CNTY

Century Casinos Inc. - Q3 2003 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2003, for Century Casinos Inc. (CCI), an international gaming company. Operations are segmented into four areas: Colorado (Womacks Casino in Cripple Creek), South Africa (Caledon Casino, Hotel and Spa), Cruise Ships (concessions on luxury vessels), and Corporate/Other (including management of Casino Millennium in Prague and development projects in Canada and South Africa).

Key Financial Metrics (Nine Months Ended Sept 30, 2003)

Note: All figures in thousands of dollars unless otherwise noted.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated net operating revenue increased 4.5% year-over-year, driven primarily by the South African and Cruise Ship segments.
• Segment Performance:
  • Colorado: Net earnings declined 26.2% to $2.22 million due to a 13% drop in casino revenue, attributed to market saturation, competitor advantages (parking/hotels), and construction disruptions.
  • South Africa: Net earnings surged to $498,000 from a loss of $68,000 in the prior year. This turnaround was aided by a stronger Rand-to-Dollar exchange rate, increased slot machine count, and the elimination of minority interest expenses after acquiring 100% of Caledon.
  • Cruise Ships: Net earnings more than doubled to $245,000, reflecting the addition of two new Oceania Cruises casinos and the resumption of the Silver Wind.
• One-Time Items: The prior year (2002) included $1.122 million in property write-downs and write-offs related to Nevada assets and acquisition projects, which were absent in 2003.
• Acquisitions: In January 2003, the company purchased the remaining 35% interest in its South African subsidiary (CCAL) for $2.6 million, consolidating full ownership.

Outlook, Risks, and Management Commentary

• Expansion Projects:
  • Colorado: Completed a 6,000 sq. ft. expansion at Womacks. Future expansion is pending market analysis.
  • South Africa: Awaiting judgment on the Silverstar license in Johannesburg. A court ruling in October 2003 awarded the license to a partner, Silverstar, with CCI retaining a management contract and potential equity interest.
  • Canada: Submitted an application for "The Celebrations Casino and Hotel" in Edmonton, Alberta, valued at $12.2 million.
• Regulatory Risks: A November 2003 Colorado ballot initiative proposes installing Video Lottery Terminals (VLTs) at racetracks. Management warns this could negatively impact Cripple Creek revenues if approved.
• Liquidity: The company maintains a $26 million revolving credit facility (RCF) with Wells Fargo, with approximately $11.9 million available as of September 30, 2003. The company reported a working capital deficit of $506,000.
• Market Risk: Significant exposure to foreign currency fluctuations (South African Rand) and interest rate changes. The company utilizes interest rate swaps to hedge $11.5 million of debt.

Investor Verification Checklist

• Colorado Market Share: Verify the impact of the proposed VLT ballot initiative on the Cripple Creek market and Womacks' competitive position regarding parking and hotel capacity.
• South African Currency: Monitor the Rand-to-Dollar exchange rate, as a 10% devaluation of the dollar could reduce the value of the Caledon investment by approximately $1.4 million.
• Debt Covenants: Confirm continued compliance with financial covenants on the Wells Fargo RCF and the ABSA loan in South Africa.
• Project Timelines: Track the status of the Edmonton, Canada license application and the finalization of the equity interest in the Johannesburg Silverstar project.
• Cruise Ship Volatility: Assess the sustainability of cruise ship revenue growth given the inherent volatility in passenger numbers and player quality.