form10-q.htm
 
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 September 30, 2007
 
 
OR
 
 
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ____________ to ___________
 
 
 
Commission file number  0-22290
 
 
 
logo
 
CENTURY CASINOS, INC.
(Exact name of registrant as specified in its charter)
 
 
DELAWARE
(State or other jurisdiction of incorporation or organization)
 
84-1271317
(I.R.S. Employer Identification No.)
 
 
1263 Lake Plaza Drive Suite A, Colorado Springs, Colorado 80906
(Address of principal executive offices)
(Zip Code)
 
 
(719) 527-8300
(Registrant’s telephone number, including area code)
 
         
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   _X_   No ___
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
       Large accelerated filer __  Accelerated filer _X_   Non-accelerated filer __
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes___  No _X_
 
 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:
 
 
 
Common stock, $0.01 par value per share, 23,657,067 shares outstanding as of November 8, 2007.
 

      
--1--


 
CENTURY CASINOS, INC.
 
 
FORM 10-Q INDEX
 
     
Page
PART I
 
FINANCIAL INFORMATION
Number
       
Item 1.
 
Condensed Consolidated Financial Statements (unaudited)
 
   
Condensed Consolidated Balance Sheets as of
September 30, 2007 and December 31, 2006
3
   
Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2007 and 2006
4
   
Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2007 and 2006
5
   
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
6
   
Notes to Condensed Consolidated Financial Statements
9
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
43
Item 4.
 
Controls and Procedures
43
       
PART II
 
OTHER INFORMATION
 
       
Item 6.
 
Exhibits
44
   
SIGNATURES
45

--2--


CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


Amounts in thousands, except for share information
 
September 30, 2007
   
December 31, 2006
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $
18,184
    $
34,969
 
Restricted cash
   
2,297
     
2,352
 
Receivables, net
   
1,120
     
934
 
Prepaid expenses
   
1,465
     
1,183
 
Inventories
   
479
     
445
 
Other current assets
   
473
     
1,091
 
Deferred income taxes – foreign
   
221
     
193
 
Total current assets
   
24,239
     
41,167
 
                 
Property and Equipment, net
   
130,897
     
124,638
 
Goodwill
   
12,997
     
12,262
 
Investment in Unconsolidated Subsidiary
   
10,406
     
-
 
Casino Licenses and Other Intangible Assets
   
10,364
     
9,341
 
Deferred Income Taxes – domestic
   
2,307
     
1,763
 
                                         – foreign
   
2,230
     
2,143
 
Note Receivable (see Note 2)
   
-
     
5,170
 
Other Assets
   
1,830
     
1,376
 
Total
  $
195,270
    $
197,860
 

LIABILITIES AND SHAREHOLDERS’ EQUITY
           
Current Liabilities:
           
Current portion of long-term debt
  $
11,022
    $
20,669
 
Accounts payable and accrued liabilities
   
8,635
     
10,625
 
Accrued payroll
   
2,447
     
2,172
 
Taxes payable
   
2,555
     
2,509
 
Deferred income taxes – domestic
   
13
     
16
 
Total current liabilities
   
24,672
     
35,991
 
                 
Long-Term Debt, less current portion
   
54,085
     
56,036
 
Other Long-Term Accrued Liabilities
   
1,545
     
-
 
Minority Interest
   
5,636
     
5,406
 
                 
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;23,568,443 and 23,168,443 shares issued, respectively;
   23,451,067 and 23,004,067 shares outstanding, respectively
   
236
     
232
 
Additional paid-in capital
   
70,299
     
69,779
 
Accumulated other comprehensive earnings
   
6,643
     
2,768
 
Retained earnings (see Note 7)
   
32,419
     
28,020
 
     
109,597
     
100,799
 
Treasury stock – 117,376 and 164,376 shares at cost, respectively
    (265 )     (372 )
Total shareholders’ equity
   
109,332
     
100,427
 
Total
  $
195,270
    $
197,860
 

See notes to condensed consolidated financial statements.
 
--3--

CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)


   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
Amounts in thousands, except for share information
 
2007
   
2006
   
2007
   
2006
 
Operating revenue:
                       
Casino
  $
23,163
    $
16,261
    $
64,541
    $
36,667
 
Hotel, food and beverage
   
3,479
     
1,627
     
9,325
     
3,981
 
Other
   
550
     
298
     
1,489
     
758
 
Gross revenues
   
27,192
     
18,186
     
75,355
     
41,406
 
Less promotional allowances
   
2,468
     
1,208
     
6,897
     
3,093
 
Net operating revenue
   
24,724
     
16,978
     
68,458
     
38,313
 
                                 
Operating costs and expenses:
                               
Casino
   
9,222
     
6,705
     
25,790
     
14,368
 
Hotel, food and beverage
   
2,802
     
1,616
     
7,927
     
3,437
 
General and administrative
   
7,166
     
5,118
     
19,951
     
12,667
 
Impairments and other write-offs, net of recoveries
   
9
      (420 )    
34
      (405 )
Depreciation
   
1,987
     
1,293
     
6,310
     
2,998
 
                                 
Total operating costs and expenses
   
21,186
     
14,312
     
60,012
     
33,065
 
                                 
Earnings from unconsolidated subsidiary
   
37
     
-
     
91
     
-
 
Earnings from operations
   
3,575
     
2,666
     
8,537
     
5,248
 
Non-operating income (expense):
                               
Interest income
   
85
     
156
     
802
     
595
 
Interest expense
    (1,649 )     (1,320 )     (5,280 )     (1,777 )
Other (expense) income, net
    (146 )     (19 )    
641
     
300
 
Non-operating (expense), net
    (1,710 )     (1,183 )     (3,837 )     (882 )
Earnings before income taxes, minority interest and preferred dividends
   
1,865
     
1,483
     
4,700
     
4,366
 
Provision (benefit) for income taxes
   
27
      (67 )    
655
     
394
 
Earnings before minority interest and preferred dividends
   
1,838
     
1,550
     
4,045
     
3,972
 
Minority interest in subsidiary losses, net
   
170
     
301
     
822
     
900
 
Preferred dividends issued by subsidiary
    (59 )    
-
      (335 )    
-
 
Net earnings
  $
1,949
    $
1,851
    $
4,532
    $
4,872
 
                                 
Earnings per share:
                               
Basic
  $
0.08
    $
0.08
    $
0.20
    $
0.21
 
Diluted
  $
0.08
    $
0.08
    $
0.19
    $
0.20
 

See notes to condensed consolidated financial statements.
 
--4--

CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited)


   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
Amounts in thousands
 
2007
   
2006
   
2007
   
2006
 
                         
Net earnings
  $
1,949
    $
1,851
    $
4,532
    $
4,872
 
Foreign currency translation adjustments
   
2,712
      (1,830 )    
3,875
      (2,239 )
Comprehensive earnings
  $
4,661
    $
21
    $
8,407
    $
2,633
 


See notes to condensed consolidated financial statements.

--5--


CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


   
For the nine months
ended September 30,
 
             
Amounts in thousands
 
2007
   
2006
 
             
Cash Flows from Operating Activities:
           
Net earnings
  $
4,532
    $
4,872
 
                 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation
   
6,310
     
2,998
 
Imputed interest
   
124
     
-
 
Amortization of share-based compensation
   
458
     
280
 
Amortization of deferred financing costs
   
352
     
104
 
Deferred tax expense
    (505 )     (410 )
Minority interest in subsidiary losses
    (822 )     (900 )
Earnings from unconsolidated subsidiary
    (91 )    
-
 
Other
   
78
     
11
 
Excess tax benefits from stock-based payment arrangements
    (62 )     (376 )
Changes in operating assets and liabilities:
               
Receivables
    (136 )     (392 )
Prepaid expenses and other assets
    (186 )     (5 )
Accounts payable and accrued liabilities
    (2,807 )     (820 )
Accrued payroll
   
167
     
427
 
Taxes payable
   
35
      (271 )
                 
Net cash provided by operating activities
   
7,447
     
5,518
 
                 
                 
Cash Flows from Investing Activities:
               
Purchases of property and equipment
    (7,141 )     (41,943 )
Decrease in restricted cash
   
218
     
-
 
Note receivable
   
-
      (4,751 )
Deferred income – Sale of Gauteng interest
   
-
     
5,399
 
Acquisition of remaining interest in Century Resorts Alberta, Inc.
   
-
      (5,135 )
Cash contribution of $0.7 million towards interest in Century Casino Millennium, plus net cash acquired of $0.4 million
   
-
      (278 )
Cash contribution of $6.7 million towards interest in Newcastle, less net cash acquired of $1.6 million
   
-
      (5,122 )
Cash contribution of $2.0 million towards interest in G5 Sp. z o.o.
    (2,016 )    
-
 
Proceeds from disposition of assets
   
17
     
88
 
                 
Net cash used in investing activities
    (8,922 )     (51,742 )

(continued)

--6--


CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


   
For the nine months
ended September 30,
 
Amounts in thousands
 
2007
   
2006
 
Cash Flows from Financing Activities:
           
Proceeds from borrowings
  $
19,047
    $
64,898
 
Principal repayments
    (34,321 )     (24,730 )
Excess tax benefits from stock-based payment arrangements
   
62
     
376
 
Deferred financing charges
    (40 )     (51 )
Proceeds from exercise of options
   
106
     
450
 
Other
   
-
      (75 )
                 
Net cash (used in) provided by financing activities
    (15,146 )    
40,868
 
                 
Effect of Exchange Rate Changes on Cash
    (164 )    
202
 
                 
Decrease in Cash and Cash Equivalents
    (16,785 )     (5,154 )
                 
Cash and Cash Equivalents at Beginning of Period
   
34,969
     
37,167
 
                 
Cash and Cash Equivalents at End of Period
  $
18,184
    $
32,013
 

Supplemental Disclosure of Cash Flow Information:

Amounts in Thousands
 
For the nine months
ended September 30,
 
   
2007
   
2006
 
Interest paid
  $
5,607
    $
2,631
 
Income taxes paid
  $
1,437
    $
662
 

Supplemental Disclosure of Non-cash Financing Activities:

The Company had approximately $4.6 million of accrued construction liabilities relating to its projects in Central City, Colorado and Edmonton, Alberta, Canada as of September 30, 2006. The Company offset the total purchases of property and equipment for the nine months ended September 30, 2006 by this amount.

On January 12, 2006, Century Resorts International Ltd. (“CRI”) purchased the remaining 43.6% equity interest in Century Resorts Alberta, Inc. (“CRA”). In conjunction with this acquisition, CRI assumed the following assets and liabilities:

Amounts in thousands
     
Fair value of minority interest acquired
  $
1,818
 
Goodwill
   
4,342
 
Long-term debt
    (1,025 )
Cash paid
  $
5,135
 

The assets acquired and liabilities assumed are reported in the condensed consolidated balance sheets.  CRA is a new entity and pro forma information is not applicable.

--7--


On April 13, 2006, Century Casinos Europe GmbH (“CCE”) purchased the remaining 50% interest that it did not already own in Century Casino Millennium (“CM”) for approximately $0.7 million. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

Amounts in thousands
     
Cash
  $
402
 
Restricted cash
   
845
 
Accounts receivable
   
153
 
Property and equipment, net
   
594
 
Goodwill
    (345 )
Other assets, including intercompany debt assumed
   
196
 
Accounts payable and accrued liabilities
    (132 )
Accrued payroll
    (9 )
Taxes payable
    (343 )
Long-term debt
    (681 )
Cash paid
  $
680
 

The purchase price allocation for CM was completed in June 2006.  The assets acquired and liabilities assumed are reported in the condensed consolidated balance sheets.

Century Casinos Africa completed the purchase of a 60% controlling interest in Century Casino Newcastle (“CNEW”) on April 1, 2006 for approximately $7.4 million (45.5 million Rand).  To date, the Company has paid $6.7 million (40.5 million Rand) towards the purchase. The remaining $0.7 million (5.0 million Rand) has been accrued as a current liability on the condensed consolidated balance sheet as of September 30, 2007. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

Amounts in thousands
     
Cash
  $
1,530
 
Accounts receivable
   
35
 
Prepaid expenses
   
91
 
Inventory
   
74
 
Property and equipment, net
   
3,009
 
Casino licenses
   
8,911
 
Deferred income taxes – foreign
   
1,314
 
Accounts payable and accrued liabilities
    (801 )
Accrued payroll
    (183 )
Taxes payable
    (446 )
Long-term debt
    (1,965 )
Amount credited to minority partner
    (4,917 )
Cash paid
  $
6,652
 

The assets acquired and liabilities assumed are reported in the condensed consolidated balance sheets.

On March 12, 2007, CCE purchased G5 Sp. z o.o, a Polish entity that owns a 33.3% interest in Casinos Poland Ltd (“CPL”). The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Amounts in thousands
     
Investment in Casinos Poland Ltd.
  $
9,029
 
Accounts payable and accrued liabilities
    (362 )
Long-term debt, including intercompany debt assumed
    (6,651 )
Cash paid
  $
2,016
 

The assets acquired and liabilities assumed, other than intercompany debt, are reported in the condensed consolidated balance sheet as of September 30, 2007.

See notes to condensed consolidated financial statements.

--8--


CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1.           DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Century Casinos, Inc. (“CCI” or the “Company”) is an international casino entertainment company. The Company owns and/or manages casino operations in North America, South Africa, the Czech Republic and international waters through various entities that are wholly owned or in which we have a majority ownership position. In addition, the Company holds a 33.3% ownership interest in CPL, the owner and operator of seven casinos and one slot arcade in Poland. The Company continues to pursue other international projects in various stages of development.

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 (“US GAAP”) for interim financial reporting and the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X.  The accompanying condensed consolidated financial statements include the accounts of CCI and its majority-owned subsidiaries.  All intercompany transactions and balances have been eliminated.  The financial statements of all foreign subsidiaries consolidated herein have been converted to US GAAP for financial statement presentation purposes.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted.  Certain reclassifications have been made to the 2006 financial information in order to conform to the 2007 presentation.

In the opinion of management, all adjustments 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 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.  The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the operating results for the full year.

*****

Presentation of Foreign Currency Amounts - Historical transactions that are denominated in a foreign currency are translated and presented at the United States exchange rate in effect on the date of the transaction.  Commitments that are denominated in a foreign currency and all balance sheet accounts other than shareholders’ equity are translated and presented based on the exchange rate at the end of the reported periods.  Current period transactions affecting the profit and loss of operations conducted in foreign currencies are valued at the average exchange rate for the period in which they are incurred.  The exchange rates to the U.S. Dollar used to translate balances at the end of the reported periods are as follows:

 
 
September 30, 2007
   
December 31, 2006
   
September 30, 2006
 
Canadian Dollars (CAD)
   
0.9963
     
1.1653
     
1.1153
 
Czech Koruna (CZK)
   
19.3420
     
20.8500
     
22.3910
 
Euros (€)
   
0.7033
     
0.7578
     
0.7882
 
Polish Zloty (PLN)
   
2.6519
     
2.9016
     
3.1311
 
South African Rand (ZAR)
   
6.8853
     
7.0496
     
7.7451
 
Source: Pacific Exchange Rate Service


--9--


2.           ACQUISITIONS

Century Casino Newcastle: On April 1, 2006, the Company acquired a 60.0% ownership in CNEW for approximately $7.4 million (ZAR 45.5 million). To date, the Company has paid $6.7 million (ZAR 40.5 million) towards the purchase. The remaining $0.7 million (ZAR 5.0 million) is payable subject to the finalization of a South African Revenue Service tax audit pertaining to periods prior to the Company’s acquisition of its 60.0% interest and is classified as a current liability on the September 30, 2007 and December 31, 2006 condensed consolidated balance sheets. Pro forma results of operations have not been presented as they would not have been materially different from previously reported amounts.

An additional $0.4 million (ZAR 2.5 million) will be payable to the minority shareholders if casino revenue during the first 12 months of operations at the new casino exceeds $13.8 million (ZAR 95.0 million). As of September 30, 2007, the Company does not deem it probable that casino revenue will exceed the amount required to trigger the payment.

The final purchase price allocation resulted in the recognition of $8.9 million (ZAR 54.3 million) of indefinite lived intangible assets. Intangible assets acquired represent casino licenses.

G5 Sp. z o.o.: On March 12, 2007, the Company completed the acquisition of G5 Sp. z o.o. (“G5”) for approximately $2.8 million (€2.2 million). On March 12, 2007 the Company paid $2.0 million (€1.6 million). On October 23, 2007, the Company paid the remaining $0.8 million (€0.6 million). In connection with the purchase, the Company loaned G5 approximately $6.2 million (PLN 18.0 million) to repay existing loans between G5 and its creditors. The loan is secured by the outstanding shares of G5. Interest payments, calculated at the 1-month LIBOR rate plus 2% per annum, are payable annually. The loan matures on June 21, 2011. The loan and related interest are eliminated in consolidation subsequent to the acquisition. G5 owns 33.3% of all shares issued by CPL. CPL owns and operates seven full casinos and one slot casino in Poland (See Note 3).

3.           EQUITY INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

The Company has a 33.3% ownership interest in CPL, and we account for this investment under the equity method.

The Company records its share of CPL’s earnings on a one-month lag. Following is the summarized unaudited financial information of CPL as of August 31, 2007:

Amounts in thousands
 
As of
 
   
August 31, 2007
 
Balance Sheet:
     
   Current assets
  $
3,165
 
   Noncurrent assets
  $
20,655
 
   Current liabilities
  $
15,682
 
   Noncurrent liabilities
  $
3,604
 
 
   
For the three
months ended
August 31, 2007
   
March 12, 2007 through
August 31, 2007
 
Operating Results:
           
   Net operating revenue
  $
11,330
    $
25,462
 
   Net earnings
  $
110
    $
274
 

The Company’s maximum exposure to losses at September 30, 2007 is $10.4 million, the value of its equity investment in CPL.

--10--


4.           SHAREHOLDERS’ EQUITY

Subsidiary Preference Shares - In connection with the granting of a gaming license to Century Casinos Caledon (Pty) Ltd. (“CCAL”) by the Western Cape Gambling and Racing Board in April 2000, CCAL issued a total of 200 preference shares, 100 shares each to two minority shareholders, each of whom has one seat on the board of directors of CCAL, neither of whom is an officer, director or affiliate of CCI. In January 2006, 200 preference shares of a new class (“Class A shares”) were authorized for issuance. The Class A shares are neither cumulative nor redeemable. Each Class A share entitles the holder to dividends of 0.009% of the annual gross gambling revenue of the Caledon Hotel, Spa and Casino after the deduction of gaming taxes and value added tax. Furthermore, if the casino business is sold or otherwise dissolved, for each Class A share held, the shareholder would be entitled to 0.009% of any surplus directly attributable to the casino business, net of all liabilities attributable to the casino business. In March 2007, the second of the two preference shareholders accepted the offer to transfer all 100 of its original preference shares for 100 Class A shares and was paid ZAR 5,000 per share as an incentive to exchange their original preference shares for Class A shares.

CCAL paid $0.3 million (ZAR 2.4 million) of preference dividends for the nine months ended September 30, 2007, which includes a one time dividend payment of $0.2 million (ZAR 1.2 million) to the preference shareholder that exchanged its shares.

5.           STOCK-BASED COMPENSATION

The Company applies the provisions of Statement of Financial Accounting Standard No. 123R, “Share-Based Payment”, to account for stock-based awards. In accordance with this standard, stock-based employee compensation cost is recognized using the fair-value based method for all awards granted on or after the date of adoption. The Company’s equity incentive plan (the “2005 Plan”) provides for the grant of awards to eligible individuals in the form of stock, restricted stock, stock options, performance units or other stock-based awards, all as defined in the 2005 Plan. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model. Compensation cost related to restricted shares is recorded based on the market price of the Company’s common stock on the grant date.

Stock Options

On July 3, 2007, the Company granted an aggregate of 60,000 stock options with an exercise price of $9.00 per share to employees of the Company. The weighted-average fair value of options granted was $4.87, estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Weighted-average risk-free interest rate
 
4.99%
Weighted-average expected life
 
6.25 yrs
Weighted-average expected volatility
 
47.5%
Weighted-average expected dividends
 
$ 0
 
--11--


Transactions regarding the Company’s stock based compensation plans are as follows:

   
Weighted-
   
Average
   
Exercise
 
Shares
Price
Employee Stock Options:
   
 Outstanding at January 1, 2007
1,368,710
$  2.98
Granted
60,000
9.00
Exercised
(25,000)
1.63
Forfeited
(35,000)
6.32
 Outstanding at September 30, 2007
1,368,710
$  3.19
 Options exercisable at September 30, 2007
789,226
$  2.92
 Intrinsic Value of Options (in millions):
 
Outstanding
 
$    4.0
Exercisable
 
$    2.5

The aggregate intrinsic value represents the difference between the Company’s closing stock price of $6.10 as of September 28, 2007 and the exercise price multiplied by the number of options outstanding (or exercisable) as of that date.

The weighted-average contractual life for all options outstanding at September 30, 2007 is 6.0 years.

In addition, on July 3, 2007, the Company granted an aggregate of 25,000 stock options with an exercise price of $9.00 per share to independent directors of the Company. As of September 30, 2007, there were 67,000 options outstanding to independent directors of the Company with a weighted average exercise price of $5.40.  On October 19, 2007, the Company issued 6,000 shares of its common stock to an independent director of the Company, at an exercise price of $3.26 per share, for stock options exercised in cash.

The Company recorded less than $0.1 million, net of taxes, for stock-based compensation expense for both the three months ended September 30, 2007 and the three months ended September 30, 2006. The Company recorded less than $0.1 million, net of taxes, and $0.2 million, net of taxes, for stock-based compensation expense for the nine months ended September 30, 2007 and 2006, respectively. There was no capitalized stock-based compensation expense.

At September 30, 2007, there is $0.3 million of total unrecognized compensation expense related to unvested stock options remaining to be recognized. Of this amount, less than $0.1 million will be recognized over the remainder of 2007 and $0.3 million will be recognized in subsequent years through 2011.

On October 16, 2007, the Company issued 200,000 shares of its common stock to employees of the Company, at an exercise price of $2.93 per share, for stock options exercised in cash.

--12--


Restricted Stock

On July 3, 2007, the Company issued 200,000 shares of restricted common stock with a fair value of $9.00 per share to each of its Co Chief Executive Officers. The restricted stock vests ratably over a four-year period. Compensation expense related to restricted stock awards totaled $0.4 million for the three months ended September 30, 2007. At September 30, 2007, there is $3.2 million of total unrecognized compensation expense related to unvested restricted stock remaining to be recognized. Of this amount, $0.3 million will be recognized over the remainder of 2007 and $2.9 million will be recognized in subsequent years through 2011.

6.           PROMOTIONAL ALLOWANCES

Hotel accommodations and food and beverage furnished without charge to customers is included in gross revenue at a value which approximates retail and is then deducted as complimentary services to arrive at net revenue.

We issue free play or coupons for the purpose of generating future revenue. Coupons are issued the month prior to when they can be redeemed and are valid for defined periods of time ranging up to 7 days. The net win from the coupons is expected to exceed the value of the coupons issued. The cost of the coupons redeemed is applied against the revenue generated on the day of the redemption.

Members of our casinos’ player clubs earn points based on their volume of play (typically as a percentage of coin-in) at certain of our casinos. Players can accumulate points over time that they may redeem at their discretion under the terms of the program. Points can be redeemed for cash and/or various amenities at the casino, such as meals, hotel stays and gift shop items. The cost of the points is offset against the revenue in the period that the revenue generated the points. The value of unused or unredeemed points is included in accounts payable and accrued liabilities on our consolidated balance sheet. The expiration of unused points results in a reduction of the liability.

Promotional allowances presented in the condensed consolidated statements of earnings for the three- and nine-month periods ended September 30, 2007 and 2006 include the following:

   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
Amounts in thousands
 
2007
   
2006
   
2007
   
2006
 
Food & Beverage and Hotel
  $
894
    $
558
    $
2,355
    $
1,129
 
Free Plays or Coupons
   
755
     
348
     
2,366
     
1,006
 
Player Points
   
819
     
302
     
2,176
     
958
 
Total Promotional Allowances
  $
2,468
    $
1,208
    $
6,897
    $
3,093
 

7.           INCOME TAXES

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company has analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.  The Company has identified its U.S. federal tax return, its state tax return in Colorado and its foreign tax returns in Canada and South Africa as “major” tax jurisdictions, as defined. The periods subject to examination for the Company’s federal tax returns are the 2005 and 2006 tax years. The periods subject to examination for the Company’s state tax returns in Colorado are years 2003 through 2006. The periods subject to examination for the

--13--


Company’s statutory income tax returns in Canada are the 2005 and 2006 tax years. The periods subject to examination for the Company’s statutory income tax returns in South Africa are years 1999 through 2006. As a result of the implementation of FIN 48, we recognized a $0.1 million liability for unrecognized tax liabilities related to tax positions taken in prior periods, which is recorded as a component of other long-term accrued liabilities. This increase was accounted for as an adjustment to the opening balance of retained earnings on January 1, 2007.

We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of earnings before income taxes. Penalties are recorded in general and administrative expenses and interest paid or received is recorded in interest expense or interest income, respectively, in the condensed consolidated statement of earnings.

The income tax provisions are based on estimated full-year earnings for financial reporting purposes adjusted for permanent differences. The provision for income tax expense consists of the following:

   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
Amounts in thousands
 
2007
   
2006
   
2007
   
2006
 
Provision for federal income taxes
  $ (322 )   $ (438 )   $ (473 )   $ (649 )
Provision for state income taxes
    (8 )     (71 )     (28 )     (101 )
Provision for foreign income taxes
   
357
     
442
     
1,156
     
1,144
 
Total provision for income taxes
  $
27
    $ (67 )   $
655
    $
394
 

Reconciliation of federal income tax statutory rate to the Company’s effective tax rate is as follows:
 
 
For the three months
ended September 30,
For the nine months
ended September 30,
   
2007
 
2006
 
2007
 
2006
Federal income tax statutory rate
 
34.0%
 
34.0%
 
34.0%
 
34.0%
Foreign income taxes
 
(41.9%)
 
(60.5%)
 
(45.5%)
 
(52.7%)
State income tax (net of federal benefit)
 
0.0%
 
(0.1%)
 
1.3%
 
0.9%
Losses assigned to minority partner
 
4.1%
 
10.2%
 
8.3%
 
9.8%
Permanent and other items
 
5.2%
 
11.9%
 
15.8%
 
17.0%
Total provision for income taxes
 
1.4%
 
(4.5%)
 
13.9%
 
9.0%

The provisions for federal and state income taxes for the three months ended September 30, 2007 include a cumulative $0.1 million credit to true-up the prior year’s estimated tax provision.

The Company consolidates the results of CC Tollgate LLC (“CTL”) in which it holds a 65% majority interest.  No provision for income tax on the losses allocated to the minority partner are included in the condensed consolidated statements of earnings for the three and nine months ended September 30, 2007 and 2006.
 
--14--


8.           EARNINGS PER SHARE

 
Basic and diluted earnings per share for the three and nine months ended September 30, 2007 and 2006 were computed as follows:

 Amounts in thousands,
 except for share information
 
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
   
2007
   
2006
   
2007
   
2006
 
Basic Earnings Per Share:
                       
Net earnings
  $
1,949
    $
1,851
    $
4,532
    $
4,872
 
Weighted average common shares
   
23,051,067
     
22,980,567
     
23,043,351
     
22,705,842
 
Basic earnings per share
  $
0.08
    $
0.08
    $
0.20
    $
0.21
 
                                 
Diluted Earnings Per Share:
                               
Net earnings
  $
1,949
    $
1,851
    $
4,532
    $
4,872
 
Weighted average common shares
   
23,051,067
     
22,980,567
     
23,043,351
     
22,705,842
 
Effect of dilutive securities using the
 treasury stock method:
                               
Stock options and warrants
   
782,431
     
967,290
     
861,510
     
1,200,070
 
Dilutive potential common shares
   
23,833,498
     
23,947,857
     
23,904,861
     
23,905,912
 
Diluted earnings per share
  $
0.08
    $
0.08
    $
0.19
    $
0.20
 
 
The following stock options, warrants and unvested restricted stock are anti-dilutive and have not been included in the weighted average diluted shares outstanding calculation:
 
 
For the three months
ended September 30,
For the nine months
ended September 30,
 
2007
2006
2007
2006
Stock options and warrants
85,000
-
85,000
25,000
Unvested restricted stock
400,000
-
400,000
-

9.           SEGMENT INFORMATION

We are managed in seven segments, based primarily on our casino properties. Each casino property derives its revenues primarily from casino operations, room rentals and/or food and beverage sales.

   
Long-Lived Assets*
   
Total Assets
 
Amounts in thousands
 
September 30,
2007
   
December 31,
2006
   
September 30,
2007
   
December 31,
2006
 
Cripple Creek (Colorado, USA)
  $
29,369
    $
29,324
    $
31,904
    $
31,465
 
Central City (Colorado, USA)
   
42,679
     
43,952
     
47,971
     
48,661
 
Edmonton (Alberta, Canada)
   
37,400
     
31,927
     
44,965
     
39,305
 
Caledon (South Africa)
   
18,655
     
17,188
     
21,268
     
19,134
 
Newcastle (South Africa)
   
23,244
     
21,499
     
26,451
     
24,535
 
Other operating:
                               
  Casino Millennium (Czech Republic)
   
563
     
496
     
2,306
     
2,166
 
  Cruise Ships (International)
   
881
     
1,032
     
1,649
     
1,839
 
Corporate
   
1,467
     
823
     
18,756
     
30,755
 
Total
  $
154,258
    $
146,241
    $
195,270
    $
197,860
 
* Long-lived assets consist of property and equipment, goodwill, casino licenses and other long-lived intangible assets.

--15--

 
 
Net Operating Revenue
Amounts in thousands
For the three months
ended September 30,
For the nine months
ended September 30,
2007
2006
2007
2006
Cripple Creek (Colorado, USA)
$
5,011
$
4,730
$
13,510
$
12,534
Central City (Colorado, USA)
 
5,954
 
4,688
 
15,529
 
4,688
Edmonton (Alberta, Canada)
 
4,930
 
1
 
13,562
 
3
Caledon (South Africa)
 
4,526
 
4,350
 
13,324
 
13,783
Newcastle (South Africa)
 
2,885
 
1,891
 
8,595
 
3,941
Other operating:
               
  Casino Millennium (Czech Republic)
 
719
 
561
 
1,862
 
956
  Cruise Ships (International)
 
656
 
757
 
2,026
 
2,396
Corporate
 
43
 
-
 
50
 
12
Total
$
24,724
$
16,978
$
68,458
$
38,313
 
 
Net Earnings
Amounts in thousands
For the three months
ended September 30,
For the nine months
ended September 30,
2007
2006
2007
2006
Cripple Creek (Colorado, USA)
$
908
$
966
$
2,255
$
2,135
Central City (Colorado, USA)
 
312
 
(405)
 
307
 
(655)
Edmonton (Alberta, Canada)
 
534
 
(199)
 
1,138
 
(263)
Caledon (South Africa)
 
1,046
 
990
 
2,555
 
2,872
Newcastle (South Africa)
 
321
 
297
 
858
 
567
Other operating:
               
  Casino Millennium (Czech Republic)
 
119
 
22
 
166
 
(9)
  Cruise Ships (International)
 
(44)
 
152
 
(60)
 
439
Corporate
 
(1,247)
 
28
 
(2,687)
 
(214)
Total
$
1,949
$
1,851
$
4,532
$
4,872

10.        COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
 
Hermanus Road ConstructionOn March 27, 2007, CCAL and the Provincial Government of the Western Cape entered into an agreement whereby CCAL committed $1.2 million (ZAR 8.0 million) towards the construction of a highway between Caledon and Hermanus, South Africa. CCAL will be billed by the Provincial Government in increments of 16% of the value of work completed by the contractor. Construction of the road is expected to begin by April 1, 2008 and be completed by April 1, 2009. CCAL will not be responsible for any amounts in excess of $1.2 million (ZAR 8.0 million) nor for any construction costs subsequent to April 1, 2009. Any excess costs will be borne by the Provincial Government. The Company has recorded $1.2 million (ZAR 8.0 million) as a component of other long-term accrued liabilities and casino licenses and other intangible assets on the September 30, 2007 condensed consolidated balance sheet.
 
11.         TRANSACTIONS WITH RELATED PARTIES

During the third quarter of 2007, we entered into an agreement with a company partially owned by the Chairman of the Board (a shareholder) of CNEW whereby the Company agreed to sell a parcel of land for approximately $0.2 million (ZAR 1.3 million). Per terms of the agreement, the purchaser proposes to develop a shopping mall attached to our casino in Newcastle, South Africa. The closing of the deal is subject to the purchasing party satisfying certain conditions, which we do not control.
 
--16--


Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements, Business Environment and Risk Factors

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  In addition, Century Casinos, Inc. (the “Company”) may make other written and oral communications from time to time that contain such statements.  Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management.  These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations.  These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management.  Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K filed on March 16, 2007. We caution the reader to carefully consider such factors.  Furthermore, such forward-looking statements speak only as of the date on which such statements are made.  We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

This report includes amounts translated into U.S. dollars from certain foreign currencies. For a description of the currency conversion methodology and exchange rates used for certain transactions, see Note 1 to the condensed consolidated financial statements included elsewhere in this report.

References in this item to “we,” “our,” or “us” are to the Company and its subsidiaries on a consolidated basis unless the context otherwise requires.

OVERVIEW

Our executive officers review operating results, assess performance and make decisions related to the allocation of resources on a property-by-property basis. We, therefore, believe that each property is an operating segment. In order to provide more detail than would be possible on a consolidated basis, our properties have been grouped as follows to facilitate discussion of our operating results:

Cripple Creek, Colorado includes the operating results of WMCK Venture Corp. (“WMCK”) and subsidiaries, which own Womacks Casino and Hotel (“Womacks”) in Cripple Creek, Colorado.

Edmonton, Canada includes the operating results of Century Resorts Alberta, Inc. (and its sister company 1214741 Alberta Ltd.), which owns and operates the Century Casino & Hotel in Edmonton, Alberta, Canada.

Caledon, South Africa includes the operating results of Century Casinos Caledon (Pty) Ltd. (“CCAL”), which operates the Caledon Hotel, Spa and Casino, and its related food service operation.

Newcastle, South Africa includes the operating results of Century Casino Newcastle (Pty) Ltd. (“CNEW”), which owns and operates Century Casino Newcastle in Newcastle, South Africa and its related food service operation.

Central City, Colorado includes the operating results of Century Casinos Tollgate, Inc., which owns a majority interest in and operates a casino and hotel in Central City, Colorado.

--17--

 
All Other Operating Segments includes the operating results of the shipboard operations for which the Company has casino concession agreements and, subsequent to April 13, 2006, the operating results of Century Casino Millennium (“CM”) located in Prague, Czech Republic.

Corporate operations include, among other items, the expenses associated with being a public company, including Sarbanes-Oxley Act compliance, the results of our equity investment in Casinos Poland and general corporate overhead expenses.

CONSOLIDATED RESULTS OF OPERATIONS

We reported net operating revenue of $24.7 million and $17.0 million for the three months ended September 30, 2007 and 2006, respectively, and $68.5 million and $38.3 million for the nine months ended September 30, 2007 and 2006, respectively.  Casino revenue was $23.2 million and $16.3 million for the three months ended September 30, 2007 and 2006, respectively, and was $64.5 million and $36.7 million for the nine months ended September 30, 2007 and 2006, respectively. Casino expense was $9.2 million and $6.7 million for the three months ended September 30, 2007 and 2006, respectively, and $25.8 million and $14.4 million for the nine months ended September 30, 2007 and 2006, respectively.  General and administrative expense was $7.2 million and $5.1 million for the three months ended September 30, 2007 and 2006, respectively. General and administrative expense was $20.0 million and $12.7 million for the nine months ended September 30, 2007 and 2006, respectively.  Depreciation expense was $2.0 million and $1.3 million for the three months ended September 30, 2007 and 2006, respectively, and $6.3 million and $3.0 million for the nine months ended September 30, 2007 and 2006, respectively.

Total earnings from operations were $3.6 million and $2.7 million for the three months ended September 30, 2007 and 2006, respectively, and $8.5 million and $5.2 million for the nine months ended September 30, 2007 and 2006, respectively.

We recorded income tax expense of less than $0.1 million and an income tax benefit of less than $0.1 million for the three months ended September 30, 2007 and 2006, respectively. Income tax expense was $0.7 million and $0.4 million for the nine months ended September 30, 2007 and 2006, respectively.

Our net earnings were $1.9 million, or $0.08 per basic share, and $1.9 million, or $0.08 per basic share, for the three months ended September 30, 2007 and 2006, respectively. Net earnings were $4.5 million, or $0.20 per basic share, and $4.9 million, or $0.21 per basic share, for the nine months ended September 30, 2007 and 2006, respectively.

The most significant impacts on reported earnings for the three months ended September 30, 2007 were:

 
·
Our new casinos in Central City, Colorado, Newcastle, South Africa and Edmonton, Canada contributed $7.2 million towards the total increase of $7.7 million in net operating revenue and contributed $4.9 million towards the total increase of $6.9 million in net operating expenses;
 
·
Corporate expenses increased $1.2 million for the three months ended September 30, 2007 compared to the three months ended September 30, 2006, primarily due to a $0.5 million increase in payroll resulting from additional staffing and the amortization of costs associated with restricted stock and stock options issued in July 2007 and $0.1 million in increased legal, accounting and other professional fees expenses. In addition, for the three months ended September 30, 2006, the Company recovered approximately $0.4 million of previously written off loans in conjunction with the sale of our interest in a casino project located in Gauteng, South Africa; and
 
·
Net interest charges increased $0.4 million primarily due to the interest charges on bank debt that funded the construction of the three new casinos.


--18--


The most significant impacts on reported earnings for the nine months ended September 30, 2007 were:

 
·
Our new casinos in Central City, Colorado, Newcastle, South Africa and Edmonton, Canada contributed $29.1 million towards the total increase of $30.1 million in net operating revenue and contributed $22.9 million towards the total increase of $26.9 million in net operating expenses;
 
·
Corporate expenses increased $2.5 million for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 primarily because of $0.5 million in increased travel and communication expenses, $0.7 million in increased professional fees which includes an arbitration with one of our cruise ship based casinos, and $0.6 million in increased payroll due to an increase in the number of corporate employees to support the Company’s growth and the amortization of costs associated with restricted stock and stock options issued in July 2007. In addition, for the nine months ended September 30, 2006, the Company recovered approximately $0.4 million of previously written off loans in conjunction with the sale of our interest in a casino project located in Gauteng, South Africa; and
 
·
Net interest charges increased $3.3 million primarily due to the interest charges on bank debt that funded the construction of the three new casinos.

A discussion by segment follows below.


--19--


CRIPPLE CREEK, COLORADO

 
The operating results of the Cripple Creek, Colorado segment, includes the operations of Womacks. Intercompany transactions, including fees to its parent, interest and their related tax effects have been eliminated within the segment’s results. Operational results for the three and nine months ended September 30, 2007 and 2006 are as follows:
 

   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
Amounts in thousands
 
2007
   
2006
   
2007
   
2006
 
Operating Revenue
                       
     Casino
  $
5,392
    $
5,126
    $
14,742
    $
13,768
 
     Hotel, food and beverage
   
444
     
400
     
1,104
     
1,043
 
 Other (net of promotional allowances)
    (825 )     (796 )     (2,336 )     (2,277 )
Net operating revenue
   
5,011
     
4,730
     
13,510
     
12,534
 
                                 
Operating Costs and Expenses
                               
     Casino
   
1,716
     
1,218
     
4,644
     
3,590
 
     Hotel, food and beverage
   
450
     
424
     
1,211
     
1,076
 
     General and administrative
   
1,013
     
1,021
     
2,851
     
2,921
 
     Depreciation
   
399
     
399
     
1,183
     
1,211
 
           Total operating costs and expenses
   
3,578
     
3,062
     
9,889
     
8,798
 
Earnings from operations
   
1,433
     
1,668
     
3,621
     
3,736
 
Interest income
   
3
     
6
     
8
     
12
 
Interest (expense)
   
28
      (103 )    
10
      (306 )
Other (expense), net
   
-
     
-
      (1 )    
-
 
Earnings before income taxes
   
1,464
     
1,571
     
3,638
     
3,442
 
Income tax expense
   
556
     
605
     
1,383
     
1,307
 
Net Earnings
  $
908
    $
966
    $
2,255
    $
2,135
 

Casino Market Data

   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
   
2007
   
2006
   
2007
   
2006
 
Market share of the Cripple Creek gaming revenue*
    12.5 %     12.0 %     12.3 %     11.6 %
Average number of slot machines
   
586
     
585
     
590
     
584
 
Market share of Cripple Creek gaming devices*
    12.7 %     12.4 %     12.7 %     12.3 %
Average slot machine win per day
  $
101
    $
94
    $
90
    $
85
 
Cripple Creek average slot machine win per day*
  $
103
    $
96
    $
92
    $
89
 
*Source: Colorado Division of Gaming
 

 
--20--


The Womacks casino is one of the larger gaming facilities in Cripple Creek.  Management continues to focus on the marketing of Womacks through the player’s club. Womacks has continued the effort to improve the customer experience by converting 450 slot machines, which represent more than 77% of the total machines on the floor, to Ticket in/Ticket Out (“TITO”) devices at September 30, 2007, compared to 63% at September 30, 2006. Management uses points and coupons to attract customers with the expectation of increasing gaming revenue, while monitoring and adjusting the programs as necessary.  Based on management’s ongoing evaluation of the comp policies at the casino, the cost of points and coupons is in line with management’s expectations and prior year results. There were a number of changes made in key management positions at Womacks during the third quarter of 2006, which have contributed to improved results at the property.
 
In 2008, a casino that is larger than Womacks is expected to open in Cripple Creek. Management believes this casino will have approximately 700 slot machines and 14 table games and will introduce further competition to our casino.

The casino is currently undergoing a $2.0 million renovation project. The Company expects to be able to capitalize a majority of this cost.

During the second quarter of 2007, the Colorado legislature approved a bill banning smoking at Colorado casinos starting January 1, 2008. This could result in fewer customers who smoke or more customers who do not smoke visiting Womacks, which would affect our results.

Three months ended September 30, 2007 compared to 2006

Casino revenue for the three months ended September 30, 2007 was 5.2% higher than during the same period last year, and net operating revenue increased 5.9% as a result of increased marketing efforts which contributed to a 7.4% increase in average slot machine win per day. Womacks’ market share of gaming devices increased 2.4% in the three months ended September 30, 2007 over the same period last year. For the entire Cripple Creek market, gaming revenue increased during the three months ended September 30, 2007, closing 2.6% higher than the same period last year.

Casino expense increased by 40.9%, or $0.5 million, for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006, primarily the result of $0.2 million in increased marketing expenditures related to a special promotion in the third quarter of 2007 and a $0.2 million increase in gaming taxes and royalties resulting from the increase in casino revenue for the period.

General and administrative expense remained flat period over period.

Interest expense decreased $0.1 million as the average debt balance for the casino was less than $0.1 million.  The casino has repaid a majority of its outstanding debt on the Womacks credit facility, which reduced the casino’s average debt balance for the period. The majority of the amount outstanding under the casino’s revolving credit facility relates to funding provided to the Corporate segment. Whenever the advances to the Corporate segment exceed the outstanding borrowings, the Cripple Creek segment reports negative interest expense.

Cripple Creek’s effective tax rate has remained stable at approximately 38.0% for the three months ended September 30, 2007 as compared to 38.5% for the three months ended September 30, 2006.
 
--21--

 
Nine months ended September 30, 2007 compared to 2006
 
Management believes that January 2007 revenues in Cripple Creek were negatively impacted by a series of winter storms that occurred during the month.  Strong revenue growth since that time has offset the January results. Casino revenue for the nine months ended September 30, 2007 was 7.1% higher than during the same period last year and net operating revenue increased 7.8%, the result of successful marketing efforts which contributed to a 5.9% increase in average win per day. Womacks’ market share of gaming devices increased 3.3% in the nine months ended September 30, 2007 over the same period in 2006. For the entire Cripple Creek market, gaming revenue increased less than 1% for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006.

Casino expense increased by 29.4%, or $1.1 million, for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006, primarily the result of $0.3 million in increased marketing expenditures related to a special promotion in the third quarter of 2007, a $0.5 million increase in gaming taxes and royalties resulting from the increase in casino revenue for the period and a $0.2 million increase in payroll.

General and administrative expense remained flat period over period.

Interest expense decreased $0.3 million for the nine months ended September 30, 2007. The casino has repaid a majority of its outstanding debt on the Womacks credit facility, which reduced the casino’s average debt balance for the period. The majority of the amount outstanding under the facility relates to funding provided to the Corporate segment. Whenever the advances to the Corporate segment exceed the outstanding borrowings, Cripple Creek segment reports negative interest expense.

Cripple Creek’s effective tax rate has remained stable at approximately 38.0% for each of the nine months ended September 30, 2007 and 2006.

--22--


CENTRAL CITY, COLORADO

We opened a casino and hotel in Central City, Colorado on July 11, 2006.  Prior to July 11, 2006, operating expenses for this segment consisted primarily of pre-opening and non-capitalizable construction expenditures. Intercompany transactions, including fees to its parent, interest and their related tax effects have been eliminated within the segment’s results. The operating results of the Central City, Colorado segment for the three and nine months ended September 30, 2007 and 2006 are as follows:
 
   
For the three months
ended September 30,
   
For the nine months
ended September 30,
 
Amounts in thousands
 
2007
   
2006
   
2007
   
2006
 
Operating Revenue
                       
     Casino
  $
6,312
    $
4,475
    $
16,898
    $
4,475
 
     Hotel, food and beverage
   
732
     
432
     
1,903
     
432
 
 Other (net of promotional allowances)
    (1,090 )     (219 )     (3,272 )     (219 )
Net operating revenue
   
5,954
     
4,688
     
15,529
     
4,688
 
                                 
Operating Costs and Expenses
                               
     Casino
   
2,441
     
2,425
     
6,530
     
2,468
 
     Hotel, food and beverage
   
597
     
661
     
1,709
     
661
 
     General and administrative
   
1,147
     
968
     
3,387
     
1,663
 
     Depreciation
   
762
     
451
     
2,173
     
451
 
           Total operating costs and expenses
   
4,947
     
4,505
     
13,799
     
5,243
 
Earnings (loss) from operations
   
1,007
     
183
     
1,730
      (555 )
Interest income
   
6
     
-
     
6
     
-
 
Interest (expense)
    (734 )     (1,281 )     (2,389 )     (1,766 )
Other (expense), net
   
-
     
-
      (1 )    
-
 
Earnings (loss) before income taxes and minority interest
   
279
      (1,098 )     (654 )     (2,321 )
Income tax expense (benefit)
   
191
      (247 )    
188
      (401 )
Earnings (loss) before minority interest
   
88
      (851 )     (842 )     (1,920 )
Minority Interest
    (224 )     (446 )     (1,149 )     (1,265 )
Net earnings (loss)
  $
312
    $ (405 )   $
307
    $ (655 )

Casino Market Data
   
For the three months
ended September 30,
   
For the nine months
ended September 30,
   
2007
   
2006
   
2007
 
2006
Market share of the Central City gaming revenue*
    28.5 %     21.1 %     27.5 %
N/A
Average number of slot machines
   
580
     
488
     
572
 
N/A
Market share of Central City gaming devices*
    26.6 %     22.3 %     26.2 %
N/A
Average slot machine win per day
  $
115
    $
109
    $
105
 
N/A
Central City average slot machine win per day*
  $
107
    $
115
    $
100
 
N/A
*Source: Colorado Division of Gaming


--23--


Revenue at our Century Casino in Central City has not yet met our expectations. However, gaming revenue has grown consistently since opening, with our highest monthly revenue occurring in September 2007. The property is currently operating with 572 slot machines.  We are currently reviewing various strategies to increase revenue, which includes the potential addition of more slot machines in the future.  Management has focused on the development of player club memberships, with results being better than expected. We now have approximately 71,000 players in our player club database.  Management’s marketing strategy continues to focus on direct marketing to the players in our database. After some initially higher than expected costs, casino costs are now in line with management’s expectations based on current casino revenue.

During the second quarter of 2007, the Colorado legislature approved a bill banning smoking at Colorado casinos starting January 1, 2008. This could result in fewer customers who smoke or more customers who do not smoke visiting our casino in Central City, which would affect our results.

Three months ended September 30, 2007 compared to September 30, 2006

Casino revenue for the three months ended September 30, 2007 was 41.1% higher than during the same period last year, and net operating revenue increased 27.0% as a result of increased marketing efforts which contributed to a 5.5% increase in average slot machine win per day. The Century Casino’s market share of gaming devices increased 19.3%. For the entire Central City market, gaming revenue increased during the three months ended September 30, 2007, closing 1.6% higher than the same period last year.

Casino expense remained flat period over period. Increases in gaming taxes and other variable expenses were offset by decreases in marketing charges. Our marketing charges for the three months ended September 30, 2006 were higher than usual due to the opening of the casino in July 2006.

General and administrative expense increased 18.5%, or $0.2 million, for the three months ended September 30, 2007 primarily due to increased property taxes and professional fees.

For the three months ended September 30, 2007, the $0.5 million decrease in interest expense relates to interest that we are incurring based on an average debt balance of approximately $22.5 million. In an effort to reduce third party interest charges, we repaid $12.5 million of debt in March 2007, utilizing cash on hand from other Company resources.

The calculation of minority interest is determined prior to the elimination of intercompany management fees and interest.

Because CC Tollgate LLC, the operating company of this segment, is a limited liability company, income taxes are provided for on income that will be allocated to us using an effective tax rate of 38%. Pre-tax income is reduced by the minority interest in determining the income subject to tax.

--24--

 
Nine months ended September 30, 2007 compared to 2006

Casino revenue and casino expense for the nine months ended September 30, 2007 represent a full nine months of operation. The casino opened in July 2006. Therefore, casino revenue and casino expense for the nine months ended September 30, 2006 is based upon approximately 2.5 months of operation.

General and administrative expense increased $1.7 million for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 primarily due to a $0.8 million increase in property tax assessments, a $0.5 million increase in payroll and a $0.4 million increase in utilities and maintenance fees. The casino opened in July 2006. Prior to this time, a significant portion of general and administrative expenses reflect the cumulative pre-opening costs associated with the project.
 
For the nine months ended September 30, 2007, the $0.6 million increase in interest expense relates to interest that we are incurring based on an average debt balance of approximately $25.2 million. In an effort to reduce third party interest charges, we repaid $12.5 million of debt in March 2007, utilizing cash on hand from other Company resources. For the nine months ended September 30, 2006, a majority of our interest charges were capitalized towards the cost of the construction of the casino and hotel.

In April 2006, we began allocating pre-tax losses to the minority partner in proportion to its ownership percentage. Prior to this date, by agreement all losses were allocated to the minority partner until its capital account balances were in the same proportion as its ownership percentage. The calculation of minority interest is determined prior to the elimination of intercompany management fees and interest.

Because CC Tollgate LLC, the operating company of this segment, is a limited liability company, income taxes are provided for on income that will be allocated to us using an effective tax rate of 38%. Pre-tax income is reduced by the minority interest in determining the income subject to tax.

--25--


EDMONTON, CANADA
 
We opened a casino and hotel in Edmonton, Alberta, Canada on November 17, 2006.  Prior to this date, operating expenses for this segment consisted primarily of pre-opening and non-capitalizable construction expenditures. Intercompany transactions, including fees to its parent, interest and their related tax effects have been eliminated within the segment’s results. The operating results of the Edmonton, Canada segment for the three and nine months ended September 30, 2007 and 2006 are as follows (See next page for results in Canadian dollars):
 
   
For the three months
ended September 30,
 
For the nine months
ended September 30,
Amounts in thousands
 
2007
 
2006
 
2007
 
2006
Operating Revenue
               
     Casino
$
3,759
$
-
$
10,309
$
-
     Hotel, food and beverage
 
1,066
 
-
 
2,913
 
-
 Other (net of promotional allowances)
 
105
 
1
 
340
 
3
Net operating revenue
 
4,930
 
1
 
13,562
 
3
                 
Operating Costs and Expenses
               
     Casino
 
1,368
 
8
 
3,837
 
9
     Hotel, food and beverage
 
905
 
27
 
2,660
 
32
     General and administrative
 
1,139
 
129
 
3,397
 
234
     Depreciation
 
347
 
6
 
954
 
14
           Total operating costs and expenses
 
3,759
 
170
 
10,848
 
289
Earnings (loss) from operations
 
1,171
 
(169)
 
2,714
 
(286)
Interest income
 
13
 
4
 
57
 
16
Interest (expense)
 
(373)
 
(101)
 
(1,031)
 
(110)
Other (expense), net
 
(11)
 
(21)
 
(16)
 
(9)
Earnings (loss) before income taxes
 
800
 
(287)
 
1,724
 
(389)
Income tax expense (benefit)
 
266
 
(88)
 
586
 
(126)
Net earnings (loss)
$
534
$
(199)
$
1,138
$
(263)
 
Average exchange rate (CAD/USD)
 
1.04
 
1.12
 
1.10
 
1.13

--26--


Operating results in Canadian dollars for the three and nine months ended September 30, 2007 and 2006 were as follows:

   
For the three months
ended September 30,
 
For the nine months
ended September 30,
Amounts in thousands
 
2007
 
2006
 
2007
 
2006
Operating Revenue
               
     Casino
CAD
3,949
CAD
-
CAD
11,323
CAD
-
     Hotel, food and beverage
 
1,113
 
-
 
3,209
 
-
 Other (net of promotional allowances)
 
117
 
-
 
381
 
3
Net operating revenue
 
5,179
 
-
 
14,913
 
3
                 
Operating Costs and Expenses
               
     Casino
 
1,421
 
9
 
4,213
 
10
     Hotel, food and beverage
 
937
 
31
 
2,920
 
36
     General and administrative
 
1,226
 
144
 
3,764
 
262
     Depreciation
 
362
 
7
 
1,050
 
16
           Total operating costs and expenses
 
3,946
 
191
 
11,947
 
324
Earnings (loss) from operations
 
1,233
 
(191)
 
2,966
 
(321)
Interest income
 
12
 
5
 
64
 
18
Interest (expense)
 
(443)
 
(114)
 
(1,180)
 
(123)
Other income, net
 
1
 
-
 
3
 
1
Earnings (loss) before income taxes
 
803
 
(300)
 
1,853
 
(425)
Income tax expense (benefit)
 
261
 
(246)
 
622
 
(140)
Net Earnings
CAD
542
CAD
(54)
CAD
1,231
CAD
(285)

--27--


Prior to November 17, 2006, all costs incurred represent pre-opening expenses.

Since opening in November 2006, gaming revenue has continued to be slightly below our 2007 budget expectations, due to a lower than expected return on table games. We do not expect this to be a continuing trend. We opened the casino with 600 slot machines and have since increased the number of machines on the floor to 654. With the addition of 54 slot machines since opening, we expect gaming revenues to increase.

In addition, delays in opening the hotel have hampered hotel, food and beverage revenues. The hotel opened in March 2007. Hotel occupancy rates are on the rise, which resulted in a 32.4% increase in the third quarter 2007 from the second quarter 2007. The dinner theatre has been transitioned into a live entertainment and catering venue and we expect overall hotel, food and beverage revenues to benefit from this change.
 
Management has focused on the development of player’s club memberships, with over 16,500 players in our player club database.  Management’s marketing strategy will focus on direct marketing to the players in our database, as well as the marketing of our showroom/conference center and hotel.

We are in the process of reviewing the cost and staffing structure of the casino and hotel operations in order to bring them in line with current revenue levels.

The results discussed below are based on the Canadian Dollar to eliminate the impact of the translation between the US Dollar and Canadian Dollar.

Three months ended September 30, 2007 compared to 2006

For the three months ended September 30, 2007, the CAD 0.3 million increase in interest expense relates to interest that we are incurring based on an average debt balance of approximately $20.0 million (CAD 20.7 million). For the three months ended September 30, 2006, a majority of our interest charges were capitalized towards the cost of the construction of the casino and hotel.

The income tax provisions are based on estimated full-year earnings for financial reporting purposes and are adjusted for permanent differences. Therefore, the tax provision will vary from period to period.  The statutory tax rate on income in Edmonton is currently 32.1%.  The effective tax rate for this segment for the three months ended September 30, 2007 was 32.5%.

Nine months ended September 30, 2007 compared to 2006

For the nine months ended September 30, 2007, the CAD 1.1 million increase in interest expense relates to interest that we are incurring based on an average debt balance of approximately $19.0 million (CAD 20.7 million). For the nine months ended September 30, 2006, this interest was capitalized towards the cost of the construction of the casino and hotel.

The income tax provisions are based on estimated full-year earnings for financial reporting purposes and are adjusted for permanent differences. Therefore, the tax provision will vary from period to period. The effective tax rate for this segment for the nine months ended September 30, 2007 was 33.6%.
 
 
--28--

 
CALEDON, SOUTH AFRICA

The operating results of the Caledon, South Africa segment are primarily those related to the operations of the Caledon Hotel, Spa and Casino. Intercompany transactions, including fees to its parent, interest and their related tax effects have been eliminated within the segment’s results. Operational results in US dollars for the three and nine months ended September 30, 2007 and 2006 are as follows (See next page for results in Rand):

   
For the three months
ended September 30,
 
For the nine months
ended September 30,
Amounts in thousands
 
2007
 
2006
 
2007
 
2006
Operating Revenue
               
     Casino
$
3,912
$
3,728
$
11,369
$
11,732
     Hotel, food and beverage
 
810
 
676
 
2,342
 
2,182
 Other (net of promotional allowances)
 
(196)
 
(54)
 
(387)
 
(131)
Net operating revenue
 
4,526
 
4,350
 
13,324
 
13,783
                 
Operating Costs and Expenses
               
     Casino
 
1,531
 
1,416
 
4,426
 
4,434
     Hotel, food and beverage
 
541