Business Context and Reporting Period
Company: Wynn Resorts, Limited (Wynn Resorts)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
Status: Development Stage Company
Wynn Resorts was formed in June 2002 to facilitate an initial public offering (IPO) consummated in October 2002. The company's primary business activities involve the design, development, financing, and construction of "Le Rêve," a luxury resort casino in Las Vegas, and the pursuit of a casino gaming concession in Macau, China. The company ceased operations of the former Desert Inn Resort & Casino in 2000 to focus on these development projects. As of the reporting date, the company has no material operating revenues from casino or hotel operations.
Key Financial Metrics
| Metric | Year Ended Dec 31, 2002 | Year Ended Dec 31, 2001 |
|---|---|---|
| Net Revenues | $1.16 million | $1.16 million |
| Operating Loss | $(34.40) million | $(20.06) million |
| Net Loss | $(31.71) million | $(17.73) million |
| Loss Per Share (Basic & Diluted) | $(0.68) | $(0.45) |
| Total Assets | $1,398.6 million | $388.5 million |
| Cash and Cash Equivalents | $109.6 million | $39.3 million |
| Restricted Cash and Investments | $792.9 million | $0.5 million |
| Total Long-Term Obligations | $382.2 million | $0.3 million |
| Stockholders' Equity | $991.6 million | $384.2 million |
Note: Revenues are derived from incidental operations including a corporate aircraft, art gallery, and retail shop. The significant increase in assets and equity is primarily due to the October 2002 IPO and concurrent debt financing.
Material Changes vs. Prior Period
- Financing Activities: In October 2002, the company completed an IPO raising approximately $491.8 million in gross proceeds. Concurrently, it issued $370 million in 12% Second Mortgage Notes and secured credit facilities totaling $1 billion ($750 million revolver, $250 million term loan) and an $188.5 million FF&E facility.
- Construction Progress: Groundbreaking for Le Rêve occurred on October 31, 2002. Construction in progress increased from $27.5 million in 2001 to $90.2 million in 2002.
- Loss Expansion: Net loss increased by approximately 79% year-over-year, driven by a $13.3 million increase in pre-opening costs associated with the accelerated development of Le Rêve and the Macau opportunity.
- Liquidity: Total cash and restricted investments surged to approximately $902.5 million, reflecting the capital raised to fund the $2.4 billion estimated cost of the Le Rêve project.
Guidance, Outlook, and Risks
Outlook and Guidance
- Le Rêve Opening: Scheduled for April 2005. The project is estimated to cost approximately $2.4 billion, including land, construction, capitalized interest, and pre-opening expenses.
- Macau Opportunity: Wynn Macau holds a 20-year concession to build and operate casinos in Macau. The company is obligated to invest 4 billion patacas (approx. $515.6 million) by June 2009. Construction is contingent on legislative changes regarding credit extension and tax relief, expected in 2003.
- Capital Allocation: Proceeds from the IPO and debt are restricted by a Disbursement Agreement. Equity proceeds must be exhausted before debt proceeds can be drawn for construction.
Material Risks and Contingencies
- Construction Risk: Significant risk of cost overruns and delays. Only approximately $919 million of the $1.4 billion design/construction budget is covered by a guaranteed maximum price contract; the company bears the risk for the remaining $488 million.
- Regulatory Risk (Nevada): Operations are contingent on obtaining gaming licenses. A major stockholder, Aruze USA (approx. 31% ownership), faces suitability investigations by the Nevada Gaming Commission regarding its parent company's tax issues in Japan and licensing issues in Missouri. If Aruze USA is found unsuitable, the company may be forced to redeem its shares, potentially requiring significant equity financing or debt issuance.
- Regulatory Risk (Macau): The Macau regulatory framework is untested. Construction cannot begin until legislative changes allow casinos to extend credit and enforce gaming debts.
- Leverage: The company is highly leveraged with approximately $1.5 billion in expected indebtedness upon completion of Le Rêve. Debt covenants restrict dividends and additional borrowing.
- Legal Proceedings: Ongoing litigation with former Desert Inn Country Club Estates homeowners regarding easement rights and covenants on the golf course land. A trial is scheduled for October 2003.
Investor Verification Checklist
- Construction Budget Adherence: Verify if the $919 million guaranteed maximum price contract remains sufficient and monitor the status of the $488 million in non-guaranteed construction costs.
- Aruze USA Suitability: Monitor the Nevada Gaming Commission's investigation into Aruze USA and its parent, Aruze Corp., as a denial of suitability could force a share redemption and disrupt capital structure.
- Macau Legislative Progress: Confirm the enactment of Macau laws permitting credit extension and tax relief, which are prerequisites for construction.
- Disbursement Agreement Compliance: Ensure the company meets the conditions precedent for drawing down debt facilities, specifically the requirement to exhaust equity proceeds first.
- Homeowners Litigation: Track the outcome of the October 2003 trial regarding the golf course land, as a loss could restrict development plans or require redesigns.