14. Benefit Plans
Employee Savings Plan
The Company established a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its U.S. non-union employees in July 2000. The plan allows employees to defer, within prescribed limits, a percentage of their income on a pre-tax basis through contributions to this plan. On April 30, 2013, the Company announced a 401(k) plan match for the 2013 plan year. For the 2013 plan year, the Company matched 50% of employee contributions, up to 6% of employees’ paychecks, with a one-time annual matching cap of $500 per employee. The company expensed $1.2 million related to this match as of December 31, 2013. The Company suspended matching contributions to this plan effective March 2009 and did not record any expense for matching contributions for the years ended December 31, 2012 and 2011, respectively.
Wynn Macau also operates a defined contribution retirement benefits plan (the “Wynn Macau Plan”). Eligible employees are allowed to contribute 5% of their salary to the Wynn Macau Plan and the Company matches any contributions. The assets of the Wynn Macau Plan are held separately from those of the Company in an independently administered fund. The Company’s matching contributions vest to the employee at 10% per year with full vesting in ten years. Forfeitures of unvested contributions are used to reduce the Company’s liability for its contributions payable. During the years ended December 31, 2013, 2012 and 2011, the Company recorded an expense for matching contributions of $7.5 million, $7.1 million and $6.6 million, respectively.
Multi-employer pension plan
Wynn Las Vegas contributes to a multi-employer defined benefit pension plan for certain of its union employees under the terms of the Southern Nevada Culinary and Bartenders Union collective-bargaining agreement. The collective-bargaining agreement that covers these union-represented employees expires in 2016. The legal name of the multi-employer pension plan is the Southern Nevada Culinary and Bartenders Pension Plan (the “Plan”) (EIN: 88-6016617 Plan Number: 001). The Company recorded an expense of $9 million, $8.6 million and $7.6 million for contributions to the Plan for the years ended December 31, 2013, 2012 and 2011, respectively. For the 2012 plan year, the most recent for which plan data is available, the Company’s contributions were identified by the Plan to exceed 5% of total contributions for that year. Based on information the Company received from the Plan, it was certified to be in neither endangered nor critical status for the 2012 plan year. Risks of participating in a multi-employer plan differs from single-employer plans for the following reasons: (1) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (3) if a participating employer stops participating, it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
Stock-Based Compensation
The Company established the 2002 Stock Incentive Plan (the “WRL Stock Plan”) to provide for the grant of (i) incentive stock options, (ii) compensatory (i.e., nonqualified) stock options, and (iii) nonvested shares of Common Stock of Wynn Resorts, Limited. Employees, directors (whether employee or nonemployee) and independent contractors or consultants of the Company are eligible to participate in the WRL Stock Plan. However, only employees of the Company are eligible to receive incentive stock options.
A maximum of 12,750,000 shares of Common Stock are reserved for issuance under the WRL Stock Plan. As of December 31, 2013, 4,438,524 shares remain available for the grant of stock options or nonvested shares of Common Stock.
Options are granted at the current market price at the date of grant. The WRL Stock Plan provides for a variety of vesting schedules all determined at the time of grant. All options expire ten years from the date of grant.
A summary of option activity under the WRL Stock Plan as of December 31, 2013, and the changes during the year then ended is presented below:
| Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
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Outstanding at January 1, 2013 |
2,397,820 | $ | 66.89 | |||||||||||||
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Granted |
77,800 | $ | 139.54 | |||||||||||||
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Exercised |
(383,151 | ) | $ | 53.34 | ||||||||||||
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Forfeited or expired |
(486,160 | ) | $ | 59.50 | ||||||||||||
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Outstanding at December 31, 2013 |
1,606,309 | $ | 75.89 | 5.30 | $ | 190,064,746 | ||||||||||
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Fully vested and expected to vest at December 31, 2013 |
1,546,461 | $ | 75.63 | 5.31 | $ | 183,393,072 | ||||||||||
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Exercisable at December 31, 2013 |
181,761 | $ | 69.79 | 4.93 | $ | 22,614,588 | ||||||||||
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The following information is provided for stock options of the WRL Stock Plan (amounts in thousands, except weighted average grant date fair value):
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Weighted average grant date fair value |
$ | 39.93 | $ | 33.03 | $ | 48.31 | ||||||
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Intrinsic value of stock options exercised |
$ | 33,830 | $ | 22,416 | $ | 36,776 | ||||||
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Net cash proceeds from the exercise of stock options |
$ | 20,436 | $ | 15,583 | $ | 23,789 | ||||||
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Tax benefits realized from the exercise of stock options and vesting of restricted stock |
$ | 10,474 | $ | 5,537 | $ | 11,176 | ||||||
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As of December 31, 2013, there was a total of $33.4 million of unamortized compensation related to stock options, which is expected to be recognized over the vesting period of the related grants through May 2019.
A summary of the status of the WRL Stock Plan’s nonvested shares as of December 31, 2013 and changes during the year then ended is presented below:
| Shares | Weighted Average Grant Date Fair Value |
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Nonvested at January 1, 2013 |
651,500 | $ | 103.27 | |||||
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Granted |
135,400 | 125.56 | ||||||
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Vested |
(310,900 | ) | 116.85 | |||||
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Forfeited |
(78,500 | ) | 131.79 | |||||
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Nonvested at December 31, 2013 |
397,500 | $ | 113.13 | |||||
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The following information is provided for nonvested stock of the WRL Stock Plan (amounts in thousands, except weighted average grant date fair value):
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Weighted average grant date fair value |
$ | 125.56 | $ | 110.04 | $ | 129.55 | ||||||
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Fair value of shares vested |
$ | 36,328 | $ | 15,653 | $ | 24,865 | ||||||
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Approximately $26.3 million of unamortized compensation cost relating to nonvested shares of Common Stock at December 31, 2013 will be recognized as compensation over the vesting period of the related grants through October 2021.
Wynn Macau, Limited Stock Incentive Plan
The Company’s majority-owned subsidiary Wynn Macau, Limited adopted a stock incentive plan effective September 16, 2009 (the “WML Stock Plan”). The purpose of the WML Stock Plan is to reward participants, which may include directors and employees of Wynn Macau, Limited who have contributed towards enhancing the value of Wynn Macau and its shares. A maximum of 518,750,000 shares have been reserved for issuance under the WML Stock Plan. The Wynn Macau, Limited shares available for issuance under the WML Stock Plan are separate and distinct from the common stock of Wynn Resorts equity compensation plans and are not available for issuance for any awards under any of the Wynn Resorts equity compensation plans.
A summary of option activity under the WML Stock Plan as of December 31, 2013, and the changes during the year then ended is presented below:
| Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
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Outstanding at January 1, 2013 |
2,110,000 | $ | 2.15 | |||||||||||||
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Granted |
800,000 | $ | 3.21 | |||||||||||||
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Exercised |
— | — | ||||||||||||||
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Outstanding at December 31, 2013 |
2,910,000 | $ | 2.44 | 7.8 | $ | 6,082,136 | ||||||||||
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Fully vested and expected to vest at December 31, 2013 |
2,910,000 | $ | 2.44 | 7.8 | $ | 6,082,136 | ||||||||||
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Exercisable at December 31, 2013 |
862,000 | $ | 1.95 | 6.8 | $ | 2,224,036 | ||||||||||
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The following information is provided for stock options of the WML Stock Plan (amounts in thousands, except weighted average grant date fair value):
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Weighted average grant date fair value |
$ | 0.78 | $ | 0.78 | $ | 0.75 | ||||||
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Intrinsic value of stock options exercised |
$ | — | $ | — | $ | 99.2 | ||||||
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Net cash proceeds from exercise of stock options |
$ | — | $ | — | $ | 70.2 | ||||||
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As of December 31, 2013, there was a total of $0.7 million of unamortized compensation related to stock options, which is expected to be recognized over the vesting period of the related grants through June 2017.
Compensation Cost
The Company uses the Black-Scholes valuation model to determine the estimated fair value for each option grant issued, with highly subjective assumptions, changes in which could materially affect the estimated fair value. Expected volatility is based on implied and historical factors related to the Company’s Common Stock. Expected term represents the weighted average time between the option’s grant date and its exercise date. The risk-free interest rate used for each period presented is based on the U.S. Treasury yield curve for WRL Stock Plan options or the Hong Kong Exchange Fund rates for the WML Stock Plan options at the time of grant for the period equal to the expected term.
The fair value of stock options granted under the WRL Stock Plan was estimated on the date of grant using the following weighted-average assumptions:
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Expected dividend yield |
3.0 | % | 4.0 | % | 4.0 | % | ||||||
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Expected stock price volatility |
39.4 | % | 48.8 | % | 49.7 | % | ||||||
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Risk-free interest rate |
1.1 | % | 1.2 | % | 2.4 | % | ||||||
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Expected average life of options (years) |
6.7 | 7.0 | 6.5 | |||||||||
The fair value of stock options granted under the WML Stock Plan was estimated on the date of grant using the following assumptions:
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Expected dividend yield |
5.0 | % | 4.0 | % | 4.0 | % | ||||||
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Expected stock price volatility |
43.3 | % | 49.0 | % | 37.8 | % | ||||||
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Risk-free interest rate |
0.6 | % | 0.7 | % | 2.1 | % | ||||||
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Expected average life of options (years) |
6.5 | 6.5 | 6.5 | |||||||||
The total compensation cost for both the WRL Stock Plan and the WML Stock Plan is allocated as follows (amounts in thousands):
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Casino |
$ | 4,791 | $ | 4,794 | $ | 8,997 | ||||||
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Rooms |
853 | 313 | 383 | |||||||||
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Food and beverage |
1,202 | 178 | 429 | |||||||||
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Entertainment, retail and other |
477 | 43 | 24 | |||||||||
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General and administrative |
32,214 | 14,320 | 14,048 | |||||||||
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Total stock-based compensation expense |
39,537 | 19,648 | 23,881 | |||||||||
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Total stock-based compensation capitalized |
196 | 195 | 886 | |||||||||
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Total stock-based compensation costs |
$ | 39,733 | $ | 19,843 | $ | 24,767 | ||||||
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For the year ended December 31, 2013, the Company recorded a charge in accordance with applicable accounting standards, of approximately $23 million due to the retirement of the Company’s former chief operating officer and the related accelerated vesting of shares previously granted to him.
For the year ended December 31, 2012, the Company reversed stock-based compensation expense allocated to casino operations related to stock options and restricted stock granted in 2008 with an approximate 8 year cliff vest provision that were forfeited during the first quarter of 2012.