Business Context and Reporting Period
Company: Wynn Resorts, Limited
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Status: Development Stage Company
Wynn Resorts is a holding company with no material operating revenue. Its primary activities involve the design, development, financing, and construction of the Wynn Las Vegas resort casino and the pre-development of a casino resort in Macau, China. The company ceased operations of the former Desert Inn in 2000 to focus on these new developments. Wynn Las Vegas is scheduled to open in April 2005.
Key Financial Metrics
| Metric | 2003 | 2002 |
|---|---|---|
| Net Revenues | $1.0 million | $1.2 million |
| Operating Loss | $(53.3) million | $(34.4) million |
| Net Loss | $(48.9) million | $(31.7) million |
| Loss Per Share (Basic/Diluted) | $(0.62) | $(0.68) |
| Total Assets | $1.73 billion | $1.40 billion |
| Cash and Cash Equivalents | $341.6 million | $109.6 million |
| Restricted Cash and Investments | $400.4 million | $792.9 million |
| Construction in Progress | $571.0 million | $90.2 million |
| Total Long-Term Debt | $659.3 million | $382.7 million |
| Stockholders' Equity | $1.00 billion | $991.6 million |
Note: The company has no operating margins or profit as it is in the development stage. Revenue is derived from incidental operations (art gallery, retail, water rights, and corporate aircraft).
Material Changes vs. Prior Period
- Increased Losses: Net loss increased by 54% to $48.9 million, driven by an 84% increase in pre-opening costs ($47.1 million in 2003 vs. $25.1 million in 2002) as construction activities accelerated.
- Debt Expansion: Long-term debt increased significantly due to the issuance of $250 million in 6% Convertible Subordinated Debentures in July 2003. Total debt obligations (including available credit facilities) are substantial, with approximately $1.8 billion in debt capacity.
- Construction Progress: Construction in progress assets surged from $90.2 million to $571.0 million. Approximately $1.1 billion of the $2.4 billion total project cost for Wynn Las Vegas has been funded through December 31, 2003.
- Revenue Decline: Total revenues decreased slightly to $1.0 million, primarily due to reduced charter revenues from the corporate aircraft, partially offset by increased art gallery and retail sales.
Guidance, Outlook, and Risks
Outlook and Guidance:
- Wynn Las Vegas: Expected to open in April 2005. The project is tracking on schedule and within the $2.4 billion budget. Approximately $1.3 billion in costs remain to be incurred.
- Wynn Macau: The company holds a concession to build a casino in Macau, with operations required by December 2006. Construction is contingent on obtaining financing and legislative changes regarding credit extension and debt enforcement in Macau.
- Capital Resources: The company has over $1.1 billion available under credit agreements and approximately $220 million in restricted cash for the Las Vegas project.
- Management expects losses to continue and increase until principal operations commence.
- The company is highly leveraged and dependent on the successful completion of Wynn Las Vegas to generate cash flow for debt service.
- Construction Risk: Significant risks exist regarding cost overruns, delays, and the ability to secure remaining financing. Failure to complete by September 30, 2005, could trigger debt acceleration.
- Regulatory Risk (Nevada): Operations are contingent on obtaining gaming licenses. There are ongoing suitability investigations regarding major stockholder Aruze USA, Inc. and its parent, Aruze Corp., which could impact the company's ability to operate or require the redemption of shares.
- Regulatory Risk (Macau): The Macau project faces risks related to a developing regulatory framework, currency exchange controls, and the need for legislative changes to enforce gaming debts.
- Legal Proceedings: Litigation regarding the former Desert Inn golf course land was settled in February 2004 for $23 million to acquire remaining residences and dismiss claims.
Key Facts for Investor Verification
- Opening Date: Verify if Wynn Las Vegas opens in April 2005 as scheduled, as delays could trigger debt defaults.
- Construction Budget: Monitor for cost overruns against the $2.4 billion budget, particularly for the $501 million of costs not covered by the guaranteed maximum price contract.
- Regulatory Suitability: Confirm the status of the Nevada Gaming Commission's suitability findings for Aruze USA, Inc. and Kazuo Okada, as denial could force a share redemption or disrupt operations.
- Macau Legislative Changes: Verify the enactment of Macau legislation permitting credit extension and debt enforcement, which is a condition precedent for the Macau project.
- Debt Covenants: Review compliance with financial covenants (leverage ratios, fixed charge coverage) in the Credit Facilities and Notes indentures.