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UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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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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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 (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 15, 2000.
Class Outstanding at May 15, 2000
Common Stock, $.10 par value 925,000 shares
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LAS VEGAS SANDS, INC.
Table of Contents
Part I
FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 ......................................5
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and March 31, 1999 ....................6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and March 31, 1999 ....................7
Notes to Consolidated Financial Statements .................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................31
Item 3. Quantitative and Qualitative Disclosures About Market Risk .36
Part II
OTHER INFORMATION
Item 1. Legal Proceedings ..........................................37
Item 6. Exhibits and Reports on Form 8-K ...........................38
Signatures .................................................39
Part I
Financial Information
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Item 1. Financial Statements
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LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
March 31, December 31,
2000 1999
------------ ------------
Unaudited
ASSETS
Current assets:
Cash and cash equivalents .......... $ 32,633 $ 26,252
Restricted cash and investments .... 2,342 10,980
Accounts receivable, net ........... 62,600 43,203
Inventories ........................ 3,635 4,516
Prepaid expenses ................... 3,604 4,072
---------- ----------
Total current assets .................. 104,814 89,023
Property and equipment, net ........... 1,074,373 1,079,192
Deferred offering costs, net .......... 28,468 29,865
Other assets, net ..................... 11,775 11,522
---------- ----------
$1,219,430 $1,209,602
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ................... $ 12,710 $ 18,128
Construction payables .............. 4,360 10,178
Construction payables-contested .... 7,232 7,232
Accrued interest payable ........... 31,742 12,490
Other accrued liabilities .......... 46,374 43,392
Current maturities of long-term debt 77,045 42,859
---------- ----------
Total current liabilities ........... 179,463 134,279
Other long-term liabilities ........... 2,162 2,333
Long-term debt ................. 855,939 907,754
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1,037,564 1,044,366
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Redeemable Preferred Interest
in Venetian Casino Resort, LLC,
a wholly owned subsidiary ............ 153,949 149,530
---------- ----------
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 ..... 108,303 112,722
Accumulated deficit since
June 30, 1996 ..................... (80,478) (97,108)
---------- ----------
27,917 15,706
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$1,219,430 $1,209,602
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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LAS VEGAS SANDS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Three Months Ended
March 31,
2000 1999
--------- ---------
Revenues:
Casino ................................... $ 96,082 $ --
Rooms .................................... 46,980
Food and beverage ........................ 18,781
Retail and other ......................... 15,493 257
--------- ---------
177,336 257
Less-promotional allowances ................. (10,933)
--------- ---------
Net revenues ............................. 166,403 257
--------- ---------
Operating expenses:
Casino ................................... 51,621
Rooms .................................... 11,297
Food and beverage ........................ 9,668
Retail and other ......................... 6,676
Provision for doubtful accounts .......... 6,282
General and administrative ............... 21,364
Rental expense ........................... 2,704
Depreciation and amortization ............ 9,845 25
--------- ---------
119,457 25
--------- ---------
Operating profit before corporate
and pre-opening expenses ................... 46,946 232
Corporate ................................ 1,368
Pre-opening .............................. 6,778
--------- ---------
Operating income (loss) ..................... 45,578 (6,546)
Other income (expense):
Interest income ........................... 463 1,268
Interest expense, net of amounts
capitalized ............................... (29,411) (3,838)
--------- ---------
Net income (loss) ........................... $ 16,630 $ (9,116)
========= =========
Basic and diluted income (loss) per
share ....................................... $ 13.20 $ (13.78)
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
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Three Months Ended
March 31,
2000 1999
--------- ---------
Cash flows from operating activities:
Net income (loss) ................................... $ 16,630 $ (9,116)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization .................... 9,845 25
Amortization of debt offering costs and
original issue discount ......................... 2,065 1,267
Provision for doubtful accounts .................. 6,282
Changes in operating assets and liabilities:
Accounts receivable ............................. (25,679) 44
Inventories ..................................... 881 24
Prepaid expenses ................................ 468 (7)
Other assets .................................... (702) (1,131)
Accounts payable ................................ (5,418) (59)
Accrued interest payable ........................ 19,252
Other accrued liabilities ....................... 2,811 16,714
--------- ---------
Net cash provided by operating activities ........... 26,435 7,761
--------- ---------
Cash flows from investing activities:
Proceeds from sale of investments ................... 8,638 86,841
Construction of Casino Resort ....................... (10,844) (174,938)
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Net cash used in investing activities ............... (2,206) (88,097)
--------- ---------
Cash flows from financing activities:
Proceeds from mall construction loan facility ....... 30,815
Repayments on bank credit facility-term loan ........ (5,625)
Proceeds from bank credit facility-term loan ........ 34,000
Repayments on bank credit facility-revolver ......... (9,292)
Proceeds from bank credit facility-revolver ......... 4,763
Repayments on FF&E credit facility .................. (2,931)
Proceeds from FF&E credit facility .................. 25,069
Payments of deferred offering costs ................. (132)
--------- ---------
Net cash provided by (used in) financing activities . (17,848) 94,515
--------- ---------
Increase in cash and cash equivalents ............... 6,381 14,179
Cash and cash equivalents at beginning of period..... 26,252 2,285
--------- ---------
Cash and cash equivalents at end of period........... $ 32,633 $ 16,464
========= =========
Supplemental disclosure of cash flow information:
Cash payments for interest ........................ $ 8,094 $ 6,302
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Financial Statements
Note 1 Organization and Basis of Presentation
- ------ --------------------------------------
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. The year end balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. In addition, certain amounts in the 1999 financial
statements have been reclassified to conform with the 2000 presentation. In the
opinion of management, all adjustments and normal recurring accruals considered
necessary for a fair presentation of the results for the interim period have
been included. The interim results reflected in the unaudited financial
statements are not necessarily indicative of expected results for the full year.
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
(the "Casino"), approximately 500,000 square feet of convention space and
approximately 475,000 gross leasable square feet of retail shops and restaurants
(the "Mall"). Construction of the Casino Resort commenced in April 1997. The
Casino and certain suites and facilities at the Casino Resort opened on May 4,
1999 and the Mall opened on June 19, 1999.
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") .
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 Mall.
Note 2 Per Share Data
- ------ --------------
Basic and diluted income (loss) per share are calculated based upon the
weighted average number of shares outstanding. The weighed average number of
shares outstanding used in the computation of income (loss) per share of common
stock was 925,000 for all periods presented. The net income (loss) available to
common stockholders used in computing the basic and diluted loss per share
includes accrued preferred dividends of approximately $4.4 million and $3.6
million for the three month periods ended March 31, 2000 and 1999, respectively.
Notes to Financial Statements (Continued)
Note 3 Property and Equipment
- ------ ----------------------
Property and equipment consists of the following (in thousands):
March 31, December 31,
2000 1999
----------- -----------
Land and land improvements ............. $ 105,528 $ 105,425
Building and improvements .............. 817,098 816,826
Equipment, furniture, fixtures and
leasehold improvements ................ 139,861 139,147
Construction in progress ............... 46,525 42,649
----------- -----------
1,109,012 1,104,047
Less: accumulated depreciation and
amortization .................... (34,639) (24,855)
----------- -----------
$ 1,074,373 $ 1,079,192
=========== ===========
During the three month periods ended March 31, 2000 and 1999, the
Company capitalized interest expense of $0.0 and $16.6 million, respectively. As
of March 31, 2000, construction in progress represented project design and
shared facilities costs for the planned second phase of the Casino Resort to be
owned by a subsidiary of the Company (the "Phase II Resort").
Note 4 Long-Term Debt
- ------ --------------
Long-term debt consists of the following (in thousands):
March 31, December 31,
2000 1999
--------- ---------
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 $4,919 in 2000 and $5,138
in 1999) ................................... 92,581 92,362
Mall Tranche A Take-out Loan ................ 105,000 105,000
Mall Tranche B Take-out Loan ............... 35,000 35,000
Completion Guaranty Loan .................... 23,503 23,503
Bank Credit Facility-revolver ............... 29,868 39,160
Bank Credit Facility-term loan .............. 133,125 138,750
FF&E Credit Facility ........................ 88,907 91,838
Less: current maturities .................... (77,045) (42,859)
--------- ---------
Total long-term debt ........................ $ 855,939 $ 907,754
========= =========
In connection with the financing for the Casino Resort, the Company
entered into a series of transactions during 1997 to provide for the development
and construction of the Casino Resort. In November 1997, the Company issued
$425.0 million aggregate principal amount of Mortgage Notes (the "Mortgage
Notes") and $97.5 million aggregate principal amount of Senior Subordinated
Notes (the "Senior Subordinated Notes" and, together with the Mortgage Notes,
the "Notes") in a private placement. On June 1, 1998, LVSI and Venetian
completed an exchange offer to exchange the Notes for Notes with substantially
the same terms. In November 1997, LVSI, Venetian and a syndicate of lenders
entered into a Bank Credit Facility (the "Bank Credit Facility"). The Bank
Credit Facility provides up to $150.0 million in multiple draw term loans to the
Company for construction and development of the Casino Resort. 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. In
December 1997, the Company entered into an agreement (the "FF&E Credit
Facility") with certain lenders to provide for $97.7 million of financing for
certain furniture, fixtures and equipment to be secured under the FF&E Credit
Facility and an electrical substation.
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
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 the retail mall in the Casino Resort (the "Mall
Construction Loan Facility"). On December 20, 1999, Goldman Sachs Mortgage
Company, the Bank of Nova Scotia and other 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 indebtedness under the
Tranche A Take-out Loan is secured by first priority liens on the assets that
comprise the Mall (the "Mall Assets"). Also, on December 20, 1999, an entity
wholly owned by the Sole Stockholder funded a tranche B take-out loan to provide
$35.0 million in financing to the New Mall Subsidiary (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.
On November 12, 1999, an advance of approximately $23.5 million was
made under the Sole Stockholder's completion guaranty (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 that is
subordinated in right of payment to the indebtedness under the Bank Credit
Facility, the FF&E Credit Facility and the Notes.
During March 2000, the Company paid scheduled principal repayments of
$5.6 million and $2.9 million on the Bank Credit Facility and the FF&E Credit
Facility, respectively. During the three months ended March 31, 2000, the
Company repaid $9.3 million under the Revolver.
The Company has substantial debt service payments due during the next
twelve months, including quarterly principal repayments on the Bank Credit
Facility and the FF&E Credit Facility, aggregating $47.2 million, repayment of
amounts outstanding under the Revolver (which had a balance of $29.8 million at
March 31, 2000), and estimated interest payments of approximately $104.4
million. Based on the Company's financial results in the first quarter of 2000
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.
In addition, the Company is in discussions with the administrative
agent under the Bank Credit Facility to amend certain terms of the Bank Credit
Facility. The proposed amendment envisions (i) adding a new senior secured
tranche B term loan to the Bank Credit Facility (the "Tranche B Term Loan") in
the amount of $50.0 million, the proceeds of which will be applied to (x) prepay
existing term loans in forward order of maturity in the amount of $30.0 million
and (y) reduce the Revolver by $20.0 million (net of fees and expenses) without
decreasing available commitments of the Revolver and (ii) adjusting certain
financial covenants provided for in the Bank Credit Facility. The Tranche B Term
Loan is expected to have a five year maturity. Both the Bank Credit Facility and
the FF&E Credit Facility 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 will be to refinance a
portion of the existing term loan under the Bank Credit Facility and 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 will need to be made
to, and preliminary discussions have been started with the lender (the "FF&E
Lender") regarding, the FF&E Credit Facility, which has substantially identical
financial covenants. No assurance can be given that definitive amendments to the
Bank Credit Facility or the FF&E Credit Facility will be entered into by the
lenders under either facility.
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 financial covenants reflected in such
existing 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 the Company will be in
compliance with its financial covenants without the proposed amendments to the
Bank Credit Facility and the FF&E Credit Facility described above.
Notes to Financial Statements (Continued)
Note 5 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 "Indentures"), 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 three
month periods ended March 31, 2000 and 1999, $4.4 million and $3.6 million,
respectively, were accrued on the Series B Preferred Interest related to the
contributions made. Since 1997, no distributions of preferred interest or
preferred return have been paid on the Series B Preferred Interest.
Note 6 Commitments and Contingencies
- ------ -----------------------------
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 or 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" and such guaranty, the "Bovis Guaranty"), the Construction Manager's
direct parent at the time the Construction Management Contract was entered into.
Bovis' obligations under the Bovis Guaranty are guaranteed by The Peninsula and
Oriental Steam Navigation Company ("P&O"), a British public company and the
Construction Manager's ultimate parent at the time the Construction Management
Contract was eneterd into (such guaranty, the "P&O Guaranty").
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 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.
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies (Continued)
- ------ -----------------------------------------
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.
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 Las Vegas Convention and Visitors Authority (the
"LVCVA") with respect to the Las Vegas Convention Center (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 trial 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.
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.
Note 7 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.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
- ------ --------------------------------------------
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 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.
Prior to October 1998, Venetian owned approximately 44 acres of land on
or near the Las Vegas Strip (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, 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 March 31, 2000 and December
31, 1999 and for the three month periods ended March 31, 2000 and 1999 is as
follows (in thousands):
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED BALANCE SHEETS
March 31, 2000
Venetian
Las Vegas Casino
Sands, Inc. Resort LLC
----------- -----------
Cash and cash equivalents ................... $ 27,701 $ 2,440
Restricted cash and investments ............. 1,336
Intercompany receivable ..................... 9,277 12,669
Accounts receivable, net .................... 29,529 30,277
Inventories ................................. 3,635
Prepaid expenses ............................ 485 2,924
--------- ---------
Total current assets ................... 66,992 53,281
--------- ---------
Property and equipment, net ................. 849,506
Investment in Subsidiaries .................. 126,016 67,091
Deferred offerings costs, net ............... 23,076
Other assets, net ........................... 3,730 4,957
--------- ---------
$ 196,738 $ 997,911
========= =========
Accounts payable ............................ $ 433 $ 10,935
Construction payable ........................ 444
Construction payable-contested .............. 7,232
Intercompany payables .......................
Accrued interest payable .................... 29,489
Other accrued liabilities ................... 16,375 29,282
Current maturities of long term debt ........ 77,045
--------- ---------
Total current liabilities ............... 16,808 154,427
Other long-term liabilities ................. 2,162
Long-term debt .............................. 715,939
--------- ---------
16,808 872,528
Redeemable Preferred interest in Venetian ... 153,949
--------- ---------
Stockholder's equity ........................ 179,930 (28,566)
--------- ---------
$ 196,738 $ 997,911
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
March 31, 2000
GUARANTOR SUBSIDIARIES
----------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company LLC Company LLC
----------- -----------
Cash and cash equivalents ................... $ 4 $ 4
Restricted cash and investments .............
Intercompany receivable .....................
Accounts receivable, net ....................
Inventories .................................
Prepaid expenses ............................
--------- ---------
Total current assets 4 4
--------- ---------
Property and equipment, net .................
Investment in Subsidiaries ..................
Deferred offerings costs, net ...............
Other assets, net ...........................
--------- ---------
$ 4 $ 4
========= =========
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 4
--------- ---------
$ 4 $ 4
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
March 31, 2000
NON-GUARANTOR SUBSIDIARIES
----------------------------
(1) (2)
Grand Canal Other
Shops Mall Non-
Subsidiary Guarantor
LLC Subsidiaries
----------- -----------
Cash and cash equivalents ................... $ 2,372 $ 112
Restricted cash and investments ............. 1,006
Intercompany receivable .....................
Accounts receivable, net .................... 2,794
Inventories .................................
Prepaid expenses ............................ 195
--------- ---------
Total current assets ................... 6,367 112
--------- ---------
Property and equipment, net ................. 142,988 81,879
Investment in Subsidiaries ..................
Deferred offerings costs, net ............... 5,392
Other assets, net ........................... 3,088
--------- ---------
$ 157,835 $ 81,991
========= =========
Accounts payable ............................ $ 1,342 $
Construction payable ........................ 3,916
Construction payable-contested ..............
Intercompany payables ....................... 21,946
Accrued interest payable .................... 2,253
Other accrued liabilities ................... 717
Current maturities of long term debt ........
--------- ---------
Total current liabilities ................ 26,258 3,916
Other long-term liabilities .................
Long-term debt .............................. 140,000
--------- ---------
166,258 3,916
Redeemable Preferred interest in Venetian ...
--------- ---------
Stockholder's equity ........................ (8,423) 78,075
--------- ---------
$ 157,835 $ 81,991
========= =========
[FN]
- ----------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial
completion of the Casino Resort on November 12, 1999, and subsequently
transferred to the New Mall Subsidiary on December 20, 1999.
(2) Land with a historical cost basis of $29,169 was transferred from Venetian,
a co-obligor of the Notes, to the Phase II Subsidiary, 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 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
March 31, 2000
Consolidating/
Eliminating
Entries Total
----------- -----------
Cash and cash equivalents ................... $ -- $ 32,633
Restricted cash and investments ............. 2,342
Intercompany receivable ..................... (21,946)
Accounts receivable, net .................... 62,600
Inventories ................................. 3,635
Prepaid expenses ............................ 3,604
--------- ---------
Total current assets ................... (21,946) 104,814
--------- ---------
Property and equipment, net ................. 1,074,373
Investment in Subsidiaries .................. (193,107)
Deferred offerings costs, net ............... 28,468
Other assets, net ........................... 11,775
--------- ---------
$ (215,053) $1,219,430
========= ==========
Accounts payable ............................ $ $ 12,710
Construction payable ........................ 4,360
Construction payable-contested .............. 7,232
Intercompany payables ....................... (21,946)
Accrued interest payable .................... 31,742
Other accrued liabilities ................... 46,374
Current maturities of long term debt ........ 77,045
--------- ---------
Total current liabilities ................ (21,946) 179,463
Other long-term liabilities ................. 2,162
Long-term debt .............................. 855,939
--------- ---------
(21,946) 1,037,564
Redeemable Preferred interest in Venetian ... 153,949
--------- ---------
Stockholder's equity ........................ (193,107) 27,917
--------- ---------
$ (215,053) $1,219,430
========== ==========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 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 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
December 31, 1999
GUARANTOR SUBSIDIARIES
-----------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company LLC Company 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 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED BALANCE SHEETS, (Continued)
December 31, 1999
NON-GUARANTOR SUBSIDIARIES
----------------------------
(1)
Grand Canal (2)
Shops Mall Other 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 Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial
completion of the Casino Resort on November 12, 1999, and subsequently
transferred to the New Mall Subsidiary on December 20, 1999.
(2) Land with a historical cost basis of $29,169 was transferred from Venetian,
a co-obligor of the Notes, to the Phase II Subsidiary, 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 7 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 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF OPERATIONS
For the quarter ended March 31, 2000
Venetian
Las Vegas Casino Resort
Sands, Inc. LLC
----------- -----------
Revenues:
Casino ..................................... $ 96,082 $ --
Room ....................................... 46,980
Food and beverage .......................... 18,781
Retail and other ........................... 332 19,256
--------- ---------
Total revenue .............................. 96,414 85,017
Less promotional allowance ................. (10,933)
--------- ---------
Net revenue ................................ 96,414 74,084
Operating expenses:
Casino ..................................... 62,780
Room ....................................... 11,297
Food and beverage .......................... 9,668
Retail and other ........................... 4,147
Provision for doubtful accounts ............ 5,682 400
General and administrative ................. 815 20,548
Rental expense ............................. 799 1,494
Depreciation and amortization .............. 8,713
--------- ---------
70,076 56,267
--------- ---------
Operating income (loss) before
corporate expenses ........................ 26,338 17,817
Corporate .................................. 448 920
--------- ---------
Operating income (loss) .................... 25,890 16,897
--------- ---------
Other income (expense):
Interest income .......................... 84 356
Interest expense ......................... (25,171)
--------- ---------
Net income (loss) .......................... $ 25,974 $ (7,918)
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF OPERATIONS, (Continued)
For the quarter ended March 31, 2000
GUARANTOR SUBSIDIARIES
----------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company LLC Company 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 ............
General and administrative ................. 1
Rental expense .............................
Depreciation and amortization ..............
--------- ---------
1
--------- ---------
Operating income (loss) before
corporate expenses ........................ (1)
Corporate ..................................
--------- ---------
Operating income (loss) .................... (1)
--------- ---------
Other income (expense):
Interest income ..........................
Interest expense .........................
--------- ---------
Net income (loss) .......................... $ -- $ (1)
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the quarter ended March 31, 2000
NON-GUARANTOR SUBSIDIARIES
----------------------------
(1)
Grand Canal
Shops Mall Other Non-
Subsidiary Guarantor
LLC Subsidiaries
----------- -----------
Revenues:
Casino ..................................... $ -- $ --
Room .......................................
Food and beverage ..........................
Retail and other ........................... 7,064
--------- ---------
Total revenue .............................. 7,064
Less promotional allowance .................
--------- ---------
Net revenue ................................ 7,064
Operating expenses:
Casino .....................................
Room .......................................
Food and beverage ..........................
Retail and other ........................... 2,529
Provision for doubtful accounts ............ 200
General and administrative .................
Rental expense ............................. 411
Depreciation and amortization .............. 1,132
--------- ---------
4,272
--------- ---------
Operating income (loss) before
corporate expenses ........................ 2,792
Corporate ..................................
--------- ---------
Operating income (loss) .................... 2,792
--------- ---------
Other income (expense):
Interest income .......................... 23
Interest expense ......................... (4,240)
--------- ---------
Net income (loss) .......................... $ (1,425) $ --
========= =========
[FN]
- ----------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial
completion of the Casino Resort on November 12, 1999, and subsequently
transferred to the New Mall Subsidiary on December 20, 1999.
</FN>
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF OPERATIONS, (Continued)
For the quarter ended March 31, 2000
Consolidating/
Eliminating
Entries Total
----------- -----------
Revenues:
Casino ..................................... $ -- $ 96,082
Room ....................................... 46,980
Food and beverage .......................... 18,781
Retail and other ........................... (11,159) 15,493
--------- ---------
Total revenue .............................. (11,159) 177,336
Less promotional allowance ................. (10,933)
--------- ---------
Net revenue ................................ (11,159) 166,403
Operating expenses:
Casino ..................................... (11,159) 51,621
Room ....................................... 11,297
Food and beverage .......................... 9,668
Retail and other ........................... 6,676
Provision for doubtful accounts ............ 6,282
General and administrative ................. 21,364
Rental expense ............................. 2,704
Depreciation and amortization .............. 9,845
--------- ---------
(11,159) 119,457
--------- ---------
Operating income (loss) before
corporate expenses ........................ 46,946
Corporate .................................. 1,368
--------- ---------
Operating income (loss) .................... 45,578
--------- ---------
Other income (expense):
Interest income .......................... 463
Interest expense ......................... (29,411)
--------- ---------
Net income (loss) .......................... $ -- $ 16,630
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF OPERATIONS
For the quarter ended March 31, 1999
Venetian
Las Vegas Casino
Sands, Inc. Resort LLC
----------- -----------
Revenues: .................................. $ 154 $ 103
Operating expenses (including pre-opening) . 24 6,779
------- -------
Operating income (loss) .................... 130 (6,676)
Other income (expense):
Interest income .......................... 29 1,239
Interest expense, net
of amounts capitalized .................. (3,838)
------- -------
Net income (loss) .......................... $ 159 $(9,275)
======= =======
GUARANTOR SUBSIDIARIES
-------------------------------------------
LIDO Mall Grand
Intermediate Intermediate Canal
Holding Holding Shops Mall
Company Company Construction
LLC LLC LLC
----------- ----------- -----------
Revenues: $ -- $ -- $ --
Operating expenses
(including pre-opening) ....
----------- ----------- -----------
Operating income (loss) .....
Other income (expense):
Interest income ...........
Interest expense, net
of amounts capitalized ...
----------- ----------- -----------
Net income (loss) ........... $ -- $ -- $ --
=========== =========== ===========
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
----------- ----------- -----------
Revenues: $ -- $ -- $ 257
Operating expenses
(including pre-opening) .... 6,803
----------- ----------- -----------
Operating income (loss) ..... (6,546)
Other income (expense):
Interest income ........... 1,268
Interest expense, net
of amounts capitalized ... (3,838)
----------- ----------- -----------
Net income (loss) ........... $ -- $ -- $ (9,116)
=========== =========== ===========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW
For the quarter ended March 31, 2000
Venetian
Las Vegas Casino
Sands, Inc. Resort LLC
----------- -----------
Net cash provided by operating activities ...... $ 15,068 $ 9,286
--------- ---------
Cash flows from investing activities:
Proceeds from purchases of investments ....... 7,453
Construction of Casino Resort ................ (10,755)
--------- ---------
Net cash provided by (used in)
investing activities ......................... (3,302)
Cash flows from financing activities:
Repayments on bank credit facility-term loan . (5,625)
Repayments on bank credit facility-revolver .. (9,292)
Repayments on FF&E credit facility ........... (2,931)
Net increase and (decrease) in
intercompany accounts ....................... (11,328) 12,067
--------- ---------
Net cash used in financing activities .......... (11,328) (5,781)
--------- ---------
Increase (decrease) in cash
and cash equivalents .......................... 3,740 203
Cash and cash equivalents at
beginning of period ........................... 23,961 2,237
--------- ---------
Cash and cash equivalents at end of period ..... $ 27,701 $ 2,440
========= =========
GUARANTOR SUBSIDIARIES
----------------------------
LIDO Mall
Intermediate Intermediate
Holding Holding
Company LLC Company LLC
----------- ------------
Net cash provided by operating activities ...... $ -- $ (1)
--------- ---------
Cash flows from investing activities:
Proceeds from purchases of investments .......
Construction of Casino Resort ................
--------- ---------
Net cash provided by (used in)
investing activities .........................
Cash flows from financing activities:
Repayments on bank credit facility-term loan .
Repayments on bank credit facility-revolver ..
Repayments on FF&E credit facility ...........
Net increase and (decrease) in
intercompany accounts .......................
--------- ---------
Net cash used in financing activities ..........
--------- ---------
Increase (decrease) in cash
and cash equivalents .......................... (1)
Cash and cash equivalents at
beginning of period ........................... 4 5
--------- ---------
Cash and cash equivalents at end of period ..... $ 4 $ 4
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW,
(Continued) For the quarter ended March 31, 2000
NON-GUARANTOR SUBSIDIARIES
---------------------------
(1)
Grand Canal Other
Shops Mall Non-
Subsidiary Guarantor
LLC Subsidiaries
----------- ------------
Net cash provided by operating activities ...... $ 2,082 $ --
--------- ---------
Cash flows from investing activities:
Proceeds from purchases of investments ....... 1,185
Construction of Casino Resort ................ (156) 67
--------- ---------
Net cash provided by (used in)
investing activities .......................... 1,029 67
Cash flows from financing activities:
Repayments on bank credit facility-term loan .
Repayments on bank credit facility-revolver ..
Repayments on FF&E credit facility ...........
Net increase and (decrease) in
intercompany accounts ....................... (739)
--------- ---------
Net cash used in financing activities .......... (739)
--------- ---------
Increase (decrease) in cash
and cash equivalents .......................... 2,372 67
Cash and cash equivalents at
beginning of period ........................... 45
--------- ---------
Cash and cash equivalents at end of period ..... $ 2,372 $ 112
========= =========
[FN]
- ----------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial
completion of the Casino Resort on November 12, 1999, and subsequently
transferred to the New Mall Subsidiary on December 20, 1999.
</FN>
Consolidating/
Eliminating
Entries Total
----------- -----------
Net cash provided by operating activities ...... $ -- $ 26,435
--------- ---------
Cash flows from investing activities:
Proceeds from purchases of investments ....... 8,638
Construction of Casino Resort ................ (10,844)
--------- ---------
Net cash provided by (used in)
investing activities .......................... (2,206)
Cash flows from financing activities:
Repayments on bank credit facility-term loan . (5,625)
Repayments on bank credit facility-revolver .. (9,292)
Repayment on FF&E credit facility ............ (2,931)
Net increase and (decrease) in
intercompany accounts .......................
--------- ---------
Net cash used in financing activities .......... (17,848)
--------- ---------
Increase (decrease) in cash
and cash equivalents .......................... 6,381
Cash and cash equivalents at
beginning of period ........................... 26,252
--------- ---------
Cash and cash equivalents at end of period ..... $ -- $ 32,633
========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW
For the quarter ended March 31, 1999
Venetian
Las Vegas Casino
Sands, Inc. Resort LLC
----------- -----------
Net cash provided by operating activities ...... $ 5,160 $ 2,601
--------- ---------
Cash flows from investing activities:
Proceeds from purchases of investments ....... 86,841
Investment in subsidiaries ...................
Construction of Casino Resort ................ (174,938)
--------- ---------
Net cash used in investing activities .......... (88,097)
Cash flows from financing activities:
Proceeds from mall construction loan facility 30,815
Proceeds from bank credit facility-term loan . 34,000
Proceeds from bank credit facility-revolver .. 4,763
Proceeds from FF&E credit facility ........... 25,069
Proceeds from capital contributions .......... (132)
--------- ---------
Net cash provided by financing activities ...... 94,515
--------- ---------
Increase (decrease) in cash and cash equivalents 5,160 9,019
Cash and cash equivalents at beginning of period 1,216 1,025
--------- ---------
Cash and cash equivalents at end of period ..... $ 6,376 $ 10,044
========= =========
GUARANTOR SUBSIDIARIES
-------------------------------------------
LIDO Mall Grand Canal
Intermediate Intermediate Shops Mall
Holding Holding Construction
Company LLC Company LLC LLC
----------- ------------ ------------
Net cash provided by
operating activities $ -- $ -- $ --
--------- --------- ---------
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 construction
loan facility ...................
Proceeds from bank credit
facility-term loan ..............
Proceeds from bank credit
facility-revolver ...............
Proceeds from FF&E credit
facility ........................
Proceeds from capital
contributions ...................
--------- --------- ---------
Net cash provided by financing
activities ......................
--------- --------- ---------
Increase (decrease) in cash
and cash equivalents ............
Cash and cash equivalents at
beginning of period ............. 5 5 5
--------- --------- ---------
Cash and cash equivalents at
end of period ................... $ 5 $ 5 $ 5
========= ========= =========
================================================================================
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
================================================================================
CONDENSED STATEMENTS OF CASH FLOW (Continued)
For the quarter ended March 31, 1999
Consolidating/
Non-Guarantor Eliminating
Subsidiaries Entries Total
----------- ------------ ------------
Net cash provided by
operating activities $ -- $ -- $ 7,761
--------- --------- ---------
Cash flows from investing
activities:
Proceeds from purchases of
investments ................... 86,841
Investment in subsidiaries .....
Construction of Casino Resort .. (174,938)
--------- --------- ---------
Net cash used in investing
activities ..................... (88,097)
Cash flows from financing activities:
Proceeds from mall construction
loan facility .................. 30,815
Proceeds from bank credit
facility-term loan ............. 34,000
Proceeds from bank credit
facility-revolver .............. 4,763
Proceeds from FF&E credit
facility ....................... 25,069
Proceeds from capital
contributions .................. (132)
--------- --------- ---------
Net cash provided by financing
activities ..................... 94,515
--------- --------- ---------
Increase (decrease) in cash
and cash equivalents ........... 14,179
Cash and cash equivalents at
beginning of period ............ 29 2,285
--------- --------- ---------
Cash and cash equivalents at
end of period .................. $ 29 $ -- $ 16,464
========= ========= =========
================================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
================================================================================
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and the
notes thereto and other financial information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. 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.
Substantial completion of the construction of the Casino Resort was
achieved on November 12, 1999, meaning all components of the Casino Resort were
fully constructed and operational with the exception of "punchlist" items. As of
March 31, 2000, almost all of the punchlist items had been completed and
construction of the Casino Resort was virtually complete.
Operating Results
- -----------------
First Quarter Ended March 31, 2000 compared to First Quarter Ended
March 31, 1999
The Casino Resort began operations after the first quarter of 1999 and
therefore did not have any operating revenues or operating expenses during such
period. As a result, many of the comparisons provided below under "Operating
Revenues" and "Operating Expenses" are between the fourth quarter of 1999 and
the first quarter of 2000.
Operating Revenues
During the first three months of operations in 2000, the Company
produced consolidated net revenues of $166.4 million and operating profit before
interest, depreciation, amortization, rental expense and corporate expenses of
$59.5 million. Net revenues have increased $50.8 million in the first quarter of
1999 from $115.6 million in the fourth quarter of 1999 due to growth in every
revenue department of the Casino Resort.
The Casino Resort (excluding the Mall) generated operating profit
before interest, depreciation, amortization, rental expense and corporate
expenses of $55.2 million, compared to $30.7 million during the fourth quarter
of 1999. Non-casino revenues were $74.2 million in the first quarter of 2000, an
increase of 20% over the $61.8 million achieved in the fourth quarter of 1999.
Occupancy of available guestrooms during the first quarter of 2000 was 94% at an
average daily room rate of $181. This compares to 83% and $176, respectively, in
the fourth quarter of 1999. The increase in room occupancy and average daily
room rate is generally associated with the completion of the Casino Resort and
the increase in trade show and convention business during the first quarter of
the year at the Congress Center and the Sands Expo and Convention Center. During
the first quarter of 2000, the Casino Resort's average daily group room rate was
$184, compared to $181 during the fourth quarter of 1999. Total room revenue for
the first quarter of 2000 was $47.0 million, compared to $40.6 million in the
fourth quarter of 1999. Food and beverage revenue for the first quarter of 2000
was $18.8 million, compared to $12.9 million in the fourth quarter of 1999.
Casino revenues totaled $96.1 million in the first quarter of 2000, an increase
of $39.1 million, or 69%, over the fourth quarter of 1999. This increase was due
to an increase in both table games and slot volumes and higher table games and
baccarat win percentages. Table games drop for the first quarter of 2000 was
$294.6 million versus $178.9 million during the fourth quarter of 1999. Slot
handle for the first quarter of 2000 was $476.1 million versus $366.5 million
during the fourth quarter of 1999. Table games and slot revenues were $70.6
million and $24.0 million, respectively, during the first quarter of 2000
compared to $36.3 million and $19.9 million, respectively, in the fourth quarter
of 1999. The overall table games win percentage in the first quarter of 2000,
averaged 24%, versus 20.3% during the fourth quarter of 1999 and a cumulative
percentage of 20.3% since the opening of the Casino Resort during May 1999.
===============================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
===============================================================================
The Mall generated rental and related revenues of $7.1 million in the
first quarter of 2000, compared with rental and related revenues of $6.5 million
during the fourth quarter of 1999. The increase in tenant rentals was due to the
opening of an additional 20 retail stores during the fourth quarter of 1999 and
early 2000. The Mall achieved operating profit before interest, depreciation,
amortization, rental expense and corporate expense of $4.3 million in the first
quarter of 2000, compared to $3.4 million during the fourth quarter of 1999.
Operating Expenses
During its first three months of operations in 2000, the Company's
total operating expenses were $119.4 million, representing an increase of $27.2
million when compared with $92.2 million for the fourth quarter of 1999. Of this
amount, $51.6 million represented casino operating expenses, $11.3 million
represented hotel operating expenses, $9.7 million represented food and beverage
expenses and $6.7 million represented retail and other expenses (including $2.5
million of Mall operating expenses). General and administrative expenses for the
first quarter of 2000 were $21.3 million and corporate expenses totaled $1.4
million during such period. Rental expense was $2.3 million for the Casino
Resort (excluding the Mall) and $0.4 million for the Mall, depreciation expense
was $8.7 million for the Casino Resort (excluding the Mall) and $1.1 million for
the Mall. Increased casino operating expenses were due to gaming taxes on the
increased revenues, an increased provision for doubtful accounts and higher
costs of complimentary expenses.
The Company's provision for bad debts was $6.3 million in the first
quarter of 2000. 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 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.
Interest Income (Expense)
Reflecting the investments in the Casino Resort's hotel, casino and
convention space and the Mall, the Company's debt levels and associated interest
costs have risen significantly. With the opening of these new facilities, the
Company's capitalization of interest costs has ceased. Net interest expense was
$28.9 million in the first quarter of 2000, compared to $2.6 million in the same
period in 1999. Of the $28.9 million, $24.7 million was related to the Casino
Resort (excluding the Mall) and $4.2 million was related to the Mall.
Interest income decreased by $0.9 million for the quarter ended March
31, 2000 compared to the same period in 1999, 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 no interest during the quarter
ended March 31, 2000, versus $16.6 million of interest capitalized during the
same period in 1999.
Other Factors Affecting Earnings
The Company incurred no pre-opening expenses during the first quarter
of 2000, compared to $6.8 million incurred during the same period in 1999.
During early 2000, the Company modified 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.
===============================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
===============================================================================
Liquidity and Capital Resources
- -------------------------------
Venetian Hotel, Casino and Congress Center
As of March 31, 2000 and December 31, 1999, the Company held cash and
cash equivalents of $32.6 million and $26.3 million, respectively. On such
dates, the Company also held restricted cash and investments of $2.3 million and
$11.0 million, respectively. Net cash provided by operating activities for the
first quarter of 2000 and the first quarter of 1999 was $26.5 million and $7.8
million, respectively. The Company's operating cash flow in the first quarter of
2000 was negatively impacted by a substantial increase in trade receivables. Net
trade receivables were $43.2 million at December 31, 1999 and $62.6 million at
March 31, 2000. The net increase in hotel receivables was $12.7 million during
the first quarter of 2000 and the net increase in casino receivables during such
period was $7.0 million. The net increase in hotel trade receivables is
attributable to a substantial increase in group room, food and beverage services
during the first quarter of 2000, compared to the traditionally slower group
room, food and beverage business during the prior quarter. The net increase in
casino receivables is related to the substantial increase in table games revenue
during the first quarter of 2000. The overall 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 the first quarter of 2000 were $10.9
million, compared to $174.9 million for the same period in 1999 (which consisted
primarily of construction of the Casino Resort).
As of March 31, 1999, approximately $0.5 million of construction costs
(excluding contested construction costs (the "Contested Construction Costs")
that are the subject of the litigations and claims described in Item 1.
Financial Statements - Note 6 Commitments and Contingencies - Litigation)
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. The Company also is reviewing approximately $4.0 million of
proposed vendor change orders and claims not related to the Construction
Manager's claim. To the extent any of them are approved, the Company will pay
these amounts from remaining restricted cash and other project funds as
described below. 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
collateralized with cash and cash equivalents).
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 March 31, 2000, $29.9 million of
the $40.0 million Revolver under the Bank Credit Facility was drawn. The Company
has significant debt service payments due during the next twelve months,
including quarterly principal payments on its Bank Credit Facility and FF&E
Credit Facility aggregating $47.2 million, repayment of amounts outstanding
under the revolver ($29.8 million at March 31, 2000) estimated total interest
payments of (excluding amortization of debt offering costs) approximately $88.4
million for indebtedness secured by the Casino Resort and $16.0 million for
indebtedness secured by the Mall. In addition, the Company estimates capital
expenditures for the Casino Resort of $16.0 million during 2000. During the
first quarter of 2000, the Company paid principal payments of $5.6 million on
the Bank Credit Facility, $2.9 million on the FF&E Credit Facility and $9.3
million on the Revolver. The Company anticipates that its existing cash
balances, operating cash flow and available borrowing capacity will continue to
provide it with sufficient resources to meet existing debt obligations and
foreseeable capital expenditures requirements, however, no assurance can be
given that the Company's improved operating results will continue.
===============================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
===============================================================================
In addition, the Company is in discussions with the administrative
agent under the Bank Credit Facility to amend certain terms of the Bank Credit
Facility. The proposed amendments envision (i) adding the Tranche B Term Loan in
the amount of $50.0 million, the proceeds of which will be applied to (x) prepay
existing terms loans in forward order of maturity in the amount of $30.0 million
and (y) reduce the Revolver by $20.0 million (net of fees and expenses) without
decreasing available commitments of the Revolver and (ii) adjusting certain
financial covenants provided for in the Bank Credit Facility. The Tranche B Term
Loan is expected to have a five year maturity. Both the Bank Credit Facility and
the FF&E Credit Facility provide for a variety of financial tests, relating to,
among other things, the Company's 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 will be to refinance a
portion of the existing term loan under the Bank Credit Facility and 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 will need to be made
to, and preliminary discussions have been started with the FF&E Lender regarding
the FF&E Credit Facility, which has substantially identical financial covenants.
No assurance can be given that definitive amendments to the Bank Credit Facility
or the FF&E Credit Facility will be entered into by the lenders under either
facility.
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 financial covenants reflected in such
existing 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 the Company will be in
compliance with its financial covenants without the proposed amendments to the
Bank Credit Facility and the FF&E Credit Facility described above.
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 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 and Transfer of Mall Assets
On November 12, 1999, Mall Construction transferred the Mall Assets to
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) the Tranche A Take-out Loan made by the Tranche
A Take-out Lenders and (b) the Tranche B Take-out Loan made by an entity wholly
owned by the Sole Stockholder. 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.
===============================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
===============================================================================
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 and Lido Intermediate
(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.
===============================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
===============================================================================
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Certain statements in this section and elsewhere in this Quarterly
Report on Form 10-Q (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-Q, 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
LVCC 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 3. 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 Take-out
Financing and the FF&E Credit Facility, and by use of interest rate cap and
floor agreements.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The Company is party to litigation matters and claims related to its
operations and the construction of the Casino Resort. For more information, see
the Company's Annual Report on Form 10-K for the year ended December 31, 1999
and Part I, Item 1. Financial Statements-Notes to Financial Statements-Note 6
Commitments and Contingencies-Litigation.
Part II
OTHER INFORMATION
Items 2 through 5 of Part II are not applicable.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) List of Exhibits
Exhibit No. Description of Document
----------- -----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31,
2000.
================================================================================
SIGNATURES
----------
Pursuant to the requirements 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.
May 15, 2000 By: /s/ Sheldon G. Adelson
----------------------
Sheldon G. Adelson
Chairman of the Board, Chief
Executive Officer and Director
May 15, 2000 By: /s/ Harry D. Miltenberger
-------------------------
Harry D. Miltenberger
Vice President-Finance
(principal financial and
accounting officer)
================================================================================