永利渡假村 (WYNN) 2006 Q2 法說會逐字稿

Good afternoon and welcome to the Wynn Resorts Limited Second Quarter Conference Call.

Joining the call on behalf of the company today are Steve Wynn, Chairman and CEO of Wynn Resorts;

Ron Kramer, President of Wynn Resorts;

John Strzemp, Executive Vice President and CFO of Wynn Resorts;

Andrew Pascal, President and COO of Wynn Las Vegas;

David Sisk, CFO of Wynn Las Vegas;

Kim Sinatra, Senior Vice President and General Counsel; and Samantha Stewart, Vice President of Investor Relations. [OPERATOR INSTRUCTIONS] Now, I would like to turn the call over to Mr. Kramer.

Please go ahead sir.

Thank you, Paige, and good afternoon everyone.

We are broadcasting this conference call live on wynnresorts.com where you can also find the earnings release, which we circulated earlier.

Before we begin, I need to remind you that today's conference call contains forward-looking statements that we're making under the safe harbor provision of federal securities laws.

I would also like to caution you that the company's actual results could differ materially from the anticipated results in these forward-looking statements.

Please see today's press release under the caption 'Forward-looking statements' for the discussion of risks that may affect our results.

In addition, we might discuss adjusted property EBITDA, which is a non-GAAP measure.

A reconciliation of those measures for the most comparable GAAP measure is included in the press release.

With that, I'm going to turn the call over to Steve, who's going to give you an update on where we are with both Wynn Las Vegas and Wynn Macau and then we'll open up the line for questions.

The press release has been issued.

And in general terms, we've been delighted with everything that's happened here at this Las Vegas property.

Okay, let's start with that one.

All of the things that we measure the health and vitality of the enterprise by, all those earmarks that we use are robust and ahead of or equal to the best performance we've experienced since we've been open.

In a high-end hotel like this, we do have fluctuations of hold percentage, which we mentioned in the press release.

Some of the big players got sort of even with us in June.

But, whatever that amounted to, I could tell you, it got adjusted the other way in July.

But our handles in slot machines and gaming have been substantially ahead or equal to anything we've experienced since we've built and opened the hotel.

Our non-casino revenue has also exceeded what we did last year.

So, we're pretty happy about the performance of Wynn Las Vegas and enjoying it.

I know there's been lot of publicity about whether the market was weakening or not, and I think it's probably possible to get the wrong impression when we say that we had a lower hold percentage in June, which dropped our hold percentage of the quarter.

What really is important is that we've been looking at this, as we read in newspapers, and our non-casino revenue this summer is sharply ahead of last year, as is our casino revenue.

And that includes the month of July, which I have seen and which, of course, we just finished yesterday.

On another subject, which is closely related to Wynn Las Vegas, Encore has been under construction since our anniversary on April 28.

And our builder is a little ahead of the schedule than he had planned in pouring concrete in our foundation slabs, so we're happy with the progress of that 2,050 or 60 rooms that we're adding to the project under the title of the Encore product.

It's really part of Wynn.

It's Encore at Wynn and it's an expansion of our hotel.

As opposed to aspiring to be a completely different project, it's meant to be part of Wynn Las Vegas.

It operates and is designed to augment and expand the offerings of Wynn Las Vegas and fill in the gaps and to offer the people more choices as part of this whole integrated project, which will then be close to 4,900 rooms.

So, that's moving along nicely.

We have -- as a family of executives, all of the men and women of the company have had a very single-minded focus in the past several months since our last conversation with The Wall Street folks that are on the call today.

And that focus has been the opening, the preparation and the execution of a good opening at Macau.

And I think it would be accurate to say that that has really been everyone's central issue.

We adjusted for time change.

We're less than five weeks away.

We're about five weeks away - we're less than five weeks away.

And we open up on the evening of late Tuesday night, the 5th of September.

The first gaming day will be technically the 6th of September rather.

We just are -- this week, in the next few days, going to full staff as we take some extraordinary measures in training and preparing our staff to make a wonderful first impression on everybody in that marketplace.

It's an expensive business to dedicate five weeks of training to an entire workforce of 5,000 people.

We interviewed 64,000 people for these jobs.

The results or the turnout was particularly exciting.

We had loads of wonderful applicants.

And we think -- we hope we've selected well.

But it is interesting to note that the quality of the applicant, the enthusiasm, the intelligence, the appearance of our workforce was much better than we would have anticipated before we got familiar with China and Macau.

Competition with the rest of the world is keen and sharp.

And it's reflected in the personalities and the nature of the people that we've met, as we've gone along the path of staffing this hotel in Macau.

The building was handed over to us as advertised by our builder.

Pursuant to our contract with Leighton of Australia and China State Construction, we were to receive the building on July 27, 2006.

And in fact, they gave us the building on July 27, 2006, a month ahead of the schedule that was established by all of us when we began the project and when we broke ground.

They were a month ahead, they were on budget, the quality of the workmanship was wonderful, surprisingly excellent.

We're delighted with the building, especially as we compare it to the challenges we faced Las Vegas in building a complex, highly sophisticated building.

They were not only up to the challenge in China, they skated through it, which gives us a lot of optimism in going forward, as we face the business of building more buildings in Cotai and finishing Phase II of Wynn, which is going along at full speed.

We'll be adding -- we open September 5.

In May, we'll be opening a whole bunch of new games and more facilities in retail, food and beverage, a theater, and some more attractions for the public, one in particular that no one has ever seen before, that's completely unique, that I hope will delight the folks over there.

So, everything about Macau has been quite exciting and very pleasant.

We're expecting to close and finalize the last of our real estate details on Cotai this month, and we have been notified that that will take place by the government.

They've also given us permission to start work if we'd like even now.

They gave us that permission last month in writing.

But, we have not yet finished our plans, and so I'm not ready today to get into the details of the structures on Cotai.

We're still working very hard at that.

And as you can imagine, the leaders of the company, we paused in the process to deal with the last minute things about the building.

I go to Macau a week from today and I stay until the middle of September/October with my colleagues.

Jack Binion, wonderful Jack Binion left this morning, and he doesn't come home.

Jack stays there to joust with the complexities of the Macau high-end market, a task and a challenge for which Jack Binion is perhaps more suited than anybody I've ever met in my life.

I want to add to those of my investors who are on the telephone that if I had ever in my entire career, which is now 40 years old, been given the chance to pick a colleague, my first, second and third choice would have been Jack Binion.

And in particular, considering the nature of the challenge in Macau -- here in Vegas, for as long as I can remember, the job was simple.

You conceive of, that is to say design, and then build a hotel that is fanciful, that resonates with people's fantasies and their ambitions.

You staff it with friendly, warm help that are experienced, with good people.

And then the guests come, and they have a positive experience, and they go home, they tell their friends, you get repeat visitation.

And if you do that, you've got a franchise, and tomorrow is better than today and the day after tomorrow is better than tomorrow, et cetera.

That's it, that's what you do.

Nothing's changed in the whole 40 years I've been in Las Vegas.

The advertising may be important, and all that other stuff, but the fact of the matter is, if you build a better building and you fill it with warm, caring employees, you got yourself a business forever.

I think that is equally as true in Macau.

We took our time.

We did not build a short-term, down-and-dirty, quick-and-fast hotel.

We postponed the chance for short, fast capital to take the longer view, and we built a very beautiful hotel.

I think it's the prettiest hotel we've ever built and the public will be the judge of that.

And some of you who are listening and on the phone today, you can go take a look at it for yourself.

But it's a beauty.

Now -- and we've staffed it, I believe, with wonderful employees.

I just got through telling you about the positive experience we had in the recruitment and staffing process.

HR looks terrific to us over there.

However, there is a third dimension to the Macau market that is different than Vegas, and it represents -- that difference embodies challenges with which we have not dealt in the past.

It is no secret that in my career and my immediate family's career, since 1989, we have operated hotels in Las Vegas that sort of dominated the international market.

From the time that Mirage opened in 1989, we were the number one Baccara, Asian Baccara house in the city.

That continued until we opened up Bellagio.

Bellagio was the number one Baccara hotel in the city.

So pretty much all during my career at Mirage Resorts, from 1989 and in the opening of Mirage, in 1989, until I sold the company in 2000, we were the first-choice Asian gambling destination.

We opened this place a year ago and pretty much have held that position.

And if we're not clearly the first Asian choice, we're right up there.

It does change from month to month and depends on the vagaries of hold percentage.

But, we're right there.

We've had this long relationship, 16 years or more, with Asian players and enjoyed it and made lots of good friends.

We had a party that finished about five hours ago in the convention center of the Hyatt, the Grand Hyatt in Hong Kong.

We had planned on 5 or 600 of our customers coming and the building wasn't big enough.

We had substantially more, it was very successful.

There's lots of anticipation and enthusiasm for the opening of our hotel next month in Macau.

However, I hasten to point out for anybody that has a serious deep interest in our Company, that all operators in Macau, especially those of us who operate in America, we face a unique challenge, and that is the differences between the conduct of the high-end business in Macau and the conduct of that business here in the United States.

We rely upon junket operators in these VIP-type rooms to help us satisfy the needs of our customers.

An as such, we are doing business with a whole new group of people on a different basis than we did in the United States, and it poses special challenges for us.

Jack Binion's particular skill set of deep understanding and instinctive resonance with high-end gamblers is perfectly suited for that market.

It's a serendipitous and wonderful kind of harmonic that's going on between Jack's personality -- I was there with him a couple weeks ago and watched him interview and discuss the intricacies of high-end gaming management in the Macau rooms and he was with a whole group of employees that were rather senior in our casino that had come from the Lisboa Hotel, our neighbor Mr. Ho's place, right across the street, which represents the top-end business in Macau by far.

Stanley Ho dominates the top-end business in Macau to date and probably will for quite some time.

We're hoping to carve out a humble niche in that business.

But I watched Jack with those men, and I watched the downloading of information.

It was a fascinating experience.

I wish my major institutional holders could have been in the room, they would have been delighted with listening to the conversation.

So we face new challenges.

But we are very well prepared on every level.

We have a fabulous building, substantially more sexy, more attractive than anything that's there in that market, I would say.

I think some wonderful things are on the boards to be built and even under construction.

But they're not there yet.

We're going to be the first of that caliber of place.

And happily, there will be more of them in Macau as that market lifts itself dramatically up in terms of the quality of the structures.

But we are very well prepared with HR, as I've said.

And now, I think with Jack and Linda Chen and the other top-end people that have been working in the casino, I think we're ready to meet the challenge.

But I don't want to underestimate its complexity and we have new things to learn and we're approaching that task with humility.

We're students.

We have what is known in Buddhism as beginner mind, wide-eyed.

And so, that's about it and that's the way we feel on the eve of this new experience.

And we expect that in the very first few months of that operation, we will answer questions that have really, really occupied our curiosity for the last three years, the last four years really.

Certain inside things about how it's going to work, what is really important to our customers, not based upon what we've seen in our competitors or what we've been able to deduce, but what we actually know because we got our hands on the players in our kind of environment.

We can see and feel the reaction of the people in person to the kinds of things that we've always done that have kept us the leader in our field in this business.

And there is no substitute for the hands-on experience.

I can only learn so much and my colleagues can only learn so much watching Mr. Ho's operations or the Sands.

And in each case, we are so much different that we can't draw final conclusions.

So, we're just [shaping] at the bit to get this information firsthand, which we're going to begin to get in a few days.

And we will then apply those lessons to the finishing touches on the projects that we have in mind for Cotai.

And we will also have the opportunity to incorporate any of that nuance in Phase II, which is -- we never really go out of construction in Macau, and we probably won't be out of construction for the next 5 or 10 years.

But we have a particular opportunity to apply it to the tens of thousands of square feet that we're building in Phase II, where we can make very -- we can make what would appear to be minor, but in very many cases are significant adjustments in our gain, sort of like a basketball coach at halftime.

And we're dying to get going in the game.

We want to get to the tossup.

I'm in a basketball mode because the United States Olympic team with coach Krzyzewski of Duke and all the great NBA players are being hosted and have made Wynn Las Vegas their headquarters for the next three summers.

And LeBron James and everybody else and Jim Boeheim and all the NBA coaches and Jerry Colangelo are here everyday and we're having a lot of fun.

So, I think it's time to take questions.

So, who wants to be first?

They're going to queue it up.

Paige, we'll take questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Harry Curtis with JP Morgan.

Hi, guys.

Hi, Harry.

Steve, if you could, without giving any detail on Cotai, are you comfortable discussing, maybe in very general terms, the advantages and maybe some of the challenges of your site on Cotai?

Well, hi, Harry, how are you?

Handy.

How are you?

Just great, thanks.

Cotai, I think most of the real serious players on the investment side of the story know about how it works.

I won't review the fact that Cotai is that name for the land between Coloane and Taipa, hence the short slang for Cotai.

But we're right next to the airport.

We're between the big dome, which is a wonderful thing that they built there, big entertainment arena and the University.

And it's a lovely piece of land.

It's divided really into two 27-acre pieces that face one another.

And each one of them's large enough for two hotels.

So you could say there could be four of them there or two very, very large ones.

We think that the property is advantaged in the sense that it has wonderful access from the airport and the other feeder areas like -- everything in Cotai is rather small.

I mean, the whole thing is the size of -- from Wynn Las Vegas to MGM.

That's the whole place.

It's 200 maybe 300 acres, including the golf course maybe 450 acres.

It's not a very big place.

And it's going to be very well suited for larger footprint properties.

That means that we can do things like convention and meeting space, larger retail areas, and a lot of those other things that you associates with a big footprint.

Our site, I would have to say -- and we're adjacent, as I said, to the airport and the University, and one of the big things is that the wonderful domed arena.

But we're also adjacent to the 27 acres or 24 acres that the PBL and Melco folks have next door to us.

And when I'm in China this week, this month -- for the rest of the month and next month, I'm going to be meeting with them, and we're going to collaborate on our design, so that we get our stuff really well integrated as neighbors and -- in terms of the user friendliness to the public, to transportation and other things like that.

So what I like about our site in general is that it's in Macau.

And just over the border from Quandong Province, that's something that really turns me on about it.

But I like being next to PBL and Melco.

I like being next to the airport and the dome and -- Harry, like everything else, location in our business -- I remember, Harry, I was once asked when we had the Golden Nugget of Atlantic City, well, how do you feel being at the other end of the Boardwalk from Resorts International, you're sort of at the end.

And I said, the most important thing about the location is that I'm two hours from New York.

And, of course, that casino, although it was the smallest one in the market, out-grossed and out-netted every other casino from the day it opened until the day we sold it.

So, when it comes to location and the site, it's good that it's big.

It's good that it's going to be integrated with its neighbors.

I don't think that we're talking about pedestrians.

A lot has been said about this Cotai place being like the Strip in Las Vegas.

Well, Sheldon Adelson gave the place the name "The Strip", "The Cotai Strip".

It is inaccurate to call it a strip in the sense that you want to revoke the image of Las Vegas Strip.

The Las Vegas Strip is an intensely pedestrian experience and everybody is walking up and down the promenade like a carnival midway.

That is exactly not the case in Cotai, nor will it be the case in Cotai.

The buildings that are built there are too for apart unless they're connected by monorails and we haven't seen one of them yet.

People are going to move around in vehicles or trams that will be supplied by the operators.

But it's muggy and warm outside, and people don't walk in Macau.

That's -- it's not comparable.

We really have to try to avoid making Las Vegas comparisons.

Another comparison that's been made is that the Peninsula or Downtown Macau, where we and the Lisboa and MGM and Galaxy are, is somehow a metaphor or related to or compares to Fremont Street downtown Las Vegas.

That is probably the most grossly inaccurate statement of the mall.

We have $1 billion buildings by experienced operators under construction or about to open beginning with our own in Downtown Macau.

People talk about the other shoe hasn't dropped; no shoe has dropped yet in Macau.

You haven't seen the beginning yet.

The beginning starts in September.

And then it will be followed by the Grand Lisboa and the New Galaxy building and MGM's Beach Hotel.

These buildings represent the most glamorous, up to date, completely integrated buildings that exist anywhere in the gaming world, including Las Vegas.

So Cotai is a great place, and it's going to be wonderful in the future.

But a lot has to be done in Cotai.

We have a tremendous amount of infrastructure to get in out there, all of us, I'm speaking for my neighbors and all of us.

We've got a lot of work to do to turn Cotai into the kind of animated bustling place that we think of in Las Vegas.

There's one hotel open out there now.

I think it's called The Grand Waldo.

And their business has been notably, their traffic has been notably less than any place else in town, which shows that it isn't as simple as, that if you build it, they will come.

You've got to build it really well and they will come.

But this idea that anything in Macau is an automatic homerun is pretty much a fairy tale.

Gravity, reality exist in China just as they do in America.

You give the public value, they respond.

You don't, you get to meet a lawyer.

Next question.

Your next question comes from the line of J. Cogan of Banc of America Securities.

Hi, good afternoon.

I have a few questions for you, let's keep on the Macau theme.

I think in the last call, there was some suggestion or even since then that you could do properties on a wholly owned basis, on a joint venture basis, potentially, you obviously, have a lot of financial capacity, including after the subconcession deal with PBL.

I was wondering if there was any way you can kind of frame it for us from a timing standpoint or a structure standpoint.

So, for example, if you finish your designs later this year, could you have something open by 2009?

Should we be expecting wholly owned or joint ventures?

If you can help frame that a little bit more for us right now, that'd be great and I've got a couple of follow-ups.

Okay.

The essence of the question is, whatever the ownership status is, can we be open by 2009 on Cotai?

That would mean if you pick the last day, we'd have all of '9, all of '8 and all of '7, yes, the answer is yes.

Okay, I got that part.

That's 36 months, plus the balance of this year.

The answer is yes.

We have been working on three options on that property.

And considering that I have not closed the deal on two of the three, one of them is our second hotel that's 100% owned by us.

The other two involve JVs.

I have not made a final arrangement with anybody in that regard.

And I think it would be inappropriate for me to speak of such things which involve other companies without their consent and without ever having a final agreement between us.

So I'm sorry, J. I don't mean to be ambiguous, but I think we're a little early in that conversation.

And I was hoping to be able to do that now, but we just got sidetracked with our own internal challenges with getting ready for September 5.

So I'm going to have to defer that one.

Got it.

And then just a couple of quickies for you.

First, as it relates to Las Vegas, even excluding the luck factor in the month of June, is the cost side of the equation at Wynn Las Vegas where you wanted it to be in the quarter and going forward?

It looked a little bit high still to me in certain areas that you reported on a department basis.

I was wondering if you can talk about that.

And also Ron or maybe somebody could talk about the accounting as it relates to the restricted stock awarded to Jack Binion as part of the deal, in terms of how that will show up in the numbers going forward?

Well, we -- I was looking at it today.

We had a Board meeting today.

And I had my own internal operating numbers in front of me for the year, which included July.

And we're running at around - we're under 2.2 million to date to run Wynn Las Vegas.

I think you're referring to that, J, right?

Yes, sure am.

And that includes the Union increases and other things that are relevant to this year over last year.

I think that we have room and Andy Pascal is in the room.

We believe we have room to lower that number.

But at this point, we do that in bits and pieces, 100 small things at a time.

We believe that we can get this -- the efficiency of this hotel operation down, in what amounts to a significant number, somewhere around $50,000 to $80,000 a day, before we're done.

But, Bellagio cost this kind of money to operate and you get to the refinement of the operating expenses, and it's a slow and much more tedious process.

But I'm happy with the way it's going.

We've got a very terrific, charismatic beginning this past year to this hotel.

It has a good reputation.

We're getting tremendous repeat business.

I'm very careful about making any kind of abrupt or sudden moves with lowering expenses that would compromise our market position.

So I've got to be careful about that.

And Andrew and his colleagues, I think -- and he can speak for himself.

Andrew, why don't you speak for yourself on this since you're here?

I agree with what you've said.

I think there is more rooms and we're being very careful about how and where we go about continuing to refine our cost structure so it doesn't compromise the experience for our guests.

And when I look at the numbers, and I look at them every day, so I tend to be -- I tend to relate to -- let me put it this way without getting into the next quarter.

I was on the telephone, just as I am today with you, and I said, "Boy, did we have a terrific April" In April and May, I looked at the DOR, my daily operating report, we've been running at about $850,000 a day in EBITDA with this hotel.

And that's where we are now, a little above that actually.

When I looked at the daily operating report when I was on the telephone at the first part of May, April had been well over 1 million a day, and May was over 1 million a day.

On the June 10, the quarter to date was $1,007,000 a day.

And then, lady luck jump up and said it is time for the Baccara players to have a moment or two with you guys and indeed, it was time for some of the slot players to have a good time with us.

We had some huge jackpots.

It was really terrific actually.

Because if you don't have these moments where luck goes on the other side, then eventually, you have no more business anymore.

So, our slot hold percentage dropped in the last 20 days of June and so did our table hold percentage.

So, we finished -- I remember that in June, we had about -- in 10 days about $10.5 million and we finished the month at 4.

So those kinds of things happen.

But when I look at that and I look at that same sort of thing and I'm on the telephone with the investment community having just seen July casino and non-casino revenue sharply ahead of last year, EBITDA sharply ahead of last year.

Does that mean it will be in August and September?

I don't know.

What I'm looking at is the level of slot handle, the level of table drop, the average daily rate in our hotel, our climbing occupancy, amount of repeat business, the showroom that we work on all the time.

And I am very happy about that, but that's about it.

J, in terms of the restricted stock question, Jack's 0.5 million shares like all other restricted stock grants vest over their period, so it's a three-year period, so it's approximately 860,000 a month.

Okay, great.

Thanks a lot.

I appreciate it.

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

Thanks.

Hey, guys.

Two questions.

One is just a quick one.

Timing of subconcession proceeds, can you give us any color around that?

Then a follow-up.

It's still subject to government approval.

We're just -- I was notified when I was there two weeks ago that our subconcession colleagues at Publisher Broadcasting Limited have finished all of the required filings with the Macau government.

And that they thought the process was going to be terminated forthwith with approvals very shortly.

This is a licensing business, and forms and personal history questionnaires had to be filed by the Packer family and related parties in that PBL family.

And all of that, I'm happy to say, those things were completed while I was there.

According to the government spokesman, [George Olivera], the attorney that handles all this and directs these things, George told me that they had just finished getting all the information and that they would be proceeding pretty quickly.

So that was encouraging and I expect that we'll see that transaction draw to a close in the weeks ahead.

Okay thanks.

And then, just a quick follow-up I think on J's question on Cotai.

On a net basis, obviously, you have very little money in the ground in Macau.

Should we expect the same sort of story in Cotai?

I know you talked about a wholly owned and two joint ventures, I would suspect that that would translate to a similar financial situation.

Well, I think that's -- if you were here and sitting in my chair, that would be the goals you would try and achieve.

But you'd measure that also in terms not only of short-term leverage of the position, but more importantly, you'd want to keep your eye on the long-term position.

I guess that when it comes to such strategies, as the one that you've touched upon with your question, the real issue in play, apart from bricks and mortars, is do you believe in the long-term viability of that intensely competitive environment.

You really -- sooner or later, the minute you start dealing as a developer, whether your name is Adelson or Wynn, or Ho, when you deal with this, you'll be forced to face the question, am I playing the long game or the short game here?

Now I think that the decisions that are made reveal that.

It looks to me like the Sands and the Venetian people are playing the long game.

That's the best thing for the community.

That is also I think an intelligent strategy for them, and it represents also the same conclusion that we've come to.

So -- and it colors are negotiations for JVs.

And we all have virtually access to unlimited amount of capital.

Question is, when and why is it sensible to share that with someone else?

Is it strictly so that you can beat the clock?

Well, that means that you're playing against time.

You might ask yourself, who's after us?

Are we double-parked?

Is China going to go away?

Is Macau going to close down our casinos?

Hardly.

We've never played the short game in Las Vegas.

And that's why all the hotels that we built thrive long into the future.

And we've given up short-term advantage and financial razzmatazz.

We don't sell things very much.

Selling a subconcession was easy.

It had no value to us because we already have the right to build as many hotels as we want.

That was an unusual asset.

It was six pieces of 8-by-10 paper and we sold it to someone that we thought would enrich the market, the PBL people.

We think that they aspire to high ideals, to real good probity in the way they operate their business.

They already had their own land, so it was an easy decision.

But selling stuff or giving up shares, that has to be a clearly strategic long-term advantage to us.

And I think that the answer to that question, are there partners that are strategically advantageous to us on a long- term basis, I think the answer to that question is yes.

But the answers involve more complex considerations, as time will prove, than simply let's just get someone to lay out some money for us and look smart for a moment.

We don't sell things that easily in this Company, whether it's our retail stores or whether it's our property, we don't sell things that quickly.

And we believe in Macau and we're going to be there long time.

And we're just getting started there, so --

Great.

Thanks guys.

Sure.

Your next question comes from the line of Joseph Greff with Bear Stearns.

Hello, everyone.

A couple of questions on Las Vegas.

Steve, second quarter non-gaming, non-room revenues was the highest it's ever been and above where we had forecasted for the quarter.

Could you talk about what's driving this improvement?

How much of it's related to things that you're doing differently better?

How much of it's related to the market?

And then a second question, can you just let us know what the EBITDA impact was of the low hold percentage in June and how much of it was Baccara versus on the slots?

Thank you.

Yes, I think we can answer that.

First of all, the reason that our revenues were up is because people like the property.

We're getting that repeat business just like Mirage did, just like Bellagio, just like Treasure Island.

When all those hotels opened and Treasure Island opened, we were the only one to advance sharply the second year of operation over the first.

Bellagio did better after MGM opened than it did before.

So did Mirage.

So we're always trying to build for tomorrow.

And you're going to begin to see that in this property as these quarters go by.

So that's what I think about why the revenue's up.

And besides, when the hotel's new, you find out everything that's wrong right away.

In last summer, in May and June, when the people hit the building, we saw where we had -- where we planned correctly and where we had planned not so correctly.

And this is a Company where we jump to correct those mistakes.

We don't leave anything alone.

I remember that we weren't satisfied with the nightclub and we jumped in, and in November and December, redid it for $3.5 million.

I think we may have one of the most successful nightclubs in the world.

We've got 9,000 square feet and we're going to do close to $30 million with a 60% profit margin.

There may be bigger nightclubs, but there's nothing more profitable than us that I know of, even regardless of size.

I'm almost willing to say that.

And there are places here that are 40,000 feet.

And they can't do the quality -- the high-quality customer's here.

And that's the market niche that we deal to.

And we're going to deal to that niche in Macau.

Those kinds of places have very special rules.

You get cute in the short term and you blow your franchise.

And it takes a lot of discipline to stick with the program to build that kind of customer goodwill and dependability and consistency in the place.

And it puts a big strain on the staff.

The second part of the question --

Let me [inaudible - cross talk].

On an adjusted EBITDA basis, the impact is probably in the range of 5 to 7 million.

And if you look at where we've held for the quarter, at 19.8%, it's lower than the 20.7% that we've held for the period, the last 12 months.

So, you can kind of go through and make your adjustments.

But just, without putting a fine point to it, you could use a range of 5 to 7.

Net of everything.

Add the slot machines.

Yes, that's included.

Is that what you think it is, John?

Yes.

Okay.

We don't actually calculate those things once they're over.

We say, so what, and keep going.

And if I heard you correctly, you started off July stronger with above normal -- ?

With a higher than normal hold percentage.

I mean it just went to bang the other way.

That's what happens here.

Are you seeing less of maybe a typical seasonality from international high-end, i.e., it's getting less seasonal, or getting stronger in what would otherwise be seasonally slower periods?

What a good question.

I've been out of business for five years until last spring.

I've lost the ability to answer that one off the cuff.

Maybe, John Strzemp can.

Looking at seasonality for the industry, there's clearly a falloff in the summer, particularly in the high-end.

So, lower base customer in the summer still traditionally and even more, that's truer at the Baccara level -

But not in this hotel this summer.

I was talking town wise.

Yes, okay.

So, you see, these kinds of places like Wynn or Bellagio, they tend to run counter.

I mean, when 9/11 occurred and the town emptied out on 9/12, 9/13 and 9/14, one single customer, with two out of the three wings of the hotel closed, came and lost $20-odd million alone in the building.

So you never know what can happen in these places.

That's good news and bad news, I guess.

Your next question comes from Robin Farley with UBS.

My question has been answered already.

Thanks.

Okay, Robin.

Thanks.

Hello Robin.

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

Good afternoon.

It appears that you may have changed the accounting for revenues and expenses in the quarter, from either -- put some of the promotional allowances maybe into the expense line.

So [inaudible - technical difficulty] is that right?

No, we have not.

Steve Wynn.

What made you say that?

Did we confuse you somehow?

No.

It's just the gross margins on F&B looked low versus the first quarter.

That is the seasonality, since we learn your building as well.

That was it.

The rest of my questions were answered.

Do you have anything to say about that?

No.

Dave, do you want to?

Just with the expenses, we have always historically shown them on a cash basis.

So, when you look at the revenue side of the equation, you're seeing them gross.

You really have to look at our revenues on a cash basis to really make that an equitable comparison.

But there's no change from prior periods?

No.

Thank you.

Your next question comes from the line of David Anders with Merrill Lynch.

Hey, Ron, could you give us cap interest or is that in the press release and I just overlooked it?

It's in the press release.

Okay.

Thanks.

Your next question comes from the line of Steve Kent with Goldman Sachs.

Hi.

Maybe just to discuss this hold issue just a little bit more.

Just in those last few weeks, was the hold percentage because people didn't stay at the tables long enough?

When you measure that, could you give a sense for how that laid out?

And then also, I normally wouldn't link this, but the promotional expenses, which is maybe what Celeste was talking about, the promotional expenses as a percentage of gross revenues were roughly around 12% and usually you talk about it being 14%, 15% or 13%.

So just wanted to make sure that I wasn't missing something there.

You're, actually -- you asked, first of all, did they not stay long enough, I thought they stay too long.

No, no, they were there all right.

As a matter of fact, they hung in there, and it was a scream.

Look, there is two things that I want to remind everybody about.

You know how we keep the books in a casino.

Handle drop is measured by cash in the box plus markers, which are cash equivalents.

The other pieces of paper in the box are things that have to do with table inventory adjustments up or down, bills and credits of chips.

But the cash - and the cash and the markers make up the handle.

Unlike New Jersey, in Nevada, when a guy sits down at a Baccara table and that's where all the credit is, for all intents and purposes.

And he says, give me $1 million.

And the box -- everything is on television.

Everything is being permanently recorded digitally now, understand.

And in high definition, practically, a [lamer], a piece of plastic that says 1 million goes up on the table, underneath the camera in front of the chip rack.

And a $1 million in chips gets slid over, usually in the form of a stack of $50,000 chips, 20 of them.

And the guy starts to play.

If he wins, he very often slides -- let's say, he wins, he gets up, he's betting $150,000 a hand, three chips every roll, and he gets it with standard deviation, it's nothing for him to get $1 million ahead.

So, the guy gets 2 or 3 million chips in front of him, which is a normal two-hour piece of business in this game, and he slides one stack back and says, I'm giving you back the marker.

The lamer goes down, the chips go back into rack.

There is no handle.

So, when players are winning, handle goes down.

Now, at the end of every eight-hour shift, we consolidate the markers, we make the customer sign and that goes into the box.

So when the players are losing, handle goes up.

Similarly, when the handles -- when the players are winning, we don't give discounts and things like that because we only give discounts when they lose.

So the combined number of complementaries and discounts is reduced when the hold percentage is directly proportional.

Promotional allowance is directly proportional to the hold percentage.

And the customers are particularly delighted and less demanding when they're winning.

And they stay at the table longer when they're winning.

So, they don't have as much chance to go drink Le Philippe Rothschild.

Of course, I'm oversimplifying it, being a cute about this.

But do you get my drift on the answer of that question?

Yes, I understand.

Thanks.

Okay.

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

Hey, guys.

Couple of things.

One housekeeping.

For the rest of the year, how do you want us to see depreciation, especially with the opening coming up?

And also where do you think -- does this level of corporate, or the eight plus plus options or is it going to ramp-up a little bit with the opening?

I'm sorry, Larry.

The first part of your question relates to --

How do we want --

We're not going to go ahead and put our guidance out on depreciation.

We'll get to it as we open up in Macau.

Okay.

How about corporate expense, Ron?

Corporate expense, you should kind of use -- the first quarter was a little light.

You should kind of use where we were at the second quarter going out for the rest of the year.

Okay.

Could you guys go over the schedule of the expansion in Macau?

You're phasing in the gaming capacity over three months -- May, June, July or whatever.

Am I getting that right?

Well, we're done with the first phase II --

Phase II is what I'm asking about.

Phase II is broken into halves -- Phase II A and B for lack of a better return.

And if you can picture this hotel, there's a high-rise that sticks up and looks curving, just like the one in Las Vegas.

And then, there's a podium building down below.

We've got a 15, 16-acre site there.

And the hotel, it's the Wynn Macau current hotel and its retail promenade and all of its restaurants are on the west side of the property.

And going east, there were another four acres or so that we didn't use in front of the garage, four or five acres.

And the podium building was expanded.

It's two floors.

The podium building was expanded to the east towards Hong Kong and the ferry terminal and towards the Sands and that way.

And that has already been done.

It's all framed in.

That building exists.

It's not finished on the inside, but the podium building occupies the entire base of the property now, the whole 16 acres.

And inside that is the bottom floor, which is a continuation of the existing public area, and that part, which you can call Phase II-A, is finished in May.

And it includes a casino, a restaurant, a theater, more stores and the new feature on the entrance corner closest to Galaxy.

And it's something that no one's ever seen before that we are very proud of that's being constructed now, which is a public entertainment attraction as was the volcano and the pirate ships and the dancing waters of Bellagio and now the fire and the dancing waters of Wynn Macau.

The water feature is on the far western corner where the [processor] is on the northwestern corner of our square.

And the newer lobby that I'm describing to you that's inside the building is on the northeastern corner of the building.

As you go through the lobby and the animated feature that's in there, you go up escalators to the second floor, which is 20-odd thousand, 30,000 feet roughly.

I could be off on my footage.

But it takes up the whole second floor, second level of Phase II.

And that has room for a restaurant, break areas, slot machines and another 150 games.

And that's Phase II-B.

Now, what I did was we had drawn Phase II-B.

We had complete drawings for II-B and I asked my builder -- and that space is pretty much column free with a very high ceiling and a high-load floor.

You can put anything up there.

Wanting to know a little bit more about Macau, I decided to put a three-month hold on the second floor of Wynn Macau, so that in case something dramatic occurred to all of us, that I would have one more bite at that apple, one more turn to change the mix in II-B.

And I figured that we would answer the questions that are burning inside of us now by November or December at the latest.

That would postpone Phase II-B from June to September and I felt it was well worth it to give us that option.

And we talk about it in the press release, opening by the end of 2007.

Yes, depend on -- if I go ahead with what we planned and just made the casino bigger the way guys have been doing in Macau so far, then we can have it 70 or 90 days later.

But suppose that I change it?

Suppose that we find out that what we really need is an abracadabra, for lack of a better term, something that we did not plan on, then I'd have to design that and that could delay the use of the second level to the end of the year.

Incidentally, for what it's worth, since I put that hold on the space, I'm probably more convinced now than I was when I put the hold on it that I'll probably end up doing exactly what we drew and adding more games based upon what we're seeing now and what our expectation is.

And if that's the case, then I'll make the decision in October, which will shorten the time dramatically from the end of the year to sometime in the summer or early fall.

So, I hope I'm making this rather murky business --

No actually, you made it very clear.

Thank you, Steve.

The ferry terminal, the new one, I understand it's still trying to get approvals.

Is that going to be a little bit delayed at this point?

The ferry terminal that you're talking about.

The only thing I would think of that provoke that question would be the idea that there'd be one on Taipa over towards -- is that what you're talking about?

Right.

Towards your side, yes.

Well, over -- towards Cotai, you mean.

Yes.

That process has not moved any further than in the newspaper.

As far as I know, there hasn't been a final decision made and there certainly hasn't been a construction begun as of this moment.

And that's why I say that many of the things in Cotai will have to mature.

The big moment in Cotai will come, I think, when the Venetian opens.

That's a very big property.

The one that opened up there now, The Grand Waldo, is a straightforward, simple rooms on top of Baccara games.

But the Venetian, as you all know because they talk about it all the time, is a very big integrated resort that substantially enhances the invitation of that sector of the town.

And other hotels that are that ambitious must come along before the energy spools up in that neighborhood.

So I think there's time yet to for the ferry terminal decision.

And I think the government is wrestling with master planning issues every day at Macau as they deal with this explosive growth and all of the ramifications that it has.

The projects that are announced, that are being planned or that will be announced certainly impact the government's thinking, I'm sure.

And we are invited by the government to share with them at the earliest moment what our plans are.

Now, the government in Macau has seen Cotai stuff that we've submitted.

They have seen the things that we have in mind because they had to calculate the premium on our land.

And although we've kept our cards close to our vest with that sort of thing, the government knows about it and they take that into account with some of their issues.

So the ferry terminal is one of those but it hass not yet started.

All right.

Well, thank you, Steve.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers.

Are there any closing remarks?

No, except I hope that we've addressed any of the real important issues that are there.

If there is any -- if we have missed something and anybody listening believes that we have besides our competitors, I invite you to ask yet another question.

And are people able to ask another question if they want to, if they haven't registered?

[OPERATOR INSTRUCTIONS]

I don't want to leave anybody hanging if we have ignored some point of interest.

In that case, I thank everybody for your time.

We'll speak to you again.

And if you've got any free time and money, come to Macau.

Thank you.

This does conclude the Wynn Resorts Limited second quarter conference call.

You may now disconnect.