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 September 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 November 2, 2006
Common stock, $0.01 par value		101,542,972

WYNN RESORTS, LIMITED AND SUBSIDIARIES

INDEX


Part I.	Financial Information

Item 1.	Financial Statements

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

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

	Condensed Consolidated Statements of Cash Flows (unaudited) - Nine months ended September 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	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	54

Part II.	Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 6.	Exhibits	55

Signature		57

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)


	September 30, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	1,402,279		$	434,289
Restricted cash and investments		100,393			98,271
Receivables, net		101,902			88,468
Inventories		60,580			39,884
Deferred income taxes		11,542			—
Prepaid expenses		28,452			23,630

Total current assets		1,705,148			684,542

Restricted cash and investments		223,394			344,331
Property and equipment, net		3,057,030			2,663,870
Intangibles, net		68,749			60,480
Deferred financing costs, net		78,227			95,619
Deposits and other assets		98,949			91,371
Investment in unconsolidated affiliates		5,271			5,070

Total assets	$	5,236,768		$	3,945,283

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	15,801		$	15,489
Current portion of long-term land concession obligation		7,418			8,984
Accounts and construction payable		131,826			79,768
Accrued income taxes		87,023			—
Accrued interest		33,455			15,733
Accrued compensation and benefits		51,798			36,772
Other accrued expenses		46,621			28,374
Customer deposits and other liabilities		121,922			66,120
Construction retention		11,655			18,539

Total current liabilities		507,519			269,779

Long-term debt		2,363,378			2,090,846
Long-term land concession obligation		11,784			19,218
Other long-term liabilities		2,648			1,788
Deferred income taxes		44,856			—
Construction retention		14,089			757

Total liabilities		2,944,274			2,382,388

Commitments and contingencies (Note 14)

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; 101,526,722 and 99,331,294 shares issued and outstanding		1,015			993
Additional paid-in capital		2,003,701			1,972,847
Deferred compensation—restricted stock		—			(15,784	)
Accumulated other comprehensive loss		(1,212	)		—
Retained earnings (accumulated deficit)		288,990			(395,161	)

Total stockholders’ equity		2,292,494			1,562,895

Total liabilities and stockholders’ equity	$	5,236,768		$	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 September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
				(as restated)						(as restated)
Operating revenues:
Casino	$	172,019		$	123,049		$	412,060		$	221,764
Rooms		66,837			61,393			204,236			106,026
Food and beverage		72,091			61,211			224,411			109,266
Entertainment, retail and other		46,300			42,057			144,646			76,716

Gross revenues		357,247			287,710			985,353			513,772
Less: promotional allowances		(39,155	)		(36,269	)		(116,666	)		(61,203	)

Net revenues		318,092			251,441			868,687			452,569

Operating costs and expenses:
Casino		93,480			53,388			214,636			95,668
Rooms		18,259			16,120			53,384			27,900
Food and beverage		47,772			42,477			141,954			76,184
Entertainment, retail and other		31,678			28,699			98,304			48,966
General and administrative		56,195			44,814			152,172			75,827
Provision for doubtful accounts		4,876			2,043			11,452			10,642
Pre-opening costs		36,820			7,147			62,794			88,616
Depreciation and amortization		42,470			37,886			124,797			67,505
Contract termination fee		—			—			5,000			—
Property charges and other		5,739			6,052			13,064			6,161

Total operating costs and expenses		337,289			238,626			877,557			497,469

Equity in income from unconsolidated affiliates		488			463			1,574			714

Operating income (loss)		(18,709	)		13,278			(7,296	)		(44,186	)

Other income (expense):
Interest and other income		11,837			7,467			29,885			20,632
Interest expense		(36,969	)		(36,138	)		(108,218	)		(65,430	)
Increase (decrease) in swap fair value		(8,757	)		6,146			1,835			8,033
Gain on sale of subconcession right, net		899,409			—			899,409			—
Loss on extinguishment of debt		(10,758	)		—			(10,758	)		—

Other income (expense), net		854,762			(22,525	)		812,153			(36,765	)

Income (loss) before income taxes		836,053			(9,247	)		804,857			(80,951	)
Provision for income taxes		120,397			—			120,706			—

Net income (loss)	$	715,656		$	(9,247	)	$	684,151		$	(80,951	)

Basic and diluted income (loss) per common share:
Net income (loss):
Basic	$	7.12		$	(0.09	)	$	6.86		$	(0.82	)
Diluted	$	6.43		$	(0.09	)	$	6.22		$	(0.82	)
Weighted average common shares outstanding:
Basic		100,480			98,472			99,688			98,245
Diluted		111,702			98,472			111,083			98,245

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)


	Nine Months Ended September 30,
	2006			2005
				(as restated)
Cash flows from operating activities:
Net income (loss)	$	684,151		$	(80,951	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		124,797			67,505
Deferred income taxes		33,314			—
Stock-based compensation		14,057			3,665
Amortization and writeoff of deferred financing costs		16,147			6,337
Provision for doubtful accounts		11,452			10,642
Property charges and other		13,064			6,161
Equity in income of unsoncolidated affiliates		(201	)		(714	)
Increase in swap fair value		(1,835	)		(8,033	)
Gain on sale of subconcession right		(899,409	)		—
Loss on extinguishment of debt		10,758			—
Increase (decrease) in cash from changes in:
Receivables		(24,886	)		(65,870	)
Inventories and prepaid expenses		(16,683	)		(49,574	)
Accounts payable and accrued expenses		205,436			123,513

Net cash provided by operating activities		170,162			12,681

Cash flows from investing activities:
Capital expenditures		(456,741	)		(737,845	)
Restricted cash and investments		118,815			505,350
Investment in unconsolidated affiliates		—			(3,500	)
Purchase of intangibles and other assets		(61,947	)		(23,533	)
Proceeds from sale of assets		—			109
Proceeds from sale of subconcession right, net		899,409			—

Net cash provided by (used in) investing activities		499,536			(259,419	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		5,954			1,772
Proceeds from the issuance of long-term debt		713,615			517,186
Proceeds from termination of interest rate swap		6,605			—
Principal payments on long-term debt		(414,310	)		(19,534	)
Payments on long-term land concession obligation		(9,000	)		(8,921	)
Payment for deferred financing costs		(4,572	)		(21,146	)

Net cash provided by financing activities		298,292			469,357

Cash and cash equivalents:
Increase in cash and cash equivalents		967,990			222,619
Balance, beginning of period		434,289			330,261

Balance, end of period	$	1,402,279		$	552,880

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

Organization

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 currently owns and operates two casino hotel resort properties, Wynn Las Vegas, which opened on April 28, 2005 and Wynn Macau, which opened on September 6, 2006. In addition, the Company is constructing “Encore at Wynn Las Vegas” or “Encore” and continues development of the second phase of Wynn Macau. Encore will be fully integrated with Wynn Las Vegas and is being constructed on 20 acres of land immediately adjacent to Wynn Las Vegas. Encore is expected to open to the public in early 2009. The second phase of Wynn Macau will be integrated into the first phase and is being constructed on the five remaining acres of the 16 acres of land for Wynn Macau. Wynn Macau’s second phase is scheduled to open in stages commencing in February 2007 and to be completed in the fourth quarter of 2007.

Basis of Presentation

Prior to the opening of Wynn Las Vegas on 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 majority-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 nine months ended September 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.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

2. Summary of Significant Accounting Policies

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 casino customers following investigations of creditworthiness. At September 30, 2006 and December 31, 2005, approximately 58% and 70%, respectively, of the Company’s markers were due from customers residing outside the United States. 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, and certain operating supplies. 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, certain commissions 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 nine months ended September 30, 2006 and 2005 is primarily included in casino expenses as follows (amounts in thousands):


	September 30, 2006				September 30, 2005
	3 months		9 months		3 months		9 months
Rooms	$	7,019	$	19,063	$	6,504	$	10,654
Food & Beverage		13,918		43,150		13,370		23,351
Entertainment, retail and other		2,216		6,972		3,871		6,129

Total	$	23,153	$	69,185	$	23,745	$	40,134

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Advertising Costs

The Company expenses advertising costs the first time the advertising runs. For the three and nine months ended September 30, 2006, advertising costs totaled approximately $4.2 million and $15.8 million, respectively. Advertising costs for the three and nine months ended September 30, 2005 were approximately $3.2 million and $14.2 million, respectively.

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 cost 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 FASB issued Interpretation No. 48 (“FIN 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 adoption of this statement is effective January 1, 2007. The Company is currently evaluating FIN 48 and has not yet determined the impact the adoption will have on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact this statement will have on its consolidated financial statements after it is adopted on January 1, 2008.

In September 2006, the FASB issued SFAS No 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. This statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability on the balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company is required to initially recognize the funded status of a defined benefit postretirement plan and to

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

provide the required disclosures as of December 31, 2006. Since the Company does not sponsor any defined benefit postretirment plans, this statement is not expected to have a material impact on the Company’s financial position or results of operations.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”). SAB 108 requires companies to evaluate the materiality of identified unadjusted errors on each financial statement and related financial statement disclosure using both the rollover approach and the iron curtain approach. The rollover approach quantifies misstatements based on the amount of the error in the current year financial statement whereas the iron curtain approach quantifies misstatements based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatement’s year(s) of origin. Financial statements would require adjustment when either approach results in quantifying a misstatement that is material. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. SAB 108 is effective for interim periods of the first fiscal year ending after November 15, 2006. The company is currently evaluating what effect, if any, adoption of SAB 108 will have on the company’s consolidated results of operations and financial position.

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, which for the Company include: stock options, nonvested stock, and the 6% Convertible Subordinated Debentures due 2015 (the “Debentures”).

The weighted average number of common and common equivalent shares used in the calculation of basic and diluted EPS for the three and nine months ended September 30, 2006 consisted of the following (amounts in thousands):


	September 30, 2006
	3 months	9 months
Weighted average common shares outstanding (used in calculation of basic earnings per share)	100,480	99,688
Potential dilution from the assumed exercise of stock options, unvested restricted stock, and Convertible Debentures	11,222	11,395

Weighted average common and common equivalent shares outstanding (used in calculation of diluted earnings per share)	111,702	111,083

The calculation of diluted EPS for the three and nine months ended September 30, 2006 also includes an addition to net income to reflect the interest expense, net of related tax effects that would not be incurred on the Debentures, if converted, of $2.3 million and $7.1 million, respectively.

For the three and nine months ended September 30, 2005, the Company incurred net losses. As a result, basic EPS is equal to diluted EPS for those periods. The calculation of diluted EPS at September 30, 2005 excludes the following anti-dilutive securities: 3,208,550 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.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2006 consisted of the following (amounts in thousands):


	September 30, 2006
	3 months			9 months
Net income	$	715,656		$	684,151
Currency translation adjustment		(983	)		(1,212	)

Comprehensive income	$	714,673		$	682,939

For the three and nine months ended September 30, 2005, 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 nine months ended September 30, 2006 and 2005 totaled approximately $103.0 million and $81.1 million, respectively. Interest capitalized for the nine months ended September 30, 2006 and 2005 totaled approximately $23.7 million and $44.6 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 nine months ended September 30, 2006 and 2005 totaled approximately $1.2 million and $1.6 million, respectively.

During the nine months ended September 30, 2006, approximately $25.8 million principal amount of the Debentures were converted into 1,123,428 shares of the common stock of Wynn Resorts, Limited. Accordingly, long-term debt was reduced by approximately $25.8 million, equity was increased by approximately $25.5 million and deferred financing costs were reduced by approximately $357,000.

During the nine months ended September 30, 2006, approximately $48.0 million of increases in construction payables and retention were included as a reduction to capital expenditures. During the nine months ended September 30, 2005, capital expenditures include approximately $57.5 million 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, including household services, construction work and other personal services. Mr. Wynn and these other officers have amounts on deposit with the Company to prepay any such items, which are replenished on an ongoing basis as needed. At September 30, 2006 and December 31, 2005, the Company owed Mr. Wynn and the other officers approximately $361,000 and $412,000, respectively.

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.

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Rent is determined 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 determined the rent for each year in the three-year period commencing July 1, 2005 and ending June 30, 2008 to be $580,000. All services for, and maintenance of, the suite are included in the rental, with certain exceptions.

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.

7. Receivables, net

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


	September 30, 2006			December 31, 2005
Casino	$	106,286		$	83,936
Hotel		12,652			12,660
Other		8,917			7,684

		127,855			104,280
Less: allowance for doubtful accounts		(25,953	)		(15,812	)

	$	101,902		$	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):


	September 30, 2006			December 31, 2005
Land and improvements	$	602,592		$	599,278
Buildings and improvements		1,555,576			1,159,364
Airplanes		57,582			57,582
Furniture, fixtures and equipment		772,286			594,474
Leasehold interest in land		67,067			67,118
Construction in progress		212,327			286,570

		3,267,430			2,764,386
Less: accumulated depreciation		(210,400	)		(100,516	)

	$	3,057,030		$	2,663,870

As of December 31, 2005, construction in progress includes interest and other costs capitalized in conjunction with the Wynn Macau and Encore projects. On September 6, 2006, Wynn Macau opened to the public. Accordingly, amounts relating to the first phase of Wynn Macau were transferred to the appropriate property and equipment categories and capitalization of interest on the first phase ceased. As of September 30, 2006, construction in progress includes interest and other costs capitalized in conjunction with the second phase of Wynn Macau and Encore.

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9. Long-Term Debt

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


	September 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		224,161			250,000
$600.0 million Revolving Credit Facility; due December 14, 2009; interest at LIBOR plus 2.25% (approximately 6.7%)		—			10,000
$400.0 million Delay Draw Term Loan Facility; due December 14, 2011 interest at LIBOR plus 2.125% (approximately 6.5%)		—			400,000
$900.0 million Revolving Credit Facility; due August 15, 2011; interest at LIBOR plus 1.625% (approximately 7.0%)		88,629			—
$225.0 million Term Loan Facility; $112.5 million due September 30, 2012 with remaining $112.5 million due August 15, 2013; interest at LIBOR plus 1.875% (approximately 7.2%)		225,000			—
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 substantial completion of Wynn Macau (approximately 7.8% and 7.3%)		478,240			78,944
$44.75 million note payable; due March 31, 2010; interest at LIBOR plus 2.375% (approximately 7.2% and 6.9%)		39,792			43,536
Note payable - Aircraft; interest at 5.67%		13,456			13,986
12% Second Mortgage Notes, net of original issue discount of approximately $372 and $440, respectively due November 1, 2010; effective interest at approximately 12.9%		9,770			9,702
Other		131			167

		2,379,179			2,106,335
Current portion of long-term debt		(15,801	)		(15,489	)

	$	2,363,378		$	2,090,846

Wynn Las Vegas Credit Facilities

On August 15, 2006 the Company refinanced its $600.0 million Revolving Credit Facility (the “Revolver”) and its $400 million Delay Draw Term Loan Facility (the “Term Loans”) (together, the “Wynn Las Vegas Credit Facilities”).

On August 15, 2006, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which, among other things, (i) increased the Wynn Las Vegas Credit Facilities from $1.0 billion to $1.125 billion by increasing the Revolver from $600.0 million to $900.0 million and reducing the Term Loans from $400.0 million to $225.0 million; (ii) reduced the borrowing margins on London Interbank Offered Rate (“LIBOR”)-based Revolver and Term Loans by 0.625% and 0.250%, respectively; (iii) extended the maturity dates for the Revolver and the Term Loans to August 15, 2011 and August 15, 2013, respectively; and (iv) reduced the consolidated interest coverage ratio requirement for quarterly periods on or prior to December 31, 2007 to 2:1. The Amended and Restated Credit Agreement also: (i) reduced the range of the Revolver’s annual LIBOR borrowing margin after the opening of Encore from a range of 1.25% to 2.50% to a range of 1.00% to 1.75%, depending on the Company’s leverage ratio; and (ii) simplified the procedures for and conditions to

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obtaining advances under, and reduced the reporting obligations under, the Amended and Restated Credit Agreement upon the satisfaction of certain conditions, including fully utilizing all previously funded amounts under the 6⁵/8% First Mortgage Notes due 2014 (the “First Mortgage Notes) for payment of Encore project costs.

In accordance with Emerging Issues Task Force issue 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments,” (“EITF 96-19”) the Company recorded a loss on extinguishment of debt for the three and nine months ended September 30, 2006 of approximately $10.8 million to reflect the write-off of the previous Term Loan’s unamortized deferred financing costs and the payment of certain third-party bank fees incurred during the refinancing.

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 Wynn Macau’s second phase, 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 September 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 floating-for-fixed interest rate swap arrangements relating to several of its debt facilities. The Company accounts for its 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. The following table represents the historical asset (liability) fair values (reflected in deposits and other assets or in other long-term liabilities as appropriate) as of September 30, 2006 and December 31, 2005. The fair value approximates the amount the Company would receive if these contracts were settled at the respective valuation dates. Fair value is estimated based upon current, and predictions of future, interest rate 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.


Asset / (Liability) Fair Value at:	Wynn Las Vegas Interest Rate Swaps		Wynn Macau Interest Rate Swaps			All Interest Rate Swaps
September 30,2006	$	5,023	$	(1,063	)	$	3,960
December 31, 2005	$	10,523	$	(1,788	)	$	8,735

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Wynn Las Vegas Swaps

On December 14, 2004, the Company entered into two $200.0 million notional amount interest rate swap arrangements to fix the interest rate on the $400.0 million of floating-rate Term Loan borrowings outstanding prior to the August 15, 2006 refinancing of the Wynn Las Vegas Credit Facilities (See Note 9 Long-term Debt). Under these arrangements, the Company paid 3.793% of the notional amount and received payments equal to 1-month LIBOR multiplied by the notional amount. Although these interest rate swaps essentially fixed the interest rate at approximately 5.9%, changes in the fair value of the interest rate swaps for each reporting period were recorded in the increase (or decrease) in swap fair value as a component of other income (expense), net since the interest rate swaps did not qualify for hedge accounting.

On August 15, 2006, the Company reduced its Term Loan facility as part of the refinancing of the Wynn Las Vegas Credit Facilities, and concurrently terminated one of its two $200.0 million interest rate swap arrangements. The Company received approximately $6.6 million in cash from unwinding this interest rate swap. The Company elected to retain the second $200.0 million interest rate swap to essentially fix the interest rate on $200.0 million of the new $225.0 million of Term Loan borrowings. Because the Company continues to pay a fixed rate of 3.793% on the $200.0 million notional amount and receives payments based on LIBOR, the interest rate on $200.0 million of the new $225.0 million Term Loan is fixed at approximately 5.668%. The interest rate on the remaining $25.0 million of Term Loan is subject to the changes in the LIBOR rates over time.

Wynn Macau Swaps

On October 14, 2005, the Company entered into two interest rate swaps to hedge a portion of the underlying interest rate risk on future borrowings under Wynn Macau S.A.’s $749 million senior term loan facility. Under the first swap agreement, the Company pays a fixed interest rate of 4.84% on borrowings estimated to be incurred under the senior term loan facility up to a maximum of approximately $198.2 million, in exchange for receipts on the same amounts at a variable interest rate based on the applicable LIBOR at the time of payment. Under the second swap agreement, the Company pays a fixed interest rate of 4.77% on borrowings estimated to be incurred under the senior term loan facility up to a maximum of approximately HK$1.1 billion (approximately US$140.3 million), in exchange for receipts on the same amounts at a variable interest rate based on the applicable Hong Kong Interbank Offered Rate (“HIBOR”) at the time of payment. The term of both swap agreements is from November 28, 2005 through November 28, 2008.

These interest rate swaps are expected to be highly effective in fixing the interest rate on 50% of the US dollar and 50% of the Hong Kong dollar borrowings under the senior bank facility at approximately 7.84% and 7.77%, respectively. However, because these swaps do not qualify for hedge accounting, changes in fair value of these interest rate swaps for each reporting period are recognized as a component of other income (expense), net.

11. Share-Based Compensation

The Company established the 2002 Stock Incentive Plan (the “Stock Plan”) to provide for the grant of (i) incentive stock options, (ii) compensatory (i.e. nonqualified) stock options, and (iii) nonvested shares of the common stock of Wynn Resorts, Limited (“Common Stock”). Employees, directors (whether employee or nonemployee) and independent contractors or consultants of the Company are eligible to participate in the Stock Plan. However, only employees of Wynn Resorts, Limited 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 September 30, 2006, 3,920,712 shares remain available for the grant of stock options or nonvested shares of Common Stock.

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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 September 30, 2006, and the changes during the nine 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	153,500		$	68.81
Exercised	(270,000	)	$	22.05
Canceled	(149,800	)	$	39.36

Outstanding at September 30, 2006	3,218,500		$	39.22	7.77	$	93,459,008

Exercisable at September 30, 2006.	1,141,000		$	23.15	6.86	$	51,264,308

The weighted average fair value of options granted during the nine months ended September 30, 2006 and 2005 was $31.01 and $22.91, respectively. The total intrinsic value of the options exercised for the nine months ended September 30, 2006 and 2005 was $13.1 million and $2.7 million, respectively. Net cash proceeds from the exercise of stock options were $6.0 million and $1.3 million for the nine months ended September 30, 2006 and 2005, respectively. No tax benefits were recognized since these benefits did not reduce taxes payable.

Nonvested Shares

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


	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2006	789,169		$	28.35
Granted	802,000		$	64.04
Vested	(569,169	)	$	13.25
Canceled	—		$	—

Nonvested at September 30, 2006	1,022,000		$	64.76

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

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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. Since the adoption of SFAS No. 123(R), the Company uses the simplified method prescribed by SAB No. 107 for companies with a limited trading history, to estimate the 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.

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


	September 30, 2006				September 30, 2005
	3 months		9 months		3 months		9 months
Expected dividend yield	—		—		—		—
Expected stock price volatility	35.9	%	32.5	%	35.3	%	35.3	%
Risk-free interest rate	4.6	%	4.9	%	4.2	%	3.9	%
Expected average life of options (years)	7.0		7.0		6.5		5.7

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. It also resulted in the recognition of approximately $3.0 million ($0.03 per share) and $9.0 million ($0.09 per share) of compensation cost related to stock options for the three and nine months ended September 30, 2006.

In addition to compensation cost relating to stock options, during the three and nine months ended September 30, 2006, the Company recognized compensation cost related to nonvested shares of Common Stock of approximately $3.4 million ($0.03 per share) and $6.2 million ($0.06 per share), respectively. Approximately $60.9 million of unamortized compensation cost relating to nonvested shares of Common Stock at September 30, 2006, will be recognized as compensation over the vesting period of the related grants through May 2016.

The total compensation cost relating both to stock options and nonvested stock for the three and nine months ended September 30, 2006 is allocated as follows (amounts in thousands):


	September 30, 2006
	3 months		9 months
Casino	$	964	$	2,268
Rooms		175		475
Food & Beverage		315		854
Entertainment, retail and other		93		231
General and administrative		3,217		7,811
Pre-opening		1,468		2,418

Total stock-based compensation expense		6,232		14,057
Total stock-based compensation capitalized		128		1,167

Total stock based compensation costs	$	6,360	$	15,224

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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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 nine months ended September 30, 2005. Accordingly, compensation expense was recognized only to the extent that the market value at the date of grant exceeded the exercise price.

During the three and nine months ended September 30, 2005, the Company recognized compensation cost related to the nonvested shares of Common Stock of approximately $1.5 million ($0.02 per share) and $5.3 million ($0.05 per share), respectively. Of these amounts, approximately $539,000 and $1.6 million, respectively, was capitalized to construction in progress.

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 nine months ended September 30, 2005 (amounts in thousands):


	September 30, 2005
	3 months			9 months
Net loss as restated	$	(9,247	)	$	(80,951	)
Less: total stock-based employee compensation expenses determined under the fair value method for all awards		(2,683	)		(6,681	)

Pro forma net loss	$	(11,930	)	$	(87,632	)

Basic and diluted loss per share:
As reported	$	(0.09	)	$	(0.82	)

Pro forma	$	(0.12	)	$	(0.89	)

12. Sale of Macau Subconcession Right

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 for $900.0 million, the right to negotiate with the government of Macau for a subconcession to allow PBL to construct and operate casinos in Macau.

On September 8, 2006, the government of Macau approved the sale of the subconcession right. Accordingly, on September 11, 2006, Wynn Macau, S.A. completed the sale to PBL and received a cash payment of $900.0 million. As a result of the sale and the subconcession awarded to PBL by the government of Macau, Wynn Macau, S.A. has no rights or obligations with respect to the subconcession. The proceeds from this sale, net of related costs, are recorded as gain on sale of subconcession right in the Company’s statement of operations for the three and nine months ended September 30, 2006.

13. Income Taxes

The Company is subject to income taxes in the United States and other foreign jurisdictions where the Company operates. The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, and liabilities for the estimated future tax consequences attributable to differences between financial

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statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the income tax provision and deferred tax assets and liabilities is recognized in the results of operations in the period that includes the enactment date.

The Company’s income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on the criteria of SFAS No. 5, “Accounting for Contingencies”. Quarterly, the Company reviews any potentially unfavorable tax outcome and when an unfavorable outcome is identified as probable and can be reasonably estimated, the Company then establishes a tax reserve for such possible unfavorable outcome. Estimating potential tax outcomes for any uncertain tax issue is highly judgmental and may not be indicative of the ultimate settlement with the tax authorities. The Company believes that it has adequately provided reasonable reserves for reasonable and foreseeable outcomes related to uncertain tax matters.

SFAS 109 requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied. During its development stage, the Company accumulated significant net operating losses, which generated significant deferred tax assets. Because of the Company’s limited operating history, the Company had previously fully reserved these net deferred tax assets. On September 11, 2006, the Company recorded a gain on the sale of the subconcession right in Macau (See Note 12 “Sale of Macau Subconcession Right”). Accordingly the Company determined that a substantial portion of these net deferred tax assets have become more likely than not realizable as defined by SFAS 109. Consequently, the Company reduced the valuation allowance on its U.S. and foreign net deferred tax assets by approximately $90.3 million and $14.3 million, respectively.

Effective September 6, 2006, Wynn Macau, S.A. received a 5-year exemption from Macau’s 12% Complementary Tax on casino gaming profits. Accordingly, the Company was exempted from the payment of approximately $500,000 in such taxes. The Company’s non-gaming profits remain subject to the Macau Complementary Tax and its casino winnings remain subject to the Macau Special Gaming tax and other levies in accordance with its concession agreement.

The Company’s provision for income taxes for the three and nine months ended September 30, 2006 are as follows (amounts in thousands):


	September 30, 2006
	3 months		9 months
Current - Federal	$	—	$	—
Deferred - Federal		33,314		33,314

Provision for federal income taxes		33,314		33,314


Current - Foreign		87,083		87,392
Deferred - Foreign		—		—

Provision for deferred income taxes		87,083		87,392

Provision for income taxes	$	120,397	$	120,706

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Substantially all of the above amounts relate to the gain on the sale of the subconcession right. There were no comparable charges for the three and nine months ended September 30, 2005. Included in the above table are taxes of $60,000 and $369,000 the Company recorded for the three and nine months ended September 30, 2006, respectively, relating to the Company’s international marketing branch offices.

14. Commitments and Contingencies

Wynn Las Vegas

Wynn Las Vegas Enhancements. The Company continues 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 Credit Facilities, the Company is permitted up to $100.0 million of Wynn Las Vegas, LLC’s cash on capital expenditures in 2006, of which approximately $47.9 million was spent during the first nine months of 2006.

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. In connection with Avenue Q, the Company was a party to a production services agreement for all production services related to the show.

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 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.”

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

Encore Construction and Development. On March 31, 2006, Wynn Las Vegas, LLC’s lenders approved a $1.74 billion project budget and the related plans and specifications for Encore (the “Encore Budget, Plans and Specs”). The Company continues to refine the design of Encore and is evaluating certain enhancements, which may increase the project budget. In addition, we are negotiating the guaranteed maximum price contract for Encore (the “Encore GMP”). Any increase to the Encore budget would be funded by contributions of debt and/or equity from Wynn Resorts. Encore’s current design includes a 2,042-room hotel tower fully integrated with Wynn Las Vegas, consisting of 132 suites and 1,910 guest rooms, as well as an approximately 54,000 square foot

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(Unaudited)

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 and Specs include approximately $70.0 million to be incurred for an additional employee parking garage located on the Company’s Koval property across Sands Avenue from Wynn Las Vegas, 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 early 2009.

On March 31, 2006, Wynn Resorts delivered an equity commitment agreement to the lenders under the Wynn Las Vegas Credit Facilities. Under that agreement, Wynn Resorts had committed to pay up to $215.3 million of Encore project costs if the Company was unable to do so. The Amended and Restated Credit Agreement (See Note 9 “Long-term Debt”) increased the aggregate amount available under the Wynn Las Vegas Credit Facilities from $1.0 billion to $1.125 billion. As a result of this increase and with other funds becoming available to pay for Encore project costs, Wynn Resorts’ maximum commitment to pay Encore project costs was reduced from $215.3 million to $70.0 million.

Through September 30, 2006, the Company incurred approximately $200.7 million of the Encore project costs. These costs, net of approximately $6.4 million of retention, have been funded from the Wynn Las Vegas Credit Facilities, the First Mortgage Notes and cash flow from the operations of Wynn Las Vegas. Prior to signing a guaranteed maximum price construction contract, the Company is permitted to spend up to $300.0 million of the proceeds of the First Mortgage Notes and the Wynn Las Vegas Credit Facilities on Encore project costs. As of September 30, 2006, the Company has spent approximately $155.9 million using the debt proceeds. The remaining $38.4 million has been funded from cash flows from operations. The Company expects that the remaining proceeds from the First Mortgage Notes, together with availability under the Wynn Las Vegas Credit Facilities, cash flow from operations and the equity commitment from Wynn Resorts will be sufficient to fund Encore’s $1.74 billion budget.

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 the Company’s 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. Upon final payment of the small remaining retention required for final completion, the liquidity reserve will be released. These funds are then expected to be applied to construction costs incurred in connection with Encore. In addition, at final completion of Wynn Las Vegas, $30.0 million of the $50.0 million completion guarantee will be retained as Encore’s completion guarantee, with the remaining $20.0 million used for Encore’s construction costs.

Wynn Macau

Construction and Development. We began construction on Wynn Macau 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

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Construction Contract was amended and restated to include the second phase of Wynn Macau. Wynn Macau opened to the public on September 6, 2006. Wynn Macau’s second phase is scheduled to open in stages in 2007, commencing in February with approximately 119 table games and 300 slot machines.

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. 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 increased the guaranteed maximum price under the Construction Contract from $457 million to approximately $483 million.

Through September 30, 2006, the Company had incurred approximately $816 million of the approximate total $1.2 billion of budgeted project costs for Wynn Macau. 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 paid from the previously funded $230 million intercompany 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 cash flows from operations. In October 2006, Wynn Macau, S.A. repaid the intercompany loan to Wynn Resorts using proceeds from the PBL transaction.

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 five payments to the Macau government under the land concession contract and is required to make six 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.

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 seven 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 a joint venture agreement for the operation of one other retail outlet and the Ferrari

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

and Maserati automobile dealership at Wynn Las Vegas. Each of these retail outlets opened concurrently with the opening of Wynn Las Vegas. Wynn Macau has entered into fifteen lease agreements for 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 September 30, 2006.

15. 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’s first phase opened on September 6, 2006. The Company’s total assets by segment are as follows (in thousands):


	September 30, 2006		December 31, 2005
Total assets
Wynn Las Vegas (including Encore)	$	3,020,409	$	3,115,814
Wynn Macau		1,835,102		471,571
Corporate and other assets		381,257		357,898

Total consolidated assets	$	5,236,768	$	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 nine months ended September 30, 2006 and 2005, are as follows (in thousands):


	Three Months Ended September 30						Nine Months Ended September 30
	2006			2005			2006			2005
				(as restated)						(as restated)
Net Revenues
Wynn Las Vegas	$	273,062		$	251,441		$	823,657		$	452,569
Wynn Macau (1)		45,030			—			45,030			—

Total Net revenues	$	318,092		$	251,441		$	868,687		$	452,569

Adjusted EBITDA (2)
Wynn Las Vegas	$	77,282		$	73,205		$	231,567		$	131,940
Wynn Macau (1)		2,293			—			2,293			—

Total Adjusted EBITDA	$	79,575		$	73,205		$	233,860		$	131,940


Other operating costs and expenses:
Pre-opening expenses		(36,820	)		(7,147	)		(62,794	)		(88,616	)
Depreciation and amortization		(42,470	)		(37,886	)		(124,797	)		(67,505	)
Avenue Q contract termination fee		—			—			(5,000	)		—
Property charges and other		(5,739	)		(6,052	)		(13,064	)		(6,161	)
Corporate expenses and other		(13,255	)		(8,842	)		(35,501	)		(13,844	)

Total other operating costs and expenses		(98,284	)		(59,927	)		(241,156	)		(176,126	)

Operating income (loss)		(18,709	)		13,278			(7,296	)		(44,186	)

Other non operating costs and expenses:
Interest and other income		11,837			7,467			29,885			20,632
Interest expense		(36,969	)		(36,138	)		(108,218	)		(65,430	)
Increase (decrease) in swap fair value		(8,757	)		6,146			1,835			8,033
Gain on sale of subconcession right, net		899,409			—			899,409			—
Loss on extinguishment of debt		(10,758	)		—			(10,758	)		—

Total other non operating costs and expenses		854,762			(22,525	)		812,153			(36,765	)

Income before provision for income taxes		836,053			(9,247	)		804,857			(80,951	)
Provision for income taxes		(120,397	)		—			(120,706	)		—

Net Income (loss)	$	715,656		$	(9,247	)	$	684,151		$	(80,951	)

(1)	Prior to its opening on September 6, 2006, Wynn Macau was in the development stage. Therefore, Wynn Macau has no revenues or Adjusted EBITDA for the three and nine months ended September 30, 2005.

(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 disclosure because management believes that it is widely used to measure the performance, and as a basis for valuation, of gaming companies. Management uses Adjusted EBITDA as a measure of the operating performance of its segments and to compare the operating performance of its properties with those of its competitors. The Company also presents Adjusted EBITDA because it is used by some investors as a way to

WYNN RESORTS, LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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.

16. Restatement

Subsequent to the issuance of the Company’s condensed consolidated financial statements for the three and nine months ended September 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 SFAS 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 nine months ended September 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 September 30, 2005 condensed consolidated financial statements is as follows (amounts in thousands except per share data):


	For the Three Months Ended September 30, 2005						For the Nine Months Ended September 30, 2005
	As Previously Reported			As Restated			As Previously Reported			As Restated
Condensed Consolidated Statement of Operations:
Increase in swap fair value	$	—		$	6,146		$	—		$	8,033
Interest expense	$	(34,935	)	$	(36,138	)	$	(63,425	)	$	(65,430	)
Other income (expense), net	$	(27,468	)	$	(22,525	)	$	(42,793	)	$	(36,765	)
Net loss	$	(14,190	)	$	(9,247	)	$	(86,979	)	$	(80,951	)
Basic and diluted loss per share	$	(0.14	)	$	(0.09	)	$	(0.89	)	$	(0.82	)

Condensed Consolidated Statement of Cash Flows:
Net loss		n/a			n/a		$	(86,979	)	$	(80,951	)
Increase in swap fair value		n/a			n/a		$	—		$	(8,033	)
Capital expenditures		n/a			n/a		$	(739,850	)	$	(737,845	)

17. Subsequent Events

On November 1, 2006, the Company redeemed the approximately $10.1 million of 12% Second Mortgage Notes due 2010 (the “Second Mortgage Notes”) that remained outstanding. Funds to repay the Second Mortgage Notes and interest had been placed in an escrow account in December 2004, specifically for this purpose.

18. 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 September 30, 2006 and December 31, 2005, and for the three and nine months ended September 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 SEPTEMBER 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor		Non-guarantor Subsidiaries			Eliminating Entries			Total
ASSETS
Current assets:
Cash and cash equivalents	$	292,347		$	—	$	1,109,932		$	—		$	1,402,279
Restricted cash and investments		—			905		99,488			—			100,393
Receivables, net		—			—		101,902			—			101,902
Inventories		—			—		60,580			—			60,580
Deferred income taxes		11,542			—		—			—			11,542
Prepaid expenses		142			—		28,310			—			28,452

Total current assets		304,031			905		1,400,212			—			1,705,148

Restricted cash and investments		1,263			—		222,131			—			223,394
Property and equipment, net		599			—		3,056,431			—			3,057,030
Intangibles, net		—			—		68,749			—			68,749
Deferred financing costs, net		5,744			—		72,483			—			78,227
Deposits and other assets		13,912			—		85,037			—			98,949
Investment in unconsolidated affiliates		2,008,348			—		5,271			(2,008,348	)		5,271
Intercompany balances		240,657			44,237		(284,894	)		—			—

Total assets	$	2,574,554		$	45,142	$	4,625,420		$	(2,008,348	)	$	5,236,768

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	—	$	15,801		$	—		$	15,801
Current portion of long term land concession obligation		—			—		7,418			—			7,418
Accounts and construction payable		—			—		131,826			—			131,826
Accrued income taxes		—			—		87,023			—			87,023
Accrued interest		2,787			—		30,668			—			33,455
Accrued compensation and benefits		9,586			—		42,212			—			51,798
Other accrued expenses		670			—		45,951			—			46,621
Customer deposits and other liabilities		—			—		121,922			—			121,922
Construction retention		—			—		11,655			—			11,655

Total current liabilities		13,043			—		494,476			—			507,519

Long-term debt		224,161			—		2,139,217			—			2,363,378
Long-term land concession obligation		—			—		11,784			—			11,784
Other long-term liabilities		—			—		2,648			—			2,648
Deferred income taxes		44,856			—		—			—			44,856
Construction retention		—			—		14,089			—			14,089

Total liabilities		282,060			—		2,662,214			—			2,944,274

Commitments and contingencies

Stockholders’ equity:
Preferred stock		—			—		—			—			—
Common stock		1,015			—		—			—			1,015
Additional paid-in capital		2,003,701			44,028		1,631,819			(1,675,847	)		2,003,701
Accumulated other comprehensive income (loss)		(1,212	)		—		(1,212	)		1,212			(1,212	)
Retained earnings (accumulated deficit)		288,990			1,114		332,599			(333,713	)		288,990

Total stockholders’ equity		2,292,494			45,142		1,963,206			(2,008,348	)		2,292,494

Total liabilities and stockholders’ equity	$	2,574,554		$	45,142	$	4,625,420		$	(2,008,348	)	$	5,236,768

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

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
Construction retention		—			—		757			—			757

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	)
Accumulated other comprehensive income (loss)		—			—		—			—			—
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 SEPTEMBER 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor		Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—	$	172,019		$	—		$	172,019
Rooms		—			—		66,837			—			66,837
Food and beverage		—			—		72,091			—			72,091
Entertainment, retail and other		5,687			—		46,300			(5,687	)		46,300

Gross revenues		5,687			—		357,247			(5,687	)		357,247
Less: promotional allowances		—			—		(39,155	)		—			(39,155	)

Net revenues		5,687			—		318,092			(5,687	)		318,092

Operating costs and expenses:
Casino		—			—		93,480			—			93,480
Rooms		—			—		18,259			—			18,259
Food and beverage		—			—		47,772			—			47,772
Entertainment, retail and other		—			—		31,678			—			31,678
General and administrative		3,570			—		58,312			(5,687	)		56,195
Provision for doubtful accounts		(9	)		—		4,885			—			4,876
Pre-opening costs		—			—		36,820			—			36,820
Depreciation and amortization		19			—		42,451			—			42,470
Contract Termination Fee		—			—		—			—			—
Property charges and other		—			—		5,739			—			5,739

Total operating costs and expenses		3,580			—		339,396			(5,687	)		337,289
Equity in income (loss) from unconsolidated affiliates		742,609			—		488			(742,609	)		488

Operating income (loss)		744,716			—		(20,816	)		(742,609	)		(18,709	)

Other income (expense):
Interest and other income		9,285			55		9,109			(6,612	)		11,837
Interest expense		(5,031	)		—		(38,550	)		6,612			(36,969	)
Increase (decrease) in swap fair value		—			—		(8,757	)		—			(8,757	)
Gain on sale of subconcession right, net		—			—		899,409			—			899,409
Loss on extinguishment of debt		—			—		(10,758	)		—			(10,758	)

Other income (expense), net		4,254			55		850,453			—			854,762

Income (loss) before income taxes		748,970			55		829,637			(742,609	)		836,053
Provision for income taxes		33,314			—		87,083			—			120,397

Net income (loss)	$	715,656		$	55	$	742,554		$	(742,609	)	$	715,656

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

THREE MONTHS ENDED SEPTEMBER 30, 2005 (As Restated - See Note 16)

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor		Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—	$	123,049		$	—		$	123,049
Rooms		—			—		61,393			—			61,393
Food and beverage		—			—		61,211			—			61,211
Entertainment, retail and other		5,283			—		42,057			(5,283	)		42,057

Gross revenues		5,283			—		287,710			(5,283	)		287,710
Less: promotional allowances		—			—		(36,269	)		—			(36,269	)

Net revenues		5,283			—		251,441			(5,283	)		251,441

Operating costs and expenses:
Casino		—			—		53,388			—			53,388
Rooms		—			—		16,120			—			16,120
Food and beverage		—			—		42,477			—			42,477
Entertainment, retail and other		—			—		28,699			—			28,699
General and administrative		5,389			—		44,708			(5,283	)		44,814
Provision for doubtful accounts		(68	)		—		2,111			—			2,043
Pre-opening costs		—			—		7,147			—			7,147
Depreciation and amortization		20			—		37,866			—			37,886
Property charges and other		115			—		5,937			—			6,052

Total operating costs and expenses		5,456			—		238,453			(5,283	)		238,626
Equity in income (loss) from unconsolidated affiliates		(10,887	)		—		463			10,887			463

Operating income (loss)		(11,060	)		—		13,451			10,887			13,278

Other income (expense):
Interest income		6,464			112		5,572			(4,681	)		7,467
Interest expense		(4,651	)		—		(36,168	)		4,681			(36,138	)
Increase in swap fair value		—			—		6,146			—			6,146

Other income (expense), net		1,813			112		(24,450	)		—			(22,525	)

Income (loss) before income taxes		(9,247	)		112		(10,999	)		10,887			(9,247	)
Provision for income taxes		—			—		—			—			—

Net income (loss)	$	(9,247	)	$	112	$	(10,999	)	$	10,887		$	(9,247	)

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—		$	412,060		$	—		$	412,060
Rooms		—			—			204,236			—			204,236
Food and beverage		—			—			224,411			—			224,411
Entertainment, retail and other		16,973			—			144,646			(16,973	)		144,646

Gross revenues		16,973			—			985,353			(16,973	)		985,353
Less: promotional allowances		—			—			(116,666	)		—			(116,666	)

Net revenues		16,973			—			868,687			(16,973	)		868,687

Operating costs and expenses:
Casino		—			—			214,636			—			214,636
Rooms		—			—			53,384			—			53,384
Food and beverage		—			—			141,954			—			141,954
Entertainment, retail and other		—			—			98,304			—			98,304
General and administrative		14,605			4			154,536			(16,973	)		152,172
Provision for doubtful accounts		(31	)		—			11,483			—			11,452
Pre-opening costs		—			—			62,794			—			62,794
Depreciation and amortization		58			—			124,739			—			124,797
Contract termination fee		—			—			5,000			—			5,000
Property charges and other		—			—			13,064			—			13,064

Total operating costs and expenses		14,632			4			879,894			(16,973	)		877,557
Equity in income (loss) from unconsolidated affiliates		704,018			—			1,574			(704,018	)		1,574

Operating income (loss)		706,359			(4	)		(9,633	)		(704,018	)		(7,296	)

Other income (expense):
Interest and other income		26,593			145			22,983			(19,836	)		29,885
Interest expense		(15,487	)		—			(112,567	)		19,836			(108,218	)
Increase (decrease) in swap fair value		—			—			1,835			—			1,835
Gain on sale of subconcession right, net		—			—			899,409			—			899,409
Loss on extingyishment of debt		—			—			(10,758	)		—			(10,758	)

Other income (expense), net		11,106			145			800,902			—			812,153

Income (loss) before income taxes		717,465			141			791,269			(704,018	)		804,857
Provision for income taxes		33,314			—			87,392			—			120,706

Net income (loss)	$	684,151		$	141		$	703,877		$	(704,018	)	$	684,151

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2005 (As Restated - See Note 16)

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Operating revenues:
Casino	$	—		$	—		$	221,764		$	—		$	221,764
Rooms		—			—			106,026			—			106,026
Food and beverage		—			—			109,266			—			109,266
Entertainment, retail and other		11,285			—			76,716			(11,285	)		76,716

Gross revenues		11,285			—			513,772			(11,285	)		513,772
Less: promotional allowances		—			—			(61,203	)		—			(61,203	)

Net revenues		11,285			—			452,569			(11,285	)		452,569

Operating costs and expenses:
Casino		—			—			95,668			—			95,668
Rooms		—			—			27,900			—			27,900
Food and beverage		—			—			76,184			—			76,184
Entertainment, retail and other		—			—			48,966			—			48,966
General and administrative		8,465			4			78,643			(11,285	)		75,827
Provision for doubtful accounts		(80	)		—			10,722			—			10,642
Pre-opening costs		9,387			—			79,229			—			88,616
Depreciation and amortization		59			—			67,446			—			67,505
Contract termination fee		—			—			—			—			—
Property charges and other		114			—			6,047			—			6,161

Total operating costs and expenses		17,945			4			490,805			(11,285	)		497,469
Equity in income (loss) from unconsolidated affiliates		(82,642	)		—			714			82,642			714

Operating income (loss)		(89,302	)		(4	)		(37,522	)		82,642			(44,186	)

Other income (expense):
Interest income		15,722			264			14,692			(10,046	)		20,632
Interest expense		(7,371	)		—			(68,105	)		10,046			(65,430	)
Increase (decrease) in swap fair value		—			—			8,033			—			8,033

Other income (expense), net		8,351			264			(45,380	)		—			(36,765	)

Income (loss) before income taxes		(80,951	)		260			(82,902	)		82,642			(80,951	)
Provision for income taxes		—			—			—			—			—

Net income (loss)	$	(80,951	)	$	260		$	(82,902	)	$	82,642		$	(80,951	)

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF CASH FLOWS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2006

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Cash flows from operating activities:
Net income (loss)	$	684,151		$	141		$	703,877		$	(704,018	)	$	684,151
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		58			—			124,739			—			124,797
Deferred income taxes		33,314			—			—			—			33,314
Stock-based compensation		4,938			—			9,119			—			14,057
Amortization and write-off of deferred financing costs and other		833			—			15,314			—			16,147
Provision for doubtful accounts		(31	)		—			11,483			—			11,452
Property charges and other		—			—			13,064			—			13,064
Equity in income (loss) from unconsolidated affiliates		(704,018	)		—			(201	)		704,018			(201	)
Increase in swap fair value		—			—			(1,835	)		—			(1,835	)
Gain on sale of subconcession right		—			—			(899,409	)		—			(899,409	)
Loss on extinguishment of debt		—			—			10,758			—			10,758
Increase (decrease) in cash from changes in:
Receivables		62			—			(24,948	)		—			(24,886	)
Inventories and prepaid expenses		182			—			(16,865	)		—			(16,683	)
Accounts payable and accrued expenses		(6,145	)		—			211,581			—			205,436
Intercompany balances		(16,973	)		—			16,973			—			—

Net cash provided by (used in) operating activities		(3,629	)		141			173,650			—			170,162

Cash flows from investing activities:
Capital expenditures		(127	)		—			(456,614	)		—			(456,741	)
Restricted cash and investments		(176	)		14,096			104,895			—			118,815
Investment in unconsolidated affiliates		—			—			—			—			—
Purchase of intangibles and other assets		(10,458	)		—			(51,489	)		—			(61,947	)
Proceeds from sale of subconcession right, net		—			—			899,409			—			899,409
Intercompany balances		(7,230	)		(14,237	)		21,467			—			—

Net cash provided by (used in) investing activities		(17,991	)		(141	)		517,668			—			499,536

Cash flows from financing activities:
Proceeds from the exercise of stock options		5,954			—			—			—			5,954
Proceeds from issuance of long-term debt		—			—			713,615			—			713,615
Proceeds from termination of interest rate swap		—			—			6,605			—			6,605
Principal payments on long-term debt		—			—			(414,310	)		—			(414,310	)
Payments on long-term land concession obligation		—			—			(9,000	)		—			(9,000	)
Payments of deferred financing costs		—			—			(4,572	)		—			(4,572	)

Net cash provided by financing activities		5,954			—			292,338			—			298,292

Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents		(15,666	)		—			983,656			—			967,990
Balance, beginning of period		308,013			—			126,276			—			434,289

Balance, end of period	$	292,347		$	—		$	1,109,932		$	—		$	1,402,279

WYNN RESORTS, LIMITED AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF CASH FLOWS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2005 (As Restated—See Note 16)

(amounts in thousands)

(unaudited)


	Parent			Convertible Debentures Guarantor			Non-guarantor Subsidiaries			Eliminating Entries			Total
Cash flows from operating activities:
Net income (loss)	$	(80,951	)	$	260		$	(82,902	)	$	82,642		$	(80,951	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		59			—			67,446			—			67,505
Stock-based compensation		3,665			—			—			—			3,665
Amortization and write-off of deferred financing costs and other		538			—			5,799			—			6,337
Provision for doubtful accounts		—			—			10,642			—			10,642
Property charges and other		114			—			6,047			—			6,161
Equity in (income) loss from unconsolidated affiliates		82,642			—			(714	)		(82,642	)		(714	)
Increase in swap fair value		—			—			(8,033	)		—			(8,033	)
Increase (decrease) in cash from changes in:		—			—			—			—			—
Receivables		—			—			(65,870	)		—			(65,870	)
Inventories and prepaid expenses		160			—			(49,734	)		—			(49,574	)
Accounts payable and accrued expenses		(4,323	)		—			127,836			—			123,513
Intercompany balances		(11,285	)		—			11,285			—			—

Net cash provided by (used in) operating activities		(9,381	)		260			21,802			—			12,681

Cash flows from investing activities:
Capital expenditures		—			—			(737,845	)		—			(737,845	)
Restricted cash and investments		(132	)		14,736			490,746			—			505,350
Investment in unconsolidated affiliates		—			—			(3,500	)		—			(3,500	)
Purchases of intangibles and other assets		(2,529	)		—			(21,004	)		—			(23,533	)
Proceeds from sale of assets		86			—			23			—			109
Intercompany balances		17,204			(14,996	)		(2,208	)		—			—

Net cash provided by (used in) investing activities		14,629			(260	)		(273,788	)		—			(259,419	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		1,772			—			—			—			1,772
Proceeds from issuance of long-term debt		—			—			517,186			—			517,186
Principal payments on long-term debt		—			—			(19,534	)		—			(19,534	)
Payments on long-term land concession obligation		—			—			(8,921	)		—			(8,921	)
Payments for deferred financing costs		—			—			(21,146	)		—			(21,146	)

Net cash provided by financing activities		1,772			—			467,585			—			469,357

Cash and cash equivalents:
Increase in cash and cash equivalents		7,020			—			215,599			—			222,619
Balance, beginning of period		302,262			—			27,999			—			330,261

Balance, end of period	$	309,282		$	—		$	243,598		$	—		$	552,880

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 16 “Restatement “to these condensed consolidated financial statements. Unless the context otherwise requires, all references herein to the “Company,” “we,” “us” or “our,” or similar terms, refer to Wynn Resorts, Limited, a Nevada corporation and its consolidated subsidiaries.

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 the second phase 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 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. On September 6, 2006, we opened and began operating Wynn Macau, our destination casino resort in the Macau Special Administrative Region of the People’s Republic of China (“Macau”). We also own and operate Wynn Las Vegas, a destination casino resort in Las Vegas, Nevada, which opened on April 28, 2005. Furthermore, on April 28, 2006, we commenced construction of Encore at Wynn Las Vegas (“Encore”), a hotel 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, Chan

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