CNTY

Century Casinos Inc. 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2006, for Century Casinos, Inc. (CCI), an international casino entertainment company. CCI operates properties in Colorado (Womacks, Central City), South Africa (Caledon, Newcastle), the Czech Republic (Casino Millennium), and on international cruise ships. The company is currently developing new casino projects in Central City, Colorado, and Edmonton, Alberta, Canada.

Key Financial Metrics

Amounts in thousands, except per share data.

Material Changes vs. Prior Period

• Revenue Growth: Net operating revenue increased 33.2% for the three months ended June 30, 2006, compared to the same period in 2005. This was primarily driven by the acquisition of a 60% interest in the Monte Vista Casino (Newcastle, South Africa) in April 2006, which contributed $2.1 million to the revenue increase.
• Profitability: Net earnings rose 161% to $1.3 million for the quarter and 99% to $3.0 million for the six-month period compared to 2005.
• Acquisitions: The company consolidated results for Newcastle (South Africa) and Casino Millennium (Czech Republic) following full or majority ownership acquisitions in the first half of 2006.
• Pre-Opening Costs: Operating expenses increased due to pre-opening costs for the Central City, Colorado, and Edmonton, Canada projects. However, excluding these costs, operating expenses grew at a slower rate (24.6%) than revenue (33.2%) for the quarter.
• Interest Expense: Interest expense decreased by $0.2 million for the quarter due to a lower average debt balance on the Womacks revolving credit facility and debt renegotiation at Caledon.

Guidance, Outlook, and Risks

• Project Openings: The Central City, Colorado casino opened on July 11, 2006. The Edmonton, Alberta casino is expected to open in the fourth quarter of 2006. The new Newcastle facility is expected to be operational by the end of Q4 2006.
• Acquisition Pipeline: On June 13, 2006, CCI agreed to acquire 100% of G5 Sp. z o.o. (owner of a 33.3% stake in Casinos Poland) for approximately $3.7 million, subject to due diligence and closing in Q4 2006.
• Liquidity: The company holds $27.5 million in cash and has approximately $13.5 million in unused borrowing capacity under its Womacks revolving credit facility. Proceeds from an October 2005 equity offering ($46.2 million net) are being used to fund construction and acquisitions.
• Legal Proceedings: CCI is involved in an arbitration with Silversea Cruises regarding the termination of a casino concession agreement on the Silver Cloud. CCI believes the termination was untimely and is seeking a five-year extension and damages.
• Tax Risks: The company notes potential risks regarding additional tax assessments by the IRS or foreign authorities, though recent audits in the U.S. and South Africa have been settled within accrued amounts.

Investor Verification Checklist

• Debt Covenants: Verify compliance with financial covenants on the $35 million Central City construction loan and the $20 million Canadian credit facility, especially as these convert from construction to term loans.
• Opening Delays: Monitor the actual opening dates for the Edmonton and Newcastle projects against the Q4 2006 targets to assess capital expenditure burn rates.
• Poland Acquisition: Confirm the closing of the G5/Casinos Poland transaction and the integration of the $4.9 million intercompany loan.
• Cruise Ship Arbitration: Track the outcome of the Silversea arbitration, as a loss could impact future revenue from the Silver Cloud and other vessels.
• Foreign Currency Exposure: Review the impact of the South African Rand and Canadian Dollar exchange rates on reported earnings, as a significant portion of revenue is generated in these currencies.