WYNN

Wynn Resorts, Ltd. - Q2 2009 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2009. Wynn Resorts, Limited operates two primary destination casino resorts: Wynn Las Vegas (including the Encore expansion opened in December 2008) and Wynn Macau. The company is currently constructing Encore at Wynn Macau, expected to open in the first half of 2010. The reporting period reflects the impact of the global economic downturn, reduced consumer spending, and visa restrictions affecting travel to Macau.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net revenues decreased 12.4% year-over-year for the quarter and 8.8% for the six-month period. Casino revenues dropped significantly, particularly in Macau due to a 31.4% decline in VIP revenue.
• Profitability: Operating income fell 42.6% for the quarter and 53.2% for the six-month period compared to 2008. The six-month period resulted in a net loss of $8.3 million, contrasting with a net income of $318.8 million in the prior year.
• Operating Metrics: Las Vegas occupancy dropped to 86.6% (from 96.5% in 2008) and Average Daily Rate (ADR) fell to $218 (from $302). Macau occupancy also declined to 86.7%.
• Debt Management: The company retired $375 million of its Term Loan Facility and purchased $65.8 million of First Mortgage Notes at a discount, recognizing a total gain on extinguishment of debt of $22.5 million for the six-month period.
• Depreciation: Depreciation and amortization increased to $102.7 million for the quarter (up from $64.0 million in 2008) due to the full-year impact of the Encore at Wynn Las Vegas assets.

Outlook, Risks, and Management Commentary

• Economic Environment: Management cites the global economic slowdown, contracting credit markets, and reduced consumer spending as primary drivers of lower volumes. Visa restrictions on mainland Chinese citizens continue to adversely impact Macau visitation.
• Cost Initiatives: The company has implemented efficiency measures including pay reductions for salaried employees, reduced work weeks for hourly staff, and suspension of the 401(k) employer match.
• Liquidity: The company holds approximately $1.1 billion in cash. Management believes cash flow from operations and existing balances are adequate to fund operations, debt service, and the construction of Encore at Wynn Macau (projected total cost ~$650 million).
• Debt Covenants: In April 2009, the company amended its Las Vegas credit agreement to waive the Consolidated Leverage Ratio until June 2011 and reduce the Interest Coverage Ratio requirement to 1.25:1 through March 2011.
• Controls and Procedures: The company identified a material weakness in internal controls related to the computation of deferred tax accounts in Q1 2009. Remediation steps, including hiring additional tax personnel and engaging an external firm, have been implemented. Management concluded disclosure controls were effective as of June 30, 2009.

Key Facts for Investor Verification

• Macau VIP Performance: Verify the sustainability of the 31.4% drop in Macau VIP revenue and the impact of ongoing visa restrictions on future cash flows.
• Encore at Wynn Macau Budget: Confirm the current project budget of $650 million and the timeline for the H1 2010 opening, as cost overruns could strain liquidity.
• Debt Covenant Compliance: Monitor the company's ability to meet the amended leverage and interest coverage ratios, particularly given the waiver expiration in 2011.
• Las Vegas Occupancy Trends: Assess whether the significant decline in Las Vegas occupancy (down nearly 10 percentage points) stabilizes or worsens in subsequent quarters.
• Internal Control Remediation: Verify that the material weakness regarding tax provision calculations has been fully resolved and no further restatements are anticipated.