Wynn Resorts, Limited - 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This report covers the fiscal year ended December 31, 2009. Wynn Resorts, Limited is a developer, owner, and operator of destination casino resorts. The company operates two primary segments: Wynn Las Vegas (including the adjacent Encore at Wynn Las Vegas) and Wynn Macau. The 2009 operating environment was characterized by a global economic downturn, stagnant credit markets, and reduced consumer spending, which significantly impacted U.S. operations. The company is currently completing construction on Encore at Wynn Macau, expected to open in April 2010.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Revenues | $3,045.6 million | $2,987.3 million |
| Operating Income | $235.0 million | $312.1 million |
| Net Income | $39.1 million | $210.5 million |
| Net Income Attributable to Wynn Resorts | $20.7 million | $210.5 million |
| Diluted EPS | $0.17 | $1.92 |
| Cash and Cash Equivalents | $1,991.8 million | $1,133.9 million |
| Total Long-Term Debt | $3,566.4 million | $4,290.4 million |
| Capital Expenditures | $540.9 million | $1,333.2 million |
Note: Net income attributable to Wynn Resorts decreased significantly in 2009 due to the recognition of non-controlling interest following the October 2009 IPO of Wynn Macau, Limited.
Material Changes vs. Prior Period
- Revenue Growth: Total net revenues increased 2.0% to $3.05 billion, driven by the full-year inclusion of Encore at Wynn Las Vegas, despite a 2.4% decline in casino revenues.
- Profitability Decline: Operating income fell 24.7% to $235 million. Net income attributable to shareholders dropped 90% to $20.7 million, primarily due to the new non-controlling interest allocation and higher interest expenses.
- Debt Reduction: Total long-term debt decreased by approximately $724 million to $3.57 billion. The company retired the $1 billion Wynn Resorts Term Loan and repurchased portions of its First Mortgage Notes and revolver loans at a discount.
- Liquidity Improvement: Cash and cash equivalents increased by $858 million to nearly $2.0 billion, bolstered by $1.8 billion in net proceeds from the Wynn Macau, Limited IPO.
- Segment Performance: Wynn Las Vegas revenues increased 11.9% (due to Encore), while Wynn Macau revenues decreased 3.8% due to visa restrictions and economic slowdown in China.
Guidance, Outlook, and Risks
Outlook: Management expects Las Vegas operations to continue experiencing lower than historical occupancy rates and room rates in 2010 due to the economic environment and new supply. The company anticipates funding the completion of Encore at Wynn Macau (budgeted at $600 million) through existing cash balances and Wynn Macau operating cash flows.
Key Risks and Contingencies:
- High Leverage: The company carries substantial debt ($3.6 billion total outstanding). Failure to meet debt covenants or service obligations could lead to acceleration of debt.
- Economic Sensitivity: Operations are highly sensitive to discretionary consumer spending and global economic conditions.
- Macau Regulatory Environment: Risks include changes in visa policies for mainland Chinese visitors, potential caps on junket commissions, and the possibility of the Macau government terminating the gaming concession.
- Construction Costs: Actual development costs for Encore at Wynn Macau may exceed the $600 million estimate.
- Concentration Risk: The company relies on only two geographic locations for all cash flow.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the Consolidated Interest Coverage Ratio (1.25:1) and the upcoming Consolidated Leverage Ratio requirements (6.50:1 by June 2011).
- Encore at Wynn Macau Budget: Monitor actual construction costs against the $600 million budget and the $417.4 million guaranteed maximum price contract.
- Macau Visa Policies: Track any changes in mainland Chinese visa restrictions that could impact Wynn Macau visitation.
- Non-Controlling Interest: Review the impact of the 27.7% minority stake in Wynn Macau, Limited on future consolidated net income.
- IRS Examination: Monitor the status of the IRS examination of 2006-2008 tax returns and the Pre-Filing Agreement regarding Macau Special Gaming Tax credits.