Las Vegas Sands Corp. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report, not a standalone quarterly filing; selected unaudited fourth-quarter results are summarized below. LVS develops and operates integrated casino resorts, hotels, convention facilities and retail malls in Macao, Singapore, Las Vegas and Bethlehem. It owns 70.1% of Sands China Ltd.
Financial performance and position
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net revenue | $11.69 billion | $14.58 billion | -19.9% |
| Operating income | $2.84 billion | $4.10 billion | -30.7% |
| Operating margin | 24.3% | 28.1% | -3.8 percentage points |
| Net income | $2.39 billion | $3.59 billion | -33.5% |
| Net income attributable to LVS | $1.97 billion | $2.84 billion | -30.8% |
| Diluted EPS | $2.47 | $3.52 | -29.8% |
| Adjusted property EBITDA (non-GAAP) | $4.17 billion | $5.42 billion | -23.1% |
| Cash from operations | $3.45 billion | $4.83 billion | -28.6% |
| Capital expenditures | $1.53 billion | $1.18 billion | +29.7% |
| Long-term debt | $9.37 billion | $9.89 billion | -$520 million |
Cash and cash equivalents were $2.18 billion at year-end, down from $3.51 billion; current assets were $3.61 billion versus current liabilities of $2.46 billion. The company reported $2.97 billion of available borrowing capacity, net of letters of credit. About $1.70 billion of cash was held by non-U.S. subsidiaries; approximately $1.32 billion was stated to be repatriable with minimal taxes. Cash used in financing was $3.21 billion, including $2.69 billion of dividends, $205 million of share repurchases and net debt repayments. The weighted-average debt interest rate was 2.9%; management estimated a 100-basis-point rate increase would raise annual interest cost by about $92 million.
Macao generated $6.90 billion of net revenue and $2.22 billion of adjusted property EBITDA; Marina Bay Sands generated $2.95 billion and $1.51 billion, respectively. U.S. operations generated $2.06 billion of net revenue and $441 million of adjusted property EBITDA. Macao gaming revenue fell sharply, while Sands Bethlehem’s adjusted property EBITDA increased 12.7% and Las Vegas property EBITDA declined 2.7%.
Fourth-quarter results (unaudited)
Q4 2015 net revenue was $2.86 billion, versus $3.42 billion in Q4 2014; operating income was $702 million versus $1.02 billion; net income was $575 million versus $878 million; and net income attributable to LVS was $466 million versus $721 million. Diluted EPS was $0.59 versus $0.90.
Material changes and management commentary
- The principal FY2015 driver was a severe Macao gaming downturn: Macao’s market-wide gaming revenue fell 34.2%. LVS casino revenue declined 24.3% overall, with Macao casino revenue down about $2.65 billion, mainly from lower VIP Rolling Chip volume. Macao property EBITDA fell 31.9%.
- Marina Bay Sands casino revenue declined 10.1%, primarily due to a lower VIP win percentage; its adjusted property EBITDA decreased 12.6%. A $90.1 million property-tax refund had benefited 2014 results.
- Rooms revenue fell 4.6% company-wide, reflecting weaker Macao and Singapore occupancy and room rates; Las Vegas and Bethlehem room revenue improved. Mall revenue increased 1.9%, although reported tenant sales per square foot fell at several major Macao malls.
- Operating expenses decreased 15.6%, largely reflecting lower Macao gaming taxes and junket commissions as gaming revenue declined, plus cost controls. The doubtful-account provision was $156 million, down from $187 million.
Outlook, risks and contingencies
- The Parisian Macao was anticipated to open in the second half of 2016, subject to government approval; expected project cost was approximately $2.7 billion. The St. Regis apart-hotel portion of Sands Cotai Central remained under development. Management cited completion deadlines in November and December 2016 for The Parisian and Sands Cotai Central, respectively. Failure to obtain extensions or meet the deadlines could threaten the land concessions and put up to $1.65 billion and $4.87 billion of capitalized costs, respectively, at risk.
- The company stated that it expected to pay a $0.72 quarterly common dividend through the remainder of 2016, subject to ongoing Board review. This was a stated expectation, not a guarantee; debt agreements restrict subsidiary distributions.
- Management said cash on hand and operating cash flow were expected to support compliance with debt covenants. At year-end, reported leverage ratios were 0.9x for U.S., 1.5x for Macao and 2.3x for Singapore, below their respective covenant limits. Debt maturities are concentrated in 2018–2020, including approximately $5.09 billion in 2020.
- Key exposures include continued weakness or policy restrictions affecting Macao tourism and gaming, competition and new resort capacity, VIP/junket activity and collection of gaming receivables, variable-rate debt, foreign exchange, construction execution, gaming-license and concession requirements, and limits on labor availability. Macao’s gaming subconcession expires in June 2022 and may be redeemable by the government from December 2017; Macao gaming tax arrangements expire at the end of 2018.
- Material legal and regulatory matters include the ongoing SEC/DOJ Foreign Corrupt Practices Act investigations, the Steven Jacobs litigation, and other unresolved claims. Management said it could not determine the probability or reasonably possible loss for several matters; no reserve was recorded for the Suen/Round Square judgment under appeal. The company previously agreed to return $47.4 million to the U.S. Treasury in a customer-related matter, which it reported as closed.
- The company disclosed a 2014 cyberattack that compromised some customer and employee data at its Bethlehem facility and may have destroyed other company data; investigations and assessment remained ongoing. Management could not estimate any resulting loss. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting, and management concluded controls were effective.
Important facts for investors to verify
- Whether Macao VIP and mass-market demand, gaming volumes and junket relationships stabilize, and whether LVS maintains margins as new competitors open.
- Parisian Macao and Sands Cotai Central completion, opening approvals, final costs and land-concession status; also progress toward monetizing the Four Seasons apart-hotel units.
- Debt refinancing and covenant headroom, the 2018–2020 maturity schedule, variable-rate exposure, and the location and accessibility of cash held by subsidiaries.
- Sustainability of the $0.72 quarterly dividend given lower earnings and operating cash flow, continued construction spending and subsidiary distribution restrictions.
- Updates on the FCPA investigations, Jacobs and other litigation, cyberattack consequences, and the renewal of Marina Bay Sands’ casino license, which was due to expire in April 2016.