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11: R2 Condensed Consolidated Balance Sheets HTML 157K
12: R3 Condensed Consolidated Balance Sheets HTML 47K
(Parenthetical)
13: R4 Condensed Consolidated Statements of Operations HTML 136K
(Unaudited)
14: R5 Condensed Consolidated Statements of Comprehensive HTML 51K
Income (Loss) (Unaudited)
15: R6 Condensed Consolidated Statement of Stockholders' HTML 121K
Deficit (Unaudited)
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Policies
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Schedule of Cash, Cash Equivalents and Restricted
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53: R44 Cash, Cash Equivalents and Restricted Cash - HTML 35K
Schedule of Cash Flow, Supplemental Disclosures
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54: R45 Receivables, net (Details) HTML 45K
55: R46 Receivables, net - Schedule of Movement in HTML 35K
Allowance for Credit Losses Recognized for
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56: R47 Property and Equipment, net - Schedule of Property HTML 41K
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(Exact name of registrant as specified in its charter)
iNevada
i46-0484987
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i3131 Las Vegas Boulevard South - iLas Vegas, iNevadai89109
(Address of principal executive offices) (Zip Code)
(i702) i770-7555
(Registrant's telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
stock, par value $0.01
iWYNN
iNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated
filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge accelerated filer
☒
Accelerated filer
☐
Non-accelerated
filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Accounts
receivable, net of allowance for credit losses of $i57,261 and $i78,842
i229,794
i216,033
Inventories
i70,979
i70,094
Prepaid
expenses and other
i104,920
i88,201
Total
current assets
i4,351,764
i4,029,587
Property
and equipment, net
i6,771,322
i6,896,060
Restricted
cash
i89,927
i127,731
Goodwill and
intangible assets, net
i444,807
i245,253
Operating
lease assets
i1,838,054
i1,853,164
Other
assets
i287,812
i263,305
Total assets
$
i13,783,686
$
i13,415,100
LIABILITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts and construction payables
$
i178,486
$
i197,474
Customer
deposits
i498,136
i506,148
Gaming
taxes payable
i142,266
i44,967
Accrued
compensation and benefits
i156,878
i187,160
Accrued
interest
i148,377
i135,630
Current portion
of long-term debt
i41,250
i547,543
Other accrued
liabilities
i180,654
i192,501
Total
current liabilities
i1,346,047
i1,811,423
Long-term
debt
i12,101,477
i11,569,316
Long-term
operating lease liabilities
i1,610,787
i1,615,157
Other
long-term liabilities
i232,539
i59,569
Total
liabilities
i15,290,850
i15,055,465
Commitments
and contingencies (Note 16)
i
i
Stockholders' deficit:
Preferred stock,
par value $ii0.01/; ii40,000,000/
shares authorized; iiiizero///
shares issued and outstanding
i—
i—
Common
stock, par value $ii0.01/; ii400,000,000/
shares authorized; i132,948,390 and i132,256,185 shares issued; i113,942,935
and i113,369,439 shares outstanding, respectively
i1,329
i1,323
Treasury
stock, at cost; i19,005,455 and i18,886,746 shares, respectively
(i1,635,966)
(i1,623,872)
Additional
paid-in capital
i3,619,241
i3,583,923
Accumulated
other comprehensive income (loss)
i7,916
(i404)
Accumulated
deficit
(i2,622,773)
(i2,711,808)
Total
Wynn Resorts, Limited stockholders' deficit
(i630,253)
(i750,838)
Noncontrolling
interests
(i876,911)
(i889,527)
Total
stockholders' deficit
(i1,507,164)
(i1,640,365)
Total
liabilities and stockholders' deficit
$
i13,783,686
$
i13,415,100
The
accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - iOrganization
Wynn
Resorts, Limited, a Nevada corporation (together with its subsidiaries, "Wynn Resorts" or the "Company"), is a designer, developer, and operator of integrated resorts featuring luxury hotel rooms, high-end retail space, an array of dining and entertainment options, meeting and convention facilities, and gaming.
In the Macau Special Administrative Region ("Macau") of the People's Republic of China ("PRC"), the Company owns approximately i72%
of Wynn Macau, Limited ("WML"), which includes the operations of the Wynn Palace and Wynn Macau resorts. The Company refers to Wynn Palace and Wynn Macau as its Macau Operations. In Las Vegas, Nevada, the Company operates and, with the exception of certain retail space, owns i100% of Wynn Las Vegas. Additionally, the Company is a i50.1%
owner and managing member of a joint venture that owns and leases certain retail space at Wynn Las Vegas (the "Retail Joint Venture"). The Company refers to Wynn Las Vegas, Encore, an expansion at Wynn Las Vegas, and the Retail Joint Venture as its Las Vegas Operations. In Everett, Massachusetts, the Company operates Encore Boston Harbor, an integrated resort. The Company also holds an approximately i97%
interest in, and consolidates, Wynn Interactive Ltd. ("Wynn Interactive"), through which it operates online sports betting, gaming, and social casino businesses.
Note 2 -iBasis of Presentation and Significant Accounting Policies
Basis of Presentation
The
accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to a fair presentation of the results for the interim periods presented. The results
for the three and six months ended June 30, 2023 are not necessarily indicative of results to be expected for any other interim period or the full fiscal year ending December 31, 2023. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
i
Principles
of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries, and entities the Company identifies as variable interest entities ("VIEs") of which the Company is determined to be the primary beneficiary. For information on the Company's VIEs, see Note 17, "Retail Joint Venture." All significant intercompany accounts and transactions have been eliminated.
Use
of Estimates
The preparation of condensed 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. Significant estimates and assumptions reflected in the financial statements relate to and include, but are not limited to, inputs into the Company's estimated allowance for credit losses, estimates regarding the useful lives and recoverability of long-lived and intangible assets, valuations of derivatives, and litigation and contingency estimates.
iGaming
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 Condensed Consolidated Statements of Operations. These taxes totaled $i391.4 million and $i106.3 million
for the three months ended June 30, 2023 and 2022, respectively, and $i701.8 million and $i283.2 million for the six months ended June 30, 2023 and 2022,
respectively.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
i
Investment Securities
Investment securities consist of short-term investments in United States treasury bills. Short-term investments have a maturity date of less than one year. 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.
As of June 30, 2023, the Company had $i288.2 million in investment securities, recorded at amortized cost. The estimated fair value of the Company's investment securities as of June 30,
2023 was approximately $i286.9 million and the gross unrecognized holding loss was $i1.3 million. As of June
30, 2023, the Company had $i1.7 million in accrued interest, recorded in Investment securities on the Condensed Consolidated Balance Sheets.
As of the balance sheet date, the Company evaluates whether the unrealized losses are attributable to credit losses or other factors. The Company considers the severity of the decline in value, creditworthiness of the issuer and other relevant factors and records an allowance for credit losses, limited to the excess of amortized cost over fair value, with a corresponding charge to earnings. The allowance may be subsequently increased or decreased based on the prevailing facts and circumstances. During the three and six months ended June 30, 2023, iino/
impairment loss was recognized.
i
Recently Issued Accounting Standards
The Company’s management has evaluated the recently issued, but not yet effective, accounting standards that have been issued or proposed by the Financial Accounting Standards Board or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements
will have a material effect on the Company’s financial position, results of operations and cash flows.
Note 3 - iCash, Cash Equivalents and Restricted Cash
iiCash,
cash equivalents and restricted cash consisted of the following (in thousands):
(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 subject to certain contractual restrictions, cash collateral associated with obligations and cash held in a trust in accordance with WML's share award plan, and as of June 30, 2023 and December 31, 2022 included $i86.7 million and $i124.5 million,
respectively, in the form of a first demand bank guarantee in favor of the Macau government to support Wynn Resorts (Macau) S.A.'s legal and contractual obligations through the term of the Gaming Concession Contract (as defined in Note 6, "Goodwill and Intangible Assets, net").
//
i
The
following table presents the supplemental cash flow disclosures of the Company (in thousands):
Cash paid for interest, net of amounts capitalized
$
i346,055
$
i292,218
Liability
settled with shares of common stock
$
i6,639
$
i9,287
Accounts
and construction payables related to property and equipment
$
i49,014
$
i47,305
Other
liabilities related to intangible assets (1)
$
i205,875
$
i5,586
Finance
lease liabilities arising from obtaining finance lease assets
$
i657
$
i4,135
/
(1) For the six months ended June 30, 2023, included $i201.5 million related to the Macau gaming premium in connection with the Gaming Concession Contract. See Note 6, "Goodwill and Intangible Assets, net" for further information.
As
of June 30, 2023 and December 31, 2022, approximately i64.2% and i57.6%, respectively, of the Company's markers were due from customers
residing outside the United States, primarily in Asia. Business or economic conditions or other significant events in the countries in which the Company's customers reside could affect the collectability of such receivables.
The Company’s allowance for casino credit losses was i33.2% and i43.2%
of gross casino receivables as of June 30, 2023 and December 31, 2022, respectively. Although the Company believes that its allowance is adequate, it is possible the estimated amounts of cash collections with respect to receivables could change. The Company’s allowance for credit losses from its hotel and other receivables is not material.
The following table shows the movement in the Company's allowance for credit losses recognized for receivables that occurred during the periods presented (in thousands):
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
As of June 30, 2023 and December 31, 2022, construction in progress consisted primarily of costs capitalized for various capital enhancements at the Company's properties.
Depreciation expense for the three months ended June 30, 2023 and 2022
was $i154.8 million and $i154.1 million, respectively, and depreciation expense for the six months ended June 30, 2023 and 2022 was $i308.9
million and $i330.4 million, respectively.
Note 6 - iGoodwill and Intangible Assets, net
iii
The
following table shows the movement in the Company's goodwill and intangible assets balances that occurred during the periods presented (in thousands):
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Macau Gaming Concession
In December 2022, Wynn Resorts (Macau) S.A. ("Wynn Macau SA"), an indirect subsidiary of Wynn Resorts, Limited, entered into a definitive gaming concession contract (the "Gaming Concession Contract") with the Macau government, pursuant to which Wynn Macau SA was granted
a i10-year gaming concession commencing on January 1, 2023 and expiring on December 31, 2032, to operate games of chance at Wynn Palace and Wynn Macau. Under the terms of the Gaming Concession Contract, Wynn Macau SA is required to pay the Macau government an annual gaming premium consisting of a fixed and a variable portion. The fixed portion of the premium is composed of an annual amount equal to MOPi30.0 million
(approximately $i3.7 million). The variable portion is composed of an annual amount equal to MOPi300,000 (approximately $i37 thousand)
per gaming table located in special gaming halls reserved exclusively to particular games or players, MOPi150,000 (approximately $i19 thousand) per gaming table that is not reserved exclusively to particular games or players, and MOPi1,000
(approximately $i124) per gaming machine, including slot machines, operated by Wynn Macau SA.
In December 2022, in accordance with the requirements of the Macau Gaming Law, Wynn Macau SA and Palo Real Estate Company Limited ("Palo"), a subsidiary of Wynn Macau SA, entered into agreements (collectively, the "Property Transfer Agreements") with the Macau government, pursuant to which Wynn Macau SA and Palo transferred the casino areas and gaming equipment of the Company's
Macau Operations to the Macau government without compensation on December 31, 2022, and the Macau government agreed to transfer such casino areas and gaming equipment back to Wynn Macau SA as of January 1, 2023, for its use in the operation of games of chance at Wynn Macau and Wynn Palace as permitted under the Gaming Concession Contract through December 31, 2032. As the Company expects to continue to operate the casino areas and gaming equipment at its Macau Operations in the same manner as under the previous concession, obtain substantially all of the economic benefits, and bear all of the risks arising from the use of these assets, the
Company will continue to recognize the casino areas and gaming equipment as property and equipment over their remaining estimated useful lives. In exchange for the use of such assets, Wynn Macau SA has agreed to make annual payments to the Macau government of MOPi53.1 million (approximately $i6.6 million)
during each of the years ending December 31, 2023, 2024, and 2025, and an annual payment of MOPi177.0 million (approximately $i21.9 million)
during each of the remaining years of the term of the Gaming Concession Contract through December 31, 2032, subject to adjustment in each year based on the average price index in Macau. Pursuant to the Gaming Concession Contract, Wynn Macau SA will revert to the Macau government the casino areas and gaming equipment, without compensation and free of encumbrance upon the rescission or termination of the gaming concession on December 31, 2032.
On January 1, 2023, the Company
recognized an intangible asset and financial liability of MOPi1.68 billion (approximately $i208.3 million), representing the right to operate games of chance at Wynn Palace and Wynn Macau and the
unconditional obligation to make payments under the Gaming Concession Contract. This intangible asset comprises the contractually obligated annual payments of fixed and variable premiums, as well as fees associated with the above-described Property Transfer Agreements. The contractually obligated annual variable premium payments associated with the intangible asset was determined using the total number of gaming tables and gaming machines that Wynn Macau SA is currently approved to operate by the Macau government. In the accompanying condensed consolidated balance sheets, the noncurrent portion of the financial liability is included in "Other long-term liabilities" and the current portion is included in "Other accrued liabilities." The intangible asset is being amortized on a straight-line basis over the i10-year
term of the Gaming Concession Contract. The Company expects that amortization of the Macau Gaming Concession will be $i10.4 million in the six months ending December 31, 2023, and $i20.9 million
each year from 2024 to 2032.
Wynn Interactive Goodwill
During the three months ended June 30, 2022, as a result of management's decision to cease the operations of Betbull Limited ("BetBull"), a subsidiary of Wynn Interactive, the Company impaired its trademark and customer list totaling $i10.3 million
and impaired the remaining balance of goodwill related to the BetBull reporting unit totaling $i7.5 million.
During the three months ended March 31, 2022, as a result of changes in forecasts and other industry-specific factors, the Company identified interim indicators of impairment related to the goodwill assigned to the reporting units comprising Wynn Interactive. After revisiting the estimated fair value
of those reporting units based on a combination of the income and market approaches, the Company recognized impairment of $i30.3 million. Impairment of goodwill and intangible assets is recorded in Property charges and other in the accompanying Condensed Consolidated Statements of Operations.
Less:
Unamortized debt issuance costs and original issue discounts and premium, net
(i178,631)
(i46,114)
i12,142,727
i12,116,859
Less:
Current portion of long-term debt
(i41,250)
(i547,543)
Total
long-term debt, net of current portion
$
i12,101,477
$
i11,569,316
(1)
As of June 30, 2023, the borrowings under the WM Cayman II Revolver bear interest at LIBOR or HIBOR plus a margin of i1.875% to i2.875% per annum based on WM Cayman II’s leverage ratio on a consolidated
basis, subject to a floor on the interest rate margin of i2.625% per annum. Approximately $i312.5 million and $i1.18
billion of the WM Cayman II Revolver bears interest at a rate of LIBOR plus i2.875% per year and HIBOR plus i2.875% per year, respectively. As of June 30, 2023, the weighted average interest rate was
approximately i7.81%. As of June 30, 2023, the WM Cayman II Revolver was fully drawn. Due to the global phase out of LIBOR, on June 27, 2023, WM Cayman II entered into an amended and restated facility agreement to, among other things, transition the base rate applicable to U.S. dollar-denominated loans made under the WM Cayman II Revolver from LIBOR to the term secured overnight financing rate ("Term SOFR"). The new Term SOFR base rate became effective July 4, 2023.
(2)
As of June 30, 2023, the net carrying amount of the WML Convertible Bonds was $i470.7 million, with unamortized debt discount and debt issuance costs of $i129.3 million.
The Company recorded contractual interest expense of $i6.8 million and $i8.6 million and amortization of discounts and issuance costs of $i4.3 million
and $i5.4 million during the three and six months ended June 30, 2023, respectively.
(3) The WRF Credit Facilities bear interest at a rate of Term SOFR plus i1.85%
per year. As of June 30, 2023, the weighted average interest rate was approximately i6.95%. Additionally, as of June 30, 2023, the available borrowing capacity under the WRF Revolver was $i737.0
million, net of $i13.0 million in outstanding letters of credit.
/
(4) The Retail Term Loan bears interest at a rate of LIBOR plus i1.70%
per year. As of June 30, 2023, the interest rate was i5.45%. On June 2, 2023, the Company entered into a second amendment to the existing term loan agreement which transitions the benchmark interest rate of the Retail Term Loan from LIBOR to the adjusted daily simple secured overnight financing rate ("SOFR"), effective July 3, 2023.
WM
Cayman II Revolver Facility Agreement Amendment
Due to the global phase out of LIBOR, on June 27, 2023, WM Cayman Holdings Limited II, as borrower ("WM Cayman II"), and WML, as guarantor, entered into an Amended and Restated Facility Agreement with Bank of China Limited, Macau Branch, as agent for the syndicate of lenders (as amended and restated, the "Facility Agreement"), to transition the base rate applicable to loans denominated in U.S. dollars made pursuant to the revolving credit facility provided thereunder (the "WM
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Cayman II Revolver") from the London Interbank Offered Rate ("LIBOR") to Term SOFR. The new Term SOFR base rate became effective July 4, 2023.
The WM Cayman II Revolver consists of a U.S. dollar tranche in an amount of $i312.5 million
("Facility A") and a Hong Kong dollar tranche in an amount of HK$i9.26 billion (equivalent to $i1.18 billion) ("Facility B"). Pursuant to the Facility Agreement,
loans provided under Facility A bear interest at a variable rate per annum equal to: (a) Term SOFR, plus i0.10% (subject to a minimum floor of i0.00%), plus (b) a margin of i1.875%
to i2.875% based on the consolidated leverage ratio of WM Cayman II and its subsidiaries (as calculated pursuant to the Facility Agreement), and loans provided under Facility B bear interest at a variable rate per annum equal to: (i) the Hong Kong Interbank Offered Rate, plus (ii) a margin of i1.875%
to i2.875% based on the consolidated leverage ratio of WM Cayman II and its subsidiaries (as calculated pursuant to the Facility Agreement).
WML 4 1/2% Convertible Bonds, due 2029
On March 7, 2023, WML completed an offering (the "Offering") of $i600 million
i4.50% convertible bonds due 2029 (the "WML Convertible Bonds"). The WML Convertible Bonds are governed by a trust deed dated March 7, 2023 (the "Trust Deed"), between WML and DB Trustees (Hong Kong) Limited, as trustee. WML, DB Trustees (Hong Kong) Limited, as trustee, and Deutsche Bank Trust Company Americas entered into an agency agreement, appointing Deutsche Bank Trust Company Americas as the principal paying agent, principal conversion agent, transfer agent and registrar in relation to the WML Convertible Bonds. The net proceeds from the Offering,
after deduction of commissions and other related expenses, were $i585.9 million. WML intends to use the net proceeds for general corporate purposes.
The WML Convertible Bonds bear interest on their outstanding principal amount from and including March 7, 2023 at the rate of i4.50%
per annum, payable semi-annually in arrears on March 7 and September 7 of each year. At any time on or after April 17, 2023, the WML Convertible Bonds are convertible at the option of the holder thereof into fully paid ordinary shares of WML, each with a nominal value of HK$i0.001 per share ("Ordinary Shares"), at the initial conversion price of approximately HK$i10.24
(equivalent to approximately $i1.31) per share, subject to and upon compliance with the terms and conditions of the WML Convertible Bonds (the "Terms and Conditions," and such right, the "Conversion Right"). The conversion price is at the fixed exchange rate of HK$i7.8497
per $1.00, subject to standard adjustments for certain dilutive events as described in the Terms and Conditions. WML has the option upon conversion by a bondholder to pay an amount of cash equivalent described in the Terms and Conditions in order to satisfy such Conversion Right in whole or in part.
Holders of the WML Convertible Bonds have the option to require WML to redeem all or some only of such holder’s WML Convertible Bonds (i) on March 7, 2027 at their principal amount together with interest accrued but unpaid to, but excluding, the date fixed for redemption; or (ii) on the Relevant Event Redemption Date (as defined in the Terms and Conditions) at their principal amount together with interest accrued but unpaid to, but excluding, such date, following the occurrence of (a) when the Ordinary Shares cease to be listed or admitted to trading
or are suspended from trading for a period equal to or exceeding 10 consecutive trading days on the Stock Exchange of Hong Kong Limited, or if applicable, the alternative stock exchange, (b) when there is a Change of Control (as defined in the Terms and Conditions), or (c) when less than 25% of WML’s total number of issued Ordinary Shares are held by the public (as interpreted under Rule 8.24 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited).
The WML Convertible Bonds may also be redeemed at the option of WML under certain circumstances specified in the Terms and Conditions, in whole, but not in part, at any time after March 7, 2027, but prior to March 7, 2029, upon giving notice to the bondholders in accordance with the Terms and Conditions. The
WML Convertible Bonds constitute direct, unsubordinated, unconditional and, subject to the Terms and Conditions, unsecured obligations of WML and rank pari passu and without any preference or priority among themselves. The Ordinary Shares to be issued upon exercise of Conversion Right will be fully-paid and will in all respects rank pari passu with the fully-paid Ordinary Shares in issue on the relevant registration date set forth in the Terms and Conditions.
The Trust Deed contains covenants limiting WML's and all of its subsidiaries' ability to, among other things, create, permit to subsist or arise or have outstanding any mortgage, charge, pledge, lien or other encumbrance or certain security interest; consolidate or merge with or into another company; and sell, assign, transfer, convey
or otherwise dispose of all or substantially all of its and its subsidiaries’ properties or assets, with certain exceptions. The Trust Deed also contains customary events of default.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company determined that the conversion feature contained within the WML Convertible Bonds is required to be bifurcated from the debt host contract and accounted for as a free-standing derivative (the "WML Convertible Bond Conversion Option Derivative"). In accordance with applicable accounting standards, the WML Convertible Bond Conversion Option Derivative will be reported at fair
value as of the end of each reporting period, with changes recognized in the statement of operations. For more information, see "Note 8 - WML Convertible Bond Conversion Option Derivative." As a result, the Company recognized a debt discount of $i123.5 million within Long-term debt, representing the estimated fair value of the holders' conversion option upon completion of the Offering. The debt discount will be amortized to interest expense over the term of the WML Convertible Bonds using the effective interest
method. As of June 30, 2023, the estimated fair value of the WML Convertible Bond Conversion Option Derivative was a liability of $i77.0 million, recorded within Long-term debt within the accompanying Condensed Consolidated Balance Sheet.
WRF Credit Facility Agreement Amendment
On May 17, 2023, Wynn Resorts Finance, LLC ("WRF") and certain of its subsidiaries
entered into an amendment (the "WRF Credit Facility Agreement Amendment") to its existing credit agreement (the "WRF Credit Facility Agreement") among Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the other lenders party thereto.
The WRF Credit Facility Agreement Amendment amends the WRF Credit Facility Agreement to: (i) transition the benchmark rate from LIBOR to Term SOFR and to make conforming changes, (ii) reduce the aggregate principal amount of revolving commitments under the revolving credit facility by $i100.0 million,
from $i850.0 million to $i750.0 million, (iii) extend the stated maturity date for lenders electing to extend their revolving commitments in an amount equal to approximately
$i681.3 million from September 20, 2024 to September 20, 2027, and (iv) extend the stated maturity date for lenders electing to extend their term loan commitments in an amount equal to approximately $i749.4 million
from September 20, 2024 to September 20, 2027. Lenders who elected not to extend their revolving commitments in an amount equal to approximately $i68.7 million will remain subject to a stated maturity date of September 20, 2024, and lenders who elected not to extend their term loan commitments in an amount equal to approximately $i75.6 million
will remain subject to a stated maturity date of September 20, 2024. In connection with the WRF Credit Facility Agreement Amendment, the Company recognized a loss on debt financing transactions of $i1.2 million within the accompanying Condensed Consolidated Statement of Operations, and the Company recorded debt issuance costs of $i5.1 million,
within the Condensed Consolidated Balance Sheet.
WRF 7 1/8% Senior Notes, due 2031 and WRF 7 3/4% Senior Notes, due 2025
On February 16, 2023, WRF and its subsidiary Wynn Resorts Capital Corp. (together with WRF, the "WRF Issuers"), each an indirect wholly owned subsidiary of the Company, issued $i600.0 million
aggregate principal amount of 7 1/8% Senior Notes due 2031 (the "2031 WRF Senior Notes") pursuant to an indenture among the WRF Issuers, the guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee, in a private offering. The 2031 WRF Senior Notes were issued at par, for proceeds of $i596.2 million, net of $i3.8 million
of related fees and expenses. Also on February 16, 2023, the WRF Issuers completed a cash tender offer for any and all of the outstanding principal amount of the 7 3/4% Senior Notes due 2025 (the "2025 WRF Senior Notes") and accepted for purchase valid tenders with respect to $i506.4 million principal amount and paid a tender premium of $i12.4 million
to the holders of such tendered 2025 WRF Senior Notes. The Company used a portion of the net proceeds from the issuance of the 2031 WRF Senior Notes to purchase such tendered 2025 WRF Senior Notes and to pay the tender premium and related fees and expenses.
In April 2023, WRF repurchased all of the outstanding 2025 WRF Senior Notes using the remaining net proceeds from the issuance of the 2031 WRF Senior Notes and cash held by WRF, at a price equal to i101.938%
of the principal amount plus accrued interest under the terms of its indenture.
In connection with the issuance of the 2031 WRF Senior Notes and purchase of the 2025 WRF Senior Notes, the Company recognized a loss on debt financing transactions of $i10.6 million within the accompanying Condensed Consolidated Statement of
Operations, and the Company recorded debt issuance costs of $i11.4 million within the accompanying Condensed Consolidated Balance Sheet.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
WLV 4 1/4% Senior Notes, due 2023
In March 2023, the Company repurchased all of its outstanding Wynn Las Vegas 4 1/4% Senior Notes due 2023, representing an aggregate principal amount of $i500.0 million,
using cash held by WRF, at a price equal to i100% of the principal amount plus accrued interest under the terms of its indenture. The Company recognized a loss on early extinguishment of debt of $i1.0 million.
Retail Term Loan Second Amendment
On June 2, 2023, Wynn/CA Plaza Property Owner, LLC and Wynn/CA Property Owner, LLC (collectively, the "Borrowers") entered into a second amendment (the "Retail Term Loan Second Amendment") to their existing term loan agreement (the "Retail Term Loan Agreement"). The Retail Term Loan Second Amendment, which is effective as of July 3, 2023, amends the Retail Term Loan Agreement to transition the benchmark interest rate applicable to the secured loan in an aggregate principal amount of $i615.0 million
issued to the Borrowers thereunder from LIBOR to SOFR and to make related conforming changes to the Retail Term Loan Agreement.
The estimated fair value of the Company's long-term debt as of June 30, 2023 and December 31,
2022, was approximately $i11.56 billion and $i11.23 billion, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount and premium, of $i12.24
billion and $i12.16 billion, respectively. 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 8 - iWML
Convertible Bond Conversion Option Derivative
An embedded derivative is a feature contained within a contract that affects some or all of the cash flows or the value of other exchanges required by the contract in a manner similar to a derivative instrument. Embedded derivatives are required to be bifurcated and accounted for separately from the host contract and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract;
and (b) a separate, freestanding instrument with the same terms would qualify as a derivative instrument. The Company determined that the conversion feature contained within the WML Convertible Bonds is not indexed to WML's equity and, as such, is required to be bifurcated from the debt host contract and accounted for as a free-standing derivative. In accordance with applicable accounting standards, the WML Convertible Bond Conversion Option Derivative will be reported at fair value as of the end of each reporting period, with changes recognized in the statement of operations.
The Company used a binomial lattice model in order
to estimate the fair value of the embedded derivative in the WML Convertible Bonds. Inherent in a binomial options pricing model are unobservable (Level 3) inputs and assumptions related to expected share-price volatility, risk-free interest rate, expected term, and dividend yield. The Company estimates the volatility of shares of WML common stock based on historical volatility that matches the expected remaining term to maturity of the WML Convertible Bonds. The risk-free interest rate is based on the Hong Kong and United States benchmark yield curves on the valuation date for a maturity similar to the expected remaining term of the WML Convertible Bonds. The expected life of the WML Convertible Bonds is assumed to be equivalent to their remaining term to maturity. The dividend yield is based on the historical WML dividend rate over the last several years.
In
connection with the completion of the Offering on March 7, 2023, the Company recognized a debt discount and a corresponding liability for the embedded derivative, based on an estimated fair value of $i123.5 million. The debt discount will be amortized to interest expense over the term of the WML Convertible Bonds using the effective interest method. As of June 30, 2023, the estimated fair value of the embedded derivative
was a liability of $i77.0 million, recorded within Long-term debt within the accompanying Condensed Consolidated Balance Sheet. In connection with the change in fair value, the Company recorded a $i21.6 million
and $i46.5 million gain within Change in derivatives fair value in the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2023, respectively.
Note 9 - iStockholders'
Deficit
Dividends
On June 6, 2023, the Company paid a cash dividend of $i0.25 per share and recorded $i28.5 million
as a reduction of accumulated deficit.
During the six months ended June 30, 2023 and 2022, the Retail Joint Venture made aggregate distributions of approximately $i8.9 million and $i16.5
million, respectively, to its non-controlling interest holder. For more information on the Retail Joint Venture, see Note 17, "Retail Joint Venture."
During the three months ended March 31, 2022, in exchange for cash consideration of $i50.0 million, the Company sold to Crown Acquisitions Inc. ("Crown") a i49.9%
interest in certain additional retail space contributed by the Company to the Retail Joint Venture. In connection with this transaction, the Company recorded $i48.6 million of additional paid-in capital and $i1.5 million
of noncontrolling interest, within Contribution from noncontrolling interest in the accompanying Condensed Consolidated Statement of Stockholders' Deficit for the three months ended March 31, 2022.
WML Securities Lending Agreement
In connection with the WML Convertible Bonds Offering, WM Cayman Holdings I Limited ("WM Cayman I"), a wholly owned subsidiary of the Company and holder of our approximately i72%
ownership interest in WML, entered into a stock borrowing and lending agreement with Goldman Sachs International (the "WML Stock Borrower") on March 2, 2023 (as amended on March 30, 2023, the "Securities Lending Agreement"), pursuant to which WM Cayman I has agreed to lend to the WML Stock Borrower up to i459,774,985 of its ordinary share holdings in WML, upon and subject to the terms and conditions in the Securities Lending Agreement. WM Cayman I may, at its sole discretion, terminate any stock
loan by giving the WML Stock Borrower no less than five business days' notice. The Securities Lending Agreement terminates on the date on which the WML Convertible Bonds have been redeemed, or converted in full, whichever is the earlier. On March 6, 2023, the WML Stock Borrower borrowed i459,774,985 ordinary shares of WML under the Securities Lending Agreement and on April 3, 2023 returned i280,000,000
of such shares to WM Cayman I. As of the date of this report, the WML Stock Borrower held i179,774,985 WML shares under the Securities Lending Agreement.
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.
i
The
Company's primary liabilities associated with customer contracts are as follows (in thousands):
Casino outstanding chips and front money deposits (1)
$
i398,100
$
i390,531
$
i7,569
$
i325,187
$
i352,830
$
(i27,643)
Advance
room deposits and ticket sales (2)
i73,517
i85,019
(i11,502)
i60,777
i55,438
i5,339
Other
gaming-related liabilities (3)
i29,047
i31,265
(i2,218)
i25,272
i26,515
(i1,243)
Loyalty
program and related liabilities (4)
i37,799
i35,083
i2,716
i38,360
i34,695
i3,665
$
i538,463
$
i541,898
$
(i3,435)
$
i449,596
$
i469,478
$
(i19,882)
(1)
Casino outstanding chips generally represent amounts owed to gaming promoters 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 Condensed Consolidated Balance Sheets and may be recognized as revenue or 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 Condensed 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 Condensed 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 Condensed Consolidated Balance Sheets and are expected to be recognized as revenue within one year of being earned by customers.
The Company recorded an income tax expense of $i4.3 million and $i0.7 million
for the three months ended June 30, 2023 and 2022, respectively and an income tax expense of $i5.3 million and $i1.9 million for the six months ended June
30, 2023 and 2022, respectively. Income tax expense in 2023 primarily relates to U.S. operating profits. Income tax expense in 2022 primarily related to the Macau dividend tax agreement that provides for an annual payment as complementary tax otherwise due by stockholders of WRM.
The Company records valuation allowances on certain of its U.S. and foreign deferred tax assets. In assessing the need for a valuation allowance, the Company considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. In the assessment of the valuation
allowance, appropriate consideration is given to all positive and negative evidence including recent operating profitability, forecast of future earnings, ability to carryback, the reversal of net taxable temporary differences, the duration of statutory carryforward periods and tax planning strategies.
Given the Company’s current earnings and anticipated future earnings, the Company believes there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that a portion of the valuation allowance on certain of its U.S. deferred tax assets will no longer be needed.
Note
14 - iEarnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income (loss) attributable to Wynn Resorts by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) attributable to Wynn Resorts, adjusted for the potential dilutive impact assuming that the conversion of the WML Convertible Bonds occurred as of the date of their issuance under the if-converted method, 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, to the extent such impact is not anti-dilutive. Potentially dilutive securities include outstanding stock options and unvested restricted stock.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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):
In addition to the actions noted below, the Company and its affiliates are involved in litigation arising in the normal course of business. In the opinion of management, such litigation is not expected to have a material effect on the Company's
financial condition, results of operations, and cash flows.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Macau Litigation Related to Dore
Wynn Macau SA has been named as a defendant in lawsuits filed in the Macau Court of First Instance by individuals who claim to be investors in, or persons with credit in accounts maintained by, Dore Entertainment Company Limited ("Dore"), an independent, Macau registered and licensed company that operated a gaming promoter business at Wynn Macau. In connection with the alleged theft, embezzlement, fraud and/or other crime(s) perpetrated by a former employee
of Dore (the "Dore Incident"), the plaintiffs of the lawsuits allege that Dore failed to honor withdrawal of funds deposited with Dore as investments or gaming deposits that allegedly resulted in certain losses for these individuals. The principal allegations common to the lawsuits are that Wynn Macau SA, as a gaming concessionaire, should be held responsible for Dore’s conduct on the basis that Wynn Macau SA is responsible for the supervision of Dore’s activities at Wynn Macau that resulted in the purported losses.
The Company believes these cases are without merit and unfounded and intends to vigorously defend against the remaining claims pleaded against Wynn Macau SA in these lawsuits. The Company has made
estimates for potential litigation costs based upon its assessment of the likely outcome and has recorded provisions for such amounts in the accompanying condensed consolidated financial statements. No assurances can be provided as to the outcome of the pending Dore cases, and actual results may differ from these estimates.
Securities Class Action
On February 20, 2018, a putative securities class action was filed against the Company and certain current and former officers of the Company in the United States District Court, Southern District of New York (which was subsequently transferred
to the United States District Court, District of Nevada) by John V. Ferris and Joann M. Ferris on behalf of all persons who purchased the Company's common stock between February 28, 2014 and January 25, 2018. The complaint alleges, among other things, certain violations of federal securities laws and seeks to recover unspecified damages as well as attorneys' fees, costs and related expenses for the plaintiffs. On April 15, 2019, the Company filed a motion to dismiss, which the court granted on May 27, 2020, with leave to amend. On July 1, 2020, the plaintiffs
filed an amended complaint. On August 14, 2020, the Company filed a motion to dismiss the amended complaint. On July 28, 2021, the court granted in part, and denied in part, the Company's motion to dismiss the amended complaint, dismissing certain of plaintiffs' claims, including all claims against current CEO Craig Billings and the individual directors, and allowing other claims to proceed against the Company and several of the Company's former executive officers, including Matthew Maddox, Stephen A. Wynn, Kimmarie Sinatra, and
Steven Cootey. On March 2, 2023, the court granted the plaintiffs' motion for class certification and appointed lead counsel. The parties are now proceeding with discovery.
The defendants in this action intend to vigorously defend against the claims pleaded against them and believe that the claims are without merit. This action is in the preliminary stages and the Company has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or reasonably estimate the range of possible loss, if any.
Federal Investigation
From
time to time, the Company receives regulatory inquiries about compliance with anti-money laundering laws. The Company received requests for information from the U.S. Attorney’s Office for the Southern District of California relating to its anti-money laundering policies and procedures, and beginning in 2020 received several grand jury subpoenas regarding various transactions at Wynn Las Vegas relating to certain patrons and agents who reside or operate in foreign jurisdictions. The Company continues to cooperate with the U.S. Attorney's Office in its investigation, which remains ongoing. Because no charges or claims have been brought, the
Company is unable to predict the outcome of the investigation, the extent of the materiality of the outcome, or reasonably estimate the possible range of loss, if any, which could be associated with the resolution of any possible charges or claims that may be brought against the Company.
Note 17 - iRetail Joint Venture
As
of June 30, 2023 and December 31, 2022, the Retail Joint Venture had total assets of $i112.2 million and $i102.9 million, respectively, and total liabilities of $i621.9
million and $i620.9 million, respectively. As of June 30, 2023 and December 31, 2022, the Retail Joint Venture's liabilities included long-term debt of $i613.8 million and $i613.5
million, respectively, net of debt issuance costs, related to the outstanding borrowings under the Retail Term Loan.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 18 - iSegment Information
The Company has identified its reportable segments based
on factors such as geography, regulatory environment, the information reviewed by its chief operating decision maker, and the Company's organizational and management reporting structure.
The Company has identified the following reportable segments: (i) Wynn Macau, representing the aggregate of Wynn Macau and Encore, an expansion at Wynn Macau, which are managed as a single integrated resort; (ii) Wynn Palace; (iii) Las Vegas Operations, representing the aggregate of Wynn Las Vegas, Encore, an expansion at Wynn Las Vegas, and the Retail Joint Venture, which are managed as a single integrated resort; (iv) Encore Boston Harbor; and (v) Wynn Interactive. For geographical reporting purposes, Wynn Macau, Wynn Palace, and
Other Macau (which represents the assets of the Company's Macau holding company and other ancillary entities) have been aggregated into Macau Operations.
Net
(income) loss attributable to noncontrolling interests
(i22,651)
i83,371
(i11,465)
i154,657
Net
income (loss) attributable to Wynn Resorts, Limited
$
i105,184
$
(i130,051)
$
i117,516
$
(i313,375)
(1) Includes
lease revenue accounted for under lease accounting guidance. For more information on leases, see Note 15, "Leases."
(2) "Adjusted Property EBITDAR" is net income (loss) before interest, income taxes, depreciation and amortization, pre-opening expenses, property charges and other, triple-net operating lease rent expense related to Encore Boston Harbor, management and license fees, corporate expenses and other (including intercompany golf course, meeting and convention, and water rights leases), stock-based compensation, change in derivatives fair value, loss on debt financing transactions, and other non-operating income and expenses. Adjusted Property EBITDAR is presented exclusively as a supplemental disclosure because management believes that it is widely used to measure the performance, and as a basis for valuation, of gaming companies. Management uses Adjusted Property EBITDAR as a measure of the operating
performance of its segments and to compare the operating performance of its properties with those of its competitors, as well as a basis for determining certain incentive compensation. The Company also presents Adjusted Property EBITDAR because it is used by some investors to measure a company's ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDAR as a supplement to GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their EBITDAR calculations preopening expenses, property charges, corporate expenses and stock-based compensation, that do not relate to the management of specific casino properties. However, Adjusted Property EBITDAR should not be considered as an alternative to operating income
(loss) as an indicator of the Company's performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike net income (loss), Adjusted Property EBITDAR does not include depreciation or interest expense and therefore does not reflect current or future capital expenditures or the cost of capital. The Company has significant uses of cash flows, including capital expenditures, triple-net operating lease rent expense related to Encore Boston Harbor, debt principal repayments, income taxes and other non-recurring charges, which are not reflected in Adjusted Property EBITDAR. Also, the Company's calculation
of Adjusted Property EBITDAR may be different from the calculation methods used by other companies and, therefore, comparability may be limited.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with, and is qualified in its entirety by, the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2022. Unless the context otherwise requires, all references herein to the "Company,""we,""us," or "our," or similar terms, refer to Wynn Resorts, Limited, a Nevada corporation, and its consolidated subsidiaries.
This discussion and analysis contains forward-looking statements. Please refer to the section below entitled "Forward-Looking Statements."
Forward-Looking Statements
We make forward-looking statements in this Quarterly Report on Form 10-Q based upon the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include, but are not limited to, information about our business strategy, development activities, competition and possible or assumed future results of operations, throughout this report and are often preceded by, followed by or include the words "may,""will,""should,""would,""could,""believe,""expect,""anticipate,""estimate,""intend,""plan,""continue" or the negative of these terms or similar expressions.
Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those we express in these forward-looking statements, including the risks and uncertainties in Item 1A — "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022 and other factors we describe from time to time in our periodic filings with the Securities and Exchange Commission ("SEC"), such as:
•the impact on the travel and leisure industry from factors such as an outbreak of an infectious disease,
including the COVID-19 pandemic, public incidents of violence, mass shootings, riots, demonstrations, extreme weather patterns or natural disasters, military conflicts, civil unrest, and any future security alerts and/or terrorist attacks;
•extensive regulation of our business and the cost of compliance or failure to comply with applicable laws and regulations;
•pending or future investigations, litigation and other disputes;
•our dependence on key managers and employees;
•the deterioration of the macroeconomic environment, including an economic downturn or recession or worsening geopolitical tensions that could reduce discretionary consumer spending;
•our
ability to maintain our gaming licenses and concessions and comply with applicable gaming law;
•international relations, national security policies, anticorruption campaigns and other geopolitical events, which may impact the number of visitors to our properties and the amount of money they are willing to spend;
•public perception of our resorts and the level of service we provide;
•our dependence on a limited number of resorts and locations for all of our cash flow and our subsidiaries' ability to pay us dividends and distributions;
•competition in the casino/hotel and resort industries and actions taken
by our competitors, including new development and construction activities of competitors;
•our ability to maintain our customer relationships and collect and enforce gaming receivables;
•win rates for our gaming operations;
•construction and regulatory risks associated with our current and future construction projects;
•any violations by us of the anti-money laundering laws or Foreign Corrupt Practices Act;
•our compliance with environmental requirements and potential cleanup responsibility and liability as an owner or operator of property;
•adverse incidents or
adverse publicity concerning our resorts or our corporate responsibilities;
•changes in and compliance with the gaming laws or regulations in the various jurisdictions in which we operate;
•changes in tax laws or regulations related to taxation, including changes in the rates of taxation;
•our collection and use of personal data and our level of compliance with applicable governmental regulations, credit card industry standards and other applicable data security standards;
•cybersecurity risk, including cyber and physical security breaches, system failure, computer viruses, and negligent or intentional misuse by customers, company employees, or employees of third-party vendors;
•our
ability to protect our intellectual property rights;
•labor actions and other labor problems;
•our current and future insurance coverage levels;
•risks specifically associated with our Macau Operations;
•the level of our indebtedness and our ability to meet our debt service obligations (including sensitivity to fluctuations in interest rates); and
•continued compliance with the covenants in our debt agreements
Further information on potential factors that could affect our financial condition, results of operations and business are included in this report and our other filings with the SEC. You should not place undue reliance on any forward-looking statements, which are based only on information available to us at the time this statement is made. We undertake no obligation
to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
Overview
We are a designer, developer, and operator of integrated resorts featuring luxury hotel rooms, high-end retail space, an array of dining and entertainment options, meeting and convention facilities, and gaming, all supported by an unparalleled focus on our guests, our people, and our community. Through our approximately 72% ownership of Wynn Macau, Limited ("WML"), our concessionaire Wynn Resorts (Macau) S.A. ("Wynn Macau SA") operates two integrated resorts in the Macau Special Administrative Region ("Macau") of the People's Republic of China ("PRC"),
Wynn Palace and Wynn Macau (collectively, our "Macau Operations"). In Las Vegas, Nevada, we operate and, with the exception of certain retail space, own 100% of Wynn Las Vegas. Additionally, we are a 50.1% owner and managing member of a joint venture that owns and leases certain retail space at Wynn Las Vegas (the "Retail Joint Venture"). We refer to Wynn Las Vegas, Encore, an expansion at Wynn Las Vegas, and the Retail Joint Venture as our Las Vegas Operations. In Everett, Massachusetts, we operate Encore Boston Harbor, an integrated resort. We also hold an approximately 97% interest in, and consolidate, Wynn Interactive Ltd. ("Wynn Interactive"), through which we operate WynnBet, our digital sports betting and casino gaming business.
Key Operating Measures
Certain
key operating measures specific to the gaming industry are included in our discussion of our operational performance for the periods for which the Condensed Consolidated Statements of Operations are presented. These key operating measures are presented as supplemental disclosures because management and/or certain investors use these measures to better understand period-over-period fluctuations in our casino and hotel operating revenues. These key operating measures are defined below:
•Table drop in mass market for our Macau Operations is the amount of cash that is deposited in a gaming table's drop box plus cash chips purchased at the casino cage.
•Table drop for our Las Vegas Operations is the amount of cash and net markers issued that are deposited in a gaming table's drop box.
•Table
drop for Encore Boston Harbor is the amount of cash and gross markers issued that are deposited in a gaming table's drop box.
•Rolling chips are non-negotiable identifiable chips that are used to track turnover for purposes of calculating incentives within our Macau Operations' VIP program.
•Turnover is the sum of all losing rolling chip wagers within our Macau Operations' VIP program.
•Table games win is the amount of table drop or turnover that is retained and recorded as casino revenues. Table games win is before discounts, commissions and the allocation of casino revenues to rooms, food and beverage and other revenues for services provided to casino customers on a complimentary basis. Table games win does not include poker rake.
•Slot
machine win is the amount of handle (representing the total amount wagered) that is retained by us and is recorded as casino revenues. Slot machine win is after adjustment for progressive accruals and free play, but before discounts and the allocation of casino revenues to rooms, food and beverage and other revenues for services provided to casino customers on a complimentary basis.
•Poker rake is the portion of cash wagered by patrons in our poker rooms that is retained by the casino as a service fee, after adjustment for progressive accruals, but before the allocation of casino revenues to rooms, food and beverage and other revenues for services provided to casino customers on a complimentary basis. Poker tables are not included in our measure of average number of table games.
•Average daily rate ("ADR") is calculated by dividing
total room revenues, including complimentaries (less service charges, if any), by total rooms occupied.
•Revenue per available room ("REVPAR") is calculated by dividing total room revenues, including complimentaries (less service charges, if any), by total rooms available.
•Occupancy is calculated by dividing total occupied rooms, including complimentary rooms, by the total rooms available.
Below is a discussion of the methodologies used to calculate win percentages at our resorts.
In our VIP operations in Macau, customers primarily purchase rolling chips from the casino cage and can only use them to make wagers. Winning wagers are paid in cash chips. The loss of the rolling chips in the VIP operations is recorded as turnover and provides a base for calculating VIP win percentage. It is customary in Macau to measure VIP play using this rolling chip method. We typically expect our win as a percentage of turnover from these operations to be within the range
of 3.1% to 3.4%.
In our mass market operations in Macau, customers may purchase cash chips at either the gaming tables or at the casino cage. The measurements from our VIP and mass market operations are not comparable as the measurement method used in our mass market operations tracks the initial purchase of chips at the table and at the casino cage, while the measurement method from our VIP operations tracks the sum of all losing wagers. Accordingly, the base measurement from the VIP operations is much larger than the base measurement from the mass market operations. As a result, the expected win percentage with the same amount of gaming win is lower in the VIP operations when compared to the mass market operations.
In Las Vegas, customers purchase chips at the gaming tables in exchange for cash and markers. Customers
may then redeem markers at the gaming tables or at the casino cage. The cash and markers, net of redemptions, used to purchase chips are deposited in the gaming table's drop box. This is the base of measurement that we use for calculating win percentage. Each type of table game has its own theoretical win percentage. Our expected table games win percentage is 22% to 26%.
At Encore Boston Harbor, customers purchase chips at the gaming tables in exchange for cash and markers. Customers may then redeem markers only at the casino cage. The cash and gross markers used to purchase chips are deposited in the gaming table's drop box. This is the base of measurement that we use for calculating win percentage. Each type of table game has its own theoretical win percentage. Our expected table games win percentage is 18% to 22%.
Results
of Operations
Summary of second quarter 2023 results
The following table summarizes our financial results for the periods presented (dollars in thousands, except per share data):
Net
income (loss) attributable to Wynn Resorts, Limited
105,184
(130,051)
235,235
NM
117,516
(313,375)
430,891
NM
Diluted net income (loss) per share
0.84
(1.14)
1.98
NM
0.84
(2.73)
3.57
NM
NM
- Not meaningful.
The increase in operating revenues for the three months ended June 30, 2023 was primarily driven by increases of $409.7 million and $243.0 million from Wynn Palace and Wynn Macau, respectively, resulting from an increase in gaming volumes, hotel occupancy, and covers at restaurants. The results of our Macau Operations for the three months ended June 30, 2022 were negatively impacted by certain travel-related restrictions and conditions, including COVID-19 testing, certain entry restrictions, and other mitigation procedures, related to the COVID-19 pandemic. Over the course of December 2022 and January 2023, Macau authorities relaxed or eliminated COVID-19 related protective measures. As of the date of this report, there are no remaining entry restrictions or mandatory
quarantine requirements in place for travelers to Macau, which resulted in increased business volumes at our Macau Operations for the three months ended June 30, 2023.
The increase in net income attributable to Wynn Resorts, Limited for the three months ended June 30, 2023 was primarily related to increased operating revenues at our Macau Operations, partially offset by increased operating expenses associated with higher business volumes at our Macau Operations.
Financial results for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.
Operating revenues
The following table presents our operating revenues (dollars in thousands):
Casino
revenues for the three months ended June 30, 2023 were 57.2% of operating revenues, compared to 39.6% for the same period of 2022. Non-casino revenues for the three months ended June 30, 2023 were 42.8% of operating revenues, compared to 60.4% for the same period of 2022.
Casino revenues
Casino revenues increased primarily due to higher gaming volumes at our Macau Operations following the discontinuation of pandemic-related travel restrictions in Macau in late 2022 and early 2023.
The table below sets forth our casino revenues and associated key operating measures (dollars in thousands, except
for win per unit per day):
Room
revenues increased $75.2 million, primarily due to higher occupancy and ADR at our Macau Operations.
Food and beverage revenues increased $27.2 million as a result of increased restaurant covers at our Macau Operations.
Entertainment, retail and other revenues increased $31.1 million, due to higher business volumes across our properties, including an increase in revenues of $12.5 million from our leased retail outlets at our Macau Operations.
Total operating expenses increased $384.6 million compared to the three months ended June 30, 2022, primarily due to increased casino, room, food and beverage, entertainment, retail and other, and general and administrative
expenses, partially offset by decreased property charges and other expenses.
Casino expenses increased $189.5 million and $104.5 million at Wynn Palace and Wynn Macau, respectively. These increases resulted from higher operating costs, including $179.1 million and $102.0 million in incremental gaming tax expense at Wynn Palace and Wynn Macau, respectively, driven by the increase in casino revenues.
Room expenses increased $3.8 million and $2.8 million at our Las Vegas Operations and Wynn Palace, respectively. These increases resulted from higher operating costs related to an increase in room revenues at our Las Vegas Operations and Wynn Palace.
Food and beverage expenses increased $7.3 million and $4.1 million at Wynn
Palace and Wynn Macau, respectively. These increases resulted from higher operating costs related to an increase in food and beverage revenues at Wynn Palace and Wynn Macau.
Entertainment, retail and other expenses increased $4.7 million, $2.5 million, and $1.9 million at our Las Vegas operations, Wynn Macau, and Wynn Palace, respectively. These increases resulted from higher operating costs related to increased revenues at our Las Vegas Operations and our Macau Operations. None of the increased operating costs was individually significant.
General and administrative expenses increased primarily due to triple-net operating lease expense of $35.6 million at Encore Boston Harbor following the sale-leaseback transaction in December 2022. In addition, corporate and other general and administrative expenses
increased $12.2 million, primarily due to increased development costs.
For the three months ended June 30, 2023, pre-opening expenses totaled $1.5 million, which primarily related to new outlets and amenities across our properties. For the three months ended June 30, 2022, pre-opening expenses totaled $4.5 million, which primarily related to reconfiguring the theater space at Wynn Las Vegas.
Property charges and other expenses for the quarter ended June 30, 2023 consisted primarily of asset abandonments of $6.6 million and $1.1 million at our Las Vegas Operations and Wynn Palace, respectively, as well as contract
termination and other expenses of $6.5 million at Wynn Macau. Our property charges and other expenses for the quarter ended June 30, 2022 consisted primarily of impairment of goodwill and other finite-lived intangible assets of $7.5 million and $10.3 million, respectively, and $7.6 million of other restructuring costs related to management's decision to cease the operations of BetBull, Limited ("BetBull"), a subsidiary of Wynn Interactive.
Interest expense, net of capitalized interest, increased $35.4 million primarily due to an increase in the weighted average total debt balance and an increase in the weighted average interest rate to 6.08% for the three months ended June 30, 2023, from 5.14% for the three months ended June 30, 2022.
We recorded interest income of $44.1 million for the three months ended June 30, 2023, primarily related to interest earned on cash and cash equivalents held at financial institutions.
We
incurred a foreign currency remeasurement gain of $7.0 million and a loss of $10.1 million for the three months ended June 30, 2023 and 2022, respectively. The impact of the exchange rate fluctuation of the Macau pataca, in relation to the U.S. dollar, on the remeasurements of U.S. dollar denominated debt and other obligations from our Macau-related entities primarily drove the variability between periods.
We recorded a gain of $24.3 million and $1.6 million for the three months ended June 30, 2023 and 2022, respectively, from change in derivatives fair value. The change in derivatives fair value for the three months ended June 30, 2023
included a gain of $21.6 million recorded in relation to the conversion feature of the WML Convertible Bonds.
We recorded a $3.4 million loss on debt financing transactions for the three months ended June 30, 2023, primarily related to the issuance of the 2031 WRF Senior Notes, and the repurchase of the tendered 2025 WRF Senior Notes.
Income taxes
We recorded an income tax expense of $4.3 million and $0.7 million for the three months ended June 30, 2023 and 2022, respectively. Income tax expense in 2023 primarily relates to U.S. operating profits. Income tax expense in
2022 primarily related to the Macau dividend tax agreement that provides for an annual payment as complementary tax otherwise due by stockholders of WRM.
We intend to continue to maintain a valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance on certain U.S. deferred tax assets will no longer be needed. Release of the valuation allowance would result in the recognition of our deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation
allowance release are uncertain.
Net income (loss) attributable to noncontrolling interests
Net income attributable to noncontrolling interests was $22.7 million and net loss attributable to noncontrolling interests was $83.4 million for the three months ended June 30, 2023 and 2022, respectively. These amounts are primarily related to the noncontrolling interests' share of net income (loss) attributable to WML.
Casino
revenues for the six months ended June 30, 2023 were 55.6% of operating revenues, compared to 45.6% for the same period of 2022. Non-casino revenues for the six months ended June 30, 2023 were 44.4% of operating revenues, compared to 54.4% for the same period of 2022.
Casino revenues increased primarily due to higher gaming volumes at our Macau Operations following the discontinuation of pandemic-related travel restrictions in Macau in late 2022 and early 2023. The table below sets forth our casino revenues and associated key operating measures (dollars in thousands, except for win per unit per day):
Room
revenues increased $177.4 million, primarily due to higher occupancy and ADR at our Macau Operations and our Las Vegas Operations.
Food and beverage revenues increased $85.8 million, primarily due to increased restaurant covers at our Las Vegas Operations and our Macau Operations.
Entertainment, retail and other revenues increased $63.6 million due to higher business volumes across our properties, including an increase in revenues of $20.6 million from entertainment venue and convention-related sales at our Las Vegas Operations and an increase in revenues of $19.3 million from our leased retail outlets at our Macau Operations.
Total operating expenses increased $590.6 million compared to the six months ended June 30, 2022, primarily due to increased operating costs associated with higher business volumes at each of our properties, partially offset
by decreased property charges and other expenses.
Casino expenses increased $281.4 million and $144.9 million at Wynn Palace and Wynn Macau, respectively. These increases resulted from higher operating costs, including increases of $265.5 million and $141.6 million in incremental gaming tax expense at Wynn Palace and Wynn Macau, respectively, driven by the increase in casino revenues.
Room expenses increased $12.9 million and $4.6 million at our Las Vegas Operations and Wynn Palace, respectively. These increases resulted from higher operating costs related to an increase in room revenues at our Las Vegas Operations and Wynn Palace.
Food and beverage expenses increased $31.0 million and $10.3 million at our Las Vegas
Operations and Wynn Palace, respectively. These increases resulted from higher operating costs related to an increase in food and beverage revenues at our Las Vegas Operations and Wynn Palace.
Entertainment, retail and other expenses increased $22.0 million at our Las Vegas operations as a result of higher operating costs associated with live and theatrical entertainment. The increase was partially offset by a decrease of $13.0 million at Wynn Interactive, primarily due to decreased marketing costs.
General and administrative expenses increased primarily due to triple-net operating lease expense of $70.9 million at Encore Boston Harbor following the sale-leaseback transaction in December 2022, an increase of $15.7 million at our Las Vegas Operations attributable to payroll and other general and administrative
expenses required to support higher business volumes, and increased corporate and other general and administrative expenses of $24.3 million, primarily due to development costs.
For the six months ended June 30, 2023, pre-opening expenses totaled $6.0 million, which primarily related to the launch of sports betting operations in Massachusetts. For the six months ended June 30, 2022, pre-opening expenses totaled $6.9 million, which primarily related to reconfiguring the theater space at Wynn Las Vegas.
Property charges and other expenses for the six months ended June 30, 2023 consisted primarily of asset abandonments of $6.7 million and $3.4 million at our
Las Vegas Operations and Wynn Palace, respectively, as well as contract termination and other expenses of $6.5 million at Wynn Macau. Our property charges and other expenses for the six months ended June 30, 2022 consisted primarily of impairment of goodwill and other finite-lived intangible assets of $37.8 million and $10.3 million, respectively, and $7.6 million of restructuring costs related to Wynn Interactive's BetBull operations, as well as other contract termination expenses of $10.6 million and asset abandonments of $2.1 million related to Wynn Interactive.
Interest expense, net of capitalized interest, increased $71.0 million primarily due to an increase in the weighted average total debt balance and an increase in the weighted average interest rate to 6.02% for the six months ended June 30, 2023, from 5.09% for the six months ended June 30, 2022.
We recorded interest income of $84.3 million for the six months ended June 30, 2023, primarily related to interest earned on cash and cash equivalents held at financial institutions.
We
incurred a foreign currency remeasurement loss of $23.7 million and $25.2 million for the six months ended June 30, 2023 and 2022, respectively. The impact of the exchange rate fluctuation of the Macau pataca, in relation to the U.S. dollar, on the remeasurements of U.S. dollar denominated debt and other obligations from our Macau-related entities primarily drove the variability between periods.
We recorded a gain of $47.4 million and $9.0 million for the six months ended June 30, 2023 and 2022, respectively, from change in derivatives fair value. The change in derivatives fair value for the six months ended June 30, 2023 included a gain
of $46.5 million recorded in relation to the conversion feature of the WML Convertible Bonds.
We recorded a $15.6 million loss on debt financing transactions for the six months ended June 30, 2023, primarily related to the issuance of the 2031 WRF Senior Notes and the repurchase of the tendered 2025 WRF Senior Notes.
Income taxes
We recorded income tax expense of $5.3 million and $1.9 million for the six months ended June 30, 2023 and 2022, respectively. Income tax expense in 2023 primarily relates to U.S. operating profits. Income tax expense in 2022 primarily related to the Macau
dividend tax agreement that provides for an annual payment as complementary tax otherwise due by stockholders of WRM.
We intend to continue to maintain a valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance on certain U.S. deferred tax assets will no longer be needed. Release of the valuation allowance would result in the recognition of our deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are uncertain.
Net income (loss) attributable to noncontrolling interests
Net income attributable to noncontrolling interests was $11.5 million and net loss attributable to noncontrolling interests was $154.7 million for the six months ended June 30, 2023 and 2022, respectively. These amounts are primarily related to the noncontrolling interests' share of net income (loss) from WML.
As further described in Item 1—"Notes to Condensed Consolidated Financial Statements," Note 18, "Segment Information," we use Adjusted Property EBITDAR to manage the operating results of our segments. Adjusted Property EBITDAR is net income (loss) before interest, income taxes, depreciation and amortization, pre-opening expenses, property charges and other, triple-net operating lease rent expense related to Encore Boston Harbor, management and license fees, corporate expenses and other (including intercompany golf course, meeting and convention, and water rights leases), stock-based compensation, change in derivatives fair value, loss on debt financing transactions, and other non-operating income and expenses. Adjusted Property EBITDAR is presented exclusively as a supplemental
disclosure because management believes that it is widely used to measure the performance, and as a basis for valuation, of gaming companies. Management uses Adjusted Property EBITDAR as a measure of the operating performance of its segments and to compare the operating performance of its properties with those of its competitors, as well as a basis for determining certain incentive compensation. We also present Adjusted Property EBITDAR because it is used by some investors to measure a company's ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDAR as a supplement to GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their EBITDAR calculations preopening expenses, property charges, corporate expenses and stock-based compensation, that do not relate to the management of specific
casino properties. However, Adjusted Property EBITDAR should not be considered as an alternative to operating income (loss) as an indicator of our performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike net income (loss), Adjusted Property EBITDAR does not include depreciation or interest expense and therefore does not reflect current or future capital expenditures or the cost of capital. We have significant uses of cash flows, including capital expenditures, triple-net operating lease rent expense related to Encore Boston Harbor, interest payments, debt principal repayments, income taxes and other non-recurring charges, which are not reflected in Adjusted Property EBITDAR. Also, our calculation of Adjusted Property EBITDAR may be different from the calculation methods used by other companies and, therefore, comparability may be limited.
The
following table summarizes Adjusted Property EBITDAR (dollars in thousands) for Wynn Palace, Wynn Macau, Las Vegas Operations, Encore Boston Harbor, and Wynn Interactive as reviewed by management and summarized in Item 1—"Notes to Condensed Consolidated Financial Statements," Note 18, "Segment Information." That footnote also presents a reconciliation of Adjusted Property EBITDAR to net income (loss) attributable to Wynn Resorts, Limited.
Adjusted Property EBITDAR at Wynn Palace and Wynn Macau increased $206.6 million and $130.0 million for the three months ended June 30, 2023, respectively, and $318.5 million and $179.4 million for the six months ended June 30, 2023, respectively, primarily due to an increase in operating revenues of $409.7 million and $243.0 million for the three months ended June 30, 2023, respectively, and $615.7 million and $338.6 million for the six months ended June 30, 2023, respectively, partially offset by an increase in operating expenses. Our Macau Operations for the three and six months ended June 30, 2022 were negatively impacted
by certain travel-related restrictions and conditions related to the COVID-19 pandemic. Over the course of December 2022 and January 2023, the Macau authorities relaxed or eliminated COVID-19 related protective measures, which resulted in increased business volumes at our Macau Operations for the three and six months ended June 30, 2023.
Adjusted Property EBITDAR at our Las Vegas Operations decreased $2.6 million for the three months ended June 30, 2023, primarily due to an increase in operating expenses, partially off by an increase in revenues. Adjusted Property EBITDAR at our Las Vegas Operations increased $69.6 million for the six months ended June 30, 2023, primarily due to an increase in revenues from casino, hotel, and food and beverage
operations, partially offset by increased operating expenses.
Adjusted
Property EBITDAR at Encore Boston Harbor increased $5.4 million and $13.5 million for the three and six months ended June 30, 2023, primarily due to an increase in revenues from casino operations, partially offset by increased operating expenses.
Adjusted Property EBITDAR at Wynn Interactive increased $6.0 million and $16.4 million for the three and six months ended June 30, 2023, primarily due to a decrease in marketing and promotional expense.
Refer to the discussions above regarding the specific details of our results of operations.
Capital expenditures, net of construction payables and retention
(215,299)
(186,038)
Purchase of investment securities
(286,519)
—
Purchase of intangible and other assets
(42,933)
(9,375)
Proceeds
from sale of assets and other
490
29
Net cash used in investing activities
(544,261)
(195,384)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
1,200,000
—
Repayments
of long-term debt
(1,112,500)
(25,000)
Repurchase of common stock
(12,094)
(149,305)
Proceeds from exercise of stock options
1,965
—
Proceeds from issuance of subsidiary common stock
—
2,895
Proceeds
from sale of noncontrolling interest in subsidiary
—
50,033
Distribution to noncontrolling interest
(8,945)
(16,523)
Dividends paid
(28,709)
(1,291)
Finance lease payments
(9,731)
(8,602)
Payments
for financing costs
(41,020)
(3,113)
Other
(7,773)
—
Net cash used in financing activities
(18,807)
(150,906)
Effect of exchange rate
on cash, cash equivalents and restricted cash
(2,864)
(3,590)
Decrease in cash, cash equivalents and restricted cash
$
(35,193)
$
(507,331)
Operating Activities
Our operating cash flows primarily consist of operating income (excluding depreciation and amortization and other non-cash charges), interest paid and earned, and changes in working
capital accounts such as receivables, inventories, prepaid expenses, and payables. Our table games play is a mix of cash play and credit play, while our slot machine play is conducted primarily on a cash basis. A significant portion of our table games revenue is attributable to the play of a limited number of premium customers who gamble on credit. The ability to collect these gaming receivables may impact our operating cash flow for the period. Our rooms, food and beverage, and entertainment, retail and other revenue is conducted on a cash and credit basis. Accordingly, operating cash flows will be impacted by changes in operating income and accounts receivable, net.
During the six months ended June 30, 2023, the increase in cash flows from operating activities was primarily due to increased revenues from our Macau Operations, our Las Vegas Operations,
and Encore Boston Harbor, which was partially offset by an increase in operating expenses associated with higher business volumes. During the six months ended June 30, 2022, the decrease in net cash used in operating activities was primarily due to increased revenues from our Las Vegas Operations and Encore Boston Harbor, which was partially offset by decreases in revenues from Wynn Palace and Wynn Macau.
Our investing activities primarily consist of project capital expenditures and maintenance capital expenditures associated with maintaining and continually refining our world-class integrated resort properties.
During the six months ended June 30, 2023, we incurred capital expenditures of $96.1 million at our Las Vegas Operations, $41.3 million at Encore Boston Harbor, $14.1 million at Wynn Palace, and $8.9 million at Wynn Macau primarily related to maintenance capital expenditures, and $55.0 million at Corporate and other primarily related to future development projects. In addition, during the six months ended June
30, 2023, we purchased $286.5 million in investment securities.
During the six months ended June 30, 2022, we incurred capital expenditures of $140.8 million at our Las Vegas Operations primarily related to the Wynn Las Vegas room remodel and the theater reconfiguration, and $10.6 million at Encore Boston Harbor, $22.3 million at Wynn Palace, and $7.7 million at Wynn Macau primarily related to maintenance capital expenditures.
Financing Activities
During the six months ended June 30, 2023, the cash flows from financing activities was primarily due to the following debt issuances and repayments (in thousands):
Proceeds
from issuance
Repayments
WRF 7 1/8% Senior Notes, due 2031
$
600,000
$
—
WML 4 1/2% Convertible Bonds, due 2029
600,000
—
WRF 7 3/4% Senior Notes, due 2025
—
600,000
Wynn
Las Vegas 4 1/4% Senior Notes, due 2023
—
500,000
WRF Term Loan, due 2024
—
12,500
Total
$
1,200,000
$
1,112,500
In
addition, during the six months ended June 30, 2023, we made dividend payments of $28.7 million, paid $41.1 million for financing costs related to the financing activities above and used cash of $8.9 million for distributions to noncontrolling interest holders of the Retail Joint Venture.
During the six months ended June 30, 2022, we repurchased 2,381,928 shares of our common stock for approximately $137.4 million. In addition, we received a $50.0 million contribution from a noncontrolling interest holder in exchange for a 49.9% interest in certain retail space contributed by the Company to the Retail Joint Venture, used cash of $16.5 million for distributions to noncontrolling interest holders of the
Retail Joint Venture, and made quarterly amortization payments under the WRF Term Loan totaling $25.0 million.
Capital Resources
The following table summarizes our unrestricted cash and cash equivalents and available revolver borrowing capacity presented by significant financing entity as of June 30, 2023 (in thousands):
(1) Excluding Wynn Macau, Limited and subsidiaries.
Wynn Macau, Limited and subsidiaries. WML generates cash from our Macau Operations. We expect to use this cash to fund working capital and capital expenditure requirements at WML and our Macau Operations, and to service our WML Senior Notes, WM Cayman II Revolver,
and WML Convertible Bonds. WML paid no dividends during 2022 or the first half of 2023.
The
borrowings under the WM Cayman II Revolver bore interest at LIBOR or HIBOR plus a margin of 1.875% to 2.875% per annum based on WM Cayman II's leverage ratio on a consolidated basis subject to a floor on the interest rate margin of 2.625% per annum through June 30, 2023. Pursuant to the amended and restated facility agreement dated June 27, 2023, the base rate applicable to loans denominated in U.S. dollars made pursuant to the WM Cayman II Revolver transitioned to the term secured overnight financing rate ("Term SOFR"), plus 0.10% (which is subject to a minimum floor of 0.00%), plus (b) a margin of 1.875% to 2.875% per annum based on WM Cayman II’s leverage ratio on a consolidated basis. The new Term SOFR base rate became effective July 4, 2023. The final maturity of all outstanding loans under the Revolving Facility
remains unchanged at September 16, 2025.
The amended and restated facility agreement also reflected the prior agreement of the lenders under the WM Cayman II Revolver to waive certain financial covenants therein in respect of the relevant periods ending on the following applicable test dates: (a) June 30, 2022; (b) September 30, 2022; (c) December 31, 2022; and (d) March 31, 2023; and to provide for a floor on the interest rate margin of 2.625% per annum through June 30, 2023. WML, as guarantor, may be subject to certain restrictions on payments
of dividends or distributions to its shareholders, unless certain financial criteria have been satisfied.
On March 7, 2023, WML completed an offering (the "Offering") of $600.0 million 4.50% convertible bonds due 2029 (the "WML Convertible Bonds"). The WML Convertible Bonds are governed by a trust deed dated March 7, 2023 (the "Trust Deed"). The net proceeds from the Offering, after deduction of commission and other related expenses, were $585.9 million. WML intends to use the proceeds for general corporate purposes. The WML Convertible Bonds bear interest on their outstanding principal amount from and including March 7, 2023 at the rate of 4.50% per annum.
The
WML Convertible Bonds are convertible at the option of the holder thereof into fully paid ordinary shares of WML, at the initial conversion price of approximately HK$10.24 (equivalent to approximately $1.31) per share, subject to and upon compliance with the terms and conditions of the WML Convertible Bonds (the "Terms and Conditions," and such right, the "Conversion Right"). The conversion price is at the fixed rate of HK$7.8497 (equivalent to US$1.00), subject to standard adjustments for certain dilutive events as described in the Terms and Conditions. WML has the option, in its sole discretion, to pay to the relevant bondholder an amount of cash equivalent in order to satisfy the Conversion Right in whole or in part.
The holders of the WML Convertible Bonds have the option to require WML to redeem all or some only of such holder’s Bonds (i) on March
7, 2027 at their principal amount together with interest accrued but unpaid to (but excluding) the date fixed for redemption; or (ii) on the Relevant Event Redemption Date (as defined in the Terms and Conditions) at their principal amount together with interest accrued but unpaid to, but excluding such date, following the occurrence of (a) when the Ordinary Shares cease to be listed or admitted to trading or are suspended from trading for a period equal to or exceeding 10 consecutive trading days on the Stock Exchange of Hong Kong Limited, or if applicable, the alternative stock exchange, (b) when there is a Change of Control (as defined in the Terms and Conditions), or (c) when less than 25% of WML’s total number of issued Ordinary Shares are held by the public (as interpreted under Rule 8.24 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited). The WML Convertible Bonds may also be redeemed at the option of WML in whole,
but not in part, at any time after March 7, 2027, but prior to March 7, 2029, upon giving notice to the bondholders in accordance with the Terms and Conditions, under certain circumstances specified in the Trust Deed.
If our portion of our cash and cash equivalents were repatriated to the U.S. on June 30, 2023, it would be subject to minimal U.S. taxes in the year of repatriation.
Wynn Resorts Finance, LLC and subsidiaries. Wynn Resorts Finance, LLC ("WRF" or "Wynn Resorts Finance") generates cash from distributions from its subsidiaries,
which include our Macau Operations, Wynn Las Vegas, and Encore Boston Harbor, and capital contributions from Wynn Resorts, as required. In addition, WRF may utilize its available revolving borrowing capacity as needed. We expect to use this cash to service our WRF Credit Facilities, the WRF Senior Notes and the Wynn Las Vegas Senior Notes, and to fund working capital and capital expenditure requirements as needed.
WRF is a holding company and, as a result, its ability to pay dividends to Wynn Resorts is dependent on WRF receiving distributions from its subsidiaries, which include WML, Wynn Las Vegas, LLC, and Wynn MA. The WRF Credit Agreement contains customary negative and financial covenants, including, but not limited to, covenants that restrict WRF's ability to pay dividends or distributions
and incur additional indebtedness.
On February 16, 2023, WRF and its subsidiary Wynn Resorts Capital Corp. (together with WRF, the "WRF Issuers") issued $600.0 million aggregate principal amount of 7 1/8% Senior Notes due 2031 (the "2031 WRF Senior Notes") in a private
offering. The 2031 WRF Senior Notes were issued at par, for proceeds of $596.2 million, net of $3.8 million of related fees and expenses. Also on February 16, 2023, WRF completed a cash tender offer for any and all of the outstanding principal amount of the 2025 WRF Senior Notes, and accepted for purchase valid tenders with respect to $506.4 million and paid a tender premium of $12.4 million. We used a portion of the net proceeds from the offering of the 2031 WRF Senior Notes to purchase such tendered 2025 WRF Senior Notes and to pay related fees and expenses, and intend to use the remaining net proceeds for general corporate purposes. In April 2023, we repurchased the remaining outstanding 2025 WRF Senior Notes using the remaining net proceeds from the issuance of the 2031 WRF Senior Notes and cash held by WRF, at a price equal
to 101.938% of the principal amount plus accrued interest under the terms of its indenture.
In March 2023, we repurchased all of the outstanding Wynn Las Vegas 4.25% Senior Notes due 2023 of $500.0 million using cash held by WRF, at a price equal to 100% of the principal amount plus accrued interest under the terms of their indenture.
On May 17, 2023, WRF and certain of its subsidiaries entered into an amendment (the "WRF Credit Agreement Amendment") to its existing credit agreement
(the "WRF Credit Agreement").
The WRF Credit Agreement Amendment amends the WRF Credit Agreement to: (i) transition the benchmark rate from LIBOR to Term SOFR and to make conforming changes, (ii) reduce the aggregate principal amount of revolving commitments under the revolving credit facility by $100.0 million, from $850.0 million to $750.0 million, (iii) extend the stated maturity date for lenders electing to extend their revolving commitments in an amount equal to approximately $681.3 million from September 20, 2024 to September 20, 2027, and (iv) extend the stated maturity date for lenders electing to extend their term loan commitments in an amount equal to approximately $749.4 million from September 20, 2024 to September
20, 2027. Lenders who elected not to extend their revolving commitments in an amount equal to approximately $68.7 million will remain subject to a stated maturity date of September 20, 2024, and lenders who elected not to extend their term loan commitments in an amount equal to approximately $75.6 million will remain subject to a stated maturity date of September 20, 2024.
Wynn Resorts, Limited and other subsidiaries. Wynn Resorts, Limited is a holding company and, as a result, our ability to pay dividends is dependent on our ability to obtain funds and our subsidiaries' ability
to provide funds to us. Wynn Resorts, Limited and other primarily generates cash from royalty (including intellectual property license) and management agreements with our resorts, dividends and distributions from our subsidiaries, and the operations of the Retail Joint Venture of which we own 50.1%. Fees payable by Wynn Macau SA to Wynn Resorts, Limited under its intellectual property license agreement are capped at $115.1 million for the year ended December 31, 2023. We expect to use cash held by Wynn Resorts, Limited and other to service our Retail Term Loan, to pay dividends, to fund future development projects, and for general corporate purposes.
On June 2, 2023, the
Company entered into a second amendment to the existing term loan agreement (the "Retail Term Loan Amendment") which transitions the benchmark interest rate of the Retail Term Loan from LIBOR to the adjusted daily simple secured overnight financing rate ("SOFR") and to make related conforming changes, effective July 3, 2023.
We may refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of the indebtedness on acceptable terms or at all.
Legal proceedings in which we are involved also may impact our liquidity. No assurance can be provided as to the outcome of such proceedings. In addition, litigation inherently involves significant costs. For information regarding legal proceedings, see Note 16, "Commitments and Contingencies."
In
April 2016, our Board of Directors has authorized an equity repurchase program of up to $1.00 billion. Under the equity repurchase program, we may repurchase the Company's outstanding shares from time to time through open market purchases, in privately negotiated transactions, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the three and six months ended June 30, 2023, we did not
repurchase any shares of our common stock under this equity repurchase program. As of June 30, 2023, we had $628.8 million in repurchase authority remaining under the program.
We have in the past repurchased, and in the future, we may periodically consider repurchasing our outstanding notes for cash. The amount of any shares and/or notes to be repurchased, as well as the timing of any repurchases, will be based on business, market and other conditions and factors, including price, contractual requirements or consents, and capital availability.
New business developments or other unforeseen events may occur, resulting in the need to raise additional funds. We continue to explore
opportunities to develop additional gaming or related businesses in domestic and international markets. There can be no assurances regarding the business prospects with respect to any other opportunity. Any new development may require us to obtain additional financing. We may decide to conduct any such development through Wynn Resorts, Limited or through subsidiaries separate from the Las Vegas, Boston or Macau-related entities.
Contractual Commitments
During the six months ended June 30, 2023, except as described below, there have been no material changes to the contractual obligations previously reported in our Annual Report on Form 10-K for the year ended December
31, 2022.
During the six months ended June 30, 2023, our fixed interest rate long-term debt obligations increased by a net amount of $100.0 million, as a result of $1.20 billion in long-term debt issuances, net of $1.10 billion in debt repayments. Additionally, our annual fixed interest payments are expected to increase $10.4 million in 2023, $23.3 million in 2024, $56.2 million in 2025, $69.8 million in each of 2026 and 2027, and $166.2 million thereafter, primarily as a result of the issuance of the WRF 2031 Senior Notes and the WML Convertible Bonds and the repurchase of the tendered 2025 WRF Senior Notes and the 2023 Wynn Las Vegas Senior Notes, each as described above.
Critical
Accounting Policies and Estimates
A description of our critical accounting policies is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. Except as described below, there have been no significant changes to these policies for the six months ended June 30, 2023:
WML Convertible Bond Conversion Option Derivative
On March 7, 2023, WML completed the Offering of the WML Convertible Bonds. The Company determined that the conversion feature contained within
the WML Convertible Bonds is not indexed to WML's equity and, as such, is required to be bifurcated from the debt host contract and accounted for as a free-standing derivative (the "WML Convertible Bonds Conversion Option Derivative"). In accordance with applicable accounting standards, the WML Convertible Bond Conversion Option Derivative will be reported at fair value as of the end of each reporting period, with changes recognized in the statement of operations.
The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the WML Convertible Bonds. Inherent in a binomial options pricing model are unobservable (Level 3) inputs and assumptions related to expected
share-price volatility, risk-free interest rate, expected term, and dividend yield. The Company estimates the volatility of shares of WML common stock based on historical volatility that matches the expected remaining term to maturity of the WML Convertible Bonds. The risk-free interest rate is based on the Hong Kong and United States benchmark yield curves on the valuation date for a maturity similar to the expected remaining term of the WML Convertible Bonds. The expected life of the WML Convertible Bonds is assumed to be equivalent to their remaining term to maturity. The dividend yield is based on the historical WML dividend rate over the last several years. The output of the lattice model can be highly sensitive to fluctuations in its inputs.
Recently Adopted Accounting Standards and Accounting
Standards Issued But Not Yet Adopted
See related disclosure in Note 2, "Basis of Presentation and Significant Accounting Policies" of Part I in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.
Interest Rate Risks
One of our primary exposures to market risk is interest rate risk associated with our debt facilities that bear interest based on floating rates. We attempt to manage interest rate risk by managing the mix of long-term fixed rate borrowings and variable rate borrowings, supplemented by hedging activities as believed by us to be appropriate. We cannot assure you that these risk management
strategies will have the desired effect, and interest rate fluctuations could have a negative impact on our results of operations.
Interest Rate Sensitivity
As of June 30, 2023, approximately 24% of our long-term debt was based on variable rates. Based on our outstanding borrowings as of June 30, 2023, an assumed 100 basis point increase and decrease in the applicable variable rates would have caused our annual interest expense to change by $23.2 million.
In order to mitigate exposure to interest rate fluctuations on the Retail Term Loan, the
Company entered into an interest rate collar with a notional value of $615.0 million. The interest rate collar establishes a range whereby the Company will pay the counterparty if one-month LIBOR falls below the established floor rate of 1.00%, and the counterparty will pay the Company if one-month LIBOR exceeds the ceiling rate of 3.75%, and as of the July 3, 2023 effective date of the Retail Term Loan Amendment, the Company pays the counterparty if one-month SOFR falls below the established floor rate of 1.00%, and the counterparty will pay the Company if one-month SOFR
exceeds the ceiling rate of 3.67%.
Foreign Currency Risks
We expect most of the revenues and expenses for any casino that we operate in Macau will be denominated in Hong Kong dollars or Macau patacas; however, a significant portion of the debt issued by WML is denominated in U.S. dollars. Fluctuations in the exchange rates resulting in weakening of the Macau pataca or the Hong Kong dollar in relation to the U.S. dollar could have materially adverse effects on our results, financial condition and ability to service debt. Based on our balances as of June 30, 2023, an assumed 1% change in the U.S. dollar/Hong Kong dollar exchange rate would cause a foreign currency transaction gain/loss of $44.1 million.
Item 4.
Controls and Procedures
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed
and operated, can only provide reasonable assurance of achieving the desired control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, the Company's CEO and CFO have concluded that, as of the period covered by this report, the Company's disclosure controls and procedures were effective, at the reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act and were effective in ensuring that information required to be disclosed by the
Company in the reports that it files or furnishes under the Exchange Act is accumulated and communicated to the Company's management, including the Company's CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this report relates that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are occasionally party to lawsuits. As with all litigation, no assurance can be provided as to the outcome of such matters and we note that litigation inherently involves significant costs. For information regarding the Company's legal proceedings see Item 1—"Notes to Condensed Consolidated Financial Statements," Note 16, "Commitments and Contingencies" of Part I in this Quarterly Report on Form 10-Q.
Item 1A.
Risk Factors
A description of our risk factors can be found in Item 1A, Part I of our Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes to those risk factors during the six months ended June 30, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
There were no share repurchases made by the
Company under its publicly announced equity prepurchase program during the three and six months ended June 30, 2023. As of June 30, 2023, the Company had $628.8 million in repurchase authority remaining under the program.
The following table summarizes the shares we repurchased in satisfaction of employee tax withholding obligations on vested restricted stock during the three months ended June 30, 2023, which were not part of the Company's publicly announced equity repurchase program:
For
the Month Ended
Number of Shares Repurchased
Weighted Average Price Paid Per Share
Approximate Dollar Value of Repurchased Shares (in thousands)
None of the Company's directors or officers (as defined
in Section 16 of the Exchange Act) iiadopted/ or iiterminated/
a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (each as defined in Item 408(a) and (c) of Regulation S-K) during the Company's fiscal quarter ended June 30, 2023.
The following material from Wynn Resorts, Limited's Quarterly Report on Form 10-Q, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022; (ii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022;
(iv) the Condensed Consolidated Statements of Stockholders' Deficit for the three and six months ended June 30, 2023 and 2022; (v) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022; and (vi) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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Cover Page Interactive Data File - The cover page XBRL tags are embedded within the Inline XBRL document.
Wynn
Resorts, Limited agrees to furnish to the U.S. Securities and Exchange Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt which does not exceed 10% of the total consolidated assets of the Company.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
