Wynn Resorts, Ltd. 10-Q Summary: Period Ended September 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009, for Wynn Resorts, Limited, a developer, owner, and operator of destination casino resorts. The Company operates two primary properties: Wynn Las Vegas (including the Encore expansion opened in December 2008) in Nevada, and Wynn Macau in the Macau Special Administrative Region. The Company is currently constructing Encore at Wynn Macau, expected to open in the first half of 2010. The filing reflects the impact of the global economic downturn on the gaming and travel industries.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2009 | Nine Months Ended Sept 30, 2009 |
|---|---|---|
| Net Revenues | $773.1 million | $2,236.3 million |
| Operating Income | $79.5 million | $189.4 million |
| Net Income | $34.2 million | $25.9 million |
| Diluted EPS | $0.28 | $0.22 |
| Cash and Cash Equivalents | $1,296.1 million | $1,296.1 million (Balance Sheet) |
| Long-Term Debt | $4,188.7 million | $4,188.7 million (Balance Sheet) |
| Operating Cash Flow (9 months) | N/A | $447.2 million |
| Capital Expenditures (9 months) | N/A | ($431.2 million) |
Material Changes vs. Prior Period
- Revenue: Net revenues for the nine months ended September 30, 2009, decreased by 5.8% to $2.24 billion compared to $2.37 billion in the prior year. This decline was driven by a 10.6% decrease in casino revenues, primarily due to reduced volumes at Wynn Macau and lower win percentages in Las Vegas, despite the addition of the Encore at Wynn Las Vegas.
- Profitability: Net income for the nine months dropped significantly to $25.9 million from $370.0 million in the prior year. This was largely due to a decrease in operating income and a shift from a tax benefit in 2008 to a tax provision in 2009.
- Expenses: Depreciation and amortization increased by $113.8 million year-over-year due to the full-year impact of the Encore at Wynn Las Vegas assets. Conversely, the provision for doubtful accounts decreased significantly to $13.0 million from $49.0 million, reflecting improved collection trends.
- Debt: The Company reduced its debt load through open market purchases and refinancing. In June 2009, it retired $375 million of term loans, and in the nine months ended September 30, it purchased $65.8 million of First Mortgage Notes, recognizing gains on extinguishment of debt.
Outlook, Risks, and Unusual Items
- Subsequent Events (Post-Sept 30): In October 2009, Wynn Macau, Limited completed an IPO on the Hong Kong Stock Exchange, raising approximately $1.8 billion in net proceeds. Additionally, Wynn Las Vegas issued $500 million in new First Mortgage Notes to repay credit facility borrowings.
- Dividends: On November 6, 2009, the Board declared a special cash dividend of $4.00 per share and initiated a regular quarterly dividend program starting in 2010 ($0.20 per share).
- Construction: Construction on Encore at Wynn Macau is ongoing with a current budget of approximately $650 million. As of September 30, 2009, $375.6 million in costs had been incurred.
- Risks: Management cites significant risks including adverse global economic conditions, volatility in credit markets, visa restrictions affecting Macau tourism, and high leverage. The Company faces uncertainty regarding the realization of foreign tax credits.
- Unusual Items: The nine-month period included a $14.9 million write-off of aircraft purchase deposits, partially offset by an $8.1 million refund. There was also a $22.5 million gain on extinguishment of debt in the prior year period not present in the current year.
Investor Verification Checklist
- Macau IPO Proceeds: Verify the utilization of the $1.8 billion raised from the Wynn Macau IPO and its impact on the consolidated balance sheet and non-controlling interest accounting.
- Debt Covenants: Confirm continued compliance with debt covenants, particularly the Consolidated Leverage Ratio and Interest Coverage Ratio, given the recent amendments to credit agreements.
- Encore at Wynn Macau Budget: Monitor the $650 million project budget against actual spend to assess potential cost overruns or funding needs.
- Dividend Sustainability: Evaluate the Company's ability to fund the declared $4.00 special dividend and the new regular dividend program given the restrictions on subsidiary distributions.
- Win Percentages: Track the recovery of table game win percentages in Las Vegas and Macau, which were below historical ranges in the reported period.