Melco Crown Entertainment Limited — FY2010 Form 20-F
Reporting period: Fiscal year ended December 31, 2010; filed April 1, 2011. This is an annual report, not a quarterly filing. The company develops and operates Macau gaming and resort properties, including City of Dreams, Altira Macau, Mocha Clubs and Taipa Square Casino. Financial statements are audited and prepared under U.S. GAAP.
Financial performance
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net revenue | $2.642 billion | $1.333 billion |
| Operating income (loss) | $92.5 million | $(272.0) million |
| Net income (loss) | $(10.5) million | $(308.5) million |
| Operating cash flow | $402.0 million | $(112.3) million |
| Cash and cash equivalents at year-end | $441.9 million | $212.6 million |
| Restricted cash at year-end | $167.3 million | $236.1 million |
| Total assets | $4.884 billion | $4.863 billion |
| Total debt, including shareholder loans | $1.840 billion | $1.799 billion |
Revenue was 96.5% casino revenue in 2010. Operating margin was approximately 3.5% (versus approximately negative 20.4% in 2009); net margin was approximately negative 0.4% (versus negative 23.1%). These percentages are calculated from reported figures. Adjusted property EBITDA, a company-defined non-GAAP measure, was $489.8 million, compared with $95.8 million in 2009.
Liquidity, debt and capital
- Current assets were $900.5 million and current liabilities $675.6 million at year-end, a current ratio of approximately 1.33. Restricted cash is not freely available for general use.
- Balance-sheet debt comprised $1.1318 billion under the City of Dreams Project Facility and $592.4 million of 10.25% senior notes due 2018, plus $115.6 million of shareholder loans. The facility had approximately $100.5 million available for drawdown, subject to conditions.
- The company issued $600 million principal amount of 10.25% senior notes in May 2010 and used proceeds principally to repay the project facility. Project-facility debt was reduced to $1.132 billion from $1.683 billion; the notes increased overall reported debt.
- Scheduled debt maturities include approximately $203.0 million in 2011 and $294.4 million in 2012. The company reported compliance with debt covenants at December 31, 2010.
- Operating cash flow turned positive as City of Dreams contributed a full year of operations. Investing cash outflow declined to $190.3 million from $1.144 billion, largely reflecting lower resort construction spending. The filing reports 2010 capital expenditures of $197.4 million in its liquidity discussion.
Material changes and operating drivers
- Net revenue rose 98.2%, chiefly from a full year of City of Dreams and improved revenue and hold at Altira Macau. City of Dreams contributed $1.638 billion in segment revenue, versus $552.1 million in 2009; Altira generated $859.8 million versus $658.0 million.
- Casino revenue increased 95.5%. City of Dreams rolling-chip volume increased to $51.7 billion from $20.3 billion; Altira’s increased to $40.3 billion from $37.5 billion. Hold percentages also improved at both properties.
- Total operating costs and expenses increased 58.9% to $2.549 billion, reflecting expanded operations and gaming taxes. Pre-opening costs declined to $18.6 million from $91.9 million.
- Interest expense, net of capitalized interest, increased to $93.4 million from $31.8 million, reflecting the senior notes and less interest eligible for capitalization after properties opened. The company consequently remained in a small net loss despite positive operating income.
- City of Dreams’ House of Dancing Water opened in September 2010. A further hotel phase was under evaluation; the company had not finalized plans or financing.
Outlook, risks and contingencies
- Management said it believed working-capital needs for the next 12 months could be met through operating cash flow, cash balances, potential financing and facility availability. No specific revenue, earnings or cash-flow guidance was provided.
- Management’s stated priorities include using surplus cash to deleverage, securing financing before beginning new developments, and pacing development to market demand. City of Dreams Phase II remained subject to market assessment, financing and approvals.
- The Macau gaming-income tax holiday was scheduled to expire in 2011; the company applied in February 2011 for an extension, with no assurance of approval. Loss of the holiday could increase tax expense.
- Macau Studio City construction had not commenced because the developers were involved in litigation; opening timing was undetermined, and the company reported no operating cash flows from the project.
- Material business risks include dependence on Macau and a small number of properties, volatile VIP gaming results, collection of gaming receivables, competition, regulatory and subconcession requirements, travel restrictions, and substantial leverage. Facility and note covenants restrict distributions and other corporate actions. The subconcession expires in 2022, with a government redemption right beginning in 2017 under stated terms.
- After year-end, gaming promoter Ama International sued over termination of an agreement and alleged unfair competition. Its claim was reduced in March 2011 to MOP325.8 million (approximately $40.6 million) plus interest. The company disputed the claims and said it would defend them vigorously.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether operating cash generation and property-level EBITDA persist, and whether gaming volumes and hold rates remain sustainable.
- Debt-service capacity, covenant headroom, near-term maturities and the availability of project-facility borrowings; distinguish unrestricted from restricted cash.
- Whether the Macau gaming tax holiday is extended and the resulting effect on earnings and cash flow.
- Outcome and potential financial exposure from the Ama litigation, and any developments affecting Macau Studio City.
- Final scope, financing and approvals for any City of Dreams expansion, alongside Macau regulatory, competition and subconcession developments.