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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31, 2013

OR

 

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

For the transition period from              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 No.)

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)

 

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

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  x    No  ¨

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 the definitions 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 Rule12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Wynn Resorts Holdings, LLC owns all of the membership interests of the Registrant as of May 10, 2013.

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

 

 

 


Table of Contents

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

INDEX

 

Part I. Financial Information

  
    Item 1.    Financial Statements   
  

Condensed Consolidated Balance Sheets (unaudited) – March 31, 2013 and December 31, 2012

     3   
  

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) – Three months ended March 31, 2013 and 2012

     4   
  

Condensed Consolidated Statements of Cash Flows (unaudited) – Three months ended March 31, 2013 and 2012

     5   
  

Notes to Condensed Consolidated Financial Statements (unaudited)

     6   
    Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      15   
    Item 3.    Quantitative and Qualitative Disclosures About Market Risk      21   
    Item 4.    Controls and Procedures      21   

Part II. Other Information

  
    Item 1A.    Risk Factors      21   
    Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      21   
    Item 5.    Other Information      22   
    Item 6.    Exhibits      23   
    Signature      24   

 

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Table of Contents

Part I – FINANCIAL INFORMATION

Item  1. Financial Statements

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

(unaudited)

 

     March 31,
2013
    December 31,
2012
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 170,455      $ 148,415   

Receivables, net

     157,543        162,395   

Inventories

     44,112        42,229   

Prepaid expenses and other

     27,172        26,697   
  

 

 

   

 

 

 

Total current assets

     399,282        379,736   

Property and equipment, net

     3,165,978        3,215,605   

Intangible assets, net

     1,744        2,262   

Deferred financing costs, net

     39,711        40,871   

Deposits and other assets

     28,356        27,489   

Investment in unconsolidated affiliates

     3,523        3,918   
  

 

 

   

 

 

 

Total assets

   $ 3,638,594      $ 3,669,881   
  

 

 

   

 

 

 
LIABILITIES AND MEMBER’S EQUITY     

Current liabilities:

    

Current portion of long-term debt

   $ 1,050      $ 1,050   

Accounts payable

     35,591        39,431   

Accrued interest

     43,744        64,048   

Accrued compensation and benefits

     51,272        45,580   

Gaming taxes payable

     15,285        14,023   

Other accrued liabilities

     23,554        21,813   

Customer deposits

     84,601        106,243   

Due to affiliates, net

     51,617        37,755   
  

 

 

   

 

 

 

Total current liabilities

     306,714        329,943   

Long-term debt

     3,125,442        3,125,424   

Due to affiliates, net

     152,140        146,345   

Other

     1,347        1,084   
  

 

 

   

 

 

 

Total liabilities

     3,585,643        3,602,796   
  

 

 

   

 

 

 

Commitments and contingencies (Note 9)

    

Member’s equity:

    

Contributed capital

     1,194,362        1,192,135   

Accumulated deficit

     (1,141,411     (1,125,050
  

 

 

   

 

 

 

Total member’s equity

     52,951        67,085   
  

 

 

   

 

 

 

Total liabilities and member’s equity

   $ 3,638,594      $ 3,669,881   
  

 

 

   

 

 

 

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

 

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Table of Contents

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands)

(unaudited)

 

     Three Months Ended
March 31,
 
     2013     2012  

Operating revenues:

    

Casino

   $ 176,251      $ 157,693   

Rooms

     91,545        87,374   

Food and beverage

     115,449        108,946   

Entertainment, retail and other

     49,693        56,315   
  

 

 

   

 

 

 

Gross revenues

     432,938        410,328   

Less: promotional allowances

     (46,099     (47,181
  

 

 

   

 

 

 

Net revenues

     386,839        363,147   
  

 

 

   

 

 

 

Operating costs and expenses:

    

Casino

     83,768        78,930   

Rooms

     32,219        29,225   

Food and beverage

     69,874        65,325   

Entertainment, retail and other

     28,111        37,074   

General and administrative

     59,057        55,217   

Provision for doubtful accounts

     3,232        4,363   

Management fees

     5,795        5,451   

Depreciation and amortization

     61,610        63,418   

Property charges and other

     2,754        3,718   
  

 

 

   

 

 

 

Total operating costs and expenses

     346,420        342,721   
  

 

 

   

 

 

 

Operating income

     40,419        20,426   
  

 

 

   

 

 

 

Other income (expense):

    

Interest income and other

     28        37   

Interest expense

     (56,757     (52,147

Increase in swap fair value

     —          969   

Loss on retirement of debt

     —          (4,828

Equity in income (loss) from unconsolidated affiliates

     (51     113   
  

 

 

   

 

 

 

Other expense, net

     (56,780     (55,856
  

 

 

   

 

 

 

Net loss

     (16,361     (35,430

Other comprehensive income

     —          —     
  

 

 

   

 

 

 

Total comprehensive loss

   $ (16,361   $ (35,430
  

 

 

   

 

 

 

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

 

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Table of Contents

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

     Three Months Ended
March 31,
 
     2013     2012  

Cash flows from operating activities:

    

Net loss

   $ (16,361   $ (35,430

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

    

Depreciation and amortization

     61,610        63,418   

Stock-based compensation

     2,227        1,371   

Amortization and write-off of deferred financing costs, and other

     2,175        4,047   

Equity in income of unconsolidated affiliates, net of distributions

     395        (112

Loss on retirement of debt

     —          4,828   

Provision for doubtful accounts

     3,232        4,363   

Property charges and other

     465        2,939   

Increase in swap fair value

     —          (969

Increase (decrease) in cash from changes in:

    

Receivables

     1,620        1,417   

Inventories and prepaid expenses and other

     (2,358     (907

Accounts payable and accrued expenses

     (40,075     (20,698

Due to affiliates, net

     10,127        7,397   
  

 

 

   

 

 

 

Net cash provided by operating activities

     23,057        31,664   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures, net of construction payables and retention

     (8,946     (15,140

Deposits and purchase of other assets

     (2,175     (1,033

Due to affiliates, net

     10,268        5,325   

Proceeds from sale of assets

     186        277   
  

 

 

   

 

 

 

Net cash used in investing activities

     (667     (10,571
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of long-term debt

     —          900,000   

Principal payments on long-term debt

     (350     (371,217

Payments of deferred financing costs

     —          (10,665
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (350     518,118   
  

 

 

   

 

 

 

Cash and cash equivalents:

    

Increase in cash and cash equivalents

     22,040        539,211   

Balance, beginning of period

     148,415        201,399   
  

 

 

   

 

 

 

Balance, end of period

   $ 170,455      $ 740,610   
  

 

 

   

 

 

 

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

 

5


Table of Contents

WYNN LAS VEGAS, LLC AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     Organization and Basis of Presentation

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 I Encore (“Wynn Las Vegas”), a fully integrated destination resort and casino on the “Strip” in Las Vegas, Nevada.

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 March 31, 2013, 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”.

Basis of Presentation

The accompanying condensed 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.

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods have been made. The results for the three months ended March 31, 2013 are not necessarily indicative of results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

2.     Summary of Significant Accounting Policies

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. As of March 31, 2013 and December 31, 2012,

 

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approximately 79% and 78% respectively, of the Company’s markers were due from customers residing in foreign countries, 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 or after two years, whichever period is shorter. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is maintained to reduce the Company’s receivables to their estimated 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, 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.

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 includes rental income which is recognized on a time proportion basis over the lease term. Contingent rental income is recognized when the right to receive such rental income is established according to the lease agreements. Advance deposits on rooms and advance ticket sales are recorded as deferred revenues until services are provided to the customer.

Revenues are recognized net of certain sales incentives which are recorded as a reduction of revenue. Consequently, the Company’s casino revenues are reduced by discounts and points earned in the players club loyalty program.

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenue 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):

 

     Three Months Ended
March 31,
 
     2013      2012  

Rooms

   $ 9,427       $ 8,985   

Food and beverage

     15,436         15,414   

Entertainment, retail and other

     3,051         3,817   
  

 

 

    

 

 

 
   $ 27,914       $ 28,216   
  

 

 

    

 

 

 

Gaming Taxes

The Company is subject to taxes based on gross gaming revenues, subject to applicable adjustments. These gaming taxes are an assessment on the Company’s gaming revenues and are recorded as an expense within the “Casino” line item in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. These taxes totaled $12.5 million and $11 million for the three months ended March 31, 2013 and 2012, respectively.

 

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Table of Contents

Advertising Costs

The Company expenses advertising costs the first time the advertising takes place and such costs are primarily included in general and administrative expenses. Advertising costs totaled $5.3 million and $3.9 million for the three months ended March 31, 2013 and 2012, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation related to equity shares of Wynn Resorts granted to its employees by recognizing the costs of the employee services received in exchange for the equity award instrument based on the grant date fair value of the awards over the service period. For the three months ended March 31, 2013 and 2012, the Company recorded $2.2 million and $1.4 million, respectively, in share-based compensation with a corresponding credit to contributed capital.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that amends the presentation requirements for reclassifications out of accumulated other comprehensive income. The amendment would require an entity to present amounts reclassified out of accumulated other comprehensive income by component either on the face of the statement where net income is presented or in the notes. This update is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on the Company’s financial statements.

In July 2012, the FASB issued an accounting standards update that is intended to simplify the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The update allows for the consideration of qualitative factors in determining whether it is necessary to perform quantitative impairment tests. The effective date for this update is for the annual, and interim impairment tests performed for years beginning after September 15, 2012. The adoption of this update did not have a material impact on the Company’s financial statements.

3.     Supplemental Disclosure of Cash Flow Information

Interest paid for the three months ended March 31, 2013 and 2012 totaled $75.5 million and $55.8 million, respectively. Interest paid increased during the three months ended March 31, 2013 due to the issuance of the $900 million 5 3/8% First Mortgage Notes in March 2012. There was no interest capitalized during the three months ended March 31, 2013 or 2012.

During the three months ended March 31, 2013 and 2012, capital expenditures include a decrease of $0.7 million and $4.8 million respectively, in construction payables and retention recorded through amounts due to affiliates.

4.     Receivables, net

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

 

     March 31,
2013
    December 31,
2012
 

Casino

   $ 186,379      $ 190,528   

Hotel

     15,003        16,914   

Retail leases and other

     19,628        19,234   
  

 

 

   

 

 

 
     221,010        226,676   

Less: allowance for doubtful accounts

     (63,467     (64,281
  

 

 

   

 

 

 
   $ 157,543      $ 162,395   
  

 

 

   

 

 

 

 

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5.     Property and Equipment, net

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

 

     March 31,
2013
    December 31,
2012
 

Land and improvements

   $ 622,942      $ 622,942   

Buildings and improvements

     2,626,882        2,626,384   

Airplane

     44,364        44,364   

Furniture, fixtures and equipment

     1,339,238        1,336,661   

Construction in progress

     6,538        2,518   
  

 

 

   

 

 

 
     4,639,964        4,632,869   

Less: accumulated depreciation

     (1,473,986     (1,417,264
  

 

 

   

 

 

 
   $ 3,165,978      $ 3,215,605   
  

 

 

   

 

 

 

6.     Long-Term Debt

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

 

     March 31,
2013
    December 31,
2012
 

7 7/8% First Mortgage Notes, due November 1, 2017, net of original issue discount of $7,069 at March 31, 2013 and $7,384 at December 31, 2012

   $ 492,931      $ 492,616   

7 7/8% First Mortgage Notes, due May 1, 2020, net of original issue discount of $2,049 at March 31, 2013 and $2,102 at December 31, 2012

     349,961        349,908   

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

     1,320,000        1,320,000   

5 3/8% First Mortgage Notes, due March 15, 2022

     900,000        900,000   

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

     33,600        33,950   

Payable to Affiliate

     30,000        30,000   
  

 

 

   

 

 

 
     3,126,492        3,126,474   

Current portion of long-term debt

     (1,050     (1,050
  

 

 

   

 

 

 
   $ 3,125,442      $ 3,125,424   
  

 

 

   

 

 

 

Debt Covenant Compliance

As of March 31, 2013, management believes the Company was in compliance with all debt covenants.

Fair Value of Long-term Debt

The net book value of the Company’s outstanding first mortgage notes was approximately $3.1 billion at March 31, 2013 and December 31, 2012. The estimated fair value of the Company’s outstanding first mortgage notes, based upon the most recent trades, was approximately $3.4 billion at March 31, 2013 and December 31, 2012. The net book value and estimated fair value of the Company’s other debt instruments was approximately $33.6 million and $34 million at March 31, 2013 and December 31, 2012, respectively.

 

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7.     Related Party Transactions

Amounts Due to Affiliates, net

As of March 31, 2013, the Company’s current Due to affiliates, net was comprised of $48.2 million including corporate allocations discussed below and $3.4 million of construction related payables. The long-term Due to affiliates consisted of management fees of $152.1 million (equal to 1.5% of net revenues and payable upon meeting certain leverage ratios as specified in the documents governing the Company’s first mortgage notes indentures).

As of December 31, 2012, the Company’s current Due to affiliates, net was comprised of $33.7 million including corporate allocations discussed below and $4.1 million of construction related payables. The long-term Due to affiliates consisted of management fees of $146.3 million.

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 first mortgage notes.

Corporate Allocations

The accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss include allocations from Wynn Resorts for legal, accounting, human resources, 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. The Company settles these corporate allocation charges with Wynn Resorts on a periodic basis as discussed in “Amounts Due to Affiliates, net” above. For the three months ended March 31, 2013 and 2012, $6.2 million and $6.7 million, respectively, were charged to the Company for such corporate allocations.

Due to Officers

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 18, 2010, Mr. Wynn and Wynn Las Vegas entered into an Amended and Restated Agreement of Lease (the “Existing SW Lease”) for a villa suite to serve as Mr. Wynn’s personal residence. The Existing SW Lease amends and restates a prior lease. The Existing SW Lease was approved by the Audit Committee of the Board of Directors of Wynn Resorts. The term of the Existing SW Lease commenced as of March 1, 2010 and runs concurrent with Mr. Wynn’s employment agreement with Wynn Resorts; provided that either party may terminate on 90 days notice. Pursuant to the Existing SW Lease, the rental value of the villa suite is treated as imputed income to Mr. Wynn, and is 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 Existing SW Lease, the rental value was $503,831 per year. Effective March 1, 2012, the rental value was $440,000 per year. On May 7, 2013, Wynn Las Vegas entered into a 2013 Amended and Restated Agreement of Lease (the “New SW Lease”), effective December 29, 2012, to include an expansion of the villa and to adjust the rental value accordingly to $525,000 per year based on the current fair market value as established by the Audit Committee of Wynn Resorts with the assistance of an independent third-party appraisal. The rental value for the villa suite will be re-determined every two years during the term of the lease by the Audit Committee of Wynn Resorts. Certain services for, and maintenance of, the villa suite, as well as minimal warehouse space are included in the rental.

 

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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.

Golf Course Lease

On September 18, 2012, the Company distributed to Wynn Resorts, Limited, the Wynn Las Vegas golf course land and the related water rights. Commencing September 18, 2012, the Company leases approximately 140 acres (upon which the golf course is located) and water rights from Wynn Resorts. The term of this lease is on a month-to-month basis provided, however, that either party may terminate this lease by providing written notice of such termination to the other party no later than thirty (30) days prior to the expiration of any monthly period. The combined rental value for both the golf course land and the water rights is $598,000 per month.

Aircraft Purchase Option Agreement

On January 3, 2013, Wynn Resorts and Mr. Wynn entered into an agreement pursuant to which Mr. Wynn agreed to terminate a previously granted option to purchase an approximately two acre tract of land located on the Wynn Las Vegas golf course and, in return, Wynn Resorts granted Mr. Wynn the right to purchase any or all of the aircraft owned by the Company. The aircraft purchase option is exercisable upon 30 days written notice and at a price equal to the book value of such aircraft, and will terminate on the date of termination of the employment agreement between Wynn Resorts and Mr. Wynn, which expires in October 2020.

8.     Property Charges and Other

Property charges generally include costs related to the retirement of assets for remodels and asset abandonments. Property charges and other for the three months ended March 31, 2013 and 2012 were $2.8 million and $3.7 million, respectively, which included miscellaneous renovations and abandonments at our resort and entertainment development costs.

9.     Commitments and Contingencies

Litigation

The Company and its affiliates 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.

Determination of Unsuitability and Redemption of Aruze USA, Inc. and Affiliates

On February 18, 2012, the Gaming Compliance Committee of Wynn Resorts, Ltd. concluded an investigation after receiving an independent report by Freeh, Sporkin & Sullivan, LLP (the “Freeh Report”) detailing a pattern of misconduct by Aruze USA, Inc., at the time a stockholder of Wynn Resorts, Universal Entertainment Corporation, Aruze USA, Inc.’s parent company, and Kazuo Okada, the majority shareholder of Universal Entertainment Corporation, who at the time was a director of Wynn Resorts and two of its subsidiaries (collectively, the “Okada Parties”). The factual record presented in the Freeh Report included evidence that the Okada Parties had provided valuable items to certain foreign gaming officials who were responsible for regulating gaming in a jurisdiction in

 

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which entities controlled by Mr. Okada were developing a gaming resort. Mr. Okada denied the impropriety of such conduct to members of the Board of Directors of Wynn Resorts, refused to acknowledge or abide by Wynn Resorts’ anti-bribery policies and refused to participate in the training all other directors received concerning these policies.

Based on the Freeh Report, the Board of Directors of Wynn Resorts determined that each of the Okada Parties are “unsuitable persons” under Article VII of Wynn Resorts’ articles of incorporation. The Board of Directors was unanimous (other than Mr. Okada) in its determination. The Board of Directors also requested that Mr. Okada resign as a director of Wynn Resorts (under Nevada corporation law, a board of directors does not have the power to remove a director) and recommended that Mr. Okada be removed as a member of the Board of Directors of Wynn Macau, Limited. On February 18, 2012, Mr. Okada was removed from the Board of Directors of Wynn Las Vegas Capital Corp., an indirect wholly owned subsidiary of Wynn Resorts, and on February 24, 2012, he was removed from the Board of Directors of Wynn Macau, Limited. On February 22, 2013, Mr. Okada was removed from the Board of Directors of Wynn Resorts by a stockholder vote in which 99.6% of the over 86 million shares voted were cast in favor of removal. Additionally, Mr. Okada resigned from the Board of Directors of Wynn Resorts on February 21, 2013.

Based on the Board of Directors’ finding of “unsuitability,” on February 18, 2012, Wynn Resorts redeemed and cancelled Aruze USA, Inc.’s 24,549,222 shares of Wynn Resorts’ common stock. Following a finding of “unsuitability,” Article VII of Wynn Resorts’ articles of incorporation authorizes redemption at “fair value” of the shares held by unsuitable persons. Pursuant to the articles of incorporation, Wynn Resorts issued the Redemption Note to Aruze USA, Inc. in redemption of the shares. The Redemption Note has a principal amount of $1.94 billion, matures on February 18, 2022 and bears interest at the rate of 2% per annum, payable annually in arrears on each anniversary of the date of the Redemption Note. The indebtedness evidenced by the Redemption Note is and shall be subordinated in right of payment, to the extent and in the manner provided in the Redemption Note, to the prior payment in full of all existing and future obligations of Wynn Resorts or any of its affiliates in respect of indebtedness for borrowed money of any kind or nature.

Wynn Resorts provided the Freeh Report to appropriate regulators and law enforcement agencies and is cooperating with related investigations that such regulators and agencies have undertaken. The conduct of the Okada Parties and any resulting regulatory investigations could have adverse consequences to Wynn Resorts and its subsidiaries. A finding by regulatory authorities that Mr. Okada violated anti-corruption statutes and/or other laws or regulations applicable to persons affiliated with a gaming licensee on Wynn Resorts’ property and/or otherwise involved Wynn Resorts in criminal or civil violations could result in actions by regulatory authorities against Wynn Resorts and its subsidiaries.

Claims and Investigations Related to Mr. Okada and Wynn Macau

On February 19, 2012, Wynn Resorts filed a complaint in the Eighth Judicial District Court, Clark County, Nevada against the Okada Parties, alleging breaches of fiduciary duty and related claims (the “Redemption Action”) arising from the activities addressed in the Freeh Report. Wynn Resorts is seeking compensatory and special damages as well as a declaration that it acted lawfully and in full compliance with its articles of incorporation, bylaws and other governing documents in redeeming and cancelling the shares of Aruze, USA, Inc.

On March 12, 2012, the Okada Parties removed the action to the United States District Court for the District of Nevada (the action was subsequently remanded to Nevada state court). On that same date, the Okada Parties filed an answer denying the claims and a counterclaim (as amended, the “Counterclaim”) that purports to assert claims against Wynn Resorts, each of the members of Wynn Resorts’ Board of Directors (other than Mr. Okada) and Wynn Resorts’ General Counsel (the “Wynn Parties”). The Counterclaim alleges, among other things: (1) that the shares of Wynn Resorts common stock owned by Aruze USA, Inc. were exempt from the redemption-for-unsuitability provisions in the Wynn Resorts articles of incorporation (the “Articles”) pursuant to certain agreements executed in 2002; (2) that the Wynn Resorts directors who authorized the redemption of

 

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Aruze USA, Inc.’s shares acted at the direction of Stephen A. Wynn and did not independently and objectively evaluate the Okada Parties’ suitability, and by so doing, breached their fiduciary duties; (3) that the Wynn Resorts directors violated the terms of the Wynn Resorts Articles by failing to pay Aruze USA, Inc. fair value for the redeemed shares; and (4) that the terms of the Redemption Note that Aruze USA, Inc. received in exchange for the redeemed shares, including the Redemption Note’s principal amount, duration, interest rate, and subordinated status, were unconscionable; and (5) that the actions taken by the Wynn Resorts CEO and General Counsel violated the Nevada Racketeer Influenced and Corrupt Organizations Act. Among other relief, the Counterclaim seeks a declaration that the redemption of Aruze USA, Inc.’s shares was void, an injunction restoring Aruze USA, Inc.’s share ownership, damages in an unspecified amount and rescission of the Amended and Restated Stockholders Agreement, dated as of January 6, 2010, by and among Aruze USA, Inc., Stephen A. Wynn, and Elaine Wynn (the “Stockholders Agreement”).

On June 19, 2012, Elaine Wynn responded to the Counterclaim and asserted a cross claim against Steve Wynn and Kazuo Okada seeking a declaration that (1) any and all of Elaine Wynn’s duties under the Stockholders Agreement be discharged; (2) the Stockholders Agreement is subject to rescission and is rescinded; (3) the Stockholders Agreement is an unreasonable restraint on alienation in violation of public policy; and/or (4) the restrictions on sale of shares shall be construed as inapplicable to Elaine Wynn. Mr. Wynn filed his answer to Elaine Wynn’s cross claim on September 24, 2012. The indentures for the Wynn Las Vegas, LLC first mortgage notes (the “Indentures”) provide that if Steve Wynn, together with certain related parties, in the aggregate beneficially owns a lesser percentage of the outstanding common stock of Wynn Resorts than are beneficially owned by any other person, a change of control will have occurred. If Elaine Wynn prevails in her cross claim, Steve Wynn would not beneficially own or control Elaine Wynn’s shares and a change in control may result under the Company’s debt documents. Under the Indentures, the occurrence of a change of control requires that the Company make an offer (unless the notes have been previously called for redemption) to each holder to repurchase all or any part of such holder’s Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest on the Notes purchased, if any, to the date of repurchase.

Wynn Resorts’ complaint, as amended, and the Okada Parties’ counterclaim, as amended, were challenged at the pleading stage through motion practice. At a hearing held on November 13, 2012, the Nevada state court denied the Wynn Parties’ motion to dismiss the Counterclaim, but dismissed the Okada Parties’ claim that related to the Nevada Racketeer Influenced and Corrupt Organizations Act. At a hearing held on January 15, 2013, the court denied the Okada Parties’ motion to dismiss Wynn Resorts’ amended complaint. On April 22, 2013, Wynn Resorts filed a second amended complaint. The parties have been engaged in discovery.

On April 8, 2013, the United States Attorney’s Office and the U.S. Department of Justice filed a Motion to Intervene and for Temporary and Partial Stay of Discovery in the Redemption Action. The motion states that the federal government has been conducting a criminal investigation of the Okada Parties involving the “same underlying allegations of misconduct—that is, potential violations of the Foreign Corrupt Practice Act and related fraudulent conduct—that form the basis of” Wynn Resorts’ complaint, as amended, in the Redemption Action. The motion sought to stay all discovery in the Redemption Action related to the Okada Parties’ allegedly unlawful activities in connection with their Philippine Casino Project until the conclusion of the criminal investigation and any resulting criminal prosecution, with an interim status update to the court in six months. At a hearing on May 2, 2013, the court granted the motion and ordered that all discovery in the Redemption Action be stayed for a period of six months.

In May 2011, Wynn Macau, a majority owned subsidiary of Wynn Resorts, made a commitment to the University of Macau Development Foundation in support of the new Asia-Pacific Academy of Economics and Management. This contribution consists of a $25 million payment made in May 2011 and a commitment for additional donations of $10 million each year for the calendar years 2012 through 2022 inclusive. The pledge was consistent with Wynn Resorts’ long-standing practice of providing philanthropic support for deserving institutions in the markets in which it operates. The pledge was made following an extensive analysis which

 

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concluded that the gift was made in accordance with all applicable laws. The pledge was considered by the boards of directors of both Wynn Resorts and Wynn Macau, Limited and approved by 15 of the 16 directors who served on those boards. The sole dissenting vote was cast by Mr. Okada whose stated objection was to the length of time over which the donation would occur, not its propriety. Mr. Okada has filed various lawsuits against Wynn Resorts relating to Wynn Resorts’ donation to the University of Macau and alleging that it was improper.

On February 8, 2012, following the initiation of Mr. Okada’s litigation against Wynn Resorts regarding Wynn Macau’s donation to the University of Macau Development Foundation, Wynn Resorts received a letter from the Salt Lake Regional Office of the SEC requesting that, in connection with an informal inquiry by the SEC, Wynn Resorts preserve information relating to the donation to the University of Macau, any donations by Wynn Resorts to any other educational charitable institutions, including the University of Macau Development Foundation, and Wynn Resorts’ casino or concession gaming licenses or renewals in Macau. Wynn Resorts is fully cooperating with the Salt Lake Regional Office staff.

In February 2013, the Nevada Gaming Control Board informed Wynn Resorts that it had completed an investigation of allegations made by Mr. Okada against Wynn Resorts regarding the activities of Mr. Wynn and related entities in Macau and found no violations of the Gaming Control Act or the Nevada Gaming Commission Regulations.

In the U.S. Department of Justice’s Motion to Intervene and for Temporary and Partial Stay of Discovery in the Redemption Action, the Department of Justice states in a footnote that the government also has been conducting a criminal investigation into Wynn Resorts’ donation to the University of Macau discussed above. Wynn Resorts has not received any target letter or subpoena in connection with such an investigation. Wynn Resorts intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau.

Other regulators may pursue separate investigations into Wynn Resorts’ compliance with applicable laws arising from the allegations in the matters described above and in response to the Counterclaim and other litigation filed by Mr. Okada suggesting improprieties in connection with the donation to the University of Macau. While Wynn Resorts believes that it is in full compliance with all applicable laws, any such investigations could result in actions by regulators against Wynn Resorts or its subsidiaries.

For additional information regarding the proceedings discussed above and related proceedings see Part II, Item 1 of the Quarterly Report on Form 10-Q filed by Wynn Resorts for the quarter ended March 31, 2013.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references herein to the “Company,” “we,” “us” or “our,” or similar terms, refer to Wynn Las Vegas, LLC, a Nevada limited liability company and its consolidated subsidiaries.

Forward-Looking Statements

We make forward-looking statements in this Quarterly Report on Form 10-Q based upon the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include, but are not limited to, information about our business strategy, development activities, competition and possible or assumed future results of operations, throughout this report and are often preceded by, followed by or include the words “may,” “will,” “should,” “would,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “continue” or the negative of these terms or similar expressions.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those we express in these forward-looking statements. These include the risks and uncertainties in Item 1A – Risk Factors and other risk factors we describe from time to time in our periodic filings with the SEC as well as the following:

 

   

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

 

   

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

 

   

our dependence on Stephen A. Wynn and existing management;

 

   

pending or future legal proceedings;

 

   

regulatory or enforcement actions;

 

   

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

 

   

competition in the casino/hotel and resort industries and actions taken by our competitors;

 

   

fluctuations in occupancy rates and average daily room rates;

 

   

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

 

   

new development and construction activities of competitors;

 

   

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

 

   

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);

 

   

general global macroeconomic conditions;

 

   

decreases in levels of travel, leisure and consumer spending;

 

   

continued high unemployment;

 

   

cyber security risk including misappropriation of customer information or other breaches of information security;

 

   

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

 

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the consequences of military conflicts and any future security alerts and/or terrorist attacks.

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.

Overview

We are a developer, owner and operator of destination casino resorts. We currently own and operate Wynn Las Vegas I Encore (“Wynn Las Vegas”), a fully integrated destination casino resort in Las Vegas, Nevada. Wynn Las Vegas, located at the intersection of the Las Vegas Strip and Sands Avenue, occupies approximately 215 acres of land (of which approximately 140 acres comprise the Wynn Las Vegas golf course) fronting the Las Vegas Strip and 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. Commencing September 18, 2012, when the golf course land and related water rights were distributed to Wynn Resorts, we lease approximately 140 acres (upon which the golf course is located) and water rights from Wynn Resorts.

Our Las Vegas resort complex features:

 

   

Approximately 186,000 square feet of casino space, offering 24-hour gaming and a full range of games, including private gaming salons, a sky casino, a poker room, and a race and sports book;

 

   

Two luxury hotel towers with a total of 4,748 spacious hotel rooms, suites and villas;

 

   

35 food and beverage outlets featuring signature chefs;

 

   

A Ferrari and Maserati automobile dealership;

 

   

Approximately 284,000 square feet of meeting and convention space;

 

   

Approximately 95,000 square feet of high-end, brand-name retail shopping, including stores and boutiques by Alexander McQueen, Brioni, Cartier, Chanel, Chloé, Chopard, Dior, Graff, Hermes, IWC Schaffhausen, Jaeger LeCoultre, Loro Piana, Louis Vuitton, Manolo Blahnik, Oscar de la Renta, Piaget, Rolex, Vertu and others;

 

   

Recreation and leisure facilities, including an 18-hole golf course, swimming pools, private cabanas and two full service spas and salons;

 

   

Two showrooms; and

 

   

Three nightclubs and a beach club.

Construction and Future Development

In response to our evaluation of our property and the reactions of our guests, we have and expect to continue to remodel and make enhancements and refinements to our resort complex.

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 this resort complex for our operating cash flow. Concentration of our cash flow in one resort complex 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 in a single resort complex, many of our customers are premium gaming customers who wager on credit, thus exposing us to credit risk. High-end gaming also increases the potential for variability in our results.

 

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We recorded a net loss for the three months ended March 31, 2013 of $16.4 million, compared to a net loss of $35.4 million recorded for the three months ended March 31, 2012. Our results for the three months ended March 31, 2013 were benefitted by improved profits primarily in the casino department ($13.7 million) where we experienced a higher table games win percentage as well as in the food and beverage department.

Certain key operating statistics specific to the gaming industry are included in our discussions of the Company’s operational performance for the periods in which a Condensed Consolidated Statement of Operations and Comprehensive Loss is presented. Below are definitions of the 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 (representing the total amount wagered) that is retained and is recorded as casino revenue.

 

   

Average Daily Rate (“ADR”) is calculated by dividing total room revenue including promotional allowances (less service charges, if any) by total rooms occupied including complimentary rooms.

 

   

Revenue per Available Room (“REVPAR”) is calculated by dividing total room revenue including promotional allowances (less service charges, if any) by total rooms available.

 

   

Occupancy is calculated by dividing total occupied rooms, including complimentary rooms, by total rooms available.

Financial results for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

Revenues

Net revenues for the three months ended March 31, 2013, are composed of $176.3 million in casino revenues (45.6% of total net revenues) and $210.5 million of net non-casino revenues (54.4% of total net revenues). Net revenues for the three months ended March 31, 2012, were comprised of $157.7 million in casino revenues (43.4% of total net revenues) and $205.4 million of net non-casino revenues (56.6% 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 $18.6 million (11.8%) to $176.3 million for the three months ended March 31, 2013, compared to $157.7 million for the three months ended March 31, 2012, due to a significant increase in our table games win percentage (before discounts). Our table games win percentage for the three months ended March 31, 2013, was 26.7%, which was above the expected range of 21% to 24%; and was significantly higher than the 22.8% experienced in the prior year quarter. Table games drop increased $14.4 million (2.2%) to $668.9 million during the three months ended March 31, 2013, compared to $654.5 million for the three months ended March 31, 2012. Slot machine handle decreased $22.3 million (3.1%) to $696.6 million compared to $718.9 million in the prior year quarter. Slot machine win of $42.3 million was 1.7% lower than the $43 million achieved in the quarter ended March 31, 2012.

For the three months ended March 31, 2013, room revenues were $91.5 million, which represents a $4.1 million (4.8%) increase over the $87.4 million generated in the three months ended March 31, 2012. Room revenue increased primarily due to higher occupancy rate and ADR. See the table below for key operating measures related to our room revenue.

 

     Three Months
Ended March 31,
 
     2013     2012  

Average Daily Rate

   $ 258      $ 255   

Occupancy

     82.9     79.3

REVPAR

   $ 214      $ 202   

 

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Other non-gaming revenues for the three months ended March 31, 2013, included food and beverage revenues of $115.4 million, retail revenues of $19.9 million, entertainment revenues of $15.2 million, and other revenues from outlets, including the spa and salon, of $14.6 million. Other non-casino revenues for the three months ended March 31, 2012, included: food and beverage revenues of $108.9 million, retail revenues of $20.1 million, entertainment revenues of $21.1 million, and other revenues from outlets such as the spa and salon, of $15.1 million. Food and beverage revenues increased primarily due to strong business in our restaurants and nightclubs. Entertainment revenues decreased due to a show that ended its run in November 2012.

Departmental, Administrative and Other Expenses

For the three months ended March 31, 2013, departmental expenses included casino expenses of $83.8 million, room expense of $32.2 million, food and beverage expenses of $69.9 million, and entertainment, retail and other expenses of $28.1 million. Also included are general and administrative expenses of $59.1 million and a $3.2 million charge to provision for doubtful accounts receivable. For the three months ended March 31, 2012, departmental expenses included casino expense of $78.9 million, room expense of $29.2 million, food and beverage expense of $65.3 million, and entertainment, retail and other expense of $37.1 million. Also included are general and administrative expenses of approximately $55.2 million and approximately $4.4 million charged as a provision for doubtful accounts receivable. Food and beverage expenses increased over prior year quarter primarily due to additional nightclub promotional costs. Entertainment, retail and other expenses decreased primarily due to a show that ended its run in November 2012. General and administrative expenses increased primarily due to higher advertising costs and intercompany golf course and water rights lease expense that began in September 2012.

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 the first mortgage notes indentures. Management fees were $5.8 million for the three months ended March 31, 2013, compared to $5.5 million for the three months ended March 31, 2012.

Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2013 was $61.6 million compared to $63.4 million for the three months ended March 31, 2012.

Property charges and other

Property charges and other for the three months ended March 31, 2013 were $2.8 million compared to $3.7 million for the three months ended March 31, 2012. Property charges and other for the three months ended March 31, 2013 and 2012 related to miscellaneous renovations and abandonments at our resort complex and entertainment development costs.

In response to our evaluation of our resort complex and the reactions of our guests, we continue to make enhancements and refinements. 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 $56.8 million for the three months ended March 31, 2013, compared to $52.1 million for the three months ended March 31, 2012. No interest was capitalized during the quarter ended March 31, 2013 or 2012. Interest expense increased approximately $4.7 million primarily due to the issuance of the $900 million 5 3/8% first mortgage notes in March 2012, offset by the termination of all term loans under the Wynn Las Vegas Credit Agreement.

 

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On March 12, 2012, we entered into an eighth amendment to our Amended and Restated Credit Agreement (the “Wynn Las Vegas Credit Agreement”). In connection with this amendment we prepaid all term loans under the Wynn Las Vegas Credit Agreement, terminated all of our revolving credit commitments that were due to expire in 2013, and terminated all but $100 million of our revolving credit commitments expiring in 2015. In connection with this transaction, we expensed deferred financing costs of $4.8 million.

Liquidity and Capital Resources

Cash Flow from Operations

Our operating cash flows primarily consist of our operating income generated by our resort complex (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 premium international customers that gamble on credit. The ability to collect these gaming receivables may impact our operating cash flow for the period. Our rooms, food and beverage, and entertainment, retail, and other revenue is conducted 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 three months ended March 31, 2013, was $23.1 million compared to $31.7 million provided by operations for the three months ended March 31, 2012. This decrease was driven by higher interest payments and other ordinary working capital changes such as accrued expenses and accounts payable.

Investing Activities

Capital expenditures were approximately $8.9 million and $15.1 million for the three months ended March 31, 2013 and 2012, and related primarily to general property maintenance.

Financing Activities

On March 12, 2012, the Company and Wynn Las Vegas Capital Corp. (together the “Issuers”) issued, in a private offering, $900 million aggregate principal amount of 5  3/8% First Mortgage Notes due 2022 (the “2022 Notes”) pursuant to an Indenture, dated as of March 12, 2012 (the “2022 Indenture”). A portion of the proceeds were used to repay all amounts outstanding under the Wynn Las Vegas term loan facilities. In October 2012, we commenced an offer to exchange all of the 2022 Notes for notes registered under the Securities Act of 1933, as amended. The exchange offer closed on November 6, 2012.

On March 12, 2012, the Company entered into an eighth amendment (“Amendment No. 8”) to its Amended and Restated Credit Agreement (the “Wynn Las Vegas Credit Agreement”). Amendment No. 8 amended the Wynn Las Vegas Credit Agreement to, among other things, permit the issuance of the 2022 Notes. Concurrently with the issuance of the 2022 Notes, we prepaid all term loans under the Wynn Las Vegas Credit Agreement, terminated all of its revolving credit commitments that were due to expire in 2013, and terminated all but $100 million of its revolving credit commitments expiring in 2015. In connection with this transaction, the Company expensed deferred financing costs of $4.8 million.

Capital Resources

At March 31, 2013, we had $170.5 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 general corporate purposes. We require a certain amount of cash on hand for operations. We anticipate such funds, together with any additional borrowings and cash generated from operations will satisfy our liquidity needs during 2013.

 

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Contractual Obligations and Off-Balance Sheet Arrangements

As of March 31, 2013 we had unsecured outstanding letters of credit totaling $15.8 million. There have been no other material changes outside the ordinary course of our business during the quarter to our contractual obligations or off-balance sheet arrangements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Other Liquidity Matters

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 payments of dividends or distributions to any direct or indirect holders of equity interests of Wynn Las Vegas, LLC. These restricted payments may not be made until certain other financial and non-financial criteria have been satisfied.

We intend to fund our operations and capital requirements from cash on hand and operating cash flow. We cannot be sure that we will generate sufficient cash flow from operations or that future borrowings that are available to us, if any, will be sufficient to enable us to service and repay our 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. Certain legal matters may also impact our liquidity. As described in our Condensed Consolidated Financial Statements, Note 9 – “Commitments and Contingencies”, Elaine Wynn has submitted a cross claim against Steve Wynn and Kazuo Okada. The indentures for the Wynn Las Vegas first mortgage notes provide that if Steve Wynn, together with certain related parties, in the aggregate beneficially owns a lesser percentage of the outstanding common stock of Wynn Resorts than are beneficially owned by any other person, a change of control will have occurred. If Elaine Wynn prevails in her cross claim, Steve Wynn would not beneficially own or control Elaine Wynn’s shares and a change in control may result under the Company’s debt documents.

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 other development would require us to obtain additional financing.

Critical Accounting Policies and Estimates

A description of our critical accounting policies is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to these policies for the three months ended March 31, 2013.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that amends the presentation requirements for reclassifications out of accumulated other comprehensive income. The amendment would require an entity to present amounts reclassified out of accumulated other comprehensive income by component either on the face of the statement where net income is presented or in the notes. This update is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on our financial statements.

In July 2012, the FASB issued an accounting standards update that is intended to simplify the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The update allows for the consideration of qualitative factors in determining whether it is necessary to perform quantitative impairment tests. The effective date for this update is for annual, and interim impairment tests performed for years beginning after September 15, 2012. The adoption of this update did not have a material impact on our financial statements.

 

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risks

Our primary exposure to market risk is interest rate risk associated with our debt facilities that bear interest based on floating rates. We attempt to manage interest rate risk by managing the mix of long-term fixed rate borrowings and variable rate borrowings, and in the past by using hedging activities. We cannot assure you that these risk management strategies will have the desired effect, and interest rate fluctuations could have a negative impact on our results of operations. We do not use derivative financial instruments, other financial instruments or derivative commodity instruments for trading or speculative purposes.

Interest Rate Sensitivity

As of March  31, 2013 our long-term debt was essentially based on fixed rates.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective, at the reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II - OTHER INFORMATION

 

Item 1A. Risk Factors

A description of our risk factors can be found in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. There were no material changes to those risk factors during the three months ended March 31, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Restrictions imposed by our debt instruments significantly restrict us, subject to certain exceptions for payment of allocable corporate overhead, from declaring or paying dividends or distributions. Specifically, we are restricted under the indentures governing the first mortgage notes from making certain “restricted payments”

 

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as defined therein. These restricted payments include the payment of dividends or distributions to any direct or indirect holders of our membership interests. These restricted payments may not be made until certain other financial and non-financial criteria have been satisfied.

 

Item 5. Other Information

As disclosed in prior filings of Wynn Resorts, Limited (“WRL”) and Wynn Las Vegas, LLC (“WLV”) with the SEC, pursuant to that certain Amended and Restated Agreement of Lease, dated as of March 18, 2010 and amended as of April 9, 2012 (the “Existing SW Lease”), by and between Stephen A. Wynn (“Mr. Wynn”), Chairman of the Board of Directors and Chief Executive Officer of WRL, and WLV, Mr. Wynn leases two fairway villas as Mr. Wynn’s personal residence. On May 7, 2013, Mr. Wynn and WLV entered into a 2013 Amended and Restated Agreement of Lease (the “New SW Lease”) amending and restating the Existing SW Lease, effective as of December 29, 2012, for the lease of three fairway villas (the “Villas”) as Mr. Wynn’s personal residence. The New SW Lease was approved by the Audit Committee of the Board of Directors of WRL. The term of the lease runs concurrent with the term of Mr. Wynn’s employment agreement with WRL; provided that either party may terminate on 90 days notice. The rental value of the Villas is treated as imputed income to Mr. Wynn, equal to the fair market value of the accommodations provided. Pursuant to the New SW Lease, effective as of December 29, 2012 and ending on February 28, 2015, the rental value of the Villas was established as $525,000 per year, which amount was determined based on a third-party appraisal. The rental value of the Villas will be re-determined every two years based upon an independent third-party appraisal. Certain services for, and maintenance of, the Villas are included in the rental. The New SW Lease also includes Mr. Wynn’s use of warehouse space owned by WLV. This description of the New SW Lease is qualified in its entirety by reference to the New SW Lease, a copy of which is filed herewith as Exhibit 10.1.

 

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Item 6. Exhibits

(a) Exhibits

EXHIBIT INDEX

 

Exhibit
No.

  

Description

    3.1    Second Amended and Restated Articles of Organization of Wynn Las Vegas, LLC. (1)
    3.2    Second Amended and Restated Operating Agreement of Wynn Las Vegas, LLC. (1)
*10.1   

2013 Amended and Restated Agreement of Lease, dated as of May 7, 2013, by and between Wynn Las Vegas, LLC and Stephen A. Wynn.

  10.2   

Aircraft Purchase Option Agreement, dated January 3, 2013, between Wynn Resorts, Limited and Stephen A. Wynn. (2)

*31.1    Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a – 14(a) and Rule 15d – 14(a).
*31.2    Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a – 14(a) and Rule 15d – 14(a).
*32.1    Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350.
*101    The following financial information from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013, filed with the SEC on May 10, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2013 and 2012, (ii) the Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012, (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, and (iv) Notes to Condensed Consolidated Financial Statements.**

 

* Filed herewith
** Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings.

 

(1) Previously filed with the Registration Statement on Form S-4 filed by the Registrant on April 13, 2005 (File No. 333-124052) and incorporated herein by reference.
(2) Previously filed with the Annual Report on Form 10-K filed by Wynn Resorts on March 1, 2013.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    WYNN LAS VEGAS, LLC
Dated: May 10, 2013   By:  

 /s/ Scott Peterson

  Scott Peterson
  Senior Vice President and
  Chief Financial Officer
  (Principal Financial Officer)

 

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