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EX-32 - CERTIFICATION OF CEO AND CFO - WYNN LAS VEGAS LLCdex32.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - WYNN LAS VEGAS LLCdex312.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - WYNN LAS VEGAS LLCdex311.htm
EX-10.11 - FIFTH AMENDED AND RESTATED ART RENTAL AND LICENSING AGREEMENT - WYNN LAS VEGAS LLCdex1011.htm
EX-10.31 - EMPLOYMENT AGREEMENT - WYNN LAS VEGAS LLCdex1031.htm
Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2010

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period                      to                     

 

Commission File No. 333-100768

 

WYNN LAS VEGAS, LLC

(Exact name of registrant as specified in its charter)

 

Nevada   88-0494875

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

3131 Las Vegas Boulevard South—Las Vegas, Nevada 89109

(Address of principal executive offices) (Zip Code)

 

(702) 770-7555

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨    No  x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨         Accelerated filer ¨         Non-accelerated filer x         Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

The aggregate market value of the registrant’s voting interests held by non-affiliates on June 30, 2010 was $0. Wynn Resorts Holdings, LLC owns all of the membership interests of the registrant.

 

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.

 



Table of Contents

TABLE OF CONTENTS

 

     PART I         

Item 1.

   Business      3   

Item 1A.

   Risk Factors      12   

Item 1B

   Unresolved Staff Comments      20   

Item 2.

   Properties      20   

Item 3.

   Legal Proceedings      20   

Item 4.

   Removed and Reserved      20   
     PART II         

Item 5.

   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      21   

Item 6.

   Selected Financial Data      21   

Item 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      22   

Item 7A.

   Quantitative and Qualitative Disclosures About Market Risk      37   

Item 8.

   Financial Statements and Supplementary Data      39   

Item 9.

   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      72   

Item 9A.

   Controls and Procedures      72   

Item 9B.

   Other Information      72   
     PART III         

Item 10.

   Directors, Executive Officers and Corporate Governance      73   

Item 11.

   Executive Compensation      73   

Item 12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      73   

Item 13.

   Certain Relationships and Related Transactions, and Director Independence      73   

Item 14.

   Principal Accountant Fees and Services      73   
     PART IV         

Item 15.

   Exhibits and Financial Statement Schedules      74   

Signatures

     82   

 

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PART I

 

Item 1. Business

 

Overview

 

Wynn Las Vegas, LLC owns and operates “Wynn Las Vegas,” a destination casino resort on the “Strip” in Las Vegas, Nevada, and “Encore at Wynn Las Vegas,” or “Encore” which is located adjacent to and is connected with Wynn Las Vegas. Wynn Las Vegas, LLC was formed on April 17, 2001 as a Nevada limited liability company. Unless the context otherwise requires, all references herein to the “Company,” “we,” “us” or “our,” or similar terms, refer to Wynn Las Vegas, LLC and its consolidated subsidiaries. The sole member of the Company is Wynn Resorts Holdings, LLC (“Holdings”). The sole member of Holdings is Wynn Resorts, Limited (“Wynn Resorts”).

 

Wynn Las Vegas Capital Corp. (“Wynn Capital”) is a wholly owned subsidiary of Wynn Las Vegas, LLC, incorporated on June 3, 2002, solely for the purpose of obtaining financing for Wynn Las Vegas. Wynn Capital is authorized to issue 2,000 shares of common stock, par value $0.01. At December 31, 2010, the Company owned the one share that was issued and outstanding. Wynn Capital has neither any significant net assets nor any operating activity. Its sole function is to serve as the co-issuer of the mortgage notes described below.

 

We commenced operations with the opening of Wynn Las Vegas on April 28, 2005. We opened Encore on December 22, 2008. Prior to April 28, 2005, we were solely a development stage company.

 

Due to a number of factors over the last few years, including disruptions in global economies, stagnant credit markets, reduced consumer spending, and high unemployment, 2010 was a difficult year for the U.S. casino resort business similar to 2008 and 2009. Auto traffic into Las Vegas, airline capacity and air travel to McCarran International Airport did not improve significantly over 2008 and 2009. Casino volumes and demand for hotel rooms continue to be lower than the trends experienced pre-2008. While we have experienced some stabilization in our operations over the past year, the current economic conditions in the United States, as well as the addition of new supply in late 2010, may continue to put pressure on hotel occupancy rates, room rates, casino volumes and profitability.

 

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments of such reports with the Securities and Exchange Commission (“SEC”). Any document we file may be inspected, without charge, at the SEC’s public reference room at 100 F Street, N.E. Washington, D.C. 20549 or at the SEC’s internet site address at http://www.sec.gov. Information related to the operation of the SEC’s public reference room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, through its own internet address at www.wynnresorts.com, Wynn Resorts provides a hyperlink to a third-party SEC filing website which posts our filings as soon as reasonably practicable, where they can be reviewed without charge. The information found on our website is not a part of this Annual Report on Form 10-K or any other report we file or furnish to the SEC.

 

Wynn Las Vegas

 

We believe that Wynn Las Vegas offers exceptional accommodations, amenities and service with 2,716 rooms and suites, including 36 fairway villas and 6 private-entry villas for our premium guests. The Tower Suites at Wynn Las Vegas has received both the Forbes five-star and AAA five-diamond distinctions for 2011. The Spa at Wynn Las Vegas earned five-star recognition from Forbes for the third year in a row. The Spa at Wynn Las Vegas and the Spa at Encore are two of the only three spas in Las Vegas to be recognized with the Forbes five-star award.

 

The approximately 110,000 square foot casino features 147 table games, a baccarat salon, private VIP gaming rooms, a poker room, 1,842 slot machines, and a race and sports book. The resort’s 22 food and beverage outlets feature five fine dining restaurants, including restaurants helmed by award winning chefs. Wynn Las Vegas also offers two nightclubs, a spa and salon, a Ferrari and Maserati automobile dealership, wedding

 

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chapels, an 18-hole golf course, approximately 223,000 square feet of meeting space and an approximately 74,000 square foot retail promenade featuring boutiques from Alexander McQueen, Brioni, Cartier, Chanel, Dior, Graff, Louis Vuitton, Manolo Blahnik, Oscar de la Renta and Vertu. Wynn Las Vegas also has a showroom which features “Le Rêve”, a water-based theatrical production. We believe that the unique experience of Wynn Las Vegas drives the significant visitation experienced since opening.

 

Encore

 

Encore is located immediately adjacent to and is connected to Wynn Las Vegas and features a 2,034 all-suite hotel as well as an approximately 76,000 square foot casino with 95 table games, a baccarat salon, a sky casino, private VIP gaming rooms, 778 slot machines and a sports book. For the second year in a row, the Encore Tower Suites has received both the Forbes five-star and AAA five-diamond awards for 2011. The Spa at Encore also earned five-star recognition from Forbes for the second year in a row. The resort’s 13 food and beverage outlets include five restaurants, many of which feature award winning chefs. Encore also offers a beach club, two nightclubs, a spa and salon, approximately 60,000 square feet of meeting space and approximately 27,000 square feet of upscale retail outlets featuring boutiques from Hermes, Chanel and others. Encore also has a showroom which features Garth Brooks and other headliner entertainment acts.

 

Construction and Other Development

 

In July 2010, we commenced a project to refurbish and upgrade the rooms and suites at Wynn Las Vegas. The total project budget is approximately $83 million. The room remodel was completed in January 2011 and the suite remodel is expected to be completed early in the second quarter of 2011. As a part of this project, we are temporarily removing floors from service which reduces our total number of rooms available during the construction period.

 

In the ordinary course of our business, in response to market developments and customer preferences, we have made and continue to make certain enhancements and refinements to our resorts.

 

Approximately 142 acres of land adjacent to Wynn Las Vegas and Encore is currently improved with a golf course. While we may develop this property in the future, due to the current economic environment and certain restrictions in our credit facilities, we have no immediate plans to do so.

 

Our Strategy

 

We believe that Steve Wynn is the preeminent designer, developer and operator of destination casino resorts and has developed brand name status. Mr. Wynn’s involvement with our casino resorts provides a distinct advantage over other gaming enterprises. We integrate luxurious surroundings, distinctive entertainment and superior amenities, including fine dining and premium retail offerings, to create resorts that appeal to a variety of customers.

 

Our resort complex was designed and built to provide a premium experience. Wynn Las Vegas and Encore are positioned as full-service luxury resorts and casinos in the leisure, convention and tour and travel industries. We market these resorts directly to gaming customers using database marketing techniques, as well as traditional incentives, including reduced room rates and complimentary meals and suites. Our rewards system offers discounted and complimentary meals, lodging and entertainment for our guests. We also create general market awareness for our properties through various media channels, including television, radio, newspapers, magazines, the internet, direct mail and billboards.

 

Mr. Wynn and his team bring significant experience in designing, developing and operating casino resorts. The senior executive team has an average of approximately 25 years of experience in the hotel and gaming industries. We also have an approximately 90-person design, development and construction affiliate, the senior management of which has significant experience in all major construction disciplines.

 

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Market and Competition

 

Las Vegas

 

Las Vegas is the largest gaming market in the United States. The casino/hotel industry in Las Vegas is highly competitive and, prior to the recent economic conditions and interruption in projects under development, had undergone a period of exceptional growth, particularly with the addition of projects targeting the premium customer. Wynn Las Vegas and Encore are located on the Las Vegas Strip and compete with other high-quality resorts and hotel casinos on the Strip, those in downtown Las Vegas, as well as a large number of hotels in and near Las Vegas. Many competing properties draw a significant number of visitors and directly compete with our operations. We seek to differentiate Wynn Las Vegas and Encore from other major Las Vegas resorts by concentrating on our fundamental elements of design, atmosphere, personal service and luxury.

 

Wynn Las Vegas and Encore also compete, to some extent, with other hotel/casino facilities in Nevada and Atlantic City, riverboat gaming facilities in other states, casino facilities on Native American lands, casino resorts throughout Asia and elsewhere in the world, as well as state lotteries and other forms of gaming. In addition, the legalization of casino gaming in or near metropolitan areas from which we attract customers could have a negative effect on our business. New or renovated casinos in Asia, including our properties in Macau, could draw Asian gaming customers away from Las Vegas.

 

During 2010, while the market did experience some stabilization, the economic environment in the gaming and hotel markets in Las Vegas continues at depressed levels of gaming revenue, visitation, and hotel room demand. While certain gaming and hotel statistics may have increased from the 2009 levels, improvement has not been significant. The average daily room rate increased 2%, visitation increased 2.7% to 37.3 million visitors, and Las Vegas strip gaming revenues increased 4.1%, all as compared to the year ended December 31, 2009. We, along with our competitors, have responded to the depressed levels in consumer spending by aggressively marketing and pricing our Las Vegas offerings.

 

Regulation and Licensing

 

Introduction. The gaming industry is highly regulated. Gaming registrations, licenses and approvals, once obtained, can be suspended or revoked for a variety of reasons. We cannot assure you that we will obtain all required registrations, licenses and approvals on a timely basis or at all, or that, once obtained, the registrations, findings of suitability, licenses and approvals will not be suspended, conditioned, limited or revoked. If we ever are prohibited from operating Wynn Las Vegas, Encore or any other property we may own and operate in the future, we would, to the extent permitted by law, seek to recover our investment by selling the property affected, but we cannot assure you that we would recover its full value.

 

The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming Control Act and the regulations made under the Act, as well as to various local ordinances. Our properties are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and the Clark County Liquor and Gaming Licensing Board, which we refer to herein collectively as the “Nevada Gaming Authorities.”

 

Policy Concerns of Gaming Laws. The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy. Such public policy concerns include, among other things:

 

   

preventing unsavory or unsuitable persons from being directly or indirectly involved with gaming at any time or in any capacity;

 

   

establishing and maintaining responsible accounting practices and procedures;

 

   

maintaining effective controls over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and safeguarding assets and revenue, providing reliable recordkeeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;

 

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preventing cheating and fraudulent practices; and

 

   

providing a source of state and local revenue through taxation and licensing fees.

 

Changes in applicable laws, regulations and procedures could have significant negative effects on Wynn Las Vegas’ gaming operations and our financial condition and results of operations.

 

Owner and Operator Licensing Requirements. Wynn Las Vegas, LLC, as the owner and operator of Wynn Las Vegas and Encore, has been approved by the Nevada Gaming Authorities as a limited liability company licensee, referred to as a company licensee, which includes approval to conduct casino gaming operations, including a race book and sports pool and pari-mutuel wagering. These gaming licenses are not transferable.

 

Company Registration Requirements. Wynn Resorts was found suitable by the Nevada Gaming Commission to own the equity interests of Holdings and to be registered by the Nevada Gaming Commission as a publicly traded corporation, referred to as a registered company, for the purposes of the Nevada Gaming Control Act. Holdings was found suitable by the Nevada Gaming Commission to own the equity interests of Wynn Las Vegas, LLC and to be registered by the Nevada Gaming Commission as an intermediary company. In addition to being licensed, Wynn Las Vegas, LLC, as an issuer of debt securities that were registered with the SEC, also qualified as a registered company. Wynn Las Vegas Capital Corp., a co-issuer of the debt securities, was not required to be registered or licensed, but may be required to be found suitable as a lender or financing source.

 

Periodically, we are required to submit detailed financial and operating reports to the Nevada Gaming Commission and provide any other information that the Nevada Gaming Commission may require. Substantially all of our material loans, leases, sales of securities and similar financing transactions must be reported to, and/or approved by, the Nevada Gaming Commission.

 

Individual Licensing Requirements. No person may become a stockholder or member of, or receive any percentage of the profits of, an intermediary company or company licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to or material involvement with us to determine whether the individual is suitable or should be licensed as a business associate of a gaming licensee. Certain of our officers, directors and key employees have been or may be required to file applications with the Nevada Gaming Authorities and are or may be required to be licensed or found suitable by the Nevada Gaming Authorities. All applications required as of the date of this report have been filed. However, the Nevada Gaming Authorities may require additional applications and may also deny an application for licensing for any reason, which they deem appropriate. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay or must cause to be paid all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove a change in a corporate position.

 

If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. In addition, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada.

 

Consequences of Violating Gaming Laws. If the Nevada Gaming Commission determines that we have violated the Nevada Gaming Control Act or any of its regulations, it could limit, condition, suspend or revoke our registrations and gaming license. In addition, we and the persons involved could be subject to substantial fines

 

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for each separate violation of the Nevada Gaming Control Act, or of the regulations of the Nevada Gaming Commission, at the discretion of the Nevada Gaming Commission. Further, the Nevada Gaming Commission could appoint a supervisor to operate Wynn Las Vegas and Encore and, under specified circumstances, earnings generated during the supervisor’s appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any of our gaming licenses and the appointment of a supervisor could, and revocation of any gaming license would, have a significant negative effect on our gaming operations.

 

Requirements for Voting or Nonvoting Securities Holders. Regardless of the number of shares held, any beneficial owner of a registered company’s voting or nonvoting securities may be required to file an application, be investigated and have that person’s suitability as a beneficial owner of voting securities determined if the Nevada Gaming Commission has reason to believe that the ownership would be inconsistent with the declared policies of the State of Nevada. If the beneficial owner of the voting or nonvoting securities of Wynn Resorts who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of its beneficial owners. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any investigation.

 

The Nevada Gaming Control Act requires any person who acquires more than 5% of the voting securities of a registered company to report the acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act requires beneficial owners of more than 10% of a registered company’s voting securities to apply to the Nevada Gaming Commission for a finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board mails the written notice requiring such filing. However, an “institutional investor,” as defined in the Nevada Gaming Control Act, which beneficially owns more than 10% but not more than 11% of a registered company’s voting securities as a result of a stock repurchase by the registered company may not be required to file such an application. Further, an institutional investor which acquires more than 10%, but not more than 25%, of a registered company’s voting securities may apply to the Nevada Gaming Commission for a waiver of a finding of suitability if the institutional investor holds the voting securities for investment purposes only. An institutional investor that has obtained a waiver may hold more than 25% but not more than 29% of a registered company’s voting securities and maintain its waiver where the additional ownership results from a stock repurchase by the registered company. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered company, a change in the corporate charter, bylaws, management, policies or operations of the registered company, or any of its gaming affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding the registered company’s voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

 

   

voting on all matters voted on by stockholders or interest holders;

 

   

making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and

 

   

other activities that the Nevada Gaming Commission may determine to be consistent with such investment intent.

 

The articles of incorporation of Wynn Resorts include provisions intended to assist its implementation of the above restrictions.

 

Consequences of Being Found Unsuitable. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or by the Chairman of the Nevada State Gaming Control Board, or who refuses or fails to pay the investigative costs

 

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incurred by the Nevada Gaming Authorities in connection with the investigation of its application, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of any voting security or debt security of a registered company beyond the period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity interest or to have any other relationship with us, we:

 

   

pay that person any dividend or interest upon any voting securities;

 

   

allow that person to exercise, directly or indirectly, any voting right held by that person relating to Wynn Resorts;

 

   

pay remuneration in any form to that person for services rendered or otherwise; or,

 

   

fail to pursue all lawful efforts to require the unsuitable person to relinquish such person’s voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value.

 

Gaming Laws Relating to Debt Securities Ownership. The Nevada Gaming Commission may, in its discretion, require the owner of any debt or similar securities of a registered company, to file applications, be investigated and be found suitable to own the debt or other security of the registered company if the Nevada Gaming Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the Nevada Gaming Commission decides that a person is unsuitable to own the security, then under the Nevada Gaming Control Act, the registered company can be sanctioned, including the loss of its approvals if, without the prior approval of the Nevada Gaming Commission, it:

 

   

pays to the unsuitable person any dividend, interest or any distribution whatsoever;

 

   

recognizes any voting right by the unsuitable person in connection with the securities;

 

   

pays the unsuitable person remuneration in any form; or,

 

   

makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.

 

Approval of Public Offerings. We may not make a public offering without the prior approval of the Nevada Gaming Commission if the proceeds from the offering are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes or for similar transactions. On March 19, 2009, the Nevada Gaming Commission granted us prior approval, subject to certain conditions, to make public offerings for a period of two years (the “Shelf Approval”). The Shelf Approval also applies to any affiliated company wholly owned by us which is a publicly traded corporation or would thereby become a publicly traded corporation pursuant to a public offering. The Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada State Gaming Control Board. The Shelf Approval does not constitute a finding, recommendation or approval by any of the Nevada Gaming Authorities as to the accuracy or adequacy of the offering memorandum or the investment merits of the securities. Any representation to the contrary is unlawful.

 

Approval of Changes in Control. A registered company must obtain the prior approval of the Nevada Gaming Commission with respect to a change in control through merger; consolidation; stock or asset acquisitions; management or consulting agreements; or any act or conduct by a person by which the person obtains control of the registered company.

 

Entities seeking to acquire control of a registered company must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission with respect to a variety of stringent standards before assuming control of the registered company. The Nevada Gaming Commission may also require controlling stockholders, officers,

 

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directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction.

 

Approval of Defensive Tactics. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada corporate gaming licensees or affecting registered companies that are affiliated with the operations of Nevada gaming licensees may be harmful to stable and productive corporate gaming. The Nevada Gaming Commission has established a regulatory scheme to reduce the potential adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy in order to:

 

   

assure the financial stability of corporate gaming licensees and their affiliated companies;

 

   

preserve the beneficial aspects of conducting business in the corporate form; and

 

   

promote a neutral environment for the orderly governance of corporate affairs.

 

Approvals may be required from the Nevada Gaming Commission before a registered company can make exceptional repurchases of voting securities above its current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Gaming Control Act also requires prior approval of a plan of recapitalization proposed by a registered company’s board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control.

 

Fees and Taxes. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the licensed subsidiaries’ respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable monthly, quarterly or annually and are based upon :

 

   

a percentage of the gross revenue received;

 

   

the number of gaming devices operated; or,

 

   

the number of table games operated.

 

A live entertainment tax also is imposed on admission charges and sales of food, beverages and merchandise where live entertainment is furnished.

 

Foreign Gaming Investigations. Any person who is licensed, required to be licensed, registered, required to be registered in Nevada, or is under common control with such persons (collectively, “licensees”), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada State Gaming Control Board of the licensee’s or registrant’s participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Gaming Commission. Licensees and registrants are required to comply with the foreign gaming reporting requirements imposed by the Nevada Gaming Control Act. A licensee or registrant is also subject to disciplinary action by the Nevada Gaming Commission if it:

 

   

knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation;

 

   

fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations;

 

   

engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reflects or tends to reflect, discredit or disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the gaming policies of Nevada;

 

   

engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or,

 

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employs, contracts with or associates with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of unsuitability.

 

Licenses for Conduct of Gaming and Sale of Alcoholic Beverages. The conduct of gaming activities and the service and sale of alcoholic beverages at Wynn Las Vegas and Encore are subject to licensing, control and regulation by the Clark County Liquor and Gaming Licensing Board, which has granted Wynn Las Vegas, LLC, licenses for such purposes. In addition to approving Wynn Las Vegas, LLC, the Clark County Liquor and Gaming Licensing Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. Clark County gaming and liquor licenses are not transferable. The County has full power to limit, condition, suspend or revoke any license. Any disciplinary action could, and revocation would, have a substantial negative impact upon our operations.

 

Seasonality

 

We may experience fluctuations in revenues and cash flows from month to month, however, we do not believe that our business is materially impacted by seasonality.

 

Employees

 

As of December 31, 2010, we had a total of approximately 9,405 full-time equivalent employees.

 

During 2006, we entered into a ten year collective bargaining agreement with the Culinary and Bartenders Union local covering approximately 5,600 of our employees. We also entered into a ten year collective bargaining agreement with the Transportation Workers Union in November 2010, which covers the table games dealers at Wynn Las Vegas. Certain other unions may seek to organize the workers at Wynn Las Vegas and Encore. Unionization, pressure to unionize, or other forms of collective bargaining could increase our labor costs.

 

Intellectual Property

 

Among our most important marks are our trademarks and service marks that use the name “WYNN.” Holdings has filed applications with the U.S. Patent and Trademark Office (“PTO”) and various foreign patent and trademark registries, to register a variety of the WYNN-related trademarks and service marks in connection with a variety of goods and services. These marks include “WYNN LAS VEGAS” and “ENCORE.” Some of the applications are based upon ongoing use and others are based upon a bona fide intent to use the marks.

 

A common element of most of these marks is the use of the surname “WYNN.” As a general rule, a surname (or the portion of a mark primarily constituting a surname) is not eligible for registration unless the surname has acquired “secondary meaning.” To date, Holdings has been successful in demonstrating to the PTO such secondary meaning for the Wynn name in certain of the applications based upon factors including Mr. Wynn’s prominence as a resort developer.

 

Federal registrations are not completely dispositive of the right to such marks. Third parties who claim prior rights with respect to similar marks may nonetheless challenge our right to obtain registrations or our use of the marks and seek to overcome the presumptions afforded by such registrations.

 

We have also filed applications with various foreign patent and trademark registries, including registries in Macau, China, Singapore, Hong Kong, Taiwan, Japan, certain European countries and various other jurisdictions throughout the world, to register a variety of WYNN-related trademarks and service marks in connection with a variety of goods and services. These marks include many of the same marks filed with the United States Patent and Trademark Office and include “WYNN LAS VEGAS” and “ENCORE.” Some of the applications are based upon ongoing use and others are based upon a bona fide intent to use the marks.

 

We recognize that our intellectual property assets, including the word and logo version of “WYNN,” are among our most valuable assets. As a result, and in connection with expansion of our resort and gaming activities

 

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outside the United States, we have undertaken a program to register our trademarks and other intellectual property rights in relevant jurisdictions. We have retained counsel and intend to take all steps necessary to not only acquire, but protect our intellectual property rights against unauthorized use throughout the world.

 

On August 6, 2004, Holdings entered into agreements with Mr. Wynn that confirm and clarify its rights to use the “Wynn” name and Mr. Wynn’s persona in connection with our casino resorts. Under a Surname Rights Agreement, Mr. Wynn has acknowledged Holdings’ exclusive, fully paid-up, perpetual, worldwide right to use, and to own and register trademarks and service marks incorporating, the “Wynn” name for casino resorts and related businesses, together with the right to sublicense the name and marks to our affiliates. Under a Rights of Publicity License, Mr. Wynn has granted Holdings 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 our affiliates, until October 24, 2017. Holdings has entered into sublicense agreements with us relating to our use of Mr. Wynn’s name and persona, as well as other intellectual property.

 

Forward-Looking Statements

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Annual Report on Form 10-K contains statements that are forward-looking, including, but not limited to, statements relating to our business strategy and development activities as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations), expectations concerning future operations, profitability and competition. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “continue” or the negative of these terms or other comparable terminology. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us. These risks and uncertainties include, but are not limited to, those set forth in Item 1A (“Risk Factors”) as well as the following:

 

   

adverse tourism trends given the current domestic and international economic conditions;

 

   

volatility and weakness in world-wide credit and financial markets globally and from governmental intervention in the financial markets;

 

   

general global macroeconomic conditions;

 

   

decreases in levels of travel, leisure and consumer spending;

 

   

continued high unemployment;

 

   

fluctuations in occupancy rates and average daily room rates;

 

   

conditions precedent to funding under the agreements governing the disbursement of the proceeds of borrowings under our credit facilities;

 

   

continued compliance with all provisions in our credit agreements;

 

   

competition in the casino/hotel and resort industries and actions taken by our competitors in reaction to adverse economic conditions;

 

   

new development and construction activities of competitors;

 

   

our dependence on Stephen A. Wynn and existing management;

 

   

our dependence on Wynn Las Vegas and Encore for all of our cash flow;

 

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leverage and debt service (including sensitivity to fluctuations in interest rates);

 

   

changes in federal or state tax laws or the administration of such laws;

 

   

changes in state law regarding water rights;

 

   

changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions);

 

   

approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations);

 

   

the impact that an outbreak of an infectious disease or the impact of a natural disaster may have on the travel and leisure industry;

 

   

the consequences of the wars in Iraq and Afghanistan, and other military conflicts in the Middle East and any future security alerts and/or terrorist attacks; and

 

   

pending or future legal proceedings.

 

Further information on potential factors that could affect our financial condition, results of operations and business are included in this report and our other filings with the SEC. You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this report.

 

Item 1A. Risk Factors

 

The following risk factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in this Annual Report on Form 10-K. If any of the following risks and uncertainties or other risks and uncertainties not currently known to us or not currently considered to be material actually occurs, our business, financial condition or operating results could be harmed substantially.

 

Risks Related to our Substantial Indebtedness

 

We are highly leveraged and future cash flow may not be sufficient for us to meet our obligations, and we might have difficulty obtaining more financing.

 

We have a substantial amount of consolidated debt in relation to our equity. As of December 31, 2010, we had total outstanding debt of approximately $2.6 billion. In addition, our credit agreement and indenture permit us to incur additional indebtedness in the future. Our substantial indebtedness could have important consequences. For example:

 

   

if we fail to meet our payment obligations or otherwise default under the agreements governing our indebtedness, the lenders under those agreements will have the right to accelerate the indebtedness and exercise other rights and remedies against us. These rights and remedies include rights to:

 

   

repossess and foreclose upon the assets that serve as collateral;

 

   

initiate judicial foreclosure against us; and

 

   

petition a court to appoint a receiver for us or for substantially all of our assets.

 

   

we are required to use a substantial portion of our cash flow from the operations of Wynn Las Vegas and Encore to service and amortize our Wynn Las Vegas indebtedness, which will reduce the amount of available cash, if any, to fund working capital, other capital expenditures and other general corporate purposes, and may give us greater exposure to the current adverse economic and industry condition;

 

   

we may experience decreased revenues from our operations attributable to decreases in consumer spending levels due to the current adverse economic and industry conditions, and could fail to generate

 

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sufficient cash to fund our liquidity needs and/or fail to satisfy the financial and other restrictive covenants to which we are subject to under our existing indebtedness. We cannot provide assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs;

 

   

we may have a limited ability to respond to changing business and economic conditions and to withstand competitive pressures, which may affect our financial condition;

 

   

we may not be able to obtain additional financing if needed, to satisfy working capital requirements, or pay for other capital expenditures, debt service or other obligations;

 

   

while we do hedge a certain amount of our debt under our credit facilities, rates with respect to a portion of interest we pay will fluctuate with market rates and, accordingly, our interest expense will increase if market interest rates increase; and

 

   

if we fail to pay our debts generally as they become due, unsecured creditors that we fail to pay may initiate involuntary bankruptcy proceedings against us, subject to the requirements of the United States Bankruptcy Code, and such bankruptcy proceedings will delay or impair the repayment of our credit facilities and first mortgage notes.

 

Under the terms of the documents governing our debt facilities, we may, subject to certain limitations, be permitted to incur additional indebtedness, including secured senior and subordinated indebtedness. If we incur additional indebtedness, the risks described above will be exacerbated.

 

The agreements governing our debt facilities contain certain financial covenants and other covenants that restrict our ability to engage in certain transactions and may impair our ability to respond to changing business and economic conditions.

 

Our debt facilities require us to satisfy various financial covenants, which include requirements for a minimum interest coverage ratio and a ratio pertaining to total debt to earnings before interest, tax, depreciation and amortization. If our operations fail to generate adequate cash flow, we may violate those covenants causing a default in our agreements. Future indebtedness or other contracts could contain covenants more restrictive than those contained in our existing debt facilities.

 

Our ability to comply with the terms of our outstanding facilities may be affected by general economic conditions, industry conditions and other events some of which may be beyond our control. As a result, we may not be able to maintain compliance with these covenants. Our failure to comply with the terms of our debt facilities, including failure as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition or result in our lenders taking action to enforce their security interests in our various assets.

 

The agreements governing our debt facilities also contain restrictions on our ability to engage in certain transactions and may limit our ability to respond to changing business and economic conditions. The debt facilities impose operating and financial restrictions on us and our restricted subsidiaries, including, among other things, limitations on the 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;

 

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issue stock of, or member’s interests in, subsidiaries;

 

   

enter into sale-leaseback transactions;

 

   

engage in other businesses;

 

   

merge or consolidate with another company;

 

   

transfer and sell assets;

 

   

issue disqualified stock;

 

   

create dividend and other payment restrictions affecting subsidiaries; and

 

   

designate restricted and unrestricted subsidiaries.

 

If there were an event of default under one of our debt instruments, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, or that we would be able to repay, refinance or restructure the payments on those debt securities.

 

Our indebtedness is secured by a substantial portion of our assets.

 

Subject to applicable laws, including gaming laws, and certain agreed upon exceptions, our debt is secured by liens on substantially all of our assets. In the event of a default under our financing documents, or if we experience insolvency, liquidation, dissolution or reorganization, the holders of our secured debt instruments would first be entitled to payment from their collateral security, and only then would holders of our unsecured debt be entitled to payment from our remaining assets.

 

Risks Related to our Business

 

The loss of Stephen A. Wynn could significantly harm our business.

 

Our ability to maintain our competitive position is dependent to a large degree on the efforts and skills of Stephen A. Wynn, the Chairman of the Board, Chief Executive Officer and one of the principal stockholders of Wynn Resorts. In 2008, Wynn Resorts extended the term of Mr. Wynn’s employment agreement until October 2020. However, we cannot assure you that Mr. Wynn will remain with Wynn Resorts. If Wynn Resorts loses the services of Mr. Wynn, or if he is unable to devote sufficient attention to our operations for any other reason, our business may be significantly impaired.

 

Continued weakness or further weakening in global economic conditions may adversely affect consumer and corporate spending and tourism trends, resulting in additional deterioration in our business.

 

Discretionary consumer spending has been adversely affected by the current economic crisis. Worldwide, consumers are traveling less and spending less when they do travel. While showing signs of improvement and some stabilization, corporate spending on conventions and business development is still well below historical levels as businesses closely monitor their budgets. Since our business model relies on significant expenditures on luxury and discretionary items, any factors that may cause further weakness or instability in the economy may adversely affect our operations. Customer demand for luxury amenities and leisure activities that we offer may be depressed or continue to decline.

 

There may be excess room supply particularly in the luxury segment.

 

There have been large additions to the room supply in Las Vegas since December 2009. Even after the global economy begins to recover, there may be excess supply particularly in the luxury segment.

 

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We are entirely dependent on Wynn Las Vegas and Encore for all of our cash flow, which subjects us to greater risks than a gaming company with more operating properties.

 

We do not expect to have material assets or operations other than Wynn Las Vegas and Encore. We are entirely dependent upon Wynn Las Vegas and Encore for all of our cash flow. As a result, we are subject to a greater degree of risk than a gaming company with more operating properties. The risks to which we have a greater degree of exposure include the following:

 

   

local economic and competitive conditions;

 

   

changes in local and state governmental laws and regulations, including gaming laws and regulations;

 

   

natural and other disasters;

 

   

an increase in the cost of utilities for our properties as a result of, among other things, power shortages in California or other western states with which Nevada shares a single regional power grid or a shortage of natural resources such as water;

 

   

a decline in the number of visitors to Las Vegas;

 

   

a decrease in gaming and non-gaming activities at Wynn Las Vegas and Encore; and

 

   

the outbreak of an infectious disease such as H1N1 or the avian flu.

 

Any of the factors outlined above could negatively affect our ability to generate sufficient cash flow to make payments or maintain our covenants with respect to our debt.

 

Our casino, hotel, convention and other facilities face intense competition.

 

The casino/hotel industry is highly competitive and additional developments have recently opened or are currently underway. Resorts located on or near the Las Vegas Strip compete with other Las Vegas Strip hotels and with other hotel casinos in Las Vegas on the basis of overall atmosphere, range of amenities, level of service, price, location, entertainment, theme and size, among other factors. Wynn Las Vegas and Encore may also compete with one another.

 

Wynn Las Vegas and Encore also compete, to some extent, with other hotel/casino facilities in Nevada and Atlantic City, riverboat gaming facilities in other states, casino facilities on Native American lands and elsewhere in the world, as well as state lotteries and other forms of gaming. In addition, the legalization of casino gaming in or near metropolitan areas from which we attract customers could have a negative effect on our business. New or renovated casinos in Asia, including our property in Macau, could draw Asian gaming customers away from Las Vegas.

 

Our business relies on high-end, international customers to whom we often extend credit, and we may not be able to collect gaming receivables from our credit players or credit play may decrease.

 

A significant portion of our table games revenue at Wynn Las Vegas and Encore is attributable to the play of a limited number of international customers. The loss or a reduction in the play of the most significant of these customers could have a substantial negative effect on our future operating results. A continued downturn in economic conditions in the countries in which these customers reside could cause a further reduction in the frequency of visits by and revenue generated from these customers.

 

We conduct our gaming activities on a credit as well as a cash basis. This credit is unsecured. Table games players typically are extended more credit than slot players, and high-stakes players typically are extended more credit than patrons who tend to wager lower amounts. The collectibility of receivables from international customers could be negatively affected by future business or economic trends or by significant events in the

 

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countries in which these customers reside. We will extend credit to those customers whose level of play and financial resources, in the opinion of management, warrant such an extension.

 

In addition, high-end gaming is more volatile than other forms of gaming, and variances in win-loss results attributable to high-end gaming may have a positive or negative impact on cash flow and earnings in a particular quarter.

 

While gaming debts evidenced by a credit instrument, including what is commonly referred to as a “marker,” are enforceable under the current laws of Nevada, and judgments on gaming debts are enforceable in all states under the Full Faith and Credit Clause of the United States Constitution, other jurisdictions may determine that direct or indirect enforcement of gaming debts is against public policy. Although courts of some foreign nations will enforce gaming debts directly and the assets in the United States of foreign debtors may be used to satisfy a judgment, judgments on gaming debts from U.S. courts are not binding on the courts of many foreign nations. We cannot assure you that we will be able to collect the full amount of gaming debts owed to us, even in jurisdictions that enforce them. Recent dramatic changes in the economic conditions may make it more difficult to assess creditworthiness and more difficult to collect the full amount of any gaming debt owed to us. Our inability to collect gaming debts could have a significant negative impact on our operating results.

 

Our business is particularly sensitive to reductions in discretionary consumer spending as a result of downturns in the economy.

 

Consumer demand for hotel/casino resorts, trade shows and conventions and for the type of luxury amenities that we offer is particularly sensitive to downturns in the economy which adversely impact discretionary spending on leisure activities. Changes in discretionary consumer spending or consumer preferences brought about by the factors such as perceived or actual general economic conditions, high unemployment, the current housing foreclosure crisis, the current credit crisis, bank failures and the potential for additional bank failures, perceived or actual changes disposable consumer income and wealth, the current global economic recession and changes in consumer confidence in the economy, or fears of war and future acts of terrorism could reduce customer demand for the luxury amenities and leisure activities we offer, and may have a significant negative impact on our operating results.

 

During 2010, the economic environment in the gaming and hotel markets in Las Vegas continued to experience depressed levels of gaming revenue, visitation, and hotel room demand. While certain gaming and hotel statistics may have increased from the 2009 levels, improvement has not been significant. The average daily room rate increased 2.0%, visitation increased 2.7% to 37.3 million visitors, and Las Vegas strip gaming revenues increased 4.1%, all as compared to the year ended December 31, 2009. If these trends do not improve more significantly, our financial condition, results of operations and cash flows may be adversely affected.

 

We are subject to extensive state and local regulation, and licensing and gaming authorities have significant control over our operations, which could have a negative effect on our business.

 

The operations of Wynn Las Vegas and Encore are contingent upon maintaining all necessary regulatory licenses, permits, approvals, registrations, findings of suitability, orders and authorizations. The laws, regulations and ordinances requiring these licenses, permits and other approvals generally relate to the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially interested or involved in gaming operations. The scope of the approvals required to open and operate a facility is extensive. We received all approvals for the opening of Wynn Las Vegas on April 28, 2005 and Encore on December 22, 2008; however, we are subject to ongoing regulation to maintain these operations.

 

The Nevada Gaming Commission may, in its discretion, require the holder of any debt or securities that we or Wynn Resorts issue to file applications, be investigated and be found suitable to own our or Wynn Resorts’ securities if it has reason to believe that the security ownership would be inconsistent with the declared policies of the State of Nevada.

 

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Nevada regulatory authorities have broad powers to request detailed financial and other information, to limit, condition, suspend or revoke a registration, gaming license or related approval and to approve changes in our operations. Substantial fines or forfeiture of assets for violations of gaming laws or regulations may be levied. The suspension or revocation of any license which may be granted to us or the levy of substantial fines or forfeiture of assets could significantly harm our business, financial condition and results of operations. Furthermore, compliance costs associated with gaming laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to our business or gaming licenses could require us to make substantial expenditures or could otherwise negatively affect our gaming operations.

 

We are subject to taxation by various governments and agencies. The rate of taxation could change.

 

We are subject to taxation in the United States at the federal, state and local level. Specific rates of taxation can be changed by legislative action. Increases in taxation could adversely affect our results.

 

Terrorism and the uncertainty of military conflicts, natural disasters and contagious diseases, as well as other factors affecting discretionary consumer spending, may harm our operating results.

 

The strength and profitability of our business depends on consumer demand for hotel casino resorts in general and for the type of luxury amenities our properties offer. Changes in consumer preferences or discretionary consumer spending could harm our business. The terrorist attacks of September 11, 2001, other terrorist activities in the United States and elsewhere, military conflicts in Iraq, Afghanistan and in the Middle East, outbreaks of infectious disease and pandemics, and natural disasters such as hurricanes, tsunamis and earthquakes, among other things, have had negative impacts on travel and leisure expenditures. We cannot predict the extent to which similar events and conditions may continue to affect us in the future. An extended period of reduced discretionary spending and/or disruptions or declines in airline travel and business conventions could significantly harm our operations. In particular, because our business relies heavily upon high-end customers, particularly international customers, factors resulting in a decreased propensity to travel internationally could have a negative impact on our operations.

 

In addition, other factors affecting travel and discretionary consumer spending, including general economic conditions, disposable consumer income, fears of recession and reduced consumer confidence in the economy, may negatively impact our business. Negative changes in any factors affecting discretionary spending could reduce customer demand for the products and services we offer, thus imposing practical limits on pricing and harming our operations.

 

Our insurance coverage may not be adequate to cover all possible losses that we could suffer, and our insurance costs may increase.

 

The terrorist attacks of September 11, 2001 have substantially affected the availability of insurance coverage for certain types of damages or occurrences. We currently have insurance coverage for terrorist acts included in our commercial property insurance policy with respect to Wynn Las Vegas and Encore at Wynn Las Vegas, not to exceed $1.5 billion. However, these types of acts could expose us to losses that exceed our coverage and could have a significant negative impact on our operations.

 

We may not have sufficient insurance coverage in the event of a catastrophic property or casualty loss. We may also suffer disruption of our business in the event of a terrorist attack or other catastrophic property or casualty loss or be subject to claims by third parties injured or harmed. While we currently carry general liability insurance and business interruption insurance, such insurance may not be adequate to cover all losses in such event. In the event that insurance premiums increase, we may not be able to maintain the insurance coverage we currently have or otherwise be able to maintain adequate insurance protection.

 

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If a third party successfully challenges Holdings’ ownership of, or right to use, the Wynn-related service marks, our business or results of operations could be harmed.

 

We have sublicensed certain Wynn-related trademarks and services from Holdings. Holdings has filed applications with the United States Patent and Trademark Office (“PTO”), to register a variety of WYNN-related trademarks and service marks in connection with a variety of goods and services. These marks include “WYNN LAS VEGAS” and “ENCORE.” Some of the applications are based upon ongoing use and others are based upon a bona fide intent to use the marks.

 

A common element of most of these marks is the use of the surname, “WYNN.” As a general rule, a surname (or the portion of a mark primarily constituting a surname) is not eligible for registration unless the surname has acquired “secondary meaning.” To date, Holdings has been successful in demonstrating to the PTO such secondary meaning for the Wynn name, in certain of the applications, based upon factors including Mr. Wynn’s prominence as a resort developer, but we cannot assure you that we will be successful with the other pending applications.

 

Even if Holdings is able to obtain registration of the WYNN-related marks, such federal registrations are not completely dispositive of the right to such marks. Third parties who claim prior rights with respect to similar marks may nonetheless challenge our right to obtain registrations or our use of the marks and seek to overcome the presumptions afforded by such registrations.

 

Our intellectual property assets, including the word and the logo version of “Wynn,” are among our most valuable assets. Efforts we take to acquire and protect our intellectual property rights against unauthorized use throughout the world, which may include retaining counsel and commencing litigation in various jurisdictions, may be costly and may not be successful in protecting and preserving the status and value of our intellectual property assets.

 

If a third party asserts other forms of intellectual property claims against us, our business or results of operations could be adversely affected.

 

Historically, trademarks and service marks have been the principal form of intellectual property rights relevant to the gaming industry. However, due to the increased use of technology in computerized gaming machines and in business operations generally, other forms of intellectual property rights (such as patents and copyrights) are becoming of increased relevance. It is possible that, in the future, third parties might assert superior intellectual property rights or allege that their intellectual property rights cover some aspect of our operations. The defense of such allegations may result in substantial expenses, and, if such claims are successfully prosecuted, may have a material impact on our business.

 

Wynn Resorts’ officers, directors and substantial stockholders are able to exert significant control over our operations and future direction.

 

Our ultimate parent company is Wynn Resorts. Mr. Wynn, Elaine P. Wynn, and Aruze USA, Inc., a company controlled by one of our directors, together own approximately 35.6% of Wynn Resorts’ outstanding common stock. As a result, Mr. Wynn, Elaine P. Wynn, and Aruze USA, Inc., to the extent they vote their shares in a similar manner, may be able to control all matters requiring our stockholders’ approval, including the approval of significant corporate transactions.

 

In November 2006, Mr. Wynn, and Aruze USA, Inc., entered into a stockholders’ agreement. On January 6, 2010, the agreement was amended and restated to, among other things, recognize Mr. Wynn’s transfer of 11,076,709 shares to Elaine P. Wynn. Pursuant to the amended and restated stockholders agreement, Elaine P. Wynn became party to the agreement in connection with her ownership of 11,076,709 shares of the Company’s common stock. Under the amended and restated stockholders’ agreement, Mr. Wynn, Elaine P. Wynn, and Aruze

 

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USA, Inc., have agreed to vote their shares of our common stock for a slate of directors supported by Mr. Wynn, a majority of which will be designated by Mr. Wynn, of which at least two will be independent directors, and the remaining members of which will be designated by Aruze USA, Inc. As a result of this voting arrangement, Mr. Wynn, as a practical matter, controls the slate of directors to be elected to our board of directors. In addition, with stated exceptions, the agreement requires the written consent of Mr. Wynn, Elaine P. Wynn, and Aruze USA, Inc. prior to any party selling any shares of Wynn Resorts that it owns.

 

In November 2006, the Board of Wynn Resorts approved an amendment of its bylaws that exempts future acquisitions of shares of Wynn Resorts’ common stock by either Mr. Wynn or Aruze USA, Inc. from Nevada’s acquisition of controlling interest statutes. The Nevada acquisition of controlling interest statutes require stockholder approval in order to exercise voting rights in connection with any acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation in effect on the 10th day following the acquisition of a controlling interest by certain acquiring persons provide that these statutes do not apply to the corporation or to the acquisition specifically by types of existing or future stockholders. These statutes define a “controlling interest” as (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more, of the voting power in the election of directors. As a result of the bylaw amendment, either Mr. Wynn or Aruze USA, Inc. or their respective affiliates may acquire ownership of outstanding voting shares of Wynn Resorts permitting them to exercise more than one-third but less than a majority, or a majority or more, of all of the voting power of the corporation in the election of directors, without requiring a resolution of the stockholders of the corporation granting voting rights in the control shares acquired.

 

Because we own real property, we are subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

 

We have incurred costs to comply with environmental requirements, such as those relating to discharges into the air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Under these and other environmental requirements we may be required to investigate and clean up hazardous or toxic substances or chemical releases at our property. As an owner or operator, we could also be held responsible to a governmental entity or third parties for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination.

 

These laws typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. The liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use our property.

 

Any violation of the Foreign Corrupt Practices Act or applicable Anti-Money Laundering Regulation could have a negative impact on us.

 

We are subject to regulations imposed by the Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws that generally prohibit U.S. companies and their intermediaries from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions as well as other penalties and the SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Internal control policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors or agents from violating or circumventing our policies and the law. If our employees or agents fail to comply with applicable laws or Company policies governing our international operations, the Company may face investigations, prosecutions and other legal proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions. Any determination that we have violated the

 

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FCPA could have a material adverse effect on our financial condition. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by any of our resorts could have a negative effect on our results of operations.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Las Vegas Land

 

We currently own approximately 240 acres of land on or near the Las Vegas Strip. This consists of approximately 75 acres at the northeast corner of the intersection of Las Vegas Boulevard and Sands Avenue on which Wynn Las Vegas and Encore are located, the approximately 142-acre golf course behind Wynn Las Vegas, approximately 5 acres adjacent to the golf course on which an office building is located and approximately 18 acres located across from the Wynn Las Vegas site at Koval Lane and Sands Avenue, a portion of which is improved with an employee parking garage. Our Las Vegas property, with limited exceptions, is encumbered by a first priority security interest in favor of our lenders under our first mortgage notes and bank credit facilities.

 

Las Vegas Water Rights

 

We own approximately 834 acre-feet of permitted and certificated water rights, which we currently use to irrigate the golf course. We also own approximately 151.5 acre-feet of permitted and certificated water rights for commercial use. There are significant cost savings and conservation benefits associated with using water supplied pursuant to our water rights. We anticipate using our water rights to support future development of the golf course land.

 

Item 3. Legal Proceedings

 

We are occasionally party to lawsuits. As with all litigation, no assurance can be provided as to the outcome of such matters and we note that litigation inherently involves significant costs. We are not currently party to any material legal proceedings.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

There were no matters submitted to a vote of our security holder during the fourth quarter of 2010.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

There is no established trading market for our membership interests. We do not intend to list the membership interests on any national securities exchange or seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. We do not intend to make a market in the membership interests, nor are we obligated to do so.

 

Holders

 

Holdings owns all of the membership interests in the Company as of the date of this filing.

 

Distributions

 

We have never declared or paid cash distributions on our membership interests. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and the development and growth of our business and therefore do not anticipate paying any cash distributions.

 

Restrictions imposed by our debt instruments significantly restrict us from making dividends or distributions. Specifically, we are restricted under the indentures governing the first mortgage notes from making certain “restricted payments” as defined in the indentures. These restricted payments include the payment of distributions to any direct or indirect holders of our membership interests. These restricted payments cannot be made unless certain financial and non-financial criteria have been satisfied. In addition, the terms of our other loan agreements contain similar restrictions.

 

Item 6. Selected Financial Data

 

The following reflects the selected consolidated financial data of Wynn Las Vegas, LLC and its subsidiaries. This data should be read together with our consolidated financial statements and notes thereto, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other information contained in this Annual Report on Form 10-K.

 

    Years Ended December 31,

 
    2010

    2009

    2008

    2007

    2006

 
    (in thousands)  

Consolidated Statements of Operations Data:

                                       

Net revenues [1]

  $ 1,296,556      $ 1,230,120      $ 1,099,891      $ 1,295,851      $ 1,139,348   

Pre-opening costs

    2,479        346        72,373        6,457        2,020   

Operating income (loss)

    (81,314     (144,279     (58,616     199,825        115,047   

Net income (loss)

    (348,329     (309,870     (129,794     124,219        9,808   
    As of December 31,

 
    2010

    2009

    2008

    2007

    2006

 
    (in thousands)  

Consolidated Balance Sheet Data:

                                       

Cash and cash equivalents

  $ 52,540      $ 66,354      $ 123,315      $ 146,521      $ 93,820   

Restricted cash and investments [2]

    —          —          —          31,052        197,517   

Construction in progress

    19,281        23,973        4,579        865,130        214,574   

Total assets

    4,108,516        4,254,324        4,584,271        3,647,256        3,119,888   

Total long-term obligations [3]

    2,730,738        2,638,083        2,897,328        2,034,603        1,678,597   

Member’s equity

    1,098,502        1,385,553        1,257,563        1,375,020        1,242,770   

 

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[1] Wynn Las Vegas opened on April 28, 2005 and Encore opened on December 22, 2008.
[2] Restricted cash and investments primarily reflect the proceeds of our debt and equity financings that were restricted for the construction of Encore.
[3] Includes long-term debt, interest rate swap and long-term amounts due to affiliates.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

 

Overview

 

We are a developer, owner and operator of destination casino resorts. We currently own and operate Wynn Las Vegas, a destination casino resort in Las Vegas, Nevada, which opened on April 28, 2005, and Encore at Wynn Las Vegas (“Encore”), a destination casino resort located adjacent to and connected to Wynn Las Vegas, which opened on December 22, 2008.

 

Our Resorts

 

The following table sets forth information about our operating properties as of February 2011:

 

     Hotel Rooms  &
Suites

     Approximate Casino
Square Footage

     Approximate
Number of Table
Games


     Approximate
Number of Slots


 

Wynn Las Vegas

     2,716         110,000         145         1,840   

Encore

     2,034         76,000         95         780   

 

Wynn Las Vegas

 

Wynn Las Vegas, located at the intersection of the Las Vegas Strip and Sands Avenue, occupies approximately 217 acres of land fronting the Las Vegas Strip, utilizes approximately 18 additional acres across Sands Avenue, a portion of which is improved with an employee parking garage and approximately 5 acres adjacent to the golf course on which an office building is located.

 

We believe Wynn Las Vegas is the preeminent destination casino resort on the Strip in Las Vegas. Wynn Las Vegas features:

 

   

An approximately 110,000 square foot casino offering 24-hour gaming and a full range of games, including private baccarat salons, a poker room, and a sports book;

 

   

Luxury hotel accommodations in 2,716 spacious hotel rooms, suites and villas;

 

   

22 food and beverage outlets;

 

   

A Ferrari and Maserati automobile dealership;

 

   

Approximately 74,000 square feet of high-end, brand-name retail shopping, including stores and boutiques featuring Alexander McQueen, Brioni, Cartier, Chanel, Dior, Graff, Louis Vuitton, Manolo Blahnik, Oscar de la Renta, Vertu and others;

 

   

Recreation and leisure facilities, including an 18-hole golf course, five swimming pools, private cabanas and full service spa and salon; and

 

   

A showroom, two nightclubs and a lounge.

 

In July 2010, we commenced a project to refurbish and upgrade the rooms and suites at Wynn Las Vegas. The total project budget is approximately $83 million. The room remodel was completed in January 2011 and the

 

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suite remodel is expected to be completed early in the second quarter of 2011. As a part of this project, we are temporarily removing floors from service which reduces our total number of rooms available during the construction period.

 

Encore

 

We opened Encore on December 22, 2008. This resort is located immediately adjacent to and connected with Wynn Las Vegas. Encore features:

 

   

An approximately 76,000 square foot casino offering 24-hour gaming and a full range of games, including a sky casino and private baccarat salons;

 

   

Luxury hotel accommodation in 2,034 all-suite rooms;

 

   

13 food and beverage outlets;

 

   

Approximately 27,000 square feet of high-end, brand-name retail shopping, including stores and boutiques featuring Hermes, Chanel and others;

 

   

Recreation and leisure facilities including swimming pools, private cabanas and a full service spa and salon; and

 

   

A beach club, showroom, two nightclubs and lounges.

 

Construction and Future Development

 

In response to our evaluation of our properties and the reactions of our guests, we have and expect to continue to remodel and make enhancements and refinements at both Wynn Las Vegas and Encore.

 

Approximately 142 acres of land immediately adjacent to both Wynn Las Vegas and Encore, is currently improved with a golf course. While we may develop this property in the future, we have no immediate plans to do so.

 

Current Economic and Operating Environment

 

Due to a number of factors affecting consumers, including a slowdown in global economies, reduced consumer and corporate spending, and high unemployment, the outlook for the gaming, travel, and entertainment industries domestically remains highly uncertain. Auto traffic into Las Vegas, airline capacity and air travel to McCarran International airport did not improve significantly year over year, resulting in continued depressed casino volumes and a reduced demand for hotel rooms. This slow down was particularly significant in the fourth quarter of 2008 and continued throughout 2010. Based on our experience over this past year and current market conditions, we have experienced some stabilization in the Las Vegas market; however, due to the still uncertain economic environment and added supply in Las Vegas, we believe that Wynn Las Vegas and Encore have, and are likely to continue to experience depressed levels of hotel occupancy rates, room rates, casino volumes and accordingly lower departmental profitability.

 

Results of Operations

 

We offer gaming, hotel accommodations, dining, entertainment, retail shopping, convention services and other amenities at Wynn Las Vegas and Encore. We currently rely solely upon the operations of Wynn Las Vegas and Encore for our operating cash flow. Concentration of our cash flows to Wynn Las Vegas and Encore exposes us to certain risks that competitors, whose operations are more diversified, may be better able to control. In addition to the concentration of operations to Wynn Las Vegas and Encore, many of our customers are high-end gaming customers who wager on credit, thus exposing us to increased credit risk. High-end gaming also increases the potential for variability in our results.

 

We recorded a net loss for the year ended December 31, 2010 of $348.3 million, which represents a $38.5 million increase from the net loss of $309.9 million recorded during the year ended December 31, 2009. This

 

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increase is primarily due to a $36.2 million increase in interest expense due to outstanding debt with a higher average interest rate and a $70.1 million loss on extinguishment of debt/exchange offer related to debt transactions during the year as described below. These expenses were offset in part by lower depreciation and amortization expense of $39.5 million primarily due to assets with a 5-year life being fully depreciated as of April 2010 at Wynn Las Vegas.

 

Operating Measures

 

Certain key operating statistics specific to the gaming industry are included in our discussion of our operational performance for the periods for which a Consolidated Statement of Operations is presented. Below are definitions of the gaming statistics discussed:

 

   

“Table games win” is the amount of drop that is retained and recorded as casino revenue.

 

   

“Drop” is the amount of cash and net markers issued that are deposited in a gaming table’s drop box.

 

   

“Slot win” is the amount of “handle” (represents the total amount wagered) that is retained and recorded as casino revenue.

 

   

“Average Daily Rate” (“ADR”) is calculated by dividing total room revenue by total rooms occupied.

 

   

“Revenue per Available Room” (“REVPAR”) is calculated by dividing total room revenue by total rooms available.

 

Financial results for the year ended December 31, 2010 compared to the year ended December 31, 2009.

 

Revenues

 

Net revenues for the year ended December 31, 2010 are comprised of $534.3 million in casino revenues (41.2% of total net revenues) and $762.3 million of net non-casino revenues (58.8% of total net revenues). Net revenues for the year ended December 31, 2009 were comprised of $505.8 million in casino revenues (41.1% of total net revenues) and $724.3 million of net non-casino revenues (58.9% of total net revenues).

 

Casino revenues are comprised of the net win from our table games and slot machine operations. We experienced an increase in casino revenues of approximately $28.5 million (or 5.6%) to $534.3 million for the year ended December 31, 2010, compared to $505.8 million for the year ended December 31, 2009. During the year ended December 31, 2010, we experienced a 3.4% increase in drop and an increase in the average table games win percentage compared to the prior year. Our average table games win percentage (before discounts) of 22.2% was within the expected range of 21% to 24% for the year ended December 31, 2010. For the year ended December 31, 2009, our average table games win percentage (before discounts) was 20.2%. Slot handle decreased 18.3% during the year ended December 31, 2010 as compared to 2009; however slot win, net of free play and progressive accruals only decreased 6.9% compared to the prior year as more play shifted to higher hold machines.

 

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For the year ended December 31, 2010, room revenues were approximately $308.4 million, which represents a $12.7 million (or 4%) decrease over the $321.2 million generated in the year ended December 31, 2009. We continued to experience a decrease in room rates during the year ended December 31, 2010, compared to the year ended December 31, 2009. We believe this is due to the current economic conditions in which we operate in the U.S. and the increased capacity in the Las Vegas market including the opening of a new large scale casino hotel in Las Vegas in December 2009. Also, due to our remodel of the rooms and suites at Wynn Las Vegas beginning in July 2010, we had 3.8% fewer room nights available during the year ended December 31, 2010 which contributed to a decrease in room revenues compared to the prior year. The room remodel was completed in January 2011 and the suite remodel is expected to be completed in the second quarter of 2011. See the table below for key operating measures related to our room revenue.

 

     Year Ended
December 31,

 
     2010

    2009

 

Average Daily Rate

   $ 210      $ 217   

Occupancy

     88.0     85.2

REVPAR

   $ 185      $ 185   

 

Other non-casino revenues for the year ended December 31, 2010 include food and beverage revenues of approximately $417.2 million, retail revenues of approximately $83.1 million, entertainment revenues of approximately $72 million, and other revenues from outlets such as the spa and salon, of approximately $58.9 million. Other non-gaming revenues for the year ended December 31, 2009 include food and beverage revenues of approximately $385.8 million, retail revenues of approximately $85.8 million, entertainment revenues of approximately $57.1 million, and other revenues from outlets, including the spa and salon, of approximately $60.5 million. The increase in food and beverage revenue is due primarily to business in our nightclubs including the opening of the Encore Beach Club and Surrender Nightclub in May 2010. Entertainment revenues increased over the prior year primarily due to performances by Garth Brooks in the Encore Theater which started in December 2009, as well as increased revenue from our Le Rêve show.

 

Departmental, Administrative and Other Expenses

 

During the year ended December 31, 2010, departmental expenses included casino expenses of $288.3 million, room expenses of $119.4 million, food and beverage expenses of $256.2 million, and entertainment, retail and other expenses of $145.3 million. Also included are general and administrative expenses of approximately $237.7 million and approximately $15.7 million charged as a provision for doubtful accounts receivable. During the year ended December 31, 2009, departmental expenses included casino expenses of $275.3 million, room expenses of $109.2 million, food and beverage expenses of $239.8 million, and entertainment, retail and other expenses of $133.8 million. Also included are general and administrative expenses of approximately $246.8 million and approximately $12.4 million charged as a provision for doubtful accounts receivable. The increase in casino and room expenses was primarily attributable to additional customer acquisition and marketing costs. Food and beverage expenses increased commensurate with the increase in revenue.

 

Entertainment, retail and other expenses increased primarily as a result of performances by Garth Brooks in the Encore Theater at Wynn Las Vegas as noted above. General and administrative expenses decreased as a result of lower advertising expenses and our cost savings initiatives offset partially by higher repairs and replacement expenses associated with general property maintenance.

 

Management fees

 

Since opening Wynn Las Vegas, management fees payable to Wynn Resorts for certain corporate management services have been charged and accrued at a rate equal to 1.5% of net revenues. These fees will be

 

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paid upon meeting certain leverage ratios and satisfying certain other criteria set forth in our credit facilities and the first mortgage notes indentures. Management fees were $19.5 million for the year ended December 31, 2010, compared to $18.4 million for the year ended December 31, 2009.

 

Pre-opening costs

 

During the year ended December 31, 2010, we incurred $2.5 million of pre-opening costs. We incurred $0.3 million of preopening costs for the year ended December 31, 2009. Pre-opening costs incurred during the year ended December 31, 2010, were related the Encore Beach Club and Surrender Nightclub which opened in May 2010.

 

Depreciation and amortization

 

Depreciation and amortization for the year ended December 31, 2010 was $274.3 million compared to $313.8 million for the year ended December 31, 2009. This decrease is primarily due to assets with a 5-year life being fully depreciated as of April 2010 at Wynn Las Vegas, off set by depreciation of the assets of the Encore Beach Club which were placed into service in May 2010.

 

Property charges and other

 

Property charges and other for the year ended December 31, 2010, were $19 million compared to approximately $24.5 million for the year ended December 31, 2009. Property charges and other for the year ended December 31, 2010 include a contract termination payment of $14.9 million related to a management contract for certain of the nightclubs at our resorts, as well as miscellaneous renovations and abandonments at Wynn Las Vegas and Encore.

 

Property charges and other for the year ended December 31, 2009, include a charge of $16.7 million for the abandonment of the front porte-cochere at Encore to make way for the Encore Beach Club, the write-off of $5.3 million of aircraft purchase deposits and $2.5 million related to miscellaneous renovations and abandonments.

 

In response to our evaluation of our resort complex and the reactions of our guests, we continue to make enhancements. The costs relating to assets retired as a result of these enhancement and remodel efforts will be expensed as property charges.

 

Other non-operating costs and expenses

 

Interest expense was $193.4 million, net of capitalized interest of $0.6 million, for the year ended December 31, 2010, compared to $157.2 million for the year ended December 31, 2009. There was no interest capitalized during the year ended December 31, 2009. Interest expense increased approximately $36.2 million primarily due to increased interest related to the $500 million 7 7/8% First Mortgage Notes issued in October 2009, a higher rate on the 2020 Notes, as discussed below, and offset partially by reductions in amounts outstanding under the Wynn Las Vegas bank credit facilities compared to the prior year.

 

Changes in the fair value of our interest rate swaps are recorded as an increase (or decrease) in swap fair value in each year. We recorded an expense of approximately $4.2 million for the year ended December 31, 2010, resulting from the decrease in the fair value of our interest rate swap from December 31, 2009 to December 31, 2010. We recorded an expense of approximately $4.2 million for the year ended December 31, 2009, resulting from the decrease in the fair value of our interest rate swap from August 2009 (the date we entered into the agreement) to December 31, 2009.

 

As described in Note 7 to our Consolidated Financial Statements in this Annual Report on Form 10-K, in September 2010 we completed a tender offer for our outstanding $1.7 billion 6 5/8% first mortgage notes due

 

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2014 ( the “2014 Notes”) and subsequent call of all the remaining amounts once the tender was completed. In connection with these transactions, we recorded a loss on extinguishment of debt of $65.4 million. This included the tender consideration, the call premium and the related write off of the unamortized debt issue costs and original issue discount.

 

Also, as described in Note 7 to our Consolidated Financial Statements we completed an exchange offer for a portion of the 2014 Notes in April 2010. In connection with that exchange offer, the direct costs incurred with third parties of $4.6 million were expensed.

 

Financial results for the year ended December 31, 2009 compared to the year ended December 31, 2008.

 

Our financial results for the year ended December 31, 2009 are not comparable to the year ended December 31, 2008, as the year ended December 31, 2009 includes a full year of operations for Encore, whereas the prior year includes only 10 days of operations for Encore.

 

Revenues

 

Net revenues for the year ended December 31, 2009 are comprised of $505.8 million in casino revenues (41.1% of total net revenues) and $724.3 million of net non-casino revenues (58.9% of total net revenues). Net revenues for the year ended December 31, 2008 were comprised of $479.7 million in casino revenues (43.6% of total net revenues) and $620.2 million of net non-casino revenues (56.4% of total net revenues).

 

Casino revenues are comprised of the net win from our table games and slot machine operations. We expanded Wynn Las Vegas with the opening of Encore in December 2008, which added approximately 90 table games and approximately 800 slot machines to our casino operations. Even with these additions in capacity, we experienced only a modest increase in casino revenues of approximately $26.1 million to $505.8 million for the year ended December 31, 2009, compared to $479.7 million for the year ended December 31, 2008. During the year ended December 31, 2009, we experienced a 1.2% increase in drop and a slight increase in the average table games win percentage compared to the prior year. Our average table games win percentage (before discounts) of 20.2% for the year ended December 31, 2009, was below the expected range of 21% to 24%. For the year ended December 31, 2008, our average table games win percentage (before discounts) was 20.0%. Slot handle decreased 2.5% during the year ended December 31, 2009, as compared to 2008, and the slot win percentage was within the expected range of 4.5% to 5.5%.

 

For the year ended December 31, 2009, room revenues were approximately $321.2 million, which represents a $52.6 million (or 19.6%) increase over the $268.5 million generated in the year ended December 31, 2008. This increase is a result of the addition of 2,034 suites at Encore which opened in December 2008. We continued to experience a decrease in occupancy and room rates during the year ended December 31, 2009, compared to the year ended December 31, 2008. See the table below for key operating measures related to our room revenue.

 

     Year Ended
December 31,

 
     2009

    2008

 

Average Daily Rate

   $ 217      $ 288   

Occupancy

     85.2     91.8

REVPAR

   $ 185      $ 265   

 

Other non-casino revenues for the year ended December 31, 2009 include food and beverage revenues of approximately $385.8 million, retail revenues of approximately $85.8 million, entertainment revenues of approximately $57.1 million, and other revenues from outlets such as the spa and salon, of approximately $60.5 million. Other non-gaming revenues for the year ended December 31, 2008 include food and beverage revenues

 

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of approximately $305.7 million, retail revenues of approximately $86.1 million, entertainment revenues of approximately $66.2 million, and other revenues from outlets, including the spa and salon, of approximately $49.8 million. On a comparable basis, excluding the Encore expansion, which opened in December 2008, all of our revenues have declined when compared to the prior year due to the current economic environment in which we are operating. Food and beverage revenues increased during the year ended December 31, 2009 as a result of the additional 12 food and beverage outlets located in the Encore expansion. Although we added new retail outlets at Encore, retail revenues have declined due to reduced consumer spending as a result of the current economic environment. Entertainment revenues decreased over the prior year primarily due to the closure of the Spamalot production show in July 2008. This decrease was offset in part by revenue from headliner acts that performed during 2009, including Garth Brooks, who began performing in the Encore Theater in December 2009.

 

Departmental, Administrative and Other Expenses

 

During the year ended December 31, 2009, departmental expenses included casino expense of $275.3 million, rooms expense of $109.2 million, food and beverage expense of $239.8 million, and entertainment, retail and other expense of $133.8 million. Also included are general and administrative expenses of approximately $246.8 million and approximately $12.4 million charged as a provision for doubtful accounts receivable. During the year ended December 31, 2008, departmental expenses included casino expenses of $258 million, room expenses of $73.8 million, food and beverage expenses of $188.5 million, and entertainment, retail and other expenses of $132.9 million. Also included are general and administrative expenses of approximately $199.5 million and approximately $24.9 million charged as a provision for doubtful accounts receivable. Expenses for the year ended December 31, 2009, increased compared to December 31, 2008 as a result of the Encore expansion which opened in December 2008. Our provision for doubtful accounts receivable declined during the year ended December 31, 2009 compared to the prior year. In the prior year we increased our reserves in light of the economic uncertainty that existed at that time. Due to continued strong collection experience we have reduced the additional reserves we recorded in the third quarter of 2008.

 

Management fees

 

Since opening Wynn Las Vegas, management fees payable to Wynn Resorts for certain corporate management services have been charged and accrued at a rate equal to 1.5% of net revenues. These fees will be paid upon meeting certain leverage ratios and satisfying certain other criteria set forth in our bank credit facilities and the 6 5/8% and 7 7/8% First Mortgage Notes indentures. Management fees were $18.4 million for the year ended December 31, 2009, compared to $16.5 million for the year ended December 31, 2008.

 

Pre-opening costs

 

During the year ended December 31, 2009, we incurred $0.3 million pre-opening costs compared to $72.4 million for the year ended December 31, 2008. Pre-opening costs incurred during the year ended December 31, 2008 were related to Encore which opened in December 2008.

 

Depreciation and amortization

 

Depreciation and amortization for the year ended December 31, 2009 was $313.8 million compared to $169.6 million for the year ended December 31, 2008. This increase is primarily due to depreciation on the assets of Encore, which were placed into service in December 2008.

 

Property charges and other

 

Property charges and other for the year ended December 31, 2009, were $24.5 million compared to $22.4 million for the year ended December 31, 2008. In response to the evaluation of our properties and the reactions of

 

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our guests, we make enhancements and refinements to the properties. Costs relating to assets retired as a result of these enhancement and remodel efforts have been expensed as property charges. Property charges and other for the year ended December 31, 2009 include a $16.7 million charge for the abandonment of the front porte-cochere at Encore at Wynn Las Vegas to make way for an addition to that property, a $5.3 million charge for the write-off of two aircraft deposits, and $2.5 million related to miscellaneous remodels, abandonments and loss on sale of equipment.

 

Property charges and other for the year ended December 31, 2008, include $17.8 million of costs associated with Spamalot at Wynn Las Vegas which closed in July 2008. The costs included the production rights that were included in intangible assets, show production costs that were included in other assets and certain other property and equipment. The remaining property charges were related to miscellaneous renovations and abandonments at Wynn Las Vegas.

 

Other non-operating costs and expenses

 

Interest income decreased by $4.8 million for the year ended December 31, 2009, compared to the year ended December 31, 2008. This decrease is due to the repayment of an $80 million note receivable from Wynn Resorts in July 2008, that resulted in $3.3 million of interest income in the prior year, as well as a decrease in the average interest rate earned on our invested cash balances and reduced average invested cash balances during the year ended December 31, 2009, compared to the prior year.

 

Interest expense was $157.2 million, net of capitalized interest of $0, for the year ended December 31, 2009, compared to $75.9 million, net of capitalized interest of $80.4 million during the year ended December 31, 2008. Interest expense increased primarily due to an $80.4 million decrease in capitalized interest with the opening of Encore. Also increasing interest expense was approximately $8.4 million of interest related to the 7 7/8% $500 million First Mortgage Notes issued in October 2009. These increases were offset by lower interest rates on our variable rate debt and lower average balances outstanding during 2009 compared to the prior year.

 

Changes in the fair value of our interest rate swap are recorded as increase (or decrease) in swap fair value in each year. We recorded an expense of approximately $4.2 million for the year ended December 31, 2009, resulting from the decrease in the fair value of our interest rate swap from August 2009 (the date we entered into the agreement) to December 31, 2009. We recorded an expense of approximately $0.4 million for the year ended December 31, 2008 resulting from the decrease in the fair value of our interest rate swap that matured on December 31, 2008.

 

We recorded a loss on early extinguishment of debt of $3.8 million during the year ended December 31, 2009. Through an offer to purchase loans outstanding under our bank credit facilities, we purchased loans with a face-value of $87.6 million for $84.4 million, reflecting a discounted price of 96.37%. In connection with this transaction, we recognized a gain of approximately $2.1 million on early retirement of debt in the fourth quarter of 2009. Offsetting this gain was the write-off of deferred financing costs totaling $5.7 million in connection with the permanent reduction in the availability under our bank credit facilities.

 

Liquidity and Capital Resources

 

Cash Flow from Operations

 

Our operating cash flows primarily consist of operating income generated by our resort (excluding depreciation and other non-cash charges), interest paid and changes in working capital accounts such as receivables, inventories, prepaid expenses and payables. Our table games play is a mix of cash play and credit play, while our slot machine play is conducted primarily on a cash basis. A significant portion of our table games revenue is attributable to the play of a limited number of high-end international customers who play on credit. Our ability to collect these gaming receivables may impact our operating cash flow for the period. Our rooms,

 

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food and beverage, and entertainment, retail and other revenue is conducted primarily on a cash basis or as a trade receivable. Accordingly, operating cash flows will be impacted by changes in operating income and accounts receivables.

 

Net cash provided by operations for the year ended December 31, 2010 was $104.6 million compared to $80.4 million provided by operations for the year ended December 31, 2009. Operating cash flows increased due to an improved operating loss and benefits from ordinary working capital changes, offset by higher cash interest payments.

 

Capital Resources

 

At December 31, 2010, we had approximately $52.5 million of cash and cash equivalents available for use without restriction, including for operations, debt service and retirement, new development activities, enhancements to Wynn Las Vegas and Encore and general corporate purposes. We require a certain amount of cash on hand for operations. As of December 31, 2010, we have $327.2 million of availability under our senior revolving credit facility. We anticipate such funds, together with any additional borrowings and cash generated from operations will satisfy our liquidity needs during 2011. Except for scheduled quarterly payments on one note payable, we have no debt maturities until July 2013.

 

Investing Activities

 

Capital expenditures were approximately $157.1 million for the year ended December 31, 2010, and were related primarily to the Wynn Las Vegas room and suite remodel and the Encore Beach Club and Surrender Nightclub. Capital expenditures were approximately $245 million for the year ended December 31, 2009 and were almost entirely related to the construction of Encore.

 

Financing Activities

 

Wynn Las Vegas First Mortgage Notes

 

In October 2009, Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. (the “Issuers”), issued in a private offering, $500 million aggregate principal amount of 7 7/8% First Mortgage Notes due November 1, 2017 (the “2017 Notes”) at a price of 97.823% of the principal amount. The Issuers pay interest on the 2017 Notes on May 1st and November 1st of each year. Commencing November 1, 2013, the 2017 Notes are redeemable at our option at a price equal to 103.938% of the principal amount redeemed and decline ratably on November 1st of each year thereafter to zero on or after November 1, 2015. The 2017 Notes rank pari passu with the borrowings under our credit facilities and the outstanding first mortgage notes previously issued by the Issuers. The notes are senior secured obligations of the Issuers, are guaranteed by our subsidiaries (subject to some exceptions), and are secured on an equal and ratable basis by a first priority lien on substantially all the existing and future assets of the Issuers and guarantors. In accordance with the fifth amendment to the Wynn Las Vegas Credit Agreement described below, we used the proceeds of this offering to repay amounts outstanding under the Wynn Las Vegas Revolver and Wynn Las Vegas Term Loan.

 

On March 26, 2010, we commenced an offer to exchange all outstanding 2014 Notes for 7 7/8% First Mortgage Notes due 2020 (the “2020 Notes”), upon the terms and subject to the conditions set forth in an offering memorandum and a related letter of transmittal (the “exchange offer”). The exchange offer was conditioned upon, among other things, the tender of at least $250 million aggregate principal amount of 2014 Notes. The 2020 Notes were offered only to qualified institutional buyers and outside the United States in accordance with Rule 144A and Regulation S, respectively, under the Securities Act of 1933, as amended (the “Securities Act”). The exchange offer closed on April 28, 2010 with approximately $382 million of the 2014 Notes being validly tendered for exchange to the 2020 Notes.

 

We pay interest on the 2020 Notes on May 1st and November 1st of each year. Commencing May 1, 2015, the 2020 Notes are redeemable at our option at a price equal to 103.938% of the principal amount

 

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redeemed and decline ratably on May 1st of each year thereafter to zero on or after May 1, 2018. The 2020 Notes rank pari passu in right of payment with borrowings under our credit facilities and 2017 Notes. The 2020 Notes are senior secured obligations of the Issuers, guaranteed by certain of Wynn Las Vegas, LLC’s subsidiaries and secured by a first priority lien on substantially all of the existing and future assets of the Issuers and guarantors and, subject to approval from the Nevada Gaming Commission, a first priority lien on the equity interests of Wynn Las Vegas, LLC, all of which is the same collateral that secures borrowings under our credit facilities and the 2017 Notes.

 

The noteholders who validly tendered 2014 Notes prior to the early delivery time received an early delivery payment on April 28, 2010 of 1% of the amount tendered in cash, which totaled approximately $3.8 million. In accordance with accounting standards, this has been included as deferred financing costs and will be amortized over the life of the 2020 Notes. The direct costs of the exchange offer incurred with third parties of $4.6 million were expensed and are included in loss on extinguishment of debt / exchange offer in our Consolidated Statements of Operations.

 

On August 4, 2010, we issued $1.32 billion aggregate principal amount of 7 3/4% First Mortgage Notes due August 15, 2020 (the “New 2020 Notes”). The New 2020 Notes were issued at par. The New 2020 Notes were offered only to qualified institutional buyers and outside the United States in accordance with Rule 144A and Regulation S, respectively, under the Securities Act of 1933. We used the net proceeds of the offering along with the proceeds of a $50 million capital contribution from Wynn Resorts, Limited to purchase, and, as applicable, make consent payments for, any and all of the Issuers’ 2014 Notes that were validly tendered and accepted for payment pursuant to our concurrent offer to purchase and consent solicitation with respect to the 2014 Notes, and to redeem all of the 2014 Notes not tendered. On or prior to August 3, 2010, valid tenders had been received with respect to approximately $987 million of the $1.3 billion aggregate principal amount of 2014 Notes outstanding. On August 4, 2010, tendering holders received the tender offer consideration in the amount of $1,004.38, plus a consent payment of $30 for each $1,000 principal amount of 2014 Notes, which totaled $32.7 million. The consent solicitation expired on August 3, 2010 and the tender offer expired on August 18, 2010. In accordance with accounting standards the consideration and consent fees were expensed and are included in loss on extinguishment of debt / exchange offer in our Consolidated Statements of Operations.

 

On August 4, 2010, the Trustee, at the request of the Issuers, gave notice of redemption of any and all of the remaining 2014 Notes. The redemption price was equal to 103.313% of the aggregate principal amount of the 2014 Notes redeemed plus accrued and unpaid interest thereon to September 3, 2010. The total redemption fees paid were $10.9 million. In accordance with accounting standards, the redemption fees were expensed and are included in loss on extinguishment of debt / exchange offer in our Consolidated Statement of Operations.

 

Also in connection with this transaction, unamortized debt issue costs and original issue discount related to the 2014 Notes totaling $19.2 million were expensed and are included in loss on extinguishment of debt / exchange offer in our Consolidated Statements of Operations.

 

We pay interest on the New 2020 Notes on February 15th and August 15th of each year. Commencing August 15, 2015, the New 2020 Notes are redeemable at our option at a price equal to 103.875% of the principal amount redeemed and decline ratably on August 15th of each year thereafter to zero on or after August 15, 2018. The New 2020 Notes rank pari passu in right of payment with borrowings under our credit facilities, the 2017 Notes and the 2020 Notes. The New 2020 Notes are senior secured obligations of the Issuers, guaranteed by certain of our subsidiaries and secured on an equal and ratable basis (with certain exceptions) by a first priority lien on substantially all of the existing and future assets of the Issuers and guarantors, and, subject to prior approval from the Nevada gaming authorities, a first priority lien on the equity interests of Wynn Las Vegas, LLC, all of which is the same collateral that secures borrowings under our credit facilities, the 2017 Notes and the 2020 Notes.

 

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Wynn Las Vegas Credit Facilities

 

Concurrently with the issuance of the New 2020 Notes, we entered into a seventh amendment, dated August 4, 2010, to the Wynn Las Vegas Amended and Restated Credit Agreement (the “Credit Agreement”). After giving effect to this amendment, the maturity date with respect to a portion of the revolving credit facility and the term facility was extended to July 2015 and August 2015, respectively, and the interest margin in respect of the extended portion will increase after June 30, 2013. In addition, lenders made incremental term loans of $248.5 million having a maturity date of August 2015. The amendment made certain other changes including eliminating the maximum Consolidated Leverage Ratio and reducing the minimum Consolidated Interest Coverage Ratio to 1:00 to 1 through June 2013.

 

As of December 31, 2010, our Wynn Las Vegas Amended and Restated Credit Agreement consisted of a $108.5 million revolving credit facility, due July 2013 and a $258.4 million revolving credit facility due July 2015 (together the “Wynn Las Vegas Revolver”), and a fully drawn $44.3 million term loan facility due August 2013 and a fully drawn $330.6 million term loan facility due August 2015 (together the “Wynn Las Vegas Term Loan”). As of December 31, 2010, the Wynn Las Vegas Term Loan was fully drawn and we had borrowed $30.1 million under the Wynn Las Vegas Revolver. We also had $19.7 million of outstanding letters of credit that reduce our availability under the Wynn Las Vegas Revolver. We have availability of approximately $327.2 million under the Wynn Las Vegas Revolver as of December 31, 2010.

 

The Wynn Las Vegas Credit Facilities are obligations of Wynn Las Vegas, LLC and are guaranteed by and secured by substantially all of the assets (except the corporate aircraft) of each of its subsidiaries (other than Wynn Completion Guarantor, LLC). The obligations of Wynn Las Vegas, LLC and the guarantors under the Wynn Las Vegas Credit Facilities rank pari passu in right of payment with their existing and future senior indebtedness, including indebtedness with respect to the 2017 Notes, the 2020 Notes and the New 2020 Notes and senior in right of payment to all of their existing and future subordinated indebtedness.

 

As described below, during the year ended December 31, 2009, we (a) extended the maturity of the Wynn Las Vegas Revolver to July 2013, (b) received relief from certain financial covenants, (c) increased the Wynn Las Vegas Revolver by $65 million, (d) repurchased $87.6 million of Wynn Las Vegas Revolver loans at a discount, and (e) used the net proceeds received from our 2017 Notes issuance to repay amounts outstanding, including a permanent reduction of the Wynn Las Vegas Credit Facilities of $360 million.

 

In April 2009, we entered into a fourth amendment to our Credit Agreement. This amendment, among other things, (i) provides a waiver of the Consolidated Leverage Ratio, as defined in the Credit Agreement, until the quarter ending June 30, 2011, and increases such thresholds thereafter; (ii) provides additional flexibility with our Consolidated Interest Coverage Ratio, as defined in the Credit Agreement, by reducing such ratio from 1.75 : 1 to 1.25 : 1 beginning June 30, 2009 through March 31, 2011; and (iii) removes the dollar limit on the equity cure provisions for the purpose of the Consolidated Leverage Ratio and the Consolidated Interest Coverage Ratio over the life of the loan. In exchange for the amendments, we (i) repaid 30% of the outstanding revolver loans of lenders consenting to the extension of their commitment (approximately $238 million) and permanently reduced such lender commitments by 25%; and (ii) agreed to an increase in the interest rate spread on the Wynn Las Vegas Revolver from LIBOR plus 1.625% to LIBOR plus 3.0%.

 

In August 2009, pursuant to the terms of the Credit Agreement, we expanded the availability of the Wynn Las Vegas Revolver by $65 million.

 

In September 2009, we entered into a fifth amendment to our Credit Agreement. This amendment, among other things, (i) permitted Wynn Las Vegas to issue, on or before March 31, 2010, up to $500 million of new senior secured notes and (ii) requires that 75% of the net cash proceeds of any issuance of new senior secured notes be applied to prepay loans and reduce commitments under the Credit Agreement.

 

In October 2009, pursuant to an offer to purchase loans outstanding under the Credit Agreement, we purchased loans with a face value of $87.6 million for $84.4 million, reflecting a discounted price of 96.37%. As

 

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a result of this transaction, the Wynn Las Vegas Revolver was permanently reduced by $43.8 million and the Wynn Las Vegas Term Loan was permanently reduced by $44.8 million.

 

For borrowings under the Wynn Las Vegas Revolver we have historically elected Eurodollar loans, which bear interest at 1-month LIBOR and currently include a margin of 3.0% on the outstanding balance. We also incur a fee of 1.0% on the daily average of unborrowed amounts. For borrowings under the Wynn Las Vegas Term Loans we have historically elected Eurodollar loans, which bear interest at 1-month LIBOR and currently include a margin of 1.875% on the term loan due 2013 and 3% on the term loan due 2015.

 

The Wynn Las Vegas Credit Agreement contains a requirement that we must make mandatory repayments of indebtedness from specified percentages of excess cash flow. If our Wynn Las Vegas subsidiary meets a Consolidated Leverage Ratio, as defined in the Credit Agreement, of greater than 3.5 to 1, such repayment is defined as 50% of Excess Cash Flow, as defined in the Credit Agreement. If the Consolidated Leverage Ratio is less than 3.5 to 1, then no repayment is required. Based on the current economic conditions in which we are operating, we do not believe that Wynn Las Vegas will have excess cash flow for mandatory repayment pursuant to this provision of the Credit Agreement during the fiscal year ending December 31, 2011, and therefore we do not expect to make any mandatory repayments pursuant to this requirement during 2011.

 

The Wynn Las Vegas Credit Agreement contains customary covenants restricting our activities including, but not limited to: the ability to sell assets, make capital expenditures, enter into capital leases, make loans or other investments and incur additional indebtedness. In addition, we are required by the financial covenants to maintain a Consolidated Interest Coverage Ratio, as defined, not less than 1.00 to 1 as of December 31, 2010. Management believes that we are in compliance with all covenants at December 31, 2010. The Consolidated Interest Coverage Ratio remains at 1.00 : 1 through June 2013.

 

During the years ended December 31, 2010 and 2009, Wynn Resorts made cash capital contributions to us in the amount of $50 million and $413 million, respectively. The proceeds from these contributions were used to fund construction costs of Encore paid during 2009 and to fund paydowns of our outstanding debt as noted above.

 

Off-Balance Sheet Arrangements

 

We have not entered into any transactions with special purpose entities nor do we engage in any derivatives except for previously discussed interest rate swaps. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity. At December 31, 2010, we had outstanding letters of credit totaling $19.7 million.

 

Contractual Obligations and Commitments

 

The following table summarizes our scheduled contractual commitments at December 31, 2010 (amounts in millions):

 

     Payments Due By Period

 
     Less
Than 1
Year


     1 to 3
Years


     4 to 5
Years


     After 5
Years


     Total

 

Long-term debt obligations

   $ 1.1       $ 50.9       $ 349.6       $ 2,232.1       $ 2,633.7   

Fixed interest payments

     171.8         343.5         343.5         675.7         1,534.5   

Estimated variable interest payments [1]

     13.4         26.2         20.0         0.7         60.3   

Operating leases

     2.9         0.7         0.2         2.8         6.6   

Construction contracts and commitments

     27.6         —           —           —           27.6   

Employment agreements

     24.4         32.4         3.4         —           60.2   

Other [2]

     28.0         31.6         15.8         —           75.4   
    


  


  


  


  


Total commitments

   $ 269.2       $ 485.3       $ 732.5       $ 2,911.3       $ 4,398.3   
    


  


  


  


  


 

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[1] Amounts for all periods represent our estimated future interest payments on our debt facilities based upon amounts outstanding and LIBOR rates at December 31, 2010. Such rates are at historical lows as of December 31, 2010. Actual rates will vary.
[2] Other includes open purchase orders and other contracts.

 

Other Liquidity Matters

 

We are restricted under the indentures governing the 2107 Notes, the 2020 Notes and the New 2020 Notes from making certain “restricted payments” as defined in the indentures. These restricted payments include the payment of dividends or distributions to any direct or indirect holders of equity interests of Wynn Las Vegas, LLC. The restricted payments may not be made until certain other financial and non-financial criteria have been satisfied. In addition, the Credit Agreement contains similar restrictions.

 

We will fund our operations and capital requirements from operating cash flow and availability under our bank facility. We cannot be sure that we will generate sufficient cash flow from operations or that future borrowings, if any, will be sufficient to enable us to service and repay Wynn Las Vegas, LLC’s indebtedness and to fund our other liquidity needs. We cannot be sure that we will be able to refinance any of our indebtedness on acceptable terms or at all.

 

New business developments or other unforeseen events may occur, resulting in the need to raise additional funds. We continue to explore opportunities to develop additional gaming or related businesses in Las Vegas, as well as other domestic or international markets. There can be no assurances regarding the business prospects with respect to any other opportunity. Any future development would require us to obtain additional financing.

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements. Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. Certain of our accounting policies require management to apply significant judgment in defining the appropriate assumptions integral to financial estimates. On an ongoing basis, management evaluates those estimates, including those relating to the estimated lives of depreciable assets, asset impairment, allowances for doubtful accounts, accruals for customer loyalty rewards, self-insurance, contingencies, litigation and other items. Judgments are based on historical experience, terms of existing contracts, industry trends and information available from outside sources, as appropriate. However, by their nature, judgments are subject to an inherent degree of uncertainty, and therefore actual results could differ from our estimates.

 

Development, Construction and Property and Equipment Estimates

 

During the construction and development of a resort, pre-opening or start-up costs are expensed when incurred. In connection with the construction and development of our properties, significant start-up costs are incurred and charged to pre-opening costs through their respective openings. Once our properties open, expenses associated with the opening of the resorts are no longer charged as pre-opening costs.

 

During the construction and development stage, direct costs such as those incurred for the design and construction of our properties, including applicable portions of interest, are capitalized. Accordingly, the recorded amounts of property and equipment increase significantly during construction periods. Depreciation expense related to capitalized construction costs is recognized when the related assets are placed in service. Upon the opening of our properties, we begin recognizing depreciation expense on the resort’s fixed assets.

 

The remaining estimated useful lives of assets are periodically reviewed and adjusted as necessary.

 

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Costs of repairs and maintenance are charged to expense when 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 operating income or loss.

 

We also evaluate our property and equipment and other long-lived assets for impairment in accordance with accounting standards for the impairment or disposal of long-lived assets. For assets to be disposed of, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. For assets to be held and used, we review for impairment whenever indicators of impairment exist. In reviewing for impairment we compare 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 an impairment is recorded based on the fair value of the asset, typically measured using a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs. All recognized impairment losses, whether for assets to be disposed of or assets to be held and used, are recorded as operating expenses.

 

Allowance for Estimated Doubtful Accounts Receivable

 

A substantial portion of our outstanding receivables relate to casino credit play. Credit play, through the issuance of markers, represents a significant portion of the table games volume at Wynn Las Vegas and Encore. We maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their balances in a timely fashion. These collection efforts may include the mailing of statements and delinquency notices, personal contacts, the use of outside collection agencies, and litigation. Markers are generally legally enforceable instruments in the United States. Markers are not legally enforceable instruments in some foreign countries, but the United States assets of foreign customers may be used to satisfy judgments entered in the United States. At December 31, 2010 and 2009, approximately 75% and 68%, respectively, of our casino accounts receivable were owed by customers from foreign countries, primarily in Asia. The collectability of markers given by foreign customers is affected by a number of factors including changes in currency exchange rates and economic conditions in the customers’ home countries.

 

We regularly evaluate our reserve for bad debts based on a specific review of customer accounts as well as management’s prior experience with collection trends in the casino industry and current economic and business conditions. The following table presents key statistics related to our casino accounts receivables (amounts in thousands):

 

     December 31,
2010


    December  31,
2009

 

Casino accounts receivable

   $ 167,844      $ 149,786   

Allowance for doubtful casino accounts receivable

   $ 70,208      $ 66,328   

Allowance as a percentage of casino accounts receivable

     41.8     44.3

Percentage of casino accounts receivable outstanding over 180 days

     33.3     37.9

 

Our reserve for doubtful casino accounts receivable is based on our estimates of amounts collectible and depends on the risk assessments and judgments by our employees regarding realizability, the state of the economy and our credit policy.

 

At December 31, 2010, a 100 basis-point change in the allowance for doubtful accounts as a percentage of casino accounts receivable would change the provision for doubtful accounts by approximately $1.7 million.

 

As our customer payment experience evolves, we will continue to refine our estimated reserve for bad debts. Accordingly, the associated provision for doubtful accounts charge may fluctuate. Because individual customer account balances can be significant, the reserve and the provision can change significantly between periods, as we become aware of additional information about a customer or as changes occur in a region’s economy or legal system.

 

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Derivative Financial Instruments

 

We seek to manage our market risk, including interest rate risk associated with variable rate borrowings, through balancing fixed-rate and variable-rate borrowings and the use of derivative financial instruments. We account for derivative financial instruments in accordance with applicable accounting standards. Derivative financial instruments are recognized as assets or liabilities, with changes in fair value affecting net income or comprehensive income, as applicable. As of December 31, 2010, changes in our interest rate swap fair value is being recorded in our Consolidated Statements of Operations, as the swap does not qualify for hedge accounting.

 

We measure the fair value of our interest rate swaps on a recurring basis. 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. We categorize our interest rate swap contract as Level 2. The fair value approximates the amount we would receive (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 of fluctuation between periods. We adjust this amount by applying a non-performance valuation, considering our creditworthiness or the creditworthiness of our counterparties at each settlement date, as applicable.

 

Wynn Resorts’ Equity Instruments Issued to Employees—Stock-Based Compensation

 

Accounting standards for stock-based payments establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services or incurs a liability in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. It requires an entity to measure the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period. We use the Black-Scholes valuation model to value the equity instruments we issue. The Black-Scholes valuation model uses assumptions of expected volatility, risk-free interest rates, the expected term of options granted, and expected rates of dividends. Management determines these assumptions by reviewing current market rates, making industry comparisons and reviewing conditions relevant to our Company.

 

The expected volatility and expected term assumptions can significantly impact the fair value of stock options. We believe that the valuation techniques and the approach utilized to develop our assumptions are appropriate in calculating the fair value of the options we grant. We estimate the expected stock price volatility using a combination of implied and historical factors related to our stock price in accordance with applicable accounting standards. As our stock price fluctuates, this estimate will change. For example, a 10% change in the volatility assumption for 2010 would have resulted in an approximate $0.5 million change in fair value. Expected term represents the estimated average time between the option’s grant date and its exercise date. Because of our limited trading history as a public company we have elected to use the simplified method prescribed by applicable accounting standards, for companies with a limited trading history to estimate the expected term. Once we have sufficient trading history, we will estimate the expected term using historical experience for options that have been granted to employees within our stock option plan. A 10% change in the expected term assumption for 2010 would have resulted in an approximate $0.2 million change in fair value. These assumed changes in fair value would have been recognized over the vesting schedule of such awards.

 

Accounting standards also require the classification of stock compensation expense in the same financial statement line items as cash compensation, and therefore impacts our departmental expenses (and related operating margins), pre-opening costs and construction in progress for our development projects, and our general and administrative expenses (including corporate expenses).

 

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Self-Insurance Reserves

 

We are self-insured up to certain limits for costs of employee health coverage, workers’ compensation and general liability claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. In estimating these accruals, we consider historical loss experience and make judgments about the expected level of costs per claim. Management believes the estimates of future liability are reasonable based upon its methodology; however, changes in health care costs, accident frequency and severity could materially affect the estimate for these liabilities.

 

Customer Loyalty Program

 

Our customer loyalty program relates to a slot club program whereby customers may earn points based on their level of play that may be redeemed for free credits which must be replayed in the slot machine. We accrue a liability based on the points earned times the redemption value, less an estimate for breakage, and record a related reduction in casino revenue.

 

Slot Machine Jackpots

 

With respect to base and progressive jackpots, we do not accrue a liability if we have the ability to avoid payment of the base jackpot because the machine can legally be removed from the gaming floor without payment of the base amount. Conversely, if we are unable to avoid payment of the jackpot (i.e. the incremental amount on a progressive machine) due to legal requirements, the jackpot is accrued as the obligation becomes unavoidable. This liability is accrued over the time period in which the incremental progressive jackpot amount is generated with a related reduction in casino revenue. No liability is accrued with respect to the base jackpot.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.

 

Interest Rate Risks

 

Our primary exposure to market risk is interest rate risk associated with our debt facilities that bear interest based on floating rates. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities.” We attempt to manage interest rate risk by managing the mix of long-term fixed rate borrowings and variable rate borrowings supplemented by hedging activities as believed by us to be appropriate. We cannot be sure that these risk management strategies have had the desired effect, and interest rate fluctuations could have a negative impact on our results of operations.

 

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The following table provides estimated future cash flow information derived from our best estimates of repayments at December 31, 2010 on our expected long-term indebtedness. However, we cannot predict the LIBOR rate that will be in effect in the future. As of December 31, 2010, such rates were at historic lows. Actual rates will vary. The one-month LIBOR rate at December 31, 2010 of 0.26% was used for all variable rate calculations in the table below.

 

     As of December 31,

 
     2011

    2012

    2013

    2014

    2015

    Thereafter

    Total

 
     (in millions)  

Long-term debt:

                                                        

Fixed rate

     —          —          —          —          —        $ 2,202.0      $ 2,202.0   

Average interest rate

     —          —          —          —          —          7.8     7.8

Variable rate

   $ 1.1      $ 1.4      $ 49.5      $ 1.4      $ 348.2      $ 30.1      $ 431.7   

Average interest rate

     1.5     1.5     2.2     1.5     3.3     1.5     3.0

 

Interest Rate Swaps

 

As of December 31, 2010, we have one interest rate swap agreement to hedge a portion of the underlying interest rate risk on borrowings under the Wynn Las Vegas Credit Agreement. Under this swap agreement, we pay a fixed interest rate of 2.485% on borrowings of $250 million incurred under the Wynn Las Vegas Credit Agreement in exchange for receipts on the same amount at a variable interest rate based on the applicable LIBOR at the time of payment. This interest rate swap fixes the interest rate on $250 million of borrowings under the Wynn Las Vegas Credit Agreement at approximately 5.485%. This interest rate swap agreement matures in November 2012. Changes in the fair value of this interest rate swap have and will continue to be recorded as an increase/ (decrease) in swap fair value in our Consolidated Statements of Operations as the swap does not qualify for hedge accounting.

 

As of December 31, 2010 and 2009, our interest rate swap had an approximate liability fair value of $8.5 million and $4.2 million, respectively, and is included in long-term liabilities in the accompanying Consolidated Balance Sheets. The fair value approximates the amount we would have paid if this contract had settled at the valuation date. 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 of fluctuation between periods.

 

Other Interest Rate Swap Information

 

The following table provides information about our interest rate swaps, by contractual maturity dates, as of December 31, 2010 and using estimated future LIBOR rates based upon implied forward rates in the yield curve.

 

     Years Ending December 31,
Expected Maturity Date

 
  
     2011

     2012

    2013

     2014

     2015

     Thereafter

     Total

 
     (in millions)  

Average notional amount

   $ —         $ 250.0      $ —         $ —         $ —         $ —         $ 250.0   

Average pay rate

     —           2.49     —           —           —           —           2.49

Average receive rate

     —           0.66     —           —           —           —           0.66

 

We do not use derivative financial instruments, other financial instruments or derivative commodity instruments for trading or speculative purposes.

 

Interest Rate Sensitivity

 

As of December 31, 2010, approximately 93% of our long-term debt was based on fixed rates, including the notional amount related to our interest rate swap. Based on our borrowings as of December 31, 2010, an assumed 1% change in variable rates would cause our annual interest cost to change by $1.8 million.

 

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Item 8. Financial Statements and Supplementary Data

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page

 

Report of Independent Registered Public Accounting Firm

     40   

Consolidated Balance Sheets

     41   

Consolidated Statements of Operations

     42   

Consolidated Statements of Member’s Equity

     43   

Consolidated Statements of Cash Flows

     44   

Notes to Consolidated Financial Statements

     45-71   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Member of Wynn Las Vegas, LLC and subsidiaries:

 

We have audited the accompanying consolidated balance sheets of Wynn Las Vegas, LLC and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, member’s equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 

/s/ Ernst & Young LLP

 

Las Vegas, Nevada

February 28, 2011

 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

 

     December 31,

 
     2010

    2009

 
ASSETS                 

Current assets:

                

Cash and cash equivalents

   $ 52,540      $ 66,354   

Receivables, net

     124,814        110,860   

Inventories

     64,520        80,861   

Prepaid expenses and other

     21,188        25,187   
    


 


Total current assets

     263,062        283,262   

Property and equipment, net

     3,731,211        3,851,668   

Intangible assets, net

     12,804        14,875   

Deferred financing costs, net

     47,300        42,025   

Deposits and other assets

     50,070        58,733   

Investment in unconsolidated affiliates

     4,069        3,761   
    


 


Total assets

   $ 4,108,516      $ 4,254,324   
    


 


LIABILITIES AND MEMBER’S EQUITY                 

Current liabilities:

                

Current portion of long-term debt

   $ 1,050      $ 1,050   

Accounts payable

     35,837        28,226   

Accrued interest

     54,083        17,595   

Accrued compensation and benefits

     39,305        37,521   

Gaming taxes payable

     9,963        7,111   

Other accrued expenses

     17,392        16,198   

Customer deposits

     93,355        101,507   

Due to affiliates, net

     28,291        21,480   
    


 


Total current liabilities

     279,276        230,688   

Long-term debt

     2,620,484        2,551,520   

Due to affiliates, net

     101,797        82,339   

Interest rate swap

     8,457        4,224   
    


 


Total liabilities

     3,010,014        2,868,771   
    


 


Commitments and contingencies (Note 12)

                

Member’s equity:

                

Contributed capital

     1,973,424        1,912,146   

Accumulated deficit

     (874,922     (526,593
    


 


Total member’s equity

     1,098,502        1,385,553   
    


 


Total liabilities and member’s equity

   $ 4,108,516      $ 4,254,324   
    


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

 

     December 31,

 
     2010

    2009

    2008

 

Operating revenues:

                        

Casino

   $ 534,286      $ 505,779      $ 479,711   

Rooms

     308,410        321,150        268,515   

Food and beverage

     417,240        385,774        305,702   

Entertainment, retail and other

     214,003        203,399        202,122   
    


 


 


Gross revenues

     1,473,939        1,416,102        1,256,050   

Less: promotional allowances

     (177,383     (185,982     (156,159
    


 


 


Net revenues

     1,296,556        1,230,120        1,099,891   
    


 


 


Operating costs and expenses:

                        

Casino

     288,263        275,341        257,983   

Rooms

     119,422        109,246        73,782   

Food and beverage

     256,234        239,767        188,521   

Entertainment, retail and other

     145,284        133,824        132,870   

General and administrative

     237,678        246,776        199,540   

Provision for doubtful accounts

     15,729        12,438        24,887   

Management fees

     19,459        18,434        16,505   

Pre-opening costs

     2,479        346        72,373   

Depreciation and amortization

     274,305        313,759        169,640   

Property charges and other

     19,017        24,468        22,406   
    


 


 


Total operating costs and expenses

     1,377,870        1,374,399        1,158,507   
    


 


 


Operating loss

     (81,314     (144,279     (58,616
    


 


 


Other income (expense):

                        

Interest income

     408        67        4,827   

Interest expense, net of amounts capitalized

     (193,444     (157,228     (75,855

Decrease in swap fair value

     (4,233     (4,224     (416

Loss on extinguishment of debt/exchange offer

     (70,055     (3,779     —     

Equity in income (loss) from unconsolidated affiliates

     309        (427     266   
    


 


 


Other income (expense), net

     (267,015     (165,591     (71,178
    


 


 


Net loss

   $ (348,329   $ (309,870   $ (129,794
    


 


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY

(amounts in thousands)

 

Balance at January 1, 2008

   $  1,375,020   

Net loss

     (129,794

Parent company stock-based compensation

     9,502   

Contributions from Wynn Resorts, Limited

     2,835   
    


Balance at December 31, 2008

     1,257,563   

Net loss

     (309,870

Parent company stock-based compensation

     8,370   

Contributions from Wynn Resorts, Limited

     429,490   
    


Balance at December 31, 2009

     1,385,553   

Net loss

     (348,329

Parent company stock-based compensation

     11,278   

Contributions from Wynn Resorts, Limited

     50,000   
    


Balance at December 31, 2010

   $ 1,098,502   
    


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

 

     December 31,

 
     2010

    2009

    2008

 

Cash flows from operating activities:

                        

Net loss

   $ (348,329   $ (309,870   $ (129,794

Adjustments to reconcile net loss to net cash provided by operating activities:

                        

Depreciation and amortization

     274,305        313,759        169,640   

Stock-based compensation

     11,278        8,370        9,502   

Loss from extinguishment of debt

     64,673        3,779        —     

Amortization and write off of deferred financing costs and other

     15,705        19,624        11,078   

Equity in income (loss) from unconsolidated affiliates, net of distributions.

     (309     794        522   

Provision for doubtful accounts

     15,729        12,438        24,887   

Property charges and other

     4,068        24,468        22,406   

Decrease in swap fair value

     4,233        4,224        416   

Increase (decrease) in cash from changes in:

                        

Receivables

     (29,683     (25,016     20,342   

Inventories and prepaid expenses and other assets

     19,452        180        (38,706

Accounts payable and accrued expenses

     41,777        (14,227     22,392   

Due to affiliates, net

     31,746        41,879        22,455   
    


 


 


Net cash provided by operating activities

     104,645        80,402        135,140   
    


 


 


Cash flows from investing activities:

                        

Capital expenditures, net of construction payables and retention

     (157,080     (245,040     (1,129,525

Restricted cash and investments

     —          —          31,052   

Note receivable from Wynn Resorts, Limited

     —          —          80,000   

Deposits and other assets

     (4,796     4,278        (35,061

Due to affiliates, net

     3,597        (8,468     18,546   

Proceeds from sale of assets

     218        42        2,537   
    


 


 


Net cash used in investing activities

     (158,061     (249,188     (1,032,451
    


 


 


Cash flows from financing activities:

                        

Principal payments on long-term debt

     (1,933,238     (929,909     (1,400

Proceeds from issuance of long-term debt

     1,995,686        649,481        879,484   

Capital contribution from the Parent

     50,000        412,951        —     

Payments of deferred financing costs

     (72,846     (20,698     (3,979
    


 


 


Net cash provided by financing activities

     39,602        111,825        874,105   
    


 


 


Cash and cash equivalents:

                        

Decrease in cash and cash equivalents

     (13,814     (56,961     (23,206

Balance, beginning of year

     66,354        123,315        146,521   
    


 


 


Balance, end of year

   $ 52,540      $ 66,354      $ 123,315   
    


 


 


Supplemental cash flow disclosures:

                        

Cash paid for interest, net of amounts capitalized

   $ 147,542      $ 138,787      $ 147,209   

Change in construction payables and retention

     (9,599     (183,842     99,948   

Capitalized stock-based compensation

     525        524        573   

Capital Contribution from Parent

     —          16,539        2,835   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization

 

Wynn Las Vegas, LLC was formed on April 17, 2001 as a Nevada limited liability company. Unless the context otherwise requires, all references herein to the “Company” refer to Wynn Las Vegas, LLC, a Nevada limited liability company and its consolidated subsidiaries. The sole member of the Company is Wynn Resorts Holdings, LLC (“Holdings”). The sole member of Holdings is Wynn Resorts, Limited (“Wynn Resorts”). The Company was organized primarily to construct and operate “Wynn Las Vegas,” a destination resort and casino on the “Strip” in Las Vegas, Nevada. Wynn Las Vegas opened on April 28, 2005. On December 22, 2008, the Company opened Encore at Wynn Las Vegas (“Encore”), a resort located immediately adjacent to and connected with Wynn Las Vegas.

 

Wynn Las Vegas Capital Corp. (“Wynn Capital”) is a wholly owned subsidiary of the Company incorporated on June 3, 2002, solely for the purpose of obtaining financing for Wynn Las Vegas. Wynn Capital is authorized to issue 2,000 shares of common stock, par value $0.01. At December 31, 2010, the Company owned the one share that was issued and outstanding. Wynn Capital has neither any significant net assets nor has had any operating activity. Its sole function is to serve as the co-issuer of the mortgage notes described below. Wynn Las Vegas, LLC and Wynn Capital together are hereinafter referred to as the “Issuers”.

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The Company’s investment in the 50%-owned joint venture operating the Ferrari and Maserati automobile dealership inside Wynn Las Vegas is accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 purchase maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value.

 

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. At December 31, 2010 and 2009, approximately 75% and 68%, 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 collectibility of such receivables.

 

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as management’s experience with collection trends in the casino industry and current economic and business conditions.

 

Inventories

 

Inventories consist of retail merchandise, 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, average and specific identification methods.

 

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   

Airplane

     20 years   

Furniture, fixtures and equipment

     3 to 20 years   

 

Costs related to improvements are capitalized, while costs of building 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 operating income (loss).

 

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 at the Company’s weighted average cost of borrowed money. Interest of $0.6 million, $0 and $80.4 million was capitalized for the years ended December 31, 2010, 2009 and 2008, respectively.

 

Intangibles

 

The Company’s indefinite-lived intangible assets consist primarily of water rights acquired as part of the overall purchase price of the land on which Wynn Las Vegas is located, and trademarks. Indefinite-lived intangible assets are not amortized, but are reviewed annually for impairment. The Company’s finite-lived intangible assets consist of show production rights. 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 not to be disposed of, including intangibles 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. For assets to be held and used, the Company reviews these assets for impairment whenever indicators of impairment exist. 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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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 incurred in obtaining loans or in connection with the issuance of long-tem debt are capitalized and amortized to interest expense over the terms of the related debt agreements. Approximately $7.7 million, $9.3 million and $8.5 million, was amortized to interest expense during the years ended December 31, 2010, 2009 and 2008, respectively. Debt discounts incurred in connection with the issuance of debt has been capitalized and is being amortized to interest expense using the effective interest method.

 

Derivative Financial Instruments

 

The Company seeks to manage its market risk, including interest rate risk associated with variable rate borrowings, through balancing fixed-rate and variable-rate borrowings with the use of derivative financial instruments. The fair value of derivative financial instruments are recognized as assets or liabilities at each balance sheet date, with changes in fair value affecting net income (loss) or comprehensive income (loss) as applicable. The Company’s interest rate swaps do not qualify for hedge accounting. Accordingly, changes in the fair value of the interest rate swaps are presented as an increase (decrease) in fair value of swaps in the accompanying Consolidated Statements of Operations.

 

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, with liabilities recognized for funds deposited by customers before gaming play occurs and for chips in the customers’ possession. Hotel, food and beverage, entertainment and other operating revenues are recognized when services are performed. Entertainment, retail, and other revenue include rental income which is recognized on a time proportion basis over the lease terms. 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.

 

Revenues are recognized net of certain sales incentives which are required to be recorded as a reduction of revenues; consequently, the Company’s casino revenues are reduced by discounts and points earned in the player’s club loyalty program.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances. The estimated cost of providing such promotional allowances is primarily included in casino expenses as follows (amounts in thousands):

 

     Years Ended December 31,

 
     2010

     2009

     2008

 

Rooms

   $ 40,911       $ 45,890       $ 27,292   

Food and beverage

     59,111         60,550         53,006   

Entertainment, retail and other

     19,515         12,014         10,027   
    


  


  


Total

   $ 119,537       $ 118,454       $ 90,325   
    


  


  


 

Self-Insurance Reserves

 

The Company is self-insured up to certain limits for costs of employee health coverage, workers’ compensation and general liability claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. In estimating these accruals, the Company considers historical loss experience and makes judgments about the expected level of costs per claim. Management believes the estimates of future liability are reasonable based upon its methodology; however, changes in health care costs, accident frequency and severity could materially affect the estimate for these liabilities.

 

Customer Loyalty Program

 

The Company’s customer loyalty program relates to a slot club program whereby customers may earn points based on their level of play that may be redeemed for free credit that must be replayed in the slot machine. The Company accrues a liability based on the points earned times the redemption value, less an estimate for breakage, and records a related reduction in casino revenue.

 

Slot Machine Jackpots

 

With respect to base and progressive jackpots, the Company does not accrue a liability when it has the ability to avoid payment of the base jackpot because the machine can legally be removed from the gaming floor without payment of the base amount. Conversely, if the Company is unable to avoid payment of the jackpot (i.e. the incremental amount on a progressive machine) due to legal requirements, the jackpot is accrued as the obligation becomes unavoidable. This liability is accrued over the time period in which the incremental progressive jackpot amount is generated with a related reduction in casino revenue. No liability is accrued with respect to the base jackpot.

 

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 gaming revenue and are recorded as an expense within the “Casino” line item in the accompanying Consolidated Statements of Operations. These taxes totaled $37.7 million, $36.5 million and $33.4 million for the years ended December 31, 2010, 2009 and 2008, respectively.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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 included in general and administrative expenses. Total advertising costs were $14.7 million, $17.3 million and $27.1 million including $11.1 million of pre-opening in 2008 related to Encore, for the years ended December 31, 2010, 2009 and 2008, respectively.

 

Pre-Opening Costs

 

Pre-opening costs, consisting primarily of direct salaries and wages, legal and consulting fees, insurance, utilities and advertising, are expensed as incurred. The Company incurred pre-opening costs in connection with the Encore Beach Club and Surrender Nightclub prior to their opening in May 2010 and Encore prior to its opening in December 2008.

 

Income Taxes

 

The Company’s operations are reported on the consolidated tax return of Wynn Resorts. As a limited liability company, the Company is considered a division of Wynn Resorts for federal income tax purposes. The Company’s financial statements recognize the current and deferred income tax consequences that result from the Company’s activities during the current and preceding periods pursuant to accounting standards related to Income Taxes, as if the Company were a separate taxpayer rather than a member of the parent company’s consolidated income tax return group. On a separate company basis, the Company is more likely than not to be unable to recognize benefit from net operating losses incurred annually since its formation. Consequently, no benefit from the current year or prior year’s tax losses has been recognized, resulting in no tax provision.

 

Wynn Resorts’ Equity Instruments Issued to Employees

 

Accounting standards require an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period. The Company uses the Black-Scholes valuation model to determine the estimated fair value for each option grant issued. The Black-Scholes determined fair value net of estimated forfeitures is amortized as compensation cost on a straight line basis over the service period.

 

Further information on the Company’s stock-based compensation arrangements is included in Note 11 “Benefit Plans—Stock-Based Compensation”.

 

Reclassifications

 

Certain amounts in the prior year consolidated financial statements have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on the previously reported net loss.

 

3. Receivables, net

 

Receivables, net consisted of the following (amounts in thousands):

 

     As of December 31,

 
     2010

    2009

 

Casino

   $ 167,844      $ 149,786   

Hotel

     16,512        17,490   

Other

     11,534        10,990   
    


 


       195,890        178,266   

Less: allowance for doubtful accounts

     (71,076     (67,406
    


 


     $ 124,814      $ 110,860   
    


 


 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

4. Property and Equipment, net

 

Property and equipment, net consisted of the following (amounts in thousands):

 

     As of December 31,

 
     2010

    2009

 

Land and improvements

   $ 719,753      $ 692,677   

Buildings and improvements

     2,591,246        2,554,224   

Airplane

     44,349        44,254   

Furniture, fixtures and equipment

     1,347,601        1,325,677   

Construction in progress

     19,281        23,973   
    


 


       4,722,230        4,640,805   

Less: accumulated depreciation

     (991,019     (789,137
    


 


     $ 3,731,211      $ 3,851,668   
    


 


 

Depreciation expense for the years ended December 31, 2010, 2009 and 2008 was $265.7 million, $300.8 million and $156.4 million, respectively. The decrease during 2010 is primarily due to assets with a 5-year life at Wynn Las Vegas being fully depreciated as of April 2010. The increase during 2009 over 2008 is due to the depreciation of assets placed in service for Encore in December 2008.

 

5. Intangibles, net

 

Intangibles, net consisted of the following (amounts in thousands):

 

     Show
Production
Rights


    Water
Rights


     Trademarks

     Total
Intangibles,
Net


 

January 1, 2009

   $ 9,147      $ 6,400       $ 1,334       $ 16,881   

Additions

     —          —           65         65   

Amortization

     (2,071     —           —           (2,071
    


 


  


  


December 31, 2009

     7,076        6,400         1,399         14,875   

Amortization

     (2,071     —           —           (2,071
    


 


  


  


December 31, 2010

   $ 5,005      $ 6,400       $ 1,399       $ 12,804   
    


 


  


  


 

Show production rights represent the amounts paid to purchase the rights to present the “Le Rêve” production show. The Company expects that amortization of show production rights will be $2.1 million for each of the years 2011 through 2012, and $0.8 million in 2013.

 

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 water rights and trademarks are indefinite-lived assets and, accordingly, not amortized.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6. Deposits and Other Assets

 

Deposits and other assets consisted of the following (amounts in thousands):

 

     As of December 31,

 
     2010

     2009

 

Entertainment production costs

   $ 6,849       $ 11,826   

Base stock

     20,082         22,027   

Deposits and other

     23,139         24,880   
    


  


     $ 50,070       $ 58,733   
    


  


 

7. Long-Term Debt

 

Long-term debt consisted of the following (amounts in thousands):

 

     As of December 31,

 
     2010

    2009

 

6 5/8% First Mortgage Notes, due December 1, 2014, net of original issue discount of $8,214 at December 31, 2009

   $ —        $ 1,626,016   

7 7/8% First Mortgage Notes, due November 1, 2017, net of original issue discount of $9,678 at December 31, 2010 and $10,529 at December 31, 2009

     490,322        489,471   

7 7/8% First Mortgage Notes, due May 1, 2020, net of original issue discount of $2,489 at December 31, 2010

     349,521        —     

7 3/4% First Mortgage Notes, due August 15, 2020

     1,320,000        —     

Revolving Credit Facility, due July 15, 2013; interest at LIBOR plus 3.0%

     3,868        252,717   

Revolving Credit Facility, due July 17, 2015; interest at LIBOR plus 3.0%

     16,187        —     

Term Loan Facility, due August 15, 2013; interest at LIBOR plus 1.875%

     44,281        80,446   

Term Loan Facility, due August 17, 2015; interest at LIBOR plus 3.0%

     330,605        —     

$42 million Note Payable due April 1, 2017; interest at LIBOR plus 1.25%

     36,750        38,150   

Payable to Affiliate

     30,000        65,770   
    


 


       2,621,534        2,552,570   

Current portion of long-term debt

     (1,050     (1,050
    


 


     $ 2,620,484      $ 2,551,520   
    


 


 

6 5/8% Wynn Las Vegas First Mortgage Notes

 

On December 14, 2004, the Issuers issued $1.3 billion aggregate principal amount of 6 5/8% first mortgage notes due December 1, 2014. On November 6, 2007, the Issuers issued, in a private offering, $400 million aggregate principal amount of 6 5/8% first mortgage notes due December 1, 2014 at a price of 97.25% of the principal amount. These notes were issued under the same indenture as the original $1.3 billion first mortgage notes. Both offerings are referred to herein as the “2014 Notes”. The Company paid interest on the 2014 Notes on June 1st and December 1st of each year. In August 2010, the 2014 Notes were redeemed as described below.

 

7 7/8% Wynn Las Vegas First Mortgage Notes

 

In October 2009, the Issuers issued, in a private offering, $500 million aggregate principal amount of 7 7/8% first mortgage notes due November 1, 2017 (the “2017 Notes”) at a price of 97.823% of the principal amount. Net proceeds to the Company were approximately $480 million, after deducting the original issue discount and underwriting fees and other expenses. The Company pays interest on the 2017 Notes on May 1st and

 

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November 1st of each year. Commencing November 1, 2013, the 2017 Notes are redeemable at the Company’s option at a price equal to 103.938% of the principal amount redeemed and decline ratably on November 1st of each year thereafter to zero on or after November 1, 2015. The notes are senior secured obligations of the Issuers, are guaranteed by Wynn Las Vegas, LLC’s subsidiaries (subject to some exceptions), and are secured on an equal and ratable basis by a first priority lien on substantially all the existing and future assets of the Issuers and guarantors.

 

On March 26, 2010, the Issuers commenced an offer to exchange all outstanding 2014 Notes for 7 7/8% first mortgage notes due 2020 (the “2020 Notes”), upon the terms and subject to the conditions set forth in an offering memorandum and a related letter of transmittal (the “exchange offer”). The exchange offer was conditioned upon, among other things, the tender of at least $250 million aggregate principal amount of 2014 Notes. The 2020 Notes were offered only to qualified institutional buyers and outside the United States in accordance with Rule 144A and Regulation S, respectively, under the Securities Act of 1933, as amended (the “Securities Act”). The exchange offer closed on April 28, 2010 with $382 million of the 2014 Notes being validly tendered for exchange to the 2020 Notes.

 

The noteholders who validly tendered 2014 Notes prior to the early delivery time received an early delivery payment on April 28, 2010 of 1% of the amount tendered in cash, which totaled $3.8 million. In accordance with accounting standards, this has been included as deferred financing costs and will be amortized over the life of the 2020 Notes. The direct costs of the exchange offer incurred with third parties of $4.6 million were expensed and are included in loss on extinguishment of debt / exchange offer in the accompanying Consolidated Statements of Operations.

 

The Company pays interest on the 2020 Notes on May 1st and November 1st of each year. Commencing May 1, 2015, the 2020 Notes are redeemable at the Company’s option at a price equal to 103.938% of the principal amount redeemed and decline ratably on May 1st of each year thereafter to zero on or after May 1, 2018. The 2020 Notes rank pari passu in right of payment with borrowings under Wynn Las Vegas, LLC’s credit facilities and 2017 Notes. The 2020 Notes are senior secured obligations of the Issuers, guaranteed by certain of Wynn Las Vegas, LLC’s subsidiaries and secured by a first priority lien on substantially all of the existing and future assets of the Issuers and guarantors and, subject to approval from the Nevada Gaming Commission, a first priority lien on the equity interests of Wynn Las Vegas, LLC, all of which is the same collateral that secures borrowings under Wynn Las Vegas, LLC’s credit facilities and the 2017 Notes.

 

7 3/4% Wynn Las Vegas First Mortgage Notes

 

On August 4, 2010, the Issuers issued $1.32 billion aggregate principal amount of 7 3/4% first mortgage notes due August 15, 2020 (the “New 2020 Notes”). The New 2020 Notes were issued at par. The New 2020 Notes were offered only to qualified institutional buyers and outside the United States in accordance with Rule 144A and Regulation S, respectively, under the Securities Act of 1933. Wynn Las Vegas, LLC used the net proceeds of the offering along with the proceeds of a $50 million capital contribution from Wynn Resorts, Limited to purchase, and, as applicable, make consent payments for, any and all of the Issuers’ 2014 Notes that were validly tendered and accepted for payment pursuant to Wynn Las Vegas, LLC’s concurrent offer to purchase and consent solicitation with respect to the 2014 Notes, and to redeem all of the 2014 Notes not tendered. On or prior to August 3, 2010, valid tenders had been received with respect to approximately $987 million of the $1.3 billion aggregate principal amount of 2014 Notes outstanding. On August 4, 2010, tendering holders received the tender offer consideration in the amount of $1,004.38, plus a consent payment of $30 for each $1,000 principal amount of 2014 Notes, which totaled $33.9 million. The consent solicitation expired on August 3, 2010 and the tender offer expired on August 18, 2010. In accordance with accounting standards the consideration and consent fees were expensed and are included in loss on extinguishment of debt / exchange offer in the accompanying Consolidated Statements of Operations.

 

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On August 4, 2010, the Trustee, at the request of the Issuers, gave notice of redemption of any and all of the remaining 2014 Notes. The redemption price was equal to 103.313% of the aggregate principal amount of the 2014 Notes redeemed plus accrued and unpaid interest thereon to September 3, 2010. The total redemption fees paid were $10.9 million. In accordance with accounting standards, the redemption fees were expensed and are included in loss on extinguishment of debt / exchange offer in the accompanying Consolidated Statement of Operations.

 

Also in connection with this transaction, unamortized debt issue costs and original issue discount related to the 2014 Notes totaling $19.2 million were expensed and are included in loss on extinguishment of debt / exchange offer in the accompanying Consolidated Statements of Operations.

 

The Company pays interest on the New 2020 Notes on February 15th and August 15th of each year. Commencing August 15, 2015, the New 2020 Notes are redeemable at the Company’s option at a price equal to 103.875% of the principal amount redeemed and decline ratably on August 15th of each year thereafter to zero on or after August 15, 2018. The New 2020 Notes rank pari passu in right of payment with borrowings under Wynn Las Vegas, LLC’s credit facilities, the 2017 Notes and the 2020 Notes. The New 2020 Notes are senior secured obligations of the Issuers, guaranteed by certain of Wynn Las Vegas, LLC’s subsidiaries and secured on an equal and ratable basis (with certain exceptions) by a first priority lien on substantially all of the existing and future assets of the Issuers and guarantors, and, subject to prior approval from the Nevada gaming authorities, a first priority lien on the equity interests of Wynn Las Vegas, LLC, all of which is the same collateral that secures borrowings under Wynn Las Vegas, LLC’s credit facilities, the 2017 Notes and the 2020 Notes.

 

During the year ended December 31, 2009, Wynn Resorts purchased $65.8 million face amount of the 2014 Notes through open market purchases at a discount. As part of the March 2010 exchange offer discussed above, Wynn Resorts exchanged $30 million of its 2014 Notes for the 2020 Notes. The remaining $35.8 million were redeemed as part of the tender offer and redemption of all of the 2014 Notes in August 2010 as described above. As of December 31, 2010, Wynn Resorts holds $30 million of the 2020 Notes which have not been contributed to its wholly-owned subsidiary, Wynn Las Vegas. For accounting purposes the notes were treated as an extinguishment of debt by Wynn Resorts in 2009.

 

Wynn Las Vegas Credit Facilities

 

Concurrently with the issuance of the New 2020 Notes, the Company entered into a seventh amendment, dated August 4, 2010, to the Wynn Las Vegas Amended and Restated Credit Agreement (the “Credit Agreement”). After giving effect to this amendment, the maturity date with respect to a portion of the revolving credit facility and the term facility was extended to July 2015 and August 2015, respectively, and the interest margin in respect of the extended portion will increase after June 30, 2013. In addition, lenders made incremental term loans of $248.5 million having a maturity date of August 2015. The amendment made certain other changes including eliminating the maximum Consolidated Leverage Ratio and reducing the minimum Consolidated Interest Coverage Ratio to 1:00 to 1 through June 2013.

 

As of December 31, 2010, the Credit Agreement consisted of a $108.5 million revolving credit facility due July 2013, a $258.4 million revolving credit facility due July 2015 (together the “Wynn Las Vegas Revolver”), a fully drawn $44.3 million term loan facility due August 2013 and a fully drawn $330.6 million term loan facility due August 2015 (together the “Wynn Las Vegas Term Loan”). The Wynn Las Vegas Revolver and the Wynn Las Vegas Term Loan are together referred to as the “Wynn Las Vegas Credit Facilities.” As of December 31,

 

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2010, $20.1 million had been borrowed under the Wynn Las Vegas Revolver. The Company also had $19.7 million of outstanding letters of credit that reduce its availability under the Wynn Las Vegas Revolver. The Company has availability of $327.2 million under the Wynn Las Vegas Revolver as of December 31, 2010.

 

For purposes of calculating interest, loans under the Wynn Las Vegas Credit Facilities will be designated, at the election of Wynn Las Vegas, LLC, as Eurodollar Loans or, in certain circumstances, Base Rate Loans. As of December 31, 2010, Eurodollar Loans under the Wynn Las Vegas Revolver and Wynn Las Vegas Term Loan due August 17, 2015 bear interest initially at the Eurodollar rate plus 3.0%. Eurodollar loans under the Wynn Las Vegas Term Loan due August 15, 2013 bear interest initially at the Eurodollar rate plus 1.875%. Interest on Eurodollar Loans is payable at the end of the applicable interest period in the case of interest periods of one, two or three months, and every three months in the case of interest periods of six months. Base Rate Loans bear interest at (a) the greatest of (i) the rate most recently announced by Deutsche Bank as its “prime rate,” (ii) the Federal Funds Rate plus 1/2 of 1% per annum, and (iii) in the case of a Wynn Las Vegas Revolver loan the one month Eurodollar rate; plus (b) a borrowing margin of 2.0% for Wynn Las Vegas Revolver loans and 0.875% for Wynn Las Vegas Term Loans. Interest on Base Rate Loans will be payable quarterly in arrears. Wynn Las Vegas, LLC also pays, quarterly in arrears, 1.0% per annum on the daily average of unborrowed amounts under the Wynn Las Vegas Revolver

 

The Wynn Las Vegas Credit Facilities are obligations of Wynn Las Vegas, LLC, guaranteed by each of the subsidiaries of Wynn Las Vegas, LLC, other than Wynn Completion Guarantor, LLC. Subject to an intercreditor agreement, and certain exceptions, the obligations of Wynn Las Vegas, LLC and each of the guarantors under the Wynn Las Vegas Credit Facilities are secured by: (1) a first priority pledge of all member’s interests owned by Wynn Las Vegas, LLC in its subsidiaries (other than Wynn Completion Guarantor, LLC) and Wynn Resorts Holdings, LLC’s 100% member’s interest in Wynn Las Vegas, LLC; (2) first mortgages on all real property constituting Wynn Las Vegas, its golf course and Encore; and (3) a first priority security interest in substantially all other existing and future assets of Wynn Las Vegas, LLC and the guarantors, excluding an aircraft beneficially owned by World Travel, LLC.

 

The obligations of Wynn Las Vegas, LLC and the guarantors under the Wynn Las Vegas Credit Facilities rank equal in right of payment with their existing and future senior indebtedness, including indebtedness with respect to the 2017 Notes, the 2020 Notes and the New 2020 Notes and ranks senior in right of payment to all of their existing and future subordinated indebtedness.

 

In addition to scheduled amortization payments, Wynn Las Vegas, LLC is required to make mandatory prepayments of indebtedness under the Wynn Las Vegas Credit Facilities from the net proceeds of all debt offerings (other than those constituting certain permitted debt). Wynn Las Vegas, LLC is also required to make mandatory repayments of indebtedness under the Wynn Las Vegas Credit Facilities from specified percentages of excess cash flow, which percentages may decrease and/or be eliminated based on Wynn Las Vegas, LLC’s leverage ratio. Wynn Las Vegas, LLC does not expect to make any mandatory repayments pursuant to this requirement during 2011. Wynn Las Vegas, LLC has the option to prepay all or any portion of the indebtedness under the Wynn Las Vegas Credit Facilities at any time without premium or penalty.

 

The Credit Agreement contains customary negative covenants and financial covenants, including negative covenants that restrict Wynn Las Vegas, LLC’s ability to: incur additional indebtedness, including guarantees; create, incur, assume or permit to exist liens on property and assets; declare or pay dividends and make distributions or restrict the ability of Wynn Las Vegas, LLC’s subsidiaries to pay dividends and make distributions; engage in mergers, investments and acquisitions; enter into transactions with affiliates; enter into sale-leaseback transactions; execute modifications to material contracts; engage in sales of assets; make capital expenditures; and make optional prepayments of certain indebtedness. The financial covenants include

 

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maintaining a Consolidated Interest Coverage Ratio, as defined, not less than 1.00 to 1 as of December 31, 2010. Management believes that the Company was in compliance with all covenants at December 31, 2010. The Consolidated Interest Coverage Ratio remains at 1.00 to 1 through June 2013.

 

$42 Million Note Payable for Aircraft

 

On March 30, 2007, World Travel, LLC, a subsidiary of Wynn Las Vegas, entered into a loan agreement with a principal balance of $42 million. The loan is guaranteed by Wynn Las Vegas, LLC and secured by a first priority security interest in one of the Company’s aircraft. Principal payments of $350,000 plus interest are made quarterly with a balloon payment of $28 million due at maturity, April 1, 2017. Interest is calculated at 90-day LIBOR plus 125 basis points.

 

Fair Value of Long-term Debt

 

The net book value of the 2014 Notes, the 2017 Notes, the 2020 Notes and the New 2020 Notes at December 31, 2010 and 2009, was $2.2 billion and $2.2 billion, respectively. The estimated fair value of the 2014 Notes, the 2017 Notes, the 2020 Notes and the New 2020 Notes based upon most recent trades at December 31, 2010 and 2009, was approximately $2.4 billion and $2.1 billion, respectively. The net book value of the Company’s other debt instruments was $432 million and the fair value of such debt was approximately $426.5 million as of December 31, 2010.

 

Scheduled Maturities of Long-Term Debt

 

Scheduled maturities of long-term debt including the accretion of debt discounts of $12.2 million are as follows (amounts in thousands):

 

Years Ending December 31,


      

2011

   $ 1,050   

2012

     1,400   

2013

     49,549   

2014

     1,400   

2015

     348,192   

Thereafter

     2,232,110   
    


     $ 2,633,701   
    


 

8. Interest Rate Swap

 

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 in the increase/decrease in swap fair value in the accompanying Consolidated Statements of Operations, as the interest rate swaps do not qualify for hedge accounting.

 

The Company measures the fair value of its interest rate swaps on a recurring basis pursuant to accounting standards for fair value measurements. These 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

 

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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. The Company categorizes its swap contract as Level 2.

 

The Company currently has one interest rate swap agreement to hedge a portion of the underlying interest rate risk on borrowings under the Wynn Las Vegas Credit Agreement. Under this swap agreement, beginning November 27, 2009, the Company pays a fixed interest rate of 2.485% on borrowings of $250 million incurred under the Wynn Las Vegas Credit Agreement in exchange for receipts on the same amount at a variable interest rate based on the applicable LIBOR at the time of payment. This interest rate swap fixes the interest rate on $250 million of borrowings at approximately 5.485%. This interest rate swap agreement matures in November 2012. As of December 31, 2010 and 2009, the fair value of this interest rate swap was a liability of $8.5 million and $4.2 million, respectively, which is included in long term liabilities in the accompanying Consolidated Balance Sheets.

 

9. Related Party Transactions, net

 

Amounts Due to Affiliates, net

 

As of December 31, 2010, the Company’s current Due to Affiliates, net was comprised of construction payables of $10.3 million, construction retention of $3.3 million and other net amounts due to affiliates totaling $14.7 million (including corporate allocations discussed below). The long-term Due to Affiliates is management fees of $101.8 million (equal to 1.5% of net revenues and payable upon meeting certain leverage ratios as specified in the documents governing the Company’s Credit Agreement and the First Mortgage Notes indentures).

 

As of December 31, 2009, the Company’s current Due to Affiliates, net was comprised of construction payables of approximately $21.4 million, construction retention of approximately $1.8 million and other net amounts due to affiliates totaling $1.7 million (including corporate allocations discussed below). The long-term Due to Affiliates is management fees of $82.3 million (equal to 1.5% of revenues and payable upon meeting certain leverage ratios as specified in the documents governing the Company’s Credit Agreement and the First Mortgage Notes indentures).

 

The Company periodically settles amounts Due to Affiliates with cash receipts and payments, except for the management fee, which is payable upon meeting certain leverage ratios specified in the documents governing the Company’s Credit Agreement and the First Mortgage Notes indentures.

 

Corporate Allocations

 

The accompanying Consolidated Statements of Operations include allocations from Wynn Resorts for legal, accounting, human resource, information services, real estate, and other corporate support services. The corporate support service allocations have been determined on a basis that Wynn Resorts and the Company consider to be reasonable estimates of the utilization of service provided or the benefit received by the Company. Wynn Resorts maintains corporate offices at Wynn Las Vegas without charge from the Company. Through September 30, 2008, the Company settled these corporate allocation charges with Wynn Resorts on a periodic basis as discussed in “Amounts Due to Affiliates, net” above. Beginning with the fourth quarter of 2008 and ending with the third quarter of 2009, the Company was unable to and did not intend to settle this corporate allocation and accordingly, such allocations were recorded as a contribution to equity from Wynn Resorts. During the years ended December 31, 2010, 2009 and 2008, $25.9 million, $25 million, and $22 million, respectively, was charged to the Company for such corporate allocations.

 

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Amounts due to Officers, net

 

The Company periodically provides services to Stephen A. Wynn, Chairman of the Board, Chief Executive Officer and one of the principal stockholders of Wynn Resorts (“Mr. Wynn”), and certain other executive officers and directors of Wynn Resorts. These services include household services, construction work and other personal services. The cost of these services is transferred to Wynn Resorts, Limited on a periodic basis. Mr. Wynn and these other officers and directors have amounts on deposit with Wynn Resorts to prepay any such items, which are replenished on an ongoing basis as needed.

 

Villa Suite Lease

 

On March 17, 2010, Elaine P. Wynn, a director of Wynn Resorts, and Wynn Las Vegas entered into an Agreement of Lease (the “EW Lease”) for the lease of a villa suite as Elaine P. Wynn’s personal residence. The EW Lease was approved by the Audit Committee of the Board of Directors of the Company. The term of the lease commenced as of March 1, 2010 and terminated December 31, 2010. The lease is currently on a month-to-month basis. Pursuant to the terms of the EW Lease, Elaine P. Wynn will pay annual rent equal to $350,000 which amount was determined by the Audit Committee with the assistance of a third-party appraisal. Certain services for, and maintenance of, the villa suite are included in the rental. The EW Lease superseded the terms of a prior agreement.

 

On March 18, 2010, Mr. Wynn and Wynn Las Vegas entered into an Amended and Restated Agreement of Lease (the “SW Lease”) for a villa suite to serve as Mr. Wynn’s personal residence. The SW Lease amends and restates a prior lease. The SW Lease was approved by the Audit Committee of the Board of Directors of the Company. The term of the SW Lease commenced as of March 1, 2010 and runs concurrent with Mr. Wynn’s employment agreement with the Company; provided that either party may terminate on 90 days notice. Pursuant to the SW Lease, the rental value of the villa suite will be treated as imputed income to Mr. Wynn, and will be equal to the fair market value of the accommodations provided. Effective March 1, 2010, and for the first two years of the term of the SW Lease, the rental value will be $503,831 per year. The rental value for the villa suite will be re-determined every two years during the term of the lease by the Audit Committee, with the assistance of an independent third-party appraisal. Certain services for, and maintenance of, the villa suite are included in the rental.

 

The “Wynn” Surname Rights Agreement

 

On August 6, 2004, Holdings entered into agreements with Mr. Wynn that confirm and clarify Holding’s rights to use the “Wynn” name and Mr. Wynn’s persona in connection with casino resorts. Under the parties’ Surname Rights Agreement, Mr. Wynn granted Holdings an exclusive, fully paid-up, perpetual, worldwide license to use, and to own and register trademarks and service marks incorporating the “Wynn” name 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 Holdings 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. Holdings has sub-licensed rights to the “Wynn” name, persona and marks to the Company.

 

10. Property Charges and Other

 

Property charges and other for the years ended December 31, 2010, 2009 and 2008, were $19 million, $24.5 million and $22.4 million, respectively. In response to the Company’s evaluation of its resorts and the reactions of its guests, the Company makes enhancements and refinements to the resorts. Costs relating to assets retired as a result of these enhancement and remodel efforts have been expensed as property charges.

 

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Property charges and other for the year ended December 31, 2010 include a contract termination payment of $14.9 million related to a management contract for certain of the nightclubs at Wynn Las Vegas as well as miscellaneous renovations, abandonments and gain/loss on sale of equipment .

 

Property charges and other for the year ended December 31, 2009 include a $16.7 million charge for the abandonment of the front porte-cochere at Encore to make way for the Encore Beach Club, a $5.3 million charge for the write-off of two aircraft deposits, and $2.5 million related to miscellaneous remodels, abandonments and loss on sale of equipment.

 

Property charges and other for the year ended December 31, 2008 include $17.8 million of costs associated with Spamalot at Wynn Las Vegas which closed in mid-July 2008. Together with the producers, the Company elected to end the show’s run at Wynn Las Vegas pursuant to the contract. The charge includes production rights that were included in intangible assets, show production costs that were included in other assets and certain other property and equipment. The remaining property charges were related to miscellaneous renovations and abandonments at Wynn Las Vegas.

 

11. Benefit Plans

 

Employee Savings Plan

 

Wynn Resorts established a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its 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 matched the contributions, within prescribed limits, with an amount equal to 100% of the participant’s initial 2% tax deferred contribution and 50% of the tax deferred contribution between 2% and 4% of the participant’s compensation. Effective March 16, 2009, the Company suspended matching contributions to this plan. The Company recorded expense for matching contributions of $0, $1.2 million and $4.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.

 

Union employees are covered by various multi-employer pension plans. The Company recorded expense of $6.8 million, $6.2 million and $4.6 million under such plans for the years ended December 31, 2010, 2009 and 2008, respectively. Information from the plans’ sponsors is not available to permit the Company to determine its share of unfunded vested benefits, if any.

 

Stock-Based Compensation

 

Wynn Resorts established the 2002 Stock Incentive Plan (the “Stock Plan”) which provides for the grant of (i) Incentive Stock Options, (ii) compensatory (i.e. nonqualified) stock options, and (iii) nonvested shares of Wynn Resorts’ common stock for employees, directors and independent contractors or consultants of Wynn Resorts and its subsidiaries, including the Company. However, only employees are eligible to receive incentive stock options.

 

A maximum of 12,750,000 shares of Wynn Resorts’ common stock has been reserved for issuance under the Stock Plan. As of December 31, 2010, 4,107,378 shares remain available for the grant of stock options or nonvested shares of Wynn Resorts’ common stock.

 

Stock Options

 

Options are granted at the current market price at the date of grant. The Stock Plan provides for a variety of vesting schedules determined at the time of grant. All options expire ten years from the date of grant.

 

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A summary of option activity under the Stock Plan that relates to employees of the Company as of December 31, 2010, and changes during the year then ended is presented below:

 

     Options

    Weighted
Average
Exercise
Price


     Weighted
Average
Remaining
Contractual
Term


     Aggregate
Intrinsic
Value


 

Outstanding at January 1, 2010

     2,174,592      $ 60.14                     

Granted

     200,000      $ 70.68                     

Exercised

     (811,709   $ 53.35                     

Canceled

     (470,833   $ 73.67                     
    


                         

Outstanding at December 31, 2010

     1,092,050      $ 61.28         7.6       $ 46,838,241   
    


                         

Fully vested and expected to vest at December 31, 2010

     1,005,535      $ 60.06         7.6       $ 43,666,843   
    


                         

Exercisable at December 31, 2010

     208,716      $ 54.10         4.7       $ 10,381,088   
    


                         

 

The weighted average fair value of options granted during the years ended December 31, 2010, 2009 and 2008 was $39.16, $29.04 and $60.09, respectively. The total intrinsic value of the options exercised for the years ended December 31, 2010, 2009 and 2008 was $39 million, $6 million and $1.3 million, respectively. As of December 31, 2010, there was a total of $21.6 million of unamortized compensation related to stock options, which is expected to be recognized as compensation over the vesting period of the related grants through May 2019.

 

Nonvested Shares

 

A summary of nonvested share activity under the Stock Plan that relates to employees of the Company as of December 31, 2010, and changes during the year then ended is presented below:

 

     Shares

    Weighted
Average
Grant Date
Fair Value


 

Nonvested at January 1, 2010

     227,250      $ 85.72   

Granted

     35,000      $ 106.07   

Vested

     (26,000   $ 64.01   

Canceled

     (52,000   $ 106.96   
    


 


Nonvested at December 31, 2010

     184,250      $ 86.65   
    


 


 

The weighted average grant date fair value of nonvested shares granted during the years ended December 31, 2010 and 2008 was $106.07 and $104.27, respectively. No shares were granted during 2009. The total fair value of shares vested during the year ended December 31, 2010 and 2008 was $2.8 million and $0.8 million, respectively. No shares vested during the year ended December 31, 2009. Approximately $7.3 million of unamortized compensation cost relating to nonvested shares at December 31, 2010, will be recognized as compensation over the vesting period of the related grants through December 2016.

 

Compensation Cost

 

Wynn Resorts uses the Black-Scholes valuation model to determine the estimated fair value for each option grant issued, with highly subjective assumptions, changes in which could materially affect the estimated fair value. Expected volatility is based on implied and historical factors related to Wynn Resort’s common stock.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Expected term represents the weighted average time between the option’s grant date and its exercise date. Wynn Resorts uses the simplified method for companies with a limited trading history to estimate the expected term. The risk-free interest rate used for each period presented is based on the U.S. Treasury yield curve at the time of grant for the period equal to the expected term.

 

The fair value per option was estimated on the date of grant using the weighted-average assumptions noted in the table below.

 

     Years Ended December 31,

 
       2010  

      2009  

    2008

 

Expected dividend yield

     1.24     0.30     —     

Expected stock price volatility

     60.8     56.2     44.1

Risk-free interest rate

     3.0     2.8     3.6

Expected average life of options (years)

     6.8        7.3        9.0   

 

The total compensation cost relating both to stock options and nonvested stock for the years ended December 31, 2010, 2009 and 2008 is allocated as follows (amounts in thousands):

 

     Years Ended December 31,

 
     2010

     2009

     2008

 

Casino

   $ 6,162       $ 4,347       $ 3,313   

Rooms

     366         374         371   

Food and beverage

     301         306         845   

Entertainment, retail and other

     87         16         210   

General and administrative

     4,362         3,327         4,509   

Preopening costs

     —           —           254   
    


  


  


Total stock-based compensation expense

   $ 11,278       $ 8,370       $ 9,502   
    


  


  


 

12. Commitments and Contingencies

 

Leases and other arrangements

 

The Company is the lessor under several retail leases and has entered into license and distribution agreements for additional retail outlets. The Company also is a party to joint venture agreements for the operation of one other retail outlet and the Ferrari and Maserati automobile dealership at Wynn Las Vegas.

 

The following represents the future minimum rentals to be received under the operating leases (amounts in thousands):

 

Years Ending December 31,


      

2011

   $ 2,788   

2012

     2,670   

2013

     1,615   

2014

     1,368   

2015

     447   

Thereafter

     1,223   
    


     $ 10,111   
    


 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

In addition, the Company is the lessee under leases for certain land, buildings and office equipment. At December 31, 2010, the Company was obligated under non-cancellable operating leases, to make future minimum lease payments as follows (amounts in thousands):

 

Years Ending December 31,


      

2011

   $ 2,931   

2012

     571   

2013

     140   

2014

     140   

2015

     74   

Thereafter

     2,802   
    


     $ 6,658   
    


 

Rent expense for the years ended December 31, 2010, 2009 and 2008 was $18.3 million, $8.0 million and $6.9 million, respectively.

 

Self-insurance

 

The Company is covered under a self-insured medical plan up to a maximum of $300,000 per year for each insured person. Amounts in excess of these thresholds are covered by the Company’s insurance programs, subject to customary policy limits.

 

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).

 

Litigation

 

The Company does not have any material litigation as of December 31, 2010.

 

Sales and Use Tax on Complimentary Meals

 

In March 2008, the Nevada Supreme Court ruled, in the matter captioned Sparks Nugget, Inc. vs. The State of Nevada Ex Rel. Department of Taxation, that food and non-alcoholic beverages purchased for use in providing complimentary meals to customers and to employees was exempt from sales and use tax. In July 2008, the Court denied the State’s motion for rehearing. Through April 2008, Wynn Las Vegas has paid use tax on these items and has filed for refunds for the periods from April 2005 to April 2008. The amount subject to these refunds is approximately $5.4 million. Due to the uncertainty surrounding this matter, a receivable has not been recorded as of December 31, 2010.

 

13. Member’s Equity

 

During the years ended December 31, 2010 and 2009, Wynn Resorts made cash capital contributions to the Company totaling $50 million and $413 million, respectively. The proceeds from these contributions were used to fund construction costs of Encore paid during the period and to fund paydowns of the Company’s debt.

 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

14. Condensed Consolidating Financial Information of Guarantors and Issuers

 

The following condensed consolidating financial statements present information related to the Issuers of the First Mortgage Notes and their guarantor subsidiaries (World Travel, LLC; Las Vegas Jet, LLC; Wynn Show Performers, LLC; Wynn Golf, LLC; Kevyn, LLC; and Wynn Sunrise, LLC) and non-guarantor subsidiary (Wynn Completion Guarantor, LLC) as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010.

 

The following condensed consolidating financial statements are presented in the provided form because: (i) the guarantor subsidiaries are wholly owned subsidiaries of Wynn Las Vegas, LLC (an issuer of the First Mortgage Notes); (ii) the guarantee is considered to be full and unconditional, that is, if the Issuers fail to make a scheduled payment, the guarantor subsidiaries are obligated to make the scheduled payment immediately and, if it does not, any holder of the First Mortgage Notes may immediately bring suit directly against the guarantor subsidiaries for payment of all amounts due and payable; and (iii) the guarantee is joint and several.

 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

AS OF DECEMBER 31, 2010

(amounts in thousands)

 

     Issuers

    Guarantor
Subsidiaries


    Nonguarantor
Subsidiary


    Eliminating
Entries


    Total

 
ASSETS                                         

Current assets:

                                        

Cash and cash equivalents

   $ 52,535      $ —        $ 5      $ —        $ 52,540   

Receivables, net

     124,814        —          —          —          124,814   

Inventories

     64,520        —          —          —          64,520   

Prepaid expenses and other

     20,778        410        —          —          21,188   
    


 


 


 


 


Total current assets

     262,647        410        5        —          263,062   

Property and equipment, net

     3,537,264        193,947        —          —          3,731,211   

Intangible assets, net

     6,660        6,144        —          —          12,804   

Deferred financing costs, net

     47,300        —          —          —          47,300   

Deposits and other assets

     47,437        3        —          2,630        50,070   

Investment in unconsolidated affiliates

     (19,685     4,069        —          19,685        4,069   
    


 


 


 


 


Total assets

   $ 3,881,623      $ 204,573      $ 5      $ 22,315      $ 4,108,516   
    


 


 


 


 


LIABILITIES AND MEMBER’S EQUITY                                         

Current liabilities:

                                        

Current portion of long-term debt

   $ —        $ 1,050      $ —        $ —        $ 1,050   

Accounts payable

     35,837        —          —          —          35,837   

Accrued interest

     54,083        —          —          —          54,083   

Accrued compensation and benefits

     38,219        1,086        —          —          39,305   

Gaming taxes payable

     9,963        —          —          —          9,963   

Other accrued expenses

     17,361        31        —          —          17,392   

Customer deposits

     93,355        —          —          —          93,355   

Due to affiliates, net

     (160,735     194,277        (7,881     2,630        28,291   
    


 


 


 


 


Total current liabilities

     88,083        196,444        (7,881     2,630        279,276   

Long-term debt

     2,584,784        35,700        —          —          2,620,484   

Due to affiliates

     101,797        —          —          —          101,797   

Interest rate swap

     8,457        —          —          —          8,457   
    


 


 


 


 


Total liabilities

     2,783,121        232,144        (7,881     2,630        3,010,014   
    


 


 


 


 


Commitments and contingencies

                                        

Member’s equity:

                                        

Contributed capital

     1,973,424        12,530        —          (12,530     1,973,424   

Retained earnings (deficit)

     (874,922     (40,101     7,886        32,215        (874,922
    


 


 


 


 


Total member’s equity

     1,098,502        (27,571     7,886        19,685        1,098,502   
    


 


 


 


 


Total liabilities and member’s equity

   $ 3,881,623      $ 204,573      $ 5      $ 22,315      $ 4,108,516   
    


 


 


 


 


 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

AS OF DECEMBER 31, 2009

(amounts in thousands)

 

     Issuers

    Guarantor
Subsidiaries


    Nonguarantor
Subsidiary


    Eliminating
Entries


    Total

 
ASSETS                                         

Current assets:

                                        

Cash and cash equivalents

   $ 65,998      $ 351      $ 5      $ —        $ 66,354   

Receivables, net

     110,860        —          —          —          110,860   

Inventories

     80,861        —          —          —          80,861   

Prepaid expenses and other

     24,864        323        —          —          25,187   
    


 


 


 


 


Total current assets

     282,583        674        5        —          283,262   

Property and equipment, net

     3,653,786        197,882        —          —          3,851,668   

Intangible assets, net

     8,731        6,144        —          —          14,875   

Deferred financing costs, net

     42,025        —          —          —          42,025   

Deposits and other assets

     58,733        —          —          —          58,733   

Investment in unconsolidated affiliates

     (16,450     3,761        —          16,450        3,761   
    


 


 


 


 


Total assets

   $ 4,029,408      $ 208,461      $ 5      $ 16,450      $ 4,254,324   
    


 


 


 


 


LIABILITIES AND MEMBER’S EQUITY                                         

Current liabilities:

                                        

Current portion of long-term debt

   $ —        $ 1,050      $ —        $ —        $ 1,050   

Accounts payable

     28,226        —          —          —          28,226   

Accrued interest

     17,595        —          —          —          17,595   

Accrued compensation and benefits

     36,342        1,179        —          —          37,521   

Gaming taxes payable

     7,111        —          —          —          7,111   

Other accrued expenses

     16,153        45        —          —          16,198   

Customer deposits

     101,340        167        —          —          101,507   

Due to affiliates, net

     (163,895     193,256        (7,881     —          21,480   
    


 


 


 


 


Total current liabilities

     42,872        195,697        (7,881     —          230,688   

Long-term debt

     2,514,420        37,100        —          —          2,551,520   

Due to affiliates

     82,339        —          —          —          82,339   

Interest rate swap

     4,224        —          —          —          4,224   
    


 


 


 


 


Total liabilities

     2,643,855        232,797        (7,881     —          2,868,771   
    


 


 


 


 


Commitments and contingencies

                                        

Member’s equity:

                                        

Contributed capital

     1,912,146        12,530        —          (12,530     1,912,146   

Retained earnings (deficit)

     (526,593     (36,866     7,886        28,980        (526,593
    


 


 


 


 


Total member’s equity

     1,385,553        (24,336     7,886        16,450        1,385,553   
    


 


 


 


 


Total liabilities and member’s equity

   $ 4,029,408      $ 208,461      $ 5      $ 16,450      $ 4,254,324   
    


 


 


 


 


 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

YEAR ENDED DECEMBER 31, 2010

(amounts in thousands)

 

     Issuers

    Guarantor
Subsidiaries


    Nonguarantor
Subsidiary


     Eliminating
Entries


    Total

 

Operating revenues:

                                         

Casino

   $ 534,286      $ —        $ —         $ —        $ 534,286   

Rooms

     308,368        42        —           —          308,410   

Food and beverage

     417,240        —          —           —          417,240   

Entertainment, retail and other

     214,312        —          —           (309     214,003   
    


 


 


  


 


Gross revenues

     1,474,206        42        —           (309     1,473,939   

Less: promotional allowances

     (177,383     —          —           —          (177,383
    


 


 


  


 


Net revenues

     1,296,823        42        —           (309     1,296,556   
    


 


 


  


 


Operating costs and expenses:

                                         

Casino

     288,263        —          —           —          288,263   

Rooms

     119,381        41        —           —          119,422   

Food and beverage

     256,234        —          —           —          256,234   

Entertainment, retail and other

     145,284        —          —           —          145,284   

General and administrative

     239,105        (1,118     —           (309     237,678   

Provision for doubtful accounts

     15,729        —          —           —          15,729   

Management fees

     19,459        —          —           —          19,459   

Pre-opening costs

     2,479        —          —           —          2,479   

Depreciation and amortization

     270,280        4,025        —           —          274,305   

Property charges and other

     19,017        —          —           —          19,017   
    


 


 


  


 


Total operating costs and expenses

     1,375,231        2,948        —           (309     1,377,870   
    


 


 


  


 


Operating loss

     (78,408     (2,906     —           —          (81,314
    


 


 


  


 


Other income (expense):

                                         

Interest and other income

     408        —          —           —          408   

Interest expense, net of capitalized interest

     (192,806     (638     —           —          (193,444

Decrease in swap fair value

     (4,233     —          —           —          (4,233

Loss on extinguishment of debt/exchange offer

     (70,055     —          —           —          (70,055

Equity in income (loss) from unconsolidated affiliates

     (3,235     309                 3,235        309   
    


 


 


  


 


Other income (expense), net

     (269,921     (329     —           3,235        (267,015
    


 


 


  


 


Net (loss) income

   $ (348,329   $ (3,235   $ —         $ 3,235      $ (348,329
    


 


 


  


 


 

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WYNN LAS VEGAS, LLC AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

(A WHOLLY OWNED INDIRECT SUBSIDIARY OF WYNN RESORTS, LIMITED)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

YEAR ENDED DECEMBER 31, 2009

(amounts in thousands)

 

     Issuers

    Guarantor
Subsidiaries


    Nonguarantor
Subsidiary


     Eliminating
Entries


     Total

 

Operating revenues:

                                          

Casino

   $ 505,779      $ —        $ —         $ —         $ 505,779   

Rooms

     321,075        75        —           —           321,150   

Food and beverage

     385,774        —          —           —           385,774   

Entertainment, retail and other

     202,972        —          —           427         203,399   
    


 


 


  


  


Gross revenues

     1,415,600        75        —           427         1,416,102   

Less: promotional allowances

     (185,982     —          —           —           (185,982