Crown Resorts Ltd Annual Report 2010

Plain-text annual report

Crown Limited Annual Report 2010 Australia’s Integrated Resort Company “ Annually, over 24 million visitors enjoy the world-class facilities we have on offer in Melbourne and Perth. Many of our visitors are from interstate and international destinations which makes Crown Melbourne and Burswood important tourism drivers for Australia.” James Packer, Executive Chairman Hotels From premium luxury to creature comforts, Crown’s two Australian integrated resorts offer 2,300 guest rooms across ﬁ ve hotels. Dining With a wide range of cafes, casual restaurants and ﬁ ne dining establishments across Crown Melbourne and Burswood, the discerning diner has a myriad of delicacies to choose from. CROWN LIMITED ANNUAL REPORT 2010 i Gaming From the exclusive sophistication of world-class VIP gaming rooms to the excitement of the main gaming ﬂ oors, unparalleled gaming experiences are on offer at Crown Melbourne and Burswood. ii CROW N L IMITED AN N U AL REPORT 2010 Events Whether hosting a glamorous gala ball, an international conference, a corporate event or an intimate celebration, Crown Melbourne’s and Burswood’s pre-eminent facilities will impress. CROWN LIMITE D ANNUAL REPORT 2010 iii Entertainment Local and international guests alike are captivated by world-class entertainment from large capacity rock concerts to musicals, comedy shows, ballets and theatre. iv CROWN LIMIT ED AN N UAL REPORT 2010 Shopping Louis Vuitton, Versace, Burberry, Prada, Saba, Raoul and G-Star are just some of the designer names in the wide retail offerings across Crown’s Australian integrated resorts. CROWN LIMITED ANNUAL REP ORT 2010 v Contents 01 Executive Chairman’s Letter 10 Burswood 24 Corporate Governance Statement 57 Auditor’s Independence Declaration 118 Shareholder Information 02 Portfolio of Integrated Resort Assets 14 Melco Crown Entertainment 32 Nevada Information Statement 58 Independent Auditor’s Report 120 Additional Information 04 Chief Executive Ofﬁ cer’s Report 06 Crown Melbourne 16 Sustainability Report 44 Remuneration Report 61 Financial Report 15 Other Investments 36 Directors’ Statutory Report 60 Directors’ Declaration 121 Corporate Information ANNUAL GENERAL MEETING Tuesday 30 November, 11.00am (AWST) The Astral Ballroom, Convention Centre Burswood Entertainment Complex Great Eastern Highway, Burswood, WA FINANCIAL CALENDAR Record date for dividend . . . . . . 1 October 2010 Payment of ﬁ nal dividend . . . . . . 15 October 2010 Annual General Meeting . . . . . . . 30 November 2010 2011 interim results . . . . . . . . . . . . Second half of February 2011 Crown Limited ABN 39 125 709 953 vi CROWN LIMIT ED AN N UAL REPORT 2010 “ I believe integrated resorts are a key part of the future of Australia’s tourism industry. We have faith in Australia’s appeal as a tourism destination for the Asian region and faith in our ability to deliver integrated resorts of international quality.” James Packer Executive Chairman Crown Limited Executive Chairman’s Letter Dear fellow shareholder, During the past 12 months, Crown Melbourne and Burswood, Australia’s leading integrated resorts, have delivered a reasonable performance. This was achieved despite the adverse impact of softening consumer sentiment and the greater than expected impact of refurbishment works associated with expanding and enhancing both complexes. Our wholly-owned and operated Australian casino businesses, which employ over 9,600 people, continued to perform well, achieving normalised EBITDA growth of 6.1 percent for the year. VIP gaming volumes at both Crown Melbourne and Burswood reached an all-time record level. However, the growth rate in VIP program play moderated in the second half with some initial impact being seen from the opening of two new integrated resorts in Singapore. Internationally, Melco Crown Entertainment made signiﬁ cant progress in Macau with its ﬂ agship resort, the City of Dreams, having its ﬁ rst full year of operation in a gaming market that exhibited strong growth. Crown reported a net proﬁ t of $292.3 million for the ﬁ nancial year ended 30 June 2010. The Directors have announced a ﬁ nal dividend of 19 cents per share, franked to 60 percent. This brings the total dividend for the year to 37 cents per share. In the year ahead, the primary focus will be to maximise the performance of Crown Melbourne and Burswood and manage the major capital expenditure programs currently underway at both properties. We will continue to work with Melco Crown to further build the value of the business in Macau. As one of Australia’s leading investors in tourism, we have, for many years, shown conﬁ dence in Australia, particularly in Western Australia and Victoria. Our current $1.9 billion capital expenditure program is well underway and scheduled for completion in 2013. This is a demonstration of our faith in the economy, in Australia’s appeal as a tourism destination for the Asian region and our ability to deliver integrated resorts of international quality. On behalf of the Board, I wish to thank the management and staff of Crown for their contribution in 2010. I would also like to thank you, and all our shareholders, for your continued support. James Packer Executive Chairman Crown Limited CROWN LIMITED ANNUAL REPORT 2010 01 Portfolio of integrated resort assets Crown owns and operates Australia’s leading premium integrated resorts – Crown Entertainment Complex in Melbourne and Burswood Entertainment Complex in Perth. MELBOURNE (cid:129) 100% OWNED Crown Melbourne operates 2,500 gaming machines and 350 table games (with approval to expand to 500). Crown Towers hotel comprises 480 guest rooms. Crown Promenade hotel comprises 465 guest rooms. Crown Metropol hotel, which opened in April 2010, comprises 658 guest rooms. Crown Conference Centre has 7,350 square metres of conference and meeting facilities over three ﬂ oors. Banqueting facilities include the Palladium’s 1,500 seat ballroom and the Palms’ 900 seat cabaret venue. More than 70 restaurants and bars reside in the complex, including many of Melbourne’s ﬁ nest. Internationally recognised designer boutiques and retail outlets. Entertainment facilities include a multi-screen cinema complex, a bowling alley and an interactive gaming auditorium. 02 CROWN LIMIT E D AN N UAL REPORT 2010 PERTH (cid:129) 100% OWNED MACAU (cid:129) 33.4% INTEREST1 Burswood operates 1,750 gaming machines (with approval in-principle to expand to 2,000) and 170 table games (with approval in-principle to expand to 220). City of Dreams Melco Crown operates approximately 1,300 gaming machines and over 400 table games. The InterContinental Perth Burswood hotel comprises 405 guest rooms. Holiday Inn Burswood hotel comprises 291 guest rooms. A range of entertainment options including the 20,000 seat Burswood Dome and 2,300 seat Burswood Theatre. World-class conventions and events facilities. 16 restaurants and bars (soon to expand to 18) and a nightclub. Luxury day spa and retail outlets. Crown Towers hotel comprises approximately 300 guest rooms. Hard Rock hotel comprises approximately 300 guest rooms. Grand Hyatt hotel comprises 800 guest rooms. More than 20 restaurants and bars. Wide range of retail brands. Iconic audio visual experience, The Bubble. Key attraction, Franco Dragone’s ‘The House of Dancing Water’ in the Theatre of Dreams. Altira The casino and hotel features approximately 200 table games and more than 200 guest rooms, respectively. Mocha Clubs A network of gaming lounges, operating approximately 1,500 gaming machines. 1. As at 30 June 2010. CROWN LIMITED ANNUAL REPORT 2010 03 “ Our Australian casinos attract signiﬁ cant patronage from overseas, particularly from the Asian region. This market is becoming increasingly competitive.” Rowen Craigie Chief Executive Ofﬁ cer Crown Limited Performance for the year ended 30 June 2010 ($m)1 Group revenue Expenditure EBITDA EBIT Normalised Net proﬁ t after tax 2,292.4 1,635.2 657.2 494.1 288.4 Reported net proﬁ t 292.3 1. Normalised, excluding signiﬁ cant items Chief Executive Ofﬁ cer’s Report Overview Crown reported a normalised net proﬁ t after tax of $288.4 million for the 12 months ended 30 June 2010. The result was underpinned by the performances of Crown’s wholly-owned Australian casinos, Crown Melbourne and Burswood. These businesses achieved normalised revenue growth of 5.9 percent to $2,292.4 million and normalised EBITDA growth of 6.1 percent to $657.2 million. Crown’s operating cash ﬂ ow was $467.5 million for the 12 months and net debt, excluding working capital cash, was $777.6 million at 30 June 2010. Our $1.9 billion capital expenditure program that started in 2007 is on track for completion in 2013. The program involves a range of projects across the two Australian properties including construction of Crown Metropol and an upgrade of existing hotel facilities at Crown Towers and the InterContinental Perth Burswood hotel. The program also includes the expansion and upgrade of the international VIP facilities and the main gaming ﬂ oor at both properties. This capital expenditure is expected to further enhance Crown’s position as one of the leading operators of integrated resorts in the region. Crown expects the investment in the upgrading and expansion of its Australian integrated resorts will be earnings and value accretive for shareholders. Crown’s joint venture business in Macau, Melco Crown Entertainment, saw the ﬁ rst full year of operation for its City of Dreams complex, which has made good progress throughout 2010. Australian casinos Crown Melbourne and Burswood delivered reasonable results despite the adverse impact of a softening in consumer sentiment and corporate hospitality spending, as well as a greater than expected impact of refurbishment works associated with expanding and enhancing the two resorts. Across the two properties, main ﬂ oor gaming revenue grew 1.6 percent and VIP program play grew a solid 14.1 percent with revenue of $536.0 million. However, the growth rate in VIP program play moderated in the second half with some initial impact being seen from the opening of two new integrated resorts in Singapore. Non-gaming revenue grew by 9.6 percent, beneﬁ ting from the opening of the Crown Metropol hotel, as well as a number of new food and beverage outlets at Crown Melbourne. A highlight of the year for Crown Melbourne was the opening of Crown Metropol, a 658 room, $300 million luxury hotel that will attract international leisure guests as well as cater for global convention and conference delegates. Crown Melbourne’s normalised revenue increased by 6.4 percent over the prior comparable period to $1,559.5 million and reported revenue increased by 9.7 percent to $1,642.9 million. Normalised EBITDA was $474.9 million, up 5.5 percent on the prior comparable period. Reported EBITDA for the period was $540.7 million, up 13.3 percent. The result reﬂ ects an above theoretical win rate of 1.66 percent which generated a positive EBITDA variance of $65.8 million. This year, Crown Melbourne was given approval by the Victorian Government for the ﬁ rst increase in table games since opening at the Southbank site 13 years ago. The agreement, which includes the implementation of a phased increase in casino gaming machine tax, came into effect in January 2010. A more detailed report on Crown Melbourne is provided later in this Annual Report. Burswood’s normalised revenue increased by 5.1 percent over the prior comparable period to $732.9 million and reported revenue increased 0.3 percent to $698.8 million. Normalised EBITDA was $213.6 million, up 2.4 percent on the prior comparable period. Reported EBITDA for the period was $183.5 million, down 11.8 percent. The result reﬂ ects a below theoretical win rate of 1.08 percent which generated a negative EBITDA variance of $30.1 million. Burswood received in-principle support from the Western Australian Government to expand its existing casino complex to accommodate an increase in gaming products. The increase is currently subject to the approval of the Gaming & Wagering Commission of Western Australia. A more detailed report on Burswood is provided later in this Annual Report. Figures 1 and 2 show the strong growth achieved in normalised revenue and EBITDA at both Crown Melbourne and Burswood. 04 CROWN LIMIT E D AN N UAL REPORT 2010 FIGURE 1 CROWN MELBOURNE NORMALISED REVENUE AND EBITDA PERFORMANCE FIGURE 2 BURSWOOD NORMALISED REVENUE AND EBITDA PERFORMANCE M $ A D T I B E D E S I L A M R O N 500 400 300 200 100 0 1600 1280 960 640 320 0 M $ E U N E V E R D E S I L A M R O N M $ A D T I B E D E S I L A M R O N 250 200 150 100 50 0 800 640 480 320 160 0 M $ E U N E V E R D E S I L A M R O N 99 00 01 02 03 04 05 06 07 08 09 10 99 00 01 02 03 04 05 06 07 08 09 10 Normalised EBITDA before Crown Ownership Normalised EBITDA since change in Ownership Normalised Revenue Normalised EBITDA before Crown Ownership Normalised EBITDA since change in Ownership Normalised Revenue Crown Metropol “ We must remain focused on maintaining our global reputation for quality and service excellence.” Melco Crown Entertainment City of Dreams, Melco Crown’s ﬂ agship integrated resort, had its ﬁ rst full year of operation this year in a gaming market that has exhibited strong growth. In a recent announcement, Melco Crown reported that good progress has been made in the quarter to June 2010 at City of Dreams, with quarterly rolling chip volume increasing 24 percent sequentially. Melco Crown also announced that it delivered a nine percent sequential increase in mass market table games revenue in the same quarter. Altira Macau continues to perform better under its traditional VIP model and proﬁ tability has continued to beneﬁ t from the commission cap implemented in 2009. Crown’s share of Melco Crown’s reported result for the year was an equity accounted loss of $63.8 million. Crown’s share of Melco Crown’s normalised result for the period was a loss of $42.7 million, after adding back Crown’s share of a below theoretical win rate variance and pre-opening expenses. Additional information about Melco Crown and Crown’s other international investments appears later in this Annual Report. Outlook Crown Melbourne and Burswood have each made a solid start to the 2011 ﬁ nancial year. Our efforts will remain focused on enhancing Crown’s Australian operations. We are currently midway through an extensive capital expenditure program totalling $1.9 billion, of which approximately $800 million will be spent over the next three years. The Australian Federal Government recently announced its intention to implement a national pre-commitment scheme. The Government has also announced it will establish a consultative process involving technical experts, problem gambling support groups and the gaming industry. Crown pioneered pre-commitment in Australia in 2003 through the introduction of its Play Safe Limits program. Crown is looking forward to participating in the consultative process. Further details on Crown’s responsible gaming programs, including our pre-commitment initiatives, are provided later in this Annual Report. Crown is a truly international business. Our Australian casinos attract signiﬁ cant patronage from overseas, particularly from the Asian region. This market is becoming increasingly competitive as integrated resorts throughout Asia continue to receive support from their Governments. We must remain focused on maintaining our global reputation for quality and service excellence. We are looking forward to working with governments and other stakeholders to build on Australia’s strengths as an attractive tourism destination. We will also continue to work closely with our joint venture partners to optimise the value of our Macau and other overseas investments. I would like to sincerely thank the Board, management and staff for their contribution in 2010. Rowen Craigie Chief Executive Ofﬁ cer CROWN LIMITED ANNUAL REPORT 2010 05 Crown Melbourne Overview Australia’s leading integrated resort, Crown Melbourne, is a key driver of tourism within Victoria attracting approximately 17 million visitors each year. The 500,000 square metre entertainment complex offers quality shopping and dining experiences, gaming options and live entertainment, whilst the addition of Crown Metropol brings Crown Melbourne’s accommodation offering to approximately 1,600 guest rooms across its three hotels. The ﬁ nancial results for Crown Melbourne were resilient this year despite the adverse impact of refurbishment works at the property and the challenging ﬁ nancial environment. Main gaming ﬂ oor revenue grew 2.5 percent for the year. The closure of the Teak Room for refurbishment, coupled with a softening in consumer sentiment, caused lower than anticipated main ﬂ oor gaming revenue. Normalised VIP program play revenue increased by 10.3 percent to $363.5 million on record turnover of $26.9 billion. Non-gaming revenue grew 13.5 percent to $319.2 million, assisted by strong performances in bars and premium restaurants, as well as the opening of Crown Metropol. Crown Melbourne property update During the year, there was a focus on the substantial development and refurbishment projects underway at the property. Construction of Crown Metropol was completed and the hotel was opened to the public in April 2010. In addition, improvements to gaming and food and beverage facilities continued through the year. In September 2009, the Teak Room closed to enable its redevelopment into an integrated table games and gaming machines premium gaming room. The ﬁ rst phase of the Teak Room upgrade was completed in the 2010 ﬁ nancial year with the new premium gaming machines area opening in April 2010. The second phase is scheduled to open in October 2010 and includes premium table games, an in-room restaurant and terrace. Redevelopment and expansion of the Mahogany Room and construction of new VIP gaming salons have commenced. The private salons on Levels 29 and 39 of Crown Towers opened in September 2010. These salons will reinforce Crown Melbourne’s competitiveness with the world’s best VIP gaming facilities. “ The addition of the new Crown Metropol hotel and Crown Conference Centre to our integrated resort demonstrates the conﬁ dence Crown has in the future of Melbourne as one of the region’s most appealing tourist destinations.” David Courtney Chief Executive Ofﬁ cer Crown Melbourne Crown Metropol, Lobby Crown Melbourne, Lagerﬁ eld 06 CROWN LIMIT E D AN N UAL REPORT 2010 Artist’s impression of the Mahogany Room once its redevelopment is completed Artist’s impression of Crown Melbourne’s exterior once the Mahogany Room redevelopment is completed Local gaming and Signature Club The agreement with the Victorian Government to implement a phased increase in casino gaming machine tax and an increase in the number of table games was passed by the Victorian Parliament and came into effect in January 2010. Fully automated table games were introduced onto the gaming ﬂ oor this ﬁ nancial year, with additional poker and regular table games also installed. During the year, 800 gaming machines were upgraded with new hardware following the launch of the Aristocrat Viridian and IGT Neo machines. Similarly, the introduction of the Ticket-In Ticket-Out transaction technology for gaming machines was completed in July 2010. Crown Melbourne continues to be regarded as the home of poker in Australasia. The 2010 Aussie Millions Poker Championship main event ranked as the 6th richest poker tournament in the world. The Aussie Millions is becoming one of Melbourne’s major events. The Crown Signature Club loyalty program was relaunched in October 2009 and now includes earning and redemption beneﬁ ts throughout the entire complex. The program provides member beneﬁ ts such as free parking, invitations to ‘money can’t buy experiences’ and special hotel offers. Club members were among the ﬁ rst to experience the new Crown Metropol hotel, maze, maze Grill and Isika Day Spa. “ Crown Melbourne continues to be regarded as the home of poker in Australasia.” VIP program play Crown Melbourne achieved an all-time record of $26.9 billion in VIP program play turnover, despite strong competition from Macau and the opening of Singapore’s integrated resorts. However, the growth rate in VIP program play moderated in the second half with some initial impact being seen from the opening of the two new integrated resorts in Singapore. CROWN LIMITED ANNUAL REPORT 2010 07 CRO WN MELBOURNE CONTINUED Hotels and conferences Crown Metropol commenced trading in April 2010, ensuring Crown Melbourne remains among the best integrated resorts in the world. The new 658 room, $300 million hotel reﬂ ects the urban and metropolitan context of the hotel’s design and location. Crown Metropol has grown Crown Melbourne’s share in the Melbourne hotel market signiﬁ cantly, attracting international leisure guests as well as catering for global convention and conference delegates. The hotel incorporates a day spa, a sky bar and terrace, four meeting rooms and a retail precinct showcasing brands previously unavailable in Australia. Crown Towers hotel bedroom Overall, more than 5,000 people were employed during the building phase, with up to 700 construction project employees working at any one time. “ The reﬁ ned luxury, comfort and cutting-edge technology offered to guests has enabled Crown Towers to continue to be a market leader...” The 2010 ﬁ nancial year was the ﬁ rst full year of operations for the fully refurbished Crown Towers. The reﬁ ned luxury, comfort and cutting-edge technology offered to guests has enabled Crown Towers to continue to be a market leader in both occupancy and average room rates. Crown Towers received a number of top awards this year including the 2010 Australian Gourmet Traveller Best Large Luxury Hotel and the 2009 Hotel Club Annual Awards’ Best Luxury Hotel and Best Service Hotel. Crown Towers was also named 15th in the Top 20 Best Oceania Hotels in the 2009 Condé Nast Traveller Best in the World awards. At Crown Promenade, the rooms now have full wireless internet connectivity and ﬂ at screen plasma televisions with free Internet Protocol television (IPTV). Additionally, the hotel is fully equipped with Voice over Internet Protocol (VoIP) telephony. The Crown Conference Centre opened in December 2009, further boosting Melbourne’s business events infrastructure. Market response to the opening of the Crown Conference Centre has been positive, with strong initial demand and a substantial number of long lead bookings. In addition to the original capacity for large residential conferences, meetings, product launches and exhibitions, the extended centre can accommodate up to 840 delegates in one space, while the moveable walls can create up to 20 concurrent rooms. Restaurants and bars Crown Melbourne’s premium restaurant and bar operations showed good revenue growth this year. World-famous chef, Gordon Ramsay, opened his ﬁ rst two Australian restaurants – maze and maze Grill – at Crown Metropol. Ramsay and his Chef de Cuisine, Josh Emett, are also responsible for the hotel’s room service and spa cuisine. Crown Melbourne again supported the 2010 Melbourne Food & Wine Festival and presented at the celebrated Gala Dinner. Specialty dining experiences, particularly the wine-featured dinners and Crown Melbourne’s Seafood Celebration, proved to be a great success for a number of the premium and casual restaurants. Additionally, a range of partnered beverage promotions offered an array of ‘money can’t buy’ sporting and travel packages. Crown Melbourne’s restaurants continue to be recognised through industry-related awards. The brasserie by Philippe Mouchel was again awarded Best European Restaurant and Koko was a national ﬁ nalist for Best Asian Restaurant at the Victorian Restaurant & Catering Awards for Excellence. In the 2010 Wine Spectator Awards, Rockpool Bar & Grill and Number 8 restaurant and wine bar received “2 glasses” in the Best of Awards of Excellence and the brasserie by Philippe Mouchel received “1 glass”. Crown Melbourne’s restaurants were also extensively featured in the Australian Gourmet Traveller 2010 Australian Restaurant Guide this year, with Rockpool Bar & Grill nominated under Best Business Lunches and Modern Australian, Sho Noodle Bar under Best Chinese, Giuseppe, Arnaldo & Sons for Best Italian and maze for Modern European. In addition, nine of Crown Melbourne’s premium restaurants and restaurant tenancies were included in The Age Good Food Guide 2011, with three being awarded chef’s hats. Rockpool Bar & Grill was again awarded two prestigious chef’s hats and the restaurant’s wine list was named Brown Brothers Wine List of the Year. Rockpool Bar & Grill’s sommelier was named Champagne Louis Roederer Sommelier of the Year. 08 CROWN LIMIT E D AN N UAL REPORT 2010 Crown Melbourne gaming ﬂ oor Sho Noodle bar “ Crown Melbourne was recognised at the Victorian & National Restaurant & Catering Awards, winning the National Award for ‘Best Function Centre Caterer’.” Gordon Ramsay’s maze at Crown Metropol was awarded a single chef’s hat and Giuseppe, Arnaldo & Sons maintained its single chef’s hat status. Crown Melbourne further strengthened its responsible service of alcohol (RSA) with the introduction of a new RSA protocol for events and functions held at Crown Melbourne. Entertainment and events Crown Melbourne was recognised at the Victorian & National Restaurant & Catering Awards, winning the National Award for “Best Function Centre Caterer”. In conjunction with the Victoria Racing Club and its ofﬁ cial partners, Crown Melbourne again hosted a ‘live site’ at Southbank during the Melbourne Cup Carnival. An estimated 80,000 people enjoyed live entertainment, big screen racing action, giveaways and the riverbank Carnival Bar. Crown Melbourne responds and provides assistance to a broad range of community organisations. The Palladium hosted some of the country’s highest proﬁ le fundraising and sporting events this ﬁ nancial year. These included the Million Dollar Lunch, Ronald McDonald House Charity Ball, Starry Starry Night, the Diamonds Dinner, TV Week Logie Awards, AFL Brownlow Medal, Cricket Australia Allan Border Medal, Formula 1 Australian Grand Prix Ball, Australian Masters Golf Gala Dinner and Victoria Racing Club Spring Carnival events including the Oaks Club Ladies Lunch and the Call of the Card. The Palms and Crown Melbourne’s nightclubs Fusion and Co. showcased guests such as the Black Eyed Peas, Diesel, Guy Sebastian, the Backstreet Boys, Jessica Mauboy, Flo Rida and comedians Pablo Francisco, Tommy Tiernan and Joe Koy. CROWN LIMITED ANNUAL REPORT 2010 09 Burswood Overview Located on the banks of the Swan River in Perth, Burswood is a major Western Australian tourist attraction drawing over 7 million visitors each year. This integrated resort is the State’s largest single-site employer and features a casino, two hotels, 16 restaurants and bars, a nightclub, a world-class convention centre, 2,300 seat theatre, 20,000 seat capacity indoor stadium, a day spa and retail outlets. Burswood’s ﬁ nancial results this year were reasonable given the adverse impact of major refurbishments on the main gaming ﬂ oor and the softening of consumer sentiment. Main gaming ﬂ oor revenue decreased 0.4 percent to $396.2 million primarily due to disruption to central casino operations from November 2009, caused by refurbishment activity. This, coupled with a softening in consumer sentiment, impacted main ﬂ oor gaming revenue. Normalised VIP program play revenue increased by 23.2 percent to $172.5 million on record turnover of $12.8 billion. Non-gaming revenue increased 2.9 percent to $164.3 million for the year in an economic environment that continues to be challenging. Burswood property update Refurbishment and redevelopment was the major focus for the year with the highlight being the continued improvements to gaming and food and beverage facilities. The major works included the upgrade of the main gaming ﬂ oor, which commenced in 2007 and is due for completion in December 2010. The refurbishment of the third VIP Inﬁ nity suite, the majority of club rooms and the river suites within the InterContinental Perth Burswood hotel were also part of this redevelopment. Work commenced on two VIP luxury villas to be built in the hotel grounds. The Atrium Buffet Restaurant and the Spice Lounge Bar in the lobby of the InterContinental Perth Burswood are also undergoing refurbishments. The restaurant and bar are expected to open in December 2010. “ Burswood will undertake capital expenditure totalling approximately $350 million over the next 36 months to create a property that can successfully compete against the new integrated resorts in the Asian region” Barry Felstead Chief Executive Ofﬁ cer Burswood Proposed VIP luxury villas 10 CROWN LIMIT E D AN N UAL REPORT 2010 Burswood VIP gaming Burswood, Carbon Sports Bar “ ...upgrading and expanding the Burswood offering will secure its position as a world-class integrated resort” In July 2010, Burswood received in-principle support from the Western Australian Government to expand the existing casino complex in order to accommodate an increase in gaming product. This increase is currently subject to the approval of the Gaming & Wagering Commission of Western Australia. Together with the expansion of the main casino ﬂ oor and the InterContinental Perth Burswood hotel, other capital projects include the development of the Rockpool Bar & Grill restaurant and premium Japanese and Italian restaurants. Additionally, the InterContinental Perth Burswood’s pool and resort facilities will be upgraded and a roof-top VIP gaming salon will offer a unique gaming experience to VIP customers. This investment in upgrading and expanding the Burswood offering will secure its position as a world-class integrated resort. The full beneﬁ ts will be delivered from the 2013 ﬁ nancial year onwards and the investment is expected to be earnings and value accretive for shareholders. Local gaming and Club Burswood The replacement of the raised ﬂ oor in the main casino, a key phase of the main gaming ﬂ oor refurbishment, caused disruption to central casino operations from November 2009, particularly to table games. This, coupled with a softening in leisure and hospitality spending, impacted main ﬂ oor gaming revenue. The replacement of the raised ﬂ oor was completed at the end of April 2010. Since completion of this work, gaming revenue is slowly returning to normal levels. The balance of the main gaming ﬂ oor refurbishment is due for completion in December 2010 and has been planned to minimise disruption to patrons. The gaming machines area featured a number of tailored events and a range of new games were developed. The Meridian Room mid-tier electronic gaming facility has underpinned continued growth. A number of strategies were implemented in Burswood’s loyalty program, Club Burswood, to create interest during the year which has resulted in strong year-on-year growth of new memberships. Food and beverage promotions along with main gaming ﬂ oor entertainment enhanced the customer experience. CROWN LIMITED ANNUAL REPORT 2010 11 BUR S WOOD CONTINUED Burswood, Yú restaurant Burswood, (A)LURE Dining Room and Bar VIP program play International gaming achieved double-digit growth this year. This can be attributed to an increase in new business, as well as the development of joint initiatives with Crown Melbourne. Burswood’s position in the international market has been enhanced by the Pearl Room and the Inﬁ nity suites. Six private salons and luxurious international gaming facilities, coupled with a reputation for premium customer service, ensures the Pearl Room’s continued success. Hotels The InterContinental Perth Burswood maintained its position as the leading luxury hotel in Perth despite being under refurbishment for a signiﬁ cant portion of the year, weaker conferencing business and the softening of the Perth hotel market. Holiday Inn Burswood beneﬁ ted from customers staying overnight to attend concerts at the Dome and the Theatre. This was driven by innovative promotions with Burswood’s sponsorship partners and entertainment packages built around long-running shows such as Chicago, Cats and Mamma Mia driving the hotel business. Restaurants and bars Burswood’s restaurant and bar portfolio maintained its signiﬁ cant contribution with year-on-year growth. This was driven by the success of Carvers Buffet restaurant and Snax Café on the main gaming ﬂ oor, both of which opened in August 2009. Effective advertising, promotional offers and the large number of entertainment events held in both Burswood Dome and the Theatre contributed to the continued strong performance of restaurants and bars. Burswood’s premium Asian restaurant, Yú, continued to perform above expectations due to Burswood’s successful dinner series and a continued focus on advertising and promotion. (A)LURE Dining Room and Bar won Western Australia’s Best Seafood Restaurant and Best Wine List Awards, and the Carbon Sports Bar was again awarded Western Australia’s Best Sporting Entertainment Venue by the Australian Hotels Association. A key focus again this year was on the issue of responsible service of alcohol, with a number of initiatives supported throughout the year. Burswood was awarded the Australian Hotels Association Responsible Service of Alcohol Award for Western Australia. In other business initiatives, Burswood continued to focus on securing new entertainment line-ups such as themed glamour events in EVE nightclub. Increasing electronic communication and promotion of the product-focused website were also priorities. “ Effective advertising, promotional offers and the large number of entertainment events held in both Burswood Dome and the Theatre contributed to continued strong performance of restaurants and bars.” 12 CROWN LIMIT E D AN N UAL REPORT 2010 Entertainment and events Burswood was awarded Western Australia’s Best Live Entertainment Award by the Australian Hotels Association during the year. More than 675,000 patrons visited the Complex to attend either a Dome or Theatre show. The majority of Dome shows were well supported which resulted in multiple performances and record attendances. Major Dome shows included Simon & Garfunkel, Pink, Beyonce, Black Eyed Peas, Britney Spears, George Michael and Lady Gaga. Burswood Theatre also achieved an unprecedented number of long running shows with Chicago, Cats and Mamma Mia all drawing good crowds. It also hosted a number of successful performances including Jimmy Barnes, Swan Lake and John Farnham. The implementation of dedicated show packages has also driven accommodation and restaurant activity. Burswood continues to be recognised as one of Australia’s leading meetings and events venues. This year, Burswood focused on implementing a dynamic pricing structure and incentive offers to drive business locally as well as from the eastern states. Signature events hosted at the Complex included the Queensbury Charity Challenge and the Melbourne Cup Luncheon. Major conferences were also held at the Complex including the Asia Paciﬁ c Oil and Gas, West Australia Primary Principals Association, CSIRO Greenhouse 2009 and CPA Week. Once again, Burswood partnered with a number of charities in support of their annual gala balls this year including the high proﬁ le and very successful charity ball for Ronald McDonald House Charities. Other charities which held events at Burswood included The Anglicare Op Shop Ball, Youth Focus ‘Night of Nights’ and the seventh annual Amanda Young Foundation Ball. Burswood host-sponsored STYLEAID, a fashion fundraiser that beneﬁ ts the Western Australian Aids Council. Also in the fashion arena, the annual Boobalicious Ball was host-sponsored by Burswood and run by adultshop.com in support of the Breast Cancer Foundation of WA. In March 2010, Burswood hosted Sir Richard Branson who was supporting a series of Strike A Chord For Cancer Foundation events that were host-sponsored by Burswood. The Foundation helps children that need inspiration and a distraction from their ﬁ ght against cancer. The day culminated in a ‘Branson by the Pool’ event at Burswood, attended by over 900 guests. The Strike A Chord For Cancer Foundation Ball is held annually at Burswood. “ Burswood was awarded Western Australia’s ‘Best Live Entertainment Award’ by the Australian Hotels Association in the year.” Pearl Room Burswood casino entry CROWN LIMITED ANNUAL REPORT 2010 13 Melco Crown Entertainment Overview Crown held a 33.4 percent equity interest in Melco Crown, a joint venture between Crown and Melco International Development Limited, as at 30 June 2010. Melco Crown was listed on the NASDAQ in December 2006 and has two premium properties, City of Dreams and Altira Macau. The joint venture also operates Mocha Clubs. Melco Crown is one of only six sub-concessionaires permitted to operate gaming in Macau, a Special Administrative Region of the People’s Republic of China. As the only Chinese territory where gaming is legal, the Macau gaming market exhibited strong growth with gaming revenue for the year to June 2010 up 51.3 percent, while the number of tourists increased 8.5 percent to 23.6 million. Crown Towers, LAN bar Crown’s share of Melco Crown’s normalised result for the period was a loss of $42.7 million, after adding back Crown’s share of a below theoretical win rate variance and pre-opening expenses. “ ...the Macau gaming market exhibited strong growth with gaming revenue for the year to June 2010 up 51.3 percent...” This year, Melco Crown completed a US$600 million issuance of eight year high-yield bonds, the proceeds from which were used principally to reduce existing debt. Melco Crown also negotiated favourable changes to its banking covenants. City of Dreams City of Dreams had its ﬁ rst full year of operation this year. Melco Crown recently announced that good progress has been made in the quarter to June 2010, with quarterly rolling chip volume increasing 24 percent sequentially. Melco Crown also announced that it delivered a 9 percent sequential increase in mass market table games revenue in the same quarter. A key attraction for City of Dreams going forward will be Franco Dragone’s ‘The House of Dancing Water’, a live show created speciﬁ cally for the purpose-built Theatre of Dreams, which opened in September 2010. Altira Macau Altira Macau is primarily focused on meeting the cultural preferences and expectations of Asian VIP rolling chip customers. Altira Macau continues to perform better under its traditional VIP model and proﬁ tability has continued to beneﬁ t from the commission cap implemented in 2009. Mocha Clubs Mocha Clubs feature approximately 1,500 gaming machines in eight locations and represent the largest non-casino based operations of electronic gaming machines in Macau. City of Dreams, Hard Rock hotel lobby 14 CROWN LIMIT E D AN N UAL REPORT 2010 Other Investments Betfair Crown holds a 50 percent interest in Betfair Australasia under a joint venture established in 2004 with Betfair UK (The Sporting Exchange Limited), the world’s largest betting exchange. Betfair is a betting exchange for customers resident in Australia or New Zealand. The betting exchange operates an online market where individuals with differing views on an event can make ﬁ xed-price bets, effectively wagering between themselves. Betfair’s services are exclusively provided via the internet and via telephone. It does not operate retail premises, nor does it have an on-course presence. Crown’s equity accounted share of Betfair’s loss was $5.7 million. The loss is primarily due to an increase in legal fees and product fees (the subject of a legal challenge in NSW). During the year, Crown made a further $4.0 million loan to Betfair, thereby resulting in a total debt owed to Crown of $11.7 million. Cannery Crown holds a preferred instrument in Cannery Casino Resorts (Cannery) which is recorded in the Crown balance sheet as an Available-For-Sale ﬁ nancial asset. Crown is awaiting Pennsylvania regulatory approval to convert this preferred instrument to equity. Upon conversion, Crown will hold a 24.5 percent share in Cannery. Based in the United States, Cannery operates the Meadows Racetrack and Casino in Pennsylvania and Cannery Casino, East Side Cannery and Rampart Casino in Las Vegas. In early 2010, Crown agreed to contribute a further $20.6 million (US$18.4 million) towards its investment in Cannery as part of Cannery’s external debt reﬁ nancing. All shareholders of Cannery contributed further equity in order to reduce existing external debt. Crown contributed its pro rata share of the new equity. By participating in the equity investment, Crown has maintained its ownership share in Cannery, which remains subject to Pennsylvania regulatory approval. Aspinalls Crown holds a 50 percent equity interest in Aspinalls, which was written down to nil in 2009. Aspinalls is a long-established UK-based casino operator whose subsidiaries operate the Aspinall’s Club in London’s Mayfair and three regional casinos in Newcastle, Swansea and Northampton (the latter in a joint venture with Kerzner UK Limited). Crown had previously provided debt facilities to Aspinalls which were, as at 30 June 2010, drawn to £17.6 million. As part of a loan restructure, Crown agreed to provide additional loan facilities including a new term loan of £6.0 million to the Aspinalls Group, a gaming guarantee facility of up to £10.0 million, which replaces Crown’s existing gaming guarantee facility of £6.25 million, and a new loan facility of £1.6 million to the Aspinalls holding company. In July 2010, the new term loan of £6.0 million was drawn by Aspinalls and was used to reduce existing bank debt, resulting in a total debt owed to Crown of £23.6 million. Gateway Crown’s equity and debt investments in Gateway had previously been written down to nil. Subsequent to year end, Gateway has ﬁ nalised a restructure of its equity and debt so that Crown and its joint venture partner, Macquarie Group, now each own 1% of the restructured entity. Crown was not required to contribute any further capital and has been released from all obligations. The restructure has no material impact on Crown’s ﬁ nancial results. CROWN LIMITED ANNUAL REPORT 2010 15 Sustainability Report Our People Crown places signiﬁ cant emphasis on employee engagement and satisfaction, as is evidenced by its commitment to offering access to training and development opportunities for its workforce of more than 9,600 employees. Across its Crown Melbourne and Burswood businesses, which are the largest single-site private sector employers in Victoria and Western Australia, over 370,000 hours of job training are undertaken annually. In 2009, Crown was the ﬁ rst employer to sign the Australian Employment Covenant. Over the past 12 months Crown’s indigenous employment strategy, guided by dedicated employment coordinators, has facilitated the increase of its indigenous workforce. Over 60 indigenous Australians have been employed in the Crown Melbourne and Burswood complexes to date. Crown’s indigenous employment strategy is regarded as a best practice model for other employers across the country. The program boasts a high retention rate with a signiﬁ cant number of people settling into permanent secure employment and building strong careers. Crown Melbourne This year’s opening of the new $10 million purpose-built training facility for Crown College, which has been in operation for the past 15 years, exempliﬁ es Crown Melbourne’s commitment to continued investment in its employees. Training for up to 300 employees can take place across the general purpose and computer- equipped training rooms, the 70-seat auditorium, and the dedicated Table Games and Gaming Machines training areas. The new 70-seat training restaurant and bar, Culinarium, offers a training environment second to none for Food and Beverage employees. As a Registered Training Organisation, Crown Melbourne has developed and delivered high- quality accredited courses at the College and has worked with industry and education-sector partners to ensure a broad range of development opportunities is available. Currently, 16 percent of Crown Melbourne employees are participating in accredited training across 13 qualiﬁ cation streams covering all areas of the business. Crown Melbourne’s three main Learning Pathways programs offer frontline employees, supervisors and managers a clear course to achieve their career goals. In partnership with Swinburne University, Learning Pathways has been aligned to the Australian Qualiﬁ cations Training Framework enabling Crown Melbourne employees to gain nationally recognised qualiﬁ cations. The Learning Pathways initiative strongly supports the Victorian Government’s Securing Jobs for the Future – Skills for Victoria strategy. Steve Herbert, Parliamentary Secretary for Education and Parliamentary Representative for Eltham – Opening of Crown College “ ...opening of the new $10 million purpose-built training facility for Crown College exempliﬁ es Crown Melbourne’s commitment to continued investment in its employees.” Crown Melbourne participates in NAIDOC week 16 CROWN LIMIT E D AN N UAL REPORT 2010 Crown Melbourne, Open Family Christmas Participants of Burswood’s Australian Employment Covenant Employees were further encouraged to develop a fulﬁ lling and long-term career at Crown Melbourne this year with the launch of Crown Careers Expo online, which supports the facilitation of career moves into other frontline roles within the business. To support the launch of the customer loyalty program, a company-wide training program on Crown Signature Club was implemented in conjunction with a customer service values training program aimed at strengthening Crown’s brand. Health and safety continued to be a priority. Crown Melbourne’s Senior Management Team participated in Health & Safety Executive Due Diligence Workshops during the year, reinforcing legal obligations and emphasising the importance of safety leadership in senior management roles. The new online incident, hazard and risk reporting system was also launched resulting in improved hazard reporting and control. During the year, Crown Melbourne committed to renewing its WorkSafe Self Insurance Approval. In September 2010, Crown Melbourne was named “Victorian Employer of the Year” at the Victorian Training Awards 2010. Burswood The commitment and professionalism of Burswood’s employees underpinned the strong results achieved this year, with a high level of customer satisfaction evident across the complex. Burswood signiﬁ cantly expanded its training activities during the ﬁ nancial year. The focus was on developing and improving service capability, improving performance systems and launching new online learning courses. Diversity in the workplace has also been a key focus throughout the year. Burswood introduced its own Apprentice, Trainee and Trainer of the Year Awards to provide recognition to those employees who participate in training and learning and development at Burswood. A Leadership Development Program was also introduced this year. The program identiﬁ es developing leaders within the business and assists them in reaching their full potential over a year-long training program. The introduction of Burswood’s mentoring program has seen over 35 experienced managers assume mentoring roles within the business to support and assist other staff members in their careers at Burswood. CROWN LIMITED ANNUAL REPORT 2010 17 “ Burswood signiﬁ cantly expanded its training activities during the ﬁ nancial year.” S US TAINABILITY REPORT CONTINUED “ Crown is committed to the promotion of responsible service of gaming as part of its business.” Professor John Horvath A.O. Chair Crown Responsible Gaming Committee Responsible Gaming Crown continues to be a leader in the development and implementation of initiatives that support responsible gaming. The commitment to good gaming practices is evident in the signiﬁ cant resources dedicated to promoting responsible gaming and providing assistance to patrons who may be experiencing difﬁ culty with their gaming behaviours at both Crown Melbourne and Burswood complexes. Subsequent to year end, the Crown Board established a Board Committee dedicated to overseeing responsible gaming at Crown. The Responsible Gaming Committee is chaired by newly appointed Crown Director, Professor John Horvath. The Committee is charged with reviewing and monitoring Crown’s responsible gaming programs, recommending policies and procedures to enhance the effectiveness of those programs and promoting awareness of responsible gaming issues. Crown is serious about ensuring that staff members understand Crown’s responsible gaming programs. From induction through to ongoing training, they are trained to look out for, and make managers aware of, observable signs that indicate a customer may be experiencing difﬁ culty with their gaming behaviours. Staff regularly participate in information sessions and complete refresher courses on the responsible service of gaming. Staff at both Crown Melbourne and Burswood know the steps to take to ensure individuals are directed to their respective Responsible Gaming Support Centres or to make their Responsible Gaming Liaison Ofﬁ cers aware of the behaviours. Crown Melbourne Crown Melbourne’s Responsible Gaming Support Centre has been in operation since 2002. The centre, which is a world-ﬁ rst responsible gaming initiative, is an in-house facility that operates 24-hours a day, seven days a week. It is staffed by an experienced team including Crown Melbourne’s Responsible Gaming Liaison Ofﬁ cers who provide services around the many responsible gaming initiatives and programs including the Self-Exclusion Program. Other initiatives include access to on-site Responsible Gaming Psychologists and the availability of the Chaplaincy Support Service. Crown Melbourne has been a pioneer in the development of pre-commitment systems, having ﬁ rst implemented a voluntary system, the Play Safe Limits program, in 2003 as one of its many responsible gaming initiatives. The program allows gaming machine and fully automated table games customers to set daily individual spend and time limits, or a combination thereof, as well as an optional annual spent limit, using their Crown Signature Club Card. Availability of information on Crown Melbourne’s established responsible gaming programs is key to successfully assisting customers to address problem behaviours associated with gaming. Responsible gaming materials are readily available throughout the complex, on the gaming ﬂ oor and via the Responsible Gaming Support Centre. Furthermore, contact telephone numbers for Crown Melbourne’s Responsible Gaming Support Centre and Gambler’s Help are displayed on gaming machines, table games, ATMs, brochures, Crown Signature Club information desks and in newsletters. This year marked the ﬁ rst full year of operation of Crown Melbourne’s new Responsible Gambling Code of Conduct. The Code brought all the responsible gaming initiatives that Crown Melbourne had been actively implementing for a number of years under one banner. It is available in a number of languages. Crown Melbourne has established strong links with support services such as Gambler’s Help and relevant assistance programs, with regular interactions to ensure provision of appropriate assistance to customers seeking help. Crown Melbourne is represented on the Victorian Responsible Gambling Ministerial Advisory Council and on their working groups and committees. 18 CROWN LIMIT E D AN N UAL REPORT 2010 Hon. Terry Waldron, Minister for Racing and Gaming – Opening of Burswood’s Responsible Gambling Information Centre Simon O’Donnell, ambassador for Responsible Gambling Awareness Week, and Fr James Grant, Crown Melbourne’s Chaplain Crown Melbourne has participated in Responsible Gambling Awareness Week (RGAW), a state wide government, community and industry initiative, since its inception and this year hosted a morning tea with stakeholder attendees and the media. Former Australian cricketer, Simon O’Donnell, an ambassador for RGAW and Crown Melbourne’s Chaplain, Fr James Grant, spoke about the key themes for the week – knowledge, balance and control. Crown Melbourne’s involvement highlights the importance of the partnership between the gaming industry, state government and the community sector in promoting responsible gaming. Burswood Awareness continues to increase for Burswood’s Responsible Gambling Information Centre, which opened in 2009. Burswood’s centre is an in-house facility manned by experienced staff who deal with customers who may be experiencing difﬁ culties with their gaming behaviours. The responsible gaming team at the Centre provide information about Burswood’s many responsible gaming initiatives and programs such as the Self-Exclusion Program. Burswood recently updated its online training program for staff, ensuring they have access to the latest best practice information on responsible gaming. The training updates also include the development of an ongoing refresher program for staff. In July 2010, Burswood introduced player pre-commitment and player activity statement functionality. Patrons who play Burswood’s gaming machines are able to set ﬁ nancial and time limits regarding their play. Additionally patrons are able to obtain a statement that details their gaming activity. This year, during Awareness Week, Burswood, in collaboration with State government, community and industry partners, hosted and presented at an inaugural half-day forum. The Minister for Racing and Gaming formally opened Awareness Week and Professor Jan McMillan delivered a key note address. Burswood’s annual forum with Gambling Help WA (GHWA) included industry partners for the ﬁ rst time this year. The forum continued to build collaboration between workplaces in order to develop relationships among industry stakeholders. Burswood’s presentations outlined its strategic approach, guiding principles and achievements. During the forum, GHWA provided case studies to staff on the issues patrons confront in counselling and how counsellors engage and treat individuals who have developed problem behaviours. Burswood has continued to engage, develop and maintain relationships with a wide range of community service organisations and industry partners, raising awareness of responsible gaming and the services provided by Burswood to assist patrons who develop a problem with their gambling. CROWN LIMITED ANNUAL REPORT 2010 19 “ Burswood’s continuous responsible gaming training for staff underpins its focus on providing assistance to customers who experience problems with their gaming behaviours.” S US TAINABILITY REPORT CONTINUED Crown Melbourne supporting The Million Dollar Lunch “ ...Crown Melbourne responds and provides assistance, donations and support to a broad range of community needs.” Community Community involvement is driven by the belief that we have both responsibility and opportunity to assist in the growth and development of the local communities where Crown’s people and staff live and work. This year, Crown and its employees provided support to projects that focused on a variety of charitable causes from individuals who suffer illness to established care agencies. Contributions were made in various forms including sponsorship arrangements and the contribution of resources such as staff time, use of facilities and various Crown Packages that can be further used to raise monies for the charities. Crown Melbourne From large organisations to individuals affected by tragedy, Crown Melbourne responds and provides assistance, donations and support to a broad range of community needs. Crown Melbourne is proud that its staff volunteer their time and efforts each Christmas Day to help pack and distribute over 250 hampers ﬁ lled with ingredients donated by Crown Melbourne as part of the Open Family Australia Christmas program. For over ﬁ ve years, Crown Melbourne has sponsored and hosted the My Room Ball. My Room was formed in 1993 by three families who had children undergoing chemotherapy and wanted to support the Oncology Unit at The Royal Children’s Hospital in Melbourne. Crown Melbourne also supports Challenge’s Robert Allenby Gala Dinner and Diamonds are a Girl’s Best Friend Dinner for children living with cancer and other life-threatening blood disorders. Over the past ﬁ ve years, the KOALA Foundation (Kids Oncology And Leukaemia Action Foundation) has received over $7.56 million from its annual fundraising event that brings together some of Australia’s most inﬂ uential people. Crown Melbourne hosts The Million Dollar Lunch and donates food, the venue, various prizes and rafﬂ e items, along with staff and management teams who work at the event for the beneﬁ t of the KOALA Foundation. Crown Melbourne also sponsors and hosts Starry, Starry Night, which raises funds for The Alannah and Madeline Foundation. This year, over $620,000 was raised to help protect children from violence and its devastating effects. Crown Melbourne is involved with The Shane Warne Foundation, which donates monies raised at events to charities that work with seriously ill and underprivileged Australian children. Crown Melbourne sponsors and hosts a number of the Foundation’s events including the Footy Finals Luncheon, the Boxing Day Breakfast and the Joe Hachem and Shane Warne Charity Poker Tournament. KOALA Foundation Christmas morning tea 20 CROWN LIMIT E D AN N UAL REPORT 2010 Salvation Army Easter Appeal Richard Branson – Strike A Chord for Cancer Foundation event “ Burswood’s employees are an integral part of the community support program.” Burswood Burswood’s community support program works with a portfolio of over 20 local charity partners that help meet various needs in Western Australia. Burswood supports a number of local, welfare-based agencies including a 10-year partnership with Foodbank Western Australia which sees Burswood chefs prepare 9,000 litres of soup annually for distribution to those in need. This year, the chefs were also involved in a local 6PR radio promotion to ﬁ nd Perth’s best soup recipe, which the chefs served during The Salvation Army lunchtime food run. Burswood’s employees are an integral part of the community support program. For 12 years, they have provided much needed support to the Anglicare WA Winter Appeal donating blankets, clothing and food items. Employees also support the Christmas Appeal for St Vincent’s, donating items like hampers and bedding. This year, Burswood launched an Easter Appeal for The Salvation Army and staff donated chocolate Easter eggs and treats. The Juvenile Diabetes Research Foundation Australia Walk to Cure is also supported by Burswood employees. Burswood has a long-term partnership with The St Vincent de Paul Society. This year Chief Executive Officer, Barry Felstead, participated in the inaugural CEO Sleepout in Western Australia, raising over $34,000 in support of homeless services across Australia. A new initiative this year included major support of Telethon, a long-running televised Perth fundraiser for the Princess Margaret children’s hospital. Burswood is a proud partner of Youth Focus, a not-for-proﬁ t organisation dedicated to the prevention of youth suicide and depression. The organisation’s annual Night of Nights Ball is held at Burswood. Importance is placed on providing support and patronage to the arts in Western Australia. Young Artists With Artitude each year gives 22 young artists the chance to exhibit in the Lobby of the InterContinental Perth Burswood, with one artist receiving a $5,000 grant from Burswood. Burswood again sponsored the annual Storm The Stage competition. An arts initiative developed with the Rotary Club over the past six years, it gives young performers the chance to showcase their talents on a world-class stage. Reinforcing Burswood’s commitment to safety in the community, Burswood has an important 15-year partnership with Crime Stoppers in WA and is host-sponsor to the annual WA Police Ofﬁ cer of the Year Awards. CROWN LIMITED ANNUAL REPORT 2010 21 S US TAINABILITY REPORT CONTINUED Burswood Environment Committee “ Crown’s vision is to play a leadership role in sustainable business practice in the gaming and entertainment industry.” Environment Crown again participated in the Carbon Disclosure Project (CDP), which is run by an independent not-for-proﬁ t organisation that holds the largest database of corporate climate change information in the world. Crown’s vision is to play a leadership role in sustainable business practice in the gaming and entertainment industry. In order to achieve this, Crown looks to expand its environmental sustainability efforts going forward by following the Global Reporting Initiative Guidelines in its sustainability reporting and by bringing operations in line with global environmental management standards. Crown Melbourne This year, Crown Melbourne implemented a number of sustainability initiatives including a comprehensive monitoring and reporting system that provides live data for measuring electricity, gas and water consumption. State-of-the-art energy and water efﬁ ciency technologies were adopted during the development of the Crown Metropol and Crown Conference Centre, both of which opened this year. Energy Efﬁ ciency Crown Melbourne continues to reduce energy consumption through initiatives such as a site-wide lighting review to identify lighting replacement and control upgrade opportunities. The installation of 13 new KONE lifts at Crown Towers will incorporate a number of energy saving features that will result in a total annual energy savings of over 1.2 million kWh. This represents greenhouse gas savings of more than 1,500 tonnes, equivalent to powering 128 Victoria homes or removing 386 cars from the streets. Water Conservation Crown Melbourne continued water reduction initiatives through its approved waterMAP program. A complex-wide review of water ﬁ ttings resulted in a number of upgrades and water-saving installations. The installation of waterless woks throughout Crown Melbourne was one of the more progressive initiatives. A signiﬁ cant amount of water is used during wok cooking and Crown Melbourne restaurants have been able to save up to 5,000 litres per day per waterless wok stove, a total of 1.8 million litres per year. Life Cycle Management Crown Melbourne works with suppliers, employees, customers and waste management contractors to develop more sustainable consumption and production patterns across the total life cycle of products and services. The polystyrene recycling scheme at Crown Melbourne is a good example of the Life Cycle Management program. Over 15 cubic metres of polystyrene is generated per day (5,475 per year) at the complex, primarily from the food and beverage outlets, all of which is diverted to a recycling facility where it is crushed, melted and reused as ofﬁ ce stationery. Crown Melbourne also continued its positive track record in waste management by extending its certiﬁ cation under Sustainability Victoria’s Waste Wise scheme. The successful organics composting system diverted over 1,100 tonnes of landﬁ ll, an increase of over 80 percent on 2009 levels. 22 CROWN LIMIT E D AN N UAL REPORT 2010 l d e c y c e R e t s a W f o s e n n o T 120 100 80 60 40 20 0 8 0 - u J l 8 0 - g u A 8 0 - p e S 8 0 - t c O 8 0 - v o N 8 0 - c e D 9 0 - n a J 9 0 - b e F 9 0 - r a M 9 0 - r p A 9 0 - y a M 9 0 - n u J 9 0 - u J l 9 0 - g u A 9 0 - p e S 9 0 - t c O 9 0 - v o N 9 0 - c e D 0 1 - n a J 0 1 - b e F 0 1 - r a M 0 1 - r p A 0 1 - y a M 0 1 - n u J Crown’s Monthly Levels of Organic Waste Recycling Crown’s Food Waste Lifecycle Management Process “ Burswood places high priority on environmental issues...” Burswood Burswood places high priority on environmental issues, with an Environmental Committee in place to create initiatives and carry them out across the business. Ongoing staff communications and involvement helped increase staff awareness of Burswood’s environmental initiatives. Staff participation in Burswood’s inaugural ‘B Green’ week was signiﬁ cant and a number of communication channels delivered positive environmental lessons. Energy Efﬁ ciency As part of Burswood’s ongoing energy monitoring program, further energy saving initiatives this year included completion of the chiller replacement program, which has improved energy efﬁ ciency by 10 to 15 percent. The continuing upgrade to energy efﬁ cient lighting and replacement of pneumatic controls with direct digital controls throughout the Complex has also resulted in direct energy savings. Furthermore, the Holiday Inn Burswood implemented a modulated set point for water heating, again reducing energy consumption across the hotel. Despite the signiﬁ cant development works during the past year, Burswood maintained, and in some areas reduced, energy use, with ﬁ gures showing a 3 percent reduction in total energy consumed. Water Conservation A number of water saving initiatives were identiﬁ ed and implemented this year including installation of 3.5 litre hand basin tapware restrictors across the whole complex. The Holiday Inn Burswood also installed water efﬁ cient shower heads. New water efﬁ cient dishwashers were installed in Yù and staff café kitchens. Pool covers were ﬁ tted to the InterContinental Perth Burswood indoor pool and spa as well as the outdoor spa. An assessment of the quantiﬁ able water saving initiatives undertaken this year at Burswood has shown a reduction in water use of approximately 20 million litres a year. Life Cycle Management Burswood appreciates the need for a whole of life cycle approach to waste management and continues to adopt initiatives that help reduce waste. Burswood undertook a number of steps this year aimed at reducing waste. Two initiatives were implemented with the assistance of funding grants. The Packaging Stewardship Forum Public Place Recycling is a complex-wide recycling program and the Burswood Strategic Waste Initiatives Scheme involves the trial implementation of a collection service of food waste which is then composted. CROWN LIMITED ANNUAL REPORT 2010 23 Corporate Governance Statement C o r p o r a t e G o v e r n a n c e S t a t e m e n t The Crown Limited Board is committed to the implementation and maintenance of good corporate governance practices. This Statement sets out the extent to which Crown Limited (Crown) has followed the best practice recommendations set by the ASX Corporate Governance Council (the Principles and Recommendations) during the twelve month period ending 30 June 2010. Principle 1 Lay solid foundations for management and oversight Functions reserved for the Board The Board is responsible for guiding and monitoring Crown on behalf of its shareholders. In addition, the Board is responsible for identifying areas of signiﬁ cant business risk and ensuring arrangements are in place to adequately manage those risks. The Board has adopted a formal Board Charter which sets out a list of speciﬁ c functions which are reserved for the Board. Functions delegated to senior executives Crown’s senior executives have responsibility for matters which are not speciﬁ cally reserved for the Board (such as the day-to-day management of the operations and administration of Crown). Process for evaluating performance of senior executives Crown has established processes for evaluating the performance of its senior executives. In summary, each senior executive is evaluated against the achievement of pre-agreed performance objectives. The evaluation process is conducted annually and is followed by the determination of appropriate remuneration of the relevant senior executive. Detailed information regarding Crown’s remuneration practices is provided in the Remuneration Report. An evaluation of senior executives took place following the end of the ﬁ nancial year and in accordance with the processes described in the Remuneration Report. Induction process for new executives Crown executives are required to undertake formal induction training through Crown Melbourne’s on-site accredited training facility – Crown College. The program involves training about: • the history and development of the Crown brand and business; • the main legal and regulatory obligations affecting the Crown business; • Crown’s responsible gaming policies and procedures; and • the rights and obligations of Crown employees. As part of the induction program, executives are required to successfully complete a series of online training modules and to pass the associated assessment. More information A full copy of the Crown Board Charter is available at: www.crownlimited.com under the heading Corporate Governance – Charters. 24 CROWN LIMIT E D AN N UAL REPORT 2010 C o r p o r a t e G o v e r n a n c e S t a t e m e n t Principle 2 Structure the Board to add value Composition of the Board As at the date of this Statement, the Board comprises the following twelve Directors: • James D Packer Executive Chairman • John H Alexander BA Executive Deputy Chairman • Benjamin A Brazil BCom LLB Independent, Non-Executive Director • Christopher D Corrigan Independent, Non-Executive Director • Rowen B Craigie BEc (Hons) Chief Executive Ofﬁ cer and Managing Director • Rowena Danziger BA, TC, MACE Independent, Non-Executive Director • Geoffrey J Dixon Independent, Non-Executive Director • David L B Gyngell Independent, Non-Executive Director • Professor John S Horvath AO, MB, BS (Syd), FRACP Independent, Non-Executive Director • Ashok Jacob MBA Non-independent, Non-Executive Director • Michael R Johnston BEc, CA Non-independent, Non-Executive Director • Richard W Turner AM, BEc, FCA Independent, Non-Executive Director Mr David H Lowy resigned as a director on 22 June 2010. Information about each current Director’s qualiﬁ cations, experience and period in ofﬁ ce is set out in the Directors’ Statutory Report. The roles of Chair and Chief Executive Ofﬁ cer are exercised by separate persons. James Packer acts as Executive Chairman and Rowen Craigie as Chief Executive Ofﬁ cer and Managing Director. Relationships affecting independence During the ﬁ nancial year ending 30 June 2010 (until Mr Lowy’s resignation), Crown had eleven Directors, six of whom were independent Directors. A majority of Directors were therefore independent. The appointments of Professor Horvath and Mr Gyngell, which were announced on 22 June 2010, took effect on 9 September and 13 September 2010 respectively following the receipt of all necessary regulatory approvals. As a consequence, the Crown Board currently comprises twelve Directors, seven of whom are independent Directors. The independence of Directors is assessed against a list of criteria and materiality thresholds. Those criteria have been formally enshrined in the Crown Board Charter. Each Director who is listed as an independent Director complies with the relevant criteria for independence set out in the Crown Board Charter. CROWN LIMITED ANNUAL REPORT 2010 25 CO RPO RATE G OVE RNANCE S TATEMENT CONTINUED C o r p o r a t e G o v e r n a n c e S t a t e m e n t Departure from Recommendation 2.2: The Principles and Recommendations recommend that the chair of the Board should be an independent Director. Crown’s Chairman is not an independent Director. The Board believes that the interests of shareholders are best served by a Chairman who is sanctioned by shareholders and who will act in the best interests of shareholders as a whole. As the Chairman has a signiﬁ cant relevant interest in Crown, he is well placed to act on behalf of shareholders and in their best interests. Procedure for selection and appointment of new Directors In April 2010, the Board expanded the mandate of the Remuneration Committee to include delegated authority to deal with nomination issues. The newly named “Nomination and Remuneration Committee” has a formal Charter that outlines its duties and responsibilities. Those responsibilities include reviewing Crown’s procedure for the selection and appointment of new directors and developing succession plans in order for the Board to maintain appropriate experience, expertise and diversity. Where a new Director appointment is required, the Committee adheres to procedures including the following: • the experience and skills appropriate for an appointee, having regard to those of the existing Board members and likely changes to the Board are considered; • upon identifying a potential appointee, speciﬁ c consideration is given to that candidate’s: – competencies and qualiﬁ cations; – independence; – other directorships and time availability; and – the effect that their appointment would have on the overall balance and composition of the Board; and • ﬁ nally, all existing Board members must consent to the proposed appointment. The re-appointment procedures for incumbent Directors are as outlined in Crown’s Constitution. In summary, subject to the speciﬁ c matters described in the Constitution, an election of Directors must take place each year at which one third of Directors must retire. Any Director who has been in ofﬁ ce for three or more years and for three or more annual general meetings must also retire. Directors who retire are generally eligible for re-election. Process for evaluating performance of the Board, its Committees and its members A performance evaluation of the Board and of its Committees is undertaken annually, following completion of each ﬁ nancial year, by way of a questionnaire sent to each Board and Committee member. The questionnaire covers the role, composition, procedure and practices of the Board and its Committees. The individual responses to the questionnaire are conﬁ dential to each Board/Committee member, with questionnaire responses to be provided to the Chairman of the Audit & Corporate Governance Committee for his consideration and provision of a report to the Executive Chairman of the Board. An evaluation of the Board and its Committees took place following the end of the ﬁ nancial year and in accordance with the processes described above. The mandate of the amended Nomination and Remuneration Committee now extends to reviewing Crown’s procedure for the evaluation of the performance of the Board, its Committees and its directors. Accordingly, responses to the Board performance evaluation will be reviewed by the Nomination and Remuneration Committee commencing in ﬁ nancial year 2011. Procedures for taking independent advice To enable Crown’s Board to fulﬁ l its role, each Director may obtain independent advice on relevant matters at Crown’s expense. In these circumstances, the Director must notify the Executive Chairman of the nature of the advice sought prior to obtaining that advice, so that the Executive Chairman can take steps to ensure that the party from whom advice is sought has no material conﬂ ict of interest with Crown. The Executive Chairman is also responsible for approving payment of invoices in relation to the external advice. 26 CROWN LIMIT E D AN N UAL REPORT 2010 C o r p o r a t e G o v e r n a n c e S t a t e m e n t In addition, each Board Committee has the full authority of the Board to: • communicate and consult with external and internal persons and organisations concerning matters delegated to the Committee; and • appoint independent experts to provide advice on matters delegated to the Committee. Crown Board Committees To assist in carrying out its responsibilities, the Crown Board has established the following Committees: Committees Audit & Corporate Governance Finance* Investment Nomination and Remuneration** Current Members Richard Turner (Chair) Rowena Danziger Michael Johnston Geoffrey Dixon (Chair) Michael Johnston Richard Turner James Packer (Chair) John Alexander Rowen Craigie Ashok Jacob Geoffrey Dixon (Chair) Chris Corrigan James Packer Occupational Health, Safety & Environment Rowena Danziger (Chair) Risk Management Rowen Craigie Michael Johnston Geoffrey Dixon (Chair) Rowen Craigie Rowena Danziger Meetings held during FY 2010 3 0 2 1 4 2 * The Finance Committee did not meet this ﬁ nancial year as all relevant ﬁ nancing matters were dealt with by the Board. ** The Nomination and Remuneration Committee was restructured in April 2010. Its mandate was extended to include delegated authority to deal with nomination issues. In April 2010, Mr Corrigan replaced Mr Alexander and Mr Dixon commenced his role as Chair. There was one meeting of the Committee during ﬁ nancial year 2010 subsequent to the restructure. In addition, a Responsible Gaming Committee was established in June 2010 to oversee and enhance Crown’s responsible gaming programs and performance. The Committee is comprised of the following members: John Horvath (Chair), Rowen Craigie and Rowena Danziger. The Committee will commence its role in ﬁ nancial year 2011. Each Committee has adopted a formal Charter that outlines its duties and responsibilities. More information A full copy of each of Crown’s Committee Charters is available at: www.crownlimited.com under the heading Corporate Governance – Charters. A description of the procedure for selection, appointment and re-election of Directors is available on the Crown website at: www.crownlimited.com under the heading Corporate Governance – Policies. CROWN LIMITED ANNUAL REPORT 2010 27 CO RPO RATE G OVE RNANCE S TATEMENT CONTINUED C o r p o r a t e G o v e r n a n c e S t a t e m e n t Principle 3 Promote ethical and responsible decision-making Codes of conduct Crown has established separate Codes of Conduct that outline the standard of ethical behaviour that is expected of its Directors and of its employees at all times. The Code of Conduct for Employees is a detailed statement of the: • practices required by employees to maintain conﬁ dence in Crown’s integrity; • legal obligations of employees and the reasonable expectations of their stakeholders; and • responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Policy concerning trading in company securities Crown has adopted a formal Securities Trading Policy which details Crown’s policy concerning trading in Crown shares by Directors, senior executives and employees. The Securities Trading Policy: • includes a requirement that employees do not buy and sell Crown shares within a 12 month period (ie that they do not short trade); • establishes formal “trading windows” during which Crown employees can and cannot trade in Crown shares; • sets out Crown’s policy on entering into transactions in associated products which limit economic risk; and • summarises the application of the insider trading provisions of the Corporations Act and the consequences of contravention thereof. More information Full copies of Crown’s Code of Conduct for Directors and Code of Conduct for Employees are available at: www.crownlimited.com under the heading Corporate Governance – Codes. A full copy of Crown’s Securities Trading Policy is available at: www.crownlimited.com under the heading Corporate Governance – Policies. Principle 4 Safeguard integrity in ﬁ nancial reporting Crown Audit & Corporate Governance Committee and Charter As indicated above, Crown has established a formal Audit & Corporate Governance Committee to review the integrity of Crown’s ﬁ nancial reporting and to oversee the independence of Crown’s external auditors. The members of the Audit & Corporate Governance Committee are Richard Turner (Chair), Rowena Danziger and Michael Johnston. All members of the Committee are Non-Executive Directors and a majority of those Committee members are independent Directors. The Chairman of the Audit & Corporate Governance Committee, Mr Richard Turner is an independent Director who has extensive ﬁ nancial qualiﬁ cations and experience, having been an audit partner at Ernst & Young and having held the position of Chief Executive Ofﬁ cer of Ernst & Young prior to his retirement in 1994. Further information about each Committee member’s qualiﬁ cations and experience is set out in the Directors’ Statutory Report. The Audit & Corporate Governance Committee has adopted a formal Charter that outlines its duties and responsibilities. The Charter includes information on the procedures for selection and appointment of the external auditor of Crown and for the rotation of external audit engagement partners. More information A full copy of Crown’s Audit & Corporate Governance Committee Charter is available at: www.crownlimited.com under the heading Corporate Governance – Charters. 28 CROWN LIMIT E D AN N UAL REPORT 2010 Principle 5 Make timely and balanced disclosure Policy to ensure compliance with ASX Listing Rule disclosure requirements Crown has a formal Continuous Disclosure Policy in place which is designed to ensure compliance with ASX Listing Rule requirements. The Policy details processes for: • ensuring material information is communicated to Crown’s Chief Executive Ofﬁ cer, its General Counsel and Company Secretary or a member of the Audit & Corporate Governance Committee; • the assessment of information and for the disclosure of material information to the market; and • the broader publication of material information to Crown’s shareholders and the media. C o r p o r a t e G o v e r n a n c e S t a t e m e n t More information A full copy of Crown’s Continuous Disclosure Policy is available at: www.crownlimited.com under the heading Corporate Governance – Policies. Principle 6 Respect the rights of shareholders Promotion of effective communication with shareholders Crown has a Communications Policy which seeks to promote effective communication with its shareholders. The Policy explains how information concerning Crown will be communicated to shareholders. The communication channels include: • Crown’s Annual Report; • disclosures made to the ASX; and • Notices of Meeting and other Explanatory Memoranda. Crown has a dedicated corporate website which includes copies of all communications and other company information. More information A full copy of Crown’s Communication Policy is available at: www.crownlimited.com under the heading Corporate Governance – Policies. CROWN LIMITED ANNUAL REPORT 2010 29 CO RPO RATE G OVE RNANCE S TATEMENT CONTINUED C o r p o r a t e G o v e r n a n c e S t a t e m e n t Principle 7 Recognise and manage risk Policy for the oversight and management of material business risks Crown has established policies for the oversight and management of material business risks and has adopted a formal Risk Management Policy. Risk management is an integral part of the industry in which Crown operates. Design and implementation of risk management and internal control systems As required by the Board, Crown’s management have devised and implemented risk management systems appropriate to Crown. Management is charged with monitoring the effectiveness of risk management systems and is required to report to the Board via the Risk Management Committee. The Board convened Risk Management Committee administers Crown’s Risk Management Policy. The Policy sets out procedures which are designed to identify, assess, monitor and manage risk at each of Crown’s controlled businesses and requires that the results of those procedures are reported to the Crown Board. A formal Risk Management Plan has been developed using the model outlined in Australia & New Zealand Standard 4360: 2004. The Plan identiﬁ es speciﬁ c Head Ofﬁ ce risks in light of major risks identiﬁ ed at an operational level and provides the framework for the reporting and monitoring of material risks across the Crown group. The Board has received, and will continue to receive, periodic reports through the Risk Management Committee, summarising the results of risk management initiatives at Crown. Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer assurances The Crown Board has received assurance from the Chief Executive Ofﬁ cer and the Chief Financial Ofﬁ cer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to ﬁ nancial reporting risks. More information A full copy of Crown’s Risk Management Committee Charter is available at: www.crownlimited.com under the heading Corporate Governance – Charters. A full copy of Crown’s Risk Management Policy is available at: www.crownlimited.com under the heading Corporate Governance – Policies. 30 CROWN LIMIT E D AN N UAL REPORT 2010 C o r p o r a t e G o v e r n a n c e S t a t e m e n t Principle 8 Remunerate fairly and responsibly Remuneration of Board members and Senior Executives As indicated earlier, Crown has established a formal Nomination and Remuneration Committee. The role of the Nomination and Remuneration Committee includes the review and recommendation of appropriate Directors’ Fees to be paid to Non-Executive Directors. The Committee’s Charter provides that, at the discretion of the Crown Board, the role of this Committee may be extended to consideration of remuneration policies to be applied to executives, including any equity-based remuneration plan that may be considered, subject to shareholder approval (where required). In the lead up to the end of the ﬁ nancial year, the Nomination and Remuneration Committee was requested by the Board to review executive remuneration policies. Accordingly, following the end of the ﬁ nancial year, the Committee has reviewed and approved: • the remuneration for senior executives which will apply during the ﬁ nancial year ending 30 June 2011; and • the short term bonus payments made to senior executives referable to the ﬁ nancial year ending 30 June 2010. The current members of the Nomination and Remuneration Committee are Geoffrey Dixon (Chair), Chris Corrigan and James Packer. Information about each Committee member’s qualiﬁ cations and experience is set out in the Directors’ Statutory Report. The Nomination and Remuneration Committee has adopted a formal Charter that outlines its duties and responsibilities. A summary of current remuneration arrangements is set out more fully in the Remuneration Report. The objective of Crown’s remuneration policy is to ensure that: • senior executives are motivated to pursue the long-term growth and success of Crown; and • there is a clear relationship between senior executives’ performance and remuneration. Policy on entering into transactions in associated products which limit economic risk The Crown Board has resolved that Directors and employees of the Crown group who hold Crown shares under the Executive Share Plan are not permitted to hedge or create derivative arrangements in respect of their Executive Share Plan shares or any of their interests in any of those shares. More information A full copy of Crown’s Nomination and Remuneration Committee Charter is available at: www.crownlimited.com under the heading Corporate Governance – Charters. A full copy of Crown’s Remuneration Policy is available at: www.crownlimited.com under the heading Corporate Governance – Policies. CROWN LIMITED ANNUAL REPORT 2010 31 Nevada Information Statement N e v a d a I n f o r m a t i o n S t a t e m e n t The gaming industry in Nevada is highly regulated and Crown Limited (Crown) must maintain relevant licences to continue its investments in entities with gaming operations in Nevada. Each of the casinos in which Crown has an interest is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, ﬁ nancial stability and character of the owners, managers, and persons with ﬁ nancial interest in gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. Crown is registered as a publicly traded company in the state of Nevada. One of the conditions of that registration requires Crown to summarise relevant Nevada gaming law requirements in this Report. Crown Entertainment Complex in Melbourne and Burswood Entertainment Complex in Perth are regulated in a similar manner by the Victorian Commission for Gambling Regulation and the Western Australian Department of Racing Gaming and Liquor, respectively. We are not, however, required to summarise the regulations speciﬁ c to Victoria and Western Australia in this Report. Nevada Government Regulation The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the Nevada Act) and various local regulations. Gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the Nevada Commission), the Nevada State Gaming Control Board (the Nevada Board) and various county and city licensing agencies (the local authorities). The Nevada Commission, the Nevada Board and the local authorities are collectively referred to as the “Nevada Gaming Authorities”. The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things: • the prevention of unsavoury or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; • the establishment and maintenance of responsible accounting practices; • the maintenance of effective controls over the ﬁ nancial practices of licensees, including the establishment of minimum procedures for internal ﬁ scal affairs and the safeguarding of assets and revenues; • providing reliable record keeping and requiring the ﬁ ling of periodic reports with the Nevada Gaming Authorities; • the prevention of cheating and fraudulent practices; and • providing a source of state and local revenues through taxation and licensing fees. Each of the entities in which Crown holds an investment and which currently operate casinos in Nevada (the casino licensees) is required to be licensed by the Nevada Gaming Authorities. Certain of Crown’s subsidiaries in the Cannery ownership chain have also been licensed or found suitable as shareholders, members or general partners, as relevant, of the casino licensees. The casino licensees and the foregoing subsidiaries are collectively referred to as the “licensed subsidiaries”. Registration as a Publicly Traded corporation Crown is required to be registered by the Nevada Commission as a publicly traded corporation and, as such, is required periodically to submit detailed ﬁ nancial and operating reports to the Nevada Commission and to furnish any other information that the Nevada Commission may require. No person may become a shareholder or member of, or receive any percentage of proﬁ ts from the licensed subsidiaries without ﬁ rst obtaining licences and approvals from the Nevada Gaming Authorities. Additionally, local authorities have taken the position that they have the authority to approve all persons owning or controlling the shares of any corporation controlling a gaming licensee. Crown and the subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licences required in order to engage in gaming activities in Nevada. 32 CROWN LIMIT E D AN N UAL REPORT 2010 N e v a d a I n f o r m a t i o n S t a t e m e n t Suitability of individuals Power to investigate The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, Crown or any of the licensed subsidiaries to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Ofﬁ cers, Directors and certain key employees of the licensed subsidiaries must ﬁ le applications with the Nevada Gaming Authorities and may be required to be licensed by the Nevada Gaming Authorities. Crown’s ofﬁ cers, Directors and key employees who are actively and directly involved in the gaming activities of the licenced subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing or a ﬁ nding of suitability for any cause they deem reasonable. A ﬁ nding of suitability is comparable to licensing and both require submission of detailed personal and ﬁ nancial information followed by a thorough investigation. The applicant for licensing or a ﬁ nding of suitability or the gaming licensee by which the applicant is employed or for whom the applicant serves must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a ﬁ nding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. Consequences of ﬁ nding of unsuitability If the Nevada Gaming Authorities were to ﬁ nd an ofﬁ cer, Director or key employee unsuitable for licensing or to continue having a relationship with Crown or the licensed subsidiaries, such company or companies would have to sever all relationships with that person. In addition, the Nevada Commission may require Crown or the licensed subsidiaries to terminate the employment of any person who refuses to ﬁ le appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. Reporting requirements Crown and the casino licensees are required to submit detailed ﬁ nancial and operating reports to the Nevada Commission. Substantially all of Crown and the licensed subsidiaries’ material loans, leases, sales of securities and similar ﬁ nancing transactions must be reported to or approved by the Nevada Commission. Consequences of violation of the Nevada Act If the Nevada Commission determined that Crown or a licensed subsidiary violated the Nevada Act, it could limit, condition, suspend or revoke, subject to compliance with certain statutory and regulatory procedures, Crown’s Nevada gaming licences and those of Crown’s licenced subsidiaries. In addition, Crown and the licensed subsidiaries and the persons involved could be subject to substantial ﬁ nes for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Certain beneﬁ cial holders of shares required to be licensed Generally Any beneﬁ cial holder of Crown’s voting securities, regardless of the number of shares owned, may be required to ﬁ le an application, be investigated and have his or her suitability as a beneﬁ cial holder of the voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of any class of Crown’s voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneﬁ cial owners of more than 10% of any class of Crown’s voting securities apply to the Nevada Commission for a ﬁ nding of suitability within thirty days after the Chairman of the Nevada Board mails a written notice requiring such ﬁ ling. CROWN LIMITED ANNUAL REPORT 2010 33 NE VAD A INFORMATION STATEMENT CONTINUED N e v a d a I n f o r m a t i o n S t a t e m e n t Institutional investors Under certain circumstances, an “institutional investor” as deﬁ ned in the Nevada Act, who acquires more than 10% but not more than 25% of any class of Crown’s voting securities, may apply to the Nevada Commission for a waiver of such ﬁ nding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor will be deemed to hold voting securities for investment purposes if it acquires and holds the voting securities in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of Crown’s Board of Directors, any change in Crown’s Constitution, management, policies or operations or any of Crown’s gaming afﬁ liates or any other action that the Nevada Commission ﬁ nds to be inconsistent with holding Crown’s voting securities for investment purposes only. Activities that are deemed to be consistent with holding voting securities for investment purposes only include: • voting on all matters voted on by shareholders; • making ﬁ nancial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and • such other activities as the Nevada Commission may determine to be consistent with such investment intent. Corporations and trusts If the beneﬁ cial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and ﬁ nancial information including a list of beneﬁ cial owners. The applicant is required to pay all costs of investigation. Consequences of ﬁ nding of unsuitability Any person who fails or refuses to apply for a ﬁ nding of suitability or a licence within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable. The same restrictions apply to a nominee if the nominee, after request, fails to identify the beneﬁ cial owner. Any shareholder found unsuitable and who holds, directly or indirectly, any beneﬁ cial ownership of Crown’s shares beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offence in Nevada. Crown will be subject to disciplinary action if, after Crown receives notice that a person is unsuitable to be a shareholder or to have any other relationship with Crown or a licensed subsidiary, Crown or any of the licensed subsidiaries: • pays that person any dividend or interest upon any of Crown’s voting securities; • allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; • pays remuneration in any form to that person for services rendered or otherwise; or • fails to pursue all lawful efforts to require such unsuitable person to relinquish his or her voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value. Certain debt holders required to be licenced The Nevada Commission may, in its discretion, require the holder of any of Crown’s debt securities to ﬁ le an application, be investigated and be found suitable to hold the debt security. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, Crown can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: • pays to the unsuitable person any dividend, interest or any distribution whatsoever; • recognises any voting right by such unsuitable person in connection with such securities; • pays the unsuitable person remuneration in any form; or • makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. 34 CROWN LIMIT E D AN N UAL REPORT 2010 N e v a d a I n f o r m a t i o n S t a t e m e n t Maintenance of Share Register Crown is required to maintain a current share register in Nevada that may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneﬁ cial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for ﬁ nding the record holder unsuitable. Crown is also required to render maximum assistance in determining the identity of the beneﬁ cial owner. The Nevada Commission has the power to require Crown’s holding statements or share certiﬁ cates bear a legend indicating that such securities are subject to the Nevada Act. To date, however, the Nevada Commission has not imposed such a requirement on Crown. Actions requiring prior approval of the Nevada Commission Public offerings to fund Nevada gambling activities Crown may not make a public offering of any securities without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or ﬁ nance gaming facilities in Nevada or to retire or extend obligations incurred for those purposes or for similar purposes. An approval, if given, does not constitute a ﬁ nding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. Transactions effecting a change in control Changes in control of Crown through merger, consolidation, share or asset acquisitions, management or consulting agreements or any act or conduct by a person whereby he or she obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a registered corporation must satisfy the Nevada Board and the Nevada Commission concerning a variety of stringent standards prior to assuming control of the registered corporation. The Nevada Commission may also require controlling shareholders, ofﬁ cers, Directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction. Share buy-backs and other arrangements Approvals are, in certain circumstances, required from the Nevada Commission before Crown can make exceptional repurchases of voting securities above the current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalisation proposed by a registered corporation’s Board of Directors in response to a tender offer made directly to the registered corporation’s shareholders for the purpose of acquiring control of that corporation. Investigation and monitoring of “foreign gaming operations” Because Crown is involved in gaming ventures outside of Nevada, Crown is required to deposit with the Nevada Board and thereafter maintain a revolving fund in the amount of US$10,000 to pay the expenses of investigation by the Nevada Board of Crown’s participation in such gaming. The Nevada Board refers to any of Crown’s operations outside of Nevada as “foreign gaming operations”. The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission. Crown is also required to comply with certain reporting requirements imposed by the Nevada Act. Crown would be subject to disciplinary action by the Nevada Commission if Crown: • knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation; • fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations; • engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reﬂ ects or tends to reﬂ ect discredit or disrepute upon the State of Nevada or gaming in Nevada or is contrary to the gaming policies of Nevada; • engages in any activity or enters into any association that interferes with the ability of the State of Nevada to collect gaming taxes and fees; or • employs, contracts with or associates with any person in the foreign gaming operation who has been denied a license or a ﬁ nding of suitability in Nevada on the ground of personal unsuitability or who has been found guilty of cheating at gambling. CROWN LIMITED ANNUAL REPORT 2010 35 Directors’ Statutory Report D i r e c t o r s ’ S t a t u t o r y R e p o r t Company Information Review of operations A review of operations of the Crown Limited (Crown) group for the ﬁ nancial year ended 30 June 2010 and the results of those operations is detailed on pages 4 to 23. The principal activity of the entities within the Crown group is gaming and entertainment. Signiﬁ cant changes in state of affairs Some of the signiﬁ cant changes in the state of affairs of the consolidated group since 1 July 2009 include: • on 25 March 2010, Crown Melbourne Limited (the owner and operator of the Crown Entertainment Complex in Melbourne) (Crown Melbourne), announced that more than $200 million would be spent to improve the premium player facilities to further enhance it as one of the world’s leading integrated resorts. The expansion was facilitated by amendments to Crown Melbourne’s casino licence which were part of an agreement which was ratiﬁ ed by the Victorian parliament late in 2009. The agreement saw an increase in the number of tables permitted under the Crown Melbourne licence and an increase in the rate of tax on electronic gaming machines; • on 21 April 2010, Crown Melbourne announced the ofﬁ cial opening of its 658 room Crown Metropol hotel, Australia's largest hotel, at the Crown Entertainment Complex in Melbourne; and • in May 2010, Melco Crown Entertainment Limited completed a US$600 million issuance of eight year high yield bonds, the proceeds from which were used principally to reduce existing debt. Melco Crown Entertainment also negotiated favourable changes to its banking covenants. Signiﬁ cant events after Balance Date Subsequent to 30 June 2010, the Directors of Crown announced a ﬁ nal dividend on ordinary shares in respect of the year ending 30 June 2010. The total amount of the dividend is $144.1 million, which represents 19 cents per share. The ﬁ nal dividend will be 60% franked. None of the unfranked component of the dividend will be conduit foreign income. The dividend has not been provided for in the 30 June 2010 ﬁ nancial statements. On 24 August 2010, Consolidated Media Holdings Limited (CMH) announced that it had been advised that the Special Purpose Liquidator of One.Tel had ﬁ led proceedings and CMH had been served with some documents. CMH also announced that it will strongly defend the proceedings. The apportionment of any costs associated with the proceedings will be in accordance with the PBL Demerger Deed outlined in the PBL Scheme Booklet (75% Crown Limited, 25% CMH). Likely developments Other than the developments described in this Report and the accompanying review of operations, the Directors are of the opinion that no other matter or circumstance will signiﬁ cantly affect the operations and expected results for the Crown group. Environmental regulation The National Greenhouse and Energy Reporting Act 2007 (the NGER Act) has established a mandatory reporting system for corporate greenhouse gas emissions and energy production and consumption. Crown is required to report emissions under the NGER Act. The ﬁ rst reporting period commenced on 1 July 2008 and relevant reports were submitted in October 2009. Key features of the NGER Act are: • reporting of greenhouse gas emissions, energy consumption and production by large corporations; • corporate level public disclosure of greenhouse gas emissions and energy information; and • to provide consistent and comparable data for decision making, in particular, to assist the development of the Carbon Pollution Reduction Scheme. Crown is also subject to the Energy Efﬁ ciency Opportunities Act 2006 which encourages large energy-using businesses to improve their energy efﬁ ciency. It does this by requiring businesses to identify, evaluate and report publicly on cost effective energy savings opportunities. Crown submits reports in line with the required reporting schedule. 36 CROWN LIMIT E D AN N UAL REPORT 2010 At a state level, Crown Melbourne is subject to the Victorian Government’s Environment & Resource Efﬁ ciency Plans (EREP), which requires all large commercial and industrial facilities to prepare a plan identifying actions to reduce energy and water use and waste generation. Under the Western Australian Water By-laws legislation, Burswood Limited (Burswood) is required to complete annual water management assessments and submit water efﬁ ciency management plans. The Crown group is otherwise not subject to any particular or signiﬁ cant environmental regulation under Australian law. Environmental issues are, however, important to Crown and it has taken a number of initiatives in this regard. A description of those initiatives is set out in the Sustainability section of this Report. Dividends and distributions Interim Dividend: Crown paid an interim dividend of 18 cents per ordinary share on 23 April 2010. The dividend was 60% franked. None of the unfranked component was conduit foreign income. Final Dividend: The Directors of Crown have announced a ﬁ nal dividend of 19 cents per ordinary share to shareholders registered as at 1 October 2010. The ﬁ nal divided will be 60% franked. None of the unfranked component of the dividend will be conduit foreign income. D i r e c t o r s ’ S t a t u t o r y R e p o r t In summary: Interim Dividend paid Final Dividend payable Total Dividend per share 18 cents per share 19 cents per share 37 cents per share $’000 $136,511 $144,095 $280,606 Crown paid shareholders a ﬁ nal dividend in respect of the 2009 ﬁ nancial year of $144.1 million. Directors and Ofﬁ cers Director details Set out below are the names of each person who has been a Director of Crown during or since year end and the period for which they have been a Director. There are twelve current Directors. Name James Douglas Packer John Henry Alexander Benjamin Alexander Brazil Christopher Darcy Corrigan Rowen Bruce Craigie Rowena Danziger Geoffrey James Dixon David Liam Barr Gyngell John Stephen Horvath Ashok Jacob Michael Roy Johnston David Hillel Lowy Richard Wallace Turner Date Appointed Date Ceased 6 July 2007 6 July 2007 26 June 2009 6 July 2007 31 May 2007 6 July 2007 6 July 2007 13 September 2010 9 September 2010 6 July 2007 6 July 2007 6 July 2007 6 July 2007 – – – – – – – – – – – 22 June 2010 – At Crown’s 2009 Annual General Meeting, Mr Benjamin Brazil, Mr Christopher Corrigan, Mr Michael Johnston and Mr Richard Turner stood for re-election as Directors. Each was re-elected as a Director at that time. The details of each Director’s qualiﬁ cations and experience as at the date of this Report are set out below. Details of all directorships of other Australian listed companies held in the three years before the end of the ﬁ nancial year have been included. CROWN LIMITED ANNUAL REPORT 2010 37 DI RECTORS’ STATUTORY REPORT CONTINUED D i r e c t o r s ’ S t a t u t o r y R e p o r t James D Packer, Executive Chairman Mr Packer is the Executive Chairman of Consolidated Press Holdings Limited, Deputy Chairman of Consolidated Media Holdings Limited, and is a director of various companies including Crown Melbourne Limited (appointed 22 July 1999), Burswood Limited (appointed 3 September 2004) and Melco Crown Entertainment Limited (appointed 8 March 2005). Mr Packer is the Chair of the Crown Investment Committee and a member of the Crown Nomination and Remuneration Committee. Directorships of other Australian listed companies held during the last three years: • Challenger Financial Services Group Limited: from 6 November 2003 to 8 September 2009 • Consolidated Media Holdings Limited1: from 28 April 1992 to current • Qantas Airways Limited: from 1 March 2004 to 31 August 2007 • SEEK Limited: from 31 October 2003 to 26 August 2009 • Sunland Group Limited: from 20 July 2006 to 13 August 2009 John Alexander BA, Executive Deputy Chairman Mr Alexander is the Executive Chairman of Consolidated Media Holdings Limited. Prior to November 2007, Mr Alexander was Chief Executive Ofﬁ cer and Managing Director of Publishing and Broadcasting Limited (PBL), having commenced that role in June 2004. Mr Alexander joined ACP Magazines Limited, then a subsidiary of PBL, as Group Publisher in 1998 and was appointed Chief Executive Ofﬁ cer of that division in March 1999, a position he held until April 2006. In January 2002, he was appointed Chief Executive Ofﬁ cer of PBL’s media businesses which included ACP Magazines and Nine Network – then owned by PBL. Prior to joining the PBL Group, Mr Alexander was the Editor-in-Chief, Publisher & Editor of The Sydney Morning Herald and Editor-in- Chief of The Australian Financial Review. Mr Alexander is also a director of a number of companies, including Crown Melbourne Limited, Burswood Limited, FOXTEL Management Pty Limited and Premier Media Group Pty Limited. Mr Alexander is a member of the Crown Investment Committee. Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1: from 16 December 1999 to current • SEEK Limited: from 17 April 2009 to 26 August 2009 Benjamin A Brazil BCom LLB, Independent, Non-Executive Director Mr Brazil is an Executive Director of Macquarie Group Limited, within its Corporate Asset Finance Division. He originally commenced employment at Macquarie in 1994 and has operated across a range of geographies and business lines during the course of his career. He holds a Bachelor of Commerce and a Bachelor of Laws from the University of Queensland. Christopher D Corrigan, Independent, Non-Executive Director Mr Corrigan was Managing Director of Patrick Corporation Limited, Australia’s largest stevedore company with interests in rail transportation and aviation from March 1990 to May 2006. Prior to that, Mr Corrigan had a career with Bankers Trust spanning 20 years, including periods as Managing Director of Bankers Trust in Australia and for the Asia-Paciﬁ c region. Mr Corrigan sponsored the formation of a development capital business of $220 million known as Jamison Equity in 1990, which became a wholly owned subsidiary, in December 1996, of the then publicly listed company Patrick Corporation Limited. Mr Corrigan is a member of the Crown Nomination and Remuneration Committee. Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1: from 8 March 2006 to current • Webster Limited: from 30 November 2007 to 9 July 2010 38 CROWN LIMIT E D AN N UAL REPORT 2010 Rowen B Craigie BEc (Hons), Chief Executive Ofﬁ cer and Managing Director Mr Craigie is also a Director of Crown Melbourne Limited, Burswood Limited, Melco Crown Entertainment Limited and Aspinalls Holdings (Jersey) Limited. Mr Craigie previously served from 2007 to 2008 as the Chief Executive Ofﬁ cer, PBL Gaming and from 2002 to 2007 as the Chief Executive Ofﬁ cer of Crown Melbourne Limited. Mr Craigie joined Crown Melbourne Limited in 1993 and was appointed as the Executive General Manager of its Gaming Machines department in 1996 and was promoted to Chief Operating Ofﬁ cer in 2000. Prior to joining Crown Melbourne Limited, Mr Craigie was the Group General Manager for Gaming at the TAB in Victoria from 1990 to 1993 and held senior economic policy positions in Treasury and the Department of Industry in Victoria from 1984 to 1990. Mr Craigie is a member of Crown’s Investment, Occupational, Health Safety & Environment, Risk Management and Responsible Gaming Committees. D i r e c t o r s ’ S t a t u t o r y R e p o r t Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1: from 9 January 2002 to 8 April 2009 Rowena Danziger BA, TC, MACE, Independent, Non-Executive Director Mrs Rowena Danziger is an Independent, Non-Executive Director of Crown Limited. Mrs Danziger’s professional experience spans over 30 years in various Australian and American educational institutions. Mrs Danziger was the Headmistress at Ascham School in Sydney from 1973 to 2003. She is currently a board member of the Sydney Writers’ Festival and Chairperson of The Foundation of the Art Gallery of NSW. Mrs Danziger is also a Director of Consolidated Media Holdings Limited and Crown Melbourne Limited and is Chair of the Crown Limited Occupational Health, Safety & Environment Committee and a member of the Crown Audit & Corporate Governance, Risk Management and Responsible Gaming Committees. Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1: 17 September 1997 to current Geoffrey J Dixon, Independent, Non-Executive Director Mr Geoff Dixon is an Independent, Non-Executive Director of Crown Limited. Mr Dixon was the Chief Executive Ofﬁ cer of Qantas Airways Limited until November 2008. Mr Dixon joined Qantas in 1994 and had responsibility at the airline for all commercial activities. Before joining Qantas, Mr Dixon was director of Marketing and Industry Sales at Ansett Australia Airlines and General Manager Marketing and Corporate Affairs at Australian Airlines. Mr Dixon is Chairman of the Garvan Research Foundation, Queensland Events and Tourism Australia. Prior to his career in the airline industry, Mr Dixon worked for an arm of the Australian Government Overseas Service in Australia and on postings to Australian Missions in The Hague, New York and San Francisco. He has also worked in the mining and media sectors. Mr Dixon is the Chairman of the Crown Finance, Nomination and Remuneration and Risk Management Committees. Directorships of other Australian listed companies held during the last three years: • Qantas Airways Limited: from 1 August 2000 to 28 November 2008 • Consolidated Media Holdings Limited1: from 31 May 2006 to current • Facilitate Digital Holdings Limited: from 9 July 2009 to current • Jetset Travelworld Limited: from 17 July 2008 to 15 September 2008 CROWN LIMITED ANNUAL REPORT 2010 39 DI RECTORS’ STATUTORY REPORT CONTINUED D i r e c t o r s ’ S t a t u t o r y R e p o r t David L B Gyngell, Independent, Non-Executive Director David Gyngell is the Chief Executive Ofﬁ cer of the Nine Network Australia, having been appointed in September 2007. The appointment marked his return to the Nine Network from the United States, where he had been CEO of television production and distribution company Granada US. Before moving to the US, he was Nine Network’s CEO from May 2004 to May 2005 and prior to that was Nine’s Deputy Chief Executive Ofﬁ cer – a role he held from August 2002. He has also worked as Executive Director, Group Marketing and Communications for Publishing and Broadcasting Limited. Before moving into television, Mr Gyngell was Director of Corporate Management at International Management Group and Transworld Media International. Professor John S Horvath AO, MB, BS (Syd), FRACP, Independent, Non-Executive Director Professor John Horvath was the Australian Government Chief Medical Ofﬁ cer from 2003-2009. He is currently continuing to advise the Department of Health & Ageing and the School of Medicine, University of Sydney, and holds the position of Honorary Professor of Medicine. Professor Horvath is currently a member of Council of the NHMRC and Chairman of the Healthcare Committee. He is a Fellow of the Royal Australasian College of Physicians and is a distinguished practitioner, researcher and teacher. Professor Horvath sits on the Board of the Garvan Research Foundation, the Centenary Institute of Medical Research and is a member of the Advisory Board to the World Health Organisation Inﬂ uenza Collaborating Centre. Professor Horvath was previously Clinical Professor of Medicine at University of Sydney. He is also known as a leader in a range of medical training and workforce organisations. He is also a former President of the Australian Medical Council and the NSW Medical Board. Professor Horvath is the Chair of the Crown Responsible Gaming Committee and a member of the Crown Occupational Health, Safety & Environment Committee. Ashok Jacob MBA, Non-independent, Non-Executive Director Mr Jacob is Chief Executive Ofﬁ cer of Consolidated Press Holdings Limited (CPH). Prior to joining CPH in 1998, Mr Jacob was the Managing Director of the investment arm of the Pratt group of companies. Mr Jacob is a Director of MRF Limited (appointed 26 October 1998) and a Director of Consolidated Media Holdings Limited (reappointed on 10 September 2009). Mr Jacob holds a Master of Business Administration from the Wharton School, University of Pennsylvania and a Bachelor of Science from the University of Bangalore. Mr Jacob is a member of the Crown Investment Committee. Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1: from 9 November 1998 to 8 April 2009, reappointed on 10 September 2009 to current • Challenger Financial Services Group Limited: from 6 November 2003 to 8 September 2009 Michael R Johnston BEc, CA, Non-independent, Non-Executive Director Mr Johnston is the Finance Director of Consolidated Press Holdings Limited (CPH), having previously been an advisor to the CPH Group for 18 years. As Finance Director, Mr Johnston oversees a large number of operational businesses within the CPH Group and its controlled associates. Mr Johnston was also the Chief Financial Ofﬁ cer of Ellerston Capital (a subsidiary of CPH) until 30 June 2008. He is an alternate Director of Consolidated Media Holdings Limited. Prior to his appointment with the CPH Group, Mr Johnston was a senior partner in the Australian member ﬁ rm of Ernst & Young. Mr Johnston was also on the Board of Partners of Ernst & Young, Australia. Mr Johnston holds a Bachelor of Economics degree from Sydney University and is an Associate of the Institute of Chartered Accountants of Australia. Mr Johnston is a member of the Crown Audit & Corporate Governance, Finance, and Occupational Health, Safety and Environment Committees. 40 CROWN LIMIT E D AN N UAL REPORT 2010 Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1– from 16 December 2005 to 8 April 2009 (from 8 April 2009, alternate director to Mr James Packer and Mr Guy Jalland; from 10 September 2009 to current, alternate director to Mr Ashok Jacob) • Challenger Financial Services Group Limited – from 24 February 2006 to 8 September 2009 (alternate director to Mr James Packer and Mr Ashok Jacob) Richard W Turner AM, BEc, FCA, Independent, Non-Executive Director Before his retirement in 1994, Mr Turner had been the Chief Executive Ofﬁ cer of Ernst & Young, having had a successful 36 year career as an audit partner. Mr Turner is a Fellow of the Institute of Chartered Accountants in Australia. He was past President and Director of The Smith Family and past Chairman and a current Director of the Institute of Pain Management Research Institute Limited. Mr Turner is also a Director of Crown Melbourne Limited and is Chair of the Crown Audit & Corporate Governance Committee and a member of the Crown Finance Committee. D i r e c t o r s ’ S t a t u t o r y R e p o r t Directorships of other Australian listed companies held during the last three years: • Consolidated Media Holdings Limited1: from 9 November 1998 to 8 April 2009 • The Mirvac Group: from 7 January 2005 to 25 August 2009 • Bank of Western Australia Limited from 15 December 2005 to 19 December 20082 Notes: 1. Consolidated Media Holdings Limited (previously Publishing and Broadcasting Limited, ASX Code: PBL). 2. Removed from ASX’s ofﬁ cial list on 20 December 2008. Company secretary details Michael J Neilson BA, LLB Mr Neilson is Crown’s General Counsel and joint Company Secretary. Prior to his appointment with Crown, he was General Counsel for Crown Melbourne Limited, a position he held from 2004 to 2007. Prior to joining the Crown group, Mr Neilson spent 10 years in a commercial legal practice in Melbourne before joining the Lend Lease Group in Sydney in 1997 as General Counsel for Lend Lease Property Management. In 1998, he was appointed General Counsel and Company Secretary of General Property Trust, the position he held until joining Crown Melbourne Limited in 2004. Mr Neilson is also a member of the School Council of Camberwell Grammar School. Mary Manos BCom, LLB (Hons), GAICD Ms Manos was appointed joint Company Secretary in April 2008. She commenced employment with the Crown Group in October 2007 just prior to implementation of the PBL Scheme and the Demerger Scheme. Prior to joining Crown, Ms Manos was a Senior Associate in a Melbourne law ﬁ rm, specialising in mergers and acquisitions and corporate law. Ms Manos is a Graduate of the Australian Institute of Company Directors. Other ofﬁ cer details In addition to the above, Crown’s principal ofﬁ cers include: • Kenneth M Barton Chief Financial Ofﬁ cer • David G Courtney Chief Executive Ofﬁ cer, Crown Melbourne Limited • Barry J Felstead Chief Executive Ofﬁ cer, Burswood Limited CROWN LIMITED ANNUAL REPORT 2010 41 DI RECTORS’ STATUTORY REPORT CONTINUED D i r e c t o r s ’ S t a t u t o r y R e p o r t Relevant interests of Directors Details of relevant interests of current Directors in Crown shares as at 30 June 2010 are as follows: Director John Alexander Rowen Craigie Rowena Danziger James Packer Richard Turner Notes: Total number of ordinary shares1 506,047 2,341,1022 30,896 303,505,290 29,373 1. For more information on relevant interests of current Directors, please see the Remuneration Report and the key management personnel disclosures set out in the Notes to the Financial Statements. 2. Mr Craigie’s holding is entirely comprised of Crown Employee Share Plan shares. None of Crown’s Directors is party to any contract which would give that Director the right to call for the delivery of shares in Crown. Board and Committee meetings Set out below are details of the number of Board meetings and Committee meetings held by Crown during the 2010 ﬁ nancial year together with each Director’s attendance details. Audit & Corporate Governance Committee Investment Committee Nomination and Remuneration Committee Occupational Health, Safety & Environment Committee Risk Management Committee Board Meetings Meetings Meetings Meetings Meetings Meetings Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended J D Packer J H Alexander B A Brazil C D Corrigan R B Craigie R Danziger G J Dixon A P Jacob M R Johnston D H Lowy* R W Turner 6 6 6 6 6 6 6 6 6 5 6 * Resigned 22 June 2010. 6 6 6 5 6 6 6 6 6 5 6 – – – – – 3 – – 3 – 3 – – – – – 3 – – 3 – 3 2 2 – – 2 – – 2 – – – 2 2 – – 2 – – 1 – – – 1 – – 1 – – 1 – – – – 1 – – 1 – – 1 – – – – – – – – 4 4 – – 4 – – – – – – 4 4 – – 4 – – – – – – 2 2 2 – – – – – – – – 2 2 2 – – – – The Finance Committee did not meet this ﬁ nancial year as all relevant ﬁ nancing matters were dealt with by the Board. The Corporate Governance Statement includes details on Committee structure and membership during the year. Under Crown’s Constitution, its Board and Committee Charters, documents containing written resolutions assented to by Directors are to be taken as a minute of a meeting of Directors or of a Committee (as the case may be). There were no written resolutions assented to by the Board this ﬁ nancial year. 42 CROWN LIMIT E D AN N UAL REPORT 2010 Shares and Options Crown has not granted any options over unissued shares. There are no unissued shares or interests under option. No shares or interests have been issued during or since year end as a result of option exercise. Indemnity and insurance of ofﬁ cers and auditors Director and ofﬁ cer indemnities Crown indemniﬁ es certain persons as detailed in its Constitution in accordance with the terms of the Crown Constitution. D&O Insurance During the year Crown has paid insurance premiums to insure ofﬁ cers of the Crown group against certain liabilities. The insurance contract prohibits disclosure of the nature of the insurance cover and the amount of the insurance payable. D i r e c t o r s ’ S t a t u t o r y R e p o r t Auditor Information Auditor details Ernst & Young has been appointed Crown’s auditor. Mr Brett Kallio is the Ernst & Young partner responsible for the audit of Crown’s accounts. True and fair information There is no additional true and fair information included in the ﬁ nancial report. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 27 of the Financial Report. The Directors are satisﬁ ed that the non-audit services are compatible with the general standard of independence for auditors imposed by the Corporations Act. The Board considers that the nature and scope of the services provided do not affect auditor independence. Rounding The amounts contained in the ﬁ nancial statements have been rounded off to the nearest thousand dollars (where rounding is applicable) under the option available to Crown under ASIC Class Order 98/0100. Crown is an entity to which the Class Order applies. CROWN LIMITED ANNUAL REPORT 2010 43 Remuneration Report R e m u n e r a t i o n R e p o r t Introduction Content of the Report This Remuneration Report outlines the Director and executive remuneration arrangements of Crown in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Crown group are deﬁ ned as those persons having authority and responsibility for planning, directing and controlling the major activities of the Crown group, directly or indirectly, including any Director (whether executive or otherwise) of the parent company. For further details of KMP, refer to note 29 of the Financial Report. The disclosures in the Remuneration Report have been audited. Persons to whom Report applies The remuneration disclosures in this Report cover the following persons: Non-Executive Directors • Benjamin A Brazil • Christopher D Corrigan • Rowena Danziger • Geoffrey J Dixon • Ashok Jacob • Michael R Johnston • David H Lowy (resigned 22 June 2010) • Richard W Turner Executive Directors • James D Packer (Executive Chairman) • John H Alexander (Executive Deputy Chairman) • Rowen B Craigie (Managing Director and Chief Executive Ofﬁ cer) Other company executives and key management personnel • Kenneth M Barton (Chief Financial Ofﬁ cer from 9 March 2010) • David G Courtney (Chief Executive Ofﬁ cer, Crown Melbourne Limited) • Barry J Felstead (Chief Executive Ofﬁ cer, Burswood Limited) • Robert F Turner (former Chief Financial Ofﬁ cer, ceased employment on 31 May 2010) In this Report the group of persons comprised of the Executive Directors and the other company executives and key management personnel (listed above) are referred to as “Senior Executives”. As shareholders are aware, Crown acquired the majority of its gaming assets via two schemes of arrangement between the then Publishing and Broadcasting Limited (PBL) (now Consolidated Media Holdings Limited (CMH)), Crown and their respective shareholders. References in this report to the PBL Scheme and the Demerger Scheme are references to those schemes. The disclosure document which detailed the terms of the Schemes (the PBL Scheme Booklet) remains available for viewing on the Crown website. 44 CROWN LIMIT E D AN N UAL REPORT 2010 R e m u n e r a t i o n R e p o r t Overview of remuneration policy Philosophy The performance of the Crown group is dependent upon the quality of its Directors, senior executives and employees. Crown seeks to attract, retain and motivate skilled Directors and senior executives of the highest calibre. Crown’s remuneration philosophy is to ensure that remuneration packages properly reﬂ ect a person’s duties and responsibilities, that remuneration is appropriate and competitive both internally and as against comparable companies and that there is a direct link between remuneration and performance. Crown has differing remuneration structures in place for Non-Executive Directors and senior executives. Non-Executive Directors The process for determining remuneration of the Non-Executive Directors has the objective of ensuring maximum beneﬁ t for Crown by the retention of a high quality Board. The Nomination and Remuneration Committee bears the responsibility of determining the appropriate remuneration for Non-Executive Directors. Non-Executive Directors’ fees are reviewed periodically by the Nomination and Remuneration Committee with reference taken to the fees paid to the Non-Executive Directors of comparable companies. The Nomination and Remuneration Committee is subject to the direction and control of the Board. In forming a view of the appropriate level of Board fees to be paid to Non-Executive Directors, the Committee may also elect to receive advice from independent remuneration consultants, if necessary. Details regarding the composition of the Committee and its main objectives are outlined in the Corporate Governance Statement. During the year, the Nomination and Remuneration Committee was restructured so that it now comprises a majority of independent directors and is chaired by an independent director, Mr Geoffrey Dixon. No performance based fees are paid to Non-Executive Directors. Non-Executive Directors are not entitled to participate in Crown’s Executive Share Plan. Non-Executive Directors are not provided with retirement beneﬁ ts other than statutory superannuation at the rate prescribed under the Superannuation Guarantee legislation. During the year, the Crown Board amended its previous policy, removing the discretion to pay retirement beneﬁ ts to Non-Executive Directors. Senior Executives The remuneration structure incorporates a mix of ﬁ xed and performance based remuneration. The following section provides an overview of the relevant elements of executive remuneration. The summary tables provided later in this Report indicate which elements apply to each Senior Executive. CROWN LIMITED ANNUAL REPORT 2010 45 REMU N ERATION REPORT CONTINUED R e m u n e r a t i o n R e p o r t Details of Senior Executive remuneration structure Fixed remuneration The objective of ﬁ xed remuneration is to provide a base level of remuneration which is appropriate to the Senior Executive’s responsibilities, the geographic location of the Senior Executive and competitive standing in the appropriate market. Fixed remuneration is therefore determined with reference to available market data, the scope and any unique aspects of an individual’s role and having regard to the qualiﬁ cations and experience of the individual. Crown seeks a range of specialist advice to establish the competitive remuneration for its Senior Executives. Fixed remuneration typically includes base salary and superannuation at the rate prescribed under the Superannuation Guarantee legislation, mobile telephone costs, complimentary privileges at Crown Melbourne and Burswood and may include, at the election of the Senior Executive, other beneﬁ ts such as a motor vehicle, additional contribution to superannuation, car parking and staff gym membership, aggregated with associated fringe beneﬁ ts tax to represent the total employment cost (TEC) of the relevant Senior Executive to Crown. Fixed remuneration for the Senior Executives (except the Chief Executive Ofﬁ cer and Managing Director) is reviewed annually by the Chief Executive Ofﬁ cer and Managing Director of Crown and is approved by the Nomination and Remuneration Committee. The review process measures the achievement by the Senior Executives of their Key Performance Objectives (KPOs) established at the beginning of the ﬁ nancial year (see further below), the performance of Crown and the business in which the Senior Executive is employed, relevant comparative remuneration in the market and relevant external advice. Fixed remuneration for the Chief Executive Ofﬁ cer and Managing Director is reviewed and set annually following consideration by the Nomination and Remuneration Committee of his or her performance against his or her annual KPOs. Any payments relating to redundancy or retirement are as speciﬁ ed in each relevant Senior Executive’s contract of employment. For summaries of Senior Executive contracts of employment, see page 52. Performance based remuneration The performance based components of remuneration for Senior Executives seek to align the rewards attainable by Senior Executives with the achievement of particular annual and long term objectives of Crown and the creation of shareholder value over the short and long term. The performance based components which applied to the Senior Executives during the year are as follows: • Short Term Incentives (STI); • Long Term Incentives (the Gaming LTI); and • an Executive Share Plan (ESP). Short Term Incentives (STI) The remuneration of the Senior Executives is linked to Crown’s short term annual performance through a cash-based STI. Individuals may be paid an STI following an assessment of the performance of the Crown group in the previous year and the performance of the individual against agreed annual KPOs. Senior Executives have a potential or target STI, which is subject to the Crown group’s performance and the achievement of the Senior Executive’s KPOs established at the beginning of each ﬁ nancial year. A key focus is on the achievement of the Crown group’s annual business plan and budget. Financial performance objectives (including performance against budgeted normalised EBITDA1) have been chosen as Crown considers they are the best way to align performance outcomes with shareholder value. 1. In this Report, the term “normalised EBITDA” represents EBITDA which has been adjusted to exclude the impact of any variance from theoretical win rate on VIP program play and the impact of signiﬁ cant items (where applicable). 46 CROWN LIMIT E D AN N UAL REPORT 2010 Appropriate non-ﬁ nancial performance objectives (such as strategic goals, operational efﬁ ciencies and people development) are also included in a Senior Executive’s KPOs where they are within that Senior Executive’s sphere of inﬂ uence and are relevant to the Senior Executive’s area of work. These metrics are aligned with the achievement of Crown’s business plan. The performance of each Senior Executive against the ﬁ nancial and non-ﬁ nancial KPOs is reviewed on an annual basis. Whether KPOs have been achieved is determined by the Chief Executive Ofﬁ cer and Managing Director having regard to the operational performance of the business or function in which the Senior Executive is involved and the Chief Executive Ofﬁ cer and Managing Director’s assessment of the attainment of the individual’s KPOs. The Chief Executive Ofﬁ cer and Managing Director reviews performance based remuneration entitlements and recommends the STI payments, subject to ﬁ nal approval by the Nomination and Remuneration Committee. The Chief Executive Ofﬁ cer and Managing Director’s eligibility for an STI is determined by the the Nomination and Remuneration Committee on behalf of the Board. R e m u n e r a t i o n R e p o r t Long Term Incentive Plan (Gaming LTI) – expired 30 June 2010 The Gaming LTI is a ﬁ ve year long term incentive which was established in June 2005. The ﬁ nal tranche of the bonus under the Gaming LTI has been paid for the year ended 30 June 2010. The Gaming LTI was introduced at the time when Crown’s principal gaming businesses were owned by PBL. The Gaming LTI was introduced as a means of retaining and motivating selected executives. The Gaming LTI was designed so that selected executives would be contractually entitled to a cash bonus where the then “PBL Gaming Division”, comprising Crown Melbourne and Burswood, achieved its normalised EBITDA targets in ﬁ nancial years 2008, 2009 and 2010. Selected participating Senior Executives were each awarded a cash bonus. The cash bonus was payable in three tranches over the ﬁ nancial years 2008, 2009 and 2010, but subject to the achievement of normalised EBITDA targets in those years. If the normalised EBITDA target was not reached in any ﬁ nancial year, the amount of the EBITDA cash bonus tranche for that year would have been held over to the following year or until the end of the Gaming LTI, ie ﬁ nancial year 2010, and would have been payable if the total aggregate normalised EBITDA for Crown Melbourne and Burswood for all three ﬁ nancial years exceeded the aggregate sum of the normalised EBITDA targets for those three ﬁ nancial years 2008, 2009 and 2010. The normalised EBITDA targets for Crown Melbourne and the normalised EBITDA targets for Burswood were each determined by reference to the audited ﬁ nancial reports of the Crown group. Crown has achieved each of the normalised EBITDA targets for Crown Melbourne and Burswood for ﬁ nancial years 2008, 2009 and 2010. The ﬁ nal cash payment has therefore been made to participating executives for the 2010 ﬁ nancial year. The Gaming LTI is now at an end. Of the Senior Executives named in this Report, four participated in the Gaming LTI. Details of the Gaming LTI cash bonuses that have been paid are as follows: Senior Executive 30 June 2008 (30%) 30 June 2009 (20%) 30 June 2010 (50%) Rowen Craigie David Courtney Barry Felstead Robert Turner $1,500,000 $675,000 $300,000 $375,000 $1,000,000 $450,000 $200,000 $250,000 $2,500,000 $1,125,000 $500,000 Nil* * Mr Turner ceased employment with Crown on 31 May 2010. CROWN LIMITED ANNUAL REPORT 2010 47 REMU N ERATION REPORT CONTINUED R e m u n e r a t i o n R e p o r t Executive Share Plan (ESP) Certain Crown executives participate in an ESP which was approved by the PBL Shareholders at the 1994 Annual General Meeting. The key features of the ESP are as follows: • Crown Directors determine the number of Crown shares to be issued under the ESP; • the total number of shares which can be issued under the ESP is limited to 2% of the issued capital of Crown; • the price payable for each Crown share issued under the ESP is the weighted average share market price over the ﬁ ve business days up to and including the date that the offer of Crown shares is accepted; • on completion of each year of service after the issue date, and subject to the performance hurdle summarised below, 25% of a participating executive’s Crown shares are released from restrictions on transfer, with the loan repayable in year ﬁ ve (Expiry Date); • subscription moneys for shares are funded by a loan from Crown that is fully repayable after ﬁ ve years, or earlier, upon cessation of employment of the executive; • if a participating executive sells Crown shares which are no longer subject to transfer restrictions before the Expiry Date, the executive must pay the issue price for each Crown share towards repayment of the relevant portion of the loan; • loan funds provided by Crown to acquire shares are provided on a limited recourse basis; and • interest payable on the loan funds is equal to dividends received on the relevant Crown shares from time to time. Crown ESP shares are subject to a performance condition, requiring a 7% compound annual growth in the Crown share price in order that the relevant portion of shares vest and be released from restrictions under the ESP. If a share price hurdle is not exceeded, that 25% share parcel remains restricted until the hurdle is exceeded in a subsequent anniversary. If the hurdle is ultimately not exceeded, the shares will be transferred back to Crown. Determination that hurdles have been achieved will be provided to the Chief Executive Ofﬁ cer and Managing Director by the Company Secretary. Only executives of Crown can participate in the ESP. Mr James Packer does not participate. There have been no issues of shares under the ESP since 2007 and there were no new issues of Crown ESP shares made in the 2010 ﬁ nancial year. No new ESP shares will be issued in the future. None of the executives met their share price performance hurdles during the 2010 ﬁ nancial year. The consequence of this is that no issued ESP Shares were released from limitations under the Plan Rules. The ESP is now in run off mode. As at the date of this Report a total of 5,748,815 ESP shares are on issue, representing 0.8% of Crown’s capital. 48 CROWN LIMIT E D AN N UAL REPORT 2010 R e m u n e r a t i o n R e p o r t The Senior Executives who have ESP shares for which loans are still outstanding, or have repaid loans during the year, are as follows: Senior Executive Issue Date Issue Price (Per Share)1 Number of Crown ESP Shares Issued Crown ESP Loan Released from Limitations During the year %2 Rowen Craigie 30-Oct-06 $10.35 409,694 $4,242,000 30-Oct-06 $11.42 585,276 $6,682,500 23-Nov-07 $12.15 292,638 $3,556,875 23-Nov-07 $12.29 1,053,494 $12,946,500 David Courtney 23-Feb-06 $10.35 204,847 $2,121,000 30-Aug-06 $11.42 263,374 $3,007,125 06-Mar-07 $12.15 175,581 $2,134,125 Barry Felstead 30-Aug-06 $11.42 117,055 $1,336,500 06-Mar-07 $12.15 117,055 $1,422,750 Robert Turner3 30-Aug-06 $11.42 146,319 $1,670,625 06-Mar-07 $12.15 117,054 $1,422,750 Notes: NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL Number of ESP Shares for which Loan still outstanding Shares Sold During Year Loan Outstanding $4,242,000 $6,682,500 $3,556,875 409,694 585,276 292,638 $12,946,500 1,053,494 $2,121,000 $3,007,125 $2,134,125 $1,336,500 $1,422,750 $1,670,625 $1,422,750 204,847 263,374 175,581 117,055 117,055 146,319 117,054 Loan Expiry Date 30-Oct-11 30-Oct-11 23-Nov-12 23-Nov-12 23-Feb-11 30-Aug-11 06-Mar-11 30-Aug-11 06-Mar-12 30-Aug-11 06-Mar-12 NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL 1. The fair value per Crown ESP share for each allotment date under the ESP is as follows: 23 February 2006: $1.92; 30 August 2006: $2.51; 6 March 2007: $3.72; 21 June 2007: $3.77. Shares allotted to Mr Craigie on 23 February 2006 and 30 August 2006 were issued on 30 October 2006, following receipt of shareholder approval. Shares allotted to Mr Craigie on 6 March 2007 and 21 June 2007 were issued on 23 November 2007, following the receipt of shareholder approval. 2. None of the executives met their share price performance hurdles during FY10. The consequence of this is that no ESP Shares were released from limitations under the Plan Rules. These ESP Shares shall remain subject to the limitations under the Plan Rules unless or until the share price performance condition is satisﬁ ed on a subsequent anniversary and the executive remains an employee of the Crown Group. 3. Mr Turner is no longer employed by Crown, having ceased employment on 31 May 2010. In accordance with the terms of the ESP, the directors have required the relevant ESP loan be repaid. ESP loans are limited recourse loans and Crown is authorised to procure the sale of associated ESP shares on a participant’s behalf and to apply the proceeds in full satisfaction of the relevant ESP loan. Crown intends to sell Mr Turner’s Crown ESP shares but, during the period since Mr Turner’s departure from Crown, has been unable to trade the shares, as trading during this period was prohibited under Crown’s Securities Trading Policy. CROWN LIMITED ANNUAL REPORT 2010 49 REMU N ERATION REPORT CONTINUED R e m u n e r a t i o n R e p o r t Relationship between policy and performance As detailed above, various elements of Crown’s remuneration policy are linked to company performance, either by requiring the achievement of a predetermined share price or level of normalised EBITDA. In summary: • An STI may be payable if Crown achieves its budgeted ﬁ nancial objectives and where an individual achieves his or her annual KPOs, assessed using a combination of ﬁ nancial and non-ﬁ nancial measures; • The Gaming LTI may be payable where Crown Melbourne and Burswood achieve predetermined normalised EBITDA targets in ﬁ nancial years 2008, 2009 and 2010; and • The terms of the ESP include share price performance hurdles. This year, normalised EBITDA generated by Crown Melbourne and Burswood, Crown’s wholly owned Australian casinos, grew by 4.5%. The compound average normalised EBITDA growth for Crown Melbourne and Burswood for the ﬁ ve year period commencing from ﬁ nancial year 2005 through to ﬁ nancial year 2010 was 8.6%. During the 2004 ﬁ nancial year Crown Melbourne was the only gaming asset of PBL. Burswood was acquired by PBL in September 2004 and the impact of the Burswood acquisition on normalised EBITDA growth is included within the ﬁ ve year number above. Crown was admitted to the ofﬁ cial list of the ASX on 3 December 2007. Accordingly, the table below sets out information about movements in shareholder wealth for the years ended 30 June 2008, 30 June 2009 and 30 June 2010. Share price at start of period Share price at end of period Full year dividend Basic/diluted earnings per share4 Notes: Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010 NA1 $9.29 54 cents2 54.58 cps $9.29 $7.27 37 cents3 33.74 cps $7.27 $7.77 37 cents3 38.54 cps 1. As Crown was admitted to the ofﬁ cial list of the ASX on 3 December 2007, there is no trading data for 1 July 2007. 2. Franked to 40% with unfranked component made up of conduit foreign income. 3. Franked to 60% with none of the unfranked component comprising conduit foreign income. 4. Excluding the effect of discontinued operations and signiﬁ cant items. Policy on entering into transactions in associated products which limit economic risk Crown’s policy prohibits Directors and Senior Executives entering into transactions in associated products which limit economic risk. This is described in the Corporate Governance Statement. 50 CROWN LIMIT E D AN N UAL REPORT 2010 Remuneration details for Non-Executive Directors and Senior Executives Non-Executive Directors Non-Executive Directors are entitled to a base fee of $100,000 per annum for acting as a Director of Crown. Non-Executive Directors acting on the Board of Crown Melbourne Limited are entitled to receive a further fee of $60,000 per annum. Non-Executive Directors of Crown are entitled to additional fees if they act as either chair or a member of an active Committee (the Audit & Corporate Governance Committee, the Occupational Health, Safety & Environment Committee, the Nomination and Remuneration Committee or the Risk Management Committee): R e m u n e r a t i o n R e p o r t • $20,000 per annum for acting as Chair of an active Board Committee; or • $10,000 per annum for acting as a member of an active Board Committee. All Directors are entitled to complimentary privileges at Crown Melbourne and Burswood facilities. In accordance with Crown’s Constitution, Non-Executive Directors’ fees are determined within an aggregate Non-Executive Directors’ fee cap of $1,000,000 per annum. Senior Executives Senior Executives are employed under service agreements with Crown or a business of the Crown group. Common features to these service agreements include (unless noted otherwise): • an annual review of the executive’s ﬁ xed remuneration, with any increases requiring approval of the Chief Executive Ofﬁ cer and Managing Director and the Nomination and Remuneration Committee and dependent on Crown’s ﬁ nancial performance, the individual’s KPO performance and market changes; • competitive performance based incentive payments annually and in the long term, dependent upon Crown achieving its objectives and the Senior Executive achieving his or her KPOs; • Crown may ask the executive to act as a Director of a member or associate of the Crown group for no additional remuneration; • a prohibition from gambling at any property within the Crown group during the term of employment and for three months following termination and a requirement that the executive maintains licences required and issued by relevant regulatory authorities (such as the Victorian Commission for Gambling Regulation and the Western Australian Gaming and Wagering Commission); • where post-employment restraints apply, a restraint covering, amongst other things, competitive activities to those of the Crown group. Restraint periods vary and have been noted in each instance; • where an employment agreement is terminated by Crown, notice may be given in writing or payment may be made (wholly or partly) in lieu of notice; • all contracts may be terminated without notice by Crown for serious misconduct; and • all Senior Executives are entitled to complimentary privileges at Crown Melbourne and Burswood facilities. Speciﬁ c details of each Senior Executive’s contract of employment are summarised below. Where a Senior Executive has had more than one contract of employment during the year the most recent contract is listed and changes from the previous contract are noted. Where a key clause in a Senior Executive’s contract has been updated the change is noted. The summaries should be read in conjunction with the Remuneration Policy above. CROWN LIMITED ANNUAL REPORT 2010 51 R e m u n e r a t i o n R e p o r t Fixed Remuneration Base salary: Superannuation REMU N ERATION REPORT CONTINUED Current Position James D Packer Executive Chairman John H Alexander Executive Deputy Chairman (commenced 1 December 2007): Mr Alexander currently has a ﬁ ve year employment agreement with Crown Limited which is due to expire in December 2012. The Executive Chairman, Mr Packer does not receive any remuneration for his services to Crown. Mr Packer acts as a Director of Melco Crown Entertainment Ltd, a company in which Crown has a signiﬁ cant investment. Mr Packer does not receive a fee from Crown for these services. $1,485,539 per annum. Compulsory Superannuation Guarantee Contributions up to the maximum contribution base, equating to $14,461 per annum. Complimentary privileges at Crown Melbourne and Burswood facilities, mobile telephone and salary sacriﬁ ce arrangements for motor vehicle and superannuation. Non-monetary beneﬁ ts and other: Complimentary privileges at Crown Melbourne and Burswood facilities. Performance based remuneration Not applicable Not applicable 2010 Percentage breakdown of remuneration Post employment beneﬁ ts Post-employment restraint Not applicable Not applicable Not applicable Termination By Senior Executive: By Crown: Termination beneﬁ ts Payments made prior to commencement Directors’ Fees Other Not applicable Not applicable Not applicable Not applicable Nil Nil 1. Includes voluntary and compulsory superannuation. Fixed remuneration1 100% STI 0% LTI 0% Nil Crown may impose a restraint for the ﬁ ve year term of Mr Alexander’s employment agreement up to 30 November 2012. 12 months’ notice. 12 months’ notice without cause; one month’s notice for performance issues; three months’ notice due to incapacity. Nil Nil Nil Nil 52 CROWN LIMIT E D AN N UAL REPORT 2010 Current Position Fixed Remuneration Base salary: Superannuation Rowen B Craigie Kenneth M Barton Chief Executive Ofﬁ cer and Managing Director (commenced 1 December 2007): Mr Craigie has a ﬁ ve year employment agreement with Crown Limited which is due to expire in December 2012. Chief Financial Ofﬁ cer, Crown Limited (commenced 9 March 2010): Mr Barton’s current employment contract with Crown Limited commenced on 9 March 2010 and expires in March 2015. $2,985,539 per annum. $1,235,539 per annum. Compulsory Superannuation Guarantee Contributions up to the maximum contribution base, equating to $14,461 per annum. Compulsory Superannuation Guarantee Contributions up to the maximum contribution base, equating to $14,461 per annum. R e m u n e r a t i o n R e p o r t Non-monetary beneﬁ ts and other: Complimentary privileges at Crown Melbourne and Burswood facilities, mobile telephone and salary sacriﬁ ce arrangements for motor vehicle and superannuation. Performance based remuneration STI: LTI: Discretionary up to a maximum of $2,000,000 of which up to a maximum of $1,000,000 is assessed by the Executive Chairman based on the achievement of personal KPOs. A further $1,000,000 may be paid at the discretion of the Crown Board if Crown’s performance substantially exceeds that set out in Crown’s business plan and represents an exemplary outcome. Subject to achieving internal normalised EBITDA targets in FY08, FY09 and FY10, Mr Craigie is eligible to receive up to $5,000,000 (30% for FY08, 20% for FY09 and 50% for FY10). See further page 47. Complimentary privileges at Crown Melbourne and Burswood facilities, mobile telephone and salary sacriﬁ ce arrangements for motor vehicle and superannuation. Until Mr Barton relocates to Melbourne, Crown will meet the weekly travel costs of his Melbourne/Sydney commuting and will provide hotel accommodation while in Melbourne. Mr Barton commenced with Crown on 9 March 2010 and will participate in the Company’s Short Term Incentive Plan in ﬁ nancial year 2011. Mr Barton’s annual target STI will be $500,000 and payment will depend on meeting agreed personal KPOs. The STI may, at the discretion of the Nomination and Remuneration Committee, be increased to a maximum of $750,000 if Mr Barton exceeds his KPOs and Crown also achieves its performance objectives. Mr Barton has not participated in the Gaming LTI. 2010 Percentage breakdown of remuneration Fixed remuneration1 42% STI 14% LTI 44% Fixed remuneration1 100% STI 0% LTI 0% Post employment beneﬁ ts Nil Post-employment restraint Crown may impose a restraint for various periods up to 36 months. Depending on the circumstances, Mr Craigie may be entitled to an additional payment in consideration for the restraint. Mr Craigie may also be paid an amount equivalent to his monthly ﬁ xed remuneration for any period during which a restraint applies. Nil Nil Termination By Senior Executive: 12 months’ notice. 6 months’ notice. By Crown: Termination beneﬁ ts 12 months’ notice without cause; one month’s notice for performance issues (following least three months’ notice to improve); three months’ notice for incapacity. 6 months’ notice without cause; one month’s notice for performance issues (following least 3 months’ notice to improve); 3 months’ notice for incapacity. Provided that Mr Craigie complies with any restraints imposed on him, if Mr Craigie terminates his employment with Crown or Crown terminates his employment for serious misconduct, performance issues or incapacity, he will be entitled to any unpaid Gaming LTI. Thereafter, Mr Craigie will cease to be involved in the Gaming LTI. Nil If Crown terminates Mr Craigie’s employment without cause, Mr Craigie will be entitled to any unpaid Gaming LTI. Mr Craigie may also elect either to end his participation in the Gaming LTI and receive a payment of 24 months’ ﬁ xed remuneration at the date of termination or continue a pro-rated participation (calculated by reference to the number of completed months in the ﬁ ve year term) in the Gaming LTI. Payments made prior to commencement Directors’ Fees Other Nil Nil Mr Barton’s contract included provision for a $400,000 sign on payment less applicable taxes in order to compensate Mr Barton for unvested incentives forfeited on cessation of employment with his previous employer. Nil A summary of the terms of the Executive Share Plan to which Mr Craigie is a member is set out on page 48. 1. I ncludes voluntary and compulsory superannuation. CROWN LIMITED ANNUAL REPORT 2010 53 REMU N ERATION REPORT CONTINUED R e m u n e r a t i o n R e p o r t Current Position Fixed Remuneration Base salary: Superannuation David G Courtney Barry J Felstead Chief Executive Ofﬁ cer, Crown Melbourne Limited (from 6 March 2007): Mr Courtney’s current employment contract with Crown Melbourne commenced on 6 March 2007 and expires on 5 March 2012. Chief Executive Ofﬁ cer, Burswood Limited (from 6 March 2007): Mr Felstead’s current employment contract with Burswood commenced on 6 March 2007 and expires on 5 March 2012. $1,300,539 per annum. $720,539 per annum. Compulsory Superannuation Guarantee Contributions up to the maximum contribution base, equating to $14,461 per annum. Compulsory Superannuation Guarantee Contributions up to the maximum contribution base, equating to $14,461 per annum. Non-monetary beneﬁ ts and other: Complimentary privileges at Crown Melbourne and Burswood facilities, mobile telephone and salary sacriﬁ ce arrangements for motor vehicle and superannuation. Complimentary privileges at Crown Melbourne and Burswood facilities, mobile telephone and salary sacriﬁ ce arrangements for motor vehicle and superannuation. Mr Felstead is entitled to one annual economy airfare between Perth and Melbourne for himself and his family. Performance based remuneration STI: LTI: Discretionary STI based on the performance of Crown Limited and the achievement of personal KPOs. Mr Courtney’s annual target STI is 40% of his TEC. Discretionary STI based on the performance of Crown and the achievement of personal KPOs. Mr Felstead’s annual target STI is 40% of his TEC. Subject to achieving internal normalised EBITDA targets in FY08, FY09 and FY10, Mr Courtney is eligible to receive up to $2,250,000 (30% for FY08, 20% for FY09 and 50% for FY10). See further page 47. Subject to achieving internal normalised EBITDA targets in FY08, FY09 and FY10 Mr Felstead is eligible to receive up to $1,000,000 (30% for FY08, 20% for FY09 and 50% for FY10). See further page 47. 2010 Percentage breakdown of remuneration Fixed remuneration1 45% STI 18% LTI 37% Fixed remuneration1 45% STI 25% LTI 30% Post employment beneﬁ ts Nil Nil Post-employment restraint Crown may impose various restraint periods up to a period of 36 months post employment. Depending on the circumstances, Mr Courtney may be entitled to an additional payment in consideration for the restraint. Mr Courtney may also be paid an amount equivalent to his monthly ﬁ xed remuneration for any period during which a restraint applies. Crown may impose various restraint periods up to a period of 36 months post employment. Depending on the circumstances, Mr Felstead may be entitled to an additional payment in consideration for the restraint. Mr Felstead may also be paid an amount equivalent to his monthly ﬁ xed remuneration for any period during which a restraint applies. Termination By Senior Executive: 12 months’ notice. 12 months’ notice. By Crown: Termination beneﬁ ts 12 months’ notice without cause; one month’s notice for performance issues; three months’ notice due to incapacity. 12 months’ notice without cause; one month’s notice for performance issues; three months’ notice due to incapacity. Provided that Mr Courtney complies with any restraints imposed on him, if Mr Courtney terminates his employment with Crown Melbourne or Crown Melbourne terminates his employment for serious misconduct, performance issues or incapacity, he will be entitled to any unpaid Gaming LTI. Thereafter, Mr Courtney will cease to be involved in the Gaming LTI. If Crown Melbourne terminates Mr Courtney’s employment without cause, Mr Courtney will be entitled to any unpaid Gaming LTI. Mr Courtney may also elect either to end his participation in the Gaming LTI and receive a payment of 24 months’ ﬁ xed remuneration or continue a pro-rated participation (calculated by reference to the number of completed months in the ﬁ ve year term) in the Gaming LTI. Provided that Mr Felstead complies with any restraints imposed on him, if Mr Felstead terminates his employment with Burswood or Burswood terminates his employment for serious misconduct, performance issues or incapacity, he will be entitled to any unpaid Gaming LTI. Thereafter, Mr Felstead will cease to be involved in the Gaming LTI. If Burswood terminates Mr Felstead’s employment without cause, Mr Felstead will be entitled to any unpaid Gaming LTI. Mr Felstead may also elect either to end his participation in the Gaming LTI and receive a payment of 24 months’ ﬁ xed remuneration or continue a pro-rated participation (calculated by reference to the number of completed months in the ﬁ ve year term) in the Gaming LTI. Payments made prior to commencement Directors’ Fees Other Nil Nil Nil Nil A summary of the terms of the Executive Share Plan to which Mr Courtney is a member is set out on page 48. A summary of the terms of the Executive Share Plan to which Mr Felstead is a member is set out on page 48. 1. I ncludes voluntary and compulsory superannuation. 54 CROWN LIMIT E D AN N UAL REPORT 2010 Remuneration tables Non-Executive Directors Short Term Beneﬁ ts Financial Year Salary & Fees Non Monetary 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Christopher Anderson Non-Executive Director Ben Brazil Non-Executive Director Christopher Corrigan1 Non-Executive Director Rowena Danziger2 Non-Executive Director Geoffrey Dixon1 Non-Executive Director Ashok Jacob4 Non-Executive Director Michael Johnston4 Non-Executive Director David Lowy Non-Executive Director Richard Turner2 Non-Executive Director 2010 TOTALS Notes: – 44,250 100,000 1,195 101,667 100,000 200,000 200,000 123,333 120,000 – – – – 100,000 100,000 180,000 180,000 805,000 – – – – – – – – – – – – – – – – – – – Other3 – 30,306 – – – – – – – – – – – – – – – – – Post Employment Beneﬁ ts – Super -annuation Term- ination Beneﬁ ts Long Term Incentives Cash Based Equity Based – 37,500 9,000 – 9,150 9,000 – – 4,777 10,800 – – – – 9,000 9,000 – – 31,927 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – R e m u n e r a t i o n R e p o r t Total – 112,056 109,000 1,195 110,817 109,000 200,000 200,000 128,110 130,800 – – – – 109,000 109,000 180,000 180,000 836,927 1. As explained in the Corporate Governance Statement, the mandate of the Remuneration Committee was extended during 2010 to deal with both nomination and remuneration matters. As an active Committee, Mr Dixon is entitled to an additional $20,000 per annum and Mr Corrigan an additional $10,000 per annum. The remuneration disclosures for Mr Dixon and Mr Corrigan include two months’ fees attributable to their work on the Nomination and Remuneration Committee. 2. Mrs Danziger and Mr Turner each receive Directors’ fees of $60,000 per annum for their participation on the Crown Melbourne Limited Board. 3. Executives who elected to receive the PBL Scheme standard consideration were provided with a loan (at an interest rate of 9 per cent) to compensate the relevant executive for the net capital gain incurred on the cash component of the consideration. The loan was provided to executives on similar repayment terms to the ESP loan and secured by their ESP shares. 4. Neither Mr Jacob nor Mr Johnston receives remuneration for their services to Crown. CROWN LIMITED ANNUAL REPORT 2010 55 REMU N ERATION REPORT CONTINUED Senior Executives Short Term Beneﬁ ts Financial Year Salary & Fees Non Monetary Other6 STI R e m u n e r a t i o n R e p o r t 2010 2009 – – 2010 1,485,539 – – – – – – 2009 1,486,255 – 102,126 2010 384,987 15,726 400,000 – – – – – James Packer Executive Chairman John Alexander Executive Deputy Chairman Ken Barton1 Chief Financial Ofﬁ cer Rowen Craigie Chief Executive Ofﬁ cer & Managing Director David Courtney Chief Executive Ofﬁ cer Crown Melbourne Limited Barry Felstead Chief Executive Ofﬁ cer Burswood Limited Post Employ- ment Beneﬁ ts – Super -annuation – – 14,461 13,745 % of target STI – – – – NA 7,231 Long Term Incentives Term- ination Beneﬁ ts Cash Based4 Equity Based5 – – – Total – – – – – 1,500,000 399,271 – 2,001,397 – – 807,944 – – – – – 2010 2,985,539 2009 2,900,000 2010 1,290,000 2009 1,265,528 – – – – – 1,000,000 100% 14,461 1,666,667 1,503,585 – 7,170,252 – – – 100,000 1,666,667 1,562,500 – 6,229,167 – 526,000 100% 25,000 750,000 323,230 – 2,914,230 – 368,000 70% 49,472 750,000 352,688 – 2,785,688 2010 720,539 10,856 – 400,000 135% 14,461 333,333 147,750 – 1,626,939 2009 721,255 7,061 205,800 70% 13,745 333,333 147,750 – 1,428,944 Geoff Kleemann7 2010 – Robert Turner2 2009 2010 2009 505,959 737,206 806,255 – – – – – – 27,014 – – 2010 TOTALS 7,603,810 26,582 400,000 1,926,000 – – – – – – – – – – 33,682 14,461 – – – – – – 88,373 175,000 830,028 149,818 1,435,000 2,336,485 13,745 416,667 163,438 – 1,400,105 90,075 2,750,000 2,124,383 1,435,000 16,355,850 Notes: 1. Mr Barton commenced in his role as Chief Financial Ofﬁ cer on 9 March 2010. Remuneration disclosures are made in respect of the period commencing 9 March 2010 and ending 30 June 2010. Mr Barton’s contract included provision for a $400,000 sign on payment less applicable taxes in order to compensate Mr Barton for unvested incentives forfeited on cessation of employment with his previous employer. 2. Mr Turner commenced in his role as Chief Financial Ofﬁ cer from 20 October 2008. Mr Turner ceased employment with Crown on 31 May 2010. Remuneration disclosures are made in respect of the 11 month period ending 31 May 2010. The $1,435,000 termination payment to Mr Turner was paid pursuant to a Severance Agreement. 3. Long service leave accrued balances have increased during the ﬁ nancial year ended 30 June 2010 for the following Senior Executives: Mr Alexander $24,983, Mr Barton, $6,503, Mr Craigie, $49,967, Mr Courtney $21,899, Mr Felstead $12,250, Mr Turner $11,425. 4. Representing average Gaming LTI cash bonus payments for FY08, FY09 and FY10. 5. AASB 2 “Share-Based Payment” requires an entity to recognise the effects of modiﬁ cations that increase the total fair value of the share-based payment arrangement or are otherwise beneﬁ cial to the employee. As the modiﬁ cation to the ESP post Demerger reduced the total fair value of the share-based payment arrangement, Crown continues to account for the services rendered as consideration for the equity instruments granted as if the modiﬁ cation had not occurred. The allocation of the expenses for Equity Based payments to the Senior Executives made following the PBL Scheme and the Demerger Scheme was consistent with the split of the PBL ESP Loan as between CMH and Crown Limited (25 percent/75 percent). 6. Executives who elected to receive the PBL Scheme standard consideration were provided with a loan (at an interest rate of 9 per cent) to compensate the relevant executive for the net capital gain incurred on the cash component of the consideration. The loan was provided to executives on similar repayment terms to the ESP loan and secured by their ESP shares. Mr Alexander and Mr Kleemann elected the PBL Scheme standard consideration. 7. Remuneration disclosures are made for the period to 7 April 2009 when Mr Kleemann ceased employment with Crown. Signed in accordance with a resolution of the Directors. J D Packer Director Melbourne, 22nd day of September, 2010 56 CROWN LIMIT E D AN N UAL REPORT 2010 R B Craigie Director A u d i t o r ’ s I n d e p e n d e n c e D e c a r a t i o n l Auditor's Independence Declaration to the Directors of Crown Limited In relation to our audit of the financial report of Crown Limited for the financial year ended 30 June 2010, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Brett Kallio Partner Melbourne 22 September 2010 Liability limited by a scheme approved under Professional Standards Legislation CROWN LIMITED ANNUAL REPORT 2010 57 REMU N ERATION REPORT CONTINUED I n d e p e n d e n t A u d i t o r ’ s R e p o r t Independent audit report to members of Crown Limited Report on the Financial Report We have audited the accompanying financial report of Crown Limited (‘the company’), which comprises the statement of financial position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is attached to the financial report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Liability limited by a scheme approved under Professional Standards Legislation 58 CROWN LIMIT E D AN N UAL REPORT 2010 2 I n d e p e n d e n t A u d i t o r ’ s R e p o r t Auditor’s Opinion In our opinion: 1. the financial report of Crown Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity’s financial position at 30 June 2010 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Report on the Remuneration Report We have audited the Remuneration Report included in pages 44 to 56 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Crown Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001. Ernst & Young Brett Kallio Partner Melbourne 22 September 2010 CROWN LIMITED ANNUAL REPORT 2010 59 D i r e c t o r s ’ l D e c a r a t i o n Directors’ Declaration In accordance with a resolution of the Directors, we declare as follows: In the opinion of the directors: 1. the ﬁ nancial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated entity’s ﬁ nancial position as at 30 June 2010 and of its performance for the year ended on that date; and b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; 2. the ﬁ nancial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1 of the Financial Report; and 3. there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable. 4. this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the ﬁ nancial year ending 30 June 2010. 5. as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identiﬁ ed in note 31 of the Financial Report will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. On behalf of the Board J D Packer Director R B Craigie Director Melbourne, 22nd day of September, 2010 60 CROWN LIMIT E D AN N UAL REPORT 2010 Financial Report Contents 62 Statement of Comprehensive Income 63 Statement of Financial Position 64 Cash Flow Statement 65 Statement of Changes in Equity 66 Notes to the Financial Statements CROWN LIMITED ANNUAL REPORT 2010 61 FINAN C IAL REPORT 2010 Statement of Comprehensive Income For the year ended 30 June 2010 S t a t e m e n t o f C o m p r e h e n s v e i I n c o m e Continuing Operations Revenues Other income Expenses Note 2010 $’000 2009 $’000 3 3 3 2,342,248 2,299,624 10,455 152 (1,811,811) (3,112,178) Share of proﬁ ts/(losses) of associates and joint venture entities 2,9 (69,457) (125,959) Proﬁ t/(loss) before income tax and ﬁ nance costs Finance costs Proﬁ t/(loss) before income tax Income tax expense Net proﬁ t/(loss) after tax Other Comprehensive Income Foreign currency translation Movement in cashﬂ ow hedge reserve Unrealised gain/(loss) on investments in associates Other comprehensive income/(loss) for the period, net of income tax Total comprehensive income/(loss) for the period 471,435 (938,361) 3 (84,126) (187,412) 387,309 (1,125,773) 2,5 (95,016) (72,131) 292,293 (1,197,904) (63,781) 186,469 30,680 (63,900) (4,061) 181,506 (37,162) 304,075 255,131 (893,829) The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Earnings per share (EPS) Basic EPS(1) Diluted EPS(1) EPS calculation is based on the weighted average number of shares on issue throughout the period Dividends per share Final dividend proposed Current year interim dividend paid (1) Basic/diluted EPS excluding the effect of signiﬁ cant items is 38.54 cps (2009: 33.74). 2010 Cents per share 2009 Cents per share 38.54 38.54 (166.89) (166.89) 19.00 18.00 19.00 18.00 62 CROWN LIMIT E D AN N UAL REPORT 2010 Statement of Financial Position At 30 June 2010 Note 2010 $’000 2009 $’000 Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Other ﬁ nancial assets Total current assets Non-current assets Receivables Available-for-sale ﬁ nancial assets Other ﬁ nancial assets Investments in associates Property, plant and equipment Licences Other intangible assets Deferred tax assets Prepaid casino tax Total non-current assets Total assets Current Liabilities Trade and other payables Interest-bearing loans and borrowings Income tax payable Provisions Other ﬁ nancial liabilities Total current liabilities Non-current liabilities Other payables Interest-bearing loans and borrowings Deferred tax liabilities Provisions Other ﬁ nancial liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 23 6 7 11 6 10 11 9 12 13 14 5 8 16 17 18 19 16 17 5 18 19 20 21 21 S t a t e m e n t o f F n a n c a i i 196,395 515,498 147,252 144,657 16,328 12,197 1,971 15,293 12,335 – l P o s i t i o n 374,143 687,783 128,158 236,837 106,634 86,313 6,045 – 1,029,669 1,095,150 2,320,459 2,134,630 651,926 659,397 175,370 182,336 111,081 140,138 65,636 68,371 4,594,978 4,603,172 4,969,121 5,290,955 292,283 292,769 135,236 33,117 20,000 37,141 113,320 120,884 – 3,400 573,956 474,194 67 4,097 712,758 1,037,158 207,098 235,167 15,337 40,600 43,509 60,500 975,860 1,380,431 1,549,816 1,854,625 3,419,305 3,436,330 638,690 634,364 448,751 483,978 2,331,864 2,317,988 3,419,305 3,436,330 The above Statement of Financial Position should be read in conjunction with the accompanying notes. CROWN LIMITED ANNUAL REPORT 2010 63 FINAN C IAL REPORT 2010 CONTINUED Cash Flow Statement For the year ended 30 June 2010 l C a s h F o w S t a t e m e n t Cash ﬂ ows from operating activities Receipts from customers Payments to suppliers and employees Dividends received Interest received Borrowing costs Income tax paid Note 2010 $’000 2009 $’000 2,325,096 2,209,937 (1,660,736) (1,581,916) 26 15 7,301 88,335 (89,773) (251,325) (114,457) (82,610) Net cash ﬂ ows from/(used in) operating activities 23b 467,457 382,436 Cash ﬂ ows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Payment for purchases of equity investments Purchase of available-for-sale ﬁ nancial assets Net proceeds from sale of equity investments Loans to associated entities Other (net) Net cash ﬂ ows from/(used in) investing activities Cash ﬂ ows from ﬁ nancing activities Proceeds from borrowings Repayment of borrowings Dividends paid Proceeds from equity raising (net of underwriting fees) ESP proceeds received Net cash ﬂ ows from/(used in) ﬁ nancing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the ﬁ nancial year Effect of exchange rate changes on cash (356,270) (389,026) 13,809 128 – (12,125) (20,584) (575,332) 84,671 (4,000) (3,177) 76,266 (84,076) (3,712) (285,551) (987,877) 250,000 3,442,768 (450,000) (5,285,054) (278,417) (331,191) – 337,150 2,893 39,065 (475,524) (1,797,262) (293,618) (2,402,703) 515,498 2,362,964 (25,485) 555,237 Cash and cash equivalents at the end of the ﬁ nancial year 23a 196,395 515,498 The above Cash Flow Statement should be read in conjunction with the accompanying notes. 64 CROWN LIMIT E D AN N UAL REPORT 2010 S t a t e m e n t o f C h a n g e s i n E q u i t y Statement of Changes in Equity For the year ended 30 June 2010 Net Unrealised Foreign Ordinary Retained Earnings $’000 Shares $’000 Gains Translation Reserve $’000 Currency Cashﬂ ow Employee Beneﬁ ts Reserve $’000 Hedge Reserve $’000 Reserve $’000 Total Equity $’000 Year ended 30 June 2010 Balance at 1 July 2009 634,364 2,317,988 632,593 (94,107) (63,900) 9,392 3,436,330 Proﬁ t/(loss) for the period Other comprehensive income Total comprehensive income for the period – – 292,293 – – – – (4,061) (63,781) 30,680 – – 292,293 (37,162) – 292,293 (4,061) (63,781) 30,680 – 255,131 Dividends paid ESP proceeds received Transfers Share based payments expense – (278,417) 2,893 1,433 – – – – – – – – – – – – – – – – – – (1,433) (278,417) 2,893 – 3,368 3,368 Balance at 30 June 2010 638,690 2,331,864 628,532 (157,888) (33,220) 11,327 3,419,305 Year ended 30 June 2009 Balance at 1 July 2008 258,149 3,846,972 451,087 (280,576) – 5,712 4,281,344 Proﬁ t/(loss) for the period – (1,197,904) – – – – (1,197,904) Other comprehensive income – – 181,506 186,469 (63,900) – 304,075 Total comprehensive income for the period – (1,197,904) 181,506 186,469 (63,900) – (893,829) Dividends paid – (331,080) Shares issued (net of equity raising fees) ESP proceeds received 337,150 39,065 Share based payments expense – – – – – – – – – – – – – – – – – (331,080) – – 337,150 39,065 3,680 3,680 Balance at 30 June 2009 634,364 2,317,988 632,593 (94,107) (63,900) 9,392 3,436,330 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. CROWN LIMITED ANNUAL REPORT 2010 65 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements For the year ended 30 June 2010 N o t e s 1. Summary of Signiﬁ cant Accounting Policies (a) Basis of preparation t o t h e F n a n c a i i l S t a t e m e n t s This ﬁ nancial report is a general-purpose ﬁ nancial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The ﬁ nancial report has also been prepared on a historical cost basis, except for derivative ﬁ nancial instruments and available-for-sale ﬁ nancial assets that have been measured at fair value and investments in associates accounted for using the equity method. The ﬁ nancial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the class order applies. The ﬁ nancial report of Crown Limited and its controlled entities for the year ended 30 June 2010 was authorised for issue in accordance with a resolution of the directors on 24 August 2010 subject to ﬁ nal approval by a sub committee. (b) Statement of compliance The ﬁ nancial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The Group has adopted the following accounting standards, which became applicable from 1 July 2009: – AASB 8 Operating Segments – AASB 123 Borrowing Costs – AASB 101 Presentation of Financial Statements (revised) The adoption of these standards did not have a material effect on the ﬁ nancial position or performance of the Group. However the adoption of AASB 8 has caused the Group to revise its segment reporting. Refer to note 2 for further details. The information for the comparative period has been restated in accordance with the new accounting standard. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the reporting period ending 30 June 2010. These are outlined in the table below. Reference Title AASB 2009-5 AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project – Leases Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project – Cash Flow Statements Application date of standard(1) 1 January 2010 Impact on Group financial report Assessing land leases based on the general criteria may result in more land leases being classiﬁ ed as ﬁ nance leases and if so, the type of asset which is to be recorded (intangible vs. property, plant and equipment) needs to be determined. Application date for Group(1) 1 July 2010 1 January 2010 The amendment to AASB 107 explicitly states that only expenditure that results in a recognised asset can be classiﬁ ed as a cash ﬂ ow from investing activities. The amendment will not have an impact on the Group. 1 July 2010 AASB 2009-12 Amendments to Australian Accounting Standards – Related Party Disclosures AASB 9 Financial Instruments 1 January 2011 1 January 2013 The amendment to AASB 124 clariﬁ es and simpliﬁ es the deﬁ nition of a related party. The amendment will not have an impact on the Group. 1 July 2011 These amendments are not expected to have an impact on the Group result. This standard may result in additional or changes in disclosure. 1 July 2013 (1) Designates the beginning of the applicable annual reporting period unless otherwise stated. 66 CROWN LIMIT E D AN N UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 1. Summary of Signiﬁ cant Accounting Fair value of available-for-sale ﬁ nancial assets Policies continued (c) Basis of consolidation The consolidated financial statements are those of the consolidated entity, comprising Crown Limited (the parent entity) and all entities that Crown Limited controlled from time to time during the year and at reporting date. Information from the financial statements of subsidiaries is included from the date the parent entity obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated ﬁ nancial statements include the results for the part of the reporting period during which the parent entity has control. Subsidiary acquisitions are accounted for using the acquisition method of accounting. The ﬁ nancial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All inter-company balances and transactions, including unrealised proﬁ ts arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. The accounting policies adopted have been applied consistently throughout the two reporting periods. (d) Signiﬁ cant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of goodwill and casino licences with indeﬁ nite useful lives The Group determines whether goodwill and casino licences with indeﬁ nite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and casino licences with indeﬁ nite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and casino licences with indeﬁ nite useful lives are discussed in note 15. In accordance with accounting standards the Group uses the Level Three method in estimating the fair value of ﬁ nancial assets. Accordingly, the fair value is estimated using inputs for the asset that are not based on observable market data. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined with the assistance of an external valuer, using the assumptions detailed in note 25. Doubtful debts An allowance for doubtful debts is recognised when there is objective evidence that an individual trade debt is impaired. Signiﬁ cant Items Management determines signiﬁ cant items based on the nature, size and generally accepted accounting principles. (e) Income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for ﬁ nancial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; or • when taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. CROWN LIMITED ANNUAL REPORT 2010 67 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 1. Summary of Signiﬁ cant Accounting Policies continued (e) Income tax continued Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable proﬁ t will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t not taxable proﬁ t or loss; or • when the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable proﬁ t will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufﬁ cient taxable proﬁ t will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised in equity and not proﬁ t or loss. (f) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; • Gaming revenues, due to the GST being offset against casino taxes; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of ﬁ nancial position. Cash ﬂ ows are included in the cash ﬂ ow statement on a gross basis and the GST component of cash ﬂ ows arising from investing and ﬁ nancing activities, which is recoverable from, or payable to, the taxation authority are classiﬁ ed as operating cash ﬂ ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (g) Foreign currency translation Both the functional and presentation currency of Crown Limited and its Australian subsidiaries is Australian dollars. Each foreign entity in the Group determines its own functional currency and items included in the ﬁ nancial statements of each foreign entity are measured using that functional currency, which is translated to the presentation currency. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. As at the reporting date the assets and liabilities of overseas subsidiaries are translated into the presentation currency of Crown Limited at the rate of exchange ruling at the reporting date and the proﬁ t or loss is translated at the weighted average exchange rates for the period. The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the statement of comprehensive income. (h) Cash and cash equivalents Cash and cash equivalents in the statement of ﬁ nancial position comprises of cash at bank and on hand, and short term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insigniﬁ cant risk of changes in future value. For the purposes of the cash ﬂ ow statement, cash and cash equivalents consist of cash and cash equivalents as deﬁ ned above, net of outstanding bank overdrafts. 68 CROWN LIMIT E D AN N UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 1. Summary of Signiﬁ cant Accounting (l) Investments and other ﬁ nancial assets Policies continued (i) Trade and other receivables Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when there is objective evidence that the full amount may not be collected. Bad debts are written off when identiﬁ ed. Receivables from associates and other related parties are carried at amortised cost less an allowance for impairment. Interest, when charged is taken up as income on an accrual basis. (j) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: • Gaming inventories which include food, beverages and other consumables are costed on a weighted average basis; and • Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (k) Investments in associates The Group’s investment in its associates are accounted for under the equity method of accounting in the consolidated ﬁ nancial statements. These are entities in which the Group has signiﬁ cant inﬂ uence and which are not subsidiaries. The ﬁ nancial statements of the associates are used by the Group to apply the equity method. Where associates apply different accounting policies to the Group, adjustments are made upon application of the equity method. Investments in associates are carried in the statement of ﬁ nancial position at cost plus post-acquisition changes in the Group’s share of net assets of the associates, less any impairment in value. The statement of comprehensive income reﬂ ects the Group’s share of the results of operations of the associates. Where there has been a change recognised directly in the associates’ equity, the Group recognises its share of any changes and discloses this, when applicable in the statement of comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long term receivables and loans, the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate. All investments and other ﬁ nancial assets are initially recognised at cost, being the fair value of the consideration given and including acquisition costs. After initial recognition, investments, which are classiﬁ ed as available-for-sale, are re-measured at each reporting date at fair value. Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the statement of comprehensive income. Non-derivative ﬁ nancial assets with ﬁ xed or determinable payments and ﬁ xed maturity are classiﬁ ed as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undeﬁ ned period are not included in this classiﬁ cation. Other long term investments that are intended to be held-to- maturity, such as bonds, are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. For investments carried at amortised cost, gains and losses are recognised in income when the investments are derecognised or impaired, as well as through the amortisation process. For investments that are actively traded in organised ﬁ nancial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the reporting date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash ﬂ ows of the underlying net asset base of the investment. Gains or losses are recognised in the statement of comprehensive income and the related assets are classiﬁ ed as non-current in the statement of ﬁ nancial position. (m) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation and amortisation is calculated on a straight-line basis over the estimated useful life of the asset as follows: • Freehold buildings – 40 to 75 years; • Leasehold improvements – lease term; and • Plant and equipment – 2 to 15 years. The assets residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each ﬁ nancial year end. CROWN LIMITED ANNUAL REPORT 2010 69 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 1. Summary of Signiﬁ cant Accounting Goodwill Policies continued (m) Property, plant and equipment continued Impairment The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inﬂ ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value using a post-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁ ts are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period the item is derecognised. (n) Intangible assets Licences Licences are carried at cost less any accumulated amortisation and any accumulated impairment losses. The directors regularly assess the carrying value of casino licences so as to ensure they are not carried at a value greater than their recoverable amount. The casino licence premiums are carried at cost of acquisition. The Crown Melbourne licence is being amortised on a straight- line basis over the remaining life of the licence from the time PBL acquired Crown Melbourne, being 34 years. The Burswood licence is perpetual and, as such, no amortisation is charged. The Burswood licence is subject to an annual impairment assessment. 70 CROWN LIMIT E D AN N UAL REPORT 2010 Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identiﬁ able assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to beneﬁ t from the combination’s synergies. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. Other intangible assets Acquired both separately and from a business combination. Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with ﬁ nite lives, this expense is taken to the statement of comprehensive income. Intangible assets created within the business are not capitalised and expenditure is charged against proﬁ ts in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists, and annually in the case of intangible assets with indeﬁ nite lives, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income when the net asset is derecognised. N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 1. Summary of Signiﬁ cant Accounting (r) Provisions Policies continued (o) Recoverable amount of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁ able cash ﬂ ows that are largely independent of the cash ﬂ ows from other assets or groups of assets (cash- generating units). In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value using a post-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. (p) Trade and other payables Trade and other payables are brought to account for amounts payable in relation to goods received and services rendered, whether or not billed to the Group at reporting date. The Group operates in a number of diverse markets, and accordingly the terms of trade vary by business. (q) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classiﬁ ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowing costs Borrowing costs directly associated with qualifying assets are to be capitalised, including any other associated costs directly attributable to the borrowing. The capitalisation ratio to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year, in this case 8.9%. All other borrowing costs are expensed in the period they occur. Provisions are recognised when the Group has a present obligation (legal or constructive) to make a future sacriﬁ ce of economic beneﬁ ts to other entities as a result of past transactions or other events, it is probable that a future sacriﬁ ce of economic beneﬁ t will be required and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reﬂ ects the risks speciﬁ c to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a ﬁ nance cost. A provision for dividends is not recognised as a liability unless the dividends are declared, or publicly recommended on or before the reporting date. (s) Employee beneﬁ ts Provision is made for employee beneﬁ ts accumulated as a result of employees rendering services up to reporting date including related on-costs. The beneﬁ ts include wages and salaries, incentives, compensated absences and other beneﬁ ts, which are charged against proﬁ ts in their respective expense categories when services are provided or beneﬁ ts vest with the employee. The provision for employee beneﬁ ts is measured at the remuneration rates expected to be paid when the liability is settled. Beneﬁ ts expected to be settled after twelve months from the reporting date are measured at the present value of the estimated future cash outﬂ ows to be made in respect of services provided by employees up to the reporting date. The liability for long service leave is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outﬂ ows. CROWN LIMITED ANNUAL REPORT 2010 71 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 1. Summary of Signiﬁ cant Accounting Policies continued t o t h e F n a n c a i i l S t a t e m e n t s (t) Share-based payment transactions Equity settled transactions The Group provides beneﬁ ts to senior executives in the form of share-based payments, whereby executives render services in exchange for shares or rights over shares (equity-settled transactions). The plan in place to provide these beneﬁ ts is the Executive Share Plan (ESP). The cost of these equity-settled transactions with executives is measured by reference to the fair value of the equity instruments at the date which they are granted. The fair value is determined by an external valuer using the Monte Carlo model, further details of which are given in note 25. In valuing equity-settled transactions, only conditions linked to the price of the shares of Crown Limited are taken into account, further details of which are given in note 25. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulﬁ lled, ending on the date on which the relevant executives become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting dates reﬂ ects: (i) the extent to which the vesting period has expired; and (ii) the Groups best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. (u) Leases Finance leases, which transfer to the Group substantially all the risks and beneﬁ ts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the ﬁ nance charges and reduction of the leased liability so as to achieve a constant rate of interest on the remaining balance of the liability. 72 CROWN LIMIT E D AN N UAL REPORT 2010 Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. (v) Derecognition of ﬁ nancial instruments The derecognition of a ﬁ nancial instrument takes place when the Group no longer controls the contractual rights that comprise the ﬁ nancial instrument, which is normally the case when the instrument is sold, or all the cash ﬂ ows attributable to the instrument are passed through to an independent third party. (w) Derivative ﬁ nancial instruments and hedging The Group uses derivative ﬁ nancial instruments (including forward exchange contracts and interest rate swaps) to hedge its risks associated with foreign currency and interest rate ﬂ uctuations. Such derivative ﬁ nancial instruments are initially recognised at fair value at inception and are subsequently marked-to-market. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash ﬂ ow hedges, are taken directly to proﬁ t or loss for the year. The fair value of forward exchange contracts are calculated by reference to current forward exchange rates for contracts with similar maturity proﬁ les. The fair values of interest rate swaps are determined by reference to market values for similar instruments. Hedges that meet the strict criteria for hedge accounting are accounted for as follows: (i) Fair value hedges Fair value hedges are hedges of the Group’s exposure to changes in the fair value of a recognised asset or liability or an unrecognised ﬁ rm commitment, or an identiﬁ ed portion of such an asset, liability or ﬁ rm commitment that is attributable to a particular risk and could affect proﬁ t or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged and the derivative is remeasured to fair value. Gains and losses from both are taken to proﬁ t or loss. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedged ﬁ nancial instrument for which the effective interest method is used is amortised to proﬁ t or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 1. Summary of Signiﬁ cant Accounting Policies continued (w) Derivative ﬁ nancial instruments and hedging continued (ii) Cash ﬂ ow hedges Cash ﬂ ow hedges are hedges of the Group’s exposure to variability in cash ﬂ ows that is attributable to a particular risk associated with a recognised asset or liability that is a ﬁ rm commitment and that could affect proﬁ t or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in proﬁ t or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction (ﬁ nance costs or inventory purchases) when the forecast transaction occurs. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked (due to it being ineffective), amounts previously recognised in equity remain in equity until the forecast transaction occurs. (x) Impairment of ﬁ nancial assets The Group assesses at each reporting date whether a ﬁ nancial asset or group of ﬁ nancial assets is impaired. (i) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash ﬂ ows (excluding future credit losses that have not been incurred) discounted at the ﬁ nancial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the statement of comprehensive income. The Group ﬁ rst assesses whether objective evidence of impairment exists individually for ﬁ nancial assets that are individually signiﬁ cant, and individually or collectively for ﬁ nancial assets that are not individually signiﬁ cant. If it is determined that no objective evidence of impairment exists for an individually assessed ﬁ nancial asset, whether signiﬁ cant or not, the asset is included in a group of ﬁ nancial assets with similar credit risk characteristics and that group of ﬁ nancial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (ii) Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated cash ﬂ ows, discounted at the current market rate of return for a similar ﬁ nancial asset. (iii) Available-for-sale investments If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in equity, is transferred from equity to proﬁ t or loss. Reversals of impairment losses for equity instruments classiﬁ ed as available-for-sale are not recognised in proﬁ t or loss. Instead they are recognised through a separate component of equity. (y) Contributed equity Ordinary shares are classiﬁ ed as equity. Issued capital is recognised at the fair value of the consideration received, less transaction costs. (z) Revenue Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic beneﬁ ts will ﬂ ow to the Group and the revenue can be reliably measured. The following speciﬁ c recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the signiﬁ cant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer. CROWN LIMITED ANNUAL REPORT 2010 73 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 1. Summary of Signiﬁ cant Accounting (ab) Segment Information The Group’s operating segments have been determined based on internal management reporting structure and the nature of the products provided by the Group. They reﬂ ect the business level at which ﬁ nancial information is provided to management for decision making regarding resource allocation and performance assessment. The segment information presented is consistent with internal management reporting. The Group has two operating segments being Crown Melbourne and Burswood. The information for the comparative period has been restated in accordance with the new accounting standard. Policies continued (z) Revenue continued Rendering of services Revenue is recognised when control of the right to be compensated for the services and the stage of completion can be reliably measured. Casino revenues are the net of gaming wins and losses. Interest Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁ nancial instrument) to the net carrying amount of the ﬁ nancial asset. Dividends Revenue is recognised when the shareholders’ right to receive the payment is established. (aa) Earnings per share (EPS) Basic EPS is calculated as net proﬁ t after tax, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net proﬁ t after tax, adjusted for: • costs of servicing equity (other than dividends); • the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 74 CROWN LIMIT E D AN N UAL REPORT 2010 2. Segment Information 30 June 2010 Normalised Result(1) Crown Melbourne Burswood $’000 $’000 Note Unall -ocated $’000 Crown Group $’000 Adjust -ment (1) $’000 Actual Crown Group $’000 N o t e s t o t h e F n a n c a i i Operating revenue Main ﬂ oor gaming 876,810 396,157 – 1,272,967 – 1,272,967 VIP commission program play 363,511 172,491 – 536,002 49,303 585,305 Non Gaming Intersegment 319,184 164,262 27 483,473 (142) – – 483,473 (142) Operating revenue 1,559,505 732,910 27 2,292,300 49,303 2,341,603 l S t a t e m e n t s Interest revenue Total revenue Segment result 3 11,100 – 11,100 1,559,505 732,910 27 2,303,400 49,303 2,352,703(2) Gaming taxes and commissions (439,523) (197,588) – (637,111) (13,626) (650,737) Operating expenses Intersegment (645,117) (321,696) (31,285) (998,098) 142 – – (998,098) 142 Earnings before interest, tax, depreciation and amortisation “EBITDA” 474,865 213,626 (31,258) 657,233 35,677 692,910 Depreciation and amortisation 3 (125,716) (34,762) (2,640) (163,118) – (163,118) Earnings before interest and tax “EBIT” 349,149 178,864 (33,898) 494,115 35,677 529,792 Equity accounted share of associates’ net proﬁ t/(loss) Net interest income/(expense) Income tax beneﬁ t/(expense) 9 3 5 (48,409) (21,048) (69,457) (73,026) – (73,026) (84,313) (10,703) (95,016) Proﬁ t/(loss) after tax 349,149 178,864 (33,898) 288,367 3,926 292,293 – 4,969,121 – 1,549,816 – 333,325 – 1,029,669 Total assets employed 2,424,006 1,167,304 1,377,811 4,969,121 Total liabilities Capital expenditure 359,741 117,854 1,072,221 1,549,816 271,286 62,003 36 333,325 Investments in associates 9 Non-cash (income)/expenses (other than depn & amort) – – – 1,029,669 1,029,669 – – – – – (1) Normalised results have been adjusted to exclude the impact of any variance from theoretical win rate on VIP commission program play (at Crown Melbourne, Burswood and Melco Crown), the impact of signiﬁ cant items (where applicable), and pre-opening costs in respect of City of Dreams (where applicable). The theoretical win rate is the expected hold percentage on VIP commission program play over time. Accordingly, the normalised result gives rise to adjustments to VIP commission program play revenue, gaming taxes, income tax expense and equity accounted share of associates’ result. (2) Total revenue of $2,352.7 million includes $10.5 million proﬁ t on disposal of non-current assets, which is not included in revenue in the statement of comprehensive income. CROWN LIMITED ANNUAL REPORT 2010 75 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 2. Segment Information continued 30 June 2009 t o t h e F n a n c a i i Normalised Result(1) Crown Melbourne Burswood $’000 $’000 Note Unall -ocated $’000 Crown Group $’000 Adjust Signiﬁ cant -ment (1) Items $’000 $’000 Actual Crown Group $’000 l S t a t e m e n t s Operating revenue Main ﬂ oor gaming 855,272 397,860 – 1,253,132 – – 1,253,132 VIP commission program play 329,704 140,001 Non Gaming Intersegment 281,205 159,708 – – 469,705 31,438 440,913 (120) – – – – – 501,143 440,913 (120) Operating revenue 1,466,181 697,569 – 2,163,630 31,438 – 2,195,068 Interest revenue 3 64,265 – 40,443 104,708 Total revenue 1,466,181 697,569 – 2,227,895 31,438 40,443 2,299,776 (2) Segment result Gaming taxes and commissions (408,684) (170,095) – (578,779) (4,970) Operating expenses (607,233) (318,812) (39,332) (965,377) 120 – – – – – (583,749) (965,377) 120 Intersegment Earnings before interest, tax, depreciation and amortisation “EBITDA” Depreciation and amortisation Earnings before interest and tax “EBIT” Signiﬁ cant items 450,264 208,662 (39,332) 619,594 26,468 – 646,062 3 (112,969) (32,385) (2,630) (147,984) – – (147,984) 337,295 176,277 (41,962) 471,610 26,468 – 498,078 – – – – – (1,415,188) (1,415,188) Equity accounted share of associates’ net proﬁ t/(loss) 9 Net interest income/(expense) 3 Income tax beneﬁ t/(expense) 5 (68,962) (56,997) – (125,959) (27,877) – (54,827) (82,704) (94,105) (7,941) 29,915 (72,131) Proﬁ t/(loss) after tax 337,295 176,277 (41,962) 280,666 (38,470) (1,440,100) (1,197,904) Total assets employed 2,231,621 1,229,366 1,829,968 5,290,955 Total liabilities 371,636 142,486 1,340,503 1,854,625 Capital expenditure 354,115 54,991 148 409,254 – 1,095,150 1,095,150 – – – – – 5,290,955 – 1,854,625 – 409,254 – 1,095,150 Investments in associates 9 Non-cash (income)/expenses (other than depn & amort) – – – – – – 1,293,751 1,293,751 (1) Normalised results have been adjusted to exclude the impact of any variance from theoretical win rate on VIP commission program play (at Crown Melbourne, Burswood and Melco Crown), the impact of signiﬁ cant items (where applicable), and pre-opening costs in respect of City of Dreams (where applicable). The theoretical win rate is the expected hold percentage on VIP commission program play over time. Accordingly, the normalised result gives rise to adjustments to VIP commission program play revenue, gaming taxes, income tax expense and equity accounted share of associates’ result. (2) Total revenue of $2,299.8 million includes $0.2 million proﬁ t on disposal of non-current assets, which is not included in revenue in the statement of comprehensive income. 76 CROWN LIMIT E D AN N UAL REPORT 2010 3. Revenue and Expenses N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Proﬁ t before income tax expense includes the following revenues and expenses: (a) Revenue from continuing operations Revenue from services Revenue from sale of goods Interest – signiﬁ cant item Interest – non signiﬁ cant item Dividends Other operating revenue (b) Other income from continuing operations Proﬁ t on disposal of non-current assets (c) Expenses from continuing operations Cost of sales Gaming activities Signiﬁ cant items (excl. interest and tax) Other ordinary activities Depreciation of non-current assets (included in expenses above) Buildings Plant and equipment Amortisation of non-current assets (included in expenses above) Casino licence fee and management agreement Other assets Total depreciation and amortisation expense 2010 $’000 2009 $’000 2,016,601 1,903,113 295,533 272,188 – 11,100 27 40,443 64,265 16 18,987 19,599 2,342,248 2,299,624 10,455 152 115,327 105,386 1,662,559 1,549,626 – 1,415,188 33,925 41,978 1,811,811 3,112,178 49,164 94,973 43,870 85,681 144,137 129,551 14,417 4,564 14,417 4,016 18,981 18,433 163,118 147,984 CROWN LIMITED ANNUAL REPORT 2010 77 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 3. Revenue and Expenses continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s (d) Signiﬁ cant items Continuing operations Write down of available-for-sale assets Write down of investments in associates Write down of Gateway shareholder loan Write down of deferred debt securities Termination fee for original Cannery transaction Termination of US dollar interest rate swaps Net interest attributable to the termination of original Cannery transaction Other net signiﬁ cant items (e) Other income and expense disclosures Finance costs expensed: Debt facilities Capitalised interest Debt facilities – signiﬁ cant item Bad and doubtful debts – trade debtors Rentals – operating leases Superannuation expense Other employee beneﬁ ts expense Executive share plan expenses Net foreign currency gains/(losses) 2010 $’000 2009 $’000 – – – – – – – – – 939,773 131,634 182,279 31,265 76,546 57,341 54,827 (3,650) 1,470,015 86,925 92,142 (2,799) – – 95,270 84,126 187,412 6,753 5,449 38,979 13,678 4,975 36,676 571,534 557,986 3,368 2,375 3,680 12,909 78 CROWN LIMIT E D AN N UAL REPORT 2010 4. Dividends Paid and Announced N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 2010 $’000 2009 $’000 (a) Dividends declared and paid during the ﬁ nancial year Prior year ﬁ nal dividend (paid 26 October 2009) Paid at 19 cents (2008: 29 cents) per share franked at 60% (2008: 40% franked) at the Australian tax rate of 30% (2008: 30%) 144,095 200,006 Current year interim dividend (paid 23 April 2010) Paid at 18 cents (2009: 18 cents) per share franked at 60% (2009: 60% franked) at the Australian tax rate of 30% (2009: 30%) Total dividends appropriated (b) Dividends announced and not recognised as a liability Current year ﬁ nal dividend (expected to be paid 15 October 2010) 136,511 136,511 280,606 336,517 Announced at 19 cents (2009: 19 cents) per share and franked at 60% (2009: 60%) at the Australian tax rate of 30% (2009: 30%) 144,095 144,095 (c) Franking credits The tax rate at which the ﬁ nal dividend will be franked is 30% (2009: 30%). The franking account disclosures have been calculated using the franking rate applicable at 30 June 2010. The amount of franking credits available for the subsequent ﬁ nancial year: Franking account balance as at the end of the ﬁ nancial year at 30% (2009: 30%) 46,189 29,458 Franking credits that will arise from the payment of income taxes payable as at the end of the ﬁ nancial year Total franking credits The amount of franking credits available for future reporting periods: Impact on the franking account of dividends announced before the ﬁ nancial report was authorised for issue but not recognised as a distribution to equity holders during the ﬁ nancial year Total franking credits available for future reporting periods 19,199 65,388 15,994 45,452 (37,054) (37,054) 28,334 8,398 CROWN LIMITED ANNUAL REPORT 2010 79 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 5. Income Tax N o t e s t o t h e F n a n c a i i l S t a t e m e n t s (a) Income tax expense The prima facie tax expense, using tax rates applicable in the country of operation, on proﬁ t differs from income tax provided in the ﬁ nancial statements as follows: Proﬁ t/(loss) before income tax 387,309 (1,125,773) Prima facie income tax expense/(beneﬁ t) on proﬁ t/(loss) at the Australian rate of 30% (2009: 30%) 116,192 (337,732) 2010 $’000 2009 $’000 Tax effect of: Non deductible depreciation and amortisation Share of associates’ net losses/(proﬁ ts) Differences in foreign tax rates Non assessable income sheltered by capital losses Other non assessable income Tax losses previously not recognised now brought to account Other items – net Impairment and write down of investments and loans Deferred income tax on temporary differences Income tax (over)/under provided in prior years Income tax expense/(beneﬁ t) Income tax expense/(beneﬁ t) comprises: Current expense/(beneﬁ t) Deferred expense/(beneﬁ t) Adjustments for current income tax of prior periods (b) Deferred income taxes Deferred income tax assets Deferred income tax liabilities Net deferred income tax assets/(liabilities) 2,247 20,837 (24,928) (3,065) (5,002) 2,247 37,788 (13,950) – – – (6,000) (14,524) 12,933 – 385,485 988 2,271 (1,358) (7,282) 95,016 72,131 91,757 80,771 988 2,271 (1,358) (7,282) 95,016 72,131 111,081 140,138 207,098 235,167 (96,017) (95,029) 80 CROWN LIMIT E D AN N UAL REPORT 2010 5. Income Tax continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s (c) Deferred income tax assets and liabilities at the end of the ﬁ nancial year The balance comprises temporary differences attributable to: Doubtful debt provision Employee beneﬁ ts provision Revenue losses carried forward Other receivables Other provisions Investments Prepaid casino tax Licences and intangibles Land and buildings Property, plant and equipment Other Net deferred income tax assets/(liabilities) (d) Movements in deferred income tax assets and liabilities during the ﬁ nancial year Carrying amount at the beginning of the year Charged/(credited) to the income statement Charged/(credited) to equity Carrying amount at the end of the year (e) Tax losses not brought to account, as the realisation of the beneﬁ ts represented by these balances is not considered to be probable The Group has tax losses arising in Australia that are available indeﬁ nitely for offset against future capital gains. Capital gains tax – no expiry date Total tax losses not brought to account Potential tax beneﬁ t at respective tax rates (f) Unrecognised temporary differences 2010 $’000 2009 $’000 7,712 22,258 12,305 41,580 18,840 (639) 8,082 21,274 20,475 44,013 27,932 – (20,379) (20,511) (123,053) (125,137) (69,958) (88,099) 9,975 5,342 1,393 15,549 (96,017) (95,029) (95,029) (258,136) (988) (1,359) – 164,466 (96,017) (95,029) 913,557 922,128 913,557 922,128 274,067 276,638 At 30 June 2010, there is no recognised or unrecognised deferred income tax liability (2009: $nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, associates or joint ventures, as the Group has no liability for additional taxation should such amounts be remitted. (g) Tax consolidation Crown Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 1 July 2007. Crown Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing arrangement with Crown Limited in order to allocate income tax expense between Crown Limited and the wholly owned subsidiaries. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date the possibility of default is remote. CROWN LIMITED ANNUAL REPORT 2010 81 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 5. Income Tax continued (h) Tax effect accounting by members of the tax consolidated group t o t h e F n a n c a i i Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current and deferred taxes to members of the tax consolidated group in accordance with their taxable income for the period. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries inter-company accounts with the tax consolidated group head company, Crown Limited. 6. Trade and Other Receivables l S t a t e m e n t s Current Trade receivables Provision for doubtful debts (a) Loans to associated entities Other receivables 2010 $’000 2009 $’000 140,884 127,194 (26,897) 113,987 13 33,252 33,265 (28,206) 98,988 34 45,635 45,669 147,252 144,657 (a) Allowance for Doubtful Debts Trade debtors are non-interest bearing and are generally 30 day terms. An allowance for doubtful debts is recognised when there is objective evidence that an individual trade debt is impaired. Movements in the allowance for doubtful debts Allowance for doubtful debts at the beginning of the year Net doubtful debt expense(1) Transfers in Amounts written off (1) Amounts are included in other expenses. 2010 $’000 (28,206) (6,753) – 8,062 2009 $’000 (13,983) (13,678) (800) 255 (26,897) (28,206) 82 CROWN LIMIT E D AN N UAL REPORT 2010 6. Trade and Other Receivables continued (a) Allowance for Doubtful Debts continued Ageing analysis of trade debtors 0-30 days $’000 > 30 days $’000 Total $’000 N o t e s t o t h e F n a n c a i i 2010 – consolidated Current Past due not impaired Considered impaired 2009 – consolidated Current Past due not impaired Considered impaired Non-current Loans to associated entities (1) Other receivables (1) Loan terms are outlined in note 30. 7. Inventories Current Finished goods (at cost) 8. Prepaid Casino Tax Non-current Prepaid casino tax at cost Accumulated amortisation l S t a t e m e n t s 90,097 – 667 – 23,890 26,230 90,097 23,890 26,897 90,764 50,120 140,884 48,405 – 3,249 51,654 – 50,583 24,957 48,405 50,583 28,206 75,540 127,194 2010 $’000 2009 $’000 114,076 165,160 14,082 71,677 128,158 236,837 2010 $’000 2009 $’000 16,328 15,293 2010 $’000 2009 $’000 100,800 100,800 (35,164) (32,429) 65,636 68,371 CROWN LIMITED ANNUAL REPORT 2010 83 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 9. Investments in Associates N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Investment details: Associated entities – unlisted shares Associated entities – listed shares Total investments in associates Fair value of listed investments: Melco Crown Entertainment Ltd (1) 2010 $’000 2009 $’000 6,158 11,829 1,023,511 1,083,321 1,029,669 1,095,150 792,247 929,714 792,247 929,714 (1) Reﬂ ects Melco Crown share price at balance date, converted to Australian dollars. In accordance with Crown’s accounting policies, recoverable amount is the greater of fair value less costs to sell and value in use. The Melco Crown carrying amount does not exceed its recoverable amount. Investments in Associates Reporting Date Principal Activity Country of Incorporation or Residence %Interest 30 June 2010 30 June 2009 Melco Crown Entertainment Ltd 31 Dec (2) Aspinalls Holdings (Jersey) Ltd 30 June Resort/Casino and gaming machine operator Casino and gaming machine operator Betfair Australasia Pty Ltd 30 April (2) Betting exchange Gateway Casinos 31 Dec (2) Casino and gaming machine operator (2) The Group uses 30 June results to equity account for the investments. Macau U.K. Australia Canada Share of associates’ revenue and proﬁ ts/(losses) Share of associates’: Revenue Operating proﬁ t/(loss) before income tax Income tax beneﬁ t/(expense) Share of associates’ net proﬁ t/(loss) after income tax 33.4 50.0 50.0 50.0 36.4 50.0 50.0 50.0 2010 $’000 2009 $’000 779,378 661,130 (72,039) (133,030) 2,582 7,071 (69,457) (125,959) 84 CROWN LIMIT E D AN N UAL REPORT 2010 9. Investments in Associates continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Carrying amount of investments in associates Balance at the beginning of the ﬁ nancial year Carrying amount of investments in associates acquired during the year Share of associates’ net proﬁ t/(loss) for the year Gain/(loss) on issue of shares by associate Impairment of investments Foreign exchange movements 2010 $’000 2009 $’000 1,095,150 1,130,164 63,565 12,124 (69,457) (125,959) (4,389) (12,063) – (131,634) (55,200) 222,518 Carrying amount of investment in associates at the end of the ﬁ nancial year 1,029,669 1,095,150 Represented by: • Melco Crown • Betfair The consolidated entity’s share of the assets and liabilities of associates in aggregate Current assets Non-current assets Current liabilities Non-current liabilities Net assets Retained proﬁ ts/(accumulated losses) of the consolidated entity attributable to associates Balance at the beginning of the ﬁ nancial year Share of associates’ net proﬁ ts/(losses) Balance at the end of the ﬁ nancial year 1,023,511 1,083,321 6,158 11,829 1,029,669 1,095,150 403,607 419,658 2,370,148 2,694,416 (1,021,821) (343,794) (997,264) (1,807,980) 754,670 962,300 (201,283) (75,324) (69,457) (125,959) (270,740) (201,283) The investments in Gateway Casinos and Aspinalls Holdings (Jersey) Ltd are no longer equity accounted as the investments have been written down to $nil. The Group’s share of unrecognised losses as at 30 June 2010 are $148.4 million (2009: $101.6 million) for Gateway and $5.4 million (2009: $nil) for Aspinalls. CROWN LIMITED ANNUAL REPORT 2010 85 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 9. Investments in Associates continued Impairment Testing Based on detailed impairment testing performed, there has been no impairment charge during the year (2009: $131.6 million). During the 2009 ﬁ nancial year the Group’s investments in Aspinalls and Gateway were both written down to $nil, resulting in an impairment loss of $131.6 million. For the purposes of impairment testing, management estimated the present value of the future cash ﬂ ows expected to be generated from operations and the proceeds from ultimate disposal. These calculations use cash ﬂ ow projections based on past performance and expectations for the future using a ﬁ ve year cash ﬂ ow period. The implied terminal growth rate beyond the ﬁ ve year period does not exceed the forecasted long term inﬂ ation rates of up to 3.4%. Post-tax discount rates of between 9% and 10% were used in the impairment review calculations. Any reasonable possible change in key assumptions used would not cause the carrying amount of the investments to exceed their recoverable amounts. 10. Available-for-sale Financial Assets At fair value Shares – unlisted (Australia) Shares – unlisted (US) 2010 $’000 2009 $’000 37,132 69,502 106,634 36,728 49,585 86,313 Available-for-sale ﬁ nancial assets consist of investments in shares, and therefore have no ﬁ xed maturity date or coupon rate. The fair value of the unlisted available-for-sale ﬁ nancial assets has been estimated using valuation techniques based on assumptions that are not supported by observable market prices or rates. Management believes that the estimated fair values resulting from the valuation techniques and recorded in the statement of ﬁ nancial position and the related changes in fair value recorded in the statement of comprehensive income are reasonable and the most appropriate at the reporting date. Based on the valuation techniques performed, there has been no impairment charge during the year (2009: $939.8 million). 11. Other Financial Assets Current Receivable on forward exchange contracts Receivable on interest rate swap Non-current Receivable on forward exchange contracts 2010 $’000 2009 $’000 1,335 636 1,971 6,045 6,045 – – – – – Details of the Group’s exposure to interest rate risk and foreign currency changes are provided in note 34. 86 CROWN LIMIT E D AN N UAL REPORT 2010 12. Property, Plant and Equipment N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Freehold land and buildings $’000 Buildings on leasehold Plant & land equipment $’000 $’000 Construction work in Total property, plant and progress equipment equipment $’000 Leased plant & $’000 $’000 Year ended 30 June 2010 At 1 July 2009, net of accumulated depreciation and impairment Additions Disposals Depreciation expense Reclassiﬁ cation/transfer At 30 June 2010, net of accumulated depreciation and impairment At 1 July 2009 685,363 677,503 499,468 272,296 – 2,134,630 1,535 29,954 39,632 262,204 (3,283) – (76) (16,839) (32,325) (94,973) – – 299,780 – 91,891 (391,671) – – – – 333,325 (3,359) (144,137) – 966,556 675,132 535,942 142,829 – 2,320,459 Cost (gross carrying amount) 839,644 1,018,705 1,290,588 272,296 10,679 3,431,912 Accumulated depreciation and impairment Net carrying amount At 30 June 2010 (154,281) (341,202) (791,120) – (10,679) (1,297,282) 685,363 677,503 499,468 272,296 – 2,134,630 Cost (gross carrying amount) 1,137,453 1,046,742 1,409,420 142,829 10,679 3,747,123 Accumulated depreciation and impairment Net carrying amount (170,897) (371,610) (873,478) – (10,679) (1,426,664) 966,556 675,132 535,942 142,829 – 2,320,459 CROWN LIMITED ANNUAL REPORT 2010 87 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 12. Property, Plant and Equipment continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Year ended 30 June 2009 At 1 July 2008, net of accumulated depreciation and impairment Additions Disposals Depreciation expense Reclassiﬁ cation/transfer At 30 June 2009, net of accumulated depreciation and impairment At 1 July 2008 Freehold land and buildings $’000 Buildings on leasehold Plant & land equipment $’000 $’000 Construction work in Total property, plant and progress equipment equipment $’000 Leased plant & $’000 $’000 674,551 670,558 444,827 65,041 – 1,854,977 883 34,395 65,502 308,474 (9) – (41) (16,420) (27,450) (85,681) – – 26,358 – 74,861 (101,219) – – – – 409,254 (50) (129,551) – 685,363 677,503 499,468 272,296 – 2,134,630 Cost (gross carrying amount) 812,165 987,441 1,184,250 65,041 10,679 3,059,576 Accumulated depreciation and impairment Net carrying amount At 30 June 2009 (137,614) (316,883) (739,423) – (10,679) (1,204,599) 674,551 670,558 444,827 65,041 – 1,854,977 Cost (gross carrying amount) 839,644 1,018,705 1,290,588 272,296 10,679 3,431,912 Accumulated depreciation and impairment Net carrying amount (154,281) (341,202) (791,120) – (10,679) (1,297,282) 685,363 677,503 499,468 272,296 – 2,134,630 88 CROWN LIMIT E D AN N UAL REPORT 2010 13. Licences N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Year ended 30 June 2010 At 1 July 2009, net of accumulated amortisation and impairment Amortisation expense At 30 June 2010, net of accumulated amortisation and impairment At 1 July 2009 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount At 30 June 2010 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Year ended 30 June 2009 At 1 July 2008, net of accumulated amortisation and impairment Amortisation expense At 30 June 2009, net of accumulated amortisation and impairment At 1 July 2008 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount (1) Purchased as part of a business combination. Casino Licence(1) $’000 659,397 (7,471) 651,926 774,899 (115,502) 659,397 774,899 (122,973) 651,926 666,868 (7,471) 659,397 774,899 (108,031) 666,868 The casino licence premiums are carried at cost and amortised on a straight line basis over their useful lives. The Crown Melbourne licence is being amortised over 34 years. The Burswood licence is perpetual and no amortisation is charged. CROWN LIMITED ANNUAL REPORT 2010 89 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 14. Other Intangible Assets N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Casino Management Goodwill(1) Agreement(1) $’000 $’000 Other $’000 Total $’000 Year ended 30 June 2010 At 1 July 2009, net of accumulated amortisation and impairment 11,892 169,516 928 182,336 Amortisation expense At 30 June 2010, net of accumulated amortisation and impairment At 1 July 2009 Cost (gross carrying amount) – (6,946) (20) (6,966) 11,892 162,570 908 175,370 11,892 245,279 1,025 258,196 Accumulated amortisation and impairment – (75,763) (97) (75,860) Net carrying amount 11,892 169,516 928 182,336 At 30 June 2010 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Year ended 30 June 2009 11,892 245,279 1,025 258,196 – (82,709) 11,892 162,570 (117) 908 (82,826) 175,370 At 1 July 2008, net of accumulated amortisation and impairment 11,892 176,461 948 189,301 Amortisation expense At 30 June 2009, net of accumulated amortisation and impairment At 1 July 2008 Cost (gross carrying amount) – (6,945) (20) (6,965) 11,892 169,516 928 182,336 11,892 245,279 1,025 258,196 Accumulated amortisation and impairment – (68,818) (77) (68,895) Net carrying amount 11,892 176,461 948 189,301 (1) Purchased as part of a business combination. Goodwill is considered to have an indeﬁ nite life and is tested annually for impairment (see note 15). The useful life of the Crown Melbourne casino management agreement is 34 years, and is amortised on a straight line basis. 90 CROWN LIMIT E D AN N UAL REPORT 2010 15. Impairment Testing of Intangible Assets Impairment tests for intangible assets N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Intangible assets deemed to have indeﬁ nite lives are allocated to the Group’s cash generating units (CGU’s) identiﬁ ed according to business segment. The recoverable amount of a CGU is determined based on fair value less costs to sell. Fair value less costs to sell is calculated using a discounted cash ﬂ ow methodology covering a speciﬁ ed period, with an appropriate residual value at the end of that period, for each segment. The methodology utilises cash ﬂ ow forecasts that are based primarily on business plans presented to and approved by the Board. The implied terminal growth rate beyond the ﬁ ve year period does not exceed the forecasted long term Australian inﬂ ation rate of 2.5%. The following describes each key assumption on which management has based its cash ﬂ ow projections to undertake impairment testing of goodwill and casino licences. (a) Cash ﬂ ow forecasts Cash ﬂ ow forecasts are based on past performance and expectations for the future using a ﬁ ve year cash ﬂ ow period. (b) Residual value Residual value is calculated using a perpetuity growth formula based on the cash ﬂ ow forecast using a weighted average cost of capital (after tax) and forecast growth rate. (c) Forecast growth rates Forecast growth rates are based on past performance and management’s expectations for future performance in each segment. (d) Discount rates A weighted average cost of capital (after tax) of between 9% and 10% was used by the Group in impairment testing, risk adjusted where applicable. 16. Trade and Other Payables Current – unsecured Trade and other payables Deferred Income Non-current – unsecured Other Deferred Income 2010 $’000 2009 $’000 291,273 284,499 1,010 8,270 292,283 292,769 67 – 67 67 4,030 4,097 CROWN LIMITED ANNUAL REPORT 2010 91 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 17. Interest-Bearing Loans and Borrowings N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Current – unsecured Bank Loans – unsecured Capital Markets Debt – unsecured Derivatives Non-current – unsecured Bank Loans – unsecured Capital Markets Debt – unsecured Derivatives Fair Value Disclosures 2010 $’000 2009 $’000 20,000 20,000 114,600 636 – – 135,236 20,000 300,000 500,000 412,758 534,058 – 3,100 712,758 1,037,158 Details of the fair value disclosures of the Group’s interest bearing liabilities are set out in note 34. Financial Risk Management Information about the Group’s exposure to interest rate and foreign currency changes is provided in note 34. Financing and Credit Facilities Unsecured credit facilities are provided as part of the overall debt funding structure of the Crown Group as follows: Facility Type Bank Facilities Facility Amount $’000 Drawn Amount $’000 Letters of Credit Issued $’000 Available $’000 Expiry Dates Bilateral Multi Option Facility 120,000 20,000 37,471 62,529 October 2010 Syndicated Multi Option Facility 450,000 – 185,000 265,000 August 2011 Syndicated Revolving and Term Loan Facility 600,000 300,000 Australian Dollar Bilateral Facilities US Dollar Bilateral Facilities(1) 388,394 270,270 – – – – – 300,000 June 2013 388,394 2012 – 2013 270,270 2012 – 2013 1,828,664 320,000 222,471 1,286,193 Debt Capital Markets Medium Term Note Euro Medium Term Note US Private Placement (1) 114,600 114,600 174,634 174,634 238,124 238,124 527,358 527,358 – – – – – – March 2011 July 2036 – 2015 – 2020 – Total at 30 June 2010 2,356,022 847,358 222,471 1,286,193 Total at 30 June 2009 3,334,815 1,057,158 270,478 2,007,179 (1) Converted at an exchange rate of AUD $1.00 = USD $0.8399. 92 CROWN LIMIT E D AN N UAL REPORT 2010 17. Interest-Bearing Loans and Borrowings continued The bank facilities are provided on an unsecured basis by domestic and international banks. N o t e s t o t h e F n a n c a i i l S t a t e m e n t s The debt capital markets drawn amounts represent unsecured notes issued to domestic and international debt investors. Crown is able to make advances and issue letters of credit under the syndicated facilities and the bilateral facilities which are multi option in nature. For details relating to letters of credit issued, refer to note 26. Each of the above mentioned facilities is supported by a Group guarantee from Crown and certain of its subsidiaries and impose various afﬁ rmative covenants on Crown, including compliance with certain ﬁ nancial ratios and negative covenants, including restrictions on encumbrances, and customary events of default, including a payment default, breach of covenants, cross-default and insolvency events. During the current and prior year, there were no defaults or breaches on any of the loans or borrowings. 18. Provisions At 1 July 2009 Arising during the year Utilised during the year Amount reversed during the year At 30 June 2010 Current 2010 Non-current 2010 At 30 June 2010 Current 2009 Non-current 2009 At 30 June 2009 19. Other Financial Liabilities Current Payables on forward exchange contracts Non-current Payables on interest rate swaps Payables on cross currency swaps Payables on forward exchange contracts Other ﬁ nancial liabilities are outlined in note 34. Employee Entitlements $’000 Other $’000 Total $’000 122,291 42,102 164,393 61,880 (69,896) (6,642) 13,245 (28,790) (5,533) 75,125 (98,686) (12,175) 107,633 21,024 128,657 98,296 9,337 15,024 113,320 6,000 15,337 107,633 21,024 128,657 94,782 27,509 26,102 120,884 16,000 43,509 122,291 42,102 164,393 2010 $’000 2009 $’000 – – 3,400 3,400 17,100 23,500 – 40,600 18,300 38,300 3,900 60,500 CROWN LIMITED ANNUAL REPORT 2010 93 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 20. Contributed Equity N o t e s t o t h e F n a n c a i i Issued share capital Ordinary shares fully paid l S t a t e m e n t s Movements in issued share capital Carrying amount at the beginning of the ﬁ nancial year ESP proceeds Transfer from employee equity beneﬁ ts reserve Shares issued (1) Carrying amount at the end of the ﬁ nancial year Issued share capital Ordinary shares fully paid Movements in issued share capital Balance at the beginning of the ﬁ nancial year Shares issued Balance at the end of the ﬁ nancial year 2010 $’000 2009 $’000 638,690 634,364 634,364 258,149 2,893 1,433 39,065 – – 337,150 638,690 634,364 2010 No. 2009 No. 758,394,185 758,394,185 758,394,185 689,676,925 – 68,717,260 758,394,185 758,394,185 (1) In December 2008, Crown undertook an underwritten equity placement of shares to raise $300 million in new capital. In February 2009, Crown launched a Share Purchase Plan which gave eligible shareholders the opportunity to subscribe for up to $4,999.50 worth of new shares in Crown at $4.95 per share. The Share Purchase Plan raised approximately $40.2 million in additional capital. Terms and Conditions of Contributed Equity Ordinary shares entitle the holder to participate in dividends and the proceeds on winding-up of the Company in proportion to the number of shares held. The voting rights attaching to ordinary shares provide that each ordinary shareholder present in person or by proxy or attorney or being a corporation present by representative at a meeting shall have: (a) on a show of hands, one vote only; (b) on a poll, one vote for every fully paid ordinary share held. Capital Management When managing capital, the Group’s objective is to maintain optimal returns to shareholders and beneﬁ ts for other stakeholders. The Group also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. During 2010, the Group paid dividends of $280.6 million. The Group’s dividend policy going forward is to pay the higher of 37 cents per share or 65% of normalised full year NPAT, subject to the Group’s ﬁ nancial position. 94 CROWN LIMIT E D AN N UAL REPORT 2010 21. Reserves and Retained Earnings N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Foreign currency translation reserve Employee equity beneﬁ ts reserve Net unrealised gains reserve Cash ﬂ ow hedge reserve Foreign Currency Translation Reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the ﬁ nancial statements of foreign operations. Balance at the beginning of the ﬁ nancial year Net exchange difference on translation of foreign operations Balance at the end of the ﬁ nancial year Employee Equity Beneﬁ ts Reserve The employee equity beneﬁ ts reserve is used to record share based remuneration obligations to executives in relation to ordinary shares. Balance at the beginning of the ﬁ nancial year Charged to the income statement Transfer to contributed equity Balance at the end of the ﬁ nancial year Net Unrealised Gains Reserve The net unrealised gains reserve records the movement from changes in associates’ equity. Balance at the beginning of the ﬁ nancial year Change in equity accounted investments due to change in associates’ equity Balance at the end of the ﬁ nancial year Cash Flow Hedge Reserve The cash ﬂ ow hedge reserve records the portion of the gain or loss on a hedging instrument in a cash ﬂ ow hedge that is determined to be an effective hedge. Balance at the beginning of the ﬁ nancial year Movement in interest rate swaps Movement in cross currency swaps Movement in forward exchange contracts Transfer to statement of ﬁ nancial position/statement of comprehensive income Balance at the end of the ﬁ nancial year 2010 $’000 2009 $’000 (157,888) (94,107) 11,327 9,392 628,532 632,593 (33,220) (63,900) 448,751 483,978 (94,107) (280,576) (63,781) 186,469 (157,888) (94,107) 9,392 3,368 (1,433) 5,712 3,680 – 11,327 9,392 632,593 451,087 (4,061) 181,506 628,532 632,593 (63,900) 1,200 14,800 7,380 7,300 – (18,300) (38,300) (7,300) – (33,220) (63,900) CROWN LIMITED ANNUAL REPORT 2010 95 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 21. Reserves and Retained Earnings continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Retained Earnings Balance at the beginning of the ﬁ nancial year Net proﬁ t/(loss) after tax Total available for appropriation Dividends provided for or paid Balance at the end of the ﬁ nancial year 22. Expenditure Commitments (a) Capital expenditure commitments Estimated capital expenditure contracted for at balance date, but not provided for: Payable within one year Payable after one year but not more than ﬁ ve years 2010 $’000 2009 $’000 2,317,988 3,846,972 292,293 (1,197,904) 2,610,281 2,649,068 (278,417) (331,080) 2,331,864 2,317,988 2010 $’000 2009 $’000 191,137 265,081 88,743 96,641 279,880 361,722 At 30 June 2010, the Group has capital expenditure commitments principally relating to funding various projects at Burswood and Crown Melbourne casinos. (b) Non-cancellable operating lease commitments Payable within one year Payable after one year but not more than ﬁ ve years Payable more than ﬁ ve years 2010 $’000 1,036 2,356 1,004 4,396 2009 $’000 993 2,762 1,485 5,240 The Group has entered into non-cancellable operating leases. The leases vary in contract period depending on the asset involved but generally have an average lease term of approximately 4 years (2009: 4 years). Operating leases include telecommunications rental agreements and leases on assets including motor vehicles, land and buildings and items of plant and equipment. Renewal terms are included in certain contracts, whereby renewal is at the option of the speciﬁ c entity that holds the lease. On renewal, the terms of the leases are usually renegotiated. There are no restrictions placed upon the lessee by entering into these leases. In addition, in 1993 Crown Melbourne entered into a ninety-nine year lease agreement for the site upon which Crown Melbourne Entertainment complex is located. For years one to forty inclusive the annual rent payable by the parent entity is one dollar per annum. For years forty-one to ninety-one inclusive the annual rent payable will be the then current market rent for the site. The aggregate lease expenditure contracted for at balance date but not provided for which is disclosed in this report does not include an estimate for the rent payable for years forty-one to ninety-nine inclusive due to the uncertainty of these amounts. 96 CROWN LIMIT E D AN N UAL REPORT 2010 23. Cash Flow Statement Reconciliation N o t e s t o t h e F n a n c a i i l S t a t e m e n t s (a) Cash balance represents: • cash on hand and at bank • deposits at call 2010 $’000 2009 $’000 178,395 236,774 18,000 278,724 196,395 515,498 The above closing cash balances includes $126.7 million (2009: $133.3 million) of cash on the company’s premises and cash held in bank accounts needed to run the day to day operations of the businesses. (b) Reconciliation of the proﬁ t/(loss) after tax to the net cash ﬂ ows from operating activities Proﬁ t/(loss) after tax Depreciation and amortisation: • property, plant and equipment • intangibles (Proﬁ t)/loss on sale of property, plant and equipment Unrealised foreign exchange (gain)/loss Share of associates’ net (proﬁ t)/loss Impairment and write down of investments Executive Share Plan expense Changes in assets and liabilities: (Increase)/decrease in trade and other receivables (Increase)/decrease in doubtful debts (Increase)/decrease in inventories (Increase)/decrease in prepayments (Increase)/decrease in deferred income tax asset (Increase)/decrease in other assets (Decrease)/increase in payables (Decrease)/increase in current income tax liability (Decrease)/increase in provisions (Decrease)/increase in deferred income tax liability Net cash ﬂ ows from operating activities 2010 $’000 2009 $’000 292,293 (1,197,904) 144,137 129,551 18,981 (10,455) 18,433 (102) 169 (10,426) 69,457 125,959 – 1,357,848 3,368 3,680 (40,768) (1,254) (2,826) 139 29,057 (4,503) 33,172 (12,631) 14,223 (4,719) (1,023) (3,565) (7,074) 6,614 (4,025) (16,824) (31,417) (28,068) (9,553) (10,051) 467,457 382,436 CROWN LIMITED ANNUAL REPORT 2010 97 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 23. Cash Flow Statement Reconciliation continued Bank Overdraft Facilities The consolidated entity has bank overdraft facilities available as follows: Bank ANZ Banking Group Limited Citibank NA There were no drawn down amounts at 30 June 2010. 24. Events After the Reporting Period 2010 2009 A$10 million A$10 million US$10 million US$10 million Subsequent to 30 June 2010, the directors of Crown announced a ﬁ nal dividend on ordinary shares in respect of the year ended 30 June 2010. The total amount of the dividends is $144.1 million, which represents a dividend of 19 cents per share franked at 60%. The dividend has not been provided for in the 30 June 2010 ﬁ nancial statements. On 24 August 2010, Consolidated Media Holdings Limited (CMH) announced that it has been advised that the Special Purpose Liquidator of One.Tel has ﬁ led proceedings and CMH has been served with some documents. CMH also announced that it will strongly defend the proceedings. The apportionment of any costs associated with the proceedings will be in accordance with the PBL Demerger Deed outlined in the PBL Scheme Booklet (75% Crown Limited, 25% CMH). 25. Executive Share Plan Crown operates an Executive Share Plan (ESP) which was approved at the 1994 PBL Annual General Meeting. No ESP shares were issued to executives in the current ﬁ nancial year. Crown ESP shares are subject to a performance condition, requiring a 7% compound annual growth in the Crown share price in order that the relevant portion of shares to vest and be released from restrictions under the ESP. 30 ESP participants hold 5,748,815 Crown ESP shares or 0.8% percent of Crown’s issued capital. Shares at the beginning of the ﬁ nancial year Forfeited Shares on issue at the end of the ﬁ nancial year Loans to executives at the beginning of the ﬁ nancial year Loans repaid and satisﬁ ed during the year Loans to executives at year end 2010 No. 2009 No. 6,073,815 11,449,826 (325,000) (5,376,011) 5,748,815 6,073,815 $70,258,313 $125,751,938 ($3,698,625) ($ 55,493,625) $66,559,688 $70,258,313 98 CROWN LIMIT E D AN N UAL REPORT 2010 25. Executive Share Plan continued Methodology In accordance with Australian Accounting Standards the ESP shares are accounted for as share based payments (see note 1(t)) and as such the loan values are not recorded in Crown’s statement of ﬁ nancial position until they become due. The value that forms the basis was established at the time each ESP share was granted. As ESP shares were issued prior to the demerger the valuation was performed using assumptions relevant to PBL before demerger. N o t e s t o t h e F n a n c a i i External valuers have used a Monte Carlo simulation model combined with a Black Scholes option pricing model to value the ESP this year. The value per share granted for each allotment incorporates the share price growth performance conditions. The Monte Carlo simulation is a technique used to simulate future TSRs. The assumptions that underpin Black Scholes are used in a Monte Carlo simulation. The key assumptions are: l S t a t e m e n t s • Share price movement conforms to a lognormal distribution; • Market efﬁ ciency; and • Risk neutral valuation. Using an estimate of the future standard deviation (volatility) of returns and the risk neutral valuation assumption (allowing the use of the risk free interest rate), the share price return distribution of a company at a future date is estimated. The Monte Carlo simulation technique simulates possible share price returns conforming to that distribution. At each simulation, the share price is also simulated, meaning an equity instrument can be valued at that date. The share price simulated at one vesting date is used to simulate the share price at the next vesting date. If the target was not met at the earlier date, the unvested portion is carried to the next vesting date in the simulation. Non transferability of the plans During the period from grant date to vesting, executives cannot sell their shares. However, no adjustment is made to the fair values for this, as non-transferability is due to the executive having not yet earned the right to the plan (through the provision of their services), rather than a restriction on the underlying value of the shares. After vesting, the holders have until expiry to “exercise” the plan. Since the plan rights are not transferable, liquidity can only be obtained by exercising the plan rights and selling the underlying shares. In the case of the ESP, given the seniority of the holders and the beneﬁ t of the limited recourse feature, it is assumed the shares will be held until expiry. Other assumptions applied by external valuer • PBL’s share price was the loan amount per share as advised by Crown to the external valuer at the grant date for the ESP; • The risk free rate is the yield on an Australian Government Bond with a life similar to the expected life at the valuation date; • Expected volatility was based on PBL’s historical share price movement preceding the valuation date and the implied volatility on exchanged traded options; and • The dividend yield was calculated based on the consensus broker EPS forecast divided by PBL’s share price. CROWN LIMITED ANNUAL REPORT 2010 99 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 26. Contingent Liabilities and Related Matters N o t e s t o t h e F n a n c a i i l S t a t e m e n t s (a) The Group has issued letters of credit to the State of Victoria in respect of obligations of Crown Melbourne Limited (b) The Group has made guarantees in relation to commitments of certain of its associated entities (c) The Group has made certain guarantees regarding contractual, performance and other commitments Total unsecured contingent liabilities 2010 $’000 2009 $’000 185,000 185,000 22,371 68,429 15,100 17,049 222,471 270,478 The probability of having to meet these contingent liabilities is unlikely, and therefore it is not practicable to disclose an indication of the uncertainties relating to each amount or the timing of any outﬂ ows. 27. Auditors’ Remuneration Amounts received, or due and receivable, by Ernst & Young (Australia) for: Auditing the accounts Taxation services Other services: • Assurance related • Assurance services relating to restructuring Amounts received, or due and receivable, by other member ﬁ rms of Ernst & Young International for: Auditing the accounts Other services: • Taxation services • Due diligence Amounts received, or due and receivable, by non Ernst & Young audit ﬁ rms for: Auditing services 2010 $’000 2009 $’000 833 2,777 24 – 887 3,626 6 372 23 28 537 – 463 80 4,194 5,462 271 298 100 C ROWN LIMIT E D ANN UAL REPORT 2010 28. Earnings Per Share (EPS) N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 2010 $’000 2009 $’000 The following reﬂ ects the income and share data used in the calculations of basic and diluted EPS: Net proﬁ t/(loss) after tax used in calculating basic and diluted EPS 292,293 (1,197,904) Weighted average number of ordinary shares used in calculating basic and diluted EPS (‘000) 758,394 717,779 Excluding the effect of signiﬁ cant items: Net proﬁ t/(loss) after tax Signiﬁ cant items after tax Net proﬁ t/(loss) excluding signiﬁ cant items Net proﬁ t/(loss) used in calculating basic and diluted EPS 292,293 (1,197,904) – (1,440,100) 292,293 242,196 292,293 242,196 Weighted average number of ordinary shares used in calculating basic and diluted EPS (‘000) 758,394 717,779 There are no transactions involving ordinary shares or potential ordinary shares that would signiﬁ cantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these ﬁ nancial statements. 29. Key Management Personnel Disclosures (a) Details of key management personnel (i) Directors James D Packer Executive Chairman John H Alexander Executive Deputy Chairman Benjamin A Brazil Non Executive Director Rowen B Craigie Chief Executive Ofﬁ cer and Managing Director Christopher D Corrigan Non Executive Director Rowena Danziger Non Executive Director Geoffrey J Dixon Non Executive Director Ashok Jacob Non Executive Director Michael R Johnston Non Executive Director David H Lowy Non Executive Director (resigned 22 June 2010) Richard W Turner Non Executive Director (ii) Executives Kenneth M Barton Chief Financial Ofﬁ cer – Crown Limited (commenced 9 March 2010) Robert F E Turner Chief Financial Ofﬁ cer – Crown Limited (ceased employment on 31 May 2010) David G Courtney Chief Executive Ofﬁ cer – Crown Melbourne Limited Barry J Felstead Chief Executive Ofﬁ cer – Burswood Limited CROWN LIMITE D ANNUAL REPORT 2010 101 Total remuneration for key management personnel for the Group and Parent Entity during the ﬁ nancial year are set out below: FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 29. Key Management Personnel Disclosures continued (b) Remuneration of key management personnel t o t h e F n a n c a i i Remuneration by category l S t a t e m e n t s Short term beneﬁ ts Post employment beneﬁ ts Termination beneﬁ ts Long term Incentives Further details are contained in the Remuneration Report. (c) Shareholdings of key management personnel Ordinary shares held in Crown (directly and indirectly) 2010 $’000 2009 $’000 9,956,392 8,395,253 90,075 224,389 1,435,000 175,000 4,874,383 5,880,687 16,355,850 14,675,329 Balance 1 July 2009 280,753,465 607,680 2,341,102 30,896 137,250 29,373 Issued under Executive Share Plan Other Net Change Balance 30 June 2010 – – – – – – 22,751,825 303,505,290 (101,633) 506,047 – – – – 2,341,102 30,896 137,250 29,373 Balance 1 July 2009 Issued under Executive Share Plan Other Net Change Balance 30 June 2010 264,383 700,377 234,110 – – – (1,010) 263,373 – – 700,377 234,110 30 June 2010 Directors (including directors who left the Board during the year) James D Packer (1) John H Alexander (2) Rowen B Craigie (3) Rowena Danziger David H Lowy (4) Richard W Turner Executives Robert F E Turner (1) David G Courtney Barry J Felstead (1) Change is a result of an on market trade. (2) Change is a result of an off market trade. (3) All of Mr Rowen Craigie’s shares are ESP shares. (4) Resigned 22 June 2010. The Company does not have any options on issue. 102 C ROWN LIMIT E D ANN UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 29. Key Management Personnel Disclosures continued (c) Shareholdings of key management personnel continued Ordinary shares held in Crown (directly and indirectly) 30 June 2009 Directors (including directors who left the Board during the year) James D Packer (3) Christopher J Anderson (1), (4) & (6) John H Alexander (1), (2) & (4) Rowen B Craigie (5) Rowena Danziger (2) David H Lowy Richard W Turner (1) & (2) Executives Robert F E Turner (1) David G Courtney (1) & (2) Barry J Felstead Balance 1 July 2008 261,500,000 315,194 1,827,133 2,341,102 28,876 137,250 27,000 Issued under Executive Share Plan Other Net Change Balance 30 June 2009 – – – – – – – 19,253,465 280,753,465 (298,990) 16,204 (1,219,453) 607,680 – 2,341,102 2,020 30,896 – 137,250 2,373 29,373 Balance 1 July 2008 Issued under Executive Share Plan Other Net Change Balance 30 June 2009 263,373 643,802 234,110 – – – 1,010 264,383 56,575 700,377 – 234,110 (1) Change is as a result of an election to take up an entitlement to shares under Crown’s Share Purchase Plan which closed on 20 March 2009. (2) Change is a result of an election to take up an entitlement to an offer by Consolidated Press Holdings Limited (the CPH Offer) to sell shares to shareholders who, as result of Crown’s private placement announced 17 December 2008, would have had their interest diluted below their pre-placement interest. The CPH Offer was a condition of the ASX waiver allowing Consolidated Press Holdings Limited to participate in the placement. (3) Change is as a result of a private placement of 20,202,020 shares made to Consolidated Press Holdings Limited on 27 March 2009 and the sale of 948,555 shares made pursuant to the CPH Offer. (4) Change is the result of the partial closure of the Executive Share Plan as it related to Crown shares held by persons who had not been employed in day to day operations of Crown or one of its gaming subsidiaries or joint ventures. 300,000 of Mr Chris Anderson’s shares were ESP shares and 1,300,000 of Mr John Alexander’s shares were ESP shares. (5) All of Mr Rowen Craigie’s shares are ESP shares. (6) Resigned 2 April 2009. The Company does not have any options on issue. CROWN LIMITE D ANNUAL REPORT 2010 103 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 30. Related Party Disclosures (a) Parent entity t o t h e F n a n c a i i l S t a t e m e n t s Crown Limited is the ultimate parent entity of the Group. (b) Controlled entities, associates and joint ventures Interests in signiﬁ cant controlled entities are set out in note 31. Investments in associates and joint ventures are set out in note 9. (c) Entity with signiﬁ cant inﬂ uence over the Group CPH, an entity related to Mr James Packer, holds 40.02% (2009: 37.02%) of the Company’s fully paid ordinary shares. (d) Director related entities Consolidated Media Holdings (“CMH”) is an entity classiﬁ ed as a related party due to Crown and CMH having a number of common directors. (e) Key management personnel Disclosures relating to key management personnel are set out in note 29, and in the Remuneration Report. (f) Terms and conditions of transactions with related parties Sales to and purchases from related parties are made in arms length transactions both at normal market prices and on normal commercial terms, unless otherwise stated. (g) Transactions with related parties The continuing operations have had the following transactions with related parties: (i) Director related entities and entities with signiﬁ cant inﬂ uence over the Group CPH provided corporate secretarial and administrative services to Crown and its controlled entities of $0.2 million during the year (2009: $0.2 million). In addition CPH paid costs on behalf of Crown to third parties totalling $0.5 million during the year (2009: $2.8 million). At 30 June 2010 there were no amounts owing to CPH (2009: $nil). Crown and its controlled entities provided CPH with hotel and banqueting services of $32,000 during the year (2009: $0.1 million). Crown and CMH jointly engaged certain legal and other advisers in relation to certain matters arising prior to the PBL demerger. Costs of these advisers are shared in a manner consistent with Section 14 of the PBL Scheme Booklet, generally Crown – 75% and CMH – 25%. Similarly payments in relation to liabilities arising from activities prior to the PBL demerger were shared on the same basis. At 30 June 2010 $0.1 million was owing to CMH in relation to pre-demerger matters. (ii) Associates Crown made no equity contributions to Melco Crown during the year (2009: $63.6 million). Interest charged on loans previously advanced to Melco Crown was $0.1 million for the year (2009: $0.9 million). Crown did not provide Melco Crown hotel services (2009: $7,000) during the year or use of IT systems (2009: $1.1 million). Crown provided IT and related services of $0.7 million (2009: $2.2 million) at cost to Melco Crown during the year. Amounts receivable from Melco Crown at 30 June 2010 in relation to all charges made during the year were $0.5 million (2009: $1.6 million). Melco Crown provided $6,000 (2009: $0.2 million) in Hotel and other services to Crown during the year. In addition Melco Crown paid costs of $0.1 million (2009: $0.2 million) on behalf of Crown during the year which was subsequently reimbursed in full. Crown made no equity contributions (2009: $3.8 million) or loans (2009: $3.7 million) to Aspinalls during the year. Interest charged on loans previously advanced to Aspinalls was $0.7 million for the year (2009: $1.2 million). In addition Aspinalls paid costs of $1.2 million (2009: $1.5 million) on behalf of Crown during the year. At 30 June 2010 there were no amounts owing to Aspinalls (2009: $nil). Crown made no equity contributions (2009: $8.4 million) or loans (2009: $16.7 million) to Gateway during the year. No interest was charged during the year (2009: $10.1 million) as the loan to Gateway was written down to nil at 30 June 2009. Crown also paid costs of $0.3 million (2009: $36,000) on behalf of Gateway during the year which has subsequently been reimbursed as at 30 June 2010. In addition Gateway has paid costs of $48,000 (2009: $0.1 million) on behalf of Crown during the year. Crown has subsequently reimbursed Gateway all amounts owing at 30 June 2010. 104 C ROWN LIMIT E D ANN UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 30. Related Party Disclosures continued (g) Transactions with related parties continued (ii) Associates continued Crown made a further loan to Betfair during the year of $4.0 million (2009: $nil). The loan balance with Betfair at 30 June 2010 was $11.7 million (2009: $7.7 million). No interest is payable on the loan. Crown did not provide Betfair management services during the year (2009: $0.2 million), but did provide Hotel and Banqueting services of $28,000 (2009: $0.1 million) during the year. For the year ended 30 June 2010, the Group has not made any allowance for doubtful debts relating to amounts owed by related parties as there have been no default of payment terms and conditions (2009: $nil). An impairment assessment is undertaken each ﬁ nancial year by examining the ﬁ nancial position of the related party and the market in which the related party operates to determine whether there is objective evidence that a related party receivable is impaired. When such objective evidence exists, the Group recognises an allowance for the impairment loss. During the ﬁ nancial year Crown has assessed there is no impairment to related party receivables. CROWN LIMITE D ANNUAL REPORT 2010 105 N o t e s t o t h e F n a n c a i i FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 31. Investment in Controlled Entities The consolidated ﬁ nancial statements include the ﬁ nancial statements of Crown Limited and its controlled entities. Signiﬁ cant controlled entities and those included in a class order with the parent entity are: l S t a t e m e n t s Crown Limited Artra Pty Ltd Burswood Limited Burswood Nominees Ltd Burswood Resort (Management) Ltd Crown Capital Golf Pty Ltd Crown Cyprus Limited Crown CCR Group Holdings One Pty Ltd Crown CCR Group Holdings Two Pty Ltd Crown CCR Group Holdings General Partnership Crown CCR Group Investments One LLC Crown CCR Group Investments Two LLC Crown CCR Holdings LLC Crown Entertainment Group Holdings Pty Ltd Crown Gateway Luxembourg Sarl Crown Group Finance Limited Crown Group Securities Ltd Crown Melbourne Limited Crown North America Holdings One Pty Ltd Crown North America Investments LLC Crown Overseas Investments Pty Ltd Crown Services (US) LLC Crown (Western Australia) Pty Ltd Flienn Pty Ltd Jade West Entertainment Pty Ltd Jemtex Pty Ltd Nine Television (Netherlands Antilles) Pty Ltd Crown Asia Investments Limited PBL (CI) Finance Limited PBL Cinema Holdings Pty Ltd PBL International Partnership Publishing and Broadcasting (Finance) Ltd Publishing and Broadcasting International Holdings Ltd Renga Pty Ltd Place of Incorporation /Residence Footnote 2010 2009 Beneﬁ cial Interest Held by the Consolidated Entity(1) 2010 % 2009 % Australia Parent Entity A A A A A A A A A A A A A A A A A A A A A A A A Australia Australia Australia Australia Australia Cyprus Australia Australia USA USA USA USA Australia Luxembourg Australia Australia Australia Australia USA Australia USA Australia Australia Australia Australia Australia Australia Cayman Islands Australia United Kingdom A A Australia Bahamas Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (1) The proportion of ownership interest is equal to the proportion of voting power held. A These controlled entities have entered into a deed of cross guarantee with the parent entity under ASIC Class Order 98/1418 – the “Closed Group” (refer note 32). 106 C ROWN LIMIT E D ANN UAL REPORT 2010 32. Deed of Cross Guarantee Certain controlled entities of Crown Limited, as detailed in note 31, are parties to a Deed of Cross Guarantee under which each company guarantees the debts of the others. By entering into the deed, pursuant to ASIC Class Order 98/1418, certain controlled entities of Crown have been granted relief from the Corporations Act 2001 requirements for preparation, audit and publication of accounts. The consolidated income statement and balance sheet of the entities which are members of the “Closed Group” are detailed below. N o t e s t o t h e F n a n c a i i Consolidated income statement Proﬁ t/(loss) before income tax Income tax (expense)/beneﬁ t Net proﬁ t/(loss) after income tax Retained earnings/(accumulated losses) at the beginning of the ﬁ nancial year Dividends provided for or paid Retained earnings/(accumulated losses) at the end of the ﬁ nancial year l S t a t e m e n t s Closed Group 2010 $’000 2009 $’000 (311,533) 154,751 55,437 2,573 (256,096) 157,324 (1,751,991) (1,578,235) (278,418) (331,080) (2,286,505) (1,751,991) CROWN LIMITE D ANNUAL REPORT 2010 107 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 32. Deed of Cross Guarantee continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s Consolidated balance sheet Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Receivables Investment in associates Other ﬁ nancial assets Property, plant and equipment Licences Other intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings Income tax payable Provisions Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Deferred tax liability Provisions Other ﬁ nancial liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 108 C ROWN LIMIT E D ANN UAL REPORT 2010 Closed Group 2010 $’000 2009 $’000 114,614 232,052 54,963 24,468 2,840 9,102 3,344 6,426 181,519 266,290 2,053,674 1,953,321 6,158 11,829 10,044,040 10,244,203 609,328 582,260 420,426 420,426 11,892 68,938 11,892 84,062 13,214,456 13,307,993 13,395,975 13,574,283 95,244 135,236 33,727 50,031 86,335 20,000 40,397 59,604 314,238 206,336 5,210,800 4,940,296 11,317 9,654 42,696 41,396 13,505 56,600 5,274,467 5,051,797 5,588,705 5,258,133 7,807,270 8,316,150 9,680,318 10,114,805 413,457 (46,664) (2,286,505) (1,751,991) 7,807,270 8,316,150 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 33. Parent Entity Disclosures Results of the parent entity Proﬁ t after tax for the period Other comprehensive income/(loss) Total comprehensive income for the period Financial position of the parent entity Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Total equity of the parent entity comprising of: Issued capital Employee equity beneﬁ ts reserve Accumulated losses Total equity Contingent liabilities Crown Limited 2010 $’000 2009 $’000 278,328 344,631 – – 278,328 344,631 – 928 9,335,949 9,225,117 9,335,949 9,226,045 33,727 40,397 2,320,504 2,210,103 2,354,231 2,250,500 10,119,131 10,114,805 11,327 9,392 (3,148,740) (3,148,652) 6,981,718 6,975,545 There are no contingent liabilities for the parent entity at 30 June 2010 (2009: $nil). Capital expenditure The parent entity does not have any capital expenditure commitments for the acquisition of property, plant and equipment contracted but not provided for at 30 June 2010 (2009: $nil). Parent entity guarantees in respect of debts of its subsidiaries The parent entity has entered into a deed of cross guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Further details of the deed of cross guarantee and the subsidiaries subject to the deed, are set out in note 32. CROWN LIMITE D ANNUAL REPORT 2010 109 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 34. Financial Risk Management Objectives and Policies The Group’s principle ﬁ nancial instruments comprise receivables, payables, bank loans and capital market debt, available-for-sale investments, cash and short term deposits and derivatives. The Group’s business activities expose it to the following risks; market risks (interest rate and foreign exchange), credit risk and liquidity risk. For each of these risks, the Group considers the counterparties, geographical area, currency and markets as applicable to determine whether there are concentrations of risk. Other than as described in this note, the Treasury Group is satisﬁ ed that there are no material concentrations of risk. The Group has policies in place to manage different types of risks to which it is exposed. Policies include monitoring the level of interest rate and foreign exchange risk and assessments of market forecasts for interest rates and foreign exchange rates. Ageing analysis of and monitoring of exposures to counterparties are undertaken to manage credit risk. Liquidity risk is monitored through the employment of rolling cash ﬂ ow forecasts. Financial risk management is carried out by the Treasury Group under policies approved by the Board of Directors. The Treasury Group identiﬁ es, evaluates and hedges ﬁ nancial risks in accordance with approved polices. The Board are informed on a regular basis of Treasury’s risk management activities. (a) Market Risk (i) Interest rate risk – cash ﬂ ow The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents and long term debt obligations as outlined in note 17. At balance date, the Group had the following mix of ﬁ nancial assets and liabilities exposed to variable interest rates that are not designated as cash ﬂ ow hedges. Financial assets AUD cash on hand and at bank AUD deposits at call USD cash on hand and at bank Total ﬁ nancial assets Financial liabilities AUD bank loans USD bank loans Total ﬁ nancial liabilities Net exposure 2010 $’000 2009 $’000 78,321 131,438 18,000 29,877 167 248,847 96,488 410,162 20,000 220,000 – – 20,000 220,000 76,488 190,162 As at balance date, the Group maintained ﬂ oating rate borrowings of $20.0 million (2009: $220.0 million) that were not hedged by interest rate swaps. The associated interest rate risk is mitigated by total ﬁ nancial assets of $96.5 million (2009: $410.2 million). Under the bank loans, the Group pays the Bank Bill Swap rate (BBSW) plus a margin of 100 basis points. Of the cash on hand and at bank $78.3 million is interest bearing and is invested at approximately BBSW. Deposits at call of $18.0 million are invested at approximately BBSW. The Group maintains cash and cash equivalents on hand of $99.9 million for operational purposes and is non interest bearing (2009: $105.3 million). As at balance date, the Group maintained no ﬂ oating rate borrowings in US dollars (2009: $nil) and had cash and cash equivalents of $0.2 million (2009: $248.8 million) invested at approximately LIBOR. 110 C ROWN LIMIT E D ANN UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 34. Financial Risk Management Objectives and Policies continued (a) Market Risk continued (i) Interest rate risk – cash ﬂ ow continued Group Sensitivity The impact on the Group’s post-tax-proﬁ t as a result of an increase of 150 basis points or decrease of 150 basis points in interest rates was not material at balance date. The Group, where appropriate, uses interest rate swaps to manage the risk of adverse movements in interest rates for its long term ﬂ oating rate borrowings which are subject to variable rates. The Group uses cross-currency interest rate swaps to manage the risk of adverse movements in interest rates for its long term foreign currency denominated borrowings which are subject to variable rates. As at balance date the notional principal amounts and period of expiry of the interest rate swap contracts were as follows: Cash ﬂ ow hedge Maturity 1 – 5 years Maturity over 5 years Closing Balance 2010 $’000 2009 $’000 300,000 300,000 174,634 174,634 474,634 474,634 Under the interest swap contracts maturing June 2013, the Group has the right to receive ﬂ oating rate (i.e. BBSW) quarterly and pay ﬁ xed rate of 6.99% quarterly. The terms of the swap contracts are matched directly against the appropriate loan and interest expense and as such are highly effective. The fair value of the swap at balance date was negative $17.1 million (2009: negative $18.3 million). Under the cross currency swap contract (maturing July 2036), the Group has the right to receive US dollar interest at a ﬁ xed rate of 4.76% (2009: 4.76%) semi-annually and pay Australian dollar interest at ﬁ xed rate of 7.05% (2009: 7.05%) quarterly. The term of the cross currency swap contract are matched directly against the appropriate loan and interest expense and as such is highly effective. The fair value of the swap at balance date was negative $23.5 million (2009: negative $38.3 million). (ii) Interest rate risk – fair value Where appropriate, the Group enters into ﬁ xed rate debt to mitigate exposure to interest rate risk. As the Group holds ﬁ xed rate debt there is a risk that the fair value of ﬁ nancial instruments will ﬂ uctuate because of market movements in interest rates. The level of ﬁ xed rate debt at balance date was $652.7 million (2009: $362.5 million). As at balance date the Group had the following interest rate swap in place to hedge the medium term note issuance. Fair value hedge Maturity under 1 year Maturity 1 – 5 years Maturity over 5 years Closing Balance 2010 $’000 2009 $’000 114,600 – – – 114,600 – 114,600 114,600 Under the terms of the swap contract (maturing May 2011) the Group has the right to receive a ﬁ xed rate of interest of 6% semi-annually and pay ﬂ oating rate of interest (i.e. BBSW) plus a margin of 39.5 basis points. The fair value of the swap at balance date was negative $0.6 million (2009: positive $3.1 million). CROWN LIMITE D ANNUAL REPORT 2010 111 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 34. Financial Risk Management Objectives and Policies continued (a) Market Risk continued (ii) Interest rate risk – fair value continued Group Sensitivity The sensitivity to fair value movements through equity or proﬁ t and loss as a result of interest rates increasing by 150 basis points or decreasing by 50 basis points was not material as at balance date. (iii) Foreign exchange risk The Group has currency exposure as a result of capital expenditure and investments/sales in currencies other than the Group’s functional currency. Treasury, on behalf of the operating units, uses forward exchange contracts to minimise the currency exposure on any signiﬁ cant receivables or payables as is deemed appropriate. All forward exchange contracts must be in the same currency as the ﬁ rm commitment and the Group negotiates the terms of the hedges to exactly match the underlying commitment to maximise hedge effectiveness. As at balance date, the Group had hedged 100% of its foreign currency receivables and payables that are ﬁ rm commitments. As at balance date, the Group had the following foreign exchange exposures that were not designated as cash ﬂ ow hedges: US Dollars Exposure Financial assets Cash and cash equivalents Trade and other receivables Total ﬁ nancial assets Financial liabilities US Private Placement Total ﬁ nancial liabilities Net exposure GBP Exposure Financial assets Loans to associates Total ﬁ nancial assets Financial liabilities Net exposure Group sensitivity – US dollar 2010 $’000 2009 $’000 167 248,847 – – 167 248,847 238,124 247,924 238,124 247,924 (237,957) 923 2010 $’000 2009 $’000 28,592 28,592 – 27,894 27,894 – 28,592 27,894 Based on the ﬁ nancial instruments held at balance date, the sensitivity to fair value movements through equity as a result of the Australian dollar strengthening or weakening by 10¢ against the US dollar would be $25.3 million higher or $32.2 million lower (2009: not material). The sensitivity to fair value movements through proﬁ t and loss as a result of the Australian dollar strengthening or weakening by 10¢ against the US dollar would not be material as at balance date (2009: not material). 112 C ROWN LIMIT E D ANN UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 34. Financial Risk Management Objectives and Policies continued (a) Market Risk continued (iii) Foreign exchange risk continued Group sensitivity – GBP As a result of the Australian dollar strengthening or weakening by 5¢ against the GBP with all other variables held constant, the Group’s post-tax-proﬁ t for the year would have been $1.8 million lower and $2.1 million higher (2009: $1.6 million lower or $2.0 million higher) as at balance date. The sensitivity to fair value movements through equity as a result of the Australian dollar strengthening or weakening by 5¢ against the GBP would not be material as at balance date (2009: not material). Foreign Exchange Contracts The Group uses derivative instruments such as Forward Exchange Contracts to manage the currency risks arising from the Group’s operations and its sources of ﬁ nance. Derivatives are exclusively used for hedging purposes and not as trading or other speculative instruments. These derivatives qualify for hedge accounting and are based on limits set by the Board. Cash ﬂ ow hedges At balance date details of outstanding contracts denominated in Australian dollars was: Buy USD/Sell AUD Maturity under 1 year Maturity 1– 5 years Buy AUD/Sell USD Maturity under 1 year Maturity 1– 5 years Notional Amounts Average Rate 2010 $’000 2009 $’000 2010 2009 19,958 14,185 0.8912 0.7051 – – – 38,615 – – 86,467 142,844 0.7419 – 0.8462 0.7879 The change in fair value of cash ﬂ ow hedges as at balance date was positive $7.4 million (2009: negative $7.3 million). The forward exchange contracts are considered to be highly effective hedges as they are matched against known and committed receivables and payments and any gain or loss on the hedged risk is taken directly to equity. (b) Price Risk The Group is exposed to equity securities price risk. Equity securities price risk arises from investments held by the Group and classiﬁ ed on the balance sheet as available-for-sale ﬁ nancial assets. Neither the Group nor the parent entity is exposed to commodity price risk. Shares – unlisted Net exposure Group sensitivity 2010 $’000 106,634 106,634 2009 $’000 86,313 86,313 The Group’s sensitivity to price risk has been estimated using valuation techniques based on the fair value of securities held. The sensitivity to fair value movements through equity or proﬁ t and loss as a result of movement in value of the securities was not material as at balance date. CROWN LIMITE D ANNUAL REPORT 2010 113 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 34. Financial Risk Management Objectives and Policies continued (c) Credit Risk t o t h e F n a n c a i i l S t a t e m e n t s Credit risk arises from the ﬁ nancial assets of the Group, which comprise cash and cash equivalents, trade and other receivables and derivative instruments. The Group’s exposure to credit risk arises from the potential default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is outlined under each applicable note. The Group does not hold any credit derivatives or collateral to offset its credit exposure. All investment and ﬁ nancial instruments activity is with approved counterparties with investment grade ratings and is in accordance with approved policies. There are no signiﬁ cant concentrations of credit risk within the Group and the aggregate value of transactions is spread amongst a number of ﬁ nancial institutions to minimise the risk of default of counterparties. Credit risk in trade receivables is managed in the following ways: (i) The provision of credit is covered by a risk assessment process for all customers. (ii) Concentrations of credit risk are minimised by undertaking transactions with a large number of customers. (iii) The provision of cheque-cashing facilities for gaming patrons is subject to detailed policies and procedures designed to minimise any potential loss, including the taking up of bank opinions and the use of a central credit agency which collates information from major casinos around the world. (d) Liquidity Risk It is the Group’s objective to maintain a balance between continuity of funding and ﬂ exibility through the use of cash reserves, committed bank lines and capital markets debt in order to meet its ﬁ nancial commitments in a timely manner. The Group’s policy is that no more than 40% or $500 million of borrowings should mature in any 12 month period. At balance date 15.9% or $137 million of the Group’s debt will mature in less than 12 months (2009: 1.9%). As at balance date the Group had $1,286 million in undrawn committed bank lines. Maturity analysis of ﬁ nancial assets and liabilities The table below analyses the Group’s contractual undiscounted cash ﬂ ows of ﬁ nancial liabilities, net and gross settled derivative ﬁ nancial instruments into relevant maturity groupings based on the remaining period at balance date to the contractual maturity date. 114 C ROWN LIMIT E D ANN UAL REPORT 2010 34. Financial Risk Management Objectives and Policies continued (d) Liquidity Risk continued N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 1 year or less 1 to 5 years more than 5 years Total carrying amount as per the Statement of Financial Position 2010 $’000 2009 $’000 2010 $’000 2009 $’000 2010 $’000 2009 $’000 2010 $’000 2009 $’000 Financial liabilities Trade and other payables 292,283 292,769 67 4,097 – – 292,350 296,866 Capital markets 114,600 – – 114,600 412,758 422,558 527,358 537,158 Bank loans 20,000 20,000 300,000 500,000 Forward exchange contracts 19,958 52,800 86,467 142,844 Interest rate swaps 114,600 – 300,000 414,600 – – – – – – Cross currency interest rate swaps – – – – 174,634 174,634 320,000 520,000 – – – – – – Total ﬁ nancial liabilities 561,441 365,569 686,534 1,176,141 587,392 597,192 1,139,708 1,354,024 Financial assets Cash and cash equivalents 196,395 515,498 – – Receivables – trade 147,239 144,623 14,082 71,677 – – – – 196,395 515,498 161,321 216,300 Receivables – associates 13 34 73,784 129,566 40,292 35,594 114,089 165,194 Forward exchange contracts 19,958 52,800 86,467 142,844 Interest rate swaps 114,600 – 300,000 414,600 – – – – Cross currency interest rate swaps – – – – 174,634 174,634 – – – – – – Total ﬁ nancial assets 478,205 712,955 474,333 758,687 214,926 210,228 471,805 896,992 Net maturity (83,236) 347,386 (212,201) (417,454) (372,466) (386,964) (667,903) (457,032) (e) Fair value of Financial Instruments The fair value of the Group’s ﬁ nancial assets and ﬁ nancial liabilities approximates the carrying value as at balance date. Fair value The Group uses various methods in estimating the fair value of a ﬁ nancial instrument. The methods comprise: Level One – the fair value is calculated using quoted prices in active markets; Level Two – the fair value is estimated using inputs other than quoted prices included in Level One that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level Three – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The fair value of the ﬁ nancial instruments as well as the methods used to estimate the fair value are summarised in the table below. CROWN LIMITE D ANNUAL REPORT 2010 115 FINAN C IAL REPORT 2010 CONTINUED Notes to the Financial Statements continued For the year ended 30 June 2010 N o t e s 34. Financial Risk Management Objectives and Policies continued (e) Fair value of Financial Instruments continued t o t h e F n a n c a i i l S t a t e m e n t s Year ended 30 June 2010 Financial Assets Derivative Instruments Receivable on forward exchange contracts Receivable on interest rate swap Available-for-Sale Financial Assets Shares – unlisted (Australia) Shares – unlisted (US) Financial Liabilities Derivative Instruments Payables on interest rate swaps Payables on cross currency swaps Payables on forward exchange contracts Year ended 30 June 2009 Financial Assets Available-for-Sale Financial Assets Shares – unlisted (Australia) Shares – unlisted (US) Financial Liabilities Derivative Instruments Payables on interest rate swaps Payables on cross currency swaps Payables on forward exchange contracts Valuation Technique Quoted market price Level One $’000 Observable Non market observable Level Three $’000 inputs Level Two $’000 Total $’000 – – – – – – – – – – – – – – – – 7,380 636 – – 7,380 636 – – 37,132 69,502 37,132 69,502 8,016 106,634 114,650 17,100 23,500 – 40,600 – – – – 17,100 23,500 – 40,600 – – – 36,728 49,585 86,313 36,728 49,585 86,313 18,300 38,300 7,300 63,900 – – – – 18,300 38,300 7,300 63,900 There have been no transfers during the ﬁ nancial year ended 30 June 2010. 116 C ROWN LIMIT E D ANN UAL REPORT 2010 N o t e s t o t h e F n a n c a i i l S t a t e m e n t s 34. Financial Risk Management Objectives and Policies continued (e) Fair value of Financial Instruments continued Reconciliation of Level Three fair value movements Opening Balance Other Comprehensive Income Purchases Closing Balance 2010 $’000 2009 $’000 86,313 507,489 (263) (996,508) 20,584 575,332 106,634 86,313 CROWN LIMITE D ANNUAL REPORT 2010 117 Shareholder Information S h a r e h o d e r l I n f o r m a t i o n Substantial shareholders as at 17 September 2010: The following information is extracted from substantial shareholder notices received by Crown. Shareholder Consolidated Press Holdings Limited Janus Capital Management LLC Perpetual Limited Holders of each class of securities Number of % of Issued Capital ordinary Shares 303,505,290 45,500,033 38,334,103 40.02 5.99 5.05 Crown only has ordinary shares on issue. The total number of ordinary shares on issue is 758,394,185 held by 50,899 shareholders. Voting rights of ordinary shares Crown’s Constitution sets out the information in relation to the voting rights attached to shares. In summary, at a general meeting on a show of hands, every member present has one vote; and on a poll, every member present has: (a) one vote for each fully paid share held by the member and in respect of which the member is entitled to vote; and (b) a fraction of a vote for each partly paid share held by the member and in respect of which the member is entitled to vote, equivalent to the proportion which the amount paid on the share bears to the total amount paid and payable on the share. Distribution of shareholders as at 17 September 2010: Size of Holdings 1 – 1,000 1,001 – 5000 5,001 – 10,000 10,001 – 100,000 100,001+ Total Holding less than a marketable parcel Number of % of Issued Capital Shareholders 33,371 15,589 1,277 564 98 50,899 3,211 1.77 4.29 1.15 1.74 91.06 100.00 118 C ROWN LIMIT E D ANN UAL REPORT 2010 The 20 largest shareholders as at 17 September 2010: Name Bareage Pty Limited Consolidated Press Holdings Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited J P Morgan Nominees Australia Limited RBC Dexia Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited Cogent Nominees Pty Limited Samenic Limited AMP Life Limited RBC Dexia Investor Services Australia Nominees Pty Limited WIN Television NSW Pty Limited ANZ Nominees Limited UBS Nominees Pty Limited Queensland Investment Corporation JP Morgan Nominees Australia Limited Cogent Nominees Pty Limited Australian Reward Investment Alliance HSBC Custody Nominees (Australia) Limited – A/C 3 Citicorp Nominees Pty Limited S h a r e h o d e r l I n f o r m a t i o n No. of Shares % of Issued Capital 158,486,104 131,239,981 124,361,560 69,533,744 65,515,935 19,425,509 16,775,042 10,375,223 10,188,370 8,742,656 6,533,654 5,528,845 5,144,993 3,749,042 3,715,260 3,569,026 3,313,280 3,204,730 3,170,307 3,010,283 20.90 17.30 16.40 9.17 8.38 2.56 2.21 1.37 1.34 1.15 0.86 0.73 0.68 0.49 0.49 0.47 0.44 0.42 0.42 0.40 Total Others 653,583,544 104,810,641 86.18 13.82 Details of unquoted equity securities Crown has 4,838,895 shares on issue which are currently unquoted. These shares are held by participants in the Executive Share Plan (as described more fully in the Remuneration Report) and represent shares which are yet to be released from restriction in accordance with the terms of the Plan. CROWN LIMITE D ANNUAL REPORT 2010 119 Additional Information A d d i t i o n a l I n f o r m a t i o n Shareholder enquiries Shareholders may access their details by visiting the Share Registry’s website at www.computershare.com. For security reasons, shareholders need to enter their Security holder Reference Number (SRN) or Holding Identiﬁ cation Number (HIN) and postcode to access personal information. Security holding information may be updated online. Alternatively, download the relevant forms and have the completed forms mailed to the Share Registry. Shareholders with queries about their shareholdings should contact the Share Registry, Computershare Investor Services, on telephone number 1300 659 795 or if calling from outside Australia, (61 3) 9415 4000 or by fax (61 3) 9473 2500. Electronic shareholder communications Receiving shareholder communications electronically, instead of by post enables you to: • Receive important shareholder and company information faster • Reduce your impact on the environment • Securely store important shareholder documents online, reducing clutter in your home or ofﬁ ce • Access all documents conveniently 24/7 Shareholders who wish to receive email alerts informing them of Annual Report, Notice of Meeting, Issuer Holding Statements, Payment Advices and other company related information on Crown’s website, www.crownlimited.com, may either contact the Share Registry or lodge such instructions online at the Share Registry’s website at www.computershare.com Change of address Issuer sponsored shareholders should notify the Share Registry immediately in writing or by telephone upon any change in their address quoting their SRN. Changes in addresses for broker sponsored holders should be directed to the sponsoring brokers with the appropriate HIN. Direct payment to shareholders’ accounts Dividends may be paid directly to any bank, building society or credit union account in Australia. Payments are electronically credited on the dividend date with advisory conﬁ rmation containing payment details mailed to shareholders. Shareholders who wish to have their dividends paid directly to their account may advise the Share Registry in writing or may update their payment instructions online on www.investorcentre.com.au prior to the dividend record date. Tax File Numbers Crown is obliged to deduct tax at the top marginal rate plus Medicare levy from unfranked or partially franked dividends paid to Australian resident shareholders who have not supplied their Tax File Number (TFN) or exemption details. If you wish to provide your TFN or exemption details, please contact the Share Registry. Consolidation of multiple holdings If you have multiple holdings which you wish to consolidate, please advise the Share Registry in writing. If your holdings are broker sponsored, please contact the sponsoring broker directly. Crown website Crown has a dedicated corporate website, www.crownlimited.com which includes Crown’s Annual Report, disclosures made to the ASX and Notices of Meeting and other Explanatory Memoranda. Investment Warning All information provided in the Annual Report is provided as of the date stated or otherwise as at the date of the Report. The Annual Report has not taken into account any particular investor’s investment objectives or other circumstances. Investors are encouraged to make an independent assessment of Crown or seek independent professional advice. 120 C ROWN LIMIT E D ANN UAL REPORT 2010 C o r p o r a t e I n f o r m a t i o n Corporate Information Directors • James D Packer Executive Chairman • John H Alexander BA Executive Deputy Chairman • Rowen B Craigie BEc (Hons) Chief Executive Ofﬁ cer and Managing Director • Benjamin Brazil BCom, LLB • Christopher D Corrigan • Rowena Danziger BA, TC, MACE • Geoffrey J Dixon • David L B Gyngell • John S Horvath AO, MB, BS (Syd), FRACP • Ashok Jacob MBA • Michael R Johnston BEc, CA • Richard W Turner AM, BEc, FCA Company Secretaries • Michael J Neilson BA, LLB • Mary Manos BCom, LLB (Hons), GAICD Crown’s registered ofﬁ ce and principal corporate ofﬁ ce Level 3 Crown Towers 8 Whiteman Street Southbank VIC 3006 Australia Phone: (61 3) 9292 8824 Share Registry Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Phone: 1300 659 795 (within Australia) (61 3) 9415 4000 (outside Australia) (61 3) 9473 2500 Fax: Website: www.computershare.com.au Stock Exchange Listing Crown’s ordinary shares are listed on the Australian Stock Exchange under the code “CWN”. The home exchange is Melbourne. Website Visit our website www.crownlimited.com for media releases and ﬁ nancial information Auditor Ernst & Young Banker Australia and New Zealand Banking Group Limited CROWN LIMITE D ANNUAL REPORT 2010 121 this page has been left blank intentionally 122 C ROWN LIMIT E D ANN UAL REPORT 2010 DESIGN: COLLIER & ASSOCIATES THE STRATEGIC DESIGN COMPANY #14857 This report is printed on Monza Satin produced with 55% recycled fibre (25% post consumer and 30% pre consumer) and FSC Certified pulp, which ensures that all virgin pulp is derived from well-managed forests, and is manufactured by an ISO 14001 certified mill. Monza Recycled is an FSC Mixed Source Certified Paper. crownlimited.com

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