Las Vegas Sands Corp. — Q2 2011 Form 10-Q
Business context and reporting period. Unaudited results cover the quarter and six months ended June 30, 2011, compared with the same periods in 2010. The company operates integrated resorts in Las Vegas, Bethlehem, Macau and Singapore; it owns 70.3% of Sands China Ltd. Marina Bay Sands, which began opening in April 2010, was a major contributor to year-over-year growth.
Financial performance and liquidity
Amounts below are U.S. dollars; financial statement figures are in millions unless stated otherwise.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net revenue | $2,345 | $1,594 | $4,457 | $2,929 |
| Operating income | $608 | $167 | $1,094 | $309 |
| Net income | $489 | $79 | $854 | $126 |
| Net income attributable to LVS | $411 | $42 | $700 | $59 |
| Net income attributable to common stockholders | $368 | $(5) | $596 | $(34) |
| Basic / diluted EPS | $0.50 / $0.45 | $(0.01) / $(0.01) | $0.82 / $0.73 | $(0.05) / $(0.05) |
- Q2 operating margin was 25.9%, versus 10.5% a year earlier; six-month operating margin was 24.5%, versus 10.5%. Q2 net margin was 20.9%, versus 4.9%.
- Adjusted property EBITDA, a company-defined non-GAAP measure, was $902 million in Q2, up 90.4%; six-month EBITDA was $1.647 billion, up 95.1%.
- Q2 net revenue increased 47.1%; six-month revenue increased 52.1%. Casino revenue was the largest source of growth. Marina Bay Sands generated Q2 revenue of $738 million and Adjusted Property EBITDA of $405 million. Macau growth was led by The Venetian Macao; Las Vegas operating-property EBITDA declined 7.7% for the first half.
- Six-month operating cash flow was $1.082 billion, versus $638 million. Capital expenditures were $721 million; investing cash outflow was $350 million and financing cash outflow was $305 million. Cash and cash equivalents increased $442 million.
- At June 30, cash and cash equivalents were $3.479 billion and restricted cash was $444 million. Total debt was $10.059 billion, including $1.073 billion of current maturities; long-term debt excluding current maturities was $8.985 billion. Total debt was $10.141 billion at year-end 2010.
- Available borrowing capacity under credit facilities was approximately $1.76 billion. Reported leverage ratios were 4.6x for U.S. operations against a 6.5x limit, and 1.4x for relevant Macau operations against a 3.0x limit. Singapore covenant testing was scheduled to begin in Q3 2011.
Material changes versus the prior comparable period
- Growth largely reflects the ramp-up of Marina Bay Sands, which was open for only 65 days in the comparable 2010 first half. Macau revenue and EBITDA also increased. Sands Bethlehem benefited from table games operations launched in July 2010 and its hotel opening in May 2011.
- Las Vegas operating-property revenue was higher in Q2, but six-month Adjusted Property EBITDA fell 7.7%; management cited lower net revenue, including weaker casino activity. Las Vegas room occupancy also declined year over year.
- Six-month operating expenses rose 28.3%, slower than revenue growth of 52.1%. Casino expenses included higher Macau gross-win taxes; doubtful-account provisions increased to $59 million from $35 million, including $31 million at Marina Bay Sands.
- Interest expense, net, fell to $144 million from $155 million for the first half, while the weighted-average interest rate increased to 4.1% from 3.6%. Lower average debt and higher capitalized interest partly offset higher interest costs.
- Common earnings benefited from higher operating profit, but diluted weighted-average shares increased to 811 million from 660 million, reflecting potential dilution from options, restricted stock and warrants.
Outlook, risks and unusual items
- Management said cash, operating cash flow and available credit were expected to fund projects under construction and support covenant compliance. No full-year earnings or revenue guidance was provided.
- The company was refinancing its Macau VML and VOL credit facilities, with $3.7 billion of lender commitments received. Closing was expected in late 2011, subject to documentation and Macau approvals; management expected lower interest expense and maturities extended to 2016, but anticipated a debt-modification or extinguishment loss.
- Sands Cotai Central was being constructed in phases, with parcel 5 opening expected to begin in Q1 2012, the first parcel 6 tower scheduled for Q3 2012, and phase II projected for early 2013. Phases I and II were expected to cost approximately $1.9 billion. Further Cotai development depends on demand, financing, labor and government approvals.
- Marina Bay Sands was expected to require about $478 million more to complete. Sands Bethlehem was expected to require about $40 million; the Four Seasons Apartments in Macau about $110 million. The Las Vegas condominium tower remained suspended, with $178 million of capitalized costs.
- Macau land-concession and deadline risks could result in loss of development rights or impairment charges. The parcels 7 and 8 concession application had been denied and was under appeal; $102 million of related costs had been capitalized. Sands Cotai Central and parcel 3 also face completion deadlines and potential impairment exposure.
- Substantial leverage, variable-rate debt, tightening covenant limits and cross-default provisions are key financing risks. A 100-basis-point rate change was estimated to affect annual interest cost by about $95 million. The company reported $1.15 billion of foreign-subsidiary cash as available for repatriation with virtually no tax consequences; other foreign cash was subject to restrictions or third-party dividend requirements.
- The company disclosed SEC and Department of Justice investigations concerning FCPA compliance and a Hong Kong SFC investigation of Sands China. Management could not estimate the probability or range of loss. Other unresolved matters include shareholder suits, a securities class action and the Suen litigation, remanded for a new trial.
- A June 2011 settlement with GGP concerning The Shoppes at The Palazzo resolved the final purchase-price dispute. Because of continuing participation in future revenues, the company did not account for the transaction as a completed sale and recorded $266 million as deferred proceeds.
- The filing stated that the company intended to redeem outstanding preferred stock on November 15, 2011 at $110 per share; based on June 30 shares outstanding, the stated amount was approximately $842 million. The filing also reported preferred dividends and warrant-exercise inducement costs in the period.
Most important facts for investors to verify
- Progress, final terms and approvals for the Macau refinancing, and resulting debt costs, maturities and covenant headroom.
- Actual project spending, opening schedules, labor availability and required government approvals for Sands Cotai Central, Marina Bay Sands and other developments.
- Cash accessibility across subsidiaries, restricted balances, capital commitments and the cash impact of the planned preferred-stock redemption.
- Whether operating growth persists after separating Marina Bay Sands’ ramp-up and casino win-rate variability from underlying demand and volume trends.
- Developments in the FCPA-related investigations, SFC inquiry, shareholder litigation and Macau land-concession appeals.