Wynn Resorts, Limited - 10-Q Summary (Period Ended September 30, 2003)
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2003. Wynn Resorts, Limited is a development stage company focused on the design, financing, and construction of the Wynn Las Vegas resort casino and the development of a casino project in Macau (Wynn Macau). The company has not yet commenced principal operations. As of the filing date, the company had 82,351,957 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 | Balance Sheet (Sep 30, 2003) |
|---|---|---|---|
| Total Revenue | $261,000 | $739,000 | N/A |
| Net Loss | $(14.8 million) | $(36.5 million) | N/A |
| Operating Loss | $(13.3 million) | $(37.9 million) | N/A |
| Cash and Cash Equivalents | N/A | N/A | $346.6 million |
| Restricted Cash/Investments | N/A | N/A | $581.4 million |
| Total Assets | N/A | N/A | $1.73 billion |
| Total Liabilities | N/A | N/A | $721.0 million |
| Long-Term Debt | N/A | N/A | $634.6 million |
| Stockholders' Equity | N/A | N/A | $1.01 billion |
Note: Revenue is derived from incidental operations including a corporate aircraft, art gallery, and retail sales. Margins are not applicable as the company is in a development stage with significant pre-opening costs.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss for the three months ended September 30, 2003, increased by 81% to $14.8 million compared to $8.2 million in the prior year period. For the nine months, the loss increased 74% to $36.5 million from $21.0 million.
- Expense Growth: Total expenses for the nine months increased 68% to $38.6 million, driven primarily by a 111% increase in pre-opening costs (salaries, legal, consulting) to $32.0 million.
- Revenue Decline: Nine-month revenue decreased 21% to $739,000, largely due to a 54% drop in aircraft revenue after the company sold its original charter aircraft and replaced it with one not licensed for charter services.
- Interest Expense: Interest expense surged 1,056% for the nine-month period to $9.0 million, primarily due to commitment fees on unused debt facilities established in late 2002.
- Financing Activity: In July 2003, the company issued $250 million in 6% Convertible Subordinated Debentures, netting $242.5 million. Additionally, $45 million was raised via a private stock sale to a Monaco-based casino operator.
Guidance, Outlook, and Risks
- Project Timeline: Wynn Las Vegas is expected to commence operations in April 2005. Wynn Macau is obligated to commence operations no later than December 2006.
- Capital Requirements: The total estimated cost for Wynn Las Vegas is approximately $2.4 billion. As of September 30, 2003, approximately $916.5 million had been expended. Future funding will rely on existing cash, restricted proceeds, and additional borrowings.
- Macau Obligations: The company must invest 4 billion patacas (approx. $518.4 million) in Macau by June 2009. Construction cannot begin until specific legislative and regulatory conditions regarding credit extension and tax relief are met, which management expects in Q4 2003.
- Key Risks:
- Construction Delays: Delays or change orders could materially adversely affect liquidity.
- Regulatory Uncertainty: Risks associated with Macau's untested gaming regulatory framework and the need for Nevada gaming licenses.
- Litigation: Ongoing litigation with former Desert Inn Country Club Estates homeowners regarding easement rights and property development. A trial is scheduled for November 2003.
- Market Conditions: Sensitivity to economic conditions, terrorism, and infectious diseases (e.g., SARS) impacting travel and leisure.
Investor Verification Checklist
- Construction Progress: Verify the current status of Wynn Las Vegas construction against the April 2005 opening target and monitor for change orders affecting the $2.4 billion budget.
- Macau Regulatory Status: Confirm the enactment of necessary Macau legislative changes regarding credit extension and tax relief required to commence construction.
- Litigation Outcome: Monitor the November 2003 trial regarding the Desert Inn golf course property rights, as a plaintiff victory could require redesign of the golf course.
- Liquidity Position: Review the utilization of the $346.6 million in unrestricted cash and the $581.4 million in restricted cash to ensure sufficient runway for the remaining construction costs.
- Debt Service: Assess the impact of the new $250 million convertible debentures and the $370 million second mortgage notes on future interest obligations once operations commence.