Century Casinos, Inc. — 2012 Form 10-K
Business context and reporting period. The filing reports the fiscal year ended December 31, 2012; it is an annual report, not a standalone fourth-quarter filing. Century Casinos operates casinos in Alberta and Colorado, manages casino operations on cruise ships and in Aruba, and held a 33.3% equity-method interest in Casinos Poland (CPL) at year-end.
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Gross revenue | $80.3 million | $79.0 million |
| Net operating revenue | $71.8 million | $70.9 million |
| Operating costs and expenses | $66.5 million | $67.2 million |
| Earnings from operations | $5.8 million | $4.3 million |
| Net earnings | $4.1 million | $3.0 million |
| Diluted earnings per share | $0.17 | $0.13 |
| Net cash from operating activities | $9.2 million | $10.7 million |
Net operating revenue grew 1.4%; operating earnings and net earnings each rose 35.4%. Approximate operating margin increased to 8.0% from 6.0%, and net margin to 5.7% from 4.3%. The filing does not provide a consolidated EBITDA figure. Depreciation fell to $4.8 million from $6.1 million, contributing to lower expenses and higher operating earnings. Income tax provision was $1.0 million, or 20.1% of pretax income, versus $0.7 million and 18.1%.
Cash and cash equivalents were $24.7 million at year-end, versus $25.2 million a year earlier; working capital was $13.5 million, versus $6.0 million. Year-end debt was $3.6 million, compared with $9.1 million in 2011. The company reported $23.8 million available under its Bank of Montreal (BMO) facility and compliance with its covenants. Property and equipment purchases were $3.8 million. No dividends were declared or paid.
Changes and fourth-quarter results
Revenue gains at Edmonton, Central City, and cruise-ship operations were partly offset by declines at Calgary and Cripple Creek. Central City operating earnings increased to $2.5 million from $1.5 million, helped by lower depreciation and operating costs. Calgary’s operating loss widened to $0.6 million from $0.2 million as revenue declined and costs increased. Cripple Creek revenue fell 2.5%, including an estimated $0.2 million impact from the 2012 Waldo Canyon fire and highway closure.
Unaudited fourth-quarter net operating revenue was $17.7 million, operating earnings $0.9 million, and net earnings $0.6 million. Compared with fourth-quarter 2011, revenue increased modestly, operating earnings declined from $1.0 million, and net earnings increased from $0.6 million.
Outlook, transactions, risks, and unusual items
- Management said weak economic conditions could continue to weigh on results in 2013. No formal earnings or revenue guidance was provided.
- The company anticipated completing its purchase of an additional 33.3% of CPL for approximately $6.9 million in early April 2013, which would raise its interest to 66.6% and lead to consolidation. It borrowed approximately $7.2 million under the BMO facility in February 2013 to fund the purchase.
- Century agreed to lend UHA up to CAD 13 million for a proposed Calgary-area Racing Entertainment Center, subject to regulatory and development approvals. The loan bears interest at LIBOR plus 8 percentage points, is secured by project-related collateral, and may be converted into up to 60% ownership. No loan advances had been made at December 31, 2012; $0.3 million was in escrow.
- Key exposures include competition, gaming-license and tax regulation, seasonality and weather, foreign-exchange movements, consumer spending, reliance on key executives, and the BMO facility’s financial covenants. Alberta had imposed a three-year moratorium on new casinos and racing entertainment centers, with an option to extend it.
- CPL paid less than $0.1 million following a Polish tax authority decision that employee tips were subject to personal income tax; CPL appealed, and the matter remained unresolved. The company reported no material pending litigation otherwise.
- Management reported effective disclosure controls and internal control over financial reporting at year-end. A prior material weakness concerning support for international tax positions was reported remediated in the first quarter of 2012.
Important facts for investors to verify
- Confirm the CPL acquisition’s closing, financing impact, and post-acquisition results once consolidated.
- Track Calgary’s operating losses and whether the planned change to third-party showroom performances reduces costs.
- Verify approvals, funding advances, collateral value, and development progress for the UHA project.
- Review future operating cash flow, capital spending, debt levels, and compliance with BMO covenants, particularly after the subsequent CPL-related borrowing.
- Assess whether the earnings improvement is sustainable given modest revenue growth and the year-over-year reduction in depreciation.
- Check the outcome of CPL’s tax appeal and monitor currency, regulatory, and market-share risks in its Polish operations.