Studio City International : Finance Limited’s Quarterly Report for the Three and Nine Months Ended September 30, 2023 – Form 6-K -November 29, 2023 at 07:49 am EST

INTRODUCTION

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

GLOSSARY

EXCHANGE RATE INFORMATION

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

•

“2021 Studio City Senior Secured Credit Facility” refers to the facility agreement dated November 23, 2016 with, among others, Bank of China Limited, Macau Branch, to amend, restate and extend the Studio City Project Facility to provide for senior secured credit facilities in an aggregate amount of HK$234.0 million, which consist of a HK$233.0 million (equivalent to US$29.9 million) revolving credit facility and a HK$1.0 million (equivalent to US$0.1 million) term loan facility, and which has been amended, restated and extended by the 2028 Studio City Senior Secured Credit Facility;

“2025 Studio City Finance Notes” refers to the 6.00% senior notes due 2025 in an aggregate principal amount of US$500,000,000 issued by Studio City Finance on July 15, 2020, of which US$397,000,000 in aggregate principal amount remains outstanding as of November 29, 2023;

“2027 Studio City Company Notes” refers to the 7.00% senior secured notes due 2027 in an aggregate principal amount of US$350,000,000 issued by Studio City Company on February 16, 2022;

“2028 Studio City Finance Notes” refers to the 6.50% senior notes due 2028 in an aggregate principal amount of US$500,000,000 issued by Studio City Finance on July 15, 2020;

“2028 Studio City Senior Secured Credit Facility” refers to the facility agreement dated March 15, 2021 with, among others, Bank of China Limited, Macau Branch, to amend, restate and extend the 2021 Studio City Senior Secured Credit Facility to provide for senior secured credit facilities in an aggregate amount of HK$234.0 million, which consist of a HK$233.0 million (equivalent to US$29.9 million) revolving credit facility and a HK$1.0 million (equivalent to US$0.1 million) term loan facility;

“2029 Studio City Finance Notes” refers to the US$1.10 billion aggregate principal amount of 5.00% senior notes due 2029 issued by Studio City Finance, of which US$750.0 million in aggregate principal amount was issued on January 14, 2021 and US$350.0 million in aggregate principal amount was issued on May 20, 2021;

“Altira Macau” refers to an integrated resort located in Taipa, Macau;

“China” and “PRC” refer to the People’s Republic of China, excluding the Hong Kong Special Administrative Region of the PRC (“Hong Kong”), the Macau Special Administrative Region of the PRC (“Macau”) and Taiwan from a geographical point of view;

“City of Dreams” refers to an integrated resort located in Cotai, Macau, which currently features casino areas and four luxury hotels, including a collection of retail brands, a wet stage performance theater (temporarily closed since June 2020) and other entertainment venues;

“Concession Contract” refers to the concession contract executed between the Macau Special Administrative Region and the Gaming Operator on December 16, 2022, which provides for the terms and conditions of the concession granted to the Gaming Operator;

“Concessionaire(s)” refers to the holder(s) of a concession for the operation of casino games in Macau;

“DICJ” refers to the Direcção de Inspecção e Coordenação de Jogos (the Gaming Inspection and Coordination Bureau), a department of the Public Administration of Macau;

“Gaming Operator” or “Melco Resorts Macau” refers to Melco Resorts (Macau) Limited, a company incorporated under the laws of Macau that is a subsidiary of Melco, the holder of a concession under the Concession Contract and the operator of Studio City Casino. The equity interest of the Gaming Operator is 85% owned by Melco and 15% owned by Mr. Lawrence Ho, the managing director of the Gaming Operator;

“HK$” and “H.K. dollar(s)” refer to the legal currency of Hong Kong;

“Master Services Agreements” refers to a master services agreement entered into between SCI and certain of its subsidiaries and related arrangements for work agreements entered into between certain subsidiaries of SCI on December 21, 2015 for non-gaming services on the one hand, and certain Melco Affiliates, on the other hand, under which certain SCI’s subsidiaries and Melco Affiliates share and mutually provide certain non-gaming services at Studio City, City of Dreams and Altira Macau. The Master Services Agreements and other arrangements for non-gaming services at the properties in Macau, are collectively referred to as “Management and Shared Services Arrangements”;

•

“MCO Cotai” refers to MCO Cotai Investments Limited (formerly known as MCE Cotai Investments Limited), a subsidiary of Melco and a shareholder of SCI;

“Melco” refers to Melco Resorts & Entertainment Limited, a company incorporated in the Cayman Islands with its American depositary shares listed on the Nasdaq Global Select Market, and which, through its subsidiary MCO Cotai, is a principal shareholder of SCI;

“Melco Affiliates” refers to the subsidiaries of Melco other than SCI and its subsidiaries;

“Pataca(s)” or “MOP” refer to the legal currency of Macau;

“SCI” refers to an indirect parent of our company, Studio City International Holdings Limited, an exempted company registered by way of continuation in the Cayman Islands, the American depositary receipts of which are listed on the New York Stock Exchange;

“Studio City” refers to a cinematically-themed integrated resort in Cotai, an area of reclaimed land located between the islands of Taipa and Coloane in Macau;

“Studio City Casino” refers to the gaming areas being operated within Studio City;

“Studio City Casino Agreement” (previously referred to as the Services and Right to Use Arrangements) refers to the agreement entered into among, inter alia, Melco Resorts Macau and Studio City Entertainment, dated May 11, 2007 and amended on June 15, 2012 and June 23, 2022, and any other agreements or arrangements entered into from time to time, which may amend, supplement or relate to the aforementioned agreements or arrangements;

“Studio City Company” refers to our subsidiary, Studio City Company Limited, a British Virgin Islands company;

“Studio City Entertainment” refers to our subsidiary, Studio City Entertainment Limited, a Macau company;

“Studio City Investments” refers to our subsidiary, Studio City Investments Limited, a company incorporated in the British Virgin Islands and the parent guarantor of the 2027 Studio City Company Notes;

“Studio City Project Facility” refers to the senior secured project facility, dated January 28, 2013 and as amended from time to time, entered into between, among others, Studio City Company, as borrower, and certain subsidiaries as guarantors, comprising a term loan facility of HK$10,080,460,000 (equivalent to US$1.30 billion) and a revolving credit facility of HK$775,420,000 (equivalent to US$99.7 million), and which has been amended, restated and extended by the 2021 Studio City Senior Secured Credit Facility;

“US$” and “U.S. dollar(s)” refer to the legal currency of the United States;

“U.S. GAAP” refers to the U.S. generally accepted accounting principles; and

“we,” “us,” “our,” “our company” and “the Company” refer to Studio City Finance Limited and, as the context requires, its predecessor entities and its consolidated subsidiaries.

a secure room within a casino with a facility that allows patrons to carry out transactions required to participate in gaming activities, such as exchange of cash for chips and exchange of chips for cash or other chips

“chip”

round token that is used on casino gaming tables in lieu of cash

“concession”

a government grant for the operation of games of fortune and chance in casinos in Macau under an administrative contract pursuant to which a concessionaire, or the entity holding the concession, is authorized to operate games of fortune and chance in casinos in Macau

“drop”

the amount of cash to purchase gaming chips and promotional vouchers that is deposited in a gaming table’s drop box, plus gaming chips purchased at the casino cage

“drop box”

a box or container that serves as a repository for cash, chip purchase vouchers, credit markers and forms used to record movements in the chip inventory on each table game

“electronic gaming table”

table with an electronic or computerized wagering and payment system that allow players to place bets from multiple-player gaming seats

“gaming machine”

slot machine and/or electronic gaming table

“gaming machine handle”

the total amount wagered in gaming machines

“gaming machine win rate”

gaming machine win (calculated before non-discretionary incentives (including the point-loyalty programs) as administered by the Gaming Operator and allocating casino revenues related to goods and services provided to gaming patrons on a complimentary basis) expressed as a percentage of gaming machine handle

“gaming promoter”

an individual or corporate entity who, for the purpose of promoting rolling chip and other gaming activities, arranges customer transportation and accommodation, provides credit in its sole discretion if authorized by a gaming operator and arranges food and beverage services and entertainment in exchange for commissions or other compensation from a gaming concessionaire

“integrated resort”

a resort which provides customers with a combination of hotel accommodations, casinos or gaming areas, retail and dining facilities, MICE space, entertainment venues and spas

“junket player”

a player sourced by gaming promoters to play in the VIP gaming rooms or areas

“marker”

evidence of indebtedness by a player to the casino or gaming operator

“mass market player”

a customer who plays in the mass market segment

“mass market segment”

consists of both table games and gaming machines played by mass market players primarily for cash stakes

“mass market table games drop”

the amount of table games drop in the mass market table games segment

“mass market table games hold percentage”

mass market table games win (calculated before discounts, commissions, non-discretionary incentives (including the point-loyalty programs) as administered by the Gaming Operator and allocating casino revenues related to goods and services provided to gaming patrons on a complimentary basis) as a percentage of mass market table games drop

“mass market table games segment”

the mass market segment consisting of mass market players who play table games

“MICE”

Meetings, Incentives, Conventions and Exhibitions, an acronym commonly used to refer to tourism involving large groups brought together for an event or specific purpose

“non-negotiable chip”

promotional casino chip that is not to be exchanged for cash

“premium direct player”

a rolling chip player who is a direct customer of the concessionaires and is attracted to the casino through marketing efforts of the gaming operator

“rolling chip” or “VIP rolling chip”

non-negotiable chip primarily used by rolling chip players to make wagers

“rolling chip player”

a player who primarily plays on rolling chip or VIP rolling chip tables and typically plays for higher stakes than mass market gaming players

“rolling chip segment”

consists of table games played in private VIP gaming rooms or areas by rolling chip players who are either premium direct players or junket players

“rolling chip volume”

the amount of non-negotiable chips wagered and lost by the rolling chip market segment

“rolling chip win rate”

rolling chip table games win (calculated before discounts, commissions, non-discretionary incentives (including the point-loyalty programs) as administered by the Gaming Operator and allocating casino revenues related to goods and services provided to gaming patrons on a complimentary basis) as a percentage of rolling chip volume

“slot machine”

traditional slot or electronic gaming machine operated by a single player

“table games win”

the amount of wagers won net of wagers lost on gaming tables that is retained and recorded as casino revenues. Table games win is calculated before discounts, commissions, non-discretionary incentives (including the point-loyalty programs) as administered by the Gaming Operator and allocating casino revenues related to goods and services provided to gaming patrons on a complimentary basis

“VIP gaming room”

gaming rooms or areas that have restricted access to rolling chip players and typically offer more personalized service than the general mass market gaming areas

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net cash used in operating activities

(58,990

)

$

(79,246

)

$

(90,559

)

$

(159,545

)

Net cash used in investing activities

(48,078

)

$

(112,117

)

$

(122,973

)

$

(359,975

)

Net cash (used in) provided by financing activities

(1,912

)

$

(624

)

$

(1,912

)

$

633,950

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

510

$

(156

)

$

(1,353

)

$

(3,274

)

(Decrease) increase in cash, cash equivalents and restricted cash

(108,470

)

$

(192,143

)

$

(216,797

)

$

111,156

Cash, cash equivalents and restricted cash at beginning of period

390,967

$

802,464

$

499,294

$

499,165

Cash, cash equivalents and restricted cash at end of period

282,497

$

610,321

$

282,497

$

610,321

2025 Studio City Finance Notes

498,000

2028 Studio City Finance Notes

500,000

2029 Studio City Finance Notes

1,100,000

2027 Studio City Company Notes

350,000

2028 Studio City Senior Secured Credit Facility

128

Condensed Consolidated Balance Sheets (Unaudited)

Condensed Consolidated Statements of Operations (Unaudited)

Condensed Consolidated Statements of Cash Flows (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

282,368

$

499,164

Accounts receivable, net

263

Receivables from affiliated companies

26,320

Inventories

5,121

Prepaid expenses and other current assets

37,721

Total current assets

568,589

Property and equipment, net

2,869,645

Intangible assets, net

1,373

Long-term prepayments, deposits and other assets

48,325

Restricted cash

130

Operating lease right-of-use assets

13,136

Land use right, net

108,645

Total assets

3,340,036

$

3,609,843

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

1,992

$

501

Accrued expenses and other current liabilities

164,945

Income tax payable

22

Payables to affiliated companies

87,498

Total current liabilities

252,966

Long-term debt, net

2,434,476

Other long-term liabilities

21,631

Deferred tax liabilities, net

382

Operating lease liabilities, non-current

13,499

Total liabilities

2,722,954

Equity:

Ordinary shares, par value $1; 50,000 shares authorized; 3 shares issued and outstanding

–

Additional paid-in capital

2,672,064

Accumulated other comprehensive losses

)

(10,640

)

Accumulated losses

)

(1,756,505

)

Total Studio City Finance Limited shareholder’s equity

904,919

Noncontrolling interests

)

(18,030

)

Total equity

886,889

Total liabilities and equity

3,340,036

$

3,609,843

Operating revenues:

Revenue from casino contract

48,614

$

(18,166

)

$

98,546

$

(44,171

)

Rooms

3,527

72,091

13,566

Food and beverage

3,509

42,611

12,855

Entertainment

871

58,785

1,175

Services fee

5,033

22,569

16,215

Mall

1,246

7,583

5,800

Retail and other

1,125

2,102

1,809

Total operating revenues

(2,855

)

304,287

7,249

Operating costs and expenses:

Costs related to casino contract

)

(9,622

)

(21,265

)

(21,864

)

Rooms

)

(2,884

)

(17,920

)

(8,476

)

Food and beverage

)

(5,162

)

(37,089

)

(18,241

)

Entertainment

)

(536

)

(49,352

)

(1,704

)

Mall

)

(979

)

(2,770

)

(3,041

)

Retail and other

)

(273

)

(1,543

)

(904

)

General and administrative

)

(17,227

)

(79,628

)

(59,236

)

Pre-opening costs

)

(785

)

(17,620

)

(1,731

)

Amortization of land use right

)

(823

)

(2,474

)

(2,474

)

Depreciation and amortization

)

(31,085

)

(116,357

)

(93,022

)

Property charges and other

)

(369

)

(540

)

(3,790

)

Total operating costs and expenses

)

(69,745

)

(346,558

)

(214,483

)

Operating income (loss)

(72,600

)

(42,271

)

(207,234

)

Non-operating income (expenses):

Interest income

2,418

7,918

3,986

Interest expenses, net of amounts capitalized

)

(23,181

)

(93,806

)

(70,430

)

Other financing costs

)

(104

)

(311

)

(311

)

Foreign exchange (losses) gains, net

)

156

2,508

5,102

Other expenses, net

–

(61

)

–

Gain on extinguishment of debt

–

80

–

Total non-operating expenses, net

)

(20,711

)

(83,672

)

(61,653

)

Loss before income tax

)

(93,311

)

(125,943

)

(268,887

)

Income tax benefit (expense)

9

77

(485

)

Net loss

)

(93,302

)

(125,866

)

(269,372

)

Net (income) loss attributable to noncontrolling interests

)

324

(692

)

849

Net loss attributable to Studio City Finance Limited

(31,454

)

$

(92,978

)

$

(126,558

)

$

(268,523

)

Cash flows from operating activities:

Net cash used in operating activities

(58,990

)

$

(79,246

)

$

(90,559

)

$

(159,545

)

Cash flows from investing activities:

Acquisition of property and equipment

)

(111,893

)

(121,828

)

(359,036

)

Funds to an affiliated company

)

(226

)

(1,838

)

(948

)

Proceeds from sale of property and equipment

2

693

9

Net cash used in investing activities

)

(112,117

)

(122,973

)

(359,975

)

Cash flows from financing activities:

Repayments of long-term debt

)

–

(1,912

)

–

Payments of deferred financing costs

(624

)

–

(6,050

)

Capital contribution from shareholder

–

–

290,000

Proceeds from long-term debt

–

–

350,000

Net cash (used in) provided by financing activities

)

(624

)

(1,912

)

633,950

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

(156

)

(1,353

)

(3,274

)

(Decrease) increase in cash, cash equivalents and restricted cash

)

(192,143

)

(216,797

)

111,156

Cash, cash equivalents and restricted cash at beginning of period

802,464

499,294

499,165

Cash, cash equivalents and restricted cash at end of period

282,497

$

610,321

$

282,497

$

610,321

Supplemental cash flow disclosures:

Cash paid for interest, net of amounts capitalized

(62,290

)

$

(40,787

)

$

(113,416

)

$

(87,890

)

Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases

–

$

–

$

(673

)

$

(726

)

Change in operating lease right-of-use assets and lease liabilities arising from lease modification

–

$

–

$

(1,456

)

$

(1,343

)

Change in accrued expenses and other current liabilities and other long-term liabilities related to acquisition of property and equipment

(10,822

)

$

15,061

$

9,504

$

125,378

Change in receivables from/payables to affiliated companies related to acquisition of property and equipment and other long-term assets

1,044

$

(237

)

$

1,990

$

1,602

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:

Cash and cash equivalents

282,368

$

499,164

Non-current portion of restricted cash

130

Total cash, cash equivalents and restricted cash

282,497

$

499,294