Wynn Resorts, Limited — FY 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports fourth-quarter results. Wynn operates resort complexes in Las Vegas and Macau; Encore at Wynn Macau opened in April 2010.
Financial performance and liquidity
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Net revenue | $4.185 billion | $3.046 billion |
| Operating income | $625.3 million | $235.0 million |
| Operating margin | 14.9% | 7.7% |
| Net income | $316.6 million | $39.1 million |
| Net income attributable to Wynn Resorts | $160.1 million | $20.7 million |
| Diluted EPS attributable to Wynn Resorts | $1.29 | $0.17 |
| Operating cash flow | $1.057 billion | $594.0 million |
| Capital expenditures | $283.8 million | $540.9 million |
Fourth-quarter 2010 revenue was $1.237 billion, operating income was $230.3 million, net income attributable to Wynn Resorts was $114.2 million, and diluted EPS was $0.91.
- Macau revenue rose to $2.889 billion from $1.816 billion; Las Vegas revenue increased to $1.296 billion from $1.230 billion. Adjusted property EBITDA was $892.7 million in Macau and $270.3 million in Las Vegas, versus $502.1 million and $244.1 million, respectively, in 2009.
- Cash and cash equivalents declined to $1.258 billion from $1.992 billion. Total debt was approximately $3.27 billion; total liabilities were $4.294 billion and total equity was $2.381 billion. Revolver availability was about $327 million for Las Vegas and $900 million for Macau.
- Interest expense, net of capitalized interest, was $222.9 million. The company reported a $68.0 million net loss on debt extinguishment/exchange, largely associated with retiring the 2014 notes. The cash-flow statement shows $1.192 billion of dividends paid.
- Macau casino taxes and other levies totaled 39% of gaming revenue under the concession arrangement. Macau casino profits received a five-year extension of the 12% Complementary Tax exemption, through December 31, 2015.
Material changes and management commentary
- Management attributed the large revenue and profit improvement chiefly to stronger Macau gaming results and the opening of Encore at Wynn Macau. Macau VIP turnover grew 68.0%; Las Vegas remained comparatively weak amid subdued spending and increased room supply.
- Las Vegas room rates remained under pressure: ADR was $210 versus $217 in 2009; occupancy improved to 88.0% from 85.2%, while RevPAR was unchanged at $185. Macau ADR increased to $291 from $266 and RevPAR to $256 from $233.
- Casino revenue increased 47% year over year. Management cited higher Macau volume and favorable table-game win percentages; Macau general-casino win percentage exceeded its stated expected range, and Las Vegas table-game win percentage improved to 22.2% from 20.2%.
- Cash from operations increased, while cash declined amid substantial financing activity and distributions. The company issued $1.32 billion of 7.75% secured notes and refinanced/retired the 2014 notes. Management said available cash, operating cash flow, and credit facilities should cover anticipated 2011 capital needs, but gave no assurance of future financing.
- The company budgeted approximately $83 million to remodel Wynn Las Vegas rooms and suites; rooms were completed in January 2011 and suites were expected to be completed early in the second quarter. Cotai land-concession approval remained pending, with no development budget or timeline.
Risks, contingencies, and unusual items
- Substantial leverage, secured debt, restrictive covenants, refinancing needs, and exposure to variable interest rates remain material risks. Management reported covenant compliance at year-end; the filing notes that covenant failure could trigger default and lender remedies.
- Results depend on only two resort complexes, high-end and international customers, and credit gaming. At year-end, casino receivables were $258.0 million, with a $113.2 million allowance; 82% of casino receivables were owed by customers outside the United States.
- Macau operations face concession and regulatory risks, possible changes to mainland China visitation policies, competition for labor and gaming promoters, and currency and political risks. The concession expires in June 2022; Macau may redeem it beginning in June 2017, subject to stated compensation provisions.
- Other risks include weak discretionary spending, competition, gaming regulation, reliance on Stephen A. Wynn, and potential disruptions from severe weather, disease, or terrorism. The filing states that the company has no immediate plans to develop the Las Vegas golf-course land.
- Atlantic-Pacific Capital sought approximately $32 million in arbitration; Wynn disputes the claim and intends to defend it. A $5.4 million Nevada sales/use-tax refund claim had not been recorded as a receivable. IRS and Macau tax examinations were ongoing; unrecognized tax benefits were $83.8 million.
- FY 2010 included a $14.9 million nightclub management-contract termination charge and the significant debt-extinguishment loss noted above. The annual report received unqualified audit opinions, and management and the auditor reported effective internal control over financial reporting.
Investor facts to verify
- How sustainable Macau’s exceptional revenue and EBITDA growth is, including the effect of gaming win rates, VIP turnover, promoter commissions, and new capacity.
- Whether Las Vegas room pricing, occupancy, and gaming demand recover, and how the Wynn room remodel affects available inventory and results.
- Debt maturities, covenant headroom, revolver availability, refinancing access, and the extent of cash legally available at the parent company given subsidiary restrictions.
- Collectability and aging of casino receivables, especially foreign customer balances, and changes in the doubtful-account reserve.
- Resolution and potential financial effects of the APC dispute, tax examinations, and Macau concession and land approvals.