Melco Resorts & Entertainment(MLCO) - 2022 Q4 - Annual Report

Capital Expenditures and Development Projects - Total capital expenditures for 2022, 2021, and 2020 were $598.4 million, $782.2 million, and $464.3 million, respectively, with $488.3 million, $653.8 million, and $249.2 million allocated to development and construction projects[647] - The company's total capital expenditures for 2022, 2021, and 2020 were $598.4 million, $782.2 million, and $464.3 million, respectively, with significant portions allocated to development and construction projects[647] Impairment Losses - Impairment losses recognized in 2022 included $3.6 million for a decrease in the market value of an aircraft and $6.8 million for a piece of freehold land[649][652] - An impairment loss of $13.9 million was recognized against the goodwill of the Japan Ski Resort for the year ended December 31, 2020[659] - An impairment loss of $3.6 million was recognized in 2022 for a significant decrease in the market value of an aircraft, and $1.1 million in 2021 for a piece of freehold land[649][650] - The company recognized no impairment losses on goodwill and trademarks for the years ended December 31, 2022 and 2021, but a $13.9 million impairment loss was recognized for the Japan Ski Resort in 2020[659] Casino Revenues and Gaming Promoters - Casino revenues derived from rolling chip gaming promoters accounted for 0.3%, 11.9%, and 15.6% of total casino revenues in 2022, 2021, and 2020, respectively[667] - Casino revenues are measured by the net difference between gaming wins and losses, with commissions and incentives recorded as reductions of casino revenues[661] - Casino revenues derived from rolling chip gaming promoters accounted for 0.3%, 11.9%, and 15.6% of total casino revenues in 2022, 2021, and 2020, respectively[667] - The company ceased all gaming promoter arrangements in Macau in December 2021 but may engage gaming promoters in the future[638] Goodwill and Intangible Assets - Goodwill and purchased intangible assets with indefinite useful lives as of December 31, 2022, were associated with Mocha Clubs, a reporting unit[653] - The fair value of reporting units is determined using discounted cash flow methods, with cash flow projections based on historical experience and future growth assumptions[655] Property and Equipment - The estimated useful lives of property and equipment are periodically reviewed based on factors such as operating plans and economic conditions[644] - Costs of repairs and maintenance are expensed when incurred, while costs of property and equipment retired or disposed of are eliminated from accounts[645] - Software development costs for internal use are capitalized and amortized over the estimated useful life, with periodic reviews of remaining useful lives[646] COVID-19 Impact - The disruptions caused by COVID-19 outbreaks had adverse effects on the financial condition and operations of Mocha Clubs and the Japan Ski Resort[659] - COVID-19 disruptions have adversely affected the company's operations, with recovery remaining highly uncertain due to potential re-imposition of travel restrictions, vaccine efficacy, and economic impacts such as higher unemployment and reduced discretionary spending[636] Credit Loss Allowances and Deferred Tax Assets - Casino credit loss allowances were 80.0% of gross casino accounts receivables as of December 31, 2022, compared to 83.4% in 2021[671] - A 100 basis-point change in the estimated allowance for credit losses would impact the allowance by approximately $2.7 million[671] - Valuation allowances for deferred tax assets were $299.6 million as of December 31, 2022, up from $267.3 million in 2021[672] - As of December 31, 2022, the company's allowance for casino credit losses was 80.0% of gross casino accounts receivable, with a 100 basis-point change impacting the allowance by approximately $2.7 million[671] - Deferred tax assets were reduced by valuation allowances of $299.6 million and $267.3 million as of December 31, 2022, and 2021, respectively, due to management's belief that these assets may not be realized[672] Financing and Investments - The company completed private placements of $500 million in August 2020 and $300 million in March 2022, with net proceeds of $499.2 million and $299.2 million, respectively[622] - The company is required to invest MOP11,823,700,000 (approximately $1.5 billion) in Macau, including MOP10,008,000,000 (approximately $1.2 billion) in non-gaming projects[623] - Total long-term indebtedness and contractual obligations as of December 31, 2022, amounted to $11,786.1 million[626] - Fixed interest payments for 2022 totaled $1,731.9 million, while variable interest payments were $248.8 million[626] - The company committed to an additional non-gaming investment of MOP2,003,000,000 (approximately $249.0 million) if Macau's annual gross gaming revenue reaches MOP180,000,000,000 (approximately $22.4 billion)[629] Licensing Agreements and Corporate Ratings - The company holds licensing agreements with Hyatt, Nobu Hospitality, DreamWorks Animation, and Marriott International for branding and intellectual property rights[633][635] - The company's corporate ratings are "BB-" and "B+" by Standard & Poor's, and "Ba3" and "B1" by Moody's for its subsidiaries[631] Regulatory and Competitive Environment - The amended Macau Gaming Operations Law and other Macau government policies, including travel and visa restrictions, may impact the company's operations and financial conditions[636] - Chinese government policies, including anti-corruption campaigns and restrictions on cross-border currency movements, may limit the recovery and growth of patrons visiting the company's properties[636] - Increased competition in Macau and the Philippines due to new gaming and non-gaming facilities, with the company's Cyprus market expected to be volatile as the City of Dreams Mediterranean project is still under development[636] - The company's compliance costs may increase due to greater regulatory scrutiny on anti-money laundering, anti-bribery, and corruption laws globally[636] Cybersecurity and Operational Risks - Cybersecurity and ransomware attacks have increased globally, necessitating continuous evaluation and enhancement of the company's internal processes and technology infrastructure[638] Revenue Recognition and Loyalty Programs - Complimentary goods or services provided to incentivize future gaming are allocated based on standalone selling prices and recorded as operating expenses if supplied by third parties[662] - Loyalty program points are deferred as a liability, with revenue recognized upon redemption of points for goods or services[664] - The company recognizes revenue on a gross basis for its hotel and Grand Dragon Casino operations, acting as the principal in these arrangements[665]