UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.
OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
DELAWARE 84-1271317
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
|
Common stock, $0.01 par value, 13,664,384 shares outstanding as of July 25, 2002.
CENTURY CASINOS, INC.
FORM 10-Q
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Earnings for the Three
Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Earnings for the Six
Months Ended June 30, 2002 and 2001 5
Condensed Consolidated Statements of Comprehensive Earnings for the Three Months
Ended June 30, 2002 and 2001 6
Condensed Consolidated Statements of Comprehensive Earnings for the Six Months
Ended June 30, 2002 and 2001 6
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 22
PART II OTHER INFORMATION 32
Item 1. Legal Proceedings 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 32
|
June 30, 2002 December 31, 2001
------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents
(including restricted cash of $387 and $334, respectively) $ 3,267 $ 3,365
Accounts receivable 574 433
Prepaid expenses and other 615 591
--------------- ---------------
Total current assets 4,456 4,389
Property and Equipment, net 32,437 29,338
Goodwill, net 7,784 7,709
Casino License Costs, net 1,100 1,010
Other Assets 2,417 2,373
--------------- ---------------
Total $ 48,194 $ 44,819
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,492 $ 1,554
Accounts payable and accrued expenses 2,666 3,512
--------------- ---------------
Total current liabilities 4,158 5,066
Long-Term Debt, less current portion 17,297 15,991
Other Non-current Liabilities 1,103 979
Minority Interest 698 605
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding - -
Common stock; $.01 par value; 50,000,000 shares authorized;
14,485,776 shares issued;
13,713,484 and 13,728,784 shares outstanding, respectively 145 145
Additional paid-in capital 21,901 21,901
Accumulated other comprehensive loss (2,515) (3,291)
Retained earnings 6,875 4,847
--------------- ---------------
26,406 23,602
Treasury stock - 772,292 and 756,992 shares, respectively,
at cost (1,468) (1,424)
--------------- ---------------
Total shareholders' equity 24,938 22,178
--------------- ---------------
Total $ 48,194 $ 44,819
=============== ===============
|
See notes to condensed consolidated financial statements.
For The Three Months Ended June 30,
2002 2001
---- ----
Operating Revenue:
Casino $ 7,816 $ 7,459
Food and beverage 389 491
Hotel 201 168
Other 142 199
--------------- ---------------
8,548 8,317
Less promotional allowances 1,119 924
--------------- ---------------
Net operating revenue 7,429 7,393
--------------- ---------------
Operating Costs and Expenses:
Casino 2,342 2,295
Food and beverage 212 280
Hotel 138 166
General and administrative 2,029 2,114
Depreciation and amortization 553 1,254
--------------- ---------------
Total operating costs and expenses 5,274 6,109
--------------- ---------------
Earnings from Operations 2,155 1,284
Other (expense), net (433) (561)
--------------- ---------------
Earnings before Income Taxes and Minority Interest 1,722 723
Provision for income taxes 613 196
--------------- ---------------
Earnings before Minority Interest 1,109 527
Minority interest in subsidiary results of operations (6) 62
--------------- ---------------
Net Earnings $ 1,103 $ 589
=============== ===============
Earnings Per Share:
Basic $ 0.08 $ 0.05
=============== ===============
Diluted $ 0.07 $ 0.04
=============== ===============
|
See notes to condensed consolidated financial statements.
For The Six Months Ended June 30,
2002 2001
---- ----
Operating Revenue:
Casino $ 15,022 $ 14,917
Food and beverage 756 880
Hotel 406 324
Other 293 344
--------------- ---------------
16,477 16,465
Less promotional allowances 2,156 1,763
--------------- ---------------
Net operating revenue 14,321 14,702
--------------- ---------------
Operating Costs and Expenses:
Casino 4,575 4,648
Food and beverage 402 556
Hotel 244 326
General and administrative 3,822 4,208
Depreciation and amortization 1,150 2,491
--------------- ---------------
Total operating costs and expenses 10,193 12,229
--------------- ---------------
Earnings from Operations 4,128 2,473
Other (expense), net (871) (1,073)
--------------- ---------------
Earnings before Income Taxes and Minority Interest 3,257 1,400
Provision for income taxes 1,231 523
--------------- ---------------
Earnings before Minority Interest 2,026 877
Minority interest in subsidiary results of operations 2 165
--------------- ---------------
Net Earnings $ 2,028 $ 1,042
=============== ===============
Earnings Per Share:
Basic $ 0.15 $ 0.08
=============== ===============
Diluted $ 0.13 $ 0.07
=============== ===============
|
See notes to condensed consolidated financial statements.
For The Three Months Ended June 30,
2002 2001
---- ----
Net Earnings $ 1,103 $ 589
Foreign currency translation adjustments 494 (320)
Change in fair value of interest rate swaps, net of income taxes (93) 17
--------------- ---------------
Comprehensive Earnings $ 1,504 $ 286
=============== ===============
For The Six Months Ended June 30,
2002 2001
---- ----
Net Earnings $ 2,028 $ 1,042
Foreign currency translation adjustments 783 (218)
Cumulative effect of change in accounting principle related to interest
rate swaps, net of income taxes - (175)
Change in fair value of interest rate swaps, net of income taxes (7) (153)
--------------- ---------------
Comprehensive Earnings $ 2,804 $ 496
=============== ===============
|
See notes to condensed consolidated financial statements.
For The Six Months Ended June 30,
2002 2001
---- ----
Cash Flows from Operating Activities:
Net earnings $ 2,028 $ 1,042
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation 1,150 1,778
Amortization of goodwill - 713
Amortization of deferred financing costs 43 32
(Gain) loss on disposition of assets (2) (14)
Deferred tax expense (benefit) 93 (125)
Minority interest in subsidiary losses (2) (165)
Other (12) 16
Changes in operating assets and liabilities
Receivables (103) 114
Prepaid expenses and other assets 46 437
Accounts payable and accrued liabilities (911) (1,613)
--------------- ---------------
Net cash provided by operating activities 2,330 2,215
--------------- ---------------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,911) (1,962)
Expenditures for deposits and other assets - (1,501)
Proceeds received from disposition of assets 2 9
--------------- ---------------
Net cash used in investing activities (2,909) (3,454)
--------------- ---------------
|
(continued)
For the Six Months Ended June 30,
2002 2001
---- ----
Cash Flows from Financing Activities:
Proceeds from borrowings $ 10,968 $ 12,981
Principal repayments (10,530) (17,581)
Deferred financing costs (19) 17
Purchases of treasury stock (44) (402)
--------------- ---------------
Net cash provided by (used in) financing activities 375 (4,985)
--------------- ---------------
Effect of exchange rate changes on cash 106 82
--------------- ---------------
Decrease in Cash and Cash Equivalents (98) (6,142)
Cash and Cash Equivalents at Beginning of Period 3,365 9,077
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 3,267 $ 2,935
=============== ===============
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $40 in 2002 and $169 in 2001 $ 976 $ 613
=============== ===============
Income taxes paid $ 1,235 $ 930
=============== ===============
|
See notes to condensed consolidated financial statements.
CENTURY CASINOS, INC. AND SUBSIDIARIES
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. ("CCI") is an international gaming company. Wholly owned subsidiaries of CCI include Century Casinos Management, Inc. ("CCM"), Century Casinos Nevada, Inc. ("CCN", a dormant subsidiary), Century Management u. Beteiligungs GmbH ("CMB"), and WMCK-Venture Corp. ("WMCK"). Wholly owned subsidiaries of WMCK include WMCK-Acquisition Corp ("ACQ") and Century Casinos Cripple Creek, Inc. ("CCC"). Century Casinos Africa (Pty) Ltd. ("CCA"), a 96.7% owned subsidiary of CCI, owns 65% of Century Casinos Caledon (Pty) Ltd. ("CCAL"), 55% of Century Casinos West Rand (Pty) Ltd. ("CCWR") and 50% of Rhino Resort Ltd. ("RRL"). CCI and subsidiaries (the "Company") own and/or manage casino operations in the United States of America, South Africa, the Czech Republic, and international waters as follows:
WMCK owns and operates Womacks Casino and Hotel ("Womacks"), a limited-stakes gaming casino in Cripple Creek, Colorado. Womacks is one of the largest gaming facilities in Cripple Creek and is currently the core operation of the Company. The facility has 612 slots, five limited stakes gaming tables, 21 hotel rooms, 2 restaurants and is currently expanding the gaming space to accommodate an additional 115 gaming devices.
CCA owns 65% of the Caledon Casino, Hotel and Spa near Cape Town, South Africa and has a management contract to operate the casino. The resort has 250 slot/video machines and eight gaming tables, a 92-room hotel, mineral hot springs and spa facility, 2 restaurants, 3 bars, and conference facilities.
CCM manages Casino Millennium located within a five-star hotel in Prague, Czech Republic. Subject to the approval by regulators, the Company and another entity have each agreed to purchase a 50% ownership interest in Casino Millennium. The acquisition is expected to be completed in late 2002 or early 2003 and is expected to cost approximately $200 in cash plus the contribution of operating assets of the casino currently owned by the Company.
CCI serves as concessionaire of small casinos on five luxury cruise vessels, one of which is temporarily out of service. The Company has a total of approximately 167 gaming positions on the four combined shipboard casinos currently in operation.
The Company regularly pursues additional gaming opportunities internationally and in the United States.
During September 2001, CCA entered into an agreement to secure a 50% ownership interest in Rhino Resort Ltd. ("RRL"), a consortium which includes Silverstar Development Ltd. ("Silverstar"). RRL submitted an application for a proposed hotel/casino resort development in the greater Johannesburg area of South Africa at a cost of approximately 400 million Rand ($38.6 million). In November 2001, RRL was awarded the sixth and final casino license serving the Gauteng province in South Africa. In February 2002, Tsogo Sun Holdings (Pty) Ltd ("Tsogo"), a competing casino, filed a Review Application seeking to overturn the license award by the Gauteng Gambling Board ("GGB"), which will be heard by the Pretoria High Court in September 2002. Both RRL and the GGB are vigorously defending this action which focuses primarily on claims by Tsogo that the processes leading to the award were procedurally deficient. A judgment handed down on this matter could be subject to a Request for Leave to Appeal. Should Leave to Appeal be denied, recourse is then limited to an approach for an appeal hearing before the Supreme Court of Appeals; the grant, or otherwise, of such hearing being at the discretion of the country's Chief Justice. Upon favorable resolution of the pending court action, CCA, as part of the September 2001 agreement, would be required to make an equity and loan contribution of approximately 50 million Rand ($4.8 million). In addition to the equity ownership in RRL, CCWR will receive management fees as the manager of the casino, hotel and resort. Management fees will be based on a percentage of gross revenues as well as a percentage of EBITDA (defined as earnings before interest, taxes, depreciation, amortization and other specifically defined costs).
Commitments that are denominated in a foreign currency and all balance sheet accounts other than shareholders' equity are translated and presented based on the exchange rate at the end of the period.
The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for fair presentation of financial position, results of operations and cash flows have been included. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. The results of operations for the period ended June 30, 2002 are not necessarily indicative of the operating results for the full year.
2. INCOME TAXES
The income tax provisions are based on estimated full-year earnings for financial reporting purposes adjusted for permanent differences, which consist primarily of nondeductible goodwill amortization prior to the adoption of SFAS No. 142 (Note 9).
3. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months ended June 30, 2002 and 2001 were computed as follows:
For the Three Months Ended June 30,
2002 2001
---- ----
Basic Earnings Per Share:
Net earnings $ 1,103 $ 589
=============== ===============
Weighted average common shares 13,727,865 13,821,593
=============== ===============
Basic earnings per share $ 0.08 $ 0.05
=============== ===============
Diluted Earnings Per Share:
Net earnings, as reported $ 1,103 $ 589
Interest expense, net of income taxes,
on convertible debenture - 3
--------------- ---------------
Net earnings available to common shareholders $ 1,103 $ 592
=============== ===============
Weighted average common shares 13,727,865 13,821,593
Effect of dilutive securities:
Convertible debenture - 109,293
Stock options and warrants 1,699,599 1,076,118
--------------- ---------------
Dilutive potential common shares 15,427,464 15,007,004
=============== ===============
Diluted earnings per share $ 0.07 $ 0.04
=============== ===============
Excluded from computation of diluted earnings per share
Due to antidilutive effect:
Options and warrants to purchase common shares - 155,000
Weighted average exercise price $ - $ 2.36
|
Basic and diluted earnings per share for the six months ended June 30, 2002 and 2001 were computed as follows:
For the Six Months Ended June 30,
2002 2001
---- ----
Basic Earnings Per Share:
Net earnings $ 2,028 $ 1,042
=============== ===============
Weighted average common shares 13,728,325 13,878,741
=============== ===============
Basic earnings per share $ 0.15 $ 0.08
=============== ===============
Diluted Earnings Per Share:
Net earnings, as reported $ 2,028 $ 1,042
Interest expense, net of income taxes,
on convertible debenture - 8
--------------- ---------------
Net earnings available to common shareholders $ 2,028 $ 1,050
=============== ===============
Weighted average common shares 13,728,325 13,878,741
Effect of dilutive securities:
Convertible debenture - 136,019
Stock options and warrants 1,546,804 1,057,988
--------------- ---------------
Dilutive potential common shares 15,275,129 15,072,748
=============== ===============
Diluted earnings per share $ 0.13 $ 0.07
=============== ===============
Excluded from computation of diluted earnings per share
Due to antidilutive effect:
Options and warrants to purchase common shares - 155,000
Weighted average exercise price $ - $ 2.36
|
4. CRIPPLE CREEK, COLORADO
On May 1, 2002 WMCK-Venture Corp. acquired the Palace Casino building and adjoining property for $1.2 million. Womacks has spent an additional $64 to complete the acquisition and begin converting the majority of the property, which is adjacent to the Womacks Casino and Hotel, into additional 41 parking spaces.
5. CALEDON, SOUTH AFRICA
The casino opened on October 11, 2000 and currently operates 250 slot machines and 8 gaming tables. In addition to the casino license, hotel and spa, CCAL owns approximately 600 acres of land, which may be used for future expansion. In September 2001, CCA, CCAL and Fortes King Hospitality (Pty) Limited ("FKH") entered into a Memorandum of Agreement, which amends the casino and hotel management agreements signed in December 1999, such that any and all management fees shall be deemed to equal zero from the inception of those agreements and shall remain so until no earlier than January 1, 2002. By agreement, the management fees that would have been payable to CCA and FKH are given preferential treatment in the event of the sale or liquidation of CCAL. Consequently, the minority interest in subsidiary results of operation in the consolidated statement of earnings for the six months ended June 2002 included $32, net of $14 of income tax benefit, representing the management fees that would have been payable to FKH. As a result, the consolidated net earnings for the South African segment or the consolidated net earnings for the Company were not affected by this agreement. Beginning January 1, 2002, either CCA or FKH have the option to declare the fees calculable and payable. As of June 30, 2002, neither party has exercised their option.
6. PRAGUE, CZECH REPUBLIC
The Company has a memorandum of agreement to acquire a 50% ownership interest in Casino Millennium a.s., a Czech company. Subject to approval by the Ministry of Finance of the Czech Republic, the Company anticipates closing the transaction in late 2002 or early 2003 at an expected cost of approximately $200 in cash plus the contribution of the casino equipment currently owned by the Company. As of June 30, 2002, the Company's net fixed assets leased to the Casino Millennium approximated $726 and management fee income for the three months ended June 30, 2002 and 2001 was approximately $47 and $74, respectively. Management fee income for the six months ended June 30, 2002 and 2001 was approximately $107 and $132, respectively.
7. LONG-TERM DEBT
The principal balance outstanding under the Wells Fargo Bank Revolving Line of Credit Facility ("RCF") as of June 30, 2002 was $12,636. The amount available under the RCF as of June 30, 2002 was $8,308, net of amounts outstanding as of that date. The loan agreement includes certain restrictive covenants on financial ratios of WMCK. The Company is in compliance with the covenants as of June 30, 2002. Interest rates at June 30, 2002 were 4.75% for $1,136 outstanding under prime based provisions of the loan agreement and 4.33% for $11,500 outstanding under LIBOR based provisions of the loan agreement.
The fair value of the Company's interest rate swap derivatives as of June 30, 2002 of $895 is reported as a liability in the consolidated balance sheet. The net loss on the interest rate swaps of $7, net of deferred income tax expense of $4 for the first six months of 2002 has been reported in accumulated other comprehensive loss in the shareholders' equity section of the accompanying June 30, 2002 condensed consolidated balance sheet. Net additional interest expense to the Company under the swap agreement was $127 and $0 for the three months ended June 30, 2002 and 2001, respectively, and $255 and $0 for the six months ended June 30, 2002 and 2001, respectively.
In April 2000, CCAL entered into a loan agreement with PSG Investment Bank Limited ("PSGIB"), for a principal loan to fund development of the Caledon project. The outstanding balance and interest rate as of June 30, 2002 was $3,803 and 17.05%, respectively. In April 2001, CCAL entered into an addendum to the loan agreement in which PSGIB provided CCAL with a standby facility to provide additional funding for the Caledon project. The outstanding balance and interest rate on the standby facility with PSGIB as of June 30, 2002 was $382 and 15.1%, respectively. Under the original terms of the agreement CCAL made its first principal payment in December 2001, based on a repayment schedule that required semi-annual installments continuing over a five-year period. On March 26, 2002 CCAL and PSGIB entered into an amended agreement that changed the repayment schedule to require quarterly installments beginning on March 31, 2002 and continuing over the remaining term of the original five-year agreement. The amendment also changed the requirements for the sinking fund. The original agreement required CCAL to have on deposit a "sinking fund" in the amount equal to the next semi-annual principal and interest payment. The amended agreement changes the periodic payments from semi-annual to quarterly and requires a minimum deposit in the sinking fund equal to four million Rand (approximately $387). In addition, one third of the next quarterly principal and interest payment must be deposited on the last day of each month into the fund and used for the next quarterly installment. The loan agreement includes certain restrictive covenants for CCAL. CCAL is in compliance with the covenants as of June 30, 2002.
The dollar value of CCAL's outstanding note agreement with Caledon Overberg Investments (Proprietary) Limited ("COIL") as of June 30, 2002 is approximately $1,058. In September 2001, CCA, CCAL, CCI and COIL amended the loan agreement to reduce the rate of interest charged on the loan to 0% (zero), effective with the original date of the agreement. The loan from CCA and COIL are proportionate to each shareholder's percentage of ownership. The additional net income reported by CCAL, as a result of reducing the interest charged, is shared proportionately by each shareholder, therefore, there is no change in the consolidated net earnings of the South African segment or the consolidated net earnings of the Company. Each shareholder has the option to reinstate the interest rate to be charged from January 1, 2002 forward. As of June 30, 2002, neither party has exercised their option.
An unsecured note payable, in the amount of $380, to a founding shareholder bears interest at 6%, payable quarterly. The noteholder, at his option, may elect to receive any or all of the unpaid principal by notifying CCI on or before April 1 of any year. Payment of the principal amount so specified would be required by the Company on or before January 1 of the following year. The entire outstanding principal is otherwise due and payable on April 1, 2004. Accordingly, the note is classified as noncurrent in the accompanying condensed consolidated balance sheet as of June 30, 2002 and December 31, 2001.
The remaining amount of $530 in debt, as of June 30, 2002, consists primarily of capital leases totaling $490.
The consolidated weighted average interest rate on all borrowings was 9.84% for the six months ended June 30, 2002.
8. SHAREHOLDERS' EQUITY
During the first half of 2002, the Company repurchased, on the open market, an additional 15,300 shares of its common stock at an average price per share of $2.85. The Company held 772,292 shares in treasury as of June 30, 2002 at an average share price of $1.90. Subsequent to June 30, 2002, the Company purchased, on the open market, 49,100 additional shares of its common stock at an average per share price of $2.60.
In July 2002, the Company amended the Rights Agreement between Century Casinos, Inc. and Computershare Investor Services, Inc., adopted in April 1999 as amended and approved by the Shareholders in 2000, to increase the defined purchase price from $4 to $10 per share and increased the redemption period, the time during which the Company may elect to redeem all of the outstanding rights, from 20 to 90 days. The purchase price is the exercise amount at which a registered holder is entitled to purchase a given amount of shares of non-redeemable Series A Preferred Stock of the Company, subject to certain adjustments.
In connection with the granting of a gaming license to CCAL by the Western Cape Gambling and Racing Board in April 2000, CCAL issued a total of 200 preference shares, 100 shares each to two minority shareholders each of whom have one seat on the board of directors of CCAL. The preference shares are not cumulative, nor are they redeemable. The preference shares entitle the holders of said shares to dividends of 20% of the after-tax profits directly attributable to the CCAL casino business subject to working capital and capital expenditure requirements and CCAL loan obligations and liabilities as determined by the directors of CCAL. Should the casino business be sold or otherwise dissolved, the preference shareholders are entitled to 20% of any surplus directly attributable to the CCAL casino business, net of all liabilities attributable to the CCAL casino business. As of June 30, 2002, no dividend has been declared for the preference shareholders.
9. CHANGE IN ACCOUNTING PRINCIPLES AND RECENTLY ISSUED STANDARDS
Effective January 1, 2002 the Company adopted the Financial Accounting Standards Board (the "FASB") SFAS No. 141 "Business Combinations", SFAS No. 142 "Goodwill and Other Intangible Assets", and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets".
SFAS No. 141 addresses financial accounting and reporting for business combinations. SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting. The use of the pooling-of-interest method of accounting for business combinations is prohibited. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. The Company will account for any future business combinations in accordance with SFAS No. 141.
SFAS No. 142 addresses the methods used to capitalize, amortize and to assess impairment of intangible assets, including goodwill resulting from business combinations accounted for under the purchase method. Effective with the adoption of SFAS No. 142, the Company no longer amortizes goodwill and other intangible assets with indefinite useful lives. Other intangible assets consist of deferred license costs. Included in assets at June 30, 2002 is unamortized goodwill of approximately $7,784 and unamortized casino license costs of approximately $1,100.
In accordance with SFAS No. 142, the Company has completed step one of the impairment test on each of the reporting units for which it has recorded goodwill. In completing its analysis of the fair value of WMCK-Venture Corporation, parent company of Womacks Casino and Hotel, the Company used the Discounted Cash Flow ("DCF") Method in which the reporting unit is valued by discounting the projected cash flows, to a period in which the annual growth rate is expected to stabilize, to their present value based on a risk-adjusted discount rate. Projected cash flows through 2008, are based on historical results, adjusted based on management's conservative projection of future revenue growth given existing market conditions. A risk adjusted discount rate of 10%, which estimates the return demanded by third-party investors, taking into account market risks, and the cost of equity and after-tax debt in the optimal hypothetical capital structure, was used in the DCF calculation of WMCK-Venture Corp. In completing its analysis of the fair value of Century Casinos Caledon (Pty) Ltd, the owner of Caledon Casino, Hotel and Spa, the Company also applied the DCF method and the results were compared to other methods of valuation, most notably the net asset value of Caledon in order to further justify the range of values. Cash flows were projected through the end of 2015. A risk adjusted rate of 23.2%, taking into account risk free rates of return, the return demanded by the South African equity market and a risk factor which measures the volatility of Caledon relative to the equity markets, was used in the DCF calculation of Caledon. As a result of the testing, the Company has determined that there is no impairment of goodwill or other intangible assets. The Company will be required to assess goodwill and other intangibles for impairment at least annually hereafter.
A reconciliation of previously reported net earnings, basic earnings
per share and diluted earnings per share to the amounts adjusted for
the exclusion of amortization related to goodwill and other intangible
assets with indefinite useful lives, net of related tax effect,
follows:
For The Three Months Ended June 30,
2002 2001
Reported net earnings $ 1,103 $ 589
Add back: Goodwill amortization, net of income taxes - 294
Add back: Casino license amortization, net of income taxes - 47
--------------- --------------
Adjusted net earnings $ 1,103 $ 930
=============== ==============
Basic earnings per share:
Reported net earnings $ 0.08 $ 0.05
Goodwill amortization - 0.02
Casino license amortization - -
--------------- --------------
Adjusted net earnings $ 0.08 $ 0.07
=============== ==============
Diluted earnings per share:
Reported net earnings $ 0.07 $ 0.04
Goodwill amortization - 0.02
Casino license amortization - -
--------------- --------------
Adjusted net earnings $ 0.07 $ 0.06
=============== ==============
|
For The Six Months Ended June 30,
2002 2001
Reported net earnings $ 2,028 $ 1,042
Add back: Goodwill amortization, net of income taxes - 588
Add back: Casino license amortization, net of income taxes - 95
--------------- ---------------
Adjusted net earnings $ 2,028 $ 1,725
=============== ===============
Basic earnings per share:
Reported net earnings $ 0.15 $ 0.08
Goodwill amortization - 0.04
Casino license amortization - -
--------------- ---------------
Adjusted net earnings $ 0.15 $ 0.12
=============== ===============
Diluted earnings per share:
Reported net earnings $ 0.13 $ 0.07
Goodwill amortization - 0.04
Casino license amortization - -
--------------- ---------------
Adjusted net earnings $ 0.13 $ 0.11
=============== ===============
|
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 did not address the accounting for a segment of a business accounted for as a discontinued operation, which resulted in two accounting models for long-lived assets to be disposed of. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and requires that those long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations.
Adoption of SFAS No. 141 and SFAS No. 144 did not have an affect on the Company's financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe that any such pronouncements will have a material impact on its financial statements.
10. SEGMENT INFORMATION
The Company has adopted FASB Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information". The Company is managed in four segments; Cripple Creek, Colorado, South Africa, Cruise Ships, and Corporate operations. Corporate operations include the revenue and expense of certain corporate gaming projects for which the Company has secured long term management contracts. Earnings before interest, taxes, depreciation and amortization (EBITDA) is not considered a measure of performance recognized as an accounting principle generally accepted in the United States of America. Management believes that EBITDA is a valuable measure of the relative performance amongst its operating segments. Segment information for the three months ended June 30, 2002 and 2001 is presented below.
Cripple Creek CO South Africa Cruise Ships
For the Three Months Ended June 30, 2002 2001 2002 2001 2002 2001
Net operating revenue $ 5,506 $ 5,171 $ 1,676 $ 1,998 $ 200 $ 150
Depreciation & amortization $ 324 $ 819 $ 160 $ 362 $ 15 $ 10
Interest income $ 4 - $ 26 $ 13 - -
Interest expense,
including debt issuance cost $ 347 $ 355 $ 201 $ 311 - -
Earnings (loss) before income
taxes and minority interest $ 1,926 $ 1,396 $ 109 $ (275) $ 73 $ 24
Income tax expense(benefit) $ 886 $ 642 $ 35 (181) $ 27 11
Net earnings (loss) $ 1,040 $ 754 $ 68 $ (32) $ 46 $ 13
EBITDA $ 2,593 $ 2,570 $ 438 $ 447 $ 88 $ 34
.
Corporate and Other Inter-segment Elimination Consolidated
For the Three Months Ended June 30, 2002 2001 2002 2001 2002 2001
Net operating revenue $ 47 $ 74 - - $ 7,429 $ 7,393
Depreciation & amortization $ 54 $ 63 - - $ 553 $ 1,254
Interest income $ 90 $ 89 $ (86) $ (85) $ 34 $ 17
Interest expense,
including debt issuance cost $ 6 $ 11 $ (86) $ (85) $ 468 $ 592
Earnings (loss) before income
taxes and minority interest $ (386) $ (422) - - $ 1,722 $ 723
Income tax expense(benefit) $ (335) $ (276) - - $ 613 $ 196
Net earnings (loss) $ (51) $ (146) - - $ 1,103 $ 589
EBITDA $ (416) $ (437) - - $ 2,703 $ 2,614
|
Segment information as of, and for the six months ended June 30, 2002
and 2001 is presented below.
Cripple Creek CO South Africa Cruise Ships
As of and for the Six Months 2002 2001 2002 2001 2002 2001
Ended June 30,
Property and equipment, net $ 20,905 $ 19,046 $ 9,653 $ 11,834 $ 221 $ 231
Goodwill, net (1) $ 7,233 $ 7,903 $ 551 $ 798 - -
Total assets $ 31,499 $ 30,090 $ 18,429 $ 17,578 $ 438 $ 441
Net operating revenue $ 10,699 $ 10,100 $ 3,210 $ 4,138 $ 305 $ 332
Depreciation & amortization $ 667 $ 1,642 $ 347 $ 710 $ 28 $ 21
Interest income $ 8 - $ 42 $ 26 - -
Interest expense,
including debt issuance cost $ 691 $ 677 $ 397 $ 535 - -
Earnings (loss) before income
taxes and minority interest $ 3,611 $ 2,524 $ 176 $ (385) $ 69 $ 60
Income tax expense(benefit) $ 1,661 $ 1,161 $ 85 (181) 26 $ 27
Net earnings (loss) $ 1,950 $ 1,363 $ 93 $ (39) $ 43 $ 33
EBITDA $ 4,961 $ 4,843 $ 880 $ 999 $ 97 $ 81
Corporate and Other Inter-segment Elimination Consolidated
As of and for the Six Months 2002 2001 2002 2001 2002 2001
Ended June 30,
Property and equipment, net $ 1,658 $ 1,846 - - $ 32,437 $ 32,957
Goodwill, net (1) - - - - $ 7,784 $ 8,701
Total assets $ 2,077 $ 4,134 $(4,249) $(2,634) $ 48,194 $ 49,609
Net operating revenue $ 107 $ 132 - - $ 14,321 $ 14,702
Depreciation & amortization $ 108 $ 118 - - $ 1,150 $ 2,491
Interest income $ 178 $ 179 $ (171) $ (171) $ 57 $ 34
Interest expense,
including debt issuance cost $ 12 $ 24 $ (171) $ (171) $ 929 $ 1,065
Earnings (loss) before income
taxes and minority interest $ (599) $ (799) - - $ 3,257 $ 1,400
Income tax expense(benefit) $ (541) $ (484) - - $ 1,231 $ 523
Net earnings (loss) $ (58) $ (315) - - $ 2,028 $ 1,042
EBITDA $ (657) $ (836) - - $ 5,282 $ 5,087
|
(1) The only change in goodwill, net, for the six months ended June 30, 2002 was $75 for the translation effects related to goodwill denominated in a foreign currency.
11. OTHER EXPENSE, NET
Other (expense), net, consists of the following:
For the Three Months Ended June 30,
2002 2001
---- ----
Interest income $ 34 $ 17
Interest expense (440) (576)
Gain (loss) on disposition of assets 2 14
Amortization of deferred financing costs (28) (16)
Other (1) -
--------------- ---------------
$ (433) $ (561)
=============== ===============
For the Six Months Ended June 30,
2002 2001
---- ----
Interest income $ 57 $ 34
Interest expense (885) (1,033)
Gain (loss) on disposition of assets 2 14
Foreign currency exchange gains - 1
Amortization of deferred financing costs (43) (32)
Write-down value of non-operating property - (57)
Other (2) -
--------------- ---------------
$ (871) $ (1,073)
=============== ===============
|
CENTURY CASINOS, INC. AND SUBSIDIARIES
Forward-Looking Statements, Business Environment and Risk Factors
Forward-Looking Statements and Business Environment Information contained in the following discussion of results of operations and financial condition of the Company contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of words such as "may", "will", "expect", "anticipate", "estimate", or "continue", or variations thereon or comparable terminology. In addition, all statements other than statements of historical facts that address activities, events or developments that the Company expects, believes or anticipates, will or may occur in the future, and other such matters, are forward-looking statements.
The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere herein. The Company's future operating results may be affected by various trends and factors, which are beyond the Company's control. These include, among other factors, the competitive environment in which the Company operates, the Company's present dependence upon the Cripple Creek, Colorado gaming market, changes in the rates of gaming-specific taxes, shifting public attitudes toward the socioeconomic costs and benefits of gaming, actions of regulatory bodies, dependence upon key personnel, the speculative nature of gaming projects the Company may pursue, risks associated with expansion, and other uncertain business conditions that may affect the Company's business.
The Company cautions the reader that a number of important factors discussed herein, and in other reports filed with the Securities and Exchange Commission, could affect the Company's actual results and cause actual results to differ materially from those discussed in forward-looking statements.
Results of Operations
Three Months Ended June 30, 2002 vs. 2001
Cripple Creek, Colorado
Womacks is located in Cripple Creek, Colorado. Net operating revenue for the second quarter, derived principally from its gaming operations, increased to $5,506 in 2002 from $5,171 in 2001. Womacks casino revenue for the second quarter increased to $5,446 in 2002 from $5,066 in 2001, or 7.5%. During the first quarter of 2002, the Company broke ground on the construction of its 6,022 square foot addition to the casino and back of house operations. In the second quarter of the year Womacks expended $212, bringing the total cost of construction to $944 through June 30, 2002. Womacks' share of the overall Cripple Creek market increased to 17.7% in 2002 from 16.7% in 2001. Womacks Casino operated approximately 14.8% of the gaming devices in the Cripple Creek market in the second quarter of 2002 compared to 14.3% in 2001. The average win per day per machine was 110 dollars in 2002 and 104 dollars in 2001 compared with a market average of 91 dollars in 2002 and 89 dollars in 2001. Gross margin for the Cripple Creek casino activities in the second quarter (casino revenues, net of applicable casino gaming incentives, less casino expenses) decreased to 68.6% compared with 71.6% a year earlier. In the second quarter of 2002, Womacks paid a higher amount of royalties on participation machines, but this increased cost is in lieu of depreciation expense that would have been incurred had the machines been purchased. With participation machines, Womacks pays a fee to the manufacturer, in lieu of purchasing the machines, based on a percentage of the win. Gaming tax in Colorado is calculated on a graduated scale, therefore the effective rate increases as casino revenue improves. The increase in the gaming tax has had a negative impact on the margin. Management continues to focus on the marketing of the casino through the expansion of the highly successful Gold Club. Management continues to place emphasis on further refining the product mix, upgrading both the interior of the facilities, as well as the slot machine mix. Management has recently added an additional 41 parking spaces through the purchase of the Palace Hotel property and introduced valet parking to its list of customer benefits, expanding on the convenient and expansive parking facilities currently provided by the casino.
Food and Beverage revenue in the second quarter of 2002 decreased to $208 from $269 in 2001. In July 2002, Womacks introduced Bob's Grill on the main gaming floor to improve customer convenience. The cost of food and beverage promotional allowances, which are included in casino costs, increased slightly to $230 in 2002 from $228 in 2001. Hotel revenue also increased to $65 in 2002 from $19 in 2001, or 243% as the result of introducing 10 new luxury rooms in July of 2001. Womacks added 3 additional luxury rooms at the end of the first quarter of 2002. The casino does not generate any cash revenue from the hotel operation. All rooms are comped to its better players.
General and administrative expenses increased to $1,142 in the second quarter of 2002 from $1,082 in same period of 2001, or 5.5%.
Depreciation decreased to $324 in 2002 from $484 in 2001. As a result of adopting SFAS No. 142 the Company no longer amortizes the remaining balance in goodwill resulting in a reduction of $335 in amortization expense.
Interest expense, including debt issuance cost, decreased to $347 in 2002 from $355 in 2001. Since the second quarter of 2000 the Company has borrowed a total of $6.5 million under the RCF to fund its investments in South Africa. The resulting interest charge of approximately $180 and $151 has not been allocated to the South African segment during the second quarter of the years 2002 and 2001 respectively.
The Cripple Creek segment recognized income tax expense of $886 in 2002 versus $642 in 2001 due to an increase in pre-tax earnings.
South Africa
When comparing the second quarter of last year to the current year, the deterioration in the Rand versus the dollar has had a negative impact on the reported revenues and a positive impact on expenses.
Net operating revenue decreased to $1,676 in 2002 from $1,998 in 2001. The Caledon Casino Hotel and Spa also faces intense competition from a significantly larger casino operation in Cape Town, S.A. approximately one hour away. Caledon casino revenue decreased to $1,378 in 2002 from $1,604 in 2001, or 14%. Excluding the effect of the change in the Rand conversion rate from year to year, casino revenue increased by 14%. Gross margin for the Caledon casino activities (casino revenues, less casino expenses) increased to 62.4% from 53.7% a year earlier as a result of eliminating the casino management fees which totaled $84 in the second quarter of 2001 and overall control of costs.
Food and beverage revenue decreased to $181 during the second quarter of 2002 from $222 during the second quarter of 2001, or 18.5%. Excluding the effect of the change in the Rand conversion rate from year to year, food and beverage revenue increased by 5%. Hotel revenue decreased to $136 during the second quarter of 2002 compared to $150 during the second quarter of 2001. Excluding the effect of the change in the Rand conversion rate from year to year, hotel revenue increased by 17%.
General and administrative expenses decreased to $425 in 2002 from $511 in 2001, a reduction of 16.8%. Excluding the effect of the change in the Rand conversion rate from year to year, general and administrative expenses decreased by 9% as a result of management's continuing effort to improve the efficiency of the operation.
Depreciation expense incurred in South Africa decreased to $160 in 2002 from $341 in 2001 due in part to the effect of the currency devaluation. As a result of adopting SFAS No. 142 the Company no longer amortizes the remaining balance in goodwill resulting in a reduction of $21 in amortization expense.
Interest expense, including debt issuance cost, decreased to $201 in 2002 from $311 in 2001. The weighted-average interest rate on the borrowings under the PSG loan agreement is 16.9% in the second quarter of 2002 and 2001.
The South African segment recognized an income tax expense of $35 in 2002.
Cruise Ships
Net operating revenue increased to $200 in 2002 from $150 in 2001. Gross margin for the casino activities (casino revenues, less casino expenses) increased to 37.4% from 14.8% a year earlier. Following the tragedy of September 11, 2001 attacks on the World Trade Center, the cruise ships had seen a substantial decrease in the amount of passenger traffic, but the Company has begun to see a recovery in the second quarter. During the second quarter of 2002, the Company operated casinos on a total of four ships, three on Silverseas and the one on "The World of Residensea", compared to a total of three in the same period during the prior year, all on Silverseas.
Depreciation expense has increased to $15 in 2002 from $10 in 2001.
Corporate & Other
Net operating revenues consisted solely of management fees earned from operating Casino Millennium in Prague, Czech Republic which decreased to $47 in 2002 from $74 in 2001.
Depreciation decreased to $54 in 2002 from $63 in 2001.
General and administrative expense decreased to $462 in 2002 from $506 in 2001, or 8.8%. The majority of the savings is directly attributable to a reduction in the cost of professional services.
Six Months Ended June 30, 2002 vs. 2001
Cripple Creek, Colorado
Womacks is located in Cripple Creek, Colorado. Net operating revenue, derived principally from its gaming operations, increased to $10,699 in 2002 from $10,100 in 2001. Womacks casino revenue increased to $10,583 in 2002 from $9,941 in 2001, or 6.5%. During the first half of 2002, the Company broke ground on the construction of its 6,022 square foot addition to the casino and back of house operations. In the first half of the year the Company expended $544, bringing the total cost of construction to $944 through June 30, 2002. Womacks' share of the overall Cripple Creek market increased to 17.6% in the first half of 2002 from 16.9% in 2001. Womacks Casino operated approximately 14.8% of the gaming devices in the Cripple Creek market in 2002 compared to 14.0% in 2001. The average win per day per machine was 107 dollars in 2002 and 105 dollars in 2001 compared with a market average of 89 dollars in 2002 and 86 dollars in 2001. Gross margin for the Cripple Creek casino activities (casino revenues, net of applicable casino gaming incentives, less casino expenses) decreased to 68.3% compared with 70.5% a year earlier. In the first half of 2002, Womacks paid a higher amount of royalties on participation machines, but this increased cost is in lieu of depreciation expense that would have been incurred had the machines been purchased. Gaming tax in Colorado is calculated on a graduated scale, therefore the effective rate increases as casino revenue improves. Management continues to focus on the marketing of the casino through the expansion of the highly successful Gold Club. Management continues to place emphasis on further refining the product mix, upgrading both the interior of the facilities, as well as the slot machine mix and introducing valet service on the Palace Hotel property.
Food and Beverage revenue in 2002 decreased to $422 from $465 in 2001, or 9.2%. In July 2002, Womacks introduced Bob's Grill on the main gaming floor to improve customer convenience. The cost of food and beverage promotional allowances, which are included in casino costs, increased to $453 in 2002 from $423 in 2001. Hotel revenue increased to $120 in 2002 from $36 in 2001, or 233% as the result of introducing 10 new luxury rooms in July of 2001. Womacks added 3 additional luxury rooms at the end of the first quarter of 2002. The casino does not generate any cash revenue from the hotel operation. All rooms are comped to its better players.
General and administrative expenses increased to $2,266 in 2002 from $2,177 in 2001, or 4%. The cost of casino management allocated from corporate operations has been reduced to $76 in 2002 from $115 in 2001.
Depreciation decreased to $667 in 2002 from $971 in 2001. As a result of adopting SFAS No. 142 the Company no longer amortizes the remaining balance in goodwill resulting in a reduction of $671 in amortization expense.
Interest expense, including debt issuance cost, increased to $691 in 2002 from $677 in 2001. Since the second quarter of 2000 the Company has borrowed a total of $6.5 million under the RCF to fund its investments in South Africa. The resulting interest charge of approximately $350 and $297 has not been allocated to the South African segment for the first six months of the years 2002 and 2001 respectively. The weighted-average interest rate on the borrowings under the RCF, including effects of the swap agreements, has increased slightly to 8.87% in 2002 from 8.17% in 2001.
The Cripple Creek segment recognized income tax expense of $1,661 in 2002 versus $1,161 in 2001 due to an increase in pre-tax earnings.
South Africa
When comparing the first half of last year to the current year, the deterioration in the Rand versus the dollar has had a negative impact on the reported revenues and a positive impact on expenses.
Net operating revenue decreased to $3,210 in 2002 from $4,138 in 2001. The Caledon Casino Hotel and Spa faces intense competition from a significantly larger casino operation in Cape Town, S.A. approximately one hour away. Caledon casino revenue decreased to $2,635 in 2002 from $3,403 in 2001, or 22.6%. Excluding the effect of the Rand conversion rate from year to year, casino revenue increased by 10%. Gross margin for the Caledon casino activities (casino revenues, less casino expenses) increased to 61.6% from 56.7% a year earlier as a result of eliminating the casino management fees which totaled $186 in the first half of 2001 and overall control of costs.
Food and beverage revenue decreased to $334 during the first six months of 2002 from $416 during the first six months of 2001, or 19.5%. Excluding the effect of the change in the Rand conversion rate from year to year, food and beverage revenue increased by 11%. Hotel revenue decreased only slightly to $286 during the first six months of 2002 compared to $288 during the first six months of 2001. Excluding the effect of the change in the Rand conversion rate from year to year, hotel revenue increased by 38%, primarily due to the increase in the amount of rooms comped by the casino to its better players.
General and administrative expenses decreased to $793 in 2002 from $1,120 in 2001, a reduction of 29.1%. Excluding the effect of the change in the Rand conversion rate from year to year, general and administrative expenses decreased by 9%,as a result of management's emphasis on improving the efficiency of the operation.
Depreciation expense incurred in South Africa decreased to $347 in 2002 from $668 in 2001 due in part to the effect of the currency devaluation. As a result of adopting SFAS No. 142 the Company no longer amortizes the remaining balance in goodwill resulting in a reduction of $42 in amortization expense.
Interest expense, including debt issuance cost, decreased to $397 in 2002 from $535 in 2001. The weighted-average interest rate on the borrowings under the PSG loan agreement is 16.9% in the first six months of 2002 and 2001.
The South African segment recognized an income tax expense of $85 in 2002 compared to a tax benefit of $181 in 2001.
Cruise Ships
Net operating revenue decreased slightly to $305 in 2002 from $332 in 2001. Gross margin for the casino activities (casino revenues, less casino expenses) increased to 25.7% from 17.3% a year earlier. Following the tragedy of September 11, 2001 attacks on the World Trade Center, the cruise ships have seen a substantial decrease in the amount of passenger traffic, but the operations have already begun to see a recovery in the second quarter of 2002. In October 2001, Silversea Cruises removed one of the four ships from service.
Depreciation expense has increased to $28 in 2002 from $21 in 2001.
Corporate & Other
Net operating revenues consisted solely of management fees earned from operating Casino Millennium in Prague, Czech Republic which decreased to $107 in 2002 from $132 in 2001. Depreciation decreased to $108 in 2002 from $118 in 2001.
General and administrative expense decreased to $763 in 2002 from $910 in 2001, or 16.2%.The majority of the savings is attributable to a re-allocation of corporate personnel cost and the cost of professional services.
Other expense for 2001 includes a charge of $57 for the write-down in value of non-operating property and land held by the Company in Nevada.
Liquidity and Capital Resources
Cash and cash equivalents totaled $3,267 (including $387 of restricted cash) at June 30, 2002, and the Company had net working capital of $259. Additional liquidity may be provided by the Company's revolving credit facility ("RCF") with Wells Fargo Bank, under which the Company had a total commitment of $26,000 ($20,944 net of the quarterly reduction) and unused borrowing capacity of approximately $8,308 at June 30, 2002. For the six months ended June 30, 2002, cash provided by operating activities was $2,330 compared with $1,966 in the prior-year period. Cash used in investing activities of $2,909 for the first six months of 2002, consisted of $1.3 million towards the purchase and improvements of the Palace Hotel and property, $544 towards the expansion of the Womacks casino at the rear of the property that is expected to be completed in 2002, which will provide additional gaming space, $110 towards the construction of a restaurant & grill on the first floor of Womacks casino, $298 for additional improvements to the property in Caledon, South Africa, $460, primarily for land purchased for the proposed casino development in Johannesburg, South Africa and the balance of $197 due to expenditures for other long lived assets. Cash used in investing activities of $3,454 for the first six months of 2001, consisted of a $250 loan provided by the Company to an unrelated party in Cripple Creek, Colorado , $1,954 was due to improvements to the Caledon Casino Hotel and Spa in South Africa and the balance was principally due to improvements to the Womacks/Legends casino in Cripple Creek, Colorado. Cash provided by financing activities for the first six months of 2002 consisted of net borrowings of $835 under the RCF with Wells Fargo, less net repayments of $354 under the loan agreement with PSG, additional deferred financing charges incurred by the Caledon Casino, Hotel & Spa, with a cost of $19, the repurchase of company's stock, on the open market, with a cost of $44 and other net repayments of $43. Cash used in financing activities for the first six months of 2001 consisted of net repayments of $5,336 under the RCF with Wells Fargo, net borrowings of $698 under the PSG loan agreements, the repurchase of company's stock, on the open market, with a cost of $402, and other net receipts of $55.
Effective April 26, 2000, the Company and Wells Fargo Bank entered into an amended and restated credit agreement, which increased the borrowing commitment as of that date from $17,200 to $26,000 and extended the maturity date of the RCF until April 2004. The agreement was further amended in August 2001 to give greater flexibility to the ability to use the borrowed funds for projects for the Company.
The Company has a 20-year agreement with Casino Millennium a.s., a Czech company, to operate a casino in the five-star Marriott Hotel, in Prague, Czech Republic. The hotel and casino opened in July 1999. The Company provides casino management services in exchange for ten percent of the casino's gross revenue and leases gaming equipment, with an original cost of approximately $1.2 million, to the casino for 45% of the casino's net profit. The Company has a memorandum of agreement to acquire a 50% ownership interest in Casino Millennium a.s., a Czech company. Any funding required by the Company to consummate this transaction would be met through a combination of RCF borrowings, existing liquidity and anticipated cash flow. The acquisition is expected to be completed in late 2002 or early 2003, subject to certain contingencies and contract conditions, and is expected to cost approximately $200 in cash plus contributed assets.
The Company's Board of Directors has approved a discretionary program to repurchase up to $5,000 of the Company's outstanding common stock. The Board believes that the Company's stock is undervalued in the trading market in relation to both its present operations and its future prospects. During the first six months of 2002, the Company repurchased, on the open market, an additional 15,300 shares of its common stock at an average price per share of $2.85. Through June 30, 2002, the Company had repurchased 2,205,100 shares of its common stock at a total cost of approximately $3,015. Management expects to continue to review the market price of the Company's stock and repurchase shares as appropriate, with funds coming from existing liquidity or borrowings under the RCF.
The Company is the contracted casino management partner of, and, as of September 2001, through its South African subsidiary, CCA, entered into an agreement to secure a 50% ownership interest in Rhino Resort Ltd. ("RRL"), a consortium which includes Silverstar Development Ltd. ("Silverstar"). RRL submitted an application for a proposed hotel/casino resort development in the greater Johannesburg area of South Africa at a cost of approximately 400 million Rand ($38.6 million). The dollar value of the proposed development fluctuates with the USD/Rand exchange rate. In November 2001, the Gauteng Gambling Board ("GGB"), with the concurrence of the Executive Council of the provincial government, awarded RRL the sixth, and final, casino license for 700 slot machines and 30 gaming tables conditional upon the satisfaction of certain requirements within three months of award. In February 2002, RRL filed documentation with the GGB in order to satisfy those conditions, including evidence of the continuing commitment of Nedcor Investment Bank (one of South Africa's leading financial institutions) to provide the necessary debt financing and project guarantees required under the license. In the event of favorable resolution of the pending court action initiated in February 2002 by a competing casino, Tsogo Sun Holdings, challenging the license award, the Company, as part of the September 2001 agreement, as amended, would be required to make an equity investment of 50 million Rand or approximately $4.8 million. As of June 30, 2002, advances totaling approximately $481, which will reduce the funding requirement, have been made to RRL. The remaining funding requirement would be met through borrowings under the RCF.
In the fourth quarter 2001, Womacks began a 6,022 square foot expansion. Approximately half of the space will provide additional gaming for approximately 115 slot machines on the street level. The other half will increase the "back of house" area. Contracts for the project totaling $1.5 million have been signed as of June 30, 2002. The total construction cost, including additional slot machines, is expected to be $2.5 million, of which $944 has been spent through June 30, 2002. The project is expected to be completed by the end of 2002 or in the first quarter of 2003.
Management believes that the Company's cash at June 30, 2002, together with expected cash flows from operations and borrowing capacity under the RCF, will be sufficient to fund its anticipated capital expenditures, pursue additional business growth opportunities for the foreseeable future, and satisfy its debt repayment obligations.
Critical Accounting Policies
In accordance with recent Securities and Exchange Commission guidance, those material accounting policies that we believe are the most critical to an investor's understanding of the Company's financial results and condition and/or require complex management judgment have been expanded and are discussed below.
Revenue Recognition - Casino revenue is the net win from gaming activities, which is the difference between gaming wins and losses. Management and consulting fees are recognized as revenue as services are provided. The incremental amount of unpaid progressive jackpots is recorded as a liability and a reduction of casino revenue in the period during which the progressive jackpots increase.
Goodwill and Other Intangible Assets - The Company's goodwill results from the acquisitions of casino and hotel operations.
Effective January 1, 2002 the Company adopted Financial Accounting Standards Board (the "FASB") SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business combinations. SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting. The use of the pooling-of-interest method of accounting for business combinations is prohibited. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. The Company will account for any future business combinations in accordance with SFAS No. 141.
SFAS No. 142 addresses the methods used to capitalize, amortize and to assess impairment of intangible assets, including goodwill resulting from business combinations accounted for under the purchase method. Effective with the adoption of SFAS No. 142, the Company no longer amortizes goodwill and other intangible assets with indefinite useful lives, principally deferred casino license costs. In evaluating the Company's capitalized casino license cost related to CCAL, which comprises principally all of its other intangible assets, management considered all of the criteria set forth in SFAS No. 142 in determining its useful life. Of particular significance in that evaluation was the existing regulatory provision for annual renewal of the license at minimal cost and the current practice of the Western Cape Gambling and Racing Board ("Board") of granting such renewals as long as all applicable laws are complied with as well as compliance with the original conditions of the casino operator license as set forth by the Board. Based on that evaluation, the Company has deemed the casino license costs to have an indefinite life as of January 1, 2002. Included in assets at June 30, 2002 is unamortized goodwill of approximately $7,784 and unamortized deferred license costs of approximately $1,100.
In accordance with SFAS No. 142, the Company has completed step one of the impairment test on each of the reporting units for which it has recorded goodwill. In completing its analysis of the fair value of WMCK-Venture Corporation, parent company of Womacks Casino and Hotel, the Company used the Discounted Cash Flow ("DCF") Method in which the reporting unit is valued by discounting the projected cash flows, to a period in which the annual growth rate is expected to stabilize, to their present value based on a risk-adjusted discount rate. Projected cash flows through 2008 are based on historical results, adjusted based on management's conservative projection of future revenue growth given existing market conditions. A risk adjusted discount rate of 10%, which estimates the return demanded by third-party investors, taking into account market risks, and the cost of equity and after-tax debt in the optimal hypothetical capital structure, was used in the DCF calculation of WMCK-Venture Corp. In completing its analysis of the fair market value of Century Casinos Caledon (Pty) Ltd, the owner of Caledon Casino, Hotel and Spa, the Company also applied the DCF method and the results were compared to other methods of valuation, most notably the net asset value of Caledon in order to further justify the range of values. Cash flows were projected through the end of 2015. A risk adjusted rate of 23.2%, taking into account risk free rates of return, the return demanded by the South African equity market and a risk factor which measures the volatility of Caledon relative to the equity markets, was used in the DCF calculation of Caledon. As a result of the testing, the Company has determined that there is no impairment of goodwill or other intangible assets. The Company will be required to assess goodwill and other intangibles for impairment at least annually hereafter.
Foreign Exchange - Current period transactions affecting the profit and loss of operations conducted in foreign currencies are valued at the average exchange rate for the period in which they are incurred. Except for equity transactions and balances denominated in U.S. dollars, the balance sheet is translated based on the exchange rate at the end of the period.
Reclassifications - Certain reclassifications have been made to the 2001 financial information in order to conform to the 2002 presentation.
* * * * * * * * * * * * * * * *
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
The Company is not a party to, nor is it aware of, any pending or threatened litigation which, in management's opinion, could have a material adverse effect on the Company's financial position or results of operations.
Items 2 to 4 - None
Item 5 - Other Information
The Board of Directors unanimously adopted, ratified, confirmed and approved the Amended and Restated Bylaws of Century Casinos, Inc. as of May 10, 2002.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed herewith:
11.13 Second Supplement to Rights Agreement dated July 2002,
between Century Casinos, Inc and Computershare Investor
Services, Inc. as rights agent.
11.14 Amended and Restated Bylaws of Century Casinos, Inc.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June
30, 2002.
* * * * * * *
SIGNATURES:
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CENTURY CASINOS, INC.
/s/ Larry Hannappel --------------------------- Larry Hannappel Chief Accounting Officer and duly authorized officer Date: July 26, 2002 |
SECOND SUPPLEMENT
TO
RIGHTS AGREEMENT
BETWEEN
CENTURY CASINOS, INC.
AND
COMPUTERSHARE INVESTOR SERVICES, INC.
AS RIGHTS AGENT
Dated as of July 16, 2002
SECOND SUPPLEMENT TO RIGHTS AGREEMENT
This Second Supplement to Rights Agreement, dated as of July 16, 2002, is made between Century Casinos, Inc., a Delaware corporation (the "Company"), and Computershare Investor Services, Inc., a Colorado corporation, as Rights Agent (the "Rights Agent").
WITNESSETH
1. On April 29, 1999, the Company adopted a written Rights Agreement (the "Rights Agreement").
2. On April 5, 2000 the Company amended the Rights Agreement by adoption of a First Supplement to Rights Agreement.
3. Section 26 of the Rights Agreement provides that the Company may amend or supplement the Rights Agreement, "Prior to the Distribution Date (as defined therein") (including, without limitation, the date on which the Distribution Date shall occur, the definition of Acquiring Person, the time during which the Rights may be redeemed or any provision of the Certificate of Designation) without the approval of any holders of certificates representing shares of Common Stock.
4. The parties now desire to supplement the Agreement, pursuant to the provisions of Section 26.
NOW, THEREFORE, the parties hereby agree as follows:
1. The definition of "Purchase Price" under Section 1, "Certain Definitions" is hereby amended to read in its entirety as follows:
"Purchase Price", with respect to each Right, shall mean $10.00, as such amount may from time to time be adjusted as provided herein, and shall be payable in lawful money of the United States of America. All references hereto to the Purchase Price shall mean the Purchase Price as in effect at the time in question."
2. Section 23 (a) is hereby amended to read in its entirety as follows:
(a) The Company, may, by resolution of the Board of Directors, at its option, at any time prior to the earlier to occur of (i) the close of business on the ninetieth (90th) day following the Stock Acquisition Date, and (ii) the close of business on the Final Expiration Date, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $.001 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock or Preferred Stock (based on the Current Market Price of the Common Stock or Preferred Stock, as applicable at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors."
3. All other provisions of the Rights Agreement are hereby ratified, confirmed and approved, and shall remain unchanged, in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplement to Rights Agreement to be duly executed, all as of the date and year first above written.
Attest: CENTURY CASINOS, INC.
__________________________________ By:___________________________________
/s /Larry Hannappel /s /Erwin Haitzmann
Secretary Chairman & CEO
Attest: COMPUTERSHARE INVESTOR
SERVICES, INC., as Rights Agent
__________________________________ By:___________________________________
/s /Laura Sisneros /s /Kellie Gwinn
Vice-President Vice-President
|
AMENDED & RESTATED
BYLAWS
OF
CENTURY CASINOS, INC.
ARTICLE I
OFFICES
SECTION 1.1, Registered Office. The registered office of Century Casinos,
Inc. (the "Corporation") shall be at 1209 Orange Street, Wilmington, Delaware
19801.
SECTION 1.2, Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1, Annual Meetings. An annual meeting of shareholders shall be held on such date and at such time and place, either within or without the State of Delaware, as may be designated by the Board of Directors from time to time, for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these Bylaws.
Written notice of an annual meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting.
SECTION 2.2, Special Meetings. Special meetings of stockholders, for any
purpose or purposes, may be called at any time by a majority of the entire Board
of Directors or by the Chairman of the Board, the Vice Chairman of the Board or
the President, or by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose power and authority include the
power to call such meetings, but such special meetings may not be called by any
other person or persons.
Written notice of a special meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting.
SECTION 2.3, Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 2.4, Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner set forth in Section 2.3 above, until a quorum shall attend. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting.
SECTION 2.5, Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of such person, by the Vice Chairman of the Board, if any, or in the absence of such person, by the President, or in his or her absence by a Vice President, or in the absence of the foregoing persons, by a chairman designated by the Board of Directors, or in the absence of such designation, by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
SECTION 2.6, Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders shall be decided by the majority vote of the holders of a majority of the stock represented and entitled to vote thereat. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder, unless otherwise provided by the Certificate of Incorporation. Such votes may be cast in person or by proxy but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot.
SECTION 2.7, List of Stockholders Entitled to Vote. The Secretary of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.
SECTION 2.8, Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to (i) the identity of the stockholders entitled to examine the stock ledger, the list required by Section 2.6 of this Article II, or the books of the Corporation, and (ii) who may vote in person or by proxy at any meeting of stockholders.
SECTION 2.9, Conduct of Meeting. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures, and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
SECTION 2.10, Required Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before the meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days or more than 180 days prior to the meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 2.10. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the procedures set forth in this Section 2.10, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
SECTION 2.11, Required Notice of Stockholder Nominees for Director. Only
persons who are nominated in accordance with the procedures set forth in this
Section 2.11 shall be eligible for election as Directors. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board of Directors,
subject to applicable SEC proxy regulations, or by any stockholder of the
corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 2.11. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 120 days nor more than 180 days prior to the meeting. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14 under the Securities Exchange Act of 1934,
as amended (including without limitation such persons' written consent to being
named in the proxy statement as nominee and to serving as a Director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporate books, of such stockholder and (ii) the
class and number of shares of the Corporation which are beneficially owned by
such stockholder. At the request of the Board of Directors any person nominated
by the Board of Directors for election as a Director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 2.11. The Chairman
of the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1, Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board may be called by the Chairman of the Board, Vice Chairman of the Board or the President or a majority of the entire Board of Directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail or international express mail service, not less than 72 hours before the date of the meeting, addressed to such director at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Such Notice may also be given personally or by telegram, facsimile, telex or cable, or by similar method of communication, including e-mail, on 24 hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Any director present at a special meeting will be deemed to have received proper notice.
SECTION 3.2, Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
SECTION 3.3, Actions of Board of Directors. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 3.4, Meetings by Means of Conference Telephone. Unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, members of the Board of Directors or any committee designated by the Board may participate in a meeting of such Board or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.4 shall constitute presence in person at such meeting.
SECTION 3.5, Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required.
SECTION 3.6, Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these Bylaws.
SECTION 3.7, Compensation of Directors. Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors.
SECTION 3.8, Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or committee which in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
SECTION 3.9, Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided above in the filling of other vacancies. A director elected to fill a vacancy shall hold office for the unexpired term of his or her predecessor and until his or her successor is elected and qualified.
SECTION 3.10, Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
SECTION 3.11, Powers. The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1, Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The Board of Directors shall choose a President, a CEO, a Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. Each such officer shall hold his or her office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal, or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.
SECTION 4.2, Powers and Duties of Executive Officers. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors.
SECTION 4.3, Compensation. The salaries of all officers and agents of the Corporation shall be fixed from time to time by the Board of Directors or by a committee appointed or officer designated for such purpose, and no officer shall be prevented from receiving such compensation by reason of the fact that he is also a director of the Corporation.
ARTICLE V
STOCK
SECTION 5.1, Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President or a Vice President and (ii) by the Chief Financial
Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of
the Corporation, certifying the number of shares owned by him in the
Corporation.
SECTION 5.2, Signatures. Any or all of the signatures on the certificate may be a facsimile, including, but not limited to, signatures of officers of the Corporation and countersignatures of a transfer agent or registrar. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 5.3, Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his representatives, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sums as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 5.4, Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law, in these Bylaws, and/or in the Certificate of Incorporation. Transfers of stock shall be made on the books of the Corporation only by the person named on the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificates therefore, which shall be cancelled before a new certificate shall be issued.
SECTION 5.5, Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days nor less than ten days before the date of such meeting, nor more than 60 days prior to any other action.
SECTION 5.6, Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
SECTION 5.7, Other Regulations. The issue, transfer, conversion and registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1, Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended in a manner more favorable to indemnitees, any director or officer of the Corporation (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee.
Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the Corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board of Directors of the Corporation.
SECTION 6.2, Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a proceeding, alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.
SECTION 6.3, Claims. If a claim for indemnification or payment of expenses under this Article VI is not paid in full within sixty (60) days after a written claim therefor by the Indemnitee has been received by the Corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law.
SECTION 6.4, Nonexclusivity of Rights. The rights conferred on any Indemnitee by this Article VI shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.
SECTION 6.5, Other Sources. The Corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise.
SECTION 6.6, Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification.
SECTION 6.7, Other Indemnification and Prepayment of Expenses. This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action.
SECTION 6.8, Indemnification Contracts. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director or officer of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI.
SECTION 6.9, Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.
SECTION 6.10, Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article VI.
SECTION 6.11, Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the full extent permitted by applicable law.
ARTICLE VII
NOTICES
SECTION 7.1, Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation. If given by mail, such notice shall be sent with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or international express mail service, as applicable. Written notice may also be given personally or by telegram, facsimile, telex or cable, or by similar method of communication, including e-mail, on 24 hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.
SECTION 7.2, Waiver of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Such written waiver of notice may be communicated by any of the means set forth in Section 7.1 above.
Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1, Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, and of law, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 8.2, Disbursement. All checks or demand for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
SECTION 8.3, Fiscal Year. The fiscal year of the Corporation shall end on December 31, unless the fiscal year is otherwise fixed by affirmative resolution of the Board of Directors.
SECTION 8.4, Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed of affixed or reproduced or otherwise.
SECTION 8.5, Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of any information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.
SECTION 8.6, Reliance Upon Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by
any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 8.7, Certification of Incorporation Governs. In the event of any conflict between the provisions of the Corporation's Certificate of Incorporation and these Bylaws, the provisions of the Certificate of Incorporation shall govern.
SECTION 8.8, Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Corporation's Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.
SECTION 8.9, Amendments. These Bylaws may be altered, amended or repealed by the Board of Directors of the Corporation except insofar as Bylaws adopted by the stockholders shall otherwise provide. Stockholders of the Corporation holding a majority of the Corporation's outstanding voting stock shall also have power to adopt, amend or repeal Bylaws.