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WYNN > SEC Filings for WYNN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for WYNN RESORTS LTD

Form 10-Q for WYNN RESORTS LTD


9-Nov-2012

Quarterly Report


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

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

Forward-Looking Statements

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

adverse tourism trends reflecting current domestic and international economic conditions;

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

general global macroeconomic conditions;

decreases in levels of travel, leisure and consumer spending;

results of probity investigations;

regulatory or enforcement actions;

pending or future legal proceedings;

fluctuations in occupancy rates and average daily room rates;

continued high unemployment;

conditions precedent to funding under our credit facilities;

continued compliance with all provisions in our credit agreements;

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

doing business in foreign locations such as Macau (including the risks associated with developing gaming regulatory frameworks);

restrictions or conditions on visitation by citizens of mainland China to Macau;

new development and construction activities of competitors;

our dependence on Stephen A. Wynn and existing management;

our dependence on a limited number of resorts and locations for all of our cash flow;

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

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

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


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

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

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

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

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

Overview

We are a developer, owner and operator of destination casino resorts. We currently own and operate two casino resort complexes. In Las Vegas, Nevada, we own and operate Wynn Las Vegas, a destination casino resort which opened on April 28, 2005. In December 2008, we expanded Wynn Las Vegas with the opening of Encore at Wynn Las Vegas. We refer to the fully integrated Wynn Las Vegas and Encore at Wynn Las Vegas resort as our "Las Vegas Operations." In the Macau Special Administrative Region of the People's Republic of China ("Macau"), we own and operate Wynn Macau, which opened on September 6, 2006. On April 21, 2010, we opened Encore at Wynn Macau, a further expansion of Wynn Macau. We refer to the fully integrated Wynn Macau and Encore at Wynn Macau resort as our "Macau Operations."

Our Resorts

The following table sets forth information about our resorts as of October 2012:



                                                                                      Approximate
                               Hotel Rooms  &          Approximate  Casino         Number of  Table            Approximate
                                   Suites                Square Footage                  Games               Number of  Slots
Las Vegas Operations                     4,750                      186,000                      220                     2,325
Macau Operations                         1,008                      265,000                      480                       950

Las Vegas Operations

Wynn Las Vegas I Encore is located at the intersection of the Las Vegas Strip and Sands Avenue, and occupies approximately 215 acres of land fronting the Las Vegas Strip. In addition, we own approximately 18 acres across Sands Avenue, a portion of which is utilized for employee parking, and approximately 5 acres adjacent to the golf course on which an office building is located.

Our Las Vegas resort complex features:

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

Two luxury hotel towers with a total of 4,750 spacious hotel rooms, suites and villas;

32 food and beverage outlets featuring signature chefs;

A Ferrari and Maserati automobile dealership;


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Approximately 94,000 square feet of high-end, brand-name retail shopping, including stores and boutiques by Alexander McQueen, Brioni, Cartier, Chanel, Dior, Graff, Hermes, Loro Piana, Louis Vuitton, Manolo Blahnik, Oscar de la Renta, Vertu and others;

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

Two showrooms; and

Three nightclubs and a beach club.

In response to our evaluation of our Las Vegas Operations and the reactions of our guests, we have made and expect to continue to make enhancements and refinements to this resort complex.

Macau Operations

We operate Wynn Macau I Encore under a 20-year casino concession agreement granted by the Macau government in June 2002.

Our Macau resort complex features:

Approximately 265,000 square feet of casino space, offering 24-hour gaming and a full range of games, including private gaming salons, sky casinos and a poker pit;

Two luxury hotel towers with a total of 1,008 spacious rooms and suites;

Casual and fine dining in eight restaurants;

Approximately 54,600 square feet of high-end, brand-name retail shopping, including stores and boutiques by Bvlgari, Cartier, Chanel, Dior, Dunhill, Ermenegildo Zegna, Ferrari, Giorgio Armani, Graff, Gucci, Hermes, Hugo Boss, Jaeger LeCoultre, Louis Vuitton, Miu Miu, Piaget, Prada, Rolex, Tiffany, Tudor, Vacheron Constantin, Van Cleef & Arpels, Versace, Vertu, and others;

Recreation and leisure facilities, including two health clubs and spas, a salon, a pool; and

Lounges and meeting facilities.

In response to our evaluation of our Macau Operations and the reactions of our guests, we have made and expect to continue to make enhancements and refinements to this resort complex.

Future Development

Approximately 142 acres of land comprising our Las Vegas Operations is currently improved with a golf course. While we may develop this property in the future, we have no immediate plans to do so.

In September 2011, Palo Real Estate Company Limited and Wynn Resorts (Macau) S.A., each an indirect subsidiary of Wynn Macau, Limited, formally accepted the terms and conditions of a draft land concession contract from the Macau government for approximately 51 acres of land in the Cotai area of Macau. In December 2011, we made a $62.5 million initial deposit under the draft land concession contract. On May 2, 2012, the land concession contract was gazetted by the government of Macau, evidencing the final step in the granting of the land concession. We are constructing a full scale integrated resort containing a casino, luxury hotel, convention, retail, entertainment and food and beverage offerings on this land. We estimate the project budget to be in the range of $3.5 billion to $4.0 billion. We expect to establish a guaranteed maximum price for the project in the first half of 2013.


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Results of Operations

The table below presents our net revenues (amounts in thousands):



                                 Three Months Ended               Nine Months Ended
                                    September 30,                   September 30,
                                2012            2011            2012            2011
      Net revenues
      Macau Operations       $   910,451     $   951,368     $ 2,768,795     $ 2,793,555
      Las Vegas Operations       388,044         346,936       1,096,405       1,132,374

                             $ 1,298,495     $ 1,298,304     $ 3,865,200     $ 3,925,929

Reliance on only two resort complexes (in two geographic regions) for our operating cash flow exposes us to certain risks that competitors, whose operations are more diversified, may be better able to control. In addition to the concentration of operations in two resort complexes, many of our customers are premium gaming customers who wager on credit, thus exposing us to credit risk. High-end gaming also increases the potential for variability in our results.

Operating Measures

Certain key operating statistics specific to the gaming industry are included in our discussion of our operational performance for the periods for which a Condensed Consolidated Statement of Income is presented. There are two methods used to calculate win percentage in the casino industry. In Las Vegas and in the general casino in Macau, customers usually purchase cash chips at the gaming tables. The cash and net markers used to purchase the cash chips are deposited in the gaming table's drop box. This is the base of measurement that we use in the casino at our Las Vegas Operations and in the general casino at our Macau Operations for calculating win percentage.

In our VIP casino in Macau, customers primarily purchase non-negotiable chips, commonly referred to as rolling chips, from the casino cage and there is no deposit into a gaming table drop box from chips purchased from the cage. Non-negotiable chips can only be used to make wagers. Winning wagers are paid in cash chips. The loss of the non-negotiable chips in the VIP casino is recorded as turnover and provides a base for calculating VIP casino win percentage. Because of this difference in chip purchase activity, the measurement base used in the general casino is not the same that is used in the VIP casino. It is customary in Macau to measure VIP casino play using this rolling chip method. We expect our win as a percentage of turnover to be within the range of 2.7% to 3.0%.

The measurement method in Las Vegas and in the general casino in Macau tracks the initial purchase of chips at the table while the measurement method in our VIP casino in Macau tracks the sum of all losing wagers. Accordingly, the base measurement in the VIP casino is much larger than Las Vegas and the general casino in Macau. As a result, the expected win percentage with the same amount of gaming win is smaller in the VIP casino in Macau when compared to Las Vegas and the general casino in Macau.

Even though both use the same measurement method, we experience different table games win percentages in Las Vegas and the general casino in Macau. This difference is primarily due to the difference in the mix of table games and customer playing habits between the two casinos. Each type of table game has its own theoretical win percentage. Our expected table games win percentage in Las Vegas is 21% to 24%. Our expected table games win percentage in the general casino at Wynn Macau, which we have periodically revised based on our experience since the opening of the Encore at Wynn Macau expansion, is 28% to 30%.

Below are definitions of the statistics discussed:

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


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Turnover is the sum of all losing rolling chip wagers within our Wynn Macau VIP program.

Rolling chips are identifiable chips that are used to track VIP wagering volume (turnover) for purposes of calculating incentives.

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

Slot win is the amount of handle (representing the total amount wagered) that is retained by us and is recorded as casino revenue.

Average Daily Rate ("ADR") is calculated by dividing total room revenue including the retail value of promotional allowances (less service charges, if any) by total rooms occupied including complimentary rooms.

Revenue per Available Room ("REVPAR") is calculated by dividing total room revenue including the retail value of promotional allowances (less service charges, if any) by total rooms available.

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

Financial results for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Revenues

Net revenues for the three months ended September 30, 2012, were comprised of $1,012.8 million in casino revenues (78% of total net revenues) and $285.7 million of net non-casino revenues (22% of total net revenues). Net revenues for the three months ended September 30, 2011, are comprised of $1,020.2 million in casino revenues (78.6% of total net revenues) and $278.1 million of net non-casino revenues (21.4% of total net revenues).

Casino revenues are comprised of the net win from our table games and slot machine operations. Casino revenues for the three months ended September 30, 2012, of $1,012.8 million represents a $7.4 million (0.7%) decrease from casino revenues of $1,020.2 million for the three months ended September 30, 2011. For the three months ended September 30, 2012, our Las Vegas Operations experienced a $28.7 million (22.6%) increase in casino revenues to $155.6 million, compared to the prior year quarter due to a an increase in our table games win percentage (before discounts). Our Macau Operations experienced a $36.1 million (4%) decrease in casino revenues to $857.2 million for the three months ended September 30, 2012, compared to the prior year quarter due primarily to lower turnover in the VIP casino and lower slot machine handle associated with our premium customers.


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The table below sets forth key gaming statistics related to our Las Vegas and Macau operations.

                                            Three Months Ended September 30,
                                                                  Increase/        Percent
                                 2012              2011           (Decrease)        Change
                                                 (amounts in thousands)
Las Vegas Operations:
Drop                         $    682,349      $    603,485      $     78,864          13.1 %
Table games win %                    21.9 %            18.3 %          3.6pts            -
Slot machine handle          $    723,514      $    673,825      $     49,689           7.4 %
Slot machine win             $     46,326      $     43,186      $      3,140           7.3 %

Macau Operations:
VIP Casino
VIP turnover                 $ 27,622,665      $ 31,439,153      $ (3,816,488 )       (12.1 )%
VIP win as a % of turnover           3.08 %            2.95 %         0.13pts            -

General Casino
Drop                         $    686,122      $    704,274      $    (18,152 )        (2.6 )%
Table games win %                    30.8 %            27.7 %          3.1pts            -
Slot machine handle          $    983,705      $  1,133,943      $   (150,238 )       (13.2 )%
Slot machine win             $     54,412      $     64,494      $    (10,082 )       (15.6 )%

For the three months ended September 30, 2012, room revenues were $119.6 million, a decrease of $0.5 million (0.4%) compared to prior year quarter room revenue of $120.1 million. Room revenue at our Las Vegas Operations increased approximately $1.3 million (1.4%) to $91 million compared to the prior year quarter. ADR at our Las Vegas Operations has increased compared to the prior year quarter as we maintained our room rates in an effort to attract customers who would take advantage of all aspects of our resort. Room revenue at our Macau Operations decreased $1.8 million (5.7%) to $28.6 million compared to the prior year quarter due primarily to a decrease in average room rates.

The table below sets forth key operating measures related to room revenue.

                                           Three Months Ended
                                              September 30,
                                         2012              2011
                  Average Daily Rate
                  Las Vegas            $     244        $      240
                  Macau                      307               315
                  Occupancy
                  Las Vegas                 85.7 %            88.3 %
                  Macau                     94.2 %            93.7 %
                  REVPAR
                  Las Vegas            $     209        $      212
                  Macau                      289               295

Other non-casino revenues for the three months ended September 30, 2012, included food and beverage revenues of $156.6 million, retail revenues of $63.2 million, entertainment revenues of $21.6 million, and other revenues from outlets, including the spa and salon, of $16.3 million. Other non-casino revenues for the three months ended September 30, 2011, included food and beverage revenues of $142.9 million, retail revenues of $67.2 million, entertainment revenues of $21.9 million, and other revenues from outlets such as the spa and salon, of $16.4 million. Food and beverage revenues at our Las Vegas Operations increased $13.3 million, while our Macau Operations increased $0.4 million, as compared to the prior year quarter. The increase in Las Vegas is due primarily to strong business in our beach club and nightclubs. Retail revenues at our Macau Operations


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decreased $3.9 million due to lower sales in some of our watch stores, while retail revenues at our Las Vegas Operations declined only $0.1 million despite the reduction in retail square footage from the reconfiguration of the Encore retail area.

Departmental, Administrative and Other Expenses

For the three months ended September 30, 2012, departmental expenses included casino expenses of $653.9 million, room expenses of $31.9 million, food and beverage expenses of $80.7 million, and entertainment, retail and other expenses of $46.9 million. Also included are general and administrative expenses of $115.8 million and a charge of $5.3 million for the provision for doubtful accounts receivable. For the three months ended September 30, 2011, departmental expenses included casino expenses of $679.5 million, room expenses of $31.1 million, food and beverage expenses of $73.3 million, and entertainment, retail and other expenses of $52.2 million. Also included for the three months ended September 30, 2011, are general and administrative expenses of $107.9 million and $4.3 million charged as a provision for doubtful accounts receivable. Casino expenses decreased for the three months ended September 30, 2012, from the prior year quarter due primarily to lower gaming taxes and junket commissions commensurate with the decrease in gaming revenues at our Macau Operations. Food and beverage expenses increased over the prior year quarter primarily due to additional nightclub promotional costs in Las Vegas. The decrease in entertainment, retail and other expenses was driven by the conversion of certain owned retail stores to leased outlets in Macau resulting in a lower cost of sales. General and administrative expense increased primarily due to legal and other costs incurred related to the share redemption and litigation with a former stockholder, as well as development costs.

Depreciation and amortization

Depreciation and amortization for the three months ended September 30, 2012, was $94.3 million compared to $100.5 million for the three months ended September 30, 2011. This decrease is primarily due to assets with a 5-year life at Wynn Macau being fully depreciated as of September 2011.

During the construction of our properties, costs incurred in the construction of the buildings, improvements to land and the purchases of assets for use in operations were capitalized. Once these properties opened, their assets were placed into service and we began recognizing the associated depreciation expense. Depreciation expenses will continue throughout the estimated useful lives of these assets. In addition, we continually evaluate the useful life of our property and equipment, intangibles and other assets and adjust them when warranted.

The maximum useful life of assets at Wynn Macau is the remaining life of the gaming concession or land concession, which currently expire in June 2022 and August 2029, respectively. Consequently, depreciation related to Wynn Macau is charged on an accelerated basis when compared to our Las Vegas Operations.

Property charges and other

Property charges and other for the three months ended September 30, 2012, were $22.7 million compared to $9.7 million for the three months ended September 30, 2011. For the three months ended September 30, 2012, property charges and other related primarily to a remodel of a Las Vegas restaurant, charges related to the termination of a Las Vegas show which will end its run in November 2012, and miscellaneous renovations and abandonments at our resorts. Property charges and other for the three months ended September 30, 2011 primarily include miscellaneous renovations and abandonments at our resorts.

In response to our evaluation of our resorts and the reactions of our guests, we continue to make enhancements and refinements at our resorts.

Other non-operating costs and expenses

Interest income was $3.8 million for the three months ended September 30, 2012, compared to $2.7 million for the three months ended September 30, 2011. During 2012 and 2011, our short-term investment strategy has


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been to preserve capital while retaining sufficient liquidity. While the majority of our short-term investments were primarily in money market accounts and time deposits with a maturity of three months or less, beginning in April 2011, we have invested in certain corporate bond securities and commercial paper.

Interest expense was $75.1 million, net of capitalized interest of $0.5 million, for the three months ended September 30, 2012, compared to $57.5 million for the three months ended September 30, 2011. No interest was capitalized during the three months ended September 30, 2011. Our interest expense increased compared to the prior year quarter primarily due to the issuance of the $1.94 billion Redemption Note by Wynn Resorts, the Wynn Las Vegas $900 million 5 3/8% first mortgage notes in March 2012, and the increase in the Wynn Macau term loan offset by the reduction of $370.9 million in Wynn Las Vegas term loan borrowings, all as described in Notes to Condensed Consolidated Financial Statements, Note 9 - "Long-Term Debt".

Changes in the fair value of our interest rate swaps are recorded as an increase (decrease) in swap fair value in each period. In June 2012, we terminated the Wynn Las Vegas interest rate swap for a payment of $2.4 million and the Wynn Macau interest rate swap matured. For the three months ended September 30, 2011, we recorded a gain of $4.1 million resulting from the increase in the fair value of interest rate swaps between June 30, 2011 and September 30, 2011. For further information on our interest rate swaps, see Item 3 - "Quantitative and Qualitative Disclosures about Market Risk."

As described in Note 9 of our Notes to Condensed Consolidated Financial Statements, we amended our Wynn Macau Credit Facilities in July 2012 and terminated the Wynn Las Vegas Credit Agreement in September 2012. In connection with amending the Wynn Macau Credit Facilities, we expensed $17.7 million of deferred financing costs and third party fees. In connection with the termination of the Wynn Las Vegas credit agreement, we expensed $2 million of deferred financing costs and third party fees.

Income Taxes

For the three months ended September 30, 2012 and 2011, we recorded a tax benefit of $7.6 million and tax expense of $4.3 million, respectively. Our income tax benefit is primarily related to a decrease in our deferred tax liabilities reduced by foreign taxes assessable on the dividends of Wynn Macau, S.A. and foreign tax provisions related to our international marketing offices. Since June 30, 2010, we have no longer considered our portion of the tax earnings and profits of Wynn Macau, Limited to be permanently invested. No additional U.S. tax provision has been made with respect to amounts not considered permanently invested as we anticipate that U.S. foreign tax credits should be sufficient to eliminate any U.S. tax provision relating to repatriation. We have not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences as these amounts are permanently reinvested. For the three months ended September 30, 2012 and 2011, we . . .

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