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WYNN > SEC Filings for WYNN > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for WYNN RESORTS LTD

Form 10-Q for WYNN RESORTS LTD


9-May-2014

Quarterly Report


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2013. 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. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled "Special Note Regarding Forward-Looking Statements."

Overview

We are a developer, owner and operator of destination casino resorts. In the Macau Special Administrative Region of the People's Republic of China ("Macau"), we operate and own 72.3% of Wynn Macau and Encore at Wynn Macau. We refer to the fully integrated Wynn Macau and Encore at Wynn Macau resort as Wynn Macau | Encore or as our Macau Operations. In Las Vegas, Nevada, we own and operate Wynn Las Vegas and Encore at Wynn Las Vegas, which we refer to as Wynn Las Vegas | Encore or our Las Vegas Operations. We are developing Wynn Palace, a fully integrated casino resort in the Cotai area of Macau.

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 280,000 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, Jaegar-LeCoultre, Loro Piana, 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, spas,
             a salon and a pool; and

• Approximately 31,000 square feet of space for 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. In March 2014, we began renovation of approximately 27,000 square feet of our casino space at Wynn Macau for new VIP gaming rooms. We expect to complete this renovation before Chinese New Year of 2015.

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. In addition, we own approximately 18 acres across Sands Avenue, a portion of which is utilized for employee parking and an office building, 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 4,748 spacious guest rooms,
             suites and villas;

• 34 food and beverage outlets featuring signature chefs;

• A Ferrari and Maserati automobile dealership;


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

•            Approximately 99,000 square feet of high-end, brand-name retail
             shopping, including stores and boutiques by Alexander McQueen,
             Brioni, Cartier, Chanel, Chloι, Chopard, Dior, Givenchy, 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.

Future Development

We are currently constructing Wynn Palace in the Cotai area of Macau, a fully integrated resort containing a 1,700-room hotel, performance lake, meeting space, casino, spa, retail offerings and food and beverage outlets. The total project budget, including construction costs, capitalized interest, pre-opening expenses, land costs and financing fees, is $4.0 billion. As of March 31, 2014, we have invested $866.7 million in the project. We continue to remain on schedule for an opening in the first half of 2016.

On July 29, 2013, Wynn Macau and Palo finalized and executed a guaranteed maximum price construction ("GMP") contract with Leighton Contractors (Asia) Limited acting as the general contractor. Under the GMP contract, the general contractor is responsible for both the design and construction of the Wynn Palace project. The general contractor is obligated to substantially complete the project in the first half of 2016 for a guaranteed maximum price of HK$20 billion (approximately $2.57 billion). An early completion bonus 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 GMP contract. Both the contract time and guaranteed maximum price are subject to further adjustment under certain specified 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 an application for a gaming license in Massachusetts. The process is competitive and we expect to know the outcome by the end of the third quarter of 2014. Proceeding with this project will require significant expenditure of Company funds. In addition, we are exploring various international jurisdictions for expansion opportunities.

Key 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 are definitions
of these key operating 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
             Wynn 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 the total rooms available.


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

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. It is customary in Macau to measure VIP casino play using this rolling chip method. We expect our win as a percentage of turnover in this segment to be within the range of 2.7% to 3.0%.

The measurement base used in the general casino is not the same as that used in the VIP casino. In our general casino in Macau, customers may purchase cash chips at either the gaming tables or at the casino cage. The cash used to purchase the cash chips at the gaming tables is deposited into 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.

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%.

Results of Operations

First quarter 2014 results
                                                      Three Months Ended
                                                           March 31,
(in thousands, except per share data)                2014            2013        Percent Change
Net revenues                                     $ 1,513,613     $ 1,378,654                9.8
Net income attributable to Wynn Resorts, Limited $   226,896     $   202,963               11.8
Diluted income per share                         $      2.22     $      2.00               11.0
Adjusted Property EBITDA                         $   494,616     $   451,068                9.7

During the three months ended March 31, 2014, our net income attributable to Wynn Resorts, Limited increased 11.8% to $226.9 million, resulting in diluted earnings per share of $2.22. We increased Adjusted Property EBITDA year-over-year by 9.7%, from $451.1 million for the three months ended March 31, 2013 to $494.6 million for the same period of 2014. Our results for the quarter were attributable to a 15.1% increase in casino revenues from our Macau Operations driven by a volume increase in our VIP casino and an increase in table games win at our general casino.

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 geographically 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 increased credit risk. High-end gaming also increases the potential for variability in our results.


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Financial results for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Net Revenues

The following table presents net revenues from our Macau and Las Vegas
Operations (in thousands):
                         Three Months Ended
                              March 31,
                                                   Percent
                         2014           2013        Change
Net revenues
Macau Operations     $ 1,132,698    $   992,065      14.2
Las Vegas Operations     380,915        386,589      (1.5 )
                     $ 1,513,613    $ 1,378,654       9.8

Net revenues increased 9.8% to $1,513.6 million for the three months ended March 31, 2014, up from $1,378.7 million for the same period in 2013. The net revenue growth was driven by an increase of $140.6 million, or 15.1%, in casino revenue from our Macau Operations.

The following table presents net revenues from our casino revenues and non-casino revenues (in thousands). Non-casino revenues consist of operating revenues from rooms, food and beverage, entertainment, retail and other, less promotional allowances.

Three Months Ended
                             March 31,
                                                  Percent
                        2014           2013       Change
Net revenues
Casino revenues     $ 1,226,133    $ 1,106,503       10.8
Non-casino revenues     287,480        272,151        5.6
                    $ 1,513,613    $ 1,378,654        9.8

Casino revenues were 81.0% of total net revenues for the three months ended March 31, 2014 compared to 80.3% of total net revenues for the same period of 2013, while non-casino revenues were 19.0% of total net revenues compared to 19.7% in the prior year.

Casino Revenues

Casino revenues increased 10.8% to $1,226.1 million for the three months ended March 31, 2014, up from $1,106.5 million in the same period of 2013 primarily from our Macau Operations. Our Macau Operations experienced a year-over-year increase in casino revenues of 15.1% from $930.3 million to $1,070.9 million driven by a 26.7% increase in VIP turnover and a 23.7% increase in table games win at our general casino. We experienced this performance despite a reduction in our VIP win as a percentage of turnover from 3.14% to 2.79%. Our Las Vegas Operations experienced a decline in casino revenues of 11.9% to $155.3 million for the three months ended March 31, 2014, from $176.3 million in the same period of 2013, primarily due to a 6.0 percentage point reduction in table games win percentage.


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The table below sets forth our casino revenues and associated key operating measures for our Macau and Las Vegas Operations (in thousands, except for win per unit per day and average number of table games and slots).

                                        Three Months Ended
                                             March 31,
                                                                      Increase/     Percent
                                       2014             2013         (Decrease)      Change
Macau Operations:
Total casino revenues             $  1,070,854     $    930,252     $   140,602       15.1
Average number of table games              492              494              (2 )     (0.4 )
VIP Casino
VIP turnover                      $ 35,997,716     $ 28,414,118     $ 7,583,598       26.7
VIP win as a % of turnover                2.79 %           3.14 %         (0.35 )
General Casino
Drop (1)                          $    692,459     $    684,809     $     7,650        1.1
Table games win                   $    300,709     $    243,122     $    57,587       23.7
Table games win % (1)                     43.4 %           35.5 %           7.9
Table games win per unit per day  $     15,695     $     13,180     $     2,515       19.1

Average number of slots                    842              843              (1 )     (0.1 )
Slot machine handle               $  1,398,890     $  1,116,103     $   282,787       25.3
Slot machine win                  $     69,437     $     61,389     $     8,048       13.1
Slot machine win per unit per day $        917     $        809     $       108       13.3

Las Vegas Operations:
Total casino revenues             $    155,279     $    176,251     $   (20,972 )    (11.9 )
Average number of table games              231              233              (2 )     (0.9 )
Drop                              $    647,436     $    668,920     $   (21,484 )     (3.2 )
Table games win                   $    133,734     $    178,790     $   (45,056 )    (25.2 )
Table games win %                         20.7 %           26.7 %          (6.0 )
Table games win per unit per day  $      6,419     $      8,519     $    (2,100 )    (24.7 )

Average number of slots                  1,866            2,187            (321 )    (14.7 )
Slot machine handle               $    743,798     $    696,594     $    47,204        6.8
Slot machine win                  $     45,501     $     42,283     $     3,218        7.6
Slot machine win per unit per day $        271     $        215     $        56       26.0

(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.

Non-casino revenues

Non-casino revenues increased 5.6%, or $15.3 million, to $287.5 million for the three months ended March 31, 2014, up from $272.2 million for the same period of 2013 primarily from a $16.0 million increase in room revenues and a $5.3 million increase in entertainment, retail and other revenues. Our non-casino revenue performance was offset by an $8.1 million increase in promotional allowances.

Room revenues increased 13.3%, or $16.0 million, to $136.5 million for the three months ended March 31, 2014, up from $120.5 million in the same period of 2013. Our Las Vegas Operations accounted for $11.5 million of the increase, while Macau Operations accounted for $4.5 million, both experiencing an increase in ADR and occupancy.


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The table below sets forth our room revenues and associated key operating measures for our Macau and Las Vegas Operations.

                                      Three Months Ended
                                           March 31,
                                       2014          2013      Percent Change (a)
Macau Operations:
Total room revenues (in thousands) $   33,404     $ 28,935                   15.4
Occupancy                                98.1 %       93.8 %                  4.3
ADR                                $      338     $    315                    7.3
REVPAR                             $      331     $    296                   11.8

Las Vegas Operations:
Total room revenues (in thousands) $  103,072     $ 91,545                   12.6
Occupancy                                87.8 %       82.8 %                  5.0
ADR                                $      275     $    259                    6.2
REVPAR                             $      241     $    214                   12.6

(a) Except occupancy, which is presented as a percentage point change.

Food and beverage revenues were relatively flat with $141.8 million for the three months ended March 31, 2014 compared to $139.7 million for the same period of 2013. We experienced an increase in revenues from our Macau and Las Vegas Operations restaurants offset by a reduction in revenues from our Wynn Las Vegas nightclubs.

Entertainment, retail and other revenues increased 5.2%, or $5.3 million, to $106.9 million for the three months ended March 31, 2014, up from $101.5 million for the same period of 2013 driven by revenue increases from Wynn Las Vegas retail shops, spa and other event services.

Promotional allowances increased 9.1%, or $8.1 million to $97.7 million for the three months ended March 31, 2014, up from $89.6 million for the same period of 2013. As a percentage of total casino revenues, promotional allowances were flat year-over-year with 8.0% for both three month periods ended March 31, 2014 and 2013.

Operating costs and expenses

Operating costs and expenses increased 8.8%, or $91.8 million, to $1,136.8 million for the three months ended March 31, 2014, up from $1,045.0 million for the same period of 2013. The increase was primarily driven by a 12.4% increase in casino expenses and a 17.2% increase in general and administrative expenses, which were partially offset by decreases in depreciation and amortization expense and provision for doubtful accounts.

Casino expenses increased 12.4%, or $86.5 million to $783.7 million for the three months ended March 31, 2014, up from $697.2 million for the same period of 2013, primarily due to higher gaming taxes from the 39.0% gross win tax incurred at our Macau Operations. The increase in gaming taxes was commensurate with the 15.1% increase in casino revenues at our Macau Operations.

Room and food and beverage expenses increased slightly year-over-year by $2.0 million and $1.1 million, respectively. The increase in room revenues of $16.0 million outpaced our room expenses from the effect of ADR increases at our Macau and Las Vegas Operations.

Entertainment, retail and other expenses increased 10.4%, or $4.2 million to $44.5 million for the three months ended March 31, 2014 from $40.3 million in the same period of 2013 mainly from costs associated with certain Wynn Las Vegas entertainment events during the quarter which did not take place in the prior year.

General and administrative expenses increased 17.2%, or $16.4 million to $111.3 million for the three months ended March 31, 2014 from $94.9 million in the same period of 2013. The majority of the increase is attributable to a $6.1 million increase from corporate expenses and other and a $7.0 million increase from our Macau Operations. The corporate expenses


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and other increase consists mainly of an increase in stock-based compensation expense and development expenses, while our Macau Operations experienced increases compared to the prior year period in labor costs, certain property maintenance and repair expenses, and other miscellaneous expenses.

Provision for doubtful accounts decreased $9.7 million to a benefit of $2.7 million for the three months ended March 31, 2014, down from a provision of $7.0 million for the same period of 2013. The decrease to a benefit is a result of increased casino accounts receivable collections from our Macau Operations compared to the same period in the prior year which drove a reduction in our percentage of casino accounts receivable outstanding over 180 days.

Pre-opening costs were $3.1 million for the three months ended March 31, 2014, compared to $0.5 million for the same period of 2013 associated with the design and planning for Wynn Palace. We expect our pre-opening costs to increase in the future as the construction and development of Wynn Palace continues toward the expected completion in the first half of 2016.

Depreciation and amortization decreased 17.1%, or $15.9 million, to $76.7 million for the three months ended March 31, 2014, down from $92.5 million for the same period of 2013 due to certain Las Vegas Operations assets with a five year useful life becoming fully depreciated.

Property charges and other for the three months ended March 31, 2014, was $9.9 million compared to $5.3 million for the three months ended March 31, 2013. During the first quarter of 2014, we incurred property charges primarily associated with the renovation of approximately 27,000 square feet of casino space at Wynn Macau for new VIP gaming rooms. We expect to complete this renovation before Chinese New Year of 2015. Property charges in the three months ended March 31, 2013, were primarily due to miscellaneous renovations and abandonments at our resorts.

Interest expense, net of capitalized interest

Interest expense, net of capitalized interest, was flat year-over-year with $75.3 million for the three months ended March 31, 2014, compared to $75.4 million for the same period in 2013, attributable to a $4.6 million increase in interest expense offset by a $4.4 million increase in capitalized interest. Financing activities during the first quarter of 2014 and in 2013 subsequent to the first quarter, increased our long-term debt while reducing our weighted average interest rate for the three months ended March 31, 2014, compared to same period in 2013. During 2013, we completed the principal repayment of $500 million 7 7/8% first mortgage notes through a cash tender offer and redemption of untendered notes, completed issuances of $500 million 4 1/4% senior notes and $600 million 5 1/4% senior notes and Wynn Macau exercised its option to increase the senior term loan facility by $200 million. During the first quarter of 2014, we issued an additional $750 million of 5 1/4% senior notes. Capitalized interest increased due to the construction costs of Wynn Palace. Capitalized interest will continue to increase with the ongoing borrowings and construction costs related to Wynn Palace.

Other non-operating costs and expenses

Interest income was $4.8 million for the three months ended March 31, 2014, compared to $4.2 million for the three months ended March 31, 2013. During 2014 and 2013, our short-term investment strategy has been to preserve capital while retaining sufficient liquidity. The majority of our short-term investments were in time deposits, fixed deposits and money market accounts with a maturity of three months or less.

We incurred a gain of $0.8 million for the three months ended March 31, 2014, from the increase in the fair value of our interest rate swaps compared to a gain of $3.1 million from the increase in fair value for the same period in 2013. For further information on our interest rate swaps, see Item 3 - "Quantitative and Qualitative Disclosures about Market Risk."

Income Taxes
For the three months ended March 31, 2014 and 2013, we recorded a tax expense of $2.6 million and a tax benefit $5.1 million, respectively. Our income tax expense is primarily related to an increase in our domestic valuation allowance . . .

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