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Form 6-K
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Table of Contents
 
 
FORM
6-K
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a–16 OR 15d–16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of
November 2021
Commission File Number:
001-38699
 
 
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
 
36
th
Floor, The Centrium
60 Wyndham Street
Central
Hong Kong
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20–F or Form 40– F. Form
20-F  ☒
Form
40-F  ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐
 
 
 
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
Form 6–K
TABLE OF CONTENTS
 
   3
Exhibit 99.1   
Exhibit 99.2   
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
By:   /s/ Geoffrey Davis
Name:   Geoffrey Davis, CFA
Title:   Chief Financial Officer
Date: November 30, 2021
 
3
Table of Contents
EXHIBIT INDEX
 
Exhibit No.
   
Description
Exhibit 99.1   
Unaudited Condensed Consolidated Financial Statements of Studio City International Holdings Limited for the Nine Months Ended September 30, 2021 and 2020
Exhibit 99.2    Management’s discussion and analysis and financial data for prior periods
101.INS    Inline XBRL Instance Document-this instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH    Inline XBRL Taxonomy Extension Schema Document
101.CAL    Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE    Inline XBRL Taxonomy Extension Presentation Linkbase Document
104    Cover Page Interactive Data File (embedded within the Inline XBRL document)
Unaudited Condensed Consolidated Financial Statements
http://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityCurrenthttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityCurrent
Table of Contents
Exhibit 99.1
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
 
    
Page
  
     2  
     4  
     6  
     7  
     8  
     9  
 
- 1 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
 
     September 30,      December 31,  
     2021      2020  
     (Unaudited)         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
    $ 650,941      $ 575,215  
Restricted cash
      —          13  
Accounts receivable, net of allowances for credit losses of $972 and $976
      54        157  
Amounts due from affiliated companies
      5,580        10,672  
Inventories
      8,144        9,297  
Prepaid expenses and other current assets
      47,838        12,467  
    
 
 
     
 
 
  
Total current assets
      712,557        607,821  
    
 
 
     
 
 
  
Property and equipment, net
      2,401,336        2,180,897  
Intangible assets, net
      3,132        4,005  
Long-term prepayments, deposits and other assets
      71,605        117,555  
Restricted cash
      130        131  
Operating lease
right-of-use
assets
      14,640        17,379  
Land use right, net
      113,131        116,109  
    
 
 
     
 
 
  
Total assets
    $ 3,316,531      $ 3,043,897  
    
 
 
     
 
 
  
LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST
 
         
Current liabilities:
                  
Accounts payable
    $ 463      $ 206  
Accrued expenses and other current liabilities
      131,824        118,946  
Income tax payable
      12        33  
Amounts due to affiliated companies
      40,702        42,966  
    
 
 
     
 
 
  
Total current liabilities
      173,001        162,151  
    
 
 
     
 
 
  
Long-term debt, net
      2,086,978        1,584,660  
Other long-term liabilities
      26,980        11,778  
Deferred tax liabilities, net
      495        448  
Operating lease liabilities,
non-current
      14,591        17,137  
    
 
 
     
 
 
  
Total liabilities
    $ 2,302,045      $ 1,776,174  
    
 
 
     
 
 
  
Commitments and contingencies (Note 13)            
 
- 2 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
- continued
(In thousands of U.S. dollars, except share and per share data)
 
     September 30,     December 31,  
     2021     2020  
     (Unaudited)        
Shareholders’ equity and participation interest:
                 
Class A ordinary shares, par value $0.0001; 1,927,488,240 shares authorized; 370,352,700 shares issued and outstanding
    $ 37     $ 37  
Class B ordinary shares, par value $0.0001; 72,511,760 shares authorized; 72,511,760 shares issued and outstanding
      7       7  
Additional
paid-in
capital
      2,134,227       2,134,227  
Accumulated other comprehensive (loss) income
      (1,290 )      11,876  
Accumulated losses
      (1,284,769 )      (1,086,160 ) 
    
 
 
    
 
 
  
Total shareholders’ equity
      848,212       1,059,987  
    
 
 
    
 
 
  
Participation interest
      166,274       207,736  
    
 
 
    
 
 
  
Total shareholders’ equity and participation interest
      1,014,486       1,267,723  
    
 
 
    
 
 
  
Total liabilities, shareholders’ equity and participation interest
    $ 3,316,531     $ 3,043,897  
    
 
 
    
 
 
  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
- 3 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands of U.S. dollars, except share and per share data )
 
     Nine Months Ended  
     September 30,  
     2021     2020  
Operating revenues:
                 
Provision of gaming related services from related parties
    $ (5,522 )    $ (38,986 ) 
Rooms (including revenues from related parties of $24,147 and $8,725 for the nine months ended September 30, 2021 and 2020, respectively)
      30,774       12,330  
Food and beverage (including revenues from related parties of $13,794 and $10,234 for the nine months ended September 30, 2021 and 2020, respectively)
      20,417       15,613  
Entertainment (including revenues from related parties of $550 and $9 for the nine months ended September 30, 2021 and 2020, respectively)
      2,428       1,025  
Services fee from related parties
      19,493       19,706  
Mall
      9,684       14,738  
Retail and other
      1,213       1,077  
    
 
 
    
 
 
  
Total operating revenues
      78,487       25,503  
    
 
 
    
 
 
  
Operating costs and expenses:
                 
Provision of gaming related services (including costs to related parties of $18,140 and $17,473 for the nine months ended September 30, 2021 and 2020, respectively)
      (18,934 )      (18,932 ) 
Rooms (including costs to related parties of $5,995 and $5,696 for the nine months ended September 30, 2021 and 2020, respectively)
      (9,328 )      (8,473 ) 
Food and beverage (including costs to related parties of $12,877 and $15,201 for the nine months ended September 30, 2021 and 2020, respectively)
      (20,939 )      (20,556 ) 
Entertainment (including costs to related parties of $1,700 and $1,814 for the nine months ended September 30, 2021 and 2020, respectively)
      (2,252 )      (2,676 ) 
Mall (including costs to related parties of $1,312 and $1,563 for the nine months ended September 30, 2021 and 2020, respectively)
      (2,907 )      (3,648 ) 
Retail and other (including costs to related parties of $1,026 and $895 for the nine months ended September 30, 2021 and 2020, respectively)
      (1,115 )      (880 ) 
General and administrative (including expenses to related parties of $38,782 and $43,050 for the nine months ended September 30, 2021 and 2020, respectively)
      (68,949 )      (69,787 ) 
Pre-opening
costs (including expenses to related parties of $125 and $158 for the nine months ended September 30, 2021 and 2020, respectively)
      (739 )      (133 ) 
Amortization of land use right
      (2,496 )      (2,499 ) 
Depreciation and amortization
      (93,299 )      (122,406 ) 
Property charges and other (including expenses to related parties of $4,107 and $1,497 for the nine months ended September 30, 2021 and 2020, respectively)
      (4,129 )      (4,101 ) 
    
 
 
    
 
 
  
Total operating costs and expenses
      (225,087 )      (254,091 ) 
    
 
 
    
 
 
  
Operating loss
      (146,600 )      (228,588 ) 
    
 
 
    
 
 
  
Non-operating
income (expenses):
                 
Interest income
      2,350       1,175  
Interest expenses, net of amounts capitalized
      (69,073 )      (81,081 ) 
Other financing costs
      (314 )      (315 ) 
Foreign exchange gains (losses), net
      4,989       (4,107 ) 
Other expenses, net
      —         (255 ) 
Loss on extinguishment of debt
      (28,817 )      (18,497 ) 
    
 
 
    
 
 
  
Total
non-operating
expenses, net
      (90,865 )      (103,080 ) 
    
 
 
    
 
 
  
Loss before income tax
      (237,465 )      (331,668 ) 
Income tax (expense) credit
      (29 )      106  
    
 
 
    
 
 
  
Net loss
      (237,494 )      (331,562 ) 
Net loss attributable to participation interest
      38,885       71,427  
    
 
 
    
 
 
  
Net loss attributable to Studio City International Holdings Limited
    $ (198,609 )    $ (260,135 ) 
    
 
 
    
 
 
  
 
- 4 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
     Nine Months Ended  
     September 30,  
     2021     2020  
Net loss attributable to Studio City International Holdings Limited per Class A ordinary share:
                 
Basic
    $ (0.536 )    $ (0.965 ) 
    
 
 
    
 
 
  
Diluted
    $ (0.536 )    $ (0.969 ) 
    
 
 
    
 
 
  
Weighted average Class A ordinary shares outstanding used in net loss attributable to Studio City International Holdings Limited per Class A ordinary share calculation:
                 
Basic
      370,352,700       269,481,487  
    
 
 
    
 
 
  
Diluted
      370,352,700       341,993,247  
    
 
 
    
 
 
  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In thousands of U.S. dollars)
 
     Nine Months Ended  
     September 30,  
     2021     2020  
Net loss
    $ (237,494 )    $ (331,562 ) 
Other comprehensive (loss) income:
                 
Foreign currency translation adjustments, before and after tax
      (15,743 )      16,789  
 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income
      (15,743 )      16,789  
 
 
 
 
 
 
 
 
 
Total comprehensive loss
      (253,237 )      (314,773 ) 
Comprehensive loss attributable to participation interest
      41,462       67,567  
 
 
 
 
 
 
 
 
 
Comprehensive loss attributable to Studio City International Holdings Limited
    $ (211,775 )    $ (247,206 ) 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(In thousands of U.S. dollars, except share and per share data)
 
    Studio City International Holdings Limited Shareholders’ Equity              
    Class A
Ordinary Shares		     Class B
Ordinary Shares		     Additional
Paid-in

Capital		     Accumulated
Other
Comprehensive		     Accumulated     Participation     Total  
    Shares     Amount     Shares     Amount     Income (Loss)     Losses     Interest     Equity  
Balance at January 1, 2020
     241,818,016     $ 24       72,511,760     $ 7     $ 1,655,602     $ 269     $ (764,534 )    $ 267,291     $ 1,158,659  
Net loss for the period
     —         —         —         —         —         —         (260,135 )      (71,427 )      (331,562 ) 
Foreign currency translation adjustments
     —         —         —         —         —         12,929       —         3,860       16,789  
Shares issued, net of offering expenses
     128,534,684       13       —         —         498,935       —         —         —         498,948  
Change in Participation Interest resulted from Private Placements (as described in Note 11)
     —         —         —         —         (20,310 )      —         —         20,310       —    
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at September 30, 2020
     370,352,700     $ 37       72,511,760     $ 7     $ 2,134,227     $ 13,198     $ (1,024,669 )    $ 220,034     $ 1,342,834  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at January 1, 2021
     370,352,700     $ 37       72,511,760     $ 7     $ 2,134,227     $ 11,876     $ (1,086,160 )    $ 207,736     $ 1,267,723  
Net loss for the period
     —         —         —         —         —         —         (198,609 )      (38,885 )      (237,494 ) 
Foreign currency translation adjustments
     —         —         —         —         —         (13,166 )      —         (2,577 )      (15,743 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at September 30, 2021
     370,352,700     $ 37       72,511,760     $ 7     $ 2,134,227     $ (1,290 )    $ (1,284,769 )    $ 166,274     $ 1,014,486  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands of U.S. dollars)
 
     Nine Months Ended  
     September 30,  
     2021     2020  
Cash flows from operating activities:
                 
Net cash used in operating activities
    $ (120,862 )    $ (148,825 ) 
    
 
 
    
 
 
  
Cash flows from investing activities:
                 
Placement of bank deposits with original maturities over three months

      (278,700 )      —  
Acquisition of property and equipment

      (266,650 )      (140,891 )
Acquisition of intangible assets
      (3,921 )      —     
Funds to an affiliated company
      (3,672 )      (9,415 ) 
Proceeds from sale of property and equipment and other long-term assets
      1,727       2,621  
Withdrawals of bank deposits with original maturities over three months
      278,700       —     
    
 
 
    
 
 
  
Net cash used in investing activities
      (272,516 )      (147,685 ) 
    
 
 
    
 
 
  
Cash flows from financing activities:
                 
Principal payments on long-term debt
      (252,944 )      (850,000 ) 
Payments of deferred financing costs
      (33,297 )      (24,051 ) 
Net (payments for) proceeds from issue of shares
      (445 )      499,291  
Proceeds from long-term debt
      758,194       1,000,000  
    
 
 
    
 
 
  
Net cash provided by financing activities
      471,508       625,240  
    
 
 
    
 
 
  
Effect of exchange rate on cash, cash equivalents and restricted cash
      (2,418 )      1,647  
    
 
 
    
 
 
  
Increase in cash, cash equivalents and restricted cash
      75,712       330,377  
Cash, cash equivalents and restricted cash at beginning of period
      575,359       327,232  
    
 
 
    
 
 
  
Cash, cash equivalents and restricted cash at end of period
    $ 651,071     $ 657,609  
    
 
 
    
 
 
  
Supplemental cash flow disclosures:
                 
Cash paid for interest, net of amounts capitalized
    $ (84,141 )    $ (81,483 ) 
Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases
    $ (734 )    $ (735 ) 
Change in operating lease
right-of-use
assets and lease liabilities arising from lease modification
    $ (2,575 )    $ 3,213  
Change in accrued expenses and other current liabilities and other long-term liabilities related to acquisition of property and equipment
    $ 100,090     $ 43,005  
Change in amounts due from/to affiliated companies related to acquisition of property and equipment and other long-term assets
    $ 6,090     $ 7,106  
Offering expenses capitalized for the issuance of shares included in accrued expenses and other current liabilities
    $ —       $ 514  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands of U.S. dollars, except share and per share data)
 
1.
ORGANIZATION AND BUSINESS
 
  (a)
Company Information
Studio City International Holdings Limited (“Studio City International”) was an exempted company with limited liability registered by way of continuation in the Cayman Islands, with its American depositary shares (“ADSs”) listed on the New York Stock Exchange under the symbol “MSC” in the United States of America.
Studio City International together with its subsidiaries (collectively referred to as the “Company”) currently operates
the non-gaming operations
of Studio City, a cinematically-themed integrated resort in Cotai, Macau Special Administrative Region of the People’s Republic of China (“Macau”), and provides gaming related services to Melco Resorts (Macau) Limited (“Melco Resorts Macau”), a subsidiary of Melco Resorts & Entertainment Limited (“Melco”), which holds the gaming subconcession in Macau, for the operations of the gaming area at Studio City (“Studio City Casino”). Melco’s ADSs are listed on the Nasdaq Global Select Market in the United States of America.
Studio City International authorized two classes of ordinary shares, the Class A ordinary shares and the Class B ordinary shares, in each case with a par value of $0.0001 each. The Class A ordinary share and Class B ordinary share have the same rights, except that holders of the Class B ordinary shares do not have any right to receive dividends or distributions upon the liquidation or winding up of Studio City International or to otherwise share in profits and surplus assets. MCO Cotai Investments Limited (“MCO Cotai”), a subsidiary of Melco, through its ownership of the Class A ordinary shares, is the controlling shareholder of Studio City International. New Cotai, LLC (“New Cotai”), a private company organized in the United States of America, is the holder of all outstanding Class B ordinary shares which have only voting and no economic rights. New Cotai has a
non-voting,
non-shareholding
economic participation interest (“Participation Interest”) in MSC Cotai Limited (“MSC Cotai”), a subsidiary of Studio City International, which entitles New Cotai to receive from MSC Cotai an amount equal to a certain percentage of the amount of any distribution, dividend or other consideration paid by MSC Cotai to Studio City International, subject to adjustments, exceptions and conditions as set out in the participation agreement (the “Participation Agreement”) entered into by MSC Cotai, New Cotai and Studio City International in 2018 (the “MSC Cotai’s Distribution”). The Participation Agreement also provides that New Cotai is entitled to exchange all or a portion of its Participation Interest for a number of Class A ordinary shares subject to adjustments, exceptions and conditions as set out in the Participation Agreement and a proportionate number of Class B ordinary shares will be deemed surrendered and automatically canceled for no consideration as set out in the Participation Agreement when New Cotai exchanges all or a portion of the Participation Interest for Class A ordinary shares. As of September 30, 2021 and December 31, 2020, the Participation Interest entitled New Cotai to receive from
MSC Cotai an amount equal to approximately 19.6% of the MSC Cotai’s Distribution.
As of September 30, 2021 and December 31, 2020, Melco International Development Limited (“Melco International”), a company listed in the Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”), is the single largest shareholder of Melco.
 
  (b)
Recent Developments Related to
COVID-19
and Other Business Developments
The disruptions to the Company’s business caused by the
COVID-19
outbreak continue to have a material effect on its financial condition and operations during the first three quarters of 2021.
The Company’s operations have been impacted by
on-and-off
travel restrictions and quarantine requirements as imposed by the governments of Macau, Hong Kong and the People’s Republic of China (the “PRC”) in response to isolated cases. The appearance of
COVID-19
cases in early August 2021 and late September 2021 led to city-wide mandatory testing, mandatory closure of most entertainment and leisure venues (casinos and gaming areas excluded), and strict travel restrictions and requirements being implemented to enter and exit Macau. Since October 19, 2021, authorities have eased pandemic prevention measures such that travelers no longer require a
14-day
quarantine on arrival in Zhuhai, and the validity of negative nucleic acid tests were extended from 24 hours to 48 hours or seven days. As a result, the Company’s visitation has been gradually recovering.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
1.
ORGANIZATION AND BUSINESS
- continued
 
  (b)
Recent Developments Related to
COVID-19
and Other Business Developments
- continued
 
The
COVID-19
outbreak has also impacted the construction schedules of the remaining development project at Studio City. As announced by Studio City International in May 2021, the Macau government granted an extension of the development period under the Studio City land concession to December 27, 2022. The Company currently expects to complete the construction of this project within the development period.
The pace of recovery from
COVID-19-related
disruptions continues to depend on future events, including duration of travel and visa restrictions, the pace of vaccination progress, development of new medicine for
COVID-19
as well as customer sentiment and consumer behavior related to discretionary spending and travel, all of which remain highly uncertain. The Company is unable to reasonably estimate the financial impact to its future results of operations, cash flows and financial condition.
As of September 30, 2021, the Company had cash and cash equivalents of $650,941 and available borrowing capacity under the 2016 SC Revolving Credit Facility of HK$233,000,000 (equivalent to $29,927), subject to the satisfaction of certain conditions precedent.
The Company has taken various mitigating measures to manage through the current
COVID-19
outbreak challenges, such as implementing cost reduction programs to minimize cash outflows for
non-essential
items, rationalizing the Company’s capital expenditure programs with deferrals and reductions, refinancing existing borrowings and raising additional capital through equity offering or new borrowing.
The Company believes it will be able to support continuing operations and capital expenditures for at least twelve months after the date that these condensed consolidated financial statements are issued.
In January 2019, Melco Resorts Macau informed the Company that it would cease VIP rolling chip operations at the Studio City Casino on January 15, 2020. In January 2020, Melco Resorts Macau agreed to continue the VIP rolling chip operations at the Studio City Casino until January 15, 2021, and in December 2020, it further agreed to continue VIP rolling chip operations at Studio City Casino until December 31, 2021, subject to early termination with 30 days’ prior notice by either the Company or Melco Resorts Macau.
 
 
(c)
Macau gaming subconcession contract
On September 8, 2006, the Macau government granted a gaming subconcession to Melco Resorts Macau to operate its gaming business in Macau. Melco Resorts Macau’s subconcession contract expires on June 26, 2022. Under current applicable Macau law, a concession or subconcession may be extended or renewed by order of the Macau Chief Executive, one or more times, up to a maximum of 5 years.
Melco Resorts Macau operates Studio City Casino pursuant to the Services and Right to Use Arrangements (as described in Note 2). These arrangements remain effective until June 26, 2022 and will be extended if Melco Resorts Macau obtains a gaming concession, subconcession or other right to legally operate gaming in Macau beyond June 26, 2022 and if the Macau government permits such extension.
In September 2021, the Macau government launched the public consultation process on the proposed changes to the Macau gaming law which sets out the basic legal framework for new concessions. Such public consultation process is ongoing. The Macau government continues to be in contact with the gaming industry and all procedures are expected to be followed. If Melco Resorts Macau is unable to secure a new concession or subconcession or an extension or renewal of its subconcession, or if the Macau government were to exercise its redemption or other termination rights prior to June 26, 2022, Melco Resorts Macau would be unable to operate casino gaming in Macau including Studio City Casino and in accordance with current legislation on reversion of casino premises, all casino premises and gaming-related equipment under Melco Resorts Macau’s subconcession will automatically revert to the Macau government without any compensation, and Melco Resorts Macau will cease to generate revenues from such operations.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
1.
ORGANIZATION AND BUSINESS
- continued
 
  (c)
Macau gaming subconcession contract
- continued
 
Under the indentures of the senior notes issued by Studio City Finance Limited (“Studio City Finance”), a subsidiary of Studio City International, holders of the senior notes can require Studio City Finance to repurchase all or any part of the senior notes at par, plus any accrued and unpaid interest (the “Special Put Option”) (1) upon the occurrence of any event after which Melco Resorts Macau’s subconcession or other permits or authorizations as are necessary for the operation of the casino at Studio City in substantially the same manner and scope as operations were conducted at the issue date of the respective senior notes issued by Studio City Finance cease to be in full force and effect, for a period of ten consecutive days or more, and such event has a material adverse effect on the financial condition, business, properties or results of operations of Studio City Finance and its subsidiaries, taken as a whole; or (2) if the termination, rescission, revocation or modification of Melco Resorts Macau’s subconcession has had a material adverse effect on the financial condition, business, properties, or results of operations of Studio City Finance and its subsidiaries.
In addition, in relation to the credit facilities of Studio City Company Limited (“Studio City Company”), a subsidiary of Studio City International, any termination, revocation, rescission or modification of Melco Resorts Macau’s subconcession which has had a material adverse effect on the financial condition, business, properties, or results of operations of the Company, taken as a whole, would constitute a mandatory prepayment event, which would result in (i) the cancellation of available commitments; and (ii) subject to each lender’s election, such electing lender’s share of all outstanding amounts under such facilities becoming immediately due and payable.
The Company believes Melco Resorts Macau is in a position to satisfy the requirements related to the grant of new concession or subconcession or the extension or renewal of its subconcession as they may be set out by the Macau government and, the Services and Right to Use Arrangements will be extended successfully. Accordingly, the accompanying condensed consolidated financial statements are prepared on a going concern basis.
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  (a)
Basis of Presentation and Principles of Consolidation
On May 11, 2007, one of the Studio City International’s subsidiaries and Melco Resorts Macau entered into a services and right to use agreement, as amended on June 15, 2012, together with related agreements (together, the “Services and Right to Use Arrangements”). Under these arrangements, Melco Resorts Macau deducts gaming taxes and the costs of operation of Studio City Casino. The Company receives the residual gross gaming revenues and recognizes these amounts as revenues from provision of gaming related services.
In December 2015, certain of the Studio City International’s subsidiaries entered into a master services agreement and related work agreements (collectively, the “Management and Shared Services Arrangements”) with certain of Melco’s subsidiaries with respect to services provided to and from Studio City.
Under the Management and Shared Services Arrangements, certain of the corporate and administrative functions as well as operational activities of the Company are administered by staff employed by certain Melco subsidiaries, including senior management services, centralized corporate functions and operational and venue support services. Payment arrangements for the services are provided for in the individual work agreements and may vary depending on the services provided. Corporate services are charged at
pre-negotiated
rates, subject to a base fee and cap. Senior management service fees and staff costs on operational services are allocated to the Company based on percentages of efforts on the services provided to the Company. Other costs in relation to shared office equipment are allocated based on a percentage of usage.
 
- 11 -
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
 
  (a)
Basis of Presentation and Principles of Consolidation
- continued
 
The Company believes the costs incurred under the Services and Right to Use Arrangements and the allocation methods under the Management and Shared Services Arrangements are reasonable and the accompanying condensed consolidated financial statements reflect the Company’s cost of doing business. However, such allocations may not be indicative of the actual expenses the Company would have incurred had it operated as an independent company for the periods presented. Details of the services and related charges are disclosed in Note 14.
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting. The results of operations for the nine months ended September 30, 2021 and 2020 are not necessarily indicative of expected results for the full year. The financial information as of December 31, 2020 presented in these condensed consolidated financial statements is derived from the Company’s consolidated financial statements as of December 31, 2020.
The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2020. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial results of such periods.
The accompanying condensed consolidated financial statements include the accounts of Studio City International and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2020, except as otherwise disclosed in Note 2(g).
 
  (b)
Accounts Receivable and Credit Risk
Accounts receivable, including hotel and other receivables, are typically
non-interest
bearing and are recorded at amortized cost. Accounts are written off when management deems it is probable the receivables are uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for credit losses is maintained to reduce the Company’s receivables to their carrying amounts, which reflects the net amount the Company expects to collect. The allowance is estimated based on specific reviews of customer accounts with a balance over a specified dollar amount, the age of the balances owed, the customers’ financial condition, management’s experience with the collection trends of the customers and management’s expectations of the current and future economic conditions.
Management believes that as of September 30, 2021 and December 31, 2020, no significant concentrations of credit risk existed for which an allowance had not already been recorded.
 
- 12 -
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
 
  (c)
Impairment of Long-lived Assets
The Company evaluates the long-lived assets with finite lives to be held and used for impairment whenever indicators of impairment exist. The Company then compares the estimated future cash flows of the assets, on an undiscounted basis, to the carrying values of the assets. Estimating future cash flows of the assets involves significant assumptions, including future revenue growth rates and gross margin. If the undiscounted cash flows exceed the carrying values, no impairments are indicated. If the undiscounted cash flows do not exceed the carrying values, then an impairment charge is recorded based on the fair values of the assets, typically measured using a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs.
During the nine months ended September 30, 2021 and 2020, impairment losses of $203 and $3,769
 
were recognized, respectively, mainly due to reconfigurations and renovations at Studio City, and included in property charges and other in the accompanying condensed consolidated statements of operations. As a result of the
COVID-19
pandemic as disclosed in Note 1(b), the Company evaluated its long-lived assets for recoverability as of September 30, 2021 and concluded no impairment existed at that date as the estimated undiscounted future cash flows exceeded their carrying values.
 
  (d)
Revenue Recognition
Contract and Contract-Related Liabilities
In providing goods and services to its customers, there may be a timing difference between cash receipts from customers and recognition of revenues, resulting in a contract or contract-related liability. The Company’s primary types of liabilities related to contracts with customers are advance deposits on rooms and advance ticket sales which represent cash received in advance for goods or services yet to be provided. These amounts are included in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets and will be recognized as revenues when the goods or services are provided or the events are held. Decreases in this balance generally represent the recognition of revenues and increases in the balance represent additional deposits made by customers. The deposits are expected to primarily be recognized as
revenues within one year. Advance customer deposits and ticket sales of $2,440 as of September 30, 2021 increased by $37 from the balance of $2,403 as of December 31, 2020. Advance customer deposits and ticket sales of $3,400 as of September 30, 2020 decreased by $546 from the balance of $3,946 as of December 31, 2019.
 
  (e)
Comprehensive Loss and Accumulated Other Comprehensive (Loss) Income
Comprehensive loss includes net loss and foreign currency translation adjustments and is reported in the accompanying condensed consolidated statements of comprehensive loss.
As of September 30, 2021 and December 31, 2020, the Company’s accumulated other comprehensive (loss) income consisted solely of foreign currency translation adjustments, net of tax and participation interest.
 
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
 
  (f)
Net Loss Attributable to Studio City International Holdings Limited Per Class
 A Ordinary Share
Basic net loss attributable to Studio City International Holdings Limited per Class A ordinary share is calculated by dividing the net loss attributable to Studio City International Holdings Limited by the weighted average number of Class A ordinary shares outstanding during the period.
Diluted net loss attributable to Studio City International Holdings Limited per Class A ordinary share is calculated by dividing the net loss attributable to Studio City International Holdings Limited by the weighted average number of Class A ordinary shares outstanding during the period adjusted to include the number of additional Class A ordinary shares that would have been outstanding if potential dilutive securities had been issued and the
if-converted
method is applied for the potential dilutive effect of the exchange of Class B ordinary shares for the proportionate number of Class A ordinary shares.
Basic and diluted net loss attributable to Studio City International Holdings Limited per Class A ordinary share does not include Class B ordinary shares as such shares do not participate in the loss of Studio City International. As a result, Class B ordinary shares are not considered participating securities and are not included in the weighted average number of shares outstanding for purposes of computing net loss attributable to Studio City International Holdings Limited per share.
The weighted average number of Class A ordinary shares used in the calculation of basic and diluted net loss attributable to Studio City International Holdings Limited per Class A ordinary share consisted of the following:
 
     Nine Months Ended  
     September 30,  
     2021      2020  
Weighted average number of Class A ordinary shares outstanding used in the calculation of basic net loss attributable to Studio City International Holdings Limited per Class A ordinary share
      370,352,700        269,481,487  
Incremental weighted average number of Class A ordinary shares from assumed exchange of Class B ordinary shares to Class A ordinary shares under the
if-converted
method
      —          72,511,760  
    
 
 
     
 
 
  
Weighted average number of Class A ordinary shares outstanding used in the calculation of diluted net loss attributable to Studio City International Holdings Limited per Class A ordinary share
      370,352,700        341,993,247  
    
 
 
     
 
 
  
Anti-dilutive Class A ordinary shares under the
if-converted
method excluded from the calculation of diluted net loss attributable to Studio City International Holdings Limited per Class A ordinary share
      72,511,760        —    
    
 
 
     
 
 
  
 
- 14 -
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STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
 
 
(g)
Recent Changes in Accounting Standards
Newly Adopted Accounting Pronouncement:
In December 2019, the Financial Accounting Standards
 
Board issued an accounting standards update which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification 740,
Income Taxes
, in order to reduce cost and complexity of its application. The Company adopted this new guidance on January 1, 2021 and this adoption did not have a material impact on its condensed consolidated financial statements.
 
3.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated statements of cash flows consisted of the following:
 
     September 30,      December 31,  
     2021      2020  
Cash and cash equivalents
    $ 650,941      $ 575,215  
Current portion of restricted cash
      —          13  
Non-current
portion of restricted cash
      130        131  
    
 
 
     
 
 
  
Total cash, cash equivalents and restricted cash
    $ 651,071      $ 575,359  
    
 
 
     
 
 
  
 
4.
ACCOUNTS RECEIVABLE, NET
Components of accounts receivable, net are as follows:
 
     September 30,      December 31,  
     2021      2020  
Hotel
    $ 28      $ 106  
Other
      998        1,027  
    
 
 
     
 
 
  
Sub-total
      1,026        1,133  
Less: allowances for credit losses
      (972 )       (976 ) 
    
 
 
     
 
 
  
     $ 54      $ 157  
    
 
 
     
 
 
  
                   
The Company’s allowances for credit losses as of September 30, 2021 and December 31, 2020 were primarily related to receivables for entertainment business.
Movement in the allowances for credit losses are as follows:
 
     Nine Months Ended  
     September 30,  
     2021      2020  
Balance at beginning of year
    $  976      $ 965  
Provision for credit losses
      —          6  
Effect of exchange rate
      (4 )       5  
    
 
 
     
 
 
  
Balance at end of period
    $
         
 972      $
             
 976  
    
 
 
     
 
 
  
                   
- 15 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
5.
PROPERTY AND EQUIPMENT, NET
 
     September 30,      December 31,  
     2021      2020  
Cost
    $ 3,182,644      $ 2,910,638  
Less: accumulated depreciation and amortization
      (781,308 )       (729,741 ) 
    
 
 
     
 
 
  
Property and equipment, net
    $ 2,401,336      $ 2,180,897  
    
 
 
     
 
 
  
 
6.
LONG-TERM PREPAYMENTS, DEPOSITS AND OTHER ASSETS
Long-term prepayments, deposits and other assets consisted of the following:
 
     September 30,      December 31,  
     2021      2020  
Other long-term assets
    $ 109,627      $ 106,268  
Less: accumulated amortization
      (87,794 )       (80,170 ) 
    
 
 
     
 
 
  
Other long-term assets, net
      21,833        26,098  
Advance payments and deposits for acquisition of property and equipment
      33,275        30,928  
Long-term prepayments
      12,458        48,469  
Other deposits and other
      3,636        11,620  
Deferred financing costs, net
      403        440  
    
 
 
     
 
 
  
Long-term prepayments, deposits and other assets
    $ 71,605      $ 117,555  
    
 
 
     
 
 
  
During the nine months ended September 30, 2020, the Company had made additional provision for credit losses of
$903
, primarily related to other long-term receivables for mall operations, which was written off during the nine months ended September 30, 2020
. No provision for credit losses for other long-term receivables was made during the nine months ended September 30, 2021.
 
7.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
     September 30,      December 31,  
     2021      2020  
Property and equipment payables
    $ 89,769      $ 49,161  
Interest expenses payable
      24,807        45,737  
Operating expense and other accruals and liabilities
      13,922        20,650  
Advance customer deposits and ticket sales
      2,440        2,403  
Operating lease liabilities
      886        995  
    
 
 
     
 
 
  
     $ 131,824      $ 118,946  
    
 
 
     
 
 
  
 
- 16 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
8.
LONG-TERM DEBT, NET
Long-term debt, net consisted of the following:
 
     September 30,      December 31,  
     2021      2020  
Senior Notes
                  
2021 5.000% Studio City Notes, due 2029 (net of unamortized deferred financing costs and original issue premiums of $4,936)
    $ 1,095,064      $ —    
2020 6.000% SC Notes, due 2025 (net of unamortized deferred financing costs of $3,888 and $4,566, respectively)
      496,112        495,434  
2020 6.500% SC Notes, due 2028 (net of unamortized deferred financing costs of $4,326 and $4,738, respectively)
      495,674        495,262  
2019 7.250% Studio City Notes, due 2024 (net of unamortized deferred financing costs of $6,165)
      —          593,835  
Credit Facilities
                  
2016 Studio City Credit Facilities
(1)
     128        129  
    
 
 
     
 
 
  
     $ 2,086,978      $ 1,584,660  
    
 
 
     
 
 
  
Note
 
 
(1)
As of September 30, 2021 and December 31, 2020, the unamortized deferred financing costs related to the 2016 SC Revolving Credit Facility of
the 
2016 Studio City Credit Facilities of $403 and $440 are included in long-term prepayments, deposits and other assets in the accompanying condensed consolidated balance sheets, respectively.
Senior Notes
2021 5.000% Studio City Notes
On January 14, 2021, Studio City Finance issued $750,000 in aggregate principal amount of 5.000% senior notes due January 15, 2029 at an issue price of 100% of the principal amount (the “First 2021 5.000% Studio City Notes”); and on May 20, 2021, Studio City Finance further issued $350,000 in aggregate principal amount of 5.000% senior notes due January 15, 2029 at an issue price of 101.50% of the principal amount (the “Additional 2021 5.000% Studio City Notes”). The Additional 2021 5.000% Studio City Notes are consolidated and form a single series with the First 2021 5.000% Studio City Notes (the “2021 5.000% Studio City Notes”). The interest on the 2021 5.000% Studio City Notes is accrued at a rate of 5.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, and commenced on July 15, 2021. The 2021 5.000% Studio City Notes are general obligations of Studio City Finance, rank equally in right of payment to all existing and future senior indebtedness of Studio City Finance, rank senior in right of payment to any existing and future subordinated indebtedness of Studio City Finance and are effectively subordinated to all of Studio City Finance’s existing and future secured indebtedness to the extent of the value of the property and assets securing such indebtedness.
The net proceeds from the offering of the 2021 5.000% Studio City Notes were partially used to fund the Conditional Tender Offer and the Redemption (as described below) of the 2019 7.250% Studio City Notes; and with the remaining balance to partially fund the capital expenditures of the remaining development project at Studio City and for general corporate purposes.
 
- 17 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
8.
LONG-TERM DEBT, NET
- continued
 
 
Senior
Notes
- continued
 
2021 5.000% Studio City Notes
- continued
All of the existing subsidiaries of Studio City Finance and any other future restricted subsidiaries that provide guarantees of certain specified indebtedness (including the 2016 Studio City Credit Facilities) (the “2021 5.000% Studio City Notes Guarantors”) jointly, severally and unconditionally guarantee the 2021 5.000% Studio City Notes on a senior basis (the “2021 5.000% Studio City Notes Guarantees”). The 2021 5.000% Studio City Notes Guarantees are general obligations of the 2021 5.000% Studio City Notes Guarantors, rank equally in right of payment to all existing and future senior indebtedness of the 2021 5.000% Studio City Notes Guarantors and rank senior in right of payment to any existing and future subordinated indebtedness of the 2021 5.000% Studio City Notes Guarantors. The 2021 5.000% Studio City Notes Guarantees are effectively subordinated to the 2021 5.000% Studio City Notes Guarantors’ obligations under all existing and any future secured indebtedness to the extent of the value of such property and assets securing such indebtedness.
At any time prior to January 15, 2024, Studio City Finance has the options i) to redeem all or a portion of the 2021 5.000% Studio City Notes at a “make-whole” redemption price; and ii) to redeem up to 35% of the 2021 5.000% Studio City Notes with the net cash proceeds of certain equity offerings at a fixed redemption price. Thereafter, Studio City Finance has the option to redeem all or a portion of the 2021 5.000% Studio City Notes at any time at fixed redemption prices that decline ratably over time. Further, under certain circumstances and subject to certain exceptions as more fully described in the indenture governing the 2021 5.000% Studio City Notes, Studio City Finance also has the option to redeem in whole, but not in part the 2021 5.000% Studio City Notes at fixed redemption prices. In certain events that relate to the gaming subconcession of Melco Resorts Macau and subject to certain exceptions as more fully described in the indenture governing the 2021 5.000% Studio City Notes, each holder of the 2021 5.000% Studio City Notes will have the right to require Studio City Finance to repurchase all or any part of such holder’s 2021 5.000% Studio City Notes at a fixed redemption price.
The indenture governing the 2021 5.000% Studio City Notes contains certain covenants that, subject to certain exceptions and conditions, limit the ability of Studio City Finance and its restricted subsidiaries 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. The indenture governing the 2021 5.000% Studio City Notes also contains conditions and events of default customary for such financings.
There are provisions under the indenture governing the 2021 5.000% Studio City Notes that limit or prohibit certain payments of dividends and other distributions by Studio City Finance and its restricted subsidiaries to companies or persons who are not Studio City Finance or restricted subsidiaries of Studio City Finance, subject to certain exceptions and conditions. As of September 30, 2021, the net assets of Studio City Finance and its restricted subsidiaries of approximately $1,035,000 were restricted from being distributed under the terms of the 2021 5.000% Studio City Notes.
On July 26, 2021, the 2021 5.000% Studio City Notes which were originally listed on the Official List of the Singapore Exchange Securities Trading Limited, were also listed on the Chongwa (Macao) Financial Asset Exchange Co., Limited.
 
- 18 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
8.
LONG-TERM DEBT, NET
- continued
 
 
Senior
Notes
- continued
 
2019 7.250% Studio City Notes
On January 4, 2021, Studio City Finance initiated a
 
conditional tender offer (the “Conditional Tender Offer”) to purchase for cash any and all of the outstanding 2019 7.250% Studio City Notes with accrued interest. The Conditional Tender Offer was conditional upon, among other things, Studio City Finance raising sufficient funding from the completion of one or more financing transactions, together with cash on hand, to fund the purchase of validly tendered notes. The Conditional Tender Offer expired on January 11, 2021 with $347,056 aggregate principal amount of the 2019 7.250% Studio City Notes tendered.
On January 14, 2021, Studio City Finance issued $750,000 in aggregate principal amount of the First 2021 5.000% Studio City Notes. The net proceeds from the offering of the First 2021 5.000% Studio City Notes were used to fund the Conditional Tender Offer, and, on February 17, 2021, redeem the 2019 7.250% Studio City Notes in aggregate principal amount of $252,944 which remained outstanding following the completion of the Conditional Tender Offer, together with accrued interest (the “Redemption”).
In connection with the full redemption of the 2019 7.250% Studio City Notes, the Company recorded a loss on extinguishment of debt of $28,817 during the nine months ended September 30, 2021.
Credit Facilities
2016 Studio City Credit Facilities
On March 15, 2021, Studio City Company amended the terms of the 2016 Studio City Credit Facilities, including the extension of the maturity date for the 2016 SC Term Loan Facility and the 2016 SC Revolving Credit Facility from November 30, 2021 to January 15, 2028 (the “Extended Maturity Date”). The 2016 SC Term Loan Facility shall be repaid at the Extended Maturity Date with no interim amortization payments. The 2016 SC Revolving Credit Facility is available up to the date that is one month prior to the 2016 SC Revolving Credit Facility’s Extended Maturity Date. Changes have also been made to the covenants in order to align them with those of certain other financings at Studio City Finance, including amending the threshold sizes and measurement dates of the covenants.
During the nine months ended September 30, 2021, other than above, there was no significant change to the long-term debt as disclosed in the Company’s consolidated financial statements as of December 31, 2020.
 
9.
LEASES
Lessor Arrangements
During the nine months ended September 30, 2021, the Company earned minimum operating lease income of $5,558 and contingent operating lease income of $1,402. During the nine months ended September 30, 2020, the Company earned minimum operating lease income of $11,087 and contingent operating lease income of $(2,193)
. Total lease income for the nine months ended September 30, 2020 was reduced by
$3,943 as a result of the rent concessions and uncollectible lease income related to the effects of the
COVID-19
pandemic.
 
- 19 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
10.
FAIR VALUE MEASUREMENTS
The carrying values of cash and cash equivalents and restricted cash approximated fair value and were classified as level 1 in the fair value hierarchy. The carrying values of long-term deposits and other long-term liabilities approximated fair value and were classified as level 2 in the fair value hierarchy.
The estimated fair value of long-term debt as of September 30, 2021 and December 31, 2020 were approximately $2,012,444 and $1,693,260, respectively, as compared to its carrying value, excluding unamortized deferred financing costs and original issue premiums, of $2,100,128 and $1,600,129, respectively. Fair values were estimated using quoted market prices and were classified as level 1 in the fair value hierarchy for the 2021 5.000% Studio City Notes, the 2020 Studio City Notes and the 2019 7.250% Studio City Notes. Fair value for the 2016 Studio City Credit Facilities approximated the carrying value as the instrument carried variable interest rates that approximated the market rates and was classified as level 2 in the fair value hierarchy.
As of September 30, 2021 and December 31, 2020, the Company did not have any
non-financial
assets or liabilities that were recognized or disclosed at fair value in the accompanying condensed consolidated financial statements.
 
11.
CAPITAL STRUCTURE
During July and August 2020, Studio City International announced and completed a series of private offers (the “Private Placements”) of 72,185,488 Class A ordinary shares and 14,087,299 ADSs (representing 56,349,196 Class A ordinary shares) to certain existing shareholders and holders of its ADSs, including Melco, with gross proceeds amounting to $500,000 and offering expenses of $1,052. The Private Placements resulted in an adjustment to the carrying amount of the Participation Interest with a corresponding decrease in the Company’s additional
paid-in
capital.
As of September 30, 2021 and December 31, 2020, Studio City International’s authorized share capital was 1,927,488,240 Class A ordinary shares and 72,511,760 Class B ordinary shares of a par value of $0.0001
each; 
and 370,352,700 Class A ordinary shares and 72,511,760 Class B ordinary shares were issued and outstanding.
 
12.
INCOME TAXES
The income tax expense (credit) consisted of:
 
     Nine Months Ended  
     September 30,  
     2021      2020  
(Over) under provision of income taxes in prior years:
                  
Macau Complementary Tax
    $ (29 )     $
            
 —    
Hong Kong Profits Tax
      8        —    
    
 
 
     
 
 
  
Sub-total
      (21 )       —    
    
 
 
     
 
 
  
Income tax expense (credit) - deferred:
                  
Macau Complementary Tax
      50        (106 ) 
    
 
 
     
 
 
  
Total income tax expense (credit)
    $
            
 
 
 29      $ (106 ) 
    
 
 
     
 
 
  
 
- 20 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
12.
INCOME TAXES
- continued
 
The effective tax rates for the nine months ended September 30, 2021 and 2020 were (0.01)% and 0.03%, respectively. Such rates differ from the statutory Macau Complementary Tax rate of 12% primarily due to the effect of expenses for which no income tax benefit is receivable, the effect of changes in valuation allowances, the effect of different tax rates of subsidiaries operating in other jurisdictions and the effect of tax losses that cannot be carried forward for the nine months ended September 30, 2021 and 2020.
As of September 30, 2021 and December 31, 2020, valuation allowances of $87,560 and $75,867 were provided, respectively, as management believes it is more likely than not that these deferred tax assets will not be realized.
As of September 30, 2021, other than the above, there was no significant change to the
 
tax exposures as disclosed in the Company’s consolidated financial statements as of December 31, 2020.
 
13.
COMMITMENTS AND CONTINGENCIES
 
 
(a)
Capital and Other Commitments
As of September 30, 2021, the Company had capital commitments contracted for but not incurred for the construction and acquisition of property and equipment for Studio City totaling $434,808. In accordance with the Studio City land concession and the extension granted by the Macau government as announced by Studio City International in May 2021, the land on which Studio City is located must be fully developed by December 27, 2022.
 
 
(b)
Guarantee
As of September 30, 2021, except as disclosed in Note 8 and the maturity date of the Trade Credit Facility which was further extended from August 31, 2021 to August 31, 2023, there was no significant change to the guarantee as disclosed in the Company’s consolidated financial statements as of December 31, 2020.
 
 
(c)
Litigation
As of September 30, 2021, the Company was a party to certain legal proceedings which relate to matters arising out of the ordinary course of its business. Management believes that the outcomes of such proceedings have no material impacts on the Company’s condensed consolidated financial statements as a whole.
 
- 21 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
14.
RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2021 and 2020, the Company entered into the following significant related party transactions:
 
          Nine Months Ended  
          September 30,  
Related companies
   
Nature of transactions
    2021      2020  
Transactions with affiliated companies
                       
Melco and its subsidiaries
   
Revenues (services provided by the Company):
                  
     Provision of gaming related services    $ (5,522 )     $ (38,986 ) 
     Rooms and food and beverage
(1)
     37,941        18,959  
     Services fee
(2)
     19,493        19,706  
     Entertainment
(1)
     550        9  
    
Costs and expenses (services provided to the Company):
                  
     Staff costs recharges
(3)
     46,302        51,713  
     Corporate services
(4)
     24,315        24,472  
     Other services      13,355        11,029  
     Staff costs capitalized in construction in progress      7,354        7,287  
     Purchase of goods and services      92        133  
    
Sale and purchase of assets:
                  
     Sale of property and equipment and other long-term assets      1,728        2,687  
    
Transfer-in
of other long-term assets		      4,764        6,411  
     Purchases of intangible assets      192        —    
Notes
 
 (1)
These revenues primarily represented the standalone selling prices of the complimentary services (including rooms, food and beverage and entertainment services) provided to Studio City Casino’s gaming patrons and charged to Melco Resorts Macau. For the nine months ended September 30, 2021 and 2020, the related party rooms and food and beverage revenues and entertainment revenues aggregated to $38,491 and $18,968, respectively, of which $34,211 and $16,648 related to Studio City Casino’s gaming patrons and $4,280 and $2,320 related to
non-Studio
City Casino’s gaming patrons, respectively.
 
 (2)
Services provided by the Company to Melco and its subsidiaries mainly include, but are not limited to, certain shared administrative services and shuttle bus transportation services provided to Studio City Casino.
 
 (3)
Staff costs are recharged by Melco and its subsidiaries for staff who are solely dedicated to Studio City to carry out activities, including food and beverage management, retail management, hotel management, entertainment projects, mall development and sales and marketing activities and staff costs for certain shared administrative services.
 
 (4)
Corporate services are provided to the Company by Melco and its subsidiaries. These services include, but are not limited to, general corporate services and senior executive management services for operational purposes.
 
- 22 -
Table of Contents
STUDIO CITY INTERNATIONAL HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- continued
(In thousands of U.S. dollars, except share and per share data)
 
14.
RELATED PARTY TRANSACTIONS
- continued
 
Other Related Party Transaction
As of September 30, 2021, Mr. Lawrence Yau Lung Ho and his controlled entity held an aggregate principal amount of $30,000 of the 2020 6.000% SC Notes and an aggregate principal amount of $30,000 of the 2021 5.000% Studio City Notes of which the $30,000 of the 2021 5.000% Studio City Notes was purchased by Mr. Lawrence Yau Lung Ho’s controlled entity during the nine months ended September 30, 2021.
During the nine months ended September 30, 2021, total interest expenses of $3,669 in relation to the aforesaid senior notes were paid or payable to Mr. Lawrence Yau Lung Ho and his controlled entity.
 
 
(a)
Amounts Due from Affiliated Companies
The outstanding balances as of September 30, 2021 and December 31, 2020 are receivables from Melco’s subsidiaries mainly arising from operating income or prepayment of operating expenses, and are unsecured,
non-interest
bearing and repayable on demand.
 
 
(b)
Amounts Due to Affiliated Companies
The outstanding balances as of September 30, 2021 and December 31, 2020 are payables to Melco and its subsidiaries mainly arising from operating expenses, and are unsecured,
non-interest
bearing and repayable on demand.
 
15.
SEGMENT INFORMATION
The Company’s principal operating activities are engaged in the hospitality business and provision of gaming related services in Macau. The Company monitors its operations and evaluates its earnings by reviewing the assets and operations of Studio City as one operating segment. Accordingly, the Company does not present separate segment information. As of September 30, 2021 and December 31, 2020, the Company operated in one geographical area, Macau, where it derives its revenues and its long-lived assets are located.
 
- 23 -
Management's discussion and analysis and financial data for prior periods

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included as Exhibit 99.1 to this report on Form 6-K.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The following table sets forth a summary of our consolidated results of operations for the nine months ended September 30, 2021 and 2020. This information should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included as Exhibit 99.1 to this report on Form 6-K.

 

    

Nine Months Ended

September 30,

  
     2021      2020  
     (In thousands of US$)  

Total operating revenues

    $ 78,487      $ 25,503  

Total operating costs and expenses

    $ (225,087 )     $ (254,091 ) 

Operating loss

    $ (146,600 )     $ (228,588 ) 

Net loss attributable to Studio City International Holdings Limited

    $ (198,609 )     $ (260,135 ) 

Revenues

For the nine months ended September 30, 2021, our total operating revenues were US$78.5 million, an increase of US$53.0 million from US$25.5 million of total operating revenues for the nine months ended September 30, 2020. The increase in total operating revenues was primarily attributable to the higher revenues from the provision of gaming related services and non-gaming revenues as a result of a year-over-year increase in inbound tourism during the nine months of 2021.

 

  •  

Provision of gaming related services. Revenues from the provision of gaming related services are derived from the provision of facilities for the operations of Studio City Casino by the Gaming Operator and services related thereto pursuant to the Services and Right to Use Arrangements. Revenues from the provision of gaming related services were negative US$5.5 million for the nine months ended September 30, 2021, compared with revenues from provision of gaming related services of negative US$39.0 million for the nine months ended September 30, 2020. The increase was primarily attributable to improved performance in the gaming operations at Studio City Casino as a result of a year-over-year increase in inbound tourism during the nine months of 2021.

Studio City Casino generated gross gaming revenues of US$289.7 million and US$176.8 million for the nine months ended September 30, 2021 and 2020, respectively, before the deduction by the Gaming Operator of gaming taxes and the costs incurred in connection with its on-going operation of Studio City Casino pursuant to the Services and Right to Use Arrangements.

Mass market table games revenue increased to US$238.6 million for the nine months ended September 30, 2021 from US$111.3 million for the nine months ended September 30, 2020, primarily attributable to an increase in both mass market table games drop and mass market table games hold percentage. Mass market table games drop increased to US$879.5 million for the nine months ended September 30, 2021 from US$422.6 million for the nine months ended September 30, 2020. Mass market table games hold percentage also increased to 27.1% for the nine months ended September 30, 2021 from 26.3% for the nine months ended September 30, 2020.

Gaming machine revenue increased to US$23.0 million for the nine months ended September 30, 2021 from US$14.5 million for the nine months ended September 30, 2020. This increase is primarily attributable to an increase of gaming machine handle to US$849.2 million for the nine months ended September 30, 2021 from US$478.0 million for the nine months ended September 30, 2020, partially offset by a decrease in gaming machine win rate to 2.7% for the nine months ended September 30, 2021 from 3.0% for the nine months ended September 30, 2020. Average net win per gaming machine per day was US$135 and US$96 for the nine months ended September 30, 2021 and 2020, respectively.

 

1

VIP rolling chip revenue decreased to US$28.1 million for the nine months ended September 30, 2021 from US$51.0 million for the nine months ended September 30, 2020, primarily attributable to a decrease in VIP rolling chip volume and VIP rolling chip win rate. Studio City’s VIP rolling chip volume decreased to US$1.36 billion for the nine months ended September 30, 2021 from US$1.76 billion for the nine months ended September 30, 2020. VIP rolling chip win rate decreased to 2.06% for the nine months ended September 30, 2021 from 2.90% for the nine months ended September 30, 2020.

For the nine months ended September 30, 2021 and 2020, total gaming taxes and costs incurred in connection with the on-going operation of Studio City Casino deducted from gross gaming revenues were US$295.2 million and US$215.8 million, respectively, which included (i) gaming taxes imposed on the gross gaming revenue of US$113.0 million and US$68.9 million, respectively; (ii) the complimentary services provided by us to Studio City Casino’s gaming patrons of US$34.2 million and US$16.6 million, respectively; (iii) shared administrative services and shuttle bus transportation services provided by us to Studio City Casino of US$16.6 million and US$17.0 million, respectively and (iv) remaining costs of US$131.4 million and US$113.3 million, respectively, primarily representing gaming-related staff costs and other gaming-related costs, including costs related to table games operations at Studio City Casino.

Revenues from the provision of gaming related services were negative US$5.5 million and negative US$39.0 million for the nine months ended September 30, 2021 and 2020, respectively. Revenues from the provision of gaming related services are net of gaming taxes and the costs incurred in connection with the on-going operation of Studio City Casino deducted by the Gaming Operator pursuant to the Services and Right to Use Arrangements.

 

  •  

Rooms. We generate room revenues from Studio City hotel consisting of Celebrity Tower and all-suite Star Tower. Our room revenues increased by US$18.4 million, or 149.6%, to US$30.8 million for the nine months ended September 30, 2021 from US$12.3 million for the nine months ended September 30, 2020. The increase was primarily attributable to an increased occupancy rate as a result of a year-over-year increase in inbound tourism during the nine months of 2021. Studio City’s average daily rate, occupancy rate and REVPAR were US$122, 54% and US$66, respectively, for the nine months ended September 30, 2021, as compared to US$134, 20% and US$27, respectively, for the nine months ended September 30, 2020.

 

  •  

Food and beverage, entertainment, mall and retail and other. Our revenues generated from food and beverage, entertainment, mall and retail and other increased by US$1.3 million, or 4.0%, to US$33.7 million for the nine months ended September 30, 2021 from US$32.5 million for the nine months ended September 30, 2020, primarily attributable to an increase in business activities as a result of a year-over-year increase in inbound tourism during the nine months of 2021.

 

  •  

Services fee. Our services fee revenues, which primarily consist of certain shared administrative services and shuttle bus transportation services to Studio City Casino were US$19.5 million and US$19.7 million for the nine months ended September 30, 2021 and 2020, respectively.

Operating Costs and Expenses

Our total operating costs and expenses decreased by US$29.0 million, or 11.4%, to US$225.1 million for the nine months ended September 30, 2021 from US$254.1 million for the nine months ended September 30, 2020.

 

  •  

Provision of gaming related services. Provision of gaming related services expenses, which mainly represent (1) services fees for shared corporate services provided by the Master Service Providers pursuant to the Management and Shared Services Arrangements and (2) management payroll expenses, are relatively fixed in nature and amounted to US$18.9 million for both the nine months ended September 30, 2021 and 2020.

 

  •  

Rooms. Room expenses, which represent the costs of operating the hotel facilities and respective payroll expenses, increased by US$0.9 million, or 10.1%, to US$9.3 million for the nine months ended September 30, 2021 from US$8.5 million for the nine months ended September 30, 2020, which was in-line with the increase in revenues, partially offset by lower operating costs, as a result of our cost containment efforts.

 

  •  

Food and beverage, entertainment, mall and retail and other. Expenses related to food and beverage, entertainment, mall and retail and other, which primarily represent the costs of operating the respective non-gaming services at Studio City and respective payroll expenses, were US$27.2 million and US$27.8 million for the nine months ended September 30, 2021 and 2020, respectively.

 

  •  

General and administrative. General and administrative expenses were US$68.9 million and US$69.8 million for the nine months ended September 30, 2021 and 2020, respectively. Such expenses primarily consist of payroll expenses, utilities, marketing and advertising costs, repairs and maintenance, legal and professional fees, and fees paid to the Master Service Providers for shared corporate services provided to non-gaming departments. Expenses relating to services fee revenues are also included in the general and administrative expenses.

 

2

  •  

Pre-opening costs. Pre-opening costs were US$0.7 million for the nine months ended September 30, 2021 as compared to US$0.1 million for the nine months ended September 30, 2020. Such costs primarily represent personnel, marketing and other costs incurred prior to the opening of new or start-up operations. The higher pre-opening costs for the nine months ended September 30, 2021 were mainly related to the marketing of the Water Park, which officially opened in May 2021.

 

  •  

Amortization of land use right. Amortization expenses for the land use right continued to be recognized on a straight-line basis at an annual rate of US$2.5 million for both the nine months ended September 30, 2021 and 2020.

 

  •  

Depreciation and amortization. Depreciation and amortization expenses decreased by US$29.1 million, or 23.8%, to US$93.3 million for the nine months ended September 30, 2021 from US$122.4 million for the nine months ended September 30, 2020.

 

  •  

Property charges and other. Property charges and other expenses of US$4.1 million for the nine months ended September 30, 2021 were primarily included termination costs as a result of departmental restructuring. Property charges and other expenses of US$4.1 million for the nine months ended September 30, 2020 were primarily attributable to impairment of assets as a result of the remodeling of a non-gaming attraction.

Operating Loss

As a result of the foregoing, we had an operating loss of US$146.6 million for the nine months ended September 30, 2021, compared to an operating loss of US$228.6 million for the nine months ended September 30, 2020.

Non-operating Expenses, Net

Net non-operating expenses consisted of interest income, interest expenses, net of amounts capitalized, other financing costs, net foreign exchange gains (losses), loss on extinguishment of debt and other non-operating expenses, net. We incurred total net non-operating expenses of US$90.9 million for the nine months ended September 30, 2021, compared to US$103.1 million for the nine months ended September 30, 2020.

 

  •  

Interest expenses. Interest expenses were US$69.1 million (net of amounts capitalized of US$15.2 million) for the nine months ended September 30, 2021, compared to US$81.1 million (net of amounts capitalized of US$6.8 million) for the nine months ended September 30, 2020. The decrease was primarily attributable to lower interest expenses as a result of refinancing the 2024 Notes with the issuance of US$1.1 billion aggregate principal amount of 5.00% senior notes due 2029, of which US$750.0 million in aggregate principal amount was issued on January 14, 2021 (the “First 2029 Notes”) and US$350 million in aggregate principal amount was issued on May 11, 2021 (the “Additional 2029 Notes” and, together with the First 2029 Notes, the “2029 Notes”), as well as higher amounts capitalized for the remaining project for Studio City for the nine months ended September 30, 2021.

 

  •  

Other financing costs. Other financing costs, which were associated with the 2021/2028 Studio City Senior Secured Credit Facility, were US$0.3 million for both the nine months ended September 30, 2021 and 2020.

 

  •  

Loss on extinguishment of debt. Loss on extinguishment of debt was US$28.8 million for the nine months ended September 30, 2021 and was associated with the early redemption of the remaining outstanding 2024 Notes which were refinanced by the issuance of the First 2029 Notes. Loss on extinguishment of debt was US$18.5 million for the nine months ended September 30, 2020 and was associated with the early redemption of all outstanding 2021 Studio City Company Notes which was refinanced by the issuance of the 2025 Notes and 2028 Notes.

Loss before Income Tax

As a result of the foregoing, we had a loss before income tax of US$237.5 million for the nine months ended September 30, 2021, compared to a loss before income tax of US$331.7 million for the nine months ended September 30, 2020.

Income Tax (Expense) Credit

Income tax expenses were US$0.03 million for the nine months ended September 30, 2021, compared to our income tax credits of US$0.1 million for the nine months ended September 30, 2020, and were primarily attributable to deferred income tax expenses/credit. The effective tax rates for the nine months ended September 30, 2021 and 2020 were (0.01)% and 0.03%, respectively. Our effective tax rates for the nine months ended September 30, 2021 and 2020 differed from the statutory Macau complementary tax rate of 12% primarily attributable to the effect of expenses for which no income tax benefit is receivable, the effect of changes in valuation allowances, the effect of different tax rates of subsidiaries operating in other jurisdictions and the effect of tax losses that cannot be carried forward for the nine months ended September 30, 2021 and 2020. Our management currently does not expect to realize significant income tax benefits associated with net operating loss carry-forwards and other 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 reduce the valuation allowance related to the net operating losses and other deferred tax assets.

 

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Net Loss Attributable to Participation Interest

Our net loss attributable to participation interest was US$38.9 million for the nine months ended September 30, 2021, compared to a net loss attributable to participation interest of US$71.4 million for the nine months ended September 30, 2020.

Net Loss Attributable to Studio City International Holdings Limited

As a result of the foregoing, we had a net loss attributable to Studio City International Holdings Limited of US$198.6 million for the nine months ended September 30, 2021, compared to a net loss attributable to Studio City International Holdings Limited of US$260.1 million for the nine months ended September 30, 2020.

Adjusted EBITDA

Our net income/loss before interest, taxes, depreciation, amortization, pre-opening costs, property charges and other, other non-operating income and expenses, or Adjusted EBITDA, were negative US$45.9 million and negative US$99.4 million for the nine months ended September 30, 2021 and 2020, respectively.

We believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results. This non-GAAP financial measure eliminates the impact of items that we do not consider indicative of the performance of our business. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with U.S. GAAP. It should not be considered in isolation or construed as an alternative to net income/loss, cash flow or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. This non-GAAP financial measure, which may differ from similarly titled measures used by other companies should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

The use of Adjusted EBITDA has material limitations as an analytical tool, as Adjusted EBITDA does not include all items that impact our net income/loss. Investors are encouraged to review the reconciliation of the historical non-GAAP financial measure to its most directly comparable GAAP financial measure.

 

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Reconciliation of Net Loss Attributable to Studio City International Holdings Limited to Adjusted EBITDA

 

     Nine Months Ended
September 30,		  
     2021      2020 (2)  
     (In thousands of US$)  

Net loss attributable to Studio City International Holdings Limited

    $ (198,609 )    $ (260,135 ) 

Net loss attributable to participation interest

      (38,885 )      (71,427 ) 
  

 

 

    

 

 

  

Net loss

      (237,494 )      (331,562 ) 

Income tax expense (credit)

      29       (106 ) 

Interest and other non-operating expenses, net

      90,865       103,080  

Property charges and other

      4,129       4,101  

Depreciation and amortization

      95,795       124,905  

Pre-opening costs

      739       133  
  

 

 

    

 

 

  

Adjusted EBITDA

    $ (45,937 )    $ (99,449 ) 
  

 

 

    

 

 

  

Adjusted EBITDA margin (1)

      (58.5 )%      (390.0 )% 

 

(1)

Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by total operating revenues.

(2)

We adopted ASU 2016-13 on January 1, 2020 under the modified retrospective method. There was no material impact on our results of operations and Adjusted EBITDA in 2020 as a result of the adoption of ASU 2016-13.

Adjusted EBITDA for Studio City for the nine months ended September 30, 2021 and 2020 referred to in Melco’s earnings release dated November 9, 2021 (“Melco’s earnings release”) were US$25.6 million and US$26.0 million more, respectively, than the Adjusted EBITDA of Studio City contained in this report. The Adjusted EBITDA of Studio City contained in this report includes certain intercompany charges that are not included in the Adjusted EBITDA for Studio City contained in Melco’s earnings release. Such intercompany charges include, among other items, fees and shared service charges billed between the Company and its subsidiaries and certain subsidiaries of Melco Resorts. Additionally, Adjusted EBITDA of Studio City included in Melco’s earnings release does not reflect certain intercompany costs related to the table games operations at Studio City Casino.

LIQUIDITY AND CAPITAL RESOURCES

We have relied on, and intend to continue to rely on, our cash generated from our operations and our debt and equity financings to meet our financing or refinancing needs.

As of September 30, 2021, we recorded US$650.9 million in cash and cash equivalents. Further, the HK$233.0 million (equivalent to approximately US$29.9 million) revolving credit facility under the 2028 Studio City Senior Secured Credit Facility is available for future drawdown as of September 30, 2021, subject to certain conditions precedent.

As of September 30, 2021, restricted cash of US$0.1 million primarily represented the cash collateral in relation to the 2028 Studio City Senior Secured Credit Facility.

We have been able to meet our working capital needs, and we believe that our current available cash and cash equivalents, bank deposits, funds available for drawdown under the 2028 Studio City Senior Secured Credit Facility and any additional equity or debt financings will be adequate to satisfy our current and anticipated operating, debt and capital commitments, including our development project plans, as described in “— Other Financing and Liquidity Matters” below. For any additional financing requirements, we cannot provide assurance that future borrowings will be available.

We have significant indebtedness and will continue to evaluate our capital structure and opportunities to enhance it in the normal course of our activities.

 

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Cash Flows

The following table sets forth a summary of our cash flows for the periods presented.

 

     Nine Months Ended
September 30,		  
     2021      2020  
     (In thousands of US$)  

Net cash used in operating activities

    $ (120,862 )     $ (148,825 ) 

Net cash used in investing activities

      (272,516 )       (147,685 ) 

Net cash provided by financing activities

      471,508        625,240  

Effect of exchange rate on cash, cash equivalents and restricted cash

      (2,418 )       1,647  
  

 

 

     

 

 

  

Increase in cash, cash equivalents and restricted cash

      75,712        330,377  

Cash, cash equivalents and restricted cash at beginning of period

      575,359        327,232  
  

 

 

     

 

 

  

Cash, cash equivalents and restricted cash at end of period

    $ 651,071      $ 657,609  
  

 

 

     

 

 

  

Operating Activities

Operating cash flows are generally affected by changes in operating income and certain operating assets and liabilities, including the receivables related to the provision of gaming related services and hotel operations, as well as the non-gaming business, including food and beverage, entertainment, mall, retail and other, which are conducted primarily on a cash basis.

We recorded net cash used in operating activities of US$120.9 million for the nine months ended September 30, 2021, as compared to net cash used in operating activities of US$148.8 million for the nine months ended September 30, 2020. The change was primarily attributable to the improved performance of Studio City’s operations as described in “—Results of Operations” above, partially offset by the increased working capital needed for operations.

Investing Activities

Net cash used in investing activities was US$272.5 million for the nine months ended September 30, 2021, as compared to US$147.7 million for the nine months ended September 30, 2020.

Net cash used in investing activities amounted to US$272.5 million for the nine months ended September 30, 2021, primarily attributable to payments for acquisition of property and equipment of US$266.7 million, acquisition of intangible assets of US$3.9 million and funds to an affiliated company of US$3.7 million, partially offset by proceeds from the sale of property and equipment and other long-term assets of US$1.7 million.

Net cash used in investing activities amounted to US$147.7 million for the nine months ended September 30, 2020, primarily attributable to payments for acquisition of property and equipment of US$140.9 million and funds to an affiliated company of US$9.4 million, partially offset by proceeds from the sale of property and equipment and other long-term assets of US$2.6 million.

Our capital expenditures on an accrual basis amounted to US$315.6 million for the nine months ended September 30, 2021, primarily for the construction, development and enhancement of Studio City. We will continue to make capital expenditures to meet the expected growth of our business and expect that cash generated from our operating and financing activities will meet our capital expenditure needs in the foreseeable future. We expect to incur significant capital expenditures for the development of the remaining land of Studio City. See “— Other Financing and Liquidity Matters” below for more information.

Financing Activities

Net cash provided by financing activities was US$471.5 million for the nine months ended September 30, 2021, as compared to net cash provided by financing activities of US$625.2 million for the nine months ended September 30, 2020.

Net cash provided by financing activities was US$471.5 million for the nine months ended September 30, 2021, attributable to the proceeds from the issuance of the First 2029 Notes in aggregate principal amount of US$750.0 million and the issuance of the Additional 2029 Notes of US$355.3 million, partially offset by the payment of the 2024 Notes Tender Offer of US$347.1 million in aggregate principal amount and the redemption of the remaining 2024 Notes of US$252.9 million in aggregate principal amount outstanding, as well as payments of deferred financing costs of US$33.3 million and net payments for issuance of shares of US$0.4 million.

 

6

Net cash provided by financing activities was US$625.2 million for the nine months ended September 30, 2020, attributable to net proceeds from issuance of shares of US$499.3 million, proceeds from the issuance of the 2025 Notes in aggregate principal amount of US$500.0 million and the 2028 Notes in aggregate principal amount of US$500.0 million, partially offset by the full redemption of the 2021 Studio City Company Notes in aggregate principal amount of US$850.0 million and the payment of deferred financing costs of US$ 24.1 million arisen from the refinancing of the 2021 Studio City Company Notes with the 2025 Notes and 2028 Notes.

 

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Indebtedness

We enter into loan facilities and issue notes through our subsidiaries. The following table sets forth our gross indebtedness, before the reduction of debt issuance costs, as of September 30, 2021:

 

     Issuer      As of September 30,
2021		  
            (in thousands of US$)  

2028 Studio City Senior Secured Credit Facility

      Studio City Company      $ 128  

2025 Notes

      Studio City Finance        500,000  

2028 Notes

      Studio City Finance        500,000  

2029 Notes

      Studio City Finance        1,100,000  
     

 

 

  

Total

       $ 2,100,128  
     

 

 

  

Significant changes in our indebtedness during the period ended and subsequent to September 30, 2021 are summarized below.

On January 4, 2021, Studio City Finance commenced the 2024 Notes Tender Offer. The 2024 Notes Tender Offer expired on January 11, 2021. The aggregate principal amount of valid tenders received and not validly withdrawn under the 2024 Notes Tender Offer amounted to US$347.1 million. On January 14, 2021, Studio City Finance issued US$750.0 million in aggregate principal amount of the First 2029 Notes, the net proceeds of which were used to pay the tendering noteholders from the 2024 Notes Tender Offer and, on February 17, 2021, to redeem, together with accrued interest, all remaining outstanding amounts of the 2024 Notes, which amounted to US$252.9 million in aggregate principal amount.

On March 15, 2021, Studio City Company amended the terms of the 2021 Studio City Senior Secured Credit Facility, including the extension of maturity date for each of the HK$233.0 million (approximately US$29.9 million) revolving credit facility and the HK$1.0 million (approximately US$128,000) term loan facility from November 30, 2021 to January 15, 2028 (“2028 Studio City Senior Secured Credit Facility”). The revolving credit facility is available up to the date that is one month prior to the new extended maturity date. The amendments also included certain covenants in order to align them with certain financings by Studio City Finance Limited.

On May 20, 2021, Studio City Finance issued US$350.0 million in aggregate principal amount of the Additional 2029 Notes.

On July 26, 2021, the 2029 Notes were listed on the Chongwa (Macao) Financial Asset Exchange Co., Limited.

For further details of the above indebtedness, see note 8 to the condensed consolidated financial statements included elsewhere in this report, which includes information regarding the type of debt facilities used, the maturity profile of debt, the currency and interest rate structure, the charge on our assets and the nature and extent of any restrictions on our ability, and the ability of our subsidiaries, to transfer funds as cash dividends, loans or advances.

Other Financing and Liquidity Matters

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. We are a growing company with significant financial needs. We expect to have significant capital expenditures in the future as we continue to develop the remaining land of Studio City.

We have relied, and intend in the future to rely, on our operating cash flow and different forms of financing to meet our funding needs and repay our indebtedness, as the case may be.

The timing of any future debt and equity financing activities will be dependent on our funding needs, our development and construction schedule, the availability of funds on terms acceptable to us and prevailing market conditions. We may carry out activities from time to time to strengthen our financial position and ability to better fund our business expansion plans. Such activities may include refinancing existing debt, monetizing assets, sale-and-leaseback transactions or other similar activities.

Any other future developments may be subject to further financing and a number of other factors, many of which are beyond our control.

 

8

As of September 30, 2021, we had capital commitments contracted for but not incurred for the construction and acquisition of property and equipment mainly for the development of remaining land at Studio City totaling US$434.8 million. In addition, we have contingent liabilities arising in the ordinary course of business. For further details for our commitments and contingencies, see note 13 to the condensed consolidated financial statements included elsewhere in this annual report.

Each of Studio City Company and Studio City Finance has a corporate rating of “B+” by Standard & Poor’s, and Studio City Finance has a corporate rating of “B1” by Moody’s Investors Service. For future borrowings, any decrease in our corporate rating could result in an increase in borrowing costs.

Recent Developments

COVID-19 outbreaks continue to have a material effect on our operations, financial position, and future prospects in the fourth quarter of 2021.

Our operations have been impacted by on-and-off travel restrictions and quarantine requirements as imposed by the governments of Macau, Hong Kong, and China in response to isolated cases. The appearance of COVID-19 cases in early August 2021 led to city-wide mandatory testing, mandatory closure of most entertainment and leisure venues (casinos and gaming areas excluded), and strict travel restrictions and requirements being implemented to enter and exit Macau. Similarly in late September 2021, the identification of additional COVID-19 cases again led to a repeat of testing, closure, and travel restrictions, which led to reduced turnout for October Golden Week holiday. Since October 19, 2021, authorities have eased pandemic prevention measures such that travelers no longer require a 14-day quarantine on arrival in Zhuhai, and the validity of negative nucleic acid tests were extended from 24 hours to 48 hours or seven days. As a result, our visitation has been gradually recovering.

The construction of Studio Phase 2 is progressing on track for completion before December 27, 2022. This expansion will offer approximately 900 additional luxury hotel rooms and suites, an additional indoor/outdoor water park which is expected to be one of the largest in the world, a Cineplex, multiple fine-dining restaurants, and state-of-the-art MICE space.

The pace of recovery from COVID-19 will depend on future events, including duration of travel and visa restrictions, the pace of vaccination progress, development of new medicine for COVID-19, the impact of potentially higher unemployment rates, declines in income levels, and loss of personal wealth resulting from the COVID-19 outbreak affecting discretionary spending and travel, all of which remain highly uncertain.

Gaming is a highly regulated industry in Macau and the operation of the Studio City Casino is subject to various laws and regulations. These laws and regulations are complex and there are limited precedents on the interpretation and enforcement of these laws and regulations. Changes in laws and regulations, and the interpretation and enforcement of such laws and regulations, may result in increased risks for the operations of the Studio City Casino. For example, in November 2021, the Court of Final Appeal in Macau issued a final unappealable decision that a gaming operator is jointly liable with a gaming promoter for the refund of funds deposited with such gaming promoter at a casino and the Macau authorities arrested executives from a gaming promoter for alleged illegal overseas gaming related activities.

 

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