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Executives

Ron Kramer - President

Steve Wynn - Chairman and CEO

Analysts

Steven Kent - Goldman Sachs

Bill Lerner - Deutsche Bank

Celeste Brown - Morgan Stanley

Larry Klatzkin - Jefferies

Robin Farley - UBS

Wynn Resorts Ltd. (WYNN) Q4 2007 Earnings Call February 12, 2008 4:30 PM ET

Operator

Good afternoon and welcome to the Wynn Resorts Limited fourth quarter conference call. Joining the call, on behalf of the company today are Steve Wynn; Ron Kramer; Marc Schorr; John Strzemp; 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 Peterson, CFO of Wynn Macau.

(Operator Instructions)

Thank you. Now, I would like to turn the call over to Mr. Kramer. Please go ahead, sir.

Ron Kramer

Thank you, Heather. Good afternoon, everyone.

Before we begin, I need to remind you that today's conference call contains forward-looking statements that we are making under the Safe Harbor provision of Federal Securities Laws. I would also like to caution you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption, "Forward-looking Statements," for the discussion of risks that may affect our results.

In addition, we will discuss adjusted property EBITDA, which is a non-GAAP measure -- a reconciliation of those practices for the most comparable GAAP measures is included in the press release.

We're broadcasting this conference call live on www.wynnresorts.com, where you can also find the earnings release that we circulated earlier today. I'm going to give you a brief overview, and then we'll open up and take your questions.

Simply, 2007 was a great year. We are extremely proud of our results in Macau and in Las Vegas. Fourth quarter, we generated consolidated property EBITDA of $197 million for the two property. That's a 23% improvement versus the same quarter in 2006. The Wynn brand has become synonymous with quality.

Our loyal customers enjoy the intimacy of our design and appreciate the extraordinary level of service we provide. We believe we have the top properties in each of the markets where we operate, and our results reflect that preeminence.

In Macau, our EBITDA on the fourth quarter was $99.6 million, a 70% increase over the same period of the prior year, despite significant growth in supply during the third and fourth quarters. In our first full year, Wynn Macau generated $364.1 million of EBITDA.

On December 24, 2007, we opened the Wynn Macau expansion, which increased our table offerings by approximately 40% and nearly doubled our slot capacity. We continue to perform well in Macau. We believe that the opening of MGM next door has helped draw additional traffic to our neighborhood.

In 2007, gaming revenues for the market were up 47% and gaming revenue per visitor grew sequentially every month, an incredible testament to the depth of this market. Trends remained strong, and the year ahead looks very promising as demand continues to grow with no appreciable additional supply entering the market in the next 12 months.

In Las Vegas, The Tower Suites at Wynn Las Vegas is the only casino resort in the world to receive both the Mobil Five Star and the AAA Five Diamond award and we have done it two consecutive years. We're also very proud to be the only resort in Las Vegas to be honored with the prestigious Michelin Guide's Five Red Pavilion award.

In the fourth quarter, Wynn Las Vegas generated $97.3 million in EBITDA, which represents a $3.8 million decrease versus fourth quarter '06 due mostly to the decline in hold percentage from 26.3% to 23.5%. During the quarter, our slot business was down modestly versus the fourth quarter of '06 due to the lower traffic resulting from the closures of the Stardust and Frontier.

We expect the late December opening of the Palazzo to drive improved walk-in traffic to Wynn Las Vegas, benefiting both our slots as well as other businesses. Our food and beverage, retail and other department showed solid quarter-over-quarter growth, and for the full year, Wynn Las Vegas EBITDA grew over 25% reaching $417 million.

Finally, our balance sheet is strong. At yearend, we had net debt of approximately $1.7 billion and our net leverage stood at 2.2 times, providing us with excellent financial flexibility for future developments and shareholder value-enhancing opportunities.

With that, we're going to open up and take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Steven Kent with Goldman Sachs.

Steven Kent - Goldman Sachs.

Hi. Could you just give us a little bit more color on what you experienced so far in January in Las Vegas? MGM gave some information that things were softer in the first few weeks. I just wanted to see what your experience was. And also, just a little bit more color on the expansion at Wynn Macau, how that's ramping up and if it's meeting your expectations?

Steve Wynn

This is Steve, answering that question. I don't think we want to get too forward in the quarter. I think that it's probably a good idea to be cautious about Las Vegas market, in general. It has been said that Las Vegas is somehow impervious to economic trends in the United States of America. That isn't quite an accurate way of expressing it.

Las Vegas is resistant because so much of our business is booked far in advance, conventions for example and other things of that sort. And so what happens in Las Vegas is if there is a general economic softening in the United States and surrounding territory, Las Vegas reacts to it a little later. There is sort of a delay built in. But it would be unsophisticated to think that Las Vegas is somehow a magical island on to itself, immune or isolated from the effects of the cities and the communities that serve it with its visitors.

So I would be cautious, depending on your particular view, each of you, about the general economic conditions in the United States as we go forward into the year. Then, I think that you probably turn on the yellow light about how the Las Vegas market will respond. I don't think that we see any significant moment this year, so far, in terms of our non-casino revenue or drop in the casino, and that sort of thing. So I'm not sure than I have an intelligent answer.

The folks at MGM, of course, have a much bigger sampling. We have just one hotel, and after all, we are sort of in an elitist place. But again, whether we're elitist or not, in spite of all the awards and the clear superiority of our product here in Las Vegas, again, I would say that -- and the nature of our clientele tends to be very upscale. I still think that we are not an island on to ourselves, nor will we ever be here in Las Vegas in any hotel.

Having said that, the second part of your question, I don't want to be too wordy about this, had to do with Macau? We did open the part of our expansion on December 24 and marched into January with a larger facility, both in VIP and in general casino. And we are thrilled and delighted with the results. Let's hope that it continues as we go forward. But I don't have anything else intelligent to offer.

Steven Kent - Goldman Sachs.

Okay. Thanks.

Operator

Your next question comes from the line of Bill Lerner with Deutsche.

Bill Lerner - Deutsche Bank

One for you. I hadn't heard you [way you] hit on the Nevada gaming tax proposals. I would love to hear you generally talk to those and I think that's probably it for me after that.

Steve Wynn

That's another item that we have to watch and try and understand. If it moves along, its impact would be in 2011 if it ever comes about. And it's the kind of thing that we're seeing around the country in every state, where the needs of the citizens, demands of the citizens, and the ability of the government to supply them are stressed. Las Vegas and Nevada is no different than any place else, and we've got a long way to go before we understand the full impact of that. I don't think there is much more to say on that subject.

I just want to remind everybody that there is a little asterisk on last year’s Las Vegas EBITDA.  Being a grandfather and understanding how important Christmas is, both to parents and to children, we decided here in our family way, that in the fourth quarter we took $5 million out of our [Swansea] earnings for the year and gave $1,000 tax paid to all of our employees, who made $40,000 or less as a Christmas present, and we paid the tax. And I think the gross up cost is about $5 million.

And when you are looking at our EBITDA, you might take that into account, because it would have been more money -- instead of 97, we would have been at (inaudible). So, we did something sort of unusual, which I was delighted to do, and all of management thought it was a right thing to do, to make sure that so many of our employees, who have families, would have a merry Christmas. So, we did something unusual this year. And I just wanted to -- for those of you who were running out of numbers comparing to last year, I should tell you that that was a special event. We'll take the next question.

Operator

Your next question comes from the line of Celeste Brown with Morgan Stanley.

Celeste Brown - Morgan Stanley

Hi guys, good afternoon. First, I know you guys don't like to talk about the [corner] end, but there has been a lot of press about weather impacting the ability of the people to travel in China, and I would guess outside of China. Is that impacting the market at all for Chinese New Year?

Steve Wynn

It did, Celeste. It always, most definitely put up a bump in the first week of February. We have people sleeping in the train station at Guangzhou, and that type of good luck was extraordinary and have reached into Southern China in the Guangdong province to Shenzhen, Dongguan and Guangzhou and those kind of places, and it affected everybody's business, I am sure, for about five or six days. But Chinese New Year has been robust. And it's over now, I think the snow melted and the things are back on track.

Celeste Brown - Morgan Stanley

Steve I'm not sure I understood what you were saying about how you don't expect a significant momentum in Vegas. Can you explain that a little further?

Steve Wynn

I said that we had not yet observed any significant moment in terms of the impact. Somebody mentioned in the question, I think it was Steve Kent that MGM had said that they saw a softening? Well, you know MGM looks across what 10 casinos or something, their sampling is enormous, and they see every part of the market, we don't. We're dealing with, well, for lack of a better term, rich folks.

Celeste Brown - Morgan Stanley

So you're saying generally your trends would be better than theirs?

Steve Wynn

Well, again, I don't want to make statements about trends. I'm responding to whether we feel a softening in the market. I'm not sure that we can analyze that and that we are prepared to make that statement. Yeah it's too short, too quick. And Super Bowl was exiting, the February calendar is terrific. Forgetting for a moment the whole percentage and luck as it impacts a place like this, general levels of business, we don't see a trend yet. But again I remind you that, I don't think that we are immune from such things. If they're strong enough around us, we'll feel them sooner or later, I would guess.

Celeste Brown - Morgan Stanley

Thank you.

Operator

Your next question comes from the line of Larry Klatzkin with Jefferies.

Larry Klatzkin - Jefferies

Hey guys, a couple things. One, the Diamond Suites was more like -- the end of first quarter, beginning of second quarter 2010 at this point?

Ron Kramer

I think that's what it's always been.

Steve Wynn

I think Diamond -- the Tower, you mean?

Larry Klatzkin - Jefferies

Yeah I thought it was always a little earlier in the year than that. Okay.

Steve Wynn

Tower's probably about 22 or 23 months out, and I just came down the hall for this phone call from a final approval of some of the stuff in Diamond tower lobby, and I must say that the building itself and the things that are in it, is by any measurement of my 40 years the most beautiful thing that Roger Thomas and Hirsch Bedner and our staff acting together have ever done. I came into the conference room where we're all sitting for this call and I brought with me a carpet sample and a piece of fabric from the barroom off the lobby of Diamond. I'm very excited. We've never done anything quite like this. It's sort of taking a Four Seasons idea and putting on steroids or at warp speed or any other vernacular metaphor you want to use. But it's a statement of luxury and these 405 rooms and villas that are beyond whatever we've done in the past. And I am fascinated to see how the Chinese culture will receive it, but we've definitely swung for the fences with the Diamond.

Larry Klatzkin - Jefferies

Alright.

Steve Wynn

I mean that in our own Wynn Resort's terms, which are pretty swollen already.

Larry Klatzkin - Jefferies

Alright, cool, cool. And then, am I doing this right, Ron, in Vegas you hit about compared to last year, about a $17 million of worse luck and in Macau, you did a little over $50 million of better luck compared to last year's result.

Ron Kramer

Well, as we said in our prior call, we are not going to get caught in normalizing numbers.

Larry Klatzkin - Jefferies

Okay, that's fine, and then…

Steve Wynn

Actually I don't think we can normalize the numbers. Around here, it's fascinating. We can't do it. We don't know now how they are.

Larry Klatzkin - Jefferies

Okay. As far as the project on the acres on Cotai, you made some pretty amazing sounding projects on the last call. Do you have any more details on that you can talk to us about?

Steve Wynn

Well, we've got Encore coming up in Christmas here in Las Vegas. We've got Diamond coming up shortly thereafter. So, we are in the middle of expansion of the company, and that is almost doubled before we are done. And Cotai and the Golf Course are obviously our next move, notwithstanding or excluding the notion of the new jurisdiction. And as we look at the performance of our colleagues and our competitors, we adjust the size and the scope of the project.

What I have said is that we are building an extraordinarily luxurious all-suite hotel and that is true. What is adjustable in my mind is the amount of rooms. And I've been trying to analyze the Venetian, for example, in the fourth quarter to see, what was their real occupancy, how many rooms they really had opened, what the real average rate is.

In a new property, as you know, as you open these places, we've been in the same spot as them, on occasions you open in phases. And until you get to the second full quarter of operations, it's a little tricky to try and get your arms around what's going on. But we're watching this with great interest and hoping that all of the good news continues, so that we can lay on some more size on our property in Cotai. So, as we plan it and work on it, we're watching the Venetian and the other projects that are underway, and looking at the performance of MGM, and trying to learn something.

Larry Klatzkin - Jefferies

Okay. And what you guys see for some of the improvements in access for Macau, do you think some of the things going on are going to be a big improvement and the market should continue to grow in the kind of pace we saw in the last month?

Steve Wynn

Your question is basically at the root, asking us, do we believe that the government will be able to react efficiently and effectively to the changes and demand and touristic development of that market. My experience, the past six years, almost seven years in Macau, that's how long I've been there, since we've got the concession. And even period before the concession, while we were competing for it, has been that the Government of Macau and the People's Republic of China has a way of handling their business in a manner remarkably efficient and they get there very quickly. The speed at which government reacts in China compared to our wonderful democracy here at home is extraordinary.

And I think that the market will not be constrained because of infrastructure problems. I think the government is terrific in that regard. They've done things when we were getting ready to open. There was a period of about two weeks before we opened when Jack Binion and I said we'll never make it. They had no street on the east side of our building. And five days later, it was finished. It was 24 June, Avenue 24th June  didn't exist and within five to six days it was finished, incredible. That could never happen in the United States. So, I have tremendous confidence in the ability of the government to do almost anything they think is necessary, in terms of infrastructure. And you know that they are behind this growth in Macau completely. It never would have happened were it not for the central government's support and encouragement.

Larry Klatzkin – Jefferies

All right, thanks guys.

Operator

(Operator Instructions). Your next question comes from the line of Robin Farley with UBS.

Robin Farley - UBS

Thanks. I had a couple of questions. First in Macau, just looking at your mass dropping down year-over-year, did you reconfigure the tables? Did you take some tables out of the math designation and make them VIP; just trying to understand that change.

Steve Wynn

We added to the mass market and we added to VIP. The expansion included two new VIP rooms and a general casino. And there are yet three more VIP casinos that are quite extraordinary, two of them will be coming this year, at the end of the year, and then another one in the base of the Diamond Tower. And there is a Members Only general casino in the base of the Diamond Tower. There is quite a bit of additional capacity that comes on at the higher end of the spectrum at the end of this year, in the fall. And then as the tower itself opens up, we have a brand new and quite exciting entrance that is on the corner of our building that faces MGM directly, within 150 feet, and the new L'Arc de Triomphe Hotel being built by Stanley Ho's wife and Angela. And both of those casinos are right at our door in our new Diamond members' only facility. So, we did not take anything off the floor.

Robin Farley - UBS

Okay.

Ron Kramer

And just to comment Robin, the mass market business were flat, that's after absorbing the significant increase and just to point out to you the drop is down, but the Wynn is actually up from fourth quarter last year.

Robin Farley - UBS

Right now we are just looking at the drop as kind of normalized without any hold impact. Okay. And then there have been changes in the market in terms of VIP, commission structures, and ways that competitors are quoting VIP business. And I wondered if you could talk about, to what extent you are providing credit to junkets, even if it's just using their commission just to the extent that their commissions are collateral, or I guess, to any degree that you are doing that?

Steve Wynn

That's proprietary information. I am not going to discuss it.

Robin Farley - UBS

Okay. And then my last question is. There were two transactions in the fourth quarter with the equity offering and the large dividend that, you know, for the larger shareholders that didn't participate in the offering, I guess is kind of equivalent of selling shares, and given that you have plans for a major Cotai property, we don't have the budget yet, but you've indicated it's going to be big. How does that dividend kind of fit? How does that fit in to your capital plans for Cotai and kind of timing and capital?

Ron Kramer

I think you've got it a little confused. Let me…

Steve Wynn

You certainly confused me. Could you try and give that question, Robin, one more time, so that we can deal with it?

Robin Farley - UBS

Sure. So you raised equity in the $154 range and then you paid a large dividend. Given that you have plans for significant capital spending in Cotai, just curious as to why the large dividend, when that capital would probably have fitted to your plans for Cotai?

Steve Wynn

We don't feel that we have any problem raising capital and the large dividend was to give shareholders money.

Ron Kramer

And the piece you missed in between was that we did a $400 million bond deal for Wynn Las Vegas level, and at the end of the year we looked at what our aggregate cash needs were including the undrawn facilities, which is over $1billion at the Wynn Macau level, which theoretically would be the equity for our Cotai project on a standalone financing.

So we have unmatched financing capability in terms of both our cash and our leverage and we've always done things that are shareholder friendly in terms of returning capital to our shareholders. We did it in '06 and we have the ability to do it based on a series of transactions.

Steve Wynn

There are various advantageous tax rates for the shareholders, all of them. I think that’s something we need at the moment. There was a 3% tax rate there.

Ron Kramer

We'll put up the final number in March.

Robin Farley - UBS

All right. I guess --.

Steve Wynn

And so, that's a nice thing to do for shareholders.

Robin Farley - UBS

I guess, I am trying to understand what the time the share issuance was, if you didn't need it for capital raising?

Steve Wynn

It is the job, and you could take this as a final statement on the subject going forward. It is the job of Board of Directors and especially of a CEO to take advantage of the market. And that market movement is extreme. Now when a company increases its value by 50% in 60 days, that's unnatural movement of value and the market also goes the other way sometimes. These unnatural movements in value -- no company gets to be worth twice as much in 60 days, as it was before to any intelligent person. So, when that happens, we take advantage of it, and if everybody is so hungry for shares, we let them have some. And if the shares go down, we buy them, and that policy is a statement of policy of this company.

Robin Farley - UBS

Okay. Great, thank you.

Operator

Thank you. We have reached the end of allotted questions for today. Are there any closing remarks?

Steve Wynn

No, it's just that it would be nice -- we always seem to get questions every quarter from the same five or six people and you mentioned there were 200 people on the call and I was hopeful that somebody new might have a question that attacked our business from a different angle, for example. And if that's not the case, we will say thank you and good bye to everybody. But we're always anxious to hear from new people if they are on the call, besides our competitors.

Ron Kramer

Thanks everyone.

Steve Wynn

Bye, bye.

Operator

Thank you for participating in today's Wynn Resorts Limited fourth quarter conference call. You may now disconnect.

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