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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
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Commission File Number 333-42147
LAS VEGAS SANDS, INC.
Incorporated pursuant to the Laws of Nevada State
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IRS -- Employer Identification No. 04-3010100
3355 Las Vegas Boulevard South, Room 1A, Las Vegas, Nevada 89109
(702) 414-1000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of registrant
as of March 30, 2000 was $0.
The Company had 925,000 shares of Common Stock outstanding as of March 30, 2000.
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Las Vegas Sands, Inc.
Table of Contents
Part I
Item 1. Business ...................................................1
Item 2. Properties ................................................18
Item 3. Legal Proceedings .........................................19
Item 4. Submission of Matters to a Vote of
Security Holders ..........................................20
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .......................................21
Item 6. Selected Financial Data ...................................22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............23
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk .........................................29
Item 8. Financial Statements and Supplementary Data ...............30
Item 9. Changes In and Disagreements With Accountants
On Accounting and Financial Disclosure ....................49
Part III
Item 10. Directors and Executive Officers of the Registrant ........50
Item 11. Executive Compensation ....................................51
Item 12. Security Ownership of Certain Beneficial Owners and
Management ................................................53
Item 13. Certain Relationships and Related Transactions ............54
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ...............................................57
Signatures ................................................61
PART I
ITEM 1. -- BUSINESS
General
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Las Vegas Sands, Inc. ("LVSI") and its subsidiaries (collectively, the
"Company") own and operate the Venetian Casino Resort (the "Casino Resort"), a
Renaissance Venice-themed resort situated at one of the premier locations on the
Las Vegas Strip (the "Strip"). The Casino Resort is located across from The
Mirage and the Treasure Island Hotel and Casino at the site of the former Sands
Hotel and Casino (the "Sands"). The Casino Resort includes the first all-suites
hotel on the Strip with 3,036 suites (the "Hotel"); a gaming facility of
approximately 116,000 square feet (the "Casino"); an enclosed retail, dining and
entertainment complex of approximately 445,000 net leasable square feet (the
"Mall"); and a meeting and conference facility of approximately 500,000 square
feet (the "Congress Center"). The Casino Resort is physically connected to the
approximately 1.15 million square foot Sands Expo and Convention Center (the
"Expo Center"), one of the largest facilities in the United States specifically
designed for trade shows and conventions. Management believes that the combined
facilities of the Casino Resort and the Expo Center (which is separately owned
by an affiliate of the Company) is one of the largest hotel and meeting
complexes in the United States. Ground breaking for the Casino Resort occurred
in April 1997, the Casino Resort opened on May 4, 1999, the Mall opened on June
19, 1999 and substantial completion was achieved on November 12, 1999.
LVSI was incorporated in 1988 under the laws of the State of Nevada. In
April 1989, LVSI acquired the Sands from MGM Grand. LVSI owned and operated the
Sands from April 1989 to June 1996 when operations ceased to begin demolition
and construction of the Casino Resort. LVSI is the managing member and owner of
100% of the common equity of Venetian Casino Resort, LLC ("Venetian"). Venetian
is the owner and operator of the Hotel and Congress Center, and the owner of the
Casino. Under a casino lease (the "Casino Lease"), Venetian leases the Casino to
LVSI, which conducts all gaming operations in the Casino Resort. Grand Canal
Shops Mall Subsidiary, LLC, an indirect subsidiary of LVSI (the "New Mall
Subsidiary"), owns and operates the Mall. The executive offices of LVSI are
located at 3355 Las Vegas Boulevard South, Room 1A, Las Vegas, Nevada 89109 and
its phone number is (702) 414-1000.
This Annual Report on Form 10-K contains certain forward-looking
statements. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Special Note Regarding Forward-Looking
Statements."
The Casino Resort
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The Hotel
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The Hotel has 3,036 single and multiple bedroom suites situated in a
35-story, three-winged tower rising above the Casino. The lobby features a
65-foot domed ceiling decorated with Venetian-themed fresco-style paintings, a
main passageway formed by a barrel-vaulted ceiling carried on ornamental
columns, and a replica of the unique three dimensional-style marble floors found
in Venetian palaces.
A typical Hotel suite approximates 655 to 735 square feet, consisting of
a raised sleeping area and bathroom and a sunken living/working area. The
suite's bi-level configuration creates a multi-function living space in which
guests can sleep, work or entertain and includes two queen-size beds or one
king-size bed, a writing desk, dual-line speaker phones, a fax machine and a
sitting area. Approximately 318 of the suites are of larger size for use by
gaming customers.
The Hotel leases space to eight restaurants that are located adjacent to
the Casino and five other food outlets located in a Venetian-style market food
court located at the casino level of the Hotel. Live entertainment is offered at
the 50,000 square foot entertainment complex, "C2K". In addition, the Hotel
provides a variety of amenities for its guests, including a state-of-the-art
health spa, operated by Canyon Ranch, with massage and treatment rooms, exercise
and fitness areas. The Hotel also features an outdoor swimming complex
(including three pools, spas, pool bars and cabanas) surrounded by gardens,
waterways, fountains and sculptures. The Hotel has been designed to accommodate
future expansion, including a 1,500-seat showcase theater.
The Casino
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The Casino has 116,000 square feet and is situated adjacent to the Hotel
lobby. The Casino floor is accessible from each of the Hotel, the Mall, the
Congress Center, the Expo Center and the Strip. The Casino is marketed to
attract a broad base of patrons, with a specific focus on frequent premium
gaming customers. The Company markets the Casino directly to this gaming market
segment using database-marketing techniques, slot clubs and traditional
incentives, such as reduced room rates and complimentary meals and suites. The
Company offers "high roller" gaming customers premium suites and special hotel
services.
The Casino and its adjacent amenities are stylized to resemble a Venetian
"palazzo," with architectural and interior design features representative of
Venice's Renaissance era. The ceiling in the table games area feature
fresco-style paintings of Venetian palaces. The gaming facilities include
approximately 2,150 slot machines of various denominations, including popular
multi-property, linked progressive games. A high-end slot area, with a private
lounge, provides slot customers with premium slot products and services. The
Casino's approximately 119 table games (excluding baccarat tables) feature the
traditional games of blackjack, craps and roulette, Asian games, such as "Pai
Gow" and "Pai Gow Poker," and popular progressive table games, such as
"Caribbean Stud Poker" and "Let It Ride." In addition, the Casino offers gaming
customers an upscale sportsbook room, a poker area and an upscale baccarat pit
with 4 baccarat tables. The baccarat pit is specially designed for premium,
"high roller" gaming, with baccarat, blackjack and roulette, direct access to
private cash-out windows at the Casino cage and direct access to the Casino's
credit department.
The Mall
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The Mall offers approximately 445,000 net leasable square feet of
shopping, dining and entertainment space located (i) on two levels within the
Casino Resort's main structure, between the Casino level and the Hotel tower,
and (ii) in a separate approximately 38,000 square foot retail annex adjacent to
the Casino Resort's main structure and accessible from the Strip. The Mall
includes six dining establishments, five food court outlets and 60 retail
stores. Visitors and guests can enter the Mall from several different
directions, including from the Strip via a moving sidewalk, from the main gaming
area of the Casino via escalators, from the Expo Center through the Congress
Center, and directly from the Hotel.
The Mall offers an array of quality dining experiences, including upscale
restaurants that offer international and American regional cuisines. The Mall's
retail offerings include exclusive showcase boutiques, popular brand name
mid-priced stores and themed entertainment concepts. The restaurants and stores
are set along an approximately one-quarter mile Venetian-themed streetscape and
front on the Venetian-themed canal running its length and grouped in
"piazza"-style settings. Store and restaurant facades are designed to project
the Venetian theme.
Expo Center and the Congress Center
-----------------------------------
With over 1.15 million gross square feet of exhibit and meeting space,
including four exhibit halls and 20 meeting rooms, the existing separately owned
and operated Expo Center is one of the largest trade show and convention
facilities in the United States (as measured by net leasable square footage). As
part of the Casino Resort, the Company owns and operates the Congress Center, an
approximately 500,000 gross square foot meeting and conference facility which
links the Expo Center and the rest of the Casino Resort. The Congress Center
includes an approximately 80,000 square foot column-free "Venetian Ballroom," an
approximately 13,500 square foot "Palazzo Ballroom" and a meeting complex of 42
individual rooms which can be combined to create three additional ballrooms.
Together, the Expo Center and the Congress Center offer nearly 1.65 million
square feet of state-of-the-art exhibition and meeting facilities, which can be
configured to provide 108 meeting rooms or accommodate large-scale multi-media
events. Management markets the Congress Center to complement the operations of
the Expo Center by target marketing the Congress Center for business conferences
and upscale business events typically held during the mid-week period. The
Company markets the Congress Center to generate room night demand during the
move-in/move-out phases of Expo Center events. The Company's goal is to draw
from attendees and exhibitors at Expo Center events and from attendees of
Congress Center events to maintain weekday room-night demand at the Hotel from
this higher budget market segment, when room demand would otherwise be derived
from the lower budget tour and travel group market segment.
In 1999, approximately 1,168,000 visitors attended trade shows and
conventions at the Expo Center during 123 show days. The Expo Center hosted 17
events on the 1999 Trade Show Week 200 list of the largest trade shows in the
United States in 1999, including the COMDEX Fall Trade Show, the Spring and Fall
Western Shoe Show and JCK Jewelry Show, as well as the convention of National
Association of Broadcasters, the Automotive Service Industry Association Week
and the International Consumer Electronics Show, each of which were multiple
location events.
It should be noted that the Company has no ownership or financial interest
in the Expo Center or Interface Group-Nevada, Inc. ("Interface"), the owner of
the Expo Center, and does not exercise any control over the business or
management of the Expo Center or Interface. All of the capital stock of
Interface is beneficially owned by Sheldon G. Adelson, the sole stockholder of
the Company (the "Sole Stockholder"). See "Item 13 - Certain Relationships and
Related Transactions."
Venetian, the New Mall Subsidiary and Interface are parties to an Amended
and Restated Reciprocal Easement, Use and Operating Agreement (the "Cooperation
Agreement") which, among other things, provides for the integrated operation of
all the facilities. Under the Cooperation Agreement, Interface, the New Mall
Subsidiary and Venetian allocate expenses shared by the Expo Center and the
Casino Resort. In addition, the Company and Interface jointly market the Hotel
and Casino, the Mall, the Congress Center and the Expo Center. The Cooperation
Agreement provides that until December 31, 2010, Interface will use commercially
reasonable efforts to have the Hotel designated as the "headquarters hotel" for
trade show and convention events at the Expo Center, and the Company will use
commercially reasonable efforts to promote the use and occupancy of the Expo
Center. In order to obtain the Casino Resort's "headquarters hotel" designation,
the Company has agreed with Interface that, except under certain circumstances,
trade shows of the type generally held at the Expo Center will not be held in
the Congress Center. It should be noted that trade show and convention promoters
are under no obligation to select the Casino Resort as the "headquarters hotel"
for their events. See "Item 13 - Certain Relationships and Related Transactions
- - Cooperation Agreement."
Business and Marketing Strategy
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The Company's business strategy is to (i) operate a "must-see" destination
resort at a premier location at the heart of the Strip, (ii) provide a
differentiated superior all-suites product, (iii) capitalize on the link to the
Expo Center and the Congress Center, (iv) utilize the Casino Resort's unique
assets and facilities to appeal to a higher budget customer mix, (v) use the
Casino Resort's themed facilities and location to generate Casino revenues and
(vi) target premium gaming customers.
Create a "Must-See" Destination Casino Resort at the Heart of the Las
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Vegas Strip
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The Casino Resort, with its extensive theming, dining, shopping and
entertainment, is a "must-see" destination resort located at the heart of the
Strip. The Casino Resort is operated to provide visitors with the sense of being
surrounded by the festivity and splendor of Renaissance Venice's architecture,
music, art and history. The Venetian-themed setting along the Casino Resort's
frontage on the Strip includes waterways, gondolas, and replicas of Venetian
landmarks, such as the Doge's Palace, the Rialto Bridge, the Ca Doro and the
Campanile Tower. The Mall features a one-quarter mile Venetian streetscape, with
intimate "piazza"-style settings and a 630-foot canal running its length, with
gondolas and waterside cafes and crossed by authentically styled Venetian
bridges.
The Casino Resort has approximately 740 feet of frontage on the east side
of the Strip and is located next to Harrah's and across from some of the most
visited casino resorts and attractions on the Strip, including The Mirage, the
Treasure Island Hotel and Casino and The Forum Shops at Caesars Palace Hotel.
Provide a Differentiated Superior All-Suites Product
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The Hotel offers the only all-suites product with first-class services and
facilities on the Strip. In management's experience, business and leisure
travelers consider suites desirable, superior accommodations. For business
travelers, the Hotel's suites, which accommodate informal business meetings and
social gatherings, offer guests a unique, single location in which to work and
entertain in close proximity to the Expo Center and the Strip. Leisure travelers
appreciate both the Hotel's spacious suites and extensive facilities. The
Company believes that the all-suites format, together with the Casino Resort's
many other unique attributes, result in a highly differentiated resort product,
and provide a competitive advantage over other Strip hotel/casino properties and
resorts.
The typical Hotel suite ranges in size from approximately 655 square feet
to 735 square feet (compared to 360 to 400 square feet on average for a standard
room in competing facilities on the Strip), and consists of a sunken
living/working area and a raised sleeping area with a marble bathroom. The suite
living/working areas include a sitting area and a writing desk and offer
business amenities such as dual-line speakerphones, a fax machine and dataport
access. The bathrooms are oversized, featuring a separate bathtub and shower,
dual sinks and a phone. In addition, the Hotel offers larger suites, including
the "Presidential" and penthouse suites.
Capitalize on the Link to the Expo Center and the Congress Center
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The Casino Resort is the first themed entertainment resort in Las Vegas
designed specifically to accommodate large-scale trade shows, conventions,
conferences and meetings. The Expo Center and the Congress Center provide
recurring, predictable demand for mid-week room nights from business travelers.
During 1999, approximately 1,168,000 visitors attended trade shows and
conventions at the Expo Center. Pursuant to the Cooperation Agreement, the owner
of the Expo Center markets the Casino Resort to promoters of Expo Center trade
show conventions and other events as the "headquarters hotel" for such events.
The Casino Resort offers attendees of events at the Expo Center and the Congress
Center the most convenient hotel accommodations in Las Vegas.
Appeal to a Higher Budget Customer Mix
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Management markets the Casino Resort to attract higher budget business
travelers and free and independent travelers, resulting in a higher budget
customer mix both on weekdays and weekends. By appealing to customers in these
market segments, the Company has reduced its reliance on the lower-budget tour
and travel market. Management believes that business travelers typically pay
more for rooms and spend more on entertainment than weekday customers in other
categories, such as tour groups. Management believes that the Casino Resort's
central location adjacent to the Expo Center and the Strip and its all-suites
hotel product will allow it to compete effectively for the higher budget
mid-week trade show, convention and meeting attendees. On both weekdays and
weekends, the all-suites product at the Hotel appeals to free and independent
leisure travelers and "high-roller" gaming customers, also segments of the
travel market that spend more on rooms and entertainment.
Use the Casino Resort's Themed Facilities and Location to Generate Casino
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Revenues
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Management believes the Casino captures gaming revenues from (i) the foot
traffic generated by Expo Center and Congress Center events, (ii) Hotel guests,
(iii) the foot traffic generated by shoppers and diners at the Mall and (iv)
visitors attracted to the Casino Resort's unique, Venetian-themed facilities.
The Casino Resort includes a concentration of some of the finest restaurants in
Las Vegas, brand name and exclusive boutique shopping, and themed entertainment
concepts. Restaurants are leased and operated by several well-known
restaurateurs, such as Wolfgang Puck, to operate their "signature" restaurants
at the Casino Resort. In addition, the Casino Resort has leased out a 50,000
square foot entertainment complex, "C2K", located partly in the Mall and partly
in the Hotel. The combination of brand name awareness and extensive theming
generates significant foot traffic for the Casino Resort. The Casino Resort has
been designed so that foot traffic from the Strip, the Expo Center, the Congress
Center and the Hotel are funneled through the Casino floor in order to attract
and retain a broad base of Casino patrons.
Target Premium Gaming Customers
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Management believes that the Casino Resort's all-suites product, themed
atmosphere and amenities offer gaming customers a unique Las Vegas experience.
The Company markets the Casino to frequent premium gaming customers. In
particular, the Company seeks to attract "high roller" gaming customers by
offering premium suites and special hotel services. Because of the all-suites
format in the Hotel, the Casino Resort is able to offer many gaming customers
complementary suites (considered premium accommodations in Las Vegas) during
high occupancy periods such as weekends and holidays when they would not
otherwise be offered such suites by the Company's competitors. The Company
believes that the premium gaming customer is a significant market segment that
has been inadequately addressed by the Casino Resort's competitors. The Casino
Resort is the first all-suites resort on the Strip with facilities and amenities
designed from inception to attract and serve premium gaming customers.
The Las Vegas Market
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Las Vegas is one of the fastest growing and largest entertainment markets
in the country. Las Vegas hotel occupancy rates are among the highest of any
major market in the United States. According to the Las Vegas Convention and
Visitors Authority ("LVCVA"), the number of visitors traveling to Las Vegas has
increased at a steady and significant rate for the last ten years from 18.1
million visitors in 1989 to 33.8 million visitors in 1999, a compound annual
growth rate of 5.3%. In addition, the population of Las Vegas has grown from
approximately 863,000 in 1990 to approximately 1,321,319 in 1999, a compound
growth rate of 4.8%. Management believes that the growth in the Las Vegas market
has been enhanced as a result of a dedicated program by the LVCVA and major Las
Vegas hotels to promote Las Vegas as a major vacation and convention site, the
increased capacity of McCarran International Airport and the introduction of
large, themed destination resorts in Las Vegas.
Las Vegas as a Trade Show, Convention and Meeting Destination
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In 1999, Las Vegas was the most popular trade show destination (with a 25%
market share of the Trade Show Week 200 Shows in terms of net square footage)
and the fourth most popular convention destination in the United States. In
1989, approximately 1.5 million persons attended trade shows and conventions in
Las Vegas and spent approximately $1.1 billion. In 1999, the number of trade
show and convention attendees had increased to more than 3.8 million and the
amount spent by trade show and convention attendees was approximately $4.0
billion.
Trade shows are held for the purpose of getting sellers and buyers of
products or services together for the purpose of conducting business. Trade
shows differ from conventions in that trade shows typically require substantial
amounts of space for exhibition purposes and circulation. Conventions generally
are group gatherings of companies or groups that require less space for breakout
meetings and general meetings of the overall group. Las Vegas offers trade shows
and conventions a unique infrastructure for handling the world's largest shows,
including the concentration of 45,000 hotel rooms located on the Strip, two
convention centers (the Las Vegas Convention Center and the Expo Center) with a
total of approximately 3.0 million square feet of convention and exhibition
space, convenient air service from major cities throughout the United States and
other countries and significant entertainment opportunities. Plans have been
announced for the addition of 1.0 million square feet of meeting and convention
space to the Las Vegas Convention Center. The expansion of the Las Vegas
Convention Center is expected to bring convention and exhibit space in Las Vegas
to over 4.5 million square feet. In addition, The MGM Grand Hotel and Casino has
constructed a conference and meeting facility of approximately 300,000 gross
square feet. Management believes that Las Vegas will continue to evolve as the
country's preferred trade show and convention destination.
Expanding Hotel Market
----------------------
During 1999, Las Vegas was among the most popular vacation destinations
in the United States. Las Vegas has experienced a period of rapid hotel
development with the number of hotel and motel rooms in Las Vegas increasing by
84%, from 67,391 in 1989 to 120,000 in 1999. Other major properties on the Strip
opened during 1998 and 1999 include The Bellagio, Paris Casino Resort and
Mandalay Bay Resort. The Company expects that the concentration of quality
themed casino hotels and resorts will increase visitor interest in Las Vegas as
a business event and vacation destination, and, as a result, increase overall
demand for hotel rooms, gaming and entertainment.
Growth of Las Vegas Retail Sector and Non-Gaming Revenue Expenditures
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An increasing number of destination resorts are developing non-gaming
entertainment to complement their gaming activities in order to draw additional
visitors. According to the LVCVA, while gaming revenues have increased from $3.4
billion in 1989 to $7.2 billion in 1999, the percentage of an average tourist's
budget spent on gaming has declined from 29.0% in 1989 to 26.0% in 1998, with
non-gaming tourist revenues increasing from $8.5 billion in 1989 to $18.2
billion in 1998. The newer large themed Las Vegas destination resorts have been
designed to capitalize on this development by providing better quality hotel
rooms at higher rates and by providing expanded shopping, dining and
entertainment opportunities to their patrons in addition to gaming.
Infrastructure Improvements
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Clark County and metropolitan Las Vegas have completed several
infrastructure improvements to accommodate the increase in travel to Las Vegas
by all modes of transportation. According to the LVCVA, in 1999 visitors to Las
Vegas arrived by the following methods of transportation: 44% by air; 41% by
auto; 7% by bus; and 8% by recreational vehicle.
McCarran International Airport Expansion. During the past five years, the
facilities of McCarran International Airport have been expanded to accommodate
the increased number of airlines and passengers which it services. The number of
passengers traveling through McCarran International Airport has increased from
17.1 million in 1989 to 33.7 million in 1999. Long-term expansion plans for
McCarran International Airport provide for additional runway and related areas
(a new runway was completed in October 1997 and a new terminal and additional
gates were completed in 1998).
Spring Mountain Road Improvements. A new high-speed off-ramp from
Interstate 15 (the primary vehicular access from Los Angeles) onto Spring
Mountain Road to ease traffic congestion on the Strip was completed in 1999.
Spring Mountain Road becomes Sands Avenue and intersects the Strip adjacent to
the Venetian's 44-acre site. This major interchange is located approximately
one-half mile from the Casino Resort.
Competition
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The casino/hotel industry is highly competitive. Strip hotels compete
with other hotels on the Strip and with other hotels in downtown Las Vegas. The
Casino Resort also competes with a large number of hotels and motels in and near
Las Vegas. Many of the competitors of the Company are subsidiaries or divisions
of large public companies and may have greater financial and other resources
than the Company.
Hotel/Casino Properties
-----------------------
Competitors of the Casino Resort include new themed resorts on the Strip,
such as The Bellagio, Mandalay Bay Resort and Paris Casino Resort. These
projects and others added approximately 11,000 hotel rooms to the Las Vegas
inventory in 1998 and 1999. The Casino Resort may also compete with a planned
second casino resort to be owned by a subsidiary of the Company (the "Phase II
Resort"), to the extent its business is not complementary to that of the Casino
Resort. The future operating results of the Company could be adversely affected
by excess Las Vegas room, gaming, conference center and trade show capacity.
The Company believes that themed resorts are generally more successful at
generating high volume traffic and higher revenues and operating income when
compared with large-scale non-themed properties in Las Vegas.
The Company also believes that recently developed integrated themed
resorts have been more successful than expansions to existing Strip hotels.
Themed resorts compete on the basis of the quality of theming, as well as on
more traditional bases, such as quality of rooms, pricing and location. Themed
resorts tend to be clustered on the Strip, creating a critical mass of
entertainment experiences which generate significant traffic for the themed
resorts as a group, thereby capturing a larger portion of the Las Vegas hotel
and gaming market than non-themed properties. The Company believes that the
existence of other competitive themed resorts in close proximity to the Casino
Resort directly benefits the Casino Resort. The Casino Resort is part of a
cluster of themed properties, which includes The Mirage, the Treasure Island
Hotel and Casino, The Bellagio and The Forum Shops at Caesars Palace Hotel. The
Company believes that the Casino Resort benefits from the significant traffic
drawn to these properties. In addition to the advantages of being a centrally
located, themed resort, the Cooperation Agreement and the Casino Resort's direct
connection with the Expo Center provides the Casino Resort a unique tie-in with
one of the premier trade show and convention facilities in the United States.
With these competitive advantages, the Casino Resort is positioned to appeal to
the mid-week meeting, trade show, convention and meeting market composed of
customers who pay higher average room rates and have higher average travel
budgets than other categories of weekday customers, such as tour groups.
The hotel/casino operation of the Casino Resort also competes, to some
extent, with other hotel/casino facilities in Nevada and in Atlantic City, with
hotel/casino facilities elsewhere in the world and with state lotteries. In
addition, certain states have recently legalized, and others may legalize,
casino gaming in specific areas, and passage of the Indian Gaming Regulatory Act
in 1988 has led to rapid increases in Native American gaming operations. Such
proliferation of gaming venues could significantly and adversely affect the
business of the Company. In particular, the legalization of casino gaming in or
near metropolitan areas, such as New York, Los Angeles, San Francisco and
Boston, from which the Company attracts customers, could have a material adverse
effect on the business of the Company. In March 2000, voters in California
approved expanded casino gaming on Native American Reservations in that state.
The expansion of gaming in California could have a material adverse effect on
the business of the Company.
Trade Show and Convention Facilities
------------------------------------
The Expo Center, the Congress Center and Las Vegas generally compete with
trade show and convention facilities located in and around major cities,
including Atlanta, Chicago, New York and Orlando. Within Las Vegas, the Expo
Center and the Congress Center compete with the Las Vegas Convention Center (the
"LVCC") which is located off the Strip and currently has 1.3 million gross
square feet of convention and exhibit facilities. An additional expansion of
over 1.0 million square feet of meeting and exhibition space is planned for the
Las Vegas Convention Center in 2001 (the "LVCC Expansion"). In addition, The MGM
Grand Hotel and Casino has opened a new conference and meeting facility of
approximately 300,000 square feet and several other existing or planned major
Strip hotel/casino properties are intending to expand or construct conference
facilities. The conference and meeting facilities at these hotel/resorts are the
Congress Center's primary competition. However, because none of these
hotel/resorts plan to offer convention and trade show facilities on the same
relative size as the Expo Center (over 1.15 million gross square feet), the LVCC
is expected to remain the primary competitor of the Expo Center. See "Item
3-Legal Proceedings". To the extent that any of the competitors of the Casino
Resort can offer substantial integrated hotel/casino and trade show and
convention or conference and meeting facilities, the Casino Resort's competitive
advantage in attracting trade show and convention meeting and conference
attendees could be adversely affected.
If the LVCC Expansion is successful, the LVCC will be a much more
formidable competitor of the Expo Center and will be able to solely host many
large trade shows which had split space between the LVCC and the Expo Center. To
the extent that the LVCC is able to capture a substantially larger portion of
the trade show and convention business in Las Vegas, there could be a materially
adverse impact on the Company's financial position, results of operations or
cash flows. The Company is currently challenging the legality of the LVCC
Expansion. See "Item 3-Legal Proceedings".
Mall
----
The Mall competes with both themed resorts, which offer shopping, dining
and entertainment opportunities to their patrons and other retail malls in or
near Las Vegas. The Mall's direct competition includes The Forum Shops at
Caesars Palace Hotel and other similar themed mall attractions under
construction, such as the mall under construction on the site of the Aladdin
Hotel and Casino. The Forum Shops at Caesars Palace Hotel may undergo additional
expansions in the future. The Mall also competes with The Fashion Show Mall, a
more traditional mall located near the Casino Resort which currently plans to
undergo expansions which will almost double such facility's size, and the
planned retail, dining and entertainment mall in the Phase II Resort. Mandalay
Group has also announced the development of a retail center near its new
Mandalay Bay Resort.
Advertising and Marketing
- -------------------------
The Company advertises in many types of media, including television,
radio, newspapers, magazines and billboards to promote general market awareness
of the Casino Resort as a unique vacation, business and convention destination
for its first-class hotel, casino, retail stores and restaurants. The Mall
tenants also pursue their own general advertising and promotional activity,
which benefits the Mall. The Company actively engages in direct marketing which
is targeted at specific market segments, such as the meeting, convention and
trade show market and the premium gaming market, and database marketing which
focuses on high frequency, high-margin market segments such as the "high-roller"
gaming market. The Company continues to use a preview center featuring a
full-scale model suite in the Expo Center to market Casino Resort and Expo
Center events.
Agreements Relating to the Casino Resort
- ----------------------------------------
Portions of the Casino Resort (excluding the Mall) first opened to the
general public on May 4, 1999, and the Mall opened to the general public on June
19, 1999. Substantial completion of the Casino Resort was achieved on November
12, 1999, and as of December 31, 1999, construction of the Casino Resort and the
Mall was virtually complete (with only minor punchlist items remaining) and
virtually all construction costs had been paid for. The Company is currently
involved in various lawsuits, has asserted various claims against various
parties, and has had various claims asserted against it by various parties, in
connection with the construction of the Casino Resort. The Company is vigorously
pursuing these claims and vigorously defending itself in all relevant legal
proceedings. See "Item 3 - Legal Proceedings."
Construction Management Contract and Construction Manager's Contract
--------------------------------------------------------------------
Guaranty
- --------
The construction of the principal components of the Casino Resort was
undertaken by Lehrer McGovern Bovis, Inc. (the "Construction Manager") pursuant
to a construction management agreement and certain amendments thereto (as so
amended, the "Construction Management Contract"). The Construction Management
Contract established a final guaranteed maximum price (the "Final GMP") of
$645.0 million, so that, subject to certain exceptions (including an exception
for cost overruns due to "scope changes"), the Construction Manager was
responsible for any costs of the work covered by the Construction Management
Contract in excess of $645.0 million. The Construction Management Contract also
established a required "substantial completion" date (the date on which the
construction of the Casino Resort was sufficiently complete, including the
receipt of necessary permits, licenses and approvals, so that all are components
of the Casino Resort could be open to the general public) of April 21, 1999
(subject to extensions on account of scope changes and force majeure events),
with a per-day liquidated damages penalty for failure to meet such deadline.
The Company paid the Construction Manager a construction management fee of
1 1/2% of the Final GMP, payable in monthly installments.
The obligations of the Construction Manager under the Construction
Management Contract are guaranteed by Bovis, Inc. ("Bovis"), the Construction
Manager's direct parent at the time the Construction Management Contract was
entered into (such guaranty, the "Bovis Guaranty") . Bovis's obligations under
the Bovis Guaranty are guaranteed by The Peninsula and Oriental Steam Navigation
Company ("P&O"), a British public company and the Constructor Manager's ultimate
parent at the time the Construction Management Contract was entered into (such
guaranty, the "P&O Guaranty"). With respect to the Construction Manager's
obligation to complete construction on schedule: (i) for the first 30 days of
any delay in such scheduled completion, the Construction Manager solely (and not
Bovis or P&O) is liable for liquidated damages, (ii) for the 90-day period
thereafter and subject to certain conditions and exceptions, only the insurers
under the LD Policy described below (and not the Construction Manager, Bovis or
P&O), are liable for liquidated damages, and (iii) the Construction Manager,
Bovis and P&O are liable for liquidated damages to the extent, if any, that the
Construction Manager misses the required deadline by more than 120 days.
Liquidated Damages Insurance
----------------------------
The Construction Manager obtained on behalf of the Company (and at the
Company's expense) a liquidated damage insurance policy (the "LD Policy"). The
LD Policy covers (with certain exceptions) liquidated damages for delays of not
less than one month and not more than four months in achieving substantial
completion beyond the date substantial completion is required to be achieved
under the Construction Management Contract.
Cooperation Agreement
---------------------
The Hotel, the Casino and Congress Center, the Mall and the Expo Center,
respectively, though separately owned, are part of an integrally related
project. In order to establish terms for the integrated operation of these
facilities, Venetian (as owner of the Hotel, Casino and Congress Center), the
New Mall Subsidiary (as owner of the Mall ) and Interface (as owner of the Expo
Center) are parties to the Cooperation Agreement. See "Item 13 - Certain
Relationships and Related Transactions - Cooperation Agreement."
Mall Management Contract
------------------------
The New Mall Subsidiary has entered into an agreement with Forest City
Enterprises ("Forest City"), a subsidiary of Forest City Ratner Enterprises, a
leading developer and manager of retail and commercial real estate developments,
whereby Forest City manages the Mall and supervises and assists in the creation
of an advertising and promotional program and a marketing plan for the Mall.
Forest City is also responsible for, among other things, preparation of a
detailed plan for the routine operation of the Mall, collection and deposit
procedures for rents and other tenant charges, supervision of maintenance and
repairs and, on an annual basis, preparation of a detailed budget (including any
anticipated extraordinary expenses and capital expenditures) for the Mall. The
term of the management contract is five years from June 19, 1999, the date the
Mall opened to the public. Forest City receives a management fee of 2% of all
gross rents received from the operation of the Mall; provided that Forest City
will receive a minimum fee of $450,000 per year. Forest City is not affiliated
with the Sole Stockholder or any of his affiliates.
HVAC Services Agreement and Related Documents
- ---------------------------------------------
Atlantic Pacific Las Vegas, LLC (the "HVAC Provider") is a Delaware
limited liability company whose members are (a) an indirect subsidiary of
Atlantic Energy, Inc., a utility holding company and (b) an indirect subsidiary
of Pacific Enterprises, a utility holding company.
Thermal energy (i.e., heating and air conditioning) is provided to the
Casino Resort and the Expo Center by the HVAC Provider using certain heating and
air conditioning- related and other equipment (the "HVAC Equipment"). In
addition, the HVAC Provider provides other energy-related services. Pursuant to
the Construction Management Contract, the central HVAC facility (the "HVAC
Plant") was constructed by the Construction Manager on land owned by Venetian,
which land and HVAC Plant has been leased to the HVAC Provider for a nominal
annual rent. The HVAC Equipment is owned by the HVAC Provider, and the HVAC
Provider has been granted appropriate easements and other rights so as to be
able to use the HVAC Plant and the HVAC Equipment to supply thermal energy to
the Casino Resort and the Expo Center (and, potentially, other buildings), so
long as such easements do not materially interfere with the operations of the
Casino Resort and the Expo Center. The HVAC Provider paid all costs ("HVAC
Costs") in connection with the purchase and installation of the HVAC Equipment,
which costs totaled $70 million. Venetian acted as the HVAC Provider's agent to
cause such purchase and installation to be accomplished. The HVAC Provider has
entered into separate service contracts (collectively, the "HVAC Service
Agreements") with (i) Venetian; (ii) Interface; and (iii) the New Mall
Subsidiary, for the provision of heat and cooling requirements at agreed-to
rates. The charges payable by all users include a fixed component derived using
a fixed annual interest rate of 7.1% applied to the HVAC Costs paid by the HVAC
Provider to recover a portion of the fair value of the HVAC Equipment over the
initial term of the service contracts and leave an agreed-upon residual value.
In addition, the users reimburse the HVAC Provider for the annual cost of
operating and maintaining the HVAC Equipment and providing certain other energy
related services, and pay the HVAC Provider a management fee of $500,000 per
year. Each user is allocated a portion of the total agreed-to charges and fees
through its service contract, which portion includes paying 100% of the cost of
services in connection with the HVAC Equipment relating solely to such user.
Each user is not liable for the obligations of the other users; provided,
however, that the New Mall Subsidiary is liable for the obligations of each Mall
tenant. The HVAC Service Agreements have an initial term of ten years, and
provide that upon expiration of such term users will have the right, but not the
obligation, to collectively either extend the term of their agreements for two
consecutive periods of five years each or purchase the HVAC Equipment in
accordance with purchase provisions set forth in the service contracts.
Agreements Relating to the Phase II Resort
- ------------------------------------------
The Casino Resort was developed on a stand-alone basis as the first phase
of the planned two-phase redevelopment at the site of the demolished Sands. In
the planned second phase of the redevelopment, it is contemplated that a
wholly-owned, indirect subsidiary of Venetian (the "Phase II Subsidiary") will
construct and develop the Phase II Resort, which also is planned to be a themed
resort. In the event the Phase II Resort is not constructed, the Casino Resort
has all the attributes and facilities to operate as a stand-alone resort. See
"Item 13 - Certain Relationships and Related Transactions - Possible Conflicts
of Interest."
If the Phase II Resort is constructed, the following agreements may be
entered into by the Phase II Subsidiary and its subsidiaries, on the one hand,
and the Company, Venetian and the New Mall Subsidiary, on the other hand:
Casino Lease
------------
If the Phase II Resort is constructed, in order to avoid the need for a
separate gaming license for the Phase II Subsidiary, LVSI or Venetian may
operate the casino for the Phase II Resort pursuant to a lease (the "Phase II
Casino Lease"). The Phase II Casino Lease may have terms substantially similar
to the Casino Lease. The Company or Venetian, as the case may be, may agree that
they shall operate the casino in the Phase II Resort and the Casino in
substantially similar manners, and the Company or Venetian, as the case may be,
may agree to have common gaming and surveillance operations in such casinos
(based on equal allocations of revenues and operating costs).
Phase II HVAC Services Agreement
--------------------------------
The Cooperation Agreement permits the owner of the land on which the
Phase II Resort will be built (the "Phase II Land") to enter into an HVAC
Services Agreement to receive HVAC services from the HVAC Plant. Any such
agreement would have to be on terms satisfactory to the HVAC Provider. See "Item
13 - Certain Relationships and Related Transactions - Cooperation Agreement."
Phase I - Phase II Joint Operation Arrangements
-----------------------------------------------
With respect to the future development of the Phase II Resort, the
Cooperation Agreement provides that, prior to the commencement of construction
of the Phase II Resort, Venetian may approve the plans and specifications for
the Phase II Resort, subject to the rights of certain lenders of the Company to
approve any construction or operation of a restaurant or retail mall complex
located in the Phase II Resort and connected to the Mall. Additionally, Venetian
and the Phase II Subsidiary will agree in good faith, and upon commercially
reasonable terms, on: (i) appropriate mutual operating covenants for the Hotel
and the Casino and the Phase II Resort other than the mall in the Phase II
Casino Resort (the "Phase II Mall"), (ii) joint marketing and advertising of the
Hotel and the Casino and the Phase II Resort other than the Phase II Mall, (iii)
certain shared casino operations at the Hotel and the Casino and the Phase II
Resort other than the Phase II Mall, (iv) the sharing of customer information
with respect to the Hotel and the Casino and the Phase II Resort other than the
Phase II Mall, (v) the joint purchasing of insurance for the Hotel and the
Casino and the Phase II Resort other than the Phase II Mall, (vi) shared
security operations for the Hotel and the Casino and the Phase II Resort other
than the Phase II Mall and (vii) any other matters that would be of mutual
benefit in owning and operating the Hotel and the Casino and the Phase II Resort
other than the Phase II Mall.
Regulation and Licensing
- ------------------------
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act") and various local
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the "Nevada Commission"),
the NGCB and the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"
and, together with the Nevada Commission and the NGCB, the "Nevada Gaming
Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Any change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations or on
the operation of the Casino Resort.
The Company is required to be licensed by the Nevada Gaming Authorities to
operate a casino, and is currently so licensed. The gaming license requires the
periodic payment of fees and taxes and is not transferable. The Company was
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, must periodically to submit detailed
financial and operating reports to the Nevada Gaming Authorities and furnish any
other information that the Nevada Gaming Authorities may require. No person may
become a stockholder of, or receive any percentage of profits from, the Company
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company operates the Casino pursuant to the Casino Lease
between LVSI and Venetian, which provides for a fixed monthly rental payment.
The Company possesses all state and local government registrations, approvals,
permits and licenses required in order for the Company to engage in gaming
activities at the Casino Resort.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Venetian
to determine whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and certain key
employees of the Company have been licensed by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing or a
finding of suitability for any cause they deem reasonable. A finding of
suitability is comparable to licensing, both require submission of detailed
personal and financial information followed by a thorough investigation. The
applicant for licensing or a finding of suitability, or the gaming licensee by
whom the applicant is employed or for whom the applicant serves, must pay all
the costs of the investigation. Changes in licensed positions must be reported
to the Nevada Gaming Authorities, and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or to continue having a relationship with the
Company or Venetian, it would have to sever all relationships with such person.
In addition, the Nevada Commission may require the Company to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company must be reported to
or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
registration and gaming licenses it then holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company and the persons involved could
be subject to substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate the Casino Resort and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Casino Resort) could be forfeited
to the State of Nevada. Limitation, conditioning or suspension of any gaming
registration or license or the appointment of a supervisor could (and revocation
of any gaming license would) materially adversely affect the gaming operations
of the Company.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have their suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, the "institutional
investor" as defined in the Nevada Act, which acquires more than 10% but not
more than 15% of the Company's voting securities, may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities that are not deemed to be inconsistent with
holding voting securities for investment purposes only include: (i) voting on
all matters voted on by stockholders; (ii) making financial and other inquiries
of management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or Venetian
it: (i) pays that person any dividend or interest upon voting securities of the
Company; (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person; (iii) pays remuneration
in any form to that person for services rendered or otherwise; or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value. Additionally, the CCLGLB has
taken the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file an application, be
investigated and be found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable to
own such security, then pursuant to the Nevada Act, the Registered Corporation
can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
LVSI is required to maintain a current stock ledger in Nevada that may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
is also required to render maximum assistance in determining the identity of the
beneficial owner. LVSI stock certificates bear a legend indicating that such
securities are subject to the Nevada Act.
LVSI and Venetian may not make a public offering of any securities without
the prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. The hypothecation of the Company's assets and restrictions on stock in
connection with any public offering will require the prior approval of the
Nevada Commission. In addition, the hypothecation of Venetian's assets and
restrictions on stock in respect of any public offering will require the
approval of the Nevada Commission to remain effective.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by any person whereby he or she obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the NGCB and the Nevada Commission
concerning a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process of the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (1) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated.
The Nevada Act also requires prior approval of a plan of recapitalization
proposed by the Company's board of directors in response to a tender offer made
directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax also is paid by the Company where certain entertainment is
provided in a cabaret, nightclub, cocktail lounge or casino showroom in
connection with the serving or selling of food, refreshments or merchandise.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the NGCB and, thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the NGCB of their participation in such foreign gaming. The revolving fund is
subject to increase or decrease at the discretion of the Nevada Commission.
Thereafter, Licensees are also required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or a finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by the Company on the premises of the
Casino Resort is subject to licensing, control and regulation by the applicable
local authorities. The Company has obtained a Clark County gaming license. All
licenses are revocable and are not transferable. The agencies involved have full
power to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse effect
upon the operations of the Company.
Employees
---------
The Company directly employs approximately 4,000 employees in connection
with the Casino Resort. The Casino Resort's employees are not covered by
collective bargaining agreements. Most, but not all major casino resorts
situated on the Strip have collective bargaining contracts covering at least
some of the labor force at such sites. The unions currently on the Strip include
the Local 226 of the Hotel Employees and Restaurant Employees International
Union (the "Local"), the Operating Engineers Union and the Teamsters Union.
Although no assurances can be given, if employees decided to be represented by
labor unions, management does not believe that such representation would have a
material impact upon the Company's results of operations, cash flows or
financial position.
The Local has requested the Company to recognize it as the bargaining agent
for employees of the Casino Resort. The Company has declined to do so, believing
that the future employees are entitled to select their own bargaining agent, if
any. In the past, when other hotel/casino operators have taken a similar
position, the Local has engaged in certain confrontational and obstructive
tactics, including contacting potential customers, tenants and investors,
objecting to various administrative approvals and picketing. The Local has
engaged in such tactics with respect to the Casino Resort and may continue to do
so. Although the Company believes it will be able to operate despite such
dispute, no assurance can be given that it will be able to do so and that such
failure would not result in a material adverse effect on the Company's result of
operations, cash flows or financial position.
ITEM 2. --PROPERTIES
- --------------------
Prior to October 1998, Venetian owned approximately 44 acres of land on or
near the Strip on the site of the former Sands. Such property includes the site
on which the Casino Resort was constructed. Approximately 14 acres of such land
was transferred to the Phase II Subsidiary in October 1998. On December 31,
1999, the Sole Stockholder indirectly contributed an additional 1.75 acres of
land located on the Strip to the Phase II Subsidiary (at its historical cost of
$11.8 million) as a common equity capital contribution. The Phase II Resort is
planned to be constructed adjacent to the Casino Resort.
ITEM 3. --LEGAL PROCEEDINGS
- ---------------------------
The Company is party to litigation matters and claims related to its
operations and the construction of the Casino Resort. Except as described below,
the Company does not expect that the final resolution of these matters will have
a material impact on the financial position, results of operation and cash flows
of the Company.
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. This complaint was amended by the Company on
November 23, 1999 to add Bovis' guarantor, P&O, as an additional defendant. The
suit is intended to ask the courts, among other remedies, to require the
Construction Manager and its guarantors to pay its contractors, to compensate
Venetian for the Construction Manager's failure to perform its duties under the
Construction Management Contract and to pay the Company the agreed upon
liquidated damages penalty for failure to meet the guaranteed substantial
completion date. Venetian seeks total damages in excess of $50.0 million. The
Construction Manager subsequently filed motions to dismiss the Company's
complaint on various grounds, which the Company opposed. The Construction
Manager's principal motions to date have either been denied by the court or
voluntarily withdrawn.
In response to Venetian's breach of contract claims against the
Construction Manager, Bovis and P&O, the Construction Manager filed a complaint
on August 3, 1999 against Venetian in the District Court of Clark County,
Nevada. The action alleges a breach of contract and quantum meruit claim under
the Construction Management Contract and also alleges that Venetian defrauded
the Construction Manager in connection with the construction of the Casino
Resort. The Construction Manager seeks damages, attorney's fees and costs and
punitive damages. In the lawsuit, the Construction Manager claims that it is
owed $145.6 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager , which also filed an
additional complaint against the Company relating to work done and funds
advanced with respect to the contemplated development of the Phase II Resort.
Based upon its preliminary review of the complaints, the fact that the
Construction Manager has not provided Venetian with reasonable documentation to
support such claims, and the Company's belief that the Construction Manager has
materially breached its agreements with the Company, the Company believes that
the Construction Manager's claims are without merit and intends to vigorously
defend itself and pursue its claims against the Construction Manager in any
litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. As of December 31, 1999,
the Company had purchased surety bonds for virtually all of the claims
underlying these liens (other than approximately $15.0 million of claims with
respect to which the Construction Manager purchased bonds). As a result, there
can be no foreclosure of the Casino Resort in connection with the claims of
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have and is in the process of
investigating a variety of other defenses to the liens that have been filed,
including, for example, the fact that the Construction Manager and its
subcontractors previously waived or released their right to file liens against
the Casino Resort. The Company intends to vigorously defend itself in any lien
proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under the LD Policy that it has a claim under the LD Policy. The LD
Policy provides insurance coverage for the failure of the Construction Manager
to achieve substantial completion of the portions of the Casino Resort covered
by the Construction Management Contract within 30 days of the April 21, 1999
deadline, with a maximum liability under the LD Policy of approximately $24.1
million and with coverage being provided, on a per-day basis, for days 31-120 of
the delay in the achievement of substantial completion. Because the Company
believes that substantial completion was not achieved until November 12, 1999,
the Company's claim under the LD Policy is likely to be for the above-described
maximum liability of $24.1 million. The Company expects the LD Policy insurers
to assert many of the same claims and defenses that the Construction Manager has
or will assert in the above-described litigations. Liability under the LD Policy
may ultimately be determined by binding arbitration.
On July 8, 1999, the Company and other competitors filed an action in the
Eighth Judicial District Court for the State of Nevada challenging the actions
of the Board of the LVCVA with respect to the LVCC Expansion, as well as the
LVCVA's financing through proposed sale of "revenue bonds". In that litigation,
the Company and others alleged inter alia that the LVCVA engaged in violations
of Nevada's Open Meeting Law, and further alleged that the proposed bonds were
not "revenue" bonds and thus could not be issued without prior approval of the
voters of Clark County, Nevada. After a trail on the merits of that case, the
Court rendered a decision in favor of the LVCVA and against the plaintiffs. On
December 22, 1999, the Company filed a Notice of Appeal of the State Court
Action to the Supreme Court of the State of Nevada. For more information on the
LVCC as a competitor, see "Item 1-Business - Competition - Trade Show and
Convention Facilities".
All of the pending litigation described above is in preliminary stages and
it is not yet possible to determine its ultimate outcome. If any litigation or
other proceedings concerning the claims of the Construction Manager or its
subcontractors were decided adversely to the Company, such litigation or other
lien proceedings could have a material effect on the financial position, results
of operations or cash flows of the Company.
ITEM 4. --SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------
Not applicable.
PART II
ITEM 5.--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Market Information
- ------------------
There is no established trading market for the common stock of LVSI and
the Company is not aware of any bid quotations for the common stock of LVSI.
Holders
As of March 30, 2000, the Sole Stockholder was the only holder of record
of the common stock of LVSI.
Dividends
- ---------
LVSI did not pay any dividends in 1999 or 1998. The Company's current
long-term debt arrangements prohibit or restrict the payment of cash dividends.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Item 8 -Financial
Statements and Supplementary Data - Notes to Financial Statements - Note 8
Long-Term Debt."
ITEM 6. --SELECTED FINANCIAL DATA
- ---------------------------------
The historical selected financial data set forth below should be read in
conjunction with "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K. The statement of
operations data for the years ended December 31, 1999, 1998 and 1997, and the
balance sheet data at December 31, 1999 and 1998 are derived from, and are
qualified by reference to, the audited financial statements included elsewhere
in this Annual Report on Form 10-K. The statement of operations data for the
years ended December 31, 1996 and 1995 and the balance sheet data at December
31, 1997, 1996 and 1995 are derived from the Company's audited financial
statements that do not appear herein. The historical results are not necessarily
indicative of the results of operations to be expected in the future.
================================================================================
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
================================================================================
Year-Ended December 31,
-----------------------
1999(1) 1998 1997
--------- --------- ---------
Gross revenues $ 283,919 $ 937 $ 895
Promotional allowance (25,045) -- --
--------- --------- ---------
Net revenues 258,874 937 895
Operating expenses 255,061 8,822 (1,727)
--------- --------- ---------
Operating income
(loss) 3,813 (7,885) 2,622
Interest expense, net (68,847) (21,878) (3,142)
--------- --------- ---------
Net loss before
extraordinary item (65,034) (29,763) (520)
--------- --------- ---------
Loss on early
retirement of debt (589)
Net Loss $ (65,623) $ (29,763) $ (520)
========= ========= =========
Per Share Data
Basic and diluted
loss per share
before extra-
ordinary item $ (85.87) $ (46.93) $ (0.56)
========= ========= =========
Basic and diluted
loss per share
before extra-
ordinary item $ (86.51) $ (46.93) $ (0.56)
========= ========= =========
OTHER DATA
Capital expenditures $ 319,106 $ 508,399 $ 130,827
Cash dividends per
common share $ -- $ -- $ 29.84
As of December 31
-----------------
1999 1998 1997
---- ---- ----
BALANCE SHEET DATA
Total assets $1,209,602 $1,005,944 $ 747,767
Long-term debt 907,754 744,154 515,612
Stockholders' equity 15,706 67,937 111,347
<FN>
- ----------
(1) Operations of the Sands ceased in June 1996 to accommodate demolition of
the facility and the construction of the Casino Resort. The Casino Resort
opened May 4, 1999.
</FN>
================================================================================
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
================================================================================
Year-Ended December 31,
-----------------------
1996(1)(2) 1995(3)
Gross revenues $ 44,044 $ 95,469
Promotional allowance (3,483) (7,046)
--------- ---------
Net revenues 40,561 88,423
Operating expenses 99,890 84,449
--------- ---------
Operating income
(loss) (59,329) 3,974
Interest expense, net (3,666) (7,352)
--------- ---------
Net loss before
extraordinary item (62,995) (3,378)
--------- ---------
Loss on early
retirement of debt
Net Loss $ (62,995) $ (3,378)
========= =========
Per Share Data
Basic and diluted
loss per share
before extra-
ordinary item $ (68.10) $ (2.54)
========= =========
Basic and diluted
loss per share
after extra-
ordinary item $ (68.10) $ (2.54)
========= =========
OTHER DATA
Capital expenditures $ 18,829 $ 1,661
Cash dividends per
common share $ -- $ --
As of December 31
-----------------
1996 1995
---- ----
BALANCE SHEET DATA
Total assets $114,109 $178,099
Long-term debt -- 120,066
Stockholders' equity 106,335 45,989
<FN>
- ----------
(1) Operations of the Sands ceased in June 1996 to accommodate demolition of
the facility and the construction of the Casino Resort. The Casino Resort
opened May 4, 1999.
(2) Results of operations include a charge for the write-down of property and
equipment of $45,042 resulting from a revaluation of the Company's assets as
of June 30, 1996, the date the Company approved a quasi-reorganization.
(3) Financial data has been restated to reflect the December 1995 merger of LVSI
and Nevada Funding Group, Inc. ("NFG"), the common stock of which was owned
entirely by the Sole Stockholder (the "NFG Merger").
</FN>
ITEM 7.--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 Financial Statements and the notes thereto and
other financial information included elsewhere in this Annual Report on Form
10-K. 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."
General
- -------
The Company owns and operates the Casino Resort, a large-scale
Venetian-themed hotel, casino, retail, meeting and entertainment complex in Las
Vegas, Nevada.
Construction and Construction Costs
-----------------------------------
Substantial completion of the construction of the Casino Resort was
achieved on November 12, 1999. This means that on November 12, 1999, all
components of the Casino Resort were fully constructed and operational, with the
exception of "punchlist" items. As of December 31, 1999, most of these punchlist
items had been completed and the construction of the Casino Resort was virtually
complete. All remaining construction tasks are not expected to interfere with
the day-to-day use and operation of the Casino Resort.
The aggregate project and construction costs for the Casino Resort is
estimated to be approximately $1.05 billion, excluding the costs of acquiring
and installing the HVAC Equipment and land acquisition costs. Virtually all
project and construction costs had been paid as of December 31, 1999. Such costs
were paid from various sources, including (a) loan proceeds under the Notes, the
Bank Credit Facility and the Mall Construction Loan Facility (as such terms are
defined below) and (b) the Sole Stockholder's $25.0 million Completion Guaranty.
See "Item 8--Financial Statements and Supplementary Data - Notes to Financial
Statements - Note 8 Long-Term Debt".
The construction of the principal components of the Casino Resort was
undertaken by the Construction Manager under the Construction Management
Contract. Under the Construction Management Contract, the Construction Manager
agreed to substantially complete the Casino Resort by April 21, 1999. The
Construction Management Contract also established a Final GMP for work included
within the scope of work of the Construction Manager of $645.0 million. Subject
to certain exceptions, if the cost of the work covered by the Construction
Management Contract exceeded the amount of the Final GMP plus the cost of scope
changes, the Construction Manager must pay such excess costs.
The Company believes that substantial completion of the Casino Resort was
not achieved until November 12, 1999, and that the total cost of the work
covered by the Construction Management Contract was approximately $60.0 million
in excess of the Final GMP. The Company believes that it is entitled to receive
a per-day liquidated damages penalty for the Construction Manager's failure to
meet the April 21, 1999 deadline, and that the Construction Manager is
responsible for paying the above-described excess costs. The Construction
Manager has asserted that it was entitled to an extension of the April 21, 1999
deadline and that such excess costs were due to scope changes that the Company
is obligated to pay for, but the Company believes that these claims are
unfounded. The Construction Manger has also made other claims against the
Company. As a result of this dispute, the Company and the Construction Manager
have filed lawsuits against each other and the Construction Manager and its
subcontractors filed mechanics liens against the Casino Resort. For a
description of the construction litigation, see "Item 3 -Legal Proceedings".
On August 9, 1999, the Company notified the insurance companies providing
coverage under the LD Policy that it has a claim under the LD Policy. The LD
Policy provides insurance coverage for the failure of the Construction Manager
to achieve substantial completion of the portions of the Casino Resort covered
by the Construction Management Contract within 30 days of the April 21, 1999
deadline, with a maximum liability under the LD Policy of approximately $24.1
million and with coverage being provided, on a per-day basis, for days 31-120 of
the delay in the achievement of substantial completion. Because the Company
believes that substantial completion was not achieved until November 12, 1999,
the Company's claim under the LD Policy is likely to be for the above-described
maximum liability of $24.1 million. The Company expects the LD Policy insurers
to assert many of the same claims and defenses that the Construction Manager has
or will assert in the above-described litigations. Liability under the LD Policy
may ultimately be determined by binding arbitration.
All of the pending litigation described above and in "Item 3 -Legal
Proceedings" is in preliminary stages and it is not yet possible to determine
its ultimate outcome. If any litigation or other proceedings concerning the
claims of the Construction Manager or its subcontractors were decided adversely
to the Company, such litigation or other lien proceedings could have a material
effect on the financial position, results of operations or cash flows of the
Company.
Waivers; Additional Indebtedness and Equity
-------------------------------------------
On November 12, 1999, the Company entered into various limited waiver
agreements (the "Waivers") with the administrative agent and lenders under (1)
its secured bank credit facility (the "Bank Credit Facility"), (2) its $140.0
million mall construction loan facility (the "Mall Construction Loan Facility"),
(3) its $97.7 million credit facility secured by certain furniture, fixtures and
equipment (the "FF&E Credit Facility") and (4) its funds disbursement and
administration agreement (the "Disbursement Agreement"). Under the Waivers, the
various lenders waived certain defaults and events of default (to the extent, if
any, they existed or may have existed) arising from the litigation with the
Construction Manager, the facts relating to the underlying dispute with the
Construction Manager and the mechanics liens that were filed against the Casino
Resort. As conditions to the effectiveness of the Waivers, the Company and the
Sole Stockholder, among other things (i) agreed to pay a fee to the lenders
under the Bank Credit Facility and the FF&E Credit Facility, (ii) agreed to
purchase surety bonds for all of the mechanics liens and cause the title company
to provide endorsements ensuring that the deeds of trust under the Bank Credit
Facility, the Mall Construction Loan Facility and the Company's $425.0 million
of 12 1/4% Mortgage Notes due 2004 (the "Mortgage Notes") are superior in
priority to all mechanics liens, and (iii) agreed that the Sole Stockholder's
$25.0 million collaterized completion guaranty (the "Completion Guaranty")
would, notwithstanding the prior agreement of the parties providing for
termination of such guaranty upon substantial completion of the Casino Resort,
remain in effect until "final completion" (i.e., the completion of all remaining
punchlist items and the final resolution or settlement of all disputes with the
Construction Manager and subcontractors). In order to be able to purchase the
surety bonds, the Sole Stockholder had to provide a $5.0 million irrevocable
letter of credit as collateral to the bonding company. All of the conditions to
the effectiveness of the limited waivers were satisfied on November 12, 1999.
The Waivers under the Bank Credit Facility and the FF&E Credit Facility also
each provided that the Company could incur additional indebtedness up to an
aggregate principal amount of $15.0 million.
On November 12, 1999, an advance of approximately $23.5 million was made
under the Completion Guaranty. Advances made under the Completion Guaranty up to
$25.0 million are treated as a junior loan from the Sole Stockholder to Venetian
(the "Completion Guaranty Loan") that is subordinated in right of payment to the
indebtedness under the Bank Credit Facility, the FF&E Credit Facility, the
Mortgage Notes and the Company's 14 1/4% Senior Subordinated Notes due 2005 (the
"Senior Subordinated Notes" and, together with the Mortgage Notes, the "Notes").
The Completion Guaranty Loan matures on November 16, 2005 and bears interest at
a rate of 14 1/4% per annum. Although interest may accrue on the Completion
Guaranty Loan, no cash payments with respect to such loan may be made until
senior indebtedness is repaid, except for payments made from certain
construction-related recoveries (including payments received from the
Construction Manager and/or its subcontractors in settlement or disposition of
the disputes described above).
On November 12, 1999, the Sole Stockholder agreed to provide a working
capital facility to LVSI in the form of a subordinated working capital note (the
"Subordinated Note") and the Company borrowed $15.0 million under the
Subordinated Note to fund its working capital requirements (including interest
payments under its indebtedness ). On November 15, 1999, the entire Subordinated
Note was contributed by the Sole Stockholder to LVSI as a common equity capital
contribution.
Because the Company could not access the revolver portion of the Bank
Credit Facility (the "Revolver") from August 3, 1999 to November 12, 1999 while
mechanics liens against the Casino Resort were outstanding, the Sole Stockholder
contributed $7.1 million to Venetian in return for a Series B preferred interest
(the "Series B Preferred Interest") and $16.0 million to LVSI (including
conversion of the $15.0 million Subordinated Note) as a common equity capital
contribution. Also, during the second quarter of 1999, the Company received
$37.3 million from the Phase II Subsidiary (which was funded from indirect
equity contributions by the Sole Stockholder through Venetian as a Series B
Preferred Interest) to reimburse the Company for a portion of the shared
facilities costs between the Casino Resort and the Phase II Resort. During the
fourth quarter, the Sole Stockholder indirectly contributed 1.75 acres of land
on the Strip to the Phase II Subsidiary, which was recorded at its historical
cost of $11.8 million as a common equity capital contribution.
Result of Operations
- --------------------
On June 30, 1996 the Company suspended operations and closed the Sands to
begin the construction of the Casino Resort. The Company's operating income from
June 30, 1996 to May 4, 1999 consisted primarily of rental and royalty income.
Pre-opening activities associated with the opening of the Casino Resort
commenced during the second quarter of 1998 and related costs are included in
operating expenses during 1999 and 1998. Other income and expenses during 1998
and through May 4, 1999 consisted of interest income and non-capitalized
interest expense associated with financing the development of the Casino Resort.
Year Ended December 31, 1999 compared to the Year Ended December 31, 1998
-------------------------------------------------------------------------
Operating Revenues
------------------
During its nearly eight months of operations in 1999, the Company produced
net revenues of $258.9 million, of which $134.4 million and $89.6 million
represented casino and gross hotel revenues, respectively. Revenues from table
games and slots were $78.1 million and $54.8 million, respectively. Operating
profit before interest, depreciation, amortization, rental expense, corporate
and pre-opening expenses was $59.2 million.
For the quarter ended December 31, 1999, the Company produced net revenues
of $115.6 million. Casino revenues totaled $57.0 million and included table
games and slots revenues of $36.3 million and $19.9 million, respectively. The
Company has improved operating results for its two most recent fiscal quarters.
Operating profit before interest, depreciation, amortization, rental expense,
corporate and pre-opening expenses was $34.9 million for the fourth quarter
versus $22.0 million for the third quarter.
Construction disruptions impacted the Company's earnings throughout most
of 1999 as a result of the on-going major construction of the Casino Resort.
Although the Casino Resort opened on May 4, 1999, substantial completion did not
occur until November 12, 1999. These construction disruptions and delays created
inefficiencies during the opening periods of the Casino Resort. These
construction activities also impacted the Casino Resort's service levels and
public image during 1999. In addition, at year-end there were approximately
120,000 hotel and motel rooms in Las Vegas, compared with approximately 109,000
at December 31, 1998. In spite of this increase, there was an increase in
citywide occupancy from 86% to 88% (the 1999 citywide hotel occupancy average)
as the new capacity was absorbed. The Casino Resort's occupancy rate of 82%
generally underperformed the Las Vegas averages as a result of the ongoing
construction activity at the Casino Resort. The 1999 average daily room rate of
the Casino Resort was $159. As of March 2000, all attractions, showroom, spas,
restaurants and retail shops were open in the Casino Resort.
A lower win percentage also impacted the Company's earnings. The table
games win percentage was 17.8% in 1999, compared to the Company's budgeted
average of 20%.
The Company believes that its earnings will continue to improve as it
intensifies marketing efforts toward gaining a larger share of the table games
and slot markets on the Strip and becomes more efficient in operations.
Operating Expenses
------------------
During its nearly eight months of operations in 1999, the Company's total
operating expenses were $231.1 million. Of this amount, $79.1 million
represented casino operating expenses and $25.5 million represented hotel
operating expenses. General and administrative expenses for the period were
$49.9 million.
The Company's provision for bad debts and discounts was $13.7 million in
1999. The Company believes it has established the same credit, collection
standards and reserves as other premium Strip resorts and that actual collection
experience will be well within established reserves. The Company currently
establishes its bad debt reserve based upon a combination of specific account
review and percentage of table games credit volume. The Company will evaluate
this process as it gains collection history over the next year.
After completion of the Casino Resort during the fourth quarter of 1999,
the Company has continued to develop and implement improvements to its service
levels, training of team members, marketing and advertising efforts and profit
margins. A strength of the Casino Resort is its excellent design and
completeness as a competitive resort at the heart of the Strip. Upon the
completion of construction and implementation of the above strategies, the
Company's earnings have shown considerable improvement.
Interest Income (Expense)
------------------------
Reflecting the investments in the Hotel, the Casino and Congress Center
and the Mall, the Company's debt levels and associated interest cost have risen
significantly. With the opening of these new facilities, the Company's
capitalization of interest cost has ceased. Net interest expense was $68.9
million in 1999, compared to $21.9 million in 1998. Subject to interest rate
fluctuations and the effect on the Company's variable rate debt, the Company
currently estimates that its total net interest expense in 2000 will increase to
$105.7 million, including $90.6 million for the Casino Resort (excluding the
Mall) and $15.1 million for the Mall.
Interest income decreased from $17.1 million to $2.6 million for the years
ended December 31, 1999 and 1998, respectively, as a result of expending the
proceeds from the sale of the Notes to fund construction expenses of the Casino
Resort. Construction of the Casino Resort was virtually complete during the
fourth quarter of 1999. The Company capitalized $31.3 million of interest during
the year ended December 31, 1999, versus $39.7 million of interest capitalized
during the year ended December 31, 1998.
Year Ended December 31, 1998 compared to the Year Ended December 31, 1997
- -------------------------------------------------------------------------
Operating Revenues
------------------
Revenues for the years ended December 31, 1998 and 1997 were each $0.9
million and consisted primarily of rental and royalty income.
Operating Expenses
-------------------
Operating expenses during 1998 include pre-opening expenses of $8.7
million. No pre-opening expenses were incurred in 1997. Pre-opening expenses
included payroll, advertising, professional services and other general and
administrative expenses related to the opening of the Casino Resort. The credit
amount reflected in selling, general and administrative expense of $(1.8)
million during 1997 resulted from a re-evaluation of the accrued closing costs
associated with the closing of the Sands. Amortization expense was $0.1 million
for both years.
Interest Income (Expense)
------------------------
Interest income increased to $17.1 million during 1998 from $3.4 million
during 1997, primarily as a result of investing proceeds received from the sale
of the Notes in the aggregate principal amount of $522.5 million on November 14,
1997. The increase in interest expense to $39.0 million, excluding capitalized
interest of $39.7 million, during 1998 from $6.6 million, excluding capitalized
interest of $2.2 million, during 1997 represents the non-capitalized interest
expense resulting from debt incurred related to the financing of the Casino
Resort.
Other Factors Affecting Earnings
- --------------------------------
The Company incurred pre-opening expenses of $21.5 million during the year
ended December 31, 1999. From the inception of the project, the Company expensed
$30.2 million for pre-opening activities. Pre-opening expenses included payroll,
advertising, professional services and other general and administrative expenses
related to the opening of the Casino Resort.
The Company incurred a debt related extraordinary charge during 1999 of
$589,000, relating to the early retirement of debt for the take-out financing of
the Mall. See "Liquidity and Capital Resources - New Mall Subsidiary, Transfer
of Mall Assets and Mall Take-out Financing".
During early 2000, the Company initiated a change to its business strategy
as it relates to premium casino customers and marketing to foreign premium
casino customers. The Company has generally raised its betting limits for table
games to be competitive with other premium resorts on the Strip. There are
additional risks associated with this change in strategy, including risk of bad
debts, risks to profitability margins in a highly competitive market and the
need for additional working capital to accommodate possible higher levels of
trade receivables and foreign currency fluctuations associated with collection
of trade receivables in other countries. The Company has opened domestic and
foreign marketing offices and bank collection accounts in several foreign
countries to accommodate this change in business strategy, thereby increasing
marketing costs.
Liquidity and Capital Resources
- --------------------------------
Venetian Hotel, Casino and Congress Center
------------------------------------------
As of December 31, 1999 and December 31, 1998, the Company held cash and
cash equivalents of $26.3 million and $2.3 million, respectively. On such dates,
the Company also held restricted cash and investments of $11.0 million and
$133.9 million, respectively. Net cash used in operating activities for 1999 and
1998 was $30.0 million and $26.0 million, respectively. The Company's operating
cash flow in 1999 was negatively impacted by a substantial increase in trade
receivables occurring mainly at year-end. The revenues associated with the
receivables are included in the Company's 1999 operating income. Due to the
normal timing of collections, a large portion of the receivables remained
outstanding at the end of 1999, especially those associated with casino credit
granted before the New Year. Net trade receivables at September 30, 1999 were
$33.1 million, and at December 31, 1999 were $43.2 million. The rate of increase
is consistent with the increase in the Company's revenues. The Company expects a
continued increase in trade receivables during 2000 in connection with the
extension of casino credit.
Capital expenditures during 1999 were $319.1 million, consisting primarily
of construction of the Casino Resort. Of the cost expended or incurred during
1999, $74.5 million, $37.3 million and $83.8 million were drawn from the Bank
Credit Facility (including a net of $30.3 million under the Revolver), the Mall
Construction Loan Facility and the FF&E Credit Facility, respectively. The
balance of the capital expenditures represents proceeds from the Notes and
reduction of accruals for construction payables.
On November 12, 1999, an advance of approximately $23.5 million was made
under the Completion Guaranty and, as noted above, is being treated as a
Completion Guaranty Loan. The Sole Stockholder has unlimited liability under the
Completion Guaranty with respect to excess construction costs attributable to
scope changes.
As of December 31, 1999, approximately $6.3 million of construction costs
(excluding construction costs (the "Contested Construction Costs") that are the
subject of the above-described litigations and claims) remained to be paid. Such
remaining costs (excluding the Contested Construction Costs) will be liquidated
from restricted cash balances or settled during the course of 2000. In addition,
the Phase II Subsidiary has outstanding project payables in the amount of $3.9
million to be funded from future equity contributions or borrowings by the Phase
II Subsidiary.
If the Company is required to pay any of the Contested Construction Costs,
the Company may use cash received from the following sources to fund such costs:
(i) the LD Policy, (ii) the Construction Manager, Bovis and P&O pursuant to the
Construction Management Contract, the Bovis Guaranty and the P&O Guaranty,
respectively, (iii) third parties, pursuant to their liability to the Company
under their agreements with the Company, (iv) amounts received from the Phase II
Subsidiary for shared facilities designed and constructed to accommodate the
operations of the Casino Resort and the Phase II Resort, (v) the Sole
Stockholder, pursuant to his liability under the Completion Guaranty, (vi)
borrowings under the Revolver, (vii) additional debt or equity financings, and
(viii) operating cash flow. If the Company were required to pay substantial
Contested Construction Costs, and if it were unable to raise or obtain the funds
from the sources described above, there could be a material adverse effect on
the Company's financial position, results of operations or cash flows. The Sole
Stockholder has remaining liability of approximately $5.0 million under the
Completion Guaranty to fund excess construction costs (which liability is
collaterlized with cash and cash equivalents).
As described below, the Company refinanced the Mall Construction Loan
Facility on December 20, 1999. See - "New Mall Subsidiary, Transfer of Mall
Assets and Mall Take-out Financing".
For the next twelve months, the Company expects to fund its operations and
debt service requirements from existing cash balances, operating cash flow and
borrowings under the Revolver of the Bank Credit Facility. The Revolver loan
commitment will expire on March 15, 2001. As of December 31, 1999, $39.2 million
of the $40.0 million Revolver under the Bank Credit Facility was drawn. During
early 2000, approximately $9.3 million was repaid and the balance on the
Revolver was reduced to $29.9 million. The Company has significant debt service
payments due during 2000, including principal quarterly payments on its Bank
Credit Facility and FF&E Credit Facility aggregating $42.9 million and estimated
total interest payments of $90.6 million for indebtedness secured by the Casino
Resort and $15.1 million for indebtedness secured by the Mall. In addition, the
Company estimates capital expenditures for the Casino Resort of $9.0 million
during 2000. To fund these payments from improved operating cash flow will
require the Company to achieve substantially improved operating results. The
Company anticipates that its existing cash balances, operating cash flow and
available borrowing capacity will provide it with sufficient resources to meet
existing debt obligations and foreseeable capital expenditures requirements,
however, no assurance can be given that the Company will achieve such improved
operating results.
In addition, the Company has had discussions with the administrative agent
under the Bank Credit Facility in order to discuss modifications to the terms of
the Bank Credit Facility, including the expiration date of the Revolver,
schedule of principal payments and financial covenants. The Bank Credit Facility
and the FF&E Credit Facility each provide for a variety of financial tests,
relating to, among other things, the Company's minimum consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA"); consolidated
leverage ratio and fixed charge coverage ratio. These covenants become more
stringent over time to match the scheduled repayment of the Company's
indebtedness. The purpose of the proposed modifications to the Bank Credit
Facility would be to provide additional flexibility and the ability to fund
capital expenditures and possible working capital requirements associated with
the Company's premium casino table games business. Similar financial covenant
modifications would need to be made to the FF&E Credit Facility which has
substantially identical financial covenants.
Although the Company has remained in compliance with the covenants in the
Bank Credit Facility and the FF&E Credit Facility, and expects to be in
compliance during the remainder of 2000, it will be challenged to meet its
minimum EBITDA, leverage and other covenants reflected in such agreements while
also maintaining the flexibility and level of capital expenditure spending that
management believes is necessary for success in the Company's premium casino
business. Depending on the financial results of the next several quarters, no
assurance can be given that without the approval of the Company's bank syndicate
and the FF&E Lender of the proposed modifications that the Company will not need
to otherwise re-negotiate its financial covenants.
If the Company is required to pay certain significant Contested
Construction Costs, or if the Company is unable to meet its debt service
requirements, the Company will seek, if necessary and to the extent permitted
under the indentures governing the terms of the Notes (the "Indentures") and the
terms of the Bank Credit Facility, additional financing through bank borrowings
or debt or equity financings. Also, there can be no assurance that new business
developments or other unforeseen events will not occur resulting in the need to
raise additional funds. There can be no assurance that additional or replacement
financing, if needed, will be available to the Company, and, if available, that
the financing will be on terms favorable to the Company, or that the Sole
Stockholder or any of his affiliates will provide any such financing.
New Mall Subsidiary, Transfer of Mall Assets and Mall Take-Out Financing
-------------------------------------------------------------------------
On November 12, 1999, Grand Canal Shops Mall Construction, LLC transferred
the Mall and related assets ( the Mall and such assets, collectively, the "Mall
Assets") to its subsidiary, Grand Canal Shops Mall, LLC (the "Mall Subsidiary").
Upon such transfer, (i) the Mall Assets were released by the trustee under the
Mortgage Notes and the agent under the Bank Credit Facility and so were no
longer security to the holders of the Mortgage Notes or for the indebtedness
under the Bank Credit Facility, (ii) the indebtedness under the Mall
Construction Loan Facility was assumed by the Mall Subsidiary, and (iii) all
entities comprising the Company, other than the Mall Subsidiary, were released
from all obligations under the Mall Construction Loan Facility.
On December 20, 1999, the Mall Construction Loan Facility was paid off in
full with the proceeds of (a) a $105.0 million first priority take-out loan (the
"Tranche A Take-out Loan") made by Goldman Sachs Mortgage Company, the Bank of
Nova Scotia and others lenders (collectively, the "Tranche A Take-out Lender")
and (b) a $35.0 million second priority take-out loan (the "Tranche B Take-out
Loan" and, together with the Tranche A Take-out Loan, the "Mall Take-out
Financing") made by an entity wholly owned by the Sole Stockholder ( the
"Tranche B Take-out Lender"). The Mall Take-out Financing is secured by
mortgages on the Mall Assets, and the Tranche A Take-out Loan is also secured by
a $20.0 million guaranty made by the Sole Stockholder (the "Mall Take-out
Guaranty"). The annual interest rate on the Tranche A Take-out Loan is 350 basis
points over 30 day LIBOR. The Tranche A Take-out Loan is due in full on December
20, 2002 and no principal payments are due thereunder until such date. The
Tranche B Take-out Loan bears interest at 14% per annum. The initial maturity
date is December 20, 2004 with a right of extension to December 20, 2007. No
principal payments are due until maturity. Also on December 20, 1999, the Mall
Assets were transferred from the Mall Subsidiary to the New Mall Subsidiary, the
obligor under the Mall Take-out Financing.
Because the New Mall Subsidiary is not a guarantor of any indebtedness of
the Company (other than the Mall Take-out Financing), creditors of the Company
(including the holders of the Notes but excluding creditors of the New Mall
Subsidiary) do not have a direct claim against the Mall Assets. As a result,
indebtedness of the entities comprising the Company other than the New Mall
Subsidiary (including the Notes) is now, with respect to the Mall Assets,
effectively subordinated to indebtedness of the New Mall Subsidiary. The New
Mall Subsidiary is not restricted by any of the debt instruments of LVSI,
Venetian or the Company's other subsidiary guarantors (including the Indentures)
from incurring any indebtedness. The terms of the Tranche A Take-out Loan
prohibit the New Mall Subsidiary from paying dividends or making distributions
to any of the other entities comprising the Company unless payments under the
Tranche A Take-out Loan are current, and, with certain limited exceptions,
prohibit the New Mall Subsidiary from making any loans to such entities. Any
additional indebtedness incurred by the New Mall Subsidiary may include
additional restrictions on the ability of the New Mall Subsidiary to pay any
such dividends and make any such distributions or loans.
Phase II Resort and Transfer of Phase II Land
---------------------------------------------
If the Phase II Subsidiary determines to construct the Phase II Resort,
the Phase II Subsidiary will be required to raise substantial debt and/or equity
financings. Currently, there are no commitments to fund any portion of the
construction and development costs of the Phase II Resort. The Phase II Land was
transferred to the Phase II Subsidiary in October 1998. On December 31, 1999, an
additional 1.75 acres of land was contributed indirectly by the Sole Stockholder
to the Phase II Subsidiary.
The development of the Phase II Resort may require obtaining additional
regulatory approvals. The Company does not expect to begin construction on the
Phase II Resort until at least the fourth quarter of 2000 or some time in 2001.
Because the Phase II Subsidiary is not a guarantor of the Company's
indebtedness, creditors of the Company (including the holders of the Notes) do
not have a direct claim against the assets of the Phase II Subsidiary. As a
result, the indebtedness of the Company (including the Notes) is effectively
subordinated to indebtedness of the Phase II Subsidiary. The Phase II Subsidiary
is not subject to any of the restrictive covenants of the debt instruments of
the Company (including, without limitation, the covenants with respect to the
limitations on indebtedness and restrictions on the ability to pay dividends or
to make distributions or loans to the Company and its subsidiaries). Any
indebtedness incurred by the Phase II Subsidiary may include material
restrictions on the ability of the Phase II Subsidiary to pay dividends or make
distributions or loans to the Company and its subsidiaries.
The debt instruments of the Company limit the ability of LVSI, Venetian or
any of their subsidiaries to guarantee or otherwise become liable for any
indebtedness of the Phase II Subsidiary. Such debt instruments also restrict the
sale or other disposition by the Company and its subsidiaries of capital stock
of the Phase II Subsidiary, including the sale of any such capital stock to the
Sole Stockholder or any affiliate of the Sole Stockholder. In addition, prior to
commencement of construction of the Phase II Resort, Venetian has the right to
approve the plans and specifications for the Phase II Resort.
Risk Related to the Subordination Structure of the Mortgage Notes
- -----------------------------------------------------------------
The Mortgage Notes represent senior secured debt obligations of LVSI and
Venetian, secured by second priority liens on the collateral securing the
Mortgage Notes (the "Note Collateral"). However, the guarantees of the Mortgage
Notes by its subsidiaries, Mall Intermediate Holding Company, LLC and Lido
Intermediate Holding Company, LLC (collectively, the "Subordinated Guarantors"),
are unsecured, subordinated debt obligations of the guarantors. The structure of
these guarantees present certain risks for holders of the Mortgage Notes. For
example, if the Note Collateral were insufficient to pay the debt secured by
such liens, or such liens were found to be invalid, then holders of the Mortgage
Notes would have a senior claim against any remaining assets of LVSI and
Venetian. In contrast, because of the subordination provision with respect to
the Subordinated Guarantors, holders of the Mortgage Notes will always be fully
subordinated to the claims of holders of senior indebtedness of the Subordinated
Guarantors.
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Certain statements in this section and elsewhere in this Annual Report on
Form 10-K (as well as information included in oral statements or other written
statements made or to be made by the Company) constitute "forward-looking
statements." Such forward-looking statements include the discussions of the
business strategies of the Company and expectations concerning future
operations, margins, profitability, liquidity and capital resources. In
addition, certain portions of this Form 10-K, the words: "anticipates",
"believes", "estimates", "seeks", "expects", "plans", "intends" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward looking statements. Although the Company believes that such
forward-looking statements are reasonable, it can give no assurance that any
forward-looking statements will prove to be correct. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the risks associated with entering into a new venture and new
construction, competition and other planned construction in Las Vegas,
government regulation related to the casino industry (including the legalization
of gaming in certain jurisdictions, such as Native American reservations in the
State of California), leverage and debt service (including sensitivity to
fluctuations in interest rates), uncertainty of casino spending and vacationing
in casino resorts in Las Vegas, occupancy rates and average daily room rates in
Las Vegas, demand for all-suites rooms, the popularity of Las Vegas as a
convention and trade show destination, the completion of infrastructure projects
in Las Vegas, including the current expansion of the Las Vegas Convention Center
and the recent expansion of McCarran International Airport, litigation risks,
including the outcome of the pending disputes with the Construction Manager and
its subcontractors, and general economic and business conditions which may
impact levels of disposable income of consumers and pricing of hotel rooms.
ITEM 7A. --QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ---------------------------------------------------------------------
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Company's primary exposure to market risk is interest rate
risk associated with its long-term debt. The Company attempts to manage its
interest rate risk by managing the mix of its long-term fixed-rate borrowings
and variable rate borrowings under the Bank Credit Facility, the Mall
Construction Loan Facility and the FF&E Credit Facility, and by use of interest
rate cap and floor agreements. The ability to enter into interest rate cap and
floor agreements will allow the Company to manage its interest rate risk
associated with its variable rate debt. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and " Item 8 - Financial Statements and Supplementary Data -
Notes to Financial Statements - Note 8 Long-Term Debt."
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Financial Statements:
Report of Independent Accountants......................................27
Consolidated Balance Sheets at December 31, 1999 and 1998..............28
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999............................29
Consolidated Statements of Stockholder's Equity for each of the
three years in the period ended December 31, 1999......................30
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999............................31
Notes to Financial Statements..........................................32
Financial Statement Schedules:
Report of Independent Accountants..................................52
Schedule II - Valuation and Qualifying Accounts....................53
Report of Independent Accountants
---------------------------------
To the Directors and Sole Stockholder of Las Vegas Sands, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Las Vegas Sands, Inc. and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 15, 2000
================================================================================
LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(Dollars in thousands)
================================================================================
December 31
-----------
1999 1998
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 26,252 $ 2,285
Restricted cash and
investments 10,980 133,936
Accounts receivable, net 43,203 112
Inventories 4,516 73
Prepaid expenses 4,072 2
---------- ----------
Total current assets 89,023 136,408
Property and equipment,
net 1,079,192 833,054
Deferred offering costs,
net 29,865 35,101
Other assets, net 11,522 1,381
---------- ----------
$1,209,602 $1,005,944
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 18,128 $ 265
Construction payables 10,178 77,025
Construction payables-contested 7,232
Accrued interest payable 12,490 9,069
Other accrued liabilities 43,392 3,005
Current maturities of
long-term debt 42,859 13,788
---------- ----------
Total current liabilities 134,279 103,152
Other long-term liabilities 2,333
Long-term debt 907,754 744,154
---------- ----------
1,044,366 847,306
---------- ----------
Redeemable Preferred Interest in
Venetian Casino Resort, LLC,
a wholly owned subsidiary 149,530 90,701
---------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock, $.10 par value,
3,000,000 shares authorized,
925,000 shares issued and
outstanding 92 92
Capital in excess of par
value 112,722 99,330
Accumulated deficit since June
30, 1996 (97,108) (31,485)
---------- ----------
15,706 67,937
---------- ----------
$1,209,602 $1,005,944
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
================================================================================
LAS VEGAS SANDS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
================================================================================
Year Ended December 31
----------------------
1999 1998 1997
-------- -------- --------
Revenues:
Casino $ 134,381 $ - $ -
Rooms 89,585
Food and beverage 30,786
Retail and other 29,167 937 895
-------- -------- --------
283,919 937 895
Less--promotional allowances (25,045)
-------- -------- --------
Net revenues 258,874 937 895
-------- -------- --------
Operating expenses:
Casino 79,102
Rooms 25,532
Food and beverage 19,134
Retail and other 12,294
Provision for doubtful
accounts and discounts 13,655
General and administrative 49,938 (1,827)
Rental expense 6,267
Depreciation and amortization 25,145 100 100
-------- -------- --------
231,067 100 (1,727)
-------- -------- --------
Operating profit before corporate
and pre-opening expenses 27,807 837 2,622
Corporate 2,510
Pre-opening 21,484 8,722
-------- -------- --------
Operating income (loss) 3,813 (7,885) 2,622
-------- -------- --------
Other income (expense):
Interest income 2,551 17,137 3,439
Interest expense, net of
amounts capitalized (71,398) (39,015) (6,581)
-------- -------- --------
Net loss before extraordinary item (65,034) (29,763) (520)
Extraordinary item-loss on early
retirement of debt (589)
-------- -------- --------
Net loss $ (65,623) $(29,763) $ (520)
======== ======== ========
Basic and diluted loss
per share before
extraordinary item $ (85.87) $ (46.93) $ (0.56)
======== ======== ========
Basic and diluted loss
per share after
extraordinary item $ (86.51) $ (46.93) $ (0.56)
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
================================================================================
LAS VEGAS SANDS, INC.
Consolidated Statements of Stockholder's Equity
(Dollars in thousands)
================================================================================
Common Stock
---------------------------
Number
Shares Amount
------------- -------------
Balance at December 31, 1996 925,000 $ 92
Capital contributions
Dividends
Net loss
------------- -------------
Balance at December 31, 1997 925,000 92
Preferred interest
Net loss
------------- -------------
Balance at December 31, 1998 925,000 92
Capital contributions
Preferred interest
Net loss
------------- -------------
Balance at December 31, 1999 925,000 $ 92
============= =============
Capital in
Excess of Accumulated
Par Value Deficit Total
------------- ------------- -------------
Balance at December 31, 1996 $ 107,445 $ (1,202) $ 106,335
Capital contributions 33,132 33,132
Dividends (27,600) (27,600)
Net loss (520) (520)
------------- ------------- -------------
Balance at December 31, 1997 112,977 (1,722) 111,347
Preferred interest (13,647) (13,647)
Net loss (29,763) (29,763)
------------- ------------- -------------
Balance at December 31, 1998 99,330 (31,485) 67,937
Capital contributions 27,791 27,791
Preferred interest (14,399) (14,399)
Net loss (65,623) (65,623)
------------- ------------- -------------
Balance at December 31, 1999 $ 112,722 $(97,108) $ 15,706
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
================================================================================
LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
================================================================================
Year Ended December 31
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net loss $(65,623) $(29,763) $ (520)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 25,145 100 100
Amortization of debt offering costs
and original issue discount 7,569 7,187
Loss on early retirement of debt 589
Provision for doubtful accounts
and discounts 13,655
Interest earned on restricted
investments (4,251) (791)
Changes in operating assets and
liabilities:
Accounts receivable (56,748)
Inventories (4,443)
Prepaids expenses (4,070)
Other current assets 26 149
Other assets (10,141) (83) 137
Accounts payable 17,863 (1,436) (77)
Accrued interest payable 3,421 1,260
Other accrued liabilities 42,720 901 4,861
------ ----- -----
Net cash provided by (used in) operating
activities (30,063) (26,059) 3,859
------- ------- -----
Cash flows from investing activities:
Proceeds from sale of (purchase of)
investments 122,956 297,226 (426,120)
Construction of Casino Resort (319,106) (508,399) (130,827)
-------- -------- --------
Net cash used in investing activities (196,150) (211,173) (556,947)
-------- -------- --------
Cash flows from financing activities:
Proceeds from capital contributions 16,000 25,500
Proceeds from preferred interest in
Venetian 44,431 77,053
Proceeds from mortgage notes 425,000
Proceeds from senior subordinated notes 90,500
Repayments on mall construction
loan facility (140,000)
Proceeds from mall construction
loan facility 37,287 102,713
Proceeds from Tranche A Take-out Loan 105,000
Proceeds from Tranche B Take-out Loan 35,000
Proceeds from completion guaranty loan 23,503
Repayments on bank credit
facility-term loan (11,250)
Proceeds from bank credit
facility-term loan 34,000 116,000
Repayments on bank credit
facility-revolver (10,231)
Proceeds from bank credit
facility-revolver 40,506 8,885
Repayments on FF&E credit facility (5,862)
Proceeds from FF&E credit facility 83,842 13,858
Payments of deferred offering costs (2,046) (2,796) (37,387)
Payment of dividends (27,600)
-------- -------- --------
Net cash provided by financing activities 250,180 238,660 553,066
-------- -------- --------
Increase (decrease) in cash
and cash equivalents 23,967 1,428 (22)
Cash and cash equivalents at
beginning of year 2,285 857 879
-------- -------- --------
Cash and cash equivalents at end of year $26,252 $ 2,285 $ 857
======== ======== =======
================================================================================
LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows, (continued)
(Dollars in thousands)
================================================================================
Year Ended December 31
1999 1998 1997
---- ---- ----
Supplemental disclosure of cash flow
information:
Cash payments for interest $91,611 $70,435 $ 357
======== ======== =======
Non-cash investing and financing activities:
Contribution of land by Sole Stockholder $11,791 $ -- $ 7,632
======== ======== =======
Property and equipment asset acquisitions
included in accounts payable $17,410 $77,025 $32,141
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
LAS VEGAS SANDS, INC.
Notes to Financial Statements
- -----------------------------
Note 1 - Organization and Business of Company
- ---------------------------------------------
Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. On April 28, 1989,
LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring the Sands
Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the Sands and
subsequently demolished the facility to make way for a planned two-phase
hotel-casino resort. The first phase of the hotel- casino resort (the "Casino
Resort") includes 3,036 suites, casino space approximating 116,000 square feet,
approximately 500,000 square feet of convention space, and approximately 475,000
gross leasable square feet of retail shops and restaurants. In connection with
the closing of the Sands, LVSI effected a quasi-reorganization (Note 3).
The consolidated financial statements include the accounts of LVSI and its
wholly owned subsidiaries (the "Subsidiaries"), including Venetian Casino
Resort, LLC ("Venetian"), Grand Canal Shops Mall, LLC (the "Mall Subsidiary"),
Grand Canal Shops Mall Subsidiary, LLC (the "New Mall Subsidiary"), Lido Casino
Resort, LLC (the "Phase II Subsidiary"), Mall Intermediate Holding Company, LLC
("Mall Intermediate"), Grand Canal Shops Mall Construction, LLC ("Mall
Construction"), Lido Intermediate Holding Company, LLC ("Lido Intermediate"),
Grand Canal Shops Mall Holding Company, LLC, Grand Canal Shops Mall MM
Subsidiary, Inc., Lido Casino Resort Holding Company, LLC, Grand Canal Shops
Mall MM, Inc. and Lido Casino Resort MM, Inc. (collectively, the "Company").
Each of LVSI and the Subsidiaries is a separate legal entity and the assets of
each such entity are intended to be available only to the creditors of such
entity.
Venetian was formed on March 20, 1997 to own and operate certain portions
of the Casino Resort. LVSI is the managing member and owns 100% of the common
voting equity in Venetian. The entire preferred interest in Venetian is owned by
Interface Group Holding Company, Inc. ("Interface Holding"), which is wholly
owned by LVSI's sole stockholder (the "Sole Stockholder") (Note 9).
Mall Intermediate and Lido Intermediate are special purpose companies,
which are wholly owned subsidiaries of Venetian. They are guarantors or
co-obligors of certain indebtedness related to the construction of the Casino
Resort.
The New Mall Subsidiary, an indirect wholly-owned subsidiary of LVSI, was
formed on December 9, 1999 and owns and operates the retail mall in the Casino
Resort (the "Mall").
The Company has transacted business with a number of related parties
including Interface Group-Nevada, Inc. ("IGN") and Nevada Funding Group, Inc.
("NFG"). The nature of such transactions and the amounts involved are disclosed
in the notes to the financial statements.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Principals of Consolidation
- ----------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany balances and transactions have
been eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of cash and short-term investments with
original maturities not in excess of 90 days.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out and specific identification methods. Inventories
consist primarily of food, beverage and retail products.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 2 - Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------
Accounts Receivable
- -------------------
Accounts receivable are due within one year and are recorded net of
amounts estimated to be uncollectible.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization
are provided on a straight-line basis over the estimated useful lives of the
assets as follows:
Building and improvements 15 to 40 years
Furniture, fixtures and equipment 3 to 15 years
Leasehold improvements 5 to 10 years
Maintenance, repairs and renewals that neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on disposition of property and equipment are included
in the statements of operations.
Management reviews assets for possible impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Impairment losses are recognized when
estimated future cash flows expected to result from the use of the assets and
their eventual disposition are less than their carrying amounts. See Note 3 for
adjustment of carrying values as a result of the quasi-reorganization.
Capitalized Interest
- --------------------
Interest costs associated with major construction projects are
capitalized. Interest is capitalized on amounts expended on the Casino Resort
using the weighted-average cost of the Company's outstanding borrowings.
Capitalization of interest ceases when the project is substantially complete.
Pre-opening Costs
- -----------------
Pre-opening costs, representing primarily direct personnel and other costs
incurred prior to the opening of the Casino Resort are expensed as incurred.
Debt Discount and Deferred Offering Costs
- -----------------------------------------
Debt discount and offering costs are amortized based on the terms of the
related debt instruments using the straight-line method, which approximates the
effective interest method.
Per Share Data
- --------------
Basic and diluted loss per share are calculated based upon the weighted
average number of shares outstanding. The weighted average number of shares
outstanding used in the computation of loss per share of common stock was
925,000 for all periods presented. There were no options or warrants to purchase
common stock outstanding during any period presented. The net loss available to
common stockholders used in computing 1999 and 1998 basic and diluted loss per
share includes a preferred return of $14.4 million and $13.6 million,
respectively.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 2 - Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------
Casino Revenue and Promotional Allowances
- -----------------------------------------
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of accommodations, food and beverage,
and other services furnished to hotel-casino guests without charge is included
in gross revenues and deducted as promotional allowances. The estimated
departmental cost of providing such promotional allowances is included primarily
in casino operating expenses as follows (in thousands):
December 31,
---------------------------------------------------
1999 1998 1997
---- ---- ----
Food and Beverage $ 7,126 $ -- $ --
Rooms 5,077
Other 836
--------------- --------------- ---------------
$ 13,039 $ -- $ --
=============== =============== ===============
Income Taxes
- ------------
LVSI has elected to be taxed as an S Corporation and its wholly owned
subsidiaries are limited liability companies, each of which is a tax pass
through entity for federal income tax purposes. Nevada does not levy a corporate
income tax. Accordingly, no provision for federal or state income taxes is
included in the statement of operations.
Concentrations of Credit Risk
- -----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of short-term investments and
receivables. The short-term investments are placed with a high credit quality
financial institution, which invests primarily in U.S. Government-backed
repurchase agreements.
Accounting for Derivative Instruments and Hedging Activities
- -------------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. The accounting for
the changes in the fair values of such derivatives would depend on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 is
effective for the Company's financial statements issued for periods beginning
January 1, 2000. However, SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133", defers the effective date for one year to January 1, 2002. The Company
anticipates that implementing SFAS No. 133 will not materially impact the
Company's financial condition, results of operations or cash flows.
Reclassifications
- -----------------
The consolidated financial statements for prior years reflect certain
reclassifications to conform with the current year presentation, which have no
effect on previously reported net income.
Note 3 - Strategic Redirection and Quasi-Reorganization
- -------------------------------------------------------
During 1996, in response to increasing competition and rapid market
changes, management decided to strategically redirect the Company's business. On
June 30, 1996, the Company suspended operations and closed the existing Sands
property to make way for a new hotel-casino resort (Note 1). As a result,
approximately 1,400 employee positions were eliminated. The estimated severance
and related closing costs were included in selling, general and administrative
expense for 1996. In December 1997, the Company reevaluated its accrued closing
costs resulting in a credit of $1.8 million to selling, general and
administrative expense.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 3 - Strategic Redirection and Quasi-Reorganization (continued)
- ------------------------------------------------------------------
In connection with the closing of the Sands (Note 1), the Company's
director and sole stockholder approved a quasi-reorganization, effective as of
June 30, 1996, pursuant to which the Company revalued certain of its assets as
of that date. This revaluation, in accordance with the accounting principles
applicable to a quasi-reorganization, permitted the Company to eliminate the
adjusted accumulated deficit account as of that date, by a charge against
capital in excess of par value, and to establish a new retained earnings account
for the accumulation of the results of future operations. The
quasi-reorganization resulted in an increase in the carrying value of land of
$51.7 million and a corresponding decrease of $45.0 million in buildings and
other property and equipment, net of accumulated depreciation and $6.7 million
in severance and related closing costs. The remaining accumulated depreciation
was eliminated against the cost basis of the remaining property, and the
accumulated deficit of $155.0 million as of June 30, 1996, was transferred to
capital in excess of par value.
Note 4 - Restricted Cash and Investments
- ----------------------------------------
The net proceeds of the Company's 12 1/4% Mortgage Notes due 2004 (the
"Mortgage Notes") and its 14 1/4% Senior Subordinated Notes due 2005 (the
"Senior Subordinated Notes" and, together with the Mortgage Notes, the "Notes")
were deposited into restricted accounts and invested in cash or permitted
investments by a disbursement agent for the Company's lenders until required for
project costs under the terms of the disbursement agreement with certain of the
Company's lenders (the "Disbursement Agreement") (Note 8). Additional amounts
have been deposited to other restricted accounts, which are controlled by the
Company, but which are also restricted as to use under the terms of the
Disbursement Agreement.
At December 31, 1999, all of the Company's investments were classified as
held-to-maturity, which consists of securities that management has the ability
and intent to hold to maturity. These investments are carried at cost plus
accrued interest, which approximates fair value. There were no sales or
transfers of securities classified as held-to-maturity during 1999.
Note 5 - Accounts Receivable
- ----------------------------
Components of accounts receivable were as follows:
December 31,
--------------------------------
1999 1998
-------------- ---------------
Casino $ 28,028 $ --
Hotel 17,156
Other 4,916 112
-------------- ---------------
50,100 112
Less: allowance for doubtful
accounts and discounts (6,897) --
--------------- ---------------
$ 43,203 $ 112
=============== ===============
The Company extends credit to approved casino customers following
background checks and investigations of credit worthiness. At December 31, 1999,
a substantial portion of the Company's receivables were due from customers
residing in foreign countries. Business or economic conditions, the legal
enforceability of gaming debts, or other significant events in these countries
could affect the collectibility of such receivables.
An estimated allowance for doubtful accounts and discounts is maintained
to reduce the Company's receivables to their carrying amount, which approximates
fair value. Although management believes the allowance is adequate, it is
possible that the estimated amount of cash collections with respect to the
casino accounts receivable could change.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 6 - Property and Equipment, Net
- ------------------------------------
Property and equipment includes costs incurred to construct the Casino
Resort and consists of the following (in thousands):
December 31,
--------------------------------
1999 1998
--------------- --------------
Land and land improvements $ 105,425 $ 93,634
Building and improvements 816,826
Equipment, furniture, fixtures
and leasehold improvements 139,147 426
Construction in progress 42,649 739,028
--------------- ---------------
1,104,047 833,088
Less: accumulated depreciation
and amortization (24,855) (34)
--------------- ---------------
$ 1,079,192 $ 833,054
=============== ===============
The Casino Resort serves as collateral for various financing facilities
(Note 8).
During the years ended December 31, 1999, 1998 and 1997, the Company
capitalized interest expense of $31.3 million, $39.7 million and $2.2 million,
respectively.
Note 7 - Other Accrued Liabilities
- ----------------------------------
Other accrued liabilities consist of the following (in thousands):
December 31,
----------------------------------
1999 1998
--------------- ---------------
Customer deposits $ 15,942 $
Payroll and related 10,779
Taxes and licenses 10,126
Outstanding gaming chips and tokens 5,862
Other accruals 683 3,005
--------------- ---------------
$ 43,392 $ 3,005
=============== ===============
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 8 - Long-Term Debt
- -----------------------
Long-term debt consists of the following (in thousands):
December 31,
--------------------------
1999 1998
----------- ------------
12 1/4% Mortgage Notes, due November 15, 2004 $ 425,000 $ 425,000
14 1/4% Senior Subordinated Notes, due
November 15, 2005 (net of unamortized
discount of $5,138 in 1999 and $6,014
in 1998) 92,362 91,486
Mall Construction Loan Facility 102,713
Mall Tranche A Take-out Loan 105,000
Mall Tranche B Take-out Loan 35,000
Completion Guaranty Loan 23,503
Bank Credit Facility-revolver 39,160 8,885
Bank Credit Facility-term loan 138,750 116,000
FF&E Credit Facility 91,838 13,858
Less: current maturities (42,859) (13,788)
----------- ------------
Total long-term debt $ 907,754 $ 744,154
=========== ============
Mortgage Notes and Senior Subordinated Notes
--------------------------------------------
In November 1997, the Company issued $425.0 million aggregate principal
amount of the Mortgage Notes and $97.5 million aggregate principal amount of the
Senior Subordinated Notes in a private placement. Interest on the Notes is
payable each May 15 and November 15, commencing on May 15, 1998. On June 1,
1998, LVSI and Venetian completed an exchange offer to exchange the Notes for
notes with substantially the same terms.
The Mortgage Notes are secured by second priority liens on the "Note
Collateral" (the real estate improvements and personal property that comprise
the Hotel, the Casino and the Congress Center, with certain exceptions). The
Senior Subordinated Notes are unsecured. The Notes are redeemable at the option
of LVSI and Venetian at prices ranging from 100% to 106.125% during specified
years as set forth in the Notes and the indentures pursuant to which the Notes
were issued (the "Indentures"). Upon a change of control (as defined in the
Indentures), each Note holder may require LVSI and Venetian to repurchase such
Notes at 101% of the principal amount thereof plus accrued interest and other
amounts which are then due, if any. The Notes are not subject to a sinking fund
requirement.
The Senior Subordinated Notes bear cash interest at the rate of 10% per
annum through November 15, 1999, and thereafter at a rate of 14 1/4% per annum.
The Senior Subordinated Notes were sold at a $7.0 million discount to their face
amount in order to yield 14 1/4% per annum to maturity and accrued to par
through the second anniversary date of the issuance.
Bank Credit Facility
--------------------
In November 1997, LVSI, Venetian and a syndicate of lenders entered into a
bank credit facility (the "Bank Credit Facility"). The Bank Credit Facility
provided $150.0 million in multiple draw-term loans to the Company for
construction and development of the Casino Resort. The term loans mature not
later than the sixth anniversary of the closing date and are subject to
quarterly amortization payments, which began on September 30, 1999 and continue
for 15 additional quarters.
The indebtedness under the Bank Credit Facility is secured by first
priority liens on the Note Collateral. As of December 31, 1999, $150.0 million
of the term loans had been drawn and $11.3 million principal repayments were
made under the Bank Credit Facility term loan.
Up to $40.0 million of additional credit in the form of revolving loans
under the Bank Credit Facility (the "Revolver") is available generally for
working capital. The Revolver matures on March 15, 2001, the second anniversary
date of the first working capital Revolver advance. During the construction of
the Casino Resort, up to $15.0 million of the Revolver was available to fund
purchases of certain furniture, fixtures and equipment (the "Specified FF&E")
(including deposits thereon) and provide letters of credit for construction
activities. Amounts borrowed to purchase the Specified FF&E were repaid from the
proceeds of a $97.7 million credit facility secured by the Specified FF&E (the
"FF&E Credit Facility"). As of December 31, 1999, $39.2 million was outstanding
on the Revolver.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 8 - Long-Term Debt (continued)
- ----------------------------------
Funds borrowed under the Bank Credit Facility bear interest through final
completion (completion of all punchlist items and settlement of all disputes
with the Construction Manager and its subcontractors) at (i) a base rate plus 2%
per annum or (ii) a reserve adjusted eurodollar rate plus 3% per annum. Upon
final completion and for six months thereafter, the interest rate will be at (i)
a base rate plus 1 1/2% or (ii) a reserve adjusted Eurodollar rate plus 2 1/2%
per annum. From six months after final completion, the interest rate will be at
a base rate or a reserve adjusted Eurodollar rate plus a margin based on certain
leverage ratios set forth in the Bank Credit Facility.
The Company is required to enter into interest rate cap and/or floor
agreements to limit the impact of increases in interest rates on its floating
rate debt derived from the Bank Credit Facility. To meet the requirements of the
Bank Credit Facility, the Company entered into a cap and floor agreement during
1998 (the "Cap and Floor Agreement") which resulted in a premium payment to
counter parties and receipt of an equal payment from the counter parties, based
upon notional principal amounts for a term equal to the term of the Bank Credit
Facility. The interest rate cap provisions of the Cap and Floor Agreement
entitle the Company to receive from the counter parties the amounts, if any, by
which the selected market interest rates exceed the strike rates stated in such
agreement. Conversely, the interest rate floor provisions of the Cap and Floor
Agreement require the Company to pay the counter parties the amounts, if any, by
which the selected market interest rates are less than the strike rates stated
in such agreement. The fair value of the Cap and Floor Agreement is estimated by
obtaining quotes from brokers and represents the cash requirement if the
existing contracts had been settled at year-end. The notional amount of the Cap
and Floor Agreement at December 31, 1999 was $69.4 million.
Mall Construction Loan Facility
-------------------------------
In November 1997, LVSI, Venetian, Mall Construction and a major non-bank
lender entered into a mall construction loan facility to provide up to $140.0
million in financing for construction of the Mall (the "Mall Construction Loan
Facility"). The Mall Construction Loan Facility was repaid in full on December
20, 1999, pursuant to the Tranche A Take-out Loan and Tranche B Take-out Loan as
described below.
Tranche A Take-out Loan
-----------------------
On December 20, 1999, certain take-out lenders (collectively, the "Tranche
A Take-out Lender") funded a $105.0 million Tranche A take-out loan to the New
Mall Subsidiary (the "Tranche A Take-out Loan"). The proceeds were used to repay
indebtedness under the Mall Construction Loan Facility.
The indebtedness under the Tranche A Take-out Loan is secured by first
priority liens on the assets that comprise the Mall (the "Mall Assets"). The
annual interest rate on the Tranche A Take-out Loan is 350 basis points over
30-day LIBOR. The Tranche A Take-out Loan is due in full on December 20, 2002.
No principal payments are due thereunder until December 20, 2002.
To meet the requirements of the Tranche A Take-out Loan, the New Mall
Subsidiary entered into a cap agreement subsequent to December 31, 1999 (the
"Cap Agreement") which resulted in a premium payment to counter parties based
upon notional principal amounts for a term equal to the Tranche A Take-out Loan.
The interest rate cap entitles the New Mall Subsidiary to receive from the
counter parties the amounts, if any, by which the selected market interest rates
exceed the strike rates stated in the Cap Agreement.
The New Mall Subsidiary is also required pursuant to the Tranche A
Take-out Loan to maintain certain funds in escrow for mall management fees,
tenant disputes, tenant allowances and leasing commissions. At December 31,
1999, $2.2 million was held in such reserves. In addition, pursuant to the terms
of the Tranche A Take-out Loan, the Sole Stockholder has delivered a $5.0
million irrevocable letter of credit as collateral for an operating reserve
until certain minimum rent thresholds are met.
Tranche B Take-out Loan
-----------------------
On December 20, 1999, the Sole Stockholder funded a Tranche B take-out
loan to provide $35.0 million in financing to the New Mall (the "Tranche B
Take-out Loan" and, together with the Tranche A Take-out Loan, the "Mall
Take-out Financing"). The proceeds, along with $105.0 million of proceeds from
the Tranche A Take-out Loan, were used to repay the Mall Construction Loan
Facility in full.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 8 - Long-Term Debt (continued)
- ----------------------------------
The indebtedness under the Tranche B Take-out Loan is secured by second
priority liens on the Mall Assets. The loan bears interest at 14% per annum. The
initial maturity date is December 20, 2004 with a right of extension to December
20, 2007. No principal payments are due until maturity.
FF&E Financing
--------------
In December 1997, the FF&E Credit Facility was entered into with certain
lenders (the "FF&E Lenders") to provide $97.7 million of financing for the
Specified FF&E and an electrical substation. The financing provides for an
interim loan during construction and a 60-month basic term loan after completion
of the Casino Resort. In the initial and subsequent draws, the FF&E Lenders
reimbursed the Company for amounts spent by the Company for Specified FF&E prior
to the initial draw.
Interest on the basic term loan is a floating monthly rate calculated at
the higher of (a) the reserve adjusted 30-day LIBOR plus 375 basis points or (b)
the eurodollar interest rate margin in effect on the Bank Credit Facility plus
125 basis points. Amortization on the FF&E basic loan will be 3% of the
principal for the first four quarters beginning September 30, 1999 and 5.5% of
the principal for the next 16 quarters. As of December 31, 1999, $97.7 million
had been drawn and $5.9 million principal repayments had been paid under the
FF&E Credit Facility.
Completion Guaranty Loan
------------------------
In accordance with its terms, advances made under the Sole Stockholder
completion guaranty (the "Completion Guaranty") are treated as a junior loan
from the Sole Stockholder to Venetian (the "Completion Guaranty Loan") that is
subordinated in right of payment to the indebtedness under the Bank Credit
Facility, the FF&E Credit Facility and the Notes. The Completion Guaranty Loan
matures on November 16, 2005 and bears interest at a rate of 14 1/4% per annum.
Although interest may accrue on the Completion Guaranty Loan, no cash payments
with respect to such loan may be made until senior indebtedness is repaid,
except for payments made from certain construction-related recoveries. On
November 12, 1999, an advance of approximately $23.5 million was made under the
Completion Guaranty and treated as a Completion Guaranty Loan.
As support for the development and operation of the Casino Resort, the Sole
Stockholder or his affiliates currently provide the following:
(i) a construction completion guaranty unlimited in amount with respect to
excess construction costs due to scope changes, with a remaining liability of
approximately $5.0 million (collateralized by cash and cash equivalents) with
respect to all other construction costs. On November 12, 1999, approximately
$23.5 million of the completion guaranty collateral was utilized for excess
construction costs, leaving the $5.0 million of cash collateral remaining as
described above;
(ii) the $35.0 million Tranche B Take-out Loan; and
(iii) a $20.0 million unsecured guaranty of the $105.0 million Tranche A
Take-out Loan; and
(iv) collateral for a $5.0 million irrevocable letter of credit to secure lien
bonds; and
(v) collateral for a $5.0 million irrevocable letter of credit to provide an
operating reserve for the Mall.
Scheduled maturities of long-term debt outstanding at December 31, 1999
are summarized as follows: $42.9 million for 2000, $98.2 million for 2001,
$175.2 million for 2002, $47.7 million for 2003, $470.7 million for 2004 and
$121.0 million (which includes unamortized discount on the Senior Subordinated
Notes) thereafter.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 8 - Long-Term Debt (continued)
- ----------------------------------
Waivers
-------
On November 12, 1999, the Company entered into various limited waiver
agreements (the "Waivers") with the administrative agent and lenders under (1)
the Bank Credit Facility, (2) the Mall Construction Loan Facility, (3) the FF&E
Credit Facility and (4) certain parties to the Disbursement Agreement. Under the
Waivers, the various lenders waived certain defaults and events of default (to
the extent, if any, they existed or may have existed) arising from the
litigation with the Construction Manager, the facts relating to the underlying
dispute with the Construction Manager and the mechanics liens that were filed
against the Casino Resort. As conditions to the effectiveness of the Waivers,
the Company and the Sole Stockholder, among other things (i) agreed to pay a fee
to the lenders under the Bank Credit Facility and the FF&E Credit Facility, (ii)
agreed to purchase surety bonds for all of the mechanics liens and cause the
title company to provide endorsements ensuring that the deeds of trust under the
Bank Credit Facility, the Mall Construction Loan Facility and the Mortgage Notes
are superior in priority to all mechanics liens, and (iii) agreed that the Sole
Stockholder's $25.0 million Completion Guaranty would, notwithstanding the prior
agreement of the parties providing for termination of such guaranty upon
substantial completion of the Casino Resort, remain in effect until "final
completion" (i.e., the completion of all remaining punchlist items and the final
resolution or settlement of all disputes with the Construction Manager and
subcontractors) and be unlimited in amount with respect to all construction
costs arising from scope changes. In order to be able to purchase the surety
bonds, the Sole Stockholder had to provide a $5.0 million irrevocable letter of
credit as collateral to the bonding company. All of the conditions to the
effectiveness of the limited waivers were satisfied on November 12, 1999.
For the year ended December 31, 1999, the Company incurred a significant
net loss and was required to obtain debt and equity contributions from its Sole
Stockholder in order to meet its obligations and complete construction of the
Casino Resort. The Company has substantial debt service payments due during the
next twelve months, including quarterly principal repayments on its Bank Credit
Facility and the FF&E Credit Facility aggregating $42.9 million and interest
payments of $105.7 million during 2000. To fund these payments from operating
cash flow, the Company must achieve improved results for its next four fiscal
quarters. Based on results in the fourth quarter of 1999 and management's
business plan, the Company anticipates that its existing cash balances,
operating cash flow and available borrowing capacity will provide it with
sufficient resources to meet existing debt obligations and foreseeable capital
expenditure requirements.
The Company has obtained waivers or remained in compliance with the
covenants provided for in its debt instruments, and expects to be in compliance
during fiscal 2000. However, part of management's business plan may require
increased flexibility under the debt covenants provided for under such
instruments. Accordingly, the Company has held discussions with the
administrative agent under the Bank Credit Facility to discuss modifications to
the terms of the Bank Credit Facility, including the expiration date of the
Revolver, schedule of principal payments and financial covenant.
The debt instruments described above contain certain covenants that
require the Company to pass a number of financial tests relating to, among other
things, a minimum consolidated earnings before interest, taxes, depreciation and
amortization ("EDITDA"), a consolidated leverage ratio; and a fixed charge
coverage ratio (all as defined in the respective credit agreements).
Additionally, the debt instruments contain certain restrictions that, among
other things, limit the ability of the Company and/or certain subsidiaries to
incur additional indebtedness, issue disqualified stock or equity interests, pay
dividends or make other distributions, repurchase equity interests or certain
indebtedness, create certain liens, enter into certain transactions with
affiliates, enter into certain mergers or consolidations or sell assets of the
Company without prior approval of the lenders or noteholders. The Company is
also a party to certain intercreditor arrangements. The intercreditor agreements
set forth the lender's interests and claims in the Company's assets as
collateral for borrowings.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 8 - Long-Term Debt (continued)
- ----------------------------------
Fair Value
----------
Estimated fair values of the Company's debt and related financial
instruments are as follows:
December 31,
---------------------------------------------
1999 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------
12 1/4% Mortgage Notes $425,000 $352,750 $425,000 $433,500
14 1/4% Senior
Subordinated Notes 92,362 59,475 91,486 87,750
Mall Construction
Loan Facility 102,713 102,713
Mall Tranche A Loan
Facility 105,000 105,000
Mall Tranche B Loan
Facility 35,000 35,000
Completion Guaranty Loan 23,503 23,503
Bank Credit Facility 177,910 177,910 124,885 124,885
FF&E Credit Facility 91,838 91,838 13,858 13,858
Cap and Floor Agreement (100) (600)
The fair values of the Mortgage Notes and the Senior Subordinated Notes are
based on quoted market prices. The fair values of the Senior Subordinated Notes
are based upon the $97.5 million face amounts. The fair values of other
indebtedness and the FF&E Credit Facility approximate their respective carrying
amounts based on the variable nature of these facilities. The fair value of the
Cap and Floor Agreement and the Cap Agreement are based upon quotes from
brokers.
Note 9 - Redeemable Preferred Interest in Venetian Casino Resort, LLC
- ---------------------------------------------------------------------
During 1997, Interface Holding contributed $77.1 million in cash to
Venetian in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the Bank Credit Facility is repaid and cash payments are
permitted under the restricted payment covenants of the indentures entered into
in connection with the Notes, the preferred return on the Series B Preferred
Interest will accrue and will not be paid in cash. Commencing in November 2009,
distributions must be made to the extent of the positive capital account of the
holder. During the second and third quarters of 1999, Interface Holding
contributed $37.3 million and $7.1 million, respectively, in cash in exchange
for an additional Series B Preferred Interest. During the years ended December
31, 1999 and 1998, $14.4 million and $13.6 million, respectively, were accrued
on the Series B Preferred Interest related to the contributions made. During
1997, 1998 and 1999, there were no distributions of preferred interest or
preferred return paid.
Increase in Shares Authorized and Outstanding
- ---------------------------------------------
In November 1997, the Company's Board of Directors increased the number of
authorized shares of LVSI from 100,000 to 3,000,000 and authorized and consented
to increase the number of shares outstanding with respect to the outstanding
shares of common stock of LVSI, so that each share of such common stock would
henceforth be deemed to represent 18.4996 shares of common stock, resulting in
925,000 shares of common stock outstanding on such date. The par value remained
$.10 per share. All references to share and per share data herein have been
adjusted retroactively to give effect to the change in shares outstanding.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 10 - Stockholder's Equity (continued)
- ------------------------------------------
1997 Fixed Stock Option Plan
- ----------------------------
The Company established a nonqualified stock option plan, which provides
for the granting of stock options pursuant to the applicable provisions of the
Internal Revenue Code and regulations. The stock option plan provides for the
granting of up to 75,000 shares of common stock to officers and other key
employees of the Company. The Company has committed to grant options to purchase
shares of the Company's common stock at an exercise price to be determined by a
formula involving the value of LVSI's land and certain capital contributions. If
fully exercised, shares acquired under such options would represent
approximately 5% of the Company's then outstanding stock. The Company does not
expect the exercise price on the grant date will be lower than fair market
value.
Note 11 - Employee Savings Plan
- -------------------------------
Participation in the Venetian Casino Resort, LLC 401 (k) employee savings
plan is available for all full time employees. The savings plan allows
participants to defer, on a pre-tax basis, a portion of their salary and
accumulate tax-deferred earnings as a retirement fund. Venetian matches 150% of
the first $390 of employee contributions and 50% of employee contributions in
excess of $390 up to a maximum of 3% of participating employee's eligible gross
wages. For the year ended December 31, 1999, contributions accrued under the
savings plan were $800,000.
Note 12 - Related Party Transactions
- ------------------------------------
On November 12, 1999, the Sole Stockholder made a $15.0 million working
capital loan to the Company in the form of the Subordinated Note. On November
15, 1999, the entire Subordinated Note was contributed by the Sole Stockholder
to LVSI as a common equity capital contribution.
Because the Company could not access the Revolver from August 3, 1999 to
November 12, 1999 while mechanics liens against the Casino Resort were
outstanding, the Sole Stockholder contributed $7.1 million to Venetian in return
Series B Preferred Interest and $16.0 million to LVSI (including conversion of
the $15.0 million Subordinated Note) as a common equity capital contribution.
Also, during the second quarter of 1999, the Company received $37.3 million from
the Phase II Subsidiary (which was funded from indirect equity contributions by
the Sole Stockholder through Venetian as a Series B Preferred Interest) to
reimburse the Company for a portion of the shared facilities costs between the
Casino Resort and the Phase II Resort. During the fourth quarter, the Sole
Stockholder indirectly contributed 1.75 acres of land on the Strip to the Phase
II Subsidiary, which was recorded at its historical cost of $11.8 million as a
common equity capital contribution.
The Sole Stockholder is a partner in three entities formed to build out
and operate restaurants in the Casino Resort. The terms and conditions of the
leases granted by the Company for such restaurants are market and on an
arm's-length basis.
In 1999, LVSI received from, and rendered to, Interface and its affiliates
certain administrative and other services such as travel. Any such services were
provided either on an arm's-length basis, or at a cost based on the actual costs
incurred to provide such services. The Company paid certain affiliates $900,000
for these services during 1999.
During November 1999, the Sole Stockholder purchased idle construction
equipment from the Company (tower cranes) for $2.0 million, the cost basis of
the equipment.
During the fourth quarter of 1999, the Sole Stockholder purchased certain
construction claims from various contractors and subcontractors for an aggregate
price equal to the aggregate amount of the claims (approximately $1.6 million).
On November 12, 1999, with the approval of all of the Company's lenders, the
Company paid the Sole Stockholder the aggregate amount of these claims.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 13 - Commitments and Contingencies (continued)
- --------------------------------------------------
Energy Services Agreement and Other Operating Lease Agreements
- --------------------------------------------------------------
During 1997, Venetian and the Mall Subsidiary entered into separate energy
service agreements with a heating and air conditioning ("HVAC") provider (the
"HVAC Provider"). Under the terms of the energy services agreement and other
separate energy services agreements, HVAC energy and services will be purchased
by Venetian, the New Mall Subsidiary, its mall tenants and IGN over initial
terms of 10 years with an option to collectively extend the terms of their
agreements for two consecutive five-year periods.
Pursuant to the Company's construction management contract (as more fully
defined under "Litigation" below), the HVAC plant was constructed by the
Company's Construction Manager (also defined below) on land owned by the Company
and leased to the HVAC Provider. The HVAC equipment is owned by the HVAC
Provider, which paid all costs ("HVAC Costs") in connection with the purchase
and installation of the HVAC equipment. The total HVAC Costs were $70.0 million.
The charges payable under the separate energy services agreements include
a fixed component applied to the HVAC Costs paid by the HVAC Provider,
reimbursement of operational and related costs and a management fee.
As of December 31, 1999, Venetian and the New Mall Subsidiary were
obligated under the energy services agreements to make future minimum payments
as follows (in thousands):
Years Ending December 31,
-------------------------
2000 $ 7,657
2001 7,657
2002 7,657
2003 7,657
2004 7,657
Thereafter 34,456
---------------
Total minimum lease payments $72,741
===============
Expenses incurred under the energy services agreements were $4.3 million
for the year ended December 31, 1999. The New Mall Subsidiary is responsible for
19% of energy services rental payments and these amounts exclude payments by
IGN. Expenses incurred under other operating lease agreements totaled $2.0
million.
Litigation
- ----------
The Company is party to litigation matters and claims related to its
operations and the construction of the Casino Resort. Except as described below,
the Company does not expect that the final resolution of these matters will have
a material impact on the financial position, results of operation and cash flows
of the Company.
The construction of the principal components of the Casino Resort was
undertaken by Lehrer McGovern Bovis, Inc. (the "Construction Manager") pursuant
to a construction management agreement and certain amendments thereto (as so
amended, the "Construction Management Contract"). The Construction Management
Contract established a final guaranteed maximum price (the "Final GMP")of $645.0
million, so that, subject to certain exceptions (including an exception for cost
overruns due to "scope changes"), the Construction Manager was responsible for
any costs of the work covered by the Construction Management Contract in excess
of the Final GMP. The obligations of the Construction Manager under the
Construction Management Contract are guaranteed by Bovis, Inc. ("Bovis"), the
Construction Manager's direct parent at the time the Construction Management
Contract was entered into.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 13 - Commitments and Contingencies (continued)
- --------------------------------------------------
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations the Bovis Guaranty, including failure to fully pay
trade contractors and vendors and failure to meet the April 21, 1999 guaranteed
completion date. This complaint was amended by the Company on November 23, 1999
to add Bovis' guarantor, P&O, as an additional defendant. The suit is intended
to ask the courts, among other remedies, to require the Construction Manager and
its guarantors to pay its contractors, to compensate Venetian for the
Construction Manager's failure to perform its duties under the Construction
Management Contract and to pay the Company the agreed upon liquidated damages
penalty for failure to meet the guaranteed substantial completion date. Venetian
seeks total damages in excess of $50.0 million. The Construction Manager
subsequently filed motions to dismiss the Company's complaint on various
grounds, which the Company opposed. The Construction Manager's principal motions
to date have either been denied by the court or voluntarily withdrawn.
In response to Venetian's breach of contract claims against the
Construction Manager, Bovis and P&O, the Construction Manager filed a complaint
on August 3, 1999 against Venetian in the District Court of Clark County,
Nevada. The action alleges a breach of contract and quantum meruit claim under
the Construction Management Contract and also alleges that Venetian defrauded
the Construction Manager in connection with the construction of the Casino
Resort. The Construction Manager seeks damages, attorney's fees and costs and
punitive damages. In the lawsuit, the Construction Manager claims that it is
owed $145.6 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager, which also filed an additional
complaint against the Company relating to work done and funds advanced with
respect to the contemplated development of the Phase II Resort. Based upon its
preliminary review of the complaints, the fact that the Construction Manager has
not provided Venetian with reasonable documentation to support such claims, and
the Company's belief that the Construction Manager has materially breached its
agreements with the Company, the Company believes that the Construction
Manager's claims are without merit and intends to vigorously defend itself and
pursue its claims against the Construction Manager in any litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. As of December 31, 1999,
the Company had purchased surety bonds for virtually all of the claims
underlying these liens (other than approximately $15.0 million of claims with
respect to which the Construction Manager purchased bonds). As a result, there
can be no foreclosure of the Casino Resort in connection with the claims of
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have and is in the process of
investigating a variety of other defenses to the liens that have been filed,
including, for example, the fact that the Construction Manager and its
subcontractors previously waived or released their right to file liens against
the Casino Resort. The Company intends to vigorously defend itself in any lien
proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because the Company believes that substantial completion
was not achieved until November 12, 1999, the Company's claim under the LD
Policy is likely to be for the above-described maximum liability of $24.1
million. The Company expects the LD Policy insurers to assert many of the same
claims and defenses that the Construction Manager has or will assert in the
above-described litigations. Liability under the LD Policy may ultimately be
determined by binding arbitration.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 14 - Minimum Lease Income (continued)
- -----------------------------------------
All of the pending litigation described above is in preliminary stages and
it is not yet possible to determine its ultimate outcome. If any litigation or
other proceedings concerning the claims of the Construction Manager or its
subcontractors were decided adversely to the Company, such litigation or other
lien proceedings could have a material effect on the financial position, results
of operations or cash flows of the Company.
The Company has entered into a number of operating leases in relation to
the New Mall Subsidiary and various retail and food and beverage outlets in the
Casino Resort, which range in length from 5 to 20 years. The future minimum
lease income under these leases (of which approximately 83% is attributable to
the New Mall Subsidiary) consisted of the following at December 31, 1999 (in
thousands):
2000 $ 20,491
2001 20,521
2002 20,708
2003 20,846
2004 20,131
Thereafter 81,612
---------------
Total $ 184,309
===============
The New Mall Subsidiary has entered into an agreement with Forest City
Enterprises (the "Mall Manager"), a subsidiary of Forest City Ratner
Enterprises, a leading developer and manager of retail and commercial real
estate developments, whereby the Mall Manager manages the Mall and supervises
and assists in the creation of an advertising and promotional program and a
marketing plan for the Mall. The Mall Manager is also responsible for, among
other things, preparation of a detailed plan for the routine operation of the
Mall, collection and deposit procedures for rents and other tenant charges,
supervision of maintenance and repairs and, on an annual basis, preparation of a
detailed budget (including any anticipated extraordinary expenses and capital
expenditures) for the Mall. The term of the management contract is five years
from June 19, 1999, the date the Mall opened to the public. The Mall Manager
receives a management fee of 2% of all gross rents received from the operation
of the Mall; provided that the Mall Manager will receive a minimum fee of
$450,000 per year.
Note 15 - Summarized Financial Information
- ------------------------------------------
Venetian and LVSI are co-obligors of the Notes and certain other
indebtedness related to construction of the Casino Resort and are jointly and
severally liable for such indebtedness (including the Notes). Venetian, Mall
Intermediate, Mall Construction, and Lido Intermediate (collectively, the
"Subsidiary Guarantors") are wholly owned subsidiaries of LVSI. The Subsidiary
Guarantors have jointly and severally guaranteed (or are co-obligors of) such
debt on a full and unconditional basis. No other subsidiary of LVSI is an
obligor or guarantor of any of the Casino Resort financing.
Because the New Mall Subsidiary is not a guarantor of any indebtedness of
the Company (other than the Mall Take-out Financing), creditors of the Company's
entities comprising the Company other than the New Mall Subsidiary (including
the holders of the Notes but excluding creditors of the New Mall Subsidiary) do
not have a direct claim against the Mall Assets. As a result, indebtedness of
the entities comprising the Company other than the New Mall Subsidiary
(including the Notes) is now, with respect to the Mall Assets, effectively
subordinated to indebtedness of the New Mall Subsidiary. The New Mall Subsidiary
is not restricted by any of the debt instruments of LVSI, Venetian or the
Company's other subsidiary guarantors (including the Indentures) from incurring
any indebtedness. The terms of the Tranche A Take-out Loan prohibit the New Mall
Subsidiary from paying dividends or making distributions to any of the other
entities comprising the Company unless payments under the Tranche A Take-out
Loan are current, and, with certain limited exceptions, prohibit the New Mall
Subsidiary from making any loans to such entities. Any additional indebtedness
incurred by the New Mall Subsidiary may include additional restrictions on the
ability of the New Mall Subsidiary to pay any such dividends and make any such
distributions or loans.
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
- ----------------------------------------
Note 15 - Summarized Financial Information (continued)
- -----------------------------------------------------
Prior to October 1998, Venetian owned approximately 44 acres of land on or
near the Las Vegas Strip, on the site of the former Sands. Such property
includes the site on which the Casino Resort was constructed. Approximately 14
acres of such land was transferred to the Phase II Subsidiary in October 1998.
On December 31, 1999, an additional 1.75 acres of land was contributed
indirectly by the Sole Stockholder to the Phase II Subsidiary. The Phase II
Resort is planned to be constructed adjacent to the Casino Resort. Because the
Phase II Subsidiary will not be a guarantor of the Company's indebtedness,
creditors of the Company (including the holders of the Notes) will not have a
direct claim against the assets of the Phase II Subsidiary. As a result, the
indebtedness of the Company (including the Notes) will be effectively
subordinated to indebtedness of the Phase II Subsidiary. The Phase II Subsidiary
is not subject to any of the restrictive covenants of the debt instruments of
the Company (including the Notes). Any indebtedness incurred by the Phase II
Subsidiary is expected to include material restrictions on the ability of the
Phase II Subsidiary to pay dividends or make distributions or loans to the
Company and its subsidiaries.
Separate financial statements and other disclosures concerning each of
Venetian and the Subsidiary Guarantors are not presented below because
management believes that they are not material to investors. Summarized
financial information of LVSI, Venetian, the Subsidiary Guarantors and the
non-guarantor subsidiaries on a combined basis as of December 31, 1999 and 1998
and the three years in the period ended December 31, 1999 is as follows (in
thousands):
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS
December 31, 1999
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Cash and cash equivalents $ 23,961 $ 2,237
Restricted cash and investments 8,789
Intercompany receivable 24,736
Accounts receivable, net 22,279 17,519
Inventories 4,516
Prepaid expenses 629 3,229
----------- -----------
Total current assets 46,869 61,026
Property and equipment, net 853,282
Investment in Subsidiaries 126,016 67,091
Deferred offerings costs, net 24,441
Other assets, net 3,804 4,651
----------- -----------
$ 176,689 $1,010,491
========== ==========
Accounts payable $ 834 $ 15,843
Construction payable 6,262
Construction payable-contested 7,232
Intercompany payables 2,051
Accrued interest payable 12,327
Other accrued liabilities 19,848 22,580
Current maturities of long
term debt 42,859
----------- -----------
Total current liabilities 22,733 107,103
Other long-term liabilities 2,333
Long-term debt 767,754
----------- -----------
22,733 877,190
Redeemable Preferred interest
in Venetian 149,530
----------- -----------
Stockholder's equity 153,956 (16,229)
----------- -----------
$ 176,689 $ 1,010,491
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
December 31, 1999
GUARANTOR SUBSIDIARIES
----------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company Company
LLC LLC
----------- -----------
Cash and cash equivalents $ 4 $ 5
Restricted cash and investments
Intercompany receivable
Accounts receivable, net
Inventories
Prepaid expenses
----------- -----------
Total current assets 4 5
----------- -----------
Property and equipment, net
Investment in Subsidiaries
Deferred offerings costs, net
Other assets, net
----------- -----------
$ 4 $ 5
=========== ===========
Accounts payable $ $
Construction payable
Construction payable-contested
Intercompany payables
Accrued interest payable
Other accrued liabilities
Current maturities of long
term debt
----------- -----------
Total current liabilities
Other long-term liabilities
Long-term debt
----------- ----------
Redeemable Preferred interest
in Venetian
----------- ----------
Stockholder's equity 4 5
----------- ----------
$ 4 $ 5
=========== ==========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
December 31, 1999
NON-GUARANTOR SUBSIDIARIES
----------------------------
(1)
Grand (2)
Canal Other
Shops Mall Non-
Subsidiary Guarantor
LLC Subsidiaries
----------- -----------
Cash and cash equivalents $ -- $ 45
Restricted cash and investments 2,191
Intercompany receivable
Accounts receivable, net 3,405
Inventories
Prepaid expenses 214
----------- -----------
Total current assets 5,810 45
----------- -----------
Property and equipment, net 143,965 81,945
Investment in Subsidiaries
Deferred offerings costs, net 5,424
Other assets, net 3,067
----------- -----------
$ 158,266 $ 81,990
=========== ===========
Accounts payable $ 1,451 $
Construction payable 3,916
Construction payable-contested
Intercompany payables 22,685
Accrued interest payable 163
Other accrued liabilities 964
Current maturities of long
term debt
----------- -----------
Total current liabilities 25,263 3,916
Other long-term liabilities
Long-term debt 140,000
----------- -----------
165,263 3,916
Redeemable Preferred interest
in Venetian
----------- -----------
Stockholder's equity (6,997) 78,074
----------- -----------
$ 158,266 $ 81,990
=========== ===========
<FN>
- ----------
(1) The assets and liabilities of Grand Canal Shops Mall Construction, LLC, a
guarantor, were transferred to The Mall Subsidiary, a non-guarantor subsidiary,
upon substantial completion of the Casino Resort.
(2) Land with a historical cost basis of $29,169 was transferred from Venetian
Casino Resort, LLC, a co-obligor of the Notes to Lido Casino Resort, LLC., a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million
was indirectly contributed by the Sole Stockholder during December 1999.
</FN>
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
December 31, 1999
Consolidating/
Eliminating
Entries Total
----------- -----------
Cash and cash equivalents $ -- $ 26,252
Restricted cash and investments 10,980
Intercompany receivable (24,736)
Accounts receivable, net 43,203
Inventories 4,516
Prepaid expenses 4,072
----------- -----------
Total current assets (24,736) 89,023
----------- -----------
Property and equipment, net 1,079,192
Investment in Subsidiaries (193,107)
Deferred offerings costs, net 29,865
Other assets, net 11,522
----------- -----------
$ (217,843) $1,209,602
=========== ===========
Accounts payable $ $ 18,128
Construction payable 10,178
Construction payable-contested 7,232
Intercompany payables (24,736)
Accrued interest payable 12,490
Other accrued liabilities 43,392
Current maturities of long
term debt 42,859
----------- -----------
Total current liabilities (24,736) 134,279
Other long-term liabilities 2,333
Long-term debt 907,754
----------- -----------
(24,736) 1,044,366
Redeemable Preferred interest
in Venetian 149,530
----------- -----------
Stockholder's equity (193,107) 15,706
----------- -----------
$ (217,843) $1,209,602
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS
December 31, 1998
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Cash and cash equivalents $ 1,216 $ 1,025
Restricted cash and investments 133,936
Intercompany receivable 563
Accounts receivable, net 112
Inventories 73
Prepaid expenses 2
----------- -----------
Total current assets 1,779 135,148
----------- -----------
Property and equipment, net 700,491
Investment in Subsidiaries 114,225 29,331
Deferred offerings costs, net 28,384
Other assets, net 1,317 64
----------- -----------
$ 117,321 $ 893,418
========== ==========
Accounts payable $ $ 265
Construction payable 66,402
Intercompany payables 3,618
Accrued interest payable 9,069
Other accrued liabilities 1,948 1,057
Current maturities of long term debt 13,788
---------- -----------
Total current liabilities 1,948 94,199
Long-term debt 641,441
----------- -----------
1,948 735,640
Redeemable Preferred interest
in Venetian 90,701
----------- -----------
Stockholder's equity 115,373 67,077
----------- -----------
$ 117,321 $ 893,418
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS, (continued)
December 31, 1998
GUARANTOR SUBSIDIARIES
------------------------------------------
(1)
Lido Mall Grand
Intermediate Intermediate Canal
Holding Holding Shops Mall
Company Company Construction
LLC LLC LLC
----------- ----------- -----------
Cash and cash equivalents $ 5 $ 5 $ 10
Restricted cash and
investments 3,225
Intercompany receivable
Accounts receivable, net
Inventories
Prepaid expenses
----------- ----------- -----------
Total current assets 5 5 3,235
----------- ----------- -----------
Property and equipment,
net 103,394
Investment in Subsidiaries
Deferred offerings costs,
net 6,717
Other assets, net
----------- ----------- ----------
$ 5 $ 5 $ 113,346
=========== =========== ==========
Accounts payable $ $ $
Construction payable 10,623
Intercompany payables
Accrued interest payable
Other accrued liabilities
Current maturities of
long term debt
----------- ----------- ----------
Total current
liabilities 10,623
Long-term debt 102,713
----------- ----------- ----------
113,336
Redeemable Preferred
interest in Venetian
----------- ----------- -----------
Stockholder's equity 5 5 10
----------- ----------- -----------
$ 5 $ 5 $ 113,346
=========== =========== ===========
<FN>
- ----------
(1) The assets and liabilities of Grand Canal Shops Mall Construction, LLC, a
guarantor, were transferred to The Mall Subsidiary, a non-guarantor subsidiary,
upon substantial completion of the Casino Resort.
</FN>
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED BALANCE SHEETS, (continued)
December 31, 1998
(2)
Other
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
----------- ----------- -----------
Cash and cash equivalents $ 24 $ $ 2,285
Restricted cash and
investments 133,936
Intercompany receivable (3,788)
Accounts receivable, net 112
Inventories 73
Prepaid expenses 2
----------- ----------- -----------
Total current assets 24 (3,788) 136,408
----------- ----------- -----------
Property and equipment,
net 29,169 833,054
Investment in Subsidiaries (143,556)
Deferred offerings costs,
net 35,101
Other assets 1,381
----------- ----------- -----------
$ 29,193 $ (147,344) $ 1,005,944
=========== =========== ===========
Accounts payable $ $ $ 265
Construction payable 77,025
Intercompany payables 170 (3,788)
Accrued interest payable 9,069
Other accrued liabilities 3,005
Current maturities of
long term debt 13,788
----------- ----------- -----------
Total current 170 (3,788)
liabilities 103,152
Long-term debt 744,154
----------- ----------- -----------
170 (3,788) 847,306
Redeemable Preferred
interest in Venetian 90,701
----------- ----------- -----------
Stockholder's equity 29,023 (143,556) 67,937
----------- ----------- -----------
$ 29,193 $ (147,344) $1,005,944
=========== =========== ===========
<FN>
- ----------
(2) Land with a historical cost basis of $29,169 was transferred from Venetian
Casino Resort, LLC, a co-obligor of the Notes to Lido Casino Resort, LLC., a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million
was indirectly contributed by the Sole Stockholder during December 1999.
</FN>
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENT OF OPERATIONS
December 31, 1999
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Revenues:
Casino $ 134,381 $ --
Room 89,585
Food and beverage 30,786
Retail and other 1,592 47,197
----------- -----------
Total revenue 135,973 167,568
Less promotional allowance (25,045)
----------- -----------
Net revenue 135,973 142,523
Operating expenses:
Casino 108,568
Room 25,532
Food and beverage 19,134
Retail and other 7,385
Provision for doubtful
accounts and discounts 12,225 730
General and administrative 1,369 48,566
Rental expense 1,237 3,852
Depreciation and amortization 52 22,692
----------- -----------
123,451 127,891
----------- -----------
Operating profit (loss)
before corporate pre-opening
expenses 12,522 14,632
Corporate 1,794 716
Pre-opening expenses 143 21,341
----------- -----------
Operating income (loss) 10,585 (7,425)
----------- -----------
Other income (expense):
Interest income 209 2,336
Interest expense, net of
amounts capitalized (63,819)
----------- -----------
Net loss before
extraordinary item 10,794 (68,908)
Loss on early retirement
of debt
----------- -----------
Net income (loss) $ 10,794 $ (68,908)
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENT OF OPERATIONS, (continued)
December 31, 1999
GUARANTOR SUBSIDIARIES
----------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company Company
LLC LLC
----------- -----------
Revenues:
Casino $ $
Room
Food and beverage
Retail and other
----------- -----------
Total revenue
Less promotional allowance
----------- -----------
Net revenue
Operating expenses:
Casino
Room
Food and beverage
Retail and other
Provision for doubtful
accounts and discounts
General and administrative 1
Rental expense
Depreciation and amortization
----------- -----------
1
----------- -----------
Operating profit (loss)
before corporate pre-opening
expenses (1)
Corporate
Pre-opening expenses
----------- -----------
Operating income (loss) (1)
----------- -----------
Other income (expense):
Interest income
Interest expense, net of
amounts capitalized
----------- -----------
Net loss before
extraordinary item (1)
Loss on early retirement
of debt
----------- -----------
Net income (loss) $ (1) $ --
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENT OF OPERATIONS
December 31, 1999
NON-GUARANTOR SUBSIDIARIES
----------------------------
(1)
Grand
Canal Other
Shops Mall Non-
Subsidiary Guarantor
LLC Subsidiaries
----------- -----------
Revenues:
Casino $ $
Room
Food and beverage
Retail and other 9,844
----------- -----------
Total revenue 9,844
Less promotional allowance
----------- -----------
Net revenue 9,844
Operating expenses:
Casino
Room
Food and beverage
Retail and other 4,909
Provision for doubtful
accounts and discounts 700
General and administrative 2
Rental expense 1,178
Depreciation and amortization 2,401
----------- -----------
9,188 2
----------- -----------
Operating profit (loss)
before corporate and
pre-opening expenses 656 (2)
Corporate
Pre-opening expenses
----------- -----------
Operating income (loss) 656 (2)
----------- -----------
Other income (expense):
Interest income 6
Interest expense, net of
amounts capitalized (7,579)
----------- -----------
Net loss before
extraordinary item (6,917) (2)
Loss on early retirement
of debt (589)
----------- -----------
Net income (loss) $ (7,506) $ (2)
=========== ===========
<FN>
- ----------
(1) The assets and liabilities of Grand Canal Shops Mall Construction, LLC, a
guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary,
upon substantial completion of the Casino Resort.
</FN>
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENT OF OPERATIONS, (continued)
December 31, 1999
Consolidating/
Eliminating
Entries Total
------------- -------------
Revenues:
Casino $ $ 134,381
Room 89,585
Food and beverage 30,786
Retail and other (29,466) 29,167
----------- -----------
Total revenue (29,466) 283,919
Less promotional allowance (25,045)
----------- -----------
Net revenue (29,466) 258,874
Operating expenses:
Casino (29,466) 79,102
Room 25,532
Food and beverage 19,134
Retail and other 12,294
Provision for doubtful
accounts and discounts 13,655
General and administrative 49,938
Rental expense 6,267
Depreciation and amortization 25,145
----------- -----------
(29,466) 231,067
----------- -----------
Operating profit (loss)
before corporate
and pre-opening expenses 27,807
Corporate 2,510
Pre-opening expenses 21,484
----------- -----------
Operating income (loss) 3,813
----------- -----------
Other income (expense):
Interest income 2,551
Interest expense, net of
amounts capitalized (71,398)
----------- -----------
Net loss before
extraordinary item (65,034)
Loss on early retirement
of debt (589)
----------- -----------
Net income (loss) $ $ (65,623)
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENT OF OPERATIONS
December 31, 1998
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Revenues: $ 814 $ 123
Operating expenses 100 8,341
----------- -----------
Operating income (loss) 714 (8,218)
Other income (expense):
Interest income 60 17,077
Interest expense, net
of amounts capitalized (39,015)
----------- -----------
Net income (loss) $ 774 $ (30,156)
=========== ===========
GUARANTOR SUBSIDIARIES
-------------------------------------------
LIDO Mall Grand
Intermediate Intermediate Canal
Holding Holding Shops Mall
Company Company Construction
LLC LLC LLC
----------- ----------- -----------
Revenues: $ -- $ -- $ --
Operating expenses 45 65 45
----------- ----------- -----------
Operating income (loss) (45) (65) (45)
Other income (expense):
Interest income
Interest expense, net
of amounts capitalized
----------- ----------- -----------
Net income (loss) $ (45) $ (65) $ (45)
=========== =========== ===========
Other
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
----------- ----------- -----------
Revenues: $ $ $ 937
Operating expenses 226 8,822
----------- ----------- -----------
Operating income (loss) (226) (7,885)
Other income (expense):
Interest income 17,137
Interest expense, net
of amounts capitalized (39,015)
----------- ----------- -----------
Net income (loss) $ (226) $ $ (29,763)
=========== =========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENT OF OPERATIONS
December 31, 1997
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Revenues: $ 895 $ --
Operating expenses (1,727)
----------- -----------
Operating income (loss) 2,622
Other income (expense):
Interest income 110 3,329
Interest expense, net
of amounts capitalized (6,581)
----------- -----------
Net income (loss) $ 2,732 $ (3,252)
=========== ===========
Consolidating/
Eliminating
Entries Total
----------- -----------
Revenues: $ $ 895
Operating expenses (1,727)
----------- -----------
Operating income (loss) 2,622
Other income (expense):
Interest income 3,439
Interest expense, net
of amounts capitalized (6,581)
----------- -----------
Net income (loss) $ $ (520)
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW
December 31, 1999
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Net cash provided by
(used in) operating
activities $ (7,608) $ (64,828)
----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments 125,147
Construction of Casino
Resort (52) (228,393)
----------- -----------
Net cash used in investing
activities (52) (103,246)
Cash flows from financing activities:
Proceeds from capital
contributions 27,791
Proceeds from preferred
interest in Venetian 44,431
Repayments on mall
construction loan
facility
Proceeds from mall con-
struction loan
facility
Proceeds from
tranche a loan
Proceeds from
tranche b loan
Proceeds from completion
guaranty-jr 23,503
Repayment on bank credit
facility-term loan (11,250)
Proceeds from bank credit
facility-term loan 34,000
Repayments on bank credit
facility-revolver (10,231)
Proceeds from bank credit
facility-revolver 40,506
Repayment on FF&E
credit facility (5,862)
Proceeds from FF&E
credit facility 83,842
Payment of deferred costs (1,299)
Net increase and (decrease)
intercompany accounts 2,614 (28,354)
----------- -----------
Net cash provided by financing
activities 30,405 169,286
----------- -----------
Increase (decrease) in cash
and cash equivalents 22,745 1,212
Cash and cash equivalents at
beginning of period 1,216 1,025
----------- -----------
Cash and cash equivalent at
end of year $ 23,961 $ 2,237
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW (continued)
December 31, 1999
GUARANTOR SUBSIDIARIES
--------------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company Company
LLC LLC
----------- -----------
Net cash provided by
(used in) operating
activities $ (1) $
----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments
Construction of Casino
Resort
----------- -----------
Net cash used in investing
activities
Cash flows from financing activities:
Proceeds from capital
contributions
Proceeds from preferred
interest in Venetian
Repayments on mall construction
loan facility
Proceeds from mall construction
loan facility
Proceeds from tranche a loan
Proceeds from tranche b loan
Proceeds from completion
guaranty-jr
Repayment on bank credit
facility-term loan
Proceeds from bank credit
facility-term loan
Repayments on bank credit
facility-revolver
Proceeds from bank credit
facility-revolver
Repayment on FF&E
credit facility
Proceeds from FF&E
credit facility
Payment of deferred costs
Net increase and (decrease)
intercompany accounts
----------- -----------
Net cash provided by financing
activities
----------- -----------
Increase (decrease) in cash
and cash equivalents (1)
Cash and cash equivalents at
beginning of period 5 5
----------- -----------
Cash and cash equivalent at
end of year $ 4 $ 5
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW, (continued)
December 31, 1999
NON-GUARANTOR SUBSIDIARIES
--------------------------------
(1)
Grand
Canal Other
Shops Mall Non-
Construction Guarantor
LLC Subsidiaries
----------- -----------
Net cash provided by
(used in) operating
activities $ (7,174) $ (3)
----------- ----------
Cash flows from investing activities:
Proceeds from purchases
of investments (2,191)
Construction of Casino Resort (53,593) (37,068)
----------- ----------
Net cash used in investing
activities (55,784) (37,068)
Cash flows from financing activities:
Proceeds from capital
contributions 498 37,262
Proceeds from preferred
interest in Venetian
Repayments on mall construction
loan facility (140,000)
Proceeds from mall construction
loan facility 37,287
Proceeds from tranche a loan 105,000
Proceeds from tranche b loan 35,000
Proceeds from completion
guaranty-jr
Repayment on bank credit
facility-term loan
Proceeds from bank credit
facility-term loan
Repayments on bank credit
facility-revolver
Proceeds from bank credit
facility-revolver
Repayment on FF&E
credit facility
Proceeds from FF&E
credit facility
Payments of deferred offering
cost (747)
Net increase and (decrease)
intercompany accounts 25,910 (170)
----------- ----------
Net cash provided by financing
activities 62,948 37,092
----------- ----------
Increase (decrease) in cash
and cash equivalents (10) 21
Cash and cash equivalents at
beginning of period 10 24
----------- ----------
Cash and cash equivalent at
end of year $ -- $ 45
=========== ==========
<FN>
- ----------
(1) The assets and liabilities of Grand Canal Shops Mall Construction, LLC, a
guarantor, were transferred to The Mall Subsidiary, a non-guarantor subsidiary,
upon substantial completion of the Casino Resort.
</FN>
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW, (continued)
December 31, 1999
Consolidating/
Eliminating
Entries Total
----------- -----------
Net cash provided by
(used in) operating
activities $ 49,551 $ (30,063)
----------- ----------
Cash flows from investing activities:
Proceeds from purchases
of investments 122,956
Construction of Casino Resort (319,106)
----------- ----------
Net cash used in investing
activities (196,150)
Cash flows from financing activities:
Proceeds from capital contributions (49,551) 16,000
Proceeds from preferred
interest in Venetian 44,431
Repayments on mall construction
loan facility (140,000)
Proceeds from mall construction
loan facility 37,287
Proceeds from tranche a loan 105,000
Proceeds from tranche b loan 35,000
Proceeds from completion
guaranty-jr 23,503
Repayment on bank credit
facility-term loan (11,250)
Proceeds from bank credit
facility-term loan 34,000
Repayments on bank credit
facility-revolver (10,231)
Proceeds from bank credit
facility-revolver 40,506
Repayment on FF&E credit facility (5,862)
Proceeds from FF&E
credit facility 83,842
Payments of deferred offering
costs (2,046)
Net increase and (decrease)
intercompany accounts ----------- ----------
Net cash provided by financing
activities (49,551) 250,180
----------- ----------
Increase (decrease) in cash
and cash equivalents 23,967
Cash and cash equivalents at
beginning of period 2,285
----------- ----------
Cash and cash equivalent at
end of year $ $ 26,252
=========== ==========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW
December 31, 1998
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Net cash provided by (used in)
operating activities $ 1,167 $ (27,015)
----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments 297,226
Investment in subsidiaries (93) (162)
Construction of Casino Resort (508,399)
----------- -----------
Net cash used in investing
activities (93) (211,335)
Cash flows from financing activities:
Proceeds from Mall Construction
Loan Facility 102,713
Proceeds from Bank Credit
Facility-term loan 116,000
Proceeds from Bank Credit
Facility-revolver 8,885
Proceeds from FF&E
Credit Facility 13,858
Payments of deferred
offering cost (2,796)
Proceeds from capital
contributions
----------- -----------
Net cash provided by
financing activities 238,660
----------- -----------
Increase in cash
and cash equivalents 1,074 310
Cash and cash equivalents at
beginning of period 142 715
----------- -----------
Cash and cash equivalents at
end of year $ 1,216 $ 1,025
=========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW (continued)
December 31, 1998
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO Mall Grand
Intermediate Intermediate Canal
Holding Holding Shops Mall
Company Company Construction
LLC LLC LLC
----------- ----------- -----------
Net cash provided by
(used in) operating
activities $ (45) $ (65) $ (40)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments
Investment in subsidiaries
Construction of Casino
Resort
----------- ----------- -----------
Net cash used in investing
activities
Cash flows from financing activities:
Proceeds from Mall Con-
struction Loan
Facility
Proceeds from Bank Credit
Facility-term loan
Proceeds from Bank Credit
Facility-revolver
Proceeds from FF&E
Credit Facility
Payments of deferred offering
cost
Proceeds from capital
contributions 50 70 50
----------- ----------- -----------
Net cash provided by
financing activities 50 70 50
----------- ----------- -----------
Increase in cash
and cash equivalents 5 5 10
Cash and cash equivalents at
beginning of period
----------- ----------- -----------
Cash and cash equivalents at
end of year $ 5 $ 5 $ 10
=========== =========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW, (continued)
December 31, 1998
Other
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
----------- ----------- -----------
Net cash provided by
(used in) operating
activities $ (61) $ $ (26,059)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments 297,226
Investment in subsidiaries 255
Construction of Casino
Resort (508,399)
Net cash used in investing ----------- ----------- -----------
activities 255 (211,173)
Cash flows from financing
activities:
Proceeds from Mall Con-
struction Loan
Facility 102,713
Proceeds from Bank Credit
Facility-term loan 116,000
Proceeds from Bank Credit
Facility-revolver 8,885
Proceeds from FF&E
credit facility 13,858
Payment of deferred
offering cost (2,796)
Proceeds from capital
contributions 85 (255)
----------- ----------- -----------
Net cash provided by
financing activities 85 (255) 238,660
----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents 24 1,428
Cash and cash equivalents at
beginning of period 857
----------- ----------- -----------
Cash and cash equivalents at
end of year $ 24 $ $ 2,285
=========== =========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW
December 31, 1997
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Net cash provided by (used in)
operating activities $ (838) $ 4,697
----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments (426,120)
Construction of Casino Resort (25,399) (105,428)
------------ -----------
Net cash used in investing activities (25,399) (531,548)
Cash flows from financing activities:
Proceeds preferred interest
Venetian 77,053
Proceeds from mortgage notes 425,000
Proceeds from senior subordinated
notes 90,500
Proceeds from capital contributions 25,500
Proceeds (payments) of intercompany
dividends 27,600 (27,600)
Payments of deferred offering costs (37,387)
Payment of dividends (27,600)
------------ -----------
Net cash provided by financing
activities 25,500 527,566
------------ -----------
Increase (decrease) in cash
and cash equivalents (737) 715
Cash and cash equivalents at
beginning of period 879
------------ -----------
Cash and cash equivalents at
end of year $ 142 $ 715
============ ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW (continued)
December 31, 1997
Consolidating/
Eliminating
Entries Total
----------- -----------
Net cash provided by (used in)
operating activities $ $ 3,859
----------- -----------
Cash flows from investing activities:
Proceeds from purchases
of investments (426,120)
Construction of Casino Resort (130,827)
------------ -----------
Net cash used in investing activities (556,947)
Cash flows from financing activities:
Proceeds preferred interest
Venetian 77,053
Proceeds from mortgage notes 425,000
Proceeds from senior subordinated
notes facility-revolver 90,500
Proceeds from capital contributions 25,500
Proceeds (payments) of intercompany
dividends
Payments of deferred offering costs (37,387)
Payment of dividends (27,600)
------------ -----------
Net cash provided by financing
activities 553,066
------------ -----------
Increase (decrease) in cash
and cash equivalents (22)
Cash and cash equivalents at
beginning of period 879
------------ -----------
Cash and cash equivalents at
end of year $ $ 857
============ ===========
Report of Independent Accountants on Financial Statements Schedule
To the Board of Directors of Las Vegas Sands, Inc.
Our audits of the financial statements referred to in our opinion dated February
15, 2000 appearing in the this Annual Report on Form 10-K also included an audit
of the financial statement schedule listed in Item 14 (a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 15, 2000
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 15 Summarized Financial Information (continued)
================================================================================
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
================================================================================
Balance Additions
at charged Deductions Balance
beginning to Accounts at
of cost and charged off end of
Description period expenses (recovered) period
================================================================================
Allowance for doubtful accounts and discounts:
Year ended December 31:
1997 $ $
========= ========= ========= =========
1998 $ $
========= ========= ========= =========
1999 $ 13,655 (6,758) $ 6,897
========= ========= ========= =========
ITEM 9.--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 10. --DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------
LVSI has a Board of Directors comprised of two persons. One director is
the Sole Stockholder, who has two votes for all matters before the Board of
Directors. In the event that LVSI increases the number of directors comprising
the Board of Directors, the number of votes which the Sole Stockholder has will
be increased so that the Sole Stockholder will have one more vote than the
number of votes of all of the other directors aggregated. The second director,
(the "Special Director"), is unaffiliated with the Sole Stockholder or any other
affiliate of the Sole Stockholder, has no other position with LVSI or Venetian
and has one vote for all matters before the Board of Directors. To the extent
the Special Director receives compensation, it is paid by LVSI from sources
unrelated to and independent from the Sole Stockholder and its affiliates (other
than LVSI and Venetian). The Special Director is required to file an application
for a gaming license with the Nevada Gaming Authorities.
The table below sets forth the executive officers and the directors of the
Company.
Name Age Position
- --------------------------- ------ ------------------------------------------
Sheldon G. Adelson 66 Chairman of the Board, Chief Executive
Officer and Director
William J. Raggio 73 Special Director
William P. Weidner 54 President and Chief Operating Officer
Bradley H. Stone 44 Executive Vice President
Robert G. Goldstein 44 Senior Vice President
David Friedman 43 Assistant to Chairman of the Board and
Secretary
Harry D. Miltenberger 56 Vice President-Finance
Sheldon G. Adelson has been the Chairman of the Board, Chief Executive
Officer and a director of the Company since April 1988 when the Company was
formed to own and operate the former Sands Hotel. Mr. Adelson has extensive
experience in the convention, trade show, tour and travel businesses. Mr.
Adelson also has investments in other business enterprises. He has been
President and Chairman of Interface since the mid-1970s and Chairman of
Interface Group-Massachusetts Inc. since 1990. Mr. Adelson created and developed
the COMDEX Trade Shows, including the COMDEX Fall Trade Show, the world's
largest computer show, all of which were sold to Softbank Corporation in April
1995.
William J. Raggio was elected as Special Director of the Company upon
consummation of the offering in November 1997 of the Notes. Since 1991, Mr.
Raggio has been an attorney and shareholder in the law firm of Vargas &
Bartlett, and since 1998 with its successor Jones and Vargas. Since 1972, he has
served as an elected member of the Nevada State Senate, holding the positions of
Senate Majority Leader and Chairman of the Senate Finance Committee. Mr. Raggio
has also been a member of the Board of Directors of Sierra Health Services since
1984 and was a member of the Board of Directors and an Executive Vice President
of Santa Fe Gaming Corp. from 1987 to 1998.
William P. Weidner has been the President and Chief Operating Officer of
the Company since December 1995. From 1985 to 1995, Mr. Weidner was President
and Chief Operating Officer and served on the board of Pratt Hotel Corporation.
From February 1991 to December 1995, Mr. Weidner was also the President of
Pratt's Hollywood Casino-Aurora subsidiary and from June 1992 until December
1995, he served on the board of the Hollywood Casino Corporation. Since
September 1993, Mr. Weidner has served on the Board of Directors of Shorewood
Packaging Corporation. Mr. Weidner directed the opening of Hollywood Casino, one
of Chicago's first riverboat casino hotels, New York City's Maxim's de Paris
(now the Peninsula), and hotels in Orlando and Palm Springs.
Bradley H. Stone has been Executive Vice President of the Company since
December 1995. From June 1984 through December 1995, Mr. Stone was President and
Chief Operating Officer of the Sands Hotel in Atlantic City. Mr. Stone also
served as an Executive Vice President of the parent Pratt Hotel Corporation from
June 1986 through December 1995.
Robert G. Goldstein has been Senior Vice President of the Company since
December 1995 and President and Chief Operating Officer of Venetian since May
1999. From 1992 until joining the Company in December 1995, Mr. Goldstein was
the Executive Vice President of Marketing at the Sands in Atlantic City as well
as an Executive Vice President of the parent Pratt Hotel Corporation.
David Friedman has been Assistant to the Chairman of Interface since
October 1995. Subsequently, Mr. Friedman became both Assistant to the Chairman
of the Company and Secretary of the Company. Mr. Friedman is also an officer of
other companies owned by the Sole Stockholder. Prior to joining the Company, Mr.
Friedman was the Senior Vice President of Development and Legal Affairs for
President Casinos, Inc. from May 1993 to October 1995.
Harry D. Miltenberger is a certified public accountant and has been Vice
President--Finance of the Company since February 1997. From March 1995 until
February 1997 he was Senior Vice President and Chief Financial Officer of SUB, a
banking company.
ITEM 11.--EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth certain information concerning the
compensation for the last three fiscal years of those persons who were, at
December 31, 1999, the five highest paid executive officers of LVSI, which is
the managing member of Venetian. Sheldon G. Adelson, the Chairman of the Board
and Chief Executive Officer of LVSI, received no compensation in 1997, 1998 and
1999. Notwithstanding the foregoing, in future years, LVSI plans to provide
salary, bonus or other compensation to Mr. Adelson in his capacity as Chairman
of the Board and Chief Executive Officer of LVSI. Under the limited liability
company agreement of Venetian, LVSI is entitled to be reimbursed for all
expenses incurred in connection with its activities as the managing member of
Venetian, including all employee compensation costs.
Long Term
Annual Compensation
Compensation Awards
------------------- ---------
Securities All
Underlying Other
Name and Principal Year Salary Bonus Options Compensation
Position (1)
- ---------------------- --------- ------------------- --------- --------
William P. Weidner 1999 797,165 -- -- 1,917
President and 1998 779,917 -- -- 2,592
Chief Operating 1997 794,915 50,000 -- 6,570
Officer
Bradley H. Stone 1999 511,882 -- -- 729
Executive Vice 1998 500,806 -- -- 918
President 1997 510,430 40,000 -- 918
Robert G. Goldstein 1999 457,881 -- -- 729
Senior Vice 1998 376,970 -- -- 918
President 1997 384,220 40,000 -- 918
David Friedman 1999 300,000 -- -- 745
Assistant to 1998 306,347 105,000 -- 914
Chairman of the 1997 228,654 90,000 -- 816
Board and
Secretary
Harry D. Miltenberger 1999 195,000 -- -- 2,408
Vice President 1998 195,000 -- -- 2,848
Finance 1997 147,769 30,000 -- 12,307
<FN>
- ----------
(1) Represents moving expense and other miscellaneous expenses.
</FN>
Employment Agreements
- ---------------------
William P. Weidner, Bradley H. Stone and Robert G. Goldstein each has an
employment agreement (collectively, the "Employment Agreements") with the
Company continuing through December 31, 2000 (the "Initial Term"). The
agreements originally had a termination date of December 31, 1998, but have been
extended by the Company through December 31, 2000, in accordance with two-year
extension rights of the Company. Pursuant to the Employment Agreements, the
officers have such powers, duties and responsibilities as are generally
associated with their offices, as may be modified or assigned by the Chairman of
the Board of Directors (or the President in the case of Mr. Stone and Mr.
Goldstein), and subject to the supervision of the Board of Directors (and the
President in the case of Mr. Stone and Mr. Goldstein). The agreements provide
that, during the terms of their employment, the officers will not engage in any
other business or professional pursuit unless consented to by the Company in
writing.
The terms of the Employment Agreements provide for an annual base salary
for Mr. Weidner, Mr. Stone and Mr. Goldstein of $797,165, $511,882 and $457,881,
respectively. The foregoing salaries were adjusted for cost-of-living
adjustments, effective January 1, 1999. The employment agreements also provide
for the grant of options to acquire shares of common stock of the Company
representing 2%, 1.5% and 1.0%, respectively, of the shares issued and
outstanding upon the issuance of all shares for which options have been granted
under the Employment Agreements. However, none of such options have yet been
granted, and are not effective for any purpose whatsoever until and unless the
grant of such options has been approved by the Nevada Commission. See " - Las
Vegas Sands, Inc. 1997 Fixed Stock Option Plan." The officers are also entitled
to receive other employee benefits of the Company. The agreements may be
terminated by either the Company or the officer upon proper notice, pursuant to
the terms of the Employment Agreements. Under the agreements, in the event of a
Cause Termination, Breach Termination, Voluntary Termination or Licensing
Termination (each as defined therein), all salary and benefits shall immediately
cease subject to any requirements of law, all unexercised options shall be
canceled and forfeited and all shares of common stock held shall be redeemed by
the Company at a price equal to the lesser of the exercise price of such shares
or the Fair Market Value (as defined therein) on the date of termination,
payable in sixty equal consecutive monthly installments with interest at the
Applicable Federal Rate (as defined therein). In the event of a Company Breach
Termination, Constructive Termination or Involuntary Termination (each as
defined therein), the Company is obliged to pay to the officer involved his
salary for the rest of the term of the Employment Agreement until the officer
becomes gainfully employed elsewhere, in which event the Company is obliged to
pay the difference in the income earned in such other employment and the salary
payable under the agreement with the Company. The amount that the officer is
entitled to receive upon termination will depend upon the amount of time
remaining in the term of such agreement as of the date of the officer's
termination of employment. If a Company Breach Termination, Constructive
Termination or Involuntary Termination occurred with respect to Mr. Weidner, Mr.
Stone and Mr. Goldstein on December 31, 1999, the amounts that Mr. Weidner, Mr.
Stone and Mr. Goldstein would have been entitled to receive pursuant to their
Employment Agreements as continued salary through December 31, 2000 would have
been $797,165, $511,882 and $457,881, respectively. Such amounts would have been
subject to mitigation, as described above, if the officer became gainfully
employed elsewhere. In addition, all unexercised options shall be canceled and
forfeited and all shares of the Company held by the officer shall be redeemed by
the Company at a price equal to the greater of the exercise price for such
shares or the Fair Market Value on the date of termination, payable in 36 equal
consecutive monthly installments with interest at the Applicable Federal Rate.
In the case of a Death Termination (as defined therein), salary shall be paid
through the date of death, all unexercised options shall be automatically
cancelled, and all shares of the Company held by the officer shall be redeemed
by the Company for a price payable by the Company to the officer's estate equal
to all sums paid by the officer for the shares plus the difference between (x)
the exercise price paid for the shares and (y) the Fair Market Value of such
shares, payable in 36 equal consecutive monthly installments with interest at
the Applicable Federal Rate. In the case of Disability Termination, salary, less
any applicable disability insurance payments, shall be continued for a period of
six months following the date of termination and all options and shares shall be
treated in the same way as upon a Death Termination. The employment agreements
may not be amended, changed, or modified except by a written document signed by
each of the parties.
Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan
- --------------------------------------------------
The Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan (the "Plan")
provides for 75,000 shares of common stock of the Company to be reserved for
issuance by the Company to officers and other key employees or consultants of
the Company or any of its Affiliates or Subsidiaries (each as defined in the
Plan) pursuant to options granted under the Plan. None of the options granted
under the Plan will become effective for any purpose whatsoever until and unless
the grant of such options has been approved by the Nevada Commission. The
purpose of the Plan is to promote the interest of the Company and its Sole
Stockholder by (i) attracting and retaining exceptional officers and other key
employees and consultants to the Company and its Affiliates and Subsidiaries and
(ii) enabling such individuals to participate in the long-term growth and
financial success of the Company. The Board of Directors has the authority to
determine the participants to whom options are granted, the number of shares
covered by each option or any repurchase or other disposition of share
thereunder, the exercise price therefor, and the conditions and limitations
applicable to the exercise of the option. The Board of Directors is authorized
to make adjustments in the terms and conditions of, and the criteria included
in, options, in the case of certain unusual or nonrecurring events, whenever the
Board of Directors determines that such adjustments are appropriate in order to
prevent dilution or enlargement of benefits or potential benefits under the
Plan. In the event of any Acceleration Event (as defined in the Plan) any
outstanding options then held by the participants which are unexercisable or
otherwise unvested, shall automatically become fully vested and shall be
exercisable pursuant to the applicable award agreement. The Plan provides that
the Sole Stockholder may, at any time, assume the Plan or certain obligations
under the Plan, in which case the Sole Stockholder will be the administrator of
the Plan, the issuer of the Options, and will have all the rights, powers, and
responsibilities granted to the Company or the Board of Directors under the Plan
with respect to such assumed obligations.
The Board of Directors may amend, alter, suspend, discontinue or terminate
the Plan or any portion thereof at any time, provided that such shall not be
made without Shareholder approval if such approval is necessary to comply with
any tax or regulatory requirement applicable to the plan and provided that any
such amendment, alteration, suspension, discontinuance or termination that would
impair the rights of any holder of an option already granted shall not be
effective without the holder's consent. The Plan expires, and no options may be
granted under the Plan after the year 2007.
Upon approval of the Plan by the Nevada Commission, options are expected
to be granted under the Plan to Mr. Weidner, Mr. Stone, Mr. Goldstein, Mr.
Friedman and Mr. Miltenberger (the "Named Optionees") (as well as other
individuals) to acquire shares representing 2.0%, 1.5%, 1.0%, 0.5% and 0.1%,
respectively, of the common stock of the Company. The specific terms and
conditions of the options were agreed to in 1999 and are expected to be
memorialized in 2000. The Company does not expect the exercise price on the
grant date will be lower than fair market value of the common stock of the
Company. The Plan allows the Sole Stockholder to assume the obligations under
the Plan relating to such options and to enter into award agreements with the
Named Optionees. The options granted to the Named Optionees are expected to be
fully vested and exercisable upon grant. The options will expire on the earlier
of (i) the eighth anniversary of the date of grant, (ii) the date three days
prior to a Change in Control Acceleration Event (as defined in the Plan) (iii)
the date three days prior to a Public Offering Acceleration Event (as defined in
the Plan) and, (iv) in the case of Mr. Friedman and Mr. Miltenberger, on or
shortly following each Named Optionee's termination of employment in accordance
with the terms of the applicable Award Agreement. The Company expects that the
options of the Named Optionees will be exercised immediately after issuance and
that the exercise price will be loaned to the Named Optionees by the Company or
the Sole Stockholder. The common stock issued upon the exercise of the options
will be subject to other vesting provisions that expire on December 31, 2000,
except with respect to Mr. Miltenberger whose stock is expected to be subject to
certain other vesting provisions. Shares issued to the Named Optionees pursuant
to the exercise of an option and held at the time of each Named Optionee's
termination of employment are subject to redemption by the Company or the Sole
Stockholder, if he so issued them, in accordance with the terms of the
applicable award agreements of the Named Optionees and for Messrs. Weidner,
Stone and Goldstein, also consistent with the terms of the Employment
Agreements, as described in "Employment Agreements" above.
ITEM 12. --SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
The following table sets forth certain information as of March 30, 2000
with respect to the beneficial ownership of the common stock of LVSI by (i) each
person who, to the knowledge of LVSI, beneficially owns more than 5% of its
outstanding common stock, (ii) the directors of LVSI, (iii) all executive
officers named in the summary compensation table in "Item 11 - Executive
Compensation" and (iv) all executive officers and directors of LVSI as a group.
Shares of
Beneficial Owner(1) Common Stock Percentage
------------------- ------------ ----------
Sheldon G. Adelson 925,000 100%
William J. Raggio 0 0%
William P. Weidner (2) 0 0%
Bradley H. Stone (2) 0 0%
Robert G. Goldstein (2) 0 0%
David Friedman (2) 0 0%
Harry D. Miltenberger (2) 0 0%
All executive officers and the
directors of the Company as
a group 925,000 100%
<FN>
- ----------
(1)The address of each person named below is c/o the Company, 3355 Las Vegas
Boulevard South, Room 1A, Las Vegas, Nevada 89109.
(2)Does not include options to purchase common stock of the Company not
exercisable within 60 days of the date hereof in connection with the
development of the Casino Resort and pursuant to the terms of each of their
employment agreements or other agreements with the Company, each of Messrs.
Weidner, Stone, Goldstein, Friedman and Miltenberger are to be granted
options to purchase common stock of LVSI representing 2.0%, 1.5%, 1.0%, 0.5%
and 0.1%, respectively, of the shares of common stock of LVSI outstanding
after giving effect to the issuance of all shares for which options have been
granted. However, none of such options are effective for any purpose
whatsoever until and unless the grant of such options has been approved by
the Nevada Commission. See "Item 11 - Executive Compensation - Las Vegas
Sands, Inc. 1997 Fixed Stock Option Plan."
</FN>
ITEM 13. --CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
Redeemable Preferred Interest and Equity Contributions
- ------------------------------------------------------
Venetian currently has two members, the Company and Interface Group
Holding Company, Inc. ("Interface Holding"), which owns all of the capital stock
of Interface. LVSI is the managing member of Venetian and owns 100% of the
common equity interests in Venetian. Interface Holding currently holds a Series
B Preferred Interest in Venetian. The rights of the Series B Preferred Interest
are non-voting, not subject to mandatory redemption or redemption at the option
of the holder and will have a preferred return of 12% and upon the 12th
anniversary of the closing of the offering of the Notes, to the extent of the
positive capital account of the holders of the Series B Preferred Interest,
there must be a distribution on the Series B Preferred Interest. Until the
indebtedness under the Bank Credit Facility is repaid and cash payments are
permitted under the restricted payment covenants under the Indentures, the
preferred return on the Series B Preferred Interest will accrue and will not be
paid in cash. Subject to the foregoing, distributions with respect to the
preferred capital of the holders of the Series B Preferred Interest may, at the
option of the Company, be made at any time.
On November 12, 1999, the Sole Stockholder made a $15.0 million working
capital loan to the Company in the form of the Subordinated Note. On November
15, 1999, the entire Subordinated Note was contributed by the Sole Stockholder
to LVSI as a common equity capital contribution. Also during the forth quarter,
the Sole Stockholder indirectly contributed 1.75 acres of land on the Strip to
the Phase II Subsidiary, which was recorded at its historical cost of $11.8
million as a common equity capital contribution. See "Item 7 -Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Waivers; Additional Indebtedness and Equity" and "Item 8 -Financial Statements
and Supplementary Data - Notes to Financial Statements - Note 12 Related Party
Transactions."
Tranche B Take-out Loan and Sole Stockholder's $20.0 million Guaranty of Tranche
- --------------------------------------------------------------------------------
A Take-out Loan
- ---------------
On December 20, 1999, each of the $105.0 million Tranche A Take-out Loan
and the $35.0 million Tranche B Take-out Loan were made, and were secured by
mortgages on the Mall Assets. The Sole Stockholder has agreed to guarantee, on
an unsecured basis, $20.0 million of indebtedness under the Tranche A Take-out
Loan. In addition, the Tranche B Take-out Lender is wholly-owned by the Sole
Stockholder. The Tranche B Take-out Loan is deeply subordinated to the Tranche A
Take-out Loan, so that, among other things, (a) the Tranche A Take-out Lender
has first priority liens on the Mall Assets, and the Tranche B Take-out Lender
has second priority liens; (b) no payment can be made on the Tranche B Take-out
Loan unless (x) all payments then due under the Tranche A Take-out Loan have
been paid in full, (y) there is no default under the Tranche A Take-out Loan and
(z) there is available cash flow (taking into account certain required reserves)
to make such payment; and (c) the Tranche B Take-out Lender cannot exercise any
remedies or take any enforcement actions under the Tranche B Take-out Loan for
so long as the Tranche A Take-out Loan is outstanding, unless the Tranche A
Take-out Lender consents. The Tranche B Take-out Loan is due December 16, 2004,
provided that the New Mall Subsidiary has an option to extend the loan until
December 16, 2007. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
Completion Guaranty
- -------------------
The Completion Guaranty with respect to the construction of the Casino
Resort was provided by the Sole Stockholder in November, 1997. Pursuant to the
Completion Guaranty, the Sole Stockholder guaranteed, subject to certain
conditions and limitations, payment of Casino Resort construction costs in
excess of available funds, up to a maximum of $25.0 million (plus interest
accrued on the collateral for such guaranty, as described below), provided that
such cap on liability under the Completion Guaranty does not apply with respect
to excess construction costs attributable to scope changes. The Sole
Stockholder's obligations under the Completion Guaranty were collateralized by
$25.0 million in cash and cash equivalents and the interest accrued thereon (the
"Guaranty Collateral"). On November 12, 1999, an advance of approximately $23.5
million was made under the Completion Guaranty and is being treated as a
Completion Guaranty Loan that is subordinated in right of payment (except as
described below) to the indebtedness under the Bank Credit Facility, the FF&E
Credit Facility and the Notes. The Completion Guaranty Loan matures on November
16, 2005 and bears interest at a rate of 14-1/4% per annum. Although interest
may accrue on the Completion Guaranty Loan, no cash payments with respect
thereto may be made until senior indebtedness is repaid, except for payments
made from certain construction-related recoveries (including any payments
received by the Company from the Construction Manager or its subcontractors in
connection with the litigations discussed above). As of December 31, 1999, there
was approximately $5.0 million of Guaranty Collateral remaining, and the Company
expects that such collateral will be used to fund excess construction costs,
with a portion of such funding being treated as another completion guaranty
loan. Although the Completion Guaranty provided that the Sole Stockholder's
liability thereunder would expire upon substantial completion of the Casino
Resort, which was achieved on November 12, 1999, the Sole Stockholder agreed on
November 12, 1999 that he would remain liable under the Completion Guaranty
until "final completion" (i.e., the completion of all remaining punchlist items
and the final resolution of all disputes with the Construction Manager and
subcontractors) is achieved. The Completion Guaranty does not provide for the
incurrence by the Sole Stockholder, directly or indirectly, of any obligation,
contingent or otherwise, for the payment of principal or interest on the Notes
or any other indebtedness described herein.
Letters of Credit
- -----------------
Pursuant to the terms of the Tranche A Take-out Loan, the Sole Stockholder
provided a $5.0 million irrevocable letter of credit to provide an operating
reserve for the Mall. Additionally, in order to be able to purchase surety
bonds, the Sole Stockholder had to provide a $5.0 million irrevocable letter of
credit as collateral to the bonding company.
Cooperation Agreement
- ---------------------
The Company's business plan calls for each of the Hotel, the Casino and
Congress Center, the Mall and the Expo Center (and, potentially, the Phase II
Resort), though separately owned, to be part of an integrally related project.
In order to establish terms for the integrated operation of these facilities,
Venetian (as owner of the Hotel, Casino and Congress Center, and the Phase II
Land), the New Mall Subsidiary and Interface are parties to the Cooperation
Agreement. The Cooperation Agreement sets forth agreements among the parties
regarding, among other things, encroachments, easements, operating standards,
maintenance requirements, insurance requirements, casualty and condemnation,
joint marketing, the sharing of certain facilities and costs relating thereto.
The obligations set forth in the Cooperation Agreement "run with the land" and
so bind the respective property owners and their successors, provided that
certain of the obligations under the Cooperation Agreement, are not senior to
previously recorded mortgages encumbering the Expo Center and so would not
survive any foreclosure of such mortgages.
The Cooperation Agreement contains cross encroachment provisions which
permit the Mall to encroach, to a limited extent, on other portions of the
Casino Resort, and which will permit other portions of the Casino Resort to
encroach, to a limited extent, on the Mall.
The Cooperation Agreement also contains certain covenants respecting the
operation of the Expo Center and the Casino Resort. Such covenants include, for
example, (a) a covenant by Venetian to operate the Hotel and Casino continuously
and to use the Hotel and the Casino exclusively in accordance with standards of
first-class Las Vegas Boulevard-style hotels and casinos; (b) a covenant by the
New Mall Subsidiary to operate and to use the Mall exclusively in accordance
with standards of first-class retail and restaurant complexes; and (c) a
covenant by Interface to operate and to use the Expo Center exclusively in
accordance with standards of first-class convention, trade show and exposition
centers. Additionally, with respect to the joint marketing of the Casino Resort
and the Expo Center, the Cooperation Agreement provides that until December 31,
2010, Interface (upon request from the owner of the Hotel and Casino) will use
commercially reasonable efforts to have the Hotel designated as the
"headquarters hotel" for trade show and convention events at the Expo Center,
and the owner of the Hotel and Casino will use commercially reasonable efforts
to promote the use and occupancy of the Expo Center. It should be noted that
trade show and convention promoters will be under no obligation to designate the
Hotel as the "headquarters hotel" for their events.
The Cooperation Agreement also requires each of (a) the owners of each
component of the Casino Resort and (b) the owner of the Expo Center, to maintain
certain minimum types and levels of insurance, including property damage,
general liability and business interruption insurance.
Administrative Services Agreement
- ---------------------------------
Pursuant to a certain services agreement (the "Services Sharing
Agreement") among LVSI, certain of its subsidiaries and Interface Holding
(collectively, the "Participants"), the Participants have agreed to share
ratably in the costs of, and under certain circumstances provide to one another,
shared services, including legal services, accounting services, insurance
administration, benefits administration, and such other services as each party
may request of the other. In addition, under the Services Sharing Agreement, the
Participants have agreed to share ratably the costs of any shared office space.
Total payments made in 1999 pursuant to the Services Sharing Agreement were
$900,000.
Temporary Lease
- ---------------
On November 1, 1996, LVSI and Interface entered into a lease agreement
whereby LVSI agreed to lease approximately 5,000 square feet in the Expo Center
to be used as its temporary executive offices during the construction of the
Casino Resort. Management believes that the lease agreement, which provides for
monthly rent of $5,000 to be paid by LVSI to Interface, is at least as favorable
as the Company could have obtained from an independent third party. The initial
term of the lease agreement expired on November 1, 1998, but LVSI and Interface
have extended this term on a month-to-month basis. Total payments made by LVSI
to Interface pursuant to the lease agreement in 1999 totaled $60,000.
Retirement Plan
- ---------------
All of the employees of Interface were eligible to participate in the Las
Vegas Sands, Inc. 401(k) Retirement Plan sponsored by LVSI through 1998. In
1999, LVSI established a new plan and Interface assumed the original LVSI plan.
Costs related to the administration of the 1998 plan of LVSI, which were nominal
in 1999, are shared with LVSI based on the number of employees of each of
Interface and LVSI participating in the plan.
Possible Conflicts of Interest
- ------------------------------
The common ultimate ownership of the Casino Resort, the Phase II Resort
and the Expo Center may present potential conflicts of interest. For example,
management may offer discounts and other incentives for visitors to stay at the
Phase II Resort which might result in a competitive advantage of the Phase II
Resort over the Casino Resort. In addition, management may choose to allocate
certain business opportunities to the Phase II Resort rather than to the Casino
Resort. Although common ownership of both the Casino Resort and the Phase II
Resort often may result in economies, efficiencies and joint business
opportunities for the two resorts in the aggregate, the Casino Resort may, in
certain circumstances, bear the greater burden of the expenses that are shared
by both resorts. In addition, inasmuch as there may be a common management for
both the Casino Resort and the Phase II Resort, management's time may be split
between overseeing the operation of each resort, and management, in certain
circumstances, may devote more time to its ownership and operations
responsibilities of the Phase II Resort than those of the Casino Resort.
Finally, because it is expected that the Company will lease and operate the
casino for the Phase II Resort, potential conflicts may arise from the common
operation of the Casino and the Phase II Resort casino, such as the allocation
of management's time. In order to share expenses and provide for efficient
management and operations of the Casino Resort and Phase II Resort and shared
facilities, Venetian and the Phase II Subsidiary entered into the Cooperation
Agreement and may in the future enter into additional cost sharing and easement
agreements.
The common ultimate ownership, and management, of the Casino Resort and
the Expo Center also may result in potential conflicts of interest. The Expo
Center and the Congress Center are potential competitors in the business
conference and meetings business. As a result, the Casino Resort could engage in
certain businesses which may have an adverse impact on the Expo Center. However,
under the Cooperation Agreement, Venetian has agreed that it will not conduct,
or permit to be conducted at the Casino Resort, trade shows or expositions of
the type generally held at the Expo Center. Furthermore, management may engage
in marketing practices with respect to the Casino Resort that are intended to
benefit the Expo Center and may have a detrimental effect on the Casino Resort.
Restaurant Leases
- -----------------
The Sole Stockholder is a partner in three entities formed to build out
and operate restaurants in the Casino Resort. The terms and conditions of the
leases granted by the Company for such restaurants are market and on an
arm's-length basis. Valentino Las Vegas LLC paid Venetian $54,599, and Postrio
Las Vegas LLC and Carnevale Coffee Bar LLC paid the Mall Subsidiary $94,904 and
$18,594, respectively, pursuant to these leases in 1999.
Purchase of Idle Construction Equipment and Construction Claims
- ---------------------------------------------------------------
During November 1999, the Sole Stockholder purchased idle construction
equipment (tower cranes) from Venetian Casino Resort, LLC for $2.0 million, the
cost basis of the equipment.
During the fourth quarter of 1999, the Sole Stockholder purchased certain
construction claims from various contractors and subcontractors, for an
aggregate price equal to the aggregate amount of the claims (approximately $1.6
million). On November 12, 1999, with the approval of all of the Company's
lenders, the Company paid the Sole Stockholder the aggregate amount of these
claims.
PART IV
ITEM 14.--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a) Documents filed as part of the report.
(1) List of Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
(2) List of Financial Statement Schedules
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts
(3) List of Exhibits
The exhibits listed in the accompanying Exhibit Index on Page to are filed
as part of this Form 10-K.
(b) Reports on Form 8-K
On October 15, 1999, the Company filed a report on Form 8-K announcing its
expected consolidated earnings for the quarter ended September 30, 1999.
In addition, the Company reported that during such quarter the Sole
Stockholder made available approximately $9 million to the Company for
working capital purposes.
================================================================================
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LAS VEGAS SANDS, INC.
/s/ Sheldon G. Adelson
- ---------------------------
Sheldon G. Adelson,
Chairman of the Board and
Chief Executive Officer
We, the undersigned officers and directors of Las Vegas Sands, Inc., hereby
severally constitute William P. Weidner and David Friedman and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, any
and all amendments to this Annual Report on Form 10-K, and generally do all such
things in our name and behalf in such capacities to enable Las Vegas Sands, Inc.
to comply with the applicable provisions of the Securities Exchange Act of 1934,
and all requirements of the Securities and Exchange Commission, and we hereby
ratify and confirm our signatures as they may be signed by our said attorneys,
or either of them, to any and all such amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Sheldon G. Adelson Chairman of the Board, Chief March 30, 2000
- -------------------------- Executive Officer and
Sheldon G. Adelson Director
/s/ William J. Raggio Special Director March 30, 2000
- --------------------------
William J. Raggio
/s/ Harry D. Miltenberger Vice President--Finance March 30, 2000
- -------------------------- (principal financial
Harry D. Miltenberger and accounting officer)
================================================================================
EXHIBIT INDEX
Exhibit No. Description of Document
----------- -----------------------
3.1 Amended and Restated Articles of Incorporation of LVSI.*
3.2 Certificate of Amendment of Amended and Restated Articles
of Incorporation of LVSI.*
3.3 Amended and Restated By-laws of LVSI.*
3.4 Amended and Restated Limited Liability Company Agreement
of Venetian*
4.1 Indenture, dated as of November 14, 1997, by and among
LVSI and Venetian, as issuers, Mall Intermediate Holding
Company, LLC ("Mall Intermediate"), Lido Intermediate
Holding Company, LLC ("Lido Intermediate") and Mall
Construction, as Mortgage Note guarantors, and U.S. Bank
Trust National Association (previously known as First
Trust National Association), as Mortgage Note trustee
(the "Mortgage Note Trustee").*
4.2 Indenture, dated as of November 14, 1997, by and among
LVSI and Venetian, as issuers, Mall Intermediate, Lido
Intermediate and Mall Construction, as Senior
Subordinated Note guarantors, and First Union National
Bank ("First Union"), as Senior Subordinated Note
trustee.*
4.3 Registration Rights Agreement, dated as of November 14,
1997, by and among LVSI, Venetian, Mall
Intermediate, Lido Intermediate and Mall Construction,
and Goldman, Sachs & Co. and Bear, Stearns
& Co. Inc. (the "Initial Purchasers").*
4.4 Funding Agents' Disbursement and Administration
Agreement, dated as of November 14, 1997, by and among
LVSI, Venetian, Mall Construction, jointly and severally,
the Bank Agent, the Mortgage Note Trustee, the HVAC
Provider and the Disbursement Agent.*
4.5 FADAA Limited Waiver, dated as of November 12, 1999, by
and among LVSI, the Sole Stockholder, The Bank of Nova
Scotia ("Scotiabank"), as Bank Agent, the Mortgage Note
Trustee, Salomon Brothers Realty Corp. ("SBRC"), as
successor-in-interest to GMAC Commercial Mortgage
Corporation ("GMAC"), and the HVAC Provider.*****
4.6 Company Security Agreement, dated as of November 14,
1997, by and among LVSI, Venetian, Mall Construction
and Scotiabank, as the Intercreditor Agent.*
4.7 Mall Construction Subsidiary Security Agreement,
dated as of November 14, 1997, between Mall
Construction and Scotiabank, as the Intercreditor Agent.*
4.8 Deed of Trust, Assignment of Rents and Leases and
Security Agreement made by Venetian and LVSI, jointly and
severally as trustor, to Lawyers Title of Nevada, Inc.
("Lawyer's Title"), as trustee, for the benefit of the
Mortgage Note Trustee, as Beneficiary.*
4.9 First Amendment to Deed of Trust, Assignment of Rents and
Leases and Security Agreement made by Venetian and LVSI,
jointly and severally as trustor, to Lawyer's Title, as
trustee, for the benefit of the Mortgage Note Trustee, as
Beneficiary.***
4.10 Leasehold Deed of Trust, Assignment of Rents and Leases
and Security Agreement made by Mall Construction, as
trustor, to Lawyer's Title, as trustee, for the benefit
of the Mortgage Note Trustee, as Beneficiary.*
EXHIBIT INDEX, (Continued)
Exhibit No. Description of Document
----------- -----------------------
4.11 First Amendment to Leasehold Deed of Trust, Assignment of
Rents and Leases and Security Agreement made by Mall
Construction, as trustor, to Lawyer's Title, as trustee,
for the benefit of the Mortgage Note Trustee, as
Beneficiary.***
4.12 Disbursement Collateral Account Agreement, dated as of
November 14, 1997, by and among LVSI, Venetian, Mall
Construction and Scotiabank, as Disbursement Agent and as
Securities Intermediary.*
4.13 Mortgage Notes Proceeds Collateral Account Agreement,
dated as of November 14, 1997, by and among LVSI,
Venetian and Scotiabank, as Disbursement Agent.*
4.14 Mortgage Notes Proceeds Account Third-Party Account
Agreement, dated as of November 14, 1997, by and among
LVSI, Venetian, Scotiabank, as Disbursement Agent, and
Goldman, Sachs & Co., as Securities Intermediary.*
4.15 Intercreditor Agreement, dated as of November 14, 1997,
among Scotiabank, as Bank Agent and Intercreditor Agent,
the Mortgage Note Trustee, GMAC, as Interim Mall Lender,
and First Union, as Senior Subordinated Note trustee.*
4.16 Completion Guaranty, dated as of November 14, 1997, made
by the Sole Stockholder, in favor of Scotiabank, as the
Bank Agent acting on behalf of the Bank Lenders, GMAC, as
the Interim Mall Lender, and the Mortgage Note Trustee.*
4.17 Completion Guaranty Collateral Account Agreement, dated
as of November 14, 1997, by and between the Sole
Stockholder, as Pledgor, and Scotiabank, as Disbursement
Agent.*
4.18 Completion Guaranty Third-Party Account Agreement, dated
as of November 14, 1997, by and among the Sole
Stockholder, Scotiabank, as Disbursement Agent, and
Goldman, Sachs & Co., as Securities Intermediary.*
4.19 Unsecured Indemnity Agreement, dated as of November 14,
1997, by and among LVSI, Venetian and Mall Construction,
to and for the benefit of the Mortgage Note Trustee.*
10.1 Bank Credit Agreement, dated as of November 14, 1997,
by and among LVSI, Venetian, and the lender parties
thereto, Goldman Sachs Credit Partners, L.P. ("GSCP"), as
arranger and syndication agent, and Scotiabank, as
administrative agent.*
10.2 First Amendment to Credit Agreement, dated as of January
30, 1998, by and among LVSI, Venetian, the lender parties
thereto, GSCP, as arranger and syndication agent, and
Scotiabank, as administrative agent.*
10.3 Amendment to Bank Credit Agreement, dated as of May 10,
1999, by and among LVSI, Venetian, the lender parties
thereto, GSCP, as arranger and syndication agent, and
Scotiabank, as administrative agent.****
10.4 Limited Waiver and Second Amendment to Credit Agreement,
dated November 12, 1999, by and among LVSI, Venetian, the
lender parties thereto, GSCP, as arranger and syndication
agent, and Scotiabank, as administrative agent.*****
10.5 Credit Agreement, dated as of November 14, 1997, by and
among LVSI, Venetian, Mall Construction and GMAC.*
10.6 Limited Waiver and Second Amendment to Credit Agreement,
dated November 12, 1999, by and among LVSI, Venetian,
Mall Construction, Mall Subsidiary, the Sole Stockholder
and SBRC.*****
10.7 Energy Services Agreement, dated as of November 14, 1997,
by and between the HVAC Provider and Venetian.*
10.8 Energy Services Agreement Amendment No. 1, dated July
1, 1999, by and between the HVAC Provider and
Venetian.*****
10.9 Energy Services Agreement, dated as of November 14, 1997,
by and between the HVAC Provider and Mall Construction.*
EXHIBIT INDEX, (Continued)
Exhibit No. Description of Document
----------- -----------------------
10.10 Energy Services Agreement Amendment No. 1, dated July 1,
1999, by and between the HVAC Provider and Mall
Construction.*****
10.11 Construction Management Agreement, dated as of February
15, 1997, between LVSI, as owner, and the Construction
Manager.*
10.12 Assignment, Assumption and Amendment of Construction
Management Agreement, dated as of November 14, 1997, by
and among LVSI, Venetian and the Construction Manager.*
10.13 Guaranteed Maximum Price Amendment to Construction
Management Agreement, dated June 17, 1998 (effective
September 9, 1998), between the Construction Manager and
Venetian. **
10.14 Agreement, effective as of January 1, 1996, between
Venetian, as owner, and the architect, a collaboration
between the firms of TSA of Nevada, LLP and WAT&G, Inc.,
Nevada.*
10.15 Amended and Restated Reciprocal Easement, Use and
Operating Agreement, dated as of November 14, 1997, by
and among Interface, Mall Construction and Venetian.*
10.16 First Amendment to Amended and Restated Reciprocal
Easement, Use and Operating Agreement, dated as of
December 20, 1999, by and among Interface, New Mall
Subsidiary, Phase II Subsidiary and Venetian.*****
10.17 Casino Lease, dated as of November 14, 1997, by and
between LVSI and Venetian.*
10.18 Amended and Restated Services Agreement, dated as of
November 14, 1997, by and among Venetian, Interface
Holding, Interface, Lido Casino Resort MM, Inc., Grand
Canal Shops Mall MM, Inc. and certain subsidiaries of
Venetian named therein.*****
10.19 Intercreditor Agreement, dated as of November 14, 1997,
by and among Scotiabank, as the Administrative Agent, the
Mortgage Note Trustee, GMAC, as the Interim Mall Lender,
First Union, as Subordinated Note trustee, LVSI,
Venetian, Mall Construction and the Sole Stockholder.*
10.20 Indemnity and Guaranty Agreement, dated as of December
20, 1999, made by the Sole Stockholder.*****
10.21 Guaranty, dated as of December 20, 1999, made by Sole
Stockholder.*****
10.22 Mall Scope Change Guaranty, dated as of December 20,
1999, made by Sole Stockholder.*****
10.23 Note, dated December 20, 1999, by New Mall Subsidiary in
favor of SGA Development, Inc., in the amount of
$35,000,000.*****
10.24 Construction Agency Agreement, dated as of November 14,
1997, by and between Venetian and the HVAC Provider.*
10.25 Management Agreement, dated as of April 23, 1997, by and
between LVSI and Forest City Commercial Management, Inc.
("Forest City"), as assigned by LVSI to Mall Construction
by that certain Assignment and Assumption of Contracts.*
10.26 Management Agreement, dated as of November 12, 1999, by
and between Mall Construction and Forest City, as
assigned by Mall Construction to Mall Subsidiary by that
certain Assignment and Assumption of Contracts.*****
10.27 Primary Liquidated Damages Insurance Agreement, dated
August 4, 1997, by and between the Construction Manager
and C.J. Coleman & Companies, Ltd.*
10.28 Guaranty of Performance, dated as of August 19, 1997, by
P&O in favor of LVSI, as assigned by LVSI to Venetian by
that certain Assignment, Assumption and Amendment of
Contracts.*
EXHIBIT INDEX, (Continued)
Exhibit No. Description of Document
----------- -----------------------
10.29 Guaranty of Performance and Completion, dated as of
August 19, 1997, by Bovis, LVSI, Venetian and Mall
Construction, for the benefit of Scotiabank, as the
Intercreditor Agent.*
10.30 Sands Resort Hotel and Casino Agreement, dated February
18, 1997, by and between Clark County and LVSI, and all
amendments thereto.*
10.31 Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan.*
10.32 Employment Agreement, dated as of November 1, 1995,
between LVSI and William P. Weidner.*
10.33 Employment Agreement, dated as of November 1, 1995,
between LVSI and Bradley H. Stone.*
10.34 Employment Agreement, dated as of November 1, 1995,
between LVSI and Robert G. Goldstein.*
10.35 Term Loan and Security Agreement, dated as of December
22, 1997, by and among LVSI and Venetian, as Borrowers,
the lender parties thereto, BancBoston Leasing, Inc., as
co-agent, and General Electric Capital Corporation
("GECC"), as administrative agent.*
10.36 Limited Waiver and First Amendment to Term Loan and
Security Agreement, dated November 12, 1999, by and among
LVSI and Venetian, as Borrowers, the lender parties
thereto, BancBoston Leasing, Inc., as co-agent, and GECC,
as administrative agent.******
10.37 Intercreditor Agreement, dated as of December 22, 1997,
by and among Scotiabank, as Bank Agent, First Trust, as
Mortgage Note trustee, GMAC and GECC.*
10.38 Loan Agreement, dated as of December 20, 1999, by and
among Goldman Sachs Mortgage Company, as Syndication
Agent, Scotiabank, as Administrative Agent and as
Collateral Agent, and New Mall Subsidiary, as
Borrower.*****
10.39 Subordinated Note, dated November 12, 1999, by LVSI in
favor of the Sole Stockholder, in the amount of
$15,000,000.*****
10.40 Subordination and Intercreditor Agreement
(Trade Claims), dated November 12, 1999, by and among
Scotiabank, as Bank Agent, LVSI and the Sole
Stockholder.*****
21.1 Subsidiaries of the Issuers and Guarantors.*****
24.1 Powers of Attorney (included on signature pages).
27.1 Financial Data Schedule.*****
<FN>
- ----------
* Incorporated by reference from Registration Statement on Form S-4
of the Company and certain of its subsidiaries (File No.
333-42147).
** Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1998.
*** Incorporated by reference from the Company's Annual Report on Form
10-K for the Fiscal Year ended December 31, 1998.
**** Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1999.
***** Filed herewith.
</FN>