Century Casinos, Inc. (CNTY) - 10-K Summary
Business Context and Reporting Period
Company: Century Casinos, Inc. (CCI)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Filing Date: March 17, 2008
CCI is an international casino entertainment company operating mid-size regional casinos and cruise ship casinos. As of December 31, 2007, the company owned or managed properties in North America (Colorado, Canada), South Africa, the Czech Republic, and on international waters. The company also holds a 33.3% equity interest in Casinos Poland Ltd. In 2007, CCI consolidated its reporting into a single operating segment.
Key Financial Metrics (Year Ended Dec 31, 2007)
| Metric | 2007 | 2006 |
|---|---|---|
| Net Operating Revenue | $91.7 million | $56.3 million |
| Gaming Revenue | $85.7 million | $54.5 million |
| Earnings from Operations | $11.0 million | $3.3 million |
| Net Earnings | $4.9 million | $7.6 million |
| Diluted EPS | $0.21 | $0.32 |
| Cash and Cash Equivalents | $17.9 million | $35.0 million |
| Total Long-Term Debt | $55.9 million | $56.0 million |
| Total Assets | $198.1 million | $197.9 million |
Liquidity: The company reported negative working capital of $2.8 million at year-end 2007, compared to positive working capital of $4.2 million in 2006. Operating cash flow was $13.5 million.
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenue increased 62.8% to $91.7 million, driven primarily by the first full year of operations for three new properties: Century Casino & Hotel (Edmonton, Canada), Century Casino & Hotel (Central City, Colorado), and Century Casino & Hotel (Newcastle, South Africa).
- Net Income Decline: Despite revenue growth, Net Earnings decreased 35% to $4.9 million. This was primarily due to increased interest expense ($7.0 million vs. $3.4 million in 2006) associated with debt for new properties and the absence of a $5.2 million one-time gain from the sale of a South African development project recorded in 2006.
- Acquisitions: CCI acquired the remaining 35% interest in its Central City joint venture for $3.3 million and acquired G5 Sp. z o.o. (33.3% interest in Casinos Poland) for approximately $2.8 million plus a $5.8 million loan to the seller.
- Debt Prepayments: The company made early prepayments of $12.1 million on the Central City term loan to reduce interest charges.
Outlook, Risks, and Management Commentary
- Colorado Market Risks: Management highlighted significant competitive and regulatory risks in Colorado. A new, larger casino is expected to open in Cripple Creek in 2008. Additionally, a smoking ban effective January 1, 2008, is expected to negatively impact revenues. A proposal to introduce Video Lottery Terminals (VLTs) at racetracks is also a potential threat.
- Debt Covenant Concerns: Management stated it is probable that the Central City subsidiary (CTL) will not be in compliance with a financial covenant for the quarter ended March 31, 2008. The company is seeking a waiver or amendment from Wells Fargo; failure to obtain this could result in an event of default and acceleration of debt.
- Foreign Currency: The company does not hedge foreign currency exposure. A 10% change in exchange rates could cause a related 10% change in revenue and expenses for foreign operations (South Africa and Canada).
- Capital Expenditures: Expected short-term uses of cash include $4.0 million in capital improvements at existing casinos and debt service.
Investor Verification Checklist
- Debt Covenant Compliance: Verify the status of the waiver or amendment for the Central City (CTL) revolving credit facility covenant expected to be breached in Q1 2008.
- Colorado Revenue Impact: Monitor Q1 and Q2 2008 results to assess the actual financial impact of the new Cripple Creek competitor and the state-wide smoking ban.
- Central City Performance: Review specific revenue and EBITDA metrics for the Central City property, which has historically underperformed expectations and contributed to the debt covenant risk.
- Foreign Exchange Sensitivity: Assess the impact of the South African Rand and Canadian Dollar fluctuations on consolidated earnings, given the lack of hedging.
- Working Capital Trend: Monitor the trend of negative working capital and the company's ability to fund operations without additional equity or debt financing.