Las Vegas Sands Corp. — 2012 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2012, filed March 1, 2013. The company develops and operates integrated resorts, casinos, hotels, convention facilities and retail malls in Macao, Singapore and the United States. Sands China Ltd. is 70.2%-owned. Sands Cotai Central opened in phases during 2012; its Phase IIB opened January 28, 2013.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Gross revenue | $11.685 billion | $9.862 billion |
| Net revenue | $11.131 billion | $9.411 billion |
| Operating income | $2.311 billion | $2.390 billion |
| Net income | $1.882 billion | $1.883 billion |
| Net income attributable to LVS | $1.524 billion | $1.560 billion |
| Adjusted property EBITDA | $3.791 billion | $3.532 billion |
| Operating margin | 20.8% | 25.4% |
| Net margin | 16.9% | 20.0% |
- Revenue growth was driven chiefly by Sands Cotai Central, which contributed $1.052 billion of net revenue, and higher revenue at Four Seasons Macao and The Venetian Macao. Casino revenue rose 21.1%; rooms rose 15.4%; mall revenue rose 22.1%.
- Operating expenses grew 25.6%, faster than net revenue, including higher casino taxes and expenses, pre-opening costs, doubtful-account provisions and $143.7 million of impairment charges. The provision for doubtful accounts rose to $239.3 million from $150.5 million.
- Cash from operations was $3.058 billion, up from $2.662 billion. Capital expenditures were $1.449 billion, primarily for Macao projects. Cash and cash equivalents ended the year at $2.513 billion, down from $3.903 billion; financing cash outflow was $3.045 billion, mainly reflecting $3.442 billion in dividends paid.
- Long-term debt was $10.132 billion, or $10.230 billion including current maturities, versus $9.577 billion of long-term debt a year earlier. The company reported $677.1 million of available borrowing capacity under its U.S., Macao and Singapore facilities, net of letters of credit. Management said cash and operating cash flow were expected to support covenant compliance.
- Interest expense, net, declined to $258.6 million from $282.9 million; the weighted-average interest rate reported for total debt fell to 3.0% from 4.0%. Most debt was variable-rate; management estimated a 100-basis-point rate increase would add about $102.3 million to annual interest cost.
- Basic and diluted EPS were $1.89 and $1.85, respectively. The company paid $3.75 per common share in 2012, including a special $2.75 dividend.
Material changes versus the prior comparable period
- Net revenue increased 18.3%, but operating income declined 3.3% and LVS-attributable income declined 2.3%; operating margin contracted by 4.6 percentage points.
- Sands Cotai Central began contributing material revenue and EBITDA. Macao adjusted property EBITDA rose 25.5% to $1.980 billion, while Marina Bay Sands EBITDA fell 10.7% to $1.366 billion, principally reflecting lower revenue and higher doubtful-account and administrative expenses.
- Las Vegas Operating Properties EBITDA was nearly unchanged at $331.2 million; Sands Bethlehem EBITDA increased 25.6% to $114.1 million.
- Casino receivables, net, increased to $1.819 billion from $1.337 billion, while the allowance for doubtful accounts rose to $491.7 million from $275.1 million. The allowance was 27.7% of gross casino receivables, compared with 22.2%.
- Cash declined substantially after large dividends. The company also refinanced Marina Bay Sands debt in June 2012 and drew on U.S. and Singapore revolving facilities late in the year.
Outlook, risks, contingencies and unusual items
- Management expected the quarterly common dividend to continue at $0.35 per share through the remainder of 2013, subject to ongoing board review. This is an expectation, not a guarantee.
- The company planned to pursue approximately $2.0 billion of financing for The Parisian Macao, whose estimated total development cost was approximately $2.7 billion and then-expected opening was late 2015. Sands Cotai Central’s land-concession completion deadline was May 2014; the company expected to seek an extension because it anticipated missing it. The Parisian deadline was April 2016. Failure to obtain extensions could risk the concessions and potential write-offs of capitalized costs.
- Macao gaming tax exemptions and the related dividend-tax arrangement were due to expire at the end of 2013. The company requested a further five-year gaming income-tax exemption; approval was uncertain. The Macao gaming subconcession expires June 2022, with a government redemption right beginning in December 2017.
- Key risks include high leverage and restrictive covenants, variable-rate exposure, reliance on a small number of markets and mainland Chinese visitors, gaming regulation and licensing, competition, construction costs and delays, credit losses on gaming receivables, currency exposure, and dependence on junket operators in Macao.
- Unusual charges included $100.7 million written off on former Cotai parcels 7 and 8 and $42.9 million related to ending the ZAiA show. A $19.2 million debt-modification or early-retirement loss was recorded.
- SEC and DOJ FCPA investigations remained ongoing. The audit committee reported preliminary findings of likely books-and-records and internal-control-provisions violations in prior years; the company stated these findings did not require restatement, did not materially affect the financial statements, and did not constitute a material weakness as of year-end. The company could not estimate the outcome or any loss.
- Other legal matters with uncertain outcomes included the Suen dispute, the former SCL CEO Jacobs litigation, and an Asian American Entertainment claim seeking 3.0 billion patacas (about $375.8 million). Management said ordinary-course claims were not expected to have a material effect, but could not estimate losses for several specified proceedings.
- PricewaterhouseCoopers issued an unqualified audit opinion and reported effective internal control over financial reporting as of December 31, 2012.
Most important facts for investors to verify
- Progress and funding terms for The Parisian Macao and Sands Cotai Central, including extensions of Macao land-concession deadlines and any resulting impairment exposure.
- Debt maturities, covenant headroom, availability of subsidiary cash for parent-company uses, and the amount and terms of additional development financing.
- Whether the Macao tax exemption and dividend-tax arrangement were extended after 2013, and the status of Singapore gaming-license renewal.
- Collections and aging of casino receivables, changes in the doubtful-account allowance, and exposure to VIP gaming volatility and junket counterparties.
- Developments in the FCPA investigations and material litigation, including whether any probable or estimable losses emerge.
- Whether the expected $0.35 quarterly dividend was maintained and how subsequent capital returns affect liquidity and leverage.