CNTY

Century Casinos Inc. Q1 2010 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2010. Century Casinos, Inc. is an international casino entertainment company operating properties in North America (Colorado and Alberta, Canada) and international waters, with a 33.3% equity interest in Casinos Poland Ltd. The quarter was defined by the acquisition of the Silver Dollar Casino in Calgary, Alberta, on January 13, 2010, and the continued integration of operations following the sale of assets in Prague and South Africa in 2009.

Key Financial Metrics

Note: Q1 2009 included $1.9 million in earnings from discontinued operations (Prague and South Africa sales), which were absent in Q1 2010.

Material Changes vs. Prior Period

• Revenue Growth: Net operating revenue increased 17.8% year-over-year, driven primarily by the inclusion of the Silver Dollar Casino ($1.7 million revenue) and favorable foreign exchange rates for Canadian operations.
• Profitability Turnaround: The company returned to profitability from continuing operations ($0.1 million) compared to a loss of $1.5 million in the prior year. This was aided by a $0.6 million reduction in interest expense following the repayment of Colorado casino debt in 2009.
• Foreign Currency Impact: Significant gains of $0.2 million were recorded on foreign currency transactions, contrasting with losses of $0.5 million in the prior year. The Canadian dollar strengthened against the U.S. dollar, boosting reported revenue and expenses for Canadian properties.
• Discontinued Operations: Q1 2009 results included a $0.9 million gain on the disposition of the Century Casino Millennium and earnings from South African operations, neither of which impacted Q1 2010.

Outlook, Risks, and Management Commentary

• Acquisition Integration: Management is rebranding the Silver Dollar Casino as "Century Casino Calgary." The facility includes 504 slot machines and a bowling alley.
• Colorado Market Challenges: Despite regulatory changes allowing higher betting limits and 24-hour operations, Colorado properties (Womacks and Central City) faced revenue declines or flat performance due to poor economic conditions and increased competition, including a new competitor hotel in Central City/Black Hawk.
• Poland Regulatory Risk: New gaming laws in Poland effective January 1, 2010, increased the gaming tax rate from 45% to 50% and introduced license renewal requirements. Management is evaluating the impact on its equity investment.
• Liquidity: Cash reserves decreased by $9.2 million primarily due to the $10.5 million payment for the Silver Dollar acquisition. Management believes current cash is sufficient for operations and debt obligations but may need to seek additional financing for future development.
• Stock Repurchases: The company repurchased 57,330 shares at an average price of $2.46 during the quarter. $14.7 million remains available under the repurchase program.

Investor Verification Checklist

• Acquisition Valuation: Verify the preliminary fair value allocation of the $11.5 million Silver Dollar purchase price, specifically the $1.1 million goodwill and potential for a bargain purchase gain if additional intangibles are identified.
• Colorado Revenue Trends: Monitor the impact of the new competitor casino expected to open across from the Central City property in 2010.
• Foreign Exchange Sensitivity: Assess the volatility of the Canadian dollar and Polish zloty, as significant portions of revenue and expenses are denominated in these currencies.
• Debt Covenants: Review the terms of the remaining $16.5 million debt, particularly the Edmonton term loan, to ensure compliance with covenants given the recent cash outflow for acquisition.
• Deferred Tax Assets: Confirm the status of the $8.3 million valuation allowance on U.S. deferred tax assets and the likelihood of future realization.