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Wynn Resorts Ltd. (NASDAQ:WYNN)

Q3 2008 Earnings Call

October 30, 2008 4:30 pm ET

Executives

Matt Maddox – Chief Financial Officer and Treasurer

Steve Wynn - Chairman and Chief Executive Officer

Andrew Pascal - President and Chief Executive Officer, Wynn Las Vegas, LLC

Marc Schorr – Chief Operating Officer

John Strzemp – Executive Vice President and CAO

David Sisk – Senior Vice President and Chief Financial Officer, Wynn Las Vegas, LLC

Scott Peterson – Chief Financial Officer, Wynn Resorts (Macau), S.A.

Ian Coughlan – President, Wynn Resorts (Macau)

Analysts

Steve Kent - Goldman Sachs

Joe Greff - JPMorgan

Celeste Brown - Morgan Stanley

Rachael Rothman - Merrill Lynch

Robin Farley - UBS

Bill Lerner - Deutsche Bank

Larry Klatzkin - Jefferies

Dennis Forst – Keybanc Securities

David Katz – Oppenheimer & Co.

Susan Berliner – JP Morgan

Mike [Shrgast] – Long Acre

David Winters - Wintergreen Advisors

Operator

Good afternoon and welcome to the Wynn Resorts Ltd. third quarter conference call. Joining the call on behalf of the company today are Steve Wynn, Marc Schorr, John Strzemp, Matt Maddox, Andrew Pascal, President of Wynn Las Vegas, David Sisk, CFO of Wynn Las Vegas and on the phone Ian Coughlan, President of Wynn Macau and Scott Petersen, CFO of Wynn Macau. At this time all participants are in a listen-only mode. (Operator Instructions)

Now I would like to turn the call over to Mr. Maddox. Please go ahead Sir.

Matt Maddox

Thank you. First I need to remind everyone we will be making forward-looking statements that may or may not come true under the safe harbor of federal securities law. So before I turn it over to Steve I just want to spend a couple of minutes talking about a very hot topic in the United States and in particular gaming; liquidity and the health of someone’s balance sheet.

Wynn Resorts is in an enviable position not only in gaming but in any industry that is capital incentive. Here’s why. We have $1.7 billion of cash on hand. Plus we have $500 million available on a revolving credit facility meaning total liquidity right now is $2.2 billion. We have approximately $500 million left to spend on Encore at Wynn Las Vegas which will open in the next couple of months. We also have approximately $500 million left to spend at Encore Wynn Macau. So we have roughly $1 billion of capEx left to finish our two major projects meaning we have over $1.2 billion of excess cash on hand before any credit for free cash flow.

What that means is we can pay off all our debt maturities over the next three years with the cash we have in the bank right now and still have hundreds of millions of dollars of excess cash flow. On a ratio basis we are also in a very good position. We have $4.9 billion of debt. If you back of excess cash of $1.2 billion that is $3.7 billion of debt. The last twelve months EBITDA $800 million meaning our debt to EBITDA is running four and a half times and that is fully funded debt before our projects open.

That is a position of strength and we believe that this is going to allow us significant flexibility to navigate our way through the next three years.

With that, I am going to turn the call over to Steve to talk about the quarter.

Steve Wynn

These conference calls have taken on a whole new dimension as the country goes through everything. I have always thought, because I would like to comment on what Matt said, today even in the old company of Mirage Resorts and the Golden Nugget I have always considered the balance sheet to be part of our marketing strategy.

You design and develop these places and of course the architects and designers do everything they can to make the building functional so the employees can give good service and make the building pleasing and inviting so that people will come back. But once the building is finished as Encore will be and open in 52 or 53 days on December 22, the franchise, the future, the value of the enterprise is almost totally dependent on one thing; customer experience.

Customer experience is almost totally dependent upon the human resource factor, that is to say the staff and our ability to make them interface with the customers in a wonderful, personal, ingratiating way. Then people love the place no matter how much marble or carpet we have got and they want to come back. They are willing to pay the price.

We keep the promise with our service. They tell their friends and in a high line place where there is a department store, hotel or car it is word of mouth that makes all the difference. Price is the most important thing we ever say to our customers. The public discounts almost everything we say with our commercial speech but they do not discount price which is why we protect ours so jealously.

If human resource engineering is the key to the franchise and the endurance and viability of the enterprise then the most important thing about human resource engineering is that first of all before you get fancy the employees have to feel safe. Safe. That means they are not worried about job security. They are not witnessing cut backs and all kinds of economical things that involve cutting back on capital expenditures or improvements or keeping the place up to date and clean or even worse lay offs. Once you do one lay off you might as well do a thousand because everybody is wondering who is next.

If all of this is a simple truth and one can accept that easily then it becomes clear the balance sheet is a key ingredient in the marketing of the enterprise. I have always thought so. That is why when we built this hotel before we borrowed a dime of the $2.7 billion it took to build this place we had $1 billion in cash and we borrowed $1.7 billion. Not exactly highly leveraged transaction, with the help of Deutsche Bank and our other banking friends.

So that mentality which was in place when we built Golden Nugget into Mirage Resorts, the day we sold the company to Kirk the leverage was minimal and the leverage is that way here again. Nothing is new for us. Our philosophy hasn’t changed. We are not going to change. We are going to keep the promise. Whether the occupancy in this hotel is 98%, 87% or 78% the people who check into this building expect us to keep the promise as if it was full. We don’t get to compromise our service by saying, “Gee, times are tough around the country and we can’t keep the place clean or something like that.” So we have planned for this kind of time not because we are prescient or we have crystal balls but just because it is a fundamental aspect of our operating philosophy.

Encore is going to be open in a few weeks. It is the prettiest thing we have ever done. I’m in love with the place. Everybody who has seen it thinks it is terrific. That sounds like a developer speak and it is.

I’ll take questions.

Question-and-answer Session

Operator

(Operator Instructions) The first question comes from Steve Kent - Goldman Sachs.

Steve Kent - Goldman Sachs

Can you just discuss if you are seeing any changes in October revenues or trends in both Macau and in Vegas and then just talk about the bad debt reserves because obviously that was a little bit different than what we have seen before and maybe given your experience in the industry what kind of changes have you see in bad debt collection and downturns, changes in any customer behavior?

Steve Wynn

With regard to the bad debt reserve which is my business to a certain extent we had a good quarter. We made a couple hundred million dollars and I’m watching TV and reading the same things you all are reading and I’m thinking sooner or later that has to come a cropper in some form or another. We have always been highly reserved. In my entire 40 year career I have never had a situation where I wasn’t reserved enough. I’m serious, about 40 years. My colleagues and I have been able to understand credit and our customers well enough but again we have been on the conservative end of giving credit.

We don’t use credit as a marketing tool in this company. We give credit to people who really don’t need it when they ask for it. We don’t provoke playing by saying here we will give you more money. We have never done that in the whole 40 years. So as a result we have this terrific credit history. We have never been under-reserved. Ever. We have never had to make a special assessment.

This time I had a chance since we made enough money and I wasn’t really worried about stock price but about conservative financial management and I said look let’s take $22 million and shove $11 million in China and $11 million in Las Vegas in anticipation of the fact that some of our customers might get in trouble, even though I hope they won’t. It was a prophylactic measure. Our auditors agreed that such a measure in such an extraordinary moment in history wasn’t unreasonable and they will examine it as I will as we go in the weeks ahead to see if it was justified and if it wasn’t I’ll put it back.

But I’m being very conservative. It is nice to be in a position where you are making enough money to be conservative. Andy, would you talk about and maybe Ian talk about changes in revenue as you see it and equalize or normalize whole percentage. Don’t play with luck. Just talk with activity levels.

Andrew Pascal

I think through the third quarter our business volumes fared better than most here in Las Vegas. In October we have clearly seen more significant softening. Most of it has been isolated to mid-week business. Our weekend business has held up fairly well. I would say the softening is fairly isolated to our mid-week activity and I would say generally it has impacted all the different sources of business fairly equally. Walk in business is off. Occupancy mid-week has softened and that has translated into reduced covers in our restaurants, lower volume of activity on the casino floor. I think where we were trending anywhere from 3.5-6% in terms of top line business being off through September we are seeing more significant declines now in October.

Ian Coughlan

In Macau after September showing some weakening, October has been relatively positive. We had a very good October holiday period and business since then has been reasonably strong so we are reasonably encouraged. There has been a bit of a bounce back so we are looking towards the end of the year being a little bit off but not too consequential.

Steve Wynn

I know you were going to ask this question, somebody, and I was looking at our EBITDA and cash flow for 305 days through last night. We have made slightly more of an increase in China than the decrease in Las Vegas. So as we go into these last 60 days we have a few million dollar cushion to end up sort of like last year but who knows what November and December will be like. China is pretty stable for us. Las Vegas is, as Terry [Lanning] and everybody else has said, a little murky. It would strike me that if you were a citizen, rational, education person, certainly somebody who had the accomplishment and success in life to be a customer of ours, if you were watching TV or reading the newspapers you would have to be half nuts to spend money instead of waiting around and checking things out to see how the world is going to shake out.

This is like after 9/11. Cable communication and all the rest exaggerate. Everything is hyperbolic. Everything is exaggerated. Everything is a big story of the moment and in this particular case we have reality that is tough enough and then when you amplify it with all of the news sources and all the talking heads and all the people who think they have a right or weigh in on the subject, not to mention the rhetoric of the campaign, all of this…if the public isn’t jolted then the public is totally immune to being jolted. So I don’t take the results of the last few weeks to be indicative of the future. Not to minimize the liquidity problems that face very important sectors of our economy, in terms of the consumer spending I think what we are seeing now is almost a freeze and like a muscle that is flexed you can’t hold it for very long. People will relax and return to their habits sooner, I think, than later.

That is not to say I think revenue is going to sky rocket or go through the roof or return to other levels, but I think right now Las Vegas is seeing pretty much some of the worst of it.

Operator

The next question comes from Joe Greff – JPMorgan.

Joe Greff - JPMorgan

Given your liquidity position and capital strength do you view acquisitions any differently than you have before? Does that become more interesting to you?

Steve Wynn

You mean the gaming industry? No, we don’t want to buy anything. There is nothing we see that we want to own. We do better building our own stuff. We will have plenty to keep us busy. We have a hotel opening in a few weeks and another one opening up 12 months from now in Macau, both of which are the proudest products that either market has ever seen. I predict that the Encore property when it is experienced visually by people will represent a break-away moment in terms of casino design. We have done things there that we have never done before, nor has anyone else and now that we have a chance to see it with the carpet down…this business with having no walls in the casino, having it all glass has an energy and uplifting kind of thing that all of us in the company are getting a great deal of pleasure out of. Because you know it is great when something turns out good. So we are all, in the middle of all this confusion and uncertainty we are all having sort of a good time looking at our new puppy.

Joe Greff - JPMorgan

Matt, did you buy any shares back in October?

Matt Maddox

No.

Steve Wynn

104 million shares outstanding as it stands.

Operator

The next question comes from Celeste Brown - Morgan Stanley.

Celeste Brown - Morgan Stanley

Steve if you are not going to buy anything else are you going to hoard your cash until you feel more comfortable just like consumers feel more comfortable? Is that something you are thinking about in terms of your liquidity over the next couple of years? Something you are thinking about doing?

Steve Wynn

If we can get Encore up properly, there is this whole period where we have the first six months of the new hotel we call it a period of stabilization. That is a very big assignment and it takes Andy and Marc and David Siskin, Maurice Wooden and Rob [Oslin] all their energies. I think if we can do a good job at that we will have occupied ourselves productively and then there is all the other ongoing stuff in China that there is a market so dynamic it changes every five minutes. It is a fascinating place. It is wonderful to do business there. Very wonderful to do business in China. We are grateful for being there. I think maybe we will just sort of bide our time and pay attention and watch our P’s and Q’s and get this place all stabilized.

Incidentally, one of the serendipitous and nice side effects of opening Encore was that it gave Andy and his team a chance to react to the change in demand that Steve Kent asked about. For example, there is no question as Andy says demand for mid-week rooms has softened and we have got a very, very dynamic program to open Encore but nevertheless in good times you might project 95% occupancy. That is what we always have had for the last 40 years; 95% to 100% occupancy whenever we open a new hotel. Let’s say now I’m not sure we are going to be able to beat past 90%. We might be in the 80’s. Maybe mid-week you could be in the high 70’s and low 80’s in worst case scenario in 2009.

Well, what do we do about that? I’ve already said numerous times we are not a company that gets to bounce around and change staffing levels and compromise service. We don’t do that here. This is a high end, elite company. We cater to a very special part of the market and that is where we are staying. However, there are flexibilities that are available to management and one of the really wonderful moments that occurred is when you open a new hotel and let’s say you have 5,500 or 5,600 jobs, some people transfer from Wynn and we fill in behind them and some people are new hires at Encore.

Well what we are able to do is we said let’s alter the compendium. Let’s make an adjustment and do base staffing to a lower level and we will do new hires less than we would have in boom time and we will use steady extras. In other words, we will transfer more people from Wynn which allows us to take advantage of every single economy that we think is accessible with our level of service and you always know how to make a place a little more efficient. In our company we wait until someone quits and then we don’t rehire. That is called lowering your staffing by attrition. Attrition is slower but it also keeps everybody safe.

Now we can transfer people to Encore in new jobs without laying anybody off, tighten up our staffing and use steady extras until we see the level of business at Encore and then put more people on full time. That gives Andy a tremendous nozzle or valve to adjust staffing levels and payroll painlessly and invisibly to our existing employees. That was one of the silver linings to the cloud that is hanging over Las Vegas now and whatever uncertainty we have described in Encore.

So we have been able to use a submarine term, we are rigged for silent running as much as one can do when you have an operation like we operate.

So that has been an interesting thing we have been able to do and we have made that adjustment during the end of September and beginning of October and we are set now for that. I don’t know if that is helpful to anybody. We don’t do layoffs and we don’t cut back but we can run and staff both hotels leaner when we are hiring 4,500 to 5,500 new people.

Anything else?

Operator

The next question comes from Rachael Rothman - Merrill Lynch.

Rachael Rothman - Merrill Lynch

I just wanted to follow-up on the liquidity issue a little bit. Obviously you have done a tremendous job of managing your capital structure, not just keeping enough financial flexibility but opportunistically…can you kind of prioritize for us, you were buyers of your stock in the 80’s? With your stock where it is now or maybe do you see your bonds as a better opportunity to drive returns for equity holders or are you just going to sit with the cash as it is?

Steve Wynn

Having a capital structure that is particularly suited to a particular business is a lesson that I have learned from Mike Milken. Michael taught us about the importance of capital structures like that old anecdote horses for courses and capital structures for businesses. In the 70’s and early 80’s Michael and I, and I must say I got an education about it, the importance of a capital structure for a service intensive, labor intensive business such as ours and those lessons I got from Milken work for us.

As far as what to do with the money, Mr. Maddox is the guy that dreams about that sort of thing every night.

Matt Maddox

The way I look at it is not just in the gaming industry but in all industries right now people should be focused on de-leveraging. In times of uncertainty you need to make sure your balance sheet is very, very flexible and the ability to de-leverage and discount is a tremendous opportunity for companies, in particular if they have short-term maturity. So to me that is something we need to be focusing on first until we really see the smoke clear on what is going on in the U.S.

Rachael Rothman - Merrill Lynch

I believe the yields in some of your maturities is in the 14% range. Have you guys made any over-market purchases of any of your bonds either during the quarter or subsequent to?

Matt Maddox

We have not.

Rachael Rothman - Merrill Lynch

This is just kind of a bigger picture question, maybe you could educate us a little bit, in terms of the rev par figures that we have seen out of Las Vegas as a whole, if you don’t want to be specific, some of them are higher than I would have expected given the weak economic backdrop and your commentary about the muscle and it being like September 11. How do we think about or how do we go about ascertaining for some of the properties generally what the right mix of cash versus non-cash rev par is and whether or not some companies may be, I don’t want to use the term inflating, but maybe the rev par may be overstating the true economics of the business if that is non-cash [room]?

Andrew Pascal

I know that we typically don’t get a lot of transparency to the composition of the hotel revenues. Rev par for us is off about 4%. Maybe a little bit over 4%. I can tell you our cash base revenues are off slightly. That can be impacted obviously by having to be more aggressive in the market trying to stimulate demand. So as I alluded to earlier, I don’t think it is unique to us that we have got softer business mid-week. So there is an opportunity for us to go and reward our loyal customers with opportunities to come during the mid-week period. That clearly is going to impact the composition of your revenue. I can’t speak for anybody else. I know we do that. I don’t think we do it nearly as extensively as most people because we are very careful to protect the integrity of our rates. We don’t want to get into a cycle or pattern where we start diluting or reducing what we think is the value of our product by how we price it and we certainly don’t want people to get into a position where they just simply wait for some type of a discounted offer or complimentary room before they elect to come and visit us.

Those are the kinds of factors we take into consideration when we do things that impact the composition of our revenue. For the most part, we have been able to maintain our rev par. Cash based business is off slight. As I alluded to with the kind of change in composition of our demand going forward I would expect that trend to continue.

Operator

The next question comes from Robin Farley – UBS.

Robin Farley - UBS

You were talking about de-leveraging so share repurchase or special dividend is ruled out for now? Just to sort of clarify. I think that is what you were saying without saying it exactly. Then my other question is the time frame for Cotai development or golf course development in Las Vegas. What are your thoughts there and are those thoughts impacted by what is going on with the markets? In other words are you thinking of those as delayed now versus what you may have thought previously given the financial markets?

Steve Wynn

Special dividend or de-leveraging, clearly the answer for Matt and I and the board of directors our focus is on de-leveraging. De-leveraging. Unequivocally that is the priority in this shop along with taking care of the needs of our new customers at Encore and our staff in both hotels.

Cotai and the golf course, I think that if anything the economic environment that we are in and the implications of it would tend to slow us down and make us wait and see and certainly take away any sense of hurry or being impulsive. I don’t think that there; again remember you are talking to a company that has two hotels under construction. Neither one of which is open yet. So as far as expansion and growth for the next 12-13 months we have openings and expansions. If they are successful then we are going to have an EBITDA line that is substantially bigger than we have had in the past. That will be good enough for me. I don’t have any kind of pressing need to rush into a new hotel at Cotai especially until I have some evidence that the expansions of our neighbors have been absorbed by that market. At the present moment there isn’t one shred of evidence to indicate the current expansions have been absorbed let alone any additional ones. That concerns me a lot because at the end of the day whether you are talking about Las Vegas or Macau we are part of this community.

We thrive, this company, on over saturated, over built markets where we can skim off the top level. That is our gig. That is what we do. We love it when everybody else is building a lot of stuff because more people come to town and more people stop by, check us out and think that we are prettier because bigger ain’t necessarily better. Better is better. They find that out about us and next trip they stay with us. I don’t need another hotel right now in order to keep that program. I’ve got this one and the one next door in a few weeks and then the one in Macau that is so wonderfully accepted and we have one next door to that which is the absolute all-suite hotel, the Encore there is 404 suites and villas, it is the fanciest thing we have ever built.

That is all we are going to do for now. I don’t have any plans to rush into anything else.

Operator

The next question comes from Bill Lerner - Deutsche Bank.

Bill Lerner - Deutsche Bank

I’m not sure how to ask this prophylactically so I’ll just give it a shot. As you guys have increased bad debt reserves maybe you have tightened player credit.

Steve Wynn

Yes.

Bill Lerner - Deutsche Bank

So my question is assuming since that has happened, what has happened to behavior as you have done that and are you inducing some sort of essentially declines at the high end right now?

Steve Wynn

No. For us tightening means reviewing our credit files, checking everything out again. We are not in the face of our customers. I didn’t mean to suggest that. It is a question of how much we do in reviewing currently the status of the people that have credit here. But the kind of people that come to Wynn in Macau and Las Vegas are usually really deep. We have got high end business every single day. I don’t think we are inducing anybody not to play but on the other hand I don’t want this company to be used as a bank. The fact that customers may use casinos as banks will not be a new phenomenon. My friends at Mirage Resorts that I spent 27 years with will attest to the fact that is a thing that happens if you are not diligent and you don’t watch and know how to run the floor of the casino. People take money and don’t play, which is the worst, or people take money and don’t pay which makes it no fun at all.

So, we are careful. Increasing the reserve was a real fit and proper way of putting $22 million aside in a time when people should put $22 million aside. Maybe we will find we don’t need it and perhaps that is true but we had enough of a predicate this time to do it and still stay within the guidelines of the SEC and the Internal Revenue Service and our auditors Ernst and Young. But we are being cautious and it is part of our general strategy.

Operator

The next question comes from Larry Klatzkin – Jefferies.

Larry Klatzkin - Jefferies

On regulations and China any feel for commission caps, lifting of Visa restrictions? I hear rumors that they might be increasing the number of cities you can get the number of visas from? Any word on what you are seeing out there?

Steve Wynn

I think I have heard some of the same rumors you have. The reason we don’t get too excited about it either way is this; and I think this probably makes a major difference between us and some of the other fellows over there. We are very fortunate, privileged and grateful to be invited into the People’s Republic of China and Macau. It was the greatest break that any company ever could have had in this industry. We have benefited beyond words by the opportunity to be there.

The thing I have learned with the help of some friends of mine that we go to for advice and among them are Mr. Kissinger and Stapleton Roy and people like that who we have asked for counsel that it is important when you are a corporate citizen from another country in China to listen and to fit in. To try and fit in and be helpful and useful.

When they changed the rules in Macau they wanted to expand the market and bring in a different kind of clientele and different kind of building and so they chose a couple of Americans and other people to do so. We fit into that formula thank goodness and we were helpful in achieving that goal.

Now the government as time goes by decides that the economy of Macau is overheating. Not to mention problems that are nationwide in the PRC but the economy of Macau is overheating. The cost of living is escalating too rapidly. The regular citizens in that community are finding it difficult to pay for increasing rental and apartments. There is a squeeze on the cost of living in Macau, all associated with this remarkable boom of building and expansion that we have all been a part of. So the central government in conjunction with the local government, the special administrative region of Edmund Ho decides to cool it down a little. We listen to that because that is what you are supposed to do in China, listen.

So if they decide to cool it down, we are not salmon. We don’t swim upstream. We conform and we slow down. We don’t get excited about it. That is part of the game. That is the business there. You are part of a bigger picture. You are part of a program that involves more than just your business week to week. You are part of an economic, geopolitical idea of changing a community and that can go too fast and backfire and it started to do that. Or it can be done at a normal rate.

Now when the government regulates things like this they can do so in a number of ways and of course each of those techniques have repercussions which are intended. We listen to those changes. We understand why they are made and we go along with it. If they want to slow down, we slow down. If they want to take it easy, we take it easy. Most of all what we do while we are there is take very good care of our employees because there is a strong, strong feeling for Chinese business, even though we read so much about the democratization of a communist country, the capitalization and the use of the capital markets and the freedoms. There is a very strong tendency or prejudice in governmental policy that is pointed at caring for the people there in a very nice, compassionate way. So the government tends to focus on things like the living standards in Macau in the way they deal with the businesses.

If that is the way it works over there you had best pay attention to it. We do. That is something I don’t mind sharing on this conference call because I think it is relevant.

Larry Klatzkin - Jefferies

I know you are not out there looking for things but it is definitely possible over the next 6 months some unusual bargains and gaming assets out there and I know you have never really bought other people’s problems but is there a right price where someone else’s problem actually becomes your opportunity?

Steve Wynn

It is best never to say never. I had to have that explained to me. I don’t think I want to go any further on a hypothetical with that because I’m not thinking of anything off hand that I can respond to.

Larry Klatzkin - Jefferies

CapEx for the fourth quarter, how will the remaining $5 billion expense be broken down?

Matt Maddox

$500 million for Encore Wynn Las Vegas. It will be about half in the fourth quarter and the other half spread through the first two quarters of 2009. For Wynn Macau it is really back loaded to the end of 2009.

Steve Wynn

We tend to settle up with the builder after it is open. It will happen after January 1.

Larry Klatzkin - Jefferies

I know in this economy you aren’t looking in this direction but anything going on in Japan?

Steve Wynn

We haven’t heard anything new other than the usual static that this committee or that committee is considering it. I know all of the other casino companies run over to Japan at the drop of a hat and tell everybody how great they are. The fact of the matter is this reminds me of England when everybody thought they were going to turn it into Las Vegas and we didn’t. I think that the changes in Japan will come very slowly if they do and I don’t think we will have a clue to what the business opportunity is until we know what the rules are over there or where. I think you can make the same statement about a number of countries in Asia. That is another reason why we took our time in Macau.

We looked at Macau not only as a business opportunity but we also said Macau is going to be our showcase. Best we take our time. Best we do a good job. Because any political entity in Asia who is thinking they may want to have an integrated destination resorts look to Macau to see how good we are doing just as China looked to Las Vegas and that is how we got the concession because they liked Bellagio and Mirage, our work in those two places and Shadow Creek.

So I looked at Macau as a place where our relationship to the community, our relationship to the employees, our caring we were, how well we operated our business, what kind of place we built, all that would be our story. Because owners and chairmen and presidents and executives they can flap their jaws from now until next Sunday. It is all self-serving clap trap. The fact of the matter is businesses are like horses. They run true to form. People that do good work continue to do good work. If you were a country like Japan or any other country that was looking at who you could trust to do a good job you would look at what was done in Macau and what was done in Las Vegas.

That is one of the reasons why we take such good care of our property because at the end of the day if there is to be a beauty contest, for lack of a better term, or a selection process the best argument we make is the work in the hotels we are operating. I think that is all we really have to do. I don’t run around new jurisdictions very aggressively. I don’t need to. Anybody who is looking at gaming knows about Wynn and the Wynn company. They know who built Bellagio and Mirage. I don’t need to repeat it. It works just fine.

Operator

The next question comes from Dennis Forst – Keybanc Securities.

Dennis Forst – Keybanc Securities

What I wanted to ask about had to do really with capEx also. Matt, did you give any guidance for full 2009 capEx?

Matt Maddox

No, I was just explaining that Encore Wynn Las Vegas we have about $500 million left to spend and the same thing for Encore Wynn Macau. Besides that our maintenance capEx spend is in the neighborhood of $25-30 million per quarter. I believe this quarter it was $25 million on maintenance, split $14 million in Las Vegas and $11 million in Macau. That will probably pick up next year in Last Vegas with the second property opening but I would say those are good run rates.

Dennis Forst – Keybanc Securities

For 2010 then we are really talking just maintenance? Maybe some clean up on the Macau number?

Matt Maddox

You are on to the right point. That is what a lot of people miss. We become a free cash flow company with significant free cash flow in about 12 months. So if you look at what EBITDA we are going to generate less our capEx it is a significant amount so we are in a very, very good position. Also I want to point out we are very confident in the budget of our property. We are in the final throes of Encore Wynn Las Vegas and $500 million is the high end of what we have left to spend on that property and the same thing at Encore Wynn Macau.

Dennis Forst – Keybanc Securities

The Wynn Macau number escalated from $600 to $700. Am I right about that?

Steve Wynn

Scope change.

Matt Maddox

It is a scope change. In truth our budget is around $650 right now with quite a bit of [inaudible] in it but we tend to round up in our disclosures so that is why we have $700.

Steve Wynn

We made it bigger. We added a couple of floors.

Dennis Forst – Keybanc Securities

The tax benefit in the quarter, can you explain to us how the tax rate works?

Matt Maddox

Again we had a benefit and that is really solely because the domestic income which is domestic EBITDA less pretty much most of the interest expense and depreciation and amortization in pre-opening we have around $14 million of pre-opening charges at Wynn Las Vegas that caused a loss on the income side.

Dennis Forst – Keybanc Securities

Most of the debt is domestic debt?

Matt Maddox

$3.8 billion. $2.8 billion at Wynn Las Vegas and $1 billion at [Encore]. So your domestic income is a loss. Your foreign income is a significant gain but we [inaudible] taxes on domestic.

Dennis Forst – Keybanc Securities

Lastly, if you are talking about de-leveraging, someone asked whether you bought bonds and you said no you had not. Why haven’t you bought bonds? If the yields are in the mid-teens?

Matt Maddox

What the equity guys really focused on are not as much the yields but the current maturities. I think you’ll find companies in any industry, not just gaming, should be very, very focused on current maturity or debt that is going current in the next 12 months. Because there is no assurance the capital markets are going to come back. So that is the debt you need to focus on is take out first and then after that you start looking for yield.

Operator

The next question comes from David Katz – Oppenheimer & Co.

David Katz – Oppenheimer & Co.

Can you give us or try and paint us a kind of relative picture, with Encore opening in the demand environment we are in where are you envisioning the sort of Encore customers coming from? If you can give us a picture of how much is new entrance to the market. How much will be sort of out of your own and how much you expect to capture elsewhere. Whatever you can tell us here would help.

Steve Wynn

I don’t want to add to any of my neighbor’s woes so if I were to answer that question candidly I would say that our market share will increase in Las Vegas. Does that answer your question?

Operator

The next question comes from Susan Berliner – JP Morgan.

Susan Berliner – JP Morgan

I missed a couple of minutes so I apologize if this question has been asked but I was wondering if you could explain since you have a lot of liquidity why you drew down on the remainder of your U.S. revolver?

Matt Maddox

Sure. The U.S. revolver was to fund a project, Encore Las Vegas, and with two months to go and the crisis going on in the financial industry I determined we should take the money now because I wasn’t quite sure what banks were going to be left later.

Steve Wynn

Matt got scared.

Matt Maddox

We drew down the last $360 million and it is only really three months, two and a half months of negative carry because the last thing you would want to do is not have the money to complete the project.

Operator

Ladies and gentlemen we have reached the end of the allotted time for questions and answers. I would now like to turn the call back to Mr. Maddox for any closing remarks.

Steve Wynn

I don’t want to shut anybody off. I know it is a sensitive time. If it is really important to answer any more questions and anybody feels urgent about it I guess we would be glad to extend a little bit. I know that if I were an investor I would want to try and get as much information as I could these days.

Mainly what we tried to do today is to reiterate that in this company first an idea, then a building or hotel. First an idea, then a human resource program. What I think is most important in a time like this for people who are interested in investing in human resource is to know what are the thoughts and priorities of the people who are driving the car. That is why Matt and I and Marc Schoor and Andy Pascal and David and John Strzemp are all here with Ian and I think probably if you are paying attention you hear a pretty consistent story from us. I think that more or less will tell you how we will react to situations as we go along no matter what those exigencies or contingencies may be.

Is there anybody else that felt they got shut out of asking us a question today?

Operator

The next question comes from Mike [Shrgast] – Long Acre.

Mike [Shrgast] – Long Acre

I was just wondering can you bridge the gap in the cash balance if you ended last quarter with $1.4 billion, you drew down $1 billion that takes you to $2.4 billion and you ended with $1.7 billion that implies $700 million cash outflow. If you net capEx against EBITDA minus some of the cash charges it sort of looks like there was a greater outflow of around $460 million. Is that just a gross capEx that I’m missing?

Matt Maddox

No, what you are missing is we did repurchase stock in July.

Mike [Shrgast] – Long Acre

The $330 correct?

Matt Maddox

Exactly that we disclosed on our last conference call. I think that is the majority of what you are missing.

Mike [Shrgast] – Long Acre

On your comments Steve in the beginning regarding the softness in the mid-week segment, when you look back having built this thing right before the economy rebounded last time I guess what is your feeling here as you look at the weekday business versus the weekend business? I would think the weekend business you can always feel confident about. It is the weekday business that is maybe giving everybody the extra margin and the extra hotel dollars over the last couple of years.

Steve Wynn

It is what it is. We opened Mirage in November 22 of 1989. 1990 was okay but we ran right into the recession after that. Mirage powered through it. Mirage powered through it. It had better days after the recession but it didn’t get in trouble during the recession.

Andy this business about the mid-week, you want to comment?

Andrew Pascal

I think historically we have always relied mid-week more heavily on the convention business and the leisure segment. The convention business typically books much further in advance and then you layer in the leisure segment which allows you to build up your base and then you yield up from there with your transient segment. So there is just a lot less certainty in kind of what is happening with the convention business. I think across the board industries are just looking at how and where they are spending their money and there is just a little less predictability there. I think as things start to stabilize and people get a little bit more comfortable then we would expect those commitments will firm up and that business will strengthen and we will kind of return to where we were.

Marc Schorr

However, the first quarter of 2009 we see a stronger February and March bookings this year in convention business over the previous year.

Operator

The next question comes from David Winters - Wintergreen Advisors.

David Winters - Wintergreen Advisors

It seems like Macau is doing great and should do fabulously well over the long run and Las Vegas has softness but in general people are missing the point. It seems like the sentiment has just been horrible yet the company is doing just fine. You have executed beautifully and created all kinds of asset value from basically nothing over the years. When I listen to all of you talk for the last hour that is what I get out of it. Does that make sense?

Steve Wynn

The point is we are here for the long run. That is why I said the last time we had one of these calls I really didn’t care about the economy in the sense it concerns me about the company. I am certainly concerned about the welfare of my fellow casino operators up and down the strip. Some of them are very close friends of mine and I’m worried about their employee base and all of that. I’m concerned about how much expansion the market can take for their sake, not for mine. For their sake. But we are who we are. The last 40 years or so, or at least since 1989 when we opened the Mirage, even before that in Atlantic City and down on Fremont Street when was it that any hotel of ours didn’t increase market share in hard times and prosper in good times or bad? It has been 40 years. Just take a look, on Fremont Street we made as much money at the Golden Nugget as all the good places on Fremont Street combined. We had over 50% of the earnings of the downtown area.

Same thing happened, the smallest casino in Atlantic City and we made most of the money. We did more in the first quarter we opened the Golden Nugget in Atlantic City than the other four or five places combined that quarter. The same thing was true; we made more money with Mirage after MGM opened 5,000 rooms with our 3,000 room Mirage than we did the year before they opened.

We like it when there is lots of business and people open. We have been consistent all this time. Our philosophy hasn’t changed. It is not going to change. I don’t care who owns the stock and who doesn’t own the stock. We are running the business for the long-term and incidentally in the Wall Street Journal today they misquoted me. I didn’t say pooka pooka, I said booga booga. Which is an attempt to be humorous and that is what the boogey man used to say, booga booga. We don’t have the booga booga chills around here.

It is nice of you all to tune in for our call. We will do our best to deal with the ups and downs of the short-term rollercoaster. For those of you who own our shares be of good heart. We will be okay. For those of you who don’t and who are short-term thinkers, stay out of the company.

Nice talking to you.

Operator

Thank you for participating in today’s Wynn Resort Ltd. third quarter conference call. You may now disconnect.

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Source: Wynn Resorts Ltd. Q3 2008 Earnings Call Transcript
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