Wynn Resorts, Limited — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2010. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and reporting period
Wynn operates destination casino resorts in Las Vegas and Macau. Encore at Wynn Macau opened in April 2010, contributing to Macau’s year-over-year growth. Wynn Macau Limited is publicly traded; its 27.7% noncontrolling ownership reduced the portion of consolidated earnings attributable to Wynn Resorts.
Key financial results
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Net revenue | $1,005.9 | $773.1 | $2,947.5 | $2,236.3 |
| Operating income | $131.9 | $79.5 | $394.9 | $189.4 |
| Operating margin | 13.1% | 10.3% | 13.4% | 8.5% |
| Consolidated net income (loss) | ($2.1) | $34.2 | $144.7 | $25.9 |
| Net income (loss) attributable to Wynn Resorts | ($33.5) | $34.2 | $45.9 | $25.9 |
| Adjusted Property EBITDA | $274.5 | $198.2 | $797.8 | $549.4 |
| Operating cash flow | Not separately provided | Not separately provided | $661.1 | $447.2 |
Q3 diluted loss per share was $0.27, versus earnings of $0.28 a year earlier. Nine-month diluted earnings per share were $0.37, versus $0.22. Q3 included a $64.2 million loss on debt extinguishment/exchange offer. Nine-month consolidated net income includes $98.8 million attributable to noncontrolling interests.
For the first nine months, capital expenditures were $229.6 million, versus $431.2 million in 2009. Operating cash flow less capital expenditures was approximately $431.6 million, compared with approximately $16.0 million. This simple difference is not a company-reported free-cash-flow measure.
Material changes versus the prior comparable period
- Q3 net revenue increased 30%; nine-month revenue increased 32%. Macau revenue was $671.4 million in Q3 and $1,976.5 million for nine months, up from $448.5 million and $1,307.6 million, respectively. Las Vegas revenue grew more modestly.
- Macau’s nine-month Adjusted Property EBITDA rose to $595.8 million from $360.0 million; Las Vegas rose to $202.0 million from $189.4 million. Management attributed much of Macau’s growth to increased VIP turnover, additional gaming capacity and Encore at Wynn Macau.
- Las Vegas remained pressured by weak consumer spending, new market supply and lower room rates. Nine-month Las Vegas ADR declined to $203 from $217; occupancy improved to 90.0% from 86.6%.
- Q3 interest expense increased to $60.3 million from $50.1 million, while nine-month expense rose modestly to $163.2 million from $160.9 million. Q3 property charges included a $14.9 million nightclub management-contract termination payment.
Debt, liquidity and capital allocation
At September 30, 2010, cash and cash equivalents were $1.922 billion, compared with $1.992 billion at year-end 2009. Total debt, including current maturities, was approximately $3.179 billion, down from $3.569 billion. Current assets were $2.186 billion and current liabilities $743.0 million. Management said it believed cash balances and operating cash flow would cover anticipated capital needs for the remainder of 2010; it also reported compliance with debt covenants.
The company repaid approximately $502 million under the Wynn Macau revolver, which had no borrowings outstanding at quarter-end and approximately $1 billion of availability. Wynn Las Vegas had approximately $317.2 million of revolver availability. The company issued $1.32 billion of 7.75% notes due 2020 and used proceeds to tender for and redeem its 2014 notes; related financing and redemption costs contributed to the reported debt-extinguishment loss. Approximately 94% of debt was fixed-rate, including swaps; a 1% change in variable rates was estimated to change annual interest cost by about $1.9 million.
Wynn paid two regular dividends of $0.25 per share during the nine-month period. Subsequent to quarter-end, Wynn Macau Limited approved a dividend of approximately $510 million, of which Wynn Resorts’ share was approximately $369 million. Also on November 2, Wynn Resorts declared a special dividend of $8 per share, payable December 7, 2010. Subsidiary debt agreements restrict certain distributions, and the parent’s ability to pay dividends depends substantially on subsidiary funds and permitted distributions.
Outlook, commentary, risks and unusual items
- No specific consolidated revenue or earnings guidance was provided. Management expected Las Vegas to continue experiencing lower-than-historical room rates, casino volumes and departmental profitability. It described Macau demand as growing and Las Vegas demand as stabilized but weak.
- The Wynn Las Vegas room refurbishment had an estimated $83 million budget and was expected to finish early in Q2 2011; rooms temporarily taken out of service reduced availability. Cotai development remained contingent on final government approval of the land concession; the filing provided no final project timeline or budget.
- Key risks include dependence on two resort complexes, high-end customer credit and gaming-result volatility, Macau regulation and visitation restrictions, competition, leverage and refinancing, interest and currency exposure, and economic weakness affecting travel and consumer spending. About 76% of markers were due from customers outside the U.S., primarily in Asia.
- Contingencies included an approximately $32 million arbitration claim by Atlantic-Pacific Capital, which the company disputed and intended to defend; a sales/use-tax refund request of approximately $5.4 million, for which no receivable was recorded; and Macau tax examinations. The company said a U.S. tax examination could reduce unrecognized tax benefits by $70 million to $100 million, generally through use of foreign tax credits rather than significant cash payment.
- Wynn Macau applied for an additional five-year exemption from Macau’s 12% Complementary Tax on casino gaming profits; approval was anticipated by management but was not assured. Casino winnings remained subject to Macau gaming taxes and levies totaling 39% under the concession agreement.
Most important facts for investors to verify
- Whether Macau growth and VIP turnover persist, and how much reflects added Encore capacity versus underlying demand and gaming win rates.
- Las Vegas room rates, occupancy, casino volumes and results during the room refurbishment and amid market competition.
- The cash, financing and distribution implications of the $8-per-share special dividend, including subsidiary debt restrictions and post-dividend liquidity.
- Debt-refinancing costs, upcoming maturities, revolver availability, covenant compliance and exposure to variable rates and currency movements.
- Outcomes of the Cotai land concession application, tax matters and the disputed arbitration claim.