Accounting & Tax

Wynn Restates over Derivatives

Casino operator is the latest to be tripped up by FAS 133's documentation requirements.
Stephen TaubMarch 16, 2006

Wynn Resorts Ltd., which owns and operates the Wynn Las Vegas hotel and casino, disclosed a restatement for 2003, 2004, and the first three quarters of 2005 to adjust accounting for interest-rate swap arrangements under Financial Accounting Standard 133, Accounting for Derivative Instruments and Hedging Activities.

Wynn noted that the interest rate swap arrangements were economically effective. Moreover, the restatement actually will cut Wynn’s loss by about $16.2 million as of September 30, 2005, and will have no effect on cash flow from operating activities. However, the company said it will report a material weakness in its annual report as a result of the problem.

Wynn is not the first company to be tripped up by FAS 133’s challenging documentation requirements. Earlier this month, eyewear maker Oakley Inc. announced that documentation problems related to FAS 133 accounting for certain foreign-currency hedging activities required it to restate its financials for the five years ended 2004, and its 2005 quarterly reports. Oakley stressed that it uses derivatives to manage forex exposures that occur in the normal course of business and that it does not hold or issue derivatives for trading or speculative purposes.

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“This restatement is necessary because we determined we did not satisfy certain detailed documentation standards at the inception of the hedges as required for hedge accounting under FAS 133,” said chief financial officer Richard Shields, in a statement. “These hedges were effective from an economic perspective, and they achieved our risk management objectives.”

Oakley’s restatement will increase net income in some periods and decrease it in others, but the cumulative impact on earnings over the life of each hedge derivative instrument is the same under both the restated and prior accounting treatments. “This change in the accounting classification of the foreign currency hedging activities will have no impact on the company’s net sales, cash flows, cash position, debt covenant compliance or dividends,” Shields added.

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