Quarterly Report (10-q)

Date : 08/04/2017 @ 4:37PM
Source : Edgar (US Regulatory)
Stock : Wynn Resorts, Limited (MM) (WYNN)
Quote : 157.28  5.0 (3.28%) @ 1:48PM
Wynn Resorts share price Chart

Quarterly Report (10-q)


 
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 June 30, 2017
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. 000-50028

  WYNN RESORTS, LIMITED
(Exact name of registrant as specified in its charter)
N EVADA
 
46-0484987
(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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨    No   x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
 
Outstanding at July 31, 2017
Common stock, $0.01 par value
  
102,566,043
 



WYNN RESORTS, LIMITED AND SUBSIDIARIES
FORM 10-Q
INDEX
 
Part I.
Financial Information
 
 
 
 
 
 
 
 
 
 
 
Part II.
Other Information
 

 
2
 


Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
WYNN RESORTS, LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
June 30,
2017
 
December 31,
2016
 
(unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,486,423

 
$
2,453,122

Investment securities
136,202

 
173,437

Receivables, net
196,179

 
218,968

Inventories
84,508

 
91,541

Prepaid expenses and other
136,877

 
53,299

Total current assets
3,040,189

 
2,990,367

Property and equipment, net
8,321,777

 
8,259,631

Restricted cash
2,412

 
192,823

Investment securities
176,430

 
128,023

Intangible assets, net
124,897

 
113,588

Other assets
191,194

 
269,125

Total assets
$
11,856,899

 
$
11,953,557

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts and construction payables
$
299,348

 
$
298,505

Current portion of long-term debt
1,740

 

Customer deposits
775,379

 
599,566

Gaming taxes payable
175,819

 
162,706

Accrued compensation and benefits
138,503

 
165,501

Accrued interest
70,424

 
98,118

Other accrued liabilities
78,696

 
91,905

Total current liabilities
1,539,909

 
1,416,301

Long-term debt
9,806,296

 
10,125,352

Other long-term liabilities
81,957

 
87,462

Deferred income taxes, net
71,031

 
66,561

Total liabilities
11,499,193

 
11,695,676

Commitments and contingencies (Note 14)

 

Stockholders' equity:
 
 
 
Preferred stock, par value $0.01; 40,000,000 shares authorized; zero shares issued and outstanding

 

Common stock, par value $0.01; 400,000,000 shares authorized; 115,893,532 and 115,036,945 shares issued; 102,563,043 and 101,799,471 shares outstanding, respectively
1,159

 
1,150

Treasury stock, at cost; 13,330,489 and 13,237,474 shares, respectively
(1,175,186
)
 
(1,166,697
)
Additional paid-in capital
1,282,262

 
1,226,915

Accumulated other comprehensive income (loss)
(1,068
)
 
1,484

Retained earnings
166,256

 
95,097

Total Wynn Resorts, Limited stockholders' equity
273,423

 
157,949

Noncontrolling interests
84,283

 
99,932

Total stockholders' equity
357,706

 
257,881

Total liabilities and stockholders' equity
$
11,856,899

 
$
11,953,557


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

 
3
 


WYNN RESORTS, LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Operating revenues:
 
 
 
 
 
 
 
Casino
$
1,166,233

 
$
742,659

 
$
2,317,457

 
$
1,475,389

Rooms
176,183

 
142,847

 
356,450

 
278,439

Food and beverage
194,113

 
170,631

 
346,953

 
301,075

Entertainment, retail and other
102,231

 
82,031

 
205,136

 
164,026

Gross revenues
1,638,760

 
1,138,168

 
3,225,996

 
2,218,929

Less: promotional allowances
(109,499
)
 
(79,804
)
 
(221,055
)
 
(162,887
)
Net revenues
1,529,261

 
1,058,364

 
3,004,941

 
2,056,042

Operating expenses:
 
 
 
 
 
 
 
Casino
763,241

 
470,372

 
1,503,457

 
922,912

Rooms
45,818

 
38,040

 
90,324

 
75,749

Food and beverage
117,010

 
105,727

 
210,388

 
185,147

Entertainment, retail and other
42,608

 
37,674

 
85,827

 
75,973

General and administrative
164,169

 
119,505

 
324,131

 
236,950

(Benefit) provision for doubtful accounts
(2,083
)
 
2,478

 
(6,249
)
 
3,184

Pre-opening
6,758

 
45,949

 
12,537

 
79,718

Depreciation and amortization
137,686

 
79,749

 
277,506

 
157,720

Property charges and other
7,165

 
11,331

 
10,201

 
12,852

Total operating expenses
1,282,372

 
910,825

 
2,508,122

 
1,750,205

Operating income
246,889

 
147,539

 
496,819

 
305,837

Other income (expense):
 
 
 
 
 
 
 
Interest income
7,080

 
2,783

 
13,551

 
6,262

Interest expense, net of amounts capitalized
(97,739
)
 
(69,257
)
 
(196,001
)
 
(114,029
)
Change in interest rate swap fair value
(283
)
 
(1,036
)
 
(1,054
)
 
(2,861
)
Change in Redemption Note fair value
(12,417
)
 
7,982

 
(28,264
)
 
2,979

Loss on extinguishment of debt
(22,287
)
 

 
(22,287
)
 

Equity in income from unconsolidated affiliates

 

 

 
16

Other
(11,840
)
 
(1,462
)
 
(17,947
)
 
(1,945
)
Other income (expense), net
(137,486
)
 
(60,990
)
 
(252,002
)
 
(109,578
)
Income before income taxes
109,403

 
86,549

 
244,817

 
196,259

Benefit (provision) for income taxes
(2,607
)
 
2,893

 
(5,497
)
 
(1,025
)
Net income
106,796

 
89,442

 
239,320

 
195,234

Less: net income attributable to noncontrolling interests
(31,880
)
 
(19,051
)
 
(63,589
)
 
(49,622
)
Net income attributable to Wynn Resorts, Limited
$
74,916

 
$
70,391

 
$
175,731

 
$
145,612

Basic and diluted net income per common share:
 
 
 
 
 
 
 
Net income attributable to Wynn Resorts, Limited:
 
 
 
 
 
 
 
Basic
$
0.73

 
$
0.69

 
$
1.73

 
$
1.44

Diluted
$
0.73

 
$
0.69

 
$
1.72

 
$
1.43

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
101,944

 
101,438

 
101,851

 
101,415

Diluted
102,494

 
101,881

 
102,274

 
101,792

Dividends declared per common share
$
0.50

 
$
0.50

 
$
1.00

 
$
1.00

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

 
4
 


WYNN RESORTS, LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
106,796

 
$
89,442

 
$
239,320

 
$
195,234

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments, before and after tax
(2,583
)
 
(212
)
 
(3,754
)
 
(334
)
Unrealized gain on investment securities, before and after tax
87

 
323

 
158

 
1,246

Total comprehensive income
104,300

 
89,553

 
235,724

 
196,146

Less: comprehensive income attributable to noncontrolling interests
(31,161
)
 
(18,992
)
 
(62,545
)
 
(49,529
)
Comprehensive income attributable to Wynn Resorts, Limited
$
73,139

 
$
70,561

 
$
173,179

 
$
146,617


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

 
5
 


WYNN RESORTS, LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)

 
Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
outstanding
 
Par
value
 
Treasury
stock
 
Additional
paid-in
capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained earnings
 
Total Wynn Resorts, Ltd.
stockholders'
equity
 
Noncontrolling
interests
 
Total
stockholders'
equity
Balances, December 31, 2016
101,799,471

 
$
1,150

 
$
(1,166,697
)
 
$
1,226,915

 
$
1,484

 
$
95,097

 
$
157,949

 
$
99,932

 
$
257,881

Effect of change in accounting for stock-based compensation

 

 

 
2,807

 

 
(2,696
)
 
111

 

 
111

Balances, December 31, 2016, as adjusted
101,799,471

 
1,150

 
(1,166,697
)
 
1,229,722

 
1,484

 
92,401

 
158,060

 
99,932

 
257,992

Net income

 

 

 

 

 
175,731

 
175,731

 
63,589

 
239,320

Currency translation adjustment

 

 

 

 
(2,710
)
 

 
(2,710
)
 
(1,044
)
 
(3,754
)
Net unrealized gain on investment securities

 

 

 

 
158

 

 
158

 

 
158

Issuance of restricted stock
560,792

 
6

 

 
18,566

 

 

 
18,572

 
653

 
19,225

Cancellation of restricted stock
(13,333
)
 

 

 

 

 

 

 

 

Exercise of stock options
309,128

 
3

 

 
26,544

 

 

 
26,547

 

 
26,547

Shares repurchased by the Company and held as treasury shares
(93,015
)
 

 
(8,489
)
 

 

 

 
(8,489
)
 

 
(8,489
)
Cash dividends declared

 

 

 

 

 
(101,876
)
 
(101,876
)
 
(77,827
)
 
(179,703
)
Distribution to noncontrolling interest

 

 

 

 

 

 

 
(2,534
)
 
(2,534
)
Stock-based compensation

 

 

 
7,430

 

 

 
7,430

 
1,514

 
8,944

Balances, June 30, 2017
102,563,043

 
$
1,159

 
$
(1,175,186
)
 
$
1,282,262

 
$
(1,068
)
 
$
166,256

 
$
273,423

 
$
84,283

 
$
357,706


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


 
6
 


WYNN RESORTS, LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
239,320

 
$
195,234

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
277,506

 
157,720

Deferred income taxes
4,580

 
4

Stock-based compensation expense
18,787

 
21,082

Excess tax benefits from stock-based compensation

 
(45
)
Amortization of deferred financing costs
12,345

 
11,883

Loss on extinguishment of debt
22,287

 

(Benefit) provision for doubtful accounts
(6,249
)
 
3,184

Change in interest rate swap fair value
1,054

 
2,861

Change in Redemption Note fair value
28,264

 
(2,979
)
Property charges and other
25,409

 
16,290

Increase (decrease) in cash from changes in:
 
 
 
Receivables, net
28,669

 
17,111

Inventories and prepaid expenses and other
(914
)
 
(19,339
)
Customer deposits
181,112

 
(15,463
)
Accounts payable and accrued expenses
(28,618
)
 
(17,597
)
Net cash provided by operating activities
803,552

 
369,946

Cash flows from investing activities:
 
 
 
Capital expenditures, net of construction payables and retention
(392,575
)
 
(548,898
)
Return of investment in unconsolidated affiliates

 
727

Purchase of investment securities
(133,461
)
 
(87,589
)
Proceeds from sale or maturity of investment securities
121,697

 
35,550

Purchase of intangible assets and other assets
(13,161
)
 
(8,093
)
Proceeds from sale of assets
20,214

 
2,532

Net cash used in investing activities
(397,286
)
 
(605,771
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
26,547

 

Excess tax benefits from stock-based compensation

 
45

Dividends paid
(179,568
)
 
(212,789
)
Distribution to noncontrolling interest
(2,534
)
 

Proceeds from issuance of long-term debt
1,030,056

 
305,796

Repayments of long-term debt
(1,359,961
)
 

Restricted cash
190,397

 
(790
)
Repurchase of common stock
(8,489
)
 
(6,291
)
Income taxes paid from sale of ownership interest in subsidiary
(25,176
)
 

Shares of subsidiary repurchased for share award plan

 
(7,579
)
Payment on long-term land concession obligation

 
(15,968
)
Payments for financing costs
(40,308
)
 
(3,261
)
Net cash provided by (used in) financing activities
(369,036
)
 
59,163

Effect of exchange rate on cash
(3,929
)
 
(1,104
)
Cash and cash equivalents:
 
 
 
Increase (decrease) in cash and cash equivalents
33,301

 
(177,766
)
Balance, beginning of period
2,453,122

 
2,080,089

Balance, end of period
$
2,486,423

 
$
1,902,323

 
 
 
 
Supplemental cash flow disclosures:
 
 
 
Cash paid for interest, net of amounts capitalized
$
211,350

 
$
121,629

Stock-based compensation capitalized into construction
$
32

 
$
51

Liability settled with shares of common stock
$
19,225

 
$

Change in accounts and construction payables related to property and equipment
$
4,974

 
$
(96,858
)
Change in dividends payable on unvested restricted stock included in other accrued liabilities
$
135

 
$
(12
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
7
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Note 1 -    Organization and Basis of Presentation

Organization

Wynn Resorts, Limited, a Nevada corporation (together with its subsidiaries, "Wynn Resorts" or the "Company") is a developer, owner and operator of destination casino resorts (integrated resorts). In the Macau Special Administrative Region of the People's Republic of China ("Macau"), the Company owns approximately 72% of Wynn Macau, Limited ("WML"), which includes the operations of the Wynn Macau and Wynn Palace resorts (collectively, the "Macau Operations"). In Las Vegas, Nevada, the Company operates, and with the exception of the retail space described below, owns 100% of Wynn Las Vegas, which it also refers to as its Las Vegas Operations.

Macau Operations

Wynn Macau features two luxury hotel towers with a total of 1,008 guest rooms and suites, approximately 281,000 square feet of casino space, eight food and beverage outlets, approximately 31,000 square feet of meeting and convention space, approximately 59,000 square feet of retail space, a rotunda show and recreation and leisure facilities.

On August 22, 2016, the Company opened Wynn Palace, an integrated resort in the Cotai area of Macau. Wynn Palace features a luxury hotel with 1,706 guest rooms, suites and villas, approximately 420,000 square feet of casino space, 11 food and beverage outlets, approximately 37,000 square feet of meeting and convention space, approximately 106,000 square feet of retail space, public attractions, including a performance lake and floral art displays, and recreation and leisure facilities.

Las Vegas Operations

Wynn Las Vegas features two luxury hotel towers with a total of 4,748 guest rooms, suites and villas, approximately 189,000 square feet of casino space, 33 food and beverage outlets, an on-site 18-hole golf course, approximately 290,000 square feet of meeting and convention space, approximately 95,000 square feet of retail space, as well as two theaters, three nightclubs and a beach club, and recreation and leisure facilities.

In December 2016, the Company formed a joint venture with Crown Acquisitions Inc. ("Crown") to own and operate approximately 88,000 square feet of existing retail space (of which the Company owns 50.1% ) and signed an agreement with Crown to form a joint venture to own and operate approximately 73,000 square feet of additional retail space currently under construction at Wynn Las Vegas. The Company expects to open the majority of the additional retail space in the third quarter of 2018. For more information on the joint venture, see Note 3 "Retail Joint Venture."

Development Projects

The Company is constructing Wynn Boston Harbor, an integrated resort in Everett, Massachusetts, adjacent to Boston along the Mystic River. The resort will contain a hotel, a waterfront boardwalk, meeting and convention space, casino space, a spa, retail offerings and food and beverage outlets. The Company expects to open Wynn Boston Harbor in mid-2019. Additionally, the Company is in the planning phase for the re-development of the Wynn Las Vegas golf course. Phase 1 of the project is expected to include a lagoon and additional meeting and convention space. 

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include only normal recurring adjustments, except as disclosed in Note 2 "Summary of Significant Accounting Policies: Prior Period Adjustments") necessary for a fair presentation of the results for the interim periods have been made. The results for the three and six months ended June 30, 2017 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, 2016


 
8
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 2 -      Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and entities the Company identifies as a variable interest entity ("VIE") and of which the Company is determined to be the primary beneficiary. In April 2016, the Company dissolved its 50% -owned joint venture operating the Ferrari and Maserati automobile dealership inside Wynn Las Vegas, which was closed in October 2015 and was accounted for under the equity method. All intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of highly liquid investments with original maturities of three months or less and include both U.S. dollar-denominated and foreign-currency denominated securities. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents of $580.1 million and $1.11 billion as of June 30, 2017 and December 31, 2016 , respectively, were invested in bank time deposits, money market funds and commercial paper. In addition, the Company held bank deposits and cash on hand of approximately $1.91 billion and $1.34 billion as of June 30, 2017 and December 31, 2016 , respectively.

Restricted Cash

The Company's restricted cash consists of cash held in trust in accordance with WML's share award plan and additionally as of December 31, 2016 , collateral associated with borrowings under a revolving credit facility.
Investment Securities

Investment securities consist of domestic and foreign short-term and long-term investments in corporate bonds and commercial paper reported at fair value, with unrealized gains and losses, net of tax, reported in other comprehensive income (loss). Short-term investments have a maturity date of less than one year and long-term investments are those with a maturity date greater than one year. The Company limits the amount of exposure to any one issuer with the objective of minimizing the potential risk of principal loss. Management determines the appropriate classification of its securities at the time of purchase and reevaluates such designation as of each balance sheet date. Adjustments are made for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization is included in interest income together with realized gains and losses and the stated interest on such securities.

Accounts Receivable and Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues credit in the form of "markers" to approved casino customers following investigations of creditworthiness. As of June 30, 2017 and December 31, 2016, approximately 84.5% and 88.1% , respectively, of the Company's markers were due from customers residing outside the United States, primarily in Asia. Business or economic conditions or other significant events in these countries could affect the collectability of such receivables.

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. An estimated allowance for doubtful accounts is maintained to reduce the Company's receivables to their carrying amount, which approximates fair value. The allowance estimate reflects the specific review of outstanding customer and gaming promoter accounts as well as management's experience with historical and current collection trends and current economic and business conditions. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received.

Derivative Financial Instruments

Derivative financial instruments are used to manage interest rate and foreign currency exposures. These derivative financial instruments include interest rate swaps and foreign currency forward contracts. The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value affecting net income as the Company's derivative financial instruments do not qualify for hedge accounting.


 
9
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Redemption Price Promissory Note

The Redemption Price Promissory Note (the "Redemption Note") is recorded at fair value in accordance with applicable accounting guidance. As of June 30, 2017 and December 31, 2016, the fair value of the Redemption Note was $1.85 billion and $1.82 billion , respectively. In determining this fair value, the Company estimated the Redemption Note's present value using discounted cash flows with a probability weighted expected return for redemption assumptions and a discount rate, which included time value and non-performance risk adjustments commensurate with the risk of the Redemption Note.

Considerations for the redemption assumptions included the stated maturity of the Redemption Note, uncertainty of the related cash flows, as well as potential effects of the following: uncertainties surrounding the potential outcome and timing of pending litigation with Aruze USA, Inc. ("Aruze"), Universal Entertainment Corporation and Mr. Kazuo Okada (collectively, the "Okada Parties") (see Note 14 "Commitments and Contingencies"); the outcome of ongoing investigations of Aruze by the U.S. Attorney's Office, the U.S. Department of Justice and the Nevada Gaming Control Board; and other potential legal and regulatory actions. In addition, in the furtherance of various future business objectives, the Company considered its ability, at its sole option, to prepay the Redemption Note at any time in accordance with its terms without penalty. Accordingly, the Company reasonably determined that the estimated life of the Redemption Note could be less than its contractual life.

In determining the appropriate discount rate to be used to calculate the estimated present value, the Company considered the Redemption Note's subordinated position and credit risk relative to all other debt in the Company's capital structure and credit ratings associated with the Company's traded debt. Observable inputs for the risk free rate were based on Federal Reserve rates for U.S. Treasury securities and the credit risk spread was based on a yield curve index of similarly rated debt.  

Revenue Recognition and Promotional Allowances

The Company recognizes revenues at the time persuasive evidence of an arrangement exists, the service is provided or the retail goods are sold, prices are fixed or determinable and collection is reasonably assured.

Casino revenues are measured by the aggregate net difference between gaming wins and losses. The commissions rebated directly or indirectly through games promoters to customers, cash discounts, other cash incentives and points earned by customers from the Company's loyalty programs are recorded as a reduction of casino revenues. Rooms, food and beverage, entertainment and other operating revenues are recognized when services are performed or events are held. Entertainment, retail and other revenue includes rental income, which is recognized on a time proportion basis over the lease term. Contingent rental income is recognized when the right to receive such rental income is established according to the lease agreements. Advance deposits on rooms and advance ticket sales are recorded as customer deposits until services are provided to the customer.


 
10
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The retail value of rooms, food and beverage, entertainment and other services provided to guests without charge is included in gross revenues and are then deducted as promotional allowances. The estimated retail value of providing such promotional allowances is as follows (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
2017
 
2016
 
2017
 
2016
Rooms
$
64,853

 
$
42,714

 
$
129,981

 
$
86,434

Food and beverage
38,108

 
28,450

 
76,671

 
61,870

Entertainment, retail and other
6,538

 
8,640

 
14,403

 
14,583

 
$
109,499

 
$
79,804

 
$
221,055

 
$
162,887


The estimated cost of providing such promotional allowances, which is included primarily in casino expenses, is as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2017
 
2016
 
2017
 
2016
Rooms
$
20,462

 
$
12,461

 
$
40,307

 
$
24,790

Food and beverage
33,981

 
23,970

 
68,309

 
51,579

Entertainment, retail and other
4,939

 
3,114

 
10,970

 
6,846

 
$
59,382

 
$
39,545

 
$
119,586

 
$
83,215


Gaming Taxes

The Company is subject to taxes based on gross gaming revenues in the jurisdictions in which it operates, subject to applicable jurisdictional adjustments, which taxes are recorded as casino expenses in the accompanying Condensed Consolidated Statements of Income. These taxes totaled $516.1 million and $301.0 million for the three months ended June 30, 2017 and 2016, respectively, and $1.01 billion and $579.7 million for the six months ended June 30, 2017 and 2016, respectively.

Fair Value Measurements

The Company measures certain of its financial assets and liabilities at fair value on a recurring basis pursuant to accounting standards for fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These accounting standards establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 
11
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


The following tables present assets and liabilities carried at fair value (in thousands):  
 
 
 
Fair Value Measurements Using:
 
June 30,
2017
 
Quoted
Market
Prices in
Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
580,071

 
$
4,655

 
$
575,416

 

Available-for-sale securities
$
312,632

 

 
$
312,632

 

Restricted cash
$
2,412

 

 
$
2,412

 

Interest rate swaps
$
112

 

 
$
112

 

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Redemption Note
$
1,847,622

 

 
$
1,847,622

 

Interest rate swaps
$
110

 

 
$
110

 

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements Using:
 
December 31,
2016
 
Quoted
Market
Prices in
Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
1,106,606

 
$
3,868

 
$
1,102,738

 

Available-for-sale securities
$
301,460

 

 
$
301,460

 

Restricted cash
$
192,823

 

 
$
192,823

 

Interest rate swaps
$
1,056

 

 
$
1,056

 

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Redemption Note
$
1,819,359

 

 
$
1,819,359

 


Recently Issued and Adopted Accounting Standards

In November 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update that changes the classification of restricted cash in the statement of cash flows. The new guidance requires that amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for financial statements with fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early adoption is permitted. The new guidance should be adopted on a retrospective basis. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

In October 2016, the FASB issued an accounting standards update to require the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, rather than deferring such recognition until the asset is sold to an outside party. This guidance is effective for financial statements with fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early adoption is permitted. The amendments in the new guidance should be adopted on a retrospective basis. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

In August 2016, the FASB issued an accounting standards update that clarifies the classification of certain cash receipts and cash payments on the statement of cash flows. In particular, the new guidance clarifies the classification related to several

 
12
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

types of cash flows; including items such as debt extinguishment costs and distributions received from equity method investees. The new guidance also provides a three-step approach for classifying cash receipts and payments that have aspects of more than one class of cash flows. This guidance is effective for financial statements with fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early adoption is permitted. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standards update that involves several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted the guidance on January 1, 2017 with the following amendments having an impact to the Company’s consolidated financial statements:

Accounting for income taxes . Under the new guidance, income tax benefits and deficiencies will be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. The amendment was applied prospectively.
 
Forfeitures. The Company elected to make an accounting policy change to account for forfeitures when they occur. The Company applied the amendment using the modified retrospective transition method, which resulted in a cumulative-effect expense adjustment of $2.7 million , net of tax to retained earnings as of December 31, 2016. The adjustment represents the impact of estimated forfeitures on previously recorded compensation expense as of December 31, 2016 from outstanding stock options and unvested share awards under the previous accounting policy.

Classification of excess tax benefits on the cash flow statement. Under the new guidance, excess tax benefits will be classified along with other income tax cash flows as an operating activity. The amendment was applied prospectively.

In February 2016, the FASB issued an accounting standards update that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than 12 months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors are required to apply a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. This guidance is effective for financial statements with fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

In January 2016, the FASB issued an accounting standards update requiring all equity investments to be measured at fair value with changes in fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The update also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This update eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This guidance is effective for financial statements with fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods and early adoption is permitted. The Company is currently assessing the impact the adoption of this new standard will have on its consolidated financial statements. The Company expects a portion of the change in its Redemption Note fair value currently included in the Consolidated Statements of Income will be recorded in accumulated other comprehensive income on its Consolidated Balance Sheet.

In May 2014, the FASB issued an accounting standards update that amends the FASB Accounting Standards Codification and creates a new topic for Revenue from Contracts with Customers. The new guidance is expected to clarify the principles for revenue recognition and to develop a common revenue standard for GAAP applicable to revenue transactions. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance also provides substantial revision of interim and annual disclosures. The update allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB issued an accounting standards update that defers the effective date of the new revenue recognition accounting guidance by one year, to annual and interim periods

 
13
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

beginning after December 15, 2017. Early application is permitted for annual and interim periods beginning after December 15, 2016. The Company will adopt this standard effective January 1, 2018. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements. The Company expects the goods and services provided to customers without charge currently included in both gross revenues and promotional allowances in the accompanying Condensed Consolidated Statements of Income will be presented on a net basis with the majority of the impact resulting in a decrease in casino revenues.

Prior Period Adjustments

During the three months ended March 31, 2016, the Company identified $25.6 million of additional interest that should have been capitalized instead of being expensed during the years ended December 31, 2015 and 2014. Considering both quantitative and qualitative factors, the Company determined the amounts were immaterial to any previously issued financial statements and immaterial to the full year results for 2016. Accordingly, the Company corrected these immaterial amounts during the first quarter of the six months ended June 30, 2016, resulting in a decrease to interest expense of $25.6 million and increases to net income attributable to Wynn Resorts, Limited of $18.5 million and basic and diluted net income per common share of $0.18 .

Note 3 - Retail Joint Venture

In December 2016, the Company formed a joint venture (the "Retail Joint Venture") with Crown to own and operate approximately 88,000 square feet of existing retail space at Wynn Las Vegas. In connection with the transaction, the Company transferred certain assets and liabilities with a net book value of $31.8 million associated with the existing Wynn Las Vegas retail stores from Wynn Las Vegas, LLC, to the Retail Joint Venture. The Company sold Crown a 49.9% ownership interest in the Retail Joint Venture for $217.0 million in cash and a $75.0 million interest-free note that matures in full on January 3, 2018. As of June 30, 2017, the present value of the note was $73.7 million and is included in prepaid expenses and other on the Condensed Consolidated Balance Sheets. As of December 31, 2016, the present value of the note was $72.5 million and was included in other assets on the Consolidated Balance Sheets. Wynn Las Vegas, LLC transferred all interests as lessor in third-party retail store leases to the Retail Joint Venture as part of the transaction and the majority of the retail stores previously operated by Wynn Las Vegas, LLC are now operated under a master lease agreement between a newly formed retail entity owned by Wynn Resorts, as lessee, and the Retail Joint Venture, as lessor. The Company maintains a 50.1% ownership in the Retail Joint Venture and is the managing member. The Company’s responsibilities with respect to the Retail Joint Venture include day-to-day business operations, property management services and a role in the leasing decisions of the retail space.

Also in December 2016, the Company entered into an agreement with Crown to form a joint venture that will own approximately 73,000 square feet of additional retail space that is currently under construction at Wynn Las Vegas. Crown is expected to pay the Company $180.0 million for a 49.9% ownership interest in the new joint venture prior to the opening for business.
 
The Company concluded that the Retail Joint Venture is a VIE and the Company is the primary beneficiary based on its involvement in the leasing activities of the Retail Joint Venture. As a result, the Company consolidates all of the Retail Joint Venture’s assets, liabilities and results of operations. The Company will evaluate its primary beneficiary designation on an ongoing basis and will assess the appropriateness of the Retail Joint Venture’s VIE status when changes occur.

As of June 30, 2017 and December 31, 2016, the Retail Joint Venture had total assets of $39.8 million and $33.6 million , respectively, and total liabilities of $0.7 million and $2.1 million , respectively.

Note 4 -    Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income attributable to Wynn Resorts, Limited by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Wynn Resorts, Limited by the weighted average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potential dilutive securities had been issued. Potentially dilutive securities include outstanding stock options and unvested restricted stock.


 
14
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The weighted average number of common and common equivalent shares used in the calculation of basic and diluted EPS consisted of the following (in thousands, except per share amounts):  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income attributable to Wynn Resorts, Limited
$
74,916

 
$
70,391

 
$
175,731

 
$
145,612

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
101,944

 
101,438

 
101,851

 
101,415

Potential dilutive effect of stock options and restricted stock
550

 
443

 
423

 
377

Weighted average common and common equivalent shares outstanding
102,494

 
101,881

 
102,274

 
101,792

 
 
 
 
 
 
 
 
Net income attributable to Wynn Resorts, Limited per common share, basic
$
0.73

 
$
0.69

 
$
1.73

 
$
1.44

Net income attributable to Wynn Resorts, Limited per common share, diluted
$
0.73

 
$
0.69

 
$
1.72

 
$
1.43

 
 
 
 
 
 
 
 
Anti-dilutive stock options and restricted stock excluded from the calculation of diluted net income per share
108

 
766

 
153

 
776


Note 5 -    Accumulated Other Comprehensive Income (Loss)

The following table presents the changes by component, net of tax and noncontrolling interests, in accumulated other comprehensive income (loss) of the Company (in thousands):  
 
Foreign
currency
translation
 
Unrealized
loss on investment
securities
 
Accumulated
other
comprehensive
income (loss)
December 31, 2016
$
2,213

 
$
(729
)
 
$
1,484

Current period other comprehensive income (loss)
(2,710
)
 
158

 
(2,552
)
June 30, 2017
$
(497
)
 
$
(571
)
 
$
(1,068
)

Note 6 -    Investment Securities

Investment securities consisted of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
(net
carrying
amount)
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
(net
carrying
amount)
Domestic and foreign corporate bonds
$
290,330

 
$
241

 
$
(914
)
 
$
289,657

 
$
245,425

 
$
19

 
$
(720
)
 
$
244,724

Commercial paper
22,873

 
102

 

 
22,975

 
56,764

 
5

 
(33
)
 
56,736

 
$
313,203


$
343


$
(914
)

$
312,632

 
$
302,189

 
$
24

 
$
(753
)
 
$
301,460


For investments with unrealized losses as of June 30, 2017 and December 31, 2016 , the Company has determined that it does not have the intent to sell any of these investments and it is not likely that the Company will be required to sell these investments prior to the recovery of the amortized cost. Accordingly, the Company has determined that no other-than-temporary impairments exist at the reporting dates.


 
15
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The Company obtains pricing information in determining the fair value of its available-for-sale securities from independent pricing vendors. Based on management's inquiries, the pricing vendors use various pricing models consistent with what other market participants would use. The assumptions and inputs used by the pricing vendors are derived from market observable sources including: reported trades, broker/dealer quotes, issuer spreads, benchmark curves, bids, offers and other market-related data. The Company has not made adjustments to such prices. Each quarter, the Company validates the fair value pricing methodology to determine the fair value is consistent with applicable accounting guidance and to confirm that the securities are classified properly in the fair value hierarchy. The Company compares the pricing received from its vendors to independent sources for the same or similar securities.

The fair values of these investment securities as of June 30, 2017 , by contractual maturity, are as follows (in thousands):
 
Fair value
Available-for-sale securities
 
Due in one year or less
$
136,202

Due after one year through two years
122,296

Due after two years through three years
54,134

 
$
312,632


Note 7 -    Receivables, net

Receivables, net consisted of the following (in thousands):  
 
June 30,
2017
 
December 31,
2016
Casino
$
162,496

 
$
211,557

Hotel
24,416

 
21,897

Other
42,113

 
40,256

 
229,025


273,710

Less: allowance for doubtful accounts
(32,846
)
 
(54,742
)
 
$
196,179


$
218,968


Note 8 -    Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):
 
June 30,
2017
 
December 31,
2016
Land and improvements
$
839,370

 
$
834,420

Buildings and improvements
7,596,711

 
7,623,069

Furniture, fixtures and equipment
2,196,218

 
2,181,515

Leasehold interests in land
314,520

 
316,516

Airplanes
158,840

 
179,730

Construction in progress
632,196

 
299,686

 
11,737,855


11,434,936

Less: accumulated depreciation
(3,416,078
)
 
(3,175,305
)
 
$
8,321,777


$
8,259,631


 As of June 30, 2017 and December 31, 2016, construction in progress consisted primarily of costs capitalized, including interest, for the construction of Wynn Boston Harbor.

 
16
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 9 -    Long-Term Debt

Long-term debt consisted of the following (in thousands):  
 
June 30,
2017
 
December 31,
2016
Macau Related:
 
 
 
Wynn Macau Credit Facilities:
 
 
 
Senior Term Loan Facility, due September 2021; interest at LIBOR or HIBOR plus 1.50%—2.25% (2.64% as of June 30, 2017 and 2.76% as of December 31, 2016), net of debt issuance costs and original issue discount of $24,427 as of June 30, 2017 and $28,091 as of December 31, 2016
$
2,275,842

 
$
2,278,682

Senior Revolving Credit Facility, due September 2020; interest at LIBOR or HIBOR plus 1.50%—2.25% (2.57% as of June 30, 2017 and 2.75% as of December 31, 2016)
199,937

 
340,846

5 1/4% Senior Notes, due October 15, 2021, net of debt issuance costs and original issue premium of $6,090 as of June 30, 2017 and $6,709 as of December 31, 2016
1,343,910

 
1,343,291

WML Finance Revolving Credit Facility, due July 2018; interest at 1.50%

 
189,651

U.S. and Corporate Related:
 
 
 
Wynn America Credit Facilities:
 
 
 
Senior Term Loan Facility, various maturities; interest at base rate plus 0.75% or LIBOR plus 1.75% (2.80% as of June 30, 2017 and 2.52% as of December 31, 2016), net of debt issuance costs of $15,983 as of June 30, 2017 and $15,436 as of December 31, 2016
984,017

 
984,564

4 1/4% Senior Notes, due May 30, 2023, net of debt issuance costs of $2,630 as of June 30, 2017 and $2,819 as of December 31, 2016
497,370

 
497,181

5 1/2% Senior Notes, due March 1, 2025, net of debt issuance costs of $20,463 as of June 30, 2017 and $21,513 as of December 31, 2016
1,779,537

 
1,778,487

5 1/4% Senior Notes, due May 15, 2027, net of debt issuance costs of $20,199 as of June 30, 2017
879,801

 

Redemption Price Promissory Note with former stockholder and related party, due February 18, 2022; interest at 2%, net of fair value adjustment of $88,822 as of June 30, 2017 and $117,085 as of December 31, 2016
1,847,622

 
1,819,359

5 3/8% First Mortgage Notes, due March 15, 2022, net of debt issuance costs of $6,709 as of December 31, 2016

 
893,291

 
9,808,036

 
10,125,352

Current portion of long-term debt
(1,740
)
 

 
$
9,806,296

 
$
10,125,352


Macau Related Debt

Wynn Macau Credit Facilities

The Company's credit facilities include a $2.30 billion equivalent fully funded senior secured term loan facility (the "Wynn Macau Senior Term Loan Facility") and a $750 million equivalent senior secured revolving credit facility (the "Wynn Macau Senior Revolving Credit Facility," collectively, the "Wynn Macau Credit Facilities"). The borrower is Wynn Resorts (Macau) S.A. ("Wynn Macau SA"). As of June 30, 2017 , the Company had $548.8 million of available borrowing capacity under the Wynn Macau Senior Revolving Credit Facility.

WML Finance Revolving Credit Facility
The Company's credit facilities include a HK$ 3.87 billion (approximately $ 495.9 million ) cash-collateralized revolving credit facility ("WML Finance Credit Facility") under which WML Finance I, Limited, an indirect wholly owned subsidiary of WML, is the borrower. The WML Finance Credit Facility bears interest initially at 1.50% per annum, such rate calculated as the interest rate paid by the lender as the deposit bank for the cash collateral deposited and pledged with the lender plus a margin of 0.40% . As of June 30, 2017 , the Company had no borrowings under the WML Finance Credit Facility.

 
17
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

  
U.S. and Corporate Related Debt

Wynn America Credit Facilities

The Company's credit facilities include an $875 million fully funded senior secured term loan facility (the "WA Senior Term Loan Facility I"), a $125 million fully funded senior term loan facility (the "WA Senior Term Loan Facility II") and a $375 million senior secured revolving credit facility (the "WA Senior Revolving Credit Facility," collectively the "Wynn America Credit Facilities"). The borrower is Wynn America, LLC, an indirect wholly owned subsidiary of the Company. As of June 30, 2017 , the Company had available borrowing capacity of $358.0 million , net of $17.0 million in outstanding letters of credit, under the WA Senior Revolving Credit Facility.

On April 24, 2017, the Company amended the Wynn America Credit Facilities to, among other things, extend the maturity of portions of the credit facilities. Pursuant to the amendment, (i) the maturity date with respect to $805.4 million of the WA Senior Term Loan Facility I was extended from November 2020 to December 2021, with repayment in quarterly installments of $20.1 million commencing in March 2020 and a final installment of $664.5 million in December 2021; (ii) the maturity date of the $125 million WA Senior Term Loan Facility II was extended from November 2020 to December 2021, with no required scheduled repayments until maturity in December 2021; and (iii) the maturity date with respect to $333.0 million of the WA Senior Revolving Credit Facility was extended from November 2019 to December 2021. In connection with the amendment, the Company recorded a loss on extinguishment of debt of $1.5 million .

5 1/4% Senior Notes due 2027

On May 11, 2017, Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp. ("Capital Corp.," and together with Wynn Las Vegas, LLC, the "Issuers") completed the issuance of $900 million aggregate principal amount of 5 1/4% Senior Notes due 2027 (the "2027 Notes") pursuant to an indenture, dated as of May 11, 2017 (the "2027 Indenture"), among the Issuers, all of the Company’s subsidiaries other than Capital Corp. (the "Guarantors") and U.S. Bank National Association, as trustee. The 2027 Notes were issued at par. The Issuers used the net proceeds from the 2027 Notes and cash on hand to cover the cost of extinguishing the 5 3/8% First Mortgage Notes due 2022 (the "2022 Notes").

The 2027 Notes will mature on May 15, 2027 and bear interest at the rate of 5 1/4% per annum. The Issuers may, at their option, redeem the 2027 Notes, in whole or in part, at any time or from time to time prior to their stated maturity. The redemption price for 2027 Notes that are redeemed before February 15, 2027 will be equal to the greater of (a) 100% of the principal amount of the 2027 Notes to be redeemed and (b) a "make-whole" amount described in the 2027 Indenture, plus in either case accrued and unpaid interest, if any, to, but not including, the redemption date. The redemption price for the 2027 Notes that are redeemed on or after February 15, 2027 will be equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date. In the event of a change of control triggering event, the Issuers will be required to offer to repurchase the 2027 Notes at 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the repurchase date. The 2027 Notes are also subject to mandatory redemption requirements imposed by gaming laws and regulations of gaming authorities in Nevada.

The 2027 Notes are the Issuers’ senior unsecured obligations and rank pari passu in right of payment with the Issuers’ outstanding 4 1/4% Senior Notes due 2023 (the "2023 Notes") and 5 1/2% Senior Notes due 2025 (the "2025 Notes," and together with the 2023 Notes, the "Existing Notes"), and rank equally in right of payment with the Issuers’ guarantee of the Wynn America Credit Facilities, and rank senior in right of payment to all of the Issuers’ existing and future subordinated debt. The 2027 Notes are effectively subordinated in right of payment to all of the Issuers’ existing and future secured debt (to the extent of the value of the collateral securing such debt), and structurally subordinated to all of the liabilities of any of the Issuers’ subsidiaries that do not guarantee the 2027 Notes.

The 2027 Notes are jointly and severally guaranteed by all of the Guarantors. The guarantees are senior unsecured obligations of the Guarantors and rank senior in right of payment to all of their existing and future subordinated debt. The guarantees rank equally in right of payment with all existing and future liabilities of the Guarantors that are not so subordinated and will be effectively subordinated in right of payment to all of such Guarantors’ existing and future secured debt (to the extent of the collateral securing such debt).


 
18
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The 2027 Notes are secured by a first priority pledge of the Company’s equity interests, the effectiveness of which is subject to the prior approval of the Nevada gaming authorities. The equity interests in the Company also secure the Existing Notes. If Wynn Resorts, Limited receives an investment grade rating from one or more ratings agencies, the first priority pledge securing the 2027 Notes will be released.

The Issuers and their subsidiaries are restricted subsidiaries under the Wynn America Credit Facilities and are required to guarantee and pledge their assets to secure the obligations of Wynn America, LLC to the extent permitted by any indenture governing the Existing Notes or the 2027 Notes, subject to applicable gaming approvals. The Issuers and their subsidiaries will guarantee and secure their obligations under the Wynn America Credit Facilities with liens on substantially all of their assets, with such liens limiting the amount of such obligations secured to 15% of their Total Assets (as defined in the indenture for the 2025 Notes).

The 2027 Indenture contains covenants limiting the Issuers’ and the Guarantors’ ability to: create liens on assets to secure debt; enter into sale-leaseback transactions; and merge or consolidate with another company. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The 2027 Indenture also provides that Wynn America may assume all of Wynn Las Vegas’ obligations under the 2027 Indenture and the 2027 Notes if certain conditions set forth in the 2027 Indenture are met.

Events of default under the 2027 Indenture include, among others, the following: default for 30 days in the payment when due of interest on the 2027 Notes; default in payment when due of the principal of, or premium, if any, on the 2027 Notes; failure to comply with certain covenants in the 2027 Indenture; and certain events of bankruptcy or insolvency. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any Guarantor, all 2027 Notes then outstanding will become due and payable immediately without further action or notice.

The 2027 Notes were offered pursuant to an exemption under the Securities Act of 1933 (the "Securities Act"). The 2027 Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act or outside the United States to certain persons in reliance on Regulation S under the Securities Act. The 2027 Notes have not been and will not be registered under the Securities Act or under any state securities laws. Therefore, the 2027 Notes may not be offered or sold within the United States to, or for the account or benefit of, any United States person unless the offer or sale would qualify for a registration exemption from the Securities Act and applicable state securities laws.

5 3/8% First Mortgage Notes due 2022

On May 4, 2017, the Issuers commenced a cash tender offer for any and all of the outstanding aggregate principal amount of the 2022 Notes. The Company accepted for purchase valid tenders with respect to $498 million and paid a tender premium of $14.6 million .

On June 12, 2017, the Issuers redeemed the remaining $402 million principal amount of the untendered 2022 Notes and discharged the indenture under which the 2022 Notes were issued. The Company paid a premium of $10.8 million related to this redemption.

In connection with the 2027 Notes issuance and the 2022 Notes cash tender offer and subsequent redemption, the Company recorded a loss on extinguishment of debt of $20.8 million .

Debt Covenant Compliance

Management believes that as of June 30, 2017 , the Company was in compliance with all debt covenants.

Fair Value of Long-Term Debt

The estimated fair value of the Company's long-term debt, excluding the Redemption Note, as of June 30, 2017 and December 31, 2016 was $8.18 billion and $8.33 billion , respectively, compared to its carrying value, excluding debt issuance costs and original issue discount and premium, of $8.05 billion and $8.39 billion , respectively. The estimated fair value of the Company's long-term debt, excluding the Redemption Note, is based on recent trades, if available, and indicative pricing from market information (Level 2 inputs). See Note 2 "Summary of Significant Accounting Policies" for discussion on the estimated fair value of the Redemption Note.

 
19
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
Note 10 - Related Party Transactions

The Company periodically provides services to Stephen A. Wynn, Chairman of the Board of Directors and Chief Executive Officer ("Mr. Wynn"), and certain other officers and directors of the Company, including the personal use of employees, construction work and other personal services, for which the officers and directors reimburse the Company. Mr. Wynn also reimburses the Company for personal usage of aircraft (subject to a $250,000 credit per calendar year) pursuant to a time sharing agreement. Mr. Wynn and other officers and directors have deposits with the Company to prepay any such items, which are replenished on an ongoing basis as needed. Mr. Wynn and the other officers and directors had a net deposit balance with the Company of $0.4 million and $0.3 million as of June 30, 2017 and December 31, 2016 , respectively.

Note 11 - Stock-Based Compensation

The total compensation cost for stock-based compensation plans was recorded as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Casino
$
1,676

 
$
2,211

 
$
3,272

 
$
4,483

Rooms
178

 
83

 
327

 
157

Food and beverage
375

 
229

 
705

 
553

Entertainment, retail and other
42

 
18

 
69

 
36

General and administrative
8,309

 
7,756

 
14,414

 
15,579

Pre-opening

 
157

 

 
274

Total stock-based compensation expense
10,580


10,454

 
18,787

 
21,082

Total stock-based compensation capitalized
31

 
26

 
32

 
51

Total stock-based compensation costs
$
10,611


$
10,480

 
$
18,819

 
$
21,133


Certain members of the Company's executive management team receive a portion of their annual incentive bonus in shares of the Company's stock. The number of shares is determined based on the closing stock price on the date the annual incentive bonus is settled. As the number of shares is variable, the Company records a liability for the fixed monetary amount over the service period. The Company recorded stock-based compensation expense associated with these awards of $4.9 million and $5.2 million for the three months ended June 30, 2017 and 2016, respectively, and $9.9 million and $10.3 million for the six months ended June 30, 2017 and 2016, respectively. The Company settles this obligation by issuing immediately vested shares in January of the following year.

Note 12 - Noncontrolling Interest

On June 20, 2017, WML paid a dividend of HK $0.42 per share for a total of $279.9 million . The Company's share of this dividend was $202.0 million with a reduction of $77.9 million to noncontrolling interest in the accompanying Condensed Consolidated Balance Sheet.

Note 13 - Income Taxes

For the three months ended June 30, 2017 and 2016 , the Company recorded a tax expense of $2.6 million and a tax benefit of $2.9 million , respectively. For the six months ended June 30, 2017 and 2016, the Company recorded a tax expense of $5.5 million and $1.0 million , respectively. The Company's income tax expense and benefit for these periods primarily related to changes in the domestic valuation allowance for U.S. foreign tax credits ("FTCs").

The Company does not consider its portion of the tax earnings and profits of WML to be permanently invested. The Company has not provided deferred U.S. federal income taxes or foreign withholding taxes on temporary differences and expects FTCs to be sufficient to eliminate any U.S. federal income tax in the event of repatriation.

The Company recorded valuation allowances on certain of its U.S. and foreign deferred tax assets. In assessing the need for a valuation allowance, the Company relies solely on the reversal of net taxable temporary differences. The valuation

 
20
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

allowance for FTCs was determined by scheduling the existing U.S. taxable temporary differences that are expected to reverse and result in foreign source income during the 10-year FTC carryover period.

Wynn Macau SA has received a five -year exemption from complementary tax on profits generated by gaming operations through December 31, 2020. For the three months ended June 30, 2017 and 2016, the Company was exempt from the payment of such taxes totaling $13.9 million and $9.6 million , respectively. For the six months ended June 30, 2017 and 2016, the Company was exempt from the payment of such taxes totaling $26.6 million and $20.9 million , respectively.

Wynn Macau SA also entered into an agreement with the Macau government that provides for an annual payment of 12.8 million Macau patacas (approximately $1.6 million ) as complementary tax otherwise due by shareholders of Wynn Macau SA on dividend distributions through 2020.

Note 14 - Commitments and Contingencies

Wynn Boston Harbor Development

On April 28, 2017, Wynn MA, LLC ("Wynn MA"), an indirect wholly owned subsidiary of the Company, and Suffolk Construction Company, Inc. (the "Construction Manager"), entered into an agreement concerning the construction of Wynn Boston Harbor, which, among other things, confirmed the guaranteed maximum price for the construction work undertaken by the Construction Manager. The Construction Manager is obligated to substantially complete the project by June 24, 2019 for a guaranteed maximum price of $1.32 billion . Both the contract time and guaranteed maximum price are subject to further adjustment under certain conditions. The performance of the Construction Manager is backed by a payment and performance bond in the amount of $350.0 million
  
Litigation

In addition to the actions noted below, the Company and its affiliates are involved in litigation arising in the normal course of business. In the opinion of management, such litigation is not expected to have a material effect on the Company's financial condition, results of operations or cash flows.

Determination of Unsuitability and Redemption of Aruze and Affiliates

On February 18, 2012, Wynn Resorts' Gaming Compliance Committee received an independent report by Freeh, Sporkin & Sullivan, LLP (the "Freeh Report") detailing a pattern of misconduct by the Okada Parties. The factual record presented in the Freeh Report included evidence that the Okada Parties had provided valuable items to certain foreign gaming officials who were responsible for regulating gaming in a jurisdiction in which entities controlled by Mr. Okada were developing a gaming resort. Mr. Okada denied the impropriety of such conduct to members of the Board of Directors of Wynn Resorts and, while serving as one of the Company's directors, Mr. Okada refused to acknowledge or abide by Wynn Resorts' anti-bribery policies and refused to participate in the training all other directors received concerning these policies.

Based on the Freeh Report, the Board of Directors of Wynn Resorts determined that the Okada Parties are "unsuitable persons" under Article VII of the Company's articles of incorporation. The Board of Directors was unanimous (other than Mr. Okada) in its determination. After authorizing the redemption of Aruze's shares, as discussed below, the Board of Directors took certain actions to protect the Company and its operations from any influence of an unsuitable person, including placing limitations on the provision of certain operating information to unsuitable persons and formation of an Executive Committee of the Board to manage the business and affairs of the Company during the period between each annual meeting. The Charter of the Executive Committee provides that "Unsuitable Persons" are not permitted to serve on the Committee. All members of the Board, other than Mr. Okada, were appointed to the Executive Committee on February 18, 2012. The Board of Directors also requested that Mr. Okada resign as a director of Wynn Resorts (under Nevada corporation law, a board of directors does not have the power to remove a director) and recommended that Mr. Okada be removed as a member of the Board of Directors of WML. On February 18, 2012, Mr. Okada was removed from the Board of Directors of Wynn Las Vegas Capital Corp., an indirect wholly owned subsidiary of Wynn Resorts. On February 24, 2012, Mr. Okada was removed from the Board of Directors of WML and on February 22, 2013, he was removed from the Board of Directors of Wynn Resorts by a stockholder vote in which 99.6% of the over 86 million shares voted were cast in favor of removal. Mr. Okada resigned from the Board of Directors of Wynn Resorts on February 21, 2013. Although the Company has retained the structure of the Executive Committee, the Board has resumed its past role in managing the business and affairs of the Company.


 
21
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Based on the Board of Directors' finding of "unsuitability," on February 18, 2012, Wynn Resorts redeemed and canceled Aruze's 24,549,222 shares of Wynn Resorts' common stock. Following a finding of "unsuitability," Article VII of Wynn Resorts' articles of incorporation authorizes redemption at "fair value" of the shares held by unsuitable persons. The Company engaged an independent financial advisor to assist in the fair value calculation and concluded that a discount to the then current trading price was appropriate because of, among other things, restrictions on most of the shares held by Aruze under the terms of the Stockholders Agreement (as defined below). Pursuant to its articles of incorporation, Wynn Resorts issued the Redemption Note to Aruze in redemption of the shares. The Redemption Note has a principal amount of $1.94 billion , matures on February 18, 2022 , and bears interest at the rate of 2%  per annum, payable annually in arrears on each anniversary of the date of the Redemption Note. The Company may, in its sole and absolute discretion, at any time and from time to time, and without penalty or premium, prepay the whole or any portion of the principal or interest due under the Redemption Note. In no instance shall any payment obligation under the Redemption Note be accelerated except in the sole and absolute discretion of Wynn Resorts or as specifically mandated by law. The indebtedness evidenced by the Redemption Note is and shall be subordinated in right of payment, to the extent and in the manner provided in the Redemption Note, to the prior payment in full of all existing and future obligations of Wynn Resorts or any of its affiliates in respect of indebtedness for borrowed money of any kind or nature.

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

Redemption Action and Counterclaim

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

On March 12, 2012, the Okada Parties removed the action to the United States District Court for the District of Nevada (the action was subsequently remanded to Nevada state court). On that same date, the Okada Parties filed an answer denying the claims and a counterclaim (as amended, the "Counterclaim") that purports to assert claims against the Company, each of the members of the Company's Board of Directors (other than Mr. Okada) and Wynn Resorts' General Counsel (the "Wynn Parties"). The Counterclaim alleges, among other things: (1) that the shares of Wynn Resorts common stock owned by Aruze were exempt from the redemption-for-unsuitability provisions in the Wynn Resorts articles of incorporation (the "Articles") pursuant to certain agreements executed in 2002; (2) that the Wynn Resorts directors who authorized the redemption of Aruze's shares acted at the direction of Mr. Wynn and did not independently and objectively evaluate the Okada Parties' suitability, and by so doing, breached their fiduciary duties; (3) that the Wynn Resorts directors violated the terms of the Wynn Resorts Articles by failing to pay Aruze fair value for the redeemed shares; and (4) that the terms of the Redemption Note that Aruze received in exchange for the redeemed shares, including the Redemption Note's principal amount, duration, interest rate, and subordinated status, were unconscionable. Among other relief, the Counterclaim seeks a declaration that the redemption of Aruze's shares was void, an injunction restoring Aruze's share ownership, damages in an unspecified amount and rescission of the Amended and Restated Stockholders Agreement, dated as of January 6, 2010, by and among Aruze, Mr. Wynn, and Elaine Wynn (the "Stockholders Agreement").
    
On June 19, 2012, Elaine Wynn asserted a cross claim against Mr. Wynn and Aruze seeking a declaration that (1) any and all of Elaine Wynn's duties under the Stockholders Agreement shall be discharged; (2) the Stockholders Agreement is subject to rescission and is rescinded; (3) the Stockholders Agreement is an unreasonable restraint on alienation in violation of public policy; and/or (4) the restrictions on sale of shares shall be construed as inapplicable to Elaine Wynn. On March 28, 2016, Elaine Wynn filed an amended cross claim which added Wynn Resorts and Wynn Resorts' General Counsel (together with Mr. Wynn, the "Wynn Cross Defendants") as cross defendants. The amended cross claim substantially repeats its earlier allegations and further alleges that Mr. Wynn engaged in acts of misconduct that, with the Wynn Cross Defendants, resulted in Mr. Wynn allegedly breaching the Stockholders Agreement and violating alleged duties under the Stockholders Agreement by preventing Elaine Wynn from being nominated and elected to serve as one of the Company's directors. In addition to continuing to seek the declarations asserted under the original cross claim, the amended cross claim seeks an order compelling Mr. Wynn to comply

 
22
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

with the Stockholders Agreement by assuring the nomination and election of Elaine Wynn to the Board of Directors and seeks unspecified monetary damages from Mr. Wynn and the Wynn Cross Defendants. The Wynn Cross Defendants filed motions to dismiss and a motion to sever in April 2016. On May 5, 2016, the court granted Wynn Resorts' and Wynn Resorts' General Counsel's motions to dismiss and denied Mr. Wynn's motion to dismiss. On May 26, 2016, the court denied the Wynn Cross Defendants' motion to sever. On May 1, 2017, the court granted Elaine Wynn leave to file an amended cross claim against the Wynn Cross Defendants which substantially repeats the allegations contained in the previous version of Ms. Wynn’s cross claim. Elaine Wynn filed such amended cross claim on May 17, 2017. On July 10, 2017, the court denied Wynn Resorts' and Wynn Resorts' General Counsel’s motions to dismiss, and on July 24, 2017, the court denied Wynn Resorts' motion to sever. The Wynn Cross Defendants will vigorously defend against the claims asserted against them.
 
The indenture for the 2023 Notes (the "2023 Indenture") provides that if Mr. Wynn, together with certain related parties, in the aggregate beneficially owns a lesser percentage of the voting power of the outstanding common stock of the Company than is beneficially owned by any other person, a change of control will have occurred. The indenture for the 2025 Notes (the "2025 Indenture") and the 2027 Indenture each provides that if any event constitutes a "change of control" under the 2023 Indenture, it will constitute a change of control under the 2025 Indenture and the 2027 Indenture, respectively. If the Stockholders Agreement is determined not to be enforceable pursuant to Elaine Wynn's cross claim, Mr. Wynn would not beneficially own or control Elaine Wynn's shares, which could increase the likelihood that a change in control may occur under the Wynn Las Vegas, LLC debt documents. Under the 2023 Indenture, the 2025 Indenture and the 2027 Indenture, if (1) a change of control occurs and (2) at any time within 60 days after that occurrence, the 2023 Notes or the 2025 Notes, as applicable, are rated below investment grade by both rating agencies that rate such notes and, in the case of the 2027 Indenture, the ratings of the 2027 Notes have decreased below the ratings assigned to the 2027 Notes on the date they were issued as described in the 2027 Indenture, the Company is required to make an offer to each applicable holder to repurchase all or any part of such holder's notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest on the notes purchased, if any, to the date of repurchase (unless the notes have been previously called for redemption).

The Company's Complaint and the Okada Parties' Counterclaim have been, and continue to be, challenged through motion practice. At a hearing held on November 13, 2012, the Nevada state court granted the Wynn Parties' motion to dismiss the Counterclaim with respect to the Okada Parties' claim under the Nevada Racketeer Influenced and Corrupt Organizations Act with respect to certain Company executives but otherwise denied the motion. At a hearing held on January 15, 2013, the court denied the Okada Parties' motion to dismiss the Company's Complaint. On April 22, 2013, the Company filed a second amended complaint. On August 30, 2013, the Okada Parties filed their third amended Counterclaim. On September 18, 2013, the Company filed a Partial Motion to Dismiss related to a claim in the third amended Counterclaim alleging civil extortion by Mr. Wynn and the Company's General Counsel. On October 29, 2013, the court granted the motion and dismissed the claim. On November 26, 2013, the Okada Parties filed their fourth amended Counterclaim, and the Company filed an answer to that pleading on December 16, 2013. On September 16, 2014, Aruze filed a motion for partial summary judgment related to its counterclaim alleging the Company's directors violated the terms of the Articles by failing to pay Aruze fair value for the redeemed shares. At a hearing held on October 21, 2014, the court denied Aruze's motion. On October 10, 2014, the Okada Parties filed a motion for partial judgment on the pleadings principally to seek dismissal of certain breach of fiduciary claims against Mr. Okada included in the Company's Complaint. On November 13, 2014, the court denied the motion.

On each of February 14, 2013 and February 13, 2014, the Company issued a check to Aruze in the amount of $38.7 million , representing the interest payments due on the Redemption Note at those times. However, those checks were not cashed. In February 2014, the Okada Parties advised of their intent to deposit any checks for interest and principal, past and future, due under the terms of the Redemption Note to the clerk of the court for deposit into the clerk's trust account. On March 17, 2014, the parties stipulated that the checks be returned to the Company for reissue in the same amounts, payable to the clerk of the court for deposit into the clerk's trust account. Pursuant to the stipulation, on March 20, 2014, the Company delivered to the clerk of the court the reissued checks that were deposited into the clerk's trust account and filed a notice with the court with respect to the same. On each of February 13, 2015, February 12, 2016, and February 13, 2017, the Company issued a check for the interest payment due at those times to the clerk of the court for deposit into the clerk's trust account.

On April 8, 2013, the United States Attorney's Office and the U.S. Department of Justice filed a Motion to Intervene and for Temporary and Partial Stay of Discovery in the Redemption Action. The parties had been engaged in discovery at the time of the filing. The motion stated that the federal government has been conducting a criminal investigation of the Okada Parties involving the "same underlying allegations of misconduct—that is, potential violations of the Foreign Corrupt Practice Act and related fraudulent conduct—that form the basis of" the Company's complaint, as amended, in the Redemption Action. The motion sought to stay all discovery in the Redemption Action related to the Okada Parties' allegedly unlawful activities in connection with their casino project in the Philippines until the conclusion of the criminal investigation and any resulting

 
23
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

criminal prosecution, with an interim status update to the court in six months. At a hearing on May 2, 2013, the court granted the motion and ordered that all discovery in the Redemption Action be stayed for a period of six months (the "Stay"). On May 30, 2013, Elaine Wynn filed a motion for partial relief from the Stay, to allow her to conduct limited discovery related to her cross and counterclaims. The Wynn Parties opposed the motion so as to not interfere with the United States government's investigation. At a hearing on August 1, 2013, the court denied the motion. On October 29, 2013, the United States Attorney's Office and the U.S. Department of Justice filed a Motion to Extend the Stay for a further period of six months. At a hearing on October 31, 2013, the court granted the requested extension based upon an affidavit provided under seal that outlined, among other things, concerns for witness safety. The court did, however, order the parties to exchange written discovery propounded prior to May 2, 2013, including discovery related to the Elaine Wynn cross and counterclaims referred to above. The extended Stay expired on May 5, 2014. On April 29, 2014, the United States Attorney's Office and the U.S. Department of Justice filed a Motion for a Second Extension of Temporary Stay of Discovery for a further six months. At a hearing on May 1, 2014, the court denied the motion.

In June 2016, Wynn Resorts filed a motion to disqualify Quinn Emanuel Urquhart & Sullivan, LLP ("QE"), one of Ms. Wynn's law firms, and sought an injunction related to Ms. Wynn providing her attorneys with confidential and privileged information that belongs to Wynn Resorts. On June 23, 2016, the court stayed discovery as to both Ms. Wynn and the Okada Parties (the "Discovery Stay"), pending an evidentiary disqualification hearing. On January 23, 2017, the court issued a temporary restraining order that halted QE’s participation in the case, with the sole exception of contesting its disqualification. QE withdrew as counsel for Ms. Wynn on March 9, 2017, and Ms. Wynn retained new counsel prior to the start of the evidentiary hearing, which began on March 13, 2017. On March 17, 2017, the evidentiary hearing was vacated because Ms. Wynn and QE stipulated to a permanent injunction requiring the destruction or return of all Company information. On March 27, 2017, the Discovery Stay was lifted.

The litigation is currently in the discovery phase and trial is scheduled to begin on April 16, 2018. Wynn Resorts will continue to vigorously pursue its claims against the Okada Parties, and Wynn Resorts and the Wynn Parties will continue to vigorously defend against the counterclaims asserted against them. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any. An adverse judgment or settlement involving payment of a material amount could cause a material adverse effect on Wynn Resorts' financial condition.

Litigation Commenced by Kazuo Okada

Indemnification Action:

On March 20, 2013, Mr. Okada filed a complaint against the Company in Nevada state court for indemnification under the Company's Articles, bylaws and agreements with its directors. The complaint sought advancement of Mr. Okada's costs and expenses (including attorney's fees) incurred pursuant to the various legal proceedings and related regulatory investigations described above. The Company's answer and counterclaim was filed on April 15, 2013. The counterclaim named each of the Okada Parties as defendants and sought indemnification under the Company's Articles for costs and expenses (including attorney's fees) incurred pursuant to the various legal proceedings and related regulatory investigations described above. On April 30, 2013, Mr. Okada filed his reply to the counterclaim. On February 4, 2014, the court entered an order on the parties' stipulation that: (1) dismissed all claims Mr. Okada asserted against the Company; (2) reserved Mr. Okada's right to assert, in the future, any claims for indemnity following the resolution of the Redemption Action; and (3) stayed the claims asserted by the Company against Mr. Okada pending the resolution of the Redemption Action.

The Company believes the action commenced by Mr. Okada is without merit and will vigorously defend itself against the claims pleaded against it. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of this action or the range of reasonably possible loss, if any.

Macau Action:

On July 3, 2015, WML announced that the Okada Parties filed a complaint in the Court of First Instance of Macau ("Macau Court") against Wynn Macau SA and certain individuals who are or were directors of Wynn Macau SA and or WML (collectively, the "Wynn Macau Parties"). The principal allegations in the lawsuit are that the redemption of the Okada Parties' shares in Wynn Resorts was improper and undervalued, that the previously disclosed payment by Wynn Macau SA to an unrelated third party in consideration of relinquishment by that party of certain rights in and to any future development on the land in Cotai where Wynn Palace is located was unlawful and that the previously disclosed donation by Wynn Resorts to the

 
24
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

University of Macau Development Foundation was unlawful. The plaintiffs seek dissolution of Wynn Macau SA and compensatory damages. The Macau Court has served the complaint on the defendants and the Wynn Macau Parties filed their response on May 17, 2016. On July 11, 2017, the Macau Court dismissed all claims by the Okada Parties as unfounded, fined the Okada Parties as vexatious litigants, and ordered the Okada Parties to pay for court costs and Wynn Macau Parties' attorney's fees.
 
Related Investigations and Derivative Litigation

Investigations:

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

Other regulators may pursue separate investigations into the Company's compliance with applicable laws arising from the allegations in the matters described above and in response to the Counterclaim and other litigation filed by Mr. Okada suggesting improprieties in connection with the Company's donation to the University of Macau Development Foundation. While the Company believes that it is in full compliance with all applicable laws, any such investigations could result in actions by regulators against the Company. Prior investigations by the Nevada Gaming Control Board and SEC were closed with no actions taken.

Derivative Claims:

Six derivative actions were commenced against the Company and all members of its Board of Directors: four in the United States District Court, District of Nevada, and two in the Eighth Judicial District Court of Clark County, Nevada.

The four federal actions brought by the plaintiffs (collectively, the “Federal Plaintiffs”) were consolidated. On February 1, 2013, the federal court dismissed the complaint for failure to plead adequately the futility of a pre-suit demand on the Board. The dismissal was without prejudice to the Federal Plaintiffs' ability to file a motion within 30 days seeking leave to file an amended complaint. On April 9, 2013, the Federal Plaintiffs filed their amended complaint. The Company and the directors filed their motion to dismiss the amended complaint on May 23, 2013. On March 13, 2014, the federal court granted the motion to dismiss and entered judgment in favor of the Company and directors and against the Federal Plaintiffs without prejudice. On April 10, 2014, the Federal Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit. On July 18, 2016, the Ninth Circuit affirmed the federal court's dismissal.


 
25
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Two state derivative actions were commenced against the Company and all members of its Board of Directors in the Eighth Judicial District Court of Clark County, Nevada. These state court actions brought by the following plaintiffs have been consolidated: (1) IBEW Local 98 Pension Fund and (2) Danny Hinson (collectively, the "State Plaintiffs"). Through a coordination of efforts by all parties, the directors and the Company (a nominal defendant) have been served in all of the actions. The State Plaintiffs filed a consolidated complaint on July 20, 2012 asserting claims for (1) breach of fiduciary duty; (2) abuse of control; (3) gross mismanagement; and (4) unjust enrichment. The claims are against the Company and all Company directors during the applicable period, including Mr. Okada, as well as the Company's Chief Financial Officer who signed financial disclosures filed with the SEC during the applicable periods. The State Plaintiffs claim that the individual defendants failed to disclose to the Company's stockholders the investigation into, and the dispute with director Okada as well as the alleged potential violations of the FCPA related to, the University of Macau Development Foundation donation. The State Plaintiffs seek unspecified monetary damages (compensatory and punitive), disgorgement, reformation of corporate governance procedures, an order directing the Company to internally investigate the donation, as well as attorney's fees and costs. On October 13, 2012, the court entered the parties' stipulation providing for a stay of the state derivative action for 90 days, subject to the parties' obligation to monitor the progress of the pending litigation, discussed above, between Wynn Resorts (among others) and Mr. Okada (among others). Per the stipulation, the Company and the individual defendants were not required to respond to the consolidated complaint while the stay remained in effect. Following the expiration of the stay, the State Plaintiffs advised the Company and the individual defendants that they intended to resume the action by filing an amended complaint, which they did, on April 26, 2013. The Company and directors filed their motion to dismiss on June 10, 2013. However, on July 31, 2013, the parties agreed to a stipulation that was submitted to, and approved by the court. The stipulation contemplates a stay of the consolidated state court derivative action of equal duration as the Stay entered by the court in the Redemption Action. On June 18, 2014, the court entered a new stipulation between the parties that provides for further stay of the state derivative action and directs the parties, within 45 days of the conclusion of the latter of the Redemption Action or the federal derivative action, to discuss how the state derivative action should proceed and to file a joint report with the court.

The individual defendants are vigorously defending against the claims pleaded against them. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any.

Massachusetts Gaming License Related Action

On September 17, 2014, the Massachusetts Gaming Commission ("MGC") designated Wynn MA the award winner of the Greater Boston (Region A) gaming license. On November 7, 2014, the gaming license became effective.

On October 16, 2014, the City of Revere, the host community to the unsuccessful bidder for the same license, and the International Brotherhood of Electrical Workers, Local 103 ("IBEW") filed a complaint against the MGC and each of the five gaming commissioners in Suffolk Superior Court in Boston, Massachusetts (the "Revere Action"). The complaint challenges the MGC's decision and alleges that the MGC failed to follow statutory requirements outlined in the Gaming Act. The complaint (1) seeks to appeal the administrative decision, (2) asserts that certiorari provides a remedy to correct errors in proceedings by an agency such as the MGC, (3) challenges the constitutionality of that section of the gaming law which bars judicial review of the MGC's decision to deny an applicant a gaming license, and (4) alleges violations of the open meeting law requirements. The court allowed Mohegan Sun ("Mohegan"), the other applicant for the Greater Boston (Region A) gaming license, to intervene in the Revere Action, and on February 23, 2015, Mohegan filed its complaint. The Mohegan complaint challenges the license award to Wynn MA, seeks judicial review of the MGC's decision, and seeks to vacate the MGC's license award to Wynn MA. On July 1, 2015, the MGC filed motions to dismiss Mohegan's and the City of Revere's complaints. On December 3, 2015, the court granted the motion to dismiss the claims asserted in the Revere Action. Also on December 3, 2015, the court granted the motion to dismiss three of the four counts asserted by Mohegan but denied the motion as to Mohegan's certiorari claim. The City of Revere and IBEW sought immediate appellate review of the dismissal of their claims and the MGC requested immediate appellate review of the court's denial of the MGC's motion to dismiss Mohegan's certiorari claim. All three petitions for interlocutory review were denied. On April 22, 2016, the MGC filed an appeal to the Massachusetts Supreme Judicial Court ("SJC"). On May 11, 2016, the SJC granted the application. The SJC granted the City of Revere and IBEW's application for direct appellate review. On March 10, 2017, the SJC affirmed the trial court’s dismissal of the City of Revere’s claims and IBEW’s claims. The SJC affirmed the court’s dismissal of Mohegan’s claims except for the certiorari claim, which the SJC remanded to the Suffolk Superior Court. The SJC reversed the court’s dismissal of the individual plaintiffs’ open meeting law claim and remanded that claim to the Suffolk Superior Court.

Wynn MA was not named in the above complaint. The MGC retained private legal representation at its own nontaxpayer-funded expense.

 
26
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Note 15 - Segment Information

The Company reviews the results of operations for each of its operating segments. Wynn Macau and Encore, an expansion at Wynn Macau, are managed as a single integrated resort and have been aggregated as one reportable segment ("Wynn Macau"). Wynn Palace is presented as a separate reportable segment and is combined with Wynn Macau (collectively, "Macau Operations") for geographical presentation. Wynn Las Vegas and Encore, an expansion at Wynn Las Vegas, are managed as a single integrated resort and have been aggregated as one reportable segment ("Las Vegas Operations"). The Company identifies each resort as a reportable segment considering operations within each resort have similar economic characteristics, type of customers, types of services and products, the regulatory environment of the operations and the Company's organizational and management reporting structure.

The Company also reviews construction and development activities for each of its projects under development, in addition to its reportable segments. The Company separately identifies assets for its Wynn Boston Harbor development project. Other Macau primarily represents the Company's Macau holding company.


 
27
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The following tables present the Company's segment information (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net revenues
 
 
 
 
 
 
 
   Macau Operations:
 
 
 
 
 
 
 
Wynn Macau
$
682,709

 
$
639,315

 
$
1,269,740

 
$
1,247,558

Wynn Palace
414,651

 

 
890,425

 

              Total Macau Operations
1,097,360

 
639,315

 
2,160,165

 
1,247,558

    Las Vegas Operations
431,901

 
419,049

 
844,776

 
808,484

Total
$
1,529,261

 
$
1,058,364

 
$
3,004,941

 
$
2,056,042

Adjusted Property EBITDA  (1)
 
 
 
 
 
 
 
   Macau Operations:
 
 
 
 
 
 
 
Wynn Macau
$
210,398

 
$
190,389

 
$
391,504

 
$
381,634

Wynn Palace
87,403

 

 
199,259

 

              Total Macau Operations
297,801

 
190,389

 
590,763

 
381,634

    Las Vegas Operations
132,210

 
122,290

 
266,787

 
231,314

Total
430,011

 
312,679

 
857,550

 
612,948

Other operating expenses
 
 
 
 
 
 
 
Pre-opening
6,758

 
45,949

 
12,537

 
79,718

Depreciation and amortization
137,686

 
79,749

 
277,506

 
157,720

Property charges and other
7,165

 
11,331

 
10,201

 
12,852

Corporate expenses and other
20,933

 
17,814

 
41,700

 
35,997

Stock-based compensation
10,580

 
10,297

 
18,787

 
20,808

Equity in income from unconsolidated affiliates

 

 

 
16

Total other operating expenses
183,122

 
165,140

 
360,731

 
307,111

Operating income
246,889

 
147,539

 
496,819

 
305,837

Other non-operating income and expenses
 
 
 
 
 
 
 
Interest income
7,080

 
2,783

 
13,551

 
6,262

Interest expense, net of amounts capitalized
(97,739
)
 
(69,257
)
 
(196,001
)
 
(114,029
)
Change in interest rate swap fair value
(283
)
 
(1,036
)
 
(1,054
)
 
(2,861
)
Change in Redemption Note fair value
(12,417
)
 
7,982

 
(28,264
)
 
2,979

Loss on extinguishment of debt
(22,287
)
 

 
(22,287
)
 

Equity in income from unconsolidated affiliates

 

 

 
16

Other
(11,840
)
 
(1,462
)
 
(17,947
)
 
(1,945
)
Total other non-operating income and expenses
(137,486
)
 
(60,990
)
 
(252,002
)
 
(109,578
)
Income before income taxes
109,403

 
86,549

 
244,817

 
196,259

Benefit (provision) for income taxes
(2,607
)
 
2,893

 
(5,497
)
 
(1,025
)
Net income
106,796

 
89,442

 
239,320

 
195,234

Net income attributable to noncontrolling interests
(31,880
)
 
(19,051
)
 
(63,589
)
 
(49,622
)
Net income attributable to Wynn Resorts, Limited
$
74,916

 
$
70,391

 
$
175,731

 
$
145,612

 
(1)
"Adjusted Property EBITDA" is net income before interest, taxes, depreciation and amortization, pre-opening expenses, property charges and other, management and license fees, corporate expenses and other (including intercompany golf course and water rights leases), stock-based compensation, change in interest rate swap fair value, change in Redemption Note fair value, loss on extinguishment of debt and other non-operating income and expenses, and includes equity in income from unconsolidated affiliates. Adjusted Property EBITDA is presented exclusively as a supplemental disclosure because management believes that it is widely used to measure the performance, and as a basis for valuation, of gaming

 
28
 

WYNN RESORTS, LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

companies. Management uses Adjusted Property EBITDA as a measure of the operating performance of its segments and to compare the operating performance of its properties with those of its competitors, as well as a basis for determining certain incentive compensation. The Company also presents Adjusted Property EBITDA because it is used by some investors as a way to measure a company's ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDA as a supplement to financial measures in accordance with GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including Wynn Resorts, have historically excluded from their EBITDA calculations pre-opening expenses, property charges, corporate expenses and stock-based compensation that do not relate to the management of specific casino properties. However, Adjusted Property EBITDA should not be considered as an alternative to operating income as an indicator of the Company's performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike measures of net income, Adjusted Property EBITDA does not include depreciation or interest expense and therefore does not reflect current or future capital expenditures or the cost of capital. The Company has significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted Property EBITDA. Also, Wynn Resorts' calculation of Adjusted Property EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.
 
June 30,
2017
 
December 31,
2016
Assets
 
 
 
Macau Operations:
 
 
 
Wynn Macau
$
1,106,481

 
$
1,161,670

Wynn Palace
4,126,476

 
4,317,458

Other Macau
27,215

 
28,927

              Total Macau Operations
5,260,172