Wynn Resorts, Limited — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Unless stated otherwise, financial amounts below are in millions of U.S. dollars. The company operates resort complexes in Las Vegas and Macau.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net revenue | $1,298.5 | $1,298.3 | $3,865.2 | $3,925.9 |
| Operating income | $247.1 | $239.8 | $771.3 | $733.4 |
| Net income | $165.2 | $185.2 | $562.9 | $566.9 |
| Net income attributable to Wynn Resorts | $112.0 | $127.1 | $390.7 | $422.9 |
| Diluted EPS | $1.11 | $1.01 | $3.71 | $3.37 |
| Adjusted Property EBITDA | $402.6 | $381.1 | $1,177.3 | $1,233.1 |
- Q3 operating margin was approximately 19.0%, versus 18.5% a year earlier; nine-month operating margin was approximately 20.0%, versus 18.7%. Adjusted Property EBITDA is a non-GAAP measure and is not a substitute for operating income or cash flow.
- Q3 revenue was nearly flat. Macau revenue fell to $910.5 million from $951.4 million, while Las Vegas rose to $388.0 million from $346.9 million. For nine months, revenue declined 1.5%, with Macau down modestly and Las Vegas down 3.2%.
- Q3 net income attributable to Wynn Resorts declined about 12%; nine-month attributable income declined about 8%. Diluted EPS increased in both periods as weighted-average shares fell following the February redemption and cancellation of 24.5 million shares.
- Q3 Adjusted Property EBITDA increased, reflecting stronger Las Vegas results, partly offset by lower Macau results. Nine-month EBITDA declined, principally due to weaker Las Vegas results; Macau EBITDA was approximately flat.
- Interest expense was $75.1 million in Q3 and $211.0 million for nine months, up from $57.5 million and $174.0 million, respectively. Q3 included a $19.7 million debt-extinguishment loss; the nine-month loss was $24.5 million. The nine-month 2011 comparison included $108.5 million of University of Macau donation expense within property charges, contributing to lower 2012 charges.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $989.2 million, down from $1,149.1 million. Capital expenditures were $168.3 million, versus $85.8 million; operating cash flow less these expenditures was approximately $820.9 million.
- Cash and cash equivalents were $2.331 billion at September 30, 2012, versus $1.263 billion at year-end 2011. Current investment securities were $198.9 million; total available-for-sale securities were $240.3 million. Restricted cash was approximately $151.8 million.
- Total debt carrying value was approximately $5.783 billion, versus $3.218 billion at year-end. The increase largely reflects the $1.936 billion redemption promissory note issued to former shareholder Aruze USA and new/refinanced borrowing. Current debt was $1.4 million. Management reported compliance with debt covenants.
- About 95% of long-term debt was fixed-rate at quarter-end. Management estimated that a 1% change in variable rates would change annual interest cost by $2.7 million.
- Wynn Macau’s amended facilities provide $2.3 billion of total capacity: a $750 million term loan and a $1.55 billion revolving facility, with an additional $200 million upsizing option. No revolving-facility balance was outstanding at the reporting date. The facilities are intended in part to support Cotai development.
Material changes and operating drivers
- Q3 Macau casino revenue was pressured by a 12.1% decline in VIP turnover and lower slot handle; higher win percentages partly offset the volume decline. Las Vegas casino revenue rose, supported by higher table-games win percentage.
- For nine months, Las Vegas table-games win percentage fell to 20.1% from 25.4%, while Macau VIP turnover declined 2.0% and Macau slot handle fell 12.0%. Results are exposed to gaming-volume and win-rate volatility.
- In June, the company revised its casino receivables reserve estimates based on collection history and trends. The adjustment benefited nine-month operating income by $30.9 million and Wynn Resorts-attributable net income by $23.3 million, or $0.22 per diluted share.
- On February 18, 2012, the company redeemed Aruze USA’s 24.5 million shares for a $1.94 billion, 2% promissory note due in 2022. The note is subordinated to other borrowed indebtedness and may be prepaid at the company’s discretion. Shareholder litigation challenges the redemption.
- The company issued $900 million of 5⅜% Wynn Las Vegas first-mortgage notes due 2022 and refinanced Wynn Macau facilities. Wynn Las Vegas terminated its credit agreement in September after repaying outstanding term loans.
Outlook, risks and contingencies
- The company is developing an integrated resort on approximately 51 acres in Cotai. Estimated project cost is $3.5–$4.0 billion; management expected to establish a guaranteed maximum price in the first half of 2013. The filing provides no formal earnings or revenue guidance.
- Management stated that cash, operating cash flow and available bank capacity were expected to cover anticipated capital needs for the remainder of 2012, while cautioning that future financing availability and refinancing on acceptable terms are not assured.
- The company faces significant legal and regulatory uncertainty involving the Okada/Aruze share redemption, related Nevada litigation, Elaine Wynn’s cross-claim, derivative suits and regulatory inquiries, including an SEC informal inquiry concerning the University of Macau donation. If Elaine Wynn prevails, a change-of-control provision may be triggered, requiring an offer to repurchase certain Wynn Las Vegas notes at 101% of principal plus accrued interest.
- Other risks include dependence on two resort regions, credit exposure to premium gaming customers, Macau visitation and regulatory conditions, foreign-exchange and interest-rate exposure, competition, cybersecurity, and possible changes in tourism and consumer spending. The company said disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
- After quarter-end, the company announced an $8.00-per-share cash dividend payable November 20, 2012. The company also declared $0.50 per share for each of Q1, Q2 and Q3; subsidiary debt restrictions can limit distributions to the holding company.
Important facts for investors to verify
- Whether the $30.9 million receivables-reserve benefit is sustainable and how casino credit collections evolve.
- Progress, total cost, financing and construction commitments for Cotai, including the expected guaranteed maximum price.
- Debt service and liquidity implications of the $1.94 billion redemption note, Wynn Macau borrowings and the announced special dividend.
- Developments in Okada/Aruze and Elaine Wynn litigation, regulatory inquiries, and any resulting change-of-control or gaming-license consequences.
- Subsequent casino operating trends, especially Macau VIP turnover and slot activity and Las Vegas table-games win rates.