Wynn Resorts, Limited - 2006 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2006. Wynn Resorts, Limited is a developer, owner, and operator of destination casino resorts. As of the reporting date, the Company operated two properties: Wynn Las Vegas (opened April 2005) and Wynn Macau (opened September 2006). The Company is also actively constructing Encore at Wynn Las Vegas (expected opening early 2009) and the second phase of Wynn Macau (expected opening Q3 2007).
Key Financial Metrics
| Metric | 2006 | 2005 |
|---|---|---|
| Net Revenues | $1,432.3 million | $722.0 million |
| Operating Income | $70.9 million | ($24.6 million) loss |
| Net Income | $628.7 million | ($90.8 million) loss |
| Diluted EPS | $6.24 | ($0.92) |
| Cash and Cash Equivalents | $789.4 million | $434.3 million |
| Total Long-Term Debt | $2.42 billion | $2.14 billion |
| Stockholders' Equity | $1.65 billion | $1.56 billion |
Note: 2006 Net Income includes a significant non-operating gain of $899.4 million from the sale of a Macau subconcession right.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 98% to $1.43 billion, driven by a full year of operations for Wynn Las Vegas and 117 days of operations for Wynn Macau.
- Profitability: The Company transitioned from a net loss in 2005 to a net profit in 2006. This shift was primarily due to the $899.4 million gain on the sale of the Macau subconcession right to Publishing & Broadcasting, Ltd. (PBL). Without this gain, the Company would have reported a net loss.
- Operating Performance: Operating income improved from a $24.6 million loss to a $70.9 million profit, reflecting the ramp-up of Wynn Macau and continued strength at Wynn Las Vegas.
- Capital Structure: Total debt increased to approximately $2.4 billion to fund the construction of Encore and Wynn Macau Phase II. The Company refinanced its Wynn Las Vegas credit facilities in August 2006, increasing capacity to $1.125 billion.
Guidance, Outlook, and Risks
Outlook and Projects:
- Encore at Wynn Las Vegas: Construction is underway with a budget of approximately $2.1 billion. Opening is targeted for early 2009.
- Wynn Macau Phase II: Expected to open in Q3 2007, adding significant gaming capacity (totaling ~420 tables and ~1,280 slots).
- Wynn Diamond Suites: Plans are being developed for a further expansion of Wynn Macau.
Management Commentary:
- Wynn Las Vegas maintained high occupancy (94.4%) and average daily rates ($287) in 2006, outperforming the Las Vegas market average.
- Wynn Macau achieved 80.6% occupancy and a $238 average daily rate in its first 117 days of operation.
Risks and Contingencies:
- High Leverage: The Company is highly leveraged with $2.4 billion in debt. Cash flow from operations is critical to servicing debt and funding construction.
- Construction Risks: Significant risks exist regarding the completion of Encore and Wynn Macau Phase II on time and within budget. Cost overruns could require additional equity contributions.
- Regulatory Risks: Operations are subject to strict gaming regulations in Nevada and Macau. The Macau concession agreement can be terminated by the government under specific circumstances.
- Concentration Risk: The Company relies entirely on two properties for cash flow.
Key Facts for Investor Verification
- Non-Recurring Gain: Verify the sustainability of earnings by excluding the $899.4 million one-time gain from the sale of the Macau subconcession right when assessing core operating performance.
- Encore Budget: Monitor the $2.1 billion budget for Encore, which has increased from previous estimates due to scope refinements and material costs.
- Debt Covenants: Review compliance with financial covenants (interest coverage and debt-to-EBITDA ratios) given the high debt load and ongoing capital expenditures.
- Macau Concession: Confirm the status of the Macau gaming concession and the impact of the subconcession sale on future revenue potential in that region.
- Special Distribution: Note the $6.00 per share special cash distribution paid in December 2006, funded largely by the subconcession sale proceeds.