UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997.
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ___________ .
Commission file number 0-22290
CENTURY CASINOS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1271317
(State of incorporation) (IRS Employer ID No.)
26 South Tejon Street, Suite 203, Colorado Springs, Colorado 80903
(Address of principal executive offices)
(719) 473-7770
(Phone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Number of shares of common stock, $.01 par value, outstanding as of October
28, 1997:
15,861,885
1
<PAGE>
CENTURY CASINOS, INC.
FORM 10-QSB
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of September 30, 3
1997
Consolidated Statements of Operations for the 4
Three Months Ended September 30, 1997 and 1996
Consolidated Statements of Operations for the 5
Nine Months Ended September 30, 1997 and 1996
Consolidated Condensed Statements of Cash Flows 6
for the Nine Months Ended September 30, 1997 and
1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 10
PART II OTHER INFORMATION 14
SIGNATURES
2
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
- --------------------------------------------------------------------------------
September 30,
1997
-------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,740,183
Short-term investments 1,572,000
Prepaid expenses and other 799,685
------------
Total current assets 5,111,868
Property and Equipment, net 14,625,802
Goodwill, net 12,934,010
Other Assets 615,213
------------
Total $ 33,286,893
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 460,573
Accounts payable and accrued expenses 2,164,871
------------
Total current liabilities 2,625,444
Long-Term Debt, less current portion 10,123,039
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding
Common stock; $.01 par value; 50,000,000 shares
authorized; 15,861,885 shares issued and outstanding 158,619
Additional paid-in capital 24,895,378
Foreign currency translation (23,808)
Accumulated deficit (4,491,779)
------------
Total shareholders' equity 20,538,410
------------
Total $ 33,286,893
============
See notes to consolidated financial statements.
3
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Operating Revenue:
Casino $ 5,464,650 $ 4,919,753
Food and beverage 275,516 252,457
Hotel 22,657 16,101
Other 112,517 169,637
------------ ------------
5,875,340 5,357,948
Less promotional allowances (207,960) (180,643)
------------ ------------
Net operating revenue 5,667,380 5,177,305
------------ ------------
Operating Costs and Expenses:
Casino 2,718,718 1,716,166
Food and beverage 118,009 207,133
Hotel 5,316 4,826
General and administrative 1,313,028 1,269,070
Depreciation and amortization 765,714 642,599
------------ ------------
Total operating costs and expenses 4,920,785 3,839,794
------------ ------------
Income from Operations 746,595 1,337,511
Other expense, net (162,788) (304,864)
------------ ------------
Income before Income Taxes 583,807 1,032,647
Provision for income taxes 4,000 17,000
============ ============
Net Income $ 579,807 $ 1,015,647
============ ============
Income Per Share $ 0.03 $ 0.06
============ ============
Weighted Average Common Shares Outstanding 18,217,648 16,921,885
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Operating Revenue:
Casino $14,742,423 $ 7,229,952
Food and beverage 719,260 362,262
Hotel 44,028 16,101
Other 269,312 209,078
----------- ------------
15,775,023 7,817,393
Less promotional allowances (581,654) (272,982)
----------- ------------
Net operating revenue 15,193,369 7,544,411
----------- ------------
Operating Costs and Expenses:
Casino 8,053,675 2,643,762
Food and beverage 318,780 232,392
Hotel 12,051 4,826
General and administrative 3,907,507 2,685,151
Depreciation and amortization 2,173,853 1,283,305
----------- ------------
Total operating costs and expenses 14,465,866 6,849,436
----------- ------------
Income from Operations 727,503 694,975
Other expense, net (678,281) (762,323)
----------- ------------
Income (Loss) Before Income Taxes and 49,222 (67,348)
Extraordinary Item
Provision for income taxes (benefit) (98,000) 17,000
----------- ------------
Income (Loss) Before Extraordinary Item 147,222 (84,348)
Extraordinary item - debt prepayment
premium, net of
income tax benefit of $40,000 (171,860)
----------- ------------
Net Loss $ (24,638) $ (84,348)
=========== ============
Income (Loss) Per Share:
Before extraordinary item $ 0.01 $ (0.01)
Extraordinary item (0.01)
----------- ------------
Net loss $ (0.00) $ (0.01)
=========== ============
Weighted Average Common Shares Outstanding 15,861,885 13,248,905
=========== ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Cash provided by operations $ 2,515,614 $ 2,115,793
------------ ------------
Cash used in investing activities (4,112,708) (4,950,454)
------------ ------------
Cash provided by (used in) financing activities (219,263) 5,768,282
------------ ------------
Increase (decrease) in cash and cash equivalents (1,816,357) 2,933,621
Cash and cash equivalents at beginning of period 4,556,540 2,033,471
------------ ------------
Cash and cash equivalents at end of period $ 2,740,183 $ 4,967,092
============ ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
Equipment acquired through long-term financing $ 62,512 $ 355,615
</TABLE>
Supplemental Disclosure of Cash Flow Information:
Interest paid by the Company was $590,301 and $194,621 for the nine months
ended September 30, 1997 and 1996.
Income taxes paid by the Company were $14,090 and $9,800 for the nine months
ended September 30, 1997 and 1996.
See notes to consolidated financial statements.
6
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. and subsidiaries (the "Company") own and operate a
limited-stakes gaming casino in Cripple Creek, Colorado; act as
concessionaire of a small casino on a luxury cruise ship; and are pursuing
a number of additional gaming opportunities in the United States and
internationally. Prior to July 1, 1996, the Company's operations in Cripple
Creek, Colorado, consisted of Legends Casino, which the Company acquired on
March 31, 1994, through a merger with Alpine Gaming, Inc. ("Alpine"). On
July 1, 1996, the Company acquired the net assets of Gold Creek Associates,
L.P. ("Gold Creek"), the owner of Womack's Saloon & Gaming Parlor
("Womacks"), which is immediately adjacent to Legends Casino. Following the
Company's acquisition of Womacks, interior renovations were undertaken on
both properties to facilitate the operation and marketing of the combined
properties as one casino under the name Womacks Casino. The accompanying
financial statements include the results of operations acquired from Gold
Creek for the period subsequent to June 30, 1996.
The accompanying consolidated financial statements and related notes have
been prepared in accordance with generally accepted accounting principles
for interim financial reporting and the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for
fair presentation of financial position, results of operations and cash
flows have been included. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the Year Ended
December 31, 1996.
2. INCOME TAXES
The income tax benefit for the nine-month period ended September 30, 1997,
is based on estimated full-year income for financial reporting purposes
adjusted for permanent differences, which comprise primarily nondeductible
goodwill resulting from the Alpine acquisition, and utilization of
available net operating loss carryforwards (`NOLs"). Of the total estimated
benefit of $138,000, $40,000 was allocated to the extraordinary item
recognized in the second quarter of 1997. The income tax provision of
$4,000 for the three months ended September 30, 1997 reflects the change in
the estimated annual effective income tax rate from the previous quarter.
The income tax provision for the three-month and nine-month periods ended
September 30, 1996, was $17,000, and consists principally of alternative
minimum tax ("AMT") due to limitations on the utilization of NOLs for AMT
purposes.
7
<PAGE>
3. INCOME (LOSS) PER SHARE
Income (loss) per share for the Company for the three-month and nine-month
periods ended September 30, 1997 and 1996, is based upon the weighted
average number of common shares outstanding during the period. Outstanding
warrants and options have not been considered in the calculations, as their
effect would be antidilutive for all periods presented. Shares which the
Company is obligated to issue on July 1, 1998, in connection with the Gold
Creek acquisition, are considered common stock equivalents and are included
in the calculation of weighted average number of shares for the
three-months ended September 30, 1997 and 1996. The number of shares
included in the calculation of outstanding shares is 2,355,763 and
1,060,000, respectively, and is determined by a formula using the Company's
average stock price preceding the end of each period. The actual number of
shares to be issued will be determined using the average stock price
preceding July 1, 1998. The contingently issuable shares have not been
included in the calculation of weighted average number of shares for the
nine months ended September 30, 1997 and 1996, as their effect would be
antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
("SFAS") No. 128, "Earnings per Share," which supersedes Accounting
Principles Board Opinion No. 15 and establishes new guidelines for the
computation and presentation of earnings per share. A measurement
designated "basic earnings per share" replaces "primary earnings per
share." Basic earnings per share considers only outstanding common stock in
the computation. A measurement designated "diluted earnings per share"
replaces "fully diluted earnings per share," although the computations are
similar in that both give effect to all potentially dilutive securities.
The Company will be required to apply the provisions of SFAS No. 128 in the
fourth quarter of 1997, and earnings per share presented for earlier
periods will be required to be restated; earlier application of the new
standard is not permitted. The pro forma effect on income (loss) per share
for the three months and nine months ended September 30, 1997 and 1996, had
adoption of SFAS No. 128 been required in the second quarter of 1997, is
not material.
4. DEBT REFINANCING
On March 31, 1997, the Company entered into a four-year, $13 million
revolving line of credit facility (the "RCF") with Wells Fargo Bank ("Wells
Fargo"). The initial borrowing drawdown under the RCF of $12.2 million on
April 3, 1997, was used to retire approximately $9.2 million of secured
debt relating to Womacks Casino. The Company also exercised a purchase
option and acquired a portion of Womacks Casino, previously subject to a
long-term operating lease, for $1.85 million. Bank fees and other costs
paid at closing were approximately $200,000 and the remaining proceeds are
available for general operating purposes. The RCF is secured by
substantially all of the real and personal property of Womacks Casino.
Borrowings bear interest at Wells Fargo's prime rate plus one percent,
payable quarterly, and an annual commitment fee of one-half percent,
payable quarterly, is charged on the unused portion of the RCF.
The Company also maintains an operating account with Wells Fargo, the
balance of which is offset against the outstanding borrowings for purposes
of calculating interest. The borrowing capacity under the RCF is reduced by
$375,000 quarterly. Quarterly repayments of principal are required to the
extent that outstanding borrowings exceed borrowing capacity at the
beginning of any quarter. Based upon the balance of outstanding borrowings
at September 30, 1997, and the scheduled reductions in borrowing capacity
over the next 12 months, the entire balance of outstanding borrowings has
been classified as long-term in the accompanying balance sheet.
8
<PAGE>
Under the RCF, the Company is required to comply with certain financial
covenants, and Womacks Casino is subject to certain capital expenditure
requirements and restrictions on investments. In connection with securing
the RCF, the Company incurred and capitalized approximately $350,000 of
out-of-pocket costs, comprising principally nonrefundable bank commitment
fees and attorneys' fees, and including costs incurred prior to closing.
These deferred costs will be charged to operations on a straight-line basis
over the term of the RCF. An extraordinary charge, net of income taxes, of
$171,860, representing a prepayment premium on one of the retired
borrowings, was recognized in the second quarter of 1997.
At September 30, 1997, the Company's outstanding borrowings under the RCF
were approximately $3 million less than available borrowing capacity.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-Looking Statements, Business Environment and Risk Factors
Information contained in the following discussion of results of operations and
financial condition of the Company contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of words such as "may," "will," "expect," "anticipate,"
"estimate," or "continue," or variations thereon or comparable terminology. In
addition, all statements other than statements of historical facts that address
activities, events or developments that the Company expects, believes or
anticipates, will or may occur in the future, and other such matters, are
forward-looking statements.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere herein.
The Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include, among other
factors, the competitive environment in which the Company operates, the
Company's present dependence upon the Cripple Creek, Colorado gaming market,
changes in the rates of gaming-specific taxes, shifting public attitudes toward
the socioeconomic costs and benefits of gaming, actions of regulatory bodies,
dependence upon key personnel, the speculative nature of gaming projects the
Company may pursue, risks associated with expansion, and other uncertain
business conditions that may affect the Company's business.
The Company cautions the reader that a number of important factors discussed
herein, and in other reports filed with the Securities and Exchange Commission,
could affect the Company's actual results and cause actual results to differ
materially from those discussed in forward-looking statements.
Results of Operations
On July 1, 1996, the Company acquired the assets of Gold Creek, the owner of
Womacks in Cripple Creek, Colorado. The accompanying financial statements
include the results of operations of Womacks only for the period subsequent to
June 30, 1996. Accordingly, results for the nine months ended September 30,
1997, cannot be readily compared with results for the respective period in 1996.
10
<PAGE>
Three Months Ended September 30, 1997 vs. 1996
Net operating revenue for the third quarter of 1997 was $5,667,380 compared with
$5,177,305 for the same period in 1996, an increase of 9.5%. Casino revenue from
Womacks Casino increased 12.2% to $5,348,680 from $4,768,079 a year earlier. The
other component of casino revenue relates to the Company's cruise ship
concessions, which decreased from $151,674 to $115,970, primarily as a result of
the expiration of the casino concession contract for the Silver Cloud in May
1997. The concession contract for the Silver Wind is up for renewal in January
1998, and management believes it is likely that the contract will not be
renewed. Operating margin for the Silver Wind operations was $48,404 for the
third quarter of 1997 and $32,584 for the year-earlier period. Gross margin from
all the Company's casino activities was 50.2% in 1997 and 65.1% in 1996. The
decrease in margin is primarily due to a higher effective gaming tax rate (in
1996 the Company benefited from the application of the lower tax rate tiers to
the revenue of the acquired operations), as well as increased promotion and
marketing costs in the current-year period. Construction undertaken in early
1997 on a competitor's property, adjacent to Womacks Casino, is nearing
completion and the property is expected to open for business in the fourth
quarter of 1997. Management cannot predict at this time whether the operations
of Womacks Casino will be positively or adversely affected.
Food and beverage revenue increased 9.1% to $275,516 versus the third quarter of
1996. The cost of food and beverage promotional allowances, which is included in
casino costs, increased to $217,453 in the third quarter of 1997 as compared
with $138,888 in the prior year. The decrease in other revenue resulted
principally from the receipt of a one-time payment of $66,000 in 1996 from a
consulting project in South Africa.
General and administrative expense increased from $1,269,070 to $1,313,028, or
3.5%, but decreased slightly as a percentage of net operating revenue from 24.5%
to 23.2%. Contributing to the percentage improvement were relatively lower
payroll costs, professional fees and travel expenses.
Depreciation expense increased to $430,338 from $307,223, while amortization of
goodwill remained unchanged at $335,376 for both periods. The increase in
depreciation expense is attributable to the purchase of a portion of the Womacks
Casino property in April 1997, as well as property improvements and gaming
equipment acquired in the fourth quarter of 1996 and in 1997.
Other expense, net, for the third quarter of 1997 comprised $258,290 of interest
expense, $37,166 of interest income, a loss of $1,633 from the disposal of fixed
assets, amortization of deferred costs of $22,002 related to the Wells Fargo
refinancing, and income of $81,971 from payments received pursuant to a
previously terminated management contract. Other expense, net, for the prior
year period consisted of $243,768 of interest expense, $42,850 of interest
income, a gain of $1,497 from the disposal of fixed assets, foreign currency
loss of $654 and the writeoff of previously deferred financing costs of $104,789
associated with the Gold Creek acquisition.
11
<PAGE>
Nine Months Ended September 30, 1997 vs. 1996
Net operating revenue increased by $7,648,958 to $15,193,369 for the nine months
ended September 30, 1997 as compared with the 1996 period, principally as a
result of the Gold Creek acquisition. Consolidated casino revenue increased 104%
on a year-to-year basis, mostly attributable to the larger scale of operations
in the Cripple Creek market. On a pro forma basis, casino revenue from the
Company's Cripple Creek operations increased by 11.5%, with Womacks Casino
holding a 16.9% market share in Cripple Creek for the first nine months of 1997.
At September 30, 1997, Womacks Casino had approximately 11.8% of total gaming
positions in Cripple Creek. Casino revenue from the cruise ship concessions
decreased from $409,913 to $368,734 principally due to the expiration of the
Silver Cloud agreement. The overall casino margin for the 1997 nine-month period
was 45.4% as compared with 63.4% in 1996. Accounting for the lower margin were a
higher effective gaming tax rate and higher promotional and marketing expenses.
Food and beverage revenue increased from $362,262 to $719,260, an increase of
99% from the prior year. The increase results from the more extensive restaurant
and bar facilities in service following the Gold Creek acquisition. The cost of
promotional allowances, included in casino cost, was $740,675 in 1997 and
$234,832 in 1996. The increase in other revenue from 1996 to 1997 resulted
principally from parking facilities that Womacks began operating in the second
half of 1996, partially offset by a one-time payment in 1996 from a consulting
project in South Africa.
General and administrative expense increased from $2,685,151 in the first nine
months of 1996 to $3,907,507 in the 1997 period. As a percentage of net
operating revenue, however, this represents a decrease from 35.6% to 25.7%.
Proportionately lower payroll, professional service and travel costs were the
most significant components of the percentage improvement.
Year-to-date depreciation expense for 1997 was $1,167,725 as compared with
$577,177 for the same period in 1996. Goodwill amortization expense increased to
$1,006,128 from $706,128 a year earlier. Both increases are principally a result
of the Gold Creek acquisition.
Other expense, net, for the first nine months of 1997 consisted of $784,667 of
interest expense, $115,924 of interest income, a loss of $47,766 from fixed
asset disposals and the writedown of gaming equipment associated principally
with the Silver Cloud operations, amortization of deferred costs of $43,743
related to the Wells Fargo refinancing, and income of $81,971 from payments
received pursuant to a previously terminated management contract. Other expense,
net, for the same period in the prior year consisted of $340,559 of interest
expense, $143,118 of interest income, loss from the retirement and disposal of
fixed assets of $154,010, principally related to the closing of the Legends
restaurant and interior remodeling of Legends in anticipation of the Gold Creek
acquisition, foreign currency gain of $609, and the writeoff of previously
deferred financing costs of $411,481 associated with the Gold Creek acquisition.
In connection with the Wells Fargo refinancing in April 1997, the Company
recognized an extraordinary charge of $171,860, net of tax benefit, which
resulted from a prepayment premium applicable to one of the debt obligations
refinanced.
12
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $4,312,183 at
September 30, 1997, and the Company had net working capital of $2,486,424. For
the nine months ended September 30, 1997, cash used in investing activities
included the $1.85 million purchase of a portion of Womacks Casino, previously
subject to a long-term operating lease, the purchase of a parking lot and
building for $785,000, approximately $600,000 of other fixed asset additions,
and the purchase of $1.5 million of short-term fixed income securities. The net
cash used in financing activities of $219,263 principally resulted from net
payments made in connection with the Wells Fargo refinancing. At September 30,
1997, the Company's outstanding borrowings under the Wells Fargo revolving
credit facility were approximately $3 million less than the available borrowing
capacity of $12.625 million, providing the Company with additional financial
flexibility.
The Company filed applications with two consortia for casino licenses in the
province of Gauteng, South Africa. The Company has signed long-term casino
management contracts with both consortia, with one of the agreements providing
that, should a license be granted, the Company would make a minority equity
investment of approximately $2,000,000. The equity contribution, if required,
would likely be funded through the Company's existing cash and short-term
investments. Final decisions by regulatory authorities on the outcomes of the
two license applications are expected no later than the first quarter of 1998.
Management believes that the Company's working capital position at September 30,
1997, together with expected cash flow from operations, will be adequate to
satisfy its debt repayment obligations, meet its potential equity contribution
requirements and pursue additional business growth opportunities for the
foreseeable future.
* * * * * * * * * * * * * * * *
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
The Company is not a party to, nor is it aware of, any pending or
threatened litigation which, in management's opinion, could have a
material adverse effect on the Company's financial position or results of
operations.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibit is filed herewith:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September
30, 1997.
* * * * * * *
SIGNATURES:
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CENTURY CASINOS, INC.
/s/ Brad Dobski
- ---------------------------
Brad Dobski
Vice President - Finance
Chief Accounting Officer and duly authorized officer
Date: October 28, 1997
14
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<NAME> Century Casinos, Inc.
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