The Future is Ours
Annual Report 2010
Nasdaq: MPEL
Co-Chairman &
CEO’s Remarks
Melco Crown Entertainment celebrated
particularly in ramping up our mass
its 5th
listing anniversary on
the
market and VIP business, have proven
NASDAQ with significant progress in its
effective, resulting in new records in
2010 business results, primarily driven
quarterly rolling chip volume, mass table
by continued improvements in our core
drop and slot handle in the fourth quarter
business of “Gaming & Macau”. Our
of 2010. Our new operating management
strategies in driving operating leverage
structure has also shown a positive
and in improving the profitability of our
impact on our business within a few
portfolio of assets in Macau,
months of its implementation.
One of our key strategies in enhancing
Going forward, we expect to continue to see
mass gaming infrastructure at our flagship
notable improvement in the performance of our
project, City of Dreams, was the opening of
core leisure and entertainment business and
The House of Dancing Water in September
the full operating results of its comprehensive
2010. Since its opening, the success of
portfolio comprising City of Dreams, Altira
this spectacular extravaganza has created
Macau and Mocha Clubs.
a
truly phenomenal attraction
in
the
eyes of the general public in Hong Kong
As a major player
in
the
leisure and
and Macau as well as our many overseas
entertainment sector in the Greater China
visitors. It has not only earned plaudits
Region, Melco Crown Entertainment will
from audiences and critics alike, but
continue to strive to achieve a high standard
has also generated significant positive
of corporate governance and to honor its
ripple effects
throughout
the business,
corporate social responsibilities. Although
including higher property visitation, hotel
our business continues to be dynamic with
occupancies,
restaurant
covers
and
innovative business strategies, our ultimate
gaming spend. Through the end of 2010,
goal
remains unchanged – delivering
our customer database grew to more than
satisfactory and
long-term
returns
to
560,000 members and it continues to fuel
shareholders.
our growth in the mass market. To sustain
this upward trend, we have implemented
Finally, on behalf of the Board of Directors,
strategies to further leverage the success of
I would like to express my heartfelt thanks
this world class production and we expect
to the management team and staff for their
the opening of additional entertainment
commitment and contribution to our business
amenities in 2011, including the largest
in the past year. I would also like to take this
nightclub across Hong Kong and Macau, Club
opportunity to express my appreciation to our
Cubic, and the world famous Hard Rock Café,
Co-Chairman James Packer, as well as all
to add significant contributions to the resort’s
our investors and business partners for their
visitation and mass market revenue.
continuous support and trust.
Ho, Lawrence Yau Lung
Co-Chairman and CEO
2006
Melco Crown Entertainment
(NASDAQ: MPEL)
listed on NASDAQ on December 19, 2006
Melco Crown Entertainment Limited raised US$1.32 billion
from listing on NASDAQ in 2006 – the IPO was the largest by
an Asian company and the fourth-largest in the US in 2006. In
the same year, Macau surpassed Las Vegas in gaming revenue
and became the world’s gaming capital.
2007
Opened on May 12, 2007
Melco Crown Entertainment opened Altira Macau, our first
Macau hotel-casino, in 2007. The impeccably sophisticated
and personalized service standard at Altira Macau has
earned the hotel Forbes Five-Star ratings for hotel and spa
for the last two years.
Forbes
Five-star
Hospitality
Contemporary
Luxury
Asian
Focused
Michelin
Star
Cuisine
2009
Grand Opening on June 1, 2009
In 2009, Melco Crown Entertainment defied the global
financial turmoil and opened its flagship integrated
entertainment resort, City of Dreams. The resort carries an
array of entertainment, accommodation, dining, shopping
and gaming offerings, strengthening Macau’s position
as one of Asia’s premier leisure and entertainment
destinations.
Macau Chic
Extraordinary
Gaming
Experience
Hippest
Nightclub
Incredible
Dining &
Shopping
Style
A Gallery
of Art
Award-winning
Entertainment
Largest
Kid’s
Attraction
World-
renowned
Hotels
2010
1st Premier Show on
September 16, 2010
With five years of planning and two years of rehearsal, The
House of Dancing Water, a HK$2 billion-plus production and
the world’s largest water-based show, opened in City of
Dreams on September 16, 2010. The Honorable Dr. Fernando
Chui Sai On, Chief Executive of Macau SAR, was present at
the Grand Opening Ceremony, in company with Mr. & Mrs.
Lawrence Ho.
Exclusive
in Macau
Truly
Phenomenal
Attraction
Awe-inspiring
Theater
Breathtaking
“Excitainment”
Extravaganza
Set
World Class
Production
Most
Spectacular
Most
Advanced
Stage
Technology
Other Developments
in Pipeline
Melco Crown Entertainment is dedicated to bringing in
more unique attractions to Macau. Various additional
guest amenities will be delivered in the future, including
the Hard Rock Café, more retail brands in The Boulevard
at City of Dreams, and a potential additional hotel tower,
which together with additional podium space, would be a
1.5 million square foot development. These developments
will further differentiate City of Dreams and the overall
entertainment portfolio in Macau.
Corporate Citizenship
and Responsible Gaming
Melco Crown Entertainment’s Corporate Social Responsibility strategy
is to focus on the social issues in Macau and to be a long-term
partner with local charity organizations to facilitate solutions through
innovative programs and support. Youth, Education, Women, Culture,
Environment and Responsible Gaming are the key focus areas in addition
to philanthropic support of various charity causes.
Development of people, especially local Macau employees, is a key
contribution to the long-term sustainability of Macau, where labor issues
are at the forefront. Melco Crown Entertainment’s Learning Academy, the
first in-house learning facility in Macau, has supported over 6,500
employees since its launch in 2009 through its “whole person”
development approach that provides a wide variety of courses in
management, finance, marketing and lifestyle courses. Its “50/2010
Action”, a commitment to have over 50% of its management positions
to be held by local Macau people by the end of 2010, surpassed its
goal from its inception in 2008. Melco Crown Entertainment has
also enabled high school diplomas through a creative approach
in partnership with the Department of Education, a first of its kind
program created to support one of the key initiatives of the Macau
government to encourage high school graduates.
As a socially-responsible company, Melco Crown Entertainment endeavors
to be environmentally-responsible. Altira Macau installed the first and only
Grey Water System in Macau to recycle wastewater efficiently.
Responsible Gaming is also a core program in which all employees
receive training as part of indoctrination, and Melco Crown Entertainment
works closely with the Macau SAR Government and professional
counseling services to promote responsible gaming practices to its
employees, its customers and the public.
Vision Ahead
Looking
into 2011, Melco Crown Entertainment
continues to have a positive outlook as we believe
Macau’s tourism industry has been shifting its center
of gravity southwards to Cotai with new resorts opening
in
the vicinity,
further enhancing
the entertainment
proposition of
this area. The strong economy and
expansion of
the middle class
in mainland China,
combined with
the proactive stewardship by
the
Macau SAR Government, has forged a solid framework
for the ongoing development and growth of Macau’s
tourism and gaming market.
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As filed with the Securities and Exchange Commission on April 1, 2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
Date of event requiring this shell company report
Commission file number 001-33178
MELCO CROWN ENTERTAINMENT LIMITED
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
36th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong
(Address of principal executive offices)
Leanne Palmer, Vice President Financial Compliance, Tel +852 2598 3600, Fax +852 2537 3618
36th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
American depositary shares
each representing three ordinary shares
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
(The NASDAQ Global Select Market)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None.
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
1,605,658,111 ordinary shares of Registrant outstanding as of December 31, 2010.
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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes
No
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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Accelerated filer
(cid:2)
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
(cid:2)
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U.S. GAAP
International Financial Reporting Standards as issued by the
International Accounting Standards Board
(cid:2)
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17
Item 18
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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
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subsequent to the distribution of securities under a plan confirmed by a court. Yes
No
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Other
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No
TABLE OF CONTENTS
INTRODUCTION
GLOSSARY
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
B. CAPITALIZATION AND INDEBTEDNESS
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
D. RISK FACTORS
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
B. BUSINESS OVERVIEW
C. ORGANIZATIONAL STRUCTURE
D. PROPERTY, PLANT AND EQUIPMENT
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
B. LIQUIDITY AND CAPITAL RESOURCES
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
D. TREND INFORMATION
E. OFF-BALANCE SHEET ARRANGEMENTS
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
G. SAFE HARBOR
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
B. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
C. BOARD PRACTICES
D. EMPLOYEES
E. SHARE OWNERSHIP
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
B. RELATED PARTY TRANSACTIONS
C. INTERESTS OF EXPERTS AND COUNSEL
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
B. SIGNIFICANT CHANGES
ITEM 9. THE OFFER AND LISTING
A. OFFERING AND LISTING DETAILS
B. PLAN OF DISTRIBUTION
C. MARKETS
D. SELLING SHAREHOLDERS
E. DILUTION
F. EXPENSES OF THE ISSUE
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
C. MATERIAL CONTRACTS
D. EXCHANGE CONTROLS
E. TAXATION
F. DIVIDENDS AND PAYING AGENTS
G. STATEMENT BY EXPERTS
H. DOCUMENTS ON DISPLAY
I. SUBSIDIARY INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16.
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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
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iii
In this annual report on Form 20-F, unless otherwise indicated,
INTRODUCTION
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“Altira Developments Limited” refers to the Macau company through which we hold the land and building for Altira
Macau;
“Altira Hotel Limited” refers to the Macau company through which we currently operate the hotel and other non-gaming
businesses at Altira Macau;
“China,” “mainland China” and “PRC” refer to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan;
“Crown” refers to Crown Limited, an Australian listed corporation which completed its acquisition of the gaming
businesses and investments of PBL, now known as Consolidated Media Holdings Limited, on December 12, 2007 and
which is now our shareholder. As the context may require, “Crown” shall include its predecessor, PBL;
“Exchange Notes” refers to approximately 99.96% of the Initial Notes which were, on December 27, 2010, exchanged for
10.25% senior notes due 2018 registered under the Securities Act of 1933;
“Greater China” refers to mainland China, Hong Kong, Macau and Taiwan, collectively;
“HK$” and “H.K. dollars” refer to the legal currency of Hong Kong;
“Hong Kong” refers to the Hong Kong Special Administration Region of the People’s Republic of China;
“Initial Notes” refers to the US$600,000,000 aggregate principal amount of 10.25% senior notes due 2018 issued by MCE
Finance on May 17, 2010;
“Macau” and the “Macau SAR” refer to the Macau Special Administrative Region of the People’s Republic of China;
“MCE Finance” refers to our wholly-owned subsidiary, MCE Finance Limited, a Cayman Islands exempted company with
limited liability;
“Melco” refers to Melco International Development Limited, a Hong Kong listed company;
“Melco Crown (COD) Developments Limited” refers to the Macau company through which we hold the land and buildings
for City of Dreams;
“Melco Crown (COD) Hotels Limited” refers to the Macau company through which we currently operate the non-gaming
businesses at City of Dreams;
“Melco Crown Gaming” refers to our subsidiary, Melco Crown Gaming (Macau) Limited, a Macau company and the
holder of the gaming subconcession;
“MPEL International” refers to our wholly-owned subsidiary, MPEL International Limited, a Cayman Islands company
with limited liability;
“our subconcession” refers to the Macau gaming subconcession held by Melco Crown Gaming;
“Patacas” and “MOP” refer to the legal currency of Macau;
1
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“PBL” refers to Publishing and Broadcasting Limited, an Australian listed corporation which is now known as
Consolidated Media Holdings Limited;
“Renminbi” and “RMB” refer to the legal currency of China;
“SBGF Agreement” refers to the subconcession bank guarantee request letter, dated September 1, 2006, issued by Melco
Crown Gaming and the bank guarantee number 269/2006, dated September 6, 2006, extended by Banco Nacional
Ultramarino, S.A. in favor of the government of the Macau SAR at the request of Melco Crown Gaming, including any
related notes, guarantees, collateral documents, instruments and agreements executed in connection thereunder;
“Senior Note Guarantees” refers to the guarantees provided by MCE, MPEL International and the Senior Note Subsidiary
Group Guarantors with respect to the Senior Notes;
“Senior Note Guarantors” refers to MCE, MPEL International and the Senior Note Subsidiary Group Guarantors with
respect to the Senior Notes;
“Senior Note Subsidiary Group Guarantees” refers to the guarantees provided by the Senior Note Subsidiary Group
Guarantors with respect to the Senior Notes;
“Senior Note Subsidiary Group Guarantors” refers to Melco Crown Gaming, MPEL Nominee One Limited, MPEL
Investments Limited, Altira Hotel Limited, Altira Developments Limited, Melco Crown (COD) Hotels Limited, Melco
Crown (COD) Developments Limited, Melco Crown (Cafe) Limited, Golden Future (Management Services) Limited,
MPEL (Delaware) LLC, Melco Crown Hospitality and Services Limited, Melco Crown (COD) Retail Services Limited,
Melco Crown (COD) Ventures Limited, COD Theatre Limited, Melco Crown COD (HR) Hotel Limited, Melco Crown
COD (CT) Hotel Limited and Melco Crown COD (GH) Hotel Limited with respect to the Senior Notes;
“Senior Notes” refers to the Initial Notes and the Exchange Notes, collectively;
“SGX-ST” refers to the Singapore Exchange Securities Trading Limited;
“SPV” refers to Melco Crown SPV Limited, formerly Melco PBL SPV Limited, a Cayman Islands exempted company
which is 50/50 owned by Melco Leisure and Entertainment Group Limited and Crown Asia Investments Pty. Ltd., formerly
PBL Asia Investments Limited;
“US$” and “U.S. dollars” refer to the legal currency of the United States;
“U.S. GAAP” refers to the accounting principles generally accepted in the United States; and
“we,” “us,” “our company,” “our” and “MCE” refer to Melco Crown Entertainment Limited, a Cayman Islands exempted
company with limited liability, and its predecessor entities and its consolidated subsidiaries, as applicable.
This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31,
2010, 2009 and 2008 and as of December 31, 2010 and 2009.
2
We completed our initial public offering of 60,250,000 ADSs, each representing three ordinary shares, par value US$0.01
per share in December 2006. Since December 19, 2006, we have listed our ADSs on The NASDAQ Stock Market LLC, or the
Nasdaq, under the symbol “MPEL”. Immediately prior to our initial public offering of ADSs in December 2006, we had
1,000,000,000 total ordinary shares issued and outstanding. During the initial public offering, we initially issued 60,250,000 ADSs,
representing 180,750,000 ordinary shares. In addition, we issued 60,382 ADSs representing 181,146 ordinary shares to Melco
shareholders as an assured entitlements distribution. On January 8, 2007, we sold an additional 9,037,500 ADSs, representing
27,112,500 ordinary shares pursuant to the underwriters’ option to purchase these additional ADSs from us at the initial public
offering price less the underwriting commission to cover over-allotments of the ADSs.
On November 6, 2007 we sold 37,500,000 ADSs, representing 112,500,000 ordinary shares in a follow-on offering. On
May 1, 2009 we sold 22,500,000 ADSs and 67,500,000 ordinary shares, representing a total of 135,000,000 ordinary shares in a
follow-on offering. On August 18, 2009 we sold 42,718,445 ADSs, representing 128,155,335 ordinary shares in a further follow-on
offering.
On May 17, 2010, MCE Finance issued US$600,000,000 aggregate principal amount of 10.25% senior notes due 2018, or
the Initial Notes. On December 27, 2010, approximately 99.96% of the Initial Notes were exchanged for 10.25% senior notes due
2018 registered under the Securities Act of 1933, or the Exchange Notes. The Initial Notes and the Exchange Notes are collectively
referred to as the “Senior Notes” in this annual report on Form 20-F.
3
Average Daily Rate or ADR
calculated by dividing total room revenue (less service charges, if any) by
total rooms occupied, i.e., average price of occupied rooms per day.
GLOSSARY
Cage
Chip
Concession
Dealer
Drop
Drop box
a secure room within a casino with a facility that allows patrons to exchange
cash for chips required to participate in gaming activities, or to exchange
chips for cash.
round token that is used on casino gaming tables in lieu of cash.
a government grant for the operation of games of fortune and chance in
casinos in the Macau SAR under an administrative contract pursuant to which
a concessionaire, or the entity holding the concession, is authorized to operate
games of fortune and chance in casinos in the Macau SAR.
a casino employee who takes and pays out wagers or otherwise oversees a
gaming table.
the amount of cash and net markers issued that are deposited in a gaming
table’s drop box to purchase gaming chips plus gaming chips purchased at the
casino cage.
a box or container that serves as a repository for cash, chips, chip purchase
vouchers, credit markers and forms used to record movements in the chip
inventory on each table game.
Expected hold percentage
casino win based upon our mix of games as a percentage of drop assuming
theoretical house advantage is achieved.
Gaming machine handle (volume)
the total amount wagered in gaming machines in aggregate for the period
cited.
Gaming promoter or junket representative
Gaming promoter aggregator model
an individual or corporate entity who, for the purpose of promoting rolling
chip gaming activity, arranges customer transportation and accommodation,
provides credit in its sole discretion, and arranges food and beverage services
and entertainment in exchange for commissions or other compensation from a
gaming operator.
under this model, the casino owner typically pays an additional level of
remuneration above usual market commission rate to the gaming promoter
which in return provides additional services by managing and providing
credit to its collaborators.
4
Hold percentage
Hotel occupancy rate
Integrated resort
Junket player
Marker
Mass market patron
Mass market segment
MICE
the amount of win (calculated before discounts and commissions) as a
percentage of drop or roll.
the average percentage of available hotel rooms occupied during a period.
a resort which provides customers with a combination of hotel
accommodations, casinos or gaming areas, retail and dining facilities, MICE
space, entertainment venues and spas.
a player sourced by gaming promoters to play in the VIP gaming rooms or
areas.
evidence of indebtedness by a player to the casino or gaming operator.
a non-rolling chip player who uses non-rolling chips to make wagers.
consists of both table games and slot machines played on public mass gaming
floors by mass market patrons for cash stakes that are typically lower than
those in the rolling chip segment.
Meetings, Incentives, Conventions and Exhibitions, an acronym commonly
used to refer to tourism involving large groups brought together for an event
or specific purpose.
Net rolling
net turnover in a non-negotiable chip game.
Non-negotiable chip
promotional casino chip that is not to be exchanged for cash.
Non-rolling chip or traditional cash chip
chip used by mass market patrons to make wagers and can be exchanged for
cash.
Non-rolling chip hold percentage
mass market table games win as a percentage of non-rolling chip volume.
Non-rolling chip volume
Premium player
Progressive jackpot
Revenue per Available Room or REVPAR
the amount of table games drop in the mass market segment, therefore
tracking the initial purchase of chips.
a player who is a direct customer of the casino and is attracted to the casino
through direct marketing efforts and relationships with the gaming operator.
a jackpot for a slot machine or table game where the value of the jackpot
increases as wagers are made. Multiple slot machines or table games may be
linked together to establish one progressive jackpot.
calculated by dividing total room revenue (less service charges, if any) by
total rooms available, thereby representing a summary of hotel average daily
room rates and occupancy.
5
Rolling chip
non-negotiable chip primarily used by rolling chip patrons to make wagers.
Rolling chip hold percentage
rolling chip table games win as a percentage of rolling chip volume.
Rolling chip patron
Rolling chip segment
Rolling chip volume
Slot machine
Subconcession
Table games win
Table inventory forms
VIP gaming room or VIP gaming area
a player who is primarily a VIP player and typically receives various forms of
complimentary services from the gaming promoters or casinos.
consists of table games played in private VIP gaming rooms or areas by
rolling chip patrons who are either premium players or junket players.
the amount of non-negotiable chips wagered and lost by the rolling chip
market segment, therefore tracking the sum of all losing wagers.
traditional gaming machine operated by a single player and electronic
multiple-player gaming machines.
an agreement for the operation of games of fortune and chance in casinos
between the entity holding the concession, or the concessionaire, a
subconcessionaire and the Macau SAR, pursuant to which the
subconcessionaire is authorized to operate games of fortune and chance in
casinos in the Macau SAR.
the amount of wagers won net of wagers lost that is retained and recorded as
casino revenue.
the forms used to record movements in the chip inventory on each table
game.
gaming rooms or areas that have restricted access to rolling chip patrons and
typically offer more personalized service than the general mass market
gaming areas.
Wet stage performance theater
the approximately 2,000-seat theater specifically designed to stage “The
House of Dancing Water” show.
Win percentage-gaming machines
actual win expressed as a percentage of gaming machine handle.
6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future
operating results and conditions, our prospects and our future financial performance and condition, all of which are largely based on
our current expectations and projections. The forward-looking statements are contained principally in the sections entitled “Item 3.
Key Information—D. Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and
Prospects”. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to
be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
See “Item 3. Key Information—D. Risk Factors” for a discussion of some risk factors that may affect our business and results of
operations. Moreover, because we operate in a heavily regulated and evolving industry, may become highly leveraged, and operate in
Macau, a market that has recently experienced extremely rapid growth and intense competition, new risk factors may emerge from
time to time. It is not possible for our management to predict all risk factors, nor can we assess the impact of these factors on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
expressed or implied in any forward-looking statement.
In some cases, forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,”
“anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. We
have based the forward-looking statements largely on our current expectations and projections about future events and financial trends
that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements include, among other things, statements relating to:
•
•
•
•
•
•
•
•
•
•
•
•
•
satisfaction of and compliance with conditions (including conditions precedent to draw down or roll over funds) and
covenants under the US$1.75 billion City of Dreams Project Facility, or City of Dreams Project Facility;
compliance with covenants under the Senior Notes;
our ability to raise additional financing;
our future business development, results of operations and financial condition;
growth of the gaming market in and visitation to Macau;
our anticipated growth strategies;
the liberalization of travel restrictions on PRC citizens and convertibility of the Renminbi;
the availability of credit for gaming patrons;
the uncertainty of tourist behavior related to spending and vacationing at casino resorts in Macau;
fluctuations in occupancy rates and average daily room rates in Macau;
increased competition and other planned casino hotel and resort projects in Macau and elsewhere in Asia, including in
Macau from Sociedade de Jogos de Macau, S.A., or SJM, Sands China, Wynn Resorts (Macau) S.A., or Wynn Macau,
Galaxy Casino, S.A., or Galaxy, and MGM Grand Paradise;
the formal grant of an occupancy permit for certain areas of City of Dreams that remain under construction or development;
the development of Macau Studio City;
7
•
•
•
•
•
our entering into new development and construction and new ventures;
construction cost estimates for our development projects, including projected variances from budgeted costs;
government regulation of the casino industry, including gaming license approvals and the legalization of gaming in other
jurisdictions;
the completion of infrastructure projects in Macau; and
other factors described under “Risk Factors”.
The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date
on which the statements are made in this annual report on Form 20-F. Except as required by law, we undertake no obligation to update
or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on
which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report on Form 20-F
and the documents that we referenced in this annual report on Form 20-F and have filed as exhibits with the SEC completely and with
the understanding that our actual future results may be materially different from what we expect.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
The following reflects selected historical financial data that should be read in conjunction with “Item 5. Operating and
Financial Review and Prospects” and the consolidated financial statements and the notes thereto beginning on page F-1 of this annual
report on Form 20-F. The historical results are not necessarily indicative of the results of operations to be expected in the future.
A. SELECTED FINANCIAL DATA
2010
Year Ended December 31,
2008
(In thousands of US$, except share and per share data and operating data)
2007
2009
2006
Consolidated Statements of
Operations Data:
Net revenues
Total operating costs and expenses
Operating income (loss)
Net loss
Loss per share
— Basic and diluted
— ADS (1)
Shares used in calculating loss per
share
— Basic and diluted
$
$
$
$
$
2,641,976
(2,549,464)
92,512
(10,525)
(0.007)
(0.020)
$
$
$
$
$
1,332,873
(1,604,920)
(272,047)
(308,461)
(0.210)
(0.631)
$
$
$
$
$
1,416,134 $
(1,414,960)
1,174 $
(2,463) $
358,496 $
(554,313)
(195,817) $
(178,151) $
36,101
(93,754)
(57,653)
(73,479)
(0.002) $
(0.006) $
(0.145) $
(0.436) $
(0.116)
(0.348)
1,595,552,022
1,465,974,619
1,320,946,942
1,224,880,031
633,228,439
8
2010
2009
December 31,
2008
(In thousands of US$)
2007
2006
Consolidated Balance Sheets Data:
Cash and cash equivalents
Restricted cash
Total assets
Total current liabilities
Total debts (2)
Total liabilities
Total equity
$
441,923
167,286
4,884,440
675,604
1,839,931
2,361,249
2,523,191
$
212,598
236,119
4,862,845
521,643
1,798,879
2,353,801
2,509,044
$
815,144
67,977
4,495,442
447,289
1,529,195
2,086,838
2,408,604
$
835,419
298,983
3,617,099
480,516
616,376
1,188,558
2,428,541
$
583,996
—
2,279,920
207,613
212,506
389,554
1,890,366
(1) Each ADS represents three ordinary shares.
(2) Includes amounts due to shareholders within one year, loans from shareholders and current and non-current portion of long-term
debt.
The following events/transactions affect the year-to-year comparability of the selected financial data presented above:
In September 2006, we acquired a Macau subconcession. Prior to this date we did not hold a concession or subconcession
to operate gaming activities in Macau and we operated under a services agreement with SJM.
In April 2006, we commenced construction of the City of Dreams project.
On May 12, 2007, Altira Macau opened and became fully operational on July 14, 2007.
On June 1, 2009, City of Dreams opened and progressively added to its operations with the opening of Grand Hyatt Macau
in the fourth quarter of 2009 and the opening of The House of Dancing Water in the third quarter of 2010.
•
•
•
•
Exchange Rate Information
Although we will have certain expenses and revenues denominated in Patacas, our revenues and expenses will be
denominated predominantly in H.K. dollars and in connection with a portion of our indebtedness and certain expenses, U.S. dollars.
Periodic reports made to shareholders will be expressed in U.S. dollars using the then current exchange rates. The conversion of H.K.
dollars into U.S. dollars in this annual report on Form 20-F is based on the noon buying rate in The City of New York for cable
transfers of H.K. dollars as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all
translations from H.K. dollars to U.S. dollars and from U.S. dollars to H.K. dollars in this annual report on Form 20-F were made at a
rate of HK$7.78 to US$1.00. The noon buying rate in effect as of December 31, 2010 was HK$7.7810 to US$1.00. We make no
representation that any H.K. dollar or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or H.K. dollars, as
the case may be, at any particular rate, the rates stated below, or at all. On March 18, 2011, the noon buying rate was HK$7.7999 to
US$1.00.
9
The H.K. dollar is freely convertible into other currencies (including the U.S. dollar). Since October 7, 1983, the H.K.
dollar has been officially linked to the U.S. dollar at the rate of HK$7.80 to US$1.00. The link is supported by an agreement between
Hong Kong’s three bank note-issuing banks and the Hong Kong government pursuant to which bank notes issued by such banks are
backed by certificates of indebtedness purchased by such banks from the Hong Kong Government Exchange Fund in U.S. dollars at
the fixed exchange rate of HK$7.80 to US$1.00 and held as cover for the bank notes issued. When bank notes are withdrawn from
circulation, the issuing bank surrenders certificates of indebtedness to the Hong Kong Government Exchange Fund and is paid the
equivalent amount in U.S. dollars at the fixed rate of exchange. Hong Kong’s three bank note-issuing banks are The Hongkong and
Shanghai Banking Corporation Limited, Standard Chartered Bank and Bank of China (Hong Kong) Limited.
In May 2005, the Hong Kong Monetary Authority broadened the link from the original rate of HK$7.80 per US$1.00 to a
rate range of HK$7.75 to HK$7.85 per US$1.00. No assurance can be given that the Hong Kong government will maintain the link at
HK$7.75 to HK$7.85 per US$1.00 or at all.
The following table sets forth the noon buying rate for U.S. dollars in The City of New York for cable transfers in H.K.
dollars as certified for customs purposes by the Federal Reserve Bank of New York.
Period
March 2011 (through March 18, 2011)
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
2010
2009
2008
2007
2006
Noon Buying Rate
Period End
Average (1)
Low
High
(H.K. dollar per US$1.00)
7.7999
7.7883
7.7926
7.7810
7.7649
7.7513
7.7599
7.7810
7.7536
7.7499
7.7984
7.7771
7.7912
7.7895
7.7803
7.7736
7.7546
7.7580
7.7643
7.7692
7.7513
7.7814
7.8008
7.7685
7.7858
7.7823
7.7683
7.7612
7.7501
7.7513
7.7561
7.7501
7.7618
7.8159
7.8289
7.7928
7.8012
7.7957
7.7978
7.7833
7.7656
7.7642
7.7738
7.8040
7.7495
7.7497
7.7497
7.7506
(1) Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates
during the relevant period.
The Pataca is pegged to the H.K. dollar at a rate of HK$1.00 = MOP 1.03. All translations from Patacas to U.S. dollars in
this annual report on Form 20-F were made at the exchange rate of MOP 8.0134 = US$1.00. The Federal Reserve Bank of New York
does not certify for customs purposes a noon buying rate for cable transfers in Patacas.
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable.
10
Our business, financial condition and results of operations can be affected materially and adversely by any of the following
D. RISK FACTORS
risk factors.
(1) Risks Relating to Our Early Stage of Operation
(a) We are in an early stage of operations of our business and properties, and so we are subject to significant risks and
uncertainties. Our limited operating history may not serve as an adequate basis to judge our future operating results and prospects.
In significant respects we remain in an early phase of our business operations and there is limited historical information
available about our company upon which you can base your evaluation of our business and prospects. In particular, Altira Macau and
City of Dreams commenced operations in May 2007 and June 2009, respectively. The Mocha Club business, which we acquired in
2005, commenced operations in 2003. Melco Crown Gaming acquired its subconcession in September 2006 and previously did not
have any direct experience operating casinos in Macau. As a result, you should consider our business and prospects in light of the
risks, expenses and challenges that we will face as an early-stage company with limited experience operating gaming businesses in an
intensely competitive market. Among other things, we have continuing obligations to satisfy and comply with conditions and
covenants under the US$1.75 billion City of Dreams Project Facility so as to be able to continue to roll over existing revolving loans
drawn down under the facility and to maintain the facility.
We have encountered and will continue to encounter risks and difficulties frequently experienced by early-stage companies,
and those risks and difficulties may be heightened in a rapidly developing market such as the gaming market in Macau. Some of the
risks relate to our ability to:
•
•
•
•
•
•
•
•
•
•
•
•
fulfill conditions precedent to draw down or roll over funds from current and future credit facilities;
comply with covenants under the Senior Notes;
raise additional capital, as required;
respond to changing financing requirements.
operate, support, expand and develop our operations and our facilities;
attract and retain customers and qualified employees;
maintain effective control of our operating costs and expenses;
develop and maintain internal personnel, systems, controls and procedures to assure compliance with the extensive
regulatory requirements applicable to the gaming business as well as regulatory compliance as a public company;
respond to competitive market conditions;
respond to changes in our regulatory environment;
identify suitable locations and enter into new leases or right to use agreements (which are similar to license agreements) for
new Mocha Clubs; and
renew or extend lease agreements for existing Mocha Clubs.
If we are unable to complete any of these tasks, we may be unable to operate our businesses in the manner we contemplate
and generate revenues from such projects in the amounts and by the times we anticipate. We may also be unable to meet the
conditions to draw on our existing or future financing facilities in order to fund various activities or may suffer a default under our
existing or future financing facilities or the Senior Notes. If any of these events were to occur, it would cause a material adverse effect
on our business and prospects, financial condition, results of operation and cash flows.
11
(2) Risks Relating to the Operation of Our Properties
(a) Because we are and will be dependent upon a limited number of properties for a substantial portion of our cash flow, we are
and will be subject to greater risks than a gaming company with more operating properties.
We are primarily dependent upon City of Dreams, Altira Macau and Mocha Clubs for our cash flow. Given that our
operations are and will be conducted based on a small number of principal properties, we are and will be subject to greater risks than a
gaming company with more operating properties due to the limited diversification of our businesses and sources of revenue.
(b) Servicing the debt of our subsidiaries requires a significant amount of cash, and our subsidiaries may not generate a sufficient
level of cash flow from their businesses to make scheduled payments on their debt.
Our subsidiaries’ ability to make scheduled payments of the principal of, to pay interest on or to refinance their
indebtedness depends on our subsidiaries’ future performance, which is subject to certain economic, financial, competitive and other
factors beyond our control. For the years ended December 31, 2010, 2009, 2008, 2007, and 2006, our earnings were insufficient to
cover fixed charges. Our subsidiaries may not generate cash flow from operations in the future sufficient to service their debt or make
necessary capital repayments. If they are unable to generate such cash flow, our subsidiaries may be required to adopt one or more
alternatives, such as selling assets, restructuring debt, incurring additional indebtedness or obtaining additional equity capital on terms
that may be onerous or highly dilutive. Our subsidiaries’ ability to refinance their indebtedness will depend on the financial markets
and their financial condition at such time. Our subsidiaries may not be able to engage in any of these activities or engage in these
activities on desirable terms, which could result in a default on our subsidiaries’ debt obligations and a material adverse effect on the
value of our ADSs.
(c) Our business depends substantially on the continuing efforts of our senior management, and our business may be severely
disrupted if we lose their services or their other responsibilities cause them to be unable to devote sufficient time and attention to
our company.
We place substantial reliance on the gaming, project development and hospitality industry experience and knowledge of the
Macau market possessed by members of our senior management team, including our co-chairman and chief executive officer,
Mr. Lawrence Ho. The loss of the services of one or more members of our senior management team could hinder our ability to
effectively manage our business and implement our growth and development strategies. Finding suitable replacements for Mr. Ho or
other members of our senior management could be difficult, and competition for personnel of similar experience could be intense in
Macau. We do not currently carry key person insurance on any members of our senior management team.
(d) We have recruited a substantial number of new employees for each of our properties, and competition may limit our ability to
attract or retain suitably qualified management and personnel.
We require extensive operational management and staff to operate both Altira Macau and City of Dreams. Accordingly, we
undertook a major recruiting program before both openings. The pool of experienced gaming and other skilled and unskilled personnel
in Macau is limited. Many of our new personnel occupy sensitive positions requiring qualifications sufficient to meet gaming
regulatory and other requirements or are required to possess other skills for which substantial training and experience are needed.
Moreover, competition to recruit and retain qualified gaming and other personnel is expected to continue. In addition, we are not
currently allowed under Macau government policy to hire non-Macau resident dealers, croupiers and supervisors. We cannot assure
12
you that we will be able to attract and retain a sufficient number of qualified individuals to operate our properties or that costs to
recruit and retain such personnel will not increase significantly. The inability to attract and retain qualified employees and operational
management personnel could have a material adverse effect on our business. Further, the Macau government is currently enforcing a
labor policy pursuant to which the ratio of local to foreign workers that may be recruited for construction works shall have to be 1:1.
At our stage of development and operation, the impact of this policy is relatively minimal. Notwithstanding, this could have a material
adverse effect on our ability to complete future works on our properties or on the possible expansion of our business. Moreover, if the
Macau government enforces similar restrictive ratios in other areas, such as the gaming, hotel and entertainment industries, this could
have a materially adverse effect on the operation of our properties.
(e) Our insurance coverage may not be adequate to cover all losses that we may suffer from our operations. In addition, our
insurance costs may increase and we may not be able to obtain the same insurance coverage in the future.
We currently have various insurance policies providing certain coverage typically required by gaming and hospitality
operations in Macau. Such coverage includes property damage, business interruption and general liability. These insurance policies
provide coverage that is subject to policy terms, conditions and limits. There is no assurance that we will be able to renew such
insurance coverage on equivalent premium cost, terms, conditions and limits upon policy renewals. The cost of coverage may in the
future become so high that we may be unable to obtain the insurance policies we deem necessary for the operation of our projects on
commercially practicable terms, or at all, or we may need to reduce our policy limits or agree to certain exclusions from our coverage.
We cannot assure you that any such insurance policies we may obtain will be adequate to protect us from material losses. If we incur
loss, damage or liability for amounts exceeding the limits of our current or future insurance coverage, or for claims outside the scope
of our current or future insurance coverage, our financial conditions and business operations could be materially and adversely
affected. For example, certain casualty events, such as labor strikes, nuclear events, acts of war, loss of income due to cancellation of
conventions or room reservations arising from fear of terrorism, contagious or infectious disease, deterioration or corrosion, insect or
animal damage and pollution may not be covered under our policies. As a result, certain acts and events could expose us to significant
uninsured losses. In addition to the damages caused directly by a casualty loss such as fire or natural disasters, we may suffer a
disruption of our business as a result of these events or be subject to claims by third parties who may be injured or harmed. While we
intend to carry business interruption insurance and general liability insurance, such insurance may not be available on commercially
reasonable terms, or at all, and, in any event, may not be adequate to cover all losses that may result from such events.
(3) Risks Relating to Our Business and Operations in Macau
(a) Conducting business in Macau has certain political and economic risks that may lead to significant volatility and have a
material adverse effect on our results of operations.
All of our operations are in Macau. Accordingly, our business development plans, results of operations and financial
condition may be materially adversely affected by significant political, social and economic developments in Macau and China and by
changes in government policies or changes in laws and regulations or the interpretations of these laws and regulations. In particular,
our operating results may be adversely affected by:
•
•
•
•
changes in Macau’s and China’s political, economic and social conditions;
tightening of travel restrictions to Macau which may be imposed by China;
changes in policies of the government or changes in laws and regulations, or in the interpretation or enforcement of these
laws and regulations;
changes in foreign exchange regulations;
13
•
•
measures that may be introduced to control inflation, such as interest rate increases or bank account withdrawal controls;
and
changes in the rate or method of taxation.
Our operations in Macau are also exposed to the risk of changes in laws and policies that govern operations of Macau-based
companies. Tax laws and regulations may also be subject to amendment or different interpretation and implementation, thereby
adversely affecting our profitability after tax. Further, certain terms of our gaming subconcession may be subject to renegotiations
with the Macau government in the future, including amounts we will be obligated to pay the Macau government in order to continue
operations. Melco Crown Gaming’s obligations to make certain payments to the Macau government under the terms of its
subconcession include a fixed annual premium per year and a variable premium depending on the number and type of gaming tables
and gaming machines that we operate. The results of any renegotiations could have a material adverse effect on our results of
operations and financial condition.
The Macau government granted us land leases for lands for Altira Macau and for City of Dreams. The opening and
operation of the areas of City of Dreams for which construction is not yet completed will be subject to our obtaining an occupancy
permit for such areas.
In January 2008, Former Secretary for Public Works and Transport of Macau, Mr. Ao Man Long, was convicted and
sentenced to a prison term of 28.5 years on charges involving corruption, bribery, irregular financial activities and money laundering.
Those being tried and convicted in cases connected with the conviction of Mr. Ao in 2008 are related to local companies to whom
several major public works and services contracts were awarded and for whom certain licensing procedures were allegedly expedited.
Mr. Lao Sio-Io was appointed the new Secretary for Transport and Public Works in March 2007. We cannot predict whether any
ongoing or further prosecutions and investigations will adversely affect the functioning of the Macau Land, Public Works and
Transports Bureau, any approvals that are pending before it, or for which applications may be made in the future (including with
respect to our possible future projects), or will give rise to additional scrutiny or review of any approvals, including those for Altira
Macau and City of Dreams, that were previously approved or granted through this Bureau and the Secretary for Transport and Public
Works of Macau.
As we expect a significant number of patrons to come to our properties from China, general economic conditions and
policies in China could have a significant impact on our financial prospects. A slowdown in economic growth and tightening of credit
availability or restrictions on travel imposed by China could adversely impact the number of visitors from China to our properties in
Macau as well as the amounts they are willing to spend in our casinos, which could have a material adverse effect on the results of our
operations and financial condition.
(b) The winnings of our patrons could exceed our casino winnings.
Our revenues are mainly derived from the difference between our casino winnings and the winnings of our casino patrons.
Since there is an inherent element of chance in the gaming industry, we do not have full control over our winnings or the winnings of
our casino patrons. If the winnings of our patrons exceed our casino winnings, we may record a loss from our gaming operations, and
our business, financial condition and results of operations could be materially and adversely affected.
(c) Theoretical win rates for our casino operations depend on a variety of factors, some beyond our control.
In addition to the element of chance, theoretical win rates are also affected by other factors, including players’ skill and
experience, the mix of games played, the financial resources of players, the spread of table limits, the volume of bets placed by our
players and the amount of time players spend on gambling — thus our actual win rates may differ greatly over short time periods, such
as from quarter to quarter, and could cause our quarterly results to be volatile. Each of these factors, alone or in combination, have the
potential to negatively impact our win rates, and our business, financial condition and results of operations could be materially and
adversely affected.
14
(d) Our gaming business is subject to cheating and counterfeiting.
All gaming activities at our table games are conducted exclusively with gaming chips which, like real currency, are subject
to the risk of alteration and counterfeiting. We incorporate a variety of security and anti-counterfeit features to detect altered or
counterfeit gaming chips. Despite such security features, unauthorized parties may try to copy our gaming chips and introduce, use
and cash in altered or counterfeit gaming chips in our gaming areas. Any negative publicity arising from such incidents could also
tarnish our reputation and may result in a decline in our business, financial condition and results of operation.
Our existing surveillance and security systems, designed to detect cheating at our casino operations, may not be able to
detect all such cheating in time or at all, particularly if patrons collude with our employees. In addition, our gaming promoters or other
persons could, without our knowledge, enter into betting arrangements directly with our casino patrons on the outcomes of our games
of chance, thus depriving us of revenues.
(e) Because we depend upon our properties in one market for all of our cash flow, we will be subject to greater risks than a gaming
company that operates in more markets.
We are and will be primarily dependent upon City of Dreams, Altira Macau and Mocha Clubs for our cash flow. Given that
our current operations are and will be conducted only at properties in Macau, we will be subject to greater risks than a gaming
company with operating properties in several markets. These risks include:
•
•
•
•
•
•
•
•
•
dependence on the gaming and leisure market in Macau and limited diversification of our businesses and sources of
revenue;
a decline in economic, competitive and political conditions in Macau or generally in Asia;
inaccessibility to Macau due to inclement weather, road construction or closure of primary access routes;
a decline in air or ferry passenger traffic to Macau due to higher ticket costs, fears concerning travel or otherwise;
travel restrictions to Macau imposed now or in the future by China;
changes in Macau governmental laws and regulations, or interpretations thereof, including gaming laws and regulations;
natural and other disasters, including typhoons, outbreaks of infectious diseases or terrorism, affecting Macau;
that the number of visitors to Macau does not increase at the rate that we have expected; and
a decrease in gaming activities at our properties.
Any of these conditions or events could have a material adverse effect on our business, cash flows, financial condition,
results of operations and prospects.
15
(f) Our gaming operations could be adversely affected by restrictions on the export of the Renminbi and limitations of the Pataca
exchange markets.
Gaming operators in Macau are currently prohibited from accepting wagers in Renminbi, the currency of China. There are
currently restrictions on the export of the Renminbi outside of mainland China, including to Macau. For example, Chinese traveling
abroad are only allowed to take a total of RMB20,000 plus the equivalent of up to US$5,000 out of China. Restrictions on the export
of the Renminbi may impede the flow of gaming customers from China to Macau, inhibit the growth of gaming in Macau and
negatively impact our operations.
Our revenues in Macau are denominated in H.K. dollars and Patacas, the legal currency of Macau. Although currently
permitted, we cannot assure you that H.K. dollars and Patacas will continue to be freely exchangeable into U.S. dollars. Although the
exchange rate between the H.K. dollar and the U.S. dollar has been pegged since 1983 and the Pataca is pegged to the H.K. dollar, we
cannot assure you that the H.K. dollar will remain pegged to the U.S. dollar and that the Pataca will remain pegged to the H.K. dollar.
Also, because the currency market for Patacas is relatively small and undeveloped, our ability to convert large amounts of Patacas into
U.S. dollars over a relatively short period of time may be limited. As a result, we may experience difficulty in converting Patacas into
U.S. dollars, which could hinder our ability to service a portion of our indebtedness and certain expenses denominated in U.S. dollars.
(g) Terrorism and the uncertainty of war, economic downturns and other factors affecting discretionary consumer spending and
leisure travel may reduce visitation to Macau and harm our operating results.
The strength and profitability of our business depends on consumer demand for casino resorts and leisure travel in general.
Changes in Asian consumer preferences or discretionary consumer spending could harm our business. Terrorist acts could have a
negative impact on international travel and leisure expenditures, including lodging, gaming and tourism. We cannot predict the extent
to which future terrorist acts may affect us, directly or indirectly. In addition to fears of war and future acts of terrorism, other factors
affecting discretionary consumer spending, including general economic conditions, amounts of disposable consumer income, fears of
recession and lack of consumer confidence in the economy, may negatively impact our business. Consumer demand for hotel, casino
resorts and the type of luxury amenities we currently offer and plan to offer in the future are highly sensitive to downturns in the
economy. An extended period of reduced discretionary spending and/or disruptions or declines in airline travel could significantly
harm our operations.
(h) An outbreak of the highly pathogenic avian influenza caused by the H5N1 virus (avian flu or bird flu), Severe Acute
Respiratory Syndrome, or SARS, or H1N1 virus (swine flu) or other contagious disease may have an adverse effect on the
economies of certain Asian countries and may adversely affect our results of operations.
During 2004, large parts of Asia experienced unprecedented outbreaks of avian flu which, according to a report of the
World Health Organization, or WHO, in 2004, placed the world at risk of an influenza pandemic with high mortality and social and
economic disruption. As of March 7, 2011, the WHO confirmed a total of 311 fatalities in a total number of 528 cases reported to the
WHO, which only reports laboratory confirmed cases of avian flu since 2003. In particular, Guangdong Province, PRC, which is
located across the Zhuhai Border from Macau, has confirmed several cases of avian flu. Currently, fully effective avian flu vaccines
have not yet been developed and there is evidence that the H5N1 virus are evolving so there can be no assurance that an effective
vaccine can be discovered in time to protect against the potential avian flu pandemic. In the first half of 2003, certain countries in Asia
experienced an outbreak of SARS, a highly contagious form of atypical pneumonia, which seriously interrupted economic activities
and caused the demand for goods and services to plummet in the affected regions. In April 2009, there was an outbreak of the
Influenza A (H1N1) virus which originated in Mexico but has since spread globally including confirmed reports in Indonesia, Hong
Kong, Japan, Malaysia, Singapore, and elsewhere in Asia. More recently, Influenza A (H1N1) virus have been detected in Africa and
Asia. Human infections have been reported to WHO from Cambodia, Hong Kong, Egypt and Indonesia. Indonesia also recently
confirmed its first Influenza A (H1N1) linked death. The Influenza A (H1N1) virus is believed to be highly contagious and may not be
easily contained. There can be no assurance that an outbreak of avian flu, SARS, H1N1 (swine flu) or other contagious disease or the
measures taken by the governments of affected countries against such potential outbreaks, will not seriously interrupt our gaming
operations or visitation to Macau, which may have a material adverse effect on our results of operations. The perception that an
outbreak of avian flu, SARS or other contagious disease may occur again may also have an adverse effect on the economic conditions
of countries in Asia.
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(i) Macau is susceptible to severe typhoons that may disrupt our operations.
Macau is susceptible to severe typhoons. Macau consists of a peninsula and two islands off the coast of mainland China. In
the event of a major typhoon or other natural disaster in Macau, our properties and business may be severely disrupted and our results
of operations could be adversely affected. Although we or our operating subsidiaries do carry insurance coverage with respect to these
events, our coverage may not be sufficient to fully indemnify us against all direct and indirect costs, including loss of business, that
could result from substantial damage to, or partial or complete destruction of, our properties or other damages to the infrastructure or
economy of Macau.
(j) Any fluctuation in the value of the H.K. dollar, U.S. dollar or Pataca may adversely affect our indebtedness, expenses and
profitability.
Although the majority of our revenues are denominated in H.K. dollars, our expenses will be denominated predominantly in
Patacas. In addition, a significant portion of our indebtedness and certain expenses is denominated in U.S. dollars, and the costs
associated with servicing and repaying such debt will be denominated in U.S. dollars. The value of the H.K. dollar and Patacas against
the U.S. dollar may fluctuate and may be affected by, among other things, changes in political and economic conditions. Although the
exchange rate between the H.K. dollar and the U.S. dollar has been pegged since 1983 and the Pataca is pegged to the H.K. dollar, we
cannot assure you that the H.K. dollar will remain pegged to the U.S. dollar and that the Pataca will remain pegged to the H.K. dollar.
We do not hedge our exposure to foreign currencies. Instead, we maintain a certain amount of our operating funds in the same
currencies in which we have obligations, thereby reducing our exposure to currency fluctuations. Any significant fluctuations in the
exchange rates between H.K. dollars or Patacas to U.S. dollars may have a material adverse effect on our revenues and financial
condition. For example, to the extent that we are required to convert U.S. dollar financings into H.K. dollars or Patacas for our
operations, fluctuations in the exchange rates between H.K. dollars or Patacas against the U.S. dollar could have an adverse effect on
the amounts we receive from the conversion.
(k) Our business opportunities may depend upon the performance by third parties of certain acts and failure to perform certain
acts by such third parties may prevent us from recognizing any income from our business opportunities.
Our business opportunities may depend upon the performance by third parties of certain acts which are out of our control.
During the course of our business, we may enter into agreements with contract parties from which we may derive income in relation to
the operation of gaming business. For example, Melco Crown Gaming entered into a services agreement with New Cotai
Entertainment (Macau) Limited and New Cotai Entertainment, LLC in 2007, pursuant to which Melco Crown Gaming would operate
the casino portions of the Macau Studio City project and retain a percentage of the gross gaming revenues from such casino
operations. The project is being developed by a joint venture between eSun Holdings Limited, CapitaLand Integrated Resorts Pte Ltd
and New Cotai Holdings, LLC. The joint venture parties are currently involved in litigation proceedings and therefore construction of
the Macau Studio City project has not commenced and the formal opening of Macau Studio City has not been determined. We will not
derive any income from the operation of gaming business at Macau Studio City unless the project is developed. Furthermore, the
inability of such contract parties to raise sufficient funds to develop and/or undertake the relevant project and gaming operations may
affect our ability to derive such income as contracted for in the relevant agreements, and this may have an adverse impact on our
business.
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(l) All our future construction projects such as our apartment hotel will be subject to significant development and construction
risks, which could have a material adverse impact on related project timetables, costs and our ability to complete the projects.
All our future construction projects will be subject to a number of risks, including:
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•
•
•
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•
•
•
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•
•
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lack of sufficient, or delays in availability of, financing;
changes to plans and specifications;
engineering problems, including defective plans and specifications;
shortages of, and price increases in, energy, materials and skilled and unskilled labor, and inflation in key supply markets;
delays in obtaining or inability to obtain necessary permits, licenses and approvals;
changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming, leisure,
residential, real estate development or construction projects;
labor disputes or work stoppages;
disputes with and defaults by contractors and subcontractors;
environmental, health and safety issues, including site accidents and the spread of viruses such as H1N1 or H5N1;
weather interferences or delays;
fires, typhoons and other natural disasters;
geological, construction, excavation, regulatory and equipment problems; and
other unanticipated circumstances or cost increases.
The occurrence of any of these development and construction risks could increase the total costs, delay or prevent the
construction or opening or otherwise affect the design and features of any future construction projects which we might undertake to
complete. We cannot guarantee that our construction costs or total project costs for future projects will not increase beyond amounts
initially budgeted.
The Macau government has recently published for public consultation the proposed changes to Law no. 6/80/M of July 5,
or the Land Law. Under the proposed changes to the Land Law the grant of land plots under lease shall be mandatorily subject to
public tender unless the land grant is for housing civil servants or is based on public interest such as: (i) development of non-profitable
activities in the education, cultural, health or sports fields; (ii) construction of public utility facilities; (iii) promotion of the
diversification of the Macau industrial structure; or (iv) participation in the urban construction plans promoted by the Macau
government. Moreover, amendments to the purpose of land lease agreements of land grants which remain provisional, such as the City
of Dreams and Altira land grants, shall not be permitted until such land grants become definitive with completion of the development
of the properties (except for changes required under any change of the applicable government urban planning).
The occurrence of any of these development and construction risks could increase the total costs, delay or prevent the
construction or opening or otherwise affect the design and features of any future construction projects which we might undertake to
complete. We cannot guarantee that our construction costs or total project costs for future projects will not increase beyond amounts
initially budgeted.
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(4) Risks Relating to Our Operations in the Gaming Industry in Macau
(a) Because our operations face intense competition in Macau and elsewhere in Asia, we may not be able to compete successfully
and we may lose or be unable to gain market share.
The hotel, resort and casino businesses are highly competitive. Our competitors in Macau and elsewhere in Asia include
many of the largest gaming, hospitality, leisure and resort companies in the world. Some of these current and future competitors are
larger than we are and may have more diversified resources and greater access to capital to support their developments and operations
in Macau and elsewhere.
We also compete to some extent with casinos located in other countries, such as Malaysia, North Korea, South Korea, the
Philippines, Cambodia, Australia, New Zealand and elsewhere in the world, including Las Vegas and Atlantic City in the United
States. In addition, certain countries, such as Singapore have legalized casino gaming and others may in the future legalize casino
gaming, including Japan, Taiwan and Thailand. Singapore awarded a casino license to Las Vegas Sands and a second casino license to
Genting International Bhd. in 2006. Genting International Bhd. opened its casino on February 14, 2010 and Las Vegas Sands opened
its casino on April 27, 2010. We also compete with cruise ships operating out of Hong Kong and other areas of Asia that offer gaming.
The proliferation of gaming venues in Southeast Asia could also significantly and adversely affect our financial condition, results of
operations or cash flows.
Our regional competitors also include Crown’s Crown Casino in Melbourne, Australia and Burswood Casino in Perth,
Australia and other casino resorts that Melco and Crown may develop elsewhere in Asia outside Macau. Melco and Crown may
develop different interests and strategies for projects in Asia under their joint venture which conflict with the interests of our business
in Macau or otherwise compete with us for Asian gaming and leisure customers.
(b) The Macau government could grant additional rights to conduct gaming in the future, which could significantly increase
competition in Macau and cause us to lose or be unable to gain market share.
Melco Crown Gaming is one of six companies authorized by the Macau government to operate gaming activities in Macau.
The Macau Government has announced that until further assessment of the economic situation in Macau there will not be any increase
in the number of concessions or subconcessions. However, the policies and laws of the Macau government could change and the
Macau government could grant additional concessions or subconcessions, and we could face additional competition which could
significantly increase the competition in Macau and cause us to lose or be unable to maintain or gain market share.
(c) Gaming is a highly regulated industry in Macau and adverse changes or developments in gaming laws or regulations could be
difficult to comply with or significantly increase our costs, which could cause our projects to be unsuccessful.
Gaming is a highly regulated industry in Macau. Current laws, such as licensing requirements, tax rates and other
regulatory obligations, including those for anti-money laundering, could change or become more stringent resulting in additional
regulations being imposed upon the gaming operations in the Altira Macau casino, the City of Dreams casino, the Mocha Clubs, and
other future projects including Macau Studio City and any other locations we may operate from time to time. Any such adverse
developments in the regulation of the gaming industry could be difficult to comply with and could significantly increase our costs,
which could cause our projects to be unsuccessful.
In September 2009, the Macau government set a cap on commission payments to gaming promoters of 1.25% of net rolling.
This policy, which is being enforced as of December 2009, may limit our ability to develop successful relationships with gaming
promoters and attract rolling chip patrons. Any failure to comply with these regulations may result in the imposition of liabilities, fines
and other penalties and may materially and adversely affect our gaming subconcession.
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Also the Macau government has announced its intention to raise the minimum age required for the entrance in casinos in
Macau from 18 years of age to 21 years of age. As far as employment is concerned, it was further announced that this measure, when
adopted, would allow casino employees to maintain their positions while in the process of reaching the minimum required age. If
implemented, this could adversely affect our ability to engage sufficient staff for the operation of our projects.
The Macau government announced that the number of gaming tables operating in Macau should not exceed 5,500 by the
end of 2012, which may adversely affect the future expansion of our business.
Also, the Macau government announced that it intends to restrict the ability of operators to open slot lounges, such as our
Mocha Clubs, in residential areas. This policy may limit our ability to find new sites or maintain existing sites for the operation of our
Mocha Clubs.
Current Macau laws and regulations concerning gaming and gaming concessions and matters such as prevention of money
laundering are, for the most part, fairly recent and there is little precedent on the interpretation of these laws and regulations. We
believe that our organizational structure and operations are currently in compliance in all material respects with all applicable laws and
regulations of Macau. However, these laws and regulations are complex and a court or an administrative or regulatory body may in the
future render an interpretation of these laws and regulations or issue new or modified regulations that differ from our interpretation,
which could have a material adverse effect on our financial condition, results of operations or cash flows.
Our activities in Macau are subject to administrative review and approval by various agencies of the Macau government.
For example, our activities are subject to the administrative review and approval by the DICJ, the Health Department, Labour Bureau,
Public Works Bureau, Fire Department, Finance Department and Macau Government Tourism Office. We cannot assure you that we
will be able to obtain all necessary approvals, which may materially affect our business and operations. Macau law permits redress to
the courts with respect to administrative actions. However, such redress is largely untested in relation to gaming regulatory issues.
(d) Under Melco Crown Gaming’s subconcession, the Macau government may terminate the subconcession under certain
circumstances without compensation to Melco Crown Gaming, which would prevent it from operating casino gaming facilities in
Macau and could result in defaults under our indebtedness and a partial or complete loss of our investments in our projects.
Under Melco Crown Gaming’s gaming subconcession, the Macau government has the right to unilaterally terminate our
subconcession in the event of non-compliance by Melco Crown Gaming with its basic obligations under the subconcession and
applicable Macau laws. If such a termination were to occur, Melco Crown Gaming would be unable to operate casino gaming in
Macau. We would also be unable to recover the US$900 million consideration paid to Wynn Macau for the issue of the
subconcession. For a list of termination events, please see “Item 4. Information on the Company — B. Business Overview — Gaming
Regulations — Subconcession Contract”. These events could lead to the termination of Melco Crown Gaming’s subconcession
without compensation to Melco Crown Gaming. In many of these instances, the subconcession contract does not provide a specific
cure period within which any such events may be cured and, instead, we would rely on consultations and negotiations with the Macau
government to remedy any such violation. Melco Crown Gaming has entered into a service agreement with New Cotai Entertainment
(Macau) Limited and New Cotai Entertainment, LLC pursuant to which Melco Crown Gaming would operate the casino portions of
the Macau Studio City project. The joint venture parties developing the project are currently involved in litigation proceedings and
therefore construction of the Macau Studio City project has not commenced and the formal opening of Macau Studio City has not
been determined. If New Cotai Entertainment (Macau) Limited or other parties with whom we may, in the future, enter into similar
agreements were to be found unsuitable or were to undertake actions that are inconsistent with Melco Crown Gaming’s subconcession
terms and requirements, we could suffer penalties, including the termination of the subconcession.
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Based on information from the Macau government, proposed amendments to the legislation with regard to reversion of
casino premises are being considered. We expect that if such amendments take effect, on the expiry or any termination of Melco
Crown Gaming’s subconcession, unless Melco Crown Gaming’s subconcession were extended, only that portion of casino premises
within our developments as then designated with the approval of the Macau government, including all gaming equipment, would
revert to the Macau government automatically without compensation to us. Until such amendments come into effect, all of our casino
premises and gaming equipment would revert automatically without compensation to us.
The subconcession contract contains various general covenants, obligations and other provisions as to which the
determination of compliance is subjective. For example, compliance with general and special duties of cooperation, special duties of
information, and with obligations foreseen for the execution of our investment plan may be subjective. We cannot assure you that we
will perform such covenants in a way that satisfies the requirements of the Macau government and, accordingly, we will be dependent
on our continuing communications and good faith negotiations with the Macau government to ensure that we are performing our
obligations under the subconcession in a manner that would avoid any violations.
Under Melco Crown Gaming’s subconcession, the Macau government is allowed to request various changes in the plans
and specifications of our Macau properties and to make various other decisions and determinations that may be binding on us. For
example, the Chief Executive of the Macau SAR has the right to require that we increase Melco Crown Gaming’s share capital or that
we provide certain deposits or other guarantees of performance with respect to the obligations of our Macau subsidiaries in any
amount determined by the Macau government to be necessary. Melco Crown Gaming is limited in its ability to raise additional capital
by the need to first obtain the approval of the Macau governmental authorities before raising certain debt or equity. Melco Crown
Gaming’s ability to incur debt or raise equity may also be restricted by our existing and any future loan facilities. As a result, we
cannot assure you that we will be able to comply with these requirements or any other requirements of the Macau government or with
the other requirements and obligations imposed by the subconcession.
Furthermore, pursuant to the subconcession contract, we are obligated to comply not only with the terms of that agreement,
but also with laws, regulations, rulings and orders that the Macau government might promulgate in the future. We cannot assure you
that we will be able to comply with any such laws, regulations, rulings or orders or that any such laws, regulations, rulings or orders
would not adversely affect our ability to construct or operate our Macau properties. If any disagreement arises between us and the
Macau government regarding the interpretation of, or our compliance with, a provision of the subconcession contract, we will be
relying on the consultation and negotiation process with the applicable Macau governmental agency described above. During any such
consultation, however, we will be obligated to comply with the terms of the subconcession contract as interpreted by the Macau
government.
Melco Crown Gaming’s failure to comply with the terms of its subconcession in a manner satisfactory to the Macau
government could result in the termination of its subconcession. We cannot assure you that Melco Crown Gaming would always be
able to operate gaming activities in a manner satisfactory to the Macau government. The loss of its subconcession would prohibit
Melco Crown Gaming from conducting gaming operations in Macau which would have a material adverse effect on our financial
condition, results of operations and cash flows and could result in defaults under our indebtedness and a partial or complete loss of our
investments in our projects.
Currently, there is no precedent on how the Macau government will treat the termination of a concession or subconcession
upon the occurrence of any of the circumstances mentioned above. Some of the laws and regulations summarized above have not yet
been applied by the Macau government. Therefore, the scope and enforcement of the provisions of Macau’s gaming regulatory system
cannot be fully assessed at this time.
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(e) Melco Crown Gaming’s subconcession contract expires in 2022 and if we were unable to secure an extension of its
subconcession in 2022 or if the Macau government were to exercise its redemption right in 2017, we would be unable to operate
casino gaming in Macau.
Melco Crown Gaming’s subconcession contract expires in 2022. Under the subconcession contract, beginning in 2017, the
Macau government has the right to redeem the subconcession contract by providing us with at least one year’s prior notice. In the
event the Macau government exercises this redemption right, we would be entitled to fair compensation or indemnity. The standards
for the calculation of the amount of such compensation or indemnity would be determined based on the gross revenue generated by
City of Dreams during the tax year immediately prior to the redemption, multiplied by the remaining term of the subconcession. We
would not receive any further compensation (including for consideration paid to Wynn Macau for the subconcession). We cannot
assure you that Melco Crown Gaming would be able to renew or extend its subconcession contract on terms favorable to us, or at all.
We also cannot assure you that if Melco Crown Gaming’s subconcession were redeemed, the compensation paid would be adequate to
compensate us for the loss of future revenues.
(f) While Melco Crown Gaming will not initially be required to pay corporate income taxes on income from gaming operations
under the subconcession, this tax exemption will expire in 2011, and it may not be extended.
The Macau government has granted to Melco Crown Gaming the benefit of a corporate tax holiday on gaming income in
Macau for five years from 2007 to 2011. We have applied for an extension to the tax holiday in February 2011. However, we cannot
assure you that it will be extended beyond the expiration date.
Furthermore, the Macau government has granted to our subsidiary Altira Hotel Limited a declaration of utility purposes
benefit, pursuant to which it is entitled to a vehicle tax holiday on certain vehicles purchased, provided there is no change in use or
disposal of such vehicles within five years from the date of purchase and to a property tax holiday for a period of 12 years.
Additionally, under the property tax holiday, the entity will also be allowed to double the maximum rates applicable regarding
depreciation and reintegration for purposes of assessment of corporate income tax for the same 12 year period. We have applied for
the same tax holidays for Melco Crown (COD) Hotels Limited in relation to the hotels at City of Dreams, but we cannot assure you
that they will be granted by the Macau government on as favorable terms, or at all.
(g) We extend credit to a portion of our customers, and we may not be able to collect gaming receivables from our credit customers.
We have conducted, and expect to continue to conduct, our table gaming activities at our casinos on a credit basis as well as
a cash basis. This credit is often unsecured, as is customary in our industry. High-end patrons typically are extended more credit than
patrons who wager lower amounts.
We may not be able to collect all of our gaming receivables from our credit customers. We expect that we will be able to
enforce our gaming receivables only in a limited number of jurisdictions, including Macau and under certain circumstances Hong
Kong. As most of our gaming customers are visitors from other jurisdictions, principally Hong Kong and the PRC, we may not have
access to a forum in which we will be able to collect all of our gaming receivables because, among other reasons, courts of many
jurisdictions do not enforce gaming debts. We may encounter forums that will refuse to enforce such debts, or we may be unable to
locate assets in other jurisdictions against which to seek recovery of gaming debts. The collectability of receivables from international
customers could be negatively affected by future business or economic trends or by significant events in the countries in which these
customers reside. We may also in given cases have to determine whether aggressive enforcement actions against a customer will
unduly alienate the customer and cause the customer to cease playing at our casinos. If we recognize large receivables from the credit
extended to our customers, we could suffer a material adverse impact on our operating results if those receivables are deemed
uncollectible. In addition, in the event a patron has been extended credit and has lost back to us the amount borrowed and the
receivable from that patron is deemed uncollectible, Macau gaming tax will still be payable on the resulting gaming revenue
notwithstanding our uncollectible receivable.
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(h) The current credit environment may limit availability of credit to gaming patrons and may negatively impact our revenue.
We conduct our table gaming activities at our casinos on a credit basis as well as a cash basis and our gaming promoters
conduct their operations by extending credit to gaming patrons. The general economic downturn and turmoil in the financial markets
have placed broad limitations on the availability of credit from credit sources as well as lengthening the recovery cycle of extended
credit. Continued tightening of liquidity conditions in credit markets may constrain revenue generation and growth and could have a
material adverse effect on our business, financial condition and results of operations.
(i) Our business may face a higher level of volatility due to our focus on the rolling chip segment of the gaming market.
A significant proportion of our revenues is generated from the rolling chip segment of the gaming market. The revenues
generated from the rolling chip segment of the gaming market are acutely volatile primarily due to high bets, and the resulting high
winnings and losses. As a result, our business and results of operations and cash flows from operations may be more volatile from
quarter to quarter than that of our competitors and may require higher levels of cage cash in reserve to manage this volatility.
(j) We depend upon gaming promoters for a portion of our gaming revenue and if we are unable to establish, maintain and
increase the number of successful relationships with gaming promoters, our ability to attract rolling chip patrons may be adversely
affected.
Gaming promoters, who organize tours for rolling chip patrons to casinos in Macau, are responsible for a portion of our
gaming revenues in Macau. With the rise in casino operations in Macau, the competition for relationships with gaming promoters has
increased. As of December 31, 2010, we had agreements in place with approximately 70 gaming promoters. If we are unable to utilize
and develop relationships with gaming promoters, our ability to grow our gaming revenues will be hampered and we will have to seek
alternative ways to develop and maintain relationships with rolling chip patrons, which may not be as profitable as relationships
developed through gaming promoters.
(k) We are impacted by the reputation and integrity of the parties with whom we engage in business activities and we cannot assure
you that these parties will always maintain high standards or suitability throughout the term of our association with them. Failure
to maintain such high standards or suitability may cause us and our shareholders to suffer harm to our and the shareholders’
reputation, as well as impaired relationships with, and possibly sanctions from, gaming regulators.
The reputation and integrity of the parties with whom we engage in business activities, in particular those who are engaged
in gaming related activities, such as gaming promoters and developers and hotel operators that do not hold concessions or
subconcessions and with which we have or may enter into services agreements, are important to our own reputation and to Melco
Crown Gaming’s ability to continue to operate in compliance with its subconcession. For parties we deal with in gaming related
activities, where relevant, the gaming regulators undertake their own probity checks and will reach their own suitability findings in
respect of the activities and parties which we intend to associate with. In addition, we also conduct our internal due diligence and
evaluation process prior to engaging such parties. Notwithstanding such regulatory probity checks and our own due diligence, we
cannot assure you that the parties with whom we are associated will always maintain the high standards that gaming regulators and we
require or that such parties will maintain their suitability throughout the term of our association with them. If we were to deal with any
party whose probity was in doubt, this may reflect negatively on our own probity when assessed by the gaming regulators. Also, if a
party associated with us falls below the gaming regulators’ suitability standards, we and our shareholders may suffer harm to our and
the shareholders’ reputation, as well as impaired relationships with, and possibly sanctions from, gaming regulators with authority
over our operations.
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In particular, the reputations of the gaming promoters we deal with are important to our own reputation and Melco Crown
Gaming’s ability to continue to operate in compliance with its subconcession. While we endeavor to ensure high standards of probity
and integrity in the gaming promoters with whom we are associated, we cannot assure you that the gaming promoters with whom we
are associated will always maintain such high standards. If we were to deal with a gaming promoter whose probity was in doubt or
who failed to operate in compliance with Macau law consistently, this may be considered by regulators or investors to reflect
negatively on our own probity and compliance records. If a gaming promoter falls below our standards of probity, integrity and legal
compliance, we and our shareholders may suffer harm to our or their reputation, as well as worsened relationships with, and possibly
sanctions from, gaming and other regulators with authority over our operations or us.
(l) Visitation to Macau may decline due to increased restrictions on visitations to Macau from citizens of mainland China.
A significant number of our gaming customers come from mainland China. Any travel restrictions imposed by China could
disrupt the number of patrons visiting our properties from mainland China. It is not known when, or if, policies similar to those
implemented previously restricting visitation by mainland Chinese citizens to Macau and Hong Kong, will be put in place and visa
policies may be adjusted, without notice, in the future. A decrease in the number of visitors from mainland China may adversely affect
our results of operations.
(m) We cannot assure you that anti-money laundering policies that we have implemented, and compliance with applicable anti-
money laundering laws, will be effective to prevent our casino operations from being exploited for money laundering purposes.
Macau’s free port, offshore financial services and free movements of capital create an environment whereby Macau’s
casinos could be exploited for money laundering purposes. We have implemented anti-money laundering policies in compliance with
all applicable anti-money laundering laws and regulations in Macau. However, we cannot assure you that any such policies will be
effective in preventing our casino operations from being exploited for money laundering purposes, including from jurisdictions
outside of Macau. In the normal course of business, we expect to be required by regulatory authorities from Macau and other
jurisdictions to attend meetings and interviews from time to time to discuss our operations as they relate to anti-money laundering
laws and regulations. Any incidents of money laundering, accusations of money laundering or regulatory investigations into possible
money laundering activities involving us, our employees, our gaming promoters or our customers could have a material adverse
impact on our reputation, business, cash flows, financial condition, prospects and results of operations.
(n) If Macau’s transportation infrastructure does not adequately support the development of Macau’s gaming and leisure industry,
visitation to Macau may not increase as currently expected, which may adversely affect our projects.
Macau consists of a peninsula and two islands and is connected to China by two border crossings. Macau has an
international airport and connections to China and Hong Kong by road, ferry and helicopter. To support Macau’s planned future
development as a gaming and leisure destination, the frequency of bus, plane and ferry services to Macau will need to increase. While
various projects are under development to improve Macau’s internal and external transportation links, these projects may not be
approved, financed or constructed in time to handle the projected increase in demand for transportation or at all, which could impede
the expected increase in visitation to Macau and adversely affect our projects.
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(o) Any violation of the Foreign Corrupt Practices Act or applicable Anti-Money Laundering Regulation could have a negative
impact on us.
We are subject to regulations imposed by the Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws
which if violated may result in severe criminal and civil sanctions as well as other penalties. There has been a general increase in
FCPA enforcement activity in recent years by the SEC and U.S. Department of Justice. Both the number of FCPA cases and sanctions
imposed have risen dramatically. We have in place an ongoing FCPA compliance program which includes internal policies and
procedures and training aimed to prevent and detect compliance issues and risks with these laws. However, we cannot assure you that
our employees, contractors and agents will continually adhere to our compliance programs. Should they not follow our programs, we
could be subject to investigations, prosecutions and other legal proceedings and actions which could result in civil penalties,
administrative remedies and criminal sanctions, any of which may result in a material adverse effect on our financial condition. As a
U.S. listed company with gaming operations solely in Macau, compliance with U.S. laws and regulations that apply to our operations
increases our cost of doing business. We also deal with significant amounts of cash in our operations and are subject to various
reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by us could have a
negative effect on our results of operations.
(5) Risks Relating to Our Indebtedness
(a) Our current, projected and potential future indebtedness could impair our financial condition, which could further exacerbate
the risks associated with our significant leverage.
We have incurred and expect to incur, based on current budgets and estimates, secured and unsecured long-term
indebtedness, including the following:
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approximately US$1.75 billion under the City of Dreams Project Facility primarily for the development and construction of City
of Dreams, of which we have drawn down, as of the date of this annual report on Form 20-F, an amount equivalent to
approximately US$1.68 billion, of which US$1.13 billion remains outstanding following repayments on May 26, 2010 and
December 6, 2010 of US$444.1 million and US$107.3 million, respectively, of which an aggregate of US$479.8 million was
funded by a portion of the proceeds from the sale of the Initial Notes;
•
•
US$600,000,000 from MCE Finance’s sale of the Initial Notes; and
financing for a significant portion of the costs of developing Phase II at the City of Dreams site, in an amount which is as yet
undetermined.
Our significant indebtedness could have important consequences. For example, it could:
•
•
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•
•
•
•
increase our vulnerability to general adverse economic and industry conditions;
impair our ability to obtain additional financing in the future for working capital needs, capital expenditure, acquisitions or
general corporate purposes;
require us to dedicate a significant portion of our cash flow from operations to the payment of principal and interest on our
debt, which would reduce the funds available to us for our operations;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage as compared to our competitors, to the extent that they are not as leveraged;
subject us to higher interest expense in the event of increases in interest rates to the extent a portion of our debt bears
interest at variable rates;
cause us to incur additional expenses by hedging interest rate exposures of our debt and exposure to hedging counterparties’
failure to pay under such hedging arrangements, which would reduce the funds available for us for our operations; and
in the event we or one of our subsidiaries were to default, result in the loss of all or a substantial portion of our and our
subsidiaries’ assets, over which our lenders have taken or will take security.
Any of these or other consequences or events could have a material adverse effect on our ability to satisfy our other debt
obligations.
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(b) We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to make scheduled payments due on our existing and anticipated debt obligations, and to fund planned capital
expenditure and development efforts will depend on our ability to generate cash. We will require generation of sufficient operating
cash flow from our projects to service our current and future projected indebtedness. Our ability to obtain cash to service our existing
and projected debt is subject to a range of economic, financial, competitive, legislative, regulatory, business and other factors, many of
which are beyond our control. We may not be able to generate sufficient cash flow from operations to satisfy our existing and
projected debt obligations, in which case, we may have to undertake alternative financing plans, such as refinancing or restructuring
our debt, selling assets, reducing or delaying capital investments, or seek to raise additional capital. We cannot assure you that any
refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales or the amount of
proceeds that would be realized from those sales. We cannot assure you that additional financing could be obtained on acceptable
terms, if at all, or would be permitted under the terms of our various debt instruments then in effect. Our failure to generate sufficient
cash flow to satisfy our existing and projected debt obligations, or to refinance our obligations on commercially reasonable terms,
would have an adverse effect on our business, financial condition and results of operations.
(c) If we are unable to comply with the restrictions and covenants in our debt agreements or the indenture governing the Senior
Notes, there could be a default under the terms of these agreements or the indenture governing the Senior Notes, which could
cause repayment of our debt to be accelerated.
If we are unable to comply with the restrictions and covenants in our current or future debt obligations and other
agreements or the indenture governing the Senior Notes, there could be a default under the terms of these agreements. In the event of a
default under these agreements, the holders of the debt could terminate their commitments to lend to us, accelerate repayment of the
debt and declare all amounts borrowed due and payable or terminate the agreements, as the case may be. Furthermore, some of our
debt agreements, including the indenture governing the Senior Notes, contain cross-acceleration or cross-default provisions. As a
result, our default under one debt agreement may cause the acceleration of repayment of debt, including the Senior Notes, or result in
a default under our other debt agreements, including the indenture governing the Senior Notes. If any of these events occur, we cannot
assure you that our assets and cash flow would be sufficient to repay in full all of our indebtedness, or that we would be able to find
alternative financing. Even if we could obtain alternative financing, we cannot assure you that it would be on terms that are favorable
or acceptable to us.
(d) The terms of the City of Dreams Project Facility may restrict our current and future operations and harm our ability to
complete our projects and grow our business operations to compete successfully against our competitors.
The City of Dreams Project Facility and associated facility and security documents that Melco Crown Gaming has entered
into also contain a number of restrictive covenants that impose significant operating and financial restrictions on Melco Crown
Gaming and its subsidiaries, and therefore, effectively, on us. The covenants in the City of Dreams Project Facility restrict or limit,
among other things, our and our subsidiaries’ ability to:
•
•
•
incur additional debt, including guarantees;
create security or liens;
dispose of assets;
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•
•
•
•
•
•
•
make certain acquisitions and investments;
make loans, payments on certain indebtedness, distributions and other restricted payments or apply revenues earned in one part
of our operations to fund development costs or cover operating losses in another part of our operations;
enter into sale and leaseback transactions;
engage in new businesses;
enter into or amend contracts;
issue preferred shares; and
enter into transactions with shareholders and affiliates.
In addition, the restrictions under the City of Dreams Project Facility contain financial covenants, including requirements
that we satisfy certain tests or ratios for the twelve month period commencing January 1, 2010 and ending December 31, 2010, and
thereafter for each successive twelve month period ending on the last day of each quarter of our financial year, such as:
•
•
•
Consolidated Leverage Ratio, as defined in the City of Dreams Project Facility;
Consolidated Interest Cover Ratio, as defined in the City of Dreams Project Facility; and
Consolidated Cash Cover Ratio, as defined in the City of Dreams Project Facility.
They also provide that, should a Change of Control (as defined in the City of Dreams Project Facility Agreement) occur,
the facility will be cancelled and all amounts outstanding thereunder become immediately due and payable. We have made certain
amendments to the City of Dreams Project Facility, which became effective on or about May 17, 2010.
These covenants may restrict our ability to operate and restrict our ability to incur additional debt or other financing we
may require, and impede our growth.
(e) Our operations are restricted by the terms of the Senior Notes, which could limit our ability to plan for or to react to market
conditions or meet our capital needs.
The indenture governing the Senior Notes includes a number of significant restrictive covenants. Although these restrictive
covenants, on the whole, are no more onerous than those pursuant to the City of Dreams Project Facility, such covenants restrict,
among other things, the ability of MCE Finance and its subsidiaries to:
•
•
•
•
•
•
•
•
incur or guarantee additional indebtedness;
make specified restricted payments;
issue or sell capital stock of our restricted subsidiaries;
sell assets;
create liens;
enter into agreements that restrict the ability of us and our restricted subsidiaries to pay dividends, transfer assets or make
intercompany loans;
enter into transactions with shareholders or affiliates; and
effect a consolidation or merger.
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These covenants could limit our ability to plan for or react to market conditions or to meet our capital needs. Our ability to
comply with these covenants may be affected by events beyond our control, and we may have to curtail some of our operations and
growth plans to maintain compliance.
(f) Drawdown or rollover of advances under our debt facilities involve satisfaction of extensive conditions precedent and our
failure to satisfy such conditions precedent will result in our inability to access or roll over loan advances under such facilities. We
do not guarantee that we are able to satisfy all conditions precedent under our current or future debt facilities.
Our current and future debt facilities, including the City of Dreams Project Facility, require and will require satisfaction of
extensive conditions precedent prior to the advance or rollover of loans under such facilities. The satisfaction of such conditions
precedent may involve actions of third parties and matters outside of our control, such as government consents and approvals. If there
is a breach of any terms or conditions of our debt facilities or other obligations and it is not cured or capable of being cured, such
conditions precedent will not be satisfied. The inability to draw down or roll over loan advances in any debt facility may result in a
funding shortfall in our operations and we may not be able to fulfill our obligations as planned; such events may result in an event of
default under such debt facility and may also trigger cross default in our other obligations and debt facilities. We do not guarantee that
all conditions precedent to draw down or roll over loan advances under our debt facilities will be satisfied in a timely manner or at all.
If we are unable to draw down or roll over loan advances under any current or future facility, we may have to find a new group of
lenders and negotiate new financing terms or consider other financing alternatives. If required, it is possible that new financing would
not be available or would have to be procured on substantially less attractive terms, which could damage the economic viability of the
relevant development project. The need to arrange such alternative financing would likely also delay the construction and/or
operations of our future projects or existing properties, which would affect our cash flows, results of operations and financial
condition.
(g) Our failure to comply with the covenants contained in our or our subsidiaries’ indebtedness, including failure as a result of
events beyond our control, could result in an event of default that could materially and adversely affect our cash flow, operating
results and our financial condition.
If there were an event of default under one of our or our subsidiaries’ debt facilities, the holders of the debt on which we
defaulted could cause all amounts outstanding with respect to that debt to become due and payable immediately. In addition, any event
of default or declaration of acceleration under one debt facility could result in an event of default under one or more of our other debt
instruments, with the result that all of our debt would be in default and accelerated. We cannot assure you that our assets or cash flow
would be sufficient to fully repay borrowings under our outstanding debt facilities, either upon maturity or if accelerated upon an
event of default, or that we would be able to refinance or restructure the payments on those debt facilities. Further, if we are unable to
repay, refinance or restructure our indebtedness at our subsidiaries that own or operate our properties, the lenders under those debt
facilities could proceed against the collateral securing that indebtedness, which will constitute substantially all the assets and shares of
our subsidiaries. In that event, any proceeds received upon a realization of the collateral would be applied first to amounts due under
those debt instruments. The value of the collateral may not be sufficient to repay all of our indebtedness.
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(6) Risks Relating to Our Corporate Structure and Ownership
(a) Our existing shareholders will have a substantial influence over us and their interests in our business may be different than
yours.
Melco and Crown together own the substantial majority of our outstanding shares, with each beneficially holding
approximately 33.36% of our outstanding ordinary shares and ordinary shares represented by ADSs (exclusive of any ordinary shares
represented by ADSs held by the SPV) as of March 17, 2011. Melco and Crown have entered into a shareholders deed regarding the
voting of their shares of our company under which each will agree to, among other things, vote its shares in favor of three nominees to
our board designated by the other.
As a result, Melco and Crown, if they act together, will have the power, among other things, to elect directors to our board,
including six of ten directors who are designated nominees of Crown and Melco, appoint and change our management, affect our legal
and capital structure and our day-to-day operations, approve material mergers, acquisitions, dispositions and other business
combinations and approve any other material transactions and financings. These actions may be taken in many cases without the
approval of independent directors or other shareholders and the interests of these shareholders may conflict with your interests as
minority shareholders. In addition, if Melco or Crown provides shareholder support to us in the form of shareholder loans or provides
credit support by guaranteeing our obligations, they may become our creditors with different interests than shareholders with only
equity interests in us.
(b) Business conducted through joint ventures involves certain risks.
We were initially formed as a 50/50 joint venture between Melco and PBL as their exclusive vehicle to carry on casino,
gaming machine and casino hotel operations in Macau. Subsequently, Crown acquired all the gaming businesses and investments of
PBL, including PBL’s investment in MCE. As a joint venture controlled by Melco and Crown, there are special risks associated with
the possibility that Melco and Crown may: (1) have economic or business interests or goals that are inconsistent with ours or that are
inconsistent with each other’s interests or goals, causing disagreement between them or between them and us which harms our
business; (2) have operations and projects elsewhere in Asia that compete with our businesses in Macau and for available resources
and management attention within the joint venture group; (3) take actions contrary to our policies or objectives; (4) be unable or
unwilling to fulfill their obligations under the relevant joint venture or shareholders’ deed; or (5) have financial difficulties. In
addition, there is no assurance that the laws and regulations relating to foreign investment in Melco’s or Crown’s governing
jurisdictions will not be altered in such a manner as to result in a material adverse effect on our business and operating results.
(c) Melco and Crown may pursue additional casino projects in Asia, which, along with their current operations, may compete with
our projects in Macau which could have material adverse consequences to us and the interests of our minority shareholders.
Melco and Crown may take action to construct and operate new gaming projects located in other countries in the Asian
region, which, along with their current operations, may compete with our projects in Macau and could have adverse consequences to
us and the interests of our minority shareholders. We could face competition from these other gaming projects. We also face
competition from regional competitors, which include Crown’s Crown Casino in Melbourne, Australia and Burswood Casino in Perth,
Australia. We expect to continue to receive significant support from both Melco and Crown in terms of their local experience,
operating skills, international experience and high standards. Specifically, we have support arrangements with Melco and Crown
under which they provide us technical expertise in connection with the on-going development of City of Dreams and the operations of
the Altira Macau, City of Dreams and the Mocha Clubs businesses. Should Melco or Crown decide to focus more attention on casino
gaming projects located in other areas of Asia that may be expanding or commencing their gaming industries, or should economic
conditions or other factors result in a significant decrease in gaming revenues and number of patrons in Macau, Melco or Crown may
make strategic decisions to focus on their other projects rather than us, which could adversely affect our growth. We cannot guarantee
you that Melco and Crown will make strategic and other decisions which do not adversely affect our business.
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(d) Changes in our share ownership, including a change of control or a change in the amounts or relative percentages of our
shares owned by Melco and Crown, could result in our inability to draw loans or events of default under our indebtedness, or
could require MCE Finance to make an offer to repurchase the Senior Notes.
The City of Dreams Project Facility includes provisions under which we may suffer an event of default or incur an
obligation to prepay the facility in full upon the occurrence of a change of control with respect to Melco Crown Gaming, or a decline
in the aggregate indirect holdings of Melco Crown Gaming shares by Melco and Crown, below certain thresholds. Under the terms of
the Senior Notes, a change of control in connection with a decrease of the holdings of Melco and Crown must be accompanied by a
ratings decline in order to trigger a change of control. Furthermore, under the terms of the Senior Notes, MCE Finance must offer to
repurchase the Senior Notes upon the occurrence of a change of control at a price equal to 101% of their principal amount, plus
accrued and unpaid interest, additional amounts and liquidated damages, if any, to the date of redemption. Any occurrence of these
events could be outside our control and could result in defaults and cross-defaults which cause the termination and acceleration of up
to all of our credit facilities or the Senior Notes and potential enforcement of remedies by our lenders, which would have a material
adverse effect on our financial condition and results of operations.
(e) Crown’s investment in our company is subject to regulatory review in several jurisdictions and if regulators in those
jurisdictions were to find that we, Crown or Melco failed to comply with certain regulatory requirements and standards, then
Crown maybe required to withdraw from the joint venture.
Crown, through wholly owned subsidiaries, owns and operates the Crown Casino in Melbourne, Australia and the
Burswood Casino in Perth, Australia. Crown’s wholly owned subsidiaries hold casino licenses issued by the States of Victoria and
Western Australia in Australia.
Crown, through a 50% owned joint venture subsidiary, owns and operates three casinos in the United Kingdom. The joint
venture owns a 50% interest in a fourth casino in the United Kingdom.
Under a previously announced Preferred Purchase Agreement, Crown has been required to be approved by gaming
regulators in the States of Nevada and Pennsylvania in the United States in relation to an investment in Cannery Casino Resorts LLC
which owns and operates casinos in those states.
In all jurisdictions in which Crown, or one of its wholly owned subsidiaries, holds a gaming license or Crown has a
significant investment in a company which holds gaming licenses, gaming regulators are empowered to investigate associates,
including business associates of Crown to determine whether the associate is of good repute and of sound financial resources. If, as a
result of such investigation, the relevant gaming regulator determines that, by reason of its association, Crown has ceased to be
suitable to hold a gaming license or to hold a substantial investment in the holder of a gaming license then the relevant gaming
regulator may direct Crown to terminate its association or risk losing its gaming license or approval to invest in the holder of a gaming
license in the relevant jurisdiction.
If actions by us or our subsidiaries or by Melco or Crown fail to comply with the regulatory requirements and standards of
the jurisdictions in which Crown owns or operates casinos or in which companies in which Crown holds a substantial investment own
or operate casinos or if there are changes in gaming laws and regulations or the interpretation or enforcement of such laws and
regulations in such jurisdictions, then Crown may be required to withdraw from its joint venture with Melco or limit its involvement in
one or more aspects of our gaming operations, which could have a material adverse effect on our business, financial condition and
results of operations. Withdrawal by Crown from its joint venture with Melco could cause the failure of conditions to drawing loans
under our credit facilities or the occurrence of events that default under our credit facilities or as contemplated by our founders under
their joint venture agreement.
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(7) Risks Relating to the ADSs
(a) The trading price of our ADSs has been volatile since our ADSs began trading on Nasdaq and may be subject to fluctuations in
the future, which could result in substantial losses to investors.
The trading price of our ADSs has been and may continue to be subject to wide fluctuations. Our ADSs were first quoted
on the Nasdaq Global Market beginning on December 19, 2006, and were upgraded to trade on the Nasdaq Global Select Market on
January 2, 2009. During the period from December 19, 2006 until March 23, 2011, the trading prices of our ADSs ranged from
US$2.27 to US$23.55 per ADS and the closing sale price on March 23, 2011 was US$7.57 per ADS. The market price for our ADSs
may continue to be volatile and subject to wide fluctuations in response to factors including the following:
•
•
•
•
•
•
•
•
•
•
•
•
uncertainties or delays relating to the financing, completion and successful operation of our projects;
developments in the Macau market or other Asian gaming markets, including the announcement or completion of major new
projects by our competitors;
regulatory developments affecting us or our competitors;
actual or anticipated fluctuations in our quarterly operating results;
changes in financial estimates by securities research analysts;
changes in the economic performance or market valuations of other gaming and leisure industry companies;
changes in our share of the Macau gaming market;
addition or departure of our executive officers and key personnel;
fluctuations in the exchange rates between the U.S. dollar, H.K. dollar, Pataca and Renminbi;
release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs;
sales or perceived sales of additional ordinary shares or ADSs or securities convertible or exchangeable or exercisable for
ordinary shares or ADSs; and
rumors related to any of the above.
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not
related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the
market price of our ADSs.
(b) We currently do not intend to pay dividends, and we cannot assure you that we will make dividend payments in the future.
We may pay dividends to shareholders in the future; however, such payments will depend upon a number of factors,
including our results of operations, earnings, capital requirements and surplus, general financial conditions, contractual restrictions
and other factors considered relevant by our board of directors. We currently intend to retain all of our earnings to finance the
development and expansion of our business. Accordingly, we do not intend to declare or pay cash dividends on our ordinary shares in
the near to medium term. Except as permitted under the Cayman Islands Companies Law (as amended) and the common law of the
Cayman Islands, we are not permitted to distribute dividends unless we have a profit, realized or unrealized, or a reserve set aside
from profits which the directors of our company determine is no longer needed. We currently have no reserve set aside from profits
for the payment of dividends. We cannot assure you that we will make any dividend payments on our ordinary shares in the future.
Our ability to pay dividends, and our subsidiaries’ ability to pay dividends to us, may be further subject to restrictive covenants
contained in the City of Dreams Project Facility, the Senior Notes, and in other facility agreements governing indebtedness we and our
subsidiaries may incur.
(c) Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the
market price of our ADSs to decline. All of the ordinary shares beneficially held by Melco and Crown are available for sale, subject to
volume and other restrictions, as applicable, under Rule 144 and Rule 701 under the Securities Act and subject to the terms of their
shareholders’ deed. To the extent these shares are sold into the market, the market price of our ADSs could decline.
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In addition, Melco and Crown have the right to cause us to register the sale of their shares under the Securities Act, subject
to the terms of their shareholders’ deed. Registration of these shares under the Securities Act would result in these shares becoming
freely tradable as ADSs without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of
these registered shares in the public market could cause the price of our ADSs to decline.
Any decision by us to raise further equity in the market, which would result in dilution to existing shareholders, could cause
the price of our ADSs to decline.
(d) Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.
Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to
the underlying ordinary shares of the depositary and in accordance with the provisions of the deposit agreement. Under our amended
and restated articles of association, the minimum notice period required to convene a general meeting is seven days. When a general
meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares
to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send
voting instructions to holders of ADSs or carry out the voting instructions of holders of ADSs in a timely manner. We will make all
reasonable efforts to cause the depositary to extend voting rights to holders of ADSs in a timely manner, but we cannot assure holders
of ADSs that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs.
Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner
in which any vote is cast or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote
and they may lack recourse if their ADSs are not voted as they requested. In addition, in their capacity as an ADS holder, they will not
be able to convene a shareholder meeting.
(e) Holders of ADSs may be subject to limitations on transfers of your ADSs.
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or
from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to
deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we
or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under
any provision of the deposit agreement, or for any other reason.
(f) Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may
not receive cash dividends if it is unlawful or impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we
cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under
the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary
bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either
registered under the Securities Act, or exempted from registration under the Securities Act. We are under no obligation to file a
registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared
effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may
be unable to participate in our rights offerings and may experience dilution in your holdings.
In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian
receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions
in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is
unlawful, inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may
determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less
than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive such
distribution.
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(g) We are a Cayman Islands exempted company and, because judicial precedent regarding the rights of shareholders is more
limited under Cayman Islands law than that under U.S. law, our shareholders may have less protection in terms of shareholder
rights than they would under U.S. law.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman
Islands Companies Law (as amended) and the common law of the Cayman Islands. The rights of shareholders to take action against
the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to
a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but
not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under
Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the
United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some
U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of
actions taken by management, members of the board of directors or controlling shareholders than they would as shareholders of a U.S.
public company.
(h) You may have difficulty enforcing judgments obtained against us.
We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. All
of our current operations, and administrative and corporate functions are conducted in Macau and Hong Kong. In addition,
substantially all of our directors and officers are nationals and residents of countries other than the United States. A substantial portion
of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process
within the United States upon these persons. It may also be difficult for you to enforce in Cayman Islands, Macau and Hong Kong
courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our
officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located
outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands, Macau or Hong Kong
would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the
securities laws of the United States or any state. In addition, it is uncertain whether such Cayman Islands, Macau or Hong Kong courts
would be competent to hear original actions brought in the Cayman Islands, Macau or Hong Kong against us or such persons
predicated upon the securities laws of the United States or any state.
(i) We may be treated as a passive foreign investment company, which could result in adverse United States federal income tax
consequences to U.S. Holders.
Although the applicable rules are not clear, we believe that we were not in 2010, and we do not currently expect to be in
2011, a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. However, because this determination is
made annually at the end of each taxable year and is dependent upon a number of factors, some of which are beyond our control, such
as the value of our assets (including goodwill) and the amount and type of our income, there can be no assurance that we will not be a
PFIC in any taxable year or that the U.S. Internal Revenue Service will agree with our conclusion regarding our PFIC status in any
taxable year. If we are a PFIC in any taxable year, U.S. Holders could suffer adverse consequences. See “Item 10. Additional
Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company”.
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ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Melco Crown Entertainment Limited was incorporated under the name of Melco PBL Entertainment (Macau) Limited in
December 2004 as an exempted company with limited liability under the laws of the Cayman Islands and registered as an oversea
company under the laws of Hong Kong in November 2006. We were initially formed as a 50/50 joint venture between Melco and PBL
as their exclusive vehicle to carry on casino, gaming machine and casino hotel operations in Macau. Subsequently, Crown acquired all
the gaming businesses and investments of PBL, including PBL’s investment in MCE. As a result, in May 2008, we changed our name
to Melco Crown Entertainment Limited.
Our subsidiary Melco Crown Gaming is one of six companies authorized by the Macau government to operate casinos in
Macau.
In December 2006, we completed the initial public offering of our ADSs, each of which represents three ordinary shares,
and listed our ADSs on the Nasdaq. We completed follow-on offerings of ADSs in November 2007, May 2009 and August 2009.
In January 2009 we were upgraded to trade on the Nasdaq Global Select Market, which has the highest initial listing
standards of any exchange in the world based on financial and liquidity requirements.
Our principal executive offices are located at 36th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong. Our
telephone number at this address is 852-2598-3600 and our fax number is 852-2537-3618.
We have appointed CT Corporation System at 111 Eighth Avenue, New York, NY 10011 as our agent for service of
process in the United States.
You should direct all inquiries to us at the address and telephone number of our principal executive offices set forth above.
Our website is www.melco-crown.com. The information contained on our website is not part of this annual report on Form 20-F.
Overview
B. BUSINESS OVERVIEW
We are a developer, owner and, through our subsidiary Melco Crown Gaming, operator of casino gaming and entertainment
resort facilities focused on the Macau market. Melco Crown Gaming is one of six companies licensed, through concessions or
subconcessions, to operate casinos in Macau.
We have chosen to focus on the Macau gaming market because we believe that Macau will continue to be one of the largest
gaming destinations in the world. In 2010, 2009 and 2008, Macau generated approximately US$23.5 billion, US$14.9 billion and
US$13.6 billion of gaming revenue, respectively, according to the DICJ, compared to the US$5.7 billion, US$5.5 billion and
US$6.0 billion (excluding sports book and race book) of gaming revenue, respectively, generated on the Las Vegas Strip, according to
the Nevada Gaming Control Board, and compared to the US$3.6 billion, US$3.9 billion and US$4.5 billion of gaming revenue
(excluding sports book and race book), respectively, generated in Atlantic City, according to the New Jersey Casino Control
Commission. Gaming revenue in Macau has increased at a five-year CAGR from 2005 to 2010 of 32.54% compared to five-year
CAGRs of -0.84% and -6.61% for the Las Vegas Strip and Atlantic City, respectively (excluding sports book and race book). Macau
benefits from its proximity to one of the world’s largest pools of existing and potential gaming patrons and is currently the only
market in Greater China, and one of only several in Asia, to offer legalized casino gaming.
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The Macau market is dominated by gaming table play heavily skewed to baccarat, which historically has accounted for
more than 85% of all gaming revenues generated in Macau. There are two distinct forms or programs of baccarat which exist in
Macau: rolling chip baccarat and non-rolling chip baccarat. A baccarat patron wagering under the rolling chip program will generally
require credit in order to be able to buy-in to non-negotiable rolling chips and will earn a rebate derived from the volume of roll that
the patron generates. The rebate has the effect of reducing the house advantage that exists to the favor of the casino on baccarat.
Baccarat is also played in Macau on a non-rolling chip (or traditional cash chip) basis, which does not provide the patron with a rebate
based on volume of play, and does not involve the provision of credit.
A substantial majority of the rolling chip baccarat segment revenue generated by the casino operators in Macau is derived
from patrons who collaborate with gaming promoters, primarily in order to access the credit that is then available. A gaming promoter,
also known as a junket representative, is a person who, for the purpose of promoting rolling chip gaming activity, arranges customer
transportation and accommodation, and provides credit in their sole discretion, food and beverage services and entertainment in
exchange for commissions or other compensation from a concessionaire or subconcessionaire. The casino operators typically pay a
commission to the junket operators based on either a percentage of the net rolling or the monthly gross revenue of the patrons they
direct to the casinos. In 2009, the Macau government fixed the maximum commission based on net rolling that can be paid to junket
operators, although such ceiling is not currently being applied to commission based on revenue share arrangements.
Rolling chip program baccarat is referred to as the “rolling chip segment” in Macau and non-rolling chip baccarat, together
with all other forms of gaming table and all gaming machines play, is collectively referred to as the “mass segment” in Macau.
Rolling chip volume and non-rolling chip volume are not equivalent. Rolling chip volume is a measure of amounts wagered
and lost. Non-rolling chip volume measures buy-in. Therefore, rolling chip volume will generally be substantially higher than non-
rolling chip volume.
Macau experiences many peaks and seasonal effects. The “Golden Week” and “Chinese New Year” holidays are the key
periods where business and visitation fluctuate considerably.
Through our operations, we cater to a broad spectrum of potential gaming patrons, including high stake rolling chip gaming
patrons, as well as gaming patrons seeking a broader entertainment experience. We seek to attract these patrons from throughout Asia
and in particular from Greater China.
Our leadership and vision have been evidenced over recent years through the early development of the Mocha brand, the
evolution of the Altira Macau (formerly known as Crown Macau) property, the ability to diversify our portfolio of properties and
supporting our staff through what we believe are market leading business models.
Our Mocha Clubs and Altira Macau operations have established a solid market share in their respective markets. The
introduction of City of Dreams has resulted in a diversified gaming and entertainment mix within Macau.
We aim to leverage the complimentary nature of and gain maximum benefit from each of our core assets which will, we
believe, enhance our market leadership position and strengthen our competitive advantage.
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Operations
City of Dreams
City of Dreams, an integrated resort development in Macau, opened in Cotai in June 2009 and currently features a casino
area of approximately 420,000 sq. ft. with a total of approximately 400 gaming tables and approximately 1,300 gaming machines. The
resort brings together a collection of brands, such as Crown, Grand Hyatt, Hard Rock and Dragone, to create an experience that aims
to appeal to a broad spectrum of visitors from around Asia and the world. The Crown Towers and the Hard Rock Hotel offer
approximately 300 guest rooms each. Grand Hyatt Macau offers approximately 800 guest rooms. A Dragone inspired theater
production opened on September 17, 2010 in the wet stage performance theater known as the Theater of Dreams. In addition, there are
over 20 restaurants and bars; 69 retail outlets; an audio visual multimedia experience; recreation and leisure facilities, including health
and fitness clubs, three swimming pools, spa and salons and banquet and meeting facilities. We have concluded the revision to our
land lease agreement for City of Dreams, pursuant to which we increased the developable gross floor area by approximately
1.6 million square feet. We are currently re-evaluating the next phase of our development plan at City of Dreams. The next phase is
expected to include a five star hotel with features of an apartment hotel or a general hotel and we anticipate that this phase of
development will be financed separately from the rest of the City of Dreams. We are assessing our hotel room requirements,
government policies and general market conditions, before we finalize our development plan. The development of the hotel is or may
be subject to the availability of additional financing, Macau government’s approval and the approval of our financiers under our
existing and any future debt facilities. Our project costs, including the casinos, the Hard Rock Hotel, the Crown Towers hotel, the
Grand Hyatt twin-tower hotel, the wet stage performance theater, all retail space together with food and beverage outlets, were US$2.4
billion, consisting primarily of construction and fit-out costs, design and consultation fees, and excluding the cost of land, capitalized
interest and pre-opening expenses. Dragon’s Treasure, the show offered in the Bubble at City of Dreams, received the 2009 THEA
Award for “Outstanding Achievement” from the Themed Entertainment Association (TEA). City of Dreams also won the “Best
Leisure Development in Asia Pacific” award in the International Property Awards 2010 which recognizes distinctive innovation and
outstanding success in leisure development and the “Best Casino VIP Room” and “Best Casino Interior Design” awards in the
International Gaming Awards in 2011, which recognizes outstanding design in the casino sector.
Altira Macau
Altira Macau is designed to provide a casino and hotel experience which primarily meets the cultural preferences and
expectations of Asian rolling chip customers and the gaming promoters who collaborate with Altira Macau. We believe that gaming
venues traditionally available to high-end patrons in Macau have not offered the level of accommodation and facilities we offer at
Altira Macau, and instead have focused primarily on gaming during day trips and short visits to Macau. Altira Macau won the “Casino
Interior Design Award” in the first International Gaming Awards in 2008. Altira Macau has for the second year in a row been awarded
the Forbes Five Star rating in both Lodging and Spa categories by the Forbes Travel Guide (formerly Mobil Travel Guide) for 2010
and 2011. Altira Macau also won the “Best Business Hotel in Macau” award in TTG China Travel Awards 2009 and the “Best Luxury
Hotel in Macau” award in the TTG China Travel Awards 2010.
With the opening of additional gaming space, the casino at Altira Macau has approximately 173,000 sq. ft. of gaming space
and features approximately 228 gaming tables. The multi-floor layout provides general gaming areas as well as limited access high-
limit private gaming areas and private gaming rooms catering to high-end patrons. High-limit tables located in the limited access
private gaming areas provide our high-end patrons with a gaming experience in a private environment. The table limits on our main
casino floors accommodate a range of casino patrons. Due to the flexibility of our multi-floor layout, we are able to reconfigure our
casino to meet the changing demands of our patrons and target specific segments we deem attractive on a periodic basis.
We consider Altira Hotel, located within the 38-story Altira Macau, to be one of the leading hotels in Macau. The top floor
of the hotel serves as the hotel lobby and reception area, providing guests with views of the surrounding area. The hotel comprises
approximately 216 hotel rooms, including 24 suites and 8 villas, and features in-room entertainment and communication facilities.
A number of restaurants and dining facilities are available at Altira Macau, including Tenmasa, a well-known Japanese
restaurant in Tokyo, several Chinese and international restaurants, dining areas and restaurants focused around the gaming areas and a
range of bars across multiple levels of the property. Altira Hotel also offers non-gaming entertainment venues, including a spa,
gymnasium, outdoor garden podium and a sky terrace lounge.
We introduced experienced local management to the Altira Macau property in 2008 to further our understanding of its
customers and will continue to hone the operational effectiveness of our property through the development of a tailored experience for
its customers.
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Altira is a property brand that has been developed to target the Asian rolling chip market. The brand supports our primary
business objective at the Altira Macau property, which is to develop our position as the premier Asian rolling chip casino. The
rebranding of Crown Macau as Altira Macau reinforces two key strategies for the property: first, to align the brand positioning of the
property with its market focus on Asian rolling chip customers, which has prevailed since late 2007; and second, to focus the Crown
property brand solely at the City of Dreams property, which targets premium rolling chip customers sourced through the regional
marketing networks operated by us. The Altira brand was launched in April 2009. In late 2009, Altira transitioned from a gaming
promoter aggregator model to one where we contract directly with all of our gaming promoters.
Mocha Clubs
Mocha Clubs first opened in September 2003 and has expanded operations to eight clubs with a total of approximately
1,600 gaming machines, each club with an average of approximately 200 gaming machines and gaming space ranging from
approximately 3,000 sq. ft. to 11,000 sq. ft. The clubs comprise the largest non-casino-based operations of electronic gaming machines
in Macau and are located in areas with strong pedestrian traffic, typically within three-star hotels. Each club site offers electronic
tables without dealers. Our Mocha Club gaming facilities include what we believe is the latest technology for gaming machines and
offer both single player machines with a variety of games, including progressive jackpots, and multi-player games where players on
linked machines play against each other in electronic roulette, baccarat and sicbo, a traditional Chinese dice game.
Mocha Clubs focus on mass market and casual gaming patrons, including local residents and day-trip customers, outside
the conventional casino setting. The Mocha Club at Mocha Square, which was temporarily closed for renovations from the end of
2007, resumed operations on February 20, 2009. We re-decorated the ground and first floors of the Hotel Taipa Square Mocha Club to
facilitate easier access by customers during January 2009. As of December 31, 2010, Mocha had 1,576 gaming machines in operation,
representing 11% of total machine installation in the market.
Taipa Square Casino
Taipa Square Casino held its grand opening on June 12, 2008. The casino has approximately 18,950 sq. ft. of gaming space
and features approximately 31 gaming tables servicing mass market patrons. Taipa Square Casino operates within Hotel Taipa Square
located on Taipa Island, opposite the Macau Jockey Club. Taipa Square Casino is designated as an Excluded Project under our City of
Dreams Project Facility.
Development Projects
General
In the ordinary course of our business, in response to market developments and customer preferences, we have made and
continue to make certain changes to our properties. We have incurred and will continue to incur these capital expenditures at our
properties.
Future Pipeline Projects
We continually seek out new opportunities for additional gaming or related businesses in Macau and will continue to target
the development of a future project pipeline in Macau in order to maximize the business and revenue potential of Melco Crown
Gaming’s investment in its subconcession. This remains a core strategy for us. We will also maintain our focus on three principles in
defining and setting the pace, form and structure for any future pipeline development. The three principles we adhere to are:
(i) securing financing for any project before commencing construction; (ii) ensuring that our existing portfolio of properties benefit
from the new development through a developed understanding of how the market for our properties and services has continued to
change and segment; and (iii) pacing new supply in accordance with the demands of the market.
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Macau Studio City Project
Melco Crown Gaming has entered into a services agreement with New Cotai Entertainment (Macau) Limited and New
Cotai Entertainment, LLC, under which Melco Crown Gaming would operate the casino portions of the Macau Studio City project, a
large integrated resort development. The project is being developed by a joint venture between eSun Holdings Limited, CapitaLand
Integrated Resorts Pte Ltd and New Cotai Holdings, LLC, which is primarily owned by investment funds and David Friedman, a
former senior executive of Las Vegas Sands. Under the terms of the services agreement, Melco Crown Gaming will retain a
percentage of the gross gaming revenues from the casino operations of Macau Studio City. We will not be responsible for any of the
project’s capital development costs, and the operating expenses of the casino will be substantially borne by New Cotai Entertainment
(Macau) Limited. The joint venture parties are currently involved in litigation proceedings and therefore construction of the Macau
Studio City project has not commenced and the formal opening of Macau Studio City has not been determined.
Our Objective and Strategies
Our objective is to become a leading provider of gaming, leisure and entertainment services capitalizing on the expected
future growth opportunities in Macau. To achieve our objective, we have developed the following core business strategies:
Maintain a Strong Balance Sheet and Conservative Capital Structure, De-Leverage and Remain Alert to Opportunistic Growth
Opportunities
We believe that a strong balance sheet is a core foundation for our future growth strategy. We will continue to monitor and
effectively manage our liquidity needs and raise development funds when favorable market conditions permit us to do so, and we will,
as a priority, apply surplus cash generated from our operations to de-leveraging. Where applicable, we will plan our developments to
include marketable non-core assets that can be sold to aid the financing of our core assets.
Develop a Targeted Product Portfolio of Well-Recognized Branded Experiences
We believe that building strong, well-recognized branded experiences is critical to our success, especially in the brand-
conscious Asian market. We intend to develop and further strengthen our brands by building and maintaining high quality properties
that differentiate us from our competitors throughout Asia and by providing a set of experiences tailored to meet the cultural
preferences and expectations of Asian customers.
Although we strive to have all of our properties consistently adhere to the standards above, we have incorporated design
elements at our properties that cater to specific customer segments. By utilizing a more focused strategy, we believe we can better
service specific segments of the Macau gaming market.
Utilize Melco Crown Gaming’s Subconcession to Maximize Our Business and Revenue Potential
We intend to utilize Melco Crown Gaming’s subconcession, which, like the other concessions and subconcessions, does not
limit the number of casinos we can operate in Macau, to capitalize on the potential growth of the Macau gaming market provided by
the independence, flexibility and economic benefits afforded by being a subconcessionaire. Possession of a subconcession gives us the
ability to negotiate directly with the Macau government to develop and operate new projects without the need to partner with other
concessionaires or subconcessionaires. Furthermore, concessionaires and subconcessionaires such as SJM and Galaxy have
demonstrated that they can leverage their licensed status by entering into arrangements with developers and hotel operators that do not
hold concessions or subconcessions to operate the gaming activities at their properties under leasing or services arrangements and
keep a percentage of the revenues. In 2008, the Macau government imposed a moratorium on new gaming services agreements. Such
moratorium does not currently impact the agreement between Melco Crown Gaming, New Cotai Entertainment (Macau) Limited and
New Cotai Entertainment, LLC regarding the Macau Studio City project. In the event such moratorium is lifted, we may consider
entering into other, similar arrangements with other such developers and hotel operators, subject to obtaining the relevant approvals.
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Develop Comprehensive Marketing Programs
We will continue to seek to attract customers to our properties by leveraging our brands and utilizing our own marketing
resources and those of our founders. We have combined our brand recognition with customer management techniques and programs in
order to build a database of repeat customers and loyalty club members. Through Mocha Clubs’ share of the Macau electronic gaming
market, we have also developed a customer database and a customer loyalty program, which we believe have successfully enhanced
repeat play and further built the Mocha brand.
We will seek to continue to grow and maintain our customer base through the following sales and marketing activities:
•
•
•
create a cross-platform sales and marketing department to promote all of our brands to potential customers throughout Asia
in accordance with applicable laws;
utilize special product offers, special events, tournaments and promotions to build and maintain relationships with our
guests, in order to increase repeat visits and help fill capacity during lower-demand periods; and
implement complimentary incentive programs and commission based programs with selected promoters to attract high-end
customers.
Focus on Operating First Class Facilities
We have assembled a dedicated management team with experience in operating large scale, high quality resort facilities.
We believe that service quality and memorable experiences will continue to grow as a key differentiator among the
operators in Macau. As the depth and quality of product offerings continue to develop and more memorable properties and
experiences are created, we believe that tailored services will drive competitive advantage. As such, our focus remains on creating
service experiences for the tastes and expectations of a segmented and demanding consumer.
We believe the continued development of our staff and supporting resources are central to our success in this regard. We
will invest in the long term development of our people through relevant training and experience sharing.
Leverage the Experiences and Resources of Our Founders
We believe one of our great strengths is the combined resources of our majority shareholders, Melco and Crown. We intend
to leverage their experiences and resources in the gaming industry in Asia and particularly with Chinese and other Asian patrons.
Our Properties
We operate our gaming business in accordance with the terms and conditions of our gaming subconcession. In addition, our
operations and development projects are also subject to the terms and conditions of land concessions and lease agreements for leased
premises.
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City of Dreams
The City of Dreams site is located on two adjacent land parcels in Cotai, Macau with a combined area of 113,325 square
meters (approximately 1.2 million sq. ft.). On August 13, 2008, the Macau government formally granted a land concession for the City
of Dreams site to Melco Crown (COD) Developments Limited for a period of 25 years, renewable for further consecutive periods of
up to ten years each. The premium is approximately MOP 842.1 million (equivalent to US$105.1 million), of which approximately
MOP 526.1 million (equivalent to US$65.7 million) has been paid as of December 31, 2010 and the remaining premium of
approximately MOP 316.0 million (equivalent to US$39.4 million), accrued with 5% interest, will be paid in five biannual
installments. We have also provided a guarantee deposit of approximately MOP 3.4 million (US$424,000), subject to adjustments, in
accordance with the relevant amount of government land use fees payable during the year. The land concession enables Melco Crown
(COD) Developments Limited to develop five star hotels, four star hotels, apartment hotels and a parking area with a total gross floor
area of 515,156 square meters (approximately 5,545,093 sq. ft.). We have applied for an amendment to the land concession to enable
the increase of the total developable gross floor area and on October 16, 2009 we received from the Macau government the initial
terms for the revision of the land lease agreement pursuant to which we would be able to increase the developable gross floor area to
668,574 square meters (approximately 7,196,470 sq. ft.). In March 2010, our subsidiaries Melco Crown (COD) Developments Limited
and Melco Crown Gaming accepted the final terms for the revision of the land lease agreement and fully paid the additional premium
in the amount of MOP 257.4 million (equivalent to US$32.1 million) to the Macau government. The land grant amendment process
was completed on September 15, 2010. Under the revised land concession, the developable gross floor area at the site is 668,574
square meters (approximately 7,196,470 sq. ft.).
During the construction period, we paid the Macau government land use fees at an annual rate of MOP 30.0 (US$3.74) per
square meter of land, or an aggregate annual amount of approximately MOP 3.4 million (US$424,000). According to the terms of the
revised land concession, the annual government land use fees payable are approximately MOP 9.5 million (US$1.2 million). The
government land use fee amounts may be adjusted every five years.
The equipment utilized by City of Dreams in the casino and hotel is owned by us and held for use on the City of Dreams
site and includes the main gaming equipment and software to support its table games and gaming machine operations, cage
equipment, security and surveillance equipment, casino and hotel furniture, fittings, and equipment.
Our approximately 2,000-seat Theater of Dreams, which opened on September 17, 2010, stages “The House of Dancing
Water” show. The production incorporates costumes, sets and audio and visual special effects. The cast of 77 international
performance artists and the team of 130 production and technical staff have been recruited from 18 countries around the world. We
believe The House of Dancing Water will become the live entertainment centerpiece of City of Dreams’ overall leisure and
entertainment offering. We also believe the production will highlight City of Dreams as an innovative and diverse entertainment-
focused destination and strengthen the diversity of Macau as a multi-day stay market and one of Asia’s premier leisure and
entertainment destinations.
Altira Macau
The Altira Macau property and equipment is located on a plot of land of approximately 5,230 square meters (56,295 sq. ft.)
under a 25-year land lease agreement with the Macau government which is renewable for successive periods of up to ten years, subject
to obtaining approvals from the Macau government. The terms and conditions of the land lease agreement entered into in March 2006
by Altira Developments Limited, our wholly-owned subsidiary through which Altira Macau was developed, require a land premium
payment of approximately MOP 149.7 million (US$18.7 million). The initial land premium payment of MOP 50.0 million
(US$6.2 million) was paid on November 25, 2005 upon acceptance of the terms and conditions of the agreement and the balance was
paid in four equal semi-annual installments bearing interest at 5% per annum. We paid the outstanding balance in July 2006. A
guarantee deposit of approximately MOP 157,000 (US$20,000) was also paid upon signing of the lease and is subject to adjustments
in accordance with the relevant amount of government land use fees payable during the year. We pay the Macau government land use
fees of approximately MOP 1.4 million (US$171,000) per annum. The amounts may be adjusted every five years as agreed between
the Macau government and us using applicable market rates in effect at the time of the adjustment.
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The Macau government approved total gross floor area for development for the Altira Macau site of approximately 95,000
square meters (1,022,600 sq. ft.).
The equipment utilized by Altira Macau in the casino and hotel is owned by us and held for use on the Altira Macau site
and includes the main gaming equipment and software to support its table games and gaming machine operations, cage equipment,
security and surveillance equipment, casino and hotel furniture, fittings, and equipment.
Mocha Clubs
Mocha Clubs operate at premises with a total floor area of approximately 52,500 sq. ft. at the following locations:
Mocha Club
Opening Date
Location
Mocha Altira
Mocha Square
Marina Plaza
Hotel Taipa
Sintra
Taipa Square
Lan Kwai Fong
Royal
Total
December 2008
October 2007
December 2006
January 2006
November 2005
March 2005
April 2004
September 2003
Level 1 of Altira Macau
1/F, 2/F and 3/F of Mocha Square
1/F and 2/F of Marina Plaza
G/F of Hotel Taipa
G/F and 1/F of Hotel Sintra
G/F, 1/F and 2/F of Hotel Taipa Square
G/F of Kingsway Commercial Centre
G/F and 1/F of Hotel Royal
Gaming Area
(In sq. ft.)
2,950
3,400
10,800
6,000
5,000
9,200
6,700
8,450
52,500
For locations operating at leased or subleased premises, the lease and sublease terms are pursuant to lease agreements that
expire at various dates through December 2021, which are renewable upon our giving notice prior to expiration and subject to
incremental increases in monthly rentals, except for the Marina Plaza lease, which was due to expire in 2011 but is currently in the
process of being renewed for a further two to three year period.
In addition to leasehold improvements to Mocha Club premises, the onsite equipment utilized at the Mocha Clubs is owned
and held for use to support the gaming machines operations.
Taipa Square Casino
Taipa Square Casino premises, including the fit-out and gaming related equipment, located on the ground floor and level
one within Hotel Taipa Square and having a floor area of approximately 1,760 square meters (approximately 18,950 sq. ft.), is
operated under a Right-to-Use Agreement signed on June 12, 2008 with the owner, Hotel Taipa Square (Macau) Company Limited.
The agreement is for a term of one year from the date of execution and is automatically renewable subject to certain contractual
provisions for successive periods of one year under the same terms and conditions until June 26, 2022.
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Other Premises
Apart from the property sites for Altira Macau and City of Dreams, we maintain various offices and storage locations in
Macau and Hong Kong. We lease all of our office and storage premises, except for five units located at Zhu Kuan Building whose
property rights belong to us. The five units have a total area of approximately 839 square meters (approximately 9,029 sq. ft.) and we
operate a Recruitment Center there. The five units were purchased by MPEL Properties (Macau) Limited, our indirect wholly owned
subsidiary, for approximately HK$79.7 million (US$10.2 million) on August 15, 2008. The Zhu Kuan Building is erected on a plot of
land under a land lease grant that expires on July 27, 2015. Such land lease grant is renewable for successive periods of up to ten
years, subject to obtaining certain approvals from the Macau government.
Advertising and Marketing
We seek to attract customers to our properties and to grow our customer base over time by undertaking several types of
advertising and marketing activities and plans. We utilize local and regional media to publicize our projects and operations. We have
built a public relations and advertising team that cultivates media relationships, promotes our brands and directly liaises with
customers within target Asian countries in order to explore media opportunities in various markets. Advertising uses a variety of
media platforms that include digital, print, television, online, outdoor, on property (as permitted by Macau, PRC and other regional
laws), collateral and direct mail pieces. We hold various promotions and special events, operate loyalty programs, maintain a database
of gaming customers and have developed a series of commission and other incentive-based programs for offer to both gaming
promoters and individuals alike, in order to be competitive in the Macau gaming environment.
Competition
We believe that the gaming market in Macau is and will continue to be intensely competitive. Our competitors in Macau
and elsewhere in Asia include all the current concession and subconcession holders and many of the largest gaming, hospitality,
leisure and property development companies in the world. Some of these current and future competitors are larger than us and have
significantly longer track records of operation of major hotel casino resort properties.
Gaming in Macau is administered through government-sanctioned concessions awarded to three different concessionaires
— SJM, which is controlled by Dr. Stanley Ho, the father of Mr. Lawrence Ho, our co-chairman and chief executive officer, Wynn
Macau, a subsidiary of Wynn Resorts Ltd., and Galaxy, a consortium of Hong Kong and Macau businessmen. SJM has granted a
subconcession to MGM Grand Paradise, a joint venture formed by MGM-Mirage and Ms. Pansy Ho, Dr. Stanley Ho’s daughter and
the sister of Mr. Lawrence Ho. Galaxy has granted a subconcession to The Venetian Macau, a subsidiary of US-based Las Vegas
Sands Corporation, the developer of Sands Macao and the Venetian Macao. Melco Crown Gaming obtained its subconcession under
the concession of Wynn Macau.
The existing concessions and subconcessions do not place any limit on the number of gaming facilities that may be
operated. In addition to facing competition from existing operations of these concessionaires and subconcessionaires, we will face
increased competition when any of them constructs new, or renovates pre-existing, casinos in Macau or enters into leasing, services or
other arrangements with hotel owners, developers or other parties for the operation of casinos and gaming activities in new or
renovated properties, as SJM and Galaxy have done. The Macau government has agreed under the existing concessions that it would
not grant any additional gaming concessions until April 2009 and has publicly stated that each concessionaire will only be permitted to
grant one subconcession. Moreover, the Macau government announced that until further assessment of the economic situation in
Macau there would be no increase in the number of concessions and subconcessions. The Macau government further announced that
the number of gaming tables operating in Macau should not exceed 5,500 by the end of 2012. In accordance with the DICJ the number
of gaming tables operating in Macau as of December 31, 2010 was 4,791. The Macau government reiterated further that it does not
intend to authorize the operation of any new casino that was not previously authorized by the Government. However, the policies and
laws of the Macau government could change and permit the Macau government to grant additional gaming concessions or
subconcessions. Such change in policies may also result in a change of the number of gaming tables and casinos that the Government
is prepared to authorize to operate.
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SJM holds one of the three gaming concessions in Macau and currently operates multiple casinos throughout Macau and
continue to add new properties. Controlled by Dr. Stanley Ho, SJM has extensive experience in operating in the Macau market and
long-established relationships in Macau.
Wynn Resorts (Macau), S.A. holds a gaming concession and opened the Wynn Macau in September 2006 on the Macau
Peninsula. In addition they opened an extension to Wynn Macau called Encore in 2010.
Galaxy, the third concessionaire in Macau, currently operates multiple casinos in Macau including the Galaxy StarWorld, a
hotel and casino resort in Macau’s central business and tourism district. The Galaxy Mega Resort is scheduled to open in Cotai in
2011.
With a subconcession under Galaxy’s concession, The Venetian Macau Limited operates Sands Macao, together with the
Venetian Macao and The Four Seasons Macau which are both located in Cotai. They have also announced proposals for further large
developments in Cotai, some of which are scheduled to open in 2011.
MGM Grand Paradise, a joint venture, has been granted a subconcession under SJM’s concession. In December 2007,
MGM Grand Paradise opened the MGM Grand Macau, which is located next to Wynn Macau on the Macau Peninsula.
We may also face competition from casinos and gaming resorts located in other Asian destinations together with cruise
ships. There are major gaming facilities in Australia located in Melbourne, Perth, Sydney and the Gold Coast. Genting Highlands is a
popular international gaming resort in Malaysia, approximately a one-hour drive from Kuala Lumpur. South Korea has allowed
gaming for some time but these offerings are available primarily to foreign visitors. There are also casinos in the Philippines, although
they are relatively small compared to those in Macau. In addition, there are a number of casino complexes in Cambodia.
Singapore has legalized casino gaming and awarded casino licenses to Las Vegas Sands Corporation and Genting
International Bhd. in 2006. Genting opened its resort in Sentosa, Singapore in February 2010 and Las Vegas Sands opened its casino
in Marina Bay, Singapore in April, 2010. Despite these openings Macau has continued to show healthy growth. In addition, several
other Asian countries are considering or are in the process of legalizing gambling and establishing casino-based entertainment
complexes.
Intellectual Property
We have registered the trademarks “Altira,” “Mocha Club” and “City of Dreams” in Macau. We have also registered in
Macau certain other trademarks and service marks used in connection with the operations of our hotel casino projects in Macau. We
have entered into a license agreement with Crown Melbourne Limited and obtained an exclusive and non-transferable license to use
the Crown brand in Macau. Our hotel management agreements provide us the right to use the Grand Hyatt trademarks on a non-
exclusive and non-transferable basis. Our trademark license agreements with Hard Rock Holdings Limited provide us the right to use
the Hard Rock brand in Macau, which we use at City of Dreams. Pursuant to these agreements, we have the exclusive right to use the
Hard Rock brand for a hotel and casino facility at City of Dreams for a term of ten years based on percentages of revenues generated
at the property payable to Hard Rock Holdings Limited. We also purchase gaming tables and gaming machines and enter into
licensing agreements for the use of certain trade names and, in the case of the gaming machines, the right to use software in
connection therewith. These include a license to use a jackpot system for the gaming machines. Crown Melbourne Limited, the owner
of a number of “Crown” trademarks in Macau licensed to us, has an ongoing legal proceeding regarding a number of “Crown”
trademarks in Macau. For more information, see “— Legal and Administrative Proceedings”.
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Legal and Administrative Proceedings
On January 25, 2011 Melco Crown Gaming was served a civil action filed by Ama International Limited, or Ama, in which
Ama claims the payment of MOP622.8 million (approximately US$77.7 million) plus interest accrued since January 25, 2011, for
damages incurred as a result of Melco Crown Gaming’s alleged breach of the gaming promotion agreement with Ama terminated on
June 22, 2010, for loss of profit resulting from such termination and for damages incurred and loss of profit resulting from the alleged
unfair competition of Melco Crown Gaming at the casino at Altira Macau. On March 3, 2011 Melco Crown Gaming filed its response
to Ama’s claims. On March 22, 2011 Ama filed its response to Melco Crown Gaming’s defense and reduced the claimed amount to
MOP325.8 million (approximately US$40.6 million) plus interest accrued since January 25, 2011. We believe Ama’s allegations and
claims have no grounds and are in response to our effort to collect debt outstanding and owing to Melco Crown Gaming from Ama.
Melco Crown Gaming intends to continue to vigorously defend all claims made by Ama.
We are currently a party to certain other legal proceedings which relate to matters arising out of the ordinary course of our
business. Our management does not believe that the outcome of such other proceedings will have a material adverse effect on our
company’s financial position or results of operations.
Crown Melbourne Limited, a wholly-owned subsidiary of Crown and the owner of the “Crown” brand, registered a number
of “Crown” based trademarks in Macau in 1996 and in 2005, sought to register other trademarks for the “Crown” brand. In
August 2005, a company called Tin Fat Gestão e Investimentos Limitada, or Tin Fat, sought to have the registration of the registered
marks removed on the basis of non-use and opposed the application for registration of the additional marks. These challenges mainly
relate to the “accommodation” class of registration, not the gaming class. Tin Fat is the operator of a hotel adjacent to the Macau
airport, which changed its name in 2004/2005 to Golden Crown China Hotel (Macau). Tin Fat has applied to register Golden Crown
China Hotel (Macau) and the Chinese and Portuguese equivalents. Crown Melbourne Limited has successfully opposed these
registrations and has defended a number of oppositions in the Macau Intellectual Property Department and the Court of First Instance
in Macau. To date Tin Fat’s applications and oppositions have all been unsuccessful and they have lodged numerous appeals in these
actions. In some of the key opposition matters (such as the CROWN trademark), Crown Melbourne Limited has succeeded in the final
Court of Appeal in Macau (Tin Fat cannot appeal further).
We understand that Crown Melbourne Limited intends to continue to vigorously defend all the remaining appeals lodged
by Tin Fat. We believe we have a valid right under our trademark license agreement with Crown Melbourne Limited to use the Crown
trademarks in Macau in our hotel casino business as licensed to us by Crown Melbourne Limited. We understand that Crown
Melbourne Limited intends to vigorously defend the appeal lodged by Tin Fat.
Gaming Regulations
The ownership and operation of casino gaming facilities in Macau are subject to the general laws (e.g., the Civil Code and
the Commercial Code) and to specific gaming laws, in particular, Law No. 16/2001, and various regulations govern the different
aspects of the gaming activity. Macau’s gaming operations are subject to the grant of a concession or subconcession by and regulatory
control of the Macau government (“Dispatch” of the Chief Executive).
The laws, regulations and supervisory procedures of the Macau gaming authorities are based upon declarations of public
policy that are concerned with, among other things:
•
•
•
•
•
the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in
any capacity;
the adequate operation and exploitation of games of fortune and chance;
the fair and honest operation and exploitation of games of fortune and chance free of criminal influence;
the protection of Macau’s interest in receiving the taxes resulting from the gaming operation; and
the development of the tourism industry, social stability and economic development of Macau.
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If we violate the Macau gaming laws, Melco Crown Gaming’s subconcession could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures. In addition, we, and the persons involved, could be
subject to substantial fines for each separate violation of Macau gaming laws or of the subconcession contract at the discretion of the
Macau government. Further, if we terminate or suspend the operation of all or a part of the conceded business without permission,
which is not caused by force majeure or the occurrence of serious chaos in our overall organization and operation, or in the event of
insufficiency of our facilities and equipment which may affect the normal operation of the conceded business, the Macau government
would be entitled to replace Melco Crown Gaming directly or through a third party during the aforesaid termination or suspension or
subsistence of the aforesaid chaos and insufficiency and to ensure the operation of the conceded business and cause the adoption of
necessary measures to protect the subject matter of the subconcession contract. Under such circumstances, the expenses required for
maintaining the normal operation of the conceded business would be borne by us. Limitation, conditioning or suspension of any
gaming registration or license or the appointment of a supervisor could, and revocation of Melco Crown Gaming’s subconcession
would, materially adversely affect our gaming operations.
Any person who fails or refuses to apply for a finding of suitability after being ordered to do so by the Macau government
may be found unsuitable. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the
common stock of a registered corporation beyond the period of time prescribed by the Macau government may lose his rights to the
shares. We are subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us, we:
•
•
•
•
pay that person any dividend or interest upon our shares;
allow that person to exercise, directly or indirectly, any voting right conferred through shares held by that person;
pay remuneration in any form to that person for services rendered or otherwise; or
fail to pursue all lawful efforts to require that unsuitable person to relinquish his or her shares.
Additionally, the Macau government, pursuant to its regulatory and supervisory control of suitability, has the authority to
reject any person owning or controlling the stock of any corporation holding a concession or subconcession.
The Macau government also requires prior approval for the creation of a lien over real property, shares, gaming equipment
and utensils of a concession or subconcession holder and restrictions on its stock in connection with any financing. In addition, the
creation of a lien over real property, shares, gaming equipment and utensils of a concession or subconcession holder and restrictions
on its stock in respect of any public offering also require the approval of the Macau government to be effective.
The Macau government must give its prior approval to changes in control through a merger, consolidation, stock or asset
acquisition, or any act or conduct by any person whereby he or she obtains such control. Entities seeking to acquire control of a
corporation must satisfy the Macau government concerning a variety of stringent standards prior to assuming control. The Macau
government may also require controlling stockholders, officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated for suitability as part of the approval process of the
transaction.
45
The Macau government also has the power to supervise subconcessionaires in order to assure financial stability and
capacity.
The subconcession premiums and taxes, computed in various ways depending upon the type of gaming or activity involved,
are payable to the Macau government. The method for computing these fees and taxes may be changed from time to time by the
Macau government. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly or annually
and are based upon either:
•
•
a percentage of the gross revenues received; or
the number and type of gaming devices operated.
In addition to special gaming taxes, we are also required to contribute to the Macau government an amount equivalent to
1.6% of the gross revenue of our gaming business. Such contribution must be delivered to a public foundation designated by the
Macau government whose goal is to promote, develop or study culture, society, economy, education and science and engage in
academic and charitable activities.
Furthermore, we are also obligated to contribute to Macau an amount equivalent to 2.4% of the gross revenue of the gaming
business for urban development, tourism promotion and the social security of Macau.
We are required to collect and pay, through withholding, statutory taxes on commissions or other remunerations paid to
gaming intermediaries.
In August 2009 the Macau government amended the legislation on gaming promoter activity (Administrative
Regulation 6/2002) permitting the imposition of a cap on the percentage of commissions payable by casino operators to gaming
promoters. In September 2009 the Secretary for Economy and Finance issued a dispatch implementing a commission cap of 1.25% of
net rolling effective as of September 22, 2009. The commission cap regulations impose fines (ranging from 100,000.00 patacas up to
500,000.00 patacas) on casino operators that do not comply with the cap and other fines (ranging from 50,000.00 patacas up to
250,000.00 patacas) on casino operators that do not comply with their reporting obligations regarding commission payments. If
breached, the legislation on commission caps has a sanction enabling the relevant government authority to make public a government
decision imposing a fine on a gaming operator, by publishing such decision on the DICJ website and in two Macau newspapers (in
Chinese and Portuguese respectively).
We are also required to collect and pay employment taxes in connection with our staff through withholding and all payable
and non-exemptible taxes, levies, expenses and handling fees provided by the laws and regulations of Macau.
Non-compliance with these obligations could lead to the revocation of Melco Crown Gaming’s subconcession and could
materially adversely affect our gaming operations.
Anti-Money Laundering Regulations in Macau
In conjunction with current gaming laws and regulations, we are required to comply with the laws and regulations relating
to anti-money laundering activities in Macau. Law 2/2006 of April 3, 2006, which came into effect on April 4, 2006, the
Administrative Regulation (AR) 7/2006 of May 15, 2006, which came into effect on November 12, 2006, and the DICJ Instruction
2/2006 of November 13, 2006 govern our compliance requirements with respect to identifying, reporting and preventing anti-money
laundering and terrorism financing crimes at our casinos.
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Under these laws and regulations, we are required to:
identify any customer or transaction where there is a sign of money laundering or financing of terrorism or which involves
significant sums of money in the context of the transaction, even if any sign of money laundering is absent;
refuse to deal with any of our customers who fail to provide any information requested by us;
keep records on the identification of a customer for a period of five years;
notify the Finance Information Bureau if there is any sign of money laundering or financing of terrorism; and
cooperate with the Macau government by providing all required information and documentation requested in relation to
anti-money laundering activities.
•
•
•
•
•
Under Article 2 of AR 7/2006 and the DICJ Instruction 2/2006, we are required to track and mandatorily report cash
transactions and granting of credit in a minimum amount of MOP 500,000 (US$62,000). Pursuant to the legal requirements above, if
the customer provides all required information, after submitting the reports, we may continue to deal with those customers that we
reported to the DICJ and, in case of suspicious transactions, to the Finance Information Bureau.
We use an integrated IT system to track and automatically generate significant cash transaction reports and, if permitted by
the DICJ and the Finance Information Bureau, to submit those reports electronically. We also train our staff on identifying and
following correct procedures for reporting “suspicious transactions” and make our guidelines and training modules available for our
employees on our intranet and internet sites.
Foreign Corrupt Practices Act
Our company is subject to the FCPA, which makes it illegal for our company and its employees and agents from offering or
giving money or any other item of value to win or retain business or to influence any act or decision of any foreign official. Since the
founding of our company in 2006, a Code of Business Conduct and Ethics (the “Code”) was adopted by our company and includes
specific FCPA related provisions that can be found in Section IV and VII B of the Code. To further supplement the existing policy and
practice, our company implemented a FCPA Compliance Program in 2007. This covers the activities of the shareholders, directors,
officers, employees, and counterparties of our company.
Proposed Smoking Regulations in Macau
The Macau Legislative Assembly is considering the approval of a new Smoking Prevention and Tobacco Control Law. If
such law is approved under the currently proposed terms, smoking shall not be permitted in casino premises, except for an area of up
to 50% (fifty percent) of the casino area opened to the public, provided such area is physically separate from the remaining casino
areas and provided further such smoking area complies with requirements to be determined by Dispatch of the Chief Executive. The
designated smoking areas shall have to be created within one year from the date the proposed new law comes into effect and the
proposed smoking ban in casino premises shall be effective three years after the proposed new law coming into effect. Since the
proposed law is still under debate and consideration by the Macau Legislative Assembly, the final approved law may differ from the
currently proposed terms.
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Subconcession Contract
A summary of the key terms of Melco Crown Gaming’s subconcession contract is as follows:
Subconcession Term. The subconcession contract will expire in June 2022, the current expiration date of Wynn Macau’s
concession, or, if the Macau government exercises its redemption right, in 2017. Based on information from the Macau government,
proposed amendments to the relevant legislation are being considered. We expect that if such amendments take effect, on the
expiration date of Melco Crown Gaming’s subconcession, unless the subconcession term is extended, only that portion of casino
premises within our developments to be designated with the approval of the Macau government, including all equipment, would
automatically revert to the Macau government without compensation to us. Until such amendments come into effect, all of our casino
premises and gaming equipment would revert automatically to the Macau government without compensation to us. The Macau
government may exercise its redemption right by providing us one year’s prior notice and paying fair compensation or indemnity to
us. The amount of such compensation or indemnity will be determined based on the amount of gaming revenue generated by City of
Dreams during the tax year prior to the redemption. It would not reimburse us for any portion of the US$900.0 million paid to Wynn
Macau for the subconcession.
Development of Gaming Projects/Financial Obligations. The subconcession contract requires us to make a minimum
investment in Macau of MOP 4.0 billion (US$499.2 million), including investment in fully developing Altira Macau and the City of
Dreams, by December 2010. In June 2010, we obtained confirmation from the Macau government that we have invested in our project
in Macau over MOP4.0 billion (US$499.2 million).
Payments. In addition to the initial US$900.0 million that we paid to Wynn Macau when we obtained the subconcession,
we are required to make certain payments to the Macau government, including a fixed annual premium per year of MOP 30.0 million
(US$3.7 million) and a variable premium depending on the number and type of gaming tables and gaming machines that we operate.
The variable premium is calculated as follows: (1) MOP 300,000 (US$37,437) per year for each gaming table (subject to a minimum
of 100 tables) located in special gaming halls or areas reserved exclusively for certain kinds of games or to certain players; (2) MOP
150,000 (US$18,719) per year for each gaming table (subject to a minimum of 100 tables) not reserved exclusively for certain kinds
of games or to certain players; and (3) MOP 1,000 (US$125) per year for each electrical or mechanical gaming machine, including
slot machines.
Termination Rights. The Macau government has the right, after notifying Wynn Macau, to unilaterally terminate Melco
Crown Gaming’s subconcession in the event of non-compliance by us with our basic obligations under the subconcession and
applicable Macau laws. The Macau government may be able to unilaterally rescind the subconcession contract upon the following
termination events:
•
•
•
•
•
•
•
the operation of gaming without permission or operation of business which does not fall within the business scope of the
subconcession;
abandonment of approved business or suspension of operations of our gaming business in Macau without reasonable
grounds for more than seven consecutive days or more than 14 non-consecutive days within one calendar year;
transfer of all or part of Melco Crown Gaming’s operation in Macau in violation of the relevant laws and administrative
regulations governing the operation of games of fortune or chance and other casino games in Macau and without Macau
government approval;
failure to pay taxes, premiums, levies or other amounts payable to the Macau government;
refusal or failure to resume operations following the temporary assumption of operations by the Macau government;
repeated opposition to the supervision and inspection by the Macau government and failure to comply with decisions and
recommendations of the Macau government, especially those of the DICJ, applicable to us;
failure to provide or supplement the guarantee deposit or the guarantees specified in the subconcession within the
prescribed period;
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•
•
•
•
•
•
bankruptcy or insolvency of Melco Crown Gaming;
fraudulent activity harming the public interest;
serious and repeated violation of the applicable rules for carrying out casino games of chance or games of other forms or
damage to the fairness of casino games of chance or games of other forms;
systematic non-compliance with the Macau Gaming Law’s basic obligations;
the grant to any other person of any managing power over the gaming business of Melco Crown Gaming or the grant of a
subconcession or entering into any agreement to the same effect; or
failure by a controlling shareholder in Melco Crown Gaming to dispose of its interest in Melco Crown Gaming, within
90 days, following notice from the gaming authorities of another jurisdiction in which such controlling shareholder is
licensed to operate casino games of chance to the effect that such controlling shareholder no longer wishes to own shares in
Melco Crown Gaming.
These events could lead to the termination of Melco Crown Gaming’s subconcession without compensation to us regardless
of whether any such event occurred with respect to us or with respect to our subsidiaries which will operate our Macau projects. Upon
such termination, the designated casino gaming premises and related equipment in Macau would automatically revert to the Macau
government without compensation to us and we would cease to generate any revenues from these operations. In many of these
instances, the subconcession contract does not provide a specific cure period within which any such events may be cured and, instead,
we may be dependent on consultations and negotiations with the Macau government to give us an opportunity to remedy any such
default.
Ownership and Capitalization. (1) Any person who directly acquires voting rights in Melco Crown Gaming will be subject
to authorization from the Macau government, (2) Melco Crown Gaming will be required to take the necessary measures to ensure that
any person who directly or indirectly acquires more than 5% of the shares in Melco Crown Gaming would be subject to authorization
from the Macau government, except when such acquisition is wholly made through the shares of publicly listed companies, (3) any
person who directly or indirectly acquires more than 5% of the shares in Melco Crown Gaming will be required to report the
acquisition to the Macau government (except when such acquisition is wholly made through shares tradable on a stock exchange as a
publicly listed company), (4) the Macau government’s prior approval would be required for any recapitalization plan of Melco Crown
Gaming, and (5) the Chief Executive of Macau could require the increase of Melco Crown Gaming’s share capital if he deemed it
necessary. Under the authorization for the transfer of obligations, the Macau government has imposed that the transfer of shares in any
direct or indirect shareholders of Altira Hotel Limited, Altira Developments Limited and Melco Crown (COD) Developments Limited
is subject to authorization from the Macau government.
Others. In addition, the subconcession contract contains various general covenants and obligations and other provisions,
with respect to which the determination as to compliance is subjective. For example, compliance with general and special duties of
cooperation, special duties of information, and with obligations foreseen for the execution of our investment plan may be subjective.
Tax
We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we and our subsidiaries
incorporated in the Cayman Islands are not subject to Cayman Islands income or capital gains tax. In addition, dividend payments are
not subject to withholding tax in the Cayman Islands. However, we and our Cayman Islands subsidiaries are subject to Hong Kong
profits tax on profits arising from our activities conducted in Hong Kong.
49
Our subsidiaries incorporated in the British Virgin Islands are not subject to tax in the British Virgin Islands, but in the case
of Mocha Slot Group Limited, it was subject to Macau complementary tax of 12% on profits earned in or derived from its activities
conducted in Macau before the transfer of all of the Mocha Clubs assets and business to Melco Crown Gaming.
Our subsidiaries incorporated in Macau are subject to Macau complementary tax of 12% on profits earned in or derived
from their activities conducted in Macau. Having obtained a subconcession, Melco Crown Gaming has applied for and has been
granted the benefit of a corporate tax holiday on Macau complementary tax (but not gaming tax). This tax holiday exempts us from
paying the Macau complementary tax for five years from 2007 to 2011 on income from gaming generated by Altira Macau, Mocha
Clubs and City of Dreams, but we will remain subject to Macau complementary tax on profits from our non-gaming businesses. Melco
Crown Gaming has applied for an extension to the tax holiday in February 2011. However, we cannot assure you that it will be
extended beyond the expiration date.
Melco Crown Gaming is subject to Macau gaming tax based on its gross gaming revenue. These gaming taxes are an
assessment on Melco Crown Gaming’s gaming revenue and are recorded as an expense within the “Casino” line item in the
consolidated statements of operations.
Our subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax on any profits arising in or derived from
Hong Kong. One of our subsidiaries incorporated in Hong Kong is also subject to Macau complementary tax on profits earned in or
derived from its activities conducted in Macau and another one is subject to corporate tax on profits in a number of other Asian
jurisdictions through its activities conducted in these jurisdictions.
Our subsidiaries incorporated in New Jersey and Delaware in the United States are subject to US federal and relevant state
and local taxes.
Dividend Distribution
Restrictions on Distributions. The City of Dreams Project Facility contains restrictions on payment of dividends for the
Borrowing Group. There is a restriction on paying dividends during the construction phase of the City of Dreams project. Upon
completion of the construction of the City of Dreams, the relevant subsidiaries will only be able to pay dividends if they satisfy certain
financial tests and conditions. The indenture governing the Senior Notes also contains certain covenants that, subject to certain
exceptions and conditions, restrict the payment of dividends for MCE Finance and its restricted subsidiaries.
Distribution of Profits. All subsidiaries incorporated in Macau are required to set aside a minimum of 10% to 25% of the
entity’s profit after taxation to the legal reserve until the balance of the legal reserve reaches a level equivalent to 25% to 50% of the
entity’s share capital in accordance with the provisions of the Macau Commercial Code. The legal reserve sets aside an amount from
the subsidiaries’ statements of operations and is not available for distribution to the shareholders of the subsidiaries. The appropriation
of legal reserve is recorded in the subsidiaries’ financial statements in the year in which it is approved by the boards of directors of the
relevant subsidiaries. As of December 31, 2010 and 2009, the balance of the reserve amounted to $3 in each of those years.
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Current Corporate Structure
C. ORGANIZATIONAL STRUCTURE
We are a holding company for the following principal operating subsidiaries: (1) Melco Crown Gaming, which is the
holder of our subconcession; (2) Altira Hotel, (3) Altira Developments, (4) Melco Crown (COD) Hotels, and (5) Melco Crown
(COD) Developments.
At the time of our initial public offering, through three intervening holding company subsidiaries incorporated in the
Cayman Islands and wholly-owned by us (1) Melco PBL Holdings Limited, now MPEL Holdings Limited, (2) Melco PBL
International Limited, now MPEL International Limited or MPEL International, and (3) Melco PBL Investments Limited, now MPEL
Investments Limited or MPEL Investments, we held all of the class B shares of Melco Crown Gaming, representing 72% of the voting
control of Melco Crown Gaming and the rights to virtually all the economic interests in Melco Crown Gaming. All of the class A
shares of Melco Crown Gaming, representing 28% of its outstanding capital stock were owned by PBL Asia Limited, or PBL Asia (as
to 18%) and, as required by Macau law, the managing director of Melco Crown Gaming (as to 10%). Mr. Lawrence Ho was appointed
to serve as the managing director of Melco Crown Gaming. The class A shares were entitled as a class to an aggregate of MOP 1 in
dividends and MOP 1 in proceeds of any winding up or liquidation of Melco Crown Gaming. MPEL Investments, PBL Asia, the
managing director of Melco Crown Gaming and Melco Crown Gaming entered into a shareholders’ agreement under which, among
other things, PBL Asia agreed to vote its class A shares in the same manner as the class B shares on all matters submitted to a vote of
shareholders of Melco Crown Gaming.
Prior to the close of the City of Dreams Project Facility, three more holding companies were incorporated through which
we now hold our shares in Melco Crown Gaming: (1) MPEL Nominee One Limited or MPEL Nominee One, a Cayman Islands
company, which is a 100% subsidiary of MPEL International and now holds 100% of the shares in MPEL Investments which in turn
holds approximately 90% of the shares in Melco Crown Gaming made up of 1,799,999 class A shares and 7,200,000 class B shares;
(2) MPEL Nominee Three Limited or MPEL Nominee Three, a 100% subsidiary of MPEL Nominee One, which now holds one class
A share in Melco Crown Gaming; and (3) MPEL Nominee Two Limited, which holds a minority shareholding in Melco Crown
Gaming’s Macau operating companies.
The above shareholding structure of Melco Crown Gaming was completed when PBL Asia transferred its 1,799,999 class
A shares in Melco Crown Gaming to MPEL Investments and its one class A share to MPEL International on June 12, 2007 and when
MPEL International transferred its one class A share in Melco Crown Gaming to MPEL Nominee Three on August 13, 2007.
Mr. Lawrence Ho remains the Managing Director and 10% shareholder of Melco Crown Gaming. The shareholders’ agreement for
Melco Crown Gaming was terminated on December 7, 2007.
We also incorporated a direct wholly-owned subsidiary in Hong Kong, MPEL Services Limited (formerly Melco PBL
Services Limited), for the purpose of entering into various administrative contracts, including leases for administrative office space, in
Hong Kong.
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The following diagram illustrates our company’s organizational structure, and the place of formation, ownership interest
and affiliation of each of our major subsidiaries as of March 17, 2011:
1.
2.
In respect of shares of each Macau subsidiary shown above, the shares are owned as to 96% by Melco Crown Gaming (Macau)
Limited and 4% by MPEL Nominee Two Limited, except for the subsidiary referred to in footnote 2 below.
The shares of this company are owned as to 99.98% by Melco Crown Gaming (Macau) Limited, 0.01% by MPEL Nominee Three
Limited and 0.01% by MPEL Nominee Two Limited.
See “Item 4. Information on the Company—B. Business Overview” for information regarding our material tangible
D. PROPERTY, PLANT AND EQUIPMENT
property, plant and equipment.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not Applicable.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with, and is qualified in its entirety by, the audited consolidated
financial statements and the notes thereto in this Annual Report on Form 20-F. Certain statements in this “Operating and Financial
Review and Prospects” are forward-looking statements. See “Special Note Regarding Forward-Looking Statements” regarding these
statements.
Overview
We are a holding company that, through our subsidiaries, develops, owns and operates casino gaming and entertainment
resort facilities focused exclusively on the Macau market. We currently own and operate City of Dreams, which opened on June 1,
2009, Altira Macau which opened on May 12, 2007 and Mocha Clubs, a non-casino based operation of electronic gaming machines,
which has been in operation since September 2003. Our future operating results are subject to significant business, economic,
regulatory and competitive uncertainties and risks, many of which are beyond our control. See “Item 3. Key Information—D. Risk
Factors—Risks Relating to Our Early Stage of Operation”. For detailed information regarding our operations and development
projects, see “Item 4. Information on the Company—B. Business Overview”.
A. OPERATING RESULTS
Operations
City of Dreams
City of Dreams opened on June 1, 2009 and currently features a casino area of approximately 420,000 sq. ft. with a total of
approximately 400 gaming tables and approximately 1,300 gaming machines; approximately 1,400 hotel rooms and suites; over 20
restaurants and bars; 69 retail outlets; a wet stage performance theater; an audio visual multimedia experience; recreation and leisure
facilities, including health and fitness clubs, three swimming pools, spa and salons and banquet and meeting facilities. A wet stage
performance theater with approximately 2,000 seats opened on September 17, 2010 featuring the “The House of Dancing Water”
show produced by Franco Dragone. Club Cubic Nightclub, with approximately 30,000 sq. ft. of live entertainment space, is scheduled
to open at City of Dreams in the second quarter of 2011. We are currently re-evaluating the next phase of our development plan at
City of Dreams. The next phase is expected to include a hotel with features of an apartment hotel or a general hotel.
Altira Macau
Altira Macau currently features a casino area of approximately 173,000 sq. ft. with a total of approximately 228 gaming
tables, 216 hotel rooms, including 24 suites and eight villas, several fine dining and casual restaurants, recreation and leisure facilities,
including a health club, pool and spa and lounges and meeting facilities.
Since our opening of Altira Macau, we have changed the casino in response to market demand and transferred the
management of gaming machines to Mocha Clubs in 2008.
Mocha Clubs
Melco Crown Gaming currently operates eight Mocha Clubs in Macau with a total of approximately 1,600 gaming
machines in operation.
Taipa Square Casino
Taipa Square Casino opened on June 12, 2008 and has approximately 18,950 sq. ft. of gaming space and features
approximately 31 gaming tables.
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Future Pipeline Projects
The Macau Studio City Project
The joint venture parties developing the Macau Studio City project are currently involved in litigation proceedings and
therefore construction of the Macau Studio City project has not commenced and the formal opening of Macau Studio City has not
been determined. There have been no operating cashflows associated with this project.
Summary of Financial Results
The following summarizes the results of our operations:
Net revenues
Total operating costs and expenses
Operating income (loss)
Net loss
2010
Year Ended December 31,
2009
(in thousands of US$)
2008
$ 2,641,976
(2,549,464)
92,512
$ 1,332,873
(1,604,920)
(272,047)
$ 1,416,134
(1,414,960)
1,174
$
(10,525)
$
(308,461)
$
(2,463)
Our results of operations for the years presented are not comparable for the following reasons:
•
On June 1, 2009, City of Dreams opened and progressively added to its operations following the completion of construction
of Grand Hyatt Macau in December 2009 and the opening of The House of Dancing Water in the third quarter of 2010.
Our historical financial results may not be characteristic of our potential future results as we continue to expand and refine
our service offerings at our properties. In addition to our debt facility, we currently rely on operating cash flows from only three
businesses, City of Dreams, Altira Macau and Mocha Clubs, all in Macau, which expose us to certain risks that competitors, whose
operations are more diversified, may be better able to control.
Key Performance Indicators (KPIs)
In leading our company to the achievement of our objectives and strategies, we monitor our performance utilizing gaming
resort industry key performance indicators. These indicators are included in our discussion below of our company’s operational
performance for the periods in which a Consolidated Statement of Operations is presented.
For casino revenue, KPIs are defined as follows:
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•
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Table games win: the amount of wagers won net of wagers lost that is retained and recorded as casino revenue.
Drop: the amount of cash and net markers issued that are deposited in a gaming table’s drop box to purchase gaming chips
plus gaming chips purchased at the casino cage.
Gaming machine handle (volume): the total amount wagered in gaming machines in aggregate for the period cited.
Win percentage-gaming machines: actual win expressed as a percentage of gaming machine handle.
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•
Hold percentage: the amount of win (calculated before discounts and commissions) as a percentage of drop.
Expected hold percentage: casino win based upon our mix of games as a percentage of drop assuming theoretical house
advantage is achieved.
There are also additional specific indicators utilized to monitor table game performance in Macau, relating to the rolling
chip and mass market segments. In our rolling chip segment, customers primarily purchase identifiable chips known as non-negotiable
chips, or rolling chips, from the casino cage and there is no deposit into a gaming table drop box from chips purchased from the cage.
Non-negotiable chips can only be used to make wagers. Winning wagers are paid in cash chips.
VIP market segment KPIs are known as rolling chip indicators and mass market segment KPIs are known as non-rolling
chip indicators. These are defined as follows:
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•
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Rolling chip volume: the amount of non-negotiable gaming chips wagered and lost by the VIP market segment, therefore
tracking the sum of all losing wagers.
Rolling chip hold percentage: VIP table games win as a percentage of rolling chip volume.
Non-rolling chip volume: the amount of table games drop in the mass market segment, therefore tracking the initial
purchase of chips.
Non-rolling chip hold percentage: Mass market table games win as a percentage of non-rolling chip volume.
Rolling chip volume and non-rolling chip volume are not equivalent. Rolling chip volume is a measure of amounts wagered
and lost. Non-rolling chip volume measures buy in. Therefore rolling chip volume will generally be substantially higher than non-
rolling chip volume. As these volumes are the base used in the calculation of hold percentage with the same use of gaming win as the
numerator, the hold percentage is smaller in the VIP market segment as opposed to the mass market segment.
Our combined expected rolling chip table games hold percentage (calculated before discounts and commissions) across
City of Dreams and Altira Macau is in the range of 2.7% to 3.0%.
Our combined expected non-rolling chip table games hold percentage is in the range from 18% to 22%, which is based on
the mix of table games at our casino properties as each table game has its own theoretical win percentage and our combined expected
gaming machine hold percentage is in the range from 5% to 6%.
For Hotel Operations, KPIs are defined as follows:
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•
•
Average Daily Rate, or ADR: calculated by dividing total room revenue (less service charges, if any) by total rooms
occupied, i.e., average price of occupied rooms per day.
Hotel occupancy rate: the average percentage of available hotel rooms occupied during a period.
Revenue per Available Room, or REVPAR: calculated by dividing total room revenue (less service charges, if any) by total
rooms available, thereby representing a summary of hotel average daily room rates and occupancy.
As not all available rooms are occupied, average daily room rates are normally higher than revenue per available room.
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Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues
Consolidated net revenues were US$2.64 billion, an increase of US$1.31 billion (or 98.2%) from US$1.33 billion for 2009.
The increase in net revenues was driven by the increase in gaming revenue and hold percentages at Altira Macau and improvement in
results of and a full year of operation of City of Dreams which opened in June 2009 which contributed US$1.09 billion more in net
revenues.
Consolidated net revenues in 2010 comprised of US$2.55 billion in casino revenues (96.5% of total net revenues) and
US$91.4 million of net non-casino revenues (3.5% of total net revenues). Consolidated net revenues in 2009 comprised of
US$1.30 billion in casino revenues (97.9% of total net revenues) and US$28.2 million of net non-casino revenues (2.1% of total net
revenues).
Casino. Casino revenues for the year ended December 31, 2010 of US$2.55 billion represented a US$1.25 billion (or
95.5%) increase from casino revenues of US$1.30 billion for the year ended December 31, 2009 due to an increase in casino revenue
at Altira Macau by US$653.0 million to US$846.9 million which was primarily driven by an increase in rolling chip volume and
higher rolling chip hold percentage and casino revenue of US$1.03 billion attributable to a full year of operation and improvement in
results of City of Dreams which opened in June 2009.
Altira Macau’s rolling chip volume for 2010 of US$40.3 billion represented an increase of US$2.8 billion from
US$37.5 billion for 2009. Altira Macau’s hold percentage for VIP rolling chip table games (calculated before discounts and
commissions) was 2.91% for 2010, within our expected level of 2.7% to 3.0% and an increase from 2.55% for 2009. In the mass
market table games segment, drop (non rolling chip) was US$377.1 million for 2010 which increased by 38.2% from
US$273.0 million for 2009. The mass market hold percentage was 16.2% for 2010, within our expected range of 16.0% to 20.0% and
an increase from 16.0% for 2009.
City of Dreams’ rolling chip volume for 2010 of US$51.7 billion represented an increase of US$31.5 billion from
US$20.3 billion for 2009. City of Dreams’ hold percentage for VIP rolling chip table games (calculated before discounts and
commissions) was 2.92% for 2010, within our expected level of 2.7% to 3.0% and an increase from 2.65% for 2009. In the mass table
games segment, drop (non-rolling chip) was US$2.06 billion for 2010 which increased by 126% from US$912.6 million for 2009. The
mass hold percentage was 21.5% in 2010, which was within our expected range of 18.0% to 22.0% and significantly increased from
16.3% for 2009. The 2009 City of Dreams hold percentage of 16.3% was within the range expected for the first six months of a new
property. The expected range of mass market hold percentage is different for Altira and City of Dreams due to a difference in the mix
of table games, each of which has its own theoretical win percentage. Average net win per gaming machine per day was US$219 for
2010, an increase of US$82 from 2009.
Mocha Club’s average net win per gaming machine per day for 2010 was US$192, an increase of approximately US$11
over 2009.
Rooms. Room revenue of US$83.7 million for the year ended December 31, 2010 represented a US$42.5 million (or
103.1%) increase from room revenue of US$41.2 million for the year ended December 31, 2009 due to the opening of City of Dreams
in June 2009, resulting in approximately 1,650 hotel rooms available for a full year across both properties. Altira Macau’s ADR,
occupancy and REVPAR were US$166, 94% and US$156, respectively, for the year ended December 31, 2010. This compares with
the ADR, occupancy and REVPAR of US$219, 92% and US$201, respectively for 2009. The reduction in Altira’s ADR in 2010 was
attributable to a greater proportion of rooms being allocated to gaming customers in line with gaming revenue growth. City of
Dreams’ ADR, occupancy and REVPAR were US$157, 80% and US$126, respectively. This compares with the ADR, occupancy and
REVPAR of US$159, 84% and US$133, respectively for 2009.
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Food, beverage and others. Other non-casino revenues for the year ended December 31, 2010 included food and beverage
revenue of US$56.7 million, and entertainment, retail and other revenue of approximately US$32.7 million. Other non-casino revenue
for the year ended December 31, 2009 included food and beverage revenue of US$28.2 million, and entertainment, retail and other
revenue of approximately US$11.9 million. The increase of US$49.3 million in non casino revenues was due to a full year of
operation of City of Dreams, increased retail leased space at City of Dreams and the opening of the House of Dancing Water in
September 2010.
Operating costs and expenses
Total operating costs and expenses were US$2.55 billion for the year ended December 31, 2010, an increase of
US$944.5 million (or 58.9%) from US$1.60 billion for the year ended December 31, 2009. The increase in operating costs of
US$944.5 million was primarily due to the commencement of operations at City of Dreams in June 2009, followed by the opening of
Grand Hyatt and The House of Dancing Water in September 2009 and September 2010 respectively, and an increase in operating
costs at Altira Macau associated with the increase in revenue as described above.
Casino. Casino expenses increased by US$818.7 million (or 72.4%) to US$1.95 billion in 2010 from US$1.13 billion in
2009 primarily due to an increase in casino revenue attributable by the full year operation of City of Dreams in 2010 which is
impacted by additional gaming tax and other levies charged at a rate of 39% of US$624.5 million.
Rooms. Room expenses, which represent the costs in operating the hotel facilities at Altira Macau and City of Dreams,
increased by 153.8% to US$16.1 million in 2010 from US$6.4 million in 2009, primarily due to the full year operation of City of
Dreams in 2010.
Food, beverage and others. Food, beverage and other expenses increased by US$31.8 million (or 152.5%) to
US$52.7 million in 2010 from US$20.9 million in 2009, primarily due to full year operation of City of Dreams in 2010 and the
opening of The House of Dancing Water in September 2010.
General and administrative. General and administrative expenses increased by US$68.8 million (or 52.6%) to
US$199.8 million in 2010 from US$131.0 million in 2009, primarily due to an increase of US$56.9 million for the full year operation
of City of Dreams in 2010 and US$14.1 million of increased corporate payroll and other costs.
Pre-opening costs. Pre-opening costs were US$18.6 million for the year end December 31, 2010 as compared to
US$91.9 million for the year ended December 31, 2009. Such costs relate primarily to personnel training, equipment, marketing,
advertising and other administrative costs in connection with new or start-up operations. Pre-opening costs for the year ended
December 31, 2010 related to the opening of The House of Dancing Water in September 2010.
Amortization of gaming subconcession. Amortization of gaming subconcession continued to be recognized on a straight-
line basis at an annual rate of US$57.2 million for both 2010 and 2009.
Amortization of land use rights. The increase in amortization of land use rights expenses to US$19.5 million in 2010 from
US$18.4 million was due to the increase in land premium associated with increasing the developed gross floor area by approximately
1.6 million square feet of Cotai Land in Macau where the City of Dreams site is located, commencing when we accepted in principle
the initial terms for such revision of the land lease agreement in November 2009.
Depreciation and amortization. Depreciation and amortization expense increased by US$94.4 million (or 66.6%) to
US$236.3 million in 2010 from US$141.9 million in 2009 primarily due to depreciation of assets placed into service associated with
the opening of City of Dreams in June 2009 and Grand Hyatt Macau and the House of Dancing Water which were progressively added
to City of Dreams operations in the fourth quarter of 2009 and September 2010 respectively.
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Property charges and other. Property charges and other generally include costs related to the remodeling and rebranding of
a property which might include the retirement, disposal or write-off of assets. Property charges and other for the year ended
December 31, 2010 were not material. Property charges and other for the year ended December 31, 2009 were US$7.0 million which
primarily included US$4.1 million related to the re-branding of Altira Macau and US$2.9 million related to asset write-offs as a result
of our termination of Macau peninsula project.
Non-operating (expenses) income
Non-operating (expenses) income consists of interest income and expenses, amortization of deferred financing costs, loan
commitment fees, foreign exchange gain and loss as well as other non-operating income.
Interest income was US$0.4 million and US$0.5 million for the years ended 31 December 2010 and 2009 respectively.
Interest expenses were US$93.3 million, net of capitalized interest of US$11.8 million, for the year ended December 31,
2010, compared to US$31.8 million, net of capitalized interest of US$50.5 million for the year ended December 31, 2009. The
increase in net interest expense of US$61.5 million was primarily due to an increase of US$38.9 million related to the US$600 million
10.25% Senior Notes issued in May 2010 together with a decrease in interest capitalized of US$38.7 million due to the decrease in
interest eligible for capitalization following the opening of City of Dreams, Grand Hyatt and The House of Dancing Water in
June 2009, September 2009 and September 2010, respectively, offset by a decrease of US$13.1 million of interest charges on our
US$1.75 billion City of Dreams Project Facility, net of interest rate swap agreements, primarily as a result of reducing the
indebtedness by US$444.1 million by applying a portion of the net proceeds from the sale of the Senior Notes.
Other finance costs included US$14.3 million of amortization of deferred financing costs net of capitalization, which
primarily increased from 2009 due to the ineligibility for further capitalization following the completion and opening of City of
Dreams in June 2009, and a credit of US$3.8 million of loan commitment fees related to the US$1.75 billion City of Dreams Project
Facility.
Costs associated with debt modification of US$3.3 million for the year ended December 31, 2010 related to the amendment
of City of Dreams Project Facility which includes a write off on the balance of unamortized deferred financing costs relating to the
reduced borrowing capacity of the Revolving Credit Facility.
Net foreign exchange gains for the year ended December 31, 2010 were US$3.6 million, primarily related to unrealized
foreign exchange transaction gains.
Income tax expenses (credit)
The positive effective tax rate for the year ended December 31, 2010 was 9.6%, as compared to the negative effective tax
rate of 0.04% for the year ended December 31, 2009. Such rates differ from the statutory Macau Complementary Tax rate of 12%
primarily due to the effect of change in valuation allowance on the net deferred tax assets in 2010 and 2009, the impact of a net loss of
Macau gaming operations during the year ended December 31, 2009 and the effect of tax holiday of US$28.1 million in 2010 due to
our income tax exemption in Macau, which is set to expire in 2011. Our management does not anticipate recording an income tax
benefit related to deferred tax assets generated by our Macau operations; however, to the extent that the financial results of our Macau
operations improve and it becomes more likely than not that the deferred tax assets are realizable, we will be able to reduce the
valuation allowance through earnings.
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Net loss
As a result primarily of the foregoing, there was a net loss of US$10.5 million for 2010, compared to a net loss of
US$308.5 million in 2009.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenues
Consolidated net revenues in 2009 were US$1.33 billion, a decrease of US$83.3 million (or 5.9%) from US$1.42 billion for
2008. The decrease in net revenues was driven by a decline in global economic conditions combined with low rolling chip hold
percentages at Altira Macau and City of Dreams and was partially offset by the opening of City of Dreams in June 2009, which
contributed US$552.1 million in net revenues.
Consolidated net revenues in 2009 were comprised of US$1.30 billion in casino revenues (97.9% of total net revenues) and
US$28.2 million of net non-casino revenues (2.1% of total net revenues). Consolidated net revenues in 2008 were comprised of
US$1.41 billion in casino revenues (99.3% of total net revenues) and US$10.2 million of net non-casino revenues (0.7% of total net
revenues).
Casino. Casino revenues for the year ended December 31, 2009 of US$1.30 billion represented a US$101.3 million (or
7.2%) decrease from casino revenues of US$1.41 billion for the year ended December 31, 2008 due to decrease in casino revenue at
Altira Macau by US$651.0 million to US$653.0 million, primarily driven by a decline in rolling chip volume combined with lower
rolling chip hold percentage, partially offset by revenue of US$532.5 million attributable to the opening of City of Dreams in
June 2009 with approximately 500 gaming tables and approximately 1,300 gaming machines.
Altira Macau’s rolling chip volume for 2009 of US$37.5 billion represented a decrease of US$24.8 billion from
US$62.3 billion for 2008. Altira Macau’s hold percentage for rolling chip table games (calculated before discounts and commissions)
was 2.55% for 2009, below our expected level of 2.85% and a decrease from 2.85% for 2008. In the mass market table games
segment, drop (non-rolling chip) was US$273.0 million for 2009 which decreased by 22.7% from US$353.2 million for 2008. The
mass market hold percentage was 16.0% for 2009, within our expected range of 16.0% to 20.0% and an increase from 14.6% for 2008.
City of Dreams’ rolling chip volume was US$20.3 billion and hold percentage for rolling chip table games (calculated
before discounts and commissions) was 2.65% for 2009, below the expected level of 2.85%. In the mass table games segment, drop
(non-rolling chip) totaled US$912.6 million and the hold percentage was 16.3%, which was in line with the expected range of 16.0%
to 20.0% for the year ended December 31, 2009. Average net win per gaming machine per day was US$137.
Mocha Club’s average net win per gaming machine per day for 2009 was US$182, a decrease of approximately US$54
over 2008.
Rooms. Room revenue of US$41.2 million for the year ended December 31, 2009 represented a US$24.1 million (or
141.2%) increase from room revenue of US$17.1 million for the year ended December 31, 2008 due to the opening at City of Dreams,
with approximately 1,650 hotel rooms across both properties. Altira Macau’s ADR, occupancy and REVPAR were US$219, 92% and
US$201, respectively, for the year ended December 31, 2009. This compares with the ADR, occupancy and REVPAR of US$236,
94% and US$222, respectively for 2008. City of Dreams’ ADR, occupancy and REVPAR were US$159, 84% and US$133,
respectively.
Food, beverage and others. Other non-casino revenues for the year ended December 31, 2009 included food and beverage
revenue of US$28.2 million, and entertainment, retail and other revenue of approximately US$11.9 million. Other non-casino revenue
for the year ended December 31, 2008 included food and beverage revenue of US$16.1 million, and entertainment, retail and other
revenue of approximately US$5.4 million. The increase of US$18.6 million was primarily due to opening of City of Dreams and was
offset by decrease in revenue at Altira Macau as a result of reduced visitation.
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Operating costs and expenses
Total operating costs and expenses were US$1.60 billion for the year ended December 31, 2009, an increase of
US$190.0 million (or 13.4%) from US$1.41 billion for the year ended December 31, 2008. The increase in operating costs of
US$190.0 million was primarily related to the commencement of operations at City of Dreams in June 2009 and was partially offset
by a decrease in operating costs at Altira Macau due to cost-savings initiatives.
Casino. Casino expenses decreased by US$29.6 million (or 2.6%) to US$1.13 billion in 2009 from US$1.16 billion in 2008
primarily due to a decrease in the gaming tax of US$328.3 million and US$140.9 million in casino-related expenses associated with
payroll-related expenses and our rolling chip program at Altira Macau. This decrease was offset by an increase of US$440.7 million in
casino expenses attributable to the opening of City of Dreams.
Rooms. Room expenses, which represent the costs in operating the hotel facilities at Altira Macau and City of Dreams,
increased by 373.7% to US$6.4 million in 2009 from US$1.3 million in 2008, primarily due to the commencement of operations at
City of Dreams in June 2009.
Food, beverage and others. Food, beverage and other expenses increased by US$6.9 million (or 49.1%) to US$20.9 million
in 2009 from US$14.0 million in 2008, primarily due to the commencement of operations at City of Dreams and offset by decrease in
expenses at Altira Macau driven by the associated decrease in revenue as described above.
General and administrative. General and administrative expenses increased by US$40.3 million (or 44.4%) to
US$131.0 million in 2009 from US$90.7 million in 2008, primarily due to the commencement of operations at City of Dreams in
June 2009.
Pre-opening costs. Pre-opening costs of US$91.9 million were incurred in 2009 relating to the opening of City of Dreams.
In 2008 we incurred pre-opening costs associated with City of Dreams of US$21.8 million. Such costs relate primarily to personnel
training, equipment, marketing, advertising and other administrative costs in connection with the opening of the property.
Amortization of gaming subconcession. Amortization of gaming subconcession recorded on a straight-line basis remained
stable at US$57.2 million in 2009 and 2008.
Amortization of land use rights. Amortization of land use rights expenses for 2009 of US$18.4 million remained relatively
consistent with 2008 of US$18.3 million.
Depreciation and amortization. Depreciation and amortization expense increased by US$90.5 million (or 176.1%) to
US$141.9 million in 2009 from US$51.4 million in 2008 primarily due to depreciation of assets of City of Dreams following its
opening in June 2009.
Property charges and others. Property charges and others generally includes costs related to the remodeling and rebranding
of a property which might include the retirement, disposal or write-off of assets. Property charges and others for the year ended
December 31, 2009 was US$7.0 million, which primarily included US$4.1 million related to the re-branding of Altira Macau and
US$2.9 million related to asset write-offs as a result of our termination of the Macau Peninsula project. Property charges and others
for the year ended December 31, 2008 was US$0.3 million related to a minor reconfiguration of the casino at Altira Macau.
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Non-operating (expenses) income
Non-operating (expenses) income consists of interest income and expenses, amortization of deferred financing costs, loan
commitment fees, foreign exchange gain and loss as well as other non-operating income.
Interest income decreased by US$7.7 million (or 93.9%) to US$0.5 million in 2009, mainly due to a decline in interest rates
and a decrease in average cash balances as a result of increased investment in completing the construction of City of Dreams.
Total interest expenses, which primarily included interest paid or payable on shareholders’ loans, the US$1.75 billion City
of Dreams Project Facility, and interest rate swap agreements for 2009 and 2008 totaled US$82.3 million and US$49.6 million
respectively, of which US$50.5 million and US$49.6 million was capitalized. Interest expenses net of capitalized interest increased by
US$31.8 million, primarily due to cessation of capitalizable interest following the opening of City of Dreams together with additional
borrowings under the City of Dreams Project Facility.
Other finance costs included US$6.0 million of amortization of deferred financing costs net of capitalization and
US$2.3 million of loan commitment fees related to the US$1.75 billion City of Dreams Project Facility. The decrease from 2008 was
attributable to decreases in the undrawn commitments as a result of drawdowns on the City of Dreams Project Facility during the
second half of 2008 and the first half of 2009.
Net foreign exchange gains for 2009 were US$491,000, mainly resulting from foreign exchange transaction gains on
Australian dollars, compared to US$1.4 million of net foreign exchange gains for 2008. Other non-operating income increased to
US$2.5 million in 2009 from US$972,000 in 2008.
Income tax credit
Our negative effective income tax rate was 0.04% for the year ended December 31, 2009, as compared to 37.4% for the
year ended December 31, 2008. The negative effective income tax rate for the years ended December 31, 2009 and 2008 differed from
the statutory Macau Complementary Tax rate of 12% primarily due to the effect of a change in valuation allowance on the net deferred
tax assets in 2009 and 2008, the impact of the net loss of Macau gaming operations during the year ended December 31, 2009 and the
effect of a tax holiday of US$8.9 million on the net income of Macau gaming operations during the year ended December 31, 2008
due to our income tax exemption in Macau, which is set to expire in 2011. Our management does not anticipate recording an income
tax benefit related to deferred tax assets generated by our Macau operations; however, to the extent that the financial results of our
Macau operations improve and it becomes more likely than not that the deferred tax assets are realizable, we will be able to reduce the
valuation allowance through earnings.
Net loss
As a result primarily of the foregoing, there was a net loss of US$308.5 million for 2009, compared to a net loss of
US$2.5 million in 2008.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our
consolidated financial statements. Our consolidated financial statements were prepared in conformity with U.S. GAAP. Certain of our
accounting policies require that management apply significant judgment in defining the appropriate assumptions integral to financial
estimates. On an ongoing basis, management evaluates those estimates, including those relating to the estimated lives of depreciable
assets, asset impairment, fair value of restricted shares and shares options granted, allowances for doubtful accounts, accruals for
customer loyalty rewards, revenue recognition, income tax and fair value of derivative instruments and hedging activities. Judgments
are based on historical experience, terms of existing contracts, industry trends and information available from outside sources, as
appropriate. However, by their nature, judgments are subject to an inherent degree of uncertainty, and therefore actual results could
differ from our estimates.
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We believe that the critical accounting policies discussed below affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Property and equipment and other long-lived assets
We depreciate and amortize property and equipment on a straight-line basis over their estimated useful lives commencing
from the time they are placed in service. The estimated useful lives are based on the nature of the assets as well as current operating
strategy and legal considerations such as contractual life. Future events, such as property expansions, property developments and
refurbishments, new competition, or new regulations, could result in a change in the manner in which we use certain assets requiring a
change in the estimated useful lives of such assets.
Our land use rights in Macau under the land concession contracts for Altira Macau and City of Dreams are being amortized
over the estimated lease term of the land on a straight-line basis. The expiry dates of the leases of the land use rights of Altira Macau
and City of Dreams are March 2031 and August 2033, respectively. The maximum useful life of assets at Altira Macau and City of
Dreams is therefore deemed to be the remaining life of the land concession contract.
Costs of repairs and maintenance are charged to expense when incurred. The cost and accumulated depreciation of property
and equipment retired or otherwise disposed of are eliminated from the respective accounts and any resulting gain or loss is included
in operating income or loss.
We also evaluate the recoverability of our property and equipment and other long-lived assets with finite lives whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the
carrying value of those assets to be held and used, is measured by first grouping our long-lived assets into asset groups and, secondly,
estimating the undiscounted future cash flows that are directly associated with and expected to arise from the use of and eventual
disposition of such asset group. We define an asset group as the lowest level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities and estimate the undiscounted cash flows over the remaining useful life of the primary
asset within the asset group. If the carrying value of the asset group exceeds the estimated undiscounted cash flows, we record an
impairment loss to the extent the carrying value of the long-lived asset exceeds its fair value with fair value typically based on a
discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs. All
recognized impairment losses, whether for assets to be disposed of or assets to be held and used, are recorded as operating expenses.
During the years ended December 31, 2010, 2009 and 2008, impairment losses amounting to nil, US$282,000 and
US$17,000, respectively, were recognized to write off gaming equipment due to the reconfiguration of the casino at Altira Macau to
meet the evolving demands of gaming patrons and target specific segments. During the year ended December 31, 2009, an impairment
loss amounting to $2.9 million was recognized to write off the construction in progress carried out at the Macau Peninsula site
following termination of the related acquisition agreement in December 2009. No impairment loss was recognized during the year
ended December 31, 2010.
Goodwill and purchased intangible assets
We review the carrying value of goodwill and purchased intangible assets with indefinite useful lives, representing the
trademarks of Mocha Clubs, for impairment at least on an annual basis or whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. To assess potential impairment of goodwill, we perform an assessment of the carrying
value of our reporting units at least on an annual basis or when events and changes in circumstances occur that would more likely than
not reduce the fair value of our reporting units below their carrying value. If the carrying value of a reporting unit exceeds its fair
value, we would perform the second step in our assessment process and record an impairment loss to earnings to the extent the
carrying amount of the reporting unit’s goodwill exceeds its implied fair value. We estimate the fair value of our reporting units
through internal analysis and external valuations, which utilize income and market valuation approaches through the application of
capitalized earnings, discounted cash flow and market comparable methods. These valuation techniques are based on a number of
estimates and assumptions, including the projected future operating results of the reporting unit, appropriate discount rates, long-term
growth rates and appropriate market comparables.
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A detailed evaluation was performed as of December 31, 2010 and the computed fair value of our reporting unit was
significantly in excess of the carrying amount. As a result of this evaluation, we determined that no impairment of goodwill existed as
of December 31, 2010.
Trademarks of Mocha Clubs are tested for impairment using the relief-from-royalty method and we determined that no
impairment of trademarks existed as of December 31, 2010. Under this method, we estimate the fair value of the intangible assets
through internal and external valuations, mainly based on the after-tax cash flow associated with the revenue related to the royalty.
These valuation techniques are based on a number of estimates and assumptions, including the projected future revenues of the
trademarks, appropriate royalty rates, appropriate discount rates, and long-term growth rates.
Share-based compensation
We issued restricted shares and share options under our share incentive plan during the years ended December 31, 2010,
2009 and 2008. We measure the cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award and recognize the cost over the service period in accordance with applicable accounting standards.
We use the Black-Scholes valuation model to value the equity instruments issued. The Black-Scholes valuation model requires the use
of highly subjective assumptions of expected volatility of the underlying stock, risk-free interest rates and the expected term of options
granted. Management determines these assumptions through internal analysis and external valuations utilizing current market rates,
making industry comparisons and reviewing conditions relevant to our company.
The expected volatility and expected term assumptions can impact the fair value of restricted shares and share options.
Because of our limited trading history as a public company, we estimate the expected volatility based on the historical volatility of a
peer group of publicly traded companies, and estimate the expected term based upon the vesting term or the historical expected term
of publicly traded companies. We believe that the valuation techniques and the approach utilized in developing our assumptions are
reasonable in calculating the fair value of the restricted shares and share options we granted. For 2010 awards (excluding our stock
option exchange program), a 10% change in the volatility assumption would have resulted in a US$0.1 million change in fair value
and a 10% change in the expected term assumption would have resulted in a US$0.04 million change in fair value. These assumed
changes in fair value would have been recognized over the vesting schedule of such awards. It should be noted that a change in
expected term would cause other changes, since the risk-free rate and volatility assumptions are specific to the term; we did not
attempt to adjust those assumptions in performing the sensitivity analysis above.
Revenue recognition
We recognize revenue at the time persuasive evidence of an arrangement exists, the service is provided or the retail goods
are sold, prices are fixed or determinable and collection is reasonably assured.
Casino revenues are measured by the aggregate net difference between gaming wins and losses less accruals for the
anticipated payouts of progressive slot jackpots, with liabilities recognized for funds deposited by customers before gaming play
occurs and for chips in the customers’ possession.
63
We follow the accounting standards on reporting revenue gross as a principal versus net as an agent, when accounting for
the operations of the Taipa Square Casino and the Grand Hyatt Macau hotel. For the operations of Taipa Square Casino, given that we
operate the casino under a right to use agreement with the owner of the casino premises and have full responsibility for the casino
operations in accordance with our gaming subconcession, we are the principal and casino revenue is therefore recognized on a gross
basis. For the operations of Grand Hyatt Macau hotel, we are the owner of the hotel property and Hyatt operates the hotel under a
management agreement as hotel manager, providing management services to us, and we receive all rewards and take substantial risks
associated with the hotel business. As such, we are the principal and the transactions of the hotel are therefore recognized on a gross
basis.
Rooms, food and beverage, entertainment, retail and other revenues are recognized when services are performed. Advance
deposits on rooms and advance ticket sales are recorded as customer deposits until services are provided to the customer. Minimum
operating and right to use fee, adjusted for contractual base fee and operating fee escalations, are included in entertainment, retail and
other revenues and are recognized on a straight-line basis over the terms of the related agreement.
Revenues are recognized net of certain sales incentives which are required to be recorded as a reduction of revenue;
consequently, our casino revenues are reduced by discounts, commissions and points earned in customer loyalty programs, such as the
player’s club loyalty program.
The retail value of rooms, food and beverage, entertainment, retail and other services furnished to guests without charge is
included in gross revenues and then deducted as promotional allowances. The estimated cost of providing such promotional
allowances is primarily included in casino expenses.
Accounts Receivable and Credit Risk
Financial instruments that potentially subject our company to concentrations of credit risk consist principally of casino
receivables. We issue credit in the form of markers to approved casino customers following investigations of creditworthiness,
including our gaming promoters in Macau which receivable can be offset against commissions payable and any other value items held
by us to the respective customer and for which we intend to set-off when required. Business or economic conditions, the legal
enforceability of gaming debts, or other significant events in foreign countries could affect the collectability of receivables from
customers and gaming promoters residing in these countries. Accounts are written off when management deems it is probable the
receivable is uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for
doubtful debts is maintained to reduce our receivables to their carrying amounts, which approximate fair values. The allowance is
estimated based on the specific review of customer accounts as well as management’s experience with collection trends in the casino
industry and current economic and business conditions. In determining our allowance for estimated doubtful debts, we apply industry
standard reserve percentages to aged account balances and we specifically analyze the collectability of each account with a balance
over a specified dollar amount, based upon the age of the account balance, the customer’s financial condition, collection history and
any other known information. The standard reserve percentages applied are based on our historical experience and take into
consideration current industry and economic conditions. At December 31, 2010, a 100 basis-point change in the estimated allowance
for doubtful debts as a percentage of casino receivables would change the provision for doubtful debts by approximately
US$2.9 million.
Income Tax
Deferred income taxes are recognized for all significant temporary differences between the tax basis of assets and liabilities
and their reported amounts in the consolidated financial statements. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The
components of the deferred tax assets and liabilities are individually classified as current and non-current based on the characteristics
of the underlying assets and liabilities. Current income taxes are provided for in accordance with the laws of the relevant taxing
authorities. As of December 31, 2010 and 2009, we recorded valuation allowances of US$47.2 million and US$33.1 million,
respectively, as management does not believe that it is more likely than not that the deferred tax assets will be realized. Our
assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future
profitability, and the duration of statutory carryforward periods. To the extent that the financial results of our operations improve and
it becomes more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.
64
Derivative Instruments and Hedging Activities
We seek to manage market risk, including interest rate risk associated with variable rate borrowings, through balancing
fixed-rate and variable-rate borrowings with the use of derivative financial instruments. We account for derivative financial
instruments in accordance with applicable accounting standards. All derivative instruments are recognized in the consolidated
financial statements at fair value at the balance sheet date. Any changes in fair value are recorded in the consolidated statement of
operations or in other comprehensive income (loss), depending on whether the derivative is designated and qualifies for hedge
accounting, the type of hedge transaction and the effectiveness of the hedge. The estimated fair values of our derivative instruments
are based on a standard valuation model that projects future cash flows and discounts those future cash flows to a present value using
market-based observable inputs such as interest rate yields.
Recent changes in accounting standards
See Note 2 to the consolidated financial statements included elsewhere in this annual report for discussion of recent
accounting standards.
The following table sets forth a summary of our cash flows for the periods indicated:
B. LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
2010
Year Ended December 31,
2009
(In thousands of US$)
2008
$
401,955
(190,310)
17,680
$
(112,257)
(1,143,639)
653,350
$
(11,158)
(913,602)
904,485
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
229,325
212,598
(602,546)
815,144
(20,275)
835,419
Cash and cash equivalents at end of year
$
441,923
$
212,598
$
815,144
We have been able to meet our working capital needs, and we believe that we will be able to meet our working capital
needs for the next 12 months. We plan to meet our liquidity needs in the next 12 months with our operating cash flow, existing cash
balances, possible additional financings, and availability under our City of Dreams Project Facility.
Operating activities
Operating cash flows are generally affected by changes in operating income and accounts receivable with VIP table games
play and hotel operations conducted on a cash and credit basis and the remainder of the business including mass table games play, slot
machine play, food and beverage, and entertainment conducted primarily on a cash basis.
Net cash provided by operating activities was US$402.0 million in 2010, compared to net cash used in operating activities
of US$112.3 million in 2009. There was an increase in operating cash flow mainly attributable to the improvement in results and a full
year of operation of City of Dreams which opened in June 2009. Net cash used in operating activities was US$112.3 million in 2009,
compared to US$11.2 million in 2008. There was a decrease in operating cash flow mainly attributable to a decline in gaming revenue
as described in the foregoing section, increased working capital for City of Dreams and Altira Macau and increased pre-opening
activities for City of Dreams.
65
Investing activities
Net cash used in investing activities was US$190.3 million in 2010, compared to US$1.14 billion in 2009, primarily due to
a reduction in construction and development activity relating to City of Dreams.
Our 2010 total capital expenditure was US$197.4 million and we paid US$29.8 million for City of Dreams’ land use rights
and US$27.1 million for entertainment production costs for The House of Dancing Water.
There was a net decrease of US$69.1 million in the amount of restricted cash primarily due to the settlement of
US$210.3 million of City of Dreams costs in accordance with the City of Dreams Project Facility, offset by a net increase of
US$97.5 million in the balance associated with issuance of Senior Notes as described below and increase of US$47.0 million of cash
set aside in accordance with the City of Dreams Project Facility both of which are for future repayments of the City of Dreams Project
Facility. Approximately US$22.8 million remains restricted for use in accordance with the City of Dreams Project Facility as required
for the City of Dreams’ costs under disbursement terms specified in the City of Dreams Project Facility and will be immediately
released upon the final completion of City of Dreams.
Net cash used in investing activities was US$1.14 billion in 2009, compared to US$913.6 million in 2008, primarily due to
increased construction and development activity relating to City of Dreams contributing to our total capital expenditures for the year
ended December 31, 2009 of US$937.1 million, payment of the City of Dreams land use rights of US$30.6 million and an increase of
US$168.1 million in the amount of restricted cash due to a deposit of cash into bank accounts restricted in accordance with the City of
Dreams Project Facility which will be immediately released upon the final completion of City of Dreams and until this time is
available for use as required for the City of Dreams’ costs under disbursement terms specified in the City of Dreams Project Facility.
Financing activities
Proceeds from Our Financing. Net cash provided by financing activities amounted to US$17.7 million for the year ended
December 31, 2010, primarily related to proceeds from the issuance of the Senior Notes amounting to US$592.0 million, offset by the
repayment of long term debt of US$551.4 million, of which US$444.1 million used to repay the City of Dreams Project Facility, and
payment of deferred financing costs primarily associated with the Senior Notes of US$22.9 million. Net cash provided by financing
activities amounted to US$653.4 million for the year ended December 31, 2009, primarily due to drawdown proceeds of
US$270.7 million from the City of Dreams Project Facility and proceeds from our follow-on public offerings in May 2009 and
August 2009 totaling US$383.5 million after deducting the offering expenses.
Shareholder Loans and Contributions. As of December 31, 2010, we had approximately US$115.7 million of outstanding
shareholder loans from Melco and Crown, of which US$115.6 million was in the form of fixed term loans repayable in May 2012.
The fixed term loan from Crown is at an interest rate of 3-months HIBOR per annum and the fixed term loan from Melco is at 3-
months HIBOR per annum and was at 3-months HIBOR plus 1.5% per annum during the period from May 16, 2008 to May 15, 2009
with the remaining balance of US$36,000 repayable on demand and non-interest bearing.
City of Dreams Project Facility. On September 5, 2007, Melco Crown Gaming and certain other subsidiaries specified as
guarantors under the City of Dreams Project Facility, or the Borrowing Group, entered into the US$1.75 billion City of Dreams
Project Facility to finance a portion of the total project costs of City of Dreams. On September 24, 2007, the first draw down which
comprised both H.K. dollars and U.S. dollars totaling the equivalent of US$500.2 million was made under the City of Dreams Project
Facility. Subsequent draw downs took place in 2008 and 2009, which comprised of both H.K. dollars and U.S. dollars totaling the
equivalent of US$912.3 million and US$270.7 million, respectively, under the City of Dreams Project Facility. On May 26, 2010, we
applied a portion of the net proceeds from the sale of the Senior Notes to reduce our indebtedness under our City of Dreams Project
Facility by US$444.1 million. We have repaid US$35.7 million and US$71.6 million in December 2010 of our City of Dreams Project
Facility in accordance with the quarterly amortization schedule and in relation to a mandatory prepayment required due to excess cash
generated as calculated in accordance with the City of Dreams Project Facility agreement respectively. Deferred financing costs of
US$0.9 million and US$7.6 million in relation to the City of Dreams Project Facility were paid accordingly during the years ended
December 31, 2009 and 2008, respectively. Subject to satisfaction of the relevant conditions precedent, a further US$100.5 million
remained available for future draw downs as at December 31, 2010 and as of the date of this annual report.
66
Senior Notes. On May 17, 2010, MCE Finance issued US$600,000,000 aggregate principal amount of senior notes with an
interest rate of 10.25% per annum and a maturity date of May 15, 2018. The Senior Notes are listed on the Official List of the SGX-
ST and the issue price was 98.671% of the principal amount, resulting in net proceeds to us of approximately US$577.1 million after
deducting US$22.9 million for the initial purchasers’ discounts and commissions and estimated offering expenses payable by us. The
net proceeds from the offering were used to reduce our indebtedness under the City of Dreams Project Facility as described above.
We may obtain financing in the form of, among other things, equity or debt, including additional bank loans or high yield,
mezzanine or other debt, or rely on our operating cash flow to fund the development of our projects.
Description of Our Indebtedness
City of Dreams Project Facility
The budgeted cost of construction and development of City of Dreams was funded from a combination of the following
sources:
•
•
•
cashflow generated from the operations of our existing businesses;
borrowings under the US$1.75 billion City of Dreams Project Facility; and
a portion of the net proceeds from our initial offering and our follow-on offering in December 2006 and November 2007,
respectively.
On September 5, 2007, Melco Crown Gaming and certain other subsidiaries specified as guarantors, or the Borrowing
Group, entered into the US$1.75 billion City of Dreams Project Facility to finance a portion of the total project costs of City of
Dreams. On December 7, 2007, the City of Dreams Project Facility was amended to introduce a U.S. borrower, Melco PBL
(Delaware) LLC, now MPEL (Delaware) LLC, a wholly-owned subsidiary of Melco Crown Gaming. In addition, the amendments
contained in an amendment agreement between the facility agent, the security agent, Melco Crown Gaming and the Borrowing Group
(which includes MPEL (Delaware) LLC), or the Amendment Agreement, executed on May 10, 2010, became effective on or about
May 17, 2010. The Amendment Agreement includes amendments to the financial ratios and covenants and how they are calculated,
and certain other amendments which correct anomalies in the City of Dreams Project Facility documents and allow the Borrowing
Group greater operational flexibility. The Amendment Agreement also includes provisions approving entry into the Intercompany
Note (as defined below) and the Senior Note Guarantees provided by Melco Crown Gaming, MPEL Nominee One Limited, MPEL
Investments Limited, Altira Hotel Limited, Altira Developments Limited, Melco Crown (COD) Hotels Limited, Melco Crown
(COD) Developments Limited, Melco Crown (Cafe) Limited, Golden Future (Management Services) Limited, MPEL (Delaware)
LLC, Melco Crown Hospitality and Services Limited, Melco Crown (COD) Retail Services Limited, Melco Crown (COD) Ventures
Limited, COD Theatre Limited, Melco Crown COD (HR) Hotel Limited, Melco Crown COD (CT) Hotel Limited and Melco Crown
COD (GH) Hotel Limited, or collectively, the Senior Note Subsidiary Group Guarantors, consequential amendments to security
documents and provisions which mandated the way in which net proceeds from the offering of the Senior Notes were applied to
repayment and cancellation of the revolving credit facility and prepayment and repayment of the term loan facility.
67
Drawdowns
The final maturity date of the term loan facility is September 5, 2014 and the final maturity date of the revolving credit
facility is September 5, 2012 or, if earlier, the date of repayment, prepayment or cancellation in full of the term loan facility.
We have fully drawn down the term loan facility and the availability period for this has expired. The revolving credit
facility is available on a fully revolving basis from, in the case of any drawing for general working capital purposes or for purposes of
meeting cost overruns associated with the City of Dreams project, the date upon which the term loan facility has been fully drawn, to
the date that is one month prior to the revolving credit facility’s final maturity date. In May 2010, the revolving credit facility
commitment was reduced from US$250 million to US$150 million. As of December 31, 2010 we had drawn down a total of
approximately US$49.5 million from the revolving credit facility with a further US$100.5 million still available for further utilization.
All drawings under the City of Dreams Project Facility are to be paid into a disbursement account that is subject to security.
On September 24, 2007, the first draw down which comprised both H.K. dollars and U.S. dollars totaling the equivalent of
US$500.2 million was made under the City of Dreams Project Facility. Subsequent draw downs took place in 2008 and 2009, which
comprised of both H.K. dollars and U.S. dollars totaling the equivalent of US$912.3 million and US$270.7 million, respectively,
under the City of Dreams Project Facility. On May 26, 2010, we applied a portion of the net proceeds from the sale of the Initial Notes
to reduce our indebtedness under our City of Dreams Project Facility by US$444.1 million. On December 6, 2010, we further reduced
our indebtedness under the City of Dreams Project Facility by an additional US$107.3 million. As of December 31, 2010, total
outstanding borrowings, which comprised both H.K. dollars and U.S. dollars totaling the equivalent of approximately US$1.13 billion,
have been made under the City of Dreams Project Facility. The rollover of existing revolving loans drawn under the City of Dreams
Project Facility is subject to compliance with covenants and satisfaction of conditions precedent. Melco Crown Gaming will have the
right to undertake a program to hedge exposures to interest rate fluctuations under the City of Dreams Project Facility and in certain
circumstances, currency fluctuations. The interests of the hedging counterparties under the hedging agreements are secured on a pari
passu basis with the lenders.
Repayment
The term loan facility will be repaid in quarterly installments according to an amortization schedule that commenced
December 5, 2010. Each revolving credit facility loan will be repaid in full on the last day of an agreed upon interest period ranging
from one to six months, or it will be rolled over.
Melco Crown Gaming may make voluntary prepayments in respect of the term loan facility and the revolving credit
facility, subject to certain conditions, without premium or penalty other than (if not made on an interest payment date) break costs, in
minimum amounts of US$20 million following the completion of City of Dreams. Voluntary prepayments will be applied to the term
loan principal outstanding on the City of Dreams Project Facility and to maturities on a pro-rata basis and amounts prepaid will not be
available for redrawing.
We must make mandatory prepayments in respect of the following amounts within the Borrowing Group under the City of
Dreams Project Facility, including but not limited to: (1) 50% of the net proceeds of any permitted equity issuance of any member of
the Borrowing Group and all of the net proceeds of any permitted debt issuance of any member of the Borrowing Group; (2) the net
proceeds of any asset sale, subject to reinvestment rights and certain exceptions; (3) net termination proceeds paid under Melco Crown
Gaming’s subconcession or the group’s land concessions, any lease agreement, the hotel management agreements, construction
contracts or certain other material contracts or agreements (subject to certain exceptions); (4) net claim proceeds paid in relation to
default or breach under certain documents relating to City of Dreams and other Borrowing Group businesses; (5) insurance proceeds
net of expenses to obtain such proceeds, subject to reinvestment rights and certain exceptions; and (6) excess cashflow (as defined
under various financial ratio tests).
68
Accounts
The terms of the City of Dreams Project Facility require that all of the revenues of the Altira Macau, City of Dreams and
Mocha Slot gaming businesses operated by Melco Crown Gaming be paid into bank accounts established by Melco Crown Gaming,
and secured in favor of the security agent for the benefit of the lenders. In addition, subject to certain exceptions, all of the accounts of
all of the members of the Borrowing Group have been pledged as security for the indebtedness and all of their revenues and receipts
are required to be deposited thereto. Subject to such security, such revenues will be paid out in order of priority, in accordance with
specified cash waterfall arrangements. Payments under or relating to the City of Dreams Project Facility rank at the top of the
waterfall. These arrangements will affect our ability to make payments under the Intercompany Note summarized under “—Senior
Notes”, and the Senior Notes.
Interest and Fees
The U.S. dollar and H.K. dollar denominated drawdowns bore an initial interest rate of LIBOR and HIBOR plus a margin
of 2.75% per annum. As of December 31, 2009, the margin was reduced to 2.50% per annum. The interest rate margin will be further
adjusted in accordance with the total debt to EBITDA ratio on a consolidated basis in respect of the Borrowing Group. We are
obligated to pay a commitment fee quarterly in arrears from September 5, 2007 throughout the availability period. The commitment
fee is payable on the daily undrawn amount under the available portion of the City of Dreams Project Facility.
Melco and Crown Support
In connection with the signing of the City of Dreams Project Facility in September 2007, Melco and PBL (Crown’s
predecessor) each provided an undertaking to Deutsche Bank AG, Hong Kong Branch, as agent under the City of Dreams Project
Facility, to contribute additional equity up to an aggregate of US$250 million (divided equally between Melco and PBL) to Melco
Crown Gaming to pay any costs (i) associated with construction of City of Dreams and (ii) for which Deutsche Bank AG, Hong Kong
Branch as agent has determined there is no other available funding. When Crown acquired the gaming businesses and investments of
PBL, it also acquired this obligation. In support of such contingent equity commitment, Melco and Crown each agreed to maintain a
direct or standby letter of credit in favor of the security agent for the City of Dreams Project Facility in an amount equal to the amount
of contingent equity it is obliged to ensure is provided to Melco Crown Gaming until the final completion date of City of Dreams has
occurred, and when certain debt service reserve accounts have been funded. Their letters of credit in the aggregate amount of
US$250 million were released and replaced by short-term deposits placed into bank accounts restricted in accordance with the City of
Dreams Project Facility by Melco Crown Gaming in May and September 2009, respectively. The balance of this restricted cash will
be immediately released upon the final completion for City of Dreams (and may be released earlier subject to lender determination
that the full amount is not required to meet remaining costs) and compliance with other release conditions under the City of Dreams
Project Facility; until this time it is, subject to lender approval, available for use as required for the payment of City of Dreams’
project construction costs based on disbursement terms under the City of Dreams Project Facility. As of December 31, 2010, a balance
of US$22.8 million remained in such bank accounts.
Security
others:
Security for the City of Dreams Project Facility and related hedging agreements and the SBGF Agreement include, among
•
•
a first priority mortgage over all land and all present and future buildings on and fixtures to such land, and an assignment of
land use rights under land concession agreements or equivalent held by the relevant entities in the Borrowing Group;
charges over the bank accounts in respect of the Borrowing Group, subject to certain exceptions;
69
•
•
•
•
•
assignment of the Borrowing Group’s rights under certain insurance policies and other contracts;
first priority security over the Borrowing Group’s chattels, receivables and other assets which are not subject to any
security under any other security documentation;
subordination and assignment of shareholder and other intra-group loans;
pledges over certain intellectual property used by the group and pledge over equipment and tools used in the gaming
business by Melco Crown Gaming; and
first priority charges over the issued share capital of the Borrowing Group.
Covenants
The Borrowing Group must comply with certain negative and affirmative covenants. These covenants include, among
others, that, without obtaining consent from the Majority Lenders (as defined in the City of Dreams Project Facility) or, in certain
circumstances, the facility agent, they may not:
•
•
•
•
•
•
•
create or permit to subsist further charge or any form of encumbrance over its assets, property or revenues except as
permitted under the City of Dreams Project Facility;
sell, transfer or dispose of any of its assets unless (subject to certain exceptions) such sale is conducted on an arm’s length
basis at a fair market value permitted in accordance with the terms of the City of Dreams Project Facility and the proceeds
from the sale shall be credited to the relevant accounts over which the lenders have a first priority charge on;
make any payment of fees under any agreement with Melco or Crown (or their affiliates) other than fees approved by the
Majority Lenders or, after a certain date, in accordance with the waterfall, or enter into agreements with Melco or Crown
(or their affiliates) except in certain limited circumstances;
make any loan or incur or guarantee indebtedness except for certain identified indebtedness and guarantees permitted
(which include the Senior Note Guarantees provided by the Senior Note Subsidiary Group Guarantors);
subject to certain exceptions, enter into or vary contracts (excluding the Intercompany Note or the Senior Note Guarantees);
create any subsidiaries except as permitted under the City of Dreams Project Facility, such as those necessary for
completion and operation of City of Dreams; or
make investments other than within agreed upon limitations.
In addition, the Borrowing Group is required to comply with certain financial ratios and financial covenants each quarter,
such as the:
•
Consolidated Leverage Ratio, as defined in the City of Dreams Project Facility, which cannot exceed 4.50 to 1 for the
reporting periods ending December 31, 2010, March 31, 2011 and June 30, 2011, cannot exceed 4.00 to 1 for the reporting
periods ending September 30, 2011, December 31, 2011 and March 31, 2012, and cannot exceed 3.75 to 1 for the reporting
periods ending June 30, 2012 onwards;
70
•
•
Consolidated Interest Cover Ratio, as defined in the City of Dreams Project Facility, which must be greater than or equal to
2.50 to 1 for the reporting periods ending December 31, 2010 and March 31, 2011, and must be greater than or equal to
3.00 to 1 for the reporting periods ending June 30, 2011 onwards; and
Consolidated Cash Cover Ratio, as defined in the City of Dreams Project Facility, which must be greater than or equal to
1.05 to 1 for the reporting periods ending December 31, 2010 onwards.
Events of Default
The City of Dreams Project Facility contains customary events of default including: (1) the failure to make any payment
when due; (2) the breach of financial covenants; (3) a cross-default triggered by any other event of default in the facility agreements or
other documents forming the indebtedness of the borrowers and/or guarantors; (4) the breach of the credit facility documents, gaming
subconcession, land concessions, lease agreements for the provision of gaming services or hotel management agreements, intellectual
property licenses and other material contracts; (5) insolvency or bankruptcy events; (6) misrepresentations on the part of the borrowers
and guarantors in statements made in the loan documents delivered to the lenders; and (7) various change of control events involving
us.
Senior Notes
On May 17, 2010, MCE Finance Limited issued US$600,000,000 aggregate principal amount of 10.25% senior notes due
2018 and listed the Initial Notes on the Official List of the Singapore Exchange Securities Trading Limited, or the SGX-ST. The issue
price for the Initial Notes was 98.671% of the principal amount. The Senior Notes are (1) general obligations of MCE Finance, (2)
pari passu in right of payment to all existing and future senior indebtedness of MCE Finance, (3) senior in right of payment to any
existing and future subordinated Indebtedness (as defined in the indenture) of MCE Finance, (4) effectively subordinated to all of
MCE Finance’s existing and future secured indebtedness to the extent of the value of the assets securing such debt and (5)
unconditionally guaranteed by the guarantors.
The Senior Notes bear interest at a rate of 10.25% per annum, payable semi-annually in arrears on May 15 and
November 15 of each year, and will mature on May 15, 2018. On May 26, 2010, we applied US$444.1 million of the net proceeds
from the sale of the Initial Notes to reduce our indebtedness under our City of Dreams Project Facility. On December 6, 2010, we
further reduced our indebtedness under the City of Dreams Project Facility by an additional US$107.3 million, of which
US$35.7 million was paid from a City of Dreams Project Facility debt service accrual account funded with the balance of the net
proceeds from the sale of the Initial Notes. Following such repayment, approximately US$97.5 million remained in such debt service
accrual account as of December 31, 2010.
Senior Note Guarantees
MCE, our subsidiary, MPEL International, and the Senior Note Subsidiary Group Guarantors, jointly and severally
guarantee the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under the
Senior Notes and the indenture.
The guarantees provided by MCE and MPEL International are (1) general obligations of MCE and MPEL International, (2)
pari passu in right of payment with all existing and future senior indebtedness of MCE and MPEL International and (3) senior in right
of payment to any existing and future subordinated indebtedness of MCE and MPEL International.
The guarantees provided by the Senior Note Subsidiary Group Guarantors are (1) a general obligation of each such Senior
Note Subsidiary Group Guarantor, (2) subordinated in right of payment to indebtedness of such Senior Note Subsidiary Group
Guarantors under the City of Dreams Project Facility and the SBGF Agreement and (3) senior in right of payment to any existing and
future subordinated indebtedness of such Senior Note Subsidiary Group Guarantors.
71
Security
On May 17, 2010, MCE Finance on-lent to MPEL Investments under an intercompany note, or the Intercompany Note, an
aggregate amount necessary to reduce our indebtedness under the City of Dreams Project Facility. The face value of the Intercompany
Note is US$600,000,000 and interest accrues on the Intercompany Note at a rate at least equal to the interest rate payable on the
Senior Notes, subject to certain adjustments. The Intercompany Note is repayable at the same time as the repayment in full or in part
of amounts due under the Senior Notes. The Senior Notes and the guarantees provided by MCE, MPEL International and the Senior
Note Subsidiary Group Guarantors are secured by a first priority pledge of the Intercompany Note.
Covenants
The Senior Notes, the indenture and the guarantees include (subject to certain exceptions) certain limitations on the ability
of MCE Finance and its restricted subsidiaries to, among other things:
•
•
•
•
•
•
•
•
incur or guarantee additional indebtedness;
make specified restricted payments, including dividends;
issue or sell capital stock;
sell assets;
create liens;
enter into agreements that restrict the ability of the restricted subsidiaries to pay dividends, transfer assets or make
intercompany loans;
enter into transactions with shareholders or affiliates; and
effect a consolidation or merger.
Optional Redemption of the Senior Notes
Prior to May 15, 2014, MCE Finance at its option may redeem the Senior Notes, in whole or in part, at a redemption price
equal to 100% of the principal amount of the Senior Notes plus the applicable “make-whole” premium, plus accrued and unpaid
interest, additional amounts and liquidated damages, if any, to the redemption date.
At any time after May 15, 2014, MCE Finance at its option may redeem the Senior Notes, in whole or in part, at the
redemption prices set forth below plus accrued and unpaid interest, additional amount and liquidated damages, if any, to the
redemption date.
Year
2014
2015
2016 and thereafter
Percentage
105.125%
102.563%
100.000%
At any time prior to May 15, 2013, MCE Finance may redeem up to 35% of the principal amount of the Senior Notes, with
the net cash proceeds of one or more equity offerings at a redemption price of 110.25% of the principal amount of the Senior Notes,
plus accrued and unpaid interest, additional amounts and liquidated damages, if any, to the redemption date.
72
Repurchase of Senior Notes upon a Change of Control
Upon the occurrence of a Change in Control (as defined in the indenture), MCE Finance will make an offer to repurchase
all outstanding Senior Notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, additional
amounts and liquidated damages, if any, to the repurchase date.
Redemption for Taxation Reasons
Subject to certain exceptions, MCE Finance may redeem the Senior Notes, in whole but not in part, at a redemption price
equal to 100% of the principal amount thereof, together with accrued and unpaid interest, additional amounts and liquidated damages,
if any, to the date fixed by MCE Finance for redemption, if MCE Finance or a guarantor would become obliged to pay certain
additional amounts as a result of certain changes in specified tax laws or certain other circumstances.
Gaming Redemption
The indenture grants MCE Finance the power to redeem the Senior Notes if the gaming authority of any jurisdiction in
which our company, MCE Finance or any of their respective subsidiaries conducts or proposes to conduct gaming requires that a
person who is a holder or the beneficial owner of Senior Notes be licensed, qualified or found suitable under applicable gaming laws
and such holder or beneficial owner, as the case may be, fails to apply or become licensed or qualified within the required time period
or is found unsuitable.
Registration Rights Agreement
In connection with the private placement of the Initial Notes, MCE Finance and MCE, MPEL International and the Senior
Note Subsidiary Group Guarantors (or collectively, the Senior Note Guarantors) entered into a registration rights agreement with the
initial purchasers, in which MCE Finance and the Senior Note Guarantors agreed, among other things, to conduct an offer to exchange
up to all of the outstanding Initial Notes for up to US$600,000,000 10.25% senior notes due 2018 that have been registered under the
Securities Act, or the Exchange Notes. The exchange offer commenced on November 17, 2010 and expired on December 21, 2010.
Tenders with respect to 99.96% of the Initial Notes were received prior to the expiration of the exchange offer. MCE Finance
completed the exchange offer, issued the Exchange Notes and listed the Exchange Notes on the SGX-ST on December 27, 2010.
Other Financing
We may obtain financing in the form of, among other things, equity or debt, including additional bank loans or high yield,
mezzanine or other debt, or rely on our operating cash flow to fund the development of our projects.
Sources and Uses
We have been able to meet our working capital needs, and we believe that we will be able to meet our working capital
needs in the foreseeable future, with our operating cash flow, existing cash balances, possible additional financings and availability
under our City of Dreams Project Facility.
New business developments or other unforeseen events may occur, resulting in the need to raise additional funds. There can
be no assurances regarding the business prospects with respect to any other opportunity. Any other development would require us to
obtain additional financing.
Other Liquidity Matters
Melco Crown Gaming has a rating of “BB-” by Standard & Poor’s and a rating of “Ba3” by Moody’s Investors Service. For
future borrowings, any decrease in our corporate rating could result in an increase in borrowing costs.
73
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
We have entered into a license agreement with Crown Melbourne Limited and obtained an exclusive and non-transferable
license to use the Crown trademark in Macau. Our hotel management agreements for the use of the Grand Hyatt and Hyatt Regency
trademarks on a non-exclusive and non-transferable basis were terminated in August 2008 and replaced by a management agreement
for the use of the Grand Hyatt trademarks to reflect the branding of the twin-tower hotels under the “Grand Hyatt” brand. In
January 2007, we entered into a casino trademark license agreement and a hotel trademark license agreement (which was subsequently
novated and amended by a Novation Agreement on August 20, 2008) with Hard Rock Holdings Limited, or Hard Rock, to use the
Hard Rock brand in Macau at the City of Dreams. Pursuant to the agreements, we have the exclusive right to use the Hard Rock brand
for the hotel and casino facility at City of Dreams for a term of ten years based on percentages of revenues generated at the property
payable to Hard Rock. We also purchase gaming tables and gaming machines and enter into licensing agreements for the use of
certain tradenames and, in the case of the gaming machines, the right to use software in connection therewith. These include a license
to use a jackpot system for the gaming machines. In addition, we have registered the trademarks “Mocha Club” and “City of Dreams”
in Macau. We have registered in Macau certain trademarks and are currently in the process of applying for the registration of certain
other trademarks and service marks to be used in connection with the operations of our hotel casino projects in Macau.
D. TREND INFORMATION
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands,
commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity
or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or
financial conditions.
E. OFF-BALANCE SHEET ARRANGEMENTS
Except as disclosed in Note 18(d) to the consolidated financial statements included elsewhere in this annual report, we have
not entered into any material financial guarantees or other commitments to guarantee the payment obligations of any third parties. We
have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not
reflected in our consolidated financial statements.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves
as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that
provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services
with us.
74
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Our total long-term indebtedness and other known contractual obligations are summarized below as of December 31, 2010.
Contractual obligations
Long-term debt obligations:
Loans from shareholders (1)
Other long-term debt (2)
Fixed interest payments
Variable interest payments(3)
Operating lease obligations:
Leases for office space, VIP lounge,
recruitment and training center, staff
quarter and Mocha Clubs locations
Other contractual commitments:
Government land use fees payable for
Altira Macau land (4)
Government land use fees payable for
City of Dreams land (4)
Interest on land premium for City of
Dreams land (5)
Construction, plant and equipment
acquisition commitments (6)
Buses and limousines services
commitments
Premium on gaming subconcession (7)
Trademark and memorabilia license fee
commitments
Consultancy and other services
commitments
Entertainment show operations
commitments
Less than
1 year
1-3
years
Payments due by period
3-5
years
(in millions of US$)
More than
5 years
Total
$
$
—
203.0
61.5
39.5
$
115.6
583.9
123.0
37.3
$
—
344.9
123.0
4.9
$
—
600.0
145.9
—
115.6
1,731.8
453.4
81.7
10.8
12.7
0.2
1.2
1.8
2.8
2.4
9.4
0.9
4.5
7.7
0.3
2.4
1.2
—
—
18.7
1.8
3.6
21.1
6.4
0.3
2.4
—
—
—
18.7
1.8
0.6
—
7.1
2.6
20.8
—
—
—
60.6
3.1
—
—
37.0
3.4
26.8
3.0
2.8
2.4
107.4
7.6
8.7
28.8
Total contractual obligations
$
345.7
$
921.6
$
503.0
$
840.1
$
2,610.4
(1) Excludes the working capital loans provided by Melco and Crown, which had an outstanding balance of US$36,000 as of
December 31, 2010. As of December 31, 2010, the balance of the outstanding term loans from Melco and Crown, amounting to
approximately US$115.6 million was repayable in May 2012. The term loans from Melco and Crown as of December 31, 2010
both are bearing interest at 3-months HIBOR per annum.
(2) Other long-term debt represents US$1.75 billion under the City of Dreams Project Facility and US$600 million Senior Notes.
The City of Dreams Project Facility consists of a US$1.5 billion term loan facility and a US$250 million revolving credit facility.
The term loan facility matures in September 2014 and is subject to quarterly amortization payments (the “Scheduled
Amortization Payments”) commencing in December 2010. The revolving credit facility matures in September 2012 or, if earlier,
the date of repayment, prepayment or cancellation in full of the term loan facility and has no interim amortization payment. In
addition to the Scheduled Amortization Payments, we are also subject to quarterly mandatory prepayments in respect of the
following amounts within certain of subsidiaries of Melco Crown Gaming (together with Melco Crown Gaming collectively
referred to as the “Borrowing Group”) including but not limited to: (i) 50% of the net proceeds of any permitted equity issuance
of any member of the Borrowing Group; (ii) the net proceeds of any asset sales; (iii) net termination proceeds paid under the
Melco Crown Gaming’s subconcession and certain contracts or agreements; (iv) certain net proceeds or liquidated damages paid;
(v) insurance proceeds net of expenses to obtain such proceeds; and (vi) excess cash as defined under a leverage test.
75
In May 2010, MCE Finance issued the Senior Notes, which are listed on the Official List of the Singapore Exchange Securities
Trading Limited. Additionally, in May 2010, Melco Crown Gaming entered into an amendment agreement to the City of Dreams
Project Facility (the “Amendment Agreement”). The Amendment Agreement, among other things, (i) amends the date of the first
covenant test date to December 31, 2010; (ii) provides additional flexibility to the financial covenants; (iii) removes the
obligation but retains the right to enter into any new interest rate or foreign currency swaps or other hedging arrangements; and
(iv) restricts the use of the net proceeds received from the issuance of the Senior Notes to repayment of certain amounts
outstanding under the City of Dreams Project Facility, including prepaying the term loan facility in an amount of
US$293.7 million and the revolving credit facility in an amount of US$150.4 million, with the remaining net proceeds in an
amount of US$133.0 million deposited in a bank account that is restricted for use to pay future Scheduled Amortization
Payments commencing December 2010 as well as providing for a permanent reduction of the revolving credit facility of
US$100 million.
(3) Amounts for all periods represent our estimated future interest payments on our debt facilities based upon amounts outstanding
and Hong Kong Inter-Bank offered Rate, London Inter-Bank Offered Rate (at December 31, 2010) plus the applicable interest
rate spread in accordance with the respective debt agreements.
(4) Annual government land use fees payable is approximately MOP 1.4 million (US$171,000) and is adjusted every five years as
agreed between the Macau government and Altira Developments Limited in accordance with the applicable market rates from
time to time.
(5) In February 2008, Melco Crown (COD) Developments Limited and Melco Crown Gaming accepted in principle an offer from
the Macau government to acquire the Cotai Land in Macau, where the City of Dreams site located and required us to pay a land
premium of approximately MOP 842.1 million (US$105.1 million). We paid MOP 300.0 million (US$37.4 million) of the land
premium upon our acceptance of the final terms on February 11, 2008. On August 13, 2008 the Macau government formally
granted the land concession to Melco Crown (COD) Developments Limited of which approximately MOP 526.1 million
(US$65.7 million) has been paid as of December 31, 2010 and the remaining amount of approximately MOP 316.0 million
(US$39.4 million), accrued with 5% interest per annum, will be paid in five biannual installments. In November 2009, Melco
Crown (COD) Developments Limited and Melco Crown Gaming accepted in principle the initial terms for the revision of the
land lease agreement from the Macau government for the increased developable gross floor area for City of Dreams and
recognized additional land premium of approximately MOP 257.4 million (US$32.1 million) payable to the Macau government.
In March 2010, Melco Crown (COD) Developments Limited and Melco Crown Gaming accepted the final terms for the revision
of the land lease agreement and fully paid the additional land premium to the Macau government. The land grant amendment
process was completed on September 15, 2010. The total outstanding balances of the land use right have been included in
accrued expenses and other current liabilities and land use right payable as of December 31, 2010. We have also provided a
guarantee deposit of approximately MOP 3.4 million (US$424,000), upon signing of the government lease in February 2008.
According to the terms of the revised offer from the Macau government, payment in the form of government land use fees in an
aggregate amount of approximately MOP 9.5 million (US$1.2 million) per annum is payable to Macau government and such
amount may be adjusted every five years as agreed between the Macau government and Melco Crown (COD) Developments
Limited in accordance with the market rates from time to time.
(6) The amount as of December 31, 2010 mainly represents construction contracts for the construction and plant and equipment
acquisitions of City of Dreams of approximately US$2.2 million. The balance includes the remaining payment obligations for
Altira Macau, Mocha Clubs and Corporate.
(7) The amount represents fixed annual premium of MOP 30.0 million (US$3.7 million) and minimum variable premium of
MOP 45.0 million (US$5.6 million) per year based on number of gaming table and slot machine.
See “Special Note Regarding Forward-Looking Statements”.
G. SAFE HARBOR
76
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding our directors and executive officers as of the date of this annual report
on Form 20-F.
Name
Lawrence (Yau Lung) Ho
James D. Packer
John Wang
Clarence Chung
Todd Nisbet
Rowen B. Craigie
James A. C. MacKenzie
Thomas Jefferson Wu
Alec Tsui
Robert Mactier
Geoffrey Davis
Stephanie Cheung
Nigel Dean
Akiko Takahashi
Ted (Ying Tat) Chan
Nicholas Naples
Constance (Ching Hui) Hsu
Directors
Age
34
43
50
48
43
55
57
38
61
46
42
48
57
57
39
52
37
Position/Title
Co-Chairman and Chief Executive Officer
Co-Chairman
Director
Director
Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
Chief Financial Officer
Executive Vice President and Chief Legal Officer
Executive Vice President and Chief Internal Audit Officer
Executive Vice President and Chief Human Resources/Corporate Social
Responsibility Officer
Co-Chief Operating Officer, Gaming
Co-Chief Operating Officer, Operations
President of Mocha Clubs
Mr. Lawrence (Yau Lung) Ho has served as our co-chairman and chief executive officer since December 2004. Since
November 2001, Mr. Ho has also served as the group managing director and, since March 2006, the chairman and chief executive
officer of Melco. Mr. Ho serves on numerous boards and committees in Hong Kong, Macau and mainland China. In recognition of
Mr. Ho’s excellent directorship and entrepreneurial spirit, the Institutional Investor, a leading research and publishing organization,
honored him as the “Best CEO” in the Conglomerates category in 2005. As a socially responsible young entrepreneur in Hong Kong,
Mr. Ho was elected as one of the “Ten Outstanding Young Persons Selection 2006”, organized by the Junior Chamber International
HK. In 2009, Mr. Ho was selected by FinanceAsia as one of the “Best CEO” in Hong Kong, “China Top Ten Financial and Intelligent
Persons” judged by a panel led by the Beijing Cultural Development Study Center, and was named “Young Entrepreneur of the Year”
at Hong Kong’s first Asia Pacific Entrepreneurship Awards in 2009. Mr. Ho worked at Jardine Fleming from September 1999 to
October 2000 and iAsia Technology Limited (the predecessor of Value Convergence Holdings Limited) from October 2000 to
November 2001. Mr. Ho graduated with a bachelor of arts degree in commerce from the University of Toronto, Canada and was
awarded the Honorary Doctor of Business Administration degree by Edinburgh Napier University, Scotland for his contribution to
business, education and the community in Hong Kong, Macau and China.
Mr. James D. Packer has served as our co-chairman since March 2005. Mr. Packer is the Executive Chairman of Crown,
having been appointed on its formation in 2007, and a member of the Crown Investment Committee since February 2008. Mr. Packer
is also Executive Chairman of Consolidated Press Holdings Limited (the largest shareholder of Crown), having been appointed in May
1992, and Executive Deputy Chairman of Consolidated Media Holdings Limited, having been appointed in April 1992. Mr. Packer is
a director of Crown Melbourne Limited, having been appointed on July 22, 1999, Ellerston Capital Limited, having been appointed on
August 6, 2004, and Burswood Limited, having been appointed in September 2004. Mr. Packer is also a director of Ten Network
Holdings Limited, having been appointed in December 2010.
77
Mr. John Peter Ben Wang has served as our director since November 2006. Mr. Wang has served as a non-executive
director of Oriental Ginza Holdings Limited since August 2009 and MelcoLot Limited since November 2009, companies listed on the
Stock Exchange of Hong Kong. He was the chief financial officer of Melco from 2004 to September 2009. Prior to joining Melco in
2004, Mr. Wang had over 18 years of professional experience in the securities and investment banking industry. He was the managing
director of JS Cresvale Securities International Limited (HK) from 1998 to 2004 and prior to 1998, he worked for Deutsche Morgan
Grenfell (HK), CLSA (HK), Barclays (Singapore), SG Warburg (London), Salomon Brothers (London), the London Stock Exchange
and Deloitte Haskins & Sells (London). Mr. Wang qualified as a chartered accountant with the Institute of Chartered Accountants in
England and Wales in 1985. He graduated from the University of Kent at Canterbury in the United Kingdom with a bachelor degree in
Accounting.
Mr. Clarence (Yuk Man) Chung has served as our director since November 2006. Mr. Chung has also been an executive
director of Melco since May 2006. Mr. Chung joined Melco in December 2003 and assumed the role of chief financial officer. Before
joining Melco, he was the chief financial officer at Megavillage Group from September 2000 to November 2003, an investment
banker at Lazard managing an Asian buy-out fund from June 1998 to September 2000, a vice-president at Pacific Century Group from
July 1994 to February 1998, and a qualified accountant with Arthur Andersen from June 1991 to June 1992. Mr. Chung has been the
chairman and chief executive officer of Entertainment Gaming Asia Inc. (formerly known as Elixir Gaming Technologies, Inc.), a
company listed on the New York Stock Exchange (NYSE-Amex), since August 2008 and October 2008, respectively. Mr. Chung
holds a masters degree in business administration from the Kellogg School of Management at Northwestern University and is a
member of the Hong Kong Institute of Certified Public Accountants and the Institute of Chartered Accountants in England and Wales.
Mr. Todd Nisbet has served as our director since October 14, 2009. Mr. Nisbet joined the Crown Limited team in October
of 2007. In his role as Executive Vice President—Strategy and Development, Mr. Nisbet is responsible for all international project
development and construction operations of Crown Limited. From August 2000 through July 2007, Mr. Nisbet held the position of
Executive Vice President—Project Director for Wynn Design and Development, a development subsidiary of Wynn Resorts Limited,
or Wynn. Serving this role with Wynn, Mr. Nisbet was responsible for all project development and construction operations undertaken
by Wynn. Prior to joining Wynn, Mr. Nisbet was the Vice President of Operations for Marnell Corrao Associates. During his 14 years
at Marnell Corrao from 1986 to 2000, he was responsible for managing various aspects of the construction of some of Las Vegas’
most elaborate and industry-defining properties. Mr. Nisbet holds a Bachelor of Science degree in Finance from the University of
Nevada, Las Vegas.
Mr. Rowen B. Craigie has served as our director since March 2005. Mr. Craigie is the Chief Executive Officer and
Managing Director of Crown, having been appointed on its formation in 2007. Mr. Craigie is also a director of Crown Melbourne
Limited, having been appointed in January 2001, and Burswood Limited, having been appointed in September 2004. Mr. Craigie
previously served from 2007 to 2008 as the Chief Executive Officer of PBL Gaming and from 2002 to 2007 as the Chief Executive
Officer of Crown Melbourne Limited. Mr. Craigie joined Crown Melbourne Limited in 1993, was appointed as the Executive General
Manager of its Gaming Machines department in 1996, and was promoted to Chief Operating Officer 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. He holds a Bachelor of
Economics (Honors) degree from Monash University, Melbourne, Australia.
78
Mr. James A. C. MacKenzie has served as our director since April 2008. Mr. MacKenzie has also served as chairman of
Mirvac Group since 2005, Pacific Brands Ltd. since 2008, and Gloucester Coal Limited since 2009. He led the transformation of the
Victorian Government’s Personal Injury Schemes from 2000 to 2007 and prior to 2005 he held senior executive positions with ANZ
Banking Group, Standard Chartered Bank and Norwich Union plc. A chartered accountant by profession, Mr. MacKenzie was, prior
to 2005, a partner in both the Melbourne and Hong Kong offices of an international accounting firm now part of Deloitte. In 2003
Mr. MacKenzie was awarded the Australian Centenary Medal for services to public administration. He holds a Bachelor of Business
(Accounting and Quantitative Methods) degree from the Swinburne University of Technology and has completed the Advanced
Management Program at the University of Oxford and the Making Corporate Boards More Effective Course at the Harvard Business
School. He is a Fellow of both the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors.
He is the chairman of our audit committee.
Mr. Thomas Jefferson Wu has served as our independent director since our Nasdaq listing in December 2006. Mr. Wu has
been the managing director of Hopewell Holdings Limited, a Hong Kong Stock Exchange-listed business conglomerate, since
October 2009. He has served in various roles with the Hopewell Holdings group since 1999, including group controller from
March 2000 to June 2001, executive director since June 2001, chief operating officer from January 2002 to August 2002, deputy
managing director from August 2003 to June 2007 and co-managing director from July 2007 to September 2009. He has served as the
managing director of Hopewell Highway Infrastructure Limited since July 2003. He has been a member of the Huadu District
Committee of The Chinese People’s Political Consultative Conference and a member of its Standing Committee since March 2004, a
member of the Advisory Committee of the Hong Kong Securities and Futures Commission since June 2007, a member of the 11th
National Committee of the All-China Youth Federation since August 2010, a member of the Hongkong Japan Business Co-operation
Committee of the Hong Kong Trade Development Council since January 2010, a member of the Hong Kong SAR Government
Steering Committee on the Promotion of Electric Vehicles since April 2009, a council member of The Hong Kong Polytechnic
University since April 2009, a member of the Court of The Hong Kong University of Science and Technology since July 2009, and a
member of the board of directors of The Community Chest of Hong Kong since June 2008 and The Hong Kong Sports Institute
Limited since April 2009. He has also acted as the honorary consultant of the Institute of Accountants Exchange since May 2006, the
honorary president of the Association of Property Agents and Realty Developers of Macau since June 2005, the vice chairman of the
Chinese Ice Hockey Association since July 2008 and was the vice chairman of The Chamber of Hong Kong Listed Companies from
October 2003 to August 2010. He holds an MBA from Stanford University and a Bachelor’s degree in mechanical and aerospace
engineering from Princeton University. He is the chairman of our compensation committee, a member of our audit committee and a
member of our nominating and corporate governance committee.
Mr. Alec Tsui has served as our independent director since our Nasdaq listing in December 2006. Mr. Tsui has extensive
experience in finance and administration, corporate and strategic planning, information technology and human resources management,
having served at various international companies. He held key positions at the Securities and Futures Commission of Hong Kong from
1989 to 1993, joined the Hong Kong Stock Exchange in 1994 as an executive director of the finance and operations services division
and was its chief executive from 1997 to July 2000. He was also the chief operating officer of Hong Kong Exchanges and Clearing
Limited from March to July 2000. He was the chairman of the Hong Kong Securities Institute from 2001 to 2004. He was an advisor
and a council member of the Shenzhen Stock Exchange from July 2001 to June 2002. Mr. Tsui has been the Chairman of WAG
Worldsec Corporate Finance Limited since 2002 and an independent non-executive director of a number of listed companies in Hong
Kong and Nasdaq, including Industrial and Commercial Bank of China (Asia) Limited since August 2000, China Chengtong
Development Group Limited, a property development and investment company, since 2003, COSCO International Holdings Limited,
a conglomerate engaging in various businesses including ship trading, property development and investment, since 2004, China Power
International Development Limited since 2004, China Blue Chemical Limited, a fertilizer manufacturer, since 2003, Pacific Online
Ltd. since 2007, ATA Inc., an online educational testing provider, since 2009 and China Oilfield Services Limited, an oilfield services
provider, since 2009. Mr. Tsui graduated from the University of Tennessee with a Bachelor of Science degree and a Master of
Engineering degree in industrial engineering. He completed a program for senior managers in government at the John F. Kennedy
School of Government at Harvard University. He is the chairman of our nominating and corporate governance committee, a member
of our audit committee and a member of our compensation committee.
79
Mr. Robert W. Mactier has served as our independent director since our Nasdaq listing in December 2006. Mr. Mactier
joined the board of directors of STW Communications Group Limited, a publicly listed Australian communications and advertising
company, in December 2006 and became its independent, non-executive Chairman in July 2008. He has been a director of Aurora
Community Television Limited since 2005. Since 1990 Mr. Mactier has held a variety of roles across the Australian investment
banking and securities markets. He has been a consultant to UBS Investment Bank in Australia since June 2007. From March 1997 to
January 2006, Mr. Mactier worked with Citigroup Pty Limited and its predecessor firms in Australia, and prior to this he worked with
Ord Minnett Securities Limited from May 1990 to October 1994 and E.L.& C. Baillieu Limited from November 1994 to
February 1997. During this time, he has gained broad advisory and capital markets transaction experience and specific industry
expertise within the telecommunications, media, gaming, entertainment and technology sector and across the private equity sector.
Prior to joining the investment banking industry, Mr. Mactier qualified as a chartered accountant, working with KPMG from
January 1986 to April 1990 across their audit, management consulting and corporate finance practices. He holds a Bachelor’s degree
in economics from the University of Sydney, Australia and is a Member of the Australian Institute of Company Directors. Mr. Mactier
is a member of our compensation committee and nominating and corporate governance committee.
Executive Officers
Mr. Geoffrey Davis is our chief financial officer and he was appointed to his current role in April 2011. Prior to that, he
served as our deputy chief financial officer from August 2010 to March 2011 and our senior vice president, corporate finance from
2007, when he joined our company. Prior to joining us, Mr. Davis was the senior gaming analyst for Citigroup Investment Research,
where he covered the U.S. gaming industry from 2001 to 2007. From 1996 to 2001, he was vice president — finance for Park Place
Entertainment, the largest gaming company in the world at the time. Park Place was spun off from Hilton Hotels Corporation and
subsequently renamed Caesars Entertainment. Mr. Davis is a CFA charterholder and holds a BA in Economics from Brown
University.
Ms. Stephanie Cheung is our executive vice president and chief legal officer and she was appointed to her current role in
December 2008. Prior to that, she held the title general counsel from November 2006, when she joined our company. She also acts as
the secretary to our board of directors since she joined our company. Prior to joining us, Ms. Cheung was Of Counsel at Troutman
Sanders from 2004 to 2006 and prior to that she practiced law with various international law firms in Hong Kong, Singapore and
Toronto. Ms. Cheung holds a Bachelor of Arts degree from the University of Toronto, Ontario, Canada, a Bachelor of Laws degree
from Osgoode Hall Law School, Ontario, Canada, and an MBA (finance) from York University, Ontario, Canada.
Mr. Nigel Dean is our executive vice president and chief internal audit officer and he was appointed to his current role in
December 2008. Prior to that, he held the title director of internal audit from December 2006, when he joined our company. Prior to
joining us, Mr. Dean was general manager-corporate governance at Coles Myer Ltd from 2003 to 2006, where he was responsible for
the implementation of the Sarbanes-Oxley Act of 2002 and other corporate governance compliance programs. Other positions held at
Coles Myer included the head of group internal audit from 1995 to 2001 and head of internal audit of the Supermarkets Division from
1990 to 1995. Previous experience in external and internal audit included positions with Peat Marwick Mitchell & Co (now KPMG)
from 1973 to 1975, Australian Federal Government Auditor-General’s Office from 1975 to 1976, Ford Asia-Pacific from 1976 to
1982, CRA (now RioTinto) from 1982 to 1986, and Elders IXL Group from 1986 to 1990. Mr. Dean is a Fellow of the Australian
Institute of CPA’s and a Certified Internal Auditor. He holds a Bachelor of Laws degree from Deakin University, a Diploma of
Business Studies (accounting) from Swinburne College and an MBA from Monash University.
80
Ms. Akiko Takahashi is our executive vice president and chief officer, human resources/corporate social responsibility and
she was appointed to her current role in 2008. Prior to that, she held the title group human resources director from December 2006,
when she joined our company. Prior to joining us, Ms. Takahashi worked as a human resources consultant in her own consultancy
company from 2003 to 2006, where her last assignment was to lead the human resources integration for the largest international hotel
joint venture in Japan. She was the global group director, human resources for Shangri-la Hotels and Resorts, an international luxury
hotel group headquartered in Hong Kong, from 1995 to 2003. Between 1993 and 1995, she was senior vice president, human
resources and SVC Quality for Bank of America, Hawaii, FSB. She began her career in the fashion luxury retail industry in
merchandising, operations, training and human resources. Ms. Takahashi attended the University of Hawaii.
Mr. Ted (Ying Tat) Chan is our co-chief operating officer, gaming, overseeing gaming activities across the entire
organization, and he was appointed to his current role in September 2010. Prior to that, he served as president of Altira Macau from
November 2008. Prior to his appointment as president of Altira Macau, Mr. Chan was the chief executive officer of Amax
Entertainment Holdings Limited from December 2007 until November 2008. Before joining Amax, Mr. Chan worked with our chief
executive officer on special projects from September 2007 to November 2007 and was the general manager of Mocha Clubs from
2004 to 2007. From June 2002 to November 2006, Mr. Chan was the assistant to Mr. Lawrence Ho at Melco, and he was involved in
the overall strategic development and management of our company. Mr. Chan served as a director of development at First Shanghai
Financial Holding Limited from 1998 to May 2002, specializing in internet trading solutions and China business development. He
graduated with a bachelor’s degree in business administration from the Chinese University of Hong Kong and with a master’s degree
in financial management from the University of London, the United Kingdom.
Mr. Nicholas Naples is our co-chief operating officer, operations, responsible for the operating activities of all our leisure
and hospitality businesses, including our marketing and brand strategies, across the entire organization, and he was appointed to his
current role in July 2010. With 25 years of experience in the hospitality industry, Mr. Naples has held executive leadership positions
with several luxury hotel and casino companies, including Harrah’s Entertainment from 1998 to 2004, Four Seasons from 1992 to
1998, and Ritz-Carlton from 1987 to 1992. Mr. Naples also has extensive experience in Asia. Prior to joining us, Mr. Naples was the
Consulting Executive Vice President at Sands China from 2009 to 2010, and was previously the Chief Operating Officer at Macau
Studio City from 2006 to 2009. He holds degrees in economics, business and a master’s of management from Cornell University
Graduate School of Hotel Administration.
Ms. Constance (Ching Hui) Hsu is our president of Mocha Clubs, and she was appointed to her current role in
December 2008. Ms. Hsu has worked for Mocha Clubs since September 2003. She was Mocha’s former financial controller from
September 2003 to September 2006 and its chief administrative officer from October 2006 to November 2008, overseeing finance,
treasury, audit, legal compliance, procurement and administration and human resources functions. Ms. Hsu obtained her Bachelor of
Arts degree in business administration with major in accounting in the United States and an MBA (with concentration on financial
services) from University of Science and Technology in Hong Kong. Ms. Hsu is qualified as a Certified Public Accountant in the State
of Washington, United States; a member of the American Institute of Certified Public Accountants; and an associate member of Hong
Kong Institute of Certified Public Accountants.
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B. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
In addition to the equity awards granted as described below, we paid aggregate remuneration of approximately US$11.26
million to all the directors and senior executive officers of our company as a group in relation to the year ended December 31, 2010.
We offer our management employees, including senior executive officers, the ability to participate in our company’s
discretionary annual bonus plan. As part of this plan, employees may receive compensation in addition to their base salary upon
satisfactory achievement of certain financial, strategic and individual objectives. Directors are excluded from this plan. The
discretionary annual bonus plan is administered at the sole discretion of our company and our compensation committee.
Pursuant to our 2006 Share Incentive Plan (See “—E. Share Ownership—2006 Share Incentive Plan”), we may grant either
restricted shares or options to purchase our ordinary shares. In 2010, we issued options to acquire 1,033,944 of our ordinary shares
pursuant to our 2006 Share Incentive Plan to the directors and senior executive officers of our company with exercise prices of
US$1.2767 per share (US$3.83 per ADS) and 516,972 restricted shares with grant date fair value ranging from US$0.7717 to
US$0.9429 per share (US$2.3150 to US$2.8286 per ADS). The options expire ten years after the date of grant. In 2010, options to
acquire 1,381,440 of our ordinary shares and 178,665 restricted shares held by the directors and senior executive officers were
forfeited.
Composition of Board of Directors
C. BOARD PRACTICES
Our board of directors consists of ten directors, including three directors nominated by each of Melco and Crown and four
independent directors. Nasdaq Marketplace Rule 5605(b)(1) generally requires that a majority of an issuer’s board of directors must
consist of independent directors, but provides for certain phase-in periods under Nasdaq Marketplace Rule 5615(c)(3). However,
Nasdaq Marketplace Rule 5615(a)(3) permits foreign private issuers like us to follow “home country practice” in certain corporate
governance matters. Walkers, our Cayman Islands counsel, has provided a letter to the Nasdaq certifying that under Cayman Islands
law, we are not required to have a majority of independent directors serving on our board of directors. We rely on this “home country
practice” exception and do not have a majority of independent directors serving on our board of directors.
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in good faith and with a view to our best
interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably
prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association, as amended and restated from time to time. An individual shareholder
or we, as the company have (as applicable) the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
declaring dividends and distributions;
appointing officers and determining the term of office of officers;
exercising the borrowing powers of our company and mortgaging the property of our company; and
approving the transfer of shares of our company, including the registering of such shares in our share register.
•
•
•
•
•
On March 18, 2008, our board of directors adopted corporate governance guidelines with the intention of strengthening our
corporate governance practice.
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Terms of Directors and Executive Officers
Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of
office and hold office until such time as they are removed from office by special resolution or the unanimous written resolution of all
shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes
any arrangement or composition with his creditors; or (ii) dies or is found by our company to be or becomes of unsound mind.
Committees of the Board of Directors
Our board of directors established an audit committee, a compensation committee and a nominating and corporate
governance committee in December 2006.
Audit Committee
Our audit committee consists of Messrs. Thomas Jefferson Wu, Alec Tsui and James MacKenzie, and is chaired by
Mr. MacKenzie. All of them satisfy the “independence” requirements of the Nasdaq corporate governance rules. We believe that
Mr. MacKenzie qualifies as an “audit committee financial expert”. The charter of the audit committee was adopted by our board on
November 28, 2006. It was amended and restated on several occasions, with the last amendment on November 25, 2009 to provide the
audit committee members with clearer guidance to enable them to carry out their functions with regards to oversight of the
independent auditors and internal audit. The purpose of the committee is to assist our board in overseeing and monitoring:
•
•
•
•
•
•
•
•
•
•
the integrity of the financial statements of our company;
the qualifications and independence of our independent auditors;
the performance of our independent auditors;
the integrity of our systems of internal accounting and financial controls;
legal and regulatory issues relating to the financial statements of our company, including the oversight of the independent
auditor, the review of the financial statements and related material, the internal audit process and the procedure for
receiving complaints regarding accounting, internal accounting controls, auditing or other related matters;
the disclosure, in accordance with our relevant policies, of any material information regarding the quality or integrity of our
financial statements, which is brought to its attention by our disclosure committee, which we expect to set up and will
comprise certain members of our senior management; and
the integrity and effectiveness of our internal audit function and risk management policies, procedures and practices.
The duties of the audit committee include:
considering a tendering process for the appointment of the independent auditor every five years, selecting our independent
auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;
at least annually, obtaining a written report from our independent auditor describing matters relating to its independence,
undertaking a performance evaluation of the independent auditor on an annual basis and reporting the results of such
evaluation to the Chief Executive Officer;
discussing with our independent auditor, among other things, issues regarding accounting and auditing principles and
practices and the management’s internal control report;
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•
•
•
•
•
•
•
•
approving related-party transactions, amounting to more than US$256,000 per transaction or series of transactions, or of an
unusual or non standard nature which are brought to its attention;
Establishing and overseeing procedures for the handling of complaints and whistle blowing;
deciding whether any material information regarding the quality or integrity of our company’s financial statements, which
is brought to its attention by our disclosure committee, should be disclosed;
approving the internal audit charter and annual audit plans;
assessing and approving any policies and procedures to identify, accept, mitigate, allocate or otherwise manage various
types of risks presented by management, and making recommendations with respect to our risk management process;
together with our board, evaluating the performance of the audit committee;
assessing the adequacy of its charter; and
cooperating with the other board committees in any areas of overlapping responsibilities.
Compensation Committee
Our compensation committee consists of Messrs. Thomas Jefferson Wu, Alec Tsui and Robert Mactier, and is chaired by
Mr. Wu. All of them satisfy the “independence” requirements of the Nasdaq corporate governance rules. The charter of the
compensation committee was adopted by our board on November 28, 2006. It was amended and restated on several occasions with the
latest amendment on November 24, 2010 to update the titles of the executive officers.
The purpose of the compensation committee is to discharge the responsibilities of the board relating to compensation of our
executives, including by designing (in consultation with management and our board), recommending to our board for approval, and
evaluating the executive and director compensation plans, policies and programs of our company.
Members of the compensation committee are not prohibited from direct involvement in determining their own
compensation. Our chief executive officer may not be present at any compensation committee meeting during which his compensation
is deliberated.
The duties of the compensation committee include:
making recommendation to the board with respect to the compensation packages of our directors and approving the
compensation package of our senior executive officers, including the chief executive officer;
overseeing our regulatory compliance with respect to compensation matters;
together with the board, evaluating the performance of the compensation committee;
assessing the adequacy of its charter; and
cooperating with the other board committees in any areas of overlapping responsibilities.
•
•
•
•
•
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Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Messrs. Thomas Jefferson Wu, Alec Tsui and Robert
Mactier, and is chaired by Mr. Tsui. All of them satisfy the “independence” requirements of the Nasdaq Marketplace Rules. The
charter of the nominating and corporate governance committee was adopted by our board on November 28, 2006. It was amended and
restated on several occasions, with the latest on December 16, 2008 to clarify the purpose, duties and powers of the nominating and
corporate governance committee and to provide the nominating and corporate governance committee members with clearer guidance
to enable them to carry out their functions.
The purpose of the nominating and corporate governance committee is to assist our board in discharging its responsibilities
regarding:
•
•
•
•
•
•
•
•
•
•
•
the identification of qualified candidates to become members and chairs of the board committees and to fill any such
vacancies;
oversight of our compliance with legal and regulatory requirements, in particular the legal and regulatory requirements of
the Macau SAR (including the relevant laws related to the gaming industry), of the Cayman Islands, of the SEC and of the
Nasdaq;
the development and recommendation to our board of a set of corporate governance principles applicable to our company;
and
the disclosure, in accordance with our relevant policies, of any material information (other than that regarding the quality or
integrity of our financial statements), which is brought to its attention by the disclosure committee.
The duties of the committee include:
identifying and recommending to the board nominees for election or re-election to the board committees, or for
appointment to fill any such vacancy;
developing a set of corporate governance principles and reviewing such principles at least annually;
deciding whether any material information (other than that regarding the quality or integrity of our financial statements),
which is brought to its attention by the disclosure committee, should be disclosed;
together with the board, evaluating the performance of the committee;
assessing the adequacy of its charter; and
cooperating with the other board committees in any areas of overlapping responsibilities.
Interested Transactions
A director may vote in respect of any contract or transaction in which he or she is interested, provided that the nature of the
interest of any directors in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that
matter.
Remuneration and Borrowing
The directors may determine remuneration to be paid to the directors. The compensation committee assists the directors in
reviewing and approving the compensation structure for the directors. The directors may exercise all the powers of our company to
borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities
whether outright or as security for any debt obligations of our company or of any third party.
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Qualification
There is no shareholding qualification for directors.
Benefits Upon Termination
Our directors are not currently entitled to benefits when they cease to be directors.
Employment Agreements
We have entered into an employment agreement with each of our executive officers. The terms of the employment
agreements are substantially similar for each executive officer, except as noted below. We may terminate an executive officer’s
employment for cause, at any time, without notice or remuneration, for certain acts of the officer, including, but not limited to, a
serious criminal act, willful misconduct to our detriment or a failure to perform agreed duties. Furthermore, either we or an executive
officer may terminate employment at any time without cause upon advance written notice to the other party. Except in the case of
Mr. Lawrence Ho, upon notice to terminate employment from either the executive officer or our company, our company may limit the
executive officer’s services for a period until the termination of employment. Each executive officer is entitled to unpaid
compensation upon termination due to disability or death. We will indemnify an executive officer for his or her losses based on or
related to his or her acts and decisions made in the course of his or her performance of duties within the scope of his or her
employment.
Each executive officer has agreed to hold, both during and after the termination of his or her employment agreement, in
strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or as
compelled by law, any of our or our customers’ confidential information or trade secrets. Each executive officer also agrees to comply
with all material applicable laws and regulations related to his or her responsibilities at our company as well as all material written
corporate and business policies and procedures of our company.
Each executive officer is prohibited from gambling at any of our company’s facilities during the term of his or her
employment and six months following the termination of such employment agreement.
Each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or
her employment and six months following the termination of such employment agreement. Specifically, each executive officer has
agreed not to (i) assume employment with or provide services as a director for any of our competitors who operate in a restricted area;
(ii) solicit or seek any business orders from our customers; or (iii) seek directly or indirectly, to solicit the services of any of our
employees. The restricted area is defined as Asia or Australasia or any other country or region in which our company operates.
Employees
D. EMPLOYEES
We had 10,166, 9,631 and 4,803 employees as of December 31, 2010, 2009 and 2008, respectively. The following table
sets forth the number of employees categorized by the areas of operations and as a percentage of our workforce as of December 31,
2010, 2009 and 2008.
Mocha
Altira Macau
City of Dreams
Corporate and centralized services
2010
Number of Percentage
Employees
777
2,609
6,194
586
25.7
60.9
5.8
of Total
7.6%
December 31,
2009
2008
Number of
Employees
757
2,753
5,718
403
Percentage
of Total
of Total
Number of Percentage
Employees
615
3,540
317
331
12.8%
73.7
6.6
6.9
7.8%
28.6
59.4
4.2
Total
10,166
100%
9,631
100%
4,803
100%
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None of our employees are members of any labor union and we are not party to any collective bargaining or similar
agreement with our employees. We believe that our relationship with our employees is good.
We have implemented a number of human resource initiatives over recent years for the benefit of our employees and their
families. These initiatives include unique in-house learning academy, an on-site high school diploma program, scholarship awards, as
well as fast track promotion training initiatives jointly coordinated with the School of Continuing Study of Macau University of
Science & Technology and Macao Technology Committee.
Except as disclosed in Item 7 below, each director and member of senior management individually owns less than 1% of
E. SHARE OWNERSHIP
our outstanding ordinary shares.
2006 Share Incentive Plan
We have adopted a share incentive plan, or 2006 Plan, to attract and retain the best available personnel for positions of
substantial responsibility, provide additional incentives to employees, directors and consultants and to promote the success of our
business. Under the 2006 Plan, the maximum aggregate number of shares which may be issued pursuant to all awards (including
shares issuable upon exercise of options) is 100,000,000 over ten years. Our Board has recently approved the removal of the
maximum award amount of 50,000,000 shares over the first five years. The removal of such maximum limit for the first five years
was approved by our shareholders at our general meeting held in May 2009. As of March 22, 2011, 63,724,191 out of 100,000,000
shares remain available for the grant of stock options or restricted shares.
The following paragraphs describe the principal terms included in our 2006 plan.
Types of Awards. The awards we may grant under our 2006 plan include:
•
•
options to purchase our ordinary shares; and
restricted shares.
Plan Administration. The compensation committee will administer the plan and will determine the provisions and terms
and conditions of each award grant.
Award Agreement. Awards granted will be evidenced by an award agreement that sets forth the terms, conditions and
limitations for each award.
Eligibility. We may grant awards to employees, directors and consultants of our company or any of our related entities,
including Melco, Crown, other joint venture entities of Melco or Crown, our own subsidiaries or any entities in which we hold a
substantial ownership interest. However, we may grant options that are intended to qualify as incentive share options only to our
employees.
Exercise Price and Term of Awards. In general, the plan administrator will determine the exercise price of an option and set
forth the price in the award agreement. The exercise price may be a fixed or variable price related to the fair market value of our
common shares. If we grant an incentive share option to an employee who, at the time of that grant, owns shares representing more
than 10% of the voting power of all classes of our share capital, the exercise price cannot be less than 110% of the fair market value of
our common shares on the date of that grant.
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The term of each award shall be stated in the award agreement. The term of an award shall not exceed ten years from the
date of the grant.
Vesting Schedule. In general, the plan administrator determines, or the award agreement will specify, the vesting schedule.
A summary of the awards pursuant to the 2006 Plan as of December 31, 2010, is presented below:
Exercise
Price/Grant Date
Unvested Share
Fair Value per Options/ Restricted
Number of
Share Options
2007 Long Term Incentive Plan
2008 Long Term Incentive Plan
2008 Retention Program
2009 Cancel and Re-issue Program
2009 Long Term Incentive Plan
2010 Long Term Incentive Plan
Restricted Shares
2008 Long Term Incentive Plan
2008 Retention Program
2009 Long Term Incentive Plan
2010 Long Term Incentive Plan
ADS
Shares
Vesting Period
$14.15 – $15.19
$12.04 – $14.08
$3.04
$4.28
$3.04 – $3.26
$3.75 – $3.98
$3.99 – $12.04
$3.04
$3.26
$3.75 – $4.66
98,175
176,305
4,825,491
2,023,155
3,387,351
1,992,705
12,503,182
4 to 5 years
4 years
3 years
4 years
4 years
3 to 4 years
162,734
804,390
621,171
1,060,764
2,649,059
3 to 4 years
3 years
4 years
3 to 4 years
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth the beneficial ownership of our ordinary shares (exclusive of any ordinary shares represented
by ADSs held by the SPV) as of March 17, 2011 by all persons who are known to us to be the beneficial owners of 5% or more of our
share capital.
Name
Melco Leisure and Entertainment Group Limited (2)(3)
Crown Asia Investments Pty. Ltd. (4)
Ordinary shares beneficially
owned (1)
Number
536,116,538
536,116,538
%
33.36
33.36
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, and includes voting or investment power with respect to the securities. Melco and Crown
continue to have a shareholders’ agreement relating to certain aspects of the voting and disposition of our ordinary shares held by
them, and may accordingly constitute a “group” within the meaning of Rule 13d-3. See “—Melco Crown Joint Venture”.
However, Melco and Crown each disclaim beneficial ownership of the shares of our company owned by the other.
(2) Melco Leisure and Entertainment Group Limited is incorporated in the British Virgin Islands and is a wholly owned subsidiary
of Melco. The address of Melco and Melco Leisure and Entertainment Group Limited is c/o The Penthouse, 38th Floor, The
Centrium, 60 Wyndham Street, Central, Hong Kong. Melco is listed on the Main Board of the Hong Kong Stock Exchange.
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(3) Mr. Lawrence Ho, our Co-Chairman and Chief Executive Officer and the Chairman, Chief Executive Officer and Executive
Director of Melco, personally holds 8,087,112 ordinary shares of Melco, representing approximately 0.66% of Melco’s ordinary
shares outstanding as of February 15, 2011. In addition, 115,509,024 shares of Melco are held by Lasting Legend Ltd.,
288,532,606 shares of Melco are held by Better Joy Overseas Ltd. and 7,294,000 shares of Melco are held by The L3G Capital
Trust, all of which companies are owned by persons and/or trusts affiliated with Mr. Ho. Therefore, we believe that Mr. Ho
beneficially owns an aggregate of 419,422,742 ordinary shares of Melco, representing approximately 34.08% of Melco’s
ordinary shares outstanding as of February 15, 2011. The foregoing amount does not include 298,982,188 shares which may be
issued by Melco to Great Respect Limited as a result of any future exercise in full of conversion rights by Great Respect Limited,
a company controlled by a discretionary trust the beneficiaries of which include Mr. Ho and his immediate family members,
under the amended convertible loan notes held by Great Respect Limited.
(4) Crown Asia Investments Pty. Ltd., formerly PBL Asia Investments Limited, was incorporated in the Cayman Islands but is now
a registered Australian company and is 100% indirectly owned by Crown. The address of Crown and Crown Asia Investments
Pty. Ltd. is Level 3, Crown Towers, 8 Whiteman Street, Southbank, Victoria 3006, Australia. Crown is listed on the Australian
Stock Exchange. As of February 24, 2011, Crown was approximately 43.0% owned by Consolidated Press Holdings Group,
which is a group of companies owned by the Packer family.
As of December 31, 2010 a total of 1,605,658,111 ordinary shares were outstanding, of which 538,152,834 ordinary shares
were registered in the name of a nominee of Deutsche Bank Trust Company Americas, the depositary under the deposit agreement.
We have no further information as to shares held, or beneficially owned, by U.S. persons. Since the completion of our initial public
offering in December 2006, all ordinary shares underlying the ADSs quoted initially on the Nasdaq Global Market and since
January 2009 on the Nasdaq Global Select Market have been held in Hong Kong by the custodian, Deutsche Bank AG, Hong Kong
Branch, on behalf of the depositary. In October 2007, we appointed BOCI Securities Limited to assist us in the administration of our
long term incentive plan.
None of our shareholders will have different voting rights from other shareholders after the filing of this annual report. We
are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
Melco Crown Joint Venture
In November 2004, Melco and PBL agreed to form an exclusive new joint venture in Asia to develop and operate casino,
gaming machines and casino hotel businesses and properties in a territory defined to include Greater China (comprising Macau, China,
Hong Kong and Taiwan), Singapore, Thailand, Vietnam, Japan, the Philippines, Indonesia, Malaysia and other countries that may be
agreed (but not including Australia and New Zealand).
In March 2005, Melco and PBL concluded the joint venture arrangements resulting in our company becoming a 50/50
owned holding company and entered into a shareholders’ deed that governed their joint venture relationship in our company and our
subsidiaries. Subsequently, Crown acquired all the gaming businesses and investments of PBL, including PBL’s investment in our
company. We act as the exclusive vehicle of Melco and Crown to carry on casino, gaming machines and casino hotel operations in
Macau, while activities in other parts of the territory will be carried out under other entities formed by Crown and Melco.
Original and Amended Shareholders’ Deed
Under the original shareholders’ deed, projects and activities of the joint venture in Greater China were to be undertaken by
MPEL (Greater China), which is effectively owned 60% by Melco and 40% by PBL, with projects in the Territory outside Greater
China to be undertaken by one or more other of our subsidiaries which are effectively owned 60% by PBL and 40% by Melco.
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Memorandum of Agreement
Simultaneously with PBL entering into an agreement with Wynn Macau to obtain a subconcession on March 4, 2006,
Melco and PBL executed a memorandum of agreement on March 5, 2006, relating to the amendment of certain provisions of the
shareholders’ deed and other commercial agreements between Melco and PBL in connection with their joint venture. Melco and PBL
supplemented the memorandum of agreement by entering into a supplemental agreement to the memorandum of agreement on
May 26, 2006. Under the memorandum of agreement, as amended, Melco and PBL agreed in principle to share on a 50/50 basis the
risks, liabilities, commitments, capital contributions and economic value and benefits with respect to gaming projects in the Territory,
including in Macau, subject to PBL obtaining the subconcession and the transfer of control of Melco Crown Gaming to us. The
principal terms and conditions of the shareholders’ deed, as amended by the memorandum of agreement and the supplemental
agreement to the memorandum of agreement, are:
•
•
•
Melco and PBL are to share on a 50/50 basis all the economic value and benefits with respect to all gaming projects in the
Territory;
Melco and PBL are to appoint an equal number of members to our board of directors, with no casting vote in the event of a
deadlock or other deadlock resolution provisions;
All of the class A shares of Melco Crown Gaming, representing 28% of all the outstanding capital stock of Melco Crown
Gaming, are to be owned by PBL Asia Limited (as to 18%) and the Managing Director of Melco Crown Gaming (as to
10%), respectively. Mr. Lawrence Ho has been appointed to serve as the Managing Director of Melco Crown Gaming. The
holders of the class A shares, as a class, will have the right to one vote per share, receive an aggregate annual dividend of
MOP 1 and return of capital of an aggregate amount of MOP 1 on a wind up or liquidation, but will have no right to
participate in the winding up or liquidation assets;
•
All of the class B shares of Melco Crown Gaming, representing 72% of all the outstanding capital stock of Melco Crown
Gaming are to be owned by MPEL Investments, our wholly owned subsidiary. As the holder of class B shares, we will have
the right to one vote per share, receive the remaining distributable profits of Melco Crown Gaming after payment of
dividends on the class A shares, to return of capital after payment on the class A shares on a winding up or liquidation of
Melco Crown Gaming, and to participate in the winding up and liquidation assets of Melco Crown Gaming;
•
•
•
The shares of Altira Developments and Melco Crown (COD) Developments and the operating assets of Mocha would be
transferred to Melco Crown Gaming;
MPEL (Greater China) and Mocha are to be liquidated or remain dormant; and
The provisions of the shareholders’ deed relating to the operation of our company are to apply to Melco Crown Gaming.
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Shareholders’ Deed
Melco and PBL entered into a shareholders’ deed post our initial offering which was effective in December 2006. In
connection with the acquisition of the gaming businesses and investments of PBL by Crown, Melco and Crown have entered into a
new variation to the shareholders’ deed with us, which became effective in July 2007. The new shareholders’ deed includes the
following principal terms:
Exclusivity. Melco and Crown must not (and must ensure that their respective Affiliates and major shareholders do not),
other than through us, directly or indirectly own, operate or manage a casino, a gaming slots business or a casino hotel, or acquire or
hold an interest in an entity that owns, operates or manages such businesses in Macau, except that Melco and Crown may acquire and
hold up to 5% of the voting securities in a public company engaged in such businesses.
Directors. Melco and Crown may each nominate up to three directors and shall vote in favor of the three directors
nominated by the other and will not vote to remove directors nominated by the other. Melco and Crown will procure that the number
of directors appointed to our board shall not be less than ten. However, if the number of directors on our board is increased, each of
Melco and Crown will agree to increase the number of directors that they will nominate so that not less than 60% of our board will be
directors nominated by Melco and Crown and voted in favor of by the other.
Transfer of Shares. Without the approval of the other party, Melco and Crown may not create any security interest or agree
to create any security interest in our shares. In addition, without approval from the other, Melco and Crown may not transfer or
otherwise dispose of our shares, except for: (1) permitted transfers to their wholly owned subsidiaries; (2) transfers of up to 1% of our
issued and outstanding shares over any three month period up to a total cap of 5% of our issued and outstanding shares; (3) transfers
subject to customary rights of first refusal and tag-along rights in favor of Crown or Melco (as the case may be) with respect to their
transfers of our shares; and (4) in the case of Melco, the assured entitlement distribution by Melco to its shareholders of the assured
entitlement ADSs.
Events of Default. If there is an event of default, which is defined as a material breach of the shareholders’ deed, an
insolvency event of Melco or Crown or their subsidiaries which hold our shares, or a change in control of the Melco or Crown
subsidiaries which hold our shares, and it is not cured within the prescribed time period, then the non-defaulting shareholder may
exercise: (1) a call option to purchase our shares owned by the defaulting shareholder at a purchase price equal to 90% of the fair
market value of the shares; or (2) a put option to sell all of the shares it owns in us to the defaulting shareholder at a purchase price
equal to 110% of the fair market value of the shares.
Notice from a Regulatory Authority. If a regulatory authority directs either Melco or Crown to end its relationship with the
other, or makes a decision that would have a material adverse effect on its rights or benefits in us, then Melco and Crown may serve a
notice of proposed sale to the other and, if the other shareholder does not want to purchase those shares, may sell the shares to a third
party.
Term. The shareholders’ deed will continue unless agreed in writing by all of the parties or if a shareholder ceases to hold
any of our shares in accordance with the shareholders’ deed.
See “Item 4. Information on the Company—C. Organization Structure” for our current corporate structure.
91
During the years ended December 31, 2010, 2009 and 2008, we entered into the following material related party
transactions:
B. RELATED PARTY TRANSACTIONS
Amounts paid/payable to affiliated companies
Advertising and promotional expenses
Consultancy fee capitalized in construction in progress
Consultancy fee recognized as expense
Management fees
Network support fee
Office rental
Operating and office supplies
Property and equipment
Repairs and maintenance
Service fee expense
Traveling expense capitalized in construction in progress
Traveling expense recognized as expense
Amounts received/receivable from affiliated companies
Other service fee income
Rooms and food and beverage income
Sales proceeds for disposal of property and equipment
Amounts paid/payable to shareholders
Interest charges capitalized in construction in progress
Interest charges recognized as expense
Amounts received/receivable from a shareholder
Other service fee income
Rooms and food and beverage income
$
2010
Year Ended December 31,
2009
(in thousands of US$)
2008
75
—
868
17
—
2,271
181
1,287
236
500
3
3,542
268
80
—
—
242
23
39
$
$
211
1,312
1,301
45
28
2,354
257
59,482
87
748
65
2,809
896
23
—
963
215
—
—
597
246
1,168
1,698
52
1,466
255
16,327
655
781
66
1,387
276
100
2,788
3,367
—
—
—
Details of those material related party transactions provided in the table above are as follows:
(a) Amounts Due From Affiliated Companies
Melco’s subsidiary and its associated companies — We reimbursed Melco’s subsidiary for service fees incurred on our
behalf for rental, office administration, travel and security coverage for the operation of the office of our Chief Executive Officer
during the years ended December 31, 2010, 2009 and 2008. Melco’s subsidiary provided services to us which included management
of general and administrative matters and consultancy during the years ended December 31, 2010, 2009 and 2008, and advertising and
promotion, system maintenance and administration support and repairs and maintenance during the year ended December 31, 2008.
Other service fee income was received from Melco’s subsidiary during the years ended December 31, 2010 and 2009 and Melco’s
subsidiary purchased rooms and food and beverage services from us during the year ended December 31, 2009. Melco’s associated
companies purchased rooms and food and beverage services from us during the year ended December 31, 2009 and we purchased
property and equipment from Melco’s associated company during the year ended December 31, 2009. The outstanding balance due
from Melco’s subsidiary as of December 31, 2010 was US$1.5 million, mainly related to prepayment of operating expenses, and as of
December 31, 2009, the outstanding balance with Melco’s subsidiary was a payable of US$607,000. The outstanding balances due
from Melco’s associated companies as of December 31, 2010 and 2009 amounted to US$1,000 in each of those periods. These
amounts were unsecured, non-interest bearing and repayable on demand.
Shun Tak Holdings Limited’s subsidiary — Shun Tak Holdings Limited’s subsidiary purchased rooms and food and
beverage services from us, and provided traveling services to us during the year ended December 31, 2010, a company in which
relatives of Mr. Lawrence Ho, our Co-Chairman and Chief Executive Officer, have beneficial interests. As of December 31, 2010 and
2009, the outstanding balances due from this subsidiary of Shun Tak Holdings Limited of US$64,000 and nil, respectively, were
unsecured, non-interest bearing and repayable on demand.
92
(b) Amounts Due To Affiliated Companies
Elixir International Limited, or Elixir—We purchased property and equipment and services including repairs and
maintenance, operating and office supplies and consultancy from Elixir, a wholly-owned subsidiary of Melco before Melco disposed
of it in July 2010, primarily related to the Altira Macau and City of Dreams during the years ended December 31, 2010, 2009 and
2008. We paid network support fee to Elixir during the years ended December 31, 2009 and 2008. Certain gaming machines were sold
to Elixir during the year ended December 31, 2008 and Elixir purchased rooms and food and beverage services from us during the
years ended December 31, 2010, 2009 and 2008. As of December 31, 2009, the outstanding balance due to Elixir of US$5.0 million
was unsecured, non-interest bearing and repayable on demand.
Sociedade de Turismo e Diversões de Macau, S.A.R.L., or STDM and its subsidiaries (together with STDM, referred to as
STDM Group) and Shun Tak Holdings Limited and its subsidiaries (referred to as Shun Tak Group)—We incurred expenses
associated with our use of STDM and Shun Tak Group ferry and hotel accommodation services within Hong Kong and Macau during
the years ended December 31, 2010, 2009 and 2008. Relatives of Mr. Lawrence Ho, have beneficial interests within those companies.
The traveling expenses in connection with construction of City of Dreams were capitalized as costs related to construction in progress
during the construction period for the years ended December 31, 2010, 2009 and 2008. We paid advertising and promotional expenses
to STDM Group during the years ended December 31, 2010, 2009 and 2008, and Shun Tak Group during the years ended
December 31, 2009 and 2008, respectively. We incurred rental expenses from leasing office premises from STDM Group and Shun
Tak Group during the years ended December 31, 2010, 2009 and 2008. As of December 31, 2010 and 2009, the outstanding balances
due to STDM Group of US$164,000 and US$171,000 and Shun Tak Group of US$276,000 and US$440,000, respectively, were
unsecured, non-interest bearing and repayable on demand.
Melco’s subsidiaries and its associated companies—Melco’s subsidiary provided consultancy services to us during the year
ended December 31, 2010. We purchased operating and office supplies from Melco’s subsidiary and its associated companies during
the years ended December 31, 2010 and 2008. We incurred rental expenses from leasing office premises from Melco’s subsidiary
during the years ended December 31, 2010, 2009 and 2008. We purchased property and equipment from Melco’s subsidiaries and its
associated companies during the years ended December 31, 2009 and 2008. Melco’s associated company provided network support
and repairs and maintenance services to us during the year ended December 31, 2008. Melco’s associated companies purchased rooms
and food and beverage services from us during the years ended December 31, 2009 and 2008. As of December 31, 2010 and 2009, the
outstanding balances due to Melco’s subsidiaries and its associated companies of US$134,000 and US$113,000, respectively, were
unsecured, non-interest bearing and repayable on demand.
Lisboa Holdings Limited, or Lisboa and Sociedade de Jogos de Macau S.A., or SJM—During the years ended
December 31, 2010, 2009 and 2008, we paid rental expenses and service fees for Mocha Clubs gaming premises to Lisboa and SJM,
companies in which relatives of Mr. Lawrence Ho have beneficial interests. There were no outstanding balances with Lisboa and SJM
as of December 31, 2010 and 2009.
Crown’s subsidiary—Crown’s subsidiary provided services to us primarily for the construction of City of Dreams and their
operations which included general consultancy and management of sale representative offices during the years ended December 31,
2010, 2009 and 2008. Part of the consultancy charges was capitalized as costs related to construction in progress during construction
period for the years ended December 31, 2009 and 2008. We reimbursed Crown’s subsidiary for associated costs including traveling
expenses during the years ended December 31, 2010, 2009 and 2008. We purchased property and equipment from Crown’s subsidiary
during the years ended December 31, 2009 and 2008. We received rental income from Crown’s subsidiary during the year ended
December 31, 2010 and other service fee income from Crown’s subsidiary during the years ended December 31, 2010, 2009 and 2008.
Crown’s subsidiary purchased rooms and food and beverage services from us during the years ended December 31, 2010 and 2008. As
of December 31, 2010 and 2009, the outstanding balances due to Crown’s subsidiary of US$99,000 and US$975,000, respectively,
were unsecured, non-interest bearing and repayable on demand.
Shuffle Master Asia Limited, or Shuffle Master, and Stargames Corporation Pty. Limited, or Stargames—We purchased
spare parts, property and equipment and lease of equipment with Shuffle Master during the years ended December 31, 2009 and 2008.
We incurred repairs and maintenance expense with Shuffle Master and Stargames during the year ended December 31, 2008, in which
our former Chief Operating Officer who resigned this position in May 2009, was an independent non-executive director of its parent
company during this period. There were no outstanding balances with Shuffle Master and Stargames as of December 31, 2009.
93
Chang Wah Garment Manufacturing Company Limited, or Chang Wah—We purchased uniforms from Chang Wah during
the years ended December 31, 2009 and 2008, a company in which a relative of Mr. Lawrence Ho had beneficial interest until end of
December 2009, for Altira Macau and City of Dreams. The outstanding balance due to Chang Wah as of December 31, 2009 of
US$32,000 was unsecured, non-interest bearing and repayable on demand.
MGM Grand Paradise Limited, or MGM—We paid rental expenses and purchased property and equipment from MGM
during the year ended December 31, 2009, a company in which a relative of Mr. Lawrence Ho has beneficial interest, for City of
Dreams. There were no outstanding balances with MGM as of December 31, 2010 and 2009.
(c) Amounts Due To/Loans From Shareholders
Melco and Crown provided loans to us mainly used for working capital purposes, for the acquisition of the Altira Macau
and the City of Dreams sites and for construction of Altira Macau and City of Dreams.
The outstanding loan balances due to Melco as of December 31, 2010 and 2009 amounted to US$74.4 million in each of
those years, were unsecured and interest bearing at 3-months HIBOR per annum and at 3-months HIBOR plus 1.5% per annum only
during the period from May 16, 2008 to May 15, 2009. The maximum amount of outstanding loan balance due to Melco for the period
from January 1, 2008 to December 31, 2010 was US$74.4 million. As of December 31, 2010, the loan balance due to Melco was
repayable in May 2012.
We received other service fee income from Melco during the year ended December 31, 2010 and Melco purchased rooms
and food and beverage services from us during the years ended December 31, 2010 and 2009. The amounts of US$23,000 and
US$17,000 due to Melco as of December 31, 2010 and 2009, respectively, mainly related to interest payable on the outstanding loan
balances, and they were unsecured, non-interest bearing and repayable on demand.
The outstanding loan balances due to Crown as of December 31, 2010 and 2009 amounted to US$41.3 million in each of
those years, and they were unsecured and interest bearing at 3-months HIBOR per annum. The maximum amount of outstanding loan
balance due to Crown for the period from January 1, 2008 to December 31, 2010 was US$41.3 million. As of December 31, 2010, the
loan balance due to Crown was repayable in May 2012.
The amounts of US$13,000 and US$8,000 due to Crown as of December 31, 2010 and 2009, respectively, related to
interest payable on the outstanding loan balances, and they were unsecured, non-interest bearing and repayable on demand.
Employment Agreements
We have entered into employment agreements with key management and personnel of our company and our subsidiaries.
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements”.
Equity Incentive Plan
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers”.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
We have appended consolidated financial statements filed as part of this annual report.
Legal and Administrative Proceedings
On January 25, 2011 Melco Crown Gaming was served a civil action filed by Ama International Limited, or Ama, in which
Ama claims the payment of MOP622.8 million (approximately US$77.7 million) plus interest accrued since January 25, 2011, for
damages incurred as a result of Melco Crown Gaming’s alleged breach of the gaming promotion agreement with Ama terminated on
June 22, 2010, for loss of profit resulting from such termination and for damages incurred and loss of profit resulting from the alleged
unfair competition of Melco Crown Gaming at the casino at Altira Macau. On March 3, 2011 Melco Crown Gaming filed its response
to Ama’s claims. On March 22, 2011 Ama filed its response to Melco Crown Gaming’s defense and reduced the claimed amount to
MOP325.8 million (approximately US$40.6 million) plus interest accrued since January 25, 2011. We believe Ama’s allegations and
claims have no grounds and are in response to our effort to collect debt outstanding and owing to Melco Crown Gaming from Ama.
Melco Crown Gaming intends to continue to vigorously defend all claims made by Ama.
We are currently a party to certain other legal proceedings which relate to matters arising out of the ordinary course of our
business. Our management does not believe that the outcome of such other proceedings will have a material adverse effect on our
company’s financial position or results of operations.
Dividend Policy
We have never declared or paid any dividends, nor do we have any present plan to pay any cash dividends on our ordinary
shares in the near to medium term. We currently intend to retain most, if not all, of our available funds and any future earnings to
finance the construction and development of our projects, to service debt and to operate and expand our business.
Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders.
Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and
earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of
directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary
shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our
ordinary shares, if any, will be paid in U.S. dollars.
The debt facilities of our subsidiaries and Senior Notes contain, or are expected to contain, restrictions on payment of
dividends to us, which is expected to affect our ability to pay dividends in the foreseeable future. See “Item 3. Key Information—D.
Risk Factors—Risks Relating to the ADSs—We currently do not intend to pay dividends, and we cannot assure you that we will make
dividend payments in the future.”
We have no significant changes since the date of our audited consolidated financial statements included in this annual
report on Form 20-F.
B. SIGNIFICANT CHANGES
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ITEM 9. THE OFFER AND LISTING
A. OFFERING AND LISTING DETAILS
Our ADSs, each representing three ordinary shares, have been listed on the Nasdaq since December 19, 2006. Our ADSs
are traded under the symbol “MPEL”.
The following table provides the high and low trading prices for our ADSs on the Nasdaq for the periods indicated as
follows:
Monthly High and Low
March 2011 (through March 23, 2011)
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
Quarterly High and Low
First Quarter 2011 (up to March 23, 2011)
Forth Quarter 2010
Third Quarter 2010
Second Quarter 2010
First Quarter 2010
Forth Quarter 2009
Third Quarter 2009
Second Quarter 2009
First Quarter 2009
Annual High and Low
2010
2009
2008
2007
2006
Not applicable.
B. PLAN OF DISTRIBUTION
C. MARKETS
Sales Price
High
Low
7.65
7.90
7.88
6.43
7.13
6.28
5.37
7.90
7.13
5.37
5.68
5.38
7.35
8.45
6.60
4.65
7.13
8.45
14.76
22.34
23.55
6.77
6.46
6.55
5.55
5.90
5.08
3.88
6.46
5.08
3.56
3.42
3.30
3.26
4.05
3.29
2.27
3.30
2.27
2.31
9.95
18.88
Our ADSs, each representing three ordinary shares, have been listed on the Nasdaq since December 19, 2006 under the
symbol “MPEL”.
Not applicable.
Not applicable.
Not applicable.
D. SELLING SHAREHOLDERS
E. DILUTION
F. EXPENSES OF THE ISSUE
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
In an extraordinary general meeting of shareholders held on May 19, 2009, our shareholders approved an increase in our
authorized capital from US$15,000,000 divided into 1,500,000,000 ordinary shares of a par value of US$0.01 each to US$25,000,000
divided into 2,500,000,000 ordinary shares of a par value of US$0.01 each, was approved.
96
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
We incorporate by reference into this annual report the summary description of our amended and restated memorandum and
articles of association, as conferred by Cayman law, contained in our F-1 registration statement (File No. 333-146780) originally filed
with the SEC on October 18, 2007, as amended.
C. MATERIAL CONTRACTS
We have not entered into any material contracts other than in the ordinary course of business and other than those described
in “Item 4. Information on the Company” and “Item 7. Major Shareholders and Related Party Transactions” or elsewhere in this
annual report on Form 20-F.
Foreign Currency Exchange
D. EXCHANGE CONTROLS
The H.K. dollar is the predominant currency used in gaming transactions in Macau and is often used interchangeably with
the Pataca in Macau. The H.K. dollar is pegged to the U.S. dollar within a narrow range and the Pataca is in turn pegged to the H.K.
dollar. Although we will have certain expenses and revenues denominated in Patacas in Macau, our revenues and expenses will be
denominated predominantly in H.K. dollars and in connection with most of our indebtedness and certain expenses, U.S. dollars. No
foreign exchange controls exist in Macau and Hong Kong and there is a free flow of capital into and out of Macau and Hong Kong.
There are no restrictions on remittances of H.K. dollars or any other currency from Macau and Hong Kong to persons not resident in
Macau and Hong Kong for the purpose of paying dividends or otherwise.
Cayman Islands Taxation
E. TAXATION
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or
appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us
levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or
brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no
exchange control regulations or currency restrictions in the Cayman Islands.
United States Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences of an investment in the ADSs to U.S.
Holders (defined below) that purchase the ADSs for cash. This discussion applies only to investors that hold the ADSs or ordinary
shares as capital assets. This discussion is based on the tax laws of the United States as in effect on the date hereof and on U.S.
Treasury regulations in effect or, in some cases, proposed, on or before the date hereof, as well as judicial and administrative
interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could
apply retroactively and could affect the tax consequences described below.
97
This discussion does not address all of the U.S. federal income tax consequences to U.S. Holders in light of their particular
circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law, such as:
•
•
•
•
•
•
•
•
•
•
•
•
banks;
insurance companies;
dealers in securities or other U.S. Holders that generally mark their securities to market for U.S. federal income tax
purposes;
certain former citizens or residents of the United States;
tax-exempt entities;
retirement plans;
real estate investment trusts;
regulated investment companies;
U.S. Holders holding an ADS or ordinary share as part of a straddle, hedge, conversion or other integrated transaction;
U.S. Holders that have a “functional currency” other than the U.S. dollar;
U.S. Holders that own (or are deemed to own) 10% or more (by voting power) of our voting stock; or
persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee share option or otherwise as
compensation or pursuant to the conversion or exchange of another instrument.
This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or
alternative minimum tax consequences.
U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE APPLICATION OF
U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS U.S. STATE AND LOCAL
AND NON-U.S. TAX CONSEQUENCES TO THEM RELATING TO AN INVESTMENT IN THE ADSS OR ORDINARY
SHARES.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of an ADS or ordinary share that is for U.S.
federal income tax purposes,
•
•
•
•
an individual who is a citizen or resident of the United States;
a corporation created or organized in or under the laws of the United States, any State thereof, or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust (1) with respect to which a court within the United States is able to exercise primary supervision over its
administration and one or more United States persons have the authority to control all of its substantial decisions or (2) that
has in effect a valid election under applicable U.S. Treasury regulations to be treated as a United States person.
98
If an entity treated as a partnership for U.S. federal income tax purposes invests in the ADSs or ordinary shares, the U.S.
federal income tax considerations relating to such investment will depend in part upon the status and activities of such entity and the
particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax considerations applicable
to it and its partners relating to an investment in the ADSs or ordinary shares.
Except for the discussion below under “—Passive Foreign Investment Company”, this discussion assumes that we are not
and will not be a passive foreign investment company for U.S. federal income tax purposes.
Treatment of ADSs
A U.S. Holder of the ADSs should be treated for U.S. federal income tax purposes as the owner of such U.S. Holder’s
proportionate interest in the ordinary shares held by the depositary (or its custodian) that are represented and evidenced by such ADSs.
Accordingly, any deposit or withdrawal of the ordinary shares by a U.S. Holder in exchange for ADSs should not result in the
realization of gain or loss to such U.S. Holder for U.S. federal income tax purposes.
Dividends and Other Distributions on the ADSs or Ordinary Shares
The gross amount of any distribution (other than certain distributions of our stock or rights to acquire our stock) to a U.S.
Holder with respect to an ADS or ordinary share generally will be included in such U.S. Holder’s gross income as ordinary dividend
income on the date of receipt by the depositary, in the case of an ADS, or by such U.S. Holder, in the case of an ordinary share, to the
extent of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). To the extent the
amount of such distribution exceeds such current and accumulated earnings and profits, it will be treated first as a non-taxable return
of capital to the extent of such U.S. Holder’s adjusted tax basis in such ADS or such ordinary share and thereafter will be treated as
gain from the sale or exchange of such ADS or such ordinary share. We have not maintained and do not plan to maintain calculations
of earnings and profits for U.S. federal income tax purposes. As a result, a U.S. Holder may need to include the entire amount of any
such distribution in income as a dividend.
Distributions on the ADSs or the ordinary shares that are treated as dividends generally will constitute income from sources
outside the United States and generally will be categorized for U.S. foreign tax credit purposes as “passive category income” or, in the
case of some U.S. Holders, as “general category income”. Such dividends will not be eligible for the “dividends received” deduction
generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
Distributions treated as dividends that are received by certain non-corporate U.S. Holders (including individuals) through
taxable years beginning on or before December 31, 2012 in respect of stock of a non-U.S. corporation (other than a corporation that is,
in the taxable year during which the distributions are made or the preceding taxable year, a passive foreign investment company) that
is readily tradable on an established securities market in the United States generally qualify for a 15% reduced maximum tax rate so
long as certain holding period and other requirements are met. Since the ADSs will be listed on the Nasdaq Global Select Market,
unless we are treated as a passive foreign investment company with respect to such U.S. Holder, dividends received in respect of the
ADSs will qualify for the reduced rate. Special rules apply for purposes of determining the U.S. Holder’s investment income (which
may limit deductions for investment interest) and foreign income (which may affect the amount of U.S. foreign tax credit) and to
certain extraordinary dividends. Each U.S. Holder that is a non-corporate taxpayer should consult its own tax advisor regarding the
possible applicability of the reduced tax rate to the ADSs and the ordinary shares and the related restrictions and special rules.
99
Sale, Exchange or Other Disposition of the ADSs or Ordinary Shares
A U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or
other disposition of an ADS or ordinary share equal to the difference, if any, between the amount realized on the sale, exchange or
other disposition and such U.S. Holder’s adjusted tax basis in such ADS or ordinary share. Such capital gain or loss generally will be
long-term capital gain (taxable at a reduced rate for certain non-corporate U.S. Holders) or loss if, on the date of sale, exchange or
other disposition, the ADS or the ordinary share was held by such U.S. Holder for more than one year. The deductibility of capital
losses is subject to limitations. Such gain or loss generally will be sourced within the United States.
Passive Foreign Investment Company
Although the applicable rules are not clear, we believe that we were not in 2010, and we do not currently expect to be in
2011, a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. However, because this determination is
made annually at the end of each taxable year and is dependent upon a number of factors, some of which are beyond our control, such
as the value of our assets (including goodwill) and the amount and type of our income, there can be no assurance that we will not be a
PFIC in any taxable year or that the U.S. Internal Revenue Service will agree with our conclusion regarding our PFIC status in any
taxable year. If we are a PFIC in any taxable year, U.S. Holders could suffer adverse consequences as discussed below.
In general, a corporation organized outside the United States will be treated as a PFIC in any taxable year in which either
(1) at least 75% of its gross income is “passive income” or (2) on average at least 50% of the value of its assets is attributable to assets
that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes,
among other things, dividends, interest, royalties, rents, and gains from commodities transactions and from the sale or exchange of
property that gives rise to passive income. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the
income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
If we are a PFIC in any taxable year during which a U.S. Holder owns the ADSs or ordinary shares, such U.S. Holder could
be liable for additional taxes and interest charges upon certain distributions by us or upon a sale, exchange or other disposition of the
ADSs or ordinary shares at a gain, whether or not we continue to be a PFIC. The tax will be determined by allocating such
distributions or gain ratably to each day of such U.S. Holder’s holding period. The amount allocated to the current taxable year and
any holding period of such U.S. Holder prior to the first taxable year in which we are a PFIC will be taxed as ordinary income (rather
than capital gain) earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal
rates applicable to ordinary income for each such taxable year, and an interest charge will also be imposed on the amount of taxes so
derived for each such taxable year. In addition, a person who acquires the ADSs or ordinary shares from a deceased U.S. Holder who
held such ADSs or ordinary shares in a taxable year in which we are a PFIC generally will be denied a step-up of the tax basis in such
ADSs or ordinary shares for U.S. federal income tax purposes to fair market value of such ADSs or ordinary shares at the date of such
deceased U.S. Holder’s death. Instead, such person will have a tax basis in such ADSs or ordinary shares equal to the lower of such
fair market value or such deceased U.S. Holder’s tax basis in such ADSs or ordinary shares.
The tax consequences that would apply if we were a PFIC would be different from those described above if a “mark-to-
market” election is available and a U.S. Holder validly makes such an election as of the beginning of such U.S. Holder’s holding
period. If such election were made, (1) such U.S. Holder generally would be required to take into account the difference, if any,
between the fair market value of, and its adjusted tax basis in, the ADSs or ordinary shares at the end of each taxable year in which we
were a PFIC as ordinary income or, to the extent of any net mark-to-market gains previously included in income, ordinary loss, and to
make corresponding adjustments to the tax basis in such ADSs or ordinary shares and (2) any gain from a sale, exchange or other
disposition of the ADSs or ordinary shares in a taxable year in which we were a PFIC would be treated as ordinary income, and any
loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains
100
previously included in income) and thereafter as capital loss. A mark-to-market election is available to a U.S. Holder only if the ADSs
or ordinary shares, as the case may be, are considered “marketable stock”. Generally, stock will be considered marketable stock if it is
“regularly traded” on a “qualified exchange” within the meaning of applicable U.S. Treasury regulations. A class of stock is regularly
traded during any calendar year during which such class of stock is traded, other than in de minimis quantities, on at least 15 days
during each calendar quarter. The Nasdaq Global Select Market constitutes a qualified exchange, and a non-U.S. securities exchange
constitutes a qualified exchange if it is regulated or supervised by a governmental authority of the country in which the securities
exchange is located and meets certain trading, listing, financial disclosure and other requirements set forth in U.S. Treasury
regulations. Since the ordinary shares are not themselves traded on any securities exchange, the mark-to-market election may not be
available for the ordinary shares even if the ADSs are traded on the Nasdaq Global Select Market.
The tax consequences that would apply if we were a PFIC would also be different from those described above if a U.S.
Holder is eligible for and timely makes a valid “qualified electing fund” or QEF election. If a QEF election were made, such U.S.
Holder generally would be required to include in income on a current basis its pro rata share of our ordinary income and net capital
gains in each taxable year in which we are a PFIC. In order for a U.S. Holder to be able to make a QEF election, we are required to
provide such U.S. Holder with certain information. As we do not expect to provide U.S. Holders with the required information,
prospective investors should assume that a QEF election will not be available.
If we are a PFIC in any taxable year during which a U.S. Holder owns the ADSs or ordinary shares, such U.S. Holder
(i) may also suffer adverse tax consequences under the PFIC rules described above with respect to any other PFIC in which we have a
direct or indirect equity interest and (ii) generally will be required to file annually a statement with its U.S. federal income tax returns.
Prospective investors should consult their own tax advisors regarding the U.S. federal income tax consequences of an
investment in a PFIC, including the potential extension of the period of limitations on assessment and collection of U.S. federal
income taxes arising from a failure to file the statement described in the preceding paragraph.
Information Reporting and Backup Withholding
Under certain circumstances, information reporting and/or backup withholding may apply to U.S. Holders with respect to
payments made on or proceeds from the sale, exchange or other disposition of the ADSs or ordinary shares, unless an applicable
exemption is satisfied.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the
U.S. Holder on a timely basis to the U.S. Internal Revenue Service.
Disclosure Requirements for Specified Foreign Financial Assets
Under recent legislation, individual U.S. Holders (and certain U.S. entities specified in IRS guidance) who, during any
taxable year, hold any interest in any “specified foreign financial asset” generally will be required to file with their U.S. federal
income tax returns a statement setting forth certain information if the aggregate value of all such assets exceeds US$50,000.
“Specified foreign financial asset” generally includes any financial account maintained with a non-U.S. financial institution and may
also include the ADSs or ordinary shares if they are not held in an account maintained with a U.S. financial institution. Substantial
penalties may be imposed, and the period of limitations on assessment and collection of U.S. federal income taxes may be extended, in
the event of a failure to comply. U.S. Holders should consult their tax advisors as to the possible application to them of this filing
requirement.
101
Not applicable.
Not applicable.
F. DIVIDENDS AND PAYING AGENTS
G. STATEMENT BY EXPERTS
H. DOCUMENTS ON DISPLAY
We previously filed with the SEC our registration statement on Form F-1, as amended and prospectus under the Securities
Act of 1933, with respect to our ordinary shares.
We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC.
Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year, which is
December 31. Copies of reports and other information, when so filed, may be inspected without charge at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington D.C. 20549. The public may obtain information regarding the Washington, D.C. Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports,
proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its
EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and
content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
Our financial statements have been prepared in accordance with U.S. GAAP. Our annual reports will include a review of
operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP.
Nasdaq Marketplace Rule 5250(d)(1) requires each issuer to distribute to shareholders copies of an annual report containing
audited financial statements of our company and its subsidiaries a reasonable period of time prior to our company’s annual meeting of
shareholders. We do not intend to provide copies. However, shareholders can request a copy, in physical or electronic form, from us or
our ADR depositary bank, Deutsche Bank. In addition, we intend to post our annual report on our website www.melco-crown.com.
Nasdaq Marketplace Rule 5255(c) permits foreign private issuers like us to follow “home country practice” in certain corporate
governance matters. Walkers, our Cayman Islands counsel, has provided a letter to the Nasdaq certifying that under Cayman Islands
law, we are not required to deliver annual reports to our shareholders prior to an annual general meeting.
Not applicable.
I. SUBSIDIARY INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign
currency exchange rates and commodity prices. We believe our and our subsidiaries’ primary exposure to market risk will be interest
rate risk associated with our substantial indebtedness.
102
Interest Rate Risk
We entered into interest rate swaps in connection with our drawdowns under the City of Dreams Project Facility in
accordance with our lenders’ requirements at such time under the City of Dreams Project Facility. We incurred substantial
indebtedness which bore interest at floating rates based on LIBOR and HIBOR plus a margin of 2.75% per annum until December 31,
2009, at which time, the floating interest rate was reduced to LIBOR or HIBOR plus a margin of 2.50% per annum. The City of
Dreams Project Facility also provides for further reductions in the margin if the Borrowing Group satisfy certain prescribed leverage
ratio tests upon completion of the City of Dreams. Accordingly, we are subject to fluctuations in HIBOR and LIBOR. We may hedge
our exposure to floating interest rates in a manner we deem prudent. Interests in security we provide to the lenders under our credit
facilities, or other security or guarantees, are required by the counterparties to our hedging transactions, which could increase our
aggregate secured indebtedness. We do not intend to engage in transactions in derivatives or other financial instruments for trading or
speculative purposes and we expect the provisions of our existing and any future credit facilities to restrict or prohibit the use of
derivatives and financial instruments for purposes other than hedging.
As of December 31, 2010, approximately 32% of our long-term debt was based on fixed rates due to the issuance of the
Initial Notes in May 2010 and all of our borrowings were at floating rates as of December 31, 2009. Based on December 31, 2010 and
December 31, 2009 debt and interest rate swap levels, an assumed 100 basis point change in the HIBOR and LIBOR would cause our
annual interest cost to change by approximately US$7.6 million and US$9.6 million, respectively.
Foreign Exchange Risk
The H.K. dollar is the predominant currency used in gaming transactions in Macau and is often used interchangeably with
the Pataca in Macau. The H.K. dollar is pegged to the U.S. dollar within a narrow range and the Pataca is in turn pegged to the H.K.
dollar. Although we have certain expenses and revenues denominated in Patacas in Macau, our revenues and expenses are
denominated predominantly in H.K. dollars and in connection with most of our indebtedness and certain expenses, U.S. dollars. We
cannot assure you that the current peg or linkages between the U.S. dollar, H.K. dollar and Pataca will not be broken or modified. See
“Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Operations in Macau—Any fluctuation in the value
of the H.K. dollar, U.S. dollar or Pataca may adversely affect our indebtedness, expenses and profitability.” In addition, Altira Macau
and Mocha Clubs accept foreign exchange for their cage cash. We and our subsidiaries do not engage in hedging transactions with
respect to foreign exchange risk.
Credit Risk
We have conducted, and expect to continue to conduct, our table gaming activities at our casinos on a limited credit basis as
well as a cash basis. As is common practice in Macau, we grant credit to gaming promoters and certain direct gaming customers. The
gaming promoters bear the responsibility for issuing to and subsequently collecting credit from their players. We have established
controls over the issuance of credit and aim to pursue aggressively overdue debt from gaming promoters and direct gaming customers.
This collection activity includes as relevant frequent personal contact with the debtor, delinquency notices, the use of external
collection agencies and litigation. We expect that most of our gaming credit play will be via gaming promoters, who will therefore
bear the direct credit risk from their players. However, we may not be able to collect all of our gaming receivables from our credit
customers and gaming promoters. We expect that we will be able to enforce our gaming receivables only in a limited number of
jurisdictions, including Macau. As most of our gaming customers are expected to be visitors from other jurisdictions, principally Hong
Kong and the PRC, we may not have access to a forum in which we will be able to collect all of our gaming receivables. The
collectability of receivables from international customers could be negatively affected by future business or economic trends or by
significant events in the countries in which these customers reside. We currently conduct and plan to continue to conduct credit
evaluations of customers and generally do not require collateral or other security from our customers. We have established an
allowance for doubtful receivables primarily based upon the age of the receivables and factors surrounding the credit risk of specific
customers. In the event a customer has been extended credit and has lost back to us the amount borrowed and the receivable from that
customer is still deemed uncollectible, Macau gaming tax will still be payable.
103
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable
Not Applicable
Not Applicable
A. DEBT SECURITIES
B. WARRANT AND RIGHTS
C. OTHER SECURITIES
D. AMERICAN DEPOSITORY SHARES
Persons depositing shares are charged a fee for each issuance of ADSs, including issuances resulting from distributions of
shares, share dividends, share splits, bonus and rights distributions and other property, and for each surrender of ADSs in exchange for
deposited securities. The fee in each case is US$5.00 for each 100 ADSs, or any portion thereof, issued or surrendered. Any holder of
ADSs is charged a fee not in excess of US$5.00 per 100 ADSs (or portion thereof) issued upon the exercise of rights. The depositary
also charges a fee of US$2.00 per 100 ADSs for distribution of cash proceeds pursuant to a cash distribution, sale of rights and other
entitlements or otherwise. The depositary may also charge an annual fee of US$2.00 per 100 ADSs for the operation and maintenance
costs in administering the facility. Persons depositing shares also may be charged the following expenses:
•
•
•
•
•
•
•
•
Expenses incurred by the depositary, the custodian or their respective agents in connection with inspections of the relevant share
register maintained by the local registrar: an annual fee of US$1.00 per 100 ADSs (such fee to be assessed against holders of
record as at the date or dates set by the depositary as it sees fit and collected at the discretion of the depositary, subject to our
company’s prior consent, by billing such holders for such fee or by deducting such fee from one or more cash dividends or other
cash distributions);
Taxes and other governmental charges incurred by the depositary or the custodian on any ADR or ordinary shares underlying an
ADR, including any applicable interest and penalties thereon, and any share transfer or other taxes and other governmental
charges;
Cable, telex, electronic transmission and delivery expenses;
Transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with
the deposit or withdrawal of deposited securities including those of a central depository for securities (where applicable);
Expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars;
Fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other
regulatory requirements applicable to the shares, deposited securities and ADSs;
the fees and expenses incurred by the depositary in connection with the delivery of deposited securities, including any fees of a
central depository for securities in the local market, where applicable; and
Any other fees, charges, costs or expenses that may be incurred by the depositary from time to time.
In the case of cash distributions, fees are generally deducted from the cash being distributed. Service fees may be collected
from holders of ADSs in a manner determined by the depositary with respect to ADSs registered in the name of investors (whether
certificated or in book-entry form) and ADSs held in brokerage and custodian accounts (via DTC). In the case of distributions other
than cash (i.e., stock dividends, rights, etc.), the depositary charges the applicable ADS record date holder concurrent with the
distribution. In the case of ADSs registered in the name of the investor (whether certificated or in book-entry form), the depositary
sends invoices to the applicable record date ADS holders.
104
In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary may, if permitted by the settlement
systems provided by DTC, collect the fees through such settlement systems (whose nominee is the registered holder of the ADSs held
in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’
ADSs in DTC accounts in such case may in turn charge their clients’ accounts the amount of the service fees paid to the depositary.
In the event of refusal to pay the service fee, the depositary may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may set off the amount of the service fee from any distribution to be made to the ADS
holder.
If any tax or other governmental charge is payable by the holders and/or beneficial owners of ADSs to the depositary, the
depositary, the custodian or our company may withhold or deduct from any distributions made in respect of deposited securities and
may sell for the account of the holder and/or beneficial owner any or all of the deposited securities and apply such distributions and
sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the holder and the beneficial
owner thereof remaining fully liable for any deficiency.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable. See “Item 10. Additional Information” for a description of the rights of securities holders, which remain
unchanged.
Use of Proceeds
The proceeds relating to our registration statement on Form F-1 (File No. 333-139088), filed by us in connection with our
initial public offering of ADSs and declared effective by the SEC on December 18, 2006, which, after deduction of fees and expenses,
amounted to US$1.1 billion, and the additional US$160.6 million in net proceeds from the sale of additional ADSs pursuant to the
underwriters’ exercise of the over-allotment option in January 2007, were primarily used to repay our Subconcession Facility dated
September 4, 2006 amounting to US$500 million and to pay development costs of Altira Macau and City of Dreams, including
approximately US$668 million for the acquisition of property and equipment for these projects, and working capital.
The proceeds relating to our registration statement on Form F-1 (File No. 333-146780), filed by us in connection with our
follow-on public offering of ADSs, which, after deduction of fees and expenses, amounted to US$570 million, were primarily used for
development costs of City of Dreams and working capital.
The proceeds relating to our registration statements on Form F-3 (File No. 333- 158545), filed by us in connection with our
follow-on public offerings of ADSs, which, after deduction of fees and expenses, totally amounted to US$383.5 million, were
primarily used for cash security to reduce or replace the letters of credit maintained by Melco and Crown and working capital, with the
balance being maintained in interest bearing bank deposits as of the date of this annual report.
105
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of our chief executive
officer and our chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures
within the meaning of Rules 13a-15(3) and 15d-15(3) of the Exchange Act. In designing and evaluating the disclosure controls and
procedures, it should be noted that any controls and procedures, no matter how well designed and operated, can only provide
reasonable, but not absolute, assurance of achieving the desired control objectives and management is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, our chief executive officer
and chief financial officer have concluded that, as of the end of the period covered by this annual report, our disclosure controls and
procedures were effective to provide reasonable assurance that the desired control objectives were achieved.
Management’s Annual Report on Internal Control Over Financial Reporting
Our company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.
Our company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our company’s internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our company’s assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and that our company’s receipts and expenditures are being made only in
accordance with authorizations of its management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our company’s management assessed the effectiveness of our company’s internal control over financial reporting as of
December 31, 2010. In making this assessment, our company’s management used the framework set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework”.
Based on this assessment, management concluded that, as of December 31, 2010, our company’s internal control over
financial reporting is effective based on this framework.
The effectiveness of our company’s internal control over financial reporting as of December 31, 2010, has been audited by
Deloitte Touche Tohmatsu, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Controls Over Financial Reporting
There were no changes in our company’s internal control over financial reporting (as such term is defined in Rules 13(a)-15
(f) and 15(d)-15(f) under the Exchange Act) during the year ended December 31, 2010 that have materially affected, or are reasonably
likely to materially affect, our company’s internal control over financial reporting.
106
ITEM 16.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that James MacKenzie qualifies as “audit committee financial expert” as defined in
Item 16A of Form 20-F. Each of the members of the Audit Committee is an “independent director” as defined in the Nasdaq
Marketplace Rules.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics that applies to our directors, officers, employees
and agents, including certain provisions that specifically apply to our chief executive officer, chief financial officer and any other
persons who perform similar functions for us. The code of business conduct and ethics was last amended on September 29, 2009. We
have filed our current code of business conduct and ethics as an exhibit to this annual statement on Form 20-F, and posted the code of
business conduct and ethics on our website at www.melco-crown.com. We hereby undertake to provide to any person without charge,
a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional
services rendered by Deloitte Touche Tohmatsu, our principal external auditors, for the periods indicated. We did not pay any other
fees to our auditor during the periods indicated below.
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Year Ended
December 31,
2010
2009
(In thousands of US$)
$
$
1,220
38
65
300
1,070
75
69
400
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years indicated for our calendar year audits.
(2) “Audit-related fees” means the aggregate fees billed in respect of the review of our interim financial statement for the six months
ended June 30, 2010 and 2009.
(3) “Tax fees” include fees billed for tax consultations.
(4) “All other fees” includes the aggregate fees billed in respect of the Initial Notes issued in May 2010, which amounted to
US$150,000.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche
Tohmatsu, including audit services, audit-related services, tax services and other services as described above, other than those for de
minimis services which are approved by our audit committee prior to the completion of the audit.
107
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
Nasdaq Marketplace Rule 5255(c) permits foreign private issuers like us to follow “home country practice” in certain
corporate governance matters. For example, Nasdaq Marketplace Rule 5605(b)(1)(A) generally requires that a majority of an issuer’s
board of directors must consist of independent directors. We rely on this “home country practice” exception and do not have a
majority of independent directors serving on our board of directors. In addition, Nasdaq Marketplace Rule 5250(d)(1) requires each
issuer to distribute to shareholders copies of an annual report containing audited financial statements of our company and its
subsidiaries a reasonable period of time prior to our company’s annual meeting of shareholders. We do not intend to provide copies.
However, shareholders can request a copy, in physical or electronic form, from us or our ADR depositary bank, Deutsche Bank. We
intend to post our annual report on our website www.melco-crown.com. Lastly, Nasdaq Marketplace Rule 5635(d) requires each
issuer to obtain shareholder approval for the issuance of securities in connection with a transaction other than a public offering
involving certain issuances of ordinary shares in amounts equaling 20% or more of such issuer’s ordinary shares there outstanding.
Walkers, our Cayman Islands counsel, has provided letters to Nasdaq certifying that under Cayman Islands law, we are not required
to: (i) have a majority of independent directors serving on our board of directors; (ii) deliver annual reports to our shareholders prior to
an annual general meeting; or (iii) to obtain shareholders’ approval prior to any issuance of our ordinary shares.
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of Melco Crown Entertainment Limited and its subsidiaries are included at the end of
this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
Description of Document
1.1
2.1
2.2
Amended and Restated Memorandum and Articles of Association amended by EGM in May 2009 (incorporated by
reference to Exhibit 1.1 from our annual report on Form 20-F for the fiscal year ended December 31, 2009 (File
No. 001-33178), filed with the SEC on March 31, 2010)
Form of Registrant’s American Depositary Receipt (included in Exhibit 2.3)
Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 from our F-1
registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
108
Exhibit
Number
Description of Document
2.3
2.4
2.5
2.6
2.7
2.8
2.9
4.1
4.2
4.3
4.4
Form of Deposit Agreement among the Registrant, the depositary and Owners and Beneficial Owners of the
American Depositary Shares issued thereunder (incorporated by reference to Exhibit 4.3 from our F-1 registration
statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Holdco 1 Subscription Agreement dated December 23, 2004 among the Registrant (formerly known as Melco PBL
Holdings Limited), Melco, PBL and PBL Asia Investments Limited (incorporated by reference to Exhibit 4.4 from
our F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1,
2006)
Supplemental Agreement to the Memorandum of Agreement dated May 26, 2006 between Melco and PBL
(incorporated by reference to Exhibit 4.7 from our F-1 registration statement (File No. 333-139088), as amended,
initially filed with the SEC on December 1, 2006)
Deed of Variation and Amendment relating to the Registrant dated July 27, 2007 between Melco Leisure and
Entertainment Group Limited, Melco International Development Limited, PBL Asia Investments Limited,
Publishing and Broadcasting Limited, Crown Limited and the Registrant (incorporated by reference to Exhibit 4.11
from our F-1 registration statement (File No. 333-146780), as amended, initially filed with the SEC on October 18,
2007)
Amended and Restated Shareholders’ Deed Relating to the Registrant dated December 12, 2007 among the
Registrant, Melco Leisure and Entertainment Group Limited, Melco, PBL Asia Investments Limited and Crown
Limited (incorporated by reference to Exhibit 2.7 from our annual report on Form 20-F for the fiscal year ended
December 31, 2007 (File No. 001-33178), filed with the SEC on April 9, 2008)
Form of Post-IPO Shareholders’ Agreement among the Registrant, Melco Leisure and Entertainment Group
Limited, Melco, PBL Asia Investments Limited and PBL (incorporated by reference to Exhibit 4.9 from our F-1
registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Form of Registration Rights Agreement among the Registrant, Melco and PBL (incorporated by reference to
Exhibit 4.10 from our F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC on
December 1, 2006)
Form of Indemnification Agreement with the Registrant’s directors and executive officers (incorporated by
reference to Exhibit 10.1 from our F-1 registration statement (File No. 333-139088), as amended, initially filed
with the SEC on December 1, 2006)
Form of Directors’ Agreement of the Registrant (incorporated by reference to Exhibit 10.2 from our F-1
registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated
by reference to Exhibit 10.3 from our F-1 registration statement (File No. 333-139088), as amended, initially filed
with the SEC on December 1, 2006)
English Translation of Subconcession Contract for operating casino games of chance or games of other forms in
the Macau Special Administrative Region between Wynn Macau and PBL Macau, dated September 8, 2006
(incorporated by reference to Exhibit 10.4 from our F-1 registration statement (File No. 333-139088), as amended,
initially filed with the SEC on December 1, 2006)
109
Exhibit
Number
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Description of Document
Senior Facilities Agreement dated September 5, 2007 for Melco PBL Gaming (Macau) Limited as Original
Borrower, arranged by Australia and New Zealand Banking Group Limited, Banc of America Securities Asia
Limited, Barclays Capital, Deutsche Bank AG, Hong Kong Branch and UBS AG Hong Kong Branch as
Coordinating Lead Arrangers with Deutsche Bank AG, Hong Kong Branch acting as Agent and DB Trustees
(Hong Kong) Limited acting as Security Agent (incorporated by reference to Exhibit 10.32 from our F-1
registration statement (File No. 333-146780), as amended, initially filed with the SEC on October 18, 2007)
Amendment Agreement in Respect of Senior Facilities Agreement dated December 7, 2007 for Melco PBL
Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent (incorporated by
reference to Exhibit 4.6 from our annual report on Form 20-F for the fiscal year ended December 31, 2008 (File
No. 001-33178), filed with the SEC on March 31, 2009)
Second Amendment Agreement in Respect of Senior Facilities Agreement dated September 1, 2008 for Melco
Crown Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent
(incorporated by reference to Exhibit 4.7 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Third Amendment Agreement in Respect of Senior Facilities Agreement dated December 1, 2008 for Melco
Crown Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent
(incorporated by reference to Exhibit 4.8 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Fourth Amendment Agreement in Respect of Senior Facilities Agreement dated December 1, 2008 for Melco
Crown Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent
(incorporated by reference to Exhibit 4.11 from our F-4 registration statement (File No. 333-168823), as amended,
initially filed with the SEC on August 18, 2010)
English Translation of Order of the Secretary for Public Works and Transportation published in Macau Official
Gazette no. 9 of March 1, 2006 (incorporated by reference to Exhibit 10.13 from our F-1 registration statement
(File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Agreement dated March 9, 2005 between Melco Leisure and Entertainment Group Limited and MPBL (Greater
China) (formerly known as Melco Entertainment Limited) (incorporated by reference to Exhibit 10.15 from our
F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Assignment Agreement dated May 11, 2005 in relation to a memorandum of agreement dated October 28, 2004
and a subscription agreement in relation to convertible loan notes in the aggregate principal amount of
HK$1,175,000,000 to be issued by Melco among Great Respect, as assignor, MPBL (Greater China) (formerly
known as Melco Entertainment Limited), as assignee, and Melco, as issuer (incorporated by reference to
Exhibit 10.16 from our F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC
on December 1, 2006)
110
Exhibit
Number
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
Description of Document
Novation and Termination Agreement (with respect to the Management Agreement for Grand Hyatt Macau dated
June 18, 2006 and the Management Agreement for Hyatt Regency Macau dated June 18, 2006) dated August 30,
2008 between Hyatt of Macau Ltd., Melco Crown (COD) Developments Limited and Melco Crown COD
(GH) Hotel Limited (incorporated by reference to Exhibit 4.20 from our annual report on Form 20-F for the fiscal
year ended December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Management Agreement dated August 30, 2008 between Melco Crown COD (GH) Hotel Limited and Hyatt of
Macau Ltd (incorporated by reference to Exhibit 4.21 from our annual report on Form 20-F for the fiscal year
ended December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Hotel Trademark License Agreement by and between Hard Rock Holdings Limited and Melco Crown
(COD) Developments (formerly known as Melco PBL (COD) Developments Limited and Melco Hotel and
Resorts (Macau) Limited) dated January 22, 2007 (incorporated by reference to Exhibit 4.21 from our annual
report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed
with the SEC on March 30, 2007)
Novation Agreement (in respect of Hotel Trademark License Agreement) dated August 30, 2008 between Hard
Rock Holdings Limited, Melco Crown (COD) Developments Limited and Melco Crown COD (HR) Hotel Limited
(incorporated by reference to Exhibit 4.23 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Casino Trademark License Agreement by and between Hard Rock Holdings Limited and Melco PBL Gaming
(now Melco Crown Gaming) dated January 22, 2007 (incorporated by reference to Exhibit 4.22 from our annual
report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed
with the SEC on March 30, 2007)
Memorabilia Lease (casino) between Hard Rock Cafe International (STP) Inc. and Melco PBL Gaming (now
known as Melco Crown Gaming) dated January 22, 2007 (incorporated by reference to Exhibit 4.23 from our
annual report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended,
initially filed with the SEC on March 30, 2007)
Memorabilia Lease (hotel) between Hard Rock Cafe International (STP) Inc. and Melco Crown
(COD) Developments dated January 22, 2007 (incorporated by reference to Exhibit 4.24 from our annual report on
Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed with the
SEC on March 30, 2007)
Novation Agreement (in respect of Hotel Memorabilia Lease) dated August 30, 2008 between Hard Rock Café
International (STP), Inc., Melco Crown (COD) Developments Limited and Melco Crown COD (HR) Hotel
Limited (incorporated by reference to Exhibit 4.27 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Promissory Transfer of Shares Termination Agreement dated 17 December 2009 in connection with the
termination of share purchase of Sociedade de Fomento Predial Omar, Limitada (“Omar”) between Double Margin
Limited, Leong On Kei, a.k.a. Angela Leong, MPEL (Macau Peninsula) Limited and Omar (incorporated by
reference to Exhibit 4.32 from our annual report on Form 20-F for the fiscal year ended December 31, 2009 (File
No. 001-333178), filed with the SEC on March 31, 2010)
111
Exhibit
Number
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30*
4.31
Description of Document
Shareholders’ Agreement relating to Melco PBL Gaming (now known as Melco Crown Gaming) dated
November 22, 2006 among PBL Asia Limited, MPBL Investments, Manuela António and Melco PBL Gaming
(incorporated by reference to Exhibit 10.22 from our F-1 registration statement (File No. 333-139088), as
amended, initially filed with the SEC on December 1, 2006)
Termination Letter dated December 15, 2006 in connection with Shareholders Agreement Relating to Melco PBL
Gaming (Macau) Limited dated November 22, 2006 (incorporated by reference to Exhibit 4.27 from our annual
report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed
with the SEC on March 30, 2007)
Letter dated December 15, 2006 in connection with appointment of Mr. Lawrence Ho as the managing director of
Melco PBL Gaming (Macau) Limited (incorporated by reference to Exhibit 4.28 from our annual report on Form
20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed with the SEC
on March 30, 2007)
Termination Agreement relating to the Shareholders’ Agreement dated December 15, 2006 among PBL Asia
Limited, Melco PBL Investments Limited, Lawrence Yau Lung Ho and Melco PBL Gaming (Macau) Limited
(incorporated by reference to Exhibit 4.5 from our F-3 registration statement (File No. 333-171847), filed with the
SEC on January 25, 2010)
2006 Share Incentive Plan Amended by AGM in May 2009 (incorporated by reference to Exhibit 4.37 from our
annual report on Form 20-F for the fiscal year ended December 31, 2009 (File No. 001-333178), filed with the
SEC on March 31, 2010)
Trade Mark License dated November 30, 2006 between Crown Limited and the Registrant as the licensee
(incorporated by reference to Exhibit 10.24 from our F-1 registration statement (File No. 333-139088), as
amended, initially filed with the SEC on December 1, 2006)
Agreement between the Registrant and Melco Leisure and Entertainment Group Limited dated March 27, 2007
(incorporated by reference to Exhibit 4.32 from our annual report on Form 20-F for the fiscal year ended
December 31, 2006 (File No. 001-33178), as amended, initially filed with the SEC on March 30, 2007)
Agreement between the Registrant and PBL Asia Investments Limited dated March 27, 2007 (incorporated by
reference to Exhibit 4.33 from our annual report on Form 20-F for the fiscal year ended December 31, 2006 (File
No. 001-33178), as amended, initially filed with the SEC on March 30, 2007)
English Translation of the amended Order of Secretary for Public Works and Transportation published in Macau
Offical Gazette No. 25/2008 in relation to the City of Dreams Land Concession
Indenture, dated May 17, 2010, between MCE Finance Limited and The Bank of New York Mellon as trustee
(incorporated by reference to Exhibit 4.1 from our F-4 registration statement (File No. 333-168823), as amended,
initially filed with the SEC on August 18, 2010)
112
Exhibit
Number
4.32
4.33
4.34
4.35
4.36
Description of Document
Registration Rights Agreement, dated May 17, 2010, among MCE Finance Limited, Melco Crown Entertainment
Limited, MPEL International Limited, the Senior Subordinated Guarantors as specified therein, Deutsche Bank
Securities Inc., Merrill Lynch International, The Royal Bank of Scotland plc, ANZ Securities, Inc., Citigroup
Global Markets Inc., Commerz Markets LLC, Credit Agricole Corporate and Investment Bank, nabSecurities,
LLC and UBS AG (incorporated by reference to Exhibit 4.2 from our F-4 registration statement (File
No. 333-168823), as amended, initially filed with the SEC on August 18, 2010)
Intercompany Promissory Note, dated May 17, 2010, issued by MPEL Investments Limited (incorporated by
reference to Exhibit 4.3 from our F-4 registration statement (File No. 333-168823), as amended, initially filed with
the SEC on August 18, 2010)
Pledge Agreement, dated as of May 17, 2010, between MCE Finance Limited and The Bank of New York Mellon
as collateral agent (incorporated by reference to Exhibit 4.4 from our F-4 registration statement (File No.
333-168823), as amended, initially filed with the SEC on August 18, 2010)
Note Guarantee, dated as of May 17, 2010, among MCE Finance Limited, Melco Crown Entertainment Limited,
MPEL International Limited, Melco Crown Gaming (Macau) Limited, MPEL Nominee One Limited, MPEL
Investments Limited, Altira Hotel Limited, Altira Developments Limited, Melco Crown (COD) Hotels Limited,
Melco Crown (COD) Developments and The Bank of New York as trustee (incorporated by reference to
Exhibit 4.5 from our F-4 registration statement (File No. 333-168823), as amended, initially filed with the SEC on
August 18, 2010)
Subordination Agreement, dated as of May 17, 2010, among MCE Finance Limited, Melco Crown Entertainment
Limited, MPEL International Limited and The Bank of New York Mellon as trustee and as subordination agent
(incorporated by reference to Exhibit 4.6 from our F-4 registration statement (File No. 333-168823), as amended,
initially filed with the SEC on August 18, 2010)
8.1 *
List of Subsidiaries
11.1
Code of Business Conduct and Ethics, amended and approved as of September 29, 2009 (incorporated by
reference to Exhibit 11.1 from our annual report on Form 20-F for the fiscal year ended December 31, 2009 (File
No. 001-333178), filed with the SEC on March 31, 2010)
12.1*
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2 *
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1 *
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 *
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1 *
Consent of Walkers
*
Filed with this Annual Report on Form 20-F
113
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
MELCO CROWN ENTERTAINMENT LIMITED
By: /s/ Lawrence Ho
Name: Lawrence Ho
Title: Co-Chairman and Chief Executive Officer
Date: April 1, 2011
114
Exhibit
Number
Description of Document
EXHIBIT INDEX
1.1
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
Amended and Restated Memorandum and Articles of Association amended by EGM in May 2009 (incorporated by
reference to Exhibit 1.1 from our annual report on Form 20-F for the fiscal year ended December 31, 2009 (File
No. 001-33178), filed with the SEC on March 31, 2010)
Form of Registrant’s American Depositary Receipt (included in Exhibit 2.3)
Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 from our F-1
registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Form of Deposit Agreement among the Registrant, the depositary and Owners and Beneficial Owners of the
American Depositary Shares issued thereunder (incorporated by reference to Exhibit 4.3 from our F-1 registration
statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Holdco 1 Subscription Agreement dated December 23, 2004 among the Registrant (formerly known as Melco PBL
Holdings Limited), Melco, PBL and PBL Asia Investments Limited (incorporated by reference to Exhibit 4.4 from
our F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1,
2006)
Supplemental Agreement to the Memorandum of Agreement dated May 26, 2006 between Melco and PBL
(incorporated by reference to Exhibit 4.7 from our F-1 registration statement (File No. 333-139088), as amended,
initially filed with the SEC on December 1, 2006)
Deed of Variation and Amendment relating to the Registrant dated July 27, 2007 between Melco Leisure and
Entertainment Group Limited, Melco International Development Limited, PBL Asia Investments Limited,
Publishing and Broadcasting Limited, Crown Limited and the Registrant (incorporated by reference to Exhibit 4.11
from our F-1 registration statement (File No. 333-146780), as amended, initially filed with the SEC on October 18,
2007)
Amended and Restated Shareholders’ Deed Relating to the Registrant dated December 12, 2007 among the
Registrant, Melco Leisure and Entertainment Group Limited, Melco, PBL Asia Investments Limited and Crown
Limited (incorporated by reference to Exhibit 2.7 from our annual report on Form 20-F for the fiscal year ended
December 31, 2007 (File No. 001-33178), filed with the SEC on April 9, 2008)
Form of Post-IPO Shareholders’ Agreement among the Registrant, Melco Leisure and Entertainment Group
Limited, Melco, PBL Asia Investments Limited and PBL (incorporated by reference to Exhibit 4.9 from our F-1
registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Form of Registration Rights Agreement among the Registrant, Melco and PBL (incorporated by reference to
Exhibit 4.10 from our F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC on
December 1, 2006)
115
Exhibit
Number
Description of Document
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Form of Indemnification Agreement with the Registrant’s directors and executive officers (incorporated by
reference to Exhibit 10.1 from our F-1 registration statement (File No. 333-139088), as amended, initially filed
with the SEC on December 1, 2006)
Form of Directors’ Agreement of the Registrant (incorporated by reference to Exhibit 10.2 from our F-1
registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated
by reference to Exhibit 10.3 from our F-1 registration statement (File No. 333-139088), as amended, initially filed
with the SEC on December 1, 2006)
English Translation of Subconcession Contract for operating casino games of chance or games of other forms in
the Macau Special Administrative Region between Wynn Macau and PBL Macau, dated September 8, 2006
(incorporated by reference to Exhibit 10.4 from our F-1 registration statement (File No. 333-139088), as amended,
initially filed with the SEC on December 1, 2006)
Senior Facilities Agreement dated September 5, 2007 for Melco PBL Gaming (Macau) Limited as Original
Borrower, arranged by Australia and New Zealand Banking Group Limited, Banc of America Securities Asia
Limited, Barclays Capital, Deutsche Bank AG, Hong Kong Branch and UBS AG Hong Kong Branch as
Coordinating Lead Arrangers with Deutsche Bank AG, Hong Kong Branch acting as Agent and DB Trustees
(Hong Kong) Limited acting as Security Agent (incorporated by reference to Exhibit 10.32 from our F-1
registration statement (File No. 333-146780), as amended, initially filed with the SEC on October 18, 2007)
Amendment Agreement in Respect of Senior Facilities Agreement dated December 7, 2007 for Melco PBL
Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent (incorporated by
reference to Exhibit 4.6 from our annual report on Form 20-F for the fiscal year ended December 31, 2008 (File
No. 001-33178), filed with the SEC on March 31, 2009)
Second Amendment Agreement in Respect of Senior Facilities Agreement dated September 1, 2008 for Melco
Crown Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent
(incorporated by reference to Exhibit 4.7 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Third Amendment Agreement in Respect of Senior Facilities Agreement dated December 1, 2008 for Melco
Crown Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent
(incorporated by reference to Exhibit 4.8 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Fourth Amendment Agreement in Respect of Senior Facilities Agreement dated December 1, 2008 for Melco
Crown Gaming (Macau) Limited as Company and Deutsche Bank AG, Hong Kong Branch, as Agent
(incorporated by reference to Exhibit 4.11 from our F-4 registration statement (File No. 333-168823), as amended,
initially filed with the SEC on August 18, 2010)
4.10
English Translation of Order of the Secretary for Public Works and Transportation published in Macau Official
Gazette no. 9 of March 1, 2006 (incorporated by reference to Exhibit 10.13 from our F-1 registration statement
(File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
116
Exhibit
Number
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
Description of Document
Agreement dated March 9, 2005 between Melco Leisure and Entertainment Group Limited and MPBL (Greater
China) (formerly known as Melco Entertainment Limited) (incorporated by reference to Exhibit 10.15 from our
F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC on December 1, 2006)
Assignment Agreement dated May 11, 2005 in relation to a memorandum of agreement dated October 28, 2004
and a subscription agreement in relation to convertible loan notes in the aggregate principal amount of
HK$1,175,000,000 to be issued by Melco among Great Respect, as assignor, MPBL (Greater China) (formerly
known as Melco Entertainment Limited), as assignee, and Melco, as issuer (incorporated by reference to
Exhibit 10.16 from our F-1 registration statement (File No. 333-139088), as amended, initially filed with the SEC
on December 1, 2006)
Novation and Termination Agreement (with respect to the Management Agreement for Grand Hyatt Macau dated
June 18, 2006 and the Management Agreement for Hyatt Regency Macau dated June 18, 2006) dated August 30,
2008 between Hyatt of Macau Ltd., Melco Crown (COD) Developments Limited and Melco Crown COD
(GH) Hotel Limited (incorporated by reference to Exhibit 4.20 from our annual report on Form 20-F for the fiscal
year ended December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Management Agreement dated August 30, 2008 between Melco Crown COD (GH) Hotel Limited and Hyatt of
Macau Ltd (incorporated by reference to Exhibit 4.21 from our annual report on Form 20-F for the fiscal year
ended December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Hotel Trademark License Agreement by and between Hard Rock Holdings Limited and Melco Crown
(COD) Developments (formerly known as Melco PBL (COD) Developments Limited and Melco Hotel and
Resorts (Macau) Limited) dated January 22, 2007 (incorporated by reference to Exhibit 4.21 from our annual
report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed
with the SEC on March 30, 2007)
Novation Agreement (in respect of Hotel Trademark License Agreement) dated August 30, 2008 between Hard
Rock Holdings Limited, Melco Crown (COD) Developments Limited and Melco Crown COD (HR) Hotel Limited
(incorporated by reference to Exhibit 4.23 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Casino Trademark License Agreement by and between Hard Rock Holdings Limited and Melco PBL Gaming
(now Melco Crown Gaming) dated January 22, 2007 (incorporated by reference to Exhibit 4.22 from our annual
report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed
with the SEC on March 30, 2007)
Memorabilia Lease (casino) between Hard Rock Cafe International (STP) Inc. and Melco PBL Gaming (now
known as Melco Crown Gaming) dated January 22, 2007 (incorporated by reference to Exhibit 4.23 from our
annual report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended,
initially filed with the SEC on March 30, 2007)
117
Exhibit
Number
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
Description of Document
Memorabilia Lease (hotel) between Hard Rock Cafe International (STP) Inc. and Melco Crown
(COD) Developments dated January 22, 2007 (incorporated by reference to Exhibit 4.24 from our annual report on
Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed with the
SEC on March 30, 2007)
Novation Agreement (in respect of Hotel Memorabilia Lease) dated August 30, 2008 between Hard Rock Café
International (STP), Inc., Melco Crown (COD) Developments Limited and Melco Crown COD (HR) Hotel
Limited (incorporated by reference to Exhibit 4.27 from our annual report on Form 20-F for the fiscal year ended
December 31, 2008 (File No. 001-33178), filed with the SEC on March 31, 2009)
Promissory Transfer of Shares Termination Agreement dated 17 December 2009 in connection with the
termination of share purchase of Sociedade de Fomento Predial Omar, Limitada (“Omar”) between Double Margin
Limited, Leong On Kei, a.k.a. Angela Leong, MPEL (Macau Peninsula) Limited and Omar (incorporated by
reference to Exhibit 4.32 from our annual report on Form 20-F for the fiscal year ended December 31, 2009 (File
No. 001-333178), filed with the SEC on March 31, 2010)
Shareholders’ Agreement relating to Melco PBL Gaming (now known as Melco Crown Gaming) dated
November 22, 2006 among PBL Asia Limited, MPBL Investments, Manuela António and Melco PBL Gaming
(incorporated by reference to Exhibit 10.22 from our F-1 registration statement (File No. 333-139088), as
amended, initially filed with the SEC on December 1, 2006)
Termination Letter dated December 15, 2006 in connection with Shareholders Agreement Relating to Melco PBL
Gaming (Macau) Limited dated November 22, 2006 (incorporated by reference to Exhibit 4.27 from our annual
report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed
with the SEC on March 30, 2007)
Letter dated December 15, 2006 in connection with appointment of Mr. Lawrence Ho as the managing director of
Melco PBL Gaming (Macau) Limited (incorporated by reference to Exhibit 4.28 from our annual report on Form
20-F for the fiscal year ended December 31, 2006 (File No. 001-33178), as amended, initially filed with the SEC
on March 30, 2007)
Termination Agreement relating to the Shareholders’ Agreement dated December 15, 2006 among PBL Asia
Limited, Melco PBL Investments Limited, Lawrence Yau Lung Ho and Melco PBL Gaming (Macau) Limited
(incorporated by reference to Exhibit 4.5 from our F-3 registration statement (File No. 333-171847), filed with the
SEC on January 25, 2010)
2006 Share Incentive Plan Amended by AGM in May 2009 (incorporated by reference to Exhibit 4.37 from our
annual report on Form 20-F for the fiscal year ended December 31, 2009 (File No. 001-333178), filed with the
SEC on March 31, 2010)
Trade Mark License dated November 30, 2006 between Crown Limited and the Registrant as the licensee
(incorporated by reference to Exhibit 10.24 from our F-1 registration statement (File No. 333-139088), as
amended, initially filed with the SEC on December 1, 2006)
Agreement between the Registrant and Melco Leisure and Entertainment Group Limited dated March 27, 2007
(incorporated by reference to Exhibit 4.32 from our annual report on Form 20-F for the fiscal year ended
December 31, 2006 (File No. 001-33178), as amended, initially filed with the SEC on March 30, 2007)
118
Exhibit
Number
4.29
4.30 *
4.31
4.32
4.33
4.34
4.35
4.36
Description of Document
Agreement between the Registrant and PBL Asia Investments Limited dated March 27, 2007 (incorporated by
reference to Exhibit 4.33 from our annual report on Form 20-F for the fiscal year ended December 31, 2006 (File
No. 001-33178), as amended, initially filed with the SEC on March 30, 2007)
English Translation of the amended Order of Secretary for Public Works and Transportation published in Macau
Offical Gazette No. 25/2008 in relation to the City of Dreams Land Concession
Indenture, dated May 17, 2010, between MCE Finance Limited and The Bank of New York Mellon as trustee
(incorporated by reference to Exhibit 4.1 from our F-4 registration statement (File No. 333-168823), as amended,
initially filed with the SEC on August 18, 2010)
Registration Rights Agreement, dated May 17, 2010, among MCE Finance Limited, Melco Crown Entertainment
Limited, MPEL International Limited, the Senior Subordinated Guarantors as specified therein, Deutsche Bank
Securities Inc., Merrill Lynch International, The Royal Bank of Scotland plc, ANZ Securities, Inc., Citigroup
Global Markets Inc., Commerz Markets LLC, Credit Agricole Corporate and Investment Bank, nabSecurities,
LLC and UBS AG (incorporated by reference to Exhibit 4.2 from our F-4 registration statement (File
No. 333-168823), as amended, initially filed with the SEC on August 18, 2010)
Intercompany Promissory Note, dated May 17, 2010, issued by MPEL Investments Limited (incorporated by
reference to Exhibit 4.3 from our F-4 registration statement (File No. 333-168823), as amended, initially filed with
the SEC on August 18, 2010)
Pledge Agreement, dated as of May 17, 2010, between MCE Finance Limited and The Bank of New York Mellon
as collateral agent (incorporated by reference to Exhibit 4.4 from our F-4 registration statement (File No.
333-168823), as amended, initially filed with the SEC on August 18, 2010)
Note Guarantee, dated as of May 17, 2010, among MCE Finance Limited, Melco Crown Entertainment Limited,
MPEL International Limited, Melco Crown Gaming (Macau) Limited, MPEL Nominee One Limited, MPEL
Investments Limited, Altira Hotel Limited, Altira Developments Limited, Melco Crown (COD) Hotels Limited,
Melco Crown (COD) Developments and The Bank of New York as trustee (incorporated by reference to
Exhibit 4.5 from our F-4 registration statement (File No. 333-168823), as amended, initially filed with the SEC on
August 18, 2010)
Subordination Agreement, dated as of May 17, 2010, among MCE Finance Limited, Melco Crown Entertainment
Limited, MPEL International Limited and The Bank of New York Mellon as trustee and as subordination agent
(incorporated by reference to Exhibit 4.6 from our F-4 registration statement (File No. 333-168823), as amended,
initially filed with the SEC on August 18, 2010)
8.1 *
List of Subsidiaries
11.1
Code of Business Conduct and Ethics, amended and approved as of September 29, 2009 (incorporated by
reference to Exhibit 11.1 from our annual report on Form 20-F for the fiscal year ended December 31, 2009 (File
No. 001-333178), filed with the SEC on March 31, 2010)
119
Exhibit
Number
Description of Document
12.1 *
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2 *
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1 *
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 *
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1 *
Consent of Walkers
*
Filed with this Annual Report on Form 20-F
120
MELCO CROWN ENTERTAINMENT LIMITED
Consolidated Financial Statements
For the years ended December 31, 2010, 2009 and 2008
Report of Independent Registered Public Accounting Firm
(This page intentionally left blank)
MELCO CROWN ENTERTAINMENT LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 and 2008
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements for the years ended December 31, 2010, 2009 and 2008
Schedule 1 - Melco Crown Entertainment Limited Condensed Financial Statements as of December 31, 2010 and
2009 and for the years ended December 31, 2010, 2009 and 2008
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-9
F-49
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Melco Crown Entertainment Limited:
We have audited the internal control over financial reporting of Melco Crown Entertainment Limited and subsidiaries (the
“Company”) as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control over Financing Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated
financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and related financial statements included in Schedule 1 as of and for the year ended December 31,
2010 of the Company and our report dated April 1, 2011 expressed an unqualified opinion on those consolidated financial statements
and financial statement schedule.
/s/ Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
April 1, 2011
F - 2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Melco Crown Entertainment Limited:
We have audited the accompanying consolidated balance sheets of Melco Crown Entertainment Limited and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash
flows for the years ended December 31, 2010, 2009 and 2008. Our audits also included the related financial statements included in
Schedule 1. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years ended
December 31, 2010, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such related financial statements included in Schedule 1, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
April 1, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
April 1, 2011
F - 3
MELCO CROWN ENTERTAINMENT LIMITED
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net (Note 3)
Amounts due from affiliated companies (Note 19(a))
Income tax receivable
Inventories
Prepaid expenses and other current assets
Total current assets
PROPERTY AND EQUIPMENT, NET (Note 4)
GAMING SUBCONCESSION, NET (Note 5)
INTANGIBLE ASSETS, NET (Note 6)
GOODWILL (Note 6)
LONG-TERM PREPAYMENT, DEPOSITS AND OTHER ASSETS (Note 7)
DEFERRED TAX ASSETS (Note 14)
DEFERRED FINANCING COSTS
LAND USE RIGHTS, NET (Note 8)
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses and other current liabilities (Note 9)
Income tax payable
Current portion of long-term debt (Note 10)
Amounts due to affiliated companies (Note 19(b))
Amounts due to shareholders (Note 19(c))
Total current liabilities
LONG-TERM DEBT (Note 10)
OTHER LONG-TERM LIABILITIES (Note 11)
DEFERRED TAX LIABILITIES (Note 14)
LOANS FROM SHAREHOLDERS (Note 19(c))
LAND USE RIGHT PAYABLE (Note 18(a))
COMMITMENTS AND CONTINGENCIES (Note 18)
SHAREHOLDERS’ EQUITY
Ordinary shares at US$0.01 par value per share
(Authorized — 2,500,000,000 shares as of December 31, 2010 and 2009 and issued —
1,605,658,111 and 1,595,617,550 shares as of December 31, 2010 and 2009 (Note 13))
Treasury shares, at US$0.01 par value per share
(8,409,186 and 471,567 shares as of December 31, 2010 and 2009 (Note 13))
Additional paid-in capital
Accumulated other comprehensive losses
Accumulated losses
Total shareholders’ equity
TOTAL
December 31,
2010
2009
$
441,923
167,286
259,521
1,528
198
10,228
19,788
900,472
2,671,895
656,742
4,220
81,915
95,629
25
45,387
$
212,598
236,119
262,176
1
—
6,534
19,768
737,196
2,786,646
713,979
4,220
81,915
52,365
—
38,948
428,155
$ 4,884,440
447,576
$ 4,862,845
$
8,880
462,084
934
202,997
673
36
675,604
1,521,251
6,496
18,010
115,647
24,241
$
8,719
460,243
768
44,504
7,384
25
521,643
1,638,703
20,619
17,757
115,647
39,432
16,056
15,956
(84)
3,095,730
(11,345)
(577,166)
2,523,191
$ 4,884,440
(5)
3,088,768
(29,034)
(566,641)
2,509,044
$ 4,862,845
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
MELCO CROWN ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data)
Year Ended December 31,
2009
2010
2008
OPERATING REVENUES
Casino
Rooms
Food and beverage
Entertainment, retail and others
Gross revenues
Less: promotional allowances
Net revenues
OPERATING COSTS AND EXPENSES
Casino
Rooms
Food and beverage
Entertainment, retail and others
General and administrative
Pre-opening costs
Amortization of gaming subconcession
Amortization of land use rights
Depreciation and amortization
Property charges and others
Total operating costs and expenses
OPERATING INCOME (LOSS)
NON-OPERATING EXPENSES
Interest income
Interest expenses, net of capitalized interest
Amortization of deferred financing costs
Loan commitment fees
Foreign exchange gain, net
Other income, net
Costs associated with debt modification
Total non-operating expenses
LOSS BEFORE INCOME TAX
INCOME TAX (EXPENSE) CREDIT (Note 14)
NET LOSS
LOSS PER SHARE:
Basic
Diluted
$
$
2,550,542
83,718
56,679
32,679
2,723,618
(81,642)
2,641,976
1,304,634 $
41,215
28,180
11,877
1,385,906
(53,033)
1,332,873
(1,949,024)
(16,132)
(32,898)
(19,776)
(199,830)
(18,648)
(57,237)
(19,522)
(236,306)
(91)
(2,549,464)
92,512
(1,130,302)
(6,357)
(16,853)
(4,004)
(130,986)
(91,882)
(57,237)
(18,395)
(141,864)
(7,040)
(1,604,920)
(272,047)
498
(31,824)
(5,974)
(2,253)
491
2,516
—
(36,546)
(308,593)
132
(308,461) $
404
(93,357)
(14,302)
3,811
3,563
1,074
(3,310)
(102,117)
(9,605)
(920)
(10,525)
(0.007)
(0.007)
$
$
$
$
$
$
1,405,932
17,084
16,107
5,396
1,444,519
(28,385)
1,416,134
(1,159,930)
(1,342)
(12,745)
(1,240)
(90,707)
(21,821)
(57,237)
(18,269)
(51,379)
(290)
(1,414,960)
1,174
8,215
—
(765)
(14,965)
1,436
972
—
(5,107)
(3,933)
1,470
(2,463)
(0.210) $
(0.210) $
(0.002)
(0.002)
WEIGHTED AVERAGE SHARES USED IN LOSS PER SHARE
CALCULATION:
Basic
Diluted
1,595,552,022
1,595,552,022
1,465,974,019
1,465,974,019
1,320,946,942
1,320,946,942
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
MELCO CROWN ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands of U.S. dollars, except share and per share data)
Common Shares
Shares
Amount
Treasury Shares
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Total
Comprehensive Accumulated Shareholders’
Losses
Losses
Equity
Comprehensive
(Loss) Income
BALANCE AT JANUARY
1, 2008
1,320,938,902 $ 13,209
— $ — $2,682,125 $
(11,076) $
(255,717) $
2,428,541
Net loss for the year
Change in fair value of
interest rate swap
agreements
Reversal of over-accrued
offering expenses
Share-based compensation
(Note 15)
Shares issued upon restricted
shares vested (Note 13)
Shares issued for future
exercise of share options
(Note 13)
BALANCE AT DECEMBER
—
—
—
—
226,317
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
117
7,018
—
—
(3)
385,180
4
(385,180)
(4)
—
—
(2,463)
(2,463)
$
(2,463)
(24,609)
—
—
—
—
—
—
—
—
—
(24,609)
(24,609)
117
7,018
—
—
31, 2008
1,321,550,399
13,216
(385,180)
(4) 2,689,257
(35,685)
(258,180)
2,408,604 $
(27,072)
31, 2009
1,595,617,550
15,956
(471,567)
(5) 3,088,768
(29,034)
(566,641)
2,509,044
Net loss for the year
Foreign currency translation
adjustment
Change in fair value of
interest rate swap
agreements
Share-based compensation
(Note 15)
Shares issued, net of offering
—
—
—
—
—
—
—
—
expenses (Note 13)
263,155,335
2,631
8,297,110
83
—
—
—
—
—
—
—
(11)
—
—
—
6,662
—
—
—
—
11,807
— 380,898
—
6,831
2,614,706
26 (2,614,706)
(26)
—
—
— 2,528,319
25
(25)
—
Shares issued upon restricted
shares vested (Note 13)
Shares issued for future
vesting of restricted shares
(Note 13)
Issuance of shares for
restricted shares vested
(Note 13)
BALANCE AT DECEMBER
Net loss for the year
Foreign currency translation
adjustment
Change in fair value of
interest rate swap
agreements
Share-based compensation
(Note 15)
Shares issued upon restricted
shares vested (Note 13)
Shares issued for future
vesting of restricted shares
and exercise of share
options (Note 13)
Issuance of shares for
restricted shares vested
(Note 13)
Exercise of share options
(Note 13)
BALANCE AT DECEMBER
—
—
—
—
1,254,920
—
—
—
—
12
—
—
—
—
—
—
—
—
—
—
—
—
6,045
—
(12)
8,785,641
88 (8,785,641)
(88)
—
—
—
43,737
—
804,285
1
8
—
(1)
930
—
32
17,657
—
—
—
—
—
(308,461)
(308,461)
$
(308,461)
—
—
—
—
—
—
—
(11)
(11)
6,662
6,662
11,807
383,529
6,914
—
—
—
—
—
—
(10,525)
(10,525)
$
$
(301,810)
(10,525)
32
32
17,657
17,657
6,045
—
—
—
938
—
—
—
—
—
—
—
31, 2010
1,605,658,111
$ 16,056 (8,409,186) $
(84) $3,095,730 $
(11,345)
$
(577,166) $
2,523,191
$
7,164
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
MELCO CROWN ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization
Amortization of deferred financing costs
Amortization of discount on senior notes payable
Impairment loss recognized on property and equipment
Loss (gain) on disposal of property and equipment
Allowance for doubtful debts
Written off deferred financing costs on modification of debt
Share-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Amounts due from affiliated companies
Inventories
Prepaid expenses and other current assets
Long-term prepayment, deposits and other assets
Deferred tax assets
Accounts payable
Accrued expenses and other current liabilities
Income tax payable
Amounts due to affiliated companies
Amounts due to shareholders
Other long-term liabilities
Deferred tax liabilities
Year Ended December 31,
2009
2008
2010
$
(10,525)
$
(308,461)
$
(2,463)
313,065
14,302
417
—
176
33,182
1,992
6,043
(45,795)
(1,527)
(3,694)
43
180
(25)
64
94,190
(34)
(689)
11
326
253
217,496
5,974
—
3,137
640
16,757
—
11,385
(209,025)
649
(4,364)
(5,824)
(1,712)
28
6,225
158,332
(1,186)
(1,220)
25
321
(1,434)
126,885
765
—
17
(328)
5,378
—
6,855
(29,065)
89
(686)
(1,503)
1,219
(28)
(3,670)
(110,245)
394
(3,461)
—
784
(2,095)
Net cash provided by (used in) operating activities
401,955
(112,257)
(11,158)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
Deposits for acquisition of property and equipment
Payment for entertainment production costs
Changes in restricted cash
Payment for land use right
Proceeds from sale of property and equipment
Refund of deposit for acquisition of land interest
(197,385)
(5,224)
(27,116)
69,137
(29,802)
80
—
(937,074)
(2,712)
(21,735)
(168,142)
(30,559)
3,730
12,853
(1,053,992)
(34,699)
(16,127)
231,006
(42,090)
2,300
—
Net cash used in investing activities
(190,310)
(1,143,639)
(913,602)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of deferred financing costs
Loans from shareholders
Proceeds from issue of share capital
Proceeds from long-term debt
Principal payments on long-term debt
(22,944)
—
—
592,026
(551,402)
(870)
—
383,529
270,691
—
(7,641)
(181)
—
912,307
—
Net cash provided by financing activities
17,680
653,350
904,485
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
229,325
(602,546)
(20,275)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
212,598
815,144
835,419
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
441,923
$
212,598
$
815,144
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
MELCO CROWN ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In thousands of U.S. dollars)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid for interest (net of capitalized interest)
Cash paid for tax (net of refunds)
NON-CASH INVESTING AND FINANCING ACTIVITIES
Construction costs and property and equipment funded through accrued
expenses and other current liabilities
Land use right cost funded through accrued expenses and other current
liabilities
Costs of property and equipment funded through amounts due to affiliated
companies
Disposal of property and equipment through amount due from an affiliated
company
Deferred financing costs funded through accounts payable and accrued
expenses and other current liabilities
Provision of bonus funded through restricted shares issued and vested
Year Ended December 31,
2009
2008
2010
$
$
$
$
$
$
$
$
(85,183)
(726)
16,885
80
—
—
240
—
$
$
$
$
$
$
$
$
(27,978)
(2,457)
91,648
22,462
4,427
—
—
6,914
$
$
$
$
$
$
$
$
(181)
—
246,998
—
1,562
(2,788)
1,427
—
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data)
1.
COMPANY INFORMATION
Melco Crown Entertainment Limited (“the Company” together with its subsidiaries, “MCE”) was incorporated in the Cayman
Islands on December 17, 2004 and completed an initial public offering of its ordinary shares in December 2006. MCE is a
developer, owner and, through its subsidiary, Melco Crown Gaming (Macau) Limited (“Melco Crown Gaming”), operator of
casino gaming and entertainment resort facilities focused on the Macau Special Administrative Region of the People’s Republic
of China (“Macau”) market. MCE currently owns and operates City of Dreams — an integrated resort development which
opened in June 2009, Taipa Square Casino which opened in June 2008, Altira Macau (formerly known as Crown Macau) — a
casino and hotel resort which opened in May 2007, and Mocha Clubs — a non-casino-based operations of electronic gaming
machines which has been in operation since September 2003. MCE’s American depository shares (“ADS”) are traded on the
Nasdaq Global Select Market under the symbol “MPEL”. The Company changed its name from Melco PBL Entertainment
(Macau) Limited to Melco Crown Entertainment Limited pursuant to shareholders’ resolutions passed on May 27, 2008.
As of December 31, 2010 and 2009, the major shareholders of the Company are Melco International Development Limited
(“Melco”), a company listed in the Hong Kong Special Administrative Region of the People’s Republic of China (“Hong
Kong”), and Crown Limited (“Crown”), an Australian-listed corporation, which completed its acquisition of the gaming
businesses and investments of Publishing and Broadcasting Limited (“PBL”) on December 12, 2007. PBL, an Australian-listed
corporation, is now known as Consolidated Media Holdings Limited.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“US GAAP”).
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts
and transactions have been eliminated on consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities, revenues and expenses and related disclosures
of contingent assets and liabilities. These estimates and judgements are based on historical information, information that is
currently available to the Company and on various other assumptions that the Company believes to be reasonable under the
circumstances. Accordingly, actual results could differ from those estimates.
(c) Fair Value Measurements
Fair values are measured in accordance with the accounting standards for fair value measurements. These accounting
standards define fair value as the price that would be received to sell the asset or paid to transfer a liability (i.e. the “exit
price”) in an orderly transaction between market participants at the measurement date.
The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts
receivable, other current assets, amounts due from (to) affiliated companies, accounts payable, accrued expenses and other
current liabilities, amounts due to shareholders, loans from shareholders, land use right payable, interest rate swap
agreements and debt instruments approximate their fair values, except for the Company’s $600,000 10.25% senior notes,
due 2018 (the “Senior Notes”) as disclosed in Note 10 to the consolidated financial statements which estimated fair value is
based on quoted market price.
F - 9
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments which are unrestricted as
to withdrawal and use, and which have maturities of three months or less when purchased.
Cash equivalents are placed with financial institutions with high-credit ratings and quality.
(e) Restricted Cash
Restricted cash consists of cash deposited into bank accounts and restricted for repayments of the Company’s senior
secured credit facility (the “City of Dreams Project Facility”) and payments of City of Dreams project costs in accordance
with the City of Dreams Project Facility as disclosed in Note 10 to the consolidated financial statements.
(f) Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino
receivables. The Company issues credit in the form of markers to approved casino customers following investigations of
creditworthiness including its gaming promoters in Macau which receivable can be offset against commissions payable and
any other value items held by the Company to the respective customer and for which the Company intends to set-off when
required. As of December 31, 2010 and 2009, a substantial portion of the Company’s markers were due from customers
residing in foreign countries. Business or economic conditions, the legal enforceability of gaming debts, or other significant
events in foreign countries could affect the collectability of receivables from customers and gaming promoters residing in
these countries.
Accounts receivable, including casino, hotel and other receivables, are typically non-interest bearing and are initially
recorded at cost. Accounts are written off when management deems it is probable the receivable is uncollectible.
Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful debts is
maintained to reduce the Company’s receivables to their carrying amounts, which approximates fair value. The allowance
is estimated based on specific review of customer accounts as well as management’s experience with collection trends in
the casino industry and current economic and business conditions. Management believes that as of December 31, 2010 and
2009, no significant concentrations of credit risk existed for which an allowance had not already been recorded.
(g) Inventories
Inventories consist of retail merchandise, food and beverage items and certain operating supplies, which are stated at the
lower of cost or market value. Cost is calculated using the first-in, first-out, average and specific identification methods.
Write downs of potentially obsolete or slow-moving inventory are recorded based on management’s specific analysis of
inventory.
F - 10
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(h) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains or losses on
dispositions of property and equipment are included in operating income (loss). Major additions, renewals and betterments
are capitalized, while maintenance and repairs are expensed as incurred.
Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method from
the time the assets are placed in service. Estimated useful lives are as follows:
Classification
Buildings
Furniture, fixtures and equipment
Plant and gaming machinery
Leasehold improvements
Motor vehicles
Estimated useful life
7 to 25 years or over the term of the land use right agreement, whichever
is shorter
2 to 10 years
3 to 5 years
10 years or over the lease term, whichever is shorter
5 years
Direct and incremental costs related to the construction of assets, including costs under the construction contracts, duties
and tariffs, equipment installation and shipping costs, are capitalized.
(i)
Capitalization of Interest and Amortization of Deferred Financing Costs
Interest and amortization of deferred financing costs incurred on funds used to construct the Company’s casino gaming and
entertainment resort facilities during the active construction period are capitalized. Interest subject to capitalization
primarily includes interest paid or payable on loans from shareholders, City of Dreams Project Facility, interest rate swap
agreements and the Senior Notes. The capitalization of interest and amortization of deferred financing costs ceases once a
project is substantially complete or development activity is suspended for more than a brief period. The amount to be
capitalized is determined by applying the weighted-average interest rate of the Company’s outstanding borrowings to the
average amount of accumulated capital expenditures for assets under construction during the year and is added to the cost
of the underlying assets and amortized over their respective useful lives. Total interest expenses incurred amounted to
$105,180, $82,310 and $49,629, of which $11,823, $50,486 and $49,629 were capitalized for the years ended
December 31, 2010, 2009 and 2008, respectively. Additionally, deferred financing costs of nil, $4,414 and $7,262 were
capitalized for the years ended December 31, 2010, 2009 and 2008, respectively.
(j) Gaming Subconcession, Net
The gaming subconcession is capitalized based on the fair value of the gaming subconcession agreement as of the date of
acquisition of Melco Crown Gaming, and amortized using the straight-line method over the term of agreement which is due
to expire in June 2022.
(k) Goodwill and Intangible Assets, Net
Goodwill represents the excess of acquisition costs over the fair value of tangible and identifiable intangible net assets of
any business acquired. Goodwill is not amortized, but is tested for impairment at the reporting unit level on an annual basis,
and between annual tests in certain circumstances that indicate the carrying value of the goodwill may not be recoverable,
and written down when impaired.
Intangible assets other than goodwill are amortized over their useful lives unless their lives are determined to be indefinite
in which case they are not amortized. Intangible assets are carried at cost, less accumulated amortization. The Company’s
finite-lived intangible asset consists of the gaming subconcession. Finite-lived intangible assets are amortized over the
shorter of their contractual terms or estimated useful lives. The Company’s intangible assets with indefinite lives represent
Mocha Clubs trademarks.
F - 11
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(l)
Impairment of Long-Lived Assets (Other Than Goodwill)
The Company evaluates the recoverability of long-lived assets with finite lives whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value. During the
years ended December 31, 2010, 2009 and 2008, impairment losses amounting to nil, $282 and $17, respectively, were
recognized to write off gaming equipment due to the reconfiguration of the casino at Altira Macau to meet the evolving
demands of gaming patrons and target specific segments. During the year ended December 31, 2009, an impairment loss
amounting to $2,855 was recognized to write off the construction in progress carried out at the Macau Peninsula site
following termination of the related acquisition agreement. These impairment losses were included in “Property Charges
and Others” line item in the consolidated statements of operations.
(m) Deferred Financing Costs
Direct and incremental costs incurred in obtaining loans or in connection with the issuance of long-term debt are capitalized
and amortized over the terms of the related debt agreements using the effective interest method. Approximately $14,302,
$10,388 and $8,027 were amortized during the years ended December 31, 2010, 2009 and 2008, respectively, of which a
portion was capitalized as mentioned in Note 2(i) to the consolidated financial statements.
(n) Land Use Rights, Net
Land use rights are recorded at cost less accumulated amortization. Amortization is provided over the estimated lease term
of the land on a straight-line basis.
(o) Revenue Recognition and Promotional Allowances
The Company recognizes revenue at the time persuasive evidence of an arrangement exists, the service is provided or the
retail goods are sold, prices are fixed or determinable and collection is reasonably assured.
Casino revenues are measured by the aggregate net difference between gaming wins and losses less accruals for the
anticipated payouts of progressive slot jackpots, with liabilities recognized for funds deposited by customers before gaming
play occurs and for chips in the customers’ possession.
The Company follows the accounting standards for reporting revenue gross as a principal versus net as an agent, when
accounting for operations of Taipa Square Casino and Grand Hyatt Macau hotel. For the operations of Taipa Square
Casino, given the Company operates the casino under a right to use agreement with the owner of the casino premises and
has full responsibility for the casino operations in accordance with its gaming subconcession, it is the principal and casino
revenue is therefore recognized on a gross basis. For the operations of Grand Hyatt Macau hotel, the Company is the owner
of the hotel property, and the hotel manager operates the hotel under a management agreement providing management
services to the Company, and the Company receives all rewards and takes substantial risks associated with the hotel
business, it is the principal and the transactions of the hotel are therefore recognized on a gross basis.
Rooms, food and beverage, entertainment, retail and other revenues are recognized when services are performed. Advance
deposits on rooms and advance ticket sales are recorded as customer deposits until services are provided to the customer.
Minimum operating and right to use fee, adjusted for contractual base fee and operating fee escalations, are included in
entertainment, retail and other revenues and are recognized on a straight-line basis over the terms of the related agreement.
F - 12
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(o) Revenue Recognition and Promotional Allowances - continued
Revenues are recognized net of certain sales incentives which are required to be recorded as a reduction of revenue;
consequently, the Company’s casino revenues are reduced by discounts, commissions and points earned in customer loyalty
programs, such as the player’s club loyalty program.
The retail value of rooms, food and beverage, entertainment, retail and other services furnished to guests without charge is
included in gross revenues and then deducted as promotional allowances. The estimated cost of providing such promotional
allowances for the years ended December 31, 2010, 2009 and 2008, is primarily included in casino expenses as follows:
Rooms
Food and beverage
Entertainment, retail and others
(p) Point-loyalty Programs
Year Ended December 31,
2009
2008
2010
$
$
10,395
27,870
5,545
43,810
$
$
6,778
17,296
3,448
27,522
$
$
4,240
9,955
—
14,195
The Company operates different loyalty programs in certain of its properties to encourage repeat business from loyal slot
machine customers and table games patrons. Members earn points based on gaming activity and such points can be
redeemed for free play and other free goods and services. The Company accrues for loyalty program points expected to be
redeemed for cash and free play as a reduction to gaming revenue and accrues for loyalty program points expected to be
redeemed for free goods and services as casino expense. The accruals are based on management’s estimates and
assumptions regarding the redemption value, age and history with expiration of unused points results in a reduction of the
accruals.
(q) Gaming Tax
The Company is subject to taxes based on gross gaming revenue in Macau. These gaming taxes are an assessment on the
Company’s gaming revenue and are recorded as an expense within the “Casino” line item in the consolidated statements of
operations. These taxes totaled $1,362,007, $737,485 and $767,544 for the years ended December 31, 2010, 2009 and
2008, respectively.
(r) Pre-opening Costs
Pre-opening costs, consist primarily of marketing expenses and other expenses related to new or start-up operations and are
expensed as incurred. The Company incurred pre-opening costs in connection with City of Dreams prior to its opening in
June 2009 and continues to incur such costs related to remaining portion of City of Dreams project and other one-off
activities related to the marketing of new facilities and operations.
(s) Advertising Expenses
The Company expenses all advertising costs as incurred. Advertising costs incurred during development periods are
included in pre-opening costs. Once a project is completed, advertising costs are mainly included in general and
administrative expenses. Total advertising costs were $45,267, $29,018 and $5,283 for the years ended December 31, 2010,
2009 and 2008, respectively.
F - 13
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(t) Foreign Currency Transactions and Translations
All transactions in currencies other than functional currencies of the Company during the year are remeasured at the
exchange rates prevailing on the respective transaction dates. Monetary assets and liabilities existing at the balance sheet
date denominated in currencies other than functional currencies are remeasured at the exchange rates existing on that date.
Exchange differences are recorded in the consolidated statements of operations.
The functional currencies of the Company and its major subsidiaries are the U.S. dollars and, Hong Kong dollars or the
Macau Patacas, respectively. All assets and liabilities are translated at the rates of exchange prevailing at the balance sheet
date and all income and expense items are translated at the average rates of exchange over the year. All exchange
differences arising from the translation of subsidiaries’ financial statements are recorded as a component of comprehensive
(loss) income.
(u) Share-based Compensation Expenses
The Company issued restricted shares and share options under its share incentive plan during the years ended December 31,
2010, 2009 and 2008.
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award and recognizes that cost over the service period. Compensation is attributed to the periods
of associated service and such expense is being recognized on a straight-line basis over the vesting period of the awards.
Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures recognized
currently to the extent they differ from the estimate.
Further information on the Company’s share-based compensation arrangements is included in Note 15 to the consolidated
financial statements.
(v) Income Tax
The Company is subject to income taxes in Hong Kong, Macau, the United States of America and other jurisdictions where
it operates.
Deferred income taxes are recognized for all significant temporary differences between the tax basis of assets and liabilities
and their reported amounts in the consolidated financial statements. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The components of the deferred tax assets and liabilities are individually classified as current and non-
current based on the characteristics of the underlying assets and liabilities. Current income taxes are provided for in
accordance with the laws of the relevant taxing authorities.
The Company’s income tax returns are subject to examination by tax authorities in the jurisdictions where it operates. The
Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain
income taxes which the Company adopted on January 1, 2007. These accounting standards utilize a two-step approach to
recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations.
F - 14
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(w) Loss Per Share
Basic loss per share is calculated by dividing the net loss available to ordinary shareholders by the weighted-average
number of ordinary shares outstanding during the year.
Diluted loss per share is calculated by dividing the net loss available to ordinary shareholders by the weighted-average
number of ordinary shares outstanding adjusted to include the potentially dilutive effect of outstanding share-based awards.
The weighted-average number of ordinary and ordinary equivalent shares used in the calculation of basic and diluted loss
per share consisted of the following:
Year Ended December 31,
2009
2010
2008
Weighted-average number of ordinary shares outstanding used in the
calculation of basic loss per share
1,595,552,022
1,465,974,019
1,320,946,942
Incremental weighted-average number of ordinary shares from assumed
exercised of restricted shares and share options using the treasury stock
method
—
—
—
Weighted-average number of ordinary shares outstanding used in the
calculation of diluted loss per share
1,595,552,022
1,465,974,019
1,320,946,942
During the years ended December 31, 2010, 2009 and 2008, the Company had securities which would potentially dilute
basic loss per share in the future, but which were excluded from the computation of diluted loss per share as their effect
would have been anti-dilutive. Such outstanding securities consist of restricted shares and share options which result in an
incremental weighted-average number of 9,377,509, 13,931,088 and 3,897,756 ordinary shares from the assumed
conversion of these restricted shares and share options using the treasury stock method for the years ended December 31,
2010, 2009 and 2008, respectively.
(x) Accounting for Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments such as floating-for-fixed interest rate swap agreements to hedge its
risks associated with interest rate fluctuations in accordance with lenders’ requirements under the City of Dreams Project
Facility. The Company accounts for derivative financial instruments in accordance with applicable accounting standards.
All derivative instruments are recognized in the consolidated financial statements at fair value at the balance sheet date.
Any changes in fair value are recorded in the consolidated statement of operations or in accumulated other comprehensive
losses, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction
and the effectiveness of the hedge. The estimated fair values of interest rate swap agreements are based on a standard
valuation model that projects future cash flows and discounts those future cash flows to a present value using market-based
observable inputs such as interest rate yields.
Further information on the Company’s outstanding financial instrument arrangements as of December 31, 2010 is included
in Note 11 to the consolidated financial statements.
F - 15
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(y) Accumulated Other Comprehensive Losses
Accumulated other comprehensive losses represent foreign currency translation adjustment and changes in the fair value of
interest rate swap agreements. As of December 31, 2010 and 2009, the Company’s accumulated other comprehensive
losses consisted of the following:
Foreign currency translation adjustment
Changes in the fair value of interest rate swap agreements
(z) Reclassifications
December 31,
2010
2009
$
$
(924)
(10,421)
(11,345)
$
$
(956)
(28,078)
(29,034)
The consolidated financial statements for prior years reflect certain reclassifications, which have no effect on previously
reported net loss, to conform to the current year presentation.
(aa) Recent Changes in Accounting Standards
In January 2010, the Financial Accounting Board (“FASB”) issued new accounting standards regarding new requirements
for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and
settlements relating to Level 3 measurement on a gross basis rather than as a net basis as currently required. Those
accounting standards also clarify existing fair value disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value and are effective for annual and interim periods beginning after
December 15, 2009, except for the requirement to provide the level 3 activity of purchases, sales, issuances, and settlements
on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early
application is permitted and in the period of initial adoption, entities are not required to provide the amended disclosures for
any previous periods presented for comparative purposes. The adoption of these new accounting standards did not and is
not expected to have a material impact on the Company’s financial position, results of operations and cash flows.
In April 2010, the FASB issued ASU 2010-16, Entertainment — Casinos (Topic 924); Accruals for Casino Jackpot
Liabilities. This ASU clarifies that an entity should not accrue a casino jackpot liability (or portions thereof) before the
jackpot is won if the entity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an
entity has the obligation to pay the jackpot. ASU 2010-16 is effective for fiscal years and interim periods within those fiscal
years, beginning on or after December 15, 2010. The Company adopted the ASU as of January 1, 2011. The adoption of
these new accounting standards is not expected to have a material impact on the Company’s financial position, results of
operations and cash flows.
In December 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-28, When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, a consensus of the FASB
Emerging Issues Task Force (Issue No. 10-A), modifies Step 1 of the goodwill impairment test under FASB Accounting
Standards Codification (“ASC”) Topic 350, Intangibles — Goodwill and Other, for reporting units with zero or negative
carrying amounts to require an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity
should consider whether there are adverse qualitative factors, including the examples provided in FASB ASC paragraph
350-20-35-30, in determining whether an interim goodwill impairment test between annual test dates is necessary. On
adoption of this ASU, goodwill impairment that results from this requirement to perform Step 2 of the goodwill impairment
test would be recognized as cumulative effect adjustment to beginning retained earnings in the period of adoption. The
ASU is effective for fiscal year, and interim periods within those years, beginning after December 15, 2010 for a public
entity. The Company adopted the ASU as of January 1, 2011. The Company has one reporting unit with goodwill —
Mocha Clubs. As the carrying amount of that reporting unit is greater than zero, adoption of this ASU will not have a
material impact for the Company.
F - 16
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
3.
ACCOUNTS RECEIVABLE, NET
Components of accounts receivable, net are as follows:
Casino
Hotel
Other
Sub-total
Less: allowance for doubtful debts
December 31,
2010
2009
$
$
$
293,976
4,438
2,597
301,011
(41,490)
259,521
$
$
$
283,265
2,457
681
286,403
(24,227)
262,176
During the years ended December 31, 2010 and 2009, the Company has provided allowance for doubtful debts of $32,241 and
$16,114 and has written off accounts receivables of $941 and $643, respectively.
4.
PROPERTY AND EQUIPMENT, NET
Cost
Buildings
Furniture, fixtures and equipment
Plant and gaming machinery
Leasehold improvements
Motor vehicles
Sub-total
Less: accumulated depreciation
Sub-total
Construction in progress
Property and equipment, net
December 31,
2010
2009
$ 2,439,425
381,231
131,104
147,530
4,309
$ 3,103,599
(481,040)
$ 2,622,559
49,336
$ 2,671,895
$ 2,219,127
307,305
114,983
97,188
3,375
$ 2,741,978
(249,780)
$ 2,492,198
294,448
$ 2,786,646
As of December 31, 2010 and 2009, construction in progress in relation to the City of Dreams project primarily included interest
paid or payable on loans from shareholders, City of Dreams Project Facility and interest rate swap agreements, amortization of
deferred financing costs and other direct incidental costs capitalized (representing insurance, salaries and wages and certain other
professional charges incurred). As of December 31, 2010 and 2009, total cost capitalized for construction in progress amounted
to $7,820 and $35,713, respectively, for the City of Dreams project.
5.
GAMING SUBCONCESSION, NET
Deemed cost
Less: accumulated amortization
Gaming subconcession, net
December 31,
2010
2009
$
$
900,000
(243,258)
656,742
$
$
900,000
(186,021)
713,979
F - 17
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
5.
GAMING SUBCONCESSION, NET - continued
The deemed cost was determined based on the estimated fair value of the gaming subconcession. The gaming subconcession is
amortized on a straight-line basis over the term of the gaming subconcession agreement which expires in June 2022. The
Company expects that amortization of the gaming subconcession will be approximately $57,237 each year from 2011 through
2021, and approximately $27,135 in 2022.
6.
GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and other intangible assets with indefinite useful lives, representing trademarks of Mocha Clubs, are not amortized.
The Company has performed annual tests for impairment of goodwill and trademarks in accordance with the accounting
standards regarding goodwill and other intangible assets and concluded that there was no impairment.
To assess potential impairment of goodwill, the Company performs an assessment of the carrying value of the reporting units at
least on an annual basis or when events and changes in circumstances occur that would more likely than not reduce the fair value
of our reporting units below their carrying value. If the carrying value of a reporting unit exceeds its fair value, the Company
would perform the second step in its assessment process and record an impairment loss to earnings to the extent the carrying
amount of the reporting unit’s goodwill exceeds its implied fair value. The Company estimates the fair value of our reporting
units through internal analysis and external valuations, which utilize income and market valuation approaches through the
application of capitalized earnings, discounted cash flow and market comparable methods. These valuation techniques are based
on a number of estimates and assumptions, including the projected future operating results of the reporting unit, appropriate
discount rates, long-term growth rates and appropriate market comparables.
Trademarks of Mocha Clubs are tested for impairment using the relief-from-royalty method. Under this method, the Company
estimates the fair value of the intangible assets through internal and external valuations, mainly based on the after-tax cash flow
associated with the revenue related to the royalty. These valuation techniques are based on a number of estimates and
assumptions, including the projected future revenues of the trademarks, appropriate royalty rates, appropriate discount rates, and
long-term growth rates.
7.
LONG-TERM PREPAYMENT, DEPOSITS AND OTHER ASSETS
Long-term prepayment, deposits and other assets consisted of the following:
Entertainment production costs
Less: accumulated amortization
Entertainment production costs, net
Deposit and other
Long-term receivables, net
Long-term prepayment, deposits and other assets
December 31,
2010
2009
$
$
$
68,483
(2,283)
66,200
12,085
17,344
95,629
$
$
$
42,573
—
42,573
9,792
—
52,365
Entertainment production costs represent the amount incurred and capitalized for the entertainment show in City of Dreams,
which commenced performance in September 2010. The Company expects that amortization of entertainment production costs
will be approximately $6,848 each year from 2011 through 2019, and approximately $4,568 in 2020.
Long-term receivables, net includes an allowance for doubtful debts of $14,978 as of December 31, 2010, with $9,978 and
$5,000 raised during the years ended December 31, 2010 and 2009, respectively.
F - 18
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
8.
LAND USE RIGHTS, NET
Land use rights consisted of the following:
Altira Macau
City of Dreams
Less: accumulated amortization
Land use rights, net
December 31,
2010
2009
$
$
$
141,543
376,122
517,665
(89,510)
428,155
$
$
$
141,543
376,021
517,564
(69,988)
447,576
Land use rights are recorded at cost less accumulated amortization. Amortization is provided over the estimated lease term of the
land on a straight-line basis. The expiry date of the leases of the land use rights of the Altira Macau and City of Dreams projects
were March 2031 and August 2033, respectively.
In November 2009, the Company’s subsidiaries, Melco Crown (COD) Developments Limited (“Melco Crown
(COD) Developments”) and Melco Crown Gaming accepted in principle the initial terms for the revision of the land lease
agreement from the Macau government and recognized additional land premium of $32,118 payable to the Macau government
for the increased developable gross floor area of Cotai Land in Macau, where the City of Dreams site located. In March 2010,
Melco Crown (COD) Developments and Melco Crown Gaming accepted the final terms for the revision of the land lease
agreement and fully paid the additional premium to the Macau government. The land grant amendment process was completed
on September 15, 2010.
9.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Construction costs payable
Customer deposits and ticket sales
Outstanding gaming chips and tokens
Other gaming related accruals
Gaming tax accruals
Land use right payable
Operating expense accruals
Interest rate swap liabilities
10. LONG-TERM DEBT
Long-term debt consisted of the following:
City of Dreams Project Facility
$600,000 10.25% senior notes, due 2018
Current portion of long-term debt
F - 19
December 31,
2010
2009
$
$
14,218
50,143
131,158
15,065
137,299
15,191
90,867
8,143
462,084
$
$
80,668
45,852
136,774
21,216
67,376
29,781
67,232
11,344
460,243
December 31,
2010
2009
$ 1,131,805
592,443
$ 1,724,248
(202,997)
$ 1,521,251
$ 1,683,207
—
$ 1,683,207
(44,504)
$ 1,638,703
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
10. LONG-TERM DEBT - continued
City of Dreams Project Facility
On September 5, 2007, Melco Crown Gaming (the “Borrower”) entered into the City of Dreams Project Facility with certain
lenders in the aggregate amount of $1,750,000 to fund the City of Dreams project. The City of Dreams Project Facility consists
of a $1,500,000 term loan facility (the “Term Loan Facility”) and a $250,000 revolving credit facility (the “Revolving Credit
Facility”). The Term Loan Facility matures on September 5, 2014 and is subject to quarterly amortization payments (the
“Scheduled Amortization Payments”) commencing on December 5, 2010. The Revolving Credit Facility matures on
September 5, 2012 or, if earlier, the date of repayment, prepayment or cancellation in full of the Term Loan Facility and has no
interim amortization payment. In addition to the Scheduled Amortization Payments, the Borrower is also subject to quarterly
mandatory prepayments (the “Mandatory Prepayments”) in respect of the following amounts within certain subsidiaries of the
Borrower (together with the Borrower collectively referred to as the “Borrowing Group”) including but not limited to: (i) 50% of
the net proceeds of any permitted equity issuance of any member of the Borrowing Group; (ii) the net proceeds of any asset
sales; (iii) net termination proceeds paid under the Borrower’s subconcession and certain contracts or agreements; (iv) certain net
proceeds or liquidated damages paid; (v) insurance proceeds net of expenses to obtain such proceeds; and (vi) excess cash as
defined under a leverage test.
Drawdowns on the Term Loan Facility are, subject to satisfaction of conditions precedent specified in the City of Dreams Project
Facility agreement, including registration of the land concession and execution of construction contracts, compliance with
affirmative, negative and financial covenants and the provision of certificates from technical consultants. The Revolving Credit
Facility will be made available on a fully revolving basis from the date upon which the Term Loan Facility has been fully drawn,
to the date that is one month prior to the Revolving Credit Facility’s final maturity date. As of December 31, 2010, the Term
Loan Facility was fully drawn down and the availability period for this facility has expired.
The indebtedness under the City of Dreams Project Facility is guaranteed by the Borrowing Group. Security for the City of
Dreams Project Facility includes a first-priority mortgage over all land where Altira Macau and the City of Dreams are located
which are held by the subsidiaries of the Company, such mortgages also cover all present and any future buildings on, and
fixtures to, the relevant land; an assignment of any land use rights under land concession agreements, leases or equivalent;
charges over the bank accounts in respect of the Borrowing Group, subject to certain exceptions; assignment of the rights under
certain insurance policies; first priority security over the chattels, receivables and other assets of the Borrowing Group which are
not subject to any security under any other security documentation; first priority charges over the issued share capital of the
Borrowing Group; equipment and tools used in the gaming business by the Borrowing Group; as well as other customary
security.
The City of Dreams Project Facility agreement contains certain affirmative and negative covenants customary for such
financings, including, but not limited to, limitations on incurring additional liens, incurring additional indebtedness, (including
guarantees), making certain investments, paying dividends and other restricted payments, creating any subsidiaries and selling
assets. The City of Dreams Project Facility also requires the Borrowing Group to comply with certain financial covenants,
including, but not limited to, a consolidated leverage ratio, a consolidated interest cover ratio and a consolidated cash cover ratio.
In addition, there are provisions that limit or prohibit certain payment of dividends and other distributions by the Borrowing
Group to the Company. As of December 31, 2010 and 2009, the net assets of the Borrowing Group of approximately $1,553,000
and $1,543,000 were restricted from being distributed under the terms of the City of Dreams Project Facility, respectively.
F - 20
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
10. LONG-TERM DEBT - continued
City of Dreams Project Facility - continued
In May 2010, the Borrower entered into an amendment agreement to the City of Dreams Project Facility (the “Amendment
Agreement”). The Amendment Agreement, among other things, (i) amends the date of the first covenant test date to
December 31, 2010; (ii) provides additional flexibility to the financial covenants; (iii) removes the obligation but retains the right
to enter into any new interest rate or foreign currency swaps or other hedging arrangements; and (iv) restricts the use of the net
proceeds received from the issuance of the Senior Notes to repayment of certain amounts outstanding under the City of Dreams
Project Facility, including prepaying the Term Loan Facility in an amount of $293,714 and the Revolving Credit Facility in an
amount of $150,352, with the remaining net proceeds in an amount of $133,000 deposited in a bank account that is restricted for
use to pay future Scheduled Amortization Payments commencing December 2010 as well as providing for a permanent reduction
of the Revolving Credit Facility of $100,000.
In addition to the prepayment of the Term Loan Facility and Revolving Credit Facility in May 2010 as mentioned in the
preceding paragraph, the Borrower further repaid $35,693 and prepaid $71,643 of the Term Loan Facility in December 2010
according to the Scheduled Amortization Payments and the Mandatory Prepayments, respectively.
Borrowings under the City of Dreams Project Facility bear interest at the London Interbank Offered Rate (“LIBOR”) or Hong
Kong Interbank Offered Rate (“HIBOR”) plus a margin of 2.75% per annum until substantial completion of the City of Dreams
project, at which time the interest rate is reduced to LIBOR or HIBOR plus a margin of 2.50% per annum. The City of Dreams
Project Facility also provides for further reductions in the margin if the Borrowing Group satisfies certain prescribed leverage
ratio tests upon completion of the City of Dreams project. As of December 31, 2010, the interest rate is reduced to LIBOR or
HIBOR plus a margin of 2.50% per annum.
The balance of $250,000 short-term deposits which were placed by the Borrower in May and September 2009 to replace the
letters of credit previously provided to support the contingent equity commitment by the major shareholders of MCE, Melco and
Crown, were to be released upon the final completion for the City of Dreams project (or earlier subject to lender determination
that the full amount is not required to meet remaining costs) and compliance with other release conditions under the City of
Dreams Project Facility. As of December 31, 2010, the balance of $22,758 remained in the bank account that was restricted to
meet the remaining City of Dreams project costs under disbursement terms.
The Borrower has not drawn down further on the Term Loan Facility and Revolving Credit Facility during the year ended
December 31, 2010. During the year ended December 31, 2009, the Borrower drew down a total of $70,951, which includes
$12,685 and HK$453,312,004 (equivalent to $58,266) on the Term Loan Facility and a total of $199,740, which includes
$32,469 and HK$1,301,364,572 (equivalent to $167,271), on the Revolving Credit Facility, respectively.
The Borrower is obligated to pay a commitment fee quarterly in arrears on the undrawn amount of the City of Dreams Project
Facility throughout the availability period. During the year ended December 31, 2010, the Borrower recognized loan
commitment fees with credit amount of $3,811, which include a commitment fee of $814 and a reversal of accrual not required
of $4,625. Loan commitment fees amounted to $2,253 and $14,965 during the years ended December 31, 2009 and 2008,
respectively.
As of December 31, 2010 and 2009, total outstanding borrowings relating to the City of Dreams Project Facility was $1,131,805
and $1,683,207, respectively. Management believes the Company is in compliance with all covenants as of December 31, 2010
and 2009. As of December 31, 2010, approximately $100,488 of the City of Dreams Project Facility remains available for future
drawdown.
F - 21
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
10. LONG-TERM DEBT - continued
$600,000 10.25% senior notes, due 2018
On May 17, 2010, MCE Finance Limited (formerly known as MPEL Holdings Limited, Melco PBL Holdings Limited and
MPBL Limited) (“MCE Finance”), a subsidiary of MCE, issued and listed the Senior Notes on the Official List of the Singapore
Exchange Securities Trading Limited. The purchase price paid by the initial purchasers was 98.671% of the principal amount.
The Senior Notes are general obligations of MCE Finance, rank equally in right of payment to all existing and future senior
indebtedness of MCE Finance and rank senior in right of payment to any existing and future subordinated indebtedness of MCE
Finance. The Senior Notes are effectively subordinated to all of MCE Finance’s existing and future secured indebtedness to the
extent of the value of the assets securing such debt. MCE and one of its subsidiaries, MPEL International Limited (together, the
“Senior Guarantors”), fully and unconditionally and jointly and severally guaranteed the Senior Notes on a senior secured basis.
Certain other indirect subsidiaries of MCE Finance, including Melco Crown Gaming (together with the Senior Guarantors, the
“Guarantors”), fully and unconditionally and jointly and severally guaranteed the Senior Notes on a senior subordinated secured
basis. The Senior Notes mature on May 15, 2018. Interest on the Senior Notes is accrued at a rate of 10.25% per annum and is
payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2010.
The net proceeds from the offering after deducting the original issue discount of approximately $7,974 and underwriting
commissions and other expenses of approximately $14,960 was approximately $577,066. MCE used the net proceeds from the
offering to reduce the indebtedness under the City of Dreams Project Facility by approximately $444,066 and deposited the
remaining $133,000 in a bank account that is restricted for use to pay future City of Dreams Project Facility amortization
payments commencing December 2010. The Senior Notes have been reflected net of discount under long-term debt in the
consolidated balance sheet as of December 31, 2010.
At any time after May 15, 2014, MCE Finance may redeem some or all of the Senior Notes at the redemption prices set forth in
the prospectus plus accrued and unpaid interest, additional amounts and liquidated damages, if any, to the redemption date. Prior
to May 15, 2014, MCE Finance may redeem all or part of the Senior Notes at the redemption price set forth in the prospectus
plus the applicable “make-whole” premium described in the prospectus plus accrued and unpaid interest, additional amounts and
liquidated damages, if any, to the redemption date. Prior to May 15, 2013, MCE Finance may redeem up to 35% of the principal
amount of the Senior Notes with the net cash proceeds from one or more certain equity offerings at the redemption price set forth
in the prospectus, plus accrued and unpaid interest, additional amounts and liquidated damages, if any, to the redemption date. In
addition, subject to certain exceptions and as more fully described in the prospectus, MCE Finance may redeem the Senior Notes
in whole, but not in part, at a price equal to 100% of their principal amount plus accrued interest and unpaid interest, additional
amounts and liquidated damages, if any, to the date fixed by MCE Finance for redemption, if MCE Finance or any Guarantor
would become obligated to pay certain additional amounts as a result of certain changes in withholding tax laws or certain other
circumstances. MCE Finance may also redeem the Senior Notes if the gaming authority of any jurisdiction in which MCE, MCE
Finance or any of their respective subsidiaries conducts or proposed to conduct gaming requires holders or beneficial owners of
the Senior Notes to be licensed, qualified or found suitable under applicable gaming laws and such holder or beneficial owner, as
the case may be, fails to apply or become licensed or qualified or is found unsuitable.
The indenture governing the Senior Notes contains certain covenants that, subject to certain exceptions and conditions, limit the
ability of MCE Finance and its restricted subsidiaries’ ability to, among other things, (i) incur or guarantee additional
indebtedness; (ii) make specified restricted payments; (iii) issue or sell capital stock; (iv) sell assets; (v) create liens; (vi) enter
into agreements that restrict the restricted subsidiaries’ ability to pay dividends, transfer assets or make intercompany loans;
(vii) enter into transactions with shareholders or affiliates; and (viii) effect a consolidation or merger. As of December 31, 2010,
MCE Finance was in compliance with each of the financial restrictions and requirements.
MCE Finance has entered into a registration rights agreement whereby MCE Finance has registered the notes to be issued in an
exchange offer for the Senior Notes with the U.S. Securities and Exchange Commission in August 2010 and with further
amendments filed in October and November 2010 in connection with the exchange offer, which registration statement was
effective on November 12, 2010.
F - 22
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
10. LONG-TERM DEBT - continued
$600,000 10.25% senior notes, due 2018 - continued
Total interest on long-term debt included amortization of discount in connection with issuance of Senior Notes of $417, interest
incurred on Senior Notes of $38,438 for the year ended December 31, 2010, and interest incurred on City of Dreams Project
Facility of $39,157, $50,824 and $40,178, for the years ended December 31, 2010, 2009 and 2008, respectively, of which
$11,823, $37,374 and $40,178 were capitalized as discussed in Note 2(i) to the consolidated financial statements.
During the years ended December 31, 2010 and 2009, the Company’s average borrowing rates were approximately 6.71% and
5.73% per annum, respectively.
Scheduled maturities of the Company’s long-term debt as of December 31, 2010 including the accretion of debt discounts of
approximately $7,557 are as follows:
Year ending December 31,
2011
2012
2013
2014
Thereafter
11. OTHER LONG-TERM LIABILITIES
Interest rate swap liabilities
Deferred rent liabilities
Other deposits received
$
202,997
294,383
289,540
344,885
600,000
$ 1,731,805
December 31,
2010
2009
$
$
2,278
4,037
181
6,496
$
$
16,727
3,613
279
20,619
In connection with the signing of the City of Dreams Project Facility in September 2007 as disclosed in Note 10 to the
consolidated financial statements, Melco Crown Gaming entered into floating-for-fixed interest rate swap agreements to limit its
exposure to interest rate risk. In addition to the eight interest rate swap agreements entered in 2007 that expired in 2010, Melco
Crown Gaming entered into six and another three interest rate swap agreements in 2008 and 2009 that expire in 2011 and 2012,
respectively. Under the interest rate swap agreements, Melco Crown Gaming pays a fixed interest rate ranging from 1.96% to
4.74% per annum of the notional amount, and receives variable interest which is based on the applicable HIBOR for each on the
payment date. As of December 31, 2010 and 2009, the notional amounts of the outstanding interest rate swap agreements
amounted to $492,265 and $842,127, respectively.
These interest rate swap agreements were and are expected to remain highly effective in fixing the interest rate and qualify for
cash flow hedge accounting. Therefore, there was no impact on consolidated statements of operations from changes in the fair
value of the hedging instruments. Instead, the fair value of the instruments were recorded as assets or liabilities on the
Company’s consolidated balance sheets, with an offsetting adjustment to the accumulated other comprehensive losses until the
hedged interest expenses is recognized in earnings.
As of December 31, 2010 and 2009, the fair values of interest rate swap agreements were recorded as interest rate swap
liabilities, of which $8,143 and $11,344 were included in accrued expenses and other current liabilities and $2,278 and $16,727
were included in other long-term liabilities, respectively. The Company estimates that over the next twelve months, $9,752
(2009: $23,855) of the net unrealized losses on the interest rate swaps will be reclassified from accumulated other comprehensive
losses into interest expenses.
F - 23
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
12. FAIR VALUE MEASUREMENTS
The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts
receivable, other current assets, amounts due from (to) affiliated companies and shareholders, accounts payable, accrued
expenses and other current liabilities approximate their fair values due to the short-term nature of these instruments. The carrying
values of City of Dreams Project Facility, loans from shareholders and land use right payable approximate their fair values as
they carry market interest rates. The estimated fair value of the Senior Notes, based on quoted market price, was approximately
$693,750 as of December 31, 2010. As of December 31, 2010 and 2009, the Company did not have any non-financial assets or
liabilities that are recognized or disclosed at fair value in the consolidated financial statements. The Company’s financial assets
and liabilities recorded at fair value have been categorized based upon the fair value in accordance with the accounting standards.
The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at
fair value on a recurring basis as of December 31, 2010 and 2009:
Interest rate swap liabilities
December 31, 2010
December 31, 2009
Quoted Prices
In Active
Market for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
$
$
—
—
$
$
10,421
28,071
$
$
—
—
$
$
10,421
28,071
The fair value of these interest rate swap agreements approximates the amount the Company would pay if these contracts were
settled at the respective valuation dates. Fair value is estimated based on a standard valuation model that projects future cash
flows and discounts those future cash flows to a present value using market-based observable inputs such as interest rate yields.
Since significant observable inputs are used in the valuation model, the interest rate swap arrangements are considered a level 2
item in the fair value hierarchy.
13. CAPITAL STRUCTURE
On May 1, 2009, the Company issued 67,500,000 ordinary shares and 22,500,000 ADSs, representing a total of 135,000,000
ordinary shares, to the public in a follow-on offering with net proceeds after deducting the offering expenses amounted to
$174,417.
On May 19, 2009, the Company approved the resolution to increase the authorized share capital from 1.5 billion ordinary shares
of a nominal or par value of USD0.01 each to 2.5 billion ordinary shares of a nominal or par value of USD0.01 each.
On August 18, 2009, the Company issued an additional 42,718,445 ADSs, representing 128,155,335 ordinary shares, to the
public in a further follow-on offering with net proceeds after deducting the offering expenses which amounted to $209,112.
In connection with the Company’s restricted shares granted as disclosed in Note 15 to the consolidated financial statements,
1,254,920, 8,297,110 and 226,317 ordinary shares were vested and issued during the years ended December 31, 2010, 2009 and
2008, respectively.
F - 24
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
13. CAPITAL STRUCTURE - continued
The Company issued 8,785,641 and 2,614,706 ordinary shares to its depository bank for issuance to employees upon their future
vesting of restricted shares and exercise of share options during the years ended December 31, 2010 and 2009, respectively. As
of December 31, 2010, 43,737 (2009: 2,528,319) and 804,285 (2009: nil) of these ordinary shares have been issued to employees
upon vesting of restricted shares and exercise of share options, respectively, and the balance of 8,409,186 (2009: 471,567)
ordinary shares continue to be held by the Company for future issuance.
As of December 31, 2010 and 2009, the Company had 1,597,248,925 and 1,595,145,983 ordinary shares issued and outstanding,
respectively.
14. INCOME TAX EXPENSE (CREDIT)
The Company and certain subsidiaries are exempt from tax in the Cayman Islands or British Virgin Islands, where they are
incorporated, however, the Company is subject to Hong Kong Profits Tax on profits from its activities conducted in Hong Kong.
Certain subsidiaries incorporated or conducting businesses in Hong Kong, Macau, the United States of America and other
jurisdictions are subject to Hong Kong Profits Tax, Macau Complementary Tax, income tax in the United States of America and
in other jurisdictions, respectively during the years ended December 31, 2010, 2009 and 2008.
Pursuant to the approval notices issued by Macau government dated June 7, 2007, Melco Crown Gaming has been exempted
from Macau Complementary Tax for income generated from gaming operations for five years commencing from 2007 to 2011.
The Macau government has granted to a subsidiary of the Company, Altira Hotel Limited, the declaration of utility purpose
benefit in 2007, pursuant to which, for a period of 12 years, it is entitled to a property tax holiday on any immovable property
that it owns or has been granted. Under such tax holiday, it will also be allowed to double the maximum rates applicable
regarding depreciation and reintegration for purposes of assessment of Macau Complementary Tax. The Macau government has
also granted to Altira Hotel Limited a declaration of utility purposes benefit on specific vehicles purchased, pursuant to which it
is entitled to a vehicle tax holiday provided there is no change in use or disposal of those vehicles within 5 years from the date of
purchase.
The provision for income tax consisted of:
Income tax provision for current year:
Macau Complementary Tax
Hong Kong Profits Tax
Profits tax in other jurisdictions
Sub-total
(Over) under provision of income tax in prior years:
Macau Complementary Tax
Hong Kong Profits Tax
Profits tax in other jurisdictions
Sub-total
Deferred tax charge (credit):
Macau Complementary Tax
Hong Kong Profits Tax
Profits tax in other jurisdictions
Sub-total
Total income tax expense (credit)
Year Ended December 31,
2009
2008
2010
$
$
$
$
$
$
$
165
473
65
703
(18)
(1)
8
(11)
166
58
4
228
920
$
$
$
$
$
$
$
190
731
—
921
2
351
—
353
(1,537)
131
—
(1,406)
(132)
$
$
$
$
$
$
$
—
892
—
892
—
(239)
—
(239)
(2,038)
(85)
—
(2,123)
(1,470)
F - 25
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
14. INCOME TAX EXPENSE (CREDIT) - continued
A reconciliation of the income tax expense (credit) to loss before income tax per the consolidated statements of operations is as
follows:
Year Ended December 31,
2009
2010
2008
Loss before income tax
Macau Complementary Tax rate
Income tax credit at Macau Complementary Tax rate
Effect of different tax rates of subsidiaries operating in other jurisdictions
(Over) under provision in prior years
Effect of income for which no income tax expense is payable
Effect of expense for which no income tax benefit is receivable
Effect of tax holiday granted by Macau government
Losses that cannot be carried forward
Change in valuation allowance
$
(9,605)
$
12%
(1,153)
169
(11)
(258)
7,868
(28,069)
—
22,374
920
$
$
(308,593)
12%
(37,031)
235
353
(633)
2,978
—
15,639
18,327
$
(132)
$
(3,933)
12%
(472)
126
(239)
(1,102)
779
(8,855)
—
8,293
(1,470)
Macau Complementary Tax and Hong Kong Profits Tax have been provided at 12% (2009 and 2008: 12%) and 16.5% (2009 and
2008: 16.5%) on the estimated taxable income earned in or derived from Macau and Hong Kong, respectively during the relevant
years, if applicable. Profits tax in other jurisdictions for the year ended December 31, 2010 was provided mainly for the profits of
the representative offices and branches set up by a subsidiary in the region where they operate. No provision for the profits tax in
other jurisdictions for the years ended December 31, 2009 and 2008 was made as the representative offices and branches
incurred tax losses where they operate. No provision for income tax in the United States of America for the years ended
December 31, 2010, 2009 and 2008 was provided as the subsidiaries incurred tax losses.
Melco Crown Gaming has been granted with a tax holiday from Macau Complementary Tax on casino gaming profits by the
Macau government in 2007. In February 2011, Melco Crown Gaming applied for an additional 5-year exemption from Macau
Complementary Tax on casino gaming profits. Melco Crown Gaming reported net loss during the year ended December 31, 2009
which had no impact to the basic and diluted loss per share of the Company. During the years ended December 31, 2010 and
2008, Melco Crown Gaming reported net income and had the Company been required to pay such taxes, the Company’s
consolidated net loss for the years ended December 31, 2010 and 2008 would have been increased by $28,069 and $8,855,
respectively, and basic and diluted loss per share would have reported additional loss of $0.018 and $0.007 per share,
respectively. The Company’s non-gaming profits remain subject to the Macau Complementary Tax and its casino revenues
remain subject to the Macau special gaming tax and other levies in accordance with its concession agreement.
The positive effective tax rate for the year ended December 31, 2010 was 9.6% and the negative effective tax rates for the years
ended December 31, 2009 and 2008 were 0.04% and 37.4%, respectively. Such rates differ from the statutory Macau
Complementary Tax rate of 12% primarily due to the effect of change in valuation allowance for the years ended December 31,
2010, 2009 and 2008, the impact of a net loss of Melco Crown Gaming during the year ended December 31, 2009 and the effect
of tax holiday granted by the Macau government as described in the preceding paragraph during the years ended December 31,
2010 and 2008.
F - 26
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
14. INCOME TAX EXPENSE (CREDIT) - continued
The deferred income tax assets and liabilities as of December 31, 2010 and 2009, consisted of the following:
Deferred income tax assets
Net operating loss carryforwards
Valuation allowance
Current
Long-term
Sub-total
Total net deferred income tax assets
Deferred income tax liabilities
Land use rights
Intangible assets
Unrealized capital allowance
Net deferred income tax liabilities
December 31,
2010
2009
$
47,183
$
33,085
(6,968)
(40,190)
(47,158)
25
(16,209)
(505)
(1,296)
(18,010)
$
$
$
$
(7,311)
(25,774)
(33,085)
—
(17,149)
(505)
(103)
(17,757)
$
$
$
$
As of December 31, 2010 and 2009, valuation allowance of $47,158 and $33,085 were provided respectively, as management
does not believe that it is more likely than not that these deferred tax assets will be realized. As of December 31, 2010, adjusted
operating tax loss carry forwards, amounting to $58,064, $148,469 and $186,451 will expire in 2011, 2012 and 2013,
respectively. Operating tax loss carry forwards of $60,923 has expired during the year ended December 31, 2010.
Deferred tax, where applicable, is provided under the liability method at the enacted statutory income tax rate of the respective
tax jurisdictions, applicable to the respective financial years, on the difference between the consolidated financial statements
carrying amounts and income tax base of assets and liabilities.
An evaluation of the tax position for recognition was conducted by the Company by determining if the weight of available
evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. Uncertain tax benefits associated with the tax positions were measured based solely on the technical
merits of being sustained on examinations. The Company concluded that there was no significant uncertain tax position requiring
recognition in the consolidated financial statements for the years ended December 31, 2010, 2009 and 2008 and there is no
material unrecognized tax benefit which would favourably affect the effective income tax rate in future periods. As of
December 31, 2010 and 2009, there was no interest and penalties related to uncertain tax positions being recognized in the
consolidated financial statements. The Company does not anticipate any significant increases or decreases to its liability for
unrecognized tax benefit within the next twelve months.
The positions of the Company and its subsidiaries remain open and subject to examination by the tax authorities of Hong Kong,
Macau, the United States of America and other jurisdictions until the statue of limitations expire in each corresponding
jurisdiction. The statute of limitations in Macau, Hong Kong and the United States of America are 5 years, 6 years and 3 years,
respectively.
F - 27
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
15. SHARE-BASED COMPENSATION
The Company has adopted a share incentive plan in 2006, to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentives to employees, directors and consultants and to promote the success of
its business. Under the share incentive plan, the Company may grant either options to purchase the Company’s ordinary shares or
restricted shares. The plan administrator will determine the exercise price of an option and set forth the price in the award
agreement. The exercise price may be a fixed or variable price related to the fair market value of the Company’s ordinary shares.
If the Company grants an incentive share option to an employee who, at the time of that grant, owns shares representing more
than 10% of the voting power of all classes of its share capital, the exercise price cannot be less than 110% of the fair market
value of its ordinary shares on the date of that grant. The term of an award shall not exceed 10 years from the date of the grant.
The maximum aggregate number of shares which may be issued pursuant to all awards (including shares issuable upon exercise
of options) is 100,000,000 over 10 years. The Board of Directors of the Company has approved the removal of the maximum
award amount of 50,000,000 shares over the first five years. The removal of such maximum limit for the first five years was
approved by the shareholders of the Company at the general meeting held in May 2009. As of December 31, 2010 and 2009,
63,347,487 shares and 62,964,552 shares out of 100,000,000 shares remain available for the grant of stock options or restricted
shares respectively.
The Company granted ordinary share options to certain personnel during the years ended December 31, 2010, 2009 and 2008
with exercise price determined at the closing price of the date of grant. These ordinary share options became exercisable over
different vesting periods ranging from immediately vested on date of grant to four years with different vesting scale. The
ordinary share options granted expire 10 years after the date of grant, except for options granted in the exchange program,
described below, which have a range of 7.7 to 8.3 years life.
During the year ended December 31, 2009, the Board of Directors of the Company approved a proposal to allow for a one-time
stock option exchange program, designed to provide eligible employees an opportunity to exchange certain outstanding
underwater stock options for a lesser amount of new stock options to be granted with lower exercise prices. Stock options
eligible for exchange were those that were granted on or prior to April 11, 2008 under the Company’s share incentive plan in
2006. A total of approximately 5.4 million eligible stock options were tendered by employees, representing 94% of the total
stock options eligible for exchange. The Company granted an aggregate of approximately 3.6 million new stock options in
exchange for the eligible stock options surrendered. The exercise price of the new stock options was $1.43, which was the
closing price of the Company’s ordinary share on the grant date. No incremental stock option expense was recognized for the
exchange because the fair value of the new options, using Black-Scholes valuation model, was approximately equal to the fair
value of the surrendered options they replaced. The significant assumptions used to determine the fair value of the new options
includes expected dividend of nil, expected stock price volatility of 87.29%, risk-free interest rate of 2.11% and expected average
life of 5.6 years.
During the year ended December 31, 2009, the Company settled bonus provision related to the year ended December 31, 2008 to
employees with approximately 6.4 million restricted shares granted and vested on the same date in 2009. The total fair value of
those restricted shares amounted to $6,914 and approximated the bonus balance accrued as of December 31, 2008 in the
consolidated balance sheet.
The Company has also granted restricted shares to certain personnel during the years ended December 31, 2010, 2009 and 2008.
These restricted shares have a vesting period ranging from immediately vested on date of grant to four years. The grant date fair
value is determined with reference to the market closing price at date of grant.
F - 28
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
15. SHARE-BASED COMPENSATION - continued
The Company uses the Black-Scholes valuation model to determine the estimated fair value for each option grant issued, with
highly subjective assumptions, changes in which could materially affect the estimated fair value. Expected volatility is based on
the historical volatility of a peer group of publicly traded companies. Expected term is based upon the vesting term or the
historical of expected term of publicly traded companies. The risk-free interest rate used for each period presented is based on
the United States of America Treasury yield curve at the time of grant for the period equal to the expected term.
The fair value per option was estimated at the date of grant using the following weighted-average assumptions (excludes options
granted in the stock option exchange program):
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Forfeiture rate
Expected average life of options (years)
Share Options
2010
December 31,
2009
2008
—
79.24%
1.78%
—
5.5
—
74.60%
1.45%
—
5.5
—
57.65%
1.67%
—
4.7
A summary of share options activity under the share incentive plan as of December 31, 2010 and 2009, and changes during the
years ended December 31, 2010, 2009 and 2008 are presented below:
Outstanding at January 1, 2008
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2008
Granted
Granted under option exchange program
Exercised
Forfeited
Expired
Cancelled under option exchange program
Outstanding at December 31, 2009
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Weighted-
Average
Exercise
Price per Share
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5.02
1.83
—
4.34
5.06
2.14
1.07
1.43
—
1.93
4.58
4.39
1.26
1.17
1.17
1.27
4.48
1.22
1.23
7.20
5.81
$
$
20,016
8,060
Number
of Share
Options
3,716,876
20,558,343
—
(2,003,178)
(1,795)
22,270,246
4,792,536
3,612,327
—
(2,809,419)
(104,738)
(5,418,554)
22,342,398
4,266,174
(804,285)
(5,169,216)
(181,578)
20,453,493
7,950,311
F - 29
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
15. SHARE-BASED COMPENSATION - continued
A summary of share options vested and expected to vest at December 31, 2010 are presented below:
Vested
Number
of Share
Options
Weighted-
Average
Exercise
Price per Share
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Range of exercise prices per share ($1.01- $5.06) (Note)
7,950,311
$
1.23
5.81
$
8,060
Note: 8,571,224 share options vested and 181,578 vested share options expired during the year ended December 31, 2010.
Range of exercise prices per share ($1.01 - $5.06)
Expected to Vest
Number
of Share
Options
12,503,182
Weighted-
Average
Exercise
Price per Share
1.21
$
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
8.08
$
11,956
The weighted-average fair value of share options granted (excludes options granted in the stock option exchange program)
during the years ended December 31, 2010, 2009 and 2008 were $0.84, $0.67 and $0.80, respectively. 804,285 share options
were exercised and proceeds amounted to $938 were recognized during the year ended December 31, 2010. The total intrinsic
value of share options exercised for the year ended December 31, 2010 was $767. No share options were exercised during the
years ended December 31, 2009 and 2008 and therefore no cash proceeds were recognized.
As of December 31, 2010, there was $6,988 unrecognized compensation costs related to unvested share options. The costs are
expected to be recognized over a weighted-average period of 2.25 years.
F - 30
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
15. SHARE-BASED COMPENSATION - continued
Restricted Shares
A summary of the status of the share incentive plan’s restricted shares as of December 31, 2010, and changes during the years
ended December 31, 2010, 2009 and 2008 are presented below:
Number of
Restricted Average Grant
Date Fair Value
Weighted-
Shares
Unvested at January 1, 2008
Granted
Vested
Forfeited
Unvested at December 31, 2008 and January 1, 2009
Granted
Vested
Forfeited
Unvested at December 31, 2009 and January 1, 2010
Granted
Vested
Forfeited
Unvested at December 31, 2010
2,006,444
6,529,844
(226,317)
(771,895)
7,538,076
7,071,741
(10,825,445)
(538,341)
3,246,031
1,463,151
(1,298,657)
(761,466)
2,649,059
$
$
$
$
6.33
1.30
6.33
5.88
2.02
1.09
1.61
1.61
1.41
1.38
1.67
1.27
1.31
The total fair values at date of grant of the restricted shares vested during the years ended December 31, 2010, 2009 and 2008
were $2,166, $17,433 and $1,433, respectively.
As of December 31, 2010, there was $2,346 of unrecognized compensation costs related to restricted shares. The costs are
expected to be recognized over a weighted-average period of 2.05 years.
The impact of share options and restricted shares for the years ended December 31, 2010, 2009 and 2008 recognized in the
consolidated financial statements were as follows:
Year Ended December 31,
2009
2008
2010
Share options
Restricted shares
Total share-based compensation expenses
Less: share-based compensation expenses capitalized
Share-based compensation recognized in general and administrative expenses
$
$
$
4,439
1,606
6,045
(2)
6,043
$
$
$
5,169
6,638
11,807
(422)
11,385
$
$
$
2,598
4,420
7,018
(163)
6,855
16. EMPLOYEE BENEFIT PLANS
The Company provides defined contribution plans for their employees in Macau, Hong Kong, United States of America and
other jurisdictions. For the years ended December 31, 2010, 2009 and 2008, the Company’s contributions into the provident fund
were $5,070, $5,012 and $4,584, respectively.
F - 31
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
17. DISTRIBUTION OF PROFITS
All subsidiaries incorporated in Macau are required to set aside a minimum of 10% to 25% of the entity’s profit after taxation to
the legal reserve until the balance of the legal reserve reaches a level equivalent to 25% to 50% of the entity’s share capital in
accordance with the provisions of the Macau Commercial Code. The legal reserve sets aside an amount from the subsidiaries’
statements of operations and is not available for distribution to the shareholders of the subsidiaries. The appropriation of legal
reserve is recorded in the subsidiaries’ financial statements in the year in which it is approved by the boards of directors of the
relevant subsidiaries. As of December 31, 2010 and 2009, the balance of the reserve amounted to $3 in each of those years.
The City of Dreams Project Facility contains restrictions on payment of dividends for the Borrowing Group. There is a restriction
on paying dividends during the construction phase of the City of Dreams project. Upon completion of the construction of the
City of Dreams, the relevant subsidiaries will only be able to pay dividends if they satisfy certain financial tests and conditions.
The indenture governing the Senior Notes also contains certain covenants that, subject to certain exceptions and conditions,
restrict the payment of dividends for MCE Finance and its restricted subsidiaries.
18. COMMITMENTS AND CONTINGENCIES
(a) Capital Commitments
As of December 31, 2010, the Company had capital commitments contracted for but not provided mainly for the
construction and acquisition of property and equipment for City of Dreams totaling $2,843.
Melco Crown (COD) Developments and Melco Crown Gaming, subsidiaries of the Company, accepted in principle an offer
from the Macau government to acquire the Cotai Land in Macau, where the City of Dreams site located, for approximately
$105,091, with $37,437 paid at signing of the government lease in February 2008. In August 2008, Melco Crown
(COD) Developments obtained the official title of this land use right for approximately $105,091, of which $65,659 has
been paid as of December 31, 2010 and the remaining amount of $39,432, accrued with 5% interest per annum, will be paid
in five biannual instalments. In November 2009, Melco Crown (COD) Developments and Melco Crown Gaming accepted
in principle the initial terms for the revision of the land lease agreement from the Macau government and recognized
additional land premium of $32,118 payable to the Macau government for the increased developable gross floor area of
Cotai Land for City of Dreams. In March 2010, Melco Crown (COD) Developments and Melco Crown Gaming accepted
the final terms for the revision of the land lease agreement and fully paid the additional land premium to the Macau
government. The land grant amendment process was completed on September 15, 2010. As of December 31, 2010 and
2009, the total outstanding balances of the land use right has been included in accrued expenses and other current liabilities
in an amount of $15,191 and $29,781 and in land use right payable in an amount of $24,241 and $39,432, respectively. A
guarantee deposit of approximately $424 was also paid upon signing of the government lease in February 2008. According
to the terms of the revised offer from the Macau government, payment in the form of government land use fees in an
aggregate amount of $1,185 per annum is payable to the Macau government and such amount may be adjusted every five
years as agreed between the Macau government and Melco Crown (COD) Developments, using the applicable market rates
in effect at the time of the adjustment. As of December 31, 2010, the Company’s total commitments of payment in form of
government land use fees for the City of Dreams site was $26,754.
In 2006, the Macau government had officially granted the Taipa Land to Altira Developments Limited (“Altira
Developments”), a subsidiary of the Company. A guarantee deposit of approximately $20 was paid upon signing of the
lease in 2006. Payment in the form of government land use fees in an aggregate amount of $171 per annum became payable
to the Macau government and such amount may be adjusted every five years as agreed between the Macau government and
Altira Developments, using the applicable market rates in effect at the time of the adjustment. As of December 31, 2010,
the Company’s total commitments of payment in form of government land use fees for the Altira Macau site was $3,453.
F - 32
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
18. COMMITMENTS AND CONTINGENCIES - continued
(b) Lease Commitments and Other Arrangements
Operating Leases — As a lessee
The Company leases office space, Mocha Club sites, staff quarters and certain equipment under non-cancellable operating
lease agreements that expire at various dates through December 2021. Those lease agreements provide for periodic rental
increases based on both contractual agreed incremental rates and on the general inflation rate once agreed by the Company
and its lessor. During the years ended December 31, 2010, 2009 and 2008, the Company incurred rental expenses
amounting to $15,373, $14,557 and $12,060, respectively.
As of December 31, 2010, minimum lease payments under all non-cancellable leases were as follows:
Year ending December 31,
2011
2012
2013
2014
2015
Over 2015
Total minimum lease payments
$
$
10,734
7,382
5,339
3,853
2,564
7,103
36,975
As grantor of operating and right to use arrangement
The Company entered into non-cancellable operating and right to use agreements for mall spaces in the City of Dreams site
with various retailers that expire at various dates through July 2016. Certain of the operating and right to use agreements
include minimum base fee and operating fee with escalated contingent fee clauses. During the years ended December 31,
2010, 2009 and 2008, the Company received contingent fees amount to $12,801, $5,547 and nil, respectively.
As of December 31, 2010, minimum future fees to be received under all non-cancellable operating and right to use
agreements were as follows:
Year ending December 31,
2011
2012
2013
2014
2015
Over 2015
Total minimum future fees to be received
$
$
10,836
10,440
9,770
9,233
4,998
848
46,125
The total minimum future fees do not include the escalated contingent fee clauses.
(c) Other Commitments
On September 8, 2006, the Macau government granted a gaming subconcession to Melco Crown Gaming to operate the
gaming business in Macau. Pursuant to the gaming subconcession agreement, Melco Crown Gaming has committed to the
following:
i)
To pay the Macau government a fixed annual premium of $3,744 (MOP30,000,000) starting from June 26, 2009 or
earlier, if the hotel, casino and resort projects operated by the Company’s subsidiaries are not completed by then.
F - 33
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
18. COMMITMENTS AND CONTINGENCIES - continued
(c) Other Commitments - continued
ii)
To pay the Macau government a variable premium depending on the number and type of gaming tables and gaming
machines that the Company operates. The variable premium is calculated as follows:
•
•
•
$37 (MOP300,000) per year for each gaming table (subject to a minimum of 100 tables) reserved exclusively for
certain kind of games or to certain players;
$19 (MOP150,000) per year for each gaming table (subject to a minimum of 100 tables) not reserved exclusively
for certain kind of games or to certain players; and
$0.1 (MOP1,000) per year for each electrical or mechanical gaming machine, including the slot machine.
iii) To pay the Macau government a sum of 1.6% of the gross revenues of the gaming business operations on a monthly
basis, that will be made available to a public foundation for the promotion, development and study of social, cultural,
economic, educational, scientific, academic and charity activities, to be determined by the Macau government.
iv) To pay the Macau government a sum of 2.4% of the gross revenues of the gaming business operations on a monthly
basis, which will be used for urban development, tourist promotion and the social security of Macau.
v)
To pay special gaming tax to the Macau government of an amount equal to 35% of the gross revenues of the gaming
business operations on a monthly basis.
vi) Melco Crown Gaming must maintain two bank guarantees issued by a specific bank with the Macau government as
the beneficiary in a maximum amount of $62,395 (MOP500,000,000) from September 8, 2006 to September 8, 2011
and a maximum amount of $37,437 (MOP300,000,000) from September 8, 2011 until the 180th day after the
termination date of the gaming subconcession. A sum of 1.75% of the guarantee amount will be payable by Melco
Crown Gaming quarterly to such bank.
As of December 31, 2010, the Company had other commitments contracted for but not provided in respect of shuttle buses
and limousines services mainly for the operations of Altira Macau and the City of Dreams totaling $2,421. Expenses for the
shuttle buses and limousines services during the years ended December 31, 2010 and 2009 amounted to $12,709 and
$10,653, respectively.
As of December 31, 2010, the Company had other commitments contracted for but not provided in respect of cleaning,
maintenance, consulting, marketing and other services mainly for the operations of Mocha Clubs, Altira Macau and the
City of Dreams totaling $8,670. Expenses for such services during the years ended December 31, 2010 and 2009 amounted
to $17,201 and $5,561, respectively.
As of December 31, 2010, the Company had other commitments contracted for but not provided in respect of trademark
and memorabilia license fee for the operations of City of Dreams hotels and casino totaling $7,579. Expenses for the
trademark and memorabilia license fee during the years ended December 31, 2010 and 2009 amounted to $1,610 and $889,
respectively.
As of December 31, 2010, the Company had other commitments contracted for but not provided in respect of fee for the
operations of entertainment show in City of Dreams, which commenced performance in September 2010, totaling $28,833.
Expenses for such fee for the operations of entertainment show during the year ended December 31, 2010 amounted to
$2,349.
(d) Contingencies
As of December 31, 2010, the Melco Crown Gaming has issued a promissory note (“livranca”) of $68,635
(MOP550,000,000) to a bank in respect of bank guarantees issued to the Macau government as disclosed in Note 18(c)(vi)
to the consolidated financial statements.
As of December 31, 2010, the Company has entered into two deeds of guarantee with third parties amounted to $10,000 to
guarantee certain payment obligations of the City of Dreams’ operations.
As of December 31, 2010, a bank guarantee issued to the Macau government amounted to $22,462 (MOP180,000,000) to
guarantee payment of additional land premium payable as disclosed in Note 8 to the consolidated financial statements has
been released.
F - 34
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
18. COMMITMENTS AND CONTINGENCIES - continued
(e) Litigation
The Company is currently a party to certain legal proceedings which relate to matters arising out of the ordinary course of
its business. Management does not believe that the outcome of such proceedings will have a material adverse effect on the
Company’s financial position or results of operations.
19. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2010, 2009 and 2008, the Company entered into the following material related party
transactions:
Amounts paid/payable to affiliated companies
Advertising and promotional expenses
Consultancy fee capitalized in construction in progress
Consultancy fee recognized as expense
Management fees
Network support fee
Office rental
Operating and office supplies
Property and equipment
Repairs and maintenance
Service fee expense
Traveling expense capitalized in construction in progress
Traveling expense recognized as expense
Amounts received/receivable from affiliated companies
Other service fee income
Rooms and food and beverage income
Sales proceeds for disposal of property and equipment
Amounts paid/payable to shareholders
Interest charges capitalized in construction in progress
Interest charges recognized as expense
Amounts received/receivable from a shareholder
Other service fee income
Rooms and food and beverage income
Year Ended December 31,
2009
2008
2010
$
75
—
868
17
—
2,271
181
1,287
236
500
3
3,542
268
80
—
—
242
23
39
$
$
211
1,312
1,301
45
28
2,354
257
59,482
87
748
65
2,809
896
23
—
963
215
—
—
597
246
1,168
1,698
52
1,466
255
16,327
655
781
66
1,387
276
100
2,788
3,367
—
—
—
Details of those material related party transactions provided in the table above are as follows:
F - 35
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
19. RELATED PARTY TRANSACTIONS - continued
(a) Amounts Due From Affiliated Companies
Melco’s subsidiary and its associated companies — The Company reimbursed Melco’s subsidiary for service fees incurred
on its behalf for rental, office administration, travel and security coverage for the operation of the office of the Company’s
Chief Executive Officer during the years ended December 31, 2010, 2009 and 2008. Melco’s subsidiary provided services
to the Company which included management of general and administrative matters and consultancy during the years ended
December 31, 2010, 2009 and 2008, and advertising and promotion, system maintenance and administration support and
repairs and maintenance during the year ended December 31, 2008. Other service fee income was received from Melco’s
subsidiary during the years ended December 31, 2010 and 2009 and Melco’s subsidiary purchased rooms and food and
beverage services from the Company during the year ended December 31, 2009. Melco’s associated companies purchased
rooms and food and beverage services from the Company during the year ended December 31, 2009 and the Company
purchased property and equipment from Melco’s associated company during the year ended December 31, 2009. The
outstanding balance due from Melco’s subsidiary as of December 31, 2010 was $1,463, mainly related to prepayment of
operating expenses, and as of December 31, 2009, the outstanding balance with Melco’s subsidiary was a payable of $607.
The outstanding balances due from Melco’s associated companies as of December 31, 2010 and 2009 amounted to $1 in
each of those periods. These amounts were unsecured, non-interest bearing and repayable on demand.
Shun Tak Holdings Limited’s subsidiary — Shun Tak Holdings Limited’s subsidiary purchased rooms and food and
beverage services from the Company, and provided traveling services to the Company during the year ended December 31,
2010, a company in which relatives of Mr. Lawrence Ho, the Company’s Co-Chairman and Chief Executive Officer, have
beneficial interests. As of December 31, 2010 and 2009, the outstanding balances due from this subsidiary of Shun Tak
Holdings Limited of $64 and nil, respectively, were unsecured, non-interest bearing and repayable on demand.
(b) Amounts Due To Affiliated Companies
Elixir International Limited, or Elixir — The Company purchased property and equipment and services including repairs
and maintenance, operating and office supplies and consultancy from Elixir, a wholly-owned subsidiary of Melco before
Melco disposed of it in July 2010, primarily related to the Altira Macau and City of Dreams during the years ended
December 31, 2010, 2009 and 2008. The Company paid network support fee to Elixir during the years ended December 31,
2009 and 2008. Certain gaming machines were sold to Elixir during the year ended December 31, 2008 and Elixir
purchased rooms and food and beverage services from the Company during the years ended December 31, 2010, 2009 and
2008. As of December 31, 2009, the outstanding balance due to Elixir of $5,046 was unsecured, non-interest bearing and
repayable on demand.
Sociedade de Turismo e Diversões de Macau, S.A.R.L., or STDM and its subsidiaries (together with STDM referred to
STDM Group) and Shun Tak Holdings Limited and its subsidiaries (referred to Shun Tak Group) — The Company
incurred expenses associated with its use of STDM and Shun Tak Group ferry and hotel accommodation services within
Hong Kong and Macau during the years ended December 31, 2010, 2009 and 2008. Relatives of Mr. Lawrence Ho, have
beneficial interests within those companies. The traveling expenses in connection with construction of City of Dreams were
capitalized as costs related to construction in progress during the construction period for the years ended December 31,
2010, 2009 and 2008. The Company paid advertising and promotional expenses to STDM Group during the years ended
December 31, 2010, 2009 and 2008, and Shun Tak Group during the years ended December 31, 2009 and 2008,
respectively. The Company incurred rental expenses from leasing office premises from STDM Group and Shun Tak Group
during the years ended December 31, 2010, 2009 and 2008. As of December 31, 2010 and 2009, the outstanding balances
due to STDM Group of $164 and $171 and Shun Tak Group of $276 and $440, respectively, were unsecured, non-interest
bearing and repayable on demand.
F - 36
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
19. RELATED PARTY TRANSACTIONS - continued
(b) Amounts Due To Affiliated Companies - continued
Melco’s subsidiaries and its associated companies — Melco’s subsidiary provided consultancy services to the Company
during the year ended December 31, 2010. The Company purchased operating and office supplies from Melco’s subsidiary
and its associated companies during the years ended December 31, 2010 and 2008. The Company incurred rental expenses
from leasing office premises from Melco’s subsidiary during the years ended December 31, 2010, 2009 and 2008. The
Company purchased property and equipment from Melco’s subsidiaries and its associated companies during the years
ended December 31, 2009 and 2008. Melco’s associated company provided network support and repairs and maintenance
services to the Company during the year ended December 31, 2008. Melco’s associated companies purchased rooms and
food and beverage services from the Company during the years ended December 31, 2009 and 2008. As of December 31,
2010 and 2009, the outstanding balances due to Melco’s subsidiaries and its associated companies of $134 and $113,
respectively, were unsecured, non-interest bearing and repayable on demand.
Lisboa Holdings Limited, or Lisboa and Sociedade de Jogos de Macau S.A., or SJM - During the years ended
December 31, 2010, 2009 and 2008, the Company paid rental expenses and service fees for Mocha Clubs gaming premises
to Lisboa and SJM, companies in which relatives of Mr. Lawrence Ho have beneficial interests. There were no outstanding
balances with Lisboa and SJM as of December 31, 2010 and 2009.
Crown’s subsidiary — Crown’s subsidiary provided services to the Company primarily for the construction of City of
Dreams and the operations which included general consultancy and management of sale representative offices during the
years ended December 31, 2010, 2009 and 2008. Part of the consultancy charges was capitalized as costs related to
construction in progress during construction period for the years ended December 31, 2009 and 2008. The Company
reimbursed Crown’s subsidiary for associated costs including traveling expenses during the years ended December 31,
2010, 2009 and 2008. The Company purchased property and equipment from Crown’s subsidiary during the years ended
December 31, 2009 and 2008. The Company received rental income from Crown’s subsidiary during the year ended
December 31, 2010 and other service fee income from Crown’s subsidiary during the years ended December 31, 2010,
2009 and 2008. Crown’s subsidiary purchased rooms and food and beverage services from the Company during the years
ended December 31, 2010 and 2008. As of December 31, 2010 and 2009, the outstanding balances due to Crown’s
subsidiary of $99 and $975, respectively, were unsecured, non-interest bearing and repayable on demand.
Shuffle Master Asia Limited, or Shuffle Master, and Stargames Corporation Pty. Limited, or Stargames — The Company
purchased spare parts, property and equipment and lease of equipment with Shuffle Master during the years ended
December 31, 2009 and 2008. The Company incurred repairs and maintenance expense with Shuffle Master and Stargames
during the year ended December 31, 2008, in which the Company’s former Chief Operating Officer who resigned this
position in May 2009 was an independent non-executive director of its parent company during this period. There were no
outstanding balances with Shuffle Master and Stargames as of December 31, 2009.
Chang Wah Garment Manufacturing Company Limited, or Chang Wah — The Company purchased uniforms from Chang
Wah during the years ended December 31, 2009 and 2008, a company in which a relative of Mr. Lawrence Ho had
beneficial interest until end of December 2009, for Altira Macau and City of Dreams. The outstanding balance due to
Chang Wah as of December 31, 2009 of $32 was unsecured, non-interest bearing and repayable on demand.
MGM Grand Paradise Limited, or MGM — The Company paid rental expenses and purchased property and equipment
from MGM during the year ended December 31, 2009, a company in which a relative of Mr. Lawrence Ho has beneficial
interest, for City of Dreams. There were no outstanding balances with MGM as of December 31, 2010 and 2009.
F - 37
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
19. RELATED PARTY TRANSACTIONS - continued
(c) Amounts Due To/Loans From Shareholders
Melco and Crown provided loans to the Company mainly used for working capital purposes, for the acquisition of the
Altira Macau and the City of Dreams sites and for construction of Altira Macau and City of Dreams.
The outstanding loan balances due to Melco as of December 31, 2010 and 2009 amounted to $74,367 in each of those
years, were unsecured and interest bearing at 3-months HIBOR per annum and at 3-months HIBOR plus 1.5% per annum
only during the period from May 16, 2008 to May 15, 2009. As of December 31, 2010, the loan balance due to Melco was
repayable in May 2012.
The Company received other service fee income from Melco during the year ended December 31, 2010 and Melco
purchased rooms and food and beverage services from the Company during the years ended December 31, 2010 and 2009.
The amounts of $23 and $17 due to Melco as of December 31, 2010 and 2009, respectively, mainly related to interest
payable on the outstanding loan balances, were unsecured, non-interest bearing and repayable on demand.
The outstanding loan balances due to Crown as of December 31, 2010 and 2009 amounted to $41,280 in each of those
years, were unsecured and interest bearing at 3-months HIBOR per annum. As of December 31, 2010, the loan balance due
to Crown was repayable in May 2012.
The amounts of $13 and $8 due to Crown as of December 31, 2010 and 2009, respectively, related to interest payable on
the outstanding loan balances, were unsecured, non-interest bearing and repayable on demand.
20. SEGMENT INFORMATION
The Company is principally engaged in the gaming and hospitality business. The chief operating decision maker monitors its
operations and evaluates earnings by reviewing the assets and operations of Mocha Clubs, Altira Macau and City of Dreams. As
of December 31, 2008, Mocha Clubs and Altira Macau were the two primary businesses of the Company. Subsequent to the
opening of City of Dreams in June 2009, City of Dreams has become one of the three primary businesses of the Company as of
December 31, 2010 and 2009. Taipa Square Casino is included within Corporate and Others. All revenues were generated in
Macau.
Total Assets
Mocha Clubs
Altira Macau
City of Dreams
Corporate and Others
Total consolidated assets
Capital Expenditures
Mocha Clubs
Altira Macau
City of Dreams
Corporate and Others
Total capital expenditures
December 31,
$
2010
145,173
571,504
3,202,692
965,071
$ 4,884,440
$
2009
144,455
575,477
3,075,052
1,067,861
$ 4,862,845
Year Ended December 31,
2009
2008
2010
$
13,140
7,784
94,279
4,457
$
119,660
$
$
11,448
6,712
808,424
2,152
828,736
$
15,491
6,275
1,148,098
21,334
$ 1,191,198
F - 38
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
20. SEGMENT INFORMATION - continued
For the years ended December 31, 2010, 2009 and 2008, there was no single customer that contributed more than 10% of the
total revenues.
The Company’s segment information on its results of operations for the following years is as follows:
NET REVENUES
Mocha Clubs
Altira Macau
City of Dreams
Corporate and Others
Total net revenues
ADJUSTED PROPERTY EBITDA (1)
Mocha Clubs
Altira Macau
City of Dreams
Total adjusted property EBITDA
OPERATING COSTS AND EXPENSES
Pre-opening costs
Amortization of gaming subconcession
Amortization of land use rights
Depreciation and amortization
Share-based compensation
Property charges and others
Corporate and others expenses
Total operating costs and expenses
OPERATING INCOME (LOSS)
NON-OPERATING EXPENSES
Interest income
Interest expenses, net of capitalized interest
Amortization of deferred financing costs
Loan commitment fees
Foreign exchange gain, net
Other income, net
Costs associated with debt modification
Total non-operating expenses
LOSS BEFORE INCOME TAX
INCOME TAX (EXPENSE) CREDIT
NET LOSS
Note
Year Ended December 31,
2009
2008
2010
$
111,984
859,755
1,638,401
31,836
2,641,976
$
97,984
658,043
552,141
24,705
1,332,873
$
91,967
1,313,047
—
11,120
1,416,134
29,831
133,679
326,338
489,848
(18,648)
(57,237)
(19,522)
(236,306)
(6,043)
(91)
(59,489)
(397,336)
92,512
404
(93,357)
(14,302)
3,811
3,563
1,074
(3,310)
(102,117)
(9,605)
(920)
(10,525)
$
25,416
13,702
56,666
95,784
(91,882)
(57,237)
(18,395)
(141,864)
(11,385)
(7,040)
(40,028)
(367,831)
(272,047)
498
(31,824)
(5,974)
(2,253)
491
2,516
—
(36,546)
(308,593)
132
(308,461)
$
25,805
162,487
(23)
188,269
(21,821)
(57,237)
(18,269)
(51,379)
(6,855)
(290)
(31,244)
(187,095)
1,174
8,215
—
(765)
(14,965)
1,436
972
—
(5,107)
(3,933)
1,470
(2,463)
$
(1) “Adjusted property EBITDA” is earnings before interest, taxes, depreciation, amortization, other expenses (including pre-
opening costs, share-based compensation, property charges and others, corporate and other expenses and non-operating
expenses). The chief operating decision maker used Adjusted property EBITDA to measure the operating performance of Mocha
Clubs, Altira Macau and City of Dreams and to compare the operating performance of its properties with those of its
competitors.
F - 39
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In May 2010, MCE Finance (“Issuer”), a subsidiary of MCE (the “Parent”), issued $600,000 10.25% Senior Notes due 2018 as
disclosed in Note 10 to the consolidated financial statements.
The Issuer and all subsidiary guarantors except Melco Crown Gaming are 100% directly or indirectly owned by the Parent
guarantor. Certain Macau laws require companies limited by shares (sociedade anónima) incorporated in Macau to have a
minimum of three shareholders, and all gaming concessionaires and subconcessionaires to be managed by a Macau permanent
resident, the managing director, who must hold at least 10% of the share capital of the concessionaire or subconcessionaire. In
accordance with such Macau laws, approximately 90% of the share capital of Melco Crown Gaming is indirectly owned by the
Parent. While MCE complies with the Macau laws, Melco Crown Gaming is considered an indirectly 100% owned subsidiary of
the Parent for purposes of the consolidated financial statements of the Parent because the economic interest of the 10% holding
of the managing director is limited to, in aggregate with other class A shareholders, MOP 1 on the winding up or liquidation of
Melco Crown Gaming and to receive an aggregate annual dividend of MOP 1. The City of Dreams Project Facility and the
gaming subconcession agreement significantly restrict the Parent’s, the Issuer’s and the subsidiary guarantors’ ability to obtain
funds from each other guarantor subsidiary in the form of a dividend or loan.
Condensed consolidating financial statements for the Parent, Issuer, guarantor subsidiaries and non-guarantor subsidiaries as of
December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009, and 2008 are presented in the following tables.
Information has been presented such that investments in subsidiaries, if any, are accounted for under the equity method and the
principal elimination entries eliminate the investments in subsidiaries and intercompany balances and transactions. Additionally,
the guarantor and non-guarantor subsidiaries are presented on a combined basis.
F - 40
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2010
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Amounts due from affiliated companies
Intercompany receivables
Amount due from a shareholder
Income tax receivable
Inventories
Prepaid expenses and other current assets
Total current assets
PROPERTY AND EQUIPMENT, NET
GAMING SUBCONCESSION, NET
INTANGIBLE ASSETS, NET
GOODWILL
INVESTMENTS IN SUBSIDIARIES
LONG-TERM PREPAYMENT,
DEPOSITS AND OTHER ASSETS
DEFERRED TAX ASSETS
DEFERRED FINANCING COSTS
LAND USE RIGHTS, NET
TOTAL
LIABILITIES AND
SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses and other current
liabilities
Income tax payable
Current portion of long-term debt
Intercompany payables
Amounts due to affiliated companies
Amounts due to shareholders
Total current liabilities
LONG-TERM DEBT
OTHER LONG-TERM LIABILITIES
DEFERRED TAX LIABILITIES
ADVANCE FROM ULTIMATE
HOLDING COMPANY
LOAN FROM INTERMEDIATE
HOLDING COMPANY
LOANS FROM SHAREHOLDERS
LAND USE RIGHT PAYABLE
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
TOTAL
$
3,198 $
—
—
1,351
77,682
—
198
—
4,722
87,151
—
—
—
—
— $
—
—
—
8,099
—
—
—
9
8,108
—
—
—
—
2,734,880 2,254,958
641
—
—
—
—
—
13,452
—
$2,822,672 $2,276,518 $
410,767
167,286
259,521
167
32,198
1
—
10,228
13,810
893,978
2,660,069
656,742
4,220
81,915
4,058,120
94,470
—
31,935
428,155
8,909,604
$
$
27,958 $
—
—
60
174,481
—
—
—
1,247
203,746
11,826
—
—
—
6,301
— $
—
—
(50)
(292,460)
(1)
—
—
—
(292,511)
—
—
—
—
(9,054,259)
441,923
167,286
259,521
1,528
—
—
198
10,228
19,788
900,472
2,671,895
656,742
4,220
81,915
—
518
25
—
—
95,629
25
45,387
428,155
222,416 $(9,346,770) $ 4,884,440
—
—
—
—
$
— $
— $
8,880
$
— $
— $
8,880
1,889
—
—
181,771
137
37
183,834
—
—
—
—
—
115,647
—
8,270
—
—
19
—
—
8,289
592,443
—
—
—
—
—
—
441,642
—
202,997
93,329
510
—
747,358
928,808
6,476
17,818
10,283
934
—
17,341
76
—
28,634
—
20
192
—
—
—
(292,460)
(50)
(1)
(292,511)
—
—
—
462,084
934
202,997
—
673
36
675,604
1,521,251
6,496
18,010
1,047,648
11,254
(1,058,902)
—
578,617
—
24,241
—
—
—
(578,617)
—
—
—
115,647
24,241
2,523,191 1,675,786
$2,822,672 $2,276,518 $
5,558,638
8,909,604
$
182,316
2,523,191
222,416 $(9,346,770) $ 4,884,440
(7,416,740)
F - 41
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2009
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Amounts due from affiliated
companies
Intercompany receivables
Inventories
Prepaid expenses and other current
assets
Total current assets
PROPERTY AND EQUIPMENT,
NET
GAMING SUBCONCESSION,
NET
INTANGIBLE ASSETS, NET
GOODWILL
INVESTMENTS IN
SUBSIDIARIES
LONG-TERM PREPAYMENT,
DEPOSITS AND OTHER
ASSETS
DEFERRED FINANCING COST
LAND USE RIGHTS, NET
TOTAL
LIABILITIES AND
SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses and other current
liabilities
Income tax payable
Current portion of long-term debt
Intercompany payables
Amounts due to affiliated companies
Amounts due to shareholders
Total current liabilities
LONG-TERM DEBT
OTHER LONG-TERM
LIABILITIES
DEFERRED TAX LIABILITIES
ADVANCE FROM ULTIMATE
HOLDING COMPANY
LOANS FROM SHAREHOLDERS
LAND USE RIGHT PAYABLE
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
TOTAL
$
$
1,183
3,034
—
— $
—
—
212,598
236,119
262,176
177,057
233,085
262,176
14
10,069
6,534
15,101
704,036
$
34,358 $
—
—
— $
—
—
—
64,676
—
12,605
111,639
—
—
—
—
—
—
—
—
—
—
—
—
—
31
176,169
—
1,718
182,135
(44)
(250,914)
—
(9,656)
(260,614)
2,773,321
13,325
713,979
4,220
81,915
—
—
—
—
—
—
—
1
—
6,534
19,768
737,196
2,786,646
713,979
4,220
81,915
2,697,541
1,665,989
4,058,121
6,301
(8,427,952)
—
1,178
—
—
—
—
—
$2,810,358 $1,665,989
$
50,685
38,948
447,576
8,872,801
$
502
—
—
202,263
52,365
38,948
447,576
$(8,688,566) $ 4,862,845
—
—
—
$
— $
— $
8,719
$
—
$
— $
8,719
3,302
387
—
180,336
1,620
22
185,667
—
—
—
—
115,647
—
—
—
—
1
—
—
1
—
—
—
—
—
—
462,749
—
44,504
64,185
5,655
—
585,812
1,638,703
20,606
17,654
1,021,869
—
39,432
3,848
381
—
6,392
153
3
10,777
—
13
103
(9,656)
—
—
(250,914)
(44)
—
(260,614)
—
—
—
11,254
—
—
(1,033,123)
—
—
460,243
768
44,504
—
7,384
25
521,643
1,638,703
20,619
17,757
—
115,647
39,432
2,509,044
1,665,988
$2,810,358 $1,665,989
$
5,548,725
8,872,801
$
180,116
202,263
(7,394,829)
2,509,044
$(8,688,566) $ 4,862,845
F - 42
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended December 31, 2010
OPERATING REVENUES
Casino
Rooms
Food and beverage
Entertainment, retail and others
Gross revenues
Less: promotional allowances
Net revenues
OPERATING COSTS AND
EXPENSES
Casino
Rooms
Food and beverage
Entertainment, retail and others
General and administrative
Pre-opening costs
Amortization of gaming
subconcession
Amortization of land use rights
Depreciation and amortization
Property charges and others
Total operating costs and expenses
OPERATING (LOSS) INCOME
NON-OPERATING INCOME
(EXPENSES)
Interest (expenses) income, net
Other finance costs
Foreign exchange (loss) gain, net
Other income, net
Costs associated with debt
modification
Share of results of subsidiaries
Total non-operating income
(expenses)
(LOSS) INCOME BEFORE
INCOME TAX
INCOME TAX EXPENSES
NET (LOSS) INCOME
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
$
$
—
—
—
—
—
—
—
$
— $
—
—
—
—
—
—
2,550,542
86,165
61,738
33,692
2,732,137
(81,642)
2,650,495
$
—
—
—
194
194
—
194
—
(2,447)
(5,059)
(1,207)
(8,713)
—
(8,713)
$ 2,550,542
83,718
56,679
32,679
2,723,618
(81,642)
2,641,976
—
—
—
—
(14,985)
—
—
—
—
—
(14,985)
(14,985)
(236)
—
(41)
11,257
—
(6,129)
—
—
—
—
(19)
—
—
—
—
—
(19)
(19)
759
(1,134)
(179)
19
—
(7,298)
(1,951,336)
(16,674)
(33,263)
(25,332)
(197,478)
(18,972)
(57,237)
(19,522)
(234,427)
(91)
(2,554,332)
96,163
(93,499)
(9,357)
2,042
391
(3,310)
(1)
—
—
—
—
(47,268)
—
—
—
(1,879)
—
(49,147)
(48,953)
23
—
1,741
49,713
—
—
2,312
542
365
5,556
59,920
324
—
—
—
—
69,019
60,306
—
—
—
(60,306)
—
13,428
(1,949,024)
(16,132)
(32,898)
(19,776)
(199,830)
(18,648)
(57,237)
(19,522)
(236,306)
(91)
(2,549,464)
92,512
(92,953)
(10,491)
3,563
1,074
(3,310)
—
4,851
(7,833)
(103,734)
51,477
(46,878)
(102,117)
(10,134)
(391)
$ (10,525)
(7,852)
—
$ (7,852)
$
(7,571)
(166)
(7,737)
$
2,524
(363)
2,161
$
13,428
—
13,428
$
(9,605)
(920)
(10,525)
F - 43
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended December 31, 2009
OPERATING REVENUES
Casino
Rooms
Food and beverage
Entertainment, retail and others
Gross revenues
Less: promotional allowances
Net revenues
OPERATING COSTS AND
EXPENSES
Casino
Rooms
Food and beverage
Entertainment, retail and others
General and administrative
Pre-opening costs
Amortization of gaming
subconcession
Amortization of land use rights
Depreciation and amortization
Property charges and others
Total operating costs and expenses
OPERATING LOSS
NON-OPERATING
(EXPENSES) INCOME
Interest (expenses) income, net
Other finance costs
Foreign exchange (loss) gain, net
Other income, net
Share of results of subsidiaries
Total non-operating
(expenses) income
LOSS BEFORE INCOME TAX
INCOME TAX
(EXPENSES) CREDIT
NET LOSS
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
$
— $
—
—
—
—
—
—
$
— $
—
—
—
—
—
—
1,304,634
42,598
29,450
10,103
1,386,785
(53,033)
1,333,752
$
—
—
—
1
1
—
1
—
(1,383)
(1,270)
1,773
(880)
—
(880)
$ 1,304,634
41,215
28,180
11,877
1,385,906
(53,033)
1,332,873
—
—
—
—
(21,089)
—
—
—
—
—
(21,089)
(21,089)
—
—
—
—
—
—
—
—
—
—
—
—
(119)
—
(115)
15,127
(301,368)
—
—
—
—
(296,065)
(1,130,887)
(6,402)
(16,936)
(4,283)
(122,884)
(91,994)
(57,237)
(18,395)
(139,875)
(4,185)
(1,593,078)
(259,326)
(31,208)
(8,227)
711
303
(216)
(286,475)
(307,564)
(296,065)
(296,065)
(38,637)
(297,963)
—
—
—
—
(22,584)
(530)
—
—
(1,989)
(2,855)
(27,958)
(27,957)
1
—
(98)
23,404
—
23,307
(4,650)
585
45
83
279
35,571
642
—
—
—
—
37,205
36,325
—
—
(7)
(36,318)
597,649
561,324
597,649
(1,130,302)
(6,357)
(16,853)
(4,004)
(130,986)
(91,882)
(57,237)
(18,395)
(141,864)
(7,040)
(1,604,920)
(272,047)
(31,326)
(8,227)
491
2,516
—
(36,546)
(308,593)
(897)
—
$(308,461) $(296,065)
$
1,536
(296,427)
$
(507)
(5,157)
—
597,649
$
$
132
(308,461)
F - 44
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended December 31, 2008
OPERATING REVENUES
Casino
Rooms
Food and beverage
Entertainment, retail and others
Gross revenues
Less: promotional allowances
Net revenues
OPERATING COSTS AND
EXPENSES
Casino
Rooms
Food and beverage
Entertainment, retail and others
General and administrative
Pre-opening costs
Amortization of gaming
subconcession
Amortization of land use rights
Depreciation and amortization
Property charges and others
Total operating costs and expenses
OPERATING (LOSS) INCOME
NON-OPERATING INCOME
(EXPENSES)
Interest income, net
Other finance costs
Foreign exchange (loss) gain, net
Other income, net
Share of results of subsidiaries
Total non-operating income
(expenses)
(LOSS) INCOME BEFORE
INCOME TAX
INCOME TAX
(EXPENSES) CREDIT
NET (LOSS) INCOME
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
$
$
—
—
—
—
—
—
—
$
— $
—
—
—
—
—
—
1,405,932
17,575
16,480
5,396
1,445,383
(28,385)
1,416,998
$
—
—
—
—
—
—
—
—
(491)
(373)
—
(864)
—
(864)
$ 1,405,932
17,084
16,107
5,396
1,444,519
(28,385)
1,416,134
—
—
—
—
(22,115)
—
—
—
—
—
(22,115)
(22,115)
5,755
—
(409)
18,291
(3,866)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6,862)
(1,159,974)
(1,359)
(12,748)
(1,240)
(90,990)
(21,901)
(57,237)
(18,269)
(50,485)
(290)
(1,414,493)
2,505
2,438
(15,730)
1,865
6
(46)
—
—
—
—
(12,997)
(3)
—
—
(894)
—
(13,894)
(13,894)
22
—
(20)
17,353
—
44
17
3
—
35,395
83
—
—
—
—
35,542
34,678
—
—
—
(34,678)
10,774
(1,159,930)
(1,342)
(12,745)
(1,240)
(90,707)
(21,821)
(57,237)
(18,269)
(51,379)
(290)
(1,414,960)
1,174
8,215
(15,730)
1,436
972
—
19,771
(6,862)
(11,467)
17,355
(23,904)
(5,107)
(2,344)
(6,862)
(8,962)
3,461
10,774
(119)
$ (2,463)
—
$ (6,862)
$
2,038
(6,924)
$
(449)
3,012
$
—
10,774
$
(3,933)
1,470
(2,463)
F - 45
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the year ended December 31, 2010
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities
CASH FLOWS FROM
INVESTING ACTIVITIES
Advances to subsidiaries
Amounts due from subsidiaries
Acquisition of property and
equipment
Deposits for acquisition of property
and equipment
Payment for entertainment
production costs
Changes in restricted cash
Payment for land use right
Proceeds from sale of property and
equipment
Net cash (used in) provided by
investing activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Payment of deferred financing costs
Advance from ultimate holding
company
Amount due to ultimate holding
company
Loan from intermediate holding
company
Principal payments on long-term
debt
Proceeds from long-term debt
Net cash provided by financing
activities
NET (DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH
EQUIVALENTS AT END OF
YEAR
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
$
7,623
$
(238)
$
383,056
$
11,514
$
—
$
401,955
(25,777)
(13,006)
(577,441)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(196,624)
(5,224)
(27,116)
65,799
(29,802)
80
—
—
(761)
—
—
3,338
—
—
603,218
13,006
—
—
—
—
—
—
—
—
(197,385)
(5,224)
(27,116)
69,137
(29,802)
80
(38,783)
(577,441)
(192,887)
2,577
616,224
(190,310)
—
—
—
—
—
—
(14,346)
—
(1)
—
—
592,026
(8,598)
25,777
—
—
323
12,684
(13,006)
—
(22,944)
(25,777)
(577,441)
—
—
—
—
—
(551,402)
592,026
577,441
(551,402)
—
—
—
—
—
577,679
43,541
12,684
(616,224)
17,680
(31,160)
34,358
—
—
233,710
26,775
—
229,325
177,057
1,183
—
212,598
$
3,198
$
— $
410,767
$
27,958
$
—
$
441,923
F - 46
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the year ended December 31, 2009
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash used in operating activities
CASH FLOWS FROM
INVESTING ACTIVITIES
Advances to subsidiaries
Amounts due from subsidiaries
Acquisition of property and
equipment
Deposits for acquisition of property
and equipment
Prepayment of entertainment
production costs
Changes in restricted cash
Payment for land use right
Refund of deposit for acquisition of
land interest
Proceeds from sale of property and
equipment
Net cash (used in) provided by
investing activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Payment of deferred financing costs
Advance from ultimate holding
company
Amount due to ultimate holding
company
Proceeds from issue of share capital
Proceeds from long-term debt
Net cash provided by (used in)
financing activities
NET DECREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH
EQUIVALENTS AT END OF
YEAR
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
$
(11,476) $
— $
(100,062)
$
(719) $
—
$
(112,257)
(1,023,370)
522,661
—
—
—
—
—
—
—
(500,709)
—
—
—
383,529
—
383,529
(128,656)
163,014
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,023,370
(522,661)
—
—
(934,961)
(2,113)
(2,712)
(21,735)
(165,108)
(30,559)
—
3,729
—
—
(3,034)
—
12,853
1
—
—
—
—
—
—
—
(937,074)
(2,712)
(21,735)
(168,142)
(30,559)
12,853
3,730
(1,151,346)
7,707
500,709
(1,143,639)
(870)
—
—
1,012,114
11,256
(1,023,370)
(870)
—
(499,309)
—
270,691
(23,352)
—
—
522,661
—
—
—
383,529
270,691
782,626
(12,096)
(500,709)
653,350
(468,782)
(5,108)
—
(602,546)
645,839
6,291
—
815,144
$
34,358 $
— $
177,057
$
1,183 $
—
$
212,598
F - 47
MELCO CROWN ENTERTAINMENT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(In thousands of U.S. dollars, except share and per share data)
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION - continued
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the year ended December 31, 2008
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities
CASH FLOWS FROM
INVESTING ACTIVITIES
Amounts due from subsidiaries
Acquisition of property and
equipment
Deposits for acquisition of property
and equipment
Prepayment of entertainment
production costs
Changes in restricted cash
Payment for land use right
Proceeds from sale of property and
equipment
Net cash used in investing activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Payment of deferred financing costs
Loans from shareholders
Amount due to ultimate holding
company
Proceeds from long-term debt
Net cash provided by financing
activities
NET (DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH
EQUIVALENTS AT END OF
YEAR
Note
Parent
Issuer
Guarantor
Subsidiaries (1)
Non-guarantor
Subsidiaries Elimination Consolidated
$
9,419 $
(1)
$
(23,030)
$
2,454
$
—
$
(11,158)
(420,055)
—
—
—
—
—
—
(420,055)
—
—
—
—
—
(410,636)
573,650
—
—
—
—
—
—
—
—
—
—
1
—
1
—
—
—
—
420,055
—
(1,041,552)
(12,440)
(34,699)
(16,127)
231,006
(42,090)
2,300
(901,162)
(7,641)
(181)
404,617
912,307
—
—
—
—
—
(1,053,992)
(34,699)
(16,127)
231,006
(42,090)
—
—
—
—
—
(12,440)
—
420,055
2,300
(913,602)
—
—
—
—
(7,641)
(181)
15,437
—
(420,055)
—
—
912,307
1,309,102
15,437
(420,055)
904,485
384,910
5,451
—
(20,275)
260,929
840
—
835,419
$ 163,014 $
— $
645,839
$
6,291
$
—
$
815,144
(1) The guarantor subsidiaries column includes financial information of Melco Crown Gaming which is not 100% owned by the
Parent.
F - 48
MELCO CROWN ENTERTAINMENT LIMITED
ADDITIONAL INFORMATION — FINANCIAL STATEMENTS SCHEDULE 1
FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Amounts due from subsidiaries
Amounts due from affiliate companies
Income tax receivable
Prepaid expenses and other current assets
Total current assets
INVESTMENTS IN SUBSIDIARIES
LONG-TERM PREPAYMENT, DEPOSITS AND OTHER ASSETS
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accrued expenses and other current liabilities
Income tax payable
Amounts due to affiliated companies
Amounts due to subsidiaries
Amounts due to shareholders
Total current liabilities
LOANS FROM SHAREHOLDERS
SHAREHOLDERS’ EQUITY
Ordinary shares at US$0.01 par value per share
(Authorized — 2,500,000,000 shares as of December 31, 2010 and 2009 and issued —
1,605,658,111 and 1,595,617,550 shares as of December 31, 2010 and 2009)
Treasury shares, at US$0.01 par value per share
(8,409,186 and 471,567 shares as of December 31, 2010 and 2009)
Additional paid-in capital
Accumulated other comprehensive losses
Accumulated losses
Total shareholders’ equity
TOTAL
December 31,
2010
2009
$
3,198
77,682
1,351
198
4,722
87,151
2,734,880
641
$ 2,822,672
$
34,358
64,676
—
—
12,605
111,639
2,697,541
1,178
$ 2,810,358
$
$
1,889
—
137
181,771
37
183,834
115,647
3,302
387
1,620
180,336
22
185,667
115,647
16,056
15,956
(84)
3,095,730
(11,345)
(577,166)
2,523,191
$ 2,822,672
(5)
3,088,768
(29,034)
(566,641)
2,509,044
$ 2,810,358
F - 49
MELCO CROWN ENTERTAINMENT LIMITED
ADDITIONAL INFORMATION — FINANCIAL STATEMENTS SCHEDULE 1
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data)
REVENUE
OPERATING EXPENSES
General and administrative
Total operating expenses
OPERATING LOSS
NON-OPERATING INCOME (EXPENSES)
Interest income
Interest expenses
Foreign exchange loss, net
Other income, net
Share of results of subsidiaries
Total non-operating income (expenses)
LOSS BEFORE INCOME TAX
INCOME TAX EXPENSE
NET LOSS
2010
$
Year Ended December 31,
2009
—
$
—
$
2008
—
(14,985)
(14,985)
(14,985)
6
(242)
(41)
11,257
(6,129)
4,851
(10,134)
(391)
(10,525)
(21,089)
(21,089)
(21,089)
96
(215)
(115)
15,127
(301,368)
(286,475)
(307,564)
(897)
(308,461)
$
$
(22,115)
(22,115)
(22,115)
5,755
—
(409)
18,291
(3,866)
19,771
(2,344)
(119)
(2,463)
$
F - 50
MELCO CROWN ENTERTAINMENT LIMITED
ADDITIONAL INFORMATION — FINANCIAL STATEMENTS SCHEDULE 1
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands of U.S. dollars, except share and per share data)
Common Shares
Shares
Amount
Treasury Shares
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Total
Comprehensive Accumulated Shareholders’
Losses
Losses
Equity
Comprehensive
(Loss) Income
BALANCE AT JANUARY
1, 2008
Net loss for the year
Change in fair value of
interest rate swap
agreements
Reversal of over-accrued
offering expenses
Share-based compensation
Shares issued upon restricted
shares vested
Shares issued for future
exercise of share options
BALANCE AT DECEMBER
1,320,938,902 $ 13,209
—
—
— $ — $2,682,125 $
—
—
—
(11,076) $
—
(255,717) $
(2,463)
2,428,541
(2,463)
$
(2,463)
—
—
—
226,317
—
—
—
3
—
—
—
—
—
—
—
—
385,180
4
(385,180)
(4)
—
(24,609)
117
7,018
(3)
—
—
—
—
—
—
—
—
—
—
(24,609)
(24,609)
117
7,018
—
—
31, 2008
1,321,550,399
13,216
(385,180)
(4) 2,689,257
(35,685)
(258,180)
2,408,604
Net loss for the year
Foreign currency translation
adjustment
Change in fair value of
interest rate swap
agreements
Share-based compensation
Shares issued, net of offering
—
—
—
—
—
—
—
—
expenses
263,155,335
2,631
Shares issued upon restricted
shares vested
Shares issued for future
8,297,110
83
—
—
—
—
—
—
vesting of restricted shares
2,614,706
26 (2,614,706)
Issuance of shares for
restricted shares vested
BALANCE AT DECEMBER
—
— 2,528,319
—
—
—
—
—
—
—
11,807
—
(11)
6,662
—
—
380,898
—
—
(26)
25
6,831
—
(25)
—
—
—
Net loss for the year
Foreign currency translation
adjustment
Change in fair value of
interest rate swap
agreements
Share-based compensation
Shares issued upon restricted
shares vested
Shares issued for future
vesting of restricted shares
and exercise of share
options
Issuance of shares for
restricted shares vested
Exercise of share options
BALANCE AT DECEMBER
—
—
—
—
1,254,920
—
—
—
—
12
—
—
—
—
—
—
—
—
—
—
—
—
—
6,045
(12)
8,785,641
88 (8,785,641)
(88)
—
—
—
—
—
43,737
804,285
1
8
(1)
930
—
32
17,657
—
—
—
—
—
(308,461)
(308,461)
$
$
(27,072)
(308,461)
—
—
—
—
—
—
—
(11)
(11)
6,662
6,662
11,807
383,529
6,914
—
—
(10,525)
(10,525)
$
$
(301,810)
(10,525)
—
—
—
—
—
—
—
32
32
17,657
6,045
17,657
—
—
—
938
31, 2009
1,595,617,550
15,956
(471,567)
(5) 3,088,768
(29,034)
(566,641)
2,509,044
31, 2010
1,605,658,111 $ 16,056 (8,409,186) $
(84) $3,095,730 $
(11,345) $
(577,166) $
2,523,191 $
7,164
F - 51
MELCO CROWN ENTERTAINMENT LIMITED
ADDITIONAL INFORMATION — FINANCIAL STATEMENTS SCHEDULE 1
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Share-based compensation
Share of results of subsidiaries
Changes in operating assets and liabilities:
Amounts due from affiliated companies
Prepaid expenses and other current assets
Long-term prepayment and deposits
Accrued expenses and other current liabilities
Income tax payable
Amounts due to shareholders
Amounts due to affiliated companies
Amounts due to subsidiaries
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to subsidiaries
Amounts due from subsidiaries
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
Year Ended December 31,
2009
2008
2010
$
(10,525)
$
(308,461)
$
(2,463)
6,043
6,129
(1,351)
8,821
537
(1,413)
(585)
15
(1,483)
1,435
7,623
(25,777)
(13,006)
(38,783)
—
(31,160)
34,358
3,198
$
11,385
301,368
—
(11,885)
537
(1,605)
(909)
(1,973)
67
—
(11,476)
(1,023,370)
522,661
(500,709)
383,529
(128,656)
163,014
34,358
$
$
6,855
3,866
2
2,753
(1,715)
2,119
119
—
(2,108)
(9)
9,419
—
(420,055)
(420,055)
—
(410,636)
573,650
163,014
F - 52
MELCO CROWN ENTERTAINMENT LIMITED
ADDITIONAL INFORMATION — FINANCIAL STATEMENTS SCHEDULE 1
FINANCIAL INFORMATION OF PARENT COMPANY
NOTES TO FINANCIAL STATEMENTS SCHEDULE 1
(In thousands of U.S. dollars, except share and per share data)
1.
Schedule 1 has been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which require
condensed financial information as to financial position, changes in financial position and results and operations of a parent
company as of the same dates and for the same periods for which audited consolidated financial statements have been presented
when the restricted net assets of the consolidated and unconsolidated subsidiaries together exceed 25 percent of consolidated net
assets as of end of the most recently completed fiscal year. As of December 31, 2010 and 2009, approximately $1,553,000 and
$1,543,000, respectively of the restricted net assets not available for distribution, and as such, the condensed financial
information of the Company has been presented for the years ended December 31, 2010, 2009 and 2008.
2.
Basis of presentation
The condensed financial information has been prepared using the same accounting policies as set out in the Company’s
consolidated financial statements except that the parent company has used equity method to account for its investments in
subsidiaries.
F - 53
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