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, 2008
Business Overview: CCI is an international casino entertainment company operating properties in North America (Canada, Colorado), South Africa, the Czech Republic, and on international cruise ships. The company also holds a 33.3% equity interest in Casinos Poland Ltd (CPL). Operations are reported as a single segment.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 2008 | 6 Months Ended June 30, 2008 |
|---|---|---|
| Net Operating Revenue | $21,546 | $42,526 |
| Net Earnings | $835 | $1,376 |
| Earnings Per Share (Diluted) | $0.04 | $0.06 |
| Operating Cash Flow | N/A | $2,362 |
| Cash and Equivalents (End of Period) | $9,369 | $9,369 |
| Total Debt (Current + Long-Term) | $53,788 | $53,788 |
| Working Capital | ($7,699) | ($7,699) |
Note: Working capital is negative due to current liabilities exceeding current assets.
Material Changes vs. Prior Period
- Revenue Decline: Net operating revenue decreased 5.0% ($1.1M) for the quarter and 2.8% ($1.2M) for the six months compared to 2007. This was driven by declines in gaming revenue at Colorado and South African properties and unfavorable foreign exchange rates (specifically the South African Rand).
- Profitability Drop: Net earnings fell 20% for the quarter and 47% for the six months year-over-year. The six-month decline was exacerbated by a $0.6M drop in foreign currency gains and a $0.8M reduction in earnings allocated to minority investors.
- Property Performance:
- Edmonton, Canada: Gaming revenue increased 27.7% (Q3) and 29.2% (6M) due to added slot machines and 24-hour poker.
- Womacks (Cripple Creek, CO): Gaming revenue plummeted 35.4% (Q3) and 30.2% (6M) due to market decline, a smoking ban, rising fuel prices, and customer loss during renovations.
- South Africa: Revenue declined due to lower attendance and currency translation effects.
- Debt Reduction: Total debt decreased from $64.7M (Dec 31, 2007) to $53.8M (June 30, 2008) as the company utilized cash to pay down Colorado debt.
Outlook, Risks, and Management Commentary
- Economic Headwinds: Management cites rising fuel prices and lower consumer discretionary income as significant negative factors impacting operations in South Africa and Colorado.
- Impairment Risk: Management warned that if revenues at the Cripple Creek property continue to decline and the economic environment does not improve, an impairment of goodwill may be required.
- Debt Covenants: The company failed to meet the Adjusted Fixed Charge Coverage (AFCC) ratio covenant for its Central City, Colorado term loan. Waivers were obtained in April and July 2008 for a fee of approximately $0.3M total. Management expects compliance in subsequent periods based on revised 2008 forecasts.
- Liquidity: Cash reserves dropped from $17.9M to $9.4M. The company has negative working capital of $7.7M. While current cash and operating flows are deemed sufficient for operations and debt service, the company may need to seek additional financing for new developments.
- Foreign Currency: Significant exposure to the South African Rand and Canadian Dollar. Further declines in the Rand could harm reported results.
Investor Verification Checklist
- Covenant Compliance: Verify the status of the AFCC ratio waiver for the Central City loan and the cost of future waivers if performance does not improve.
- Womacks Turnaround: Assess the effectiveness of management's strategies to recover market share in Cripple Creek following the smoking ban and renovation.
- Goodwill Valuation: Monitor the performance of the Cripple Creek and South African properties for potential triggers of goodwill impairment charges.
- Currency Exposure: Evaluate the impact of continued volatility in the South African Rand on future earnings.
- Cash Burn Rate: Review the sustainability of the $9.4M cash balance given the negative working capital and ongoing debt repayment obligations.