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LVS > SEC Filings for LVS > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for LAS VEGAS SANDS CORP


10-May-2013

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto, and other financial information included in this Form 10-Q. Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. See "-Special Note Regarding Forward-Looking Statements."

Operations

We view each of our casino properties as an operating segment. Our operating segments in the Macao Special Administrative Region ("Macao") of the People's Republic of China consist of The Venetian Macao Resort Hotel ("The Venetian Macao"); Sands Cotai Central, which opened phases I, IIA and IIB in April and September 2012, and January 2013, respectively; the Four Seasons Hotel Macao, Cotai Strip and the Plaza Casino (collectively, the "Four Seasons Macao"); the Sands Macao; and other ancillary operations in that region ("Other Asia"). Our operating segment in Singapore is the Marina Bay Sands. Our operating segments in the United States consist of The Venetian Resort Hotel Casino ("The Venetian Las Vegas"), The Palazzo Resort Hotel Casino ("The Palazzo") and the Sands Casino Resort Bethlehem (the "Sands Bethlehem"). The Venetian Las Vegas and The Palazzo operating segments are managed as a single integrated resort and have been aggregated into one reportable segment (the "Las Vegas Operating Properties"), considering their similar economic characteristics, types of customers, types of services and products, the regulatory business environment of the operations within each segment and our organizational and management reporting structure.

Macao

We own 70.2% of Sands China Ltd. ("SCL"), which includes the operations of The Venetian Macao, Sands Cotai Central, Four Seasons Macao, Sands Macao and other ancillary operations that support these properties. We operate the gaming areas within these properties pursuant to a 20-year gaming subconcession.

We own and operate The Venetian Macao, which anchors the Cotai Strip, our master-planned development of integrated resort properties on an area of approximately 140 acres in Macao (consisting of parcels referred to as 1, 2, 3 and 5 and 6). The Venetian Macao (located on parcel 1) includes a 39-floor luxury hotel with over 2,900 suites; approximately 374,000 square feet of gaming space; a 15,000-seat arena; an 1,800-seat theater; retail and dining space of approximately 1.0 million square feet; and a convention center and meeting room complex of approximately 1.2 million square feet. Approximately 86.3% and 83.8% of the gross revenue at The Venetian Macao for the three months ended March 31, 2013 and 2012, respectively, was derived from gaming activities, with the remainder derived from room, mall, food and beverage and other non-gaming sources.

In April and September 2012 and January 2013, we opened phases I, IIA and IIB, respectively, of our Sands Cotai Central integrated resort (located on parcels 5 and 6), which is situated across the street from The Venetian Macao and Four Seasons Macao. Phase I consists of a hotel tower on parcel 5, which includes approximately 600 five-star rooms and suites under the Conrad brand and approximately 1,200 four-star rooms and suites under the Holiday Inn brand; more than 350,000 square feet of meeting space; several food and beverage establishments; along with the 230,000-square-foot casino and VIP gaming areas. Phase IIA, includes the first hotel tower on parcel 6, which features approximately 1,800 rooms and suites managed by Starwood Asia Pacific Hotels and Resorts Pte Ltd. and Sheraton Overseas Management Co. (collectively "Starwood") under the Sheraton brand, along with the second casino and additional retail, entertainment, dining and meeting facilities. Phase IIB consists of the second hotel tower on parcel 6 and features approximately 2,100 rooms and suites managed by Starwood under the Sheraton brand. With the completion of phases I and II of the project, the integrated resort features approximately 300,000 square feet of gaming space, approximately 800,000 square feet of retail, dining and entertainment space, over 550,000 square feet of meeting facilities and a multipurpose theater (to open in 2014). Phase III of the project is expected to include a fourth hotel and mixed-use tower, located on parcel 5, to be managed by Starwood under the St. Regis brand and the total cost to complete is expected to be approximately $450 million. We intend to commence construction of phase III of the project as demand and market conditions warrant it. As of March 31, 2013, we have capitalized costs of $4.07 billion for the entire project, including the land premium (net of amortization) and $225.1 million in outstanding construction payables. Approximately 86.7% of the gross revenue at Sands Cotai Central for the three months ended March 31, 2013, was derived from gaming activities, with the remainder derived primarily from room and food and beverage operations.

We own the Four Seasons Macao (located on parcel 2), which is adjacent and connected to The Venetian Macao. The Four Seasons Macao is an integrated resort that includes 360 rooms and suites managed and operated by Four Seasons Hotels Inc., and features 19 Paiza mansions; approximately 108,000 square feet of gaming space; retail space of approximately 260,000 square feet, which is connected to the mall at The Venetian Macao; several food and beverage offerings; and conference, banquet and other facilities operated by us. This integrated resort will also feature the Four Seasons Apartment Hotel Macao, Cotai Strip (the "Four Seasons Apartments"), an apart-hotel tower that consists of approximately 1.0 million square feet of Four Seasons-serviced and -branded luxury apart-hotel units and common areas. We have completed the structural work of the tower and expect to monetize units within the Four Seasons Apartments after the necessary government approvals are obtained and future demand warrants it. Approximately 88.1% and 91.0% of the gross revenue at the Four Seasons Macao for the three months ended March 31, 2013 and 2012, respectively, was derived from gaming activities, with the remainder derived from mall, room and other non-gaming sources.


Table of Contents

We own and operate the Sands Macao, the first Las Vegas-style casino in Macao. The Sands Macao includes approximately 249,000 square feet of gaming space; a 289-suite hotel tower; several restaurants; VIP facilities; a theater and other high-end services and amenities. Approximately 94.2% and 95.0% of the gross revenue at the Sands Macao for the three months ended March 31, 2013 and 2012, respectively, was derived from gaming activities, with the remainder primarily derived from food and beverage operations.

Singapore

We own and operate the Marina Bay Sands in Singapore, which features three 55-story hotel towers (totaling approximately 2,600 rooms and suites), the Sands SkyPark (which sits atop the hotel towers and features an infinity swimming pool and several dining options), approximately 160,000 square feet of gaming space, an enclosed retail, dining and entertainment complex of approximately 800,000 net leasable square feet, a convention center and meeting room complex of approximately 1.2 million square feet, theaters and a landmark iconic structure at the bay-front promenade that contains an art/science museum. In April 2013, we paid 57.0 million Singapore dollars ("SGD," approximately $45.9 million at exchange rates in effect on March 31, 2013) to the Casino Regulatory Authority in Singapore as part of the process to renew our gaming license, which now expires in April 2016. Approximately 76.5% and 78.8% of the gross revenue at the Marina Bay Sands for the three months ended March 31, 2013 and 2012, respectively, was derived from gaming activities, with the remainder derived from room, food and beverage, mall and other non-gaming sources.

United States

Las Vegas

Our Las Vegas Operating Properties, situated on or near the Las Vegas Strip, consist of The Venetian Las Vegas, a Renaissance Venice-themed resort; The Palazzo, a resort featuring modern European ambience and design; and an expo and convention center of approximately 1.2 million square feet (the "Sands Expo Center"). Our Las Vegas Operating Properties represent an integrated resort with approximately 7,100 suites and approximately 225,000 square feet of gaming space. Our Las Vegas Operating Properties also feature a meeting and conference facility of approximately 1.1 million square feet; Canyon Ranch SpaClub facilities; a Paiza Club, offering services and amenities to premium customers, including luxurious VIP suites, spa facilities and private VIP gaming room facilities; entertainment facilities and enclosed retail, dining and entertainment complexes located within The Venetian Las Vegas ("The Grand Canal Shoppes") and The Palazzo ("The Shoppes at The Palazzo"), both of which were sold to GGP Limited Partnership ("GGP"). See "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note
2 - Property and Equipment, Net" regarding the sale of The Shoppes at The Palazzo.

Approximately 63.2% and 61.1% of gross revenue at our Las Vegas Operating Properties for the three months ended March 31, 2013 and 2012, respectively, was derived from room, food and beverage and other non-gaming sources, with the remainder derived from gaming activities. The percentage of non-gaming revenue reflects the integrated resort's emphasis on the group convention and trade show business.

Pennsylvania

We own and operate the Sands Bethlehem, a gaming, hotel, retail and dining complex located on the site of the historic Bethlehem Steel Works in Bethlehem, Pennsylvania. Sands Bethlehem currently features approximately 145,000 square feet of gaming space; a 300-room hotel tower; a 150,000-square-foot retail facility; an arts and cultural center; and a 50,000-square-foot multipurpose event center, which opened in May 2012. We own 86% of the economic interest in the gaming, hotel and entertainment portion of the property through our ownership interest in Sands Bethworks Gaming LLC and more than 35% of the economic interest in the retail portion of the property through our ownership interest in Sands Bethworks Retail LLC. Approximately 88.9% and 89.5% of the gross revenue at Sands Bethlehem for the three months ended March 31, 2013 and 2012, respectively, was derived from gaming activities, with the remainder derived primarily from food and beverage and other non-gaming sources.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to us and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates and we may change our estimates and assumptions in future evaluations. Changes in these estimates and assumptions may have a material effect on our financial condition and results of operations. We believe that these critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. For a discussion of our significant accounting policies and estimates, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented in our 2012 Annual Report on Form 10-K filed on March 1, 2013.


Table of Contents

There were no newly identified significant accounting estimates during the three months ended March 31, 2013, nor were there any material changes to the critical accounting policies and estimates discussed in our 2012 Annual Report.

Recent Accounting Pronouncements

See related disclosure at "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 1 - Organization and Business of Company - Recent Accounting Pronouncements."

Summary Financial Results

The following table summarizes our results of operations:



                                                            Three Months Ended March 31,
                                                                                        Percent
                                                        2013             2012           Change
                                                               (Dollars in thousands)
Net revenues                                         $ 3,302,719      $ 2,762,742           19.5 %
Operating expenses                                     2,476,016        2,055,188           20.5 %
Operating income                                         826,703          707,554           16.8 %
Income before income taxes                               759,556          642,280           18.3 %
Net income                                               703,974          579,109           21.6 %
Net income attributable to Las Vegas Sands Corp.         571,961          498,942           14.6 %




                                                            Percent of Net
                                                               Revenues
                                                          Three Months Ended
                                                               March 31,
                                                           2013           2012
     Operating expenses                                       75.0 %       74.4 %
     Operating income                                         25.0 %       25.6 %
     Income before income taxes                               23.0 %       23.2 %
     Net income                                               21.3 %       21.0 %
     Net income attributable to Las Vegas Sands Corp.         17.3 %       18.1 %


Operating Results

Key Operating Revenue Measurements

Operating revenues at The Venetian Macao, Sands Cotai Central, Four Seasons Macao, Marina Bay Sands and our Las Vegas Operating Properties are dependent upon the volume of customers who stay at the hotel, which affects the price that can be charged for hotel rooms and our gaming volume. Operating revenues at Sands Macao and Sands Bethlehem are principally driven by casino customers who visit the properties on a daily basis.

The following are the key measurements we use to evaluate operating revenues:

Casino revenue measurements for Macao and Singapore: Macao and Singapore table games are segregated into two groups, consistent with the Macao and Singapore markets' convention: Rolling Chip play (all VIP players) and Non-Rolling Chip play (mostly non-VIP players). The volume measurement for Rolling Chip play is non-negotiable gaming chips wagered and lost. The volume measurement for Non-Rolling Chip play is table games drop ("drop"), which is the sum of markers issued (credit instruments) less markers paid at the table, plus cash deposited in the table drop box. Rolling Chip and Non-Rolling Chip volume measurements are not comparable as the amounts wagered and lost are substantially higher than the amounts dropped. Slot handle ("handle"), also a volume measurement, is the gross amount wagered for the period cited.

We view Rolling Chip win as a percentage of Rolling Chip volume, Non-Rolling Chip win as a percentage of drop and slot hold as a percentage of slot handle. Win or hold percentage represents the percentage of Rolling Chip volume, Non-Rolling Chip drop or slot handle that is won by the casino and recorded as casino revenue. Based upon our mix of table games, our Rolling Chip win percentage (calculated before discounts and commissions) is expected to be 2.7% to 3.0% and our Non-Rolling Chip table games have produced a trailing 12-month win percentage (calculated before discounts) of 31.0%, 21.1%, 42.6%, 20.9% and 23.4% at The Venetian Macao, Sands Cotai Central, Four Seasons Macao, Sands Macao and Marina Bay Sands, respectively. Our slot machines have produced a trailing 12-month hold percentage (calculated before slot club cash incentives) of 5.3%, 3.6%, 5.1%, 4.1% and 5.2% at The Venetian Macao, Sands Cotai Central, Four Seasons Macao, Sands Macao and Marina Bay Sands, respectively. Actual win may vary from our expected win percentage and the trailing 12-month win and hold percentages. Generally, slot machine play is conducted on a cash basis. In Macao and Singapore, 31.1% and 28.4%, respectively, of our table games play was conducted on a credit basis for the three months ended March 31, 2013.


Table of Contents

Casino revenue measurements for the U.S.: The volume measurements in the U.S. are table games drop and slot handle, as previously described. We view table games win as a percentage of drop and slot hold as a percentage of handle. Based upon our mix of table games, our table games are expected to produce a win percentage (calculated before discounts) of 20% to 22% at our Las Vegas Operating Properties and 14% to 16% at Sands Bethlehem. Our slot machines have produced a trailing 12-month hold percentage (calculated before slot club cash incentives) of 8.8% and 7.2% at our Las Vegas Operating Properties and at Sands Bethlehem, respectively. Actual win may vary from our expected win percentage and the trailing 12-month hold percentage. As in Macao and Singapore, slot machine play is generally conducted on a cash basis. Approximately 70.1% of our table games play in Las Vegas, for three months ended March 31, 2013, was conducted on a credit basis, while our table games play in Pennsylvania is primarily conducted on a cash basis.

Hotel revenue measurements: Performance indicators used are occupancy rate, which is the average percentage of available hotel rooms occupied during a period, and average daily room rate, which is the average price of occupied rooms per day. The calculations of the hotel occupancy and average daily room rates include the impact of rooms provided on a complimentary basis. Complimentary room rates are determined based on an analysis of retail (or cash) room rates by customer segment and type of room product to ensure the complimentary room rates are consistent with retail rates. Revenue per available room represents a summary of hotel average daily room rates and occupancy. Because not all available rooms are occupied, average daily room rates are normally higher than revenue per available room. Reserved rooms where the guests do not show up for their stay and lose their deposit may be re-sold to walk-in guests. These rooms are considered to be occupied twice for statistical purposes due to obtaining the original deposit and the walk-in guest revenue. In cases where a significant number of rooms are resold, occupancy rates may be in excess of 100% and revenue per available room may be higher than the average daily room rate.

Mall revenue measurements: Occupancy, base rent per square foot and tenant sales per square foot are used as performance indicators. Occupancy represents gross leasable occupied area ("GLOA") divided by gross leasable area ("GLA") at the end of the reporting period. GLOA is the sum of: (1) tenant occupied space under lease and (2) tenants no longer occupying space, but paying rent. GLA does not include space that is currently under development or not on the market for lease. Base rent per square foot is the weighted average base or minimum rent charge in effect at the end of the reporting period for all tenants that would qualify to be included in occupancy. Tenant sales per square foot is the sum of reported comparable sales for the trailing 12 months divided by the comparable square footage for the same period. Only tenants that have been open for a minimum of 12 months are included in the tenant sales per square foot calculation.

Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012

Operating Revenues

Our net revenues consisted of the following:



                                              Three Months Ended March 31,
                                                                         Percent
                                          2013             2012           Change
                                                 (Dollars in thousands)
       Casino                          $ 2,736,054      $ 2,266,493          20.7 %
       Rooms                               325,016          267,727          21.4 %
       Food and beverage                   185,329          153,455          20.8 %
       Mall                                 85,461           71,418          19.7 %
       Convention, retail and other        126,061          129,717          (2.8 )%

                                         3,457,921        2,888,810          19.7 %
       Less - promotional allowances      (155,202 )       (126,068 )       (23.1 )%

       Total net revenues              $ 3,302,719      $ 2,762,742          19.5 %

Consolidated net revenues were $3.30 billion for the three months ended March 31, 2013, an increase of $540.0 million compared to $2.76 billion for the three months ended March 31, 2012. The increase was driven by $587.2 million of net revenues at Sands Cotai Central, which opened in April 2012, partially offset by a $53.8 million decrease at Marina Bay Sands.


Table of Contents

Casino revenues increased $469.6 million compared to the three months ended March 31, 2012. The increase is attributable to $533.8 million at Sands Cotai Central and a $104.7 million increase at The Venetian Macao, driven by increases in Non-Rolling Chip drop and Rolling Chip win percentage. These increases were partially offset by decreases of $76.5 million at Four Seasons Macao, driven by decreases in Rolling Chip volume and win percentage, $61.1 million at Marina Bay Sands, driven by a decrease in Rolling Chip win percentage, and $38.7 million at Sands Macao, driven by a decrease in Rolling Chip win percentage. The following table summarizes the results of our casino activity:

                                             Three Months Ended March 31,
                                          2013              2012          Change
                                                (Dollars in thousands)
    Macao Operations:
    The Venetian Macao
    Total casino revenues             $    778,539      $    673,874         15.5 %
    Non-Rolling Chip drop             $  1,333,891      $  1,105,557         20.7 %
    Non-Rolling Chip win percentage           32.1 %            30.7 %        1.4 pts
    Rolling Chip volume               $ 11,670,922      $ 13,801,574        (15.4 )%
    Rolling Chip win percentage               3.57 %            2.93 %       0.64 pts
    Slot handle                       $  1,191,532      $  1,240,841         (4.0 )%
    Slot hold percentage                       5.5 %             5.6 %       (0.1 )pts
    Sands Cotai Central
    Total casino revenues             $    533,786      $         -            -  %
    Non-Rolling Chip drop             $  1,035,340      $         -            -  %
    Non-Rolling Chip win percentage           21.6 %              -  %         -  pts
    Rolling Chip volume               $ 13,622,405      $         -            -  %
    Rolling Chip win percentage               3.09 %              -  %         -  pts
    Slot handle                       $  1,228,462      $         -            -  %
    Slot hold percentage                       3.9 %              -  %         -  pts
    Four Seasons Macao
    Total casino revenues             $    206,451      $    282,914        (27.0 )%
    Non-Rolling Chip drop             $    110,529      $    105,934          4.3 %
    Non-Rolling Chip win percentage           48.6 %            41.7 %        6.9 pts
    Rolling Chip volume               $  9,480,149      $ 12,703,170        (25.4 )%
    Rolling Chip win percentage               2.21 %            2.83 %      (0.62 )pts
    Slot handle                       $    184,409      $    198,247         (7.0 )%
    Slot hold percentage                       5.0 %             6.0 %       (1.0 )pts
    Sands Macao
    Total casino revenues             $    302,367      $    341,078        (11.3 )%
    Non-Rolling Chip drop             $    763,224      $    707,845          7.8 %
    Non-Rolling Chip win percentage           21.1 %            21.2 %       (0.1 )pts
    Rolling Chip volume               $  6,378,992      $  6,433,477         (0.8 )%
    Rolling Chip win percentage               2.76 %            3.73 %      (0.97 )pts
    Slot handle                       $    706,464      $    663,244          6.5 %
    Slot hold percentage                       3.7 %             4.4 %       (0.7 )pts
    Singapore Operations:
    Marina Bay Sands
    Total casino revenues             $    640,200      $    701,282         (8.7 )%
    Non-Rolling Chip drop             $  1,194,629      $  1,167,013          2.4 %
    Non-Rolling Chip win percentage           23.2 %            22.2 %        1.0 pts
    Rolling Chip volume               $ 18,207,292      $ 12,804,546         42.2 %
    Rolling Chip win percentage               2.51 %            3.58 %      (1.07 )pts
    Slot handle                       $  2,785,320      $  2,740,649          1.6 %
    Slot hold percentage                       5.1 %             5.4 %       (0.3 )pts
    U.S. Operations:
    Las Vegas Operating Properties
    Total casino revenues             $    159,898      $    158,694          0.8 %
    Table games drop                  $    506,395      $    609,019        (16.9 )%
    Table games win percentage                27.6 %            24.0 %        3.6 pts
    Slot handle                       $    495,105      $    483,826          2.3 %
    Slot hold percentage                       8.8 %             8.5 %        0.3 pts


Table of Contents
        Sands Bethlehem
        Total casino revenues        $   114,813      $   108,651         5.7 %
        Table games drop             $   244,694      $   201,504        21.4 %
        Table games win percentage          15.6 %           14.9 %       0.7 pts
        Slot handle                  $ 1,033,931      $ 1,033,651          -  %
        Slot hold percentage                 7.1 %            7.3 %      (0.2 )pts

In our experience, average win percentages remain steady when measured over extended periods of time, but can vary considerably within shorter time periods as a result of the statistical variances that are associated with games of chance in which large amounts are wagered.

Room revenues increased $57.3 million compared to the three months ended March 31, 2012. The increase is attributable to $46.2 million of revenues at Sands Cotai Central, a $7.7 million increase at our Las Vegas Operating Properties, driven by an increase in occupancy, and a $7.4 million increase at Marina Bay Sands, driven by an increase in average daily room rates. The suites at Sands Macao are primarily provided to casino patrons on a complimentary basis. The following table summarizes the results of our room activity:

. . .

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