Great Canadian Gaming Corporation
TSX : GCD

Great Canadian Gaming Corporation

May 15, 2006 03:01 ET

Great Canadian Reports First Quarter 2006 Results: Focused on Operations, Results Aimed in the Right Direction

RICHMOND, BRITISH COLUMBIA--(CCNMatthews - May 15, 2006) - Great Canadian Gaming Corporation (TSX:GCD) (the "Company") announces its financial results for the three month period ended March 31, 2006.

FIRST QUARTER 2006 HIGHLIGHTS


- Revenues of $86.6 million.

- EBITDA of $17.1 million.

- Net income of $1.4 million.

- Fully diluted earnings per common share of $0.02.

- Restructuring charges of $1.6 million.


"Our first quarter results provide positive evidence of Great Canadian's renewed focus on operations. We have taken initial steps to reduce our cost structure and grow profitability across our operations. While I expect the coming quarters to build a trend of improvement, much work remains to be done. We will continue to focus on creating both operational efficiencies and top-line growth," stated Ross J. McLeod, Chairman and CEO.



Three Months Ended
---------------------------------
March 31, December 31, March 31,
2006 2005 2005
---------------------------------
---------------------------------
Revenues $86,631 $85,559 $52,146
EBITDA(i) $17,123 $ 9,603 $16,584
Net income $ 1,436 $(9,165) $ 9,259
Earnings per common share:
Basic $ 0.02 $ (0.12) $ 0.13
Diluted $ 0.02 $ (0.12) $ 0.12

(i)EBITDA is a non-generally accepted accounting principle measure.
See definition in the Dislaimer.


Revenues for the first quarter of 2006 were $86.6 million. This represents a 1% increase in revenues from the fourth quarter of 2005, which had 2.2% more operating days (92 days) then the current quarter (90 days), and a 66% increase from the first quarter of 2005. The increase in revenues in the first quarter of 2006 compared to the first quarter of 2005 is due to the acquisitions and expansions in 2005. The increase in revenues in the first quarter compared to the fourth quarter of 2005 resulted from an increase in gaming revenues of $2.8 million offset by a decrease in non-gaming revenues of $1.7 million.

Gaming revenues in the first quarter of 2006 increased 4% compared to the fourth quarter of 2005. This increase can be attributed primarily to a full quarter of operation at the expanded Boulevard Casino in Coquitlam, offset by a decline in Washington State revenues resulting from a state-wide smoking ban, a decrease in the table games hold percentage at River Rock, and a seasonal decline at the Nova Scotia casinos.

Non-gaming revenues in the first quarter of 2006 decreased 7% compared to the fourth quarter of 2005. This decrease can be attributed primarily to the seasonal closure of live racing at Hastings Racecourse, and reduced food and beverage revenues from Hastings, Georgian Downs, and the Nova Scotia properties, also mainly due to seasonal factors.

The significance of non-gaming operations has been increasing in order to expand the appeal of the Company's properties. Non-gaming operations accounted for 25% of total revenues during the first quarter, as compared to 16% during the same quarter in the prior year and 28% in the fourth quarter of 2005. These operations generate comparatively lower margins, and are intended to be complementary to the core gaming business.

EBITDA was $17.1 million, a 78% increase from the fourth quarter of 2005 and a 3% increase from the first quarter of 2005. The improvement in EBITDA from the fourth quarter of 2005 can be attributed to cost reduction initiatives implemented during the first quarter and unusual expenses attributed primarily to pre-opening and start-up costs associated with newly expanded operations, which affected results for the fourth quarter of 2005.

The first quarter of 2006 results show decreases of $3.0 million in human resources, $2.8 million in marketing and promotion, $1.2 million in operating supplies and $1.2 million in general and administrative expenses. Human resources expense, as a percentage of revenues, were 50% in the first quarter of 2006, an improvement over 54% in the fourth quarter of 2005. The expense reductions were partially offset by a $1.7 million increase in occupancy costs due to the expanded facilities and increased property taxes.

Food, beverage and hotel operations were an area of specific focus during the quarter. Food and beverage EBITDA margins at River Rock and Boulevard have improved to 9% in the first quarter of 2006, compared to 0% in the fourth quarter of 2005. The hotel's EBITDA margin improved to 39% in the first quarter of 2006, compared to 6% in the fourth quarter of 2005. The Company will continue to drive these operations toward margins that approach their industry standard.

The Company recorded a restructuring charge of $1.6 million during the first quarter of 2006 to reflect severance, stock based compensation and other obligations associated with departed employees. Restructuring charges are expected to continue in the coming quarters as the Company examines opportunities to further reduce its cost structure.

Non-cash amortization expenses increased in the first quarter of 2006 compared to the first quarter of 2005 as a result of additions to property, plant and equipment and intangible assets from acquired businesses and from capital expansion projects during 2005.

Total assets increased to $950.9 million at March 31, 2006 compared to $918.7 million at December 31, 2005. The Company received proceeds from a private placement equity issue during the first quarter of 2006 of $79.8 million and used a portion of those proceeds to repay amounts outstanding under the Credit Facility.

On March 27, 2006, the Company renegotiated certain terms, including the financial covenants, on its Series A and Series B Senior Secured Notes and its Credit Facility to avoid a potential default on a financial covenant. The Company paid amendment fees of approximately $1.4 million, which are amortized over the remaining term of the Notes.

"This coming summer will provide the first opportunity for the River Rock Casino Resort to take advantage of its full amenities and new status as a tourist destination. This summer will also represent the first test of the gaming enhancements we are implementing in the Nova Scotia casinos. I anticipate that the next few months will provide continued growth for our properties. This is a year of improvement, and it has begun in promising fashion," stated Mr. McLeod.

Great Canadian, home to approximately 5,200 employees, is a multi-jurisdictional gaming and entertainment operator with facilities in British Columbia, Ontario, Nova Scotia and Washington State. Great Canadian operates casinos, thoroughbred and standardbred racecourses, a community gaming centre, hotel, theatre, and various food and beverage facilities.

Please refer to the Interim Consolidated Financial Statements and Management's Discussion and Analysis at www.gcgaming.com (available on May 15, 2006) or www.sedar.com (available on May 16, 2006) for detailed financial information and analysis.

The Company will hold a conference call for investors and analysts on Monday, May 15, 2006 at 4:15 PM Eastern Daylight Time, or 1:15 PM Pacific Daylight Time. The Company will discuss its financial results for the period ended March 31, 2006, and provide an update on the Company's activities. To participate in the conference call, please dial 416-695-9753 or toll free at 1-877-888-3490. This call is intended for investors and analysts.

All media representatives and other interested parties are asked to forward their enquiries to Mr. Howard Blank, Vice President, Media & Entertainment. Mr. Blank can be reached at 604-512-6066.

ON BEHALF OF GREAT CANADIAN GAMING CORPORATION

Howard S. Hum, CA, Chief Financial Officer



GREAT CANADIAN GAMING CORPORATION
Interim Consolidated Balance Sheets
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)
--------------------------------------------------------------------
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March 31, December 31,
2006 2005
---------------------
---------------------

ASSETS

CURRENT
Cash and cash equivalents $ 98,392 $ 69,812
Restricted cash 5,084 6,598
Accounts receivable 8,768 13,098
Due from Provincial Gaming Corporations,
current 35,061 35,353
Promissory notes receivable, current 1,178 1,329
Income taxes receivable 5,434 4,533
Future income taxes 1,528 1,875
Prepaids, deposits and other assets 8,037 7,708
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163,482 140,306
Due from Provincial Gaming Corporations 259,654 253,485
Property, plant and equipment 286,697 283,071
Promissory notes receivable and other assets 9,635 8,544
Intangible assets 194,125 195,767
Goodwill 37,331 37,497
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$950,924 $918,670
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LIABILITIES

CURRENT
Gaming revenues payable $ 10,256 $ 10,030
Accounts payable and accrued liabilities 48,667 56,854
Income taxes payable 5,406 3,694
Long-term debt, current 3,225 3,252
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67,554 73,830
Long-term debt 395,123 438,279
Future income taxes 79,537 82,123
Deferred credit and other liabilities 5,499 5,385
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547,713 599,617
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Non-controlling interests 715 733

SHAREHOLDERS' EQUITY

Share capital and other equity 330,326 247,727
Cumulative foreign currency translation (7,022) (7,163)
Retained earnings 79,192 77,756
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402,496 318,320
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$950,924 $918,670
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Summary statement - Readers should refer to the complete interim
consolidated financial statements

GREAT CANADIAN GAMING CORPORATION
Interim Consolidated Statements of Income
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)
--------------------------------------------------------------------
--------------------------------------------------------------------
Three months ended March 31,
2006 2005
---------------------------
---------------------------
REVENUES $86,631 $52,146

EXPENSES
Human resources 43,571 25,544
General and administration 7,923 2,887
Operating supplies 6,446 3,052
Occupancy costs 8,702 2,794
Marketing and promotion 2,866 1,285
Amortization 6,427 1,467
Stock-based compensation 2,194 721
Restructuring costs 1,602 -
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79,731 37,750
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INCOME FROM OPERATIONS 6,900 14,396

Gain (loss) on investments and properties (72) 137
Interest and financing, net (5,337) (1,065)
Accretive income 2,652 1,424
Foreign exchange gain 155 144
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INCOME BEFORE INCOME TAXES 4,298 15,036

Income taxes 2,578 5,798
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INCOME BEFORE NON-CONTROLLING INTERESTS 1,720 9,238

Non-controlling interests 284 (21)
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NET INCOME $ 1,436 $ 9,259
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GREAT CANADIAN GAMING CORPORATION
Interim Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)
--------------------------------------------------------------------
--------------------------------------------------------------------
Three months ended March 31,
2006 2005
---------------------------
---------------------------


Cash Flows from Operating Activities
Net income $ 1,436 $ 9,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 6,427 1,467
Accretive income (2,652) (1,424)
Stock-based compensation 2,744 721
FDC qualified operating expenses,
net of discount (273) (2,361)
Other activities 389 1,381
Future income taxes (2,141) -
Changes in non-cash operating working capital (1,378) (9,065)
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Net cash provided by operating activities 4,552 (22)
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Cash Flows from Financing Activities
Proceeds from long-term debt - 13,536
Repayment of long-term debt (43,183) (458)
Deferred financing costs (1,350) -
Common shares issued for cash,
net of issuance costs 79,762 63,898
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Net cash provided by financing activities 35,229 76,976
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Cash Flows from Investing Activities
Restricted cash 1,514 (1,061)
Funds received from Provincial
Gaming Corporations 12,027 3,707
Purchase of property, plant and equipment,
net of related accounts payable (24,925) (31,110)
Acquisitions, net of cash acquired - (34,505)
River Rock prepaid lease - (9,262)
Promissory notes and advances receivable, net 151 (5,765)
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Net cash used in investing activities (11,233) (77,996)
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Effect of foreign exchange on cash
and cash equivalents 32 (13)
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Net Cash Inflow (Outflow) 28,580 (1,055)
Cash and cash equivalents,
Beginning of the period 69,812 38,946
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Cash and cash equivalents, End of the period $ 98,392 $ 37,891
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Summary statement - Readers should refer to the complete interim
consolidated financial statements


DISCLAIMER

This news release contains forward-looking statements which reflect management's current expectations regarding the Company's objectives, plans, goals, strategies, future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are not guarantees, but only predictions. Although the Company believes that these statements are based on information and assumptions which are current, reasonable and complete, these statements are necessarily subject to a number of factors that could cause actual results to vary significantly from current expectations. Such differences may be caused by factors which include, but are not limited to, ongoing requirements to comply with financial covenants associated with credit facilities, limited terms of operational service agreements with gaming regulators, pending and proposed legislative or regulatory developments, competition from established competitors and new entrants in the gaming business, dependence on key personnel, no assurance that systems, procedures and controls will be adequate to support expanding operations, potential undisclosed liabilities and capital expenditures associated with acquisitions, negative connotations linked to the gaming industry, First Nations claims with respect to public lands on which we conduct our operations, impact of legal proceedings, impact of smoking bans, interest and exchange rate fluctuations, non-realization of cost reductions and synergies, acceptance and demand for new products and services, fluctuations in operating results and general economic conditions. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including in the "Risks Factors" section of the Company's Annual Information Form for fiscal 2005, or as identified in the Company's disclosure record on www.sedar.com. The forward-looking statements included in this news release are made only as of the date of this news release and the Company does not undertake to publicly update these forward-looking statements to reflect new information, future events or otherwise.

The Company has included EBITDA figures in this news release. EBITDA, a non-GAAP earnings measure, means Earnings Before Interest and financing expense (net of interest income), Taxes, Depreciation and Amortization, stock-based compensation, restructuring costs, gain (loss) on investments and properties, accretive income, foreign exchange gain (loss) and non-controlling interests. EBITDA is derived from the consolidated statement of income, and is computed as revenues, less human resources, general and administration, marketing and promotion, occupancy costs and operating supplies. Readers are cautioned that this definition is not a recognized measure under Canadian GAAP, does not have a standardized meaning prescribed by GAAP, and should not be construed to be an alternative to net income determined in accordance with GAAP or as an indicator of performance or liquidity or cash flows. The Company's method of calculating this measure may differ from methods used by other entities and accordingly our measure may not be comparable to similarly titled measures used by other entities. The Company uses this earnings measure because it believes it provides useful information to both management and investors with respect to the operating and financial performance of the Company.

Contact Information

  • Great Canadian Gaming Corporation
    Mr. Thomas Bell
    Vice-President, Corporate Development & Investor Relations
    (604) 303-1000
    (FAX)
    or
    Great Canadian Gaming Corporation
    Mr. Howard Blank
    Vice-President, Media & Entertainment
    (604) 303-1000
    (604) 279-8605 (FAX)
    www.gcgaming.com