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, 1998.
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission file number 0-22290
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CENTURY CASINOS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1271317
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(State of incorporation) (IRS Employer ID No.)
200-220 E. Bennett Ave., Cripple Creek, Colorado 80813
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(Address of principal executive offices)
(719) 689-9100
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(Phone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__ No _____
Number of shares of common stock, $.01 par value, outstanding as of October 26,
1998: 14,970,285
<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, 1998 3
Consolidated Statements of Operations for the Three Months Ended 4
September 30, 1998 and 1997
Consolidated Statements of Operations for the Nine Months Ended 5
September 30, 1998 and 1997
Consolidated Condensed Statements of Cash Flows for the Nine Months 6
Ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 12
PART II OTHER INFORMATION 17
SIGNATURES 17
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<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
- --------------------------------------------------------------------------------
September 30,
-------------
1998
ASSETS ----
Current Assets:
Cash and cash equivalents $ 3,422,847
Short-term investments 512,998
Prepaid expenses and other 590,334
------------
Total current assets 4,526,179
Property and Equipment, net 18,308,366
Goodwill, net 11,592,506
Other Assets 1,013,869
------------
Total $ 35,440,920
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 888,395
Accounts payable and accrued expenses 3,132,489
------------
Total current liabilities 4,020,884
Long-Term Debt, less current portion 11,899,730
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; 15,057,885 shares outstanding 158,619
Additional paid-in capital 23,315,038
Other comprehensive income - foreign
currency translation (10,049)
Accumulated deficit (3,059,883)
------------
20,403,725
Treasury stock - 804,000 shares, at cost (883,419)
------------
Total shareholders' equity 19,520,306
------------
Total $ 35,440,920
============
See notes to consolidated financial statements.
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<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
----------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating Revenue:
Casino $ 5,192,797 $ 5,464,650
Food and beverage 265,117 275,516
Hotel 14,314 22,657
Other 56,758 70,167
------------ ------------
5,528,986 5,832,990
Less promotional allowances (172,609) (207,960)
------------ ------------
Net operating revenue 5,356,377 5,625,030
------------ ------------
Operating Costs and Expenses:
Casino 2,125,148 2,676,368
Food and beverage 173,742 118,009
Hotel 7,171 5,316
General and administrative 1,521,415 1,313,028
Depreciation and amortization 728,153 765,714
------------ ------------
Total operating costs and expenses 4,555,629 4,878,435
------------ ------------
Income from Operations 800,748 746,595
Other income (expense), net 135,723 (162,788)
------------ ------------
Income before Income Taxes 936,471 583,807
Provision for income taxes 391,000 4,000
------------ ------------
Net Income $ 545,471 $ 579,807
============ ============
Earnings Per Share:
Basic $ 0.04 $ 0.04
============ ============
Diluted $ 0.04 $ 0.03
============ ============
Comprehensive Income:
Net income, as reported above $ 545,471 $ 579,807
Foreign currency translation
adjustments 28,616 (1,424)
------------ ------------
Comprehensive income $ 574,087 $ 578,383
============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating Revenue:
Casino $ 14,246,694 $ 14,742,423
Food and beverage 662,078 719,260
Hotel 38,999 44,028
Other 100,935 179,552
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15,048,706 15,685,263
Less promotional allowances (496,070) (581,654)
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Net operating revenue 14,552,636 15,103,609
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Operating Costs and Expenses:
Casino 5,712,447 7,963,915
Food and beverage 328,276 318,780
Hotel 21,184 12,051
General and administrative 4,193,544 3,907,507
Depreciation and amortization 2,245,398 2,173,853
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Total operating costs and expenses 12,500,849 14,376,106
------------- -------------
Income from Operations 2,051,787 727,503
Other expense, net (3,905) (678,281)
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Income before Income Taxes and
Extraordinary Item 2,047,882 49,222
Provision for income taxes (benefit) 98,000 (98,000)
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Income before Extraordinary Item 1,949,882 147,222
Extraordinary item - debt prepayment
premium, net of Income tax benefit
of $40,000 (171,860)
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Net Income (Loss) $ 1,949,882 $ (24,638)
============= =============
Earnings (Loss) Per Share, Basic and Diluted:
Before extraordinary item $ 0.13 $ 0.01
Extraordinary item (0.01)
------------- -------------
Net earnings (loss) $ 0.13 $ (0.00)
============= =============
Comprehensive Income (Loss):
Net income (loss), as reported above $ 1,949,882 $ (24,638)
Foreign currency translation adjustments 17,728 (9,954)
------------- -------------
Comprehensive income (loss) $ 1,967,610 $ (34,592)
============= =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash provided by operations $ 3,804,414 $ 2,515,614
------------ ------------
Cash used in investing activities (4,787,566) (4,112,708)
------------ ------------
Cash provided by (used in) financing activities 178,021 (219,263)
------------ ------------
Decrease in cash and cash equivalents (805,131) (1,816,357)
Cash and cash equivalents at beginning of period 4,227,978 4,556,540
------------ ------------
Cash and cash equivalents at end of period $ 3,422,847 $ 2,740,183
============ ============
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities:
In the nine months ended September 30, 1997, the Company acquired gaming
equipment in the amount of $62,512 subject to long-term vendor financing.
Supplemental Disclosure of Cash Flow Information:
Interest paid by the Company was $729,901 and $590,301 for the nine months
ended September 30, 1998 and 1997.
Income taxes paid by the Company were $443,591 and $14,090 for the nine months
ended September 30, 1998 and 1997.
See notes to consolidated financial statements.
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<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, and are pursuing a
number of additional gaming opportunities internationally and in the United
States. Prior to July 1, 1996, the Company's operations in Cripple Creek,
Colorado, consisted of Legends Casino ("Legends"), 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.
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/Legends
Casino.
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, 1997.
2. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and
its components. It requires that all changes in equity during a period,
except those resulting from investment by owners and distributions to
owners, be reported as a component of comprehensive income and that
comprehensive income be displayed in a financial statement with the same
prominence as other financial statements that constitute a full set of
financial statements.
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<PAGE>
3. INCOME TAXES
The income tax provisions for the three-month periods ended September 30,
1998 and 1997, were based on estimated full-year income for financial
reporting purposes adjusted for permanent differences, which comprise
primarily nondeductible goodwill amortization resulting from the Alpine
acquisition and utilization of available net operating loss carryforwards
("NOLs"). The income tax provision of $98,000 for the nine months ended
September 30, 1998, consists of (a) a nonrecurring benefit of $815,000
resulting from the reversal of the valuation allowance previously provided
against the Company's net deferred tax assets; and (b) a provision of
$913,000, based upon estimated full-year income for financial reporting
purposes adjusted for nondeductible goodwill amortization and other
charges, and utilization of available NOLs and alternative minimum tax
credit carryforwards. The income tax benefit of $98,000 (exclusive of a
$40,000 benefit associated with an extraordinary charge) for the nine
months ended September 30, 1997, was based upon estimated full-year income
for financial reporting purposes adjusted for nondeductible goodwill
amortization and utilization of available NOLs.
4. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings per share for the three months ended September
30, 1998 and 1997 were computed as follows:
For the Three Months Ended September 30,
----------------------------------------
1998 1997
---- ----
Basic Earnings Per Share:
Net income $ 545,171 $ 579,807
=========== ===========
Weighted average common shares 15,187,135 15,861,885
=========== ===========
Basic earnings per share $ 0.04 $ 0.04
=========== ===========
Diluted Earnings Per Share:
Net income, as reported $ 545,471 $ 579,807
Interest expense, net of income taxes,
on convertible debenture 8,412 8,412
----------- -----------
Net income available to common
shareholders $ 553,883 $ 588,219
=========== ===========
Weighted average common shares 15,187,135 15,861,885
Assumed issuance of contingent shares 2,355,763
Effect of dilutive securities:
Convertible debenture 271,739 271,739
Stock options and warrants 60,864
----------- -----------
Dilutive potential common shares 15,519,738 18,489,387
=========== ===========
Diluted earnings per share $ 0.04 $ 0.03
=========== ===========
Excluded from computation of
diluted earnings per share Due
to antidilutive effect:
Options and warrants to purchase
common shares 5,607,281 6,006,809
Weighted average exercise price $ 2.03 $ 2.01
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<PAGE>
Basic and diluted earnings (loss) per share for the nine months ended September
30, 1998 and 1997 were computed as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
Basic Earnings (Loss) Per Share:
Net income (loss) $ 1,949,882 $ (24,638)
============ ==========
Weighted average common shares 15,440,244 15,861,885
============ ==========
Basic earnings (loss) per share $ 0.13 $ (0.00)
============ ==========
Diluted Earnings (Loss) Per Share:
Net income (loss), as reported $ 1,949,882 $ (24,638)
Interest expense, net of income taxes, on convertible
debenture 24,962
------------ ----------
Net income (loss) available to common shareholders $ 1,974,844 $ (24,638)
============ ==========
Weighted average common shares 15,440,244 15,861,885
Effect of dilutive securities:
Convertible debenture 271,739
Stock options and warrants 69,988
------------ ----------
Dilutive potential common shares 15,781,971 15,861,885
============ ==========
Diluted earnings (loss) per share $ 0.13 $ (0.00)
============ ==========
Excluded from computation of diluted earnings (loss)
per share due to antidilutive effect:
Options and warrants to purchase common shares 5,678,709 6,006,809
Weighted average exercise price $ 2.01 $ 2.01
</TABLE>
Contingent shares have been excluded from the computation of diluted earnings
per share for the nine months ended September 30, 1997, as their effect would be
antidilutive.
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<PAGE>
5. INDIANA RIVERBOAT CERTIFICATE OF SUITABILITY
On September 14, 1998, the Indiana Gaming Commission awarded a Certificate
of Suitability to Pinnacle Gaming Development Corporation ("Pinnacle") to
conduct riverboat gaming in Switzerland County. In accordance with the
terms of the sale of the Company's interest in Pinnacle in 1995, the
Company received a payment in the third quarter of 1998 of $431,000, which
is included in "other income (expense), net" in the accompanying statements
of operations. Additionally, the Company is entitled to a payment of
$1,040,000 upon "groundbreaking" of the project, and installment payments
of $32,000 per month for the first 60 months of the riverboat's operation.
The Company may elect to receive, or the owners of Pinnacle may elect to
prepay, the installment payments in the aggregate discounted amount of
$1,453,000. While the Company believes that Pinnacle intends to proceed
with the development of the riverboat project, there can be no assurance
that Pinnacle will do so, or, if the project does proceed, when the
additional payments will be earned and received by the Company. Any future
payments to the Company will be recognized as income when earned.
6. CRIPPLE CREEK PROPERTY ACQUISITION
On June 3, 1998, the Company acquired 22,000 square feet of land, zoned for
gaming, adjacent to Womacks/Legends Casino. A partially-completed building
structure that occupied a portion of the land was subsequently razed, and
the entire property has been improved to provide the first paved customer
parking spaces in the Cripple Creek market. The purchase price of $3.6
million was financed through the Company's $15 million revolving credit
facility with Wells Fargo Bank.
7. SHARE REPURCHASES
In February 1998 the Company's Board of Directors approved a discretionary
program to repurchase up to $1 million of the Company's outstanding common
stock. In October 1998 the Board voted to increase the stock repurchase
program by $1 million to an aggregate of $2 million. The Board believes
that the Company's stock is undervalued in the trading market in relation
to both its present operations and its future prospects. Through September
30, 1998, the Company had repurchased 804,000 shares at an average cost per
share of $1.10.
8. AGREEMENT WITH FORMER PRINCIPALS OF GOLD CREEK
In connection with the acquisition of Womacks from Gold Creek on July 1,
1996, the purchase agreement provided that on July 1, 1998, the Company
would issue 1,060,000 shares of its common stock, valued for accounting
purposes at $1.8 million at July 1, 1996, to two principals of Gold Creek.
The number of shares to be issued was subject to upward adjustment,
determined by a formula, to the extent that the trading price of the
Company's stock was less than $1.58 at the time of issuance, and subject to
downward adjustment to the extent that the trading price exceeded $4.00.
During the second quarter of 1998, the Company reached agreement with the
two principals to pay them a total of $1,629,000, through a combination of
cash and unsecured notes, in lieu of issuing common stock. Cash payments of
$534,000 were made in the second quarter, with the remaining $1,095,000
evidenced by three-year, unsecured promissory notes bearing interest at
8.75%. The aggregate amount of cash and promissory notes was recorded as a
charge to additional paid-in capital.
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<PAGE>
9. SETTLEMENT OF NOTE RECEIVABLE
In March 1998 the Company negotiated an early settlement of its note
receivable from SSK Game Enterprises, Inc. ("SSK"), with respect to the
Company's casino management agreement with the Soboba Band of Mission
Indians in California, which agreement was terminated in August 1995. The
Company received cash payments, included in "other income (expense), net,"
totaling $550,000 in the first quarter of 1998. Aggregate payments received
pursuant to the note from August 1995 through the date of settlement were
$2,475,000, of which $1,843,000 was applied to recovery of capitalized
costs and $632,000 was recognized in income. No further payments will be
received under the note.
10. IMPAIRMENT OF EQUITY INVESTMENT
On April 21, 1998, the Gauteng Gambling and Betting Board announced the
award of the remaining two licenses for the province of Gauteng, South
Africa. Silverstar Development Ltd. ("Silverstar"), a consortium which was
one of the license applicants and in which the Company participates, was
not awarded a license. Effective March 31, 1998, the Company recorded an
impairment allowance against its entire equity investment in Silverstar in
the amount of $196,022.
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<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
Three Months Ended September 30, 1998 vs. 1997
- ----------------------------------------------
Net operating revenue for the third quarter of 1998 was $5,356,377 compared with
$5,625,030 for the same period in 1997, a decrease of 4.8%. Casino revenue for
Womacks/Legends Casino decreased from $5,348,680 in 1997 to $5,192,797 in 1998.
Although slot machine coin-in increased from the 1997 period to the 1998 period,
it was more than offset by an increase in the overall payout percentage to
customers, resulting in the revenue decrease. The remaining decrease in
consolidated casino revenue is due to the expiration of a cruise ship concession
agreement that expired in the first quarter of 1998. Gross margin for all the
Company's casino activities improved to 59.1% from 51.0% a year earlier.
Contributing most significantly to the margin improvement was the elimination of
costs through the discontinuation of Womacks/Legends Casino's busing and logojet
marketing programs. Also contributing to the improved margin were lower payroll
costs.
Food and beverage revenue decreased 3.8% to $265,117 versus the third quarter of
1997. The cost of food and beverage promotional allowances, which is included in
casino costs, decreased to $210,915 in the third quarter of 1998 as compared
with $217,453 in the prior year. The decrease in other revenue resulted
principally from the absence of concession fees from the Silver Wind cruise ship
coincident with the expiration of the concession agreement.
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<PAGE>
General and administrative expense as a percentage of net operating revenue was
28.4% for the third quarter of 1998 as compared with 23.3% in 1997. The increase
was primarily due to a higher headcount in the administrative departments. The
cost of this headcount increase, however, was more than offset by lower payroll
costs of casino operations.
Depreciation expense decreased from $430,338 in the 1997 period to $392,777 in
1998, primarily due to the absence of depreciation from the discontinued cruise
ship activities, while amortization of goodwill remained unchanged at $335,376
for both periods.
Other income, net, for the third quarter of 1998 comprised $20,640 of interest
income, $291,608 of interest expense, income of $431,000 from a payment received
related to the Company's ongoing economic interest in a riverboat gaming license
application in Indiana, a gain of $1,000 from the disposal of fixed assets, and
amortization of deferred financing costs of $25,309. Other expense, net, for the
third quarter of 1997 comprised $37,166 of interest income, $258,290 of interest
expense, a loss of $1,633 from the disposal of fixed assets, amortization of
deferred financing costs of $22,002, and income of $81,971 from payments
received pursuant to a previously terminated management contract.
Nine Months Ended September 30, 1998 vs. 1997
- ---------------------------------------------
Net operating revenue decreased by $495,729 to $14,552,636 for the nine months
ended September 30, 1998, as compared with the 1997 period, principally due to
the expiration of two cruise ship concession contracts. Casino revenue for
Womacks/Legends Casino decreased 1.1% to $14,212,450 from the prior year. An
increase in coin-in on a year-over-year basis was more than offset by an
increase in the average percentage payout to customers. The Company's casino
margin for the current-year period was 59.9%, up from 46.0% a year earlier. The
improvement was due to the elimination of the busing and logojet marketing
programs, as well as lower payroll costs.
Food and beverage revenue decreased from $719,260 to $662,078, a decrease of
8.0% from the prior year. The decrease corresponds to a decrease in the level of
promotional meals and drinks given to gaming patrons. The cost of promotional
allowances, included in casino cost, was $660,102 in 1998 and $740,675 in 1997.
The decrease in other revenue from 1997 to 1998 resulted from lower gift shop
sales at Womacks/Legends Casino and a decline in concession fees from the cruise
ships coincident with the expiration of the concession agreements.
General and administrative expense as a percentage of net operating revenue
increased to 28.8% for the first nine months of 1998 from 25.9% in the 1997
period. The increase was due primarily to a higher headcount in the
administrative departments. The cost of this headcount increase, however, was
more than offset by lower payroll costs of casino operations.
Year-to-date depreciation expense for 1998 was $1,239,270 as compared with
$1,167,725 for the same period in 1997. The increase is attributable to property
improvements and acquisition of new gaming equipment at Womacks/Legends Casino.
Amortization of goodwill was $1,006,128 for both periods.
In March 1998 the Company negotiated an early settlement of its note receivable
from SSK Game Enterprises, Inc. ("SSK"), with respect to the Company's casino
management agreement with the Soboba Band of Mission Indians in California,
which agreement was terminated in August 1995. The Company received cash
payments, included in "other income (expense), net," totaling $550,000 in the
first quarter of 1998. Aggregate payments received pursuant to the note from
August 1995 through date of settlement were $2,475,000, of which $1,843,000 were
applied to recovery of capitalized costs and $632,000 were recognized in income.
No further payments will be received under the note.
- 13 -
<PAGE>
On April 21, 1998, the Company was informed that the consortium with which it
had filed a gaming license application for the province of Gauteng, South Africa
was not awarded one of the two remaining licenses for the province. Accordingly,
the Company provided an impairment allowance of $196,022 against its entire
equity investment in the license applicant in the first quarter of 1998.
In addition to the payments received from SSK and the provision for impairment
previously described, other expense, net, for the first nine months of 1998
consisted of $81,429 of interest income, $745,844 of interest expense, a gain of
$47,842 from the disposal of fixed assets, income of $431,000 from a payment
received related to the Company's ongoing economic interest in a riverboat
gaming license application in Indiana, expense of $97,850 for expired trade
credits from an equipment supplier, and amortization of deferred financing costs
of $74,460. Other expense, net, for the 1997 period consisted of $115,924 of
interest income, $784,667 of interest expense, a loss of $47,766 from the
disposal of fixed assets, income of $81,971 from payments received pursuant to a
previously terminated management contract, and amortization of deferred
financing costs of $43,743.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $3,935,845 at
September 30, 1998, and the Company had net working capital of $505,295.
Additional liquidity may be provided by the Company's revolving credit facility
("RCF") with Wells Fargo Bank, under which the Company had unused borrowing
capacity of approximately $4 million at September 30, 1998. For the nine months
ended September 30, 1998, cash provided by operations was $3,804,414 as compared
with $2,515,614 in the prior-year period, with most of the increase attributable
to the operations of Womacks/Legends Casino. Cash used in investing activities
included property and equipment additions of $4,752,373, net purchases of
short-term investments of $512,998, payments of $534,000 to two former
principals of Gold Creek in partial settlement of the Company's remaining
financial obligations arising from its acquisition of Gold Creek's assets in
1996. These cash outflows were partially offset by proceeds of $550,000 from a
previously terminated management contract and proceeds of $431,000 related to
the Company's economic interest in a riverboat gaming application in Indiana.
The Company had net cash borrowings during the nine months ended September 30,
1998, of $1,099,200, principally to acquire real property adjacent to
Womacks/Legends Casino, and repurchased outstanding common stock in the amount
of $883,419 during the period.
The Company's management has deferred a decision on whether to proceed with the
construction of a hotel and parking structure on its property across the street
from Womacks/Legends Casino until it has had time to assess the impact of new
hotel capacity on the Cripple Creek market. Womacks/Legends Casino has entered
into an agreement with the operator of a new Super 8 Hotel whereby the casino
will lease a block of rooms from the hotel, which is expected to open in
November 1998. The casino will make these rooms available to its customers and
will provide a free shuttle service between the casino and the hotel. Management
anticipates that some of the leased hotel room capacity will be provided to
customers on a complimentary basis. For the near term the Company's property
located across the street from Womacks/Legends Casino will be used for customer
parking.
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<PAGE>
During the third quarter of 1998, the Company converted $10,000,000 principal
amount of its outstanding prime-based borrowings with Wells Fargo Bank to a
LIBOR-based obligation for a period of six months in order to avail itself of a
more attractive interest rate than the current prime-based rate. Concurrently,
the Company entered into a five-year interest rate swap agreement on $7,500,000
notional amount of debt, whereby the Company will pay a LIBOR-based fixed rate
and receive a LIBOR-based floating rate. Generally, the swap arrangement will be
advantageous to the Company to the extent that interest rates increase in the
future and disadvantageous to the extent that they decrease. The net amount paid
or received by the Company on a quarterly basis will result in an increase or
decrease to interest expense. In October 1998 the Company reached verbal
agreement with Wells Fargo Bank to increase the Company's maximum borrowing
capacity under the RCF from $15 million to $20 million and to amend the interest
rate structure, which could further lower the Company's cost of capital if
certain leverage ratios are achieved. The amendment is expected to be finalized
in early November 1998.
During the third quarter of 1998, the Company was informed by the provincial
government of British Columbia, Canada that the application by the Kamloops
Indian Band (the "Band") to establish a destination casino resort on their land
was denied. The Company would have managed the casino operations for the
Kamloops Indian Band pursuant to a management contract had a license been
awarded. The Company did not incur any significant costs in connection with the
application.
In March 1998 the Company entered into a joint venture agreement with a Czech
subsidiary of Bau Holding AG, one of the largest construction and development
companies in Europe, to form Century Casinos Praha a.s. The Company was to hold
a 49% interest in the venture, which will operate a casino in the five-star
Marriott Hotel, currently under construction in Prague, Czech Republic.
Subsequent to signing the joint venture agreement, laws governing casino
licenses in the Czech Republic were changed to preclude a foreign entity from
holding an equity interest in a casino license. The Company is presently
negotiating an agreement whereby it would manage the casino operations pursuant
to a ten-year management agreement for a fee based upon gross casino revenue,
and the Company would lease gaming equipment with a value of approximately $1.3
million to the casino. The Company would likely finance its purchase of the
equipment through either its current cash position or a combination of cash and
vendor financing. A definitive agreement, however, has not yet been finalized.
The opening of the hotel and casino is currently scheduled, subject to change,
for the second quarter of 1999.
On April 21, 1998, a consortium ("Black Rhino") that includes the Company
submitted an application for a gaming license in the province of KwaZulu Natal,
South Africa. A detailed application was filed by the consortium on August 10,
1998, in accordance with the published timetable. As announced by the KwaZulu
Natal Provincial Cabinet on October 28, 1998, Black Rhino was not selected as
the Preferred Finalist for the zone for which it had applied.
The Company holds a small equity position in Great North Resorts Limited, which
has submitted a license application for Pietersburg, the capital of the Northern
Province, South Africa. If successful in receiving a license, the Company would
provide consulting/management services with respect to the casino operations of
a proposed $40 million casino, hotel, entertainment and resort complex pursuant
to a five-year agreement commencing with the opening of the permanent casino.
The Company would also provide consulting/management services with respect to
the operations of a temporary casino during the development phase of the resort
complex. The Company would earn fees based on a percentage of annual gaming
revenue. The Company has no significant additional capital obligations with
respect to this application. The licensing process in the Northern Province has
been halted by the South African Supreme Court pending an investigation of
alleged improprieties by the Northern Province Casino and Gaming Board.
The Colorado Division of Gaming is presently conducting a revenue audit for the
period July 1995 through July 1998. The audit could result in an adjustment of
gaming taxes for revenue earned in those periods and/or the imposition of fines
or penalties. The Company is unable, at this time, to determine the outcome of
the audit.
- 15 -
<PAGE>
Management believes that the Company's working capital position at September 30,
1998, together with expected cash flow from operations and borrowing capacity
under its revolving credit facility, will be adequate to satisfy its debt
repayment obligations, meet its anticipated capital expenditures and pursue
additional business growth opportunities for the foreseeable future.
Year 2000 Compliance
- --------------------
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is generally referred to as the Year 2000 ("Y2K") compliance
issue. As the year 2000 approaches, such systems may be unable to accurately
process certain date-based or date-sensitive information.
The Company is presently implementing its plan to ensure Y2K compliance. The
Company has identified software applications and hardware that could pose
potential Y2K problems. The computerized systems of most significance to the
Company's ongoing business operations are those that involve slot reporting,
player tracking, and accounting. Those systems rely primarily on hardware and
software obtained from third-party vendors. The Company has contacted the
respective vendors for these systems and has either received assurance that the
software applications and related hardware currently in use are Y2K compliant,
or that upgrades that are Y2K compliant will be available on a timely basis for
implementation and testing by the Company. The Company's player tracking and
accounting systems are presently Y2K compliant. Upgrades to make the slot
reporting system Y2K compliant are scheduled to be completed in the fourth
quarter of 1998.
The Company does not anticipate that it will encounter significant problems or
incur significant incremental costs in order to make its financial and
operational systems Y2K compliant. The Company has not yet developed specific
detailed contingency plans; however, the Company believes that, at this time,
any unforeseen Y2K problems that may yet come to light will be identified in
sufficient time to either be rectified or to develop and implement an effective
contingency plan. The Company has also initiated a study of its vendors and
suppliers to determine whether their potential Y2K problems could have a
material effect on the Company. The Company's information at this time does not
indicate that Y2K compliance issues will have a material adverse effect upon the
financial condition or results of operation of the Company. There can be no
assurance, however, that the cost of Y2K compliance might not become material as
the Company's study progresses and more information becomes available.
* * * * * * * * * * * * * * * *
- 16 -
<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, 1998.
* * * * * * *
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: November 2, 1998
- 17 -
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