NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization
Wynn Resorts, Limited, a Nevada corporation (together with its subsidiaries, "Wynn Resorts" or the "Company") is a developer, owner and operator of destination casino resorts (integrated resorts). In the Macau Special Administrative Region of the People's Republic of China ("Macau"), the Company owns approximately
72%
of Wynn Macau, Limited ("WML") and the Company operates the Wynn Macau and Wynn Palace resorts, which it refers to as Macau Operations. In Las Vegas, Nevada, with the exception of the retail space described below, the Company owns
100%
of and operates Wynn Las Vegas, which it also refers to as its Las Vegas Operations.
Macau Operations
Wynn Macau features
two
luxury hotel towers with a total of
1,008
guest rooms and suites, approximately
284,000
square feet of casino space, casual and fine dining in
eight
restaurants, approximately
31,000
square feet of meeting and convention space, approximately
57,000
square feet of retail space, a rotunda show and recreation and leisure facilities.
On August 22, 2016, the Company opened Wynn Palace, an integrated resort in the Cotai area of Macau. Wynn Palace features a luxury hotel tower with
1,706
guest rooms, suites and villas, approximately
420,000
square feet of casino space,
10
food and beverage outlets, approximately
40,000
square feet of meeting and convention space, approximately
105,000
square feet of retail space, public attractions, including a performance lake and floral art displays, and recreation and leisure facilities.
Las Vegas Operations
Wynn Las Vegas features
two
luxury hotel towers with a total of
4,748
guest rooms, suites and villas, approximately
189,000
square feet of casino space,
33
food and beverage outlets, an on-site 18-hole golf course, approximately
290,000
square feet of meeting and convention space, approximately
99,000
square feet of retail space, as well as
two
showrooms,
three
nightclubs and a beach club, and recreation and leisure facilities.
In December 2016, the Company formed a joint venture with Crown Acquisitions Inc. ("Crown") to own and operate approximately
88,000
square feet of existing retail space (of which the Company owns
50.1%
) and signed an agreement with Crown to form a joint venture to own and operate approximately
73,000
square feet of additional retail space currently under construction at Wynn Las Vegas. The Company expects to open the additional retail space in the first quarter of 2018. For more information on the joint venture, see Note 3, "Retail Joint Venture."
Development Project
In November 2014, the Company was awarded a gaming license to develop and construct Wynn Boston Harbor, an integrated resort in Everett, Massachusetts, adjacent to Boston along the Mystic River. The resort will contain a hotel, a waterfront boardwalk, meeting and convention space, casino space, a spa, retail offerings and food and beverage outlets. The Company expects to open Wynn Boston Harbor in mid-2019.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and entities the Company identifies as a variable interest entity ("VIE") and of which the Company is determined to be the primary beneficiary. In April 2016, the Company dissolved its
50%
-owned joint venture operating the Ferrari and Maserati automobile dealership inside Wynn Las Vegas, which was closed in October 2015 and accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated. Certain amounts in the consolidated financial statements for the previous years have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on the previously reported net income.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments with original maturities of three months or less and include both U.S. dollar-denominated and foreign currency-denominated securities. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents of
$1.11 billion
and
$846.3 million
as of
December 31, 2016
and
2015
, respectively, were invested in bank time deposits, money market funds and commercial paper. In addition, the Company held bank deposits and cash on hand of approximately
$1.34 billion
and
$1.23 billion
as of
December 31, 2016
and
2015
, respectively.
Restricted Cash
The Company's restricted cash consists of collateral associated with borrowings under a revolving credit facility and cash held in trust in accordance with the Company's majority owned subsidiary's share award plan.
Investment Securities
Investment securities consist of domestic and foreign short-term and long-term investments in corporate bonds and commercial paper reported at fair value, with unrealized gains and losses, net of tax, reported in other comprehensive income (loss). Short-term investments have a maturity date of less than one year and long-term investments are those with a maturity date greater than one year. The Company's investment policy limits the amount of exposure to any one issuer with the objective of minimizing the potential risk of principal loss. Management determines the appropriate classification of its securities at the time of purchase and reevaluates such designation as of each balance sheet date. Adjustments are made for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization is included in interest income together with realized gains and losses and the stated interest on such securities.
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues credit in the form of "markers" to approved casino customers following investigations of creditworthiness. As of
December 31, 2016
and
2015
,
88.1%
and
85.1%
, 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 these countries could affect the collectability of such receivables.
Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. An estimated allowance for doubtful accounts is maintained to reduce the Company's receivables to their carrying amount, which approximates fair value. The allowance estimate reflects specific review of customer accounts and outstanding gaming promoter accounts as well as management's experience with historical and current collection trends and current economic and business conditions. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received.
Inventories
Inventories consist of retail merchandise and food and beverage items, which are stated at the lower of cost or market value and certain operating supplies. Cost is determined by the first-in, first-out, weighted average and specific identification methods.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Equipment
Purchases of property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line method as follows:
|
|
|
Buildings and improvements
|
10 to 45 years
|
Land improvements
|
10 to 45 years
|
Leasehold interest in land
|
25 years
|
Airplanes
|
20 years
|
Furniture, fixtures and equipment
|
3 to 20 years
|
Costs related to improvements are capitalized, while costs of repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are eliminated from the respective accounts and any resulting gain or loss is included in property charges and other.
Capitalized Interest
The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. Interest capitalization ceases once a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project using the weighted average cost of the Company's outstanding borrowings. Interest of
$94.1 million
,
$53.3 million
and
$33.5 million
was capitalized for the years ended December 31, 2016, 2015 and 2014, respectively.
Intangible Assets
The Company's indefinite-lived intangible assets consist primarily of water rights acquired as part of the original purchase price of the property on which Wynn Las Vegas is located, and trademarks. Indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually. The Company's finite-lived intangible assets consist primarily of its Macau gaming concession and Massachusetts gaming license. Finite-lived intangible assets are amortized over the shorter of their contractual terms or estimated useful lives.
Long-Lived Assets
Long-lived assets, which are to be held and used, including intangible assets and property and equipment, are periodically reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs.
Deferred Financing Costs
Direct and incremental costs and original issue discounts and premiums incurred in connection with the issuance of long-term debt are deferred and amortized to interest expense using the effective interest method or, if the amounts approximate the effective interest method, on a straight-line basis. Deferred financing costs incurred in connection with the issuance of the Company's revolving credit facilities are presented in noncurrent assets on the Consolidated Balance Sheets. All other deferred financing costs are presented as a direct reduction of long-term debt on the Consolidated Balance Sheets. See
the
Recently Issued and Adopted Accounting Standards section below for details on the presentation change of deferred financing costs. Approximately
$18.1 million
,
$16.9 million
and
$12.6 million
was amortized to interest expense during the years ended
December 31, 2016
, 2015 and 2014, respectively.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Financial Instruments
Derivative financial instruments are used to manage interest rate and foreign currency exposures. These derivative financial instruments include interest rate swaps and foreign currency forward contracts. The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value affecting net income as the Company's derivative financial instruments do not qualify for hedge accounting.
Redemption Price Promissory Note
The Redemption Price Promissory Note (the "Redemption Note") is recorded at fair value in accordance with applicable accounting guidance. As of December 31, 2016 and 2015, the fair value of the Redemption Note was
$1.82 billion
and
$1.88 billion
, respectively. In determining this fair value, the Company estimated the Redemption Note's present value using discounted cash flows with a probability weighted expected return for redemption assumptions and a discount rate, which included time value and non-performance risk adjustments commensurate with risk of the Redemption Note.
Considerations for the redemption assumptions included the stated maturity of the Redemption Note, uncertainty of the related cash flows, as well as potential effects of the following: uncertainties surrounding the potential outcome and timing of pending litigation with Aruze USA, Inc. ("Aruze"), Universal Entertainment Corporation and Mr. Kazuo Okada (collectively,
the "Okada Parties") (see Note 17 "Commitments and Contingencies"); the outcome of ongoing investigations of Aruze by the U.S. Attorney's Office, the U.S. Department of Justice and the Nevada Gaming Control Board; and other potential legal and regulatory actions. In addition, in the furtherance of various future business objectives, the Company considered its ability, at its sole option, to prepay the Redemption Note at any time in accordance with its terms without penalty. Accordingly, the Company reasonably determined that the estimated life of the Redemption Note could be less than its contractual life.
In determining the appropriate discount rate to be used to calculate the estimated present value, the Company considered the Redemption Note's subordinated position and credit risk relative to all other debt in the Company's capital structure and credit ratings associated with the Company's traded debt. Observable inputs for the risk free rate were based on Federal Reserve rates for U.S. Treasury securities and the credit risk spread was based on a yield curve index of similarly rated debt.
Revenue Recognition and Promotional Allowances
The Company recognizes revenues at the time persuasive evidence of an arrangement exists, the service is provided or the retail goods are sold, prices are fixed or determinable and collection is reasonably assured.
Casino revenues are measured by the aggregate net difference between gaming wins and losses. The commissions rebated directly or indirectly through games promoters to customers, cash discounts, other cash incentives and points earned by customers from the Company's loyalty programs are recorded as a reduction to casino revenues. Rooms, food and beverage, entertainment and other operating revenues are recognized when services are performed. Entertainment, retail and other revenue includes rental income, which is recognized on a time proportion basis over the lease term. Contingent rental income is recognized when the right to receive such rental income is established according to the lease agreements. Advance deposits on rooms and advance ticket sales are recorded as customer deposits until services are provided to the customer.
The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues. Such amounts are then deducted as promotional allowances. The estimated retail value of providing such promotional allowances is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Rooms
|
$
|
211,822
|
|
|
$
|
184,779
|
|
|
$
|
199,896
|
|
Food and beverage
|
131,479
|
|
|
133,984
|
|
|
162,712
|
|
Entertainment, retail and other
|
26,757
|
|
|
23,975
|
|
|
26,596
|
|
|
$
|
370,058
|
|
|
$
|
342,738
|
|
|
$
|
389,204
|
|
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated cost of providing such promotional allowances, which is included primarily in casino expenses, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Rooms
|
$
|
63,448
|
|
|
$
|
51,775
|
|
|
$
|
54,981
|
|
Food and beverage
|
113,341
|
|
|
106,840
|
|
|
120,070
|
|
Entertainment, retail and other
|
17,170
|
|
|
14,414
|
|
|
14,977
|
|
|
$
|
193,959
|
|
|
$
|
173,029
|
|
|
$
|
190,028
|
|
Customer Loyalty Programs
The Company offers loyalty programs at both its Macau Operations and its Las Vegas Operations. Under the program at its Las Vegas Operations, customers earn points based on their level of slots play, which can be redeemed for free play. Under the program at its Macau Operations, customers earn points based on their level of table games and slots play, which can be redeemed for free play, gifts and complimentary dining and retail shopping. The points are recognized as a liability and as a separate element of the gaming transaction with allocation of the consideration received between the points and gaming transaction. The initial recognition of the point liability is at fair value based on points earned multiplied by redemption value, less an estimate for points not expected to be redeemed. The revenue from the points is recognized when redeemed.
Gaming Taxes
The Company is subject to taxes based on gross gaming revenue in the jurisdictions in which it operates, subject to applicable jurisdictional adjustments. These gaming taxes are an assessment on the Company's gross gaming revenues and are recorded as casino expenses in the accompanying Consolidated Statements of Income. These taxes totaled
$1.32 billion
,
$1.15 billion
and
$1.82 billion
for the years ended
December 31, 2016
, 2015 and 2014, respectively.
Advertising Costs
The Company expenses advertising costs the first time the advertising takes place. Advertising costs incurred in development periods are included in pre-opening costs. Once a project is completed, advertising costs are primarily included in general and administrative expenses. Total advertising costs were
$37.0 million
,
$25.2 million
and
$23.3 million
for the years ended
December 31, 2016
, 2015 and 2014, respectively.
Pre-Opening Costs
Pre-opening costs represent personnel and other costs incurred prior to the opening of new ventures and are expensed as incurred. During the years ended
December 31, 2016
, 2015 and 2014, the Company incurred pre-opening costs primarily in connection with the development of Wynn Palace and Wynn Boston Harbor.
Income Taxes
The Company is subject to income taxes in the U.S. and foreign jurisdictions where it operates. Accounting standards require the recognition of deferred tax assets, net of applicable reserves, and liabilities for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the income tax provision and deferred tax assets and liabilities is recognized in the results of operations in the period that includes the enactment date. Accounting standards also require recognition of a future tax benefit to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied.
The Company's income tax returns are subject to examination by the Internal Revenue Service ("IRS") and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes. The accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. If a tax position, based on its technical merits, is deemed more likely than not to be sustained, then the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.
As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes.
Foreign Currency
Gains or losses from foreign currency remeasurements are included in other income (expense) in the accompanying Consolidated Statements of Income. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date and income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to other comprehensive income.
Comprehensive Income
Comprehensive income includes net income and all other non-stockholder changes in equity, or other comprehensive income (loss). Components of the Company's comprehensive income are reported in the accompanying Consolidated Statements of Stockholders' Equity and Consolidated Statements of Comprehensive Income. The balance of accumulated other comprehensive income consists of currency translation adjustments and net unrealized gains or losses on available-for-sale securities.
Fair Value Measurements
The Company measures certain of its financial assets and liabilities, at fair value on a recurring basis pursuant to accounting standards for fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These accounting standards establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents assets and liabilities carried at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
December 31, 2016
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
1,106,606
|
|
|
$
|
3,868
|
|
|
$
|
1,102,738
|
|
|
—
|
|
Available-for-sale securities
|
$
|
301,460
|
|
|
—
|
|
|
$
|
301,460
|
|
|
—
|
|
Restricted cash
|
$
|
192,823
|
|
|
—
|
|
|
$
|
192,823
|
|
|
—
|
|
Interest rate swaps
|
$
|
1,056
|
|
|
—
|
|
|
$
|
1,056
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Redemption Note
|
$
|
1,819,359
|
|
|
—
|
|
|
$
|
1,819,359
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
December 31, 2015
|
|
Quoted
Market
Prices in
Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
846,281
|
|
|
$
|
186
|
|
|
$
|
846,095
|
|
|
—
|
|
Available-for-sale securities
|
$
|
251,553
|
|
|
—
|
|
|
$
|
251,553
|
|
|
—
|
|
Restricted cash
|
$
|
2,060
|
|
|
$
|
2,060
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
$
|
726
|
|
|
—
|
|
|
$
|
726
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Redemption Note
|
$
|
1,884,402
|
|
|
—
|
|
|
$
|
1,884,402
|
|
|
—
|
|
Interest rate swaps
|
$
|
108
|
|
|
—
|
|
|
$
|
108
|
|
|
—
|
|
As of
December 31, 2016
, there were
no
cash equivalents categorized as Level 2 held in foreign currencies. As of December 31, 2015,
16%
of the Company's cash equivalents categorized as Level 2 were deposits held in foreign currencies.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income attributable to Wynn Resorts by the weighted average number of shares outstanding during the year. Diluted EPS is computed by dividing net income attributable to Wynn Resorts by the weighted average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potential dilutive securities had been issued. Potentially dilutive securities include outstanding stock options and unvested restricted stock.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted average number of common and common equivalent shares used in the calculation of basic and diluted EPS consisted of the following (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Numerator:
|
|
|
|
|
|
Net income attributable to Wynn Resorts, Limited
|
$
|
241,975
|
|
|
$
|
195,290
|
|
|
$
|
731,554
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares outstanding
|
101,445
|
|
|
101,163
|
|
|
100,927
|
|
Potential dilutive effect of stock options and restricted stock
|
410
|
|
|
508
|
|
|
1,004
|
|
Weighted average common and common equivalent shares outstanding
|
101,855
|
|
|
101,671
|
|
|
101,931
|
|
|
|
|
|
|
|
Net income attributable to Wynn Resorts, Limited per common share, basic
|
$
|
2.39
|
|
|
$
|
1.93
|
|
|
$
|
7.25
|
|
Net income attributable to Wynn Resorts, Limited per common share, diluted
|
$
|
2.38
|
|
|
$
|
1.92
|
|
|
$
|
7.18
|
|
|
|
|
|
|
|
Anti-dilutive stock options and restricted stock excluded from the calculation of diluted earnings per share
|
758
|
|
|
677
|
|
|
26
|
|
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with accounting standards which require the compensation cost relating to share-based payment transactions be recognized in the Company's Consolidated Statements of Income. The cost is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing model for stock options, and based on the closing share price of the Company's stock on the grant date for nonvested share awards. The cost is recognized as an expense on a straight-line basis over the employee's requisite service period (the vesting period of the award) net of estimated forfeitures. The Company's stock-based employee compensation arrangements are more fully discussed in Note 15 "Stock-Based Compensation."
Recently Issued and Adopted Accounting Standards
In November 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update that changes the classification of restricted cash in the statement of cash flows. The new guidance requires that amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The effective date for this guidance is for financial statements for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early application is permitted. The new guidance should be adopted on a retrospective basis. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.
In October 2016, the FASB issued an accounting standards update to require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, rather than deferring such recognition until the asset is sold to an outside party. The effective date for this guidance is for financial statements for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early application is permitted. The amendments in the new guidance should be adopted on a retrospective basis. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.
In August 2016, the FASB issued an accounting standards update that clarifies the classification of certain cash receipts and cash payments on the statement of cash flows. In particular, the new guidance clarifies the classification related to several types of cash flows; including items such as debt extinguishment costs and distributions received from equity method investees. The new guidance also provides a three-step approach for classifying cash receipts and payments that have aspects of more than one class of cash flows. The effective date for this guidance is for financial statements for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early application is permitted. The Company is currently assessing the impact the adoption of this guidance will have on its consolidated financial statements.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In March 2016, the FASB issued an accounting standards update that involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new guidance, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regard to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The effective date for this guidance is for financial statements for fiscal years beginning after December 15, 2016, and interim periods within those fiscal periods and early application is permitted. The Company adopted this guidance on January 1, 2017, and does not expect the adoption of this update to have a material effect on its consolidated financial statements.
In February 2016, the FASB issued an accounting standards update that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than 12 months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors are required to apply a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.
In January 2016, the FASB issued an accounting standards update requiring all equity investments to be measured at fair value with changes in fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The update also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This update eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The effective date for this guidance is for financial statements issued for fiscal years beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.
In April 2015, the FASB issued an accounting standards update that requires deferred financing costs related to a recognized debt liability to be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for deferred financing costs are not affected by the amendments in this update. In August 2015, the FASB issued an accounting standards update that clarifies that the guidance issued in April 2015 does not apply to line-of-credit arrangements. According to the additional guidance, deferred financing costs related to line-of-credit arrangements will continue to be presented as an asset and subsequently amortized ratably over the term of the arrangement. The effective date for this guidance is for financial statements for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted the guidance on January 1, 2016, with retrospective application in the accompanying Consolidated Balance Sheet as of December 31, 2015. This change in accounting principle resulted in net deferred financing costs of
$63.1 million
incurred in connection with the issuance of the Company's long-term debt (excluding revolving credit facilities) being reclassified from noncurrent assets to a direct reduction of the long-term debt balance as of December 31, 2015. The presentation of the
$41.3 million
of net deferred financing costs incurred in connection with the issuance of the Company's revolving credit facilities as of December 31, 2015, are not affected by the adoption of this new accounting guidance and are included in other assets on the Consolidated Balance Sheets.
In May 2014, the FASB issued an accounting standards update that amends the FASB Accounting Standards Codification and creates a new topic for Revenue from Contracts with Customers. The new guidance is expected to clarify the principles for revenue recognition and to develop a common revenue standard for GAAP applicable to revenue transactions. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance also provides substantial revision of interim and annual disclosures. The update allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
guidance recognized at the date of initial application. In August 2015, the FASB issued an accounting standards update that defers the effective date of the new revenue recognition accounting guidance by one year, to annual and interim periods beginning after December 15, 2017. Early application is permitted for annual and interim periods beginning after December 15, 2016. The Company will adopt this standard effective January 1, 2018. The Company is currently assessing the impact the adoption of this guidance will have on its consolidated financial statements. The Company expects the goods and services provided to customers without charge currently included in both gross revenues and promotional allowances in the accompanying Consolidated Statements of Income will be presented on a net basis.
Prior Period Adjustments
During the three months ended March 31, 2016, the Company identified
$21.9 million
and
$3.7 million
of additional interest that should have been capitalized instead of being expensed during the years ended December 31, 2015 and 2014, respectively. Considering both quantitative and qualitative factors, the Company determined the amounts were immaterial to any previously issued financial statements and to the full year results for 2016. Accordingly, the Company corrected these immaterial amounts during the first quarter of the year ended December 31, 2016, resulting in a decrease to interest expense of
$25.6 million
and increases to net income attributable to Wynn Resorts, Limited of
$18.5 million
and basic and diluted net income per common share of
$0.18
. Had these amounts been corrected in the appropriate periods, it would have resulted in a decrease to interest expense of
$21.9 million
and increases to net income attributable to Wynn Resorts, Limited of
$15.8 million
and basic and diluted net income per common share of
$0.16
, for the year ended December 31, 2015, and a decrease to interest expense of
$3.7 million
and increases to net income attributable to Wynn Resorts, Limited of
$2.7 million
and basic and diluted net income per common share of
$0.03
and
$0.02
, respectively, for the year ended December 31, 2014.
Note 3 - Retail Joint Venture
On December 28, 2016, the Company formed a joint venture (the "Retail Joint Venture") with Crown to own and operate approximately
88,000
square feet of existing retail space at Wynn Las Vegas. In connection with the transaction, the Company transferred certain assets and liabilities with a net book value of
$31.8 million
associated with the existing Wynn Las Vegas retail stores from Wynn Las Vegas, LLC, to the Retail Joint Venture. The Company sold Crown a
49.9%
ownership interest in the Retail Joint Venture for consideration of
$292.0 million
, which consisted of
$217.0 million
in cash and a
$75.0 million
interest-free note that matures in full on January 3, 2018. The cash proceeds will be used to fund future development opportunities and for general corporate purposes. Wynn Las Vegas, LLC transferred all interests as lessor in third-party retail store leases to the Retail Joint Venture as part of the transaction and the majority of the retail stores previously operated by Wynn Las Vegas, LLC are now operated under a master lease agreement between a newly formed retail entity owned by Wynn Resorts, as lessee, and the Retail Joint Venture, as lessor. The Company maintains a
50.1%
ownership in the Retail Joint Venture and is the managing member. The Company’s responsibilities with respect to the Retail Joint Venture include day-to-day business operations, property management services and a role in the leasing decisions of the retail space.
Also in December 2016, the Company entered into an agreement with Crown to form a joint venture that will own approximately
73,000
square feet of additional retail space that is currently under construction at Wynn Las Vegas. Crown will pay the Company a fixed amount of
$180.0 million
for a
49.9%
ownership interest in the new joint venture prior to the expected opening for business in the first quarter of 2018.
The Company assessed its ownership in the Retail Joint Venture based on consolidation accounting guidance with an evaluation being performed to determine if the Retail Joint Venture is a VIE, if the Company has a variable interest in the Retail Joint Venture and if the Company is the primary beneficiary of the Retail Joint Venture. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.
The Company concluded that the Retail Joint Venture is a VIE and the Company is the primary beneficiary based on its involvement in the leasing activities of the Retail Joint Venture. As a result, the Company consolidates all of the Retail Joint Venture’s assets, liabilities and results of operations. The Company will evaluate its primary beneficiary designation on an ongoing basis and will assess the appropriateness of the Retail Joint Venture’s VIE status when changes occur.
As of December 31, 2016, the Retail Joint Venture had total assets of
$33.6 million
and total liabilities of
$2.1 million
.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Accumulated Other Comprehensive Income
The following table presents the changes by component, net of tax and noncontrolling interests, in accumulated other comprehensive income of the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
translation
|
|
Unrealized
loss on
investment securities
|
|
Accumulated
other
comprehensive
income
|
December 31, 2015
|
$
|
2,343
|
|
|
$
|
(1,251
|
)
|
|
$
|
1,092
|
|
Current period other comprehensive income (loss)
|
(130
|
)
|
|
522
|
|
|
392
|
|
December 31, 2016
|
$
|
2,213
|
|
|
$
|
(729
|
)
|
|
$
|
1,484
|
|
Note 5 - Investment Securities
Investment securities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair value
(net
carrying
amount)
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair value
(net
carrying
amount)
|
Domestic and foreign corporate bonds
|
$
|
245,425
|
|
|
$
|
19
|
|
|
$
|
(720
|
)
|
|
$
|
244,724
|
|
|
$
|
243,857
|
|
|
$
|
—
|
|
|
$
|
(1,243
|
)
|
|
$
|
242,614
|
|
Commercial paper
|
56,764
|
|
|
5
|
|
|
(33
|
)
|
|
56,736
|
|
|
8,947
|
|
|
—
|
|
|
(8
|
)
|
|
8,939
|
|
|
$
|
302,189
|
|
|
$
|
24
|
|
|
$
|
(753
|
)
|
|
$
|
301,460
|
|
|
$
|
252,804
|
|
|
$
|
—
|
|
|
$
|
(1,251
|
)
|
|
$
|
251,553
|
|
For investments with unrealized losses as of
December 31, 2016
, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not likely that the Company will be required to sell these investments prior to the recovery of the amortized cost. Accordingly, the Company has determined that
no
other-than-temporary impairments exist at the reporting date.
The Company obtains pricing information in determining the fair value of its available-for-sale securities from independent pricing vendors. Based on management's inquiries, the pricing vendors use various pricing models consistent with what other market participants would use. The assumptions and inputs used by the pricing vendors are derived from market observable sources including: reported trades, broker/dealer quotes, issuer spreads, benchmark curves, bids, offers and other market-related data. The Company has not made adjustments to such prices. Each quarter, the Company validates the fair value pricing methodology to determine the fair value is consistent with applicable accounting guidance and to confirm that the securities are classified properly in the fair value hierarchy. The Company compares the pricing received from its vendors to independent sources for the same or similar securities.
The fair value of these investment securities as of
December 31, 2016
, by contractual maturity, are as follows (in thousands):
|
|
|
|
|
|
Fair value
|
Available-for-sale securities
|
|
Due in one year or less
|
$
|
173,437
|
|
Due after one year through two years
|
100,589
|
|
Due after two years through three years
|
27,434
|
|
|
$
|
301,460
|
|
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Receivables, net
Receivables, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Casino
|
$
|
211,557
|
|
|
$
|
190,294
|
|
Hotel
|
21,897
|
|
|
20,661
|
|
Other
|
40,256
|
|
|
43,989
|
|
|
273,710
|
|
|
254,944
|
|
Less: allowance for doubtful accounts
|
(54,742
|
)
|
|
(67,057
|
)
|
|
$
|
218,968
|
|
|
$
|
187,887
|
|
Note 7 - Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Land and improvements
|
$
|
834,420
|
|
|
$
|
804,512
|
|
Buildings and improvements
|
7,623,069
|
|
|
3,975,419
|
|
Airplanes
|
179,730
|
|
|
194,412
|
|
Furniture, fixtures and equipment
|
2,181,515
|
|
|
1,809,938
|
|
Leasehold interest in land
|
316,516
|
|
|
316,681
|
|
Construction in progress
|
299,686
|
|
|
3,217,117
|
|
|
11,434,936
|
|
|
10,318,079
|
|
Less: accumulated depreciation
|
(3,175,305
|
)
|
|
(2,840,601
|
)
|
|
$
|
8,259,631
|
|
|
$
|
7,477,478
|
|
Depreciation expense for the years ended December 31,
2016
,
2015
, and
2014
was
$398.2 million
,
$317.8 million
, and
$311.6 million
, respectively.
As of December 31, 2016, construction in progress consisted primarily of costs capitalized, including interest, for the construction of Wynn Boston Harbor. As of December 31, 2015, construction in progress consisted primarily of costs capitalized, including interest, for the construction of Wynn Palace and Wynn Boston Harbor. On August 22, 2016, the Company opened Wynn Palace. Accordingly, amounts relating to Wynn Palace were transferred to the appropriate property and equipment categories.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Intangible Assets, net
Intangible assets, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Indefinite-lived intangible assets:
|
|
|
|
Water rights
|
$
|
6,400
|
|
|
$
|
6,400
|
|
Trademarks
|
1,387
|
|
|
1,387
|
|
Total indefinite-lived intangible assets
|
7,787
|
|
|
7,787
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
Macau Gaming Concession
|
42,300
|
|
|
42,300
|
|
Less: accumulated amortization
|
(29,199
|
)
|
|
(26,815
|
)
|
|
13,101
|
|
|
15,485
|
|
|
|
|
|
Massachusetts Gaming License
|
92,700
|
|
|
87,700
|
|
Less: accumulated amortization
|
—
|
|
|
—
|
|
|
92,700
|
|
|
87,700
|
|
|
|
|
|
Total finite-lived intangible assets
|
105,801
|
|
|
103,185
|
|
Total intangible assets, net
|
$
|
113,588
|
|
|
$
|
110,972
|
|
Water rights and trademarks are indefinite-lived assets and, accordingly, are not amortized. Water rights reflect the fair value allocation determined in the purchase of the property on which Wynn Las Vegas is located in April 2000. The value of the trademarks primarily represents the costs to acquire the "Le Rêve" name.
The Macau gaming concession is a finite-lived intangible asset that is being amortized over the
20
-year life of the concession. The Company expects that amortization of the Macau gaming concession will be
$2.4 million
each year from 2017 through 2021, and
$1.2 million
in 2022.
In November 2014, the Company was awarded a license to operate a casino in Massachusetts. The consideration paid to the State of Massachusetts for the license fee and certain costs incurred in connection with and contractually related to obtaining the license will be considered a finite-lived intangible asset. These amounts will be amortized over a period of 15 years beginning upon the opening of the resort.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Macau Related:
|
|
|
|
Wynn Macau Credit Facilities:
|
|
|
|
Senior Term Loan Facility (as amended September 2015), due September 2021; interest at LIBOR or HIBOR plus 1.50%—2.25% (2.76% and 2.08% as of December 31, 2016 and 2015, respectively), net of debt issuance costs and original issue discount of $28,091 and $35,112 as of December 31, 2016 and 2015, respectively.
|
$
|
2,278,682
|
|
|
$
|
2,272,200
|
|
Senior Revolving Credit Facility (as amended September 2015), due September 2020; interest at LIBOR or HIBOR plus 1.50%—2.25% (2.75% and 2.07% as of December 31, 2016 and 2015, respectively)
|
340,846
|
|
|
431,172
|
|
5 1/4% Senior Notes, due October 15, 2021, net of debt issuance costs and original issue premium of $6,709 and $7,896 as of December 31, 2016 and 2015, respectively
|
1,343,291
|
|
|
1,342,104
|
|
WML Finance Revolving Credit Facility, due July 2018; interest at 1.50%
|
189,651
|
|
|
—
|
|
U.S. and Corporate Related:
|
|
|
|
Wynn America Credit Facilities:
|
|
|
|
Senior Term Loan Facility, due November 2020; interest at base rate plus 0.75% or LIBOR plus 1.75% (2.52% and 1.99% as of December 31, 2016 and 2015, respectively), net of debt issuance costs of $15,436 and $15,712 as of December 31, 2016 and 2015, respectively
|
984,564
|
|
|
54,288
|
|
5 3/8% First Mortgage Notes, due March 15, 2022, net of debt issuance costs of $6,709 and $7,791 as of December 31, 2016 and 2015, respectively
|
893,291
|
|
|
892,209
|
|
4 1/4% Senior Notes, due May 30, 2023, net of debt issuance costs of $2,819 and $3,183 as of December 31, 2016 and 2015, respectively
|
497,181
|
|
|
496,817
|
|
5 1/2% Senior Notes, due March 1, 2025, net of debt issuance costs of $21,513 and $23,527 as of December 31, 2016 and 2015, respectively
|
1,778,487
|
|
|
1,776,473
|
|
Redemption Price Promissory Note with former stockholder and related party, due February 18, 2022; interest at 2%, net of fair value adjustment of $117,085 and $52,041 as of December 31, 2016 and 2015, respectively
|
1,819,359
|
|
|
1,884,402
|
|
|
10,125,352
|
|
|
9,149,665
|
|
Current portion of long-term debt
|
—
|
|
|
—
|
|
|
$
|
10,125,352
|
|
|
$
|
9,149,665
|
|
Macau Related Debt
Wynn Macau Credit Facilities
The Company's credit facilities include a
$2.30 billion
equivalent fully funded senior secured term loan facility (the "Wynn Macau Senior Term Loan Facility") and a
$750 million
equivalent senior secured revolving credit facility (the "Wynn Macau Senior Revolving Credit Facility" and together with the Wynn Macau Senior Term Loan Facility, the "Wynn Macau Credit Facilities"). The borrower is Wynn Resorts (Macau) S.A. ("Wynn Macau SA"), an indirect subsidiary of WML. As of December 31, 2016, the Company had
$409.2 million
of available borrowing capacity under the Wynn Macau Senior Revolving Credit Facility. Wynn Macau SA has the ability to upsize the Wynn Macau Credit Facilities by an additional
$1 billion
in equivalent senior secured loans upon satisfaction of various conditions.
Borrowings under the Wynn Macau Credit Facilities consist of both United States dollar and Hong Kong dollar tranches and were used to refinance Wynn Macau SA's existing indebtedness and fund the construction and development of Wynn Palace and will be used for general corporate purposes.
On September 30, 2015, the Wynn Macau Credit Facilities were amended, to, among other things, increase borrowing capacity and extend maturity dates. Upon closing the amendment, the Company received proceeds of
$2.27 billion
, net of deferred financing costs, from the Wynn Macau Senior Term Loan Facility. The proceeds were used to repay
$953.3 million
in
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
outstanding borrowing under the senior secured term loan facility dated July 30, 2012, and
$815.8 million
in outstanding borrowings under the senior secured revolving credit facility dated July 30, 2012. In connection with the amendment, the Company expensed
$2.1 million
of unamortized deferred financing costs that are included in loss on extinguishment of debt in the accompanying Consolidated Statements of Income.
The Wynn Macau Senior Term Loan Facility is repayable in graduating installments of between
2.50%
to
7.33%
of the principal amount on a quarterly basis commencing December 2018, with a final installment of
50%
of the principal amount repayable in September 2021. The Wynn Macau Senior Revolving Credit Facility will mature in September 2020, at which time any outstanding borrowings must be repaid. The Wynn Macau Credit Facilities bear interest at LIBOR or HIBOR plus a margin of
1.50%
to
2.25%
per annum based on Wynn Macau SA's Leverage Ratio (as defined in the Wynn Macau Credit Facilities). The commitment fee required to be paid for unborrowed amounts under the Wynn Macau Senior Revolving Credit Facility, if any, is between
0.52%
and
0.79%
, per annum, based on Wynn Macau SA's Leverage Ratio. The annual commitment fee is payable quarterly in arrears and is calculated based on the daily average of the unborrowed amounts.
The Wynn Macau Credit Facilities contain a requirement that Wynn Macau SA must make mandatory repayments of indebtedness from specified percentages of excess cash flow. If Wynn Macau SA's Leverage Ratio is greater than
4.5
to 1, then
25%
of Excess Cash Flow (as defined in the Wynn Macau Credit Facilities) must be used for prepayment of indebtedness and cancellation of available borrowings under the Wynn Macau Credit Facilities. There is no mandatory prepayment in respect of Excess Cash Flow if Wynn Macau SA's Leverage Ratio is equal to or less than
4.5
to 1. The Wynn Macau Credit Facilities contain customary covenants restricting certain activities including, but not limited to: the incurrence of additional indebtedness, the incurrence or creation of liens on any of its property, sale and leaseback transactions, the ability to dispose of assets, and making loans or other investments. In addition, Wynn Macau SA is required by the financial covenants to maintain a Leverage Ratio of not greater than 5.5 to 1 for the fiscal year ending December 31, 2016, and an Interest Coverage Ratio (as defined in the Wynn Macau Credit Facilities) of not less than
2.00
to 1 at any time.
Borrowings under the Wynn Macau Credit Facilities are guaranteed by Palo Real Estate Company Limited ("Palo"), a subsidiary of Wynn Macau SA, and by certain subsidiaries of the Company that own equity interests in Wynn Macau SA, and are secured by substantially all of the assets of Wynn Macau SA and Palo, and the equity interests in Wynn Macau SA. Borrowings under the Wynn Macau Credit Facilities are not guaranteed by the Company or WML.
In connection with the gaming concession contract of Wynn Macau SA, Wynn Macau SA entered into a Bank Guarantee Reimbursement Agreement with Banco Nacional Ultramarino, S.A. ("BNU") for the benefit of the Macau government. This guarantee assures Wynn Macau SA's performance under the casino concession agreement, including the payment of premiums, fines and indemnity for any material failure to perform under the terms of the concession agreement and the payment of any gaming taxes. As of
December 31, 2016
, the guarantee was in the amount of
300 million
Macau patacas ("MOP") (approximately
$37.6 million
) and will remain at such amount until 180 days after the end of the term of the concession agreement in 2022. BNU, as issuer of the guarantee, is currently secured by a second priority security interest in the senior lender collateral package. From and after repayment of all indebtedness under the Wynn Macau Credit Facilities, Wynn Macau SA is obligated to promptly, upon demand by BNU, repay any claim made on the guarantee by the Macau government. BNU is paid an annual fee for the guarantee of MOP
2.3 million
(approximately
$0.3 million
).
5 1/4% Senior Notes due 2021
On March 20, 2014, WML issued
$750 million
aggregate principal amount of 5 1/4% Senior Notes due 2021 (the "Additional 2021 Notes"), which were consolidated and form a single series with the
$600 million
aggregate principal amount of 5 1/4% Senior Notes due 2021 issued by WML on October 16, 2013 (the "Original 2021 Notes" and together with the "Additional 2021 Notes," the "2021 Notes"). The aggregate principal amount of the 2021 Notes is
$1.35 billion
.
Upon issuance of the Additional 2021 Notes in March 2014, WML received net proceeds of
$748.8 million
after adding the original issue premium and deducting commissions and expenses of the offering.
The 2021 Notes bear interest at the rate of 5 1/4% per annum and mature on October 15, 2021. Interest on the 2021 Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2014. At any time on or before October 14, 2016, WML may redeem the 2021 Notes, in whole or in part, at a redemption price equal to the greater of (a)
100%
of the aggregate principal amount of the 2021 Notes or (b) a "make-whole" amount as determined by an independent investment banker in accordance with the terms of the indenture for the 2021 Notes, dated as of October 16, 2013 (the "WML Indenture"). In either case, the redemption price would include accrued and unpaid interest. In addition, on or after
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 15, 2016, WML may redeem the 2021 Notes, in whole or in part, at a premium decreasing annually from
103.94%
of the principal amount to
zero
, plus accrued and unpaid interest. If WML undergoes a Change of Control (as defined in the WML Indenture), it must offer to repurchase the 2021 Notes at a price equal to
101%
of the aggregate principal amount thereof, plus accrued and unpaid interest. In addition, the Company may redeem the 2021 Notes, in whole but not in part, at a redemption price equal to
100%
of the principal amount, plus accrued and unpaid interest, in response to any change in or amendment to certain tax laws or tax positions. Further, if a holder or beneficial owner of the 2021 Notes fails to meet certain requirements imposed by any Gaming Authority (as defined in the WML Indenture), WML may require the holder or beneficial owner to dispose of or redeem its 2021 Notes.
The 2021 Notes are WML's general unsecured obligations and rank pari passu in right of payment with all of WML's existing and future senior unsecured indebtedness; will rank senior to all of WML's future subordinated indebtedness, if any; will be effectively subordinated to all of WML's future secured indebtedness to the extent of the value of the assets securing such debt; and will be structurally subordinated to all existing and future obligations of WML's subsidiaries, including Wynn Macau SA's existing credit facilities. The 2021 Notes are not registered under the Securities Act of 1933, as amended (the "Securities Act"), and the 2021 Notes are subject to restrictions on transferability and resale.
The WML Indenture contains covenants limiting WML's (and certain of its subsidiaries') ability to, among other things: merge or consolidate with another company; transfer or sell all or substantially all of its properties or assets; and lease all or substantially all of its properties or assets. The terms of the WML Indenture contain customary events of default, including, but not limited to: default for
30 days
in the payment when due of interest on the 2021 Notes; default in the payment when due of the principal of, or premium, if any, on the 2021 Notes; failure to comply with any payment obligations relating to the repurchase by WML of the 2021 Notes upon a change of control; failure to comply with certain covenants in the WML Indenture; certain defaults on certain other indebtedness; failure to pay judgments against WML or certain subsidiaries that, in the aggregate, exceed
$50 million
; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency, all 2021 Notes then outstanding will become due and payable immediately without further action or notice.
WML Finance Revolving Credit Facility
On July 18, 2016, the Company entered into a HK
$1.55 billion
(approximately
$199.7 million
) cash-collateralized revolving credit facility ("WML Finance Credit Facility") under which WML Finance I, Limited, an indirect subsidiary of WML, is the borrower. Borrowings under the WML Finance Credit Facility are in Hong Kong dollars and are used for working capital requirements and general corporate purposes. As of
December 31, 2016
, the Company had
$309.4 million
of available borrowing capacity under the WML Finance Credit Facility.
The WML Finance Credit Facility matures in July 2018, at which time any outstanding borrowings must be repaid. The WML Finance Credit Facility bears interest initially at
1.50%
per annum, such rate calculated as the interest rate paid by the lender as the deposit bank for the cash collateral deposited and pledged with the lender plus a margin of
0.40%
. Under terms of the agreement, mandatory repayment is required upon a Change in Control or Material Adverse Effect, as defined in the agreement.
On October 25, 2016, the Company amended the WML Finance Credit Facility to increase the principal amount up to HK
$3.87 billion
(approximately
$499.0 million
). The terms of borrowing for the increased principal amount under the amendment are equivalent to the terms of the original credit agreement, including the requirement for cash collateral to be deposited and pledged with the lender, and interest borne at the same rate as described above.
Subsequent to December 31, 2016, the Company repaid the
$189.7 million
outstanding borrowings under the WML Finance Credit Facility.
U.S. and Corporate Related Debt
Wynn America Credit Facilities
The Company's credit facilities include a fully funded
$1.0 billion
senior secured term loan facility and a
$375 million
secured revolving credit facility (the "Wynn America Credit Facilities"). The borrower is Wynn America, LLC ("Wynn America"), an indirect wholly owned subsidiary of Wynn Resorts, Limited. The Company expects to use the proceeds primarily to fund the development, construction and pre-opening expenses of Wynn Boston Harbor and for general corporate purposes.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has executed amendments to extend the available borrowing periods. Most recently, on June 30, 2016, the Company amended the Wynn America Credit Facilities to extend the available borrowing period for the majority of the existing
$875 million
senior secured term loan facility (the "WA Senior Term Loan Facility I") from June 30, 2016 to December 31, 2016. In addition, on July 1, 2016, the Company amended the Wynn America Credit Facilities to increase the WA Senior Term Loan Facility I by a principal amount of
$125 million
with the available borrowing period ending on December 31, 2016 (such increase, the "WA Senior Term Loan Facility II" and together with WA Senior Term Loan Facility I, the "WA Senior Term Loan Facilities"). The Company paid customary fees and expenses in connection with these amendments.
As of December 31, 2016, the Company had available borrowing capacity of
$361.3 million
under the senior secured revolving credit facility ("WA Senior Revolving Credit Facility"), net of
$13.7 million
in outstanding letters of credit.
The WA Senior Revolving Credit Facility matures in November 2019. WA Senior Term Loan Facility I is repayable in quarterly installments of
$21.9 million
commencing June 2018, with a final installment of
$656.3 million
repayable in November 2020. WA Senior Term Loan Facility II has no required scheduled repayments until maturity in November 2020. Subject to certain exceptions, the Wynn America Credit Facilities bear interest at either base rate plus
0.75%
per annum or LIBOR plus
1.75%
per annum. The annual fee required to pay for unborrowed amounts, if any, is
0.30%
per annum, payable quarterly in arrears, calculated based on the daily average of the unborrowed amounts under such credit facilities.
The Wynn America Credit Facilities contain customary representations and warranties, events of default and negative and affirmative covenants, including, among other things, limitations on: indebtedness; investments; restricted payments; mergers and acquisitions; payment of indebtedness; negative pledges; liens; transactions with affiliates and sales of assets. In addition, Wynn America is subject to financial covenants including maintaining a Maximum Consolidated Senior Secured Net Leverage Ratio and a Minimum Consolidated EBITDA, each as defined in the Wynn America Credit Facilities. Commencing with the second full fiscal quarter ending after the fiscal quarter in which the opening of Wynn Boston Harbor occurs, the Maximum Consolidated Senior Secured Net Leverage Ratio is not to exceed
2.75
to 1. Commencing with the fiscal quarter ending December 31, 2015, the Minimum Consolidated EBITDA is not to be less than
$200.0 million
.
The Company has provided a completion guaranty in favor of the lenders under the Wynn America Credit Facilities to support the development of Wynn Boston Harbor.
Wynn America and the guarantors have entered into a security agreement in favor of the lenders under the Wynn America Credit Facilities pursuant to which, subject to certain exceptions, Wynn America and the guarantors have pledged all equity interests in the guarantors to the extent permitted by applicable law and granted a first priority security interest in substantially all of the other existing and future assets of the guarant
ors.
5 3/8%
First Mortgage Notes due 2022
In March 2012, Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. ("Capital Corp."), an indirect wholly owned subsidiary of Wynn Resorts (together, the "Issuers") issued, in a private offering,
$900 million
aggregate principal amount of 5 3/8% First Mortgage Notes due 2022 (the "2022 Notes"). A portion of the proceeds was used to repay all amounts outstanding under the Wynn Las Vegas, LLC term loan facilities. In October 2012, the Issuers commenced an offer to exchange all of the 2022 Notes for notes registered under the Securities Act. The exchange offer closed on November 6, 2012. Interest is due on the 2022 Notes on March 15 and September 15 of each year. Commencing March 15, 2017, the 2022 Notes are redeemable at the Issuers' option at a price equal to
102.688%
of the principal amount redeemed and the premium over the principal amount declines ratably on March 15 of each year thereafter to
zero
on or after March 15, 2020. The 2022 Notes are senior obligations of the Issuers and are unsecured (except by the first priority pledge by Wynn Las Vegas Holdings, LLC ("WLVH"), a direct wholly owned subsidiary of Wynn America, of its equity interests in Wynn Las Vegas, LLC). The Issuers' obligations under the 2022 Notes rank pari passu in right of payment with the 2023 Notes and 2025 Notes (each as defined below). The 2022 Notes are not guaranteed by any of the Company's subsidiaries. If the Issuers undergo a change of control, they must offer to repurchase the 2022 Notes at
101%
of the principal amount, plus accrued and unpaid interest. The indenture governing the 2022 Notes contains customary negative covenants and financial covenants, including, but not limited to, covenants that restrict Wynn Las Vegas, LLC's ability to: pay dividends or distributions or repurchase equity; incur additional debt; make investments; create liens on assets to secure debt; enter into transactions with affiliates; enter into sale-leaseback transactions; merge or consolidate with another company; transfer and sell assets or create dividend and other payment restrictions affecting subsidiaries.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4 1/4% Senior Notes due 2023
In May 2013, the Issuers completed the issuance of
$500 million
aggregate principal amount of 4 1/4% Senior Notes due 2023 (the "2023 Notes") pursuant to an indenture, dated as of May 22, 2013 (the "2023 Indenture"), among the Issuers, the Guarantors (as defined below) and U.S. Bank National Association, as trustee. The 2023 Notes were issued at par. The Issuers used the net proceeds from the 2023 Notes to cover the cost of purchasing the previously issued notes that were to mature in November 2017. In addition, the Issuers satisfied and discharged the indenture governing the 7 7/8% First Mortgage Notes due 2017 (the "2017 Notes") and, in November 2013, used the remaining net proceeds to redeem any and all of the 2017 Notes not previously tendered.
The 2023 Notes will mature on
May 30, 2023
and bear interest at the rate of 4 1/4% per annum. The Issuers may, at their option, redeem the 2023 Notes, in whole or in part, at any time or from time to time prior to their stated maturity. The redemption price for the 2023 Notes that are redeemed before
February 28, 2023
will be equal to the greater of (a)
100%
of the principal amount of the 2023 Notes to be redeemed or (b) a "make-whole" amount described in the 2023 Indenture, plus in either case accrued and unpaid interest to, but not including, the redemption date. The redemption price for the 2023 Notes that are redeemed on or after
February 28, 2023
will be equal to
100%
of the principal amount of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date. In the event of a change of control triggering event, the Issuers will be required to offer to repurchase the 2023 Notes at
101%
of the principal amount, plus accrued and unpaid interest to but not including the repurchase date. The 2023 Notes are also subject to mandatory redemption requirements imposed by gaming laws and regulations of gaming authorities in Nevada.
The 2023 Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with the Issuers' 2022 Notes and 2025 Notes (as defined below). The 2023 Notes are unsecured (except by the first priority pledge by WLVH of its equity interests in Wynn Las Vegas, LLC). Such equity interests in Wynn Las Vegas, LLC also secure the Issuers' 2022 Notes and 2025 Notes. If Wynn Resorts receives an investment grade rating from one or more ratings agencies, the first priority pledge securing the 2023 Notes will be released.
The 2023 Notes are jointly and severally guaranteed by all of the Issuers' subsidiaries, other than Capital Corp., which was a co-issuer (the "Guarantors"). The guarantees are senior unsecured obligations of the Guarantors and rank senior in right of payment to all of their existing and future subordinated debt. The guarantees rank equally in right of payment with all existing and future liabilities of the Guarantors that are not so subordinated and will be effectively subordinated in right of payment to all of such Guarantors' existing and future secured debt (to the extent of the collateral securing such debt).
The 2023 Indenture contains covenants limiting the Issuers' and the Guarantors' ability to create liens on assets to secure debt; enter into sale-leaseback transactions; and merge or consolidate with another company. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
Events of default under the 2023 Indenture include, among others, the following: default for
30
days in the payment of interest when due on the 2023 Notes; default in payment of the principal when due, or premium, if any, on the 2023 Notes; failure to comply with certain covenants in the 2023 Indenture; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any Guarantor, all 2023 Notes then outstanding will become due and payable immediately without further action or notice.
5 1/2% Senior Notes due 2025
On February 18, 2015, the Issuers completed the issuance of
$1.8 billion
aggregate principal amount of 5 1/2% Senior Notes due March 1, 2025 (the "2025 Notes") pursuant to an indenture, dated as of February 18, 2015 (the "2025 Indenture"), among the Issuers, Guarantors and U.S. Bank National Association, as trustee. The 2025 Notes were issued at par. The Company used the net proceeds from the 2025 Notes to cover the cost of purchasing the 7 7/8% First Mortgage Notes due May 1, 2020 (the "7 7/8% 2020 Notes") and the 7 3/4% First Mortgage Notes due August 15, 2020 (the "7 3/4% 2020 Notes" and together with the 7 7/8% 2020 Notes, the "2020 Notes") and for general corporate purposes.
The 2025 Notes will mature on March 1, 2025 and bear interest at the rate of 5 1/2% per annum. The Issuers may, at their option, redeem the 2025 Notes, in whole or in part, at any time or from time to time prior to their stated maturity. The redemption price for 2025 Notes that are redeemed before December 1, 2024 will be equal to the greater of (a)
100%
of the principal amount of the 2025 Notes to be redeemed and (b) a "make-whole" amount described in the 2025 Indenture, plus in either case accrued and unpaid interest, if any, to, but not including, the redemption date. The redemption price for the 2025
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Notes that are redeemed on or after December 1, 2024 will be equal to
100%
of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date. In the event of a change of control triggering event, the Issuers will be required to offer to repurchase the 2025 Notes at
101%
of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the repurchase date. The 2025 Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations of gaming authorities in Nevada.
The 2025 Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with the Issuers' 2022 Notes and 2023 Notes (together, the "Existing Notes"). The 2025 Notes are unsecured (except by the first priority pledge by WLVH of its equity interests in Wynn Las Vegas, LLC). Such equity interests in Wynn Las Vegas, LLC also secure the Existing Notes. If Wynn Resorts receives an investment grade rating from one or more ratings agencies, the first priority pledge securing the 2025 Notes will be released.
The 2025 Notes are jointly and severally guaranteed by all of the Guarantors. The guarantees are senior unsecured obligations and rank senior in right of payment to all of their existing and future subordinated debt. The guarantees rank equally in right of payment with all existing and future liabilities of the Issuers' subsidiaries that are not so subordinated and will be effectively subordinated in right of payment to all of such existing and future secured debt (to the extent of the collateral securing such debt).
The 2025 Indenture contains covenants limiting the Issuers' and the Guarantors' ability to create liens on assets to secure debt, enter into sale-leaseback transactions and merge or consolidate with another company. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
Events of default under the 2025 Indenture include, among others, the following: default for
30
days in the payment of interest when due on the 2025 Notes; default in payment of the principal when due, or premium, if any, on the 2025 Notes; failure to comply with certain covenants in the 2025 Indenture; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any Guarantor, all 2025 Notes then outstanding will become due and payable immediately without further action or notice.
The 2023 Notes and 2025 Notes were offered pursuant to an exemption under the Securities Act. The 2023 Notes and 2025 Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act or outside the United States to certain persons in reliance on Regulation S under the Securities Act. The 2023 Notes and 2025 Notes have not been and will not be registered under the Securities Act or under any state securities laws. Therefore, the 2023 Notes and 2025 Notes may not be offered or sold within the United States to, or for the account or benefit of, any United States person unless the offer or sale would qualify for a registration exemption from the Securities Act and applicable state securities laws.
First Mortgage Notes due 2020
On February 10, 2015, the Issuers commenced a cash tender offer for any and all of the outstanding aggregate principal amounts of the 2020 Notes. The premium portion of the aggregate total consideration was
$98.9 million
and was recorded as a loss on extinguishment of debt in the accompanying Consolidated Statements of Income. In connection with the cash tender, the Company expensed
$17.2 million
of unamortized deferred financing costs and original issue discount related to the 2020 Notes and incurred other fees of
$0.1 million
that are included in loss on extinguishment of debt in the accompanying Consolidated Statements of Income.
On May 1, 2015, the Company redeemed the remaining
$71.1 million
principal amount of the untendered 7 7/8% 2020 Notes. The Company recorded a loss for the premium portion of the consideration of
$2.8 million
and expensed
$1.0 million
of unamortized deferred financing costs and original discount that are included in loss on extinguishment of debt in the accompanying Consolidated Statements of Income.
On August 15, 2015, the Company redeemed the remaining
$80.1 million
principal amount of the untendered 7 3/4% 2020 Notes. The Company recorded a loss for the premium portion of the consideration of
$3.1 million
and expensed
$0.8 million
of unamortized deferred financing costs that are included in loss on extinguishment of debt in the accompanying Consolidated Statements of Income.
During the year ended December 31, 2014, Wynn Las Vegas, LLC repurchased and canceled
$98.4 million
in principal, plus interest, of the 2020 Notes through the open market. The Company incurred
$9.6 million
in expenses associated primarily with the premium paid for the repurchases and unamortized deferred financing costs included in loss on extinguishment of debt in the accompanying Consolidated Statements of Income.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Redemption Price Promissory Note
Based on the Board of Directors' finding of "unsuitability," on February 18, 2012, the Company redeemed and canceled Aruze's
24,549,222
shares of Wynn Resorts' common stock. Following a finding of "unsuitability," Wynn Resorts' articles of incorporation authorize redemption of the shares held by unsuitable persons at a "fair value" redemption price. The Company engaged an independent financial advisor to assist in the fair value calculation and concluded that a discount to the then-current trading price was appropriate because of, among other things, restrictions on most of the shares held by Aruze under the terms of the Stockholders Agreement (as defined below). Pursuant to its articles of incorporation, the Company issued the Redemption Note to Aruze, a former stockholder and related party, in redemption of the shares. The Redemption Note has a principal amount of approximately
$1.94 billion
, matures on
February 18, 2022
and bears interest at the rate of
2%
per annum payable annually in arrears on each anniversary of the date of the Redemption Note. The Company may, in its sole and absolute discretion, at any time and from time to time, and without penalty or premium, prepay the whole or any portion of the principal or interest due under the Redemption Note. In no instance shall any payment obligation under the Redemption Note be accelerated except in the sole and absolute discretion of the Company or as specifically mandated by law. The indebtedness evidenced by the Redemption Note is and shall be subordinated in right of payment, to the extent and in the manner provided in the Redemption Note, to the prior payment in full of all existing and future obligations of Wynn Resorts and any of its affiliates in respect of indebtedness for borrowed money of any kind or nature.
The Company recorded the Redemption Note at fair value in accordance with applicable accounting guidance. As of
December 31, 2016
and 2015, the fair value of the Redemption Note was
$1.82 billion
and
$1.88 billion
, respectively.
The Okada Parties have challenged the redemption of Aruze's shares and the Company is currently involved in litigation with those parties as well as related litigation. See further discussion in Note 17 "Commitments and Contingencies."
On each of February 14, 2013 and February 13, 2014, the Company issued a check to Aruze in the amount of
$38.7 million
, representing the interest payments due on the Redemption Note at those times. However, those checks were not cashed. In February 2014, the Okada Parties advised of their intent to deposit any checks for interest and principal, past and future, due under the terms of the Redemption Note to the clerk of the court for deposit into the clerk's trust account. On March 17, 2014, the parties stipulated that the checks be returned to the Company for reissue in the same amounts, payable to the clerk of the court for deposit into the clerk's trust account. Pursuant to the stipulation, on March 20, 2014, the Company delivered to the clerk of the court the reissued checks that were deposited into the clerk's trust account and filed a notice with the court with respect to the same. On each of February 13, 2015, February 12, 2016, and February 13, 2017, the Company issued a check for the interest payment due at those times to the clerk of the court for deposit into the clerk's trust account.
Cross Claim
As further discussed in Note 17 "Commitments and Contingencies," on June 19, 2012, Elaine Wynn asserted a cross claim against Mr. Wynn and Aruze seeking a declaration that (1) any and all of Elaine Wynn's duties under the Stockholders Agreement shall be discharged; (2) the Stockholders Agreement is subject to rescission and is rescinded; (3) the Stockholders Agreement is an unreasonable restraint on alienation in violation of public policy; and/or (4) the restrictions on sale of shares shall be construed as inapplicable to Elaine Wynn. On March 28, 2016, Elaine Wynn filed an amended cross claim which added Wynn Resorts and Wynn Resorts' General Counsel (together with Mr. Wynn, the "Wynn Cross Defendants") as cross defendants. On May 5, 2016, the court granted Wynn Resorts' and Wynn Resorts' General Counsel's motions to dismiss. The 2023 Indenture provides that if Mr. Wynn, together with certain related parties, in the aggregate beneficially owns a lesser percentage of the voting power of the outstanding common stock of the Company than is beneficially owned by any other person, a change of control will have occurred. The 2025 Indenture provides that if any event constitutes a "change of control" under the 2023 Indenture, it will constitute a change of control under the 2025 Indenture. If the Stockholders Agreement is determined not to be enforceable pursuant to Elaine Wynn's cross claim, Mr. Wynn would not beneficially own or control Elaine Wynn's shares, which could increase the likelihood that a change in control may occur under the Wynn Las Vegas, LLC debt documents. Under the 2023 Indenture and the 2025 Indenture, if (1) a change of control occurs and (2) at any time within 60 days after that occurrence, the 2023 Notes or the 2025 Notes, as applicable, are rated below investment grade by both rating agencies that rate such notes, the Company is required to make an offer to each applicable holder to repurchase all or any part of such holder's notes at a purchase price equal to
101%
of the aggregate principal amount thereof plus accrued and unpaid interest on the notes purchased, if any, to the date of repurchase (unless the notes have been previously called for redemption). Mr. Wynn is continuing to oppose Elaine Wynn's cross claim.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Debt Covenant Compliance
As of
December 31, 2016
, management believes the Company was in compliance with all debt covenants.
Fair Value of Long-Term Debt
The estimated fair value of the Company's long-term debt, excluding the Redemption Note, as of
December 31, 2016
and
2015
, was approximately
$7.35 billion
and
$6.86 billion
, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount and premium, of
$8.39 billion
and
$7.36 billion
, respectively. The estimated fair value of the Company's long-term debt, excluding the Redemption Note, is based on recent trades, if available, and indicative pricing from market information (Level 2 inputs). See Note 2 "Summary of Significant Accounting Policies" for discussion on the estimated fair value of the Redemption Note.
Scheduled Maturities of Long-Term Debt
Scheduled maturities of long-term debt as of
December 31, 2016
are as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
2018
|
$
|
312,945
|
|
2019
|
364,313
|
|
2020
|
1,668,300
|
|
2021
|
2,841,713
|
|
Thereafter
|
5,136,443
|
|
|
10,323,714
|
|
Fair value adjustment
|
(117,085
|
)
|
Debt issuance costs, premiums and discounts, net
|
(81,277
|
)
|
|
$
|
10,125,352
|
|
Note 10 - Derivative Financial Instruments
The Company has entered into floating-for-fixed interest rate swap arrangements in order to manage interest rate risk relating to certain of its debt facilities. These interest rate swap agreements modify the Company's exposure to interest rate risk by converting a portion of the Company's floating-rate debt to a fixed rate. These interest rate swaps essentially fix the interest rate at the percentages noted below; however, changes in the fair value of the interest rate swaps for each reporting period have been recorded as a change in interest rate swap fair value in the accompanying Consolidated Statements of Income, as the interest rate swaps do not qualify for hedge accounting.
The Company utilized Level 2 inputs as described in Note 2 "Summary of Significant Accounting Policies" to determine fair value. The fair value approximates the amount the Company would pay if these contracts were settled at the respective valuation dates. Fair value is estimated based upon current, and predictions of future, interest rate levels along a yield curve, the remaining duration of the instruments and other market conditions, and therefore, is subject to significant estimation and a high degree of variability and fluctuation between periods. The fair value is adjusted, to reflect the impact of credit ratings of the counterparties or the Company, as applicable. These adjustments resulted in a reduction in the fair values as compared to their settlement values.
The Company currently has
three
interest rate swap agreements intended to hedge a portion of the underlying interest rate risk on borrowings under the Wynn Macau Credit Facilities. Under
two
of the swap agreements, the Company pays a fixed interest rate (excluding the applicable interest margin) of
0.73%
on notional amounts corresponding to borrowings of HK
$3.95 billion
(approximately
$509.4 million
) incurred under the Wynn Macau Credit Facilities in exchange for receipts on the same amount at a variable interest rate based on the applicable HIBOR at the time of payment. These interest rate swaps fix the all-in interest rate on such amounts at
2.23%
to
2.98%
. These interest rate swap agreements mature in
July 2017
.
Under the third swap agreement, the Company pays a fixed interest rate (excluding the applicable interest margin) of
0.68%
on notional amounts corresponding to borrowings of
$243.8 million
incurred under the Wynn Macau Credit Facilities in exchange for receipts on the same amount at a variable rate based on the applicable LIBOR at the time of payment. This interest
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
rate swap fixes the all-in interest rate on such amounts at
2.18%
to
2.93%
. This interest rate swap agreement matures in
July 2017
.
As of
December 31, 2016
, interest rate swaps of
$1.1 million
were included in prepaid expenses and other in the accompanying Consolidated Balance Sheets. As of December 31, 2015, interest rate swaps of
$0.7 million
were included in other assets and
$0.1 million
were included in other long-term liabilities in the accompanying Consolidated Balance Sheets.
Note 11 - Related Party Transactions
Related Party Share Redemption
Based on the Board of Directors' finding of "unsuitability," on February 18, 2012, the Company redeemed and canceled Aruze's
24,549,222
shares of Wynn Resorts' common stock. Following a finding of "unsuitability," Wynn Resorts' articles of incorporation authorize redemption of the shares held by unsuitable persons at a "fair value" redemption price. The Company engaged an independent financial advisor to assist in the fair value calculation and concluded that a discount to the then-current trading price was appropriate because of, among other things, restrictions on most of the shares which were subject to the terms of an existing stockholder agreement. Pursuant to its articles of incorporation, the Company issued the Redemption Note to Aruze, a former stockholder and related party, in redemption of the shares. The Okada Parties have challenged the redemption of Aruze's shares and the Company is currently involved in litigation with those parties as well as related shareholder derivative litigation. The outcome of these various proceedings cannot be predicted. The Company's claims and the Okada Parties' counterclaims are in a preliminary stage and management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any. An adverse judgment or settlement involving payment of a material amount could cause a material adverse effect on our financial condition.
Amounts Due to Officers
The Company periodically provides services to Stephen A. Wynn, Chairman of the Board of Directors and Chief Executive Officer ("Mr. Wynn"), and certain other officers and directors of the Company, including the personal use of employees, construction work and other personal services. Mr. Wynn and other officers and directors have deposits with the Company to prepay any such items, which are replenished on an ongoing basis as needed. As of
December 31, 2016
and
2015
, Mr. Wynn and the other officers and directors had a net deposit balance with the Company of
$0.3 million
and
$1.0 million
, respectively.
Villa Lease
Mr. Wynn currently leases property at Wynn Las Vegas for use as his personal residence and pays Wynn Las Vegas, LLC annual rent at its fair market value of the accommodations based on independent third-party expert opinions of value. Pursuant to the 2013 Second Amended and Restated Agreement of Lease, as amended (the “Second A&R Lease”), Mr. Wynn leased three fairway villas as his personal residence and paid
$525,000
per year from November 5, 2013 through February 28, 2015, and
$559,295
per year from March 1, 2015 through November 3, 2016. In December 2016, Mr. Wynn and Wynn Las Vegas, LLC replaced the Second A&R Lease with a Third Amended and Restated Agreement of Lease, which was effective November 3, 2016 (the “Third A&R Lease”), to reduce the space leased to Mr. Wynn as his personal residence and to adjust the annual rent paid to
$305,680
per year. The lease, including each amendment and restatement, have been approved by the Audit Committee of the Board of Directors of Wynn Resorts and provides that Wynn Las Vegas, LLC pays for all capital improvements to the villas; certain services for, and maintenance of, the villas are included in the annual rent; and the annual rent will be re-determined every two years during the term of the lease.
Home Purchase
In May 2010, the Company entered into an employment agreement with Linda Chen, who is the Chief Operating Officer of Wynn Macau. The term of the employment agreement is through February 24, 2020. Under the terms of the employment agreement, the Company purchased a home in Macau for use by Ms. Chen and has made renovations to the home with total costs of
$9.4 million
through
December 31, 2016
. Upon the occurrence of certain events set forth below, Ms. Chen has the option to purchase the home at the then fair market value of the home (as determined by an independent appraiser) less a discount equal to
ten
percentage points multiplied by each anniversary of the term of the agreement that has occurred (the "Discount Percentage"). The option is exercisable for (a) no consideration at the end of the term, (b)
$1.00
in the event of
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
termination of Ms. Chen's employment without "cause" or termination of Ms. Chen's employment for "good reason" following a "change of control" or (c) at a price based on the applicable Discount Percentage in the event Ms. Chen terminates the agreement due to material breach by the Company. Upon Ms. Chen's termination for "cause," Ms. Chen will be deemed to have elected to purchase the Macau home based on the applicable Discount Percentage unless the Company determines to not require Ms. Chen to purchase the home. If Ms. Chen's employment terminates for any other reason before the expiration of the term (e.g., because of her death or disability or due to revocation of her gaming license), the option will terminate.
Plane Option Agreement
On January 3, 2013, the Company and Mr. Wynn entered into an agreement pursuant to which Mr. Wynn agreed to terminate a previously granted option to purchase an approximately
two
acre tract of land located on the Wynn Las Vegas golf course and, in return, the Company granted Mr. Wynn the right to purchase any or all of the aircraft owned by the Company or its direct wholly owned subsidiaries. The aircraft purchase option is exercisable upon
30 days
written notice and at a price equal to the book value of such aircraft, and will terminate on the date of termination of the employment agreement between the Company and Mr. Wynn, which expires in October 2022.
The "Wynn" Surname Rights Agreement
On August 6, 2004, the Company entered into agreements with Mr. Wynn that confirm and clarify the Company's rights to use the "Wynn" surname and Mr. Wynn's persona in connection with its casino resorts. Under the parties' Surname Rights Agreement, Mr. Wynn granted the Company an exclusive, fully paid-up, perpetual, worldwide license to use, and to own and register trademarks and service marks incorporating the "Wynn" surname for casino resorts and related businesses, together with the right to sublicense the name and marks to its affiliates. Under the parties' Rights of Publicity License, Mr. Wynn granted the Company the exclusive, royalty-free, worldwide right to use his full name, persona and related rights of publicity for casino resorts and related businesses, together with the ability to sublicense the persona and publicity rights to its affiliates, until
October 24, 2017
.
Consulting Agreement
From March 1, 2015 to September 30, 2015, Wynn Resorts Development, LLC, a direct subsidiary of the Company ("WRD"), was party to a consulting agreement with a consulting firm of which Clark T. Randt, Jr., current member of the Company's Board of Directors, is the president and sole owner, pursuant to which Ambassador Randt provided advice to WRD. The consulting agreement was terminated in connection with Ambassador Randt joining the Company's Board of Directors. WRD paid the consulting firm
$0.6 million
in fees and reimbursed expenses under the consulting agreement.
Note 12 - Stockholders' Equity
Common Stock
The Company is authorized to issue up to
400,000,000
shares of its common stock,
$0.01
par value per share (the "Common Stock"). As of
December 31, 2016
and
2015
,
101,799,471
shares and
101,571,909
shares, respectively, of the Company's Common Stock were outstanding. Except as otherwise provided by the Company's articles of incorporation or Nevada law, each holder of the Common Stock is entitled to
one vote
for each share held of record on each matter submitted to a vote of stockholders. Holders of the Common Stock have no cumulative voting, conversion, redemption or preemptive rights or other rights to subscribe for additional shares. Subject to any preferences that may be granted to the holders of the Company's preferred stock, each holder of Common Stock is entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefore, as well as any distributions to the stockholders and, in the event of liquidation, dissolution or winding up of the Company, is entitled to share ratably in all assets of the Company remaining after payment of liabilities.
The Board of Directors of Wynn Resorts has authorized an equity repurchase program of up to
$1.7 billion
. The repurchase program may include repurchases from time to time through open market purchases or negotiated transactions, depending upon market conditions. As of
December 31, 2016
, the Company had repurchased a cumulative total of
12,804,954
shares of the Company's Common Stock for a net cost of
$1.1 billion
under the program. Under the repurchase program, there were
no
repurchases made during the years ended
December 31, 2016
, 2015 and 2014.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 2016, 2015 and 2014, the Company withheld a total of
198,942
shares,
50,869
shares and
9,578
shares, respectively, in satisfaction of tax withholding obligations on vested restricted stock.
In February 2016, May 2016, August 2016, and November 2016, the Company paid a cash dividend of
$0.50
per share. During the year ended
December 31, 2016
, the Company recorded
$202.2 million
as a reduction of retained earnings from cash dividends declared.
In February 2015, the Company paid a cash dividend of
$1.50
per share. In each of May 2015, August 2015, and November 2015, the Company paid a cash dividend of
$0.50
per share. During the year ended December 31, 2015, the Company recorded
$304.4 million
as a reduction of retained earnings from cash dividends declared.
In February 2014, May 2014 and August 2014, the Company paid a cash dividend of
$1.25
per common share. In November 2014, the Company paid a cash dividend of
$1.50
per common share and an additional cash dividend of
$1.00
per share. During the year ended December 31, 2014, the Company recorded
$633.2 million
as a reduction of retained earnings from cash dividends declared.
Preferred Stock
The Company is authorized to issue up to
40,000,000
shares of undesignated preferred stock,
$0.01
par value per share (the "Preferred Stock"). As of
December 31, 2016
, the Company had
not
issued any Preferred Stock. The Board of Directors, without further action by the holders of Common Stock, may designate and issue shares of Preferred Stock in one or more series and may fix or alter the rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and the description and number of shares constituting any wholly unissued series of Preferred Stock. The issuance of such shares of Preferred Stock could adversely affect the rights of the holders of Common Stock. The issuance of shares of Preferred Stock under certain circumstances could also have the effect of delaying or preventing a change of control of the Company or other corporate action.
Redemption of Securities
Wynn Resorts' articles of incorporation provide that, to the extent a gaming authority makes a determination of unsuitability or to the extent the Board of Directors determines, in its sole discretion, that a person is likely to jeopardize the Company or any affiliates application for, receipt of, approval for, right to the use of, or entitlement to, any gaming license, Wynn Resorts may redeem shares of its capital stock that are owned or controlled by an unsuitable person or its affiliates. The redemption price will be the amount, if any, required by the gaming authority or, if the gaming authority does not determine the price, the sum deemed by the Board of Directors to be the fair value of the securities to be redeemed. If Wynn Resorts determines the redemption price, the redemption price will be capped at the closing price of the shares on the principal national securities exchange on which the shares are listed on the trading day before the redemption notice is given. If the shares are not listed on a national securities exchange, the redemption price will be capped at the closing sale price of the shares as quoted on The NASDAQ Global Select Market or if the closing price is not reported, the mean between the bid and ask prices, as quoted by any other generally recognized reporting system. Wynn Resorts' right of redemption is not exclusive of any other rights that it may have or later acquire under any agreement, its bylaws or otherwise. The redemption price may be paid in cash, by promissory note, or both, as required, and pursuant to the terms established by, the applicable Gaming Authority and, if not, as the Board of Directors of Wynn Resorts elects.
Based on the Board of Directors' finding of "unsuitability," on February 18, 2012, Wynn Resorts redeemed and canceled Aruze's
24,549,222
shares of Wynn Resorts' common stock. For more information, refer to Note 17 "Commitments and Contingencies."
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 - Noncontrolling Interests
WML
In October 2009, WML, an indirect wholly owned subsidiary of the Company and the developer, owner and operator of Wynn Macau and Wynn Palace, listed its ordinary shares of common stock on The Stock Exchange of Hong Kong Limited through an initial public offering. The Company currently owns approximately
72%
of this subsidiary's common stock. The shares of WML were not and will not be registered under the Securities Act and may not be offered or sold in the United States absent a registration under the Securities Act, or an applicable exception from such registration requirements.
On April 27, 2016, WML paid a dividend of HK
$0.60
per share for a total of
$401.9 million
. The Company's share of this dividend was
$290.1 million
with a reduction of
$111.8 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
On March 31, 2015, WML paid a dividend of HK
$1.05
per share for a total of
$702.6 million
. The Company's share of this dividend was
$507.1 million
with a reduction of
$195.5 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
On September 23, 2014, WML paid a dividend of HK
$0.70
per share for a total of
$469.2 million
. The Company's share of this dividend was
$338.7 million
with a reduction of
$130.6 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
On June 6, 2014, WML paid a dividend of HK
$0.98
per share for a total of
$655.8 million
. The Company's share of this dividend was
$474.0 million
with a reduction of
$181.8 million
to noncontrolling interests in the accompanying Consolidated Balance Sheets.
Other
On December 28, 2016, the Company sold a
49.9%
interest in the Retail Joint Venture to Crown for consideration of
$292.0 million
. For more information on the transaction, see Note 3, “Retail Joint Venture.” In connection with this transaction, the Company recorded
$15.9 million
of noncontrolling interest in the accompanying Consolidated Balance Sheets.
Note 14 - Benefit Plans
Defined contribution plans
The Company established a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its U.S. non-union employees in July 2000. The plan allows employees to defer, within prescribed limits, a percentage of their income on a pre-tax basis through contributions to this plan. The Company matches
50%
of employee contributions, up to
6%
of employees' eligible compensation, with a one-time annual matching cap per employee of
$1,200
and
$750
for the years ended December 31, 2015 and 2014, respectively. There was
no
matching cap for the year ended December 31, 2016. During the years ended
December 31, 2016
,
2015
and
2014
, the Company recorded matching contribution expenses of
$6.1 million
,
$3.2 million
and
$2.0 million
respectively.
Wynn Macau also operates a defined contribution retirement benefits plan (the "Wynn Macau Plan"). Eligible employees are allowed to contribute
5%
of their salary to the Wynn Macau Plan and the Company matches any contributions. The assets of the Wynn Macau Plan are held separately from those of the Company in an independently administered fund. The Company's matching contributions vest to the employee at
10%
per year with full vesting in
ten years
. Forfeitures of unvested contributions are used to reduce the Company's liability for its contributions payable. During the years ended
December 31, 2016
,
2015
and
2014
, the Company recorded matching contribution expenses of
$12.9 million
,
$11.2 million
and
$8.7 million
, respectively.
Multi-employer pension plan
Wynn Las Vegas, LLC contributes to a multi-employer defined benefit pension plan for certain of its union employees under the terms of the Southern Nevada Culinary and Bartenders Union collective-bargaining agreement. The collective-bargaining agreement that covers these union-represented employees was set to expire in July 2015. An extension was in place until February 2017 when the Company entered into a new collective bargaining agreement, which expires July 2021. The
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
legal name of the multi-employer pension plan is the Southern Nevada Culinary and Bartenders Pension Plan (the "Plan") (EIN: 88-6016617 Plan Number: 1). The Company recorded an expense of
$9.3 million
,
$9.4 million
and
$9.2 million
for contributions to the Plan for the years ended
December 31, 2016
,
2015
and
2014
, respectively. For the 2015 plan year, the most recent for which plan data is available, the Company's contributions were identified by the Plan to exceed
5%
of total contributions for that year. Based on information the Company received from the Plan, it was certified to be in neither endangered nor critical status for the 2015 plan year. Risks of participating in a multi-employer plan differ from single-employer plans for the following reasons: (1) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (3) if a participating employer stops participating, it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
Note 15 - Stock-Based Compensation
Wynn Resorts, Limited
The Company's 2002 Stock Incentive Plan, as amended and restated (the "WRL 2002 Plan"), allowed it to grant stock options and nonvested shares of Wynn Resorts' common stock to eligible directors, officers, employees, and consultants of the Company. Under the WRL 2002 Plan, a maximum of
12,750,000
shares of the Company's common stock was reserved for issuance.
On May 16, 2014, the Company adopted the Wynn Resorts, Limited 2014 Omnibus Incentive Plan (the "Omnibus Plan") after approval from its stockholders. The Omnibus Plan allows for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards and other share-based awards to the same eligible participants as the WRL 2002 Plan. Under the approval of the Omnibus Plan, no new awards may be made under the WRL 2002 Plan. The outstanding awards under the WRL 2002 Plan were transferred to the Omnibus Plan and will remain pursuant to their existing terms and related award agreements. The Company reserved
4,409,390
shares of its common stock for issuance under the Omnibus Plan. These shares were transferred from the remaining available amount under the WRL 2002 Plan.
The Omnibus Plan is administered by the Compensation Committee (the "Committee") of the Wynn Resorts, Limited Board of Directors. The Committee has discretion under the Omnibus Plan regarding which type of awards to grant, the vesting and service requirements, exercise price and other conditions, in all cases subject to certain limits. For stock options, the exercise price of stock options must be at least equal to the fair market value of the stock on the date of grant and the maximum term of such an award is
10 years
.
As of
December 31, 2016
, the Company had an aggregate of
3,872,121
shares of its common stock available for grant as share-based awards under the Omnibus Plan.
Stock Options
The summary of stock option activity under the plans for the year ended
December 31, 2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding as of January 1, 2016
|
1,370,260
|
|
|
$
|
81.49
|
|
|
|
|
|
Granted
|
10,000
|
|
|
$
|
97.10
|
|
|
|
|
|
Exercised
|
(74,000
|
)
|
|
$
|
47.12
|
|
|
|
|
|
Forfeited or expired
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
1,306,260
|
|
|
$
|
83.56
|
|
|
2.60
|
|
$
|
23,139,020
|
|
Fully vested and expected to vest as of December 31, 2016
|
1,304,109
|
|
|
$
|
83.58
|
|
|
2.60
|
|
$
|
23,072,465
|
|
Exercisable as of December 31, 2016
|
1,007,758
|
|
|
$
|
89.72
|
|
|
2.47
|
|
$
|
13,094,570
|
|
The following is provided for stock options from the plans (in thousands, except weighted average grant date fair value):
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant date fair value
|
$
|
34.90
|
|
|
$
|
31.83
|
|
|
$
|
58.03
|
|
Intrinsic value of stock options exercised
|
$
|
3,657
|
|
|
$
|
1,684
|
|
|
$
|
30,485
|
|
Cash received from the exercise of stock options
|
$
|
3,487
|
|
|
$
|
3,026
|
|
|
$
|
11,086
|
|
As of
December 31, 2016
, there was a total of
$6.9 million
of unamortized compensation related to stock options, which is expected to be recognized over a weighted average period of
2.2
years.
Nonvested shares
The summary of nonvested share activity under the plans for the year ended
December 31, 2016
is presented below:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested as of January 1, 2016
|
354,206
|
|
|
$
|
118.61
|
|
Granted
|
412,504
|
|
|
63.56
|
|
Vested
|
(554,954
|
)
|
|
78.84
|
|
Forfeited
|
(60,000
|
)
|
|
124.32
|
|
Nonvested as of December 31, 2016
|
151,756
|
|
|
$
|
112.14
|
|
The following is provided for the share award vesting from the plans (in thousands, except weighted average grant date fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant date fair value
|
$
|
63.56
|
|
|
$
|
145.92
|
|
|
$
|
209.92
|
|
Fair value of shares vested
|
$
|
39,380
|
|
|
$
|
22,877
|
|
|
$
|
9,430
|
|
As of
December 31, 2016
, there was a total of
$12.2 million
of unamortized compensation related to nonvested shares, which is expected to be recognized over a weighted average period of
3.8
years.
Wynn Macau, Limited
The Company's majority-owned subsidiary, WML, has two stock-based compensation plans that provide awards based on shares of WML's common stock. The shares available for issuance under these plans are separate and distinct from the common stock of Wynn Resorts' share plan and are not available for issuance for any awards under the Wynn Resorts share plan.
Share Option Plan
WML adopted a stock incentive plan, effective September 16, 2009, for the grant of stock options to purchase shares of WML to eligible directors and employees of its subsidiaries (the "Share Option Plan"). The Share Option Plan is administered by WML's Board of Directors, which has the discretion on the vesting and service requirements, exercise price, performance targets to exercise if applicable and other conditions, subject to certain limits. A maximum of
518,750,000
shares have been reserved for issuance under the Share Option Plan.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The summary of stock option activity under the plan for the year ended
December 31, 2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding as of January 1, 2016
|
4,358,000
|
|
|
$
|
2.63
|
|
|
|
|
|
Granted
|
1,932,000
|
|
|
$
|
1.49
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
6,290,000
|
|
|
$
|
2.28
|
|
|
7.3
|
|
$
|
—
|
|
Fully vested and expected to vest as of December 31, 2016
|
6,290,000
|
|
|
$
|
2.28
|
|
|
7.3
|
|
$
|
—
|
|
Exercisable as of December 31, 2016
|
2,485,200
|
|
|
$
|
2.60
|
|
|
5.4
|
|
$
|
—
|
|
The following is provided for stock options from the Share Option Plan (in thousands, except weighted average grant date fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant date fair value
|
$
|
0.31
|
|
|
$
|
0.47
|
|
|
$
|
0.94
|
|
Intrinsic value of stock options exercised
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,134
|
|
Cash received from the exercise of stock options
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
773
|
|
As of
December 31, 2016
, there was a total of
$1.4 million
of unamortized compensation related to stock options, which is expected to be recognized over a weighted average period of
3.2 years
.
Share Award Plan
On June 30, 2014, the Company's majority-owned subsidiary, WML, approved and adopted the WML Employee Ownership Scheme (the "Share Award Plan"). The Share Award Plan allows for the grant of nonvested shares of WML's common stock to eligible employees. The Share Award Plan is administered by WML's Board of Directors and has been mandated under the plan to allot, issue and process the transfer of a maximum of
50,000,000
shares. The Board of Directors has discretion on the vesting and service requirements, exercise price and other conditions, subject to certain limits.
The summary of nonvested share activity under the Share Award Plan for the year ended
December 31, 2016
is presented below:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested as of January 1, 2016
|
8,446,838
|
|
|
$
|
3.54
|
|
Granted
|
6,599,024
|
|
|
$
|
1.38
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
(1,036,728
|
)
|
|
$
|
2.41
|
|
Nonvested as of December 31, 2016
|
14,009,134
|
|
|
$
|
2.61
|
|
The weighted average grant date fair value was
$1.38
,
$1.95
and
$3.81
for nonvested shares awarded during the years ended December 31, 2016, 2015 and 2014, respectively. As of
December 31, 2016
,
no
shares have vested under the Share Award Plan.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Compensation Cost
The total compensation cost for stock-based compensation plans is allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Casino
|
$
|
11,304
|
|
|
$
|
9,858
|
|
|
$
|
8,360
|
|
Rooms
|
374
|
|
|
318
|
|
|
216
|
|
Food and beverage
|
1,060
|
|
|
1,050
|
|
|
753
|
|
Entertainment, retail and other
|
82
|
|
|
82
|
|
|
55
|
|
General and administrative
|
30,398
|
|
|
26,978
|
|
|
29,770
|
|
Pre-opening costs
|
504
|
|
|
189
|
|
|
42
|
|
Total stock-based compensation expense
|
43,722
|
|
|
38,475
|
|
|
39,196
|
|
Total stock-based compensation capitalized
|
92
|
|
|
350
|
|
|
5,710
|
|
Total stock-based compensation costs
|
$
|
43,814
|
|
|
$
|
38,825
|
|
|
$
|
44,906
|
|
Certain members of the Company’s executive management team receive a portion of their annual incentive bonus in shares of the Company’s stock. The number of shares is determined based on the closing stock price on the date the annual incentive bonus is settled. As the number of shares is variable, the Company records a liability for the fixed monetary amount over the service period. For the year ended December 31, 2016, the Company recorded
$19.2 million
of stock-based compensation expense associated with these awards. The Company settled this obligation by issuing immediately vested shares in January 2017.
During the first quarter of 2014, the Company capitalized
$5.5 million
of stock-based compensation into construction for a restricted stock award granted, which immediately vested. The restricted stock award was granted to an employee of the Company's design, development and construction subsidiary and will be amortized over the useful life of the related asset.
During the years ended December 31,
2016
,
2015
and
2014
, the Company recognized income tax benefits in the Consolidated Statements of Income of
$10.4 million
,
$8.3 million
and
$9.6 million
, respectively, related to stock-based compensation expense. Additionally, during the years ended December 31,
2016
,
2015
and
2014
, the Company realized tax benefits of
$6.7 million
,
$6.7 million
and
$12.6 million
, respectively, related to stock option exercises and restricted stock vests that occurred in those years.
The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock options. Dividend yield is based on the estimate of annual dividends expected to be paid at the time of the grant. Expected volatility is based on implied and historical factors related to the Company's common stock. The risk-free interest rate used for each period presented is based on the U.S. Treasury yield curve for stock options issued under the Wynn Resorts' plans and the Hong Kong Exchange Fund rates for stock options issued under the Share Option Plan, both at the time of grant for the period equal to the expected term. Expected term represents the weighted average time between the option's grant date and its exercise date. The Company used historical award exercise activity and termination activity in estimating the expected term for the Wynn Resorts plans and WML's Share Option Plan.
The fair value of stock options granted under Wynn Resorts' stock-based compensation plans were estimated on the date of grant using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Expected dividend yield
|
2.0
|
%
|
|
3.6
|
%
|
|
4.0
|
%
|
Expected volatility
|
45.4
|
%
|
|
44.1
|
%
|
|
43.3
|
%
|
Risk-free interest rate
|
1.1
|
%
|
|
1.3
|
%
|
|
1.6
|
%
|
Expected term (years)
|
6.0
|
|
|
6.0
|
|
|
6.5
|
|
The fair value of stock options granted under WML's Share Option Plan was estimated on the date of grant using the following weighted average assumptions:
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Expected dividend yield
|
6.3
|
%
|
|
5.0
|
%
|
|
5.0
|
%
|
Expected volatility
|
42.6
|
%
|
|
41.3
|
%
|
|
40.9
|
%
|
Risk-free interest rate
|
1.0
|
%
|
|
1.3
|
%
|
|
1.1
|
%
|
Expected term (years)
|
6.5
|
|
|
6.5
|
|
|
6.5
|
|
Note 16 - Income Taxes
Consolidated income before taxes for domestic and foreign operations consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
90,900
|
|
|
$
|
(21,880
|
)
|
|
$
|
122,974
|
|
Foreign
|
219,697
|
|
|
311,127
|
|
|
835,888
|
|
Total
|
$
|
310,597
|
|
|
$
|
289,247
|
|
|
$
|
958,862
|
|
The income tax provision (benefit) attributable to income before income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
Federal
|
$
|
60
|
|
|
$
|
(819
|
)
|
|
$
|
2,260
|
|
State
|
79
|
|
|
—
|
|
|
—
|
|
Foreign
|
1,633
|
|
|
2,044
|
|
|
2,043
|
|
|
1,772
|
|
|
1,225
|
|
|
4,303
|
|
Deferred
|
|
|
|
|
|
Federal
|
5,081
|
|
|
3,505
|
|
|
(13,286
|
)
|
State
|
1,275
|
|
|
4,100
|
|
|
4,094
|
|
Foreign
|
—
|
|
|
(1,107
|
)
|
|
1,107
|
|
|
6,356
|
|
|
6,498
|
|
|
(8,085
|
)
|
Total
|
$
|
8,128
|
|
|
$
|
7,723
|
|
|
$
|
(3,782
|
)
|
The income tax provision (benefit) differs from that computed at the federal statutory corporate tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Foreign tax rate differential
|
(14.5
|
)%
|
|
(21.0
|
)%
|
|
(19.1
|
)%
|
Non-taxable foreign income
|
(20.7
|
)%
|
|
(23.1
|
)%
|
|
(13.1
|
)%
|
Foreign tax credits, net of valuation allowance
|
(61.5
|
)%
|
|
(93.2
|
)%
|
|
(95.2
|
)%
|
Repatriation of foreign earnings
|
51.6
|
%
|
|
97.9
|
%
|
|
88.0
|
%
|
Other, net
|
5.2
|
%
|
|
2.7
|
%
|
|
2.9
|
%
|
Valuation allowance, other
|
7.5
|
%
|
|
4.4
|
%
|
|
1.1
|
%
|
Effective tax rate
|
2.6
|
%
|
|
2.7
|
%
|
|
(0.4
|
)%
|
On November 30, 2010, Wynn Macau SA received an exemption from Macau's
12%
Complementary Tax on casino gaming profits, thereby exempting the casino gaming profits of Wynn Macau SA through December 31, 2015. In October 2015, Wynn Macau SA received an additional 5-year exemption, effective January 1, 2016, from Macau's Complementary Tax on casino gaming profits through December 31, 2020. Accordingly, for the years ended December 31, 2016, 2015 and 2014, the Company was exempted from the payment of
$27.3 million
,
$41.6 million
and
$99.4 million
in such taxes or
$0.27
,
$0.41
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and
$0.98
per share, respectively. The Company's non-gaming profits remain subject to the Macau Complementary Tax and its casino winnings remain subject to the Macau special gaming tax and other levies in accordance with its concession agreement.
In July 2011, Wynn Macau SA received an extension of its agreement with the Macau government that provides for an annual payment of MOP
15.5 million
(approximately
$1.9 million
) as complementary tax otherwise due by shareholders of Wynn Macau SA on dividend distributions through 2015. In August 2016, Wynn Macau SA received an extension of the agreement for an additional five years applicable to tax years 2016 through 2020. The extension agreement provides for an annual payment of MOP
12.8 million
(approximately
$1.6 million
). As a result of the shareholder dividend tax agreements, income tax expense includes
$1.6 million
for the year ended December 31, 2016 and
$1.9 million
for each of the years ended December 31, 2015 and 2014.
The Macau special gaming tax is
35%
of gross gaming revenue. U.S. tax laws only allow a foreign tax credit ("FTC") up to
35%
of foreign source income. In February 2010, the Company and the IRS entered into a Pre-Filing Agreement ("PFA") providing that the Macau special gaming tax qualifies as a tax paid in lieu of an income tax and could be claimed as a U.S. FTC.
During the years ended December 31, 2016, 2015 and 2014, the Company recognized tax benefits of
$170.5 million
,
$264.1 million
and
$895.0 million
, respectively (net of valuation allowance and uncertain tax positions), for FTCs generated from the earnings of Wynn Macau SA.
Accounting standards require recognition of a future tax benefit to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied. During the years ended December 31, 2016 and 2015, the aggregate valuation allowance for deferred tax assets decreased by
$44.2 million
and increased by
$34.1 million
, respectively. The 2016 decrease is primarily related to a release of valuation allowance on prior year FTCs expected to be utilized as a result of the sale of a
49.9%
ownership interest in Retail Joint Venture. The 2015 increase is primarily related to FTC carryforwards and other foreign deferred tax assets that are not considered more likely than not realizable.
The Company recorded tax benefits resulting from the exercise of nonqualified stock options and the value of vested restricted stock and accrued dividends of
$0.8 million
,
$0.4 million
and
$9.4 million
as of December 31, 2016, 2015 and 2014, respectively, in excess of the amounts reported for such items as compensation costs under accounting standards related to stock-based compensation. The Company uses a with-and-without approach to determine if the excess tax deductions associated with compensation costs have reduced income taxes payable.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax effects of significant temporary differences representing net deferred tax assets and liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Deferred tax assets—U.S.:
|
|
|
|
Foreign tax credit carryforwards
|
$
|
3,269,781
|
|
|
$
|
3,315,737
|
|
Receivables, inventories, accrued liabilities and other
|
37,391
|
|
|
39,743
|
|
Intangibles and related other
|
21,404
|
|
|
25,129
|
|
Stock based compensation
|
18,740
|
|
|
17,986
|
|
Pre-opening costs
|
6,516
|
|
|
8,696
|
|
Other tax credit carryforwards
|
2,413
|
|
|
9,087
|
|
Other
|
7,958
|
|
|
6,344
|
|
|
3,364,203
|
|
|
3,422,722
|
|
Less: valuation allowance
|
(3,201,406
|
)
|
|
(3,271,173
|
)
|
|
162,797
|
|
|
151,549
|
|
Deferred tax liabilities—U.S.:
|
|
|
|
Property and equipment
|
(176,611
|
)
|
|
(159,171
|
)
|
Redemption Note fair value
|
(42,806
|
)
|
|
(19,025
|
)
|
Prepaid insurance, maintenance and taxes
|
(7,913
|
)
|
|
(7,984
|
)
|
Other
|
(2,028
|
)
|
|
(1,726
|
)
|
|
(229,358
|
)
|
|
(187,906
|
)
|
Deferred tax assets—Foreign:
|
|
|
|
Net operating loss carryforwards
|
50,258
|
|
|
22,454
|
|
Property and equipment
|
29,998
|
|
|
27,672
|
|
Pre-opening costs
|
12,944
|
|
|
13,770
|
|
Other
|
2,946
|
|
|
3,056
|
|
|
96,146
|
|
|
66,952
|
|
Less: valuation allowance
|
(85,317
|
)
|
|
(59,705
|
)
|
|
10,829
|
|
|
7,247
|
|
Deferred tax liabilities—Foreign:
|
|
|
|
Property and equipment
|
(10,829
|
)
|
|
(7,247
|
)
|
|
|
|
|
Net deferred tax liability
|
$
|
(66,561
|
)
|
|
$
|
(36,357
|
)
|
As of
December 31, 2016
, the Company had FTC carryforwards (net of uncertain tax positions) of
$3.27 billion
. Of this amount,
$574.4 million
will expire in 2018,
$110.9 million
in 2019,
$530.4 million
in 2020,
$540.3 million
in 2021,
$756.0 million
in 2023,
$710.7 million
in 2024 and
$47.2 million
in 2025. The Company has
no
U.S. tax loss carryforwards. The Company incurred foreign tax losses of
$315.5 million
,
$124.4 million
and
$90.3 million
during the tax years ended December 31, 2016, 2015 and 2014, respectively. These foreign tax loss carryforwards expire in 2018, 2017 and 2016, respectively.
In assessing the need for a valuation allowance, the Company relies solely on the reversal of net taxable temporary differences. The valuation allowance for foreign tax credits was determined by scheduling the existing U.S. taxable temporary differences that are expected to reverse and result in foreign source income during the 10-year foreign tax credit carryover period.
As of December 31, 2016 and 2015, the Company had valuation allowances of
$3.20 billion
and
$3.26 billion
, respectively, provided on FTCs expected to expire unutilized and valuation allowances of
$4.4 million
and
$7.8 million
provided on other U.S. deferred tax assets. As of December 31, 2016 and 2015, the Company had valuation allowances of
$85.3 million
and
$59.7 million
, respectively, provided on its foreign deferred tax assets.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has not provided deferred U.S. federal income taxes or foreign withholding taxes on temporary differences in investments in foreign subsidiaries of
$83.4 million
and
$336.4 million
as of December 31, 2016 and 2015, respectively. These amounts are not considered permanently reinvested; however, U.S. FTCs should be sufficient to eliminate any U.S. federal income tax in the event of repatriation.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
2014
|
Balance—beginning of year
|
$
|
88,314
|
|
|
$
|
88,884
|
|
|
$
|
89,544
|
|
Increases based on tax positions of the current year
|
5,930
|
|
|
3,051
|
|
|
3,297
|
|
Increases based on tax positions of prior years
|
—
|
|
|
—
|
|
|
322
|
|
Decreases for tax positions of prior years
|
—
|
|
|
—
|
|
|
(867
|
)
|
Settlements with taxing authorities
|
—
|
|
|
(354
|
)
|
|
(997
|
)
|
Lapses in statutes of limitations
|
(3,721
|
)
|
|
(3,267
|
)
|
|
(2,415
|
)
|
Balance—end of year
|
$
|
90,523
|
|
|
$
|
88,314
|
|
|
$
|
88,884
|
|
As of
December 31, 2016
, 2015 and 2014, unrecognized tax benefits of
$90.3 million
,
$88.3 million
and
$88.9 million
, respectively, were recorded as reductions in deferred income taxes, net. As of December 31, 2016, the Company recorded
$0.2 million
of unrecognized tax benefits in other long-term liabilities. The Company had
no
unrecognized tax benefits recorded in other long-term liabilities as of December 31, 2015 and 2014.
As of
December 31, 2016
, 2015 and 2014,
$22.6 million
,
$20.9 million
and
$20.7 million
, respectively, of unrecognized tax benefits would, if recognized, impact the effective tax rate.
The Company recognizes penalties and interest related to unrecognized tax benefits in the provision for income taxes. During the year ended
December 31, 2016
, the Company recognized
$0.9 million
in interest in the provision for income taxes. During the years ended December 31, 2015 and 2014, the Company recognized
no
interest and penalties.
The Company anticipates that the 2012 statute of limitations will expire in the next 12 months for certain foreign tax jurisdictions. Also, the Company's unrecognized tax benefits include certain income tax accounting methods, which govern the timing and deductibility of income tax deductions. As a result, the Company's unrecognized tax benefits could increase up to
$2.2 million
over the next 12 months.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company's income tax returns are subject to examination by the IRS and other tax authorities in the locations where it operates. The Company's 2002 to 2012 domestic income tax returns remain subject to examination by the IRS to the extent tax attributes carryforward to future years. The Company's 2013 to 2015 domestic income tax returns also remain subject to examination by the IRS. The Company's 2012 to 2015 Macau income tax returns remain subject to examination by the Macau Financial Services Bureau.
The Company has participated in the IRS Compliance Assurance Program ("CAP") for the 2012 through 2016 tax years and will continue to participate in the IRS CAP for the 2017 tax year.
In June 2015 and February 2016, the Company received notification that the IRS completed its examination of the Company's 2013 and 2014 U.S. income tax returns, respectively. There were no changes in its unrecognized tax benefits as a result of the completion of these examinations.
In March 2013, the Macau Financial Services Bureau commenced an examination of the 2009, 2010 and 2011 Macau income tax returns of Wynn Macau SA. In December 2014, Wynn Macau SA reached an agreement with the Macau Financial Services Bureau regarding issues raised during its examination. While no additional tax was due as a result of the examination, adjustments were made to the Company's foreign net operating loss carryforwards.
In December 2015, the Financial Services Bureau completed an examination of the 2012 Macau income tax return of Wynn Macau SA. On December 31, 2015, the statute of limitations for the 2010 Macau Complementary Tax return expired. As
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
a result of the exam settlement and the expiration of the statute of limitations for the Macau Complementary Tax return, the total amount of unrecognized tax benefits decreased by
$3.6 million
.
On December 31, 2016, the statute of limitations for the 2011 Macau Complementary tax return expired. As a result of the exam settlement and the expiration of the statute of limitations for the Macau Complementary Tax return, the total amount of unrecognized tax benefits decreased by
$3.7 million
.
In April 2016, the Financial Services Bureau commenced an examination of the 2011 and 2012 Macau income tax returns of Palo. In June 2016, the Financial Services Bureau concluded its examination with no changes.
Note 17 - Commitments and Contingencies
Leases
The Company is the lessor under leases for retail space at its resorts. The lease agreements include minimum base rents with contingent rental clauses primarily based on percentage of net sales exceeding minimum base rents.
The following table presents the future minimum rentals to be received under the operating leases (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
2017
|
$
|
103,867
|
|
2018
|
87,443
|
|
2019
|
89,701
|
|
2020
|
89,956
|
|
2021
|
21,743
|
|
Thereafter
|
68,734
|
|
|
$
|
461,444
|
|
The total future minimum rentals do not include contingent rentals. Contingent rentals were
$34.6 million
,
$48.6 million
and
$87.8 million
for the years ended
December 31, 2016
, 2015, and 2014, respectively.
The Company is the lessee under leases for office space, warehouse facilities, certain office equipment and various parcels of land, including the land that Wynn Macau and Wynn Palace are built on.
As of
December 31, 2016
, the Company was obligated under non-cancelable operating leases to make future minimum lease payments as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
2017
|
$
|
20,389
|
|
2018
|
18,426
|
|
2019
|
17,875
|
|
2020
|
11,897
|
|
2021
|
10,842
|
|
Thereafter
|
101,842
|
|
|
$
|
181,271
|
|
Rent expense for the years ended
December 31, 2016
, 2015 and 2014, was
$31.0 million
,
$28.6 million
and
$26.1 million
, respectively.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Employment Agreements
The Company has entered into employment agreements with several executive officers, other members of management and certain key employees. These agreements generally have
three
- to
five
-year terms and typically indicate a base salary and often contain provisions for discretionary bonuses. Certain of the executives are also entitled to a separation payment if terminated without "cause" or upon voluntary termination of employment for "good reason" following a "change of control" (as these terms are defined in the employment contracts). As of
December 31, 2016
, the Company was obligated to make future payments of
$59.7 million
,
$37.5 million
,
$17.8 million
,
$6.7 million
, and
$0.2 million
during the years ending December 2017, 2018, 2019, 2020, and 2021, respectively.
Other Commitments
The Company has additional commitments for gaming tax payments in Macau and performance and other miscellaneous contracts. As of
December 31, 2016
, the Company was obligated under these arrangements, to make future minimum payments as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
2017
|
$
|
99,733
|
|
2018
|
73,255
|
|
2019
|
53,538
|
|
2020
|
30,382
|
|
2021
|
20,266
|
|
Thereafter
|
4,695
|
|
|
$
|
281,869
|
|
The above table does not include community payments associated with the continuing operations of Wynn Boston Harbor, which commence upon the opening of the resort. These amounts are approximately
$10.5 million
per year with minimal annual increases.
Letters of Credit
As of
December 31, 2016
, the Company had outstanding letters of credit of
$13.7 million
.
Litigation
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 or cash flows.
Determination of Unsuitability and Redemption of Aruze and Affiliates
On February 18, 2012, Wynn Resorts' Gaming Compliance Committee received an independent report by Freeh, Sporkin & Sullivan, LLP (the "Freeh Report") detailing a pattern of misconduct by the Okada Parties. The factual record presented in the Freeh Report included evidence that the Okada Parties had provided valuable items to certain foreign gaming officials who were responsible for regulating gaming in a jurisdiction in which entities controlled by Mr. Okada were developing a gaming resort. Mr. Okada denied the impropriety of such conduct to members of the Board of Directors of Wynn Resorts and, while serving as one of the Company's directors, Mr. Okada refused to acknowledge or abide by Wynn Resorts' anti-bribery policies and refused to participate in the training all other directors received concerning these policies.
Based on the Freeh Report, the Board of Directors of Wynn Resorts determined that the Okada Parties are "unsuitable persons" under Article VII of the Company's articles of incorporation. The Board of Directors was unanimous (other than Mr. Okada) in its determination. After authorizing the redemption of Aruze's shares, as discussed below, the Board of Directors took certain actions to protect the Company and its operations from any influence of an unsuitable person, including placing limitations on the provision of certain operating information to unsuitable persons and formation of an Executive Committee of
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the Board to manage the business and affairs of the Company during the period between each annual meeting. The Charter of the Executive Committee provides that "Unsuitable Persons" are not permitted to serve on the Committee. All members of the Board, other than Mr. Okada, were appointed to the Executive Committee on February 18, 2012. The Board of Directors also requested that Mr. Okada resign as a director of Wynn Resorts (under Nevada corporation law, a board of directors does not have the power to remove a director) and recommended that Mr. Okada be removed as a member of the Board of Directors of WML. On February 18, 2012, Mr. Okada was removed from the Board of Directors of Wynn Las Vegas Capital Corp., an indirect wholly owned subsidiary of Wynn Resorts. On February 24, 2012, Mr. Okada was removed from the Board of Directors of WML and on February 22, 2013, he was removed from the Board of Directors of Wynn Resorts by a stockholder vote in which
99.6%
of the over
86 million
shares voted were cast in favor of removal. Mr. Okada resigned from the Board of Directors of Wynn Resorts on February 21, 2013. Although the Company has retained the structure of the Executive Committee, the Board has resumed its past role in managing the business and affairs of the Company.
Based on the Board of Directors' finding of "unsuitability," on February 18, 2012, Wynn Resorts redeemed and canceled Aruze's
24,549,222
shares of Wynn Resorts' common stock. Following a finding of "unsuitability," Article VII of Wynn Resorts' articles of incorporation authorizes redemption at "fair value" of the shares held by unsuitable persons. The Company engaged an independent financial advisor to assist in the fair value calculation and concluded that a discount to the then current trading price was appropriate because of, among other things, restrictions on most of the shares held by Aruze under the terms of the Stockholders Agreement (as defined below). Pursuant to its articles of incorporation, Wynn Resorts issued the Redemption Note to Aruze in redemption of the shares. The Redemption Note has a principal amount of
$1.94 billion
, matures on
February 18, 2022
, and bears interest at the rate of
2%
per annum, payable annually in arrears on each anniversary of the date of the Redemption Note. The Company may, in its sole and absolute discretion, at any time and from time to time, and without penalty or premium, prepay the whole or any portion of the principal or interest due under the Redemption Note. In no instance shall any payment obligation under the Redemption Note be accelerated except in the sole and absolute discretion of Wynn Resorts or as specifically mandated by law. The indebtedness evidenced by the Redemption Note is and shall be subordinated in right of payment, to the extent and in the manner provided in the Redemption Note, to the prior payment in full of all existing and future obligations of Wynn Resorts or any of its affiliates in respect of indebtedness for borrowed money of any kind or nature.
The Company provided the Freeh Report to appropriate regulators and law enforcement agencies and has been cooperating with related investigations that such regulators and agencies have undertaken. The conduct of the Okada Parties and any resulting regulatory investigations could have adverse consequences to the Company and its subsidiaries. A finding by regulatory authorities that Mr. Okada violated anti-corruption statutes and/or other laws or regulations applicable to persons affiliated with a gaming licensee on Company property and/or otherwise involved the Company in criminal or civil violations could result in actions by regulatory authorities against the Company and its subsidiaries.
Redemption Action and Counterclaim
On February 19, 2012, Wynn Resorts filed a complaint in the Eighth Judicial District Court, Clark County, Nevada against the Okada Parties (as amended, the "Complaint"), alleging breaches of fiduciary duty and related claims (the "Redemption Action") arising from the activities addressed in the Freeh Report. The Company is seeking compensatory and special damages as well as a declaration that it acted lawfully and in full compliance with its articles of incorporation, bylaws and other governing documents in redeeming and canceling the shares of Aruze.
On March 12, 2012, the Okada Parties removed the action to the United States District Court for the District of Nevada (the action was subsequently remanded to Nevada state court). On that same date, the Okada Parties filed an answer denying the claims and a counterclaim (as amended, the "Counterclaim") that purports to assert claims against the Company, each of the members of the Company's Board of Directors (other than Mr. Okada) and Wynn Resorts' General Counsel (the "Wynn Parties"). The Counterclaim alleges, among other things: (1) that the shares of Wynn Resorts common stock owned by Aruze were exempt from the redemption-for-unsuitability provisions in the Wynn Resorts articles of incorporation (the "Articles") pursuant to certain agreements executed in 2002; (2) that the Wynn Resorts directors who authorized the redemption of Aruze's shares acted at the direction of Mr. Wynn and did not independently and objectively evaluate the Okada Parties' suitability, and by so doing, breached their fiduciary duties; (3) that the Wynn Resorts directors violated the terms of the Wynn Resorts Articles by failing to pay Aruze fair value for the redeemed shares; and (4) that the terms of the Redemption Note that Aruze received in exchange for the redeemed shares, including the Redemption Note's principal amount, duration, interest rate, and subordinated status, were unconscionable. Among other relief, the Counterclaim seeks a declaration that the redemption of Aruze's shares was void, an injunction restoring Aruze's share ownership, damages in an unspecified amount and rescission of the Amended
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and Restated Stockholders Agreement, dated as of January 6, 2010, by and among Aruze, Mr. Wynn, and Elaine Wynn (the "Stockholders Agreement").
On June 19, 2012, Elaine Wynn asserted a cross claim against Mr. Wynn and Aruze seeking a declaration that (1) any and all of Elaine Wynn's duties under the Stockholders Agreement shall be discharged; (2) the Stockholders Agreement is subject to rescission and is rescinded; (3) the Stockholders Agreement is an unreasonable restraint on alienation in violation of public policy; and/or (4) the restrictions on sale of shares shall be construed as inapplicable to Elaine Wynn. On March 28, 2016, Elaine Wynn filed an amended cross claim which added Wynn Resorts and Wynn Resorts' General Counsel (together with Mr. Wynn, the "Wynn Cross Defendants") as cross defendants. The amended cross claim substantially repeats its earlier allegations and further alleges that Mr. Wynn engaged in acts of misconduct that, with the Wynn Cross Defendants, resulted in Mr. Wynn allegedly breaching the Stockholders Agreement and violating alleged duties under the Stockholders Agreement by preventing Elaine Wynn from being nominated and elected to serve as one of the Company's directors. In addition to continuing to seek the declarations asserted under the original cross claim, the amended cross claim seeks an order compelling Mr. Wynn to comply with the Stockholders Agreement by assuring the nomination and election of Elaine Wynn to the Board of Directors and seeks unspecified monetary damages from Mr. Wynn and the Wynn Cross Defendants. The Wynn Cross Defendants filed motions to dismiss and a motion to sever in April 2016 and will vigorously defend against the claims asserted against them. On May 5, 2016, the court granted Wynn Resorts' and Wynn Resorts' General Counsel's motions to dismiss and denied Mr. Wynn's motion to dismiss. On May 26, 2016, the court denied the Wynn Cross Defendants' motion to sever. Mr. Wynn is continuing to oppose Elaine Wynn's cross claim.
The 2023 Indenture provides that if Mr. Wynn, together with certain related parties, in the aggregate beneficially owns a lesser percentage of the voting power of the outstanding common stock of the Company than is beneficially owned by any other person, a change of control will have occurred. The 2025 Indenture provides that if any event constitutes a "change of control" under the 2023 Indenture, it will constitute a change of control under the 2025 Indenture. If the Stockholders Agreement is determined not to be enforceable pursuant to Elaine Wynn's cross claim, Mr. Wynn would not beneficially own or control Elaine Wynn's shares, which could increase the likelihood that a change in control may occur under the Wynn Las Vegas, LLC debt documents. Under the 2023 Indenture and the 2025 Indenture, if (1) a change of control occurs and (2) at any time within 60 days after that occurrence, the 4 1/4% Senior Notes due 2023 or the 5 1/2% Senior Notes due 2025, as applicable, are rated below investment grade by both rating agencies that rate such notes, the Company is required to make an offer to each applicable holder to repurchase all or any part of such holder's notes at a purchase price equal to
101%
of the aggregate principal amount thereof plus accrued and unpaid interest on the notes purchased, if any, to the date of repurchase (unless the notes have been previously called for redemption).
The Company's Complaint and the Okada Parties' Counterclaim have been, and continue to be, challenged through motion practice. At a hearing held on November 13, 2012, the Nevada state court granted the Wynn Parties' motion to dismiss the Counterclaim with respect to the Okada Parties' claim under the Nevada Racketeer Influenced and Corrupt Organizations Act with respect to certain Company executives but otherwise denied the motion. At a hearing held on January 15, 2013, the court denied the Okada Parties' motion to dismiss the Company's Complaint. On April 22, 2013, the Company filed a second amended complaint. On August 30, 2013, the Okada Parties filed their third amended Counterclaim. On September 18, 2013, the Company filed a Partial Motion to Dismiss related to a claim in the third amended Counterclaim alleging civil extortion by Mr. Wynn and the Company's General Counsel. On October 29, 2013, the court granted the motion and dismissed the claim. On November 26, 2013, the Okada Parties filed their fourth amended Counterclaim, and the Company filed an answer to that pleading on December 16, 2013. On September 16, 2014, Aruze filed a motion for partial summary judgment related to its counterclaim alleging the Company's directors violated the terms of the Articles by failing to pay Aruze fair value for the redeemed shares. At a hearing held on October 21, 2014, the court denied Aruze's motion. On October 10, 2014, the Okada Parties filed a motion for partial judgment on the pleadings principally to seek dismissal of certain breach of fiduciary claims against Mr. Okada included in the Company's Complaint. On November 13, 2014, the court denied the motion.
On each of February 14, 2013 and February 13, 2014, the Company issued a check to Aruze in the amount of
$38.7 million
, representing the interest payments due on the Redemption Note at those times. However, those checks were not cashed. In February 2014, the Okada Parties advised of their intent to deposit any checks for interest and principal, past and future, due under the terms of the Redemption Note to the clerk of the court for deposit into the clerk's trust account. On March 17, 2014, the parties stipulated that the checks be returned to the Company for reissue in the same amounts, payable to the clerk of the court for deposit into the clerk's trust account. Pursuant to the stipulation, on March 20, 2014, the Company delivered to the clerk of the court the reissued checks that were deposited into the clerk's trust account and filed a notice with the court with respect to the same. On each of February 13, 2015, February 12, 2016, and February 13, 2017, the Company issued a check for the interest payment due at those times to the clerk of the court for deposit into the clerk's trust account.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On April 8, 2013, the United States Attorney's Office and the U.S. Department of Justice filed a Motion to Intervene and for Temporary and Partial Stay of Discovery in the Redemption Action. The parties had been engaged in discovery at the time of the filing. The motion stated that the federal government has been conducting a criminal investigation of the Okada Parties involving the "same underlying allegations of misconduct—that is, potential violations of the Foreign Corrupt Practice Act and related fraudulent conduct—that form the basis of" the Company's complaint, as amended, in the Redemption Action. The motion sought to stay all discovery in the Redemption Action related to the Okada Parties' allegedly unlawful activities in connection with their casino project in the Philippines until the conclusion of the criminal investigation and any resulting criminal prosecution, with an interim status update to the court in six months. At a hearing on May 2, 2013, the court granted the motion and ordered that all discovery in the Redemption Action be stayed for a period of six months (the "Stay"). On May 30, 2013, Elaine Wynn filed a motion for partial relief from the Stay, to allow her to conduct limited discovery related to her cross and counterclaims. The Wynn Parties opposed the motion so as to not interfere with the United States government's investigation. At a hearing on August 1, 2013, the court denied the motion. On October 29, 2013, the United States Attorney's Office and the U.S. Department of Justice filed a Motion to Extend the Stay for a further period of six months. At a hearing on October 31, 2013, the court granted the requested extension based upon an affidavit provided under seal that outlined, among other things, concerns for witness safety. The court did, however, order the parties to exchange written discovery propounded prior to May 2, 2013, including discovery related to the Elaine Wynn cross and counterclaims referred to above. The extended Stay expired on May 5, 2014. On April 29, 2014, the United States Attorney's Office and the U.S. Department of Justice filed a Motion for a Second Extension of Temporary Stay of Discovery for a further six months. At a hearing on May 1, 2014, the court denied the motion.
In June 2016, Wynn Resorts filed a motion to disqualify one of Ms. Wynn's law firms and sought an injunction related to Ms. Wynn providing her attorneys with confidential and privileged information that belongs to Wynn Resorts. On June 23, 2016, the court stayed discovery as to both Ms. Wynn and the Okada Parties, pending an evidentiary disqualification hearing currently scheduled for March 2017. On January 23, 2017, the court issued a temporary restraining order that halted such law firm’s participation in the case, with the sole exception of contesting their disqualification. The court has indicated a preliminary schedule that would have the trial begin in February 2018.
Wynn Resorts will continue to vigorously pursue its claims against the Okada Parties, and Wynn Resorts and the Wynn Parties will continue to vigorously defend against the counterclaims asserted against them. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any. An adverse judgment or settlement involving payment of a material amount could cause a material adverse effect on Wynn Resorts' financial condition.
Litigation Commenced by Kazuo Okada
Japan Action:
On August 28, 2012, Mr. Okada, Universal Entertainment Corporation and Okada Holdings ("Okada Japan Parties") filed a complaint in Tokyo District Court against the Wynn Parties, alleging that the press release issued by the Company with respect to the redemption has damaged plaintiffs' social evaluation and credibility. The Okada Japan Parties seek damages and legal fees from the Wynn Parties. After asking the Okada Japan Parties to clarify the allegations in their complaint, the Wynn Parties objected to the jurisdiction of the Japanese court. On April 30, 2013, the Wynn Parties filed a memorandum in support of their jurisdictional position. On October 21, 2013, the court dismissed the action on jurisdictional grounds. On November 1, 2013, the Okada Japan Parties filed an appeal moving the matter to the Tokyo High Court. On June 11, 2014, the Tokyo High Court ruled in favor of the Wynn Parties and upheld the motion for dismissal. On June 25, 2014, the Okada Japan Parties filed a notice of appeal to the Supreme Court of Japan. The Supreme Court of Japan dismissed the appeal as to all of the individuals (including the Company directors) in February 2016 and as to Wynn Resorts in March 2016, thus upholding the motion for dismissal of the Okada Japan Parties' defamation action against the Wynn Parties.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Indemnification Action:
On March 20, 2013, Mr. Okada filed a complaint against the Company in Nevada state court for indemnification under the Company's Articles, bylaws and agreements with its directors. The complaint sought advancement of Mr. Okada's costs and expenses (including attorney's fees) incurred pursuant to the various legal proceedings and related regulatory investigations described above. The Company's answer and counterclaim was filed on April 15, 2013. The counterclaim named each of the Okada Parties as defendants and sought indemnification under the Company's Articles for costs and expenses (including attorney's fees) incurred pursuant to the various legal proceedings and related regulatory investigations described above. On April 30, 2013, Mr. Okada filed his reply to the counterclaim. On February 4, 2014, the court entered an order on the parties' stipulation that: (1) dismissed all claims Mr. Okada asserted against the Company; (2) reserved Mr. Okada's right to assert, in the future, any claims for indemnity following the resolution of the Redemption Action; and (3) stayed the claims asserted by the Company against Mr. Okada pending the resolution of the Redemption Action.
Macau Action:
On July 3, 2015, WML announced that the Okada Parties filed a complaint in the Court of First Instance of Macau ("Macau Court") against Wynn Macau SA and certain individuals who are or were directors of Wynn Macau SA and or WML (collectively, the "Wynn Macau Parties"). The principal allegations in the lawsuit are that the redemption of the Okada Parties' shares in the Company was improper and undervalued, that the previously disclosed payment by Wynn Macau SA to an unrelated third party in consideration of relinquishment by that party of certain rights in and to any future development on the land in Cotai where Wynn Palace is located was unlawful and that the previously disclosed donation by the Company to the University of Macau Development Foundation was unlawful. The plaintiffs seek dissolution of Wynn Macau SA and compensatory damages. The Macau Court has served the complaint on the defendants and the Wynn Macau Parties filed their response on May 17, 2016.
The Company believes these actions commenced by the Okada Parties discussed above are without merit and will vigorously defend the Wynn Macau Parties against them. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any.
Related Investigations and Derivative Litigation
Investigations:
In the U.S. Department of Justice's Motion to Intervene and for Temporary and Partial Stay of Discovery in the Redemption Action, the Department of Justice states in a footnote that the government also has been conducting a criminal investigation into the Company's previously disclosed donation to the University of Macau Development Foundation. The Company has not received any target letter or subpoena in connection with such an investigation. The Company intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau Development Foundation.
Other regulators may pursue separate investigations into the Company's compliance with applicable laws arising from the allegations in the matters described above and in response to the Counterclaim and other litigation filed by Mr. Okada suggesting improprieties in connection with the Company's donation to the University of Macau Development Foundation. While the Company believes that it is in full compliance with all applicable laws, any such investigations could result in actions by regulators against the Company. Prior investigations by the Nevada Gaming Control Board and SEC were closed with no actions taken.
Derivative Claims:
Six
derivative actions were commenced against the Company and all members of its Board of Directors:
four
in the United States District Court, District of Nevada, and
two
in the Eighth Judicial District Court of Clark County, Nevada.
The
four
federal actions brought by the following plaintiffs have been consolidated: (1) The Louisiana Municipal Police Employees' Retirement System, (2) Maryanne Solak, (3) Excavators Union Local 731 Welfare Fund, and (4) Boilermakers Lodge No. 154 Retirement Fund (collectively, the "Federal Plaintiffs").
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Federal Plaintiffs filed a consolidated complaint on August 6, 2012, asserting claims for: (1) breach of fiduciary duty; (2) waste of corporate assets; (3) injunctive relief; and (4) unjust enrichment. The claims were against the Company and all Company directors, including Mr. Okada; however, the plaintiffs voluntarily dismissed Mr. Okada as a defendant in this consolidated action on September 27, 2012. The Federal Plaintiffs claimed that the individual defendants breached their fiduciary duties and wasted assets by: (a) failing to ensure the Company's officers and directors complied with federal and state laws and the Company's Code of Conduct; (b) voting to allow the Company's subsidiary to make the donation to the University of Macau Development Foundation; and (c) redeeming Aruze's stock such that the Company incurs the debt associated with the redemption. The Federal Plaintiffs seek unspecified compensatory damages, restitution in the form of disgorgement, reformation of corporate governance procedures, an injunction against all future payments related to the donation/pledge, and all fees (attorneys, accountants, and experts) and costs. The directors responded to the consolidated complaint by filing a motion to dismiss on September 14, 2012. On February 1, 2013, the federal court dismissed the complaint for failure to plead adequately the futility of a pre-suit demand on the Board. The dismissal was without prejudice to the Federal Plaintiffs' ability to file a motion within 30 days seeking leave to file an amended complaint. On April 9, 2013, the Federal Plaintiffs filed their amended complaint. The Company and the directors filed their motion to dismiss the amended complaint on May 23, 2013. On March 13, 2014, the federal court granted the motion to dismiss and entered judgment in favor of the Company and directors and against the Federal Plaintiffs without prejudice. On April 10, 2014, the Federal Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit. On July 18, 2016, the Ninth Circuit affirmed the federal court's dismissal.
The
two
state court actions brought by the following plaintiffs also have been consolidated: (1) IBEW Local 98 Pension Fund and (2) Danny Hinson (collectively, the "State Plaintiffs"). Through a coordination of efforts by all parties, the directors and the Company (a nominal defendant) have been served in all of the actions. The State Plaintiffs filed a consolidated complaint on July 20, 2012 asserting claims for (1) breach of fiduciary duty; (2) abuse of control; (3) gross mismanagement; and (4) unjust enrichment. The claims are against the Company and all Company directors during the applicable period, including Mr. Okada, as well as the Company's Chief Financial Officer who signed financial disclosures filed with the SEC during the applicable periods. The State Plaintiffs claim that the individual defendants failed to disclose to the Company's stockholders the investigation into, and the dispute with director Okada as well as the alleged potential violations of the FCPA related to, the University of Macau Development Foundation donation. The State Plaintiffs seek unspecified monetary damages (compensatory and punitive), disgorgement, reformation of corporate governance procedures, an order directing the Company to internally investigate the donation, as well as attorneys' fees and costs. On October 13, 2012, the court entered the parties' stipulation providing for a stay of the state derivative action for 90 days, subject to the parties' obligation to monitor the progress of the pending litigation, discussed above, between Wynn Resorts (among others) and Mr. Okada (among others). Per the stipulation, the Company and the individual defendants were not required to respond to the consolidated complaint while the stay remained in effect. Following the expiration of the stay, the State Plaintiffs advised the Company and the individual defendants that they intended to resume the action by filing an amended complaint, which they did, on April 26, 2013. The Company and directors filed their motion to dismiss on June 10, 2013. However, on July 31, 2013, the parties agreed to a stipulation that was submitted to, and approved by the court. The stipulation contemplates a stay of the consolidated state court derivative action of equal duration as the Stay entered by the court in the Redemption Action. On June 18, 2014, the court entered a new stipulation between the parties that provides for further stay of the state derivative action and directs the parties, within 45 days of the conclusion of the latter of the Redemption Action or the federal derivative action, to discuss how the state derivative action should proceed and to file a joint report with the court.
The individual defendants are vigorously defending against the claims pleaded against them. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any.
Massachusetts Gaming License Related Actions
On September 17, 2014, the Massachusetts Gaming Commission ("MGC") designated Wynn MA, LLC ("Wynn MA"), an indirect wholly owned subsidiary of the Company, the award winner of the Greater Boston (Region A) gaming license. On November 7, 2014, the gaming license became effective.
Revere Action: On October 16, 2014, the City of Revere, the host community to the unsuccessful bidder for the same license, and the International Brotherhood of Electrical Workers, Local 103, ("IBEW"), filed a complaint against the MGC and each of the five gaming commissioners in Suffolk Superior Court in Boston, Massachusetts (the "Revere Action"). The complaint challenges the MGC's decision and alleges that the MGC failed to follow statutory requirements outlined in the Gaming Act. The complaint (1) seeks to appeal the administrative decision, (2) asserts that certiorari provides a remedy to correct errors in proceedings by an agency such as the MGC, (3) challenges the constitutionality of that section of the gaming
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
law which bars judicial review of the MGC's decision to deny an applicant a gaming license, and (4) alleges violations of the open meeting law requirements. The court allowed Mohegan Sun ("Mohegan"), the other applicant for the Greater Boston (Region A) gaming license, to intervene in the Revere Action, and on February 23, 2015, Mohegan filed its complaint. The Mohegan complaint challenges the license award to Wynn MA, seeks judicial review of the MGC's decision, and seeks to vacate the MGC's license award to Wynn MA. On July 1, 2015, the MGC filed motions to dismiss Mohegan's and the City of Revere's complaints. Oral argument on these motions was heard on September 22, 2015. On December 3, 2015, the court granted the motion to dismiss the claims asserted in the Revere Action. Also on December 3, 2015, the court granted the motion to dismiss
three
of the
four
counts asserted by Mohegan but denied the motion as to Mohegan's certiorari claim. The City of Revere and IBEW sought immediate appellate review of the dismissal of their claims and the MGC requested immediate appellate review of the court's denial of the MGC's motion to dismiss Mohegan's certiorari claim. All
three
petitions for interlocutory review were denied. On April 22, 2016, the MGC filed an appeal to the Massachusetts Supreme Judicial Court ("SJC"). On May 11, 2016, the SJC granted the application. The SJC has also granted, as of September 20, 2016, the City of Revere and IBEW's application for direct appellate review. The parties in both matters filed written briefs and oral arguments were heard by the SJC on December 5, 2016. A decision by the SJC is expected by April 2017.
Somerville Action: On December 4, 2014, the City of Somerville filed a complaint similar to the one in the Revere Action against the MGC and each of the five gaming commissioners in Suffolk Superior Court. The case was previously stayed at the City of Somerville's request, pending the results of the Massachusetts Department of Environmental Protection's review of Wynn MA's proposed project and the required mitigation actions. However, on July 12, 2016, the City of Somerville filed an amended complaint to add information about certain environmental filings and events over the last year. On August 22, 2016 the City of Somerville and Wynn MA entered into a Settlement Agreement and Release pursuant to which all actions among the City of Somerville, Wynn MA and the MGC were resolved. As part of that Settlement Agreement, this action has been dismissed with prejudice.
Boston Action: On January 5, 2015, the City of Boston filed a complaint against the MGC and each of the five gaming commissioners in Suffolk Superior Court for certiorari and declaratory relief in connection with the MGC's award of the license to Wynn MA. The complaint seeks to contest the MGC's decision that Boston is a surrounding community, rather than a host community to Wynn Boston Harbor. On May 20, 2015, the City of Boston filed an amended complaint requesting the court to nullify and vacate all decisions made by the MGC leading to and resulting in the MGC's license award to Wynn MA; to declare invalid the MGC's regulations regarding the arbitration of surrounding community agreements; and to issue a declaration disqualifying all gaming commissioners from further participating in the gaming licensing process for Region A. The MGC filed a motion to dismiss Boston's amended complaint. Oral argument was heard on September 22, 2015. On December 3, 2015, the court granted the MGC's motion and dismissed the City of Boston's amended complaint. In January 2016, all actions among the City of Boston, Wynn MA and the MGC were resolved through a settlement set forth in a Surrounding Community Agreement.
Wynn MA was not named in the above complaints. The MGC retained private legal representation at its own nontaxpayer-funded expense.
On August 28, 2015, the Secretary of Energy and Environmental Affairs issued a certificate determining that Wynn MA's Second Supplemental Final Environmental Impact Report ("Report") submitted with respect to the project "adequately and properly complies" with the Massachusetts environmental and implementing regulations. On September 29, 2015, following the issuance of this certificate, the City of Boston filed a complaint against Wynn MA in Suffolk Superior Court seeking declaratory judgment that the certificate issued to Wynn MA is invalid due to an alleged failure to comply with certain provisions of the state environmental regulations and seeking to restrain Wynn MA from causing damage to the environment. All City of Boston claims have been resolved by settlement between Wynn MA and the City of Boston. In addition, on September 29, 2015, the City of Somerville filed a complaint against Wynn MA and the MGC in Suffolk Superior Court alleging that Wynn MA's Report failed to comply with certain provisions of the state environmental regulations and seeking declaratory relief with respect to the effect of the issuance of Wynn MA's gaming license. Wynn MA responded to the complaint in June 2016. As stated above, on August 22, 2016, the City of Somerville and Wynn MA entered into a Settlement Agreement and Release. As part of that Settlement Agreement, this action has been dismissed with prejudice.
On February 11, 2016, the City of Somerville filed an appeal challenging the draft waterways license ("Chapter 91 License") issued by the Massachusetts Department of Environmental Protection ("MassDEP") on January 22, 2016, contending that it failed to conform to applicable regulations. The Chapter 91 License authorized Wynn MA's proposed remediation and redevelopment of the project site. An administrative hearing was held on June 2, 2016. On July 15, 2016, MassDEP's Office of Appeals and Dispute Resolution issued a recommended final decision approving Wynn MA's Chapter 91 License, subject to
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
certain conditions. The recommended final decision was adopted by MassDEP's Commissioner on July 22, 2016, with minor modifications. On August 3, 2016, MassDEP issued the final Chapter 91 License to Wynn MA. As a result of the final issuance, Wynn MA has commenced construction activities. As discussed above, on August 22, 2016, the City of Somerville and Wynn MA entered into a Settlement Agreement and Release. As part of that Settlement Agreement, the City of Somerville and Wynn MA agreed not to seek judicial review of the Commissioner's Final Decision in the Chapter 91 appeal.
Note 18 - Segment Information
The Company reviews the results of operations for each of its operating segments. Wynn Macau and Encore, an expansion at Wynn Macau, are managed as a single integrated resort and have been aggregated as
one
reportable segment ("Wynn Macau"). Wynn Palace is presented as a separate reportable segment and is combined with Wynn Macau (collectively, "Macau Operations") for geographical presentation. Wynn Las Vegas and Encore, an expansion at Wynn Las Vegas, are managed as a single integrated resort and have been aggregated as
one
reportable segment ("Las Vegas Operations"). The Company identifies each resort as a reportable segment considering operations within each resort have similar economic characteristics, type of customers, types of services and products, the regulatory environment of the operations and the Company's organizational and management reporting structure.
The Company also reviews construction and development activities for each of its projects under development, in addition to its reportable segments. The Company separately identifies capital expenditures and assets for its Wynn Boston Harbor development project. These amounts for previous years have been reclassified from Corporate and Other to be consistent with the current year presentation. Other Macau primarily represents the Company's Macau holding company.
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables present the Company's segment information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Net revenues
|
|
|
|
|
|
Macau Operations:
|
|
|
|
|
|
Wynn Macau
|
$
|
2,264,087
|
|
|
$
|
2,463,092
|
|
|
$
|
3,796,750
|
|
Wynn Palace
|
583,336
|
|
|
—
|
|
|
—
|
|
Total Macau Operations
|
2,847,423
|
|
|
2,463,092
|
|
|
3,796,750
|
|
Las Vegas Operations
|
1,618,874
|
|
|
1,612,791
|
|
|
1,636,911
|
|
Total
|
$
|
4,466,297
|
|
|
$
|
4,075,883
|
|
|
$
|
5,433,661
|
|
Adjusted Property EBITDA
(1)
|
|
|
|
|
|
Macau Operations:
|
|
|
|
|
|
Wynn Macau
|
$
|
681,509
|
|
|
$
|
708,623
|
|
|
$
|
1,258,082
|
|
Wynn Palace
|
103,036
|
|
|
—
|
|
|
—
|
|
Total Macau Operations
|
784,545
|
|
|
708,623
|
|
|
1,258,082
|
|
Las Vegas Operations
|
474,782
|
|
|
477,166
|
|
|
515,196
|
|
Total
|
1,259,327
|
|
|
1,185,789
|
|
|
1,773,278
|
|
Other operating costs and expenses
|
|
|
|
|
|
Pre-opening costs
|
154,717
|
|
|
77,623
|
|
|
30,146
|
|
Depreciation and amortization
|
404,730
|
|
|
322,629
|
|
|
314,119
|
|
Property charges and other
|
54,822
|
|
|
10,535
|
|
|
10,437
|
|
Corporate expenses and other
|
80,162
|
|
|
76,079
|
|
|
111,795
|
|
Stock-based compensation
|
43,218
|
|
|
38,286
|
|
|
39,154
|
|
Equity in income from unconsolidated affiliates
|
16
|
|
|
1,823
|
|
|
1,349
|
|
Total other operating costs and expenses
|
737,665
|
|
|
526,975
|
|
|
507,000
|
|
Operating income
|
521,662
|
|
|
658,814
|
|
|
1,266,278
|
|
Other non-operating income and expenses
|
|
|
|
|
|
Interest income
|
13,536
|
|
|
7,229
|
|
|
20,441
|
|
Interest expense, net of amounts capitalized
|
(289,365
|
)
|
|
(300,906
|
)
|
|
(315,062
|
)
|
Change in interest rate swap fair value
|
433
|
|
|
(5,300
|
)
|
|
(4,393
|
)
|
Decrease in Redemption Note fair value
|
65,043
|
|
|
52,041
|
|
|
—
|
|
Loss on extinguishment of debt
|
—
|
|
|
(126,004
|
)
|
|
(9,569
|
)
|
Equity in income from unconsolidated affiliates
|
16
|
|
|
1,823
|
|
|
1,349
|
|
Other
|
(728
|
)
|
|
1,550
|
|
|
(182
|
)
|
Total other non-operating income and expenses
|
(211,065
|
)
|
|
(369,567
|
)
|
|
(307,416
|
)
|
Income before income taxes
|
310,597
|
|
|
289,247
|
|
|
958,862
|
|
Benefit (provision) for income taxes
|
(8,128
|
)
|
|
(7,723
|
)
|
|
3,782
|
|
Net income
|
302,469
|
|
|
281,524
|
|
|
962,644
|
|
Net income attributable to noncontrolling interests
|
(60,494
|
)
|
|
(86,234
|
)
|
|
(231,090
|
)
|
Net income attributable to Wynn Resorts, Limited
|
$
|
241,975
|
|
|
$
|
195,290
|
|
|
$
|
731,554
|
|
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
(1)
|
"Adjusted Property EBITDA" is net income before interest, taxes, depreciation and amortization, pre-opening costs, property charges and other, management and license fees, corporate expenses and other (including intercompany golf course and water rights leases), stock-based compensation, loss on extinguishment of debt, change in interest rate swap fair value, change in Redemption Note fair value and other non-operating income and expenses, and includes equity in income from unconsolidated affiliates. Adjusted Property EBITDA 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 EBITDA 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 EBITDA because it is used by some investors as a way to measure a company's ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDA as a supplement to financial measures in accordance with U.S. GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including Wynn Resorts, Limited, have historically excluded from their EBITDA calculations pre-opening expenses, property charges, corporate expenses and stock-based compensation that do not relate to the management of specific casino properties. However, Adjusted Property EBITDA should not be considered as an alternative to operating income 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 measures of net income, Adjusted Property EBITDA 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, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted Property EBITDA. Also, Wynn Resorts' calculation of Adjusted Property EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Capital expenditures
|
|
|
|
|
|
Macau Operations:
|
|
|
|
|
|
Wynn Macau
|
$
|
43,548
|
|
|
$
|
68,744
|
|
|
$
|
92,566
|
|
Wynn Palace
|
838,271
|
|
|
1,566,090
|
|
|
982,389
|
|
Total Macau Operations
|
881,819
|
|
|
1,634,834
|
|
|
1,074,955
|
|
Las Vegas Operations
|
106,373
|
|
|
117,011
|
|
|
62,535
|
|
Wynn Boston Harbor
|
212,197
|
|
|
67,705
|
|
|
1,613
|
|
Corporate and other
|
25,554
|
|
|
101,690
|
|
|
82,254
|
|
|
$
|
1,225,943
|
|
|
$
|
1,921,240
|
|
|
$
|
1,221,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
2014
|
Assets
|
|
|
|
|
|
Macau Operations:
|
|
|
|
|
|
Wynn Macau
|
$
|
1,161,670
|
|
|
$
|
1,331,312
|
|
|
$
|
1,519,339
|
|
Wynn Palace
|
4,317,458
|
|
|
3,439,041
|
|
|
1,854,521
|
|
Other Macau
|
28,927
|
|
|
570,959
|
|
|
960,008
|
|
Total Macau Operations
|
5,508,055
|
|
|
5,341,312
|
|
|
4,333,868
|
|
Las Vegas Operations
|
3,275,780
|
|
|
3,145,713
|
|
|
3,442,675
|
|
Wynn Boston Harbor
|
419,001
|
|
|
185,853
|
|
|
111,424
|
|
Corporate and other
|
2,750,721
|
|
|
1,786,281
|
|
|
1,113,953
|
|
|
$
|
11,953,557
|
|
|
$
|
10,459,159
|
|
|
$
|
9,001,920
|
|
WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
2014
|
Long-lived assets
|
|
|
|
|
|
Macau
|
$
|
4,973,854
|
|
|
$
|
4,324,743
|
|
|
$
|
2,799,781
|
|
United States
|
3,442,842
|
|
|
3,337,356
|
|
|
3,268,576
|
|
|
$
|
8,416,696
|
|
|
$
|
7,662,099
|
|
|
$
|
6,068,357
|
|
Note 19 - Quarterly Financial Information (Unaudited)
The following tables (in thousands, except per share data) present selected quarterly financial information for
2016
and
2015
, as previously reported. Because income (loss) per share amounts are calculated using the weighted average number of common and dilutive common equivalent shares outstanding during each quarter, the sum of the per share amounts for the four quarters may not equal the total income per share amounts for the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
First
|
|
Second
|
|
Third (1)
|
|
Fourth
|
|
Year
|
Net revenues
|
$
|
997,678
|
|
|
$
|
1,058,364
|
|
|
$
|
1,109,822
|
|
|
$
|
1,300,433
|
|
|
$
|
4,466,297
|
|
Operating income
|
$
|
158,298
|
|
|
$
|
147,539
|
|
|
$
|
76,931
|
|
|
$
|
138,894
|
|
|
$
|
521,662
|
|
Net income (loss)
|
$
|
105,792
|
|
|
$
|
89,442
|
|
|
$
|
(19,331
|
)
|
|
$
|
126,566
|
|
|
$
|
302,469
|
|
Net income (loss) attributable to Wynn Resorts, Limited
|
$
|
75,221
|
|
|
$
|
70,391
|
|
|
$
|
(17,437
|
)
|
|
$
|
113,800
|
|
|
$
|
241,975
|
|
Basic income (loss) per share
|
$
|
0.74
|
|
|
$
|
0.69
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.19
|
|
|
$
|
2.39
|
|
Diluted income (loss) per share
|
$
|
0.74
|
|
|
$
|
0.69
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.18
|
|
|
$
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Year
|
Net revenues
|
$
|
1,092,238
|
|
|
$
|
1,040,458
|
|
|
$
|
996,285
|
|
|
$
|
946,902
|
|
|
$
|
4,075,883
|
|
Operating income
|
$
|
185,059
|
|
|
$
|
169,121
|
|
|
$
|
152,774
|
|
|
$
|
151,860
|
|
|
$
|
658,814
|
|
Net income (loss)
|
$
|
(13,902
|
)
|
|
$
|
77,203
|
|
|
$
|
113,429
|
|
|
$
|
104,794
|
|
|
$
|
281,524
|
|
Net income (loss) attributable to Wynn Resorts, Limited
|
$
|
(44,601
|
)
|
|
$
|
56,460
|
|
|
$
|
96,210
|
|
|
$
|
87,221
|
|
|
$
|
195,290
|
|
Basic income (loss) per share
|
$
|
(0.44
|
)
|
|
$
|
0.56
|
|
|
$
|
0.95
|
|
|
$
|
0.86
|
|
|
$
|
1.93
|
|
Diluted income (loss) per share
|
$
|
(0.44
|
)
|
|
$
|
0.56
|
|
|
$
|
0.95
|
|
|
$
|
0.86
|
|
|
$
|
1.92
|
|
(1)
Wynn Palace opened on August 22, 2016.
Note 20 - Subsequent Events
On
January 26, 2017
, the Company announced a cash dividend of
$0.50
per share, payable on
February 28, 2017
, to stockholders of record as of
February 14, 2017
.