officer and chief accounting 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 officers,
principal financial officer and chief accounting 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.
Management’s
Annual Report on Internal Control over Financial Reporting and Attestation
Report of Registered Public Accounting Firm - The
Company’s management is responsible for establishing and maintaining adequate
internal control over our financial reporting, as defined in Rules 13a-15(f)
and
15d-15(f) under the Exchange Act. Our internal control system was designed
to
provide reasonable assurance to our management and board of directors regarding
the preparation and fair presentation of published financial statements. There
are inherent limitations in the effectiveness of any internal control, including
the possibility of human error and the circumvention or overriding of controls.
Accordingly, even effective internal controls can provide only reasonable
assurances with respect to financial statement preparation. Further, because
of
changes in conditions, the effectiveness of internal controls may vary over
time.
The
Company’s management has assessed the effectiveness of our internal controls
over financial reporting as of December 31, 2005. In making this assessment,
our
management used the criteria set forth in the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control - Integrated Framework.
Based
on
the assessment using those criteria, our management believes that, as of
December 31, 2005, internal control over financial reporting was
effective.
Grant
Thornton LLP, our independent registered public accounting firm, also attested
to, and reported on, management’s assessment of the effectiveness of internal
control over financial reporting. Grant Thornton LLP’s report is included in our
2005 Financial Statements in Item 8 under the caption “Report of Independent
Registered Public Accounting Firm” and is incorporated herein by
reference.
Changes
in Internal Control Over Financial Reporting -
In
conjunction with the 2004 audit, our independent registered public accounting
firm notified us that it had identified matters involving internal control
over
financial reporting and its operation that they considered to be a material
weakness. These matters related to the controls over the recording of fixed
assets in our South African operating subsidiary. The lack of a substantive
policy on the capitalization of fixed assets and a deficiency in our internal
review process as it relates to the South African operation were the reasons
attributed to the failure in detecting this weakness. During the fourth quarter
of 2005, we tested the changes made in previous quarters to the authorization
and approval processes by which entries are recorded to the financial statements
and fixed asset registers. We have concluded that these changes materially
improved our internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter
ended
December 31, 2005 and remediated the material weakness.
|
Other
Information.
|
The
following disclosures would have otherwise been filed on Form 8-K under the
caption “Item 1.01. Entry into a Material Definitive Agreement.”
On
February 16, 2006, the Company entered into an Employment Agreement with
Mr. Ray
Sienko. The agreement will continue until terminated in accordance with the
provisions of the agreement. Mr. Sienko’s main duties on behalf of the Company
as of the effective date shall be to serve as Chief Accounting Officer of
the
Company. Mr. Sienko will be paid an annual base salary of $100,000 and an
annual
bonus at the discretion of the Company’s Compensation Committee. Mr. Sienko also
will be eligible for option grants as determined from time to time by the
Company’s Incentive Plan Committee. The agreement is subject to various
non-compete clauses for a term of six months, in the event of a termination
by
the Company without cause, and for one year in all other
circumstances.
PART
III
|
Directors
and Executive Officers of the
Registrant.
|
The
information required by this item will be included in our Proxy Statement with
respect to our 2006 Annual Meeting of Stockholders to be filed with the SEC
within 120 days of December 31, 2005, 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.
We
have
adopted a Code of Ethics that applies to all directors, officers and employees,
including our Co Chief Executive Officers, our President, our Senior Vice
President and our Chief Accounting Officer. A complete text of this Code of
Ethics is available in Exhibit 14 filed with our Form 10-K for the year ended
December 31, 2003.
|
Executive
Compensation.
|
The
information required by this item will be included in our Proxy Statement with
respect to its 2006 Annual Meeting of Stockholders to be filed with the SEC
within 120 days of December 31, 2005, 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 our Proxy Statement with
respect to its 2006 Annual Meeting of Stockholders to be filed with the SEC
within 120 days of December 31, 2005, under the caption “Voting Securities” and
is incorporated herein by reference.
|
Certain
Relationships and Related
Transactions.
|
The
information in this item is incorporated by reference from our Proxy Statement
with respect to the 2006 Annual Meeting of Stockholders to be filed with the
SEC
within 120 days of December 31, 2005, under the caption “Certain Relationships
and Related Transactions” and is incorporated herein by reference.
|
Principal
Accountant Fees and
Services.
|
The
information in this item is incorporated by reference from our Proxy Statement
with respect to the 2006 Annual Meeting of Stockholders to be filed with the
SEC
within 120 days of December 31, 2005, under the caption “Principal Accountant
Fees and Services” and is incorporated herein by reference.
PART
IV
|
Exhibits
and Financial Statement
Schedules.
|
|
(a)
|
List
of documents filed with this
report
|
|
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, 2005 and 2004.
Consolidated
Statements of Earnings for the Years Ended December 31, 2005, 2004 and
2003.
Consolidated
Statements of Shareholders’ Equity and Comprehensive Income for the years ended
December 31, 2005, 2004 and 2003.
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and
2003.
|
2.
|
Financial
Statement Schedules
|
None
|
3.
|
List
of Exhibits
|
|
(b)
|
Exhibits
Filed Herewith or Incorporated by Reference to Previous Filings with
the
Securities and Exchange
Commission:
|
(3)
Articles of Incorporation and Bylaws
|
3.1
|
Certificate
of Incorporation (filed with Proxy Statement in respect of the 1994
Annual
Meeting of Stockholders and incorporated herein by reference) is
hereby
incorporated by reference from Exhibit 3.1 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1995.
|
|
3.2.2
|
Amended
and Restated Bylaws of Century Casinos, Inc., is hereby incorporated
by
reference from Exhibit 11.14 to Century Casinos’ Quarterly Report on Form
10-Q for the quarterly period ended June 30,
2002.
|
(4)
Instruments Defining the Rights of Security Holders, Including
Indentures
|
4.4
|
Rights
Agreement, dated as of April 29, 1999, between the Company and American
Securities Transfer & Trust, Inc., as Rights Agent, is hereby
incorporated by reference from Exhibit 1 to Century Casinos’ Form 8-A
dated May 7, 1999.
|
|
4.5
|
First
Supplement to Rights Agreement dated April 2000, between Century
Casinos,
Inc and American Securities Transfer & Trust, Inc., as Rights Agent,
is hereby incorporated by reference from Exhibit A to Century Casinos’
Proxy Statement in respect of the 2000 Annual Meeting of
Stockholders.
|
|
4.6
|
Second
Supplement to Rights Agreement dated July 2002, between Century Casinos,
Inc and Computershare Investor Services, Inc. as Rights Agent, is
hereby
incorporated by reference from Exhibit 11.13 to Century Casinos’ Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2002.
|
(10)
Material Contracts
|
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,
is
hereby incorporated by reference from Exhibit 10.51 to Century Casinos’
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995.
|
|
10.78
|
Parking
Lease - Option to Purchase dated June 1, 1998, between the City of
Cripple
Creek (“Lessor”) and WMCK Venture Corporation (“Lessee”) is hereby
incorporated by reference from Exhibit 10.78 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1998.
|
|
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. is hereby
incorporated by reference from Exhibit 10.79 to Century Casinos’ Quarterly
Report on Form 10-QSB for the quarterly period ended March 31,
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. is
hereby incorporated by reference from Exhibit 10.86 to Century Casinos’
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
|
|
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
is
hereby incorporated by reference from Exhibit 10.87 to Century Casinos’
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
|
|
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. is
hereby
incorporated by reference from Exhibit 10.88 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1999.
|
|
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”) is hereby incorporated by reference from Exhibit 10.92 to
Century Casinos’ Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
|
|
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, is hereby incorporated
by reference from Exhibit 10.93 to Century Casinos’ Quarterly Report on
Form 10-QSB for the quarterly period ended March 31,
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, is hereby incorporated by reference
from
Exhibit 10.94 to Century Casinos’ Quarterly Report on Form 10-QSB for the
quarterly period ended 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, is hereby incorporated by reference
from
Exhibit 10.95 to Century Casinos’ Quarterly Report on Form 10-QSB for the
quarterly period ended March 31,
2000.
|
|
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,
is
hereby incorporated by reference from Exhibit 10.98 to Century Casinos’
Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000.
|
|
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, is hereby incorporated by reference from Exhibit 11.01 to Century
Casinos’ Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 2001.
|
|
10.102
|
Management
Agreement by and between Century Casinos, Inc. and Focus Casino Consulting
A.G. dated March 1, 2001, is hereby incorporated by reference from
Exhibit
11.02 to Century Casinos’ Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2001.
|
|
10.103
|
Management
Agreement by and between Century Casinos, Inc. and Flyfish Casino
Consulting A.G. dated March 1, 2001, is hereby incorporated by reference
from Exhibit 11.03 to Century Casinos’ Annual Report on Form 10-KSB for
the fiscal year ended December 31,
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, is hereby incorporated by reference from Exhibit 11.04 to
Century
Casinos’ Annual Report on Form 10-KSB for the fiscal year ended December
31, 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, is
hereby
incorporated by reference from Exhibit 11.05 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2001.
|
|
10.106
|
Amendment
to Loan Agreement between Century Casinos Africa (Pty) Limited and
Century
Casinos Caledon (Pty) Ltd. (previously known as Caledon Casino Bid
Company
(Pty) Ltd.), Caledon Overberg Investments (Pty) Limited and Century
Casinos, Inc. dated September 20, 2001, is hereby incorporated by
reference from Exhibit 11.06 to Century Casinos’ Annual Report on Form
10-KSB for the fiscal year ended December 31,
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, is hereby
incorporated by reference from Exhibit 11.07 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
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, is hereby
incorporated by reference from Exhibit 11.08 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
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, is hereby
incorporated by reference from Exhibit 11.11 to Century Casinos’ Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2001.
|
|
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., is hereby incorporated
by
reference from Exhibit 11.12 to Century Casinos’ Quarterly Report on Form
10-Q for the quarterly period ended March 31,
2002.
|
|
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, is hereby incorporated by reference from Exhibit 10.115 to
Century
Casinos’ Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002.
|
|
10.120
|
Employment
Agreement by and between Century Casinos, Inc. and Erwin Haitzmann
as
restated on February 18, 2003, is hereby incorporated by reference
from
Exhibit 10.120 to Century Casinos’ Annual Report on Form 10-K for the
fiscal year ended December 31,
2002.
|
|
10.121
|
Employment
Agreement by and between Century Casinos, Inc. and Peter Hoetzinger
as
restated on February 18, 2003, is hereby incorporated by reference
from
Exhibit 10.121 to Century Casinos’ Annual Report on Form 10-K for the
fiscal year ended December 31,
2002.
|
|
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, is hereby
incorporated by reference from Exhibit 10.122 to Century Casinos’ Annual
Report on Form 10-K for the fiscal year ended December 31,
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, is hereby
incorporated by reference from Exhibit 10.123 to Century Casinos’ Annual
Report on Form 10-K for the fiscal year ended December 31,
2002.
|
|
10.124
|
Sale
Agreement between Century Casinos Africa (Pty) Limited and Caledon
Overberg Investments (Pty) Limited dated January 7, 2003, is hereby
incorporated by reference from Exhibit 10.124 to Century Casinos’ Annual
Report on Form 10-K for the fiscal year ended December 31,
2002.
|
|
10.131
|
Adjustment/Amendment
No. 3 to Management Agreement by and between Century Casinos, Inc.
and
Flyfish Casino Consulting A.G. dated March 29, 2004, is hereby
incorporated by reference from Exhibit 10.131 to Century Casinos’
Quarterly Report on Form 10-Q for the quarterly period ended March
31,
2004.
|
|
10.132
|
Contribution
agreement dated as of October 12, 2004 among Century Casinos Tollgate
Inc., Tollgate Venture, LLC, KJE Investments, LLC, Central City Venture,
LLC, and CC Tollgate LLC., is hereby incorporated by reference from
Exhibit 10.132 to Century Casinos’ Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2004.
|
|
10.133
|
Limited
Liability Company Agreement of CC Tollgate LLC dated as of October
12,
2004, is hereby incorporated by reference from Exhibit 10.133 to
Century
Casinos’ Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2004.
|
|
10.134
|
Casino
Services Agreement by and between CC Tollgate LLC and Century Resorts
International Limited dated October 12, 2004, is hereby incorporated
by
reference from Exhibit 10.134 to Century Casinos’ Quarterly Report on Form
10-Q for the quarterly period ended September 30,
2004.
|
|
10.136
|
Third
Amendment to Restated Credit Agreement dated October 27, 2004 among
WMCK
Venture Corp., Century Casinos Cripple Creek, WMCK Acquisition Corp.,
Century Casinos, Inc. and Wells Fargo Bank, N.A., is hereby incorporated
by reference from Exhibit 10.136 to Century Casinos’ Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
2004.
|
|
10.137
|
Amended
and Restated Brokerage Agreement between Novomatic AG and Century
Resort
Limited (rights transferred from Century Casinos, Inc.) dated October
1,
2004, is hereby incorporated by reference from Exhibit 10.137 to
Century
Casinos’ Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2004.
|
|
10.139
|
Settlement
of Loans Agreement between Century Resorts Limited, Century Casinos
Africa
(Proprietary) Limited, Silverstar Development Limited and Jose De
Silva,
effective December 1, 2004, is hereby incorporated by reference from
Exhibit 10.139 to Century Casinos’ Current Report on Form 8-K, dated
December 7, 2004.
|
|
10.141
|
Option
Agreement between Akani Leisure Investments (Proprietary) Limited
(“Akani”) and Century Resorts Limited, transfer all rights to Akani,
effective December 1, 2004, is hereby incorporated by reference from
Exhibit 10.141 to Century Casinos’ Current Report on Form 8-K, dated
December 7, 2004.
|
|
10.142
|
Option
Agreement between Akani Leisure Investments (Proprietary) Limited
(“Akani”) and Century Casinos West Rand (Proprietary) Limited, transfer
all rights to Akani, effective December 1, 2004, is hereby incorporated
by
reference from Exhibit 10.142 to Century Casinos’ Current Report on Form
8-K, dated December 7, 2004.
|
|
10.143
|
Amendment
to Employment Agreement, Dr. Erwin Haitzmann, dated February 3, 2005,
is
hereby incorporated by reference from Exhibit 10.143 to Century Casinos’
Current report on Form 8-K, dated February 3,
2005.
|
|
10.144
|
Amendment
to Employment Agreement, Mag. Peter Hoetzinger, dated February 3,
2005, is
hereby incorporated by reference from Exhibit 10.144 to Century Casinos’
Current Report on Form 8-K, dated February 3,
2005.
|
|
10.145
|
Assignment
of Management Agreement by and between Century Casinos, Inc and Flyfish
Casino Consulting AG, dated February 23, 2005, is hereby incorporated
by
reference from Exhibit 10.145 to Century Casinos’ Current Report on Form
8-K, dated March 1, 2005.
|
|
10.146
|
Assignment
of Management Agreement by and between Century Casinos, Inc and Focus
Casino Consulting AG, dated February 23, 2005, is hereby incorporated
by
reference from Exhibit 10.146 to Century Casinos’ Current Report on Form
8-K, dated March 1, 2005.
|
|
10.147
|
Employment
Agreement by and between Century Casinos, Inc and Mr. Larry Hannappel,
dated March 22, 2005, is hereby incorporated by reference from Exhibit
10.147 to Century Casinos’ Current Report on Form 8-K, dated March 22,
2005.
|
|
10.149
|
Corrected
Employment Agreement by and between Century Casinos, Inc. and Mr.
Richard
S. Rabin, Chief Operating Officer, North America dated April 27,
2005, is
hereby incorporated by reference from Exhibit 10.149 to Century Casinos’
Amended Annual Report on Form 10-K/A for the fiscal year ended December
31, 2004.
|
|
10.153
|
Fourth
Amendment to Amended and Restated Credit Agreement, dated as of September
23, 2005, is hereby incorporated by reference from Exhibit 10.153
to
Century Casinos’ Current Report on Form 8-K, dated September 27,
2005.
|
|
10.154
|
Commitment
letter by and between Century Resorts Alberta Inc. and Canadian Western
Bank dated September 23, 2005, original commitment letter dated
August 3, 2005 and amendments dated September 8, 2005 and September
21,
2005, is hereby incorporated by reference from Exhibit 10.154 to
Century
Casinos’ Current Report on Form 8-K, dated September 27,
2005.
|
|
10.156
|
Mandate
Agreement, dated September 30, 2005, between Century Casinos, Inc.
and
Bank Austria Creditanstalt AG, is hereby incorporated by reference
from
Exhibit 10.156 to Century Casinos’ Current Report on Form 8-K, dated
October 3, 2005.
|
|
10.157
|
ADC
Agreement, dated September 30, 2005, by and among Bank Austria
Creditanstalt AG, Century Casinos, Inc., and Oesterreichische Kontrollbank
Aktiengesellschaft, is hereby incorporated by reference from Exhibit
10.157 to Century Casinos’ Current Report on Form 8-K, dated October 3,
2005.
|
|
10.158
|
Annex
to ADC Agreement between Bank Austria Creditanstalt AG, Century Casinos,
Inc. and Oesterreichische Kontrollbank Aktiengesellschaft dated September
30, 2005, is hereby incorporated by reference from Exhibit 10.158
to
Century Casinos’ Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2005.
|
|
10.159
|
Shareholders’
Agreement between Century Casinos Africa (Proprietary) Limited and
Winlen
Casino Operators (Proprietary) Limited dated November 21, 2005, is
hereby
incorporated by reference from Exhibit 10.159 to Century Casinos’ Current
Report on Form 8-K, dated November 23,
2005.
|
|
10.160
|
Credit
Agreement dated as of November 18, 2005 among CC Tollgate LLC, a
Delaware
limited liability company, as Borrower, the Lenders and L/C issuer
herein
named Wells Fargo Bank, National Association, as Agent Bank, is hereby
incorporated by reference from Exhibit 10.160 to Century Casinos’ Current
Report on Form 8-K, dated November 29,
2005.
|
|
10.161
|
Standard
Form of Agreement Between Owner and Contractor where the basis for
payment
is the cost of the work plus a fee with a negotiated Guaranteed Maximum
Price between the Owner, CC Tollgate LLC, and the Contractor, Sprung
Construction, Inc., Subchapter S Corporation, dated April 6, 2005,
is
hereby incorporated by reference from Exhibit 10.161 to Century Casinos’
Current Report on Form 8-K, dated December 8, 2005.
|
|
10.162
|
Standard
Form of Agreement Between Owner and Contractor where the basis for
payment
is the cost of the work plus a fee with a negotiated Guaranteed Maximum
Price between the Owner, CC Tollgate LLC, and the Contractor, CFC
Construction, Inc., dated July 21, 2005, is hereby incorporated by
reference from Exhibit 10.162 to Century Casinos’ Current Report on Form
8-K, dated December 8, 2005.
|
|
10.163
|
Agreement
between Century Resorts Alberta Inc. (owner) and Chandos Construction
Ltd.
(contractor) as of December 2, 2005, is hereby incorporated by reference
from Exhibit 10.163 to Century Casinos’ Current Report on Form 8-K, dated
December 8, 2005.
|
|
10.164
|
Binding
letter of intent between Century Resorts Alberta Inc., 746306 Alberta
Ltd
and Century Resorts International Ltd dated December 2, 2005 and
accepted
on December 6, 2005, is hereby incorporated by reference from Exhibit
10.164 to Century Casinos’ Current Report on Form 8-K, dated December 12,
2005.
|
|
10.165
|
Fifth
Amendment to Amended and Restated Credit Agreement, dated as of December
6, 2005, is hereby incorporated by reference from Exhibit 10.165
to
Century Casinos’ Current Report on Form 8-K, dated December 12,
2005.
|
|
10.166
|
Century
Casinos, Inc. 2005 Equity Incentive Plan effective June 17, 2005,
is
hereby incorporated by reference from Appendix A to Century Casinos’ Proxy
Statement in respect of the 2005 Annual Meeting of
Stockholders.
|
|
10.167
|
Employment
agreement, effective March 15, 2005, between Century Casinos, Inc.
and Mr.
Ray Sienko dated February 16, 2006.
|
(14)
Code of Ethics
|
14
|
Code
of Ethics, is hereby incorporated by reference from Exhibit 14 to
Century
Casinos’ Annual Report on Form 10-K for the fiscal year ended December 31,
2003.
|
(21)
Subsidiaries of the Registrant
|
Subsidiaries
of the Registrant
|
(23)
Consents of Experts and Counsel
|
Consent
of Independent Auditors - Grant Thornton
LLP
|
|
Consent
of Independent Auditors - PricewaterhouseCoopers
Inc.
|
(31)
Rule 13a-14(a)/15d-14(a) Certifications
|
Certification
Pursuant to Securities Exchange Act Rule 13a-15(f) and 15d-15(f),
Chairman
of the Board and Co Chief Executive
Officer.
|
|
Certification
Pursuant to Securities Exchange Act Rule 13a-15(f) and 15d-15(f),
Vice-Chairman, President and Co Chief Executive
Officer.
|
|
Certification
Pursuant to Securities Exchange Act Rule 13a-15(f) and 15d-15(f),
Senior
Vice-President
|
|
Certification
Pursuant to Securities Exchange Act Rule 13a-15(f) and 15d-15(f),
Chief
Accounting Officer.
|
(32)
Section 1350 Certifications
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Chairman
of the
Board and Co Chief Executive
Officer.
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Vice-Chairman,
President and Co Chief Executive
Officer.
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Senior
Vice-President.
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Chief
Accounting Officer.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
CENTURY
CASINOS, INC.
|
||
|
By:
/s/ Erwin Haitzmann
|
By:
/s/ Peter Hoetzinger
|
|
|
Erwin
Haitzmann, Chairman of the Board and
Co
Chief Executive Officer
(Co
Principal Executive Officer)
|
Peter
Hoetzinger, Vice-Chairman of the Board,
Co
Chief Executive Officer and President
(Co
Principal Executive Officer)
|
|
|
By:
/s/ Larry Hannappel
|
By:
/s/ Ray Sienko
|
|
|
Larry
Hannappel, Senior Vice-President
(Principal
Financial Officer)
|
Ray
Sienko, Chief Accounting Officer
(Principal
Accounting Officer)
|
|
|
Date:
March 8, 2006
|
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, 2006.
|
Signature
|
Title
|
Signature
|
Title
|
|
/s/
Erwin Haitzmann
Erwin
Haitzmann
|
Chairman
of the Board and
Co
Chief Executive Officer
|
/s/
Gottfried Schellmann
Gottfried
Schellmann
|
Director
|
|
/s/
Peter Hoetzinger
Peter
Hoetzinger
|
Vice
Chairman of the Board,
Co
Chief Executive Officer
and
President
|
/s/
Robert S. Eichberg
Robert
S. Eichberg
|
Director
|
|
/s/
Dinah Corbaci
Dinah
Corbaci
|
Director
|
Board
of
Directors and Shareholders
of
Century Casinos, Inc.
We
have audited the accompanying consolidated balance sheets of Century Casinos,
Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2005 and 2004, and the related consolidated statements of
earnings, shareholders’ equity and comprehensive income, and cash flows for each
of the three years in the period ended December 31, 2005. 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 percent subsidiary,
for the
year ended December 31, 2003, which statements reflect total assets of 36
percent of the consolidated total assets as of December 31, 2003 and total
revenues of 36 percent of the consolidated total revenue for the year ended
December 31, 2003. These 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, is based solely on the report
of the
other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 provide a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Century Casinos, Inc. and
subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period
ended
December 31, 2005 in conformity with accounting principles generally
accepted in the United States of America.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Century
Casinos, Inc. and subsidiaries’ internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal
Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 3, 2006 expressed unqualified
opinions.
/s/
GRANT THORNTON LLP
Denver,
Colorado
March 3,
2006
Board
of
Directors and Shareholders
of
Century Casinos, Inc.
We
have audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting appearing under
Item 9A, that Century Casinos, Inc. (a Delaware Corporation) and
subsidiaries (the “Company”) maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established
in Internal
Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Century Casinos, Inc.’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
-F2-
In
our
opinion, management’s assessment that Century Casinos, Inc. and subsidiaries,
maintained effective internal control over financial reporting as of
December 31, 2005, is fairly stated, in all material respects, based on
criteria established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Also in our opinion, Century Casinos, Inc. and subsidiaries maintained,
in all
material respects, effective internal control over financial reporting
as of
December 31, 2005, based on criteria established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
/s/
GRANT
THORNTON LLP
Denver,
Colorado
March
3,
2006
We
have
audited the consolidated balance sheets of Century Casinos Africa (Proprietary)
Limited and subsidiaries as at December 31, 2003 and 2002 and related
consolidated income statements, cash flow statements and statements of
changes
in shareholders’ equity for the years then ended (not presented herein). These
financial statements are the responsibility of the directors of the Company.
Our
responsibility is to express an opinion on these financial statements based
on
our audit.
Scope
We
conducted our audit in accordance with auditing standards generally accepted
in
South 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 (not presented herein) are free of material
misstatement. An audit includes:
- examining,
on a test basis, evidence supporting the amounts and disclosures included
in the
financial statements,
- assessing
the accounting principles used and significant estimates made by management,
and
- evaluating
the overall financial statement presentation.
We
believe that our audit provides a reasonable basis for our opinion.
Audit
Opinion
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Century
Casinos
Africa (Proprietary) Limited and its subsidiaries at December 31, 2003
and 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 2002 and the
determination of consolidated shareholders’ equity expressed in South African
Rand at 31 December 2003 and 2002 to the extent summarised in Note 28 (not
presented herein) to the financial statements.
/s/
PricewaterhouseCoopers Inc.
PRICEWATERHOUSECOOPERS
INC.
Chartered
Accountants (SA)
Registered
Accountants and Auditors
Cape
Town
1
March
2004
CONSOLIDATED
BALANCE SHEETS
|
Amounts
shown in thousands, except share information
|
December
31, 2005
|
|
December
31, 2004
|
||||
|
ASSETS
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
37,167
|
$
|
8,411
|
|||
|
Restricted
cash
|
947
|
706
|
|||||
|
Receivables,
net
|
293
|
193
|
|||||
|
Prepaid
expenses
|
518
|
437
|
|||||
|
Inventories
|
209
|
215
|
|||||
|
Other
current assets
|
927
|
28
|
|||||
|
Deferred
income taxes - domestic
|
-
|
97
|
|||||
|
-
foreign
|
72
|
88
|
|||||
|
Total
current assets
|
40,133
|
10,175
|
|||||
|
Property
and Equipment, net
|
69,602
|
48,629
|
|||||
|
Goodwill
|
8,662
|
8,845
|
|||||
|
Casino
Licences
|
1,845
|
2,061
|
|||||
|
Deferred
Income Taxes - foreign
|
380
|
207
|
|||||
|
Equity
Investment in Unconsolidated Subsidiary
|
-
|
116
|
|||||
|
Other
Assets
|
2,941
|
1,171
|
|||||
|
Total
|
$
|
123,563
|
$
|
71,204
|
|||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Current
portion of long-term debt
|
$
|
1,789
|
$
|
2,534
|
|||
|
Accounts
payable and accrued liabilities
|
5,504
|
3,548
|
|||||
|
Accrued
payroll
|
1,149
|
1,372
|
|||||
|
Taxes
payable
|
1,189
|
711
|
|||||
|
Other
|
8
|
102
|
|||||
|
Total
current liabilities
|
9,639
|
8,267
|
|||||
|
Long-Term
Debt, less current portion
|
17,934
|
17,970
|
|||||
|
Deferred
Tax Liability
- domestic
|
215
|
234
|
|||||
|
Minority
Interest
|
4,444
|
4,354
|
|||||
|
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; 22,568,443
and
14,485,776 shares issued, respectively; 22,380,567 and 13,694,900
shares
outstanding, respectively
|
226
|
145
|
|||||
|
Additional
paid-in capital
|
68,571
|
21,528
|
|||||
|
Accumulated
other comprehensive income
|
2,568
|
4,597
|
|||||
|
Retained
earnings
|
20,391
|
15,910
|
|||||
|
91,756
|
42,180
|
||||||
|
Treasury
stock - 187,876 and 790,876 shares at cost, respectively
|
(425
|
)
|
(1,801
|
)
|
|||
|
Total
shareholders’ equity
|
91,331
|
40,379
|
|||||
|
Total
|
$
|
123,563
|
$
|
71,204
|
See
notes
to consolidated financial statements
CONSOLIDATED
STATEMENTS OF EARNINGS
|
2005
|
|
2004
|
|
2003
|
||||||
|
Operating
Revenue:
|
||||||||||
|
Casino
|
$
|
36,394
|
$
|
34,641
|
$
|
31,869
|
||||
|
Hotel,
food and beverage
|
4,522
|
4,322
|
3,568
|
|||||||
|
Other
|
783
|
1,092
|
650
|
|||||||
|
41,699
|
40,055
|
36,087
|
||||||||
|
Less
promotional allowances
|
(4,254
|
)
|
(4,290
|
)
|
(4,657
|
)
|
||||
|
Net
operating revenue
|
37,445
|
35,765
|
31,430
|
|||||||
|
Operating
Costs and Expenses:
|
||||||||||
|
Casino
|
14,293
|
13,760
|
11,667
|
|||||||
|
Hotel,
food and beverage
|
2,776
|
3,134
|
2,553
|
|||||||
|
General
and administrative
|
11,073
|
8,925
|
7,710
|
|||||||
|
Depreciation
|
3,349
|
2,993
|
2,668
|
|||||||
|
Total
operating costs and expenses
|
31,491
|
28,812
|
24,598
|
|||||||
|
(Loss)
earnings from unconsolidated subsidiary
|
(109
|
)
|
55
|
-
|
||||||
|
Earnings
from Operations
|
5,845
|
7,008
|
6,832
|
|||||||
|
Non-Operating
Income (Expense)
|
||||||||||
|
Interest
income
|
476
|
168
|
204
|
|||||||
|
Interest
expense
|
(2,109
|
)
|
(1,587
|
)
|
(2,011
|
)
|
||||
|
Early
debt repayment expense
|
(181
|
)
|
-
|
-
|
||||||
|
Gain
on foreign currency translation and other
|
13
|
1
|
20
|
|||||||
|
Non-operating
items from unconsolidated subsidiary
|
(4
|
)
|
(5
|
)
|
-
|
|||||
|
Non-operating
expense, net
|
(1,805
|
)
|
(1,423
|
)
|
(1,787
|
)
|
||||
|
Earnings
before Income Taxes and Minority Interest
|
4,040
|
5,585
|
5,045
|
|||||||
|
Provision
for income taxes
|
347
|
749
|
1,777
|
|||||||
|
Earnings
before Minority Interest
|
3,693
|
4,836
|
3,268
|
|||||||
|
Minority
interest in subsidiary losses (earnings)
|
788
|
(98
|
)
|
(22
|
)
|
|||||
|
Net
Earnings
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Earnings
Per Share
|
||||||||||
|
Basic
|
$
|
0.28
|
$
|
0.35
|
$
|
0.24
|
||||
|
Diluted
|
$
|
0.25
|
$
|
0.30
|
$
|
0.22
|
||||
See
notes
to consolidated financial statements
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
FOR
THE
YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
(Amounts
shown in thousands, except share information)
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Retained
|
Treasury
Stock
|
|||||||||||||||||||||
|
Shares
|
Amt
|
Capital
|
Income
(Loss)
|
Earnings
|
Shares
|
Amount
|
Total
|
||||||||||||||||||
|
BALANCE
AT JANUARY 1, 2003
|
14,485,776
|
$
|
145
|
$
|
21,874
|
$
|
(1,052
|
)
|
$
|
7,926
|
904,912
|
$
|
(1,790
|
)
|
$
|
27,103
|
|||||||||
|
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
|
|||||||||||||||||
|
Change
in fair value of interest rate swap, net of income tax
expense
|
-
|
-
|
-
|
782
|
-
|
-
|
-
|
782
|
|||||||||||||||||
|
Reclassification
of interest expense on interest rate swap
|
-
|
-
|
-
|
(520
|
)
|
-
|
-
|
-
|
(520
|
)
|
|||||||||||||||
|
Net
earnings
|
-
|
-
|
-
|
-
|
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
|
||||||||||
|
Options
exercised
|
-
|
-
|
(1
|
)
|
-
|
-
|
(14,400
|
)
|
31
|
30
|
|||||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
2,775
|
-
|
-
|
-
|
2,775
|
|||||||||||||||||
|
Reclassification
of the amount of accumulated foreign currency translation
adjustment from
other comprehensive income to earnings attributable to
the sale of
Verkrans
|
-
|
-
|
-
|
(380
|
)
|
-
|
-
|
-
|
(380
|
)
|
|||||||||||||||
|
Change
in fair value of interest rate swap, net of income tax
expense
|
-
|
-
|
-
|
428
|
-
|
-
|
-
|
428
|
|||||||||||||||||
|
Reclassification
of interest expense on interest rate swap
|
-
|
-
|
-
|
(260
|
)
|
-
|
-
|
-
|
(260
|
)
|
|||||||||||||||
|
Net
earnings
|
-
|
-
|
-
|
-
|
4,738
|
-
|
-
|
4,738
|
|||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2004
|
14,485,776
|
$
|
145
|
$
|
21,528
|
$
|
4,597
|
$
|
15,910
|
790,876
|
$
|
(1,801
|
)
|
$
|
40,379
|
||||||||||
|
Issuance
of common stock, net of $3.0 million in issuance costs
|
7,132,667
|
71
|
46,116
|
-
|
-
|
-
|
-
|
46,187
|
|||||||||||||||||
|
Options
exercised
|
950,000
|
10
|
927
|
-
|
-
|
(603,000
|
)
|
1,376
|
2,313
|
||||||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
(2,093
|
)
|
-
|
-
|
-
|
(2,093
|
)
|
|||||||||||||||
|
Change
in fair value of interest rate swap, net of income tax
expense
|
-
|
-
|
-
|
166
|
-
|
-
|
-
|
166
|
|||||||||||||||||
|
Reclassification
of interest expense on interest rate swap
|
-
|
-
|
-
|
(102
|
)
|
-
|
-
|
-
|
(102
|
)
|
|||||||||||||||
|
Net
earnings
|
-
|
-
|
-
|
-
|
4,481
|
-
|
-
|
4,481
|
|||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2005
|
22,568,443
|
$
|
226
|
$
|
68,571
|
$
|
2,568
|
$
|
20,391
|
187,876
|
$
|
(425
|
)
|
$
|
91,331
|
||||||||||
See
notes to consolidated financial statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Amounts
shown in thousands
|
For
the Year Ended December 31,
|
|||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||
|
Net
earnings
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities
|
||||||||||
|
Depreciation
|
3,349
|
2,993
|
2,668
|
|||||||
|
Amortization
of deferred financing costs
|
448
|
75
|
113
|
|||||||
|
Gain
on disposition of assets and real estate option
|
(74
|
)
|
(20
|
)
|
(28
|
)
|
||||
|
Deferred
tax (benefit) expense
|
(147
|
)
|
554
|
199
|
||||||
|
Minority
interest in subsidiary (losses) earnings
|
(788
|
)
|
98
|
22
|
||||||
|
Loss
(earnings) from unconsolidated subsidiary
|
109
|
(55
|
)
|
-
|
||||||
|
Reclassification
of accumulated foreign currency translation adjustment
attributable to the
sale of Verkrans
|
-
|
(380
|
)
|
-
|
||||||
|
Write
down of Nevada property held for sale
|
32
|
-
|
-
|
|||||||
|
Other
|
-
|
-
|
20
|
|||||||
|
Changes
in operating assets and liabilities
|
||||||||||
|
Receivables
|
(151
|
)
|
110
|
(118
|
)
|
|||||
|
Prepaid
expenses and other assets
|
(888
|
)
|
(357
|
)
|
(236
|
)
|
||||
|
Accounts
payable and accrued liabilities
|
2,760
|
1,282
|
(394
|
)
|
||||||
|
Accrued
payroll
|
(177
|
)
|
43
|
110
|
||||||
|
Taxes
payable
|
546
|
(609
|
)
|
219
|
||||||
|
Net
cash provided by operating activities
|
9,500
|
8,472
|
5,821
|
|||||||
|
Cash
Flows from Investing Activities:
|
||||||||||
|
Purchases
of property and equipment
|
(23,152
|
)
|
(4,508
|
)
|
(2,585
|
)
|
||||
|
Acquisition
of remaining interest in subsidiary
|
-
|
-
|
(1,259
|
)
|
||||||
|
Cash
contribution of $2,432 towards interest in subsidiary,
less net cash
acquired of $1,679
|
(753
|
)
|
-
|
-
|
||||||
|
Investment
in subsidiary
|
-
|
(3,500
|
)
|
-
|
||||||
|
Proceeds
from disposition of subsidiary
|
-
|
753
|
-
|
|||||||
|
Proceeds
from disposition of assets
|
264
|
205
|
308
|
|||||||
|
Net
cash used in investing activities
|
(23,641
|
)
|
(7,050
|
)
|
(3,536
|
)
|
||||
-Continued
on following page-
CENTURY
CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Amounts
shown in thousands
|
For
the Year Ended December 31,
|
|||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Cash
Flows from Financing Activities:
|
||||||||||
|
Proceeds
from borrowings
|
$
|
58,680
|
$
|
31,462
|
$
|
27,269
|
||||
|
Principal
repayments
|
(59,467
|
)
|
(29,479
|
)
|
(29,478
|
)
|
||||
|
Distribution
to minority interest
|
(1,000
|
)
|
-
|
-
|
||||||
|
Deferred
financing costs
|
(2,419
|
)
|
(113
|
)
|
-
|
|||||
|
(Increase)
decrease in restricted cash
|
(387
|
)
|
-
|
64
|
||||||
|
Proceeds
from exercise of options
|
2,313
|
31
|
850
|
|||||||
|
Proceeds
from issuance of Austrian Depositary Certificates, net
of $3.0 million in
issuance costs
|
46,187
|
-
|
-
|
|||||||
|
Purchases
of treasury stock
|
-
|
-
|
(1,237
|
)
|
||||||
|
Loss
in non-operating items from unconsolidated subsidiary
|
4
|
5
|
-
|
|||||||
|
Net
cash provided by (used in) financing activities
|
43,911
|
1,906
|
(2,532
|
)
|
||||||
|
Effect
of exchange rate changes on cash
|
(1,014
|
)
|
354
|
394
|
||||||
|
Increase
in Cash and Cash Equivalents
|
28,756
|
3,682
|
147
|
|||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
8,411
|
4,729
|
4,582
|
|||||||
|
Cash
and Cash Equivalents at End of Year
|
$
|
37,167
|
$
|
8,411
|
$
|
4,729
|
||||
Supplemental
Disclosure of Noncash Investing and Financing Activities:
On
February 24, 2005, our wholly owned subsidiary, Century Resorts
International
Limited, purchased a 56.4% (56.4 shares) equity interest in Century
Resorts
Alberta, Inc. for the purpose of operating the proposed casino
and hotel by
contributing $2.4 million in cash to Century Resorts Alberta, Inc.
In
conjunction with this acquisition, we assumed the following assets
and
liabilities:
|
Amounts
in thousands
|
||||
|
Fair
value of cash acquired
|
1,679
|
|||
|
Fair
value of property and equipment acquired
|
2,631
|
|||
|
Amount
credited to minority partner
|
(1,878
|
)
|
||
|
Cash
paid
|
$
|
2,432
|
||
The
assets acquired and liabilities assumed are reported in the consolidated
balance
sheet. Century Resorts Alberta Inc. is a new entity and pro forma
information is
not applicable.
In
January 2004, the Company, through its wholly owned subsidiary Century
Casinos
Europe GmbH (“CCE”), purchased an additional 40% interest in Casino Millennium
(“CM”), bringing its total interest to 50%, by contributing gaming equipment
with a net book value of $0.6 million. The contribution of the gaming
equipment,
along with a cash contribution made in December 2002 which was accounted
for by
CCE on a cost basis in Euro and had a value of $0.3 million on January
3, 2004,
brought the Company’s total investment in CM to $0.9 million, of which $0.3
million was allocated to a shareholder loan acquired as part of the
transaction.
The difference between the cost and the equity of CM, of $0.6 million,
has been
recorded as goodwill.
In
December 2004, the Company, through its wholly owned subsidiary
Century Casinos
Tollgate, Inc. (“CTI”), purchased a 65% interest in CC Tollgate LLC. In
conjunction with the acquisition, we assumed the following assets
and
liabilities:
CENTURY
CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
|
Amounts
in thousands
|
||||
|
Fair
value of property and equipment acquired
|
$
|
9,205
|
||
|
Fair
value of long term debt acquired
|
(4,582
|
)
|
||
|
Amount
credited to minority partner
|
(1,000
|
)
|
||
|
Fair
value of accounts payable and other accrued liabilities
assumed by
CCI
|
(123
|
)
|
||
|
Cash
paid
|
$
|
3,500
|
||
The
assets acquired and liabilities assumed are reported in the consolidated
balance
sheet. CC Tollgate LLC is a new entity and pro forma information
is not
applicable.
In
January 2003, we, through Century Casinos Africa (Pty) Limited (“CCA”),
purchased the remaining 35% interest in Century Casinos Caledon (Pty)
Limited
(“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 our Employee’s Equity Incentive Plan (“EEIP”), exercised all
618,000 of his outstanding options, carrying an average strike price
of $1.31.
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:
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
|||||||
|
Interest
paid, net of capitalized interest of $582 in 2005, $0 in
2004 and $46 in
2003
|
$
|
1,890
|
$
|
1,504
|
$
|
2,057
|
||||
|
Income
taxes paid
|
$
|
1,083
|
$
|
614
|
$
|
1,090
|
||||
See
notes
to consolidated financial statements
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION
OF BUSINESS
|
Century
Casinos, Inc. (“CCI” or the “Company”) is an international gaming company. We
own and/or manage casino operations in the United States, South Africa,
the
Czech Republic and international waters through various entities
that are wholly
owned or in which we have a majority ownership position:
|
Parent/Subsidiary
Relationship
|
Abbreviation
|
Parent
|
Ownership
Percentage
|
|
Century
Casinos, Inc.
|
CCI
|
n/a
|
n/a
|
|
WMCK
Venture Corp.
|
WMCK
|
CCI
|
100%
|
|
WMCK-Acquisition
Corp.
|
ACQ
|
WMCK
|
100%
|
|
Century
Casinos Cripple Creek, Inc.
|
CCC
|
WMCK
|
100%
|
|
Century
Resorts Limited
|
CRL
|
CCI
|
96.5%
|
|
Blue
Bells Country Club (Pty) Ltd.
|
BBC
|
CRL
|
100%
|
|
Blue
Crane Signature Golf Estates (Pty) Ltd.
|
BCS
|
CRL
|
100%
|
|
Century
Casinos Africa (Pty) Ltd.
|
CCA
|
CRL
|
100%
|
|
Century
Casinos Caledon (Pty) Ltd.
|
CCAL
|
CCA
|
100%
|
|
Century
Casinos West Rand (Pty) Ltd. (Dormant)
|
CCWR
|
CCA
|
55%
|
|
Rhino
Resort Ltd. (Dormant)
|
RRL
|
CCA
|
50%
|
|
Century
Resorts International Limited
|
CRI
|
CCI
|
100%
|
|
Century
Resorts Alberta, Inc.
|
CRA
|
CRI
|
56.4%
|
|
Century
Casinos Tollgate, Inc
|
CTI
|
CCI
|
100%
|
|
CC
Tollgate LLC
|
CTL
|
CTI
|
65%
|
|
Century
Casinos Iowa, Inc. (Dormant)
|
CIA
|
CCI
|
100%
|
|
Century
Casinos Management, Inc.
|
CCM
|
CCI
|
100%
|
|
Century
Casinos Nevada, Inc. (Dormant)
|
CCN
|
CCI
|
100%
|
|
Century
Casinos Europe GmbH
(formerly
Century Management u. Beteiligungs GmbH)
|
CCE
|
CCI
|
100%
|
CCI
serves
as a holding company, providing corporate and administrative services
to its
subsidiaries.
WMCK
owns and
operates Womacks Casino and Hotel (“Womacks”), a limited-stakes gaming casino in
Cripple Creek, Colorado.
CRL
was
formed to own our South African interests and to provide technical
casino
services to some of our foreign and offshore operations. CCI owns
96.5% of CRL.
Certain officers of the Company and their respective family trusts
own the
remaining 3.5% of CRL. CCAL, which is the primary operating unit
of CRL, owns
and operates The Caledon Hotel, Spa and Casino (“Caledon”) near Cape Town, South
Africa.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
CRI
serves
as concessionaire of small casinos on luxury cruise vessels and
provides
technical casino services to Casino Millennium, a casino located
within a
five-star hotel in Prague, Czech Republic. CRI
owns
56.4% of CRA which was formed in conjunction with the development
of a casino
and hotel in Edmonton, Alberta, Canada. CRI has entered into casino
services
agreements and/or executive management agreements for which it
earns a fee with
other subsidiaries of CCI.
CTI
has
a 65%
controlling interest in CC Tollgate LLC, which was formed to develop
and operate
a casino and hotel in Central City, Colorado.
CCM
provided
technical casino services to Casino Millennium and provides management
services
to CC Tollgate LLC. The technical services agreement with Casino
Millennium was
assigned to CRI in October 2003, but CCM is still collecting fees that were
earned prior to that time, which remain unpaid.
CCE
has a
50% equity interest in Casino Millennium. CCE’s portion of Casino Millennium’s
earnings and losses are reported as earnings (loss) from unconsolidated
subsidiary in our consolidated statements of earnings and cash
flows. CCE also
provides administrative support for CCI executive management in
Europe.
We
regularly pursue additional gaming opportunities internationally
and in the
United States, and are currently pursuing the following opportunities:
Central
City, Colorado
- On
October 13, 2004, our wholly owned subsidiary, CTI, entered into
an agreement
with Tollgate Venture LLC to develop and operate a proposed casino
and hotel in
Central City, Colorado. The $48.7 million development is planned
to include a
60,000 square foot casino and back of house with 625 slot machines,
six table
games, 27 hotel rooms, retail, food and beverage amenities and
a 500 space
on-site covered parking garage. We contributed $3.5 million cash
equity to the
project through CTI in exchange for a controlling 65% interest,
and Tollgate
Venture LLC contributed three existing non-operating casino buildings,
land and
land options valued at $5.7 million, net of mortgages, for a 35%
interest. Of
the $48.7 million in overall project costs, $3.5 million were originally
contributed by us as cash equity, $39.5 million will be financed
externally, and
the balance of $5.7 million is the net value of the minority partner’s
contribution. CCM has entered into a Casino Services Agreement
to manage the
property. On August 2, 2005, we secured $4.5 million in additional
funding from
a private investor, which was subsequently paid from the proceeds
of our Vienna
Stock Exchange offering (See Note 8 for additional information).
On November 21,
2005, we entered into a $35 million loan agreement with Wells Fargo
Bank and a
syndicate of institutional lenders (See Note 6 for additional
information).
Edmonton,
Alberta, Canada
- On
February 24, 2005, through our wholly owned subsidiary, CRI, we
acquired a 56.4% interest in CRA for approximately $2.4 million.
Our local
partner, 746306 Alberta, Ltd., contributed a 7.25-acre parcel of land and
an existing 40 room hotel for the remaining 43.6% interest. On
January 12, 2006,
the Company purchased the remaining 43.6% minority shareholder
interest in CRA
for approximately $6.3 million ($7.3 million Canadian). The Company
paid
approximately $5.0 million ($5.8 million Canadian) at closing with
the remainder
payable on the first anniversary of the opening of the casino.
CRA is developing
a casino and hotel in Edmonton, Alberta, Canada. Excluding the
costs to purchase
the minority shareholder’s interest, the $30.5 million ($35.8 million Canadian)
development is expected to include a casino with 600 gaming machines,
31 gaming
tables, food and beverage amenities, a dinner theater, a 300 space
underground
parking facility, approximately 600 surface parking spaces and
a 26-room hotel.
Of the $30.5 million in overall project costs, we contributed $2.4
million ($3.0
million Canadian) for our interest in CRA, $17.2 million ($20.0
million
Canadian) will be financed through external financing, $9.0 million
($10.5
million Canadian) will be provided by us as a shareholder loan,
and the balance
of $1.9 million ($2.3 million Canadian) is the net value of the
minority
partner’s contribution. On September 23, 2005, CRA agreed to the terms
of a
$17.2 million ($20.0 million Canadian) credit facility with Canadian
Western
Bank (“CWB”) for the development of the casino property (See Note 6 for
additional information). On December 17, 2004, the Alberta Gaming and
Liquor Commission granted approval to begin construction of the
casino property.
As is customary, the issuance of the license does not occur until
completion of
construction and after all federal and provincial legislation,
regulation and
policies, and municipal requirements, permits, licenses and/or
authorizations
have been met. CRI has entered into a long-term agreement to manage
the
facility.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Newcastle,
South Africa -
In
November 2005, CCA entered into an agreement for the purchase of
a 60%
controlling interest in Balele Leisure (Pty) Ltd.(“Balele”), which owns the
Monte Vista Casino in Newcastle, South Africa for 57.5 million
Rand
(approximately $8.6 million). The current casino is a temporary
facility that
has 200 slot machines and seven gaming tables. A new permanent
facility is
proposed to be constructed in 2006
for
approximately 61 million Rand ($9.6 million) excluding value added
taxes.
The
initial gaming mix in the permanent facility is expected to be
225 slot machines
and seven gaming tables. An additional 2.5 million Rand (approximately
$0.4
million) will be payable if the casino revenue during the first
twelve months of
operation in the new location exceeds 95.0 million Rand (approximately
$15.0
million). CCA has also entered into a long-term agreement to manage
Balele’s
entire casino, resort and hotel operations. The transaction is
expected to close
in the second quarter of 2006, subject to regulatory approvals.
Johannesburg
-
In
December 2004, CCI entered into agreements to sell a portion
of its interest in
a project in Gauteng, South Africa that we had previously been
pursuing jointly
with Silverstar Development Ltd. and granted options to Silverstar
and a group
led by Akani Leisure Investments, Ltd. to purchase our remaining
interests in
the Gauteng project. CCI received an initial payment of approximately
$1.7
million, or 10.0 million Rand, for the sale of 100% of the outstanding
common
stock of Verkrans Ontwikkelings Maatskappy (Pty) Ltd., a wholly
owned subsidiary
of CCA, whose only asset was land related to this project, and
for funds
previously advanced to Silverstar. Also in conjunction with the
agreements, we
loaned Silverstar $0.5 million (3.0 million Rand), of which the
entire amount
was fully reserved, repayable in six equal annual installments
with interest
commencing January 1, 2007. We have, therefore, recognized net
proceeds of $1.2
million, or 7.0 million Rand, in the transaction. The exercise
price of the
purchase option granted to Silverstar and the Akani group totals
approximately
$6.8 million, or 40.3 million Rand. Exercisability of the purchase
option is
contingent on regulatory and related approvals being secured
by Silverstar and
the Akani group. The outcome of these approvals is unknown at
this time.
Franklin
County, Iowa -
On May
11, 2005, the Company announced that it was not awarded a license
by the Iowa
Gaming and Racing Commission to develop and operate the proposed
Landmark Casino
and Hotel project in Franklin County, Iowa. The Company wrote off
approximately
$0.2 million related to this project.
|
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 that
are 20% to 50% owned, are accounted for under the equity method.
All
intercompany transactions and balances have been eliminated.
Our
65%
ownership interest in CC Tollgate LLC is carried at our capital
account balance
based on provisions in the LLC agreement that require liquidation
to be
proportionate to each unitholder’s positive capital account which results in a
minority interest liability related to the project of $2.4 million
and $4.2
million as of December 31, 2005 and 2004, respectively. Future
profits and
losses will be allocated and recognized in such a manner as to
ultimately bring
each unitholder’s capital account into proportion of their respective
unitholdings.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
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 that are required
in
connection with our listing on the Vienna Stock Exchange are designated
as
restricted cash on the 2005 consolidated balance sheet. Minimum
deposits that
were required in connection with the ABSA Bank loan (See Note 6
for additional
information) are designated as restricted cash on the 2004 consolidated
balance
sheet.
Fair
Value of Financial Instruments -
We
calculate the fair value of financial instruments and include this
additional
information in the notes to our consolidated financial statements
when the fair
value does not approximate the carrying value of those financial
instruments.
Our 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,
we use
alternative valuation techniques such as calculating the present
value of
estimated future cash flows utilizing risk-adjusted discount rates.
Our carrying
value of financial instruments approximates fair value at December
31, 2005 and
2004.
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 our
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
|
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
and Other Intangibles
-
Goodwill represents the excess of the purchase price over the fair
value of the
net identifiable assets acquired in a business combination. SFAS
No. 142
“Goodwill and Other Intangible Assets” (see Note 5) 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. In evaluating the Company’s capitalized casino license costs, management
considered all of the criteria set forth in SFAS No. 142 for determining
useful
life. Of particular significance in this evaluation are the existing
regulatory
provisions relating to the renewal of licenses. In general, the
renewal of a
license can be done at minimal cost to the Company, as long as
the Company is in
compliance with all applicable laws. Based on our evaluation, the
Company deemed
that casino license costs have an indefinite life. We perform our
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 2005, 2004 or 2003.
Impairment
of Long-Lived Assets -
We
review 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, determined
by the excess
of the carrying value in relation to anticipated undiscounted future
cash flows,
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. No impairment
charges were recorded for the years ended December 31, 2005, 2004
and
2003.
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 is then deducted as complimentary
services to arrive at net revenue.
We
issue
free play or coupons for the purpose of generating future revenue.
Coupons are
issued the month prior to when they can be redeemed and are valid
for defined
periods of time ranging up to 7 days. The net win from the coupons
is expected
to exceed the value of the coupons issued. The cost of the coupons
redeemed is
applied against the revenue generated on the day of the redemption.
Members
of the casinos’ players clubs earn points as a percentage of coin-in. The cost
of the points is offset against the revenue in the period that
the revenue
generated the points. The value of the unused or unredeemed points
is included
in the accounts payable and accrued liabilities on our consolidated
balance
sheets.
Foreign
Currency Translation
-
Adjustments resulting from the translation of the accounts of our
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. Foreign currency transaction
gains or losses resulting from the translation of casino operations
and other
transactions that are denominated in a currency other than U.S.
dollars are
recognized in the statements of earnings. Gains and losses from
intercompany
foreign currency transactions that are of a long-term investment
nature and are
between entities of the consolidated group are not included in
determining net
earnings, but rather are reported as translation adjustments within
other
comprehensive income or loss in the consolidated statements of
shareholders’
equity and comprehensive income.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Historical
transactions that are denominated in a foreign currency are translated
and
presented at the United States exchange rate in effect on the date
of the
transaction. Commitments that are denominated in a foreign currency
and all
balance sheet accounts other than shareholders’ equity are translated and
presented based on the exchange rate at the end of the reported
periods. 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. The exchange rates used to translate balances
at the
end of the reported periods are as follows:
|
December
31, 2005
|
December
31, 2004
|
December
31, 2003
|
||||||||
|
South
African Rand
|
6.3399
|
5.6640
|
6.6858
|
|||||||
|
Euros
|
0.8446
|
0.7388
|
0.7938
|
|||||||
|
Czech
Koruna
|
24.5810
|
22.4640
|
25.6634
|
|||||||
|
Canadian
Dollars
|
1.1659
|
1.2036
|
1.2924
|
|||||||
Source:
Pacific Exchange Rate Service
Income
Taxes
- We
account 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, we 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 us at this
time. SFAS 123
encourages, but does not require companies to record compensation
cost for
stock-based employee compensation plans at fair value. We have
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 our stock at the date of the grant over
the amount an
employee must pay to acquire that stock. We value stock-based compensation
granted to non-employees at fair value.
Our
original stock-based employee compensation plan expired in April
2004 (see Note
8). The original plan continues to be administered for previously
issued and
outstanding options. Stockholders approved a new equity incentive
plan (the
“2005 Plan”) at the 2005 annual meeting on June 17, 2005. The 2005
Plan provides for the grant of awards to eligible employees in
the form of
stock, restricted stock, stock options, performance units or other
stock-based
awards, all as defined in the 2005 Plan. The 2005 Plan provides
for the issuance
of up to 2,000,000 shares of common stock to eligible employees
through the
various forms of awards permitted. The 2005 Plan limits the number
of options
that can be awarded to an employee to 200,000 per year. Stock options
may not be
issued at an option price lower than fair market value at the date
of grant. All
stock options must have an exercise period not to exceed ten years.
There are
1,986,210 outstanding options to employees as of December 31,
2005.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
All
options granted under the original plan and the 2005 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 we had applied the fair value recognition provisions
of
SFAS No.123, “Accounting for Stock-Based Compensation”, to stock-based
employee compensation:
|
Amounts
shown in thousands, except share data
|
2005
|
2004
|
2003
|
|||||||
|
Net
earnings, as reported
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Deduct:
Total stock-based employee compensation expense determined
under fair
value based method for all awards, net of related tax
effects
|
515
|
1,114
|
4
|
|||||||
|
Pro
forma net earnings
|
$
|
3,966
|
$
|
3,624
|
$
|
3,242
|
||||
|
Earnings
per share
|
||||||||||
|
Basic As
reported
|
$
|
0.28
|
$
|
0.35
|
$
|
0.24
|
||||
|
Pro
forma
|
$
|
0.25
|
$
|
0.27
|
$
|
0.24
|
||||
|
Diluted
As
reported
|
$
|
0.25
|
$
|
0.30
|
$
|
0.22
|
||||
|
Pro
forma
|
$
|
0.22
|
$
|
0.23
|
$
|
0.22
|
||||
The
fair
value of options granted under the Company’s stock based compensation plans were
estimated on the date of grant using the Black-Scholes option pricing
model with
the following assumptions:
|
2005
|
2004
|
2003
|
||||
|
Weighted-average
risk-free interest rate
|
4.50%
|
4.00%
|
-
|
|||
|
Weighted-average
expected life
|
10.0
yrs
|
9.5
yrs
|
-
|
|||
|
Weighted-average
expected volatility
|
46.3%
|
55.1%
|
-
|
|||
|
Weighted-average
expected dividends
|
$
0
|
$
0
|
-
|
The
weighted-average fair value of options granted was $4.88 in 2005
and $1.97 in
2004. A total of 35,000 and 1,352,710 were granted in 2005 and
2004,
respectively. No options were granted to employees under the stock
based
compensation plan in 2003.
Additionally,
60,000 options were issued to independent directors in 2004.
Earnings
Per Share -
Basic
earnings per share considers only weighted-average outstanding
common shares in
the computation. Diluted earnings per share give 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.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive
Income
-
Comprehensive income for us includes the effect of fluctuations
in foreign
currency rates on value of our foreign investments and the interest
rate swap
agreements we maintain to hedge against increases in the interest
rate on our
credit facilities.
Operating
Segments
- We are
managed in six segments: Cripple Creek, Colorado; Central City,
Colorado;
Edmonton, Canada; South Africa; Cruise Ships; and Corporate and
Other
operations. The operating results of the Cripple Creek, Colorado
segment are
those of WMCK and subsidiaries which own Womacks Casino and Hotel
(“Womacks”) in
Cripple Creek, Colorado. The operating results of the Central City,
Colorado
segment are those of CTI and subsidiary, which are developing a
proposed casino
and hotel. The operating results of the Edmonton, Canada segment
are those of
CRA, which is developing a proposed casino and hotel. The operating
results of
the South African segment are those of CCA and its subsidiaries,
primarily CCAL,
which owns the Caledon Hotel, Spa and Casino. The cruise ship segment
includes
the revenues and expenses of the shipboard operations for which
the Company has
casino concessions agreements. Corporate and Other operations include,
among
other items, the revenue and expense of corporate gaming projects
for which we
have secured long-term service contracts.
Hedging
Activities -
Companies are required to recognize all of their 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. For derivative instruments not designated
as
hedging instruments, the gain or loss is recognized in current
earnings during
the period of change. We currently do not have fair value hedges
or hedges of a
net investment in a foreign operation.
The
Company has no outstanding interest rate swap agreements as of
December 31,
2005. At December 31, 2004, our interest rate swap agreements decreased
shareholders’ equity (accumulated other comprehensive income) by less than $0.1
million, net of federal and state income tax benefits.
Advertising
Costs
- Costs
incurred for producing and communicating advertising are expensed
when incurred.
Advertising expense was $0.7 million, $0.8 million and $0.6 million
for the
years ended December 31, 2005, 2004 and 2003, respectively.
Preopening
Expenses -
Preopening, pre-operating and organization activities are expensed
as
incurred.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications -
Certain
reclassifications have been made to the 2004 and 2003 financial
information in
order to conform to the 2005 presentation.
Recent
Accounting Pronouncements
- In
May
2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 154 (SFAS 154), “Accounting Changes and Error
Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and FASB
Statement No. 3, “Reporting Accounting Changes in Interim Financial
Statements.” APB Opinion No. 20 had required that changes in accounting
principles be recognized by including the cumulative effect of
the change in the
period in which the new accounting principle was adopted. SFAS
154 requires
retrospective application of the change to prior periods’ financial statements,
unless it is impracticable to determine the period-specific effects
of the
change. The statement is effective for fiscal years beginning after
December 15,
2005. We do not expect the adoption of SFAS 154 to have a material
impact on our
financial position, results of operations or cash flows.
In
December 2004, the FASB issued SFAS No. 153 (SFAS 153), “Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29.” This eliminates the
exception in APB Opinion No. 29 for nonmonetary exchanges of similar
productive
assets and replaces it with a general exception for exchanges of
nonmonetary
assets that do not have commercial substance. A nonmonetary exchange
has
commercial substance if the future cash flows of the entity are
expected to
change significantly as a result of the exchange. The provisions
of this
statement is effective for fiscal periods beginning after June
15, 2005. The
adoption of SFAS 153 did not have a material impact on our financial
position,
results of operations or cash flows.
In
December 2004, the FASB issued SFAS No. 123R (SFAS 123R), “Share-Based Payment.”
SFAS 123R requires employee stock options and rights to purchase
shares under
stock participation plans to be accounted for under the fair value
method, and
eliminates the ability to account for these instruments under the
intrinsic
value method prescribed by Accounting Principles Board Opinion
No. 25,
“Accounting for Stock Issued to Employees.” In addition, SFAS 123R requires that
the cost resulting from all share-based payments be recognized
as an expense in
the consolidated financial statements, and also changes the classification
of
certain tax benefits in the consolidated statement of cash flows.
Beginning on
January 1, 2006, the Company will record compensation expense for
unvested stock
option awards over the future periods in which the awards vest.
Based on
unvested stock options outstanding at December 31, 2005, pre-tax
compensation
expense related to stock option awards will be approximately $0.4
million in
2006, which equates to a decrease in EPS of $0.02 in 2006. However,
the total
expense recorded in future periods, including fiscal 2006, will
depend on
several variables, including the number of stock-based awards that
are granted
in future periods and the fair value of those awards. The Company
is planning to
use the “modified prospective transition” method, which does not require the
restatement of previous periods’ results.
|
3.
|
EQUITY
INVESTMENT IN UNCONSOLIDATED
SUBSIDIARY
|
We
have a
50% ownership in Casino Millennium (“CM”) and we account for this investment
under the equity method.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Following
is the unaudited summarized financial information of CM as of and
for the years
ended December 31, 2005 and 2004:
|
Casino
Millennium (1)
|
2005
|
2004
|
|||||
|
Amounts
shown in thousands
|
|||||||
|
Balance
Sheet:
|
|||||||
|
Current
Assets
|
$
|
1,391
|
$
|
841
|
|||
|
Noncurrent
Assets
|
$
|
869
|
$
|
935
|
|||
|
Current
Liabilities
|
$
|
568
|
$
|
104
|
|||
|
Noncurrent
liabilities
|
$
|
1,476
|
$
|
1,191
|
|||
|
Operating
Results:
|
|||||||
|
Net
operating revenue
|
$
|
2,084
|
$
|
2,489
|
|||
|
Net
(loss) earnings (2)(3)
|
$
|
(405
|
)
|
$
|
95
|
||
|
(1)
|
Prior
to 2004, we accounted for our 10% investment in Casino
Millennium on the
cost method.
|
|
(2)
|
After
expensing $0.1 million of casino services fees paid to
the Company in 2005
and 2004.
|
|
(3)
|
Under
the equity method of accounting, when an investor’s net investment is
reduced to zero, the investor should not provide for
additional losses
unless the investor has guaranteed the obligations of
the investee. The
Company has not provided this guarantee to Casino Millennium.
Accordingly,
the Company has only recorded its portion of the loss
that reduced its net
investment to zero.
|
FIN
46(R), “Consolidation of Variable Interest Entities”, addresses consolidation
issues by business enterprises of variable interest entities in
which 1) the
equity interest at risk is not sufficient to finance its activities
without
additional subordinated financial support, 2) the equity investors
lack one or
more essential characteristics of a controlling financial interest
or 3) the
equity investors have voting rights that are not proportionate
to their economic
interest. We adopted FIN 46(R) on January 1, 2004. We determined
that CM is a
variable interest entity as defined by FIN 46(R). We also determined
that we are
not the primary beneficiary as defined by FIN 46(R) and have, therefore,
accounted for our 50% interest in CM on the equity basis. A primary
beneficiary
is the party that absorbs a majority of the entity’s expected losses, receives a
majority of its expected returns, or both as defined in FIN 46(R).
Under the
equity method of accounting, we have recognized the difference
between the
investment and the underlying cost of the equity as goodwill and
reported our
percentage of the earnings in CM as equity in (loss) earnings from
unconsolidated subsidiary.
The
Company’s estimated maximum exposure to losses at December 31, 2005 consists
of
the following (Amounts
in thousands):
|
Goodwill
|
$
|
528
|
||
|
Note
receivable
|
242
|
|||
|
Other
receivables
|
200
|
|||
|
Total
|
$
|
970
|
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment at December 31, 2005 and 2004 consist of the
following:
|
Amounts
shown in thousands
|
2005
|
2004
|
|||||
|
Buildings
and improvements
|
$
|
28,828
|
$
|
29,311
|
|||
|
Gaming
equipment
|
13,976
|
12,725
|
|||||
|
Furniture
and office equipment
|
5,075
|
4,992
|
|||||
|
Other
equipment
|
2,553
|
2,238
|
|||||
|
50,432
|
49,266
|
||||||
|
Less
accumulated depreciation
|
(21,869
|
)
|
(19,611
|
)
|
|||
|
28,563
|
29,655
|
||||||
|
Land
|
22,432
|
18,498
|
|||||
|
Capital
projects in process
|
18,218
|
55
|
|||||
|
Non-operating
casino and land
|
389
|
421
|
|||||
|
Property
and equipment, net
|
$
|
69,602
|
$
|
48,629
|
|||
Depreciation
expense for the years ended December 31, 2005, 2004 and 2003 was $3.3 million,
$3.0 million and $2.7 million, respectively.
We
capitalized $0.6 million, $0 and less than $0.1 million of interest towards
our
various construction projects during 2005, 2004 and 2003,
respectively.
Non-operating
casino and land
- We are
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 $0.9 million. The carrying value of the property and land as of
December 31, 2005 and 2004 is based on the appraised value of the land less
the
estimated cost to sell.
|
5.
|
GOODWILL
AND OTHER INTANGIBLE
ASSETS
|
Changes
in the carrying amount of goodwill for the years ended December 31, 2005
and
2004 are as follows by segment:
|
Amounts
shown in thousands
|
Cripple
Creek, CO
|
South
Africa
|
Corp
& Other
|
Total
|
|||||||||
|
Balance
as of January 1, 2004
|
$
|
7,232
|
$
|
856
|
$
|
-
|
$
|
8,088
|
|||||
|
Goodwill
recorded in equity investment in Casino Millennium
|
-
|
-
|
565
|
565
|
|||||||||
|
Effect
of foreign currency translation
|
-
|
153
|
39
|
192
|
|||||||||
|
Balance
as of December 31, 2004
|
7,232
|
1,009
|
604
|
8,845
|
|||||||||
|
Effect
of foreign currency translation
|
-
|
(107
|
)
|
(76
|
)
|
(183
|
)
|
||||||
|
Balance
as of December 31, 2005
|
$
|
7,232
|
$
|
902
|
$
|
528
|
$
|
8,662
|
|||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Intangible
assets, not subject to amortization, include casino licenses as follows as
of
December 31:
|
Amounts
shown in thousands
|
2005
|
2004
|
|||||
|
Century
Casinos Caledon (Pty) Ltd. - South Africa (1)
|
$
|
1,820
|
$
|
2,036
|
|||
|
Edmonton,
Canada
|
12
|
12
|
|||||
|
Central
City, Colorado
|
13
|
13
|
|||||
|
Total
casino licenses
|
$
|
1,845
|
$
|
2,061
|
|||
|
(1)
|
Includes
impact of foreign currency translation of approximately $0.2 million
in
2005.
|
|
6.
|
LONG-TERM
DEBT
|
Long-term
debt at December 31, 2005 and 2004 consists of the following:
Amounts
shown in thousands:
|
2005
|
2004
|
||||||
|
Revolving
Credit Facility - Womacks
|
$
|
481
|
$
|
15,656
|
|||
|
Construction
Term Loan - Central City
|
8,931
|
-
|
|||||
|
Nedbank
Limited Term Loan
|
9,091
|
-
|
|||||
|
ABSA
Bank Term Loan
|
-
|
3,493
|
|||||
|
Notes
payable to minority interest holder
|
1,135
|
1,121
|
|||||
|
Capital
leases and other
|
85
|
234
|
|||||
|
Total
long-term debt
|
19,723
|
20,504
|
|||||
|
Less
current portion
|
(1,789
|
)
|
(2,534
|
)
|
|||
|
Long-term
portion
|
$
|
17,934
|
$
|
17,970
|
|||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Revolving
Credit Facility - Womacks
On
April 21, 2000, the Company and Wells Fargo Bank (the “Bank”) entered into an
Amended and Restated Credit Agreement (the “Agreement”) which increased our
aggregate borrowing commitment from the Bank under a Revolving Line of Credit
Facility (“Womacks 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 Womacks RCF was further amended to increase
the
facility to its original amount of $26 million, an increase of $5.8 million,
revise the quarterly reduction schedule and extend the maturity date to August
2007. On
October 27, 2004, the Womacks RCF was further amended to modify the aggregate
commitment reduction schedule. The aggregate commitment available to the Company
is reduced by $0.3 million for two quarters beginning July 1, 2005, by $0.6
million for two quarters beginning January 1, 2006 and finally by $0.7 million
at the beginning of each quarter beginning July 1, 2006 through the maturity
date. The Womacks RCF was further amended on September 23, 2005 to enable the
Company to guarantee the debt of its subsidiaries and enter into a management
agreement with WMCK, subject to certain limitations. On December 6, 2005, a
fifth amendment was entered into permitting the Company to make capital
contributions to Womacks for a specified period that can be used to repay the
outstanding obligations under the Womacks RCF, and subsequently permits Womacks
to make cash distributions to the Company up to the amount of the Company’s
capital contributions ($14.5 million as of December 31, 2005) made during the
specified period. The commitment available as of December 31, 2005, net of
quarterly reductions, is $20.3 million and unused borrowing capacity is $19.8
million. 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, 2005 and 2004
was $0.5 million and $15.7 million, respectively. The amended loan agreement
includes certain restrictive covenants on financial ratios of WMCK. The most
significant covenants include i) a maximum leverage ratio no greater than 2.75
to 1.00 as of the quarter ending December 31, 2005 (decreasing as scheduled
to
2.00 to 1.00 as of the quarter ending June 30, 2007 until the Womacks RCF
terminates), 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 amended
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 Womacks
RCF as of December 31, 2005. The loan is collateralized by a deed of trust
and a
security agreement with assignments of lease, rents and furniture, fixtures
and
equipment of Womacks property. The interest rate at December 31, 2005 was 7.5%
for the balance of the loan outstanding under the prime based provisions of
the
loan agreement.
In
1998,
we entered into a five-year interest rate swap agreement on $7.5 million
notional amount of debt under the Womacks RCF, whereby we paid a LIBOR-based
fixed rate of 5.55% and received a LIBOR-based floating rate reset quarterly
based on a three-month rate. The swap agreement expired October 1, 2003. In
May
2000, we entered into a second five-year interest rate swap agreement on $4.0
million notional amount of debt under the Womacks RCF, whereby we paid a
LIBOR-based fixed rate of 7.95% and received a LIBOR-based floating rate reset
quarterly based on a three-month rate. This swap agreement expired on July
1,
2005. The fair value of the derivatives as of December 31, 2004 of $0.1 million
is reported as a current liability in the consolidated balance sheet. Our
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 Womacks
RCF. We have determined that the cash flow hedges were highly effective.
Accordingly no net gain or loss has been recognized in earnings during 2005,
2004 or 2003 for hedge ineffectiveness. The effective portion on the interest
rate swaps of $0.2 million, $0.4 million and $0.8 million, net of income tax
expense of less than $0.1 million, $0.1 million and $0.2 million has been
reported in comprehensive income on the statement of shareholders’ equity and
comprehensive income for 2005, 2004 and 2003, respectively. Net additional
interest expense to us under the swap agreement was $0.1 million, $0.3 million
and $0.5 million in 2005, 2004 and 2003, respectively. Including the impact
of
the swaps and the amortization of the deferred financing cost, the effective
rate on the borrowings under the Womacks RCF was 7.3%, 6.7% and 8.7% for 2005,
2004 and 2003, respectively. We have not entered into any new swap agreements
as
of December 31, 2005.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Loan
Facility - Central City
On
November 21, 2005, CTL entered into a $35 million loan agreement with Wells
Fargo Bank and a syndicate of institutional lenders. The loan agreement consists
of a $32.5 million construction loan and a $2.5 million revolving line of credit
(“CC Revolver”). The $32.5 million construction loan will convert to a 60-month
term loan on the earlier of the 12 month anniversary of the closing of the
loan
or at such time as the Central City casino has been opened to the public. The
$32.5 million construction loan and the CC Revolver will both mature on the
fifth anniversary of conversion of the construction loan. The amount outstanding
under the term loan is subject to quarterly reductions, beginning at $0.6
million for the first full quarter following the conversion date of the loan,
increasing to $1.1 million on the 17th
full
quarter from the conversion date of the loan, until maturity. Availability
under
the line of credit will be conditional upon CTL being in compliance with all
of
the financial and other covenants contained in the loan agreement at the time
of
a particular drawdown, and the Company’s continued ability to make certain
representations and warranties, including representations as to the absence
of
liens on the Central City properties other than certain permitted liens, the
absence of litigation or other developments that have or could reasonably be
expected to have a material adverse effect on the Company and its subsidiaries,
and continued effectiveness of the documents granting security for the credit
facility. The interest rate on both loans will be the greater of 8.5% or the
Prime Rate plus 4.0% (11.25% as of December 31, 2005) and a service fee of
0.5%
on the total outstanding balance, payable monthly. Upon closing, CTL incurred
a
facility fee of $1.1 million payable to Wells Fargo Bank which was satisfied
from the proceeds of the loan, which is being amortized through the maturity
of
the term loan. The loan agreement is subject to a prepayment fee, 19.6% during
the construction period through the conversion date of the loan, which decreases
annually to 4.1% in the 17th
full
quarter after the conversion date of the loan through maturity; a nonusage
fee
of 0.75% on the unused portion of the total commitment; various reporting
requirements and various financial covenants, the most significant being Total
Leverage and Senior Leverage Ratios, Adjusted Fixed Charge Coverage and Minimum
Annualized EBITDAM (earnings before interest, taxes, depreciation, amortization
and management fees). The loan agreement is secured by all of CTL’s assets. The
Company is required to enter into an interest rate hedge for at least 75% of
the
outstanding amount of the loan on the conversion date, ending on the maturity
date of the loan. As of December 31, 2005, the principal balance outstanding
under the loan agreement is $8.9 million and is considered long-term in the
accompanying December 31, 2005 consolidated balance sheet.
The
Company has a non-interest bearing stand-by letter of credit agreement for
$0.8
million with Wells Fargo Bank. The letter of credit is secured by the $35
million loan facility with Wells Fargo Bank and expires on May 14, 2006. The
letter of credit is a guarantee to the City of Central, Colorado for the
Company’s completion of certain requirements relating to the construction of the
casino. As of December 31, 2005, there was no balance outstanding under this
letter of credit.
Nedbank
Limited Term Loan
On
August
26, 2005, CCAL received a 60.0 million Rand, approximately $9.4 million, term
loan from Nedbank Limited (“Nedbank”). In connection with the loan, CCAL and
Nedbank entered into a loan agreement specifying the terms of the loan. Pursuant
to the loan agreement, monthly principal and interest installment payments
of
1.3 million Rand ($0.2 million) are due on the first day of each month. The
loan
matures on January 9, 2010, at which time any outstanding principal and interest
will be due. The term loan bears interest at South Africa’s prime interest rate,
10.5% as of December 31, 2005, minus 1.5% and is secured by 10.0 million Rand
($1.6 million) of CCAL’s assets and 100% of the issued share capital of CCAL.
CCAL has the option to prepay the loan, without penalty, upon 90 days written
notice. As of December 31, 2005, $9.1 million of principal is outstanding,
of
which $7.5 million is considered long-term in the accompanying December 31,
2005
consolidated balance sheet.
ABSA
Bank Term Loan
In
the
third quarter of 2005, CCAL paid 13.7 million Rand, or $2.1 million, obtained
from the Nedbank financing, to retire the existing ABSA Bank loan. The
retirement of this loan resulted in a non-operating charge of 1.2 million Rand,
or $0.2 million, related to early termination penalties.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Canadian
Western Bank
On
September 23, 2005, CRA agreed to the terms of a $20.0 million Canadian
(approximately $17.2 million) credit facility with Canadian Western Bank (“CWB”)
for the development of a casino and hotel in Edmonton, Alberta, Canada. The
credit facility is subject to certain closing conditions, one of which includes
a total equity requirement of $14.9 million Canadian (approximately $12.8
million). The credit facility is initially structured as a construction loan
maturing on the earlier of 18 months from the initial construction draw or
the
receipt of a certified architectural completion certificate, certificate of
occupancy and casino license. Upon maturity of the construction loan, CWB will
issue a term loan to CRA, maturing within one to five years at CRA’s election.
Proceeds from the term loan will be used to pay the outstanding balance of
the
construction loan. The construction loan bears interest at 1.25% per annum
above
CWB’s Prime Lending Rate (5.0% as of December 31, 2005), payable on the first
day of each month. No principal payments are required on the construction loan.
The interest rate on the term loan will be based on the maturity date selected
by CRA. As of December 31, 2005, interest rates ranged from 6.55% to 6.80%,
depending on the length of maturity selected. Monthly principal and interest
payments on the term loan are based on a 10-year amortization, payable on the
first day of each month. The loan facility is secured by the assets of CRA
and
guaranteed by the Company. CRA has the option to prepay the construction loan
without penalty. CRA may elect to prepay up to 10% of the original principal
amount of the term loan annually without penalty or bonus; prepayment of any
additional amounts is subject to three months interest at the fixed interest
rate. The participation requirements totaling 14.9 million Canadian, including
equity, shareholder loans and working capital, must be fulfilled prior to the
first construction draw. As of December 31, 2005, an additional $6.3 million
Canadian ($5.4 million) must be provided before we can draw on the construction
loan. The Company expects this requirement to be met from funds currently on
hand.
The
Company has two non-interest bearing stand-by letter of credit agreements
totaling $0.1 million with Canadian Western Bank. These letters of credit have
no maturity date and are cancelable upon written notice by CRA. CRA will incur
a
1% charge for each year the letters of credit are outstanding. These letters
of
credit guarantee to the City of Edmonton, Alberta, Canada the completion of
certain requirements relating to the construction of the casino. As of December
31, 2005, there were no balances outstanding under these letters of
credit.
Note
payable - Tollgate
Unsecured
notes payable, in the amount of $1.1 million, as of December 31, 2005, to a
minority interest holder in Tollgate, were payable contingent upon the opening
of the Central City casino. The first note for $1.0 million is payable in two
equal installments; the first payment is payable one year from the opening
date
of the casino, with the remaining amount due six months later. The note bears
interest at an 8% rate and is classified as long-term in the accompanying
consolidated balance sheet. In March 2005, the Company issued a second unsecured
note payable in the amount of $0.1 million to a minority interest shareholder,
payable on the opening date of the casino, thus considered as a current
liability on the December 31, 2005 consolidated balance sheet.
The
consolidated weighted average interest rate on all borrowings for Century
Casinos, Inc. and subsidiaries was 7.0%, 9.1% and 10.4% for the years ended
December 31, 2005, 2004 and 2003, respectively, excluding the amortization
of
deferred financing charges.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
As
of
December 31, 2005, scheduled maturities of all long-term debt are as follows:
|
(Amounts
shown in thousands)
|
Future
minimum lease
payment of
capital leases
|
Other
debt
|
||||||||
|
2006
-
|
$
|
68
|
$
|
1,741
|
||||||
|
2007
-
|
23
|
4,657
|
||||||||
|
2008
-
|
23
|
5,803
|
||||||||
|
2009
-
|
23
|
5,502
|
||||||||
|
2010
-
|
17
|
1,935
|
||||||||
|
Thereafter
|
-
|
-
|
||||||||
|
154
|
19,638
|
|||||||||
|
Less
amounts representing interest
|
69
|
-
|
||||||||
|
Total
|
$
|
85
|
$
|
19,638
|
Total
|
|||||
|
Current
|
$
|
48
|
$
|
1,741
|
$
|
1,789
|
||||
|
Long-Term
|
$
|
37
|
$
|
17,897
|
$
|
17,934
|
||||
|
7.
|
ACCOUNTS
PAYABLE AND ACCRUED
LIABILITIES
|
Accounts
payable and accrued liabilities are composed of the following at December 31,
2005 and 2004:
|
Amounts
shown in thousands
|
|||||||
|
2005
|
2004
|
||||||
|
Accounts
payable
|
$
|
1,310
|
$
|
981
|
|||
|
Accrued
points liability
|
241
|
432
|
|||||
|
Accrued
construction expenditures
|
1,962
|
-
|
|||||
|
Other
accrued liabilities
|
1,991
|
2,135
|
|||||
|
Total
|
$
|
5,504
|
$
|
3,548
|
|||
|
8.
|
SHAREHOLDERS’
EQUITY
|
In
July
2005, the Company filed a shelf registration statement with the SEC, under
which
we could issue up to $50 million in aggregate issue price of common stock,
preferred stock, debt securities and depository certificates. In October 2005,
under this shelf registration, we issued 7,132,667 shares of common stock,
in
the form of Austrian Depository Certificates (“ADCs”), through our underwriter,
to retail and institutional investors in the Republic of Austria and to
institutional investors in Europe outside of the Republic of Austria. Each
ADC,
which is traded on the Vienna Stock Exchange, is equivalent to one share of
our
common stock. Each holder of an ADC is entitled to all the rights and
preferences of, and subject to all of the limitations of, the underlying share
of common stock represented by the ADC (including dividend, voting, redemption
and liquidation rights and preferences). The number of ADCs and rights of the
ADC holders associated with the ADCs held by such persons are evidenced in
a
modifiable global certificate which is issued and held in safe custody by the
Oesterreichische Kontrollbank Aktiengesellschaft. The ADCs are subject to the
laws of the Republic of Austria. The shares of our common stock represented
by
the ADCs are issued under the Delaware General Corporation Law. Therefore,
the
corporate legal matters related to our shares of common stock underlying the
ADCs are governed by Delaware law. Net proceeds from this issuance were
approximately $46.2 million.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
In
August
2005, the Company issued 950,000 new shares of its common stock, at an exercise
price of $1.50 per share, for stock options exercised in cash.
The
Company’s Board of Directors approved a discretionary program to repurchase up
to $5.0 million of the Company’s outstanding common stock. Through December 31,
2005, the Company 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. The
Company did not purchase any shares of it’s outstanding common stock on the open
market in 2005.
There
were 187,876 shares remaining in treasury as of December 31, 2005, at an average
cost per share of $2.26. We
re-issued 603,000 shares of treasury stock in 2005 for stock options exercised
in cash, 40,000 of which were to satisfy directors’ options. In
2004, a total of 14,400 shares were re-issued to satisfy option exercises,
10,000 shares of which were to satisfy a director’s options.
The
Board
of Directors of the Company adopted an Employees’ Equity Incentive Plan (the
“EEIP”) in April 1994, which expired in April 2004. The EEIP continues to be
administered for previously issued and outstanding options. Stockholders
approved a new equity incentive plan (the “2005 Plan”) at the 2005 annual
meeting. The 2005 Plan provides for the grant of awards to eligible individuals
in the form of stock, restricted stock, stock options, performance units or
other stock-based awards, all as defined in the 2005 Plan. The 2005 Plan
provides for the issuance of up to 2,000,000 shares of common stock to eligible
individuals through the various forms of awards permitted. The 2005 Plan limits
the number of options that can be awarded to an eligible individual to 200,000
per year. Stock options may not be issued at an option price lower than fair
market value at the date of grant. All stock options must have an exercise
period not to exceed ten years. Through December 31, 2005, 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 (as permitted under the EEIP), have been granted under the EEIP
and
2005 Plan. 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. Both plans also
allow limited transferability of any non-statutory stock options to legal
entities that are 100% - owned or controlled by the optionee or to the
optionee’s family trust. As of December 31, 2005 there were 1,986,210 options
outstanding, of which 1,951,210 options were issued under the EEIP and 35,000
options have been issued under the 2005 Plan.
As
of
December 31, 2005 there were an additional 80,000 options outstanding to
directors of the Company of which 60,000 were issued in January 2004. The
outstanding options to directors have a weighted average exercise price of
$2.98.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Transactions
regarding the Company’s stock based compensation plans are as
follows:
|
2005
|
2004
|
2003
|
|||||||||||||||||
|
Shares
|
Weighted-Average
Exercise
Price
|
Shares
|
Weighted-Average
Exercise
Price
|
Shares
|
Weighted-Average
Exercise
Price
|
||||||||||||||
|
Employee
Stock Options:
|
|||||||||||||||||||
|
Outstanding
at January 1,
|
3,464,210
|
$
|
1.92
|
2,160,300
|
$
|
1.29
|
2,790,700
|
$
|
1.30
|
||||||||||
|
Granted
|
35,000
|
7.68
|
1,352,710
|
2.93
|
-
|
-
|
|||||||||||||
|
Exercised
|
(1,513,000
|
)
|
1.50
|
(8,000
|
)
|
1.75
|
(618,000
|
)
|
1.31
|
||||||||||
|
Cancelled
or forfeited
|
-
|
-
|
(40,800
|
)
|
2.60
|
(12,400
|
)
|
1.98
|
|||||||||||
|
Outstanding
at December 31,
|
1,986,210
|
2.33
|
3,464,210
|
1.92
|
2,160,300
|
1.29
|
|||||||||||||
|
Options
exercisable at December 31,
|
759,872
|
$
|
1.15
|
2,136,500
|
$
|
1.29
|
2,144,300
|
$
|
1.29
|
||||||||||
Summarized
information regarding all employee options outstanding at December 31, 2005,
is
as follows:
|
Exercise
Price
|
Number
Outstanding
At
Year End
|
Weighted-Average
Remaining
Term
in Years
|
Number
Exercisable
At
Year End
|
|||||||
|
$0.75
|
610,000
|
2.8
|
610,000
|
|||||||
|
$1.50
|
7,500
|
1.2
|
7,500
|
|||||||
|
$1.75
|
10,000
|
5.3
|
10,000
|
|||||||
|
$2.93
|
1,323,710
|
8.2
|
132,372
|
|||||||
|
$7.68
|
35,000
|
9.9
|
-
|
|||||||
|
1,986,210
|
6.5
|
759,872
|
||||||||
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, each of whom has one
seat
on the board of directors of CCAL, neither of whom is an officer, director
or
affiliate of CCI. The preference shares are not cumulative nor redeemable.
The
preference shares entitle the holders of the shares to dividends of 20% of
the
after-tax profits directly attributable to the CCAL casino business subject
to
working capital and capital expenditure requirements and CCAL loan obligations
and liabilities as determined by the directors of CCAL. If the CCAL casino
business is 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 2005, 2004 or
2003.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Subsequent
to December 31, 2005, 200 preference shares of a new class (“Class A shares”)
were authorized for issuance. These Class A shares will be available to the
original preference shareholders in exchange for their original preference
shares. The Class A shares are not cumulative nor redeemable. The Class A shares
entitle the holders of such shares to dividends of .009% of the annual gross
gambling revenue of the Caledon Hotel, Spa and Casino after the deduction of
gaming taxes and value added tax. Furthermore, should the casino business be
sold or otherwise dissolved, the Class A shareholders would be entitled to
.009%
of any surplus directly attributable to the casino business, net of all
liabilities attributable to the casino business. The holders of Class A shares
will also be entitled to a one time dividend of Rand 5,000 per share, offset
by
any amounts owed by the preference shareholder to CCAL. One preference
shareholder has accepted the offer to transfer all 100 of their original
preference shares for 100 of the new Class A shares when issued.
|
9.
|
PROMOTIONAL
ALLOWANCES
|
Promotional
allowances presented in the consolidated statement of earnings for 2005, 2004
and 2003 include the following:
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
|||||||
|
Food
& Beverage and Hotel Comps, at retail (1)
|
$
|
1,373
|
$
|
1,452
|
$
|
1,369
|
||||
|
Free
Plays or Coupons
|
1,573
|
1,569
|
1,882
|
|||||||
|
Player
Points
|
1,308
|
1,269
|
1,406
|
|||||||
|
Total
Promotional Allowances
|
$
|
4,254
|
$
|
4,290
|
$
|
4,657
|
||||
|
(1)
|
The
estimated cost of such complimentary services is charged to casino
operations, and was $1.0 million, $1.1 million and $0.9 million in
2005,
2004 and 2003, respectively.
|
|
10.
|
INCOME
TAXES
|
The
provision for income tax expense consists of the following:
|
Amounts
shown in thousands
|
2005
|
2004
|
2003
|
|||||||
|
Federal
- Current
|
$
|
(172
|
)
|
$
|
(308
|
)
|
$
|
948
|
||
|
Federal
- Deferred
|
42
|
604
|
203
|
|||||||
|
Provision
for federal income taxes
|
(130
|
)
|
296
|
1,151
|
||||||
|
State
- Current
|
(54
|
)
|
(45
|
)
|
128
|
|||||
|
State
- Deferred
|
6
|
82
|
28
|
|||||||
|
Provision
for state income taxes
|
(48
|
)
|
37
|
156
|
||||||
|
Foreign
- Current
|
720
|
548
|
502
|
|||||||
|
Foreign
- Deferred
|
(195
|
)
|
(132
|
)
|
(32
|
)
|
||||
|
Provision
for foreign income taxes
|
525
|
416
|
470
|
|||||||
|
Total
Provision for income taxes
|
$
|
347
|
$
|
749
|
$
|
1,777
|
||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation
of federal income tax statutory rate and our effective tax rate is as
follows:
|
2005
|
2004
|
2003
|
||||||||
|
Federal
income tax statutory rate
|
34.0
|
%
|
34.0
|
%
|
34.0
|
%
|
||||
|
Foreign
income taxes
|
(21.0
|
%)
|
(16.1
|
%)
|
-
|
|||||
|
State
income tax (net of federal benefit)
|
(0.8
|
%)
|
0.6
|
%
|
2.3
|
%
|
||||
|
Non-deductible
write-offs (recoveries) and expenses
|
-
|
(0.9
|
%)
|
-
|
||||||
|
Effect
of foreign currency translation adjustment for sale of
Verkrans
|
-
|
(2.0
|
%)
|
-
|
||||||
|
Effect
of stock option exercises
|
(10.9
|
%)
|
-
|
-
|
||||||
|
IRS
audit accrual
|
2.6
|
%
|
-
|
-
|
||||||
|
Permanent
and other items
|
4.7
|
%
|
(2.2
|
%)
|
(1.1
|
%)
|
||||
|
Total
Provision for income taxes
|
8.6
|
%
|
13.4
|
%
|
35.2
|
%
|
||||
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, 2005 and 2004, consist of the following:
|
Amounts
shown in thousands
Deferred
tax assets (liabilities) - U.S. federal and state:
|
2005
|
2004
|
|||||
|
Deferred
tax (liabilities) - non-current:
|
|||||||
|
Amortization
of goodwill for tax
|
$
|
(880
|
)
|
$
|
(667
|
)
|
|
|
Deferred
tax assets - non-current::
|
|||||||
|
Property
and equipment
|
434
|
214
|
|||||
|
Write-down
of non-operating casino property
|
181
|
169
|
|||||
|
Other
|
50
|
50
|
|||||
|
Total
deferred tax assets - non-current
|
665
|
433
|
|||||
|
Net
deferred tax (liabilities) - non-current
|
(215
|
)
|
(234
|
)
|
|||
|
Prepaid
expenses -current
|
(111
|
)
|
-
|
||||
|
Accrued
liabilities and other - current
|
103
|
97
|
|||||
|
Net
deferred tax (liabilities) assets - current
|
(8
|
)
|
97
|
||||
|
Total
deferred tax (liabilities) - U.S. federal and state
|
$
|
(223
|
)
|
$
|
(137
|
)
|
|
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Deferred
tax assets (liabilities) - foreign:
|
|||||||
|
Deferred
tax (liabilities) - non-current:
|
|||||||
|
Property
and equipment
|
$
|
(104
|
)
|
$
|
-
|
||
|
Deferred
tax assets - non-current::
|
|||||||
|
Property
and equipment
|
-
|
207
|
|||||
|
NOL
Carryforward
|
297
|
-
|
|||||
|
Accrued
liabilities and other
|
187
|
-
|
|||||
|
Total
deferred tax assets - non-current
|
494
|
207
|
|||||
|
Net
deferred tax assets - non-current
|
380
|
207
|
|||||
|
Accrued
liabilities and other - current
|
125
|
108
|
|||||
|
Prepaid
expenses - current
|
(53
|
)
|
(20
|
)
|
|||
|
Net
deferred tax assets - current
|
72
|
88
|
|||||
|
Total
deferred tax assets - foreign
|
$
|
452
|
$
|
295
|
|||
|
Net
deferred tax assets
|
$
|
229
|
$
|
158
|
|||
|
11.
|
EARNINGS
PER SHARE
|
Basic
and
diluted earnings per share for the years ended December 31, 2005, 2004 and
2003
were computed as follows:
|
Amounts
shown in thousands, except share data
|
2005
|
2004
|
2003
|
|||||||
|
Basic
Earnings Per Share:
|
||||||||||
|
Net
earnings
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Weighted
average common shares
|
15,923,585
|
13,683,016
|
13,633,092
|
|||||||
|
Basic
earnings per share
|
$
|
0.28
|
$
|
0.35
|
$
|
0.24
|
||||
|
Diluted
Earnings Per Share:
|
||||||||||
|
Net
earnings available to common shareholders
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Weighted
average common shares
|
15,923,585
|
13,683,016
|
13,633,092
|
|||||||
|
Effect
of dilutive securities:
|
||||||||||
|
Stock
options and warrants
|
2,155,588
|
2,158,207
|
1,154,905
|
|||||||
|
Dilutive
potential common shares
|
18,079,173
|
15,841,223
|
14,787,997
|
|||||||
|
Diluted
earnings per share (*)
|
$
|
0.25
|
$
|
0.30
|
$
|
0.22
|
||||
*
There
were no options or warrants excluded from the computation of the dilutive
earnings per share.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
12.
|
SEGMENT
INFORMATION
|
We
are
managed in six segments: Cripple Creek, Colorado; Central City, Colorado;
Edmonton, Canada; South Africa; Cruise Ships; and Corporate and Other
operations.
The
operating results of the Cripple Creek, Colorado segment are those of WMCK
and
subsidiaries, which own Womacks Casino and Hotel (“Womacks”) in Cripple Creek,
Colorado.
The
operating results of the Central City, Colorado segment are those of CTI and
subsidiary, which are developing a proposed casino and hotel.
The
operating results of the Edmonton, Canada segment are those of CRA, which is
developing a proposed casino and hotel.
The
operating results of the South African segment are those of CCA and its
subsidiaries, primarily CCAL, which owns the Caledon Hotel, Spa and
Casino.
The
cruise ship segment includes the revenues and expenses of the shipboard
operations for which the Company has casino concessions agreements.
Corporate
and Other operations include, among other items, the revenue and expense of
corporate gaming projects for which we have secured long-term service contracts.
Earnings
before interest, taxes, depreciation, amortization and minority interest
(adjusted EBITDA) is not considered a measure of performance recognized as
an
accounting principle generally accepted in the United States of America.
Management believes that adjusted EBITDA is a valuable measure of the relative
performance amongst its operating segments. The gaming industry commonly
uses
adjusted 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 adjusted 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.
Segment
information as of and for the years ended December 31, 2005, 2004 and 2003
are
presented below.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Amounts
shown in thousands
|
Cripple
Creek, CO
|
Central
City, CO
|
|||||||||||||||||
|
As
of and for the Year Ended December 31,
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Property
and equipment, net
|
$
|
23,206
|
$
|
22,985
|
$
|
21,392
|
$
|
21,105
|
$
|
9,200
|
$
|
-
|
|||||||
|
Total
assets
|
$
|
33,151
|
$
|
33,101
|
$
|
32,200
|
$
|
23,219
|
$
|
9,268
|
$
|
-
|
|||||||
|
Net
operating revenue
|
$
|
17,111
|
$
|
17,561
|
$
|
18,430
|
$
|
6
|
$
|
-
|
$
|
-
|
|||||||
|
Operating
expenses excluding depreciation)
|
$
|
10,937
|
$
|
11,055
|
$
|
10,745
|
$
|
567
|
$
|
8
|
$
|
-
|
|||||||
|
Depreciation
|
$
|
1,703
|
$
|
1,512
|
$
|
1,349
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Earnings
from unconsolidated subsidiary
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Earnings
(loss) from operations
|
$
|
4,471
|
$
|
4,994
|
$
|
6,336
|
$
|
(561
|
)
|
$
|
(8
|
)
|
$
|
-
|
|||||
|
Interest
income
|
$
|
13
|
$
|
12
|
$
|
12
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Interest
expense, including debt issuance cost, net
|
$
|
(259
|
)
|
$
|
(123
|
)
|
$
|
1
|
$
|
(296
|
)
|
$
|
-
|
$
|
-
|
||||
|
Early
debt repayment expense
|
$
|
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Other
income (expense), net
|
$
|
-
|
$
|
-
|
$
|
2
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Non-operating
items from unconsolidated subsidiary
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Earnings
(loss) before income taxes and minority interest
|
$
|
4,743
|
$
|
5,129
|
$
|
6,349
|
$
|
(857
|
)
|
$
|
(8
|
)
|
$
|
-
|
|||||
|
Income
tax expense
|
$
|
1,802
|
$
|
1,949
|
$
|
2,413
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Minority
interest
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
857
|
$
|
8
|
$
|
-
|
|||||||
|
Net
Earnings (loss)
|
$
|
2,941
|
$
|
3,180
|
$
|
3,936
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Reconciliation
to adjusted
EBITDA:
|
|||||||||||||||||||
|
Net
earnings (loss)
|
$
|
2,941
|
$
|
3,180
|
$
|
3,936
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Minority
interest
|
$
|
-
|
-
|
-
|
(857
|
)
|
(8
|
)
|
-
|
||||||||||
|
Interest
income
|
$
|
(13
|
)
|
$
|
(12
|
)
|
$
|
(12
|
)
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Interest
expense
|
$
|
(259
|
)
|
$
|
(123
|
)
|
$
|
1
|
$
|
296
|
$
|
-
|
$
|
-
|
|||||
|
Early
debt repayment expense
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Income
taxes
|
$
|
1,802
|
$
|
1,949
|
$
|
2,413
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Depreciation
|
$
|
1,703
|
$
|
1,512
|
$
|
1,349
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Adjusted
EBITDA
|
$
|
6,174
|
$
|
6,506
|
$
|
7,687
|
$
|
(561
|
)
|
$
|
(8
|
)
|
$
|
-
|
|||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Amounts
shown in thousands
|
Edmonton,
Canada
|
South
Africa
|
|||||||||||||||||
|
As
of and for the Year Ended December 31,
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Property
and equipment, net
|
$
|
8,750
|
$
|
-
|
$
|
-
|
$
|
15,215
|
$
|
15,592
|
$
|
14,020
|
|||||||
|
Total
assets
|
$
|
9,654
|
$
|
-
|
$
|
-
|
$
|
26,147
|
$
|
24,975
|
$
|
19,771
|
|||||||
|
Net
operating revenue
|
$
|
57
|
$
|
-
|
$
|
-
|
$
|
17,015
|
$
|
15,334
|
$
|
11,149
|
|||||||
|
Operating
expenses (excluding depreciation)
|
$
|
236
|
$
|
-
|
$
|
-
|
$
|
10,519
|
$
|
9,800
|
$
|
7,893
|
|||||||
|
Depreciation
|
$
|
3
|
$
|
-
|
$
|
-
|
$
|
1,473
|
$
|
1,343
|
$
|
1,073
|
|||||||
|
Earnings
from unconsolidated subsidiary
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Earnings
(loss) from operations
|
$
|
(182
|
)
|
$
|
-
|
$
|
-
|
$
|
5,023
|
$
|
4,191
|
$
|
2,183
|
||||||
|
Interest
income
|
$
|
12
|
$
|
-
|
$
|
-
|
$
|
198
|
$
|
150
|
$
|
189
|
|||||||
|
Interest
expense, including debt issuance cost, net
|
$
|
(61
|
)
|
$
|
-
|
$
|
-
|
$
|
(683
|
)
|
$
|
(788
|
)
|
$
|
(929
|
)
|
|||
|
Early
debt repayment expense
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(181
|
)
|
$
|
-
|
-
|
|||||||
|
Other
income (expense), net
|
$
|
13
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1
|
$
|
(7
|
)
|
||||||
|
Non-operating
items from unconsolidated subsidiary
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Earnings
(loss) before income taxes and minority interest
|
$
|
(218
|
)
|
$
|
-
|
$
|
-
|
$
|
4,357
|
$
|
3,554
|
$
|
1,436
|
||||||
|
Income
tax expense (benefit)
|
$
|
(81
|
)
|
$
|
-
|
$
|
-
|
$
|
1,255
|
$
|
906
|
$
|
487
|
||||||
|
Minority
interest
|
$
|
61
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(22
|
)
|
||||||
|
Net
Earnings (loss)
|
$
|
(76
|
)
|
$
|
-
|
$
|
-
|
$
|
3,102
|
$
|
2,648
|
$
|
927
|
||||||
|
Reconciliation
to adjusted EBITDA:
|
|||||||||||||||||||
|
Net
earnings (loss)
|
$
|
(76
|
)
|
$
|
-
|
$
|
-
|
$
|
3,102
|
$
|
2,648
|
$
|
927
|
||||||
|
Minority
interest
|
$
|
(61
|
)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
22
|
||||||
|
Interest
income
|
$
|
(12
|
)
|
$
|
-
|
$
|
-
|
$
|
(198
|
)
|
$
|
(150
|
)
|
$
|
(189
|
)
|
|||
|
Interest
expense
|
$
|
61
|
$
|
-
|
$
|
-
|
$
|
683
|
$
|
788
|
$
|
929
|
|||||||
|
Early
debt repayment expense
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
181
|
$
|
-
|
$
|
-
|
|||||||
|
Income
taxes
|
$
|
(81
|
)
|
$
|
-
|
$
|
-
|
$
|
1,255
|
$
|
906
|
$
|
487
|
||||||
|
Depreciation
|
$
|
3
|
$
|
-
|
$
|
-
|
$
|
1,473
|
$
|
1,343
|
$
|
1,073
|
|||||||
|
Adjusted
EBITDA
|
$
|
(166
|
)
|
$
|
-
|
$
|
-
|
$
|
6,496
|
$
|
5,535
|
$
|
3,249
|
||||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Amounts
shown in thousands
|
Cruise
Ships
|
Corporate
& Other
|
|||||||||||||||||
|
As
of and for the Year Ended December 31,
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Property
and equipment, net
|
$
|
854
|
$
|
386
|
$
|
327
|
$
|
472
|
$
|
466
|
$
|
1,057
|
|||||||
|
Total
assets
|
$
|
1,629
|
$
|
1,028
|
$
|
731
|
$
|
29,763
|
$
|
2,832
|
$
|
2,115
|
|||||||
|
Net
operating revenue
|
$
|
3,151
|
$
|
2,769
|
$
|
1,737
|
$
|
105
|
$
|
101
|
$
|
114
|
|||||||
|
Operating
expenses (excluding depreciation)
|
$
|
2,142
|
$
|
1,836
|
$
|
1,175
|
$
|
3,741
|
$
|
3,120
|
$
|
2,117
|
|||||||
|
Depreciation
|
$
|
144
|
$
|
110
|
$
|
74
|
$
|
26
|
$
|
28
|
$
|
172
|
|||||||
|
(Loss)
earnings from unconsolidated subsidiary
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(109
|
)
|
$
|
55
|
$
|
-
|
||||||
|
Earnings
(loss) from operations
|
$
|
865
|
$
|
823
|
$
|
488
|
$
|
(3,771
|
)
|
$
|
(2,992
|
)
|
$
|
(2,175
|
)
|
||||
|
Interest
income
|
$
|
-
|
$
|
-
|
$
|
1
|
$
|
253
|
$
|
6
|
$
|
2
|
|||||||
|
Interest
expense, including debt issuance cost, net
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1,328
|
)
|
$
|
(922
|
)
|
$
|
(1,081
|
)
|
||||
|
Early
debt repayment expense
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Other
income (expense), net
|
$
|
-
|
$
|
-
|
$
|
16
|
$
|
-
|
$
|
-
|
$
|
9
|
|||||||
|
Non-operating
items from unconsolidated subsidiary
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(4
|
)
|
$
|
(5
|
)
|
$
|
-
|
|||||
|
Earnings
(loss) before income taxes and minority interest
|
$
|
865
|
$
|
823
|
$
|
505
|
$
|
(4,850
|
)
|
$
|
(3,913
|
)
|
$
|
(3,245
|
)
|
||||
|
Income
tax expense (benefit)
|
$
|
26
|
$
|
25
|
$
|
150
|
$
|
(2,655
|
)
|
$
|
(2,131
|
)
|
$
|
(1,273
|
)
|
||||
|
Minority
interest
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(130
|
)
|
$
|
(106
|
)
|
$
|
-
|
|||||
|
Net
Earnings (loss)
|
$
|
839
|
$
|
798
|
$
|
355
|
$
|
(2,325
|
)
|
$
|
(1,888
|
)
|
$
|
(1,972
|
)
|
||||
|
Reconciliation
to
adjusted EBITDA:
|
|||||||||||||||||||
|
Net
earnings (loss)
|
$
|
839
|
$
|
798
|
$
|
355
|
$
|
(2,325
|
)
|
$
|
(1,888
|
)
|
$
|
(1,972
|
)
|
||||
|
Minority
interest
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
130
|
$
|
106
|
$
|
-
|
|||||||
|
Interest
income
|
$
|
-
|
$
|
-
|
$
|
(1
|
)
|
$
|
(253
|
)
|
$
|
(6
|
)
|
$
|
(2
|
)
|
|||
|
Interest
expense
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,328
|
$
|
922
|
$
|
1,081
|
|||||||
|
Early
debt repayment expense
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Income
taxes
|
$
|
26
|
$
|
25
|
$
|
150
|
$
|
(2,655
|
)
|
$
|
(2,131
|
)
|
$
|
(1,273
|
)
|
||||
|
Depreciation
|
$
|
144
|
$
|
110
|
$
|
74
|
$
|
26
|
$
|
28
|
$
|
172
|
|||||||
|
Adjusted
EBITDA
|
$
|
1,009
|
$
|
933
|
$
|
578
|
$
|
(3,749
|
)
|
$
|
(2,969
|
)
|
$
|
(1,994
|
)
|
||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Amounts
shown in thousands
|
Consolidated
|
|||||||||
|
As
of and for the Year Ended December 31,
|
2005
|
2004
|
2003
|
|||||||
|
Property
and equipment, net
|
$
|
69,602
|
$
|
48,629
|
$
|
36,796
|
||||
|
Total
assets
|
$
|
123,563
|
$
|
71,204
|
$
|
54,817
|
||||
|
Net
operating revenue
|
$
|
37,445
|
$
|
35,765
|
$
|
31,430
|
||||
|
Operating
expenses (excluding depreciation)
|
$
|
28,142
|
$
|
25,819
|
$
|
21,930
|
||||
|
Depreciation
|
$
|
3,349
|
$
|
2,993
|
$
|
2,668
|
||||
|
(Loss)
earnings from unconsolidated subsidiary
|
$
|
(109
|
)
|
$
|
55
|
$
|
-
|
|||
|
Earnings
(loss) from operations
|
$
|
5,845
|
$
|
7,008
|
$
|
6,832
|
||||
|
Interest
income
|
$
|
476
|
$
|
168
|
$
|
204
|
||||
|
Interest
expense, net, including debt issuance cost
|
$
|
(2,109
|
)
|
$
|
(1,587
|
)
|
$
|
(2,011
|
)
|
|
|
Early
debt repayment expense
|
$
|
(181
|
)
|
$
|
-
|
$
|
-
|
|||
|
Other
income (expense), net
|
$
|
13
|
$
|
1
|
$
|
20
|
||||
|
Non-operating
items from unconsolidated subsidiary
|
$
|
(4
|
)
|
$
|
(5
|
)
|
$
|
-
|
||
|
Earnings
(loss) before income taxes and minority interest
|
$
|
4,040
|
$
|
5,585
|
$
|
5,045
|
||||
|
Income
tax expense
|
$
|
347
|
$
|
749
|
$
|
1,777
|
||||
|
Minority
interest
|
$
|
788
|
$
|
(98
|
)
|
$
|
(22
|
)
|
||
|
Net
Earnings (loss)
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Reconciliation
to adjusted EBITDA:
|
||||||||||
|
Net
earnings (loss)
|
$
|
4,481
|
$
|
4,738
|
$
|
3,246
|
||||
|
Minority
interest
|
$
|
(788
|
)
|
$
|
98
|
$
|
22
|
|||
|
Interest
income
|
$
|
(476
|
)
|
$
|
(168
|
)
|
$
|
(204
|
)
|
|
|
Interest
expense
|
$
|
2,109
|
$
|
1,587
|
$
|
2,011
|
||||
|
Early
debt repayment expense
|
$
|
181
|
$
|
-
|
$
|
-
|
||||
|
Income
taxes
|
$
|
347
|
$
|
749
|
$
|
1,777
|
||||
|
Depreciation
|
$
|
3,349
|
$
|
2,993
|
$
|
2,668
|
||||
|
Adjusted
EBITDA
|
$
|
9,203
|
$
|
9,997
|
$
|
9,520
|
||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
|
13.
|
COMMITMENTS,
CONTINGENCIES AND OTHER MATTERS
|
South
African Tax Audit
- The
Company’s tax return in South Africa for 2000 and 2001 has been
audited by the South African Revenue Service (“SARS”) and we were assessed
additional tax and interest of $0.3 million (Rand 1.9 million) which we are
appealing. We have been notified that our appeal will be heard in May 2006.
We
have established a receivable in the amount of approximately $0.3 million (Rand
1.9 million), of which approximately $0.1 million (Rand 0.5 million) consists
of
accrued interest, for the recovery of taxes assessed by SARS and paid by Caledon
in 2005. Although there can be no assurances, at this time management believes
that it is probable that Caledon will be successful in its appeal.
2003
Tax Audit
- The
Company’s 2003 US tax return is currently being audited by the United States
Internal Revenue Service (“IRS”). As of December 31, 2005, the IRS has not
issued any assessment. We do not expect any settlement that might result from
the audit to be materially in excess of amounts accrued.
South
Africa - Gauteng
- During
September 2001, our subsidiary, Century Casinos Africa entered into an agreement
to secure a 50% ownership interest in Rhino Resort Ltd (Rhino), a consortium
which includes Silverstar Development Ltd. (Silverstar). Rhino submitted an
application for a proposed hotel/casino resort development in a 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, Rhino 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 recorded a $0.4 million 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 our subsidiary, Century Casinos Africa, made
representation to the GGB requesting that the sole remaining license for the
province of Gauteng 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. In October 2003 a judgment was handed down
from 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. In November 2003 the GGB’s subsequent
application for leave to appeal the October 2003 judgment was denied by the
High
Court. In December 2003, the GGB served notice to petition the South African
Supreme Court of Appeal requesting a further appeal against the judgment of
the
High Court. In February 2004, the Supreme Court of Appeal of South Africa
granted the GGB’s request for leave to appeal. Silverstar has informed the
Company that the Supreme Court of Appeal met on February 28, 2005 to review
Silverstar’s petition against the leave to appeal granted to the GGB, at which
time the court reserved judgment. On March 29, 2005, Silverstar reported that
the Supreme Court of Appeal dismissed the appeal of the GGB and upheld the
earlier High Court decision to award the license to Silverstar.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
On
December 1, 2004, CCI announced it agreed to sell its interest, including the
call option with Novomatic AG discussed below, in the Gauteng, South Africa
license application to the Akani Group. The Akani Group has agreed to provide
the funds necessary for Silverstar to complete the project and to acquire all
of
the outstanding shares of Silverstar as well as all assets, rights and
obligations of CCI in the project.
The
total
selling price was approximately $8.5 million, or 50.3 million Rand, of which
$6.8 million (40.3 million Rand) is contingent upon regulatory and related
approvals being secured by Silverstar and the Akani group. An initial payment
of
approximately $1.7 million, or 10.0 million Rand, was received for both the
sale
of 100% of the outstanding common stock of Verkrans Ontwikkelings Maatskappy
(Pty) Ltd., a wholly owned subsidiary of CCA, whose only asset was land,
carried
at 4.4 million Rand, and previously advanced funds to Silverstar. Also in
conjunction with the agreements, we loaned Silverstar $0.5 million (3.0 million
Rand), of which the entire amount was fully reserved, repayable in six equal
annual installments with interest commencing January 1, 2007. We have,
therefore, only recognized net proceeds of 7.0 million Rand in the transaction.
The shares were sold for book value, less the cost of disposition. We recognized
a foreign currency translation gain of $0.4 million on the disposition of
Verkrans, resulting from the difference between the exchange rate at the
time of
purchase in March 2002 and the exchange rate at the time of sale in December
2004. The foreign currency translation gain, less the cost of disposition,
or
$0.4 million is included in other operating revenue for 2004. The excess
amount
was first applied to receivables which had not been written off, totaling
1.6
million Rand and the remaining 1.0 million Rand or $0.2 million was applied
to
advances written off in 2002 and the recovery is reported in general and
administrative expenses for 2004. The balance of the selling price of
approximately $6.8 million, or 40.3 million Rand, is contingent on certain
approvals being secured by Silverstar and the Akani Group and has not been
recorded by the Company.
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 has subsequently been amended two times,
most recently in October 2004 eliminating the put option held by Novomatic
AG,
transferring the rights under the agreement from CCI to our subsidiary, Century
Resorts Ltd. and amending the call option under which we can require Novomatic
AG to sell seven eighths of its shares in Silverstar to Century Resorts Ltd.
The
call option can be exercised at any time within three years of the amended
and
restated agreement. The right to the equity option was transferred to the Akani
Group in conjunction with the sale in December 2004.
Employee
Benefit Plan
- In
March 1998, we 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. Participants become fully vested
in employer contributions over a six-year period. The Company contributed less
than $0.1 million to the Plan in each of 2005, 2004 and 2003.
Operating
Lease Commitments and Purchase Options
- We
have
entered into certain noncancelable operating leases for real property and
equipment. Rental expense was $0.4 million in each of 2005, 2004 and 2003.
In
June
1998, we began leasing parking spaces from the City of Cripple Creek under
a
five-year agreement. We may purchase the property for $3.3 million, less
cumulative lease payments ($0.7 million through December 31, 2005), at any
time
during the lease term. In February 2000, the agreement was amended to extend
the
term to 2010.
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
In
March 1999, we entered into a purchase option agreement for a property in
Cripple Creek, Colorado, situated across the street from the Womacks 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 $1.5 million,
less
50% of cumulative monthly option payments. In January 2004, we sold the option
to an unrelated party for a sum of $0.2 million.
Following
is a summary of operating lease commitments as of December 31,
2005:
Amounts
shown in thousands.
|
Year
ending December 31,
|
Amount
|
||||
|
2006
|
$
|
351
|
|||
|
2007
|
128
|
||||
|
2008
|
127
|
||||
|
2009
|
107
|
||||
|
2010
|
38
|
||||
|
Total
|
$
|
751
|
|||
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, we would repurchase the common stock of any shareholder
found to be unsuitable under the regulations. We could effect the repurchase
with cash, Redemption Securities, as such term is defined in our Certificate
of
Incorporation and
having terms and conditions as shall be approved by the Board of
Directors,
or a
combination thereof.
|
14.
|
UNAUDITED
SUMMARIZED QUARTERLY DATA
|
Summarized
quarterly financial data for 2005, 2004 and 2003 is as follows:
|
Amounts
shown in thousands except share information:
|
1st
Quarter
|
2nd
Quarter
|
3rd
Quarter
|
4th
Quarter
|
|||||||||
|
Year
ended December 31, 2005
|
|||||||||||||
|
Net
operating revenue
|
$
|
9,228
|
$
|
8,908
|
$
|
10,030
|
$
|
9,279
|
|||||
|
Earnings
from operations
|
$
|
1,558
|
$
|
877
|
$
|
1,945
|
$
|
1,465
|
|||||
|
Net
earnings
|
$
|
1,007
|
$
|
509
|
$
|
1,281
|
$
|
1,684
|
|||||
|
Basic
earnings per share (1)
|
$
|
0.07
|
$
|
0.04
|
$
|
0.09
|
$
|
0.08
|
|||||
|
Diluted
earnings per share (1)
|
$
|
0.06
|
$
|
0.03
|
$
|
0.08
|
$
|
0.07
|
|||||
|
Year
ended December 31, 2004
|
|||||||||||||
|
Net
operating revenue (2) (3)
|
$
|
8,164
|
$
|
8,853
|
$
|
9,671
|
$
|
9,077
|
|||||
|
Earnings
from operations (2) (3)
|
$
|
1,743
|
$
|
1,858
|
$
|
2,102
|
$
|
1,305
|
|||||
|
Net
earnings (2)
|
$
|
904
|
$
|
1,147
|
$
|
1,233
|
$
|
1,454
|
|||||
|
Basic
earnings per share (1)
|
$
|
0.07
|
$
|
0.08
|
$
|
0.09
|
$
|
0.11
|
|||||
|
Diluted
earnings per share (1)
|
$
|
0.06
|
$
|
0.07
|
$
|
0.08
|
$
|
0.09
|
|||||
|
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 (1)
|
$
|
0.06
|
$
|
0.06
|
$
|
0.07
|
$
|
0.06
|
|||||
|
Diluted
earnings per share (1)
|
$
|
0.05
|
$
|
0.05
|
$
|
0.06
|
$
|
0.06
|
|||||
CENTURY
CASINOS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
| (1) |
Sum
of quarterly results may differ from annual results presented in
Note 12,
Earnings per Share, to the Consolidated Financial Statements, and
the
Statement of Earnings because of
rounding.
|
| (2) |
In
the 4th
quarter of 2004 we recognized a $0.4 million gain from the sale
of
Verkrans, which is reported in net operating revenue. We also recovered
approximately $0.2 million in receivables previously written off
in 2002,
which is reported in earnings from
operations.
|
| (3) |
For
the 1st,
2nd,
and 3rd
quarter of 2004, certain reclassifications have been made to net
operating
revenue and earnings from operations to conform to the 4th
quarter presentation.
|
|
15.
|
TRANSACTIONS
WITH RELATED PARTIES
|
On
April
1, 2004, the Company paid $0.4 million to Thomas Graf, a founding stockholder
of
the Company for the settlement of an unsecured note payable.
We
have
entered into compensation agreements with certain members of the Board of
Directors. Specifically, we have 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, 2005, 2004 and 2003 are payments to Flyfish Casino Consulting in the
amounts
of $0.5 million, $0.5 million and $0.4 million, respectively, and payments
to
Focus Casino Consulting in the amounts of $0.5 million, $0.5 million, $0.4
million, respectively.
Erwin
Haitzmann, Peter Hoetzinger and their respective family trusts own a minority
interest in CRL. Collectively they own approximately 3.5% of CRL’s outstanding
shares of common stock.
During
2004, James Forbes, a former member of the Company’s Board of Directors and a
current board member of Century Casinos Caledon Proprietary Limited, loaned
$0.1
million to the Company to secure a note to Silverstar. The Company repaid
the
loan in December 2004.
There
have been no transactions with management, except as otherwise disclosed
herein.
-F40-