Great Canadian Gaming Corporation
TSX : GCD

Great Canadian Gaming Corporation

March 20, 2006 10:49 ET

Great Canadian Gaming Corporation Reports Unaudited Results for 2005

RICHMOND, BRITISH COLUMBIA--(CCNMatthews - March 20, 2006) - As an update to Great Canadian Gaming Corporation's (TSX:GCD) (the "Company") news release of February 13, 2006, the Company announces summary consolidated financial results for the year ended December 31, 2005. The summary consolidated financial results set forth in this press release are preliminary and unaudited, and are subject to the completion of the financial statement audit by the Company's independent auditors.

The Company intends to file its audited annual consolidated financial statements and the accompanying Management Discussion and Analysis on or before March 31, 2006.

HIGHLIGHTS

- Revenues of $278.1 million for 2005 compared to $175.7 million in 2004. Fourth quarter revenues of $85.6 million compared to $54.6 million in the fourth quarter of 2004.

- EBITDA of $65.4 million for 2005 compared to $55.6 million in 2004. Fourth quarter EBITDA of $9.6 million compared to $17.8 million in the fourth quarter of 2004.

- Net income of $19.6 million for 2005 compared to $26.7 million in 2004. Fourth quarter net loss of $9.2 million compared to net income of $9.7 million in the fourth quarter of 2004.

- Impairment write-downs of non-core investments totaling $7.9 million include a write-down of Creation Casinos Inc. investment of $7.5 million.

- Fully diluted earnings per common share of $0.25 for 2005 compared to $0.38 in 2004. Fourth quarter loss per common share is $0.12 compared to fully diluted earnings per common share of $0.13 in the fourth quarter of 2004.

- The Company anticipates a breach of a financial covenant at March 31, 2006, in the absence of remedial action on or prior to that date.

"2005 was a year defined by the acquisition and expansion of our gaming assets. These initiatives were planned to help achieve long-term revenue and growth. We diversified our revenue base, and now operate from coast to coast in Canada. Revenues for the year met our expectations, given the delays we faced in construction as well as the challenges of new asset integration," stated Ross McLeod, Chairman and CEO.

"However, our costs and cost structure are reflective of a company that has acquired several gaming opportunities and expanded major properties within a condensed period of time. There were costs and lost revenue opportunities associated with our start-up and growth, which impacted our results; particularly in the fourth quarter. Our key assets are now in place, and our primary focus going forward will be on the areas of cost reduction and operating efficiency," continued Mr. McLeod.



FINANCIAL SUMMARY (UNAUDITED)

In Thousands, Quarter ended
Except per December 31, Year ended December 31,
share figures 2005 2004 2005 2004 2003
------------------ ----------------------------

Revenues $ 85,559 $ 54,602 $278,104 $175,670 $114,482
EBITDA $ 9,603 $ 17,839 $ 65,363 $ 55,580 $ 36,816
Net income (loss) $ (9,165) $ 9,686 $ 19,579 $ 26,725 $ 14,371
Earnings (loss) per
common share:
Basic $ (0.12) $ 0.14 $ 0.26 $ 0.41 $ 0.26
Diluted $ (0.12) $ 0.13 $ 0.25 $ 0.38 $ 0.25
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Total assets $915,603 $362,415 $156,460
Total long-term
liabilities $526,520 $166,372 $ 29,789
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The Company's unaudited fiscal 2005 and 2004 consolidated balance sheets, statements of income, statements of shareholders' equity, and statements of cash flows are attached to this press release, and present the Company's financial positions and results of operations in accordance with Generally Accepted Accounting Principles ("GAAP") in Canada. Figures contained herein, in particular EBITDA figures, should be read in conjunction with the attached unaudited consolidated financial statements and the definition of EBITDA in the "Disclaimer."

Revenues for 2005 were $278.1 million, up 58% from the prior year. Revenues for the fourth quarter of 2005 were $85.6 million, up 57% from the fourth quarter of 2004 and up 17% from the third quarter of 2005.

EBITDA for 2005 was $65.4 million, up 18% from the prior year. EBITDA for the fourth quarter of 2005 was $9.6 million, down 46% from the fourth quarter of 2004 and down 51% from the third quarter of 2005.

Net income for 2005 was $19.6 million, a decrease of 27% from the prior year. The net loss for the fourth quarter of 2005 was $9.2 million, as compared to net income of $9.7 million for the fourth quarter of 2004 and net income of $9.0 million for the third quarter of 2005.

Fully diluted earnings per common share for 2005 were $0.25, a decrease of 34% from the prior year. The fully diluted loss per common share for the fourth quarter of 2005 was $0.12, as compared to fully diluted earnings per common share of $0.13 for the fourth quarter of 2004 and $0.11 for the third quarter of 2005. The weighted average number of fully diluted common shares outstanding during 2005 was 78.4 million compared to 70.7 million for 2004.

Revenues are now reported net of promotional allowances. Previously these allowances, which are free amenities provided to gaming customers, were included as part of marketing and promotion expenses. These promotional allowances were $2.3 million in the fourth quarter of 2005, $6.6 million for 2005 and $1.5 million for 2004. Also, expenses are now reported in a new category, "General and administration". Comparatives have been restated to conform to the current presentation.

DISCUSSION AND ANALYSIS

Acquisitions and Expansions

The increase in revenues reflects the inclusion of acquired operations and expansions of existing facilities made during the year. The Company completed four major acquisitions in 2005. These acquisitions were:

- Orangeville Raceway Ltd. (which operates Fraser Downs Racetrack & Casino ("Fraser Downs") located in Surrey, BC and Sandown Park Racetrack located in Saanich, BC) on March 18, 2005;

- Metropolitan Entertainment Group (which operates Casino Nova Scotia Halifax and Casino Nova Scotia Sydney) on May 31, 2005;

- Georgian Downs Limited (which operates Georgian Downs racetrack ("Georgian Downs") located in Innisfil, Ontario) on September 30, 2005; and,

- Ontario Racing Inc. (which operates Flamboro Downs racetrack ("Flamboro Downs") located in Flamborough, Ontario) on October 19, 2005.

The Company also completed extensive development projects at three of its British Columbia properties. These projects were:

- The expansion of the Coquitlam Boulevard Casino ("Boulevard"), which opened on November 19, 2005. This expansion tripled the size of the gaming floor and added both additional food and beverage outlets and a 1,200 car multi-level parkade. An entertainment theatre is scheduled to open in the latter half of 2006.

- The renovation and expansion of Fraser Downs' casino, grandstand, main entrance, simulcast area, parking lot and food and beverage facilities, which formally opened on October 14, 2005; and,

- The addition of the hotel, entertainment theatre and additional food and beverage outlets at the River Rock Casino Resort ("River Rock"), which formally opened on September 9, 2005.

Fourth Quarter Discussion

The Company's EBITDA was impacted in the fourth quarter by an estimated $5.0 million of unusual costs. These costs included:

- $1.4 million at River Rock. This amount includes initial marketing and advertising for the new hotel and theatre, food and beverage start-up costs, and theatre opening gala and entertainment costs.

- $1.3 million at Boulevard. This amount includes initial marketing and promotion costs, and pre-opening hiring, training, and labour costs at the facility, which opened later than originally scheduled.

- $2.3 million of corporate costs. This amount includes an adjustment relating to the British Columbia Lottery Corporation ("BCLC") Facility Development Improvement Fund ("FDIF"), as described below. The remaining additional corporate costs are related to integration activities, professional and consulting fees and third party training programs.

The fourth quarter EBITDA was also impacted by lost revenue opportunities. These lost revenue opportunities relate to the reduction of tables, slots, and parking availability at the Boulevard casino during construction. An additional impact was felt during the quarter due to low promotional pricing at River Rock's hotel and related food and beverage outlets as this property builds towards a stable trend.

Seasonality also impacted profitability for the fourth quarter, as live racing at Hastings Racecourse closed for the winter in November and the Nova Scotia casinos experienced their winter slowdown. The Company is working to increase the presence of tele-theatre racing to minimize the seasonal nature of live racing in B.C. As well, the Company is proceeding with its capital equipment and facility upgrade at the Nova Scotia casinos to increase the efficiency of operations and broaden the casinos' appeal to a wider customer base, both of which should offset seasonal downturns.

In the fourth quarter, the Company recorded an additional non-cash expense of $1.4 million (after tax $0.9 million) to reflect a discount on the BCLC FDIF approval towards operating expenditures. The Company also adjusted non-cash amortization and stock-based compensation in the fourth quarter by an additional charge of $0.6 million (after tax $0.5 million). The fourth quarter's income tax provision was reduced by $1.5 million, primarily as a result of statutory income tax rate changes. The Company has considered the impact of these adjustments on current and prior periods, and has concluded that the amounts are not material. Accordingly, the adjustments are reflected in the current period.

In the fourth quarter, the Company recorded increases, as compared to prior quarters, in non-cash amortization expenses, primarily from the amortization of intangibles associated with acquisitions, higher non-cash stock-based compensation expenses, primarily from stock options granted earlier in 2005, and higher financing charges, primarily from increased debt issued during the year to fund both acquisitions and expansions and a cessation of the capitalization of interest charges to development projects, which were completed.

The Company is focused on reducing expenses through 2006. Areas targeted for improvement include labour efficiency at the head office and the acquired and expanded operations. Also targeted for improvement are margins at the entertainment, hotel, and food and beverage operations, corporate overheads, and integration initiatives.

Assets and Liabilities

Total assets at December 31, 2005 were $915.6 million, an increase of 153% from the prior year-end, primarily due to the addition of assets acquired through acquisitions, an increase in amounts due from Provincial Gaming Corporations ("PGCs"), and net additions to property, plant and equipment arising from capital expansions that occurred during the year.

At December 31, 2005, the total receivable from PGC consisted of a $244.9 million receivable from British Columbia Lottery Corporation ($316.0 million gross, discount $71.1 million), and a $44.0 million receivable from Nova Scotia Gaming Corporation.

The Company wrote down non-core investments by $7.9 million in the fourth quarter to reflect management's estimate of impairment. Of this amount, $7.5 million represents a full provision against the Company's investment in the preference and common shares of Creation Casinos Inc. ("Creation"). On February 27, 2006, Creation announced that it had ceased operation of its only operating asset, a casino in Lithuania. Notwithstanding the full write-down recorded, the Company will pursue all means to recover its investment in Creation.

Total long-term liabilities at December 31, 2005 were $526.5 million, an increase of 216% from the prior year, primarily due to additional debt issued to fund acquisitions and capital expansions, debt acquired through acquisitions, and increased future income taxes associated with the acquired assets.

At December 31, 2005, long-term debt consisted of $150.0 million in Series A Senior Secured Notes ("Series A Notes"), $150.0 million in Series B Senior Secured Notes ("Series B Notes"), $93.0 million drawn on a $200.0 million syndicated bank credit facility ("Credit Facility"), $44.2 million on a promissory note acquired on the Flamboro Downs acquisition, and $4.3 million in other indebtedness.

At December 31, 2005, the common shares outstanding were 79,444,720. There were 5,624,237 stock options outstanding at a weighted average exercise price of $13.07 per share.

DEBT COVENANT UPDATE

The Company's Series A Notes, Series B Notes and Credit Facility require compliance with certain financial covenants, which include a maximum leverage ratio (Net Debt to Adjusted EBITDA ratio, both defined terms in the debt agreements). The leverage ratio requires the Company to be at or below 3.25 to 1.00 at December 31, 2005, and at or below 2.75 to 1.00 at March 31, 2006. In the absence of any remedial actions, the Company anticipates exceeding the leverage ratio at March 31, 2006. The Company has been seeking resolution to this potential covenant violation with its lenders and note holders. These negotiations are ongoing. The Company is also pursuing other solutions, which would have the effect of remedying the anticipated covenant breach. There can be no assurance that the Company will be successful in such efforts.

If the Company is unable to avoid a default on its financial covenants, the lenders and note holders have a right to demand the amounts outstanding be paid. The Company, which has substantial value in its assets and is generating significant cash flow to service its debt obligations, believes, if demands are made for repayment, it will be able to refinance the obligations and pay out the lenders and note holders in full. There can be no assurance that the Company will be successful in refinancing its debt following a demand under the current credit facilities.

OUTLOOK

"During the first quarter of 2006, Great Canadian has initiated changes to improve upon its financial performance. We will continue to focus on increasing market penetration, improving gaming and non-gaming operational efficiencies, reducing corporate overheads, and strengthening our management team," stated Mr. McLeod. "Revenues for the first quarter of 2006 appear comparable to the fourth quarter of 2005. The initiatives we have commenced will grow our revenues and increase the efficiency of our operations. I am excited about our talented people and diversified, high quality assets. Together they provide Great Canadian with a strong foundation for a successful future."

Readers are reminded of the caution contained in "Disclaimer" below, with respect to both forward looking statements and potential risk factors.

ADDITIONAL INFORMATION

The Company intends to release its audited consolidated financial statements on or before March 31, 2006. A conference call for investors and analysts is planned subsequent to that release.

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.

ON BEHALF OF GREAT CANADIAN GAMING CORPORATION

Howard S. Hum, CA, Chief Financial Officer

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 include preliminary unaudited results for its fiscal year 2005 and its earnings prospects for fiscal 2006. 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 2004, 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 expense (net of interest income), Taxes, Depreciation and Amortization, stock-based compensation, non-cash and non-operating expenses, restructuring costs, non-controlling interests, and termination of legal proceedings. 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.



GREAT CANADIAN GAMING CORPORATION
Consolidated Balance Sheets
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)
As at December 31,
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2005 2004
------------------
ASSETS

CURRENT
Cash and cash equivalents $ 69,812 $ 38,946
Restricted cash 6,598 4,187
Accounts receivable 13,098 6,040
Due from Provincial Gaming Corporations, current 35,353 15,000
Promissory notes receivable, current 1,329 1,639
Income taxes receivable 3,341 -
Prepaid expenses and deposits 7,708 3,201
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137,239 69,013
Due from Provincial Gaming Corporations 253,485 102,065
Property, plant and equipment 283,071 125,352
Intangible assets 195,767 28,629
Goodwill 37,497 20,038
Promissory notes receivable and other assets 8,544 17,318
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$915,603 $362,415
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LIABILITIES

CURRENT
Gaming revenues payable $ 10,030 $ 6,272
Accounts payable and accrued liabilities 56,854 33,044
Income taxes payable 627 1,797
Long-term debt, current 3,252 860
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70,763 41,973
Long-term debt 438,279 154,000
Future income taxes 82,123 11,536
Deferred credit and other liabilities 5,385 -
Non-controlling interests 733 836
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597,283 208,345
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SHAREHOLDERS' EQUITY

Share capital and other equity 247,727 101,801
Cumulative foreign currency translation (7,163) (5,908)
Retained earnings 77,756 58,177
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318,320 154,070
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$915,603 $362,415
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GREAT CANADIAN GAMING CORPORATION
Consolidated Statements of Income
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)
-----------------------------------------------------------------------
Quarter ended December 31, Year ended December 31,
2005 2004 2005 2004
------------------------- ----------------------

REVENUES
Gaming revenues $ 63,669 $ 47,373 $ 219,104 $ 153,708
Racetrack revenues 7,180 2,629 22,601 8,902
Food and beverage
revenues 13,700 4,263 35,976 11,472
Hotel revenues 1,766 - 2,165 -
Other income 1,592 1,033 4,901 3,068
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87,907 55,298 284,747 177,150
Less: promotional
allowances (2,348) (696) (6,643) (1,480)
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85,559 54,602 278,104 175,670
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EXPENSES
Human resources 46,495 26,540 140,975 87,761
General & administration 9,125 2,945 21,872 10,735
Operating supplies 7,616 2,612 20,004 7,691
Occupancy costs 7,022 2,775 16,568 8,516
Marketing and promotion 5,698 1,891 13,322 5,387
Amortization 6,347 1,559 12,788 4,825
Stock-based compensation 1,988 936 5,312 2,209
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84,291 39,258 230,841 127,124
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INCOME BEFORE UNDERNOTED
ITEMS 1,268 15,344 47,263 48,546
Restructuring costs - - - 5,557
Termination of legal
proceedings - 2,275 - 2,275
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INCOME FROM OPERATIONS 1,268 13,069 47,263 40,714

Gain (loss) on investments
and properties (8,178) 1,847 (8,200) 1,874
Interest and
financing, net (3,875) (1,158) (9,368) (2,201)
Accretive income 2,253 1,365 7,548 1,365
Foreign exchange gain 99 (7) 200 340
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INCOME BEFORE INCOME TAXES (8,433) 15,116 37,443 42,092

Income taxes 63 5,206 16,671 14,967
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INCOME BEFORE
NON-CONTROLLING INTEREST (8,496) 9,910 20,772 27,125

Non-controlling interests 669 224 1,193 400
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NET INCOME $ (9,165) $ 9,686 $ 19,579 $ 26,725
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EARNINGS PER COMMON SHARE
Basic $ (0.12) $ 0.14 $ 0.26 $ 0.41
Diluted $ (0.12) $ 0.13 $ 0.25 $ 0.38
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WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
Basic 79,406,692 68,328,530 76,626,504 65,913,320
Diluted 80,549,482 72,010,590 78,402,986 70,652,768
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GREAT CANADIAN GAMING CORPORATION
Consolidated Statements of Shareholders' Equity
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)


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Additional Share
Paid-up Capital
Capital And And Other
Common Shares Other Equity Equity
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Number Amount Amount Amount
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At December 31, 2003 61,834,343 $ 59,219 $ 7,390 $ 66,609

Exercise of incentive
stock options 4,542,936 15,221 (4,612) 10,609
Private placement 250,000 1,547 - 1,547
Exercise of warrants 3,362,410 21,325 (498) 20,827
Stock based compensation - - 2,209 2,209
Effect of foreign
currency translation - - - -
Net income - - - -
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At December 31, 2004 69,989,689 $ 97,312 $ 4,489 $ 101,801
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Exercise of incentive
stock options 981,327 $ 4,973 $ (1,907) $ 3,066
Treasury offering 3,750,000 60,069 - 60,069
Issuance of common
shares, upon exercise
of special warrants 3,703,704 72,709 72,709
Stock based compensation - - 5,312 5,312
Exercise of warrants 1,025,000 4,770 - 4,770
Effect of foreign
currency translation - - - -
Net income - - - -
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At December 31, 2005 79,449,720 $ 239,833 $ 7,894 $ 247,727
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-----------------------------------------------------------------------
Cumulative
Foreign
Currency
Translation Retained Shareholders'
Adjustments Earnings Equity
-----------------------------------------------------------------------

At December 31, 2003 $ (3,447) $ 31,452 $ 94,614

Exercise of incentive
stock options - - 10,609
Private placement - - 1,547
Exercise of warrants - - 20,827
Stock based compensation - - 2,209
Effect of foreign
currency translation (2,461) - (2,461)
Net income - 26,725 26,725
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At December 31, 2004 $ (5,908) $ 58,177 $ 154,070
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Exercise of incentive
stock options $ - $ - $ 3,066
Treasury offering - - 60,069
Issuance of common
shares, upon exercise
of special warrants 72,709
Stock based compensation - - 5,312
Exercise of warrants - - 4,770
Effect of foreign
currency translation (1,255) - (1,255)
Net income - 19,579 19,579
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At December 31, 2005 $ (7,163) $ 77,756 $ 318,320
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GREAT CANADIAN GAMING CORPORATION
Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
(In thousands, except for share and per share information)
For years ended December 31,
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2005 2004
------------------

Cash Flows from Operating Activities
Net income $ 19,579 $ 26,725
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 12,788 4,825
Non-cash restructuring costs - 558
Gain from disposal of land (274) -
Accretive income (7,548) (1,365)
Loss (gain) on disposal of investments 999 (1,975)
Impairment of investments 7,913 300
Stock based compensation 5,312 2,209
FDIF qualified operating expenses,
net of discount (4,932) (7,312)
Other activities 3,923 1,562
Future income taxes (495) 607
Changes in non-cash operating working capital 1,146 3,509
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Net cash provided by operating activities 38,411 29,643
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Cash Flows from Financing Activities
Proceeds from long-term debt 419,252 222,451
Repayment of long-term debt (177,346) (110,352)
Deferred financing costs (4,449) (2,846)
Deferred credits and other liabilities 1,731 -
Common shares issued for cash,
net of issuance costs 138,137 32,983
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Net cash provided by financing activities 377,325 142,236
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Cash Flows from Investing Activities
Restricted cash 909 (4,187)
Investment in and advances to equity investees (1,056) (251)
Funds received from Provincial Gaming Corporations 22,600 12,455
Purchase of property, plant and equipment,
net of related accounts payable (194,329) (137,581)
Proceeds from disposal of property,
plant and equipment 5,947 -
Consolidation of cash of Georgian Downs 1,286
Acquisitions, net of cash acquired (182,104) (36,633)
River Rock prepaid lease (9,262) -
Promissory notes and advances receivable, net (28,568) 511
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Net cash used in investing activities (384,577) (165,686)
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Effect of foreign exchange on cash
and cash equivalents (293) (1,440)
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Net Cash Inflow 30,866 4,753
Cash and cash equivalents, Beginning of the Year 38,946 34,193
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Cash and cash equivalents, End of the Year $ 69,812 $ 38,946
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Supplemental Disclosure
Interest received $ 2,424 $ 1,008
Interest paid $ 16,237 $ 3,651
Income taxes paid $ 19,959 $ 14,160
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Non-Cash Investing and Financing Activities
Conversion of promissory note to preferred shares $ 6,917 $ -
FDIF allocated to assets $194,282 $121,101
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Contact Information

  • Great Canadian Gaming Corporation
    Thomas Bell
    Corporate Contact
    (604) 303-1000
    (604) 279-8605 (FAX)
    or
    Great Canadian Gaming Corporation
    Howard Blank
    Media Contact
    (604) 512-6066
    (604) 279-8605 (FAX)
    www.gcgaming.com