Las Vegas Sands Corp. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparative period is Q1 2011. Financial statements are unaudited. The company operates integrated casino resorts in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania, and owned 70.3% of Sands China Ltd. at quarter-end.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net revenue | $2.763 billion | $2.112 billion | +30.8% |
| Operating income | $707.6 million | $485.9 million | +45.6% |
| Operating margin | 25.6% | 23.0% | +2.6 percentage points |
| Net income | $579.1 million | $364.5 million | +58.9% |
| Net income attributable to LVS | $498.9 million | $289.3 million | +72.5% |
| Diluted EPS | $0.61 | $0.28 | — |
| Operating cash flow | $667.5 million | $418.4 million | +$249.1 million |
| Capital expenditures | $398.3 million | $332.5 million | +$65.8 million |
Net revenue growth was led by Macao operations and Marina Bay Sands. Segment adjusted property EBITDA, a company-defined non-GAAP measure, rose 43.0% to $1.067 billion: Macao increased 20.5%, Marina Bay Sands 66.1%, Las Vegas 77.7%, and Sands Bethlehem 24.4%. Consolidated net income margin was 21.0%, versus 17.3% in Q1 2011; LVS-attributable net income margin was 18.1%, versus 13.7%.
Balance sheet, debt and liquidity
- At March 31, 2012, cash and cash equivalents were $4.056 billion; restricted cash was approximately $7.3 million. Cash increased $153.6 million during the quarter.
- Total debt was approximately $9.852 billion, including $469.3 million of current maturities; total debt had been approximately $10.033 billion at December 31, 2011. The company reported $1.10 billion of borrowing availability under its U.S., Macao and Singapore facilities, net of letters of credit.
- Total current assets were $5.723 billion and current liabilities $2.493 billion. Total liabilities were $12.573 billion; total equity was $10.298 billion.
- Quarterly cash flows included $398.3 million of capital expenditures and $383.5 million of dividends paid. Financing activity also included $526.2 million of warrant-exercise proceeds and $306.2 million of debt repayments, including redemption of the Senior Notes.
- Company-reported leverage ratios at quarter-end were 2.5x for U.S., 2.2x for Singapore and 1.9x for Macao operations, below respective covenant ceilings of 5.5x, 5.25x and 4.5x. Management said cash, operating cash flow and available borrowings should fund projects under construction and support covenant compliance.
Material changes and unusual items
- Casino revenue increased 36.2%; rooms rose 15.4%, mall 27.8%, and convention, retail and other revenue 19.2%. Marina Bay Sands revenue increased $263.7 million, and Macao revenue increased $290.1 million.
- Pre-opening expense rose to $51.5 million from $9.5 million, primarily for Sands Cotai Central. The resort’s Phase I opened in April 2012, after quarter-end. Phase IIA was scheduled for Q3 2012 and Phase IIB projected for Q1 2013; management estimated $1.2 billion to complete phases I and II.
- The company recorded a $42.9 million impairment charge after terminating the ZAiA show at The Venetian Macao. It also recorded a $2.8 million loss on early retirement of debt after redeeming $191.7 million of Senior Notes.
- On March 2, the Principal Stockholder’s family exercised warrants for 87.5 million common shares at $6 per share, providing $525 million. Common shares outstanding increased from 733.2 million at year-end to 822.7 million at March 31. The company paid a $0.25-per-share dividend in March and declared another $0.25 dividend for June.
- In March, Marina Bay Sands obtained a commitment for a new SGD 5.1 billion credit facility intended to refinance its existing Singapore facility and for general corporate purposes; marketing had commenced. The company said it intended to repay $131.6 million of ferry financing in Q2 2012.
Outlook, risks and contingencies
- Management provided no consolidated earnings guidance. Project timing and costs remain subject to demand, financing and government approvals. Sands Cotai Central completion deadlines could require extensions; failure to obtain extensions could jeopardize land concessions and expose capitalized investments to impairment.
- The Macao government had not approved the land concession for Cotai parcels 7 and 8; a judicial appeal remained pending. The company had capitalized $101.1 million on those parcels. It also had $96.7 million capitalized on parcel 3 and $3.32 billion on Sands Cotai Central.
- Construction of the Las Vegas Condo Tower remained suspended amid weak condominium demand; $178.3 million of costs had been capitalized. The company said the project’s overall cost impact was not determinable.
- Debt covenants include leverage limits that tighten over time. A breach could trigger defaults and certain cross-defaults; the company cautioned it might not be able to repay or refinance accelerated debt. A 100-basis-point change in benchmark rates was estimated to change annual interest cost by approximately $97.5 million.
- The Macao gaming tax exemption was scheduled to expire at the end of 2013 unless extended. Tax examinations and disputed IRS adjustments remained under appeal; the company considered its uncertain tax-position reserves adequate but noted outcomes could differ.
- Material unresolved matters include SEC and Department of Justice investigations concerning FCPA compliance; litigation by former SCL CEO Steven Jacobs; the Suen matter set for a new trial in March 2013; securities and shareholder derivative actions; and an approximately $375 million claim by Asian American Entertainment in Macao. Management could not determine the probability or reasonably possible loss for these matters.
- Management stated that disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Verify sustainability of gaming revenue and win rates, particularly the influence of favorable casino hold and gaming-volume changes on reported growth.
- Track actual Sands Cotai Central phase openings, completion costs, required government extensions and the parcel 7–8 land-concession appeal.
- Confirm closing and terms of the planned Singapore refinancing, subsequent ferry-debt repayment, facility availability and covenant headroom.
- Monitor receivables, the $52.2 million doubtful-account provision and credit exposure to gaming patrons.
- Follow developments and potential financial exposure from the FCPA investigations, AAEC claim, Suen retrial and other litigation, along with the 2013 Macao tax-exemption expiry.