Body 8K
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of
1934
Date
of Report: October 3, 2005
(Date
of
earliest event reported: September 30, 2005)
CENTURY
CASINOS, INC.
(Exact
Name of Registrant as specified in its charter)
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Delaware
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0-22290
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84-1271317
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(State
or other jurisdiction
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(Commission
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(I.R.S.
Employer
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of
incorporation)
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File
Number)
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Identification
Number)
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1263
Lake Plaza Drive Suite A, Colorado Springs, CO
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80906
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code:
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719-527-8300
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
_Written
communication pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
_
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
_
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
_
Pre-commencement pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01 Entry Into a Material Definitive Agreement
On
October 3, 2005, Century Casinos, Inc. (the
“Company”) announced
that it was launching an offering in Europe of shares of its common stock,
which
the Company expects to list on the Vienna Stock Exchange in the form of Austrian
Depositary Certificates,
or
“ADCs.”
In
connection with the offering of ADCs, the Company executed a Mandate Agreement
on September 30, 2005, with CA
IB
Corporate Finance Beratungs Ges.m.b.H. (“CA IB”) acting for Bank
Austria Creditanstalt AG. The agreement governs the relationship between the
parties in connection with the proposed listing of the ADCs on the Vienna Stock
Exchange. The Mandate Agreement provides that the gross proceeds of the offering
will not exceed $50 million, and sets the following principal terms of the
ADC
offering:
| 1) |
The
final terms of the offering will be governed by an underwriting agreement,
which is currently being
negotiated;
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| 2) |
CA
IB and its affiliates will be the sole bookrunner and lead manager
for the
offering;
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| 3) |
The
Company agrees to pay CA IB a commission of 4.7% of the proceeds
of the
transaction in accordance with the terms of the underwriting
agreement;
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| 4) |
The
Company will bear all costs arising in connection with the offering,
including road show expenses, reasonable out-of-pocket expenses incurred
by
CA IB in connection with the offering, and up to EUR 50,000 (approximately
$60,050) of CA IB’s legal fees;
and
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| 5) |
The
offering shall be completed by November 31, 2005 and the Mandate
Agreement
will lapse after December 31, 2005 without further written notice
from the
Company or CA IB.
|
Either
party may terminate the Mandate Agreement at any time. In the event the Company
terminates the Mandate Agreement or the Mandate Agreement lapses and is not
extended by the parties for at least six months, the Company agrees to pay
CA IB
a fee of EUR 50,000 (approximately $60,050) for each month of its engagement
beginning with August 2005, not to exceed EUR 150,000 (approximately $180,150)
in total. This fee will also be payable by the Company if CA IB terminates
the
Mandate
Agreement due to consummation of the offering becoming impossible due to
material reasons within the Company’s control, or due to a material change
in
the
facts on which the parties based the Mandate Agreement. In
addition, if the Company terminates the Mandate Agreement and subsequently
completes an equity offering on the Vienna Stock Exchange within 12 months
following termination of the Mandate Agreement, the Company will pay a free
to
CA IB of 1.25% of the subsequent transaction, not to exceed EUR 500,000
(approximately $600,500).
Also
in
connection with the offering and listing of ADCs, the Company executed an ADC
Agreement on September 30, 2005
with
Bank Austria Creditanstalt AG and Oesterreichische Kontrollbank
Aktiengesellschaft, or “OeKB.” The ADC Agreement sets out the principal terms of
the ADCs, and provides that OeKB will serve as depositary for the shares of
the
Company’s common stock underlying the ADCs and will, together with
Bank
Austria,
administer the voting and other rights of the ADC holders and the underlying
shares of the Company’s common stock. Pursuant to the terms of the ADC
Agreement, each ADC will have substantially the same rights as one share of
the
Company’s common stock.
Item
8.01 Other Events
The
Company hereby updates
its Risk Factors as follows (references in this Item 8.01 to “we,”“our,” or “us”
refer to the Company and its subsidiaries taken as a whole, unless the context
otherwise indicates):
RISK
FACTORS
An
investment in our securities involves a high degree of risk. You should
carefully consider the risks described below together with all of the other
information included in our filings with the Securities and Exchange Commission,
including our most recent Annual Report on Form 10-K, before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties that we are unaware of,
or
that we may currently deem immaterial, may become important factors that harm
our business, financial condition or results of operations. If any of the
following risks actually occurs, our business, financial condition or results
of
operations could suffer. In that case, the trading price of our common stock
or
of our ADCs could decline, and you may lose all or part of your
investment.
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
92% of our net operating revenue for the six months ended June 30, 2005 was
derived from casinos in Cripple Creek and Caledon. Approximately 92% of our
net
operating revenue for the six months ended June 30, 2004 was derived from these
two facilities. 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 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 three smaller casinos. 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. 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 involves 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. 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 which 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 which 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, we have signed
a
letter of intent to develop and operate 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. 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, 2004, the revenue attributable to our Cripple Creek operations
fluctuated from a high of $5.1 million in the third quarter to a low of $3.5
million in the fourth 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. 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.
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 Hötzinger, 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.
We
will incur significant time and expense in documenting, testing and certifying
our internal control over financial reporting, and any significant deficiency
or
material weakness in our internal controls could adversely affect our business.
SEC
rules
require that, as a company with a class of securities registered in the U.S.
under the Securities Exchange Act of 1934, our chief executive officer and
chief
financial officer periodically certify the existence and effectiveness of our
internal control over financial reporting. Our independent auditors will be
required, beginning with our Annual Report on Form 10-K for our fiscal year
ending on December 31, 2005, to attest to our officers' assessment of our
internal controls. This process generally requires significant documentation
of
policies, procedures and systems, review of that documentation by our internal
accounting staff and our outside auditors, and testing of our internal control
over financial reporting by our internal accounting staff and our outside
auditors. Documentation and testing of our internal controls, which we have
not
undertaken in the past, will involve considerable time and expense, and may
strain our internal resources and have an adverse impact on our costs.
During
the course of our testing, we may identify deficiencies which we may not be
able
to remediate in time to meet the deadline imposed by SEC rules for certification
of our internal control over financial reporting. As a consequence, we may
have
to disclose in periodic reports we file with the SEC any material weaknesses
in
our system of internal controls. For example, in conjunction with the audit
of
our financial statements for the year ended December 31, 2004, our independent
registered public accounting firm notified us that they had identified matters
involving internal control over financial reporting and its operation that
they
consider to be a material weakness. These matters relate to the controls over
the recording of fixed assets in our South African operating subsidiary. The
failure to detect the weakness can be attributed to a lack of a substantive
policy on capitalization of fixed assets and a deficiency in our internal review
process as it relates to the South African operation. We are in the process
of
developing a complete plan to remediate the identified material weakness in
our
internal controls over financial reporting. We immediately instituted a series
of policies to improve the control over the capital asset activity in South
Africa and have begun a complete physical inventory of the same. The existence
of this or any other material weakness would preclude our management from
concluding that our internal control over financial reporting is effective,
and
would preclude our independent auditors from issuing an unqualified opinion
that
our internal controls are effective. In addition, disclosures of this type
in
our SEC reports could cause investors to lose confidence in our financial
reporting and may negatively affect the price of our common stock or ADCs.
Moreover, effective internal controls are necessary to produce reliable
financial reports and to prevent fraud. If we have deficiencies in our internal
control over financial reporting it may negatively impact our business, results
of operations and reputation.
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
$8.63 million of goodwill as of June 30, 2005 and $8.85 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 being offered hereby, 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
may also be examined by tax authorities in other jurisdictions in which we
operate. 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.
Outside
investors own a minority interest in our Caledon, South Africa operation, which
may reduce our return on investment from that property.
We
own
100% of the common equity of 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 the company
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.
Having
securities listed in two different countries may increase the volatility of
the
market price of our common stock or ADCs.
Following
the completion of our offering of ADCs in Europe, our common stock will be
quoted on the NASDAQ Capital Market in U.S. dollars, and the ADCs will be quoted
on the Vienna Stock Exchange in Euro. Fluctuations in the value of the U.S.
dollar against the Euro may affect the relative value of our common stock and
ADCs and result in trading therein by currency speculators or otherwise, which
may cause further volatility in the price of our common stock or ADCs. Increased
trading focus of our common stock or our ADCs on their respective trading
markets 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. This may also increase
the price volatility of our securities on that market.
The
Company hereby updates disclosure relating to its Business as
follows:
BUSINESS
Company
Overview
Century
Casinos, Inc. is an international gaming company. We currently own and operate
Womacks Casino and Hotel in Cripple Creek, Colorado and the Caledon Hotel,
Spa
& Casino in Caledon, South Africa, near Cape Town.
We also
provide
technical casino services to Casino Millennium,
a
casino in Prague, Czech Republic,
in
which we own a 50% equity interest,
and
serve as concessionaire of small casinos aboard seven cruise ships for three
cruise lines. We regularly pursue additional gaming opportunities
internationally and in the U.S. In the last three years, we have shifted our
operations from primarily a U.S. focused company with one operation in Colorado
to an international niche player in the small and midsize casino market
worldwide. Our international operations generated
approximately 46% of our net operating revenue during the six months ended
June
30, 2005.
We
were
formed in 1992 by a team of career gaming executives who had worked primarily
for an Austrian gaming company that owned and operated casinos throughout the
world. In 1994, we engaged in a business combination with Alpine Gaming, Inc.,
which owned Legends Casino in Cripple Creek, Colorado. As a result of this
business combination,
we acquired approximately 76% of Alpine Gaming’s common stock, and our
management team assumed all of Alpine’s board positions. In June 1994, we
reincorporated in Delaware under the name Century Casinos, Inc. Our Delaware
file no. is 2404127. We
are a
corporation subject to the laws of Delaware. Our registered office is at 1209
Orange Street, Wilmington, Delaware 19801, and our principal executive offices
are at 1263 Lake Plaza Drive, Suite A, Colorado Springs, Colorado 80906, U.S.
(telephone number: + 1 719 527-8300).
On
December 30, 2004, we contributed $3.5 million towards a 65% interest in a
proposed $48.7 million project in Central City, Colorado. The project is planned
to include a 60,000 square foot casino with 625 slot machines, six gaming
tables, 26 hotel rooms, retail, food and beverage amenities and a 500 space
on-site covered parking garage. Construction has begun and is expected to be
completed during the third quarter of 2006.
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) in the proposed $26.4 million
($31.3 million Canadian) Celebrations Casino Project in Edmonton, Canada. The
project is expected to include a casino with 600 gaming machines, 31 gaming
tables, food and beverage amenities, a dinner theatre, a 300 space underground
parking facility, approximately 600 surface parking spaces and a 26-room hotel.
Construction has begun and is expected to be completed by the fourth quarter
of
2006.
Gaming
Operations
Summary
of Property Information
|
Property
|
Casino
Space
(ft2)
|
Number
of Slot Machines
|
Number
of Table Games
|
Number
of Hotel Rooms
|
Number
of Restaurants
|
|
Womacks(1)
|
23,000
|
601
|
6
|
21
|
1
|
|
Caledon(2)
|
12,260
|
300
|
9
|
85
|
4
|
|
Casino
Millennium (3)
|
6,200
|
38
|
15
|
-
|
-
|
|
Cruise
Ships (total of seven) (4)
|
6,460
|
166
|
27
|
-
|
-
|
(1) 100%
owned and operated.
(2) We
own
100% of the common equity of and operate the 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 the company in their
sole and absolute discretion, any working capital, capital expenditure
requirements, loan obligations and liabilities attributable to the casino
business. Due to accumulated losses, no dividends have been paid in the past.
Should the casino business be sold or otherwise dissolved, the preference
stockholders are
entitled to 20% of any surplus directly attributable to the casino business,
net
of all liabilities attributable to the casino business.
(3) 50%
owned
and operated by us under a technical casino services agreement. The casino
operates in the five star Marriott Hotel.
(4) Operated
by us under concession agreements.
Furthermore,
we own the properties of our casinos in Central City, Colorado and Edmonton,
Canada which are both still under construction.
Womacks
Casino and Hotel, Cripple Creek, Colorado
We
acquired Legends Casino in Cripple Creek, Colorado in March 1994. In July 1996,
we acquired Womacks Saloon & Gaming Parlor, which was adjacent to Legends.
Following the acquisition of Womacks, we implemented certain consolidation,
expansion and capital improvement programs. We created openings in the common
walls in order to open up and integrate the gaming areas of the two casinos;
expanded the existing player tracking system of Womacks Saloon & Gaming
Parlor to include all of the Legends gaming devices; made general interior
enhancements; installed additional gaming devices and replaced older generation
equipment; and added additional hotel rooms. The combined properties have been
marketed since then as one casino under the name Womacks Casino and
Hotel.
In
September 2002, we opened the first phase of our 6,000 square foot expansion,
increasing our gaming space by approximately 2,000
square feet
In April 2003, construction was completed and an additional 3,000 square feet
of
gaming space was added to Womacks
on the alley behind the existing property. This will enable us to continue
building out the casino to the rear of the property on a single level at a
later
date.
Womacks
currently has 601 slot machines,
six
limited stakes gaming tables, 21 hotel rooms and one restaurant. It has 150
square feet of frontage on Bennett Avenue, the main gaming thoroughfare in
Cripple Creek, and 125 square 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 (source: Colorado Division of Gaming), 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
approximately 310 parking spaces and lease an additional 90 spaces for a total
of 400 spaces. An agreement with the City of Cripple Creek for the leased
parking spaces includes annual lease payments of approximately $90 thousand,
expires on May 31, 2010 and includes a purchase option, whereby we may purchase
the property for $3.25 million less cumulative lease payments, at any time
during the remainder of the lease term. 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.
Since
the
beginning of 2004 we have spent approximately $3 million to upgrade the product
mix on the gaming floor, improve the player
tracking system and introduce cashless (Ticket-in/Ticket-out or “TITO”) gaming
machines. We currently have 204 TITO machines installed. The Company expects
that these ongoing improvements
will add to the customer experience and further improve customer
service. Management believes that these ongoing efforts have helped limit the
decrease in gaming revenue.
Management’s
future plans include the possibility of upgrading existing hotel rooms,
expanding the number of hotel rooms and expanding the gaming
floor
space. All of this is, however, dependant on market development. Currently,
there are budgeted up to $3 million for the initial phase of
expansion.
The
Caledon Hotel, Spa & Casino, Caledon, South
Africa
In
October 1999, we filed an application for a casino license in Caledon, Western
Cape Province, South Africa. We originally had a 50% equity interest in Caledon.
In April 2000, Caledon was awarded a casino license and we invested
approximately $3.8 million (based on the exchange rate at that time) consisting
of approximately $1.5 million in equity and $2.3 million in debt.
In
December 2000, we acquired an additional 15% of Caledon, raising our ownership
in Caledon to 65%. Terms of the agreement included the payment of approximately
$1.8 million to the other equity holders in
exchange for 15% of the total common stock of Caledon (valued at approximately
$1.2 million),
and
repayment
of loans made to Caledon by the other equity holders (with
a
value of approximately $600,000). In January 2003, we acquired the remaining
35%
common stock interest in Caledon for $2.6 million, based on the exchange rate
at
the time.
Caledon
is a small agricultural community located approximately 60 miles east of Cape
Town. Caledon lies on the N-2 highway - the main thoroughfare between Cape
Town
and Durban - and is known for its wildflower shows, wineries and the natural
historic hot springs located on the Caledon Hotel, Spa & Casino site.
Caledon experiences its heaviest traffic during the December holiday
season,
which
is summer
in
South Africa.
Customer visits
are
somewhat
slower in the winter months of June
through September.
The
casino has 300 slot machines and nine table games including blackjack, roulette
and poker.
Casino
gaming in South Africa is “unlimited wagering” where each casino can set its own
limits. As a result, the relationship between table games revenues and slot
revenues in this market (30% to 70%) resembles more traditional gaming markets
(unlike the Cripple Creek market, where over 96% of gaming
revenues are derived from the slot machines).
Currently,
through expansion, we are planning to establish new floor spaces which will
provide room for an additional 100 slot machines. Furthermore, we intend to
upgrade or replace some of the existing slot machines at Caledon. We are also
in
the process of subdividing and transferring approximately 450 acres
of our
land to two wholly owned subsidiaries of Century Resorts Limited, “Blue Crane
Signature Golf Estate (Pty) Ltd” and “Blue Bells Country Club (Pty) Ltd.” We
intend to develop a signature golf estate on the transferred property with
approximately 300 residential homes and to link the property to the existing
nine-hole municipal golf course by adding another nine golf holes surrounded
with resort
housing
elements. We expect that successful development of the golf estate will
encourage additional visits to the existing casino operation.
As
a
condition for an amended license in respect of additional 100 slot machines,
we
committed to the Western Cape Gambling and Racing Board to contributing eight
million Rand towards the tarring of a road leading to our Casino. This
commitment will be finally determined in a written agreement with the provincial
roads authority. We expect the upgrading of this road to significantly
facilitate access to our casino and consequently to increase the number of
visitors. Currently, there are budgeted up to $3 million for the above mentioned
additional gaming machines and the tarring of the road.
Casino
Millennium, Prague, Czech Republic
In
January 1999, we, through our wholly owned subsidiary Century Casinos
Management, Inc., entered into a 20-year agreement with Casino Millennium a.s.,
a Czech company, and with B.H. Centrum a.s., a Czech subsidiary of Bau Holding
AG, one
of the
largest construction and development companies in Europe, to operate a casino
in
the five star Marriott Hotel in Prague, Czech Republic. We agreed to provide
technical casino services in exchange for 10% of the casino’s gross revenue, and
provide gaming equipment for 45% of the casino’s net profit. On October 1, 2003,
the Casino Services Agreement was amended as follows: (i) the agreement was
assigned to what is now Century Resorts International Ltd.; and (ii) the casino
service fee payable to Century Resorts International Ltd. has been set at €7,250
per month, plus VAT (if applicable). The hotel and casino opened in July 1999.
In
January 2000, we entered into a memorandum of agreement to either acquire a
50%
ownership interest in Casino Millennium a.s. or to form a new joint venture
with
B.H. Centrum a.s., which joint venture would acquire all of the assets of Casino
Millennium a.s. We and Strabag AG, an unrelated third party, each agreed to
purchase a 50% ownership interest. Approval for this transaction was obtained,
as required, from the Ministry of Finance of the Czech Republic. The first
step
in acquiring the 50% ownership interest was taken in December 2002 with the
payment of approximately $0.24 million in cash in exchange for a 10% ownership
in Casino Millennium a.s. Effective January 3, 2004, we, through our
wholly-owned Austrian subsidiary, Century Casinos Europe GmbH, acquired an
additional 40% of Casino Millennium a.s. by contributing gaming equipment,
advances and receivables valued at approximately $0.6 million. We account for
the 50% investment in Casino Millennium by the equity method. In addition to
the
50% ownership, we retain our rights under the 1999 casino services agreement,
as
amended.
Since
September 1, 2002, casino technical service fees and interest due to us from
Casino Millennium are not being accrued until a certainty of cash flow is
attained by Casino Millennium. These fees will be recognized when payment is
certain.
Cruise
Ships
In
addition to the traditional casino business we have entered into casino
concession agreements with three cruise ship operators.
Silversea
Cruises.
In May
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.
Starting
in late September 2000 with the new, 388-passenger Silver Shadow, we began
our
shipboard casino operations. Within 60 days thereafter, we installed casinos
on
the 296-passenger vessels Silver Wind and Silver Cloud. In June 2001, we
installed our fourth casino aboard the new, 388-passenger Silver Whisper. The
Silver Wind was taken out of service following the events of September 11,
2001
and resumed operations on May 23, 2003. We have a total of 74 slot machines
and
14 tables on the four Silversea shipboard casinos. We have discontinued
operations on the Silver Shadow cruise ship at the end of September 2005. We
owned and operated 22 slot machines and four tables on this ship.
The
World of ResidenSea.
In
August 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 approximately $1.3 million
to
$7.5 million.
We
have
equipped the casino with 20 slot machines and three 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 Ltd 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.
In March
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. The agreement gives us 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. Each of the casinos is equipped with 36
slot
machines and five gaming tables. In April 2004, Oceania Cruises, Inc. introduced
a third 684-passenger vessel named the Nautica which will resume services in
November 2005.
Additional
Company Projects
We
follow
an aggressive growth strategy in order to become more of a market leader in
internationally diversified casino operations. When assessing a potential new
project we, in particular, focus on the following criteria: (i) an effective
market regulation must be in place; (ii) the local demographics must be strong
(i.e. minimum of 200,000 people within a 60 mile radius); (iii) minimum size
(i.e. 200 gaming positions); and (iv) we aim at 100% ownership, however, we
will
also enter into partnerships. With respect to our financial criteria we focus
on
the required total investment (up to $100 million) and targeted EBITDA returns.
However, these are targeted returns which on an investment by investment basis
may not be reached but may even be considerably lower. Please note that such
EBITDA returns are not guaranteed. Below we describe our current
projects.
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 slot machines, six table games, 26 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 ($5.7
million net 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 ($4.5 million by a private lender and $35 million
under financing with Wells Fargo Bank), and the balance of $5.7 million is
the
net value of the minority partner's contribution in kind. A financial advisor
to
our partner in the Central City project has asserted claims to finders fees
in
the amount of $1.0 million relating to the financing we are arranging for the
project. We believe that these claims are substantially without merit. The
newly
formed entity, 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 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 AGP of 51.0% for Central City casinos
and a 1.2% increase for Black Hawk for the period January 1, 2005 to July 31,
2005 compared to the same period last year. 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 ($1.9 million) for the remaining 43.6% interest. Century Resorts Alberta,
Inc. plans to develop the Celebrations Casino and Hotel in Edmonton, Alberta,
Canada. The $26.4 million ($31.3 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 $26.4
million in overall project costs $2.4 million were already contributed by us
for
our interest in Century Resorts Alberta, Inc., $16.9 million ($20 million
Canadian) will be financed through external financing, $5.2 million will be
provided by us as a shareholder loan, and the balance of $1.9 million is the
net
value of the minority partner's contribution in kind. We have signed an
agreement with Canadian Western Bank for the external financing of the project.
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 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.
The
Innovation Group, Littleton, Colorado, estimates that by combining the local
and
tourist markets, 2005 gaming revenues for the greater Edmonton area in the
range
of 376 million Canadian dollars, an average annual increase of 13.3% over
2002/2001.
Newcastle,
South Africa.
In June
2005, we entered into a letter of intent for the purchase of a 60% controlling
stake in Balele Leisure (Pty) Ltd which owns the Monte Vista Casino in
Newcastle, South Africa. The final purchase price depends on casino revenue
in
the first twelve months of operation in the new, permanent facility, which
will
be developed in 2005 and 2006. Upon determination of the final price, the
financing requirements and methods of funding will be further assessed. 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 220 slot
machines and nine 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.
Gauteng,
South Africa.
In 1997,
together with Silverstar Development Ltd, we applied to the Gauteng Gambling
Board for a casino license in Gauteng, South Africa. After a preliminary
determination to award a license to the project, a series of legal challenges
and lawsuits were filed 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 uncertainty.
In
December 2004, we entered into agreements to sell a portion of our interest
in
the Gauteng project and granted options to Silverstar and a group led by Akani
Leisure Investments, Ltd. to purchase our remaining interests in the project.
We
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 Century Casinos Africa
(Pty)
Ltd, 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, or 3.0 million Rand, repayable in six equal
installments with interest. We have, therefore, recognized net proceeds of
$1.2
million, or 7.0 million Rand, in the transaction.
The
exercise price of the purchase options totals approximately $6.8 million, or
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.
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
700 slot machines and 30 gaming tables. Should the option not be exercised,
our
involvement in the project will be restored to the previous level of ownership
and management.
Other.
We
continue to seek opportunities to acquire or develop other gaming interests
in
well-regulated markets worldwide, and, on an opportunistic basis, continue
to
pursue these opportunities, including in the United Kingdom.
Investments
The
following table illustrates our investments for the past three fiscal years
and
the six months ended June 30, 2004 and 2005. Our 2002 purchase of the remaining
35% interest in Century Casinos Caledon (Pty) Limited, totaling $1.3 million,
is
not included in this table.
| |
|
Year
Ended December 31,
|
As of June 30,
|
As of June 30,
|
| |
|
2004
|
|
2003
|
2002
|
|
2005
|
2004
|
| |
|
|
|
|
|
|
|
|
|
Womacks
|
|
|
|
|
|
|
|
|
|
Property
expansion
|
|
$
-
|
|
$
680,000
|
$
1,200,000
|
|
$
-
|
$
-
|
|
Purchase
of vacant Palace Hotel property for parking
|
|
-
|
|
-
|
1,400,000
|
|
-
|
-
|
|
Property
improvements
|
|
-
|
|
-
|
-
|
|
50,000
|
-
|
|
Restaurant
construction
|
|
-
|
|
-
|
130,000
|
|
-
|
-
|
|
Slot
accounting system
|
|
840,000
|
|
-
|
-
|
|
-
|
200,000
|
|
Gaming
equipment
|
|
1,900,000
|
|
390,000
|
810,000
|
|
250,000
|
1,200,000
|
| |
|
$
2, 740,000
|
|
$
1,070,000
|
$
3,540,000
|
|
$
300,000
|
$
1,400,000
|
| |
|
|
|
|
|
|
|
|
|
South
Africa
|
|
|
|
|
|
|
|
|
|
Property
improvements
|
|
$
1,500,000
|
|
$
840,000
|
$
480,000
|
|
$
200,000
|
$
600,000
|
|
Johannesburg
land purchase
|
|
-
|
|
-
|
460,000
|
|
-
|
-
|
|
Furniture,
fixtures and equipment
|
|
-
|
|
490,000
|
-
|
|
-
|
-
|
|
Gaming
equipment
|
|
-
|
|
-
|
-
|
|
600,000
|
-
|
| |
|
$
1,500,000
|
|
$
1,330,000
|
$
940,000
|
|
$
800,000
|
$
600,000
|
|
Ships
|
|
|
|
|
|
|
|
|
|
Gaming
equipment
|
|
$
180,000
|
|
$
190,000
|
$
-
|
|
$
200,000
|
$
200,000
|
| |
|
|
|
|
|
|
|
|
|
Central
City
(1)
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
$
-
|
|
$
-
|
$
-
|
|
$
1,400,000
|
$
-
|
|
Initial
capital contribution
|
|
3,500,000
|
|
-
|
-
|
|
-
|
-
|
| |
|
$
3,500,000
|
|
$
-
|
$
-
|
|
$
1,400,000
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
Edmonton
(2)
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
$
-
|
|
$
-
|
$
-
|
|
$
1,300,000
|
$
-
|
|
Initial
capital contribution, net (3)
|
|
-
|
|
-
|
-
|
|
800,000
|
-
|
| |
|
$
-
|
|
$
-
|
$
-
|
|
$
2,100,000
|
$
-
|
| |
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Other
capital purchases
|
|
$
100,000
|
|
$
-
|
$
20,000
|
|
$
-
|
$
200,000
|
| |
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Property
expansion
|
|
$
-
|
|
$
680,000
|
$
1,200,000
|
|
$
-
|
$
-
|
|
Property
improvements
|
|
1,500,000
|
|
840,000
|
480,000
|
|
250,000
|
600,000
|
|
Johannesburg
land purchase
|
|
-
|
|
-
|
460,000
|
|
-
|
-
|
|
Purchase
of vacant Palace Hotel property for parking
|
|
-
|
|
-
|
1,400,000
|
|
-
|
-
|
|
Restaurant
construction
|
|
-
|
|
-
|
130,000
|
|
-
|
-
|
|
Slot
accounting system
|
|
840,000
|
|
-
|
-
|
|
-
|
200,000
|
|
Furniture,
fixtures and equipment
|
|
-
|
|
490,000
|
-
|
|
-
|
-
|
|
Gaming
equipment
|
|
2,080,000
|
|
580,000
|
810,000
|
|
1,050,000
|
1,400,000
|
|
Initial
capital contribution
|
|
3,500,000
|
|
-
|
-
|
|
800,000
|
-
|
|
Construction
in progress
|
|
-
|
|
-
|
-
|
|
2,700,000
|
-
|
|
Other
|
|
100,000
|
|
-
|
20,000
|
|
-
|
200,000
|
| |
|
$
8,020,000
|
|
$
2,590,000
|
$
4,500,000
|
|
$
4,800,000
|
$
2,400,000
|
Notes
(1)
Central City, Colorado - The Company anticipates total expenditures on the
Central City, Colorado project to be approximately $43 million including our
$3.5 million cash investment. Construction has begun and is expected to be
completed by the third quarter 2006.
(2)
Edmonton, Canada - The Company anticipates total expenditures on the Edmonton,
Canada project to be approximately $24.5 million including our $0.8 million
cash
investment. Construction has begun and is expected to take approximately 14
months from finalization of funding arrangements.
(3)
The
initial contribution to Edmonton is shown net of $1.9 million in liabilities
assumed.
Marketing
Strategy
We
do not
undertake marketing
measures under the “Century” brand instead marketing the brand of our individual
operations. Furthermore, we do not follow a specific marketing strategy
throughout the group but 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 74,000 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 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 a 85-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. As Caledon operates in
a
market with limited competition, marketing expenses are low compared to Cripple
Creek (approximately 10% of gaming revenues).
Central
City, Colorado. Central
City has a larger catchment area than Cripple Creek. Due to our casino’s
prominent location on the road leading to Black Hawk 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 the city of 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 “Celebrations 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 which 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
Cripple
Creek, Colorado. 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 June 30, 2005, there were 19 casinos operating in Cripple
Creek, which represented 27% of the gaming devices and generated 20% of gaming
revenues from these three cities for the year then ended.
The
tables below set forth information obtained from the Colorado Division of Gaming
regarding gaming revenue by market and slot machine data for Cripple Creek
from
calendar year 2002 through 2004 and the six months ended June 30, 2004 and
2005.
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.
GAMING
REVENUE BY MARKET (AGP)
(Amounts
in thousands, except slot data)
| |
|
%
Change
|
|
%
Change
|
|
%
Change
|
|
| |
|
Over
|
|
over
|
|
over
|
For
The Six Months Ended June 30,
|
| |
2004
|
prior
year
|
2003
|
prior
year
|
2002
|
prior
year
|
2005
|
2004
|
|
CRIPPLE
CREEK
|
$148,689
|
4.3%
|
$142,525
|
0.0%
|
$142,436
|
2.8%
|
$73,614
|
$71,777
|
| |
|
|
|
|
|
|
|
|
|
Black
Hawk
|
$524,035
|
3.6%
|
$505,851
|
(3.5)%
|
$524,465
|
9.6%
|
$265,906
|
$262,263
|
| |
|
|
|
|
|
|
|
|
|
Central
City
|
$53,179
|
6.6%
|
$49,909
|
(11.6)%
|
$52,800
|
(11.6)%
|
$37,469
|
$25,017
|
| |
|
|
|
|
|
|
|
|
|
COLORADO
TOTAL
|
$725,903
|
4.0%
|
$698,285
|
6.4%
|
$719,701
|
6.4%
|
$376,989
|
$359,057
|
CRIPPLE
CREEK SLOT DATA
(Amounts
in thousands, except slot data)
| |
|
%
Change
|
|
%
Change
|
|
%
Change
|
|
|
| |
|
over
|
|
over
|
|
over
|
For
The Six Months Ended June 30,
|
| |
2004
|
prior
year
|
2003
|
prior
year
|
2002
|
prior
year
|
2005
|
2004
|
|
Total
Slot Revenue
|
$143,802
|
3.8%
|
$138,560
|
0.0%
|
$138,645
|
3.2%
|
$71,256
|
$69,550
|
| |
|
|
|
|
|
|
|
|
|
Average
Number
|
|
|
|
|
|
|
|
|
|
Of
Slots
|
4,618
|
9.2%
|
4,228
|
1.0%
|
4,187
|
.4%
|
4,776
|
4,429
|
|
Average
Win Per
|
|
|
|
|
|
|
|
|
|
Slot
Per Day
|
$85
|
(5.6)%
|
$90
|
(1.1)%
|
$91
|
2.5%
|
$82
|
$86
|
WOMACKS
CASINO AND HOTEL DATA
(Amounts
in thousands, except slot data)
| |
|
%
Change
|
|
%
Change
|
|
%
Change
|
|
|
| |
|
over
|
|
over
|
|
over
|
For
The Six Months Ended June 30,
|
| |
2004
|
prior
year
|
2003
|
prior
year
|
2002
|
prior
year
|
2005
|
2004
|
|
Total
Slot Revenue
|
$19,262
|
(6.6)%
|
$20,625
|
(12.5)%
|
$23,563
|
1.8%
|
$9,199
|
$9,863
|
| |
|
|
|
|
|
|
|
|
|
Average
Number
|
|
|
|
|
|
|
|
|
|
Of
Slots
|
649
|
4.3%
|
622
|
(2.8)%
|
640
|
7.9%
|
626
|
632
|
| |
|
|
|
|
|
|
|
|
|
Average
Win Per
|
|
|
|
|
|
|
|
|
|
Slot
Per Day
|
$81
|
(11.0)%
|
$91
|
(9.9)%
|
$101
|
(5.6)%
|
$80
|
$86
|
| |
|
|
|
|
|
|
|
|
|
Market
Share of Cripple Creek AGP
|
13.4%
|
(10.1)%
|
14.9%
|
(12.4)%
|
17.0%
|
(1.3)%
|
13.3%
|
14.1%
|
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
of our revenue and the decrease of our market share in Cripple Creek from 2003
to 2004 to the opening of two additional casinos in Cripple Creek in December
2003 and June 2004. We
seek
to compete against other casinos in Cripple Creek 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, completed by September
2002,
impacted the casino, particularly during inclement weather, providing both
with
a significant number of close proximity parking places, an advantage previously
held by Womacks. Both competitors also have a larger 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 seven
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 markets
for Cripple Creek are the Colorado Springs and Pueblo metropolitan areas, and
the primary market for Black Hawk and Central City is the Denver metropolitan
area. Two of the casinos in Central City opened during the first half of
2005.
Caledon,
South Africa. The
Caledon Hotel, Spa & Casino operates its casino under one of only four
current
licenses
in the Western Cape Province, which has a population of approximately four
million. A fifth license, for a casino projected to be in operation in
mid-2006,
is likely to be issued.
Due to
the low number of licenses in the relevant market, competition is limited,
and
the casinos operate in what we believe to be an oligopolistic
market.
We
compete against all other casinos by emphasizing Caledon’s destination resort
appeal, by promotion of its player’s club and by superior service
to
its players. A majority of our customers come from the region immediately
surrounding Caledon and the rest come from the Cape Town area.
The
National Gambling Board has approved the introduction of Limited Payout
Machines,
or
LPMs. A
total
of 2,000 LPMs will be issued 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.
Casino
gaming in South Africa is “unlimited wagering” where each casino can set its own
limits. As a result, the relationship between
table
games revenues and slot revenues (30% to 70%) resembles more traditional gaming
markets (unlike Cripple Creek where over 96% of gaming revenues are derived
from
the slot machines). Caledon
has 300 slot machines and nine table games including blackjack, roulette and
poker.
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 2002 through June 30, 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.
GAMING
REVENUE BY MARKET (AGP)
(Dollars
and Rand in thousands, except slot data)
| |
|
|
% Change
|
|
% Change
|
|
For
The Six Months Ended
|
| |
|
|
over
|
|
over
|
|
June
30,
|
| |
|
2004
|
prior
year (1)
|
2003
|
prior
year (1)
|
2002
|
2005
|
2004
|
|
CALEDON
CASINO
|
Rand
|
R80,088
|
17.8%
|
R67,976
|
11.3%
|
R61,100
|
R44,082
|
R37,998
|
| |
USD
equivalent
|
$12,540
|
|
$9,211
|
|
$5,899
|
$7,201
|
$5,724
|
| |
|
|
|
|
|
|
|
|
|
Other
three casinos
|
Rand
|
R1,279,219
|
20.8%
|
R1,058,619
|
12.2%
|
R943,346
|
R740,540
|
R608,984
|
| |
USD
equivalent
|
$200,346
|
|
$143,298
|
|
$91,162
|
$120,971
|
$91,737
|
| |
|
|
|
|
|
|
|
|
|
WESTERN
CAPE TOTAL
|
Rand
|
R1,359,307
|
20.7%
|
R1,126,595
|
12.2%
|
R1,004,446
|
R784,622
|
R646,982
|
| |
USD
equivalent
|
$212,886
|
|
$152,509
|
|
$97,061
|
$128,172
|
$97,461
|
(1)Excluding
effects of fluctuations in foreign exchange rate.
THE
CALEDON HOTEL SPA & CASINO DATA
(Dollars
and Rand in thousands, except slot data)
| |
|
%
Change
|
|
%
Change
|
|
For
The Six Months Ended
|
| |
|
over
|
|
over
|
|
June
30,
|
June
30,
|
| |
2004
|
prior
year
|
2003
|
prior
year
|
2002
|
2005
|
2004
|
|
Total
Slot Revenue
|
R73,066
|
17.2%
|
R62,345
|
12.8%
|
R55,276
|
R41,530
|
R34,743
|
| |
$11,440
|
35.5%
|
$8,443
|
58.0%
|
$5,343
|
$6,742
|
$5,232
|
|
Market
Share in % (1)
|
5.9%
|
(1.7)%
|
6.0%
|
(1.6)%
|
6.1%
|
5.6%
|
5.9%
|
| |
|
|
|
|
|
|
|
|
Average
Number
|
|
|
|
|
|
|
|
|
Of
Slots
|
288
|
5.1%
|
274
|
7.9%
|
254
|
300
|
283
|
| |
|
|
|
|
|
|
|
|
Average
Win Per Slot Per Day
|
R693
|
11.3%
|
R623
|
4.5%
|
R596
|
R761
|
R674
|
| |
$109
|
29.8%
|
$84
|
44.8%
|
$58
|
$124
|
$102
|
|
#
of Slot Machines % of Total
|
|
|
|
|
|
|
|
|
Western
Cape Market
|
11.3%
|
3.7%
|
10.9%
|
(2.7)%
|
11.2%
|
10.5%
|
11.1%
|
| |
|
|
|
|
|
|
|
|
Average
Number
|
|
|
|
|
|
|
|
|
Of
Tables
|
9
|
12.5%
|
8
|
0.0%
|
8
|
9
|
9
|
| |
|
|
|
|
|
|
|
|
#
of Tables % of Total
|
|
|
|
|
|
|
|
|
Western
Cape Market
|
9.8%
|
11.4%
|
8.8%
|
(11.1)%
|
9.9%
|
9.6%
|
9.8%
|
(1) Based
on
the total Adjusted Gaming Revenue of the Western Cape.
Central
City, Colorado.
Our
casino under development in Central City will have
a
prime location at the end of 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.
Edmonton,
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 theatre. Furthermore,
we
anticipate being one of two casinos with a parking garage. Finally, 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
As
of June 30,
2005, we had 559 employees, 203 of whom were employed at our casino in Cripple
Creek, 312 in South Africa, 32 on the cruise ships, 2 in Edmonton and 10
at the
corporate level.
Womacks
Casino and Hotel. We
employ
203 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.
We
provide a standard package of employee benefits to full-time employees along
with training and job advancement opportunities.
Caledon
Hotel, Spa & Casino.
The
Caledon Hotel, Spa & Casino employs 312 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. We provide a standard package of employee benefits to full-time
employees along with training and job advancement opportunities.
Casino
Millennium. We
employ
approximately 70 persons in Prague, Czech Republic on a full-time equivalent
basis, including cashiers, dealers, accounting and marketing personnel.
No
labor unions represent any employee group.
We
provide a standard package of employee benefits to full-time employees along
with training and job advancement opportunities.
Cruise
Ships. We
employ
approximately 32 persons on seven cruise ships on a full-time equivalent basis,
primarily dealers. No
labor unions represent any employee group.
The
majority of employees who serve on the ships are staff of the casino in Prague
and rotate to the ships periodically throughout the year.
Corporate
Segment. We
employ
approximately 10 persons in Colorado Springs, Colorado on a full-time equivalent
basis, including administrative, accounting, finance, and management personnel.
No labor unions represent any employee group. We provide a standard package
of
employee benefits 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 have a significant impact on business in Cripple Creek. The same
will apply to Central City, Colorado.
Caledon
Hotel, Spa & Casino. Our
business in Caledon is at its highest levels during the June/July school
holidays and during the December holidays.
Casino
Millennium.
Our
business in Prague, Czech
Republic fluctuates significantly with the quality of the players. Unlike the
Company’s 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 players
has more of an impact on the live game results when compared to the income
derived from slot machines.
Cruise
Ships. We
experience large fluctuations in the revenue generated on each cruise depending
on the number and quality of the player and passengers. This is a condition
that
we do not control.
Edmonton,
Canada.
Our
future business in Edmonton, Canada, will be best during the tourist season
(i.e., from May through September) and December. The rest of the year (i.e.,
October through April) should remain rather constant due to the hotel and the
dinner theatre which are part of our complex.
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 stockholders 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 U.S. in which we may do business. Management believes
that we are in compliance with applicable gaming regulations.
Colorado,
U.S.A.
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 stockholders, new officers
and
directors of the Company, any
stockholders obtaining 5% or more of the Company’s common stock and any issuance
of new voting securities. We believe that we are 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 strict regulations
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. AGLC administers and regulates
the gaming industry in Alberta. Generally, the criminal code prohibits all
gaming in Canada except those forms of gaming which it specifically allows.
Applicants for a gaming license must submit an application and run through
a
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 authorizations 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 strict 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
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 Balele is in compliance with applicable
gaming regulations.
Prague,
Czech Republic
Casino
Millennium’s gaming operations are subject to strict regulations 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. This segment of our operations accounted
for
almost 8% of our total net operating revenue for 2004, compared to 6% for 2003
and less than 3% for 2002.
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, 93%
of
the labor force in Caledon is comprised of designated persons.
Properties
Cripple
Creek
We
own
approximately 2.7 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 credit agreement.
In
addition, we hold a subleasehold interest in real property and improvements
on
approximately 0.8 acres of property in Cripple Creek, Colorado. This
subleasehold was extended in June 2005 to June 2010 and we paid an option fee
amounting to $200 thousand which, together with other payments we have made
totaling $50 thousand, will be credited against the purchase price when we
exercise the option and purchase the property at the exercise price of $1.5
million.
We
lease
ten city lots from the City of Cripple Creek, Colorado for parking. The lease
terms include annual rental payments of $90 thousand and an expiration date
of
May 31, 2010. The agreement contains a purchase option for us to purchase the
property for $3.25 million, less cumulative lease payments, at any time during
the remainder of the lease term.
We
lease
2,847 square feet of office space in Colorado Springs, Colorado that houses
our
corporate administrative personnel. The lease will expire in July 2008.
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 of South Africa. Approximately 500 acres of this property is
undeveloped at this time.
Central
City
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.
Altogether, 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 foot, four story, parking structure.
Alberta,
Canada
Effective
February 24, 2005, we own a 56.4% interest in a project in Edmonton, Alberta,
Canada. We had subscribed to 55% of the shares of CRA in September 2003 but
subsequently increased our participation in the project. 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.
Most
of
our properties have mortgages on them which secure financing from banks. To
the
best of our knowledge none of our properties had or have any environmental
issues.
Legal
Proceedings
We
are
not a party to, nor are we aware of, any pending or threatened litigation that,
in management’s opinion, could have a material
adverse effect on our financial position or results of operations.
A
financial advisor to our partner in the Central City project has asserted claims
to finders fees in the amount of $1.0 million relating to the financing we
are
arranging for the project. We believe that these claims are substantially
without merit.
Item
9.01 Financial Statements and Exhibits.
(c)
Exhibits
10.156 Mandate
Agreement, dated September 30, 2005, between Century Casinos, Inc. and Bank
Austria Creditanstalt AG.
10.157 ADC
Agreement, dated September 30, 2005, by and among Bank Austria Creditanstalt
AG,
Century Casinos, Inc., and Oesterreichische
Kontrollbank
Aktiengesellschaft.
99.1 Press
Release dated October 3, 2005, announcing commencement of ADC
offering.
SIGNATURES
Pursuant
to the requirements 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.
(Registrant)
Date:
October 3, 2005 By
: /s/
Ray Sienko
Ray
Sienko, Chief Accounting Officer
Exhibit
Index
10.156
Mandate
Agreement, dated September 30, 2005, between Century Casinos, Inc. and Bank
Austria Creditanstalt AG.
10.157 ADC
Agreement, dated September 30, 2005, by and among Bank Austria Creditanstalt
AG,
Century Casinos, Inc., and Oesterreichische Kontrollbank
Aktiengesellschaft.
99.1 Press
Release dated October 3, 2005, announcing commencement of ADC
offering.