WYNN

Wynn Resorts, Ltd. - 10-Q Summary (Period Ended Sept 30, 2005)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2005. Wynn Resorts, Limited is a developer, owner, and operator of casino resorts. The reporting period marks the company's first full quarter of operations following the opening of Wynn Las Vegas on April 28, 2005. Prior to this date, the company was in a development stage. The company is also actively constructing Wynn Macau (expected to open in phases starting Q3 2006) and evaluating the "Encore" expansion at Wynn Las Vegas (expected to open H2 2008).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Generation: The company transitioned from a development stage to active operations. Net revenues for the nine months ended Sept 30, 2005, were $452.6 million compared to $195,000 in the prior year period. This is driven entirely by Wynn Las Vegas operations.
• Net Loss: Net loss for the three months ended Sept 30, 2005, was $14.2 million, a 38% decrease from the $22.7 million loss in the same period in 2004. However, the nine-month net loss increased 12% to $87.0 million from $77.9 million in 2004, primarily due to higher preopening expenses incurred immediately prior to the April 2005 opening.
• Interest Expense: Net interest expense increased significantly ($34.9 million for the quarter vs. $0.3 million in 2004) because a substantial portion of interest costs were capitalized during construction in 2004 but are now being expensed following the opening of Wynn Las Vegas.
• Depreciation: Depreciation and amortization expenses rose sharply ($37.9 million for the quarter vs. $1.9 million in 2004) as assets were placed into service.

Guidance, Outlook, and Risks

• Outlook: Management expects preopening expenses for Wynn Las Vegas to decrease in the near term, though expenses for Wynn Macau and the Encore project will increase. The company anticipates funding the $1.4 billion Encore project using remaining First Mortgage Note proceeds, credit facility availability, and Wynn Las Vegas cash flows without additional debt.
• Construction Status: Wynn Macau is on schedule and within budget, with Phase I expected to open in Q3 2006. Wynn Las Vegas construction is virtually complete, with a final project cost expected between $2.72 billion and $2.75 billion.
• Liquidity: As of Sept 30, 2005, the company held approximately $990 million in cash and cash equivalents. Significant portions are restricted for project completion guarantees and specific debt obligations.
• Risks: Key risks include the company's reliance on a single operating property (Wynn Las Vegas) for cash flow, credit risk associated with high-end casino gaming (57% of receivables are from foreign customers), and the ability to complete Wynn Macau and Encore on time and within budget. The company also faces interest rate risk on variable-rate debt, though it utilizes interest rate swaps to hedge a portion of this exposure.

Investor Verification Checklist

• Final Project Costs: Verify the final accounting for Wynn Las Vegas, expected in Q4 2005, to confirm if the total cost remains within the $2.72-$2.75 billion range.
• Encore Approval: Monitor the approval status of the Encore Budget, Plans, and Specifications, which must be approved by lenders by December 31, 2005 (potentially extendable to March 31, 2006) to unlock full funding availability.
• Wynn Macau Financing: Confirm the drawdown status of the $764 million senior bank facility for Wynn Macau, which was expanded in September 2005 but had no borrowings as of Sept 30, 2005.
• Credit Risk Exposure: Review the allowance for doubtful accounts, noting that 57% of receivables are from foreign jurisdictions where markers may not be legally enforceable.
• Interest Rate Hedging: Assess the effectiveness of the new interest rate swaps entered into for Wynn Macau (October 2005) and Wynn Las Vegas in managing floating-rate debt exposure.