Las Vegas Sands Corp. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a quarterly filing; it also reports fourth-quarter results. Las Vegas Sands develops and operates integrated casino resorts in Macao, Singapore, Las Vegas and Pennsylvania, with gaming, hotels, conventions and retail. It owns 70.3% of Sands China Ltd.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net revenue | $9.411 billion | $6.853 billion |
| Operating income | $2.390 billion | $1.181 billion |
| Net income | $1.883 billion | $782 million |
| Net income attributable to Las Vegas Sands Corp. | $1.560 billion | $599 million |
| Net income attributable to common stockholders | $1.270 billion | $407 million |
| Diluted EPS | $1.56 | $0.51 |
| Operating margin | 25.4% | 17.2% |
| Adjusted property EBITDA | $3.532 billion | $2.229 billion |
| Cash from operating activities | $2.662 billion | $1.870 billion |
| Capital expenditures | $1.508 billion | $2.024 billion |
Net revenue increased 37.3%, while operating income rose 102.4%. Marina Bay Sands’ progressive opening was a primary growth driver: its revenue increased by $1.66 billion year over year and property EBITDA reached $1.531 billion. Macao revenue also grew; U.S. results were mixed, including a 13.3% decline in Las Vegas casino revenue and 31.8% growth in Sands Bethlehem casino revenue. Approximate operating cash flow less capital expenditures was $1.15 billion.
Fourth-quarter 2011 net revenue was $2.544 billion, operating income $663 million, net income $524 million, and net income attributable to Las Vegas Sands Corp. $435 million. Diluted EPS was $0.39; common-stockholder income was $320 million.
Balance sheet, debt and liquidity
At year-end, cash and cash equivalents were $3.903 billion; total assets were $22.244 billion and total equity was $9.439 billion. The balance sheet reported $9.577 billion of long-term debt, excluding current maturities; the debt note showed total debt of approximately $10.033 billion before current maturities. The company reported $1.10 billion available under revolving credit facilities, net of specified commitments and guarantees. Management said cash, operating cash flow and available borrowing capacity were expected to fund projects then under construction and support covenant compliance.
In September 2011, the company entered a $3.7 billion Macao credit facility, refinancing prior Macao facilities and providing funding for Sands Cotai Central. Year-end leverage ratios were 3.9x in the U.S., 2.4x in Singapore and 2.0x in Macao, compared with then-applicable maximums of 6.0x, 5.5x and 4.5x, respectively. Covenants tighten over time. Most debt was variable-rate; management estimated a 100-basis-point rate increase would raise annual interest cost by about $97.5 million. Subsidiary debt restricts distributions to the parent.
Material changes, outlook and risks
- Growth reflected Marina Bay Sands ramp-up, stronger Macao operations and improved Sands Bethlehem results. Adjusted property EBITDA rose 58.5%; Macao and Singapore casino revenues remain exposed to gaming-volume and win-rate variability.
- No quantified company-wide earnings or revenue guidance is provided. Management expected Sands Cotai Central’s first phase to open in April 2012, with further phases planned through early 2013. The filing states phases I and II were expected to cost approximately $1.6 billion to complete.
- Management cited substantial leverage, debt covenants, variable interest rates, reliance on a few markets, competition, credit losses and dependence on travel as material risks. Casino receivables increased, and the doubtful-account provision rose to $150 million from $98 million.
- Macao project deadlines and approvals are significant contingencies. The company said it would be unable to meet the April 2013 Parcel 3 deadline and intended to seek an extension; Sands Cotai Central had a May 2014 deadline. Failure to obtain extensions could jeopardize land concessions and put capitalized costs at risk. The Macao parcels 7 and 8 concession was denied and remained under appeal; $101 million of related costs had been capitalized.
- The SEC and Department of Justice were investigating potential FCPA compliance matters; the company said it was cooperating and could not assess the outcome or potential loss. Certain litigation, including the Suen case set for a new trial in 2013, also had no estimable loss range. Management viewed ordinary-course litigation overall as not expected to have a material adverse effect.
- Unusual items included $145.7 million of preferred-stock-related charges to common-stockholder income and $22.6 million of debt modification or early-retirement losses. No impairment loss was recorded in 2011. After year-end, the company expected a one-time approximately $45 million charge in Q1 2012 from closing the ZAIA show at The Venetian Macao.
- The Macao gaming income-tax exemption and related dividend-tax arrangement were scheduled to expire at the end of 2013; extensions were not assured. The company had redeemed all outstanding preferred stock in November 2011. The principal stockholder’s family indicated it planned to exercise warrants for 87.5 million shares for $525 million in March 2012.
Key facts for investors to verify
- Progress, remaining funding needs and opening schedule for Sands Cotai Central, and whether Macao grants extensions for project deadlines.
- Cash availability at the parent versus subsidiaries, borrowing capacity, covenant headroom and refinancing or maturity requirements.
- Casino receivables, collection experience, doubtful-account reserves and the effect of gaming win-rate volatility.
- Outcome and potential financial impact of the FCPA investigations, pending litigation and the parcels 7 and 8 appeal.
- Whether Macao tax arrangements are extended and the actual timing and amount of the expected ZAIA closure charge.
- Subsequent completion of the planned warrant exercise, related dilution and payment of the declared $0.25-per-share dividend.