Edgar Filing: WYNN RESORTS LTD

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-50028

WYNN RESORTS, LIMITED

(Exact name of registrant as specified in its charter)


Nevada		46-0484987
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3131 Las Vegas Boulevard South—Las Vegas, Nevada 89109

(Address of principal executive offices) (Zip Code)

(702) 770-7555

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at August 1, 2006
Common stock, $0.01 par value		100,881,695

WYNN RESORTS, LIMITED AND SUBSIDIARIES

INDEX


Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) - June 30, 2006 and December 31, 2005	3

	Condensed Consolidated Statements of Operations (unaudited) - Three and six months ended June 30, 2006 and 2005 (as restated)	4

	Condensed Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2006 and 2005 (as restated)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	50

Part II.	Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 4.	Submission of Matters to a Vote of Security Holders	51

Item 6.	Exhibits	52

Signature		54

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)


	June 30, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	378,952		$	434,289
Restricted cash and investments		82,272			98,271
Receivables, net		65,772			88,468
Inventories		49,951			39,884
Prepaid expenses		25,110			23,630

Total current assets		602,057			684,542

Restricted cash and investments		372,324			344,331
Property and equipment, net		2,814,005			2,663,870
Intangibles, net		69,862			60,480
Deferred financing costs, net		88,165			95,619
Deposits and other assets		149,859			91,371
Investment in unconsolidated affiliates		5,193			5,070

Total assets	$	4,101,465		$	3,945,283

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	15,696		$	15,489
Current portion of long-term land concession obligation		9,211			8,984
Accounts and construction payable		75,078			79,768
Accrued interest		14,554			15,733
Accrued compensation and benefits		38,731			36,772
Other accrued expenses		24,633			28,374
Customer deposits and other liabilities		36,973			66,120
Construction retention		15,806			18,539

Total current liabilities		230,682			269,779

Long-term debt		2,279,617			2,090,846
Long-term land concession obligation		14,594			19,218
Other long-term liabilities		1,088			1,788
Construction retention		5,717			757

Total liabilities		2,531,698			2,382,388

Commitments and contingencies (Note 12)

Stockholders’ equity:
Preferred stock, par value $0.01; authorized 40,000,000 shares; zero shares issued and outstanding		—			—
Common stock, par value $0.01; authorized 400,000,000 shares; 100,706,646 and 99,331,294 shares issued and outstanding		1,007			993
Additional paid-in capital		1,995,654			1,972,847
Deferred compensation - restricted stock		—			(15,784	)
Accumulated other comprehensive (loss)		(229	)		—
Accumulated deficit		(426,665	)		(395,161	)

Total stockholders’ equity		1,569,767			1,562,895

Total liabilities and stockholders’ equity	$	4,101,465		$	3,945,283

The accompanying notes are an integral part of these condensed consolidated financial statements.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
				(as restated)						(as restated)
Operating revenues:
Casino	$	113,527		$	98,715		$	240,041		$	98,715
Rooms		69,222			44,632			137,399			44,632
Food and beverage		77,686			48,056			152,320			48,056
Entertainment, retail and other		49,389			34,651			98,346			34,659

Gross revenues		309,824			226,054			628,106			226,062
Less promotional allowances		(36,454	)		(24,934	)		(77,511	)		(24,934	)

Net revenues		273,370			201,120			550,595			201,128

Operating costs and expenses:
Casino		57,920			42,280			121,156			42,280
Rooms		18,140			11,780			35,125			11,780
Food and beverage		49,423			33,706			94,182			33,706
Entertainment, retail and other		34,112			20,262			66,626			20,266
General and administrative		49,011			31,010			95,976			31,014
Provision for doubtful accounts		3,646			8,599			6,575			8,599
Pre-opening costs		17,028			43,365			25,974			81,469
Depreciation and amortization		40,542			26,125			82,327			29,619
Contract termination fee		—			—			5,000			—
Property charges and other		2,376			48			7,325			110

Total operating costs and expenses		272,198			217,175			540,266			258,843

Equity in income from unconsolidated affiliates		511			251			1,086			251

Operating income/(loss)		1,683			(15,804	)		11,415			(57,464	)

Other income/(expense):
Interest and other income		9,617			6,983			18,049			13,165
Interest expense		(35,307	)		(27,143	)		(71,250	)		(29,292	)
Increase/(decrease) in swap fair value		4,246			(5,814	)		10,591			1,887

Other income (expense), net		(21,444	)		(25,974	)		(42,610	)		(14,240	)

Loss before income taxes		(19,761	)		(41,778	)		(31,195	)		(71,704	)

Provision for income taxes		(309	)		—			(309	)		—

Net loss	$	(20,070	)	$	(41,778	)	$	(31,504	)	$	(71,704	)

Basic and diluted (loss) per common share:
Net loss:
Basic	$	(0.20	)	$	(0.43	)	$	(0.32	)	$	(0.73	)
Diluted	$	(0.20	)	$	(0.43	)	$	(0.32	)	$	(0.73	)
Weighted average common shares outstanding:
Basic		99,830			98,203			99,286			98,132
Diluted		99,830			98,203			99,286			98,132

The accompanying notes are an integral part of these condensed consolidated financial statements.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)


	Six Months Ended June 30,
	2006			2005
				(as restated)
Cash flows from operating activities:
Net loss	$	(31,504	)	$	(71,704	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		82,327			29,619
Stock-based compensation		7,802			2,653
Amortization of deferred financing costs		7,466			6,597
Provision for doubtful accounts		6,575			8,599
Property charges and other		7,325			5
Equity in income of unconsolidated affiliates, net of distributions		(123	)		(251	)
Increase in swap fair value		(10,591	)		(1,887	)
Increase (decrease) in cash from changes in:
Receivables		16,121			(63,916	)
Inventories and prepaid expenses		(11,547	)		(31,433	)
Accounts payable and accrued expenses		(32,393	)		103,395

Net cash provided by (used in) operating activities		41,458			(18,323	)

Cash flows from investing activities:
Capital expenditures		(225,584	)		(559,393	)
Restricted cash and investments		(11,994	)		350,355
Investment in unconsolidated affiliates		—			(3,500	)
Intangibles and other assets		(73,527	)		(20,535	)
Proceeds from sale of equipment		—			24

Net cash used in investing activities		(311,105	)		(233,049	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		4,788			1,065
Proceeds from the issuance of long-term debt		227,279			437,186
Principal payments on long-term debt		(13,032	)		(19,354	)
Payments on long-term land concession obligation		(4,397	)		(4,222	)
Payment for deferred financing costs		(328	)		(7,768	)

Net cash provided by financing activities		214,310			406,907

Cash and cash equivalents:
Increase in cash and cash equivalents		(55,337	)		155,535
Balance, beginning of period		434,289			330,261

Balance, end of period	$	378,952		$	485,796

The accompanying notes are an integral part of these condensed consolidated financial statements.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

Wynn Resorts, Limited, a Nevada corporation (together with its subsidiaries, “Wynn Resorts” or the “Company”), was formed in June 2002 and completed an initial public offering of its common stock on October 25, 2002. Wynn Resorts’ predecessor, Valvino Lamore, LLC (“Valvino”), was formed on April 21, 2000 as a Nevada limited liability company to purchase the Desert Inn Resort and Casino for the site of the Company’s first casino resort in Las Vegas, Nevada, hereinafter referred to as “Wynn Las Vegas.”

In June 2002, Valvino’s indirect subsidiary, Wynn Resorts (Macau), S.A. (“Wynn Macau, S.A.”), entered into an agreement with the government of the Macau Special Administrative Region of the People’s Republic of China (“Macau”), granting Wynn Macau, S.A. the right to construct and operate one or more casino gaming properties in Macau. Wynn Macau, S.A.’s first casino resort in Macau is hereinafter referred to as “Wynn Macau.”

The Company commenced operations with the opening of Wynn Las Vegas on April 28, 2005. The construction and development of Wynn Macau and the expansion of Wynn Las Vegas, known as “Encore at Wynn Las Vegas” or “Encore,” are ongoing. For the periods presented prior to April 28, 2005, the Company was solely a development stage company.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Investments in the 50%-owned joint ventures operating the Ferrari and Maserati automobile dealership and the Brioni mens’ retail clothing store inside Wynn Las Vegas are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated.

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods have been made. The results for the three and six months ended June 30, 2006 are not necessarily indicative of results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

2. Summary of Significant Accounting Policies

Reclassifications

Amounts previously classified as “Loss on sale of assets” and “Loss from incidental operations” for the three and six months ended June 30, 2005 have been reclassified as “property charges and other” to conform with the presentation for the three and six months ended June 30, 2006. These reclassifications had no effect on the previously reported net loss.

Accounts receivable and credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues credit in the form of “markers” to approved

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

casino customers following investigations of creditworthiness. At June 30, 2006 and December 31, 2005, approximately 61% and 70%, respectively of the Company’s receivables were due from customers residing in foreign countries. Business or economic conditions or other significant events in these countries could affect the collectibility of such receivables.

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as management’s experience with collection trends in the casino industry and current economic and business conditions.

Inventories

Inventories consist of retail, food and beverage items, which are stated at the lower of cost or market value. Cost is determined by the first-in, first-out, average and specific identification methods.

Revenue recognition and promotional allowances

Casino revenues are measured by the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs and for chips in the customers’ possession. Hotel, food and beverage, entertainment and other operating revenues are recognized when services are performed. Advance deposits on rooms and advance ticket sales are recorded as deferred revenues until services are provided to the customer.

Revenues are recognized net of certain sales incentives in accordance with the Emerging Issues Task Force (“EITF”) consensus on Issue 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” EITF 01-9 requires that sales incentives be recorded as a reduction of revenue; consequently, the Company’s casino revenues are reduced by discounts and points earned in customer loyalty programs, such as the players club loyalty program.

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenue and then deducted as promotional allowances. The estimated cost of providing such promotional allowances for the three and six months ended June 30, 2006 and 2005 is primarily included in casino expenses as follows (amounts in thousands):


	June 30, 2006				June 30, 2005
	3 months		6 months		3 months		6 months
Rooms	$	5,916	$	12,044	$	4,150	$	4,150
Food & Beverage		13,385		29,232		9,981		9,981
Entertainment, retail and other		2,126		4,756		2,258		2,258

Total	$	21,427	$	46,032	$	16,389	$	16,389

Advertising Costs

The Company expenses advertising costs the first time the advertising runs. Advertising costs incurred in development periods are included in pre-opening costs. Since the opening of Wynn Las Vegas on April 28, 2005,

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

advertising costs relating to Wynn Las Vegas have been included in general and administrative expenses, while any advertising costs relating to Wynn Macau or, when it becomes applicable, Encore, will continue to be included in pre-opening costs. Total advertising costs for the three and six months ended June 30, 2006 and 2005 are as follows (amounts in thousands):


	June 30, 2006				June 30, 2005
Expense category:	3 months		6 months		3 months		6 months
General and administrative	$	5,496	$	10,960	$	1,673	$	1,673
Pre-opening costs		602		681		6,801		9,321

Total	$	6,098	$	11,641	$	8,474	$	10,994

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share Based Payment.” This statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supercedes APB Opinion No. 25 and related interpretations. SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services or incurs a liability in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. It requires an entity to measure the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period. The Company adopted this statement on January 1, 2006 under the modified prospective method. The Company uses the Black-Scholes valuation model to determine the estimated fair value for each option grant issued. The Black-Scholes determined fair value net of estimated forfeitures is amortized as compensation cost on a straight line basis over the service period. In applying the modified prospective method, financial statements of prior periods presented do not reflect any adjusted amounts (i.e. prior periods do not include compensation cost calculated under the fair value method).

Further information on the Company’s share-based compensation arrangements is included in Note 11. Share-Based Compensation.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. The interpretation provides guidance on classification, interest and penalties, accounting in interim periods, disclosure, and translation. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company believes the adoption of this statement, effective January 1, 2007, will not have a material impact on its consolidated financial statements.

3. Earnings Per Share

Earnings per share are calculated in accordance with SFAS No. 128, “Earnings Per Share,” which provides for the reporting of “basic,” or undiluted, earnings per share (“EPS”) and “diluted” EPS. Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS reflects the addition of potentially dilutive securities. For the three and six months ended June 30, 2006 and 2005, the Company has recorded net losses causing potentially dilutive securities to be anti-dilutive. As a result, basic EPS is equal to diluted EPS for all periods presented. The calculation of diluted EPS at June 30, 2006 excludes

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

the following anti-dilutive securities: 3,329,750 shares issuable upon exercise of stock options, 270,000 shares under nonvested stock grants and 9,768,948 shares issuable upon conversion of the 6% Convertible Subordinated Debentures due 2015 (the “Debentures”). The calculation of diluted EPS at June 30, 2005 excludes the following anti-dilutive securities: 2,674,300 shares issuable upon exercise of stock options, 1,033,892 shares under nonvested stock grants and 10,869,550 shares issuable upon conversion of the Debentures.

4. Comprehensive Loss

Comprehensive loss for the three and six months ended June 30, 2006 was (amounts in thousands):


	June 30, 2006
	3 months			6 months
Net loss	$	(20,070	)	$	(31,504	)
Currency translation adjustment		(229	)		(229	)

Comprehensive loss	$	(20,299	)	$	(31,733	)

Prior to the second quarter of 2006, the impact of the currency translation adjustment on the financial statements of the Company was not material.

5. Supplemental Disclosure of Cash Flow Information

Interest paid for the six months ended June 30, 2006 and 2005 totaled approximately $80.1 million and $63.4 million, respectively. Interest capitalized for the six months ended June 30, 2006 and 2005 totaled approximately $14.9 million and $41.3 million, respectively.

Stock-based compensation related to employees dedicated to the construction of Wynn Las Vegas and Wynn Macau that was capitalized into construction in progress for the six months ended June 30, 2006 and 2005 totaled approximately $1.0 million and $1.1 million, respectively.

During the six months ended June 30, 2006, approximately $25.3 million principal amount of the Debentures were converted into 1,100,602 shares of the common stock of Wynn Resorts, Limited. Accordingly, long-term debt was reduced by approximately $25.3 million, equity was increased by approximately $24.6 million and deferred financing costs were reduced by approximately $669,000.

During the six months ended June 30, 2006, approximately $1.1 million of decreases in construction payables and retention were included in capital expenditures. During the six months ended June 30, 2005, capital expenditures include approximately $648,000 of payments made to decrease construction payables and retention.

6. Related Party Transactions

Amounts Due to Officers

The Company periodically provides services to Stephen A. Wynn, Chairman of the Board of Directors and Chief Executive Officer (“Mr. Wynn”), and certain other officers of the Company, which services include household services, construction work and other personal services. Mr. Wynn and other officers have deposits with the Company to prepay any such items, which are replenished on an ongoing basis as needed. At June 30, 2006 and December 31, 2005, the Company owed Mr. Wynn and the other officers approximately $285,000 and $412,000, respectively.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Wynn Collection

From the opening of Wynn Las Vegas through February 2006, the resort included an art gallery that displayed rare paintings from a private collection of fine art owned by Mr. and Mrs. Wynn. The Company leased the artwork from Mr. and Mrs. Wynn for an annual fee of one dollar ($1), and the Company was entitled to retain all revenues from the public display of the artwork and the related merchandising revenues. The Company was responsible for all expenses incurred in exhibiting and safeguarding the artwork, including the cost of insurance (including terrorism insurance) and taxes relating to the rental of the art. In February 2006, the Company closed the art gallery and began converting the gallery location into additional retail stores. The Company continues to lease works of art from Mr. and Mrs. Wynn for an annual fee of one dollar ($1) and continues to display certain pieces throughout Wynn Las Vegas. All expenses in exhibiting and safeguarding the artwork displayed at Wynn Las Vegas are the responsibility of the Company.

The “Wynn” Surname Rights Agreement

On August 6, 2004, the Company entered into agreements with Mr. Wynn that confirm and clarify the Company’s rights to use the “Wynn” name and Mr. Wynn’s persona in connection with its casino resorts. Under the parties’ Surname Rights Agreement, Mr. Wynn granted the Company an exclusive, fully paid-up, perpetual, worldwide license to use, and to own and register, trademarks and service marks incorporating the “Wynn” name for casino resorts and related businesses, together with the right to sublicense the name and marks to its affiliates. Under the parties’ Rights of Publicity License, Mr. Wynn granted the Company the exclusive, royalty-free, worldwide right to use his full name, persona and related rights of publicity for casino resorts and related businesses, together with the ability to sublicense the persona and publicity rights to its affiliates, until October 24, 2017.

Villa Suite Lease

Effective July 1, 2005, Mr. Wynn and his wife, Elaine P. Wynn (“Mrs. Wynn”), who is also a director of Wynn Resorts, lease from year to year a villa suite in the Wynn Las Vegas resort as their personal residence. Rent is determined each year by the Audit Committee of the Board of Directors of Wynn Resorts (the “Audit Committee”), and is based on the fair market value of the use of the suite accommodations. Based on third-party appraisals, the Audit Committee has determined the rent for each annual period from July 1, 2005 through June 30, 2008 is $580,000. All services for, and maintenance of, the suite are included in the rental, with certain exceptions.

7. Receivables, net

Receivables, net consist of the following (amounts in thousands):


	June 30, 2006			December 31, 2005
Casino	$	68,336		$	83,936
Hotel		13,725			12,660
Other		5,205			7,684

		87,266			104,280
Less: allowance for doubtful accounts		(21,494	)		(15,812	)

	$	65,772		$	88,468

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

8. Property and Equipment

Property and equipment consist of the following (amounts in thousands):


	June 30, 2006			December 31, 2005
Land and improvements	$	602,592		$	599,278
Buildings and improvements		1,162,508			1,159,364
Airplanes		57,582			57,582
Furniture, fixtures and equipment		615,123			594,474
Leasehold interest in land		67,230			67,118
Construction in progress		480,389			286,570

		2,985,424			2,764,386
Less: accumulated depreciation		(171,419	)		(100,516	)

	$	2,814,005		$	2,663,870

As of June 30, 2006 and December 31, 2005, construction in progress includes interest and other costs capitalized in conjunction with the Wynn Macau and Encore projects.

9. Long-Term Debt

Long-term debt consists of the following (amounts in thousands):


	June 30, 2006			December 31, 2005
6⁵/8% First Mortgage Notes, due December 1, 2014	$	1,300,000		$	1,300,000
6% Convertible Subordinated Debentures, due July 15, 2015		224,686			250,000
$600.0 million Revolving Credit Facility; due December 14, 2009; interest at LIBOR plus 2.25% (approximately 7.6% and 6.7%)		—			10,000
$400.0 million Delay Draw Term Loan Facility; due December 14, 2011 interest at LIBOR plus 2.125% (approximately 7.5% and 6.5%)		400,000			400,000
Senior Term Loan Facilities; due September 14, 2011; interest at LIBOR or HIBOR plus 3.0%, decreasing to LIBOR or HIBOR plus 2.75% upon opening of Wynn Macau (approximately 8.35% and 7.3%)		306,044			78,944
$44.75 million note payable; due March 31, 2010; interest at LIBOR plus 2.375% (approximately 7.725% and 6.902%)		41,057			43,536
Note payable - Aircraft; interest at 5.67%		13,635			13,986
12% Second Mortgage Notes, net of original issue discount of approximately $395 and $440, respectively due November 1, 2010		9,747			9,702
Other		144			167

		2,295,313			2,106,335
Current portion of long-term debt		(15,696	)		(15,489	)

	$	2,279,617		$	2,090,846

Wynn Las Vegas Credit Facilities

On March 15, 2006, the Company amended the agreement (the “Credit Agreement”) governing its $600 million Revolving Credit Facility and its $400 million Delay Draw Term Loan Facility (together, the “Wynn Las Vegas Credit Facilities” or the “Credit Facilities”) to (a) allow the Company to issue up to $100.0 million of

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

additional 6⁵/8% First Mortgage Notes due December 1, 2014 (the “First Mortgage Notes”); (b) simplify draw procedures under the agreement governing the disbursement of funds restricted under the Credit Agreement (the “Disbursement Agreement”); (c) consolidate certain accounts under the Disbursement Agreement; (d) amend and clarify certain of the conditions for the approval of the budget, plans and specifications of Encore; (e) extend the outside opening date for Encore and the outside completion date for Encore to June 30, 2009 and September 30, 2009, respectively; and (f) permit expenditures of up to $150.0 million on Encore prior to the execution of a guaranteed maximum price contract.

On June 30, 2006, in anticipation of a contemplated refinancing of the Credit Facilities, the Company further amended the Credit Agreement to: (i) clarify the Credit Agreement’s definition of “Consolidated Total Debt”; and (ii) change the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) applicable on Quarterly Dates (as defined in the Credit Agreement) on or prior to September 30, 2007 from 2.25:1 to 2.00:1.

On July 7, 2006, the Company engaged Deutsche Bank Trust Company Americas, Deutsche Bank Securities Inc., Bank of America, N.A. and Banc of America Securities LLC in connection with the proposed refinancing of the Wynn Las Vegas Credit Facilities.

Wynn Macau Credit Facilities

On June 22, 2006, Wynn Macau, S.A. received consent from its lending syndicate allowing Wynn Macau, S.A. to amend certain provisions of its credit agreement to permit Wynn Macau to fund the additional $68.4 million in costs associated with three change orders to its guaranteed maximum price construction contract and other increases in Wynn Macau’s project budget entirely from its existing $764 million senior secured credit facilities. The additional costs are to be incurred in connection with preparatory work for additional gaming space located in the expansion of Phase II, a series of enhancements and upgrades to the overall project and an electronic marquee sign at the entrance to Wynn Macau.

Wynn Macau will fund $60.5 million from its existing $72 million contingent debt facility and $7.9 million of costs from its existing $20 million credit facility with Banco Nacional Ultramarino, S.A.

Debt Covenant Compliance

As of June 30, 2006, the Company was in compliance with all covenants governing the Company’s debt facilities.

10. Interest Rate Swaps

The Company has entered into interest rate swap arrangements to effectively fix the interest on certain floating-rate debt borrowings. The following table presents the historical asset or (liability) fair values of the Company’s interest rate swap arrangements (reflected in deposits and other assets or in other long-term liabilities as appropriate) as of June 30, 2006 and December 31, 2005 (amounts in thousands):


Asset / (Liability) Fair Value at:	Wynn Las Vegas Interest Rate Swaps		Wynn Macau Interest Rate Swaps			All Interest Rate Swaps
June 30, 2006	$	15,853	$	3,473		$	19,326
December 31, 2005	$	10,523	$	(1,788	)	$	8,735

The fair value approximates the amount the Company would receive or pay if these contracts were settled at the respective valuation dates. Fair value is estimated based upon current, and predictions of future, interest rate

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

levels along a yield curve, the remaining duration of the instruments and other market conditions, and therefore is subject to significant estimation and a high degree of variability of fluctuation between periods.

The Company accounts for these interest rate swaps in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”), and its related interpretations. Accordingly, during the three and six months ended June 30, 2006 and 2005, the Company recorded the following amounts as increases or decreases to swap fair value, a component of other income (expense) (amounts in thousands):


Increase/(Decrease) in Swap Fair Value for the periods:	Wynn Las Vegas Interest Rate Swaps			Wynn Macau Interest Rate Swaps		All Interest Rate Swaps
Three months ended June 30, 2006	$	1,975		$	2,271	$	4,246
Six months ended June 30, 2006	$	5,330		$	5,261	$	10,591
Three months ended June 30, 2005	$	(5,814	)	$	—	$	(5,814	)
Six months ended June 30, 2005	$	1,887		$	—	$	1,887

11. Share-Based Compensation

The Company has adopted the 2002 Stock Incentive Plan (the “Stock Plan”) to provide stock compensation arrangements for directors, officers and key employees, and others. The Stock Plan includes provisions for the grant of (i) Incentive Stock Options (“ISO”), (ii) compensatory (i.e. nonqualified) stock options (“NQSO”) and (iii) nonvested shares of the common stock of Wynn Resorts, Limited (“Common Stock”). Officers, key employees, directors (whether employee or nonemployee) and independent contractors or consultants of the Company and its subsidiaries are eligible to participate in the Stock Plan. However, only employees of the Company and its subsidiaries are eligible to receive incentive stock options.

A maximum of 9,750,000 shares of Common Stock were reserved for issuance under the Stock Plan. As of June 30, 2006, 4,606,712 shares remain available for the grant of stock options or nonvested shares of Common Stock.

Stock Options

Options are granted at the current market price at the date of grant. The Stock Plan provides for a variety of vesting schedules, including: immediate; 25% each year over four years; 33.33% for each of the third, fourth and fifth years; cliff vesting at a determined date; and others to be determined at the time of grant. All options expire ten years from the date of grant.

A summary of option activity under the Stock Plan as of June 30, 2006, and the changes during the six months then ended is presented below:


	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2006	3,484,800		$	36.62
Granted	143,500		$	68.24
Exercised	(224,750	)	$	21.30
Canceled	(73,800	)	$	39.45

Outstanding at June 30, 2006	3,329,750		$	38.92	8.01	$	114,536,038

Exercisable at June 30, 2006	1,117,500		$	23.09	7.08	$	56,115,163

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The weighted average fair value of options granted during the six months ended June 30, 2006 and 2005 was $30.65 and $24.84, respectively. The total intrinsic value of the options exercised for the six months ended June 30, 2006 and 2005 was $11.0 million and $2.3 million, respectively. Net cash proceeds from the exercise of stock options were $4.8 million and $1.1 million for the six months ended June 30, 2006 and 2005, respectively. Since all deferred tax assets are fully reserved, these amounts did not create any tax benefit.

Nonvested Shares

A summary of the status of the Stock Plan’s nonvested shares as of June 30 2006 and changes during the six months ended June 30, 2006, is presented below:


	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2006	789,169		$	28.35
Granted	50,000		$	74.46
Vested	(569,169	)	$	13.25
Canceled	—		$	—

Nonvested at June 30, 2006	270,000		$	68.70

During the three and six months ended June 30, 2006, the Company recognized compensation cost related to nonvested shares of Common Stock of approximately $1.5 million and $2.9 million, respectively. During the three and six months ended June 30, 2005, the Company recognized compensation cost related to the nonvested shares of Common Stock of approximately $1.8 million and $3.7 million. Of these amounts, approximately $418,000 and $539,000 was capitalized to construction in progress for the three months ended June 30, 2006 and 2005, respectively. Approximately $957,000 and $1.1 million was capitalized for the six months ended June 30, 2006 and 2005, respectively. Approximately $16.6 million of unamortized compensation cost relating to nonvested shares of Common Stock at June 30, 2006, will be recognized as compensation over the vesting period of the related grants through May 2011.

Compensation Cost

In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, “Share-Based Payment” to provide interpretive guidance on SFAS No. 123(R) valuation methods, assumptions used in valuation models, and the interaction of SFAS No. 123(R) with existing SEC guidance. SAB No. 107 also requires the classification of stock compensation expense in the same financial statement line items as cash compensation, and therefore impacts the Company’s departmental expenses (and related operating margins), pre-opening costs and construction in progress for the Company’s development projects, and the Company’s general and administrative expenses (including corporate expenses).

The Company uses the Black-Scholes valuation model to determine the estimated fair value for each option grant issued, with highly subjective assumptions, changes in which could materially affect the estimated fair value. Expected volatility is based on implied and historical factors related to the Company’s common stock. Expected term represents the weighted average time between the option’s grant date and its exercise date. After adoption of SFAS No. 123(R), the Company used the simplified method prescribed by SAB No. 107 for companies with a limited trading history, to estimate expected term. Prior to the adoption of SFAS No. 123(R), the Company used its best estimate and comparisons to industry peers. The risk free interest rate used for each period presented is based on the U.S. Treasury yield curve at the time of grant for the period equal to the expected term.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The fair value per option was estimated on the date of grant using the following weighted-average assumptions:


	June 30, 2006			June 30, 2005
	3 months	6 months		3 months		6 months
Expected dividend yield	—	—		—		—
Expected stock price volatility	—	32.5	%	35.33	%	35.33	%
Risk-free interest rate	—	4.9	%	3.9	%	3.9	%
Expected average life of options (years)	—	7.0		5.5		5.5

The adoption of SFAS No. 123(R) and the related interpretations on January 1, 2006 resulted in the Company’s elimination of approximately $15.8 million of deferred compensation against additional paid-in capital. For the three and six months ended June 30, 2006, adoption of SFAS No. 123(R) and the related interpretations resulted in the recognition of approximately $2.9 million ($0.03 per share) and $5.9 million ($0.06 per share) of compensation cost related to stock options. The compensation cost for the three and six months ended June 30, 2006 is allocated as follows (amounts in thousands):


	June 30, 2006
	3 months		6 months
Casino	$	653	$	1,304
Rooms		133		274
Food & Beverage		268		539
Entertainment, retail and other		76		136
General and administrative		1,312		2,656
Preopening expenses		462		950

Total stock option costs expensed		2,904		5,859
Total stock option costs capitalized		45		83

Total stock option costs	$	2,949	$	5,942

As permitted by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123,” the Company continued to apply the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock-based compensation for the three and six months ended June 30, 2005. Accordingly, compensation expense was recognized only to the extent that the market value at the date of grant exceeded the exercise price.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table illustrates the effect on the net loss that would have resulted had the Company applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” to stock-based employee compensation during the three and six months ended June 30, 2005 (amounts in thousands):


	June 30, 2005
	3 months			6 months
Net loss as restated	$	(41,778	)	$	(71,704	)
Less: total stock-based employee compensation expenses determined under the fair value method for all awards		(2,182	)		(3,998	)

Proforma net loss	$	(43,960	)	$	(75,702	)

Basic and diluted loss per share:
As reported	$	(0.43	)	$	(0.73	)

Proforma	$	(0.45	)	$	(0.77	)

12. Commitments and Contingencies

Wynn Las Vegas

Construction and Remodeling. As of June 30, 2006, approximately $4.5 million of budgeted project costs and retention amounts remained to be paid in order to close out the project. The Company expects these final costs to be paid in the third quarter of 2006.

In the third quarter of 2005, the Company began to make certain enhancements and refinements to Wynn Las Vegas. As a result, the Company has incurred and will continue to incur capital expenditures relating to these enhancements and refinements. Under the terms of the Wynn Las Vegas, LLC credit facilities, the Company is permitted up to $80.0 million of capital expenditures in 2006, of which approximately $46.4 million was spent during the six months ended June 30, 2006. These spending limits do not apply to any funds that may be contributed to Wynn Las Vegas, LLC by Wynn Resorts.

Entertainment Productions. In 2002, the Company became a party to long-term agreements for the licensing, creation, development and production of “Le Rêve,” the water-based production show which opened at Wynn Las Vegas on April 28, 2005. In 2004, the Company also purchased the rights to, and in August 2005 began to present, the Tony Award-winning musical production “Avenue Q,” in Wynn Las Vegas’ Broadway Theater.

Under the agreements relating to “Le Rêve” and “Avenue Q,” the Company was required to make payments to the creators and producers of each show based upon certain criteria including net ticket sales or profits.

On May 28, 2006, the Company ended Avenue Q’s production run at Wynn Las Vegas. To terminate the contract, the Company paid a contract termination fee of $5.0 million, which was recorded in the first quarter of 2006 in accordance with the liability recognition provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). The Company intends to present “Monty Python’s Spamalot” in the renovated Broadway Theater. The Company expects to commence public performances of “Monty Python’s Spamalot” in the first quarter of 2007.

In April 2006, the Company canceled the 189,723 nonvested shares of Wynn Resorts’ common stock granted, subject to certain performance criteria, to the executive producer of “Le Reve.”

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

On May 31, 2006, Wynn Las Vegas entered into an agreement to acquire substantially all intellectual property rights related to “Le Reve” which were previously only licensed to Wynn Las Vegas. Wynn Las Vegas paid $15.9 million to acquire substantially all of the rights in and to “Le Reve,” and repaid approximately $1.4 million of production costs, which were reimbursable to the executive producer of “Le Reve”. The rights acquired enable Wynn Las Vegas to produce, present, enhance, or alter the performance of “Le Reve” after May 31, 2006.

Encore Construction and Development. On March 31, 2006, the Company’s lenders approved a $1.74 billion project budget and the related plans and specifications for Encore (the “Encore Budget, Plans & Specs”). Encore’s design features a 2,042-room hotel tower fully integrated with Wynn Las Vegas, consisting of approximately 132 suites and 1,910 guest rooms, an approximately 54,000 square foot casino, additional convention and meeting space, as well as restaurants, a nightclub, swimming pools, a spa and salon and retail outlets. The Encore Budget, Plans & Specs includes approximately $70.0 million to be incurred for an additional employee parking garage located on our Koval property, a related pedestrian bridge, and costs to be incurred in connection with preparing the Broadway Theater to host “Monty Python’s Spamalot.” The Company commenced construction of Encore on April 28, 2006 and expects to open Encore to the public by the end of 2008.

Through June 30, 2006, the Company has incurred approximately $120.4 million of the Encore budget. These costs have been funded from the Credit Facilities and the proceeds of the First Mortgage Notes. The Company expects that the available remaining proceeds from the First Mortgage Notes, together with availability under the Credit Facilities and cash flow from operations, will be sufficient to pay for expenditures of approximately $1.5 billion on the Encore project without incurring additional debt or receiving additional capital contributions from Wynn Resorts. Project costs exceeding approximately $1.5 billion are expected to be funded by an increase of up to $125.0 million of additional availability in the Credit Facilities and/or contributions from Wynn Resorts.

On March 31, 2006, Wynn Resorts, Limited delivered an equity commitment agreement to the lenders under the Wynn Las Vegas Credit Facilities. Under this agreement, Wynn Resorts has committed to pay up to $215.3 million of Encore project costs if Wynn Las Vegas, LLC is unable to do so.

Completion Guarantee and Liquidity Reserve. As part of the Wynn Las Vegas financing, the Company contributed $50.0 million of the net proceeds of the initial public offering of Wynn Resorts’ common stock to Wynn Completion Guarantor, LLC, a special purpose subsidiary of Wynn Las Vegas, LLC formed in October 2002 and deposited those funds into a completion guarantee deposit account to secure completion of Wynn Las Vegas.

In addition, the Company deposited $30.0 million from the net proceeds of the initial public offering of Wynn Resorts’ common stock into a liquidity reserve account to secure the completion and opening of Wynn Las Vegas.

The liquidity reserve is solely for use of the Wynn Las Vegas project, which is expected to be closed out in the third quarter of 2006. Upon final completion, the liquidity reserve will be released and is expected to be applied to construction costs incurred in connection with Encore. At the final completion of Wynn Las Vegas, $30.0 million of the $50.0 million completion guarantee will be retained in connection with the construction of Encore.

Wynn Macau

Construction and Development. Under its casino concession agreement with Macau SAR, Wynn Macau, S.A. is constructing and will own and operate Wynn Macau, a casino resort facility in Macau’s inner harbor area.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Wynn Macau is being constructed, and will open, in two phases. The first phase of Wynn Macau is expected to open in September of 2006. The second phase is expected to be open in stages and be fully completed by the fourth quarter of 2007.

Construction of Wynn Macau’s first phase commenced in June 2004 under a guaranteed maximum price construction contract (“the Construction Contract”) between Wynn Macau, S.A. and Leighton Contractors (Asia) Limited, China State Construction Engineering (Hong Kong) Limited and China Construction Engineering (Macau) Company Limited, acting together as general contractor. In September 2005, the Construction Contract was amended and restated to include the second phase of Wynn Macau. Under the amended and restated Construction Contract, the general contractor is responsible for both the construction and design of the project (other than certain limited portions to be designed by an affiliate of Wynn Macau, S.A.) based on an existing scope of work and design specifications provided by Wynn Macau, S.A., for a guaranteed maximum price of approximately $483 million (including the contractors’ fee and contingencies). The performance of the contractors is backed by a full completion guarantee given jointly and severally by Leighton Holdings Limited and China Overseas Holdings Limited, the parent companies of the general contractor.

On June 22, 2006, Wynn Macau, S.A. received consent from its lending syndicate permitting Wynn Macau, S.A. to enter into three change orders to its guaranteed maximum price construction contract. The three change orders implement a series of amendments to the Construction Contract, including providing for the completion of the majority of the first floor of the Wynn Macau expansion as additional gaming space, a series of enhancements and upgrades to the overall project, and adding an electronic marquee sign at the entrance to Wynn Macau. The change orders increase the guaranteed maximum price under the Construction Contract from $457 million to approximately $483 million.

Through June 30, 2006, the Company had incurred approximately $716 million of the approximate total $1.2 billion of budgeted project costs. Total budgeted project costs include construction and design costs (including construction contingencies) of approximately $685 million, land acquisition costs of approximately $49 million, the additional casino expansion and suite enhancements of approximately $68 million and capitalized interest, pre-opening expenses, financing fees and other costs totaling in the aggregate approximately $351 million. These costs have been, and will continue to be, paid from the previously funded $230 million base equity loans from Wynn Resorts, $80 million from Wynn Las Vegas, LLC and loaned through affiliates to Wynn Macau, S.A. as subordinated debt, Wynn Macau, S.A.’s $764 million senior secured credit facility and the balance from cash flows from operations.

Land Concession Contract. In June 2004, Wynn Macau, S.A. entered into a land concession contract for the Wynn Macau project site. Under the land concession contract, Wynn Macau, S.A. leases a parcel of approximately 16 acres from the Macau government for an initial term of 25 years, with a right to renew for additional periods. Wynn Macau, S.A. has made four payments to the Macau government under the land concession contract and is required to make seven additional semi-annual payments (including interest) for total payments of approximately $42.7 million. Wynn Macau, S.A. also paid approximately $17.9 million to an unrelated third party for its relinquishment of rights to a portion of the land. During the term of the land concession contract, Wynn Macau, S.A. is also required to make annual lease payments of up to $400,000.

Macau Subconcession Sale. On March 4, 2006, Wynn Macau, S.A. entered into an agreement with Publishing & Broadcasting, Ltd. (“PBL”) pursuant to which Wynn Macau, S.A. agreed to sell to PBL a subconcession to operate casino games in Macau for a purchase price of $900.0 million. The transaction is subject to the approval of the Macau government.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Cotai Strip Development

The Company has submitted an application with the government of Macau for a land concession for an additional 54 acres of land on the Cotai Strip in Macau for future development.

Leases, License Agreements, and Joint Ventures

Retail operations - The Company is the lessor under six leases for retail operations at Wynn Las Vegas and has entered into license and distribution agreements for five additional retail outlets in Wynn Las Vegas. The Company also is a party to joint venture agreements for the operation of one other retail outlet and the Ferrari and Maserati automobile dealership at Wynn Las Vegas. Each of these retail outlets opened concurrently with the opening of Wynn Las Vegas. Wynn Macau, S.A. has also entered agreements with fifteen entities for their future retail, food and beverage, and other operations.

Other commitments - In addition, the Company is the lessee under several leases for office space in Las Vegas, Macau and certain other locations, warehouse facilities, the land underlying the Company’s aircraft hangar and certain office equipment. The Company also leases land from the government of Macau for the site of Wynn Macau.

Self-insurance

The Company’s domestic subsidiaries are covered under a self-insured medical plan up to a maximum of $200,000 per year for each insured person. Amounts in excess of this threshold are covered by the Company’s insurance programs, subject to customary policy limits. The Company’s foreign subsidiaries are fully-insured.

Employment Agreements

The Company has entered into employment agreements with several executive officers, other members of management and certain key employees. These agreements, other than Mr. Wynn’s, generally have three- to five-year terms and indicate a base salary. Certain agreements also contain provisions for guaranteed bonuses. Certain executives are also entitled to a separation payment if terminated without “cause” or upon voluntary termination of employment for “good reason” following a “change of control” (as these terms are defined in the employment contracts).

Litigation

The Company does not have any material litigation as of June 30, 2006.

13. Segment Information

The Company monitors its operations and evaluates earnings by reviewing the assets and operations of Wynn Las Vegas and Wynn Macau. Wynn Las Vegas opened on April 28, 2005. Wynn Macau is currently in the development and construction phase and is expected to open in the third quarter of 2006. The Company’s total assets by segment are as follows (in thousands):


	June 30, 2006		December 31, 2005
Total assets
Wynn Las Vegas (including Encore)	$	3,068,404	$	3,115,814
Wynn Macau		672,587		471,571
Corporate and other assets		360,474		357,898

Total consolidated assets	$	4,101,465	$	3,945,283

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company’s segment information on its results of operations for the three and six months ended June 30, 2006 and 2005, are as follows (in thousands):


	Three Months Ended June 30						Six Months Ended June 30
	2006			2005			2006			2005
				(as restated)						(as restated)
Revenues (1)
Casino	$	113,527		$	98,715		$	240,041		$	98,715
Rooms		69,222			44,632			137,399			44,632
Food and beverage		77,686			48,056			152,320			48,056
Entertainment, retail and other		49,389			34,651			98,346			34,659

Gross revenues		309,824			226,054			628,106			226,062
Less promotional allowances		(36,454	)		(24,934	)		(77,511	)		(24,934	)

Net revenues	$	273,370		$	201,120		$	550,595		$	201,128

Adjusted EBITDA (1, 2)	$	73,162		$	58,735		$	154,285		$	58,735

Other operating costs and expenses
Preopening expenses:
Wynn Las Vegas (including Encore)		(176	)		(36,795	)		(194	)		(65,886	)
Wynn Macau		(16,852	)		(4,124	)		(25,780	)		(6,598	)
Corporate and other		—			(2,446	)		—			(8,985	)
Depreciation and amortization:
Wynn Las Vegas (including Encore)		(37,618	)		(24,057	)		(76,568	)		(25,568	)
Wynn Macau		(2,131	)		(1,469	)		(4,208	)		(2,934	)
Corporate and other		(793	)		(599	)		(1,551	)		(1,117	)
Property charges and other:
Wynn Las Vegas (including Encore)		(2,376	)		(48	)		(7,325	)		(110	)
Wynn Macau		—			—			—			—
Corporate and other		—			—			—			—
Avenue Q contract termination fee		—			—			(5,000	)		—
Corporate expenses and other		(11,533	)		(5,001	)		(22,244	)		(5,001	)

Total		(71,479	)		(74,539	)		(142,870	)		(116,199	)

Operating income (loss)		1,683			(15,804	)		11,415			(57,464	)
Other non-operating costs and expenses
Interest and other income		9,617			6,983			18,049			13,165
Interest expense		(35,307	)		(27,143	)		(71,250	)		(29,292	)
Increase/(Decrease) in swap fair value		4,246			(5,814	)		10,591			1,887

Total		(21,444	)		(25,974	)		(42,610	)		(14,240	)

Provision for Income Taxes		(309	)		—			(309	)		—

Net loss	$	(20,070	)	$	(41,778	)	$	(31,504	)	$	(71,704	)

(1)	Wynn Macau is currently in the development stage and therefore has no revenues or Adjusted EBITDA.

(2)

“Adjusted EBITDA” is earnings before interest, taxes, depreciation, amortization, pre-opening expenses, property charges, corporate expenses, stock-based compensation, Avenue Q contract termination fee and other non-operating income and expenses. Adjusted EBITDA is presented exclusively as a supplemental

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

disclosure because management believes that it is widely used to measure the performance, and as a principal basis for valuation, of gaming companies. Management uses Adjusted EBITDA as the primary measure of the operating performance of its segments and to compare the operating performance of its property with those of its competitors. The Company also presents Adjusted EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDA as a supplement to financial measures in accordance with generally accepted accounting principles in the United States (“GAAP”). In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including Wynn Resorts, Limited, have historically excluded from their EBITDA calculations pre-opening expenses, property charges and corporate expenses, which do not relate to the management of specific casino properties. However, Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of the Company’s performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike net income, Adjusted EBITDA does not include depreciation or interest expense and therefore does not reflect current or future capital expenditures or the cost of capital. We compensate for these limitations by using Adjusted EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include operating income (loss), net income (loss), cash flows from operations and cash flow data. The Company has significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA. Also, Wynn Resorts’ calculation of Adjusted EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

14. Restatement

Subsequent to the issuance of the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2005, the Company determined that its interest rate swap arrangements relating to certain of its floating-rate debt facilities did not qualify for hedge accounting under Statement of Financial Accounting Standards No. 133 and its related interpretations. The Company’s hedge documentation includes, among other items, the assumption that the repricing dates for its debt and swaps match. The documentation required to assess ineffectiveness resulting from having different repricing dates was not in place at the inception of the hedge, nor during the periods for which an assessment was required, and the Company determined that the repricing dates on the swap instruments did not match exactly the repricing dates on the floating-rate debt. Documentation deficiencies cannot be corrected, and quarterly testing cannot be performed, retrospectively. As a result of the documentation deficiencies, hedge accounting should not have been used. Accordingly, the Company restated its condensed consolidated financial statements for the three and six months ended June 30, 2005 to eliminate the application of hedge accounting. Eliminating the application of hedge accounting resulted in recording the mark to market adjustments for the interest rate swaps as increase/(decrease) in swap fair value, a component of other income (expense), net and not in comprehensive income, as was previously reported.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

A summary of the significant effects of the restatement on the June 30, 2005 condensed consolidated financial statements is as follows (amounts in thousands except per share data):


	For the Three Months Ended June 30, 2005						For the Six Months Ended June 30, 2005
	As Previously Reported			As Restated			As Previously Reported			As Restated
Condensed Consolidated Statement of Operations:
Increase/(Decrease) in swap fair value	$	—		$	(5,814	)	$	—		$	1,887
Interest expense	$	(26,341	)	$	(27,143	)	$	(28,490	)	$	(29,292	)
Other income (expense), net	$	(19,358	)	$	(25,974	)	$	(15,325	)	$	(14,240	)
Net loss	$	(35,162	)	$	(41,778	)	$	(72,789	)	$	(71,704	)
Basic and diluted loss per share	$	(0.36	)	$	(0.43	)	$	(0.74	)	$	(0.73	)

Condensed Consolidated Statement of Cash Flows:
Net loss		n/a			n/a		$	(72,789	)	$	(71,704	)
Increase in swap fair value		n/a			n/a		$	—		$	(1,887	)
Capital expenditures		n/a			n/a		$	(560,195	)	$	(559,393	)

15. Consolidating Financial Information of Guarantors and Issuers

The following condensed consolidating financial statement information is related to Wynn Resorts (the “Parent”), which is the issuer of the Debentures, Wynn Resorts Funding, LLC, a subsidiary of the Parent that guarantees the Debentures (the “Convertible Debentures Guarantor”), and non-guarantor subsidiaries as of June 30, 2006 and December 31, 2005, and for the three and six months ended June 30, 2006 and 2005.

The following condensed consolidating financial statement information is presented in the form provided because: (i) the Convertible Debentures Guarantor is a wholly-owned subsidiary of the Parent; (ii) the guarantee is considered to be full and unconditional (that is, if the Parent fails to make a scheduled payment, the Convertible Debentures Guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the Debentures may immediately bring suit directly against the Convertible Debentures Guarantor for payment of all amounts due and payable); and (iii) the guarantee is joint and several.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET INFORMATION

AS OF JUNE 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor		Non-guarantor Subsidiaries			Eliminating Entries			Total
ASSETS
Current assets:
Cash and cash equivalents	$	312,098		$	—	$	66,854		$	—		$	378,952
Restricted cash and investments		—			7,591		74,681			—			82,272
Receivables, net		7			—		65,765			—			65,772
Inventories		—			—		49,951			—			49,951
Prepaid expenses		134			—		24,976			—			25,110

Total current assets		312,239			7,591		282,227			—			602,057

Restricted cash and investments		1,305			—		371,019			—			372,324
Property and equipment, net		588			—		2,813,417			—			2,814,005
Intangibles, net		—			—		69,862			—			69,862
Deferred financing costs, net		5,922			—		82,243			—			88,165
Deposits and other assets		6,907			—		142,952			—			149,859
Investment in unconsolidated affiliates		1,262,084			—		5,193			(1,262,084	)		5,193
Intercompany balances		218,825			37,496		(256,321	)		—			—

Total assets	$	1,807,870		$	45,087	$	3,510,592		$	(1,262,084	)	$	4,101,465

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	—	$	15,696		$	—		$	15,696
Current portion of land concession obligation		—			—		9,211			—			9,211
Accounts and construction payable		—			—		75,078			—			75,078
Accrued interest		6,179			—		8,375			—			14,554
Accrued compensation and benefits		6,740			—		31,991			—			38,731
Other accrued expenses		498			—		24,135			—			24,633
Customer deposits and other liabilities		—			—		36,973			—			36,973
Construction retention		—			—		15,806			—			15,806

Total current liabilities		13,417			—		217,265			—			230,682

Long-term debt		224,686			—		2,054,931			—			2,279,617
Long-term land concession obligation		—			—		14,594			—			14,594
Other long-term liabilities		—			—		1,088			—			1,088
Construction retention		—			—		5,717			—			5,717

Total liabilities		238,103			—		2,293,595			—			2,531,698

Commitments and contingencies

Stockholders’ equity:
Preferred Stock		—			—		—			—			—
Common stock		1,007			—		—			—			1,007
Additional paid-in capital		1,995,654			44,028		1,627,181			(1,671,209	)		1,995,654
Accumulated other comprehensive income (loss)		(229	)		—		(229	)		229			(229	)
Retained earnings (accumulated deficit)		(426,665	)		1,059		(409,955	)		408,896			(426,665	)

Total stockholders’ equity		1,569,767			45,087		1,216,997			(1,262,084	)		1,569,767

Total liabilities and stockholders’ equity	$	1,807,870		$	45,087	$	3,510,592		$	(1,262,084	)	$	4,101,465

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET INFORMATION

AS OF DECEMBER 31, 2005

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor		Non-guarantor Subsidiaries			Eliminating Entries			Total
ASSETS
Current assets:
Cash and cash equivalents	$	308,013		$	—	$	126,276		$	—		$	434,289
Restricted cash and investments		1,064			15,001		82,206			—			98,271
Receivables, net		31			—		88,437			—			88,468
Inventories		—			—		39,884			—			39,884
Prepaid expenses		324			—		23,306			—			23,630

Total current assets		309,432			15,001		360,109			—			684,542

Restricted cash and investments		23			—		344,308			—			344,331
Property and equipment, net		530			—		2,663,340			—			2,663,870
Intangibles, net		—			—		60,480			—			60,480
Deferred financing costs, net		6,934			—		88,685			—			95,619
Deposits and other assets		3,454			—		87,917			—			91,371
Investment in unconsolidated affiliates		1,295,256			—		5,070			(1,295,256	)		5,070
Intercompany balances		216,454			30,000		(246,454	)		—			—

Total assets	$	1,832,083		$	45,001	$	3,363,455		$	(1,295,256	)	$	3,945,283

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	—	$	15,489		$	—		$	15,489
Current portion of land concession obligation		—			—		8,984			—			8,984
Accounts and construction payable		41			—		79,727			—			79,768
Accrued interest		9,142			—		6,591			—			15,733
Accrued compensation and benefits		9,050			—		27,722			—			36,772
Other accrued expenses		955			—		27,419			—			28,374
Customer deposits and other liabilities		—			—		66,120			—			66,120
Construction retention		—			—		18,539			—			18,539

Total current liabilities		19,188			—		250,591			—			269,779

Construction retention		—			—		757			—			757
Long-term debt		250,000			—		1,840,846			—			2,090,846
Long-term land concession obligation		—			—		19,218			—			19,218
Other long-term liabilities		—			—		1,788			—			1,788

Total liabilities		269,188			—		2,113,200			—			2,382,388

Commitments and contingencies

Stockholders’ equity:
Preferred Stock		—			—		—			—			—
Common stock		993			—		—			—			993
Additional paid-in capital		1,972,847			44,028		1,623,218			(1,667,246	)		1,972,847
Deferred compensation - restricted stock		(15,784	)		—		(957	)		957			(15,784	)
Retained earnings (accumulated deficit)		(395,161	)		973		(372,006	)		371,033			(395,161	)

Total stockholders’ equity		1,562,895			45,001		1,250,255			(1,295,256	)		1,562,895

Total liabilities and stockholders’ equity	$	1,832,083		$	45,001	$	3,363,455		$	(1,295,256	)	$	3,945,283

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

THREE MONTHS ENDED JUNE 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—		$	113,527		$	—		$	113,527
Rooms		—			—			69,222			—			69,222
Food and beverage		—			—			77,686			—			77,686
Entertainment, retail and other		5,626			—			49,389			(5,626	)		49,389

Gross revenues		5,626			—			309,824			(5,626	)		309,824
Less promotional allowances		—			—			(36,454	)		—			(36,454	)

Net revenues		5,626			—			273,370			(5,626	)		273,370

Operating costs and expenses:
Casino		—			—			57,920			—			57,920
Rooms		—			—			18,140			—			18,140
Food and beverage		—			—			49,423			—			49,423
Entertainment, retail and other		—			—			34,112			—			34,112
General and administrative		5,557			4			49,076			(5,626	)		49,011
Provision for doubtful accounts		(6	)		—			3,652			—			3,646
Pre-opening costs		—			—			17,028			—			17,028
Depreciation and amortization		19			—			40,523			—			40,542
Property charges and other		—			—			2,376			—			2,376

Total operating costs and expenses		5,570			4			272,250			(5,626	)		272,198
Equity in income/(loss) from unconsolidated affiliates		(24,274	)		—			511			24,274			511

Operating income/(loss)		(24,218	)		(4	)		1,631			24,274			1,683

Other income/(expense):
Interest and other income		9,354			16			7,327			(7,080	)		9,617
Interest expense		(5,206	)		—			(37,181	)		7,080			(35,307	)
Increase in swap fair value					—			4,246			—			4,246

Other income (expense), net		4,148			16			(25,608	)		—			(21,444	)

Income (loss) before income taxes		(20,070	)		12			(23,977	)		24,274			(19,761	)
Provision for income taxes		—			—			(309	)		—			(309	)

Net income/(loss)	$	(20,070	)	$	12		$	(24,286	)	$	24,274		$	(20,070	)

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

THREE MONTHS ENDED JUNE 30, 2005 (As Restated - See Note 14)

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—		$	98,715		$	—		$	98,715
Rooms		—			—			44,632			—			44,632
Food and beverage		—			—			48,056			—			48,056
Entertainment, retail and other		4,501			—			34,651			(4,501	)		34,651

Gross revenues		4,501			—			226,054			(4,501	)		226,054
Less promotional allowances		—			—			(24,934	)		—			(24,934	)

Net revenues		4,501			—			201,120			(4,501	)		201,120

Operating costs and expenses:
Casino		—			—			42,280			—			42,280
Rooms		—			—			11,780			—			11,780
Food and beverage		—			—			33,706			—			33,706
Entertainment, retail and other		—			—			20,262			—			20,262
General and administrative		3,070			4			32,437			(4,501	)		31,010
Provision for doubtful accounts		(12	)		—			8,611			—			8,599
Pre-opening costs		2,502			—			40,863			—			43,365
Depreciation and amortization		20			—			26,105			—			26,125
Property charges and other		(1	)		—			49			—			48

Total operating costs and expenses		5,579			4			216,093			(4,501	)		217,175
Equity in income/(loss) from unconsolidated affiliates		(43,064	)		—			251			43,064			251

Operating income/(loss)		(44,142	)		(4	)		(14,722	)		43,064			(15,804	)

Other income/(expense):
Interest income		5,083			71			4,742			(2,913	)		6,983
Interest expense		(2,719	)		—			(27,337	)		2,913			(27,143	)
Decrease in swap fair value		—			—			(5,814	)		—			(5,814	)

Other income/(expense), net		2,364			71			(28,409	)		—			(25,974	)

Net income/(loss)	$	(41,778	)	$	67		$	(43,131	)	$	43,064		$	(41,778	)

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

SIX MONTHS ENDED JUNE 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—		$	240,041		$	—		$	240,041
Rooms		—			—			137,399			—			137,399
Food and beverage		—			—			152,320			—			152,320
Entertainment, retail and other		11,286			—			98,346			(11,286	)		98,346

Gross revenues		11,286			—			628,106			(11,286	)		628,106
Less promotional allowances		—			—			(77,511	)		—			(77,511	)

Net revenues		11,286			—			550,595			(11,286	)		550,595

Operating costs and expenses:
Casino		—			—			121,156			—			121,156
Rooms		—			—			35,125			—			35,125
Food and beverage		—			—			94,182			—			94,182
Entertainment, retail and other		—			—			66,626			—			66,626
General and administrative		11,035			4			96,223			(11,286	)		95,976
Provision for doubtful accounts		(23	)		—			6,598			—			6,575
Pre-opening costs		—			—			25,974			—			25,974
Depreciation and amortization		39			—			82,288			—			82,327
Contract termination fee		—			—			5,000			—			5,000
Property charges and other		—			—			7,325			—			7,325

Total operating costs and expenses		11,051			4			540,497			(11,286	)		540,266
Equity in income/(loss) from unconsolidated affiliates		(38,591	)		—			1,086			38,591			1,086

Operating income/(loss)		(38,356	)		(4	)		11,184			38,591			11,415

Other income/(expense):
Interest and other income		17,308			90			13,874			(13,223	)		18,049
Interest expense		(10,456	)		—			(74,017	)		13,223			(71,250	)
Increase in swap fair value		—			—			10,591			—			10,591

Other income (expense), net		6,852			90			(49,552	)		—			(42,610	)

Income (loss) before income taxes		(31,504	)		86			(38,368	)		38,591			(31,195	)
Provision for income taxes		—			—			(309	)		—			(309	)

Net income/(loss)	$	(31,504	)	$	86		$	(38,677	)	$	38,591		$	(31,504	)

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

SIX MONTHS ENDED JUNE 30, 2005 (As Restated - See Note 14)

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—		$	98,715		$	—		$	98,715
Rooms		—			—			44,632			—			44,632
Food and beverage		—			—			48,056			—			48,056
Entertainment, retail and other		6,001			—			34,659			(6,001	)		34,659

Gross revenues		6,001			—			226,062			(6,001	)		226,062
Less promotional allowances		—			—			(24,934	)		—			(24,934	)

Net revenues		6,001			—			201,128			(6,001	)		201,128

Operating costs and expenses:
Casino		—			—			42,280			—			42,280
Rooms		—			—			11,780			—			11,780
Food and beverage		—			—			33,706			—			33,706
Entertainment, retail and other		—			—			20,266			—			20,266
General and administrative		3,075			4			33,936			(6,001	)		31,014
Provision for doubtful accounts		(12	)		—			8,611			—			8,599
Pre-opening costs		9,388			—			72,081			—			81,469
Depreciation and amortization		39			—			29,580			—			29,619
Property charges and other		(1	)		—			111			—			110

Total operating costs and expenses		12,489			4			252,351			(6,001	)		258,843
Equity in income/(loss) from unconsolidated affiliates		(71,755	)		—			251			71,755			251

Operating income/(loss)		(78,243	)		(4	)		(50,972	)		71,755			(57,464	)

Other income/(expense):
Interest income		9,258			153			9,119			(5,365	)		13,165
Interest expense		(2,719	)		—			(31,938	)		5,365			(29,292	)
Increase in swap fair value		—			—			1,887			—			1,887

Other income (expense), net		6,539			153			(20,932	)		—			(14,240	)

Net income/(loss)	$	(71,704	)	$	149		$	(71,904	)	$	71,755		$	(71,704	)

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF CASH FLOWS INFORMATION

SIX MONTHS ENDED JUNE 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Cash flows from operating activities:
Net income/(loss)	$	(31,504	)	$	86		$	(38,677	)	$	38,591		$	(31,504	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		39			—			82,288			—			82,327
Stock-based compensation		3,423			—			4,379			—			7,802
Amortization and write-off of deferred financing costs		651			—			6,815			—			7,466
Provision for doubtful accounts		(23	)		—			6,598			—			6,575
Property charges and other		—			—			7,325			—			7,325
Equity in (income) loss from unconsolidated affiliates, net of distributions		38,591			—			(123	)		(38,591	)		(123	)
Increase in swap fair value		—			—			(10,591	)		—			(10,591	)
Increase (decrease) in cash from changes in:
Receivables		47			—			16,074			—			16,121
Inventories and prepaid expenses		190			—			(11,737	)		—			(11,547	)
Accounts payable and accrued expenses		(5,771	)		—			(26,622	)		—			(32,393	)
Due to (from) affiliates		(8,286	)		—			8,286			—			—

Net cash provided by (used in) operating activities		(2,643	)		86			44,015			—			41,458

Cash flows from investing activities:
Capital expenditures		(97	)		—			(225,487	)		—			(225,584	)
Restricted cash and investments		(218	)		7,410			(19,186	)		—			(11,994	)
Intangibles and Other assets		(3,660	)		—			(69,867	)		—			(73,527	)
Due to (from) affiliates		5,915			(7,496	)		1,581			—			—

Net cash provided by (used in) investing activities		1,940			(86	)		(312,959	)		—			(311,105	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		4,788			—			—			—			4,788
Proceeds from issuance of long-term debt		—			—			227,279			—			227,279
Principal payments on long-term debt		—			—			(13,032	)		—			(13,032	)
Payments on long-term land concession obligation		—			—			(4,397	)		—			(4,397	)
Deferred financing costs								(328	)		—			(328	)

Net cash provided by financing activities		4,788			—			209,522			—			214,310

Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents		4,085			—			(59,422	)		—			(55,337	)
Balance, beginning of period		308,013			—			126,276			—			434,289

Balance, end of period	$	312,098		$	—		$	66,854		$	—		$	378,952

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF CASH FLOWS INFORMATION

SIX MONTHS ENDED JUNE 30, 2005 (As Restated—See Note 14)

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Cash flows from operating activities:
Net income/(loss)	$	(71,704	)	$	149		$	(71,904	)	$	71,755		$	(71,704	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		39			—			29,580			—			29,619
Stock-based compensation		2,653			—			—			—			2,653
Amortization of deferred financing costs		357			—			6,240			—			6,597
Provision for doubtful accounts		(12	)		—			8,611			—			8,599
Property charges and other		(1	)		—			6			—			5
Equity in (income)/loss from unconsolidated affiliates		71,755			—			(251	)		(71,755	)		(251	)
Increase in swap fair value		—			—			(1,887	)		—			(1,887	)
Increase (decrease) in cash from changes in:
Receivables		(15	)		—			(63,901	)		—			(63,916	)
Inventories and prepaid expenses		(123	)		—			(31,310	)		—			(31,433	)
Accounts payable and accrued expenses		(2,912	)		—			106,307			—			103,395

Net cash provided by (used in) operating activities		37			149			(18,509	)		—			(18,323	)

Cash flows from investing activities:
Capital expenditures		—			—			(559,393	)		—			(559,393	)
Restricted cash and investments		(2	)		7,347			343,010			—			350,355
Investment in unconsolidated affiliates		—			—			(3,500	)		—			(3,500	)
Other assets		7			—			(20,542	)		—			(20,535	)
Intercompany balances		6,686			(7,496	)		810			—			—
Proceeds from sale of equipment		1			—			23			—			24

Net cash provided by (used in) investing activities		6,692			(149	)		(239,592	)		—			(233,049	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		1,065			—			—			—			1,065
Proceeds from issuance of long-term debt		—			—			437,186			—			437,186
Principal payments on long-term debt		—			—			(19,354	)		—			(19,354	)
Payments on long-term land concession obligation		—			—			(4,222	)		—			(4,222	)
Payments for deferred financing costs		—			—			(7,768	)		—			(7,768	)

Net cash provided by financing activities		1,065			—			405,842			—			406,907

Cash and cash equivalents:
Increase in cash and cash equivalents		7,794			—			147,741			—			155,535
Balance, beginning of period		302,262			—			27,999			—			330,261

Balance, end of period	$	310,056		$	—		$	175,740		$	—		$	485,796

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion gives effect to the restatement described in Note 14 to these condensed consolidated financial statements.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contains statements that are forward-looking, including, but not limited to, statements relating to our business strategy and development activities as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations), expectations concerning future operations, margins, profitability and competition. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “continue” or the negative of these terms or other comparable terminology. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us. These risks and uncertainties include, but are not limited to: conditions precedent to funding under the agreements governing the disbursement of the proceeds of certain of our debt and equity offerings and borrowings under our credit facilities; competition in the casino/hotel and resort industries; completion of our Wynn Macau casino resort on time and within budget; our intention to fund a substantial portion of the development and construction costs of Encore with anticipated cash flows generated at Wynn Las Vegas; doing business in foreign locations such as Macau (including the risks associated with Macau’s developing gaming regulatory framework); new development and construction activities of competitors; our limited operating history; our dependence on Stephen A. Wynn and existing management; our dependence on one property and, later a limited number of properties, for all of our cash flow; leverage and debt service (including sensitivity to fluctuations in interest rates); levels of travel, leisure and casino spending; general domestic or international economic conditions; pending or future legal proceedings; changes in federal or state tax laws or the administration of such laws; changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions); applications for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations); the impact that an outbreak of an infectious disease, such as avian flu, or the impact of a natural disaster, such as the tsunami which struck southeast Asia in December 2004, may have on the travel and leisure industry; and the consequences of the war in Iraq and other military conflicts in the Middle East and any future security alerts and/or terrorist attacks. Further information on potential factors that could affect our financial condition, results of operations and business are included in this report and our other filings with the Securities and Exchange Commission (“SEC”). You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this report.

Overview

We are a developer, owner and operator of destination casino resorts. We own and operate Wynn Las Vegas, a destination casino resort in Las Vegas, Nevada, which opened on April 28, 2005. We are also constructing Wynn Macau, a destination casino resort in the Macau Special Administrative Region of the People’s Republic of China (“Macau”), which will open in September 2006. In addition, on April 28, 2006, we commenced construction of Encore at Wynn Las Vegas (“Encore”), a hotel and casino resort fully integrated with Wynn Las Vegas. Until the opening of Wynn Las Vegas, we were solely a development stage company.

Wynn Las Vegas

We believe Wynn Las Vegas is the preeminent destination casino resort on the Strip in Las Vegas. Wynn Las Vegas features:

•

An approximately 111,000 square foot casino offering a full range of games, including private baccarat salons, a poker room, and a race and sports book;

•

Luxury hotel accommodations in 2,716 spacious hotel rooms, suites and villas;

•

Casual and fine dining in 18 outlets featuring signature chefs, including the Five Diamond award-winning restaurant, Alex;

•

A Ferrari and Maserati automobile dealership;

•

Approximately 76,000 square feet of high-end, brand-name retail shopping, including stores and boutiques featuring Brioni, Chanel, Dior, Graff, Louis Vuitton, Jean-Paul Gaultier and Manolo Blahnik;

•

Recreation and leisure facilities, including an 18-hole golf course, five swimming pools, private cabanas and full service spa and salon; and

•

Showroom, nightclub and lounge entertainment.

The resort, which is located at the intersection of the Las Vegas Strip and Sands Avenue, occupies approximately 217 acres of land fronting the Strip and utilizes approximately 18 additional acres across Sands Avenue for employee parking.

Since its opening, we have enhanced and refined Wynn Las Vegas in response to market demands and customer preferences. In the second quarter of 2006, we completed the remodeling of the North Fairway Villas, remodeled a portion of the former baccarat area to feature a casino bar, improved public baccarat space and private baccarat salons and opened both a watch store that exclusively offers Rolex products and a mens’ accessories store in the retail esplanade. The Keno lounge is currently being converted into a retail outlet for womens’ accessories and the Broadway Theater, which formerly presented Avenue Q through its last performance on May 28, 2006, is being modified to accommodate “Monty Python’s Spamalot,” winner of the 2005 Tony Award for best musical. We expect to commence performances of “Monty Python’s Spamalot” in the first quarter of 2007. We also expect to continue our remodel efforts, in each case investing in projects designed to maximize the performance of Wynn Las Vegas.

Encore at Wynn Las Vegas

On April 28, 2006, we began construction of Encore on approximately 20 acres on the Las Vegas Strip, immediately adjacent to Wynn Las Vegas. Encore plans currently include a 2,042-room hotel tower fully integrated with Wynn Las Vegas, consisting of 132 suites and 1,910 guest rooms, an approximately 54,000 square foot casino, additional convention and meeting space, as well as restaurants, a nightclub, swimming pools, a spa and salon and retail outlets. Encore is expected to open by the end of 2008.

On March 31, 2006, our lenders approved the $1.74 billion project budget and the related plans and specifications for Encore (the “Encore Budget, Plans and Specs”). The project budget for Encore includes approximately $70.0 million to be incurred for construction of a new employee parking garage on our Koval property, a related pedestrian bridge and costs to be incurred in connection with preparing the Broadway Theater to host “Monty Python’s Spamalot.”

Wynn Macau

We are constructing and will own and operate Wynn Macau, our first destination casino resort in Macau, under a 20-year casino concession agreement granted by the Macau government in June 2002. We are one of only three concessionaires and two sub-concessionaires currently permitted by the government to operate a casino gaming business in Macau. The government of Macau has expressed its desire to transform Macau into

the tourist destination of choice in Asia. The Chinese government has also gradually relaxed its travel and currency restrictions, allowing mainland Chinese from certain urban centers and economically developed areas to visit Macau without joining a tour group, and has increased the amount of currency that Chinese citizens are permitted to bring into Macau. With approximately 100 million people within a three-hour drive and nearly 1 billion people within a three-hour flight from Macau, Wynn Macau is located in what we believe will be one of the largest and fastest-growing gaming markets in the world.

Wynn Macau is being constructed, and will open, in phases. The total budget of Wynn Macau’s two phases is approximately $1.2 billion. The first phase of the project will utilize approximately 11 acres of a total site area of 16 acres of land and includes 600 hotel rooms and suites, approximately 210 table games and 380 slot machines in approximately 100,000 square feet of casino gaming space, and also includes seven restaurants, approximately 26,000 square feet of retail space, a spa, a salon, entertainment lounges and meeting facilities. Entities including Chanel, Louis Vuitton, Prada, Dior, Fendi, Giorgio Armani, Tiffany, Bulgari, and Piaget have entered into agreements with Wynn Macau S.A. to operate retail outlets. Additionally, three food and beverage outlets, two cigar outlets and a beauty salon have also entered into agreements with Wynn Macau S.A.

The first phase will open in September 2006. The second phase will include an additional approximately 135,000 square feet of casino space, one restaurant, retail space, a theater, and a dramatic front feature attraction. The second phase will be built on the remaining five acres of the Wynn Macau site and will be integrated into the first phase of Wynn Macau. The second phase is expected to be completed and opened in stages and to be fully open to the public in the fourth quarter of 2007.

Macau Subconcession Sale

On March 4, 2006, Wynn Macau, S.A. entered into an agreement with Publishing & Broadcasting, Ltd. (“PBL”) pursuant to which Wynn Macau, S.A. agreed to sell to PBL a subconcession to operate casino games in Macau for a purchase price of $900.0 million. The transaction is subject to the approval of the Macau government.

Cotai Strip Development

We have submitted an application to the Macau government for a land concession for an additional 54 acres of land on the Cotai Strip in Macau for future development.

Results of Operations

We offer gaming, hotel accommodations, dining, entertainment, retail shopping, convention services and other amenities at Wynn Las Vegas. In the second quarter of 2006, Wynn Las Vegas generated net revenues and Adjusted EBITDA (as defined below) of $273.4 million and $73.2 million, respectively, compared to net revenues of $201.1 million and Adjusted EBITDA of $58.7 million for the 64 days of operation in the second quarter of 2005. Net revenues and Adjusted EBITDA for the six months ended June 30, 2006 were $550.6 million and $154.3 million, respectively. We opened Wynn Las Vegas on April 28, 2005, consequently, the six months ended June 30, 2005 contained the same 64 days of operations and therefore the same $201.1 million and $58.7 million of net revenues and Adjusted EBITDA as in the second quarter of 2005 discussed above.

We incurred a net loss for the three and six months ended June 30, 2006 of $20.1 million and $31.5, respectively, which represents a $21.7 million (or 52.0%) decrease and $40.2 million (or 56.1%) decrease from the three and six months ended June 30, 2005. During the first quarter of 2005, we were solely a development stage enterprise and pre-opening expenses increased significantly as Wynn Las Vegas approached opening. The second quarter 2005 results reflect 64 days of Wynn Las Vegas operations. In contrast, the three and six month periods ended June 30, 2006 reflect full quarters of Wynn Las Vegas operations. As Wynn Macau nears its scheduled opening in September of 2006 and since construction of Encore has commenced, we expect that our pre-opening expenses in future periods will exceed those incurred in the three and six months ended June 30, 2006. However, we no longer incur pre-opening expenses related to Wynn Las Vegas, which were a significant contributor to the net loss incurred for the three and six months ended June 30, 2005.

We currently rely solely upon the operations of Wynn Las Vegas for our operating cash flow. Concentration of our cash flow in one property exposes us to certain risks that competitors, whose operations are more diversified, may be better able to control. In addition to the concentration of operations in a single property, many of our customers are high-end gaming customers who wager on credit, thus exposing us to increased credit risk. High-end gaming also increases the potential for variability in our results.

We monitor our operations and evaluate our earnings by reviewing the assets and operations of Wynn Las Vegas (including Encore) and Wynn Macau. The following table sets forth our financial results for the three and six months ended June 30, 2006 and 2005 by segment and reconciles Adjusted EBITDA to net loss (amounts in thousands):


	Three Months Ended June 30						Six Months Ended June 30
	2006			2005			2006			2005
				(as restated)						(as restated)
Revenues (1)
Casino	$	113,527		$	98,715		$	240,041		$	98,715
Rooms		69,222			44,632			137,399			44,632
Food and beverage		77,686			48,056			152,320			48,056
Entertainment, retail and other		49,389			34,651			98,346			34,659

Gross revenues		309,824			226,054			628,106			226,062
Less promotional allowances		(36,454	)		(24,934	)		(77,511	)		(24,934	)

Net revenues	$	273,370		$	201,120		$	550,595		$	201,128

Adjusted EBITDA (1, 2)	$	73,162		$	58,735		$	154,285		$	58,735

Other operating costs and expenses
Preopening expenses:
Wynn Las Vegas (including Encore)		(176	)		(36,795	)		(194	)		(65,886	)
Wynn Macau		(16,852	)		(4,124	)		(25,780	)		(6,598	)
Corporate and other		—			(2,446	)		—			(8,985	)
Depreciation and amortization:
Wynn Las Vegas (including Encore)		(37,618	)		(24,057	)		(76,568	)		(25,568	)
Wynn Macau		(2,131	)		(1,469	)		(4,208	)		(2,934	)
Corporate and other		(793	)		(599	)		(1,551	)		(1,117	)
Property charges and other:
Wynn Las Vegas (including Encore)		(2,376	)		(48	)		(7,325	)		(110	)
Wynn Macau		—			—			—			—
Corporate and other		—			—			—			—
Avenue Q contract termination fee		—			—			(5,000	)		—
Corporate expenses and other		(11,533	)		(5,001	)		(22,244	)		(5,001	)

Total		(71,479	)		(74,539	)		(142,870	)		(116,199	)

Operating income (loss)		1,683			(15,804	)		11,415			(57,464	)

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