NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization
Wynn Resorts, Limited, a Nevada corporation (together with its subsidiaries, "Wynn Resorts" or the "Company") is a developer, owner and operator of destination casino resorts (integrated resorts). In the Macau Special Administrative Region of the People's Republic of China ("Macau"), the Company owns approximately
72%
of Wynn Macau, Limited ("WML"), which includes the operations of the Wynn Palace and Wynn Macau resorts (collectively, the "Macau Operations"). In Las Vegas, Nevada, the Company operates and, with the exception of the retail space described below, owns
100%
of Wynn Las Vegas, which it also refers to as its Las Vegas Operations.
Macau Operations
Wynn Palace, which opened on August 22, 2016, features a luxury hotel tower with
1,706
guest rooms, suites and villas, approximately
424,000
square feet of casino space,
13
food and beverage outlets, approximately
37,000
square feet of meeting and convention space, approximately
106,000
square feet of retail space, public attractions, including a performance lake and floral art displays and recreation and leisure facilities.
Wynn Macau features
two
luxury hotel towers with a total of
1,008
guest rooms and suites, approximately
273,000
square feet of casino space,
11
food and beverage outlets, approximately
31,000
square feet of meeting and convention space, approximately
59,000
square feet of retail space, a rotunda show and recreation and leisure facilities.
Las Vegas Operations
Wynn Las Vegas features
two
luxury hotel towers with a total of
4,748
guest rooms, suites and villas, approximately
192,000
square feet of casino space,
33
food and beverage outlets, approximately
290,000
square feet of meeting and convention space, approximately
160,000
square feet of retail space (the majority of which is owned and operated under a joint venture of which the Company owns
50.1%
), as well as
two
theaters,
three
nightclubs and a beach club and recreation and leisure facilities.
In December 2016, the Company entered into a joint venture arrangement (the "Retail Joint Venture") with Crown Acquisitions Inc. ("Crown") to own and operate approximately
88,000
square feet of existing retail space. In November 2017, the Company contributed approximately
74,000
square feet of additional retail space to the Retail Joint Venture. The Company opened the additional retail space during the fourth quarter of 2018. For more information on the Retail Joint Venture, see
Note 14
, "Retail Joint Venture."
Development Projects
The Company is currently constructing Encore Boston Harbor, an integrated resort in Everett, Massachusetts, adjacent to Boston along the Mystic River. The resort will contain a hotel, a waterfront boardwalk, meeting and convention space, casino space, a spa, retail offerings and food and beverage outlets. The Company expects to open Encore Boston Harbor in mid-2019.
The Company is currently constructing approximately
430,000
square feet of additional meeting and convention space at Wynn Las Vegas and has begun design and site preparation for the reconfiguration of the Wynn Las Vegas golf course, which the Company closed in the fourth quarter of 2017. The Company expects to reopen the golf course in the fourth quarter of 2019 and open the additional meeting and convention space in the first quarter of 2020.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The accompanying consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and entities the Company identifies as a variable interest entity ("VIE") and of which the Company is determined to be the primary beneficiary. For information on the Company's VIEs, see
Note 14
, "
Retail Joint Venture
." All significant intercompany accounts and transactions have been eliminated. Certain amounts in the consolidated financial statements for the previous years have been reclassified to be consistent with current year presentation, including reclassifications related to the adoption of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
and ASU No. 2016-18,
Statement of Cash
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Flows - Restricted Cash (Topic 230)
, as further discussed in
Recently Adopted Accounting Standards
. These reclassifications had no effect on previously reported net income.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less and include both U.S. dollar-denominated and foreign currency-denominated securities. Cash equivalents are carried at cost, which approximates fair value.
Cash, cash equivalents and restricted cash consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Cash and cash equivalents:
|
|
|
|
Cash
(1)
|
$
|
1,455,744
|
|
|
$
|
2,354,244
|
|
Cash equivalents
(2)
|
759,257
|
|
|
450,230
|
|
Total cash and cash equivalents
|
2,215,001
|
|
|
2,804,474
|
|
Restricted cash
(3)
|
4,322
|
|
|
2,160
|
|
Total cash, cash equivalents and restricted cash
|
$
|
2,219,323
|
|
|
$
|
2,806,634
|
|
(1) Cash consists of cash on hand and bank deposits.
(2) Cash equivalents consist of bank time deposits and money market funds.
(3) Restricted cash consists of cash collateral associated with an obligation and cash held in a trust in accordance with WML's share award plan.
Investment Securities
Investment securities consist of domestic and foreign short-term and long-term investments in corporate bonds, commercial paper and U.S. government agency bonds reported at fair value, with unrealized gains and losses, net of tax, reported in other comprehensive income (loss). Short-term investments have a maturity date of less than one year and long-term investments are those with a maturity date greater than one year. The Company limits the amount of exposure to any one issuer with the objective of minimizing the potential risk of principal loss. Management determines the appropriate classification of its securities at the time of purchase and reevaluates such designation as of each balance sheet date. Adjustments are made for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization is included in interest income together with realized gains and losses and the stated interest on such securities.
The Company obtains pricing information in determining the fair value of its available-for-sale securities from independent pricing vendors. Based on management's inquiries, the pricing vendors use various pricing models consistent with what other market participants would use. The assumptions and inputs used by the pricing vendors are derived from market observable sources including: reported trades, broker/dealer quotes, issuer spreads, benchmark curves, bids, offers and other market-related data. The Company has not made adjustments to such prices. Each quarter, the Company validates the fair value pricing methodology to determine if the fair value is consistent with applicable accounting guidance and to confirm that the securities are classified properly in the fair value hierarchy. The Company compares the pricing received from its vendors to independent sources for the same or similar securities.
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues credit in the form of "markers" to approved casino customers following investigations of creditworthiness. As of
December 31, 2018
and
2017
, approximately
85.0%
and
81.7%
, respectively, of the Company's markers
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
were due from customers residing outside the United States, primarily in Asia. Business or economic conditions or other significant events in these countries could affect the collectability of such receivables.
Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. An estimated allowance for doubtful accounts is maintained to reduce the Company's receivables to their carrying amount, which approximates fair value. The allowance estimate reflects specific review of customer accounts and outstanding gaming promoter accounts as well as management's experience with historical and current collection trends and current economic and business conditions. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received.
Receivables, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Casino
|
$
|
229,594
|
|
|
$
|
173,664
|
|
Hotel
|
22,086
|
|
|
22,487
|
|
Other
|
57,658
|
|
|
58,577
|
|
|
309,338
|
|
|
254,728
|
|
Less: allowance for doubtful accounts
|
(32,694
|
)
|
|
(30,600
|
)
|
|
$
|
276,644
|
|
|
$
|
224,128
|
|
Inventories
Inventories consist of retail merchandise and food and beverage items, which are stated at the lower of cost or market value and certain operating supplies. Cost is determined by the first-in, first-out, weighted average and specific identification methods.
Property and Equipment
Purchases of property and equipment are stated at cost, and when placed into service, are depreciated over the estimated useful lives of the assets using the straight-line method as follows:
|
|
|
|
Estimated Useful Life in Years
|
Buildings and improvements
|
10 - 45
|
Land improvements
|
10 - 45
|
Furniture, fixtures and equipment
|
3 - 20
|
Leasehold interest in land
|
25
|
Airplanes
|
20
|
Costs related to improvements are capitalized, while costs of repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are eliminated from the respective accounts and any resulting gain or loss is included in property charges and other.
Capitalized Interest
The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. Interest capitalization ceases once a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project using the weighted average cost of the Company's outstanding borrowings. Interest of
$57.3 million
,
$18.4 million
and
$94.1 million
was capitalized for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Intangible Assets
The Company's indefinite-lived intangible assets consist primarily of water rights acquired as part of the original purchase price of the property on which Wynn Las Vegas is located, and trademarks. Indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually. The Company's finite-lived intangible assets consist primarily of its Macau gaming concession, Massachusetts gaming license and an intangible asset associated with its undeveloped land in Las Vegas. Finite-lived intangible assets are amortized over the shorter of their contractual terms or estimated useful lives.
Long-Lived Assets
Long-lived assets, which are to be held and used, including intangible assets and property and equipment, are periodically reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs.
Debt Issuance Costs
Direct and incremental costs and original issue discounts and premiums incurred in connection with the issuance of long-term debt are deferred and amortized to interest expense using the effective interest method or, if the amounts approximate the effective interest method, on a straight-line basis. Debt issuance costs incurred in connection with the issuance of the Company's revolving credit facilities are presented in noncurrent assets on the Consolidated Balance Sheets. All other debt issuance costs are presented as a direct reduction of long-term debt on the Consolidated Balance Sheets. Approximately
$36.9 million
,
$25.0 million
, and
$24.3 million
was amortized to interest expense during the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Redemption Price Promissory Note
On February 18, 2012, pursuant to its articles of incorporation, the Company redeemed and canceled all Aruze USA, Inc.’s ("Aruze")
24,549,222
shares of Wynn Resorts’ common stock. In connection with the redemption of the shares, the Company issued a promissory note (the "Redemption Note") with a principal amount of
$1.94 billion
, a maturity date of February 18, 2022 and an interest rate of
2%
per annum, payable annually in arrears on each anniversary of the date of the Redemption Note. The Redemption Note was recorded at fair value in accordance with applicable accounting guidance. The Company repaid the principal amount in full on March 30, 2018. As of December 31, 2017, the fair value of the Redemption Note was
$1.88 billion
.
In determining this fair value, the Company estimated the Redemption Note's present value using discounted cash flows with a probability weighted expected return for redemption assumptions and a discount rate, which included time value and non-performance risk adjustments commensurate with the risk of the Redemption Note.
In determining the appropriate discount rate to be used to calculate the estimated present value, the Company considered the Redemption Note's subordinated position and credit risk relative to all other debt in the Company's capital structure and credit ratings associated with the Company's traded debt. Observable inputs for the risk free rate were based on Federal Reserve rates for U.S. Treasury securities and the credit risk spread was based on a yield curve index of similarly rated debt.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage interest rate exposure. The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value recorded in earnings as the Company's derivative financial instruments do not qualify for hedge accounting. The fair value approximates the amount the Company would pay if these contracts were settled at the respective valuation dates.
In accordance with the terms of the Retail Term Loan Agreement (as defined in
Note 6
, "
Long-Term Debt
"), the Retail Borrowers (as defined in
Note 6
, "Long-Term Debt") entered into a
five
-year interest rate collar with a notional value of
$615 million
for a cash payment of
$3.9 million
in July 2018. The interest rate collar establishes a range whereby the Retail Borrowers will pay the counterparty if one-month LIBOR falls below the established floor rate of
1.00%
, and the counterparty will pay the Retail Borrowers if one-month LIBOR exceeds the ceiling rate of
3.75%
. The interest rate collar settles monthly commencing in
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
August 2019 through the termination date in August 2024. No payments or receipts are exchanged on interest rate collar contracts unless interest rates rise above or fall below the pre-determined ceiling or floor rate, respectively. The Company measures the fair value of the interest rate collar at each balance sheet date based on a Black-Scholes option pricing model, which incorporates observable market inputs such as market volatility and interest rates, with changes in fair value recorded in earnings. As of
December 31, 2018
, the fair value of the interest rate collar was a liability of
$0.6 million
and was recorded in other long-term liabilities in the accompanying Consolidated Balance Sheet.
Gaming Taxes
The Company is subject to taxes based on gross gaming revenues in the jurisdictions in which it operates, subject to applicable jurisdictional adjustments. These gaming taxes are recorded as casino expenses in the accompanying Consolidated Statements of Income. These taxes totaled
$2.44 billion
,
$2.17 billion
and
$1.32 billion
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Advertising Costs
The cost of advertising is expensed as incurred, and totaled
$40.6 million
,
$37.8 million
and
$37.0 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Pre-Opening Expenses
Pre-opening expenses represent personnel, advertising, and other costs incurred prior to the opening of new ventures and are expensed as incurred. During the years ended
December 31, 2018
and
2017
, the Company incurred pre-opening expenses primarily in connection with the development of Encore Boston Harbor. During the year ended December 31,
2016
the Company incurred pre-opening expenses primarily in connection with the development of Wynn Palace.
Income Taxes
The Company is subject to income taxes in the U.S. and foreign jurisdictions where it operates. Accounting standards require the recognition of deferred tax assets, net of applicable reserves, and liabilities for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the income tax provision and deferred tax assets and liabilities generally is recognized in the results of operations in the period that includes the enactment date. Accounting standards also require recognition of a future tax benefit to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied.
The Company's income tax returns are subject to examination by the Internal Revenue Service ("IRS") and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes. The accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. If a tax position, based on its technical merits, is deemed more likely than not to be sustained, then the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.
As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes.
Foreign Currency
Gains or losses from foreign currency remeasurements are included in other income (expense) in the accompanying Consolidated Statements of Income. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date and income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to other comprehensive income (loss).
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
Comprehensive income includes net income and all other non-stockholder changes in equity or other comprehensive income (loss). Components of the Company's comprehensive income are reported in the accompanying Consolidated Statements of Stockholders' Equity and Consolidated Statements of Comprehensive Income.
The following table presents the changes by component, net of tax and noncontrolling interests, in accumulated other comprehensive loss of the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
translation
|
|
Unrealized
loss on investment
securities
|
|
Redemption Note
|
|
Accumulated
other
comprehensive
loss
|
January 1, 2018
|
$
|
(553
|
)
|
|
$
|
(1,292
|
)
|
|
$
|
—
|
|
|
$
|
(1,845
|
)
|
Cumulative credit risk adjustment
(1)
|
—
|
|
|
—
|
|
|
(9,211
|
)
|
|
(9,211
|
)
|
Change in net unrealized gain (loss)
|
(1,397
|
)
|
|
(1,510
|
)
|
|
7,690
|
|
|
4,783
|
|
Amounts reclassified to net income
(2)
|
—
|
|
|
2,802
|
|
|
1,521
|
|
|
4,323
|
|
Other comprehensive income (loss)
|
(1,397
|
)
|
|
1,292
|
|
|
9,211
|
|
|
9,106
|
|
December 31, 2018
|
$
|
(1,950
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,950
|
)
|
(1) On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2016-01,
Financial Instruments
. The adjustment to the beginning balance represents the cumulative effect of the change in instrument-specific credit risk on the Redemption Note. See "Recently Adopted Accounting Standards—Financial Instruments" below for additional information.
(2) The amounts reclassified to net income include
$1.8 million
for other-than-temporary impairment losses and
$1.0 million
in realized losses, both related to investment securities, and a
$1.5 million
realized gain related to the repayment of the Redemption Note.
Fair Value Measurements
The Company measures certain of its financial assets and liabilities, at fair value on a recurring basis pursuant to accounting standards for fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These accounting standards establish a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:
|
|
•
|
Level 1
- Observable inputs such as quoted prices in active markets.
|
|
|
•
|
Level 2
- Inputs other than quoted prices in active markets that are either directly or indirectly observable.
|
|
|
•
|
Level 3
- Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents assets and liabilities carried at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
December 31, 2018
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
759,257
|
|
|
$
|
—
|
|
|
$
|
759,257
|
|
|
$
|
—
|
|
Restricted cash
|
$
|
4,322
|
|
|
$
|
2,015
|
|
|
$
|
2,307
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate collar
|
$
|
619
|
|
|
$
|
—
|
|
|
$
|
619
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
December 31, 2017
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
450,230
|
|
|
$
|
11,200
|
|
|
$
|
439,030
|
|
|
$
|
—
|
|
Available-for-sale securities
|
$
|
327,455
|
|
|
$
|
—
|
|
|
$
|
327,455
|
|
|
$
|
—
|
|
Restricted cash
|
$
|
2,160
|
|
|
$
|
—
|
|
|
$
|
2,160
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Redemption Note
|
$
|
1,879,058
|
|
|
$
|
—
|
|
|
$
|
1,879,058
|
|
|
$
|
—
|
|
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income attributable to Wynn Resorts by the weighted average number of shares outstanding during the year. Diluted EPS is computed by dividing net income attributable to Wynn Resorts by the weighted average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potential dilutive securities had been issued. Potentially dilutive securities include outstanding stock options and unvested restricted stock.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted average number of common and common equivalent shares used in the calculation of basic and diluted EPS consisted of the following (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
Net income attributable to Wynn Resorts, Limited
|
$
|
572,430
|
|
|
$
|
747,181
|
|
|
$
|
241,975
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares outstanding
|
106,529
|
|
|
102,071
|
|
|
101,445
|
|
Potential dilutive effect of stock options and restricted stock
|
503
|
|
|
527
|
|
|
410
|
|
Weighted average common and common equivalent shares outstanding
|
107,032
|
|
|
102,598
|
|
|
101,855
|
|
|
|
|
|
|
|
Net income attributable to Wynn Resorts, Limited per common share, basic
|
$
|
5.37
|
|
|
$
|
7.32
|
|
|
$
|
2.39
|
|
Net income attributable to Wynn Resorts, Limited per common share, diluted
|
$
|
5.35
|
|
|
$
|
7.28
|
|
|
$
|
2.38
|
|
|
|
|
|
|
|
Anti-dilutive stock options and restricted stock excluded from the calculation of diluted earnings per share
|
102
|
|
|
106
|
|
|
758
|
|
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with accounting standards, which require the compensation cost relating to share-based payment transactions be recognized in the Company's Consolidated Statements of Income. The cost is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing model for stock options, and based on the closing share price of the Company's stock on the grant date for nonvested share awards. The cost is recognized as an expense on a straight-line basis over the employee's requisite service period (the vesting period of the award), and forfeitures are recognized as they occur. The Company's stock-based employee compensation arrangements are more fully discussed in
Note 11
, "
Stock-Based Compensation
."
Recently Adopted Accounting Standards
Revenue Recognition Standard
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which amends the existing revenue recognition guidance and creates a new topic for Revenue from Contracts with Customers. The guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance also substantially revises required interim and annual disclosures. The Company adopted the guidance on January 1, 2018, which resulted in the following significant impacts on its Consolidated Financial Statements:
|
|
•
|
The promotional allowances line item was eliminated from the Consolidated Statements of Income with the majority of the amount being netted against casino revenues.
|
|
|
•
|
The estimated cost of providing complimentary goods or services will no longer be allocated primarily to casino expenses from other operating departments as the new guidance requires revenues and expenses associated with providing complimentary goods or services to be classified based on the goods or services provided.
|
|
|
•
|
The portion of junket commissions previously recorded as a casino expense is now recorded as a reduction of casino revenue.
|
|
|
•
|
Mandatory service charges on food and beverage are now recorded on a gross basis with the amount received from the customer recorded as food and beverage revenue and the corresponding amount paid to employees recorded as food and beverage expense.
|
Certain prior period amounts have been adjusted to reflect the full retrospective adoption of the guidance. There was no impact on the Company’s financial condition, operating income or net income.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tables below provides a reconciliation of amounts previously reported and the resulting impacts from the adoption of the new revenue recognition guidance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
As Previously Reported
|
|
Adoption of ASC 606
|
|
As Adjusted
|
Gross revenues
|
$
|
6,768,246
|
|
|
$
|
(698,086
|
)
|
|
$
|
6,070,160
|
|
Promotional allowances
|
(461,878
|
)
|
|
461,878
|
|
|
—
|
|
Operating revenues
|
6,306,368
|
|
|
(236,208
|
)
|
|
6,070,160
|
|
Operating expenses
|
5,250,803
|
|
|
(236,208
|
)
|
|
5,014,595
|
|
Operating income
|
$
|
1,055,565
|
|
|
$
|
—
|
|
|
$
|
1,055,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
As Previously Reported
|
|
Adoption of ASC 606
|
|
As Adjusted
|
Gross revenues
|
$
|
4,836,355
|
|
|
$
|
(490,558
|
)
|
|
$
|
4,345,797
|
|
Promotional allowances
|
(370,058
|
)
|
|
370,058
|
|
|
—
|
|
Operating revenues
|
4,466,297
|
|
|
(120,500
|
)
|
|
4,345,797
|
|
Operating expenses
|
3,944,635
|
|
|
(120,500
|
)
|
|
3,824,135
|
|
Operating income
|
$
|
521,662
|
|
|
$
|
—
|
|
|
$
|
521,662
|
|
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 824-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, which requires equity investments to be measured at fair value with changes in fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The update also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This update eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The Company adopted this guidance on January 1, 2018, which resulted in a
$9.2 million
cumulative unrealized loss, net of tax, being recorded to accumulated other comprehensive loss with a corresponding increase to retained earnings. The adjustment represents the portion of the cumulative change in the Redemption Note fair value resulting from the change in the instrument-specific credit risk previously included in other income (expense) on the Consolidated Statements of Income.
Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows - Restricted Cash (Topic 230)
, which amends the existing guidance relating to the disclosure of restricted cash and restricted cash equivalents on the statement of cash flows. The ASU requires that amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance on January 1, 2018 on a retrospective basis and the updated disclosures are reflected for the periods presented in the Consolidated Statements of Cash Flows. For the years ended December 31,
2017
and
2016
,
$190.6 million
of cash inflows and
$190.8 million
of cash outflows, respectively, were previously reported within cash flows from financing activities.
Income Taxes
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes - Intra-Entity Transfers of Assets Other than Inventory (Topic 740),
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, rather than deferring such recognition until the asset is sold to an outside party. The Company adopted the guidance effective January 1, 2018, and this adoption did not have a material effect on its Consolidated Financial Statements.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230),
which clarifies the classification of certain cash receipts and cash payments on the statement of cash flows. In particular, the new guidance clarifies the classification related to several types of cash flows, including items such as debt extinguishment costs and distributions received from equity method investees. The new guidance also provides a three-step approach for classifying cash receipts and payments that have aspects of more than one class of cash flows. The Company adopted this guidance on January 1, 2018, and this adoption did not have a material effect on its Consolidated Statements of Cash Flows.
Accounting Standards Issued But Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, and subsequent amendments to the initial guidance: ASU No. 2017-13, ASU No. 2018-10, and ASU No. 2018-11 (collectively, "Topic 842"). Topic 842 amends the existing guidance relating to the definition of a lease, recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and lease liability on the balance sheet, measured on a discounted basis. Operating leases are currently not recognized on the balance sheet. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. Entities are required to adopt Topic 842 using a modified retrospective transition method at one of the following application dates: (1) the later of the beginning of the earliest period presented in the financial statements and the lease commencement date or (2) on the effective date of adoption. The Company will adopt Topic 842 on January 1, 2019 using the effective date transition approach, which will result in a balance sheet presentation that is not comparable to the prior period in the first year of adoption.
Topic 842 provides for transition relief by permitting the election of certain practical expedients. The Company is electing the reassessment package of practical expedients, which permits the Company not to reassess whether (1) any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification remains appropriate for any expired or existing leases as of the adoption date and (3) previously capitalized costs continue to qualify as initial direct costs on expired or existing leases as of the adoption date. The Company is not electing the hindsight practical expedient, which requires an entity to use hindsight in determining the lease term and in assessing impairment of right-of-use assets.
While the Company is currently assessing the quantitative impact the guidance will have on its Consolidated Financial Statements and related disclosures, the Company expects the most significant changes will be related to the recognition of right-of-use assets and lease liabilities for operating leases on the Company's Consolidated Balance Sheet, with no material impact to net income or cash flows.
Financial Instruments - Credit Losses
The FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326)
in 2016. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The new guidance will be effective beginning January 1, 2020, with early adoption permitted beginning January 1, 2018. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company does not plan to early adopt this ASU, and is currently evaluating the impact of adopting this guidance.
Cloud Computing Arrangement Implementation Costs
In August 2018, the FASB issued ASU No. 2018-15,
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. The ASU is intended to eliminate potential diversity in practice in accounting for costs incurred to implement cloud computing arrangements that are service contracts by requiring customers in such arrangements to follow internal-use software guidance with respect to such costs, with any resulting deferred implementation costs recognized over the term of the contract in the same income statement line item as the fees associated with the hosting element of the arrangement. The ASU will be effective for the Company on January 1, 2020, with early adoption permitted. The Company is
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
currently assessing whether to early adopt and the impact the guidance will have on its Consolidated Financial Statements and related disclosures.
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
. The new guidance amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in ASC 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance will be effective beginning January 1, 2020, with early adoption permitted upon issuance of this updated guidance. The Company does not plan to early adopt this ASU, and is currently evaluating the impact of adopting this guidance.
Note 3 - Investment Securities
During the year ended
December 31, 2018
, the Company sold its investment securities for net proceeds of
$325.4 million
, and as of
December 31, 2018
, had no investment securities.
As of
December 31, 2017
, investment securities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair value
(net
carrying
amount)
|
As of December 31, 2017
|
|
|
|
|
|
|
|
Domestic and foreign corporate bonds
|
$
|
328,747
|
|
|
$
|
6
|
|
|
$
|
(1,298
|
)
|
|
$
|
327,455
|
|
The Company assesses for indicators of other-than-temporary impairment on a quarterly basis. The Company determines whether (i) it does not have the intent to sell any of these investments, and (ii) it will not likely be required to sell these investments prior to the recovery of the amortized cost. During the year ended
December 31, 2018
, the Company determined it had an other-than-temporary impairment and recorded a loss of
$1.8 million
.
Note 4 - Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Buildings and improvements
|
$
|
7,707,467
|
|
|
$
|
7,582,611
|
|
Land and improvements
|
1,141,032
|
|
|
853,738
|
|
Furniture, fixtures and equipment
|
2,288,370
|
|
|
2,211,974
|
|
Leasehold interests in land
|
313,516
|
|
|
314,068
|
|
Airplanes
|
110,623
|
|
|
158,840
|
|
Construction in progress
|
1,912,801
|
|
|
1,016,207
|
|
|
13,473,809
|
|
|
12,137,438
|
|
Less: accumulated depreciation
|
(4,087,889
|
)
|
|
(3,638,682
|
)
|
|
$
|
9,385,920
|
|
|
$
|
8,498,756
|
|
Depreciation expense for the years ended
December 31, 2018
,
2017
and
2016
was
$546.1 million
,
$547.9 million
and
$398.2 million
, respectively.
As of
December 31, 2018
and
2017
, construction in progress consisted primarily of costs capitalized, including interest, for the construction of Encore Boston Harbor.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In 2018, the Company sold
two
airplanes with a total net book value of
$65.3 million
for proceeds of
$50.6 million
. As a result, the Company recorded the
$14.7 million
loss on disposal in Property Charges and Other on the Consolidated Income Statement.
Land Acquisition
During the first quarter of 2018, the Company acquired approximately
38
acres of land on the Las Vegas Strip directly across from Wynn Las Vegas for
$336.2 million
, approximately
16
acres of which are subject to a ground lease that expires in 2097. The Company expects to use this land for future development.
In accordance with asset acquisition accounting standards, the Company allocated the purchase price to the identifiable assets acquired based on the relative fair value of each component. As a result, the Company recorded
$247.0 million
of the purchase price as land and
$89.1 million
of the purchase price as a definite-lived intangible asset. For more information regarding the intangible asset and lease, see
Note 5
,"Intangible Assets, net."
Note 5 - Intangible Assets, net
Intangible assets, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Indefinite-lived intangible assets:
|
|
|
|
Water rights
|
$
|
6,760
|
|
|
$
|
6,400
|
|
Trademarks and other
|
1,637
|
|
|
1,387
|
|
Total indefinite-lived intangible assets
|
8,397
|
|
|
7,787
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
Macau gaming concession
|
42,300
|
|
|
42,300
|
|
Less: accumulated amortization
|
(33,965
|
)
|
|
(31,582
|
)
|
|
8,335
|
|
|
10,718
|
|
|
|
|
|
Massachusetts gaming license
|
117,700
|
|
|
105,200
|
|
Less: accumulated amortization
|
—
|
|
|
—
|
|
|
117,700
|
|
|
105,200
|
|
|
|
|
|
Undeveloped land - Las Vegas
|
89,101
|
|
|
—
|
|
Less: accumulated amortization
|
(1,027
|
)
|
|
—
|
|
|
88,074
|
|
|
—
|
|
|
|
|
|
Total finite-lived intangible assets
|
214,109
|
|
|
115,918
|
|
Total intangible assets, net
|
$
|
222,506
|
|
|
$
|
123,705
|
|
Water rights and trademarks are indefinite-lived assets and, accordingly, are not amortized. Water rights primarily reflect the fair value allocation determined in the purchase of the property on which Wynn Las Vegas is located in April 2000. The value of the trademarks and other primarily represents the costs to acquire the "Le Rêve" name.
The Macau gaming concession is a finite-lived intangible asset that is being amortized over the
20
-year life of the concession. The Company expects that amortization of the Macau gaming concession will be
$2.4 million
each year from 2019 through 2021, and
$1.2 million
in 2022.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Massachusetts gaming license cost reflects consideration paid to the Commonwealth of Massachusetts for the license fee and certain costs incurred in connection with and contractually related to obtaining the license. The Company identifies the license as a finite-lived intangible asset and will amortize it over a period of
15
years beginning upon the opening of the resort.
During the first quarter of 2018, the Company acquired approximately
38
acres of land, of which approximately
16
acres are subject to an assumed ground lease that expires in 2097. The assumed ground lease agreement provides for certain minimum lease payments, determined at the time of original lease inception, which the Company determined to be below market when assumed. The ground lease payments are
$3.8 million
until 2023 and total payments of
$370.7 million
thereafter. In accordance with asset acquisition accounting standards, the Company allocated the purchase price to the identifiable assets acquired based on the relative fair value of each component. As a result, the Company recorded
$89.1 million
of the purchase price as a definite-lived intangible asset, which represents the favorable terms of the assumed ground lease relative to the market, to be amortized on a straight-line basis over the remaining term of the lease. The Company expects that amortization of the associated intangible asset will be
$1.1 million
each year from 2019 through 2096, and
$0.7 million
in 2097.
Note 6 - Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Macau Related:
|
|
|
|
Wynn Macau Credit Facilities:
|
|
|
|
Senior Term Loan Facility, due 2022
|
$
|
2,296,999
|
|
|
$
|
2,298,798
|
|
Senior Revolving Credit Facility, due 2022
|
623,921
|
|
|
—
|
|
4 7/8% Senior Notes, due 2024
|
600,000
|
|
|
600,000
|
|
5 1/2% Senior Notes, due 2027
|
750,000
|
|
|
750,000
|
|
|
|
|
|
U.S. and Corporate Related:
|
|
|
|
Wynn America Credit Facilities:
|
|
|
|
Senior Term Loan Facility, due 2021
|
994,780
|
|
|
1,000,000
|
|
4 1/4% Senior Notes, due 2023
|
500,000
|
|
|
500,000
|
|
5 1/2% Senior Notes, due 2025
|
1,780,000
|
|
|
1,800,000
|
|
5 1/4% Senior Notes, due 2027
|
880,000
|
|
|
900,000
|
|
Retail Term Loan, due 2025
|
615,000
|
|
|
—
|
|
Wynn Resorts Term Loan, due 2024
|
500,000
|
|
|
—
|
|
Redemption Price Promissory Note, due 2022
|
—
|
|
|
1,936,443
|
|
|
9,540,700
|
|
|
9,785,241
|
|
Less: Unamortized debt issuance costs and original issue discounts and premium, net
|
(117,600
|
)
|
|
(99,231
|
)
|
Less: Redemption Note fair value adjustment
|
—
|
|
|
(57,384
|
)
|
|
9,423,100
|
|
|
9,628,626
|
|
Less: Current portion of long-term debt
|
(11,960
|
)
|
|
(62,690
|
)
|
Total long-term debt, net of current portion
|
$
|
9,411,140
|
|
|
$
|
9,565,936
|
|
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Macau Related Debt
Wynn Macau Credit Facilities
The Company's credit facilities consist of an approximately
$2.30 billion
equivalent senior secured term loan facility (the "Wynn Macau Senior Term Loan Facility") and an approximately
$750 million
equivalent senior secured revolving credit facility (the "Wynn Macau Senior Revolving Credit Facility" and together with the Wynn Macau Senior Term Loan Facility, the "Wynn Macau Credit Facilities"). The borrower is Wynn Resorts (Macau) S.A. ("Wynn Macau SA"), an indirect subsidiary of WML. Wynn Macau SA has the ability to upsize the Wynn Macau Credit Facilities by an additional
$1 billion
in equivalent senior secured loans upon satisfaction of various conditions.
As of December 31, 2018, the Company had available borrowing capacity under the Wynn Macau Senior Revolving Credit Facility of $123.8 million. Wynn Macau SA borrows and repays its revolving credit facility from time to time as cash needs permit.
In December 2018, Wynn Macau SA amended the Wynn Macau Credit Facilities by entering into the Amended Common Terms Agreement. The Wynn Macau Senior Term Loan Facility was previously repayable in graduating installments of between
2.50%
to
7.33%
of the principal amount on a quarterly basis commencing December 2018, with a final installment of
50%
of the principal amount repayable in September 2021; and the final maturity of any outstanding borrowings from the Wynn Macau Senior Revolving Credit Facility was previously repayable by September 2020. Following the execution of the Amended Common Terms Agreement, the Wynn Macau Senior Term Loan Facility is repayable in graduating installments of between
2.875%
to
4.50%
of the principal amount on a quarterly basis commencing September 30, 2020, with a final installment of
75%
of the principal amount repayable in June 2022; and the final maturity of any outstanding borrowings from the Wynn Macau Senior Revolving Credit Facility is in June 2022. As of December 31,
2018
and
2017
, the weighted average interest rate was
4.17%
and
3.16%
, respectively. The commitment fee required to be paid for unborrowed amounts under the Wynn Macau Senior Revolving Credit Facility, if any, is between
0.52%
and
0.79%
, per annum, based on Wynn Macau SA's Leverage Ratio. The annual commitment fee is payable quarterly in arrears and is calculated based on the daily average of the unborrowed amounts.
The Wynn Macau Credit Facilities contain a requirement that Wynn Macau SA must make mandatory repayments of indebtedness from specified percentages of excess cash flow. If Wynn Macau SA's Leverage Ratio is greater than
4.5
to 1, then
25%
of Excess Cash Flow (as defined in the Wynn Macau Credit Facilities) must be used for prepayment of indebtedness and cancellation of available borrowings under the Wynn Macau Credit Facilities. There is no mandatory prepayment in respect of Excess Cash Flow if Wynn Macau SA's Leverage Ratio is equal to or less than
4.5
to 1. The Wynn Macau Credit Facilities contain customary covenants restricting certain activities including, but not limited to: the incurrence of additional indebtedness, the incurrence or creation of liens on any of its property, sale and leaseback transactions, the ability to dispose of assets, and making loans or other investments. In addition, Wynn Macau SA is required by the financial covenants to maintain a Leverage Ratio of not greater than
4.75
to 1 for the fiscal year ending December 31,
2018
, and an Interest Coverage Ratio (as defined in the Wynn Macau Credit Facilities) of not less than
2.00
to 1 at any time.
Borrowings under the Wynn Macau Credit Facilities are guaranteed by Palo Real Estate Company Limited ("Palo"), a subsidiary of Wynn Macau SA, and by certain subsidiaries of the Company that own equity interests in Wynn Macau SA, and are secured by substantially all of the assets of Wynn Macau SA and Palo, and the equity interests in Wynn Macau SA. Borrowings under the Wynn Macau Credit Facilities are not guaranteed by the Company or WML.
In connection with the gaming concession contract of Wynn Macau SA, Wynn Macau SA entered into a Bank Guarantee Reimbursement Agreement with Banco Nacional Ultramarino, S.A. ("BNU") for the benefit of the Macau government. This guarantee assures Wynn Macau SA's performance under the casino concession agreement, including the payment of premiums, fines and indemnity for any material failure to perform under the terms of the concession agreement and the payment of any gaming taxes. As of
December 31, 2018
, the guarantee was in the amount of
300 million
Macau patacas ("MOP") (approximately
$37.3 million
) and will remain at such amount until
180 days
after the end of the term of the concession agreement in 2022. BNU, as issuer of the guarantee, is currently secured by a second priority security interest in the senior lender collateral package. From and after repayment of all indebtedness under the Wynn Macau Credit Facilities, Wynn Macau SA is obligated to promptly, upon demand by BNU, repay any claim made on the guarantee by the Macau government. BNU is paid an annual fee for the guarantee of MOP
2.3 million
(approximately
$0.3 million
).
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WML Finance Revolving Credit Facility
The Company's credit facilities included a HK
$3.87 billion
(approximately
$495.2 million
) cash-collateralized revolving credit facility ("WML Finance Credit Facility") under which WML Finance I, Limited, an indirect wholly owned subsidiary of WML, was the borrower. The WML Finance Credit Facility bore interest initially at
1.50%
per annum, such rate calculated as the interest rate paid by the lender as the deposit bank for the cash collateral deposited and pledged with the lender plus a margin of
0.40%
. On July 18, 2018, the WML Finance Credit Facility matured with no outstanding borrowings.
4 7/8% Senior Notes due 2024 and 5 1/2% Senior Notes due 2027
On September 20, 2017, WML issued the
$600 million
4 7/8% Senior Notes due 2024 (the "2024 WML Notes") and the
$750 million
of 5 1/2% Senior Notes due 2027 (the "2027 WML Notes" and together with the 2024 WML Notes, the "WML Notes"). WML used the net proceeds from the WML Notes and cash on hand to fund the cost of extinguishing the 5 1/4% Senior Notes due 2021 (the "2021 Notes").
The 2024 WML Notes bear interest at the rate of 4 7/8% per annum and mature on October 1, 2024. The 2027 WML Notes bear interest at the rate of 5 1/2% per annum and mature on October 1, 2027. Interest on the WML Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2018.
At any time prior to October 1, 2020 and October 1, 2022, WML may redeem the 2024 WML Notes and 2027 WML Notes, respectively, in whole or in part, at a redemption price equal to the greater of (a)
100%
of the principal amount of the WML Notes or (b) a "make-whole" amount as determined by an independent investment banker in accordance with the terms of the indentures for the WML Notes, dated as of September 20, 2017 (the "WML Indentures"). In either case, the redemption price would include accrued and unpaid interest. In addition, at any time prior to October 1, 2020, WML may use the net cash proceeds from certain equity offerings to redeem up to
35%
of the aggregate principal amount of the 2024 WML Notes and the 2027 WML Notes, at a redemption price equal to
104.875%
of the aggregate principal amount of the 2024 WML Notes and
105.5%
of the aggregate principal amount of the 2027 WML Notes, as applicable.
On or after October 1, 2020 and October 1, 2022, WML may redeem the 2024 WML Notes and 2027 WML Notes, respectively, in whole or in part, at a premium decreasing annually from
102.438%
and
102.75%
, respectively, of the applicable principal amount to
100%
of the applicable principal amount, plus accrued and unpaid interest. If WML undergoes a change of control (as defined in the WML Indentures), it must offer to repurchase the WML Notes at a price equal to
101%
of the aggregate principal amount thereof, plus accrued and unpaid interest. In addition, WML may redeem the WML Notes, in whole but not in part, at a redemption price equal to
100%
of the principal amount, plus accrued and unpaid interest, in response to any change in or amendment to certain tax laws or tax positions. Further, if a holder or beneficial owner of the WML Notes fails to meet certain requirements imposed by any Gaming Authority (as defined in the WML Indentures), WML may require the holder or beneficial owner to dispose of or redeem its WML Notes.
Upon the occurrence of (1) any event after which none of WML or any of its subsidiaries have such licenses, concessions, subconcessions or other permits or authorizations as necessary to conduct gaming activities in substantially the same scope as it does on the date of the WML Notes issuance, 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 WML and its subsidiaries, taken as a whole, or (2) the termination, rescission, revocation or modification of any such licenses, concessions, subconcessions or other permits or authorizations which has had a material adverse effect on the financial condition, business, properties, or results of operations of WML and its subsidiaries, taken as a whole, each holder of the WML Notes will have the right to require WML to repurchase all or any part of such holders' WML Notes at a purchase price in cash equal to
100%
of the principal amount thereof, plus accrued and unpaid interest.
The WML Notes are WML's general unsecured obligations and rank pari passu in right of payment with all of WML's existing and future senior unsecured indebtedness, will rank senior to all of WML's future subordinated indebtedness, if any; will be effectively subordinated to all of WML's future secured indebtedness to the extent of the value of the assets securing such debt; and will be structurally subordinated to all existing and future obligations of WML's subsidiaries, including the Wynn Macau Credit Facilities and the WML Finance Credit Facility. The WML Notes are not registered under the Securities Act of 1933, as amended (the "Securities Act") and the WML Notes are subject to restrictions on transferability and resale.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
U.S. and Corporate Related Debt
Bridge Facility
On March 28, 2018, the Company entered into a credit agreement to provide for an
$800 million
364
-day term loan (the "Bridge Facility"). On April 3, 2018, the Company repaid all amounts borrowed under the Bridge Facility using net proceeds from the issuance of its common stock. See
Note 7
, "Stockholders' Equity" for additional information on the Company's issuance of common stock. The Bridge Facility bore interest at either LIBOR plus
2.75%
per annum or base rate plus
1.75%
per annum.
Redemption Price Promissory Note
On March 30, 2018, the Company used the net proceeds from the Bridge Facility, along with cash on hand and borrowings under its WA Senior Revolving Credit Facility (defined below) to repay the Redemption Note principal amount of
$1.94 billion
pursuant to the Settlement Agreement and Mutual Release ("Settlement Agreement"). See
Note 15
, "Commitments and Contingencies" for additional information on the Settlement Agreement.
Commitment Letter
On September 19, 2018, the Company entered into a commitment letter (the “Commitment Letter”) to provide for a
364
-day term loan facility to the Company of up to
$750 million
. On October 24, 2018, the Company agreed to terminate
$500 million
of the lenders’ commitments under the Commitment Letter, in anticipation of entering into the Credit Agreement discussed below. Accordingly, the lenders' remaining commitments under the Commitment Letter are
$250 million
. The remaining commitments expire on April 5, 2019 and remained fully available as of December 31, 2018.
Wynn Resorts Term Loan
On October 30, 2018, the Company and certain subsidiaries of the Company entered into a credit agreement (the "Credit Agreement") to provide for a
$500.0 million
six
-year term loan facility (the “Term Loan”). The Term Loan bears interest at a rate of LIBOR plus
2.25%
per year. As of
December 31, 2018
, the interest rate was
4.78%
. The Company is required to begin making quarterly principal repayments of
$1.3 million
beginning in March 2019, with a final installment of
$471.3 million
due upon maturity on October 30, 2024. The Company intends to use the net proceeds of the Term Loan for general corporate purposes, including, without limitation, repurchases of the Company’s common stock, investments in subsidiaries and/or capital expenditures.
The Credit Agreement contains customary representations and warranties, events of default and negative and affirmative covenants, including, among other things, limitations on: indebtedness; investments; restricted payments; mergers and acquisitions; payment of indebtedness; negative pledges; liens; transactions with affiliates and sales of assets. In addition, the Credit Agreement contains a requirement that the Company must make mandatory prepayments of indebtedness equal to
50.0%
of excess cash flow if the Consolidated First Lien Secured Leverage Ratio, as defined, as of the last day of the applicable fiscal year is greater than
4.5
to 1 prior to the year of opening of Encore Boston Harbor or is greater than
4.0
to 1 thereafter. There is
no
mandatory prepayment in respect of excess cash flow if the Company's Consolidated First Lien Secured Leverage Ratio is equal to or less than
4.5
to 1.
Wynn Group Asia, Inc. and Wynn Resorts Holdings, LLC, each a direct, wholly owned subsidiary of the Company (collectively, the “Guarantors”), guarantee the obligations of the Company under the Credit Agreement. The Company will pledge all of the equity interests in the Guarantors to the extent permitted by applicable law.
Wynn America Credit Facilities
The Company's credit facilities include an
$875 million
fully funded senior secured term loan facility (the "WA Senior Term Loan Facility I"), a
$125 million
fully funded senior term loan facility (the "WA Senior Term Loan Facility II") and a
$375 million
senior secured revolving credit facility (the "WA Senior Revolving Credit Facility," and collectively, the "Wynn America Credit Facilities"). The borrower is Wynn America, LLC ("Wynn America"), an indirect wholly owned subsidiary of Wynn Resorts, Limited.
On April 24, 2017, the Company amended the Wynn America Credit Facilities to, among other things, extend the maturity of portions of the credit facilities. Of the
$875 million
WA Senior Term Loan Facility I,
$69.6 million
matures in November 2020 with repayments in quarterly installments of
$1.7 million
commencing in June 2018 and a final installment of
$52.2 million
in November 2020, and
$805.4 million
matures in December 2021 with repayments in quarterly installments of
$20.1 million
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
commencing in March 2020 and a final installment of
$664.5 million
in December 2021. The WA Senior Term Loan Facility II matures in December 2021 with no required repayments until maturity in December 2021. Of the
$375 million
WA Senior Revolving Credit Facility,
$42 million
matures in November 2019 and
$333 million
matures in December 2021. In connection with the amendment, the Company recorded a loss on extinguishment of debt of
$1.5 million
.
As of December 31,
2018
, the Company had available borrowing capacity of
$357.3 million
, net of
$17.7 million
in outstanding letters of credit, under the WA Senior Revolving Credit Facility.
Subject to certain exceptions, the Wynn America Credit Facilities bear interest at either base rate plus
0.75%
per annum or LIBOR plus
1.75%
per annum. As of December 31,
2018
and
2017
, the interest rate was
4.10%
and
3.32%
, respectively. The annual fee required to pay for unborrowed amounts, if any, is
0.30%
per annum, payable quarterly in arrears, calculated based on the daily average of the unborrowed amounts under such credit facilities.
The Wynn America Credit Facilities contain customary representations and warranties, events of default and negative and affirmative covenants, including, among other things, limitations on: indebtedness; investments; restricted payments; mergers and acquisitions; payment of indebtedness; negative pledges; liens; transactions with affiliates and sales of assets. In addition, Wynn America is subject to financial covenants, including maintaining a Maximum Consolidated Senior Secured Net Leverage Ratio and a Minimum Consolidated EBITDA, each as defined in the Wynn America Credit Facilities. Commencing with the second full fiscal quarter ending after the fiscal quarter in which Encore Boston Harbor opens, the Maximum Consolidated Senior Secured Net Leverage Ratio is not to exceed
2.75
to 1. Commencing with the fiscal quarter ending December 31, 2015, the Minimum Consolidated EBITDA is not to be less than
$200.0 million
.
The Company has provided a completion guaranty in favor of the lenders under the Wynn America Credit Facilities to support the development of Encore Boston Harbor.
Wynn America and the guarantors have entered into a security agreement (as amended from time to time) in favor of the lenders under the Wynn America Credit Facilities pursuant to which, subject to certain exceptions, Wynn America and the guarantors have pledged all equity interests in the guarantors to the extent permitted by applicable law and granted a first priority security interest in substantially all of the other existing and future assets of the guarantors.
4 1/4% Senior Notes due 2023
In May 2013, Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. ("Capital Corp." and together with Wynn Las Vegas, LLC, the "Issuers") issued the
$500 million
4 1/4% Senior Notes due 2023 (the "2023 Notes") pursuant to an indenture, dated as of May 22, 2013 (the "2023 Indenture"), among the Issuers, the Guarantors (as defined below) and U.S. Bank National Association, as trustee (the "Trustee"). The 2023 Notes were issued at par. The Issuers used the net proceeds from the 2023 Notes to cover the cost of extinguishing the 7 7/8% First Mortgage Notes due November 2017.
The 2023 Notes will mature on
May 30, 2023
and bear interest at the rate of 4 1/4% per annum. The Issuers may, at their option, redeem the 2023 Notes, in whole or in part, at any time or from time to time prior to their stated maturity. The redemption price for the 2023 Notes that are redeemed before
February 28, 2023
will be equal to the greater of (a)
100%
of the principal amount of the 2023 Notes to be redeemed or (b) a "make-whole" amount described in the 2023 Indenture, plus in either case accrued and unpaid interest to, but not including, the redemption date. The redemption price for the 2023 Notes that are redeemed on or after
February 28, 2023
will be equal to
100%
of the principal amount of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date. In the event of a change of control triggering event, the Issuers will be required to offer to repurchase the 2023 Notes at
101%
of the principal amount, plus accrued and unpaid interest to but not including the repurchase date. The 2023 Notes are also subject to mandatory redemption requirements imposed by gaming laws and regulations of gaming authorities in Nevada.
The 2023 Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with the Issuers' 2025 Notes and 2027 WLV Notes (both defined below). The 2023 Notes are unsecured, except by the first priority pledge by Wynn Las Vegas Holdings, LLC ("WLVH"), a direct wholly owned subsidiary of Wynn America, of its equity interests in Wynn Las Vegas, LLC. Such equity interests in Wynn Las Vegas, LLC also secure the Issuers' 2025 Notes and 2027 WLV Notes. If Wynn Resorts receives an investment grade rating from one or more ratings agencies, the first priority pledge securing the 2023 Notes will be released.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The 2023 Notes are jointly and severally guaranteed by all of the Issuers' subsidiaries, other than Capital Corp., which was a co-issuer (the "Guarantors"). The guarantees are senior unsecured obligations of the Guarantors and rank senior in right of payment to all of their existing and future subordinated debt. The guarantees rank equally in right of payment with all existing and future liabilities of the Guarantors that are not so subordinated and will be effectively subordinated in right of payment to all of such Guarantors' existing and future secured debt (to the extent of the collateral securing such debt).
The 2023 Indenture contains covenants limiting the Issuers' and the Guarantors' ability to create liens on assets to secure debt; enter into sale-leaseback transactions; and merge or consolidate with another company. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
Events of default under the 2023 Indenture include, among others, the following: default for
30
days in the payment of interest when due on the 2023 Notes; default in payment of the principal, or premium, if any, when due on the 2023 Notes; failure to comply with certain covenants in the 2023 Indenture; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any Guarantor, all 2023 Notes then outstanding will become due and payable immediately without further action or notice.
On March 20, 2018, the Issuers executed a second supplemental indenture (the "Supplemental Indenture") to the 2023 Indenture, as supplemented by the 2025 Indenture, relating to the Issuers’ 2023 Notes. The Supplemental Indenture amended the 2023 Indenture by conforming the definition of "Change of Control" relating to ownership of equity interests in the Company in the Indenture to the terms of the indentures governing the Issuers’ other outstanding notes. As part of executing the Supplemental Indenture, the Issuers paid
$25 million
to consenting holders of the 2023 Notes. The Company accounted for this transaction as a modification and recorded the
$25 million
as debt issuance costs on the Consolidated Balance Sheet.
5 1/2% Senior Notes due 2025
In February 2015, the Issuers issued the
$1.8 billion
5 1/2% Senior Notes due 2025 (the "2025 Notes") pursuant to an indenture, dated as of February 18, 2015 (the "2025 Indenture"), among the Issuers, the Guarantors and the Trustee. The 2025 Notes were issued at par. The Company used the net proceeds from the 2025 Notes to cover the cost of extinguishing the 7 7/8% First Mortgage Notes due May 1, 2020 (the "7 7/8% 2020 Notes") and the 7 3/4% First Mortgage Notes due August 15, 2020 (the "7 3/4% 2020 Notes" and together with the 7 7/8% 2020 Notes, the "2020 Notes") and for general corporate purposes.
The 2025 Notes will mature on March 1, 2025 and bear interest at the rate of 5 1/2% per annum. The Issuers may, at their option, redeem the 2025 Notes, in whole or in part, at any time or from time to time prior to their stated maturity. The redemption price for the 2025 Notes that are redeemed before December 1, 2024 will be equal to the greater of (a)
100%
of the principal amount of the 2025 Notes to be redeemed and (b) a "make-whole" amount described in the 2025 Indenture, plus in either case accrued and unpaid interest, if any, to, but not including, the redemption date. The redemption price for the 2025 Notes that are redeemed on or after December 1, 2024 will be equal to
100%
of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date. In the event of a change of control triggering event, the Issuers will be required to offer to repurchase the 2025 Notes at
101%
of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the repurchase date. The 2025 Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations of gaming authorities in Nevada.
The 2025 Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with the Issuers' 2023 Notes and 2027 WLV Notes. The 2025 Notes are unsecured, except by the first priority pledge by WLVH of its equity interests in Wynn Las Vegas, LLC. Such equity interests in Wynn Las Vegas, LLC also secure the 2023 Notes and 2027 WLV Notes. If Wynn Resorts receives an investment grade rating from one or more ratings agencies, the first priority pledge securing the 2025 Notes will be released.
The 2025 Notes are jointly and severally guaranteed by all of the Guarantors. The guarantees are senior unsecured obligations and rank senior in right of payment to all of their existing and future subordinated debt. The guarantees rank equally in right of payment with all existing and future liabilities of the Issuers' subsidiaries that are not so subordinated and will be effectively subordinated in right of payment to all of such existing and future secured debt (to the extent of the collateral securing such debt).
The 2025 Indenture contains covenants limiting the Issuers' and the Guarantors' ability to create liens on assets to secure debt, enter into sale-leaseback transactions and merge or consolidate with another company. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Events of default under the 2025 Indenture include, among others, the following: default for
30
days in the payment of interest when due on the 2025 Notes; default in payment of the principal, or premium, if any, when due on the 2025 Notes; failure to comply with certain covenants in the 2025 Indenture; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any Guarantor, all 2025 Notes then outstanding will become due and payable immediately without further action or notice.
During the first quarter of 2018, Wynn Resorts purchased
$20 million
principal amount of the 2025 Notes through open market purchases. As of December 31, 2018, Wynn Resorts holds this debt and has not contributed it to its wholly owned subsidiary, Wynn Las Vegas, LLC.
5 1/4% Senior Notes due 2027
In May 2017, the Issuers issued the
$900 million
5 1/4% Senior Notes due 2027 (the "2027 WLV Notes") pursuant to an indenture, dated as of May 11, 2017 (the "2027 Indenture"), among the Issuers, the Guarantors and the Trustee. The 2027 WLV Notes were issued at par. The Issuers used the net proceeds from the 2027 WLV Notes and cash on hand to fund the cost of extinguishing the 5 3/8% First Mortgage Notes due 2022 (the "2022 Notes").
The 2027 WLV Notes will mature on May 15, 2027 and bear interest at the rate of 5 1/4% per annum. The Issuers may, at their option, redeem the 2027 WLV Notes, in whole or in part, at any time or from time to time prior to their stated maturity. The redemption price for 2027 WLV Notes that are redeemed before February 15, 2027 will be equal to the greater of (a)
100%
of the principal amount of the 2027 WLV Notes to be redeemed and (b) a "make-whole" amount described in the 2027 Indenture, plus in either case accrued and unpaid interest, if any, to, but not including, the redemption date. The redemption price for the 2027 WLV Notes that are redeemed on or after February 15, 2027 will be equal to
100%
of the principal amount of the 2027 WLV Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date. In the event of a change of control triggering event, the Issuers will be required to offer to repurchase the 2027 WLV Notes at
101%
of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the repurchase date. The 2027 WLV Notes are also subject to mandatory redemption requirements imposed by gaming laws and regulations of gaming authorities in Nevada.
The 2027 WLV Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with the Issuers' 2023 Notes and 2025 Notes and rank equally in right of payment with the Issuers' guarantee of the Wynn America Credit Facilities, and rank senior in right of payment to all of the Issuers' existing and future subordinated debt. The 2027 WLV Notes are effectively subordinated in right of payment to all of the Issuers' existing and future secured debt (to the extent of the value of the collateral securing such debt), and structurally subordinated to all of the liabilities of any of the Issuers' subsidiaries that do not guarantee the 2027 WLV Notes.
The 2027 WLV Notes are unsecured, except for the first priority pledge by WLVH of its equity interests in Wynn Las Vegas, LLC. Such equity interests in Wynn Las Vegas, LLC also secure the 2023 Notes and 2025 Notes. If Wynn Resorts, Limited receives an investment grade rating from one or more ratings agencies, the first priority pledge securing the 2027 WLV Notes will be released.
The 2027 WLV Notes are jointly and severally guaranteed by all of the Guarantors. The guarantees are senior unsecured obligations of the Guarantors and rank senior in right of payment to all of their existing and future subordinated debt. The guarantees rank equally in right of payment with all existing and future liabilities of the Guarantors that are not so subordinated and will be effectively subordinated in right of payment to all of such Guarantors' existing and future secured debt (to the extent of the collateral securing such debt).
The 2027 Indenture contains covenants limiting the Issuers' and the Guarantors' ability to: create liens on assets to secure debt; enter into sale-leaseback transactions; and merge or consolidate with another company. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The 2027 Indenture also provides that Wynn America may assume all of Wynn Las Vegas, LLC's obligations under the 2027 Indenture and the 2027 WLV Notes if certain conditions set forth in the 2027 Indenture are met.
Events of default under the 2027 Indenture include, among others, the following: default for 30 days in the payment of interest when due on the 2027 WLV Notes; default in payment of the principal, or premium, if any, when due on the 2027 WLV Notes; failure to comply with certain covenants in the 2027 Indenture; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any Guarantor, all 2027 WLV Notes then outstanding will become due and payable immediately without further action or notice.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the first quarter of 2018, Wynn Resorts purchased
$20 million
principal amount of the 2027 WLV Notes through open market purchases. As of December 31, 2018, Wynn Resorts holds this debt and has not contributed it to its wholly owned subsidiary, Wynn Las Vegas, LLC.
The Issuers and certain of their subsidiaries will guarantee and secure their obligations under the Wynn America Credit Facilities with liens on substantially all of their assets, with such liens limiting the amount of such obligations secured to
15%
of their Total Assets (as defined in the indenture for the 2025 Notes).
The 2023 Notes, 2025 Notes and 2027 WLV Notes were offered pursuant to an exemption under the Securities Act. The 2023 Notes, 2025 Notes and 2027 WLV Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act or outside the United States to certain persons in reliance on Regulation S under the Securities Act. The 2023 Notes, 2025 Notes and 2027 WLV Notes have not been and will not be registered under the Securities Act or under any state securities laws. Therefore, the 2023 Notes, 2025 Notes and 2027 WLV Notes may not be offered or sold within the United States to, or for the account or benefit of, any United States person unless the offer or sale would qualify for a registration exemption from the Securities Act and applicable state securities laws.
5 3/8%
First Mortgage Notes due 2022
On May 4, 2017, the Issuers commenced a cash tender offer for any and all of the outstanding 2022 Notes. The Company accepted for purchase valid tenders with respect to
$498.0 million
and paid a tender premium of
$14.6 million
.
On June 12, 2017, the Issuers redeemed the remaining
$402.0 million
of the untendered 2022 Notes and discharged the indenture under which the 2022 Notes were issued. The Company paid a premium of
$10.8 million
related to this redemption.
In connection with the 2027 WLV Notes issuance and the 2022 Notes cash tender offer and subsequent redemption, the Company recorded a loss on extinguishment of debt of
$20.8 million
.
Retail Term Loan
On July 25, 2018, Wynn/CA Plaza Property Owner, LLC and Wynn/CA Property Owner, LLC (collectively, the "Retail Borrowers"), subsidiaries of the Retail Joint Venture, entered into a term loan agreement (the "Retail Term Loan Agreement").
The Retail Term Loan Agreement provides for a term loan facility to the Retail Borrowers of
$615.0 million
(the "Retail Term Loan"). The Retail Term Loan is secured by substantially all of the assets of the Retail Borrowers. The Retail Term Loan matures on July 24, 2025 and bears interest at a rate of LIBOR plus
1.70%
per annum. As of
December 31, 2018
, the interest rate was
4.05%
. In accordance with the Retail Term Loan Agreement, the Retail Borrowers entered into an interest rate collar agreement with a LIBOR floor of
1.00%
and a ceiling of
3.75%
. See
Note 2
, “Summary of Significant Accounting Policies”, for additional information on the interest rate collar. The Retail Borrowers distributed approximately
$589 million
of the net proceeds of the Retail Term Loan to their members on a proportionate basis to each member’s ownership percentage.
The Retail Borrowers may prepay the Retail Term Loan, in whole but not in part, with a premium of
1.70%
of the principal amount prorated for the number of days between the prepayment date and July 25, 2019. Any time subsequent to July 25, 2019, the Retail Borrowers may prepay the Retail Term Loan, in whole or in part, with no premium above the principal amount.
The Retail Term Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants for debt facilities of this type, including, among other things, limitations on leasing matters, incurrence of indebtedness, distributions and transactions with affiliates. The Retail Term Loan Agreement also provides for customary sweeps of the Retail Borrowers' excess cash in the event of a default or in the event the Retail Borrowers fail to maintain certain financial ratios as defined in the Retail Term Loan Agreement. In addition, the Company will indemnify the lenders under the Retail Term Loan and be liable, in each case, for certain customary environmental and non-recourse carve out matters pursuant to a hazardous materials indemnity agreement and a recourse indemnity agreement, each entered into concurrently with the execution of the Retail Term Loan Agreement.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Debt Covenant Compliance
As of
December 31, 2018
, management believes the Company was in compliance with all debt covenants.
Scheduled Maturities of Long-Term Debt
Scheduled maturities of long-term debt as of
December 31, 2018
were as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
2019
|
$
|
11,960
|
|
2020
|
275,040
|
|
2021
|
1,193,663
|
|
2022
|
2,455,037
|
|
2023
|
505,000
|
|
Thereafter
|
5,100,000
|
|
|
9,540,700
|
|
Unamortized debt issuance costs and original issue discounts and premium, net
|
(117,600
|
)
|
|
$
|
9,423,100
|
|
Fair Value of Long-Term Debt
The estimated fair value of the Company's long-term debt as of
December 31, 2018
and
2017
, was approximately
$8.97 billion
and
$7.95 billion
, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount and premium, of
$9.54 billion
and
$7.85 billion
, respectively. The estimated fair value as of December 31, 2017 excludes the Redemption Note. See
Note 2
, "Summary of Significant Accounting Policies" for discussion of the estimated fair value of the Redemption Note. The estimated fair value of the Company's long-term debt is based on recent trades, if available, and indicative pricing from market information (Level 2 inputs).
Note 7 - Stockholders' Equity
Equity Offering
On April 3, 2018, the Company completed a registered public offering (the "Equity Offering") of
5,300,000
newly issued shares of its common stock, par value
$0.01
per share, at a price of
$175
per share for proceeds of
$915.2 million
, net of
$11.7 million
in underwriting discounts and
$0.6 million
in offering expenses. The Company used the net proceeds from the Equity Offering to repay all amounts borrowed under the Bridge Facility, together with all interest accrued thereon, and used the remaining net proceeds to repay certain other indebtedness of the Company in April 2018.
Common Stock
The Company's Board of Directors has authorized an equity repurchase program. As of December 31,
2018
, the Company had
$1.0 billion
in repurchase authority under the program, which may include repurchases from time to time through open market purchases or negotiated transactions, depending on market conditions. During the year ended
December 31, 2018
, the Company repurchased
1,478,552
shares at a net cost of
$156.7 million
. During the years ended December 31,
2017
and
2016
,
no
repurchases were made under the equity repurchase program. As of
December 31, 2018
, the Company had
$843.3 million
in repurchase authority under the program.
During the years ended December 31,
2018
,
2017
and
2016
, the Company withheld a total of
19,120
shares,
148,413
shares and
198,942
shares, respectively, in satisfaction of tax withholding obligations on vested restricted stock.
Dividends
During the first quarter of 2018, the Company paid a cash dividend of
$0.50
per share and
$0.75
per share for the three subsequent quarters, for annual cash dividends of
$2.75
per share. In each quarter of 2017 and 2016, the Company paid a cash
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
dividend of
$0.50
per share. During the years ended
December 31, 2018
,
2017
and 2016, the Company recorded
$294.9 million
,
$204.5 million
and
$202.2 million
as a reduction of retained earnings from cash dividends declared.
On
January 30, 2019
, the Company announced a cash dividend of
$0.75
per share, payable on February 26, 2019, to stockholders of record as of February 15, 2019.
Redemption of Securities
Wynn Resorts' articles of incorporation provide that, to the extent a gaming authority makes a determination of unsuitability or to the extent the Board of Directors determines, in its sole discretion, that a person is likely to jeopardize the Company or any affiliates application for, receipt of, approval for, right to the use of, or entitlement to, any gaming license, Wynn Resorts may redeem shares of its capital stock that are owned or controlled by an unsuitable person or its affiliates. The redemption price will be the amount, if any, required by the gaming authority or, if the gaming authority does not determine the price, the sum deemed by the Board of Directors to be the fair value of the securities to be redeemed. If Wynn Resorts determines the redemption price, the redemption price will be capped at the closing price of the shares on the principal national securities exchange on which the shares are listed on the trading day before the redemption notice is given. If the shares are not listed on a national securities exchange, the redemption price will be capped at the closing sale price of the shares as quoted on The Nasdaq Global Select Market or if the closing price is not reported, the mean between the bid and ask prices, as quoted by any other generally recognized reporting system. Wynn Resorts' right of redemption is not exclusive of any other rights that it may have or later acquire under any agreement, its bylaws or otherwise. The redemption price may be paid in cash, by promissory note, or both, as required, and pursuant to the terms established by, the applicable Gaming Authority and, if not, as the Board of Directors of Wynn Resorts elects.
Based on the Board of Directors' finding of "unsuitability," on February 18, 2012, Wynn Resorts redeemed and canceled Aruze's
24,549,222
shares of Wynn Resorts' common stock. For more information, see
Note 15
, "Commitments and Contingencies."
Note 8 - Noncontrolling Interests
Wynn Macau, Limited
In October 2009, WML, an indirect wholly owned subsidiary of the Company and the developer, owner and operator of Wynn Macau and Wynn Palace, listed its ordinary shares of common stock on The Stock Exchange of Hong Kong Limited through an initial public offering. The Company currently owns approximately
72%
of this subsidiary's common stock. The shares of WML were not and will not be registered under the Securities Act and may not be offered or sold in the United States absent a registration under the Securities Act, or an applicable exception from such registration requirements.
On October 5, 2018, WML paid a cash dividend of HK
$0.75
per share, consisting of an interim dividend of HK
$0.32
per share for the six months ended June 30, 2018 and a special dividend of HK
$0.43
per share, for a total of
$496.6 million
. The Company's share of this dividend was
$358.3 million
with a reduction of
$138.2 million
to noncontrolling interests in the accompanying Consolidated Balance Sheet.
On April 25, 2018, WML paid a cash dividend of HK
$0.75
per share for a total of
$497.1 million
. The Company's share of this dividend was
$358.8 million
with a reduction of
$138.3 million
to noncontrolling interests in the accompanying Consolidated Balance Sheet.
On September 15, 2017, WML paid a dividend of HK
$0.21
per share for a total of
$139.4 million
. The Company's share of this dividend was
$100.6 million
with a reduction of
$38.8 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
On June 20, 2017, WML paid a dividend of HK
$0.42
per share for a total of
$279.9 million
. The Company's share of this dividend was
$202.0 million
with a reduction of
$77.9 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
On April 27, 2016, WML paid a dividend of HK
$0.60
per share for a total of
$401.9 million
. The Company's share of this dividend was
$290.1 million
with a reduction of
$111.8 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Retail Joint Venture
During the year ended
December 31, 2018
the Retail Joint Venture made aggregate distributions of
$305.4 million
to its non-controlling interest holder in connection with the distribution of the net proceeds of the Retail Term Loan and distributions made in the normal course of business. For more information on the Retail Term Loan and on the Retail Joint Venture, see
Note 6
, "
Long-Term Debt
," and
Note 14
, "
Retail Joint Venture
," respectively.
Note 9 - Benefit Plans
Defined contribution plans
The Company established a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its U.S. non-union employees in July 2000. The plan allows employees to defer, within prescribed limits, a percentage of their income on a pre-tax basis through contributions to this plan. The Company matches
50%
of employee contributions, up to
6%
of employees' eligible compensation. During the years ended
December 31, 2018
,
2017
and
2016
, the Company recorded matching contribution expenses of
$6.4 million
,
$6.1 million
and
$6.1 million
, respectively.
Wynn Macau also operates a defined contribution retirement benefits plan (the "Wynn Macau Plan"). Eligible employees are allowed to contribute
5%
of their salary to the Wynn Macau Plan and the Company matches any contributions. The assets of the Wynn Macau Plan are held separately from those of the Company in an independently administered fund. The Company's matching contributions vest to the employee at
10%
per year with full vesting in
ten years
. Forfeitures of unvested contributions are used to reduce the Company's liability for its contributions payable. During the years ended
December 31, 2018
,
2017
and
2016
, the Company recorded matching contribution expenses of
$16.6 million
,
$15.8 million
and
$12.9 million
, respectively.
Multi-employer pension plan
Wynn Las Vegas, LLC contributes to a multi-employer defined benefit pension plan for certain of its union employees under the terms of the Southern Nevada Culinary and Bartenders Union collective-bargaining agreement, which expires in July 2021. The legal name of the multi-employer pension plan is the Southern Nevada Culinary and Bartenders Pension Plan (the "Plan") (EIN: 88-6016617 Plan Number: 1). The Company recorded expenses of
$11.9 million
,
$11.5 million
and
$9.3 million
for contributions to the Plan for the years ended
December 31, 2018
,
2017
and
2016
, respectively. For the
2017
plan year, the most recent for which plan data is available, the Company's contributions were identified by the Plan to exceed
5%
of total contributions for that year. Based on information the Company received from the Plan, it was certified to be in neither endangered nor critical status for the
2017
plan year. Risks of participating in a multi-employer plan differ from single-employer plans for the following reasons: (1) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; (3) if a participating employer stops participating, it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability; and (4) if the plan is terminated by withdrawal of all employers and if the value of the nonforfeitable benefits exceeds plan assets and withdrawal liability payments, employers are required by law to make up the insufficient difference.
Note 10 - Revenue
The Company’s revenue from contracts with customers primarily consists of casino wagers and sales of rooms, food and beverage, entertainment, retail and other goods and services.
Gross casino revenues are measured by the aggregate net difference between gaming wins and losses. The Company applies a practical expedient by accounting for its casino wagering transactions on a portfolio basis versus an individual basis as all wagers have similar characteristics. Commissions rebated to customers either directly or indirectly through games promoters and cash discounts and other cash incentives earned by customers are recorded as a reduction of casino revenues. In addition to the wager, casino transactions typically include performance obligations related to complimentary goods or services provided to incentivize future gaming or in exchange for points earned under the Company’s loyalty programs.
For casino transactions that include complimentary goods or services provided by the Company to incentivize future gaming, the Company allocates the standalone selling price of each good or service to the appropriate revenue type based on the good or service provided. Complimentary goods or services that are provided under the Company’s control and discretion and supplied by third parties are recorded as an operating expense.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company offers loyalty programs at both its Macau Operations and its Las Vegas Operations. Under the program at its Macau Operations, customers earn points based on their level of table games and slots play, which can be redeemed for free play, gifts and complimentary goods or services provided by the Company. Under the program at its Las Vegas Operations, customers earn points based on their level of slots play, which can be redeemed for free play. For casino transactions that include points earned under the Company’s loyalty programs, the Company defers a portion of the revenue by recording the estimated standalone selling price of the earned points that are expected to be redeemed as a liability.
Upon redemption of the points for Company-owned goods or services, the standalone selling price of each good or service is allocated to the appropriate revenue type based on the good or service provided. Upon the redemption of the points with third parties, the redemption amount is deducted from the liability and paid directly to the third party.
After allocating amounts to the complimentary goods or services provided and to the points earned under the Company’s loyalty programs, the residual amount is recorded as casino revenue when the wager is settled.
The transaction price for rooms, food and beverage, entertainment, retail and other transactions is the net amount collected from the customer for such goods and services and is recorded as revenue when the goods are provided, services are performed or events are held. Sales tax and other applicable taxes collected by the Company are excluded from revenues. Advance deposits on rooms and advance ticket sales are performance obligations that are recorded as customer deposits until services are provided to the customer. Revenues from contracts with multiple goods or services are allocated to each good or service based on its relative standalone selling price. Entertainment, retail and other revenue also includes lease revenue, which is recognized on a time proportion basis over the lease term. Contingent lease revenue is recognized when the right to receive such revenue is established according to the lease agreements.
Disaggregation of Revenues
The Company operates integrated resorts in Macau and Las Vegas and generates revenues at its properties by providing the following types of services and products: gaming, rooms, food and beverage and entertainment, retail and other. Revenues disaggregated by type of revenue and geographic location are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Macau Operations
|
|
Las Vegas Operations
|
|
Total
|
Casino
|
|
$
|
4,350,907
|
|
|
$
|
434,083
|
|
|
$
|
4,784,990
|
|
Rooms
|
|
283,562
|
|
|
468,238
|
|
|
751,800
|
|
Food and beverage
|
|
187,006
|
|
|
567,122
|
|
|
754,128
|
|
Entertainment, retail and other
(1)
|
|
230,616
|
|
|
196,126
|
|
|
426,742
|
|
Total operating revenues
|
|
$
|
5,052,091
|
|
|
$
|
1,665,569
|
|
|
$
|
6,717,660
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
Casino
|
|
$
|
3,788,210
|
|
|
$
|
456,093
|
|
|
$
|
4,244,303
|
|
Rooms
|
|
217,581
|
|
|
453,376
|
|
|
670,957
|
|
Food and beverage
|
|
164,189
|
|
|
567,926
|
|
|
732,115
|
|
Entertainment, retail and other
(1)
|
|
197,217
|
|
|
225,568
|
|
|
422,785
|
|
Total operating revenues
|
|
$
|
4,367,197
|
|
|
$
|
1,702,963
|
|
|
$
|
6,070,160
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
Casino
|
|
$
|
2,313,518
|
|
|
$
|
437,372
|
|
|
$
|
2,750,890
|
|
Rooms
|
|
158,126
|
|
|
437,484
|
|
|
595,610
|
|
Food and beverage
|
|
99,703
|
|
|
535,708
|
|
|
635,411
|
|
Entertainment, retail and other
(1)
|
|
134,948
|
|
|
228,938
|
|
|
363,886
|
|
Total operating revenues
|
|
$
|
2,706,295
|
|
|
$
|
1,639,502
|
|
|
$
|
4,345,797
|
|
(1) Includes lease revenue accounted for under lease accounting guidance.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Customer Contract Liabilities
In providing goods and services to its customers, there is often a timing difference between the Company receiving cash and the Company recording revenue for providing services or holding events.
The Company’s primary liabilities associated with customer contracts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Increase (decrease)
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Increase (decrease)
|
Casino outstanding chips and front money deposits
(1)
|
$
|
905,561
|
|
|
$
|
991,957
|
|
|
$
|
(86,396
|
)
|
|
$
|
991,957
|
|
|
$
|
546,487
|
|
|
$
|
445,470
|
|
Advance room deposits and ticket sales
(2)
|
42,197
|
|
|
48,065
|
|
|
(5,868
|
)
|
|
48,065
|
|
|
41,583
|
|
|
6,482
|
|
Other gaming-related liabilities
(3)
|
12,694
|
|
|
12,765
|
|
|
(71
|
)
|
|
12,765
|
|
|
12,033
|
|
|
732
|
|
Loyalty program and related liabilities
(4)
|
18,148
|
|
|
18,421
|
|
|
(273
|
)
|
|
18,421
|
|
|
7,942
|
|
|
10,479
|
|
|
$
|
978,600
|
|
|
$
|
1,071,208
|
|
|
$
|
(92,608
|
)
|
|
$
|
1,071,208
|
|
|
$
|
608,045
|
|
|
$
|
463,163
|
|
(1) Casino outstanding chips represent amounts owed to junkets and customers for chips in their possession, and casino front money deposits represent funds deposited by customers before gaming play occurs. These amounts are included in customer deposits on the Consolidated Balance Sheets and may be recognized as revenue or will be redeemed for cash in the future.
(2) Advance room deposits and ticket sales represent cash received in advance for goods or services to be provided in the future. These amounts are included in customer deposits on the Consolidated Balance Sheets and will be recognized as revenue when the goods or services are provided or the events are held. Decreases in this balance generally represent the recognition of revenue and increases in the balance represent additional deposits made by customers. The deposits are expected to primarily be recognized as revenue within one year.
(3) Other gaming-related liabilities generally represent unpaid wagers primarily in the form of unredeemed slot, race and sportsbook tickets or wagers for future sporting events. The amounts are included in other accrued liabilities on the Consolidated Balance Sheets.
(4) Loyalty program and related liabilities represent the deferral of revenue until the loyalty points or other complimentaries are redeemed. The amounts are included in other accrued liabilities on the Consolidated Balance Sheets and are expected to be recognized as revenue within one year of being earned by customers.