Business Context and Reporting Period
Company: Wynn Resorts, Limited
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Overview: Wynn Resorts is a leading developer, owner, and operator of destination casino resorts. As of the reporting date, the Company operated two primary properties: Wynn Las Vegas (opened April 2005) and Wynn Macau (opened September 2006). The Company is actively constructing two major expansion projects: Encore Suites at Wynn Las Vegas (expected opening December 2008) and Wynn Diamond Suites at Wynn Macau (expected opening first half of 2010).
Key Financial Metrics
| Metric | 2007 | 2006 |
|---|---|---|
| Net Revenues | $2,687.5 million | $1,432.3 million |
| Operating Income | $429.4 million | $70.9 million |
| Net Income | $258.1 million | $628.7 million |
| Diluted EPS | $2.34 | $6.24 |
| Operating Cash Flow | $659.2 million | $240.8 million |
| Total Debt (Outstanding) | ~$3.5 billion | ~$2.4 billion |
| Cash and Cash Equivalents | $1,275.1 million | $789.4 million |
| Stockholders' Equity | $1,948.2 million | $1,645.6 million |
Note: 2006 Net Income included a one-time pre-tax gain of $899.4 million from the sale of a Macau subconcession right.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 87.6% to $2.69 billion, driven primarily by the inclusion of a full year of operations for Wynn Macau (compared to only 117 days in 2006) and a 14.6% increase in table games drop at Wynn Las Vegas.
- Profitability: While Operating Income increased significantly to $429.4 million, Net Income decreased to $258.1 million from $628.7 million. This decline is attributable to the absence of the $899.4 million non-recurring gain from the subconcession sale recorded in 2006.
- Debt Levels: Total long-term obligations increased to approximately $3.6 billion (including current portions) from $2.4 billion in 2006. This increase reflects the drawdown of a new $1 billion Term Loan Facility in June 2007 and the issuance of $400 million in First Mortgage Notes in November 2007 to fund construction and share repurchases.
- Capital Expenditures: Net cash used in investing activities was $1.32 billion, primarily due to capital expenditures of $1.01 billion related to the construction of Encore and Wynn Diamond Suites.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management expects Wynn Las Vegas to continue generating strong cash flows to fund the construction of Encore. Wynn Macau is projected to continue growing as the Macau market expands. The Company anticipates opening Encore in December 2008 and Wynn Diamond Suites in the first half of 2010. A secondary common stock offering in October 2007 raised $664.1 million.
Key Risks and Contingencies:
- High Leverage: The Company is highly leveraged with approximately $3.5 billion in debt. Future cash flows may not be sufficient to meet obligations, and the Company faces restrictions on dividends and additional indebtedness.
- Construction Risks: Significant risks exist regarding the completion of Encore and Wynn Diamond Suites on time and within budget. Cost overruns could require additional debt or equity contributions.
- Regulatory Environment: Operations are subject to strict gaming regulations in Nevada and Macau. The Macau government holds the right to terminate the concession under certain circumstances, potentially without compensation.
- Competition: Intense competition exists in both Las Vegas (e.g., City Center, Fontainebleau) and Macau (e.g., Venetian Macao, MGM Grand Macau), which could impact market share and pricing power.
- Concentration Risk: The Company relies entirely on two properties for all cash flow, exposing it to local economic downturns or operational disruptions.
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial covenants (interest coverage and debt-to-EBITDA ratios) given the increased debt load.
- Construction Progress: Monitor the status of the Encore project (budgeted at $2.2 billion) and Wynn Diamond Suites (budgeted at $600 million) for potential cost overruns or delays.
- Macau Concession Terms: Review the specific terms of the Macau concession agreement regarding renewal, termination rights, and tax obligations (35% special gaming tax).
- Credit Risk: Assess the allowance for doubtful accounts, particularly regarding high-roller credit play in Macau where enforcement of gaming debts can be difficult.
- Liquidity: Confirm the availability of funds under the Wynn Las Vegas Revolver ($883.3 million available as of Dec 31, 2007) to cover construction drawdowns.