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Wynn Resorts, Limited (NASDAQ:WYNN)

Q1 2008 Earnings Call

May 1, 2008 4:30 pm ET

Executives

Matt Maddox – Chief Financial Officer

Stephen A. Wynn – Chairman and Chief Executive Officer

Andrew Pascall – President and Chief Operating Officer, Wynn Las Vegas, LLC

Analysts

William Lerner – Deutsche Bank Securities

Dan Gerry Wintergreen Advisors

Celeste Brown – Morgan Stanley

Steven Kent – Goldman Sachs

Dennis Forst – Capital Markets

Lawrence Haverty – Gamco Investors Inc.

Lawrence Klatzkin – Jefferies & Co.

Joseph Greff – Bear Stearns

Jane Pedreira – Lehman Brothers

Operator

Welcome to the Wynn Resorts, Limited first quarter conference call. Joining the call on behalf of the company today are Steve Wynn, Mark Schorr, John Strzemp, Matt Maddox, Andrew Pascall, 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) Now I would like to turn the call over to Mr. Maddox.

Matt Maddox

First I would like to remind everyone that this call contains forward-looking statements that may or may not materialize. They are predictions about the future and should not be relied upon as fact. For further clarification please read the full disclosure in our press release.

Now, moving on to the results. In the first quarter of 2008 consolidated property EBITDA was $197.8 million, a 4% increase over the first quarter of 2007. In Macau we generated EBITDA of $129.4 million, an increase of $50 million for 64%.

In Las Vegas EBITDA fell 38% to $68.4 million mainly due to table hold percentage of 19.9%, which was approximately eight points from our last year’s hold of 27.6%.

In Macau we generated over $1.4 million EBITDA per day in the first quarter, a 31.2% increase from the fourth quarter of 2007 and 62% over the first quarter of last year. As the Macau market continued to grow at an accelerated rate of 60%+ during the quarter, Wynn Macau gained market share in the VIP mass and slot markets as our property continued to solidify it’s position as the destination of choice for high-end customers. Now more than ever we believe that quality products and customer experience are the key to our success in Macau.

To that point, in December 2007 we opened the expansion at Wynn Macau, which was competitively designed not only to expand the facility but more importantly, enhance the overall experience. Thus far customer reaction to the expansion has been exceptional and that has translated into strong results.

Let me give you a few examples. One, table gains mass market drop increased 19% over the last year and 17% compared to the fourth quarter. Two, VIP turnover doubled, to $163 million per day compared to the first quarter of last year, without increasing commissions. And three, our slot handle also doubled when compared to last year and was up over 18% compared to the first quarter.

Comparing our results to the market in general, our win per table increased year-over-year to $16,200, which is 80% more than the market average in Macau of $9,000 per table per day.

Our slots also continued to outperform the market as our win per unit of $310 is more than two times the market average of $140. In fact, we believe our 1,240 machines generated more revenues than any other slots in Macau in the first quarter.

Our non-gaming revenues in Macau increased 42% driven by REVPAR growth of over 17% and retail revenues more than doubled with the additional of revenue outlets in the expansion. We believe the Macau results continue to affirm the strength of our customer focus business model and our brand in the region.

Turning to Las Vegas, as we mentioned during our last earnings call the Las Vegas market is more resilient than other markets due in part to the international competitive revenue base. However, this market has been affected by overall economic trends in the United States and in the first quarter we experienced some softening in our domestic business volumes in both gaming and non-gaming, which results in more volatility in the whole percentage.

In the casino our table games drops and slot handles both decreased around 3% during the quarter. In table games we held eight point flat on $533 million in drops equating to a $40 million revenue reduction based on last year’s hold percentage. And traditionally in Las Vegas the first quarter of hold percentage is one of the strongest of the year due to significant high-end credit play.

In the hotels REVPAR decreased approximately 4% as we experienced the softening in the convention and transient segments. However, convention room rates did improve throughout the quarter and forward bookings in the convention segment appear to be in line with last year.

In addition, we experienced an increase in our suite REVPAR, driven in part by a 26% increase in room nights from international customers. In short, in Las Vegas, we’re implementing cost savings initiatives from employee scheduling to purchasing to help offset the slow down in domestic business.

Along the lines of that, we firmly believe in our business model of focusing on the high-end segment and do not plan on sacrificing service levels or announcing any lay-offs to drive short term results.

Finally, I want quickly address our balance sheet liquidity. Our net debt at the end of the quarter was $2.1 billion equating to leverage of 2.9x. In addition, our projects under construction, Encore Wynn Las Vegas and Encore Wynn Macau, are fully funded at the subsidiary level. The strength of our balance sheet provides us significant financial flexibility for the future of the company.

With that overview I will turn the call over to Steve Wynn for some additional color on the quarter.

Stephen A. Wynn

I am going to try and put some perspective on what is going on. This is about the sixth time I’ve been through slow downs in Las Vegas in my 40-year career and I think it might be helpful just to put a little bit of depth and perspective on this.

The thing to look at more than anything else, I think, is non-casino revenues, first of all. And for the year to date we’re at $270.7 million versus $264.3 million last year. So non-casino revenue is not down, it’s even or up slightly.

Our occupancy is 96%, last year it was 96.5%. Our average rate this year is $301. Our average rate last year was $311, so we’re off $10.00. Not a big deal, in my opinion.

And I’m going to talk about April today. I don’t usually like to get into the next quarter, but we’re going to do this because we just finished the month and I know everybody that invests in the company is interested in trends. So I’m going to do something that I’m not necessarily going to do every time we have a conference call, but I’m going to discuss April. Both in China and the United States.

In April our room rate was $309, last year it was $313. Our occupancy was 96.6% this year, it was 97.5% last year. You wouldn’t exactly call that devastating by any means. I would add that we had more comp revenue in our occupancy because we’re pressuring the casino to make up what we’re missing in some of the normal transient business.

In the casino the trend has been a little different. We’ve lost some domestic business, which gives a slower, or a steady grind, to our hold percentage, so that when we deal with the bigger international customers that we enjoy here, we’ve seen more volatility.

That was especially obvious, because last year we had a very high hold percentage. Our average was 25% and change for the year. Last year on $2.25 billion in handle. I think we were the only company in the history of Nevada ever to break through $2 billion in handle. We went through $2.25 billion, I think we did $260 billion, and we held over 25%.

We have a higher hold percentage than our neighbors and other hotels because of our international component and statistical anomalies and statistical changes take place all the time and we were down just below 20% for the first quarter, which made about a $40 million difference.

Handle was only slightly off for the first quarter. Our year to date numbers, in April, for example, non-casino revenue was $68.8 million this year and it was $68.9 million last year, so again, if you compare non-casino revenue $270 million versus $264 million last year, so non-casino revenue is in pretty good shape. Our occupancy, I told you was 96% and 96.5% last year.

In April, I gave you the room numbers, I was also looking at the expenses. In the first quarter it cost us $2,411,000, a day to run win in Las Vegas and last year it was $2,440,000, almost the same. And this year we’re carrying Spamalot, which is about $45,000 a day, and last year we weren’t, so the rest of our expenses have gone down. Our margin is around 27% and it jumps between 27% and it stays pretty much there to 30%.

The slot machines have gone down from, in our year to date, from $60.4 million to $52.7 million. That decline is especially noticeable in the quarters, in the low-end. But it’s a few million dollars before gaming taxes.

And finally, doing these casinos, I’m going to include April. Now, for four- months table win was $204 million out of $671 million in drop. And last year it was $250 million on $725 million in drop. So you can see that the table handle went from $725 million down to $671 million, about a $54 million change on $725 million.

It’s a number, but it’s not a huge number. The whole percentage, however, last year was 25.2% for four months and it was 20.3% this year, so there’s a 5% difference in the hold. And on $670 million it’s a number.

In April, however, we saw the win rebound. We just finished a month where last year we won $46.9 million, this year we won $50.8 million. So these things bounce around a little bit and volatility is part of the story of a casino that deals to top-end like we do.

The trend in Macau is a lot steadier because they don’t have the same situation economically and our earnings have been increasing in Macau, even though we’re the lowest, the lowest, payer of commissions in the entire market. And again, in April, our earnings went from $32 million to $42 million, another 33% increase.

And table drop and VIP turnover, in spite of the fact that our competitors have increased their commissions, are the delta between us and the rest of them has continued to be very large.

We get a lot of questions about the commissions and the commission war, the junket war, in Macau. We have a wonderful relationship with a group of junket operators who are terrific people that work awfully hard and hustle the business with tremendous energy. We’re very mindful of the contribution they make and we want to take good care of them because they introduce us to all the nicest people, and it’s a very good thing for us.

Our junket operators are concerned about irresponsible or desperate behavior by people raising their commissions and have come to me and said that they’re very glad that the government is taking an interest in this. There’s a larger context of this issue of junket commissions in Macau. The health of the businesses in Macau relates directly to how well they can pay their employees, how aggressively we take care of our properties, how active we are in the community. All the things that the government wanted to accomplish and the government of Macau wanted to accomplish, have to do with creating a healthy industry at Macau.

And so in order for that to happen the government is quite right in saying they are going to take a look at the amount of tables or games, the amount of commissions paid, and I think that everybody who is involved with the scene over there is glad to hear it and is encouraging the government to exercise restraint on some of the operators that have inferior products and who think that maybe by raising the commissions or buying business they’ll be able to improve their situation.

In the short term, it works. But we know from years and years of experience in Nevada and elsewhere that when you try and buy business, you can’t really do it. Because if your competitors copy, then lowering your price or increasing your commissions is worthless.

If for example, the Wynn Macau were to raise its commission rate from 40% of win to 45% of the win, we would be flooded with junket operators that are in other places, which would hurt the other places. And everything we do in Macau we try and be a good neighbor. And we try and fit into that neighborhood in such a way that we get along with the other people, especially in the community, and our competitors. So we have not raised our commissions. We would never do it unless it was a last resort, even though we could afford to do it. But we won’t.

At least I don’t see any reason to do it at the present moment. We’re able to keep our market position handily and keep it growing without bending over and being the cheapest guy in town.

As a matter fact, it’s inconsistent to be the cheapest guy in town and also have the highest quality product. We don’t need to do that. That’s one of the safe harbors that we feel we have in designing these buildings and staffing them with people that are highly trained. That we don’t have to make that kind of gesture. That people are willing to pay for value. And value can be defined at quality at a reasonable price, just as it can be defined at Wal-Mart as the lowest price. Always the lowest price. We’re not Wal-Mart.

And I think that what was wanted, or what was desired, by the government of China, and Macau, was to have better properties. And I think that’s what they’re going to try and do and that’s where we fit in. And I think that’s why we got our concession in the first place. So we’re going to try and behave in a consistent way.

In my career I’ve never had a lay-off, either in the Las Vegas or any where else. And we don’t intend to do it. We consider the morale and the feeling of security that our employees have is the most important asset the company owns. More than our buildings, or even our concessions, is the morale of our employees. And when you do lay-offs, everybody that’s left says, “Who’s next?” And that’s completely negative and counter-productive to what we’re trying to do.

So no matter what the short-term fluctuations and the American economy are, I am telling anybody who’s interested in our company, that under no circumstances, under no circumstances, will I give any consideration, even for a second, to changing our service levels or disrupting our work force.

Now, we’ll take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Bill Lerner - Deutsche Bank.

William Lerner – Deutsche Bank Securities

Steve, I would just love to get your thoughts on Encore strategy. I know we talked about it in the past, but if this weak external environment extends into Christmas, how do you position the property, especially early OpEx are important and then I stand for follow up.

Stephen A. Wynn

Encores positioned slightly above Wynn. The rooms are bigger, the spaces are more intimate, the rooms are all suites, it has a bigger spa, even though it only has 2,000 rooms it has a bigger spa than Wynn. It has a beautiful convention and meeting space. A pool that’s very reminiscent of St. Tropez and Sango Sanks, for those of you like the afternoon beach scene and dining and club scene.

Encore is a departure in many ways from everything that anybody has seen in Las Vegas before today. It’s a casino, for example, and then on all sides it’s surrounded by glass. It’s got natural light everywhere. It is designed with a floor plan and a physical, it’s very much like our Macau casino, that is unlike the rest of Nevada that has large, open casinos, Encore is chambered, very much like our Macau casino, which has been received wonderfully by the public.

So the Encore project took 2.5 years to design, we always are slow in design; it’s a completely self-standing separate hotel. It’s not an annex. And it is designed to be a Mobil 5-star hotel, hopefully. And a Michelin hotel, and a Triple A 5-diamond hotel. If we succeed in doing it, we’ll have 60% of all the Mobil 5-star rooms in America in one building. So we’re positioning Encore that way.

And if the market is soft in December, well, the market will be soft in December. I don’t care. My organization, my colleagues and I, are paid to run hotels in good times and fair times. We’re professionals. That’s what we do. I don’t give a damn about the short-term market implications. This is not a company that gives a damn about short-term markets.

And I have shareholders that own the vast majority of this company that are long-term investors and they agree with us that the best program is the one that takes the long view. So whatever December is, Las Vegas is going to get treated to a spanking, shiny, new, completely original hotel. And in the long-term it will take it’s place here and have more than its market share, just like every other building we’ve ever built. Whether it’s here or downtown or Macau or in Biloxi, Mississippi.

William Lerner – Deutsche Bank Securities

When do you start taking reservations for Encore?

Andrew Pascall

June 15.

Stephen A. Wynn

June 15 is the beginning. We’ve opened our application process now, internally. We do our own people first, transfers within the company. This is a lot easier than opening Wynn. We’ve got a culture now. It’s never been stronger, actually, our feeling of family here is wonderful. And we are giving all of our inside people the first crack at everything. That’s our job, July 1 for everybody else.

Operator

Your next question comes from Dan Gerry - Wintergreen Advisors.

Dan Gerry - Wintergreen Advisors

You have done such an incredible job creating shareholder value by focusing solely on and dominating the super high end of the market. Taking a long-term perspective and looking out five, ten years, does this position become harder to maintain and how does your thinking change as you grow to a business operating five or more properties?

Stephen A. Wynn

In answering your question, the best view that we get of the future is through the rear-view mirror, I think. What we know about the destination resort business is clearly established. But it’s all about one thing, and one thing only. All of the razzmatazz and jazz we hear about facilities and everything else doesn’t amount to a hill of beans. It’s customer experience that determines the longevity and endurance of these enterprises.

Look at Caesar’s palace. All these years. Look at Bellagio’s performance. These places that are built like the three little pigs, houses of brick. I once did an annual report that said, “We build houses of brick.” And they endure. And the only thing that we can hold to, in a world of extraordinary change is the simple fact that if we take very good care of employees who in turn take good care of our customers, we keep our facilities clean, then we will capture the business of people who want to go on vacation and get treated well, and eat good food and shop in the right shops. And have fun.

That’s the only thing we can hold on to. Everything else in the world turns upside down every 24 hours, if you pay attention to the media. And I don’t trust that anyway. I trust these simple, long-term truths. And as we get bigger we will never, ever give up trying to be the best.

We’re under construction in two buildings at the moment, both called Encore, that are next to our existing properties. And we have plans for things on the golf course, and we have things planned for Cotai that are consistent in every way to every thing we’ve stood for during my career, starting with the Mirage and Bellagio and all the way through to this point.

Operator

Your next question comes from Celeste Brown - Morgan Stanley.

Celeste Brown – Morgan Stanley

Steve, I was wondering if you could just discuss a little bit more about why you’ve been able to hold your position, you’ve been able to increase your share? Is it that you’ve had wind in that market for so much longer, is it something in particular you do for your customers? I don’t want you to give everything away so your competitors can copy it, but if you could just help us understand that would be great.

Stephen A. Wynn

Celeste, when you say don’t give anything away to our competitors, we talk to them all the time. I’m in a business where if we get a good idea, we show everybody that good idea as quick as we can and we roll it out on the floor.

All you’ve got to understand Wynn is to check into our hotel and stay in it. Talk to our employees. I encourage anybody who wants to make a third-party investigation of what’s going on in this industry, come to Las Vegas or go to Macau and without any executive being around, any suit, walk up to any employee, they all speak English over there, or walk into one of these places here up and down the strip, talk to an employee, ask them what it’s like to work there, look at the floor, see if the place is clean, see if it’s well lit, stay in a room, talk to a PBX operator, talk to a porter, eat a meal, act like a guest, and you’ll know everything there is to know about us. We don’t have any secrets.

And we don’t even try to keep any secrets. I was at the Milken conference and talked about our human resource program yesterday, very candidly, publicly. This is not a business of secrets. As a matter of fact, that’s a waste of time. When you’re in a service business you take your best shot right out where everybody can see it. And, Celeste, you’ve spent time in our hotels. You know what we stand for.

Operator

Your next question comes from Steve Kent - Goldman Sachs.

Steven Kent – Goldman Sachs

Steve, in previous press releases you’ve talked about other development opportunities and you said you had submitted an application to the government of Macau for concession of land in Cotai. Just that usual verbage. And I noticed it wasn’t in this time. Is there something different that’s happened? And also, given your history and given that you’ve lived through a couple of recessions in Vegas, what do you expect for REVPAR growth for the balance of the year?

Stephen A. Wynn

Well, with regard, Steve, to the first part. Cotai is proceeding. We didn’t mention it because we don’t have anything startling to reveal because we’re in design development very intensely now, on Cotai.

We made up our mind what we’re going to build there. I’ve said it publicly and nothing’s changed. I say we’re going to build the fanciest hotel in the world in Cotai. It won’t be very big; it will be 1,500 to 1,800 rooms, something like that. All suites. And we’re going to build the most beautiful hotel on Cotai, and now what’s left if for me to turn that conversation into 3-dimensional reality with my colleagues. And I’m not done yet. But I’m dying to finish the job and get it to where I’m ready to price it and break ground.

I’m hoping to break ground on Cotai before we open Encore, a year from this Christmas in Macau. Encore Wynn opens this Christmas, Encore Macau is next Christmas.

And incidentally, the Encore Macau Tower is without any doubt the fancies thing, the most beautiful thing, that I’m been involved with in my entire 40 year career. The smallest room is 1,000 s.f. There’s been talk about Four Seasons and other fine hotels that Sheldon is building on Cotai and Shangri La and Four Seasons are tremendous additions to the marketplace. I want to congratulate the Sands organization on getting such wonderful brands to come to Macau. Those are all really good things that are happening.

And we’ve picked up on that spirit in building the Encore project on our back corner of our peninsula property. And it’s 400 odd rooms, suites and villas. And spa. And new ideas. And that will be ready a year from Christmas. And it’s the fanciest thing we’ve ever done.

And on Cotai we’re going to take some of the things that we’ve developed that are new for Encore and we’re going to take them further on this wonderful 52 acres that we’ve got where we can do wonderful things with landscaping and the integration of interior and exterior environments that we can’t do in a purely urban environment downtown.

So much for the first part of your question. And so we didn’t mention it because we didn’t have anything really material to tell you. I am much further along, Steve. I’ve got the room component in pretty good shape but it is iconic architecture. It’s a building of rather extraordinary appearance, so we will do all that at once when we’re ready.

Steven Kent – Goldman Sachs

Because you have been in Vegas for a couple of recessions I think you have a unique perspective. So, given what you’re seeing, you’ve seen the first few months of the year, you’re reading the same papers we’re reading, what’s your feel for REVPAR deceleration and business trends from here through the balance of the year?

Stephen A. Wynn

I don’t know about REVPAR. Can we talk about profitability?

Steven Kent – Goldman Sachs

Sure.

Stephen A. Wynn

EBITDAs, we ought to say again and again, as Bill Widner has said, we report and talk about these EBITDA numbers with our chests puffed out as far as we can get it, as an industry. I suppose it tells you how much money you can afford to pay in interest, but the public needs to understand that the profitability, the real profitability of these businesses are much, much less than these puffy EBITDA numbers.

Interest expense is very large. And depreciation, I know all shopping center guys and apartment guys, they get to spend part of depreciation. But believe me, in my 40-year history and in the history of every gaming company here, we spend depreciation. It is a real expense. And when you take the profitability of a hotel like the Venetian or Wynn or Bellagio or any of us, it is a much smaller number when you subtract depreciation and interest. And amortization. We have to pay back the people who lend us the money eventually. It’s a much smaller number.

But I know that the Wall Street folks, y’all like to talk about EBITDA. And it’s bouncing around. It was a big bounce with whole percentage in the first quarter and we won’t see that again. Because we were so high in the first quarter. We made more money in April than we did last year, this year, so EBITDA looks fine in April.

What will happen in May, June, July, I just don’t know, Steve. I don’t know how deep the market softening will be. I know that as long as the government and the campaigns, they’re worried about the decline value of the dollar against the Euro or the pound, and that helps us in one respect.

The gaming industry is a huge exporting industry. We try to explain that to folks in Washington. We’re an exporter. And when you make it tough for people to get into the country, when you inhibit, we’re like, we offset a lot of Toyotas. And so when the Euro is up a lot of guys from England come here and play and think they’re making bets in pesos. And when they lose they find out it’s not exactly pesos, but we’re benefiting on that sector, but we’re being damaged on the domestic side. I don’t know how deep it’s going to be and I don’t know how long, what this dollar delta is going to be against the Euro and the other European currencies.

But it certainly helps our international business to a certain extent. We’ve got a baccarat tournament here and I think this weekend we’ve got over $100 million in customers here. It just started today. To give you an idea of the swings that take place in this, the last day of the month in April, we won $7 million in Las Vegas. This is just a bouncy kind of business.

So, I’m willing to discuss trends, but I’m not willing to make predictions. Especially in this environment.

Operator

Your next question comes from Dennis Forst – Capital Markets.

Dennis Forst – Capital Markets

Matt about the income tax, you had a benefit of $4.7 million. Where did that come from? And if you could walk us through where it’s going to go.

Matt Maddox

I think last year we were closer to a 20% effective tax rate. In this quarter it was a benefit and in a large part due to two things. We were able to deduct Encore pre-opening expenses estimated for the year, which we did not have last year.

And the second is the largest than expected contribution of foreign earnings, Macau earnings. Which are not taxable in the United States. So you take those two factors together, combined with a lower hold percentage, a lower domestic EBITDA, we actually had a tax benefit in this quarter.

Dennis Forst – Capital Markets

What is the tax rate going to look like through the year, more or less?

Matt Maddox

I would say it’s going to be somewhere in the neutral range, depending on what ends up happening, or no benefit, no provision, depending on what happens in the United States.

Dennis Forst – Capital Markets

How big is the Encore pre-opening going to be for the year?

Matt Maddox

$80 million.

Dennis Forst – Capital Markets

And it was what in the first quarter? It was only $5 million?

Matt Maddox

Around $5 million, but taxes are estimated based on full year. And then you have to go back and allocate them per quarter. We usually don’t get into forecasting but I would say for this year we should just look at no benefit, no provision.

Dennis Forst – Capital Markets

And is it fair to say that the table sold was not out of line with long-term trends, and that last year was really more of an anomaly?

Stephen A. Wynn

The only hotels in the history of Nevada that have ever been close to $2 billion have been Wynn and Bellagio. And I don’t think anybody broke through $2 billion. We went through $2.25 billion. $2,260,000,000. At that point you have to say that statistical anomalies are off the table. How big a sample do you want? We held 25.2% and when you look at each month, they were all in the 20s except for one. So I’m beginning to think that the mix we have here tends to be a little bit [inaudible] than our neighbors.

Now, I could be wrong, but I’m schooled by our own experience. And when you do $2.25 billion at over 25%, I begin to wonder. A lot of it has to do with the way we structure our casino. We have distributed the money more evenly among the people that are at the tables serving the guests. Meaning the team leaders and the dealers.

There was a lot of publicity about the fact that the team leaders got a share of the tips. Well, that’s because they’re serving the public exactly the way the dealers do, by standing there talking to our customers, paying attention to their needs, schmoozing with them, talking to them, giving them free drinks, keeping track of their play.

And these teams that we created at the table, our hold percentages jumped when we did that. From the day that we did it, on September 1, when we opened Macau, for the last quarter of the previous year and the entire year last year. I remember saying that we were holding 19.9% through August 30 and we ended up holding 21% for the year because September, October, November, December were so high.

Now my dealers were a little short tempered about it because they thought it was a take-away. But we told the dealers that if they acted as a family at the table, as a team, a service team, that the tips would get back up to where they were before. And on most occasions this year, that’s almost exactly what’s happened. The dealer tips are back up to being terrific. By the way, they’re the most high paid people in the state of Nevada, our dealers.

And so when we look at hold percentage and we look at the team approach to our customers, I have to think that there’s a relationship there. There’s no other explanation for it.

Dennis Forst – Capital Markets

Lastly, property charges and other, what puts [inaudible] at $24 million dollar number?

Matt Maddox

The main charge of about $29 million is related to Spamalot. We elected with to close Spamalot in July of this year and so we ended up writing off all the costs. There were some issues with that that we weren’t amortizing before. So out of the $24 million, $20 was related to Spamalot.

Operator

Your next question comes from Larry Haverty - Gamco.

Lawrence Haverty – Gamco Investors Inc.

A couple of days ago your significant investor Aruze put out a press release that they were considering doing something in the Philippines, about $2.5 billion and your name was in the press release in a kind of a strange way, the Wynn Corporation. Could you bring us up to date on what is or is not happening there?

Stephen A. Wynn

Well, first of all, I love Kazuo Okada as much as any man I’ve ever met in my life. He’s my partner and my friend and there’s hardly anything I won’t do for him. Now, we are not at the present time an investor nor do we contemplate an investment in the Philippines.

This is something that Kazuo Okada and his company Aruze has done on its own initiative. He consults me and has discussed it with me extensively and I have given him my own personal thoughts on the subject and advise and to the extent that he comes to me for any more advice or input, all of here at the company will be glad to give him our opinions. But that’s short of saying that this is a Wynn Resorts project. It is a Aruze project. Is that helpful, Larry?

Lawrence Haverty – Gamco Investors Inc.

It’s just it’s a large amount of money here and I’m wondering if he does it will he be taking some of his pretty substantial profits in your company, do you think?

Stephen A. Wynn

Larry, we filed an amended 13D over a year and a half ago in December that expressed and explained in detail the shareholder agreement between myself and Mr. Okada. We have what is commonly referred to as a lock-up. Neither one of us can sell any shares to anybody without the other’s permission. That’s in addition to a right of first of refusal that we share and a vote for the Board of Directors that I hold on behalf of Mr. Okada.

So, we don’t anticipate, and we have said so publicly with a Hart-Scott-Rodino filing and with an amended 13D, that our stock is for sale at any price but that we would purchase this company on price weakness up to 100%. So that’s not a new public statement I’m making. We filed Hart-Scott-Rodino in 2006. And I think that anybody who is short selling this company ought to keep that in mind. We would love to see a buying opportunity in this stock. Love to see a buying opportunity in this stock.

Operator

Your next question comes from Larry Klatzkin - Jefferies & Co.

Lawrence Klatzkin – Jefferies & Co.

You had a little bit of bad hold in Vegas. Can you quantify what the assessment might have been?

Stephen A. Wynn

$40 million before the gaming tax of 7.75%. That would be casino revenue and since we don’t change the overhead it would probably most of it go to the bottom line. 90% of it. That’s pretty much the delta on the earnings.

Lawrence Klatzkin – Jefferies & Co.

The delta for last year. But if you’re using normal hold I come up with a much lower number. I come about $11 million.

Stephen A. Wynn

Well, you can use what you call normal. I tried to explain that on numerous occasions, what’s normal around here and what’s normal to you might not be the same thing.

Lawrence Klatzkin – Jefferies & Co.

On corporate expense pace, should we use the $11 you did use last quarter?

Matt Maddox

Yes. It will grow, I think it’s a pretty good number for now.

Lawrence Klatzkin – Jefferies & Co.

Steve, you now have a bit block of rooms when you open up the Encore in Vegas. You’ve had limited ability to really extend who you target with a small block of rooms. Now that you’re going to have a real block of rooms, any chance you’re going to expand who you go after? Maybe go after some convention customers or any other segment of the market?

Andrew Pascall

The way we fill these rooms. We’re going after segment of the market. You speak of the high-end convention and group business. That’s who we’ve gone out in the field. This is the place for the course of the year, with seasonality, we targeted all kinds of customers and we’ve been successful getting them. So, as Steve alluded to, Encore is an entire new resort. It’s going to stimulate more interest in this market for new customers and appeal to the ones we have.

Stephen A. Wynn

One thing our customers have in common is more money.

Lawrence Klatzkin – Jefferies & Co.

Any hints on what you’re planning on the golf course, long-term?

Stephen A. Wynn

Yes, we’ve coalesced our thinking on the golf course. And it’s one thing to coalesce our thinking, it’s another to execute the blue print. But we’ve decided that we’re finally prepared to leverage this unique, incredible physical location we’ve got where we straddle two of the most dynamic exhibit centers on Earth, the Las Vegas Visitors Convention Bureau to our immediate east, on the adjacent property, and the Sands Expo Center on the adjacent property to the south.

We have 4,800 to 4,900 rooms here in a few months and we want to go to 10,000. So we’re planning two new hotels of approximately 2,600 rooms a piece that will straddle 1.6 to1.8 million thousand feet, it depends on how you count it, of exhibit space that is extraordinary in the sense that it’s surrounded by lush landscaping and water because all of the back of the house is below it so that it can be infinitely divided from below because there are elevators and lifts that come up all the way from underneath.

And it’s on a large water feature that’s part of our, we’re going to reallocate our water, our wells that our water company that we use for the golf course to a more broad-based use for the hotels and the water that will be used in our fantasizing, the meeting and convention space that we’re going to build. But that exhibit and meeting and convention space will resemble no other meeting and convention space anywhere else on Earth that we know of, in the sense that it will be very glamorous and it will also offer our clients an environment that has heretofore been unavailable to them.

Both of the new hotels will be completely integrated with the exhibit space, and when I say completely integrated, you will walk out of the lobby down a 150-foot corridor into the exhibit space. The layout of our property lends itself to such a beautiful arrangement. We intend for the exhibit space to move down our property some 2,000 feet, to Paradise Road, from an area approximately 550 feet east of our villas so that there will be a large lake with fountains like Bellagio that will entertain both hotels and the convention and meeting space and we’re going to do the fountains in a new way, for the golf course development.

And I think when we’re done, we will have this wonderful non-urban environment of 10,000 that people will be able to enjoy when they come for conventions and meeting space. And of course, we’ll be an adjunct facility to our neighbors on the south at the Venetian and the Palazzo and our neighbors at the Las Vegas Convention and Visitors Bureau to the east.

And we’re thinking that we’ll fit in very nicely. There’s a big problem here in Las Vegas. When folks go to the Convention Bureau, they stand in long lines to get taxicabs to fight their way back to the other hotels and this tremendous crush of infrastructure logjam that we have here.

And it happens when the shows open every morning at the Convention Center and when they close every afternoon at five o’clock. Well, now everybody will be able to go from their 10,000 rooms into the exhibit space or to Sands or to the Las Vegas Convention and Visitors Bureau, without having to get a taxi cab. Just get in one of our underground trams that will shoot the, free of charge, right to the door.

So, we’re going to take the convention business to another level, I’m hoping. And in the process, join hands with our wonderful neighbors, the Venetian folks and the Las Vegas Conventions Bureau to make this just irresistible for all the conventions and folks that come from around the world to Las Vegas. And we’ll get some new ones. We’re going to put a little pressure on Orange County and Orlando and the Javits Center in New York and McCormick in Chicago. We’re going to flex a little Las Vegas muscle at the convention business.

Lawrence Klatzkin – Jefferies & Co.

Do you have an idea of timing or budget, when that might happen?

Stephen A. Wynn

Not yet. We just started doing the drawings about two months ago. We were provoked into doing that when we heard that our neighbors next door were going to build a new facility on some property they own next door to us and expand their own inventories. That gave us the encouragement and their leadership showed us the way in which we could play a more relevant role in this process.

Operator

Your next question comes from Joe Greff - Bear Stearns.

Joseph Greff – Bear Stearns

Steve, you hammered home the point that your property is very international and that’s giving you a buffer. What percentage of your business [inaudible] in terms of room nights sold or overall revenues or casino volumes are foreign or outside of the U.S.?

Stephen A. Wynn

If you talk about non-casino, that’s one thing. If you talk about the casino, mainly the table games, then it’s quite something else. But I remember a number from the first 12 months of this hotel. I remember when we first opened this place, we were the first company ever to win over $600 million, the first year of Wynn. And it was $200 million in slots, $200 million in table games, and $200 million in baccarat. It was 1/3, 1/3, 1/3. And then I think it grew. Matt, Andy, do you know what it was in 2007?

International is 50% of tables. And slots, $500,000 a day or something.

Andrew Pascall

It’s fairly close to a third of our gaming revenue. And I think an interesting statistic is the international business accounts for about 27%-28% of our occupancy.

Stephen A. Wynn

If you take 28% of 2,600 rooms, it’s the same as having a 500-600 room hotel that’s 100% filled every day with people with foreign passports.

Andrew Pascall

And that’s up from about 19% last year.

Stephen A. Wynn

And it’s increased from 19%. I’m repeating what Andy said because I don’t know if you can hear him. But I think that’s a reflection of the value of the dollar. Wouldn’t you think?

Joseph Greff – Bear Stearns

Did you buy back stock during the first quarter?

Stephen A. Wynn

The answer is yes.

Matt Maddox

We repurchased 2.4 million shares.

Stephen A. Wynn

Look, we issued 4.4 million shares for $660 million and promptly distributed it, which was really nice for us shareholders. And a return of capital. We have now bought back, at $50 or $60 a share every one of those shares that we issued. For $50 or $60 less money we bought it all back, thanks to the volatility of the stock market.

Operator

Your next question comes from Jane Pedreira - Lehman Brothers.

Jane Pedreira – Lehman Brothers

I know you’re in the early planning stages of the golf course but at this juncture can you give us any preliminary thoughts on how you might look to finance it? Would it be in connection with the existing bonds or would it be a separate financing?

Stephen A. Wynn

I don’t know how much fingertip information you’ve got on our structure, but Ron Cramer, when he was President of the company, and Matt Maddox, everybody worked very diligently to give us a lot of flexibility in the future, and this coming year the golf course gets released from our collateral package.

Matt Maddox

In 2009.

Stephen A. Wynn

In seven or eight months we get to take back the golf course free and clear. Now, I know most of you have some sense of real estate values in Las Vegas. Everything’s paid for. It was all laid off on the original cost of Wynn Las Vegas. Our land costs are zero. And so we’ve got this 150 acres back there, maybe 170 acres, we’re not using. We own all this property in fee simple absolute at no cost and it comes out of the collateral package next year in 6-8 months. What do you think it’s worth? $1 billion, $1.5 billion, $2 billion?

Jane Pedreira – Lehman Brothers

I was going to say maybe $1.5 billion.

Stephen A. Wynn

Well, that’s equity isn’t it, in a way? Plus we’ve got a tax close.

Matt Maddox

We also have $1.5 billion of excess on hand right now and you take Wynn Las Vegas, you’re projected cash flows, when you run your models you’ll see that from a financial standpoint, we’re in very, very good shape.

Stephen A. Wynn

We don’t need to borrow any money if that’s what you’re thinking. We’re in really good shape. Nice feeling. Sometimes I wish I had been a little more courageous like Sheldon. He did a better job than I did. I was more conservative when I was putting the company together and we went public at a quiet time in 2002 and if we had gone public a year or two later we would have gotten 5 or 10 times as much money.

Jane Pedreira – Lehman Brothers

It’s only money.

Stephen A. Wynn

Anyway, the net result is the company’s footings are in a mile deep, a mile wide. We’ve got all kinds of flexibility. But developing some rooms on the golf course and convention center is way within our reach. That’s not a stretch at all for us.

Jane Pedreira – Lehman Brothers

It sounds like you could do it with existing bonds in place or you release the collateral and try to get it done separately.

Matt Maddox

You’re right. If you look at our indenture you can either leave the collateral in place and then you’ll need to revisit the issue with the bond holders or it can be released and separately project-financed with cash flow and cash on hand.

That is not a conversation that is happening in 2008, given where we are with the design. And we are in a very fortunate position of having lots of excess capacity on the leverage side and lots of excess cash.

Stephen A. Wynn

The strategy is for us to get our plans in order by Christmas, when we open Encore, so that when we hit 2009 we are ready to dig in, both on Cotai and the golf course. I don’t know what order that will be, but that’s my job for the rest of the year, is those two things.

The work on Encore Las Vegas and Encore Macau is complete. Now it’s just a question of execution. Every fabric has been selected, every piece of furniture, every things is done. All the department heads are selected. We’re on target. So the design part of the company that I am very active in is into Cotai and the golf course.

Jane Pedreira – Lehman Brothers

And so would you expect the golf course to take another year or two to finish the design and then you would break ground?

Stephen A. Wynn

Yes.

Operator

We have reached the allotted time for questions.

Stephen A. Wynn

These conversations take a long time. We try not to be long winded about it. I hope it’s constructive. And we’ll look forward to the next one.

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Source: Wynn Resorts, Limited Q1 2008 Earnings Call Transcript
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