Century Casinos Inc. - 10-Q Summary (Period Ended Sept 30, 2002)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2002, and the nine months ended on that date. Century Casinos, Inc. is an international gaming company operating in the United States (Cripple Creek, Colorado), South Africa (Caledon), the Czech Republic (Prague), and on international cruise vessels. The company's core operation is the Womacks Casino and Hotel in Colorado. The filing reflects the adoption of new accounting standards (SFAS No. 142) regarding goodwill and intangible assets effective January 1, 2002.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2002 | Nine Months Ended Sept 30, 2002 |
|---|---|---|
| Net Operating Revenue | $7,885 | $22,206 |
| Net Earnings | $453 | $2,481 |
| Earnings Per Share (Diluted) | $0.03 | $0.16 |
| Cash from Operating Activities | N/A | $4,991 |
| Cash and Cash Equivalents | $3,520 | $3,520 (Ending Balance) |
| Total Debt (Current + Long-Term) | $17,264 | $17,264 (Ending Balance) |
| Working Capital | ($544) Deficit | ($544) Deficit |
Note: Dollar amounts in thousands. Working capital is calculated as Current Assets ($4,373) minus Current Liabilities ($4,917).
Material Changes vs. Prior Period
- Revenue: Net operating revenue for the nine months ended Sept 30, 2002, decreased slightly to $22,206 from $22,603 in the prior year. However, the Cripple Creek segment saw a 5.0% increase in casino revenue, while the South African segment reported a decrease due to the weakening of the South African Rand against the dollar.
- Profitability: Net earnings for the nine months increased to $2,481 from $1,729 in the prior year. This improvement was significantly aided by the cessation of goodwill amortization under SFAS No. 142, which reduced expenses by approximately $882 (net of tax) for the nine-month period.
- Write-offs: The company recorded $1,122 in "Property write-down and other write-offs" for the nine months ended Sept 30, 2002, compared to only $57 in the prior year. This includes a $447 write-down of non-operating property in Nevada and a $675 write-off of receivables and advances related to the Johannesburg project and Prague operations.
- Segment Performance: The Cripple Creek segment remains the primary profit driver, generating $3,010 in net earnings for the nine months. The South African segment reported a net loss of $68, and the Corporate segment reported a net loss of $569, largely due to the Prague write-offs.
Guidance, Outlook, Risks, and Unusual Items
- Johannesburg Project Risk: In September 2002, the High Court of South Africa overturned the casino license award for the proposed Johannesburg resort. The company has written off $377 in advances and pre-construction costs. The obligation to invest $4.8 million expires on December 31, 2004, unless a final license is obtained.
- Prague Operations: Devastating floods in Prague in August 2002 severely limited public access to the Casino Millennium. Consequently, the company wrote off $325 in unpaid management fees and loans. Management fees are no longer being accrued until cash flow certainty is attained.
- Liquidity and Debt: The company has a revolving credit facility (RCF) with Wells Fargo Bank totaling $26 million, with $14,462 available as of September 30, 2002. The maturity date was extended to August 2007. The company has a net deficit in working capital but maintains positive operating cash flow.
- Expansion: The Womacks Casino in Cripple Creek is undergoing a $2.5 million expansion, with $1,242 spent through September 30, 2002. Completion is expected in early 2003.
- Stock Repurchase: The company repurchased 77,420 shares during the first nine months of 2002 and has a program to repurchase up to $5,000 of common stock.
Investor Verification Checklist
- License Status: Verify the current status of the Johannesburg casino license appeal and the likelihood of the company proceeding with the $4.8 million equity investment.
- Prague Recovery: Assess the operational recovery of Casino Millennium in Prague following the floods and the potential for further write-offs or restructuring of the management agreement.
- Goodwill Impairment: Review the annual impairment testing of goodwill ($7,776) and license costs ($991) under SFAS No. 142, particularly given the volatility in the South African and Czech operations.
- Debt Covenants: Confirm continued compliance with financial covenants under the Wells Fargo RCF and the PSG loan agreement in South Africa, especially given the net working capital deficit.
- Currency Exposure: Monitor the impact of the South African Rand exchange rate on reported revenues and expenses, as the company notes significant translation effects.