Wynn Resorts, Limited — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone Q4 filing; Q4 results are included below where useful. Wynn operates destination casino resorts in Las Vegas and Macau.
Financial results and liquidity
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Net revenue | $5.270 billion | $4.185 billion | +25.9% |
| Operating income | $1.008 billion | $625.3 million | +61.3% |
| Net income | $825.1 million | $316.6 million | +160.7% |
| Net income attributable to Wynn Resorts | $613.4 million | $160.1 million | +283.1% |
| Diluted earnings per share | $4.88 | $1.29 | +$3.59 |
| Adjusted property EBITDA | $1.635 billion | $1.163 billion | +40.6% |
| Cash from operating activities | $1.516 billion | $1.057 billion | +$458.5 million |
| Capital expenditures | $184.1 million | $283.8 million | −35.1% |
Operating margin was approximately 19.1%, versus 14.9% in 2010; adjusted property EBITDA margin was approximately 31.0%, versus 27.8%. Adjusted property EBITDA is a non-GAAP supplemental measure and excludes items including interest, taxes, depreciation and property charges.
Macau generated $3.789 billion of revenue, up 31.2%, and $1.196 billion of adjusted property EBITDA, up 34.0%. Las Vegas revenue was $1.481 billion, up 14.2%, and adjusted property EBITDA was $439.0 million, up 62.4%. Macau’s growth reflected market expansion and a full year of Encore at Wynn Macau operations; Las Vegas benefited from higher gaming volumes, room rates and other resort revenues.
Gaming revenue was $4.191 billion, up 29.1%; non-casino revenue was $1.079 billion, up 14.9%. Fourth-quarter 2011 revenue was $1.344 billion, operating income $274.8 million, net income $258.3 million and net income attributable to Wynn Resorts $190.5 million. Diluted Q4 EPS was $1.52.
At year-end, cash and cash equivalents were $1.263 billion, available-for-sale investments were $213.6 million, and total debt was approximately $3.218 billion. Revolving-credit availability was $351.1 million for Las Vegas and $849.6 million for Macau. Scheduled 2012 debt maturities were $407.9 million. Operating cash flow increased, while cash paid for interest rose to $221.1 million from $171.7 million. Cash dividends paid were approximately $1.033 billion.
Material changes and unusual items
- Net revenue increased 25.9%; Macau accounted for most of the dollar growth. Wynn Macau’s general-casino table-game win percentage was 28.4%, above the company’s 26%–28% expected range; Las Vegas table-game win percentage was 24.9%, above its 21%–24% range.
- Property charges and other rose to $130.6 million from $25.2 million, including a $109.6 million present-value charge for a $135 million charitable pledge to the University of Macau Development Foundation: $25 million paid in 2011 and $10 million annually for 2012–2022.
- Interest expense was $229.9 million, up from $222.9 million. A $14.2 million gain from the change in fair value of interest-rate swaps partly offset other expenses. The 2011 income-tax line was a $19.5 million benefit, compared with a $20.4 million expense in 2010.
- In 2011, the company paid $62.5 million toward a draft concession for approximately 51 acres in Cotai. The stated land premium is $193.4 million, with additional payments due; the resort concept includes a casino and approximately 2,000 hotel suites. Project scope, schedule and budget remained under development.
Outlook, risks and contingencies
Management said Las Vegas market conditions began improving but remained uncertain. Macau’s gaming market grew rapidly, while competition and capacity also increased. The filing provides no quantified forward earnings guidance. Management believed operating cash flow, existing cash and credit-facility availability would cover anticipated 2012 capital needs, while cautioning that future financing may not be available on acceptable terms.
- Leverage and refinancing: Debt agreements impose financial covenants and restrict dividends and other actions. Las Vegas had a minimum interest-coverage covenant of 1.00 to 1 through June 2013. Wynn Macau’s revolving facility was due in June 2012; its term loan matures in 2014. Substantially all subsidiary assets secure debt.
- Subsequent event—Aruze redemption: On February 18, 2012, the board found Aruze USA, Universal Entertainment and Kazuo Okada unsuitable and redeemed Aruze’s shares for an approximately $1.9 billion subordinated promissory note, bearing 2% interest and maturing in 2022. This post-year-end note is not included in the December 31, 2011 debt balance. Related litigation and regulatory scrutiny could affect the company.
- Legal and regulatory matters: The company disclosed an SEC informal inquiry and preservation request concerning the University of Macau donation and Macau gaming licenses. A company-commissioned report alleged prima facie FCPA violations by Mr. Okada and affiliates; these are allegations, not a reported regulatory finding against Wynn. Okada litigation and Wynn’s countersuit were pending. Wynn stated that it believed it complied with applicable law.
- Other exposures: Wynn depends on two resort markets, premium international customers and gaming credit. At year-end, casino receivables were $301.7 million with a $128.9 million allowance; 85% of casino receivables were owed by customers outside the U.S. Macau concession expiry in 2022, potential government redemption beginning in 2017, visa and labor policies, gaming-promoter relationships, currency exposure, competition, and gaming-license requirements are material risks.
- The company disclosed an approximately $32 million claim by Atlantic-Pacific Capital, which it disputed, and a contested Nevada sales/use-tax matter involving a $5.4 million refund claim. Neither the receivable nor a related sales-tax liability was recorded at year-end. The auditor issued unqualified opinions on the financial statements and internal control; management also concluded controls were effective.
Investor verification priorities
- Verify the February 2012 redemption’s final valuation, promissory-note accounting and liquidity or covenant implications; distinguish it from reported year-end debt.
- Track the SEC inquiry, FCPA-related allegations, Okada litigation and any developments affecting gaming licenses or the Macau donation commitment.
- Assess upcoming maturities and refinancing, especially the Macau revolver due June 2012, 2012 scheduled debt payments and covenant headroom.
- Review Cotai concession approval, remaining land-premium payments, project budget, timeline and financing plans.
- Monitor gaming win rates versus expected ranges, credit-receivable collections and allowance adequacy, as well as the recoverability of foreign tax-credit assets and the Macau tax exemption, which runs through 2015.