LVS

Business Context and Reporting Period

Company: Las Vegas Sands Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2007

Las Vegas Sands Corp. operates integrated resort properties in Las Vegas (The Venetian, Sands Expo Center), Macao (Sands Macao, The Venetian Macao), and is developing projects in Singapore (Marina Bay Sands) and Pennsylvania (Sands Bethworks). The quarter was marked by the August 28, 2007, opening of The Venetian Macao and significant construction activity on The Palazzo in Las Vegas and the Cotai Strip in Macao.

Key Financial Metrics

Note: For the three months ended September 30, 2007, the Company reported a Net Loss of $48.5 million due to high pre-opening expenses and depreciation associated with new openings.

Material Changes vs. Prior Period

• Revenue Growth: Net revenues increased 18.8% year-over-year for the nine months ended September 30, 2007, driven primarily by the opening of The Venetian Macao and growth in Sands Macao's Rolling Chip program.
• Profitability Decline: Net income decreased 76.6% year-over-year. Operating income dropped 51.8% due to a 624% increase in pre-opening expenses ($153.2 million vs. $21.2 million) and a 59.2% increase in depreciation and amortization.
• Debt Expansion: Total debt increased significantly to fund development. The Company entered a new $5.0 billion senior secured credit facility in May 2007 and expanded its Macao credit facility to $3.3 billion.
• Cash Position: Cash and cash equivalents increased from $468.1 million to $1.68 billion, largely due to proceeds from new debt facilities not yet deployed into construction.

Guidance, Outlook, and Risks

• Development Outlook: The Palazzo in Las Vegas is expected to open December 20, 2007. Marina Bay Sands in Singapore is targeted for late 2009, with estimated costs exceeding the previously disclosed $3.6 billion.
• Financing Needs: The Company is actively seeking long-term financing to refinance Singapore credit facilities maturing in August 2008. Failure to secure this financing could require using U.S. credit facilities to fund Singapore construction.
• Working Capital: A $573.1 million deficit in working capital exists because $1.28 billion of Singapore credit facilities are classified as current liabilities pending refinancing.
• Key Risks:
  • Regulatory Approvals: Development on the Cotai Strip (Macao) and Hengqin Island (China) is subject to government concessions. The Company has capitalized $475.1 million in construction costs on Cotai parcels where concessions are not yet granted.
  • Litigation: Ongoing disputes regarding The Palazzo construction (Malcolm Drilling Company) and Macao casino success fees. Management deems the probability of unfavorable outcomes in Macao litigation as remote but cannot determine the outcome of the Palazzo litigation.
  • Interest Rate Sensitivity: Significant exposure to variable interest rates on debt, though managed via interest rate caps.

Investor Verification Checklist

• Refinancing Status: Verify progress on securing long-term financing for the Marina Bay Sands project to replace the Singapore credit facilities maturing in August 2008.
• Cotai Strip Concessions: Monitor the status of land concession approvals for Parcels 2, 3, 5, 6, 7, and 8 in Macao, as failure to obtain them could result in the write-off of $475.1 million in capitalized costs.
• Pre-Opening Expenses: Track the trajectory of pre-opening expenses as The Palazzo opens in December 2007; these are expected to decrease in Q4 2007 but remain a drag on earnings until properties stabilize.
• Debt Covenants: Review compliance with financial covenants (minimum interest coverage and maximum leverage ratios) under the new $5.0 billion U.S. senior secured credit facility and Macao credit facility.
• Construction Costs: Monitor cost estimates for Marina Bay Sands, which are currently projected to exceed $3.6 billion, and The Palazzo, estimated at $2.1 billion.