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WYNN > SEC Filings for WYNN > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for WYNN RESORTS LTD

Form 10-Q for WYNN RESORTS LTD


9-Aug-2013

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

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

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

• our dependence on Stephen A. Wynn and existing management;

• regulatory or enforcement actions and probity investigations;

• pending or future legal proceedings;

• decreases in levels of travel, leisure and consumer spending;

• continued high unemployment;

• fluctuations in occupancy rates and average daily room rates;

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

• uncertainties over the development and success of new gaming and resort properties;

• new development and construction activities of competitors;

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

• adverse tourism and trends reflecting current domestic and international economic conditions;

• general global macroeconomic conditions;

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

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

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

• changes in U.S. laws regarding healthcare;

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

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

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

• conditions precedent to funding under our credit facilities;



• continued compliance with all provisions in our credit agreements;

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

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

• 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 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 available to us at the time this statement is made. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview

We are a developer, owner and operator of destination casino resorts. We currently own and operate two casino resort complexes. In the Macau Special Administrative Region of the People's Republic of China ("Macau"), we operate and own a majority of Wynn Macau | Encore, which we refer to as our "Macau Operations." In Las Vegas, Nevada, we own and operate Wynn Las Vegas | Encore, which we refer to as our "Las Vegas Operations."

Our Resorts

The following table sets forth information about our resorts as of July 2013:



                                                  Approximate
                            Hotel Rooms             Casino                Approximate
                                 &                  Square             Number of  Table             Approximate
                              Suites                Footage                  Games                Number of  Slots
Macau Operations                   1,008               275,000                       490                        880
Las Vegas Operations               4,748               186,000                       235                      1,935

Macau Operations

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

Our Macau resort complex features:

• Approximately 275,000 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 guest rooms and suites;

• Casual and fine dining in eight restaurants;

• Approximately 57,000 square feet of high-end, brand-name retail shopping, including stores and boutiques by Bvlgari, Cartier, Chanel, Dior, Dunhill, Ferrari, Giorgio Armani, Graff, Gucci, Hermes, Hugo Boss, Jaeger-LeCoultre, Louis Vuitton, Miu Miu, Piaget, Prada, Roger Dubuis, Rolex, Tiffany, Tudor, Vacheron Constantin, Van Cleef & Arpels, Versace, Vertu, Ermenegildo Zegna and others;

• Recreation and leisure facilities, including two health clubs and spas, a salon and 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.

Las Vegas Operations

Wynn Las Vegas | 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 and 5 acres adjacent to the golf course on which an office building is located. In addition, we own approximately 18 acres across Sands Avenue, a portion of which is utilized for employee parking.

Our Las Vegas resort complex features:

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

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

• 35 food and beverage outlets featuring signature chefs;

• A Ferrari and Maserati automobile dealership;

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

• Approximately 96,000 square feet of high-end, brand-name retail shopping, including stores and boutiques by Alexander McQueen, Brioni, Cartier, Chanel, Chloι, Chopard, Dior, Graff, Hermes, IWC Schaffhausen, Jaeger-LeCoultre, Loro Piana, Louis Vuitton, Manolo Blahnik, Nicholas Kirkwood, Oscar de la Renta, Piaget, Rolex, Vertu and others;

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

• Two showrooms; and

• Three nightclubs and a beach club.

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.

Future Development

We are constructing a full scale integrated resort containing a casino, luxury hotel, convention, retail, entertainment and food and beverage offerings on 51 acres of land in the Cotai area of Macau. We estimate the project budget to be approximately $4 billion and anticipate opening the resort in the first half of 2016. In February 2013, we started pre-foundation work and continue to remain on pace with the construction schedule.

On July 29, 2013, Wynn Resorts Macau S.A., Palo and Leighton Contractors (Asia) Limited (as the general contractor) entered into a supplemental agreement concerning the construction of Wynn Macau Limited's Cotai project and confirming, among other things, the guaranteed maximum price for the construction works undertaken by the general contractor (the "Contractor Works"). The July 29, 2013 agreement supplements the agreement between the same parties dated November 9, 2012 (both agreements collectively the "Cotai Construction Agreement"). The scope of the Contractor Works under the Cotai Construction Agreement includes construction, project management, substructure, structural, design and architectural works, facades, exterior finishes, certain interior finishes, mechanical, electrical and plumbing installations, external landscaping work, underground drainage and utilities service works. The general contractor must complete the Contractor Works in accordance with the detailed terms of the Cotai Construction Agreement in good faith and by furnishing its best skill and judgment. The general contractor is obligated to substantially complete the project in the first half of


2016 for a guaranteed maximum price of approximately HK$20 billion (approximately US$2.57 billion). An early completion bonus which has been factored in the guaranteed maximum price for achievement of substantial completion on or before January 25, 2016 will be paid to the general contractor if certain conditions are satisfied under the Cotai Construction Agreement. Both the contract time and guaranteed maximum price are subject to further adjustment under certain conditions. The performance of the general contractor is backed by a full completion guarantee given by Leighton Holdings Limited, the parent company of the general contractor, as well as a performance bond for 5% of the guaranteed maximum price.

We continually seek out new opportunities for additional gaming or related businesses, in the United States, and worldwide. We have made applications for gaming licenses in both Massachusetts and Pennsylvania and have announced potential projects in each jurisdiction. In each case, the process is competitive and we do not expect to know the outcome until 2014. Proceeding with either or both of these projects will require significant expenditure of Company funds. In addition, we are exploring various international jurisdictions for expansion opportunities.

Results of Operations

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



                                 Three Months Ended               Six Months Ended
                                      June 30,                        June 30,
                                2013            2012            2013            2012
      Net revenues
      Macau Operations       $   930,891     $   907,641     $ 1,922,956     $ 1,858,344
      Las Vegas Operations       401,382         345,566         787,971         708,361

                             $ 1,332,273     $ 1,253,207     $ 2,710,927     $ 2,566,705

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. Below is a discussion of the methodologies used to calculate win percentage at our resorts.

Macau Operations

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. 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%.

In our general casino in Macau, customers may purchase cash chips at either the gaming tables or at the casino cage. The cash and net markers used to purchase the cash chips at the gaming tables are deposited in the gaming table's drop box. This is the base of measurement that we use for calculating win percentage in our


general casino. We do not report an expected range for the win percentage in our general casino as chips purchased at the casino cage are excluded from table games drop and distort our expected win percentage. With increased purchases at the casino cage, we believe the relevant indicator of volumes in the mass market segment should be table games win.

The measurements in our VIP casino and the general casino are not comparable as the general casino tracks the initial purchase of chips at the table while the measurement method in our VIP casino tracks the sum of all losing wagers. Accordingly, the base measurement in the VIP casino is much larger than the base measurement in the general casino. As a result, the expected win percentage with the same amount of gaming win is smaller in the VIP casino when compared to the general casino.

Las Vegas Operations

In Las Vegas, customers purchase chips at the gaming tables. The cash and net markers used to purchase chips are deposited in the gaming table's drop box. This is the base of measurement that we use for calculating win percentage in Las Vegas. Each type of table game has its own theoretical win percentage. Our expected table games win percentage in Las Vegas is 21% to 24%.

Below are definitions of the statistics discussed:

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

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

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

• Rolling chips are identifiable chips that are used to track turnover for purposes of calculating incentives.

• 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 June 30, 2013 compared to the three months ended June 30, 2012.

Revenues

Net revenues for the three months ended June 30, 2013, were comprised of $1,016.2 million in casino revenues (76.3% of total net revenues) and $316.1 million of net non-casino revenues (23.7% of total net revenues). Net revenues for the three months ended June 30, 2012, were comprised of $953.4 million in casino revenues (76.1% of total net revenues) and $299.8 million of net non-casino revenues (23.9% of total net revenues).

Casino revenues are primarily comprised of the net win from our table games and slot machine operations. Casino revenues for the three months ended June 30, 2013, of $1,016.2 million represents a $62.8 million (6.6%) increase from casino revenues of $953.4 million for the three months ended June 30, 2012.


For the three months ended June 30, 2013, our Macau Operations experienced an $18.8 million (2.2%) increase in casino revenues to $873.6 million, compared to the prior year quarter casino revenue of $854.8 million due primarily to stronger table games profits in our general casino and a higher table games win percentage in our VIP Casino. For the three months ended June 30, 2013, our Las Vegas Operations experienced a $44 million (44.7%) increase in casino revenues to $142.6 million, compared to the prior year quarter casino revenue of $98.6 million due to a significant increase in table games win percentage (before discounts).

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

                                                                  Three Months Ended June 30,
                                                                                            Increase/            Percent
                                             2013                     2012                 (Decrease)            Change
                                                (amounts in thousands, except for win per unit per day amounts)
Macau Operations:
VIP Casino
VIP turnover                           $     29,869,181         $     30,348,654         $      (479,473 )           (1.6 )%
VIP win as a % of turnover                         2.94 %                   2.79 %               0.15pts               -

General Casino
Drop (1)                               $        626,581         $        671,825         $       (45,244 )           (6.7 )%
Table games win                        $        217,049         $        200,012         $        17,037              8.5 %
Table games win % (1)                              34.6 %                   29.8 %                4.8pts               -
Table games win per unit per day       $         11,671         $         10,963         $           708              6.5 %

Slot machine handle                    $      1,171,288         $      1,170,654         $           634              0.1 %
Slot machine win                       $         57,808         $         63,424         $        (5,616 )           (8.9 )%
Slot machine win per unit per day      $            731         $            752         $           (21 )           (2.9 )%

Las Vegas Operations:
Drop                                   $        548,021         $        575,560         $       (27,539 )           (4.8 )%
Table games win                        $        117,782         $         86,485         $        31,297             36.2 %
Table games win %                                  21.5 %                   15.0 %                6.5pts               -
Table games win per unit per day       $          5,548         $          4,384         $         1,164             26.6 %

Slot machine handle                    $        712,603         $        707,840         $         4,763              0.7 %
Slot machine win                       $         44,689         $         40,484         $         4,205             10.4 %
Slot machine win per unit per day      $            231         $            186         $            45             24.2 %

(1) Customers purchase general casino gaming chips at either the gaming tables or the casino cage. Chips purchased at the casino cage are excluded from table games drop and will increase the expected win percentage. With the increased purchases at the casino cage in our Macau general casino, we believe the relevant indicator of volumes in the general casino should be table games win.

For the three months ended June 30, 2013, room revenues were $129.4 million, an increase of $4.5 million (3.6%) compared to prior year quarter room revenue of $124.9 million. Room revenue at our Macau Operations increased $0.1 million (0.3%) to $28.8 million compared to the prior year quarter room revenue of $28.7 million. During the second quarter of 2013, we began a renovation of the approximately 600 guest rooms in the original Wynn Macau tower, contributing to an approximate 5% reduction in the number of available room-nights compared to the second quarter of 2012. We expect to complete the guest room renovation by the end of 2013. Room revenue at our Las Vegas Operations increased approximately $4.4 million (4.6%) to $100.6 million compared to the prior year quarter room revenue of $96.2 million. In Las Vegas, during the three months ended June 30, 2013, we experienced an increase in room rates compared to the three months ended June 30, 2012, but this increase was accompanied by a small decrease in occupancy rate of 0.7 percentage points. ADR at our Las Vegas Operations has increased as we adjusted rates in an effort to attract customers who would take advantage of all aspects of our resort.


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

                                            Three Months Ended
                                                 June  30,
                                          2013              2012
                 Average Daily Rate
                 Macau Operations       $     314        $      317
                 Las Vegas Operations         268               254
                 Occupancy
                 Macau Operations            95.5 %            90.0 %
                 Las Vegas Operations        86.9 %            87.6 %
                 REVPAR
                 Macau Operations       $     300        $      286
                 Las Vegas Operations         233               222

Other non-casino revenues for the three months ended June 30, 2013, included food and beverage revenues of $169.6 million, retail revenues of $67.9 million, entertainment revenues of $14.7 million, and other revenues from outlets, including the spa and salon, of $20.4 million. Other non-casino revenues for the three months ended June 30, 2012, included food and beverage revenues of $161.1 million, retail revenues of $63 million, entertainment revenues of $18.1 million, and other revenues from outlets such as the spa and salon, of $20.3 million. Food and beverage revenues at our Macau Operations increased $0.3 million, while food and beverage revenues at our Las Vegas Operations increased $8.2 million as compared to the prior year quarter. The increase in Las Vegas is due primarily to strong business in our restaurants and nightclubs. Retail revenues at our Macau Operations increased $3.7 million due to strong same store sales growth as well as new stores. Entertainment revenues decreased $3.4 million from the prior year quarter due to a Las Vegas show that ended its run in November 2012.

Departmental, Administrative and Other Expenses

For the three months ended June 30, 2013, departmental expenses included casino expenses of $665.4 million, room expenses of $34 million, food and beverage expenses of $95.5 million, and entertainment, retail and other expenses of $43 million. Also included are general and administrative expenses of $132.4 million and a credit of $11.2 million for the provision for doubtful accounts receivable. For the three months ended June 30, 2012, departmental expenses included casino expenses of $645.7 million, room expenses of $33.3 million, food and beverage expenses of $84.5 million, and entertainment, retail and other expenses of $46.1 million. Also included for the three months ended June 30, 2012, are general and administrative expenses of $99.8 million and a credit of $17.3 million for the provision for doubtful accounts receivable. Casino expenses increased for the three months ended June 30, 2013, from the prior year quarter primarily due to higher gaming taxes commensurate with the increase in casino revenue at our Macau Operations (where we incur a gaming tax and other levies at a rate totaling 39% in accordance with the concession agreement). Food and beverage expenses increased over the prior year quarter primarily due to additional nightclub promotional costs at our Las Vegas Operations. Entertainment, retail and other expenses decreased primarily due to a Las Vegas show that ended its run in November 2012. General and administrative expenses increased from the prior year quarter due to higher stock-based compensation expense related to the accelerated vesting of a restricted stock award that was previously granted to our former chief operating officer and increased development costs. During both the quarters ended June 30, 2013 and 2012, we recorded adjustments of $14.9 million and $30.9 million, respectively to our reserve estimates for casino accounts receivable based on the results of historical collection patterns and current collection trends. These adjustments were the primary factors that resulted in an $11.2 million and $17.3 million credit to the provision for doubtful accounts for the three months ended June 30, 2013 and 2012, respectively.


Depreciation and amortization

Depreciation and amortization for the three months ended June 30, 2013, was $93.2 million compared to $93.5 million for the three months ended June 30, 2012.

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 our Macau Operations 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 our Macau Operations 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 June 30, 2013, were $5.6 million compared to $3.5 million for the three months ended June 30, 2012. For the three months ended June 30, 2013 and 2012, property charges and other related primarily to a contract termination fee, miscellaneous renovations and . . .

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