Business Context and Reporting Period
Company: Las Vegas Sands Corp. (LVSC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Operations: The Company operates integrated resorts in Las Vegas (The Venetian, The Palazzo), Macao (Sands Macao, The Venetian Macao, Four Seasons Macao), and is developing projects in Singapore (Marina Bay Sands) and the U.S. (Sands Bethlehem, St. Regis Residences). The Company owns a 20-year gaming subconcession in Macao.
Key Financial Metrics (Nine Months Ended Sept 30, 2008)
| Metric | 2008 (in millions) | 2007 (in millions) |
|---|---|---|
| Net Revenues | $3,296.6 | $1,902.1 |
| Operating Income | $198.0 | $196.4 |
| Net Income (Loss) | $(52.2) | $76.8 |
| Diluted EPS | $(0.15) | $0.22 |
| Operating Cash Flow | $217.1 | $219.2 |
| Total Assets | $14,759.4 | $11,466.5 |
| Total Debt (Long-term + Current) | $10,350.4 | $7,572.3 |
| Cash and Cash Equivalents | $1,276.0 | $857.2 |
Adjusted EBITDAR: $819.9 million for the nine months ended September 30, 2008, compared to $578.5 million in the prior year period.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 73.3% year-over-year, driven primarily by the full-year contribution of The Venetian Macao and the opening of The Palazzo in Las Vegas and Four Seasons Macao.
- Net Loss: The Company reported a net loss of $52.2 million compared to net income of $76.8 million in the prior year. This was primarily due to a $132.1 million increase in interest expense (net of capitalized interest) and a $243.5 million increase in depreciation and amortization.
- Debt Levels: Total debt increased significantly to $10.35 billion from $7.57 billion to fund massive capital expenditures ($2.91 billion) for global development projects.
- Segment Performance:
- Las Vegas: Adjusted EBITDAR increased 18.4% due to The Palazzo opening.
- Macao: Sands Macao Adjusted EBITDAR decreased 45.3% due to increased competition and cannibalization by The Venetian Macao. The Venetian Macao Adjusted EBITDAR increased significantly due to full-year operations.
Guidance, Outlook, Risks, and Unusual Items
Going Concern and Liquidity Risks
The filing explicitly states that these factors raise a substantial doubt about the Company's ability to continue as a going concern. The Company failed to meet the maximum leverage ratio covenant for its U.S. senior secured credit facility for the quarter ended September 30, 2008. To maintain compliance, the Company completed a private placement of $475 million in convertible senior notes with its principal stockholder and contributed the proceeds to reduce net debt.
Management expects to be in breach of the leverage ratio for the quarter ending December 31, 2008, unless it raises significant additional capital, reduces spending, or obtains waivers. Failure to do so could trigger cross-defaults, acceleration of debt, and an immediate suspension of global development projects.
Development Project Suspensions
Due to global credit market disruptions, the Company announced on November 10, 2008, the suspension of several projects:
- St. Regis Residences (Las Vegas): Indefinitely suspended.
- Sands Bethlehem (Pennsylvania): Construction of the hotel, retail, and event center suspended; only the casino and parking garage will proceed.
- Cotai Strip (Macao): Construction of Phase I of Parcels 5 and 6 suspended pending project-level financing. Phase II suspended indefinitely.
- Hengqin Island (China): Indefinitely suspended.
Legal Proceedings
A jury returned a verdict against the Company in the Suen litigation for $43.8 million (judgment entered at $58.6 million including interest). The Company is appealing and has not recorded a reserve, believing the loss is not probable or estimable.
Unusual Items
- EBITDA True-Up: The Company utilized a provision allowing it to contribute up to $50 million of capital to Las Vegas operations to increase Adjusted EBITDA for covenant calculations.
- Mall Sale: The sale of The Shoppes at The Palazzo to General Growth Partners (GGP) is not yet complete for accounting purposes due to continuing involvement and uncertainty regarding the final purchase price. $243.9 million of proceeds are deferred.
Investor Verification Checklist
- Covenant Compliance: Verify if the Company has successfully raised additional capital or obtained waivers to avoid default on its U.S. senior secured credit facility for the quarter ending December 31, 2008.
- Financing Status: Confirm the status of the $5.25 billion secured bank financing for Macao projects and the project-level financing for Cotai Strip Parcels 5 and 6.
- GGP Relationship: Monitor the financial health of General Growth Partners (GGP) and the status of the final purchase price adjustment for The Shoppes at The Palazzo, given GGP's liquidity issues.
- Development Costs: Assess the impact of suspended projects on future capital expenditure requirements and potential impairment charges on capitalized construction costs ($4.33 billion on Cotai Strip).
- Legal Outcomes: Track the appeal process for the Suen litigation judgment of $58.6 million.