WYNN

Wynn Resorts, Ltd. - 10-Q Summary (Period Ended June 30, 2006)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2006. Wynn Resorts, Limited operates the Wynn Las Vegas resort (opened April 2005) and is actively constructing two major projects: Encore at Wynn Las Vegas (construction commenced April 2006, expected opening end of 2008) and Wynn Macau (Phase I expected opening September 2006). The company is currently in a heavy capital expenditure phase, relying on Wynn Las Vegas for operating cash flow while funding development for future properties.

Key Financial Metrics

Note: Adjusted EBITDA is a non-GAAP measure defined by the company as earnings before interest, taxes, depreciation, amortization, pre-opening expenses, property charges, corporate expenses, stock-based compensation, and other non-operating items.

Material Changes vs. Prior Period

• Revenue Growth: Net revenues increased significantly compared to the prior year periods. The three months ended June 30, 2006, reflect a full quarter of operations, whereas the comparable 2005 period included only 64 days of Wynn Las Vegas operations. Net revenues rose from $201.1 million (Q2 2005) to $273.4 million (Q2 2006).
• Net Loss Improvement: The net loss decreased by 52% for the quarter and 56% for the six-month period compared to 2005. This improvement is primarily due to the elimination of significant pre-opening costs associated with Wynn Las Vegas, which were incurred in 2005 prior to its opening.
• Pre-Opening Costs: While Wynn Las Vegas pre-opening costs dropped to negligible levels ($0.2 million for the quarter), costs for Wynn Macau and Encore increased to $16.9 million and $0.2 million respectively for the quarter, reflecting ongoing construction.
• Restatement: The company restated 2005 financial results to eliminate hedge accounting for interest rate swaps, recording fair value changes in other income/expense rather than comprehensive income.

Outlook, Management Commentary, and Risks

• Construction Progress: Wynn Macau Phase I is on schedule for a September 2006 opening. Encore construction began in April 2006 with an expected opening by the end of 2008. The company has incurred approximately $120.4 million of the $1.74 billion Encore budget.
• Financing: The company amended its credit facilities to extend completion dates for Encore and allow for additional borrowing capacity. It is in compliance with all debt covenants. A $900 million subconcession sale in Macau is pending government approval.
• Operational Changes: The company terminated the "Avenue Q" production (incurring a $5.0 million fee in Q1) to prepare the theater for "Monty Python's Spamalot," expected to open in Q1 2007. It also acquired the intellectual property rights to "Le Rêve" for $15.9 million.
• Risks: Key risks include the ability to complete Wynn Macau and Encore on time and within budget, dependence on a single operating property (Wynn Las Vegas) for cash flow, high leverage, and foreign currency risks related to Macau operations.

Investor Verification Checklist

• Capital Expenditure Burn Rate: Verify the sufficiency of current cash reserves ($379 million) and credit facility availability against the remaining budget for Wynn Macau ($1.2 billion total) and Encore ($1.74 billion total).
• Debt Covenants: Confirm continued compliance with the Consolidated Interest Coverage Ratio (recently amended to 2.00:1) and leverage ratios under the Wynn Las Vegas and Wynn Macau credit facilities.
• Macau Regulatory Approval: Monitor the status of the Macau government's approval for the $900 million subconcession sale to Publishing & Broadcasting, Ltd.
• Interest Rate Exposure: Assess the impact of floating-rate debt (LIBOR/HIBOR) on future interest expenses, noting the company's use of interest rate swaps which do not qualify for hedge accounting.
• Encore Funding: Review the equity commitment agreement where Wynn Resorts, Limited has committed up to $215.3 million to fund Encore costs if the subsidiary cannot.