Century Casinos Inc. 10-Q Summary
Business Context and Reporting Period
Company: Century Casinos, Inc. (CCI)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: CCI is an international casino entertainment company operating properties in North America (Edmonton, Cripple Creek, Central City) and on international waters (cruise ships). It also holds a 33.3% equity interest in Casinos Poland Ltd (CPL). The company recently divested its African operations (Century Casinos Africa) and its Prague casino (Century Casino Millennium), which are reported as discontinued operations.
Key Financial Metrics
Amounts in thousands, except per share data.
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Net Operating Revenue (Continuing) | $11,884 | $23,883 |
| Net Earnings (Total) | $19,732 | $20,175 |
| Net Earnings Attributable to CCI | $18,903 | $19,248 |
| Loss from Continuing Operations | $(1,045) | $(2,504) |
| Earnings from Discontinued Operations | $20,777 | $22,679 |
| Cash and Cash Equivalents (End of Period) | $38,689 | $38,689 |
| Total Debt (Current + Long-term) | $33,686 | $33,686 |
| Working Capital | $34,164 | $34,164 |
| Diluted EPS (Total) | $0.80 | $0.82 |
Material Changes vs. Prior Period
- Revenue Decline in Continuing Operations: Net operating revenue for continuing operations decreased 14.3% ($1.99M) for the three months and 12.8% ($3.52M) for the six months compared to 2008. This was driven by a 14.4% drop in gaming revenue due to economic recession impacts in Colorado and a 15.5% (Q3) to 23.6% (YTD) decline in the Canadian dollar exchange rate.
- Operating Loss: Continuing operations incurred a loss of $1.0M (Q3) and $2.5M (YTD), compared to a loss of $0.1M and $0.7M in the prior year periods. This was exacerbated by a lack of tax benefits on U.S. operating losses due to a valuation allowance on deferred tax assets.
- Discontinued Operations Gain: Net earnings were significantly boosted by a $19.8M gain on the disposition of Century Casinos Africa and a $0.9M gain on the sale of Century Casino Millennium. Without these one-time gains, the company would have reported a net loss.
- Liquidity Improvement: Cash and cash equivalents increased from $7.8M at year-end 2008 to $38.7M at June 30, 2009, primarily due to proceeds from the sale of African assets ($31.8M net proceeds).
- Debt Reduction: Total debt decreased from $37.4M (Dec 31, 2008) to $33.7M (June 30, 2009). Subsequent to the period end, the company used sale proceeds to repay an additional $8.7M in debt related to Colorado properties.
Guidance, Outlook, and Risks
- Regulatory Changes in Colorado: Effective July 2, 2009, Colorado gaming laws changed to allow betting limits to increase from $5 to $100, 24-hour operations, and the addition of roulette and craps. Management expects a positive impact on revenues in Cripple Creek and Central City but cannot project the specific magnitude.
- Foreign Exchange Risk: The company remains exposed to currency fluctuations, particularly the Canadian dollar and Polish zloty. A weaker Canadian dollar significantly reduced reported revenues and earnings from the Edmonton property.
- Discontinued Operations Contingencies: The sale of Century Casinos Africa is subject to final approval by the KwaZulu-Natal Gambling Board. An additional $12.8M in proceeds and a $1.6M deferred gain are contingent upon this approval. A $2.2M retention amount is also subject to net asset value calculations.
- Market Conditions: Management cites the continuing economic recession and increased competition (specifically a new casino in Cripple Creek) as headwinds affecting customer volume and market share.
- Capital Resources: Management believes current cash and expected cash flows are sufficient to fund operations and debt obligations. However, future development may require additional financing which may not be available on acceptable terms.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by excluding the $20.8M gain from discontinued operations; continuing operations are currently loss-making.
- Currency Sensitivity: Assess the impact of the Canadian dollar exchange rate on the Edmonton property's contribution to consolidated revenue and earnings.
- Deferred Tax Assets: Review the $4.9M valuation allowance on U.S. deferred tax assets and the criteria required to reverse it in future periods.
- Colorado Regulatory Impact: Monitor the actual revenue lift from the July 2009 regulatory changes in Colorado (betting limits, hours, game types).
- Contingent Proceeds: Track the status of the KwaZulu-Natal Gambling Board approval for the African sale to confirm the receipt of the remaining $12.8M and the recognition of the deferred gain.
- Debt Covenants: Confirm compliance with debt covenants following the recent debt repayments and the shift in capital structure.