WYNN

Business Context and Reporting Period

This Form 10-K covers Wynn Resorts, Limited for the fiscal year ended December 31, 2005. The Company is a developer, owner, and operator of destination casino resorts. Key operational milestones during the period included the opening of Wynn Las Vegas on April 28, 2005, which generated the Company's first significant operating revenues. The Company is also constructing Wynn Macau (scheduled to open Q3 2006) and developing the Encore at Wynn Las Vegas expansion (scheduled to open end of 2008).

Key Financial Metrics

Note: 2005 results reflect only 248 days of operations for Wynn Las Vegas. 2004 and 2003 financial statements were restated due to an accounting error regarding interest rate swaps (see Material Changes).

Material Changes vs. Prior Period

• Revenue Surge: Net revenues increased from $0.20 million in 2004 to $721.98 million in 2005, driven entirely by the opening of Wynn Las Vegas. Gaming revenues accounted for 49% ($353.7 million) and non-gaming revenues for 51% ($368.3 million).
• Net Loss Reduction: The net loss decreased by 56% to $90.84 million in 2005 compared to $204.17 million in 2004. This improvement is attributed to the commencement of operations, offset by significant pre-opening costs and depreciation.
• Depreciation Increase: Depreciation and amortization expenses rose to $103.34 million in 2005 from $6.98 million in 2004 as Wynn Las Vegas assets were placed in service.
• Interest Expense: Net interest expense increased to $102.70 million in 2005 from $2.69 million in 2004, primarily due to reduced capitalization of interest following the opening of Wynn Las Vegas and increased debt principal from the December 2004 refinancing.
• Financial Restatement: The Company restated 2003 and 2004 financial statements to eliminate hedge accounting for interest rate swaps that did not qualify under SFAS No. 133. This resulted in recording mark-to-market adjustments as interest income rather than comprehensive income.

Guidance, Outlook, and Risks

Outlook and Projects

• Wynn Macau: Construction is on schedule and within budget. Phase I is expected to open in Q3 2006. The total project budget is approximately $1.2 billion, with $427.2 million incurred as of year-end 2005.
• Encore at Wynn Las Vegas: Construction is expected to commence in Q2 2006 with an opening by the end of 2008. The project budget is approximately $1.74 billion. Funding relies on remaining First Mortgage Note proceeds, credit facility availability, and cash flow from Wynn Las Vegas operations.
• Subconcession Sale: On March 4, 2006, the Company agreed to sell a Macau subconcession to Publishing & Broadcasting, Ltd. (PBL) for $900.0 million, subject to government approval.

Management Commentary

Management highlights Wynn Las Vegas's strong performance since opening, with a 92.1% average occupancy and $274 average daily room rate, significantly outperforming the Las Vegas Strip averages. The Company expects operating margins to improve as staffing normalizes and efficiencies are gained.

Risks and Contingencies

• Internal Control Material Weakness: The Company identified a material weakness in internal controls over financial reporting regarding the documentation and assessment of derivative instruments, leading to the aforementioned restatement.
• High Leverage: The Company is highly leveraged with approximately $2.1 billion in debt. Future cash flows must service this debt and fund the construction of Encore and Wynn Macau.
• Construction Risks: Delays or cost overruns in the Encore and Wynn Macau projects could impact the ability to meet debt obligations.
• Regulatory Risks: Operations are subject to strict gaming regulations in Nevada and Macau. Failure to maintain licenses or comply with regulations could severely impact operations.

Investor Verification Checklist

• Restatement Impact: Verify the full impact of the SFAS 133 hedge accounting restatement on historical comparability and future earnings volatility.
• Encore Funding: Confirm the approval status of the "Encore Budget, Plans and Specs" by lenders, as failure to approve by March 31, 2006, could reduce credit facility availability by $550 million.
• Wynn Macau Opening: Monitor the timeline for the Q3 2006 opening of Wynn Macau, as delays would increase interest costs and delay revenue generation.
• Debt Covenants: Review compliance with financial covenants (interest coverage and debt-to-EBITDA ratios) given the high debt load and ongoing construction costs.
• Subconcession Approval: Track the regulatory approval status of the $900 million Macau subconcession sale to PBL.