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: March 31, 2009
Business Overview: CCI operates casinos in North America (Colorado, Canada), South Africa, and international waters. It also holds a 33.3% equity interest in Casinos Poland Ltd (CPL). The company is currently divesting assets in the Czech Republic and South Africa, which are classified as discontinued operations.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Operating Revenue (Continuing) | $11,999 | $13,530 |
| Net Earnings (Total) | $345 | $541 |
| Loss from Continuing Operations | $(1,473) | $(568) |
| Earnings from Discontinued Operations | $1,818 | $1,109 |
| Net Cash Provided by Operating Activities | $1,632 | $2,531 |
| Cash and Cash Equivalents (End of Period) | $7,417 | $9,735 |
| Total Debt (Current + Long-Term) | $33,723 | $37,363 |
| Working Capital (Excl. Held for Sale) | $(5,000) | $(7,800) |
Note: All figures in thousands except per share data. Working capital excludes assets/liabilities held for sale.
Material Changes vs. Prior Period
- Revenue Decline: Net operating revenue from continuing operations decreased 11.3% to $12.0 million. This was driven by a 11.6% drop in gaming revenue, primarily due to a 24.0% decline in the USD/CAD exchange rate impacting the Edmonton property, increased competition in Cripple Creek, and reduced consumer spending in Central City.
- Operating Loss: Continuing operations incurred a loss of $1.5 million, compared to a $0.6 million loss in Q1 2008. This increase was caused by a $0.4 million drop in equity earnings from CPL, $0.6 million in foreign currency losses, and a reduction in tax benefits due to U.S. operating losses.
- Discontinued Operations: Earnings from discontinued operations increased to $1.8 million, largely due to a $0.9 million gain on the disposition of the Century Casino Millennium in Prague.
- Cost Reduction: Total operating costs decreased 15.3% to $11.9 million, aided by cost-saving measures and lower exchange rates.
Outlook, Risks, and Contingencies
- Asset Sales:
- Czech Republic: Century Casino Millennium sold for approx. $2.3 million; $1.4 million received at closing (Feb 2009), balance payable over 12 months.
- South Africa: Agreement to sell Century Casinos Africa (CCA) for approx. $48.3 million gross ($37.5 million net). Closing expected in H1 2009, pending regulatory approvals from Western Cape and KwaZulu-Natal gambling boards.
- Regulatory Changes: Colorado gaming laws change on July 2, 2009, allowing higher betting limits ($100), 24-hour operations, and new table games (roulette/craps). Management expects a positive impact on Colorado revenues.
- Liquidity: The company has negative working capital of $5.0 million (excluding held-for-sale items). Management believes cash on hand, operating cash flow, and proceeds from asset sales will be sufficient to meet obligations.
- Foreign Currency Risk: Significant exposure to CAD, ZAR, and PLN. Fluctuations in these currencies materially impacted reported revenue and earnings.
Investor Verification Checklist
- South Africa Sale Closing: Verify the status of regulatory approvals (Western Cape and KwaZulu-Natal boards) required to close the CCA sale and realize the expected $37.5 million net proceeds.
- Colorado Regulatory Impact: Monitor the actual revenue impact of the July 2009 regulatory changes in Colorado (betting limits and hours).
- Debt Covenants: Review debt agreements for covenants related to the pledged repayment of the Cripple Creek debt ($2.9 million) upon the closing of the South Africa sale.
- Deferred Tax Assets: Assess the likelihood of realizing the $4.2 million U.S. deferred tax asset, which is currently fully reserved due to uncertainty of future taxable income.
- Equity Investment Performance: Monitor the performance of the 33.3% stake in Casinos Poland Ltd (CPL), which saw a significant decline in earnings due to exchange rates and hold percentages.