Business context and reporting period
Las Vegas Sands Corp. (LVS) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. Its integrated resort, gaming, hotel, retail and convention operations span Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania. LVS owns 70.3% of Sands China Ltd.
Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless otherwise indicated.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net revenue | $2,709m | $2,409m | $8,054m | $6,866m |
| Operating income | $534m | $633m | $1,639m | $1,727m |
| Operating margin | 19.7% | 26.3% | 20.4% | 25.1% |
| Net income | $445m | $505m | $1,310m | $1,359m |
| Net income attributable to LVS | $350m | $425m | $1,089m | $1,125m |
| Diluted EPS | $0.42 | $0.44 | $1.32 | $1.17 |
| Adjusted property EBITDA | $877m | $924m | $2,788m | $2,572m |
Cash, liquidity and debt
- For the first nine months, operating cash flow was $2,173m versus $1,929m. Capital expenditures were $1,063m, leaving approximately $1,110m of operating cash flow after capital expenditures. Investing cash outflow was $1,061m; financing cash outflow was $1,306m.
- Cash and cash equivalents were $3,745m at September 30, 2012, down $157m from year-end 2011. Restricted cash was approximately $8m. Current assets were $5,599m and current liabilities $2,520m.
- Total debt was approximately $9,496m, including $98m of current maturities; long-term debt net of current maturities was $9,398m. Cash less total debt implies net debt of approximately $5,751m.
- Available borrowing capacity under U.S., Macao and Singapore facilities totaled approximately $1,430m, net of letters of credit. Reported leverage ratios were 1.2x for U.S., 1.8x for Macao and 2.6x for Singapore, below respective covenant limits of 5.0x, 4.5x and 4.0x.
- The company reported a $4.16bn Singapore credit facility refinancing in June 2012, repaid U.S. facility, senior note and ferry debt, and recorded $19m in debt modification/early-retirement losses. Management said cash, operating cash flow and facility availability should fund projects under construction and support covenant compliance.
Material changes versus prior comparable periods
- Q3 net revenue rose 12.5%, but operating income fell 15.6%, net income fell 11.9%, and LVS-attributable income fell 17.7%. Expenses rose 22.4%, faster than revenue. Nine-month revenue rose 17.3%, while operating income declined 5.1% and net income declined 3.6%.
- Sands Cotai Central, opened in phases in April and September 2012, contributed $296m of Q3 revenue and $53.7m of Q3 adjusted property EBITDA; nine-month revenue was $561m and EBITDA $105m.
- Q3 adjusted property EBITDA declined 5.1% overall. Marina Bay Sands EBITDA fell 37.0% to $261m, primarily with lower revenue; Macao EBITDA rose 24.3% to $486m. Nine-month total EBITDA increased 8.4%, with Macao growth and U.S. property growth offsetting weaker Singapore performance.
- Provision for doubtful accounts more than doubled: $72.8m in Q3 versus $34.0m, and $183.4m for nine months versus $92.5m. Management attributed the increase to gaming-patron receivables and provisions for specific customers.
- Common shares outstanding increased to 823.4m from 733.2m at December 31, 2011, mainly following exercise of the Principal Stockholder family’s warrants for 87.5m shares and $525m cash proceeds. Nine-month dividends paid were $973m.
Outlook, commentary, risks and unusual items
- Management projected Sands Cotai Central Phase IIB to open in Q1 2013, with approximately $700m remaining cost to complete. Phase III was expected to cost approximately $450m; construction would begin as demand and market conditions warrant. Management intended to raise the quarterly common dividend to $0.35 per share beginning Q1 2013, subject to future action. The October 2012 declared dividend was $0.25 per share.
- The Parisian Macao remained subject to government approval; estimated total development cost was approximately $2.7bn. The company had capitalized $106.8m. The Macao government extended its completion deadline to April 2016. Failure to meet concession deadlines, or obtain further extensions, could jeopardize land rights and investments.
- The Las Vegas condominium tower remained suspended due to weak demand, with $178.9m of capitalized costs. The company also warned that suspended projects could require further impairment if conditions, funding, approvals or management plans prevent completion.
- Nine-month impairment charges were $143.7m: $100.7m for Macao parcels 7 and 8 after withdrawal of an appeal over the land application, and $42.9m related to termination of the ZAiA show.
- The Macao gaming-profit tax exemption was due to expire at the end of 2013; LVS requested a further five-year exemption, with no assurance of approval. Foreign-exchange exposure and variable-rate debt remain risks; a 100-basis-point rate change was estimated to affect annual interest cost by about $95m.
- Significant legal and regulatory matters include SEC and DOJ Foreign Corrupt Practices Act investigations, a Macao data-privacy investigation, and litigation including the Suen, Jacobs and Asian American Entertainment matters. Management could not determine the probability or reasonably possible loss for several matters. A new trial in the Suen matter was set for March 2013; the company said it intended to defend the matters.
- Other cited risks include reliance on Macao, Singapore and Las Vegas, gaming regulation and approvals, competition, tourism and consumer spending, credit losses, construction costs and deadlines, financing access, covenant compliance, and restrictions on subsidiary distributions. Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether Sands Cotai Central’s ramp-up and Phase IIB opening meet the stated timetable and remaining-cost estimate.
- Trends in Marina Bay Sands performance, gaming volumes and win rates, and the substantially higher doubtful-account provisions.
- Debt, facility availability, covenant headroom and the effect of interest-rate or currency movements.
- Approval and renewal status for the Parisian Macao, Macao land-concession deadlines, and the Macao tax exemption after 2013.
- Developments and potential financial exposure from the FCPA investigations and material litigation; the filing does not provide clear loss estimates for several cases.