Las Vegas Sands Corp. — 2014 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2014; it is not a standalone fourth-quarter filing. Las Vegas Sands develops and operates integrated casino resorts in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania. It owns 70.1% of Sands China Ltd. (SCL). Its business combines gaming with hotels, retail, dining and convention facilities.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Net revenue | $14.584 billion | $13.770 billion | +5.9% |
| Operating income | $4.099 billion | $3.408 billion | +20.3% |
| Net income | $3.588 billion | $2.955 billion | +21.4% |
| Net income attributable to LVS | $2.841 billion | $2.306 billion | +23.2% |
| Diluted EPS | $3.52 | $2.79 | — |
| Adjusted property EBITDA | $5.422 billion | $4.763 billion | +13.8% |
| Operating margin | 28.1% | 24.8% | +3.3 percentage points |
Gaming generated $12.004 billion of revenue, up 5.4%; rooms rose 11.6% and mall revenue rose 15.0%. Operating income improved faster than revenue. Adjusted property EBITDA increased in Macao and Singapore, but declined 8.6% in the U.S. The filing reports an effective tax rate of 6.4%, including Macao gaming-profit tax exemption through 2018.
Fourth-quarter 2014 net revenue was $3.416 billion versus $3.656 billion in Q4 2013; operating income was $1.023 billion versus $886 million; net income attributable to LVS was $721 million versus $578 million; diluted EPS was $0.90 versus $0.70.
Operating cash flow was $4.833 billion, up from $4.439 billion. Capital expenditures were $1.179 billion, including $946 million in Macao development. Cash and cash equivalents were $3.506 billion (plus $6.6 million restricted cash); current assets were $5.190 billion and current liabilities $2.712 billion. Long-term debt was $9.893 billion, with total scheduled long-term debt principal of approximately $9.980 billion. The company reported $1.78 billion of available borrowing capacity across its credit facilities, net of letters of credit, and stated cash and operating cash flow should support covenant compliance.
Cash uses included $2.387 billion of dividends paid and $1.677 billion of share repurchases. The quarterly common dividend was raised from $0.50 to $0.65 per share in January 2015; management expected that level to continue quarterly through 2015, subject to Board review.
Material changes versus prior period
- Growth was led by Macao revenue (+$605 million) and Marina Bay Sands (+$246 million); mass-market activity, room revenue and mall revenue strengthened, while VIP rolling-chip volume weakened.
- Macao gaming revenue increased despite a 2.6% decline in the overall Macao market. Rolling-chip volume fell at each disclosed Macao property and at Marina Bay Sands; non-rolling-chip activity generally grew in Macao.
- Adjusted property EBITDA rose 12.4% in Macao and 24.5% at Marina Bay Sands, while Las Vegas Operating Properties fell 10.8% and Sands Bethlehem fell 2.3%.
- Debt increased from $9.383 billion of long-term debt at year-end 2013 to $9.893 billion at year-end 2014. Macao and Singapore facilities were amended or extended in 2014.
Outlook, risks, contingencies and unusual items
The company anticipated The Parisian Macao opening in 2016, subject to government approval, at an estimated total development cost of approximately $2.7 billion. The remaining Sands Cotai Central phase includes the St. Regis tower; its estimated cost to complete was approximately $550 million. The company also continued pursuing global development opportunities. It gave no consolidated earnings or revenue guidance.
Key risks include Macao market weakness and reliance on VIP/junket relationships, mainland China travel and currency policies, gaming-license and concession requirements, competition, high leverage and variable-rate debt, construction execution, and reliance on a small number of markets. The Parisian land deadline was April 2016 and Sands Cotai Central’s was December 2016; failure to obtain further extensions could put land concessions and related capitalized costs at risk. Macao gaming subconcession expires in June 2022; the Singapore casino license was due for renewal in April 2016.
Unusual items included a $90.1 million Marina Bay Sands property-tax refund, which benefited 2014 results; a $19.9 million loss on debt modification or early retirement; and a $47.4 million U.S. Treasury payment in 2013 related to a closed customer investigation. The filing describes a prior cyberattack in which customer and employee information was compromised and other data may have been taken or destroyed. The SEC and DOJ FCPA investigations remained unresolved; management could not estimate a possible loss. A $101.6 million judgment in the Suen matter was under appeal and no reserve was recorded because management considered affirmation not probable and the loss not reasonably estimable. Other litigation included the Jacobs and AAEC matters; outcomes and possible losses were not estimable in the filing.
Management and Deloitte reported effective internal control over financial reporting as of December 31, 2014. The filing nevertheless notes preliminary Audit Committee findings of likely FCPA books-and-records and internal-control violations; the company stated these did not require a restatement or represent a material weakness at year-end.
Important facts for investors to verify
- Whether the Macao slowdown and reduced VIP volumes persist, and whether mass-market growth offsets them.
- Construction progress, remaining costs and government approvals for The Parisian Macao and Sands Cotai Central, including land-deadline extensions.
- Debt maturities, facility availability, covenant headroom, variable-rate exposure and the sustainability of dividends and repurchases.
- Developments in the FCPA investigations, Suen appeal, Jacobs and AAEC litigation, and the consequences of the cyberattack.
- Renewal of the Singapore casino license and the effect of Macao tax arrangements that expire at the end of 2018.