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LAS VEGAS SANDS, INC.
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 June 30, 2001
[ ] 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
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LAS VEGAS SANDS, INC.
(Exact name of registration as specified in its charter)
Nevada 04-3010100
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3355 Las Vegas Boulevard South, Room 1A
Las Vegas, Nevada 89109
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(702) 414-1000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 August 14, 2001
Class Outstanding at August 14, 2001
- -------------------------------------- -----------------------------------
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 June 30, 2001 (unaudited) and December 31, 2000 ................1
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 2001 (unaudited) and June 30, 2000 (unaudited) ...........2
Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 2001 (unaudited) and June 30, 2000 (unaudited) ...........3
Notes to Consolidated Financial Statements.........................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................27
Item 3. Quantitative and Qualitative Disclosures About Market Risk........34
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.................................................35
Item 6. Exhibits and Reports on Form 8-K..................................36
Signatures........................................................37
Part I
Financial Information
Item 1. Financial Statements
LAS VEGAS SANDS, INC
Consolidated Balance Sheets
(In thousands, except share data)
June 30, December 31,
2001 2000
----------- -----------
Unaudited
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 39,772 $ 42,606
Restricted cash and investments .................................................. 2,601 2,549
Accounts receivable, net ......................................................... 64,923 64,328
Inventories ...................................................................... 4,412 3,868
Prepaid expenses ................................................................. 4,166 3,672
----------- -----------
Total current assets ................................................................. 115,874 117,023
Property and equipment, net .......................................................... 1,063,255 1,062,093
Deferred offering costs, net ......................................................... 19,490 22,314
Other assets, net .................................................................... 27,895 30,955
----------- -----------
$ 1,226,514 $ 1,232,385
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ................................................................. $ 19,272 $ 23,835
Construction payables ............................................................ 6,239 6,212
Construction payables-contested .................................................. 7,232 7,232
Accrued interest payable ......................................................... 11,857 13,277
Other accrued liabilities ........................................................ 61,174 76,735
Current maturities of long-term debt ............................................. 89,786 50,119
----------- -----------
Total current liabilities ............................................................ 195,560 177,410
Other long-term liabilities .......................................................... 6,751 10,494
Long-term debt ....................................................................... 837,924 863,293
----------- -----------
1,040,235 1,051,197
----------- -----------
Redeemable Preferred Interest in Venetian Casino Resort, LLC,
a wholly owned subsidiary ........................................................ 178,092 168,012
----------- -----------
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 ................................................... 84,158 94,240
Accumulated deficit since June 30, 1996 .......................................... (76,063) (81,156)
----------- -----------
8,187 13,176
----------- -----------
$ 1,226,514 $ 1,232,385
=========== ===========
<FN>
- ----------------
The accompanying notes are an integral part of these consolidated financial statements
</FN>
1
LAS VEGAS SANDS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- ---------- --------- ---------
Revenues:
Casino ................................................... $ 54,265 $ 73,798 $ 112,741 $ 157,634
Rooms .................................................... 56,428 48,531 116,014 95,511
Food and beverage ........................................ 18,528 16,818 37,357 35,599
Retail and other ......................................... 17,355 15,792 34,730 31,185
--------- ---------- --------- ---------
146,576 154,939 300,842 319,929
Less-promotional allowances ................................. (9,658) (11,693) (21,944) (22,626)
--------- ---------- --------- ---------
Net revenues ............................................. 136,918 143,246 278,898 297,303
--------- ---------- --------- ---------
Operating expenses:
Casino ................................................... 36,158 41,259 76,156 80,634
Rooms .................................................... 13,685 12,046 26,856 23,343
Food and beverage ........................................ 8,941 8,234 17,248 17,902
Retail and other ......................................... 7,742 6,941 15,031 13,179
Provision for doubtful accounts .......................... 5,171 5,058 8,889 11,340
General and administrative ............................... 23,415 23,201 45,426 44,757
Corporate expense ........................................ 2,090 1,476 3,978 2,844
Rental expense ........................................... 2,022 3,036 4,213 5,886
Depreciation and amortization ............................ 10,305 10,944 20,511 20,789
--------- ---------- --------- ---------
109,529 112,195 218,308 220,674
--------- ---------- --------- ---------
Operating income ............................................ 27,389 31,051 60,590 76,629
--------- ---------- --------- ---------
Other income (expense):
Interest income ........................................... 388 377 806 840
Interest expense, net of amounts capitalized .............. (27,363) (29,793) (56,303) (59,204)
--------- ---------- --------- ---------
Income before extraordinary item ............................ 414 1,635 5,093 18,265
Extraordinary item-loss on early retirement of debt ...... -- (2,785) -- (2,785)
--------- ---------- --------- ---------
Net income (loss) ........................................... $ 414 $ (1,150) $ 5,093 $ 15,480
========= ========= ========= =========
Basic and diluted income (loss) per share before
extraordinary item .......................................... $ (5.00) $ (3.15) $ (5.39) $ 10.05
========= ========= ========= =========
Basic and diluted income (loss) per share ................... $ (5.00) $ (6.17) $ (5.39) $ 7.04
========= ========= ========= =========
<FN>
- ----------------
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
2
LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2001 2000
--------- ----------
Cash flows from operating activities:
Net income ........................................................................ $ 5,093 $ 15,480
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................. 20,511 20,789
Amortization of debt offering costs and original issue discount ........... 4,080 4,115
Loss on early retirement of debt .......................................... -- 2,785
Non cash interest on completion guaranty loan ............................. 1,940 1,730
Provision for doubtful accounts ........................................... 8,889 11,340
Changes in operating assets and liabilities:
Accounts receivable ..................................................... (9,484) (36,741)
Inventories ............................................................. (544) 911
Prepaid expenses ........................................................ (494) 1,167
Other assets ............................................................ 3,060 (17,952)
Accounts payable ........................................................ (4,563) 2,497
Accrued interest payable ................................................ (1,420) 2,447
Other accrued liabilities ............................................... (19,304) 22,124
------- --------
Net cash provided by operating activities ......................................... 7,764 30,692
------- --------
Cash flows from investing activities:
(Increase) decrease in restricted cash ............................................ (52) 8,810
Capital expenditures .............................................................. (21,646) (6,607)
Construction of Casino Resort ..................................................... -- (11,424)
------- --------
Net cash used in investing activities ............................................. (21,698) (9,221)
------- --------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan ............................ (5,625) (35,625)
Repayments on bank credit facility-tranche B term loan ............................ (250)
Proceeds from bank credit facility-tranche B term loan ............................ -- 50,000
Proceeds from bank credit facility-tranche C term loan ............................ 5,750 --
Repayments on bank credit facility-revolver ....................................... -- (28,059)
Proceeds from bank credit facility-revolver ....................................... 22,000 11,000
Repayments on FF&E credit facility ................................................ (10,747) (5,862)
Proceeds from Phase II Subsidiary unsecured bank loan ............................. 792 --
Payments of deferred offering costs ............................................... (820) (2,360)
------- --------
Net cash provided by (used in) financing activities ............................... 11,100 (10,906)
------- --------
Increase (decrease) in cash and cash equivalents .................................. (2,834) 10,565
Cash and cash equivalents at beginning of period .................................. 42,606 26,252
------- --------
Cash and cash equivalents at end of period ........................................ $ 39,772 $ 36,817
======== ========
Supplemental disclosure of cash flow information:
Cash payments for interest ...................................................... $ 52,287 $ 50,698
======== ========
<FN>
- ----------------
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
3
LAS VEGAS SANDS, INC.
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, 2000. 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 2000 financial
statements have been reclassified to conform with the 2001 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.
The Casino Resort is physically connected to the approximately 1.15
million square foot Sands Expo and Convention Center (the "Expo Center").
Interface Group-Nevada, Inc. ("IGN"), the owner of the Expo Center, is
beneficially owned by the Sole Stockholder. Venetian, the New Mall Subsidiary
and IGN transact business with each other and are parties to certain agreements.
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. There were no options or warrants
to purchase common stock outstanding during any period presented. The net income
(loss) available to common stockholders used in computing the basic and diluted
income (loss) per share includes accrued preferred dividends of approximately
$5.0 million and $10.1 million, respectively, for the three and six month
periods ended June 30, 2001 and $4.6 million and $9.0 million, respectively, for
the three and six month periods ended June 30, 2000. The accrued dividends have
been reflected as a charge against capital in excess of par value in the
accompanying financial statements.
4
LAS VEGAS SANDS, INC.
Notes to Financial Statements
Note 3 Property and Equipment
Property and equipment consists of the following (in thousands):
June 30, December 31,
2001 2000
----------- -----------
Land and land improvements ..................... $ 111,747 $ 109,863
Building and improvements ...................... 839,377 832,429
Equipment, furniture, fixtures and
leasehold improvements ........................ 135,398 134,008
Construction in progress ....................... 63,460 52,129
----------- -----------
1,149,982 1,128,429
Less: accumulated depreciation and amortization (86,727) (66,336)
----------- -----------
$ 1,063,255 $ 1,062,093
=========== ===========
During the three and six month periods ended June 30, 2001, the Company
capitalized interest expense of $0.6 million.
As of June 30, 2001, 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"), and
ongoing capital improvement projects at the Casino Resort.
Note 4 Long-Term Debt
Long-term debt consists of the following (in thousands):
June 30, December 31,
2001 2000
--------- ---------
Indebtedness of the Company and its Subsidiaries
other than the New Mall
Subsidiary and the Phase II Subsidiary:
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
$3,825 in 2001 and $4,263 in 2000 ................... 93,675 93,237
Bank Credit Facility-Tranche A Term Loan ............. 97,500 103,125
Bank Credit Facility-Tranche B Term Loan ............. 49,500 49,750
Bank Credit Facility-Tranche C Term Loan ............. 5,750 --
Bank Credit Facility-Revolver ........................ 22,000 --
FF&E Credit Facility ................................. 64,482 75,229
Subordinated Owner Indebtedness:
Completion Guaranty Loan ............................. 29,011 27,071
Indebtedness of the New Mall Subsidiary:
- ----------------------------------------
Mall Tranche A Take-out Loan ......................... 105,000 105,000
Mall Tranche B Take-out Loan ......................... 35,000 35,000
Indebtedness of the Phase II Subsidiary:
Bank Loan ............................................ 792 --
Less: current maturities ............................. (89,786) (50,119)
--------- ---------
Total long-term debt ................................. $ 837,924 $ 863,293
========= =========
5
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
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 other notes with
substantially the same terms.
LVSI and Venetian and a syndicate of lenders entered into a Bank Credit
Facility (the "Bank Credit Facility") providing for multiple draw term loans to
the Company for construction and development of the Casino Resort. As of June
30, 2001, $147.0 million was outstanding under the Bank Credit Facility,
consisting of a $97.5 million tranche A term loan (the "Tranche A Term Loan")
and a $49.5 tranche B term loan (the "Tranche B Term Loan"). The Tranche A Term
Loan has a four year maturity, and an interest rate of LIBOR plus 300 basis
points. The Tranche B Term Loan has a four year maturity, and an interest rate
of LIBOR plus 350 basis points. Up to $40.0 million of additional credit in the
form of revolving loans under the Bank Credit Facility (the "Revolver") is
available generally for working capital. The Revolver availability date was
extended from March 15, 2001 to September 15, 2001 during the first quarter of
2001 and $22.0 million was outstanding under the Revolver as of June 30, 2001.
Due to decreased casino revenues attributable to an unusually low table
games win percentage, the Company would not have met its financial covenants in
the second quarter of 2001. As a result, on June 29, 2001, the Company entered
into a limited waiver, consent and second amendment to the Bank Credit Facility
in order to, among other things, (1) obtain a waiver with respect to each of its
minimum fixed charge ratio covenant, maximum leverage ratio covenant and minimum
consolidated adjusted EBITDA covenant for the quarter ending June 30, 2001, (2)
amend the maximum consolidated capital expenditures covenant, and (3) obtain an
additional term loan in an aggregate principal amount of $5.8 million (the
"Tranche C Term Loan"), used to fund principal payments that were due on June
30, 2001 under the Bank Credit Facility. The Tranche C Term Loan has a two-year
maturity, and an interest rate of LIBOR plus 350 basis points.
In December 1997, the Company also 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. Financial covenant modifications
and waivers similar to those made to the Bank Credit Facility were made in June
2001 to the FF&E Credit Facility, which has substantially identical financial
covenants.
The Company does anticipate 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 planned capital
expenditures requirements (except as described below). In connection with a
planned financing transaction to fund certain future development and
construction projects for the Casino Resort, the Company is currently in
discussions with the lenders under the Bank Credit Facility and the FF&E Credit
Facility to defer all or a portion of the Company's scheduled amortization
payments for approximately two years under the Bank Credit Facility, and for the
next year under the FF&E Credit Facility, to extend the commitment termination
date of its existing revolver under the Bank Credit Facility to June 30, 2003
and to amend each of the Company's financial covenants. In addition, the Company
anticipates that it may need to amend the financial covenants of the Bank Credit
Facility and the FF&E Credit Facility in order to maintain compliance beginning
in the quarter ending September 30, 2001 and for future periods. No assurance
can be given that definitive agreements to amend the Bank Credit Facility or the
FF&E Credit Facility will be entered into by the lenders.
The Bank Credit Facility and FF&E Credit Facility contain certain
covenants that require the Company to pass a number of financial tests relating
to, among other things, a minimum consolidated earnings before interest, taxes,
depreciation and amortization (`EDITDA"), a consolidated leverage ratio; and a
fixed charge coverage ratio (all as defined in the respective credit
agreements). Additionally, the debt instruments contain certain restrictions
that, among other things, limit the ability of the Company and/or certain
subsidiaries to incur additional indebtedness, issue disqualified stock or
equity interests, pay dividends or make other distributions, repurchase equity
interests or certain indebtedness, create certain liens, enter into certain
transactions with affiliates, enter into certain mergers or consolidations or
sell assets of the Company without prior approval of the lenders or noteholders.
The Company is also a party to certain intercreditor arrangements. The
intercreditor agreements set forth the lender's interests and claims in the
Company's assets as collateral for borrowings.
6
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
The financial covenants in the Bank Credit Facility and the FF&E Credit
Facility involving EBITDA are applied on a rolling four-quarter basis, and the
Company's compliance with financial covenants can be temporarily affected if the
Company experiences an unusually low win percentage in a particular quarter,
which is not offset in subsequent quarters or by other results of operations. As
a result of these fluctuations, no assurance can be given that the Company will
be in compliance with its financial covenants with or without the proposed
amendments to the Bank Credit Facility and the FF&E Credit Facility described
above.
On November 12, 1999, an advance of approximately $23.5 million was
made under the Sole Stockholder's completion guaranty (the "Completion
Guaranty"). Interest expense added to the principal balance increased the
balance of the Completion Guaranty to $29.0 million as of June 30, 2001.
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.
On December 20, 1999, certain take-out lenders (collectively, the
"Tranche A Take-out Lender") funded a $105.0 million tranche A take-out loan to
the New Mall Subsidiary (the "Tranche A Take-out Loan"). The proceeds were used
to repay indebtedness under the mall construction loan facility for the Mall.
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.
In February 2001, the Phase II Subsidiary entered into an unsecured
bank line of credit, as amended on May 31, 2001, for $792,000 and payable on
July 15, 2002. This line of credit bears interest at LIBOR plus 100 basis
points. The proceeds of the line of credit were used to fund payments of Phase
II Subsidiary operating costs.
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
and six month periods ended June 30, 2001 and June 30, 2000, $5.0 million and
$10.1 million and $4.6 million and $9.0 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
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.
7
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies (Continued)
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 Peninsular 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 entered 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. The Company amended this complaint 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 approximately $90.0 million from Venetian and its affiliates. This
complaint was subsequently amended by the Construction Manager, which also filed
an additional complaint against the Company relating to work done and funds
advanced with respect to the contemplated development of the Phase II Resort.
Based upon its preliminary review of the complaints, the fact that the
Construction Manager has not provided Venetian with reasonable documentation to
support such claims, and the Company's belief that the Construction Manager has
materially breached its agreements with the Company, the Company believes that
the Construction Manager's claims are without merit and intends to vigorously
defend itself and pursue its claims against the Construction Manager in any
litigation.
In connection with these disputes, as of December 31, 1999 the
Construction Manager and its subcontractors filed mechanics liens against the
Casino Resort for $145.6 million and $182.2 million, respectively. The Company
believes that a major reason these lien amounts exceed the Construction
Manager's claims of $90.0 million is based upon a duplication of liens through
the inclusion of lower tier claims by subcontractors in the liens of higher tier
contractors, including the lien of the Construction Manager. 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.
8
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies (Continued)
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 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.
In June 2000, the Company purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the "Construction Litigation"). Under the
Insurance Policy, the Company will self-insure the first $45.0 million and the
insurer will insure up to the next $80.0 million of any possible covered losses.
The Insurance Policy provides coverage for any amounts determined in the
Construction Litigation to be owed to the Construction Manager or its
subcontractors relating to claimed delays, inefficiencies, disruptions, lack of
productivity/unauthorized overtime or schedule impact, allegedly caused by the
Company during construction of the Casino Resort, as well as any defense costs.
The insurance is in addition to, and does not affect, any scope change
guarantees provided by the Sole Stockholder pursuant to the Completion Guaranty.
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 adverse effect on the financial position,
results of operations or cash flows of the Company to the extent such litigation
is not covered by the Insurance Policy.
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.
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, 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.
9
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
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 June 30, 2001 and December
31, 2000 and for the three and six month periods ended June 30, 2001 and June
30, 2000 is as follows (in thousands):
10
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED BALANCE SHEETS
June 30, 2001
(Unaudited)
GUARANTOR SUBSIDIARIES
--------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Cash and cash equivalents ............................. $ 27,779 $ 8,096 $ 4 $ 4
Restricted cash and investments ....................... -- 1,497 -- --
Intercompany receivable ............................... 42,405 -- -- --
Accounts receivable, net .............................. 46,775 17,316 -- --
Inventories ........................................... -- 4,412 -- --
Prepaid expenses ...................................... 1,251 2,836 -- --
-------- -------- -------- --------
Total current assets ................................ 118,210 34,157 4 4
Property and equipment, net ........................... -- 843,857 -- --
Investment in Subsidiaries ............................ 126,022 67,120 -- --
Deferred offering costs, net .......................... -- 16,249 -- --
Other assets, net ..................................... 3,107 20,961 -- --
-------- -------- -------- --------
$247,339 $982,344 $ 4 $ 4
======== ======== ======== ========
Accounts payable ...................................... $ 2,566 $ 16,258 $ -- $ --
Construction payable .................................. -- 3,324 -- --
Construction payable-contested ........................ -- 7,232 -- --
Intercompany payables ................................. -- 19,829 -- --
Accrued interest payable .............................. -- 10,774 -- --
Other accrued liabilities ............................. 20,296 39,628 -- --
Current maturities of long term debt .................. -- 88,994 -- --
-------- -------- -------- --------
Total current liabilities ........................... 22,862 186,039 -- --
Other long-term liabilities ........................... -- 6,751 -- --
Long-term debt ........................................ -- 697,924 -- --
-------- -------- -------- --------
22,862 890,714 -- --
Redeemable Preferred Interest in Venetian -- 178,092 -- --
-------- -------- -------- --------
Stockholder's equity .................................. 224,477 (86,462) 4 4
-------- -------- -------- --------
$247,339 $982,344 $ 4 $ 4
======== ======== ======== ========
11
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED BALANCE SHEETS (Continued)
June 30, 2001
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Other
Shops Mall Non-Guarantor Consolidating/
Subsidiary Subsidiaries Eliminating
LLC (1) (2) Entries Total
------------ ------------- ------------ ------------
Cash and cash equivalents ........................... $ 3,800 $ 89 $ -- $ 39,772
Restricted cash and investments ..................... 1,104 -- -- 2,601
Intercompany receivable ............................. -- -- (42,405) --
Accounts receivable, net ............................ 742 90 -- 64,923
Inventories ......................................... -- -- -- 4,412
Prepaid expenses .................................... 79 -- -- 4,166
----------- ----------- ----------- -----------
Total current assets .............................. 5,725 179 (42,405) 115,874
Property and equipment, net ......................... 138,022 81,376 -- 1,063,255
Investment in Subsidiaries .......................... -- -- (193,142) --
Deferred offering costs, net ........................ 2,941 300 -- 19,490
Other assets, net ................................... 3,827 -- -- 27,895
----------- ----------- ----------- -----------
$ 150,515 $ 81,855 $ (235,547) $ 1,226,514
=========== =========== =========== ===========
Accounts payable .................................... $ 448 $ -- $ -- $ 19,272
Construction payable ................................ -- 2,915 -- 6,239
Construction payable-contested ...................... -- -- -- 7,232
Intercompany payables ............................... 22,576 -- (42,405) --
Accrued interest payable ............................ 1,070 13 -- 11,857
Other accrued liabilities ........................... 1,189 61 -- 61,174
Current maturities of long term debt ................ -- 792 -- 89,786
----------- ----------- ----------- -----------
Total current liabilities ......................... 25,283 3,781 (42,405) 195,560
Other long-term liabilities ......................... -- -- -- 6,751
Long-term debt ...................................... 140,000 -- -- 837,924
----------- ----------- ----------- -----------
165,283 3,781 (42,405) 1,040,235
Redeemable Preferred Interest in Venetian ........... -- -- -- 178,092
----------- ----------- ----------- -----------
Stockholder's equity ................................ (14,768) 78,074 (193,142) 8,187
----------- ----------- ----------- -----------
$ 150,515 $ 81,855 $ (235,547) $ 1,226,514
=========== =========== =========== ===========
<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. As a result, Mall Construction had no assets or liabilities as of June 30, 2001.
(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>
12
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED BALANCE SHEETS
December 31, 2000
GUARANTOR SUBSIDIARIES
--------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Cash and cash equivalents .......................... $ 35,332 $ 4,260 $ 4 $ 4
Restricted cash and investments .................... -- 1,471 -- --
Intercompany receivable ............................ 42,917 -- -- --
Accounts receivable, net ........................... 45,609 17,686 -- --
Inventories ........................................ -- 3,868 -- --
Prepaid expenses ................................... 458 2,897 -- --
--------- --------- -------- ---------
Total current assets ............................. 124,316 30,182 4 4
Property and equipment, net ........................ -- 840,960 -- --
Investment in Subsidiaries ......................... 126,022 67,120 -- --
Deferred offering costs, net ....................... -- 18,335 -- --
Other assets, net .................................. 4,928 22,120 -- --
--------- --------- -------- ---------
$ 255,266 $ 978,717 $ 4 $ 4
========= ========= ======== =========
Accounts payable ................................... $ 4,794 $ 18,036 $ -- $ --
Construction payable ............................... -- 3,297 -- --
Construction payable-contested ..................... -- 7,232 -- --
Intercompany payables .............................. -- 20,391 -- --
Accrued interest payable ........................... -- 11,498 -- --
Other accrued liabilities .......................... 27,939 47,380 -- --
Current maturities of long term debt ............... -- 50,119 -- --
--------- --------- -------- ---------
Total current liabilities ........................ 32,733 157,953 -- --
Other long-term liabilities ........................ -- 10,494 -- --
Long-term debt ..................................... -- 723,293 -- --
--------- --------- -------- ---------
32,733 891,740 -- --
Redeemable Preferred Interest in Venetian .......... -- 168,012 -- --
--------- --------- -------- ---------
Stockholder's equity ............................... 222,533 (81,035) 4 4
--------- --------- -------- ---------
$ 255,266 $ 978,717 $ 4 $ 4
========= ========= ======== =========
13
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED BALANCE SHEETS (Continued)
December 31, 2000
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Other
Shops Mall Non-Guarantor Consolidating/
Subsidiary Subsidiaries Eliminating
LLC (1) (2) Entries Total
------------ ------------- ------------ ------------
Cash and cash equivalents .................................... $ 2,972 $ 34 $ -- $ 42,606
Restricted cash and investments .............................. 1,078 -- -- 2,549
Intercompany receivable ...................................... -- -- (42,917) --
Accounts receivable, net ..................................... 973 60 -- 64,328
Inventories .................................................. -- -- -- 3,868
Prepaid expenses ............................................. 317 -- -- 3,672
----------- ------------ ---------- -----------
Total current assets ....................................... 5,340 94 (42,917) 117,023
Property and equipment, net .................................. 140,185 80,948 -- 1,062,093
Investment in Subsidiaries ................................... -- -- (193,142) --
Deferred offering costs, net ................................. 3,979 -- -- 22,314
Other assets, net ............................................ 3,907 -- -- 30,955
----------- ------------ ---------- -----------
$ 153,411 $ 81,042 $ (236,059) $ 1,232,385
=========== ============ ========== ===========
Accounts payable ............................................. $ 1,005 $ -- $ -- $ 23,835
Construction payable ......................................... -- 2,915 -- 6,212
Construction payable-contested ............................... -- -- -- 7,232
Intercompany payables ........................................ 22,526 -- (42,917) --
Accrued interest payable ..................................... 1,779 -- -- 13,277
Other accrued liabilities .................................... 1,363 53 -- 76,735
Current maturities of long term debt ......................... -- -- -- 50,119
----------- ------------ ---------- -----------
Total current liabilities .................................. 26,673 2,968 (42,917) 177,410
Other long-term liabilities .................................. -- -- -- 10,494
Long-term debt ............................................... 140,000 -- -- 863,293
----------- ------------ ---------- -----------
166,673 2,968 (42,917) 1,051,197
Redeemable Preferred Interest in Venetian .................... -- -- -- 168,012
----------- ------------ ---------- -----------
Stockholder's equity ......................................... (13,262) 78,074 (193,142) 13,176
----------- ------------ ---------- -----------
$ 153,411 $ 81,042 $ (236,059) $ 1,232,385
=========== ============ ========== ===========
<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. As a result, Mall Construction had no assets or liabilities as of December 31, 2000.
(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>
14
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2001
(Unaudited)
GUARANTOR SUBSIDIARIES
--------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Revenues:
Casino ...................................................... $ 54,265 $ -- $ -- $ --
Room ........................................................ -- 56,428 -- --
Food and beverage ........................................... -- 18,528 -- --
Retail and other ............................................ 152 20,246 -- --
--------- --------- --------- ---------
Total revenue ............................................... 54,417 95,202 -- --
Less promotional allowance .................................. -- (9,658) -- --
--------- --------- --------- ---------
Net revenues ................................................ 54,417 85,544 -- --
--------- --------- --------- ---------
Operating expenses:
Casino ...................................................... 47,646 -- -- --
Room ........................................................ -- 13,685 -- --
Food and beverage ........................................... -- 8,941 -- --
Retail and other ............................................ -- 4,891 -- --
Provision for doubtful accounts ............................. 5,171 -- -- --
General and administrative .................................. 391 22,560 -- --
Corporate expense ........................................... 1,057 1,033 -- --
Rental expense .............................................. 86 1,398 -- --
Depreciation and amortization ............................... -- 9,144 -- --
--------- --------- --------- ---------
54,351 61,652 -- --
--------- --------- --------- ---------
Operating income (loss) ..................................... 66 23,892 -- --
--------- --------- --------- ---------
Other income (expense):
Interest income ......................................... 176 178 -- --
Interest expense ........................................ -- (23,475) -- --
--------- --------- --------- ---------
Net income (loss) ........................................... $ 242 $ 595 $ -- $ --
========= ========= ========= =========
15
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the three months ended June 30, 2001
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ ------------
Revenues:
Casino ...................................................... $ -- $ -- $ -- $ 54,265
Room ........................................................ -- -- -- 56,428
Food and beverage ........................................... -- -- -- 18,528
Retail and other ............................................ 8,792 -- (11,835) 17,355
--------- --------- --------- ---------
Total revenue ............................................... 8,792 -- (11,835) 146,576
Less promotional allowance .................................. -- -- -- (9,658)
--------- --------- --------- ---------
Net revenues ................................................ 8,792 -- (11,835) 136,918
--------- --------- --------- ---------
Operating expenses:
Casino ...................................................... -- -- (11,488) 36,158
Room ........................................................ -- -- -- 13,685
Food and beverage ........................................... -- -- -- 8,941
Retail and other ............................................ 3,198 -- (347) 7,742
Provision for doubtful accounts ............................. -- -- -- 5,171
General and administrative .................................. 464 -- -- 23,415
Corporate expense ........................................... -- -- -- 2,090
Rental expense .............................................. 538 -- -- 2,022
Depreciation and amortization ............................... 1,161 -- -- 10,305
--------- --------- --------- ---------
5,361 -- (11,835) 109,529
--------- --------- --------- ---------
Operating income (loss) ..................................... 3,431 -- -- 27,389
--------- --------- --------- ---------
Other income (expense):
Interest income ......................................... 34 -- -- 388
Interest expense ........................................ (3,888) -- -- (27,363)
--------- --------- --------- ---------
Net income (loss) ........................................... $ (423) $ -- $ -- $ 414
========= ========= ========= =========
<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. As a result, Mall Construction had no revenues or expenses as of June 30, 2001.
</FN>
16
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2000
(Unaudited)
GUARANTOR SUBSIDIARIES
--------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Revenues:
Casino ............................................... $ 73,798 $ -- $ -- $ --
Room ................................................. -- 48,531 -- --
Food and beverage .................................... -- 16,818 -- --
Retail and other ..................................... 278 19,741 -- --
---------- ---------- ---------- ----------
Total revenue ........................................ 74,076 85,090 -- --
Less promotional allowance ........................... -- (11,693) -- --
---------- ---------- ---------- ----------
Net revenues ......................................... 74,076 73,397 -- --
---------- ---------- ---------- ----------
Operating expenses:
Casino ............................................... 52,418 -- -- --
Room ................................................. -- 12,046 -- --
Food and beverage .................................... -- 8,234 -- --
Retail and other ..................................... -- 4,594 -- --
Provision for doubtful accounts ...................... 4,658 200 -- --
General and administrative ........................... 947 21,870 -- --
Corporate expense .................................... 695 781 -- --
Rental expense ....................................... 1,015 1,472 -- --
Depreciation and amortization ........................ -- 9,799 -- --
---------- ---------- ---------- ----------
59,733 58,996 -- --
---------- ---------- ---------- ----------
Operating income ..................................... 14,343 14,401 -- --
---------- ---------- ---------- ----------
Other income (expense):
Interest income .................................. 195 169 -- --
Interest expense ................................. -- (25,448) -- --
---------- ---------- ---------- ----------
Net income (loss) before extraordinary item .......... 14,538 (10,878) -- --
Loss on early retirement of debt ................. -- (2,785) -- --
---------- ---------- ---------- ----------
Net income (loss) .................................... $ 14,538 $ (13,663) $ -- $ --
========== ========== ========== ==========
17
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the three months ended June 30, 2000
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ -----------
Revenues:
Casino ................................................ $ -- $ -- $ -- $ 73,798
Room .................................................. -- -- -- 48,531
Food and beverage ..................................... -- -- -- 16,818
Retail and other ...................................... 7,043 -- (11,270) 15,792
---------- ---------- ---------- ----------
Total revenue ......................................... 7,043 -- (11,270) 154,939
Less promotional allowance ............................ -- -- -- (11,693)
---------- ---------- ---------- ----------
Net revenues .......................................... 7,043 -- (11,270) 143,246
---------- ---------- ---------- ----------
Operating expenses:
Casino ................................................ -- -- (11,159) 41,259
Room .................................................. -- -- -- 12,046
Food and beverage ..................................... -- -- -- 8,234
Retail and other ...................................... 2,458 -- (111) 6,941
Provision for doubtful accounts ....................... 200 -- -- 5,058
General and administrative ............................ 384 -- -- 23,201
Corporate expense ..................................... -- -- -- 1,476
Rental expense ........................................ 549 -- -- 3,036
Depreciation and amortization ......................... 1,145 -- -- 10,944
---------- ---------- ---------- ----------
4,736 -- (11,270) 112,195
---------- ---------- ---------- ----------
Operating income ...................................... 2,307 -- -- 31,051
---------- ---------- ---------- ----------
Other income (expense):
Interest income ................................... 13 -- -- 377
Interest expense .................................. (4,345) -- -- (29,793)
---------- ---------- ---------- ----------
Net income (loss) before extraordinary item ........... (2,025) -- -- 1,635
Loss on early retirement of debt .................. -- -- -- (2,785)
---------- ---------- ---------- ----------
Net income (loss) ..................................... $ (2,025) $ -- $ -- $ (1,150)
========== ========== ========== ==========
<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. As a result, Mall Construction had no revenues or expenses as of June 30, 2000.
</FN>
18
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS
For the six months ended June 30, 2001
(Unaudited)
GUARANTOR SUBSIDIARIES
---------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Revenues:
Casino ....................................... $ 112,741 $ -- $ -- $ --
Room ......................................... -- 116,014 -- --
Food and beverage ............................ -- 37,357 -- --
Retail and other ............................. 441 40,848 -- --
---------- ---------- ---------- ----------
Total revenue ................................ 113,182 194,219 -- --
Less promotional allowance ................... -- (21,944) -- --
---------- ---------- ---------- ----------
Net revenues ................................. 113,182 172,275 -- --
---------- ---------- ---------- ----------
Operating expenses:
Casino ....................................... 99,003 -- -- --
Room ......................................... -- 26,856 -- --
Food and beverage ............................ -- 17,248 -- --
Retail and other ............................. -- 9,624 -- --
Provision for doubtful accounts .............. 8,889 -- -- --
General and administrative ................... 1,372 43,220 -- --
Corporate expense ............................ 2,082 1,896 -- --
Rental expense ............................... 279 2,850 -- --
Depreciation and amortization ................ -- 18,054 -- --
---------- ---------- ---------- ----------
111,625 119,748 -- --
---------- ---------- ---------- ----------
Operating income (loss) ...................... 1,557 52,527 -- --
---------- ---------- ---------- ----------
Other income (expense):
Interest income .......................... 387 349 -- --
Interest expense ......................... -- (48,221) -- --
---------- ---------- ---------- ----------
Net income (loss) ............................ $ 1,944 $ 4,655 $ -- $ --
========== ========== ========== ==========
19
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the six months ended June 30, 2001
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
---------------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ -----------
Revenues:
Casino .......................................... $ -- $ -- $ -- $ 112,741
Room ............................................ -- -- -- 116,014
Food and beverage ............................... -- -- -- 37,357
Retail and other ................................ 16,826 -- (23,385) 34,730
---------- ---------- ---------- ----------
Total revenue ................................... 16,826 -- (23,385) 300,842
Less promotional allowance ...................... -- -- -- (21,944)
---------- ---------- ---------- ----------
Net revenues .................................... 16,826 -- (23,385) 278,898
---------- ---------- ---------- ----------
Operating expenses:
Casino .......................................... -- -- (22,847) 76,156
Room ............................................ -- -- -- 26,856
Food and beverage ............................... -- -- -- 17,248
Retail and other ................................ 5,945 -- (538) 15,031
Provision for doubtful accounts ................. -- -- -- 8,889
General and administrative ...................... 834 -- -- 45,426
Corporate expense ............................... -- -- -- 3,978
Rental expense .................................. 1,084 -- -- 4,213
Depreciation and amortization ................... 2,457 -- -- 20,511
---------- ---------- ---------- ----------
10,320 -- (23,385) 218,308
---------- ---------- ---------- ----------
Operating income (loss) ......................... 6,506 -- -- 60,590
---------- ---------- ---------- ----------
Other income (expense):
Interest income ............................. 70 -- -- 806
Interest expense ............................ (8,082) -- -- (56,303)
---------- ---------- ---------- ----------
Net income (loss) ............................... $ (1,506) $ -- $ -- $ 5,093
========== ========== ========== ==========
<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. As a result, Mall Construction had no revenues or expenses as of June 30, 2001.
</FN>
20
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS
For the six months ended June 30, 2000
(Unaudited)
GUARANTOR SUBSIDIARIES
-----------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Revenues:
Casino .................................................. $ 157,634 $ -- $ -- $ --
Room .................................................... -- 95,511 -- --
Food and beverage ....................................... -- 35,599 -- --
Retail and other ........................................ 610 38,997 -- --
---------- ---------- ---------- ----------
Total revenue ........................................... 158,244 170,107 -- --
Less promotional allowance .............................. -- (22,626) -- --
---------- ---------- ---------- ----------
Net revenues ............................................ 158,244 147,481 -- --
---------- ---------- ---------- ----------
Operating expenses:
Casino .................................................. 102,952 -- -- --
Room .................................................... -- 23,343 -- --
Food and beverage ....................................... -- 17,902 -- --
Retail and other ........................................ -- 8,741 -- --
Provision for doubtful accounts ......................... 10,340 600 -- --
General and administrative .............................. 1,762 42,418 -- 1
Corporate expense ....................................... 1,143 1,701 -- --
Rental expense .......................................... 1,814 2,966 -- --
Depreciation and amortization ........................... -- 18,512 -- --
---------- ---------- ---------- ----------
118,011 116,183 -- 1
---------- ---------- ---------- ----------
Operating income (loss) ................................. 40,233 31,298 -- (1)
---------- ---------- ---------- ----------
Other income (expense):
Interest income ..................................... 279 525 -- --
Interest expense .................................... -- (50,619) -- --
---------- ---------- ---------- ----------
Net income (loss) before extraordinary item ............. 40,512 (18,796) -- (1)
Loss on early retirement of debt .................... -- (2,785) -- --
---------- ---------- ---------- ----------
Net income (loss) ....................................... $ 40,512 $ (21,581) $ -- $ (1)
========== ========== ========== ----------
21
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the six months ended June 30, 2000
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ -----------
Revenues:
Casino ....................................................... $ -- $ -- $ -- $ 157,634
Room ......................................................... -- -- -- 95,511
Food and beverage ............................................ -- -- -- 35,599
Retail and other ............................................. 14,107 -- (22,529) 31,185
---------- ---------- ---------- ----------
Total revenue ................................................ 14,107 -- (22,529) 319,929
Less promotional allowance ................................... -- -- -- (22,626)
---------- ---------- ---------- ----------
Net revenues ................................................. 14,107 -- (22,529) 297,303
---------- ---------- ---------- ----------
Operating expenses:
Casino ....................................................... -- -- (22,318) 80,634
Room ......................................................... -- -- -- 23,343
Food and beverage ............................................ -- -- -- 17,902
Retail and other ............................................. 4,649 -- (211) 13,179
Provision for doubtful accounts .............................. 400 -- -- 11,340
General and administrative ................................... 576 -- -- 44,757
Corporate expense ............................................ -- -- -- 2,844
Rental expense ............................................... 1,106 -- -- 5,886
Depreciation and amortization ................................ 2,277 -- -- 20,789
---------- ---------- ---------- ----------
9,008 -- (22,529) 220,674
---------- ---------- ---------- ----------
Operating income (loss) ...................................... 5,099 -- -- 76,629
---------- ---------- ---------- ----------
Other income (expense):
Interest income .......................................... 36 -- -- 840
Interest expense ......................................... (8,585) -- -- (59,204)
---------- ---------- ---------- ----------
Net income (loss) before extraordinary item .................. (3,450) -- -- 18,265
Loss on early retirement of debt ......................... -- -- -- (2,785)
---------- ---------- ---------- ----------
Net income (loss) ............................................ $ (3,450) $ -- $ -- $ 15,480
========== ========== ========== ==========
<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. As a result, Mall Construction had no revenues or expenses as of June 30, 2000.
</FN>
22
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001
(Unaudited)
GUARANTOR SUBSIDIARIES
-----------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Net cash provided by (used in) operating activities ......... $ (8,065) $ 14,740 $ -- $ --
---------- ---------- ---------- ----------
Cash flows from investing activities:
Increase (decrease) in restricted cash ..................... -- (26) -- --
Capital expenditures ....................................... -- (20,924) -- --
---------- ---------- ---------- ----------
Net cash used in investing activities ........................ -- (20,950) -- --
---------- ---------- ---------- ----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan ..... -- (5,625) -- --
Repayments on bank credit facility-tranche B term loan ..... -- (250) -- --
Proceeds from bank credit facility-tranche C term loan ..... -- 5,750 -- --
Proceeds from bank credit facility-revolver ................ -- 22,000 -- --
Repayments on FF&E credit facility ......................... -- (10,747) -- --
Proceeds from Phase II Subsidiary unsecured bank loan ...... -- -- -- --
Payments of deferred offering costs ........................ -- (520) -- --
Net increase (decrease) in intercompany accounts ........... 512 (562) -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities .................... 512 10,046 -- --
---------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents ............. (7,553) 3,836 -- --
Cash and cash equivalents at beginning of period ............. 35,332 4,260 4 4
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ................... $ 27,779 $ 8,096 $ 4 $ 4
========== ========== ========== ==========
23
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ -----------
Net cash provided by (used in) operating activities .......... $ 1,098 $ (9) $ -- $ 7,764
--------- --------- --------- ---------
Cash flows from investing activities:
Increase (decrease) in restricted cash ...................... (26) -- -- (52)
Capital expenditures ........................................ (294) (428) -- (21,646)
--------- --------- --------- ---------
Net cash used in investing activities ......................... (320) (428) -- (21,698)
--------- --------- --------- ---------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan ...... -- -- -- (5,625)
Repayments on bank credit facility-tranche B term loan ...... -- -- -- (250)
Proceeds from bank credit facility-tranche C term loan ...... -- -- -- 5,750
Proceeds from bank credit facility-revolver ................. -- -- -- 22,000
Repayments on FF&E credit facility .......................... -- -- -- (10,747)
Proceeds from Phase II Subsidiary unsecured bank loan ....... -- 792 -- 792
Payments of deferred offering costs ......................... -- (300) -- (820)
Net increase (decrease) in intercompany accounts ............ 50 -- -- --
--------- --------- --------- ---------
Net cash provided by financing activities ..................... 50 492 -- 11,100
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents .............. 828 55 -- (2,834)
Cash and cash equivalents at beginning of period .............. 2,972 34 -- 42,606
--------- --------- --------- ---------
Cash and cash equivalents at end of period .................... $ 3,800 $ 89 $ -- $ 39,772
========= ========= ========= =========
<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. As a result, Mall Construction had no cash flows as of June 30, 2001.
</FN>
24
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000
(Unaudited)
GUARANTOR SUBSIDIARIES
----------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
------------ ------------- ----------- ------------
Net cash provided by (used in) operating activities ......... $ 25,663 $ 2,288 $ -- $ (1)
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of investments .......................... -- 7,662 -- --
Capital expenditures ....................................... -- (6,264) -- --
Construction of Casino Resort .............................. -- (11,358) -- --
--------- --------- --------- ---------
Net cash provided by (used in) investing activities .......... -- (9,960) -- --
--------- --------- --------- ---------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan ..... -- (35,625) -- --
Proceeds from bank credit facility-tranche B term loan ..... -- 50,000 -- --
Repayments on bank credit facility-revolver ................ -- (28,059) -- --
Proceeds from bank credit facility-revolver ................ -- 11,000 -- --
Repayments on FF&E credit facility ......................... -- (5,862) -- --
Payments of deferred offering costs ........................ -- (2,279) -- --
Net increase (decrease) in intercompany accounts ........... (22,959) 23,194 -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing activities .......... (22,959) 12,369 -- --
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ............. 2,704 4,697 -- (1)
Cash and cash equivalents at beginning of period ............. 23,961 2,237 4 5
--------- --------- --------- ---------
Cash and cash equivalents at end of period ................... $ 26,665 $ 6,934 $ 4 $ 4
========= ========= ========= =========
25
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ -----------
Net cash provided by (used in) operating activities ............. $ 2,705 $ 37 $ -- $ 30,692
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of investments ............................. 1,148 -- -- 8,810
Capital expenditures .......................................... (343) -- -- (6,607)
Construction of Casino Resort ................................. -- (66) -- (11,424)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities ............. 805 (66) -- (9,221)
--------- --------- --------- ---------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan ........ -- -- -- (35,625)
Proceeds from bank credit facility-tranche B term loan ........ -- -- -- 50,000
Repayments on bank credit facility-revolver ................... -- -- -- (28,059)
Proceeds from bank credit facility-revolver ................... -- -- -- 11,000
Repayments on FF&E credit facility ............................ -- -- -- (5,862)
Payments of deferred offering costs ........................... (81) -- -- (2,360)
Net increase (decrease) in intercompany accounts .............. (256) 21 -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ............. (337) 21 -- (10,906)
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ................ 3,173 (8) -- 10,565
Cash and cash equivalents at beginning of period ................ -- 45 -- 26,252
--------- --------- --------- ---------
Cash and cash equivalents at end of period ...................... $ 3,173 $ 37 $ -- $ 36,817
========= ========= ========= =========
<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. As a result, Mall Construction had no cash flows as of June 30, 2000.
</FN>
26
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, 2000. 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. The Casino Resort includes the first all-suites hotel on the
Strip with 3,036 suites; a gaming facility of approximately 116,000 square feet;
an enclosed retail, dining and entertainment complex of approximately 445,000
net leasable square feet; and a meeting and conference facility of approximately
500,000 square feet. The Company is party to litigation matters and claims
related to its operations and construction of the Casino Resort that it does not
expect to have a material adverse effect on its financial position, result of
operation or cash flows. See "Part II, Item 1 - Legal Proceedings."
The Company expects to open additional attractions at the Casino Resort
in 2001, including the Guggenheim Las Vegas Museum and the Guggenheim Hermitage
Museum. Over the next two months, the Company also expects to finalize its
financing plans to develop and construct (1) an approximately 1,000-room hotel
tower on top of the Casino Resort's existing parking garage and an approximately
1,000-parking space expansion to the parking garage (collectively, the "Phase IA
Addition") and (2) approximately 150,000 square feet of additional convention
center space (the "Additional Conference Center Space") on the 14-acre site
located adjacent to the Casino Resort (the "Phase II Land"). The new hotel tower
would be built, owned and operated by Venetian and its subsidiaries. The
Additional Conference Center Space would be built and owned by an indirect,
wholly-owned subsidiary of the Company which is the owner of the Phase II Land
(the "Phase II Subsidiary") and would be leased to Venetian upon completion of
the additional convention center space.
Operating Results
- -----------------
Second Quarter Ended June 30, 2001 compared to Second Quarter Ended
June 30, 2000.
Operating Revenues
------------------
Consolidated net revenues for the second quarter of 2001 were $136.9
million, representing a decrease of $6.3 million when compared with $143.2
million of consolidated net revenues during the second quarter of 2000. The
decrease in net revenues was due to a decline of casino revenue at the Casino
Resort.
The Casino Resort's casino revenues were $54.3 million in the second
quarter of 2001, a decrease of $19.5 million when compared to $73.8 million
during the second quarter of 2000. The decrease was attributable to an unusually
low table games win percentage. The table games historical win percentage is
reasonably predictable over time, but may vary considerably during shorter
periods. Table games drop (volume) decreased to $259.8 million in the second
quarter of 2001 from $270.4 million during the second quarter of 2000. Slot
handle (volume) in the second quarter of 2001 increased to $445.3 million from
$439.2 million reported during the second quarter of 2000.
The Casino Resort's room rates and occupancy levels increased in the
second quarter of 2001 as compared to the second quarter of 2000. The Casino
Resort achieved room revenues during the second quarter of 2001 of $56.4
million, compared to $48.5 million during the second quarter of 2000. The Casino
Resort's average daily room rate increased to $213 in the second quarter of 2001
compared to $183 during the second quarter of 2000. The increase in room rates
occurred in all major segments of the Casino Resort's hotel rooms business,
including the mid-week, group and convention business, and the weekend retail
business. The occupancy of available guestrooms was 96.5% during the second
quarter of 2001 compared to 96.3% during the second quarter of 2000.
Food and beverage, retail and other revenues were $27.5 million during
the second quarter of 2001 compared to $25.7 million during the second quarter
of 2000. The increase was attributable to higher room occupancy and banquet
sales associated with the Casino Resort's group room business.
The Mall generated rental and related revenues of $8.4 million during
the second quarter of 2001 compared to $6.9 million during the second quarter of
2000. The increase was attributable to additional tenants and increased proceeds
from rents calculated on tenant gross revenues.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Operating Expenses
------------------
Consolidated operating expenses were $109.5 million in the second
quarter of 2001, compared to $112.2 million during the second quarter of 2000.
The decrease in operating expenses was primarily attributable to lower customer
complementary travel and related expenses and gross gaming taxes associated with
lower casino revenue. Corporate expenses totaled $2.1 million during the second
quarter of 2001, as compared to $1.5 million during the second quarter of 2000.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant for the second quarter of 2001 were $2.0
million, including $1.5 million for the Casino Resort and $0.5 million for the
Mall. Rental expenses were $3.0 million in the second quarter of 2000. The
decline in rental expense was partially attributable to reduced usage of rented
or participation gaming devices during 2001.
The Mall incurred operating expenses of $5.4 million during the second
quarter of 2001 compared to $4.7 million during the second quarter of 2000. The
increase in Mall operating expenses was attributable to increases in
advertising, property taxes and utility cost during the second quarter of 2001.
Interest Income (Expense)
-------------------------
Net interest expense was $27.4 million in the second quarter of 2001,
compared to $29.8 million in the same period of 2000. Of the $27.4 million
incurred during the second quarter of 2001, $23.5 million was related to the
Casino Resort (excluding the Mall) and $3.9 million was related to the Mall. The
decrease in interest expense was attributable to decreases in interest rates on
the Company's variable rate debt during the second quarter of 2001 and scheduled
repayment of debt.
Interest income for the quarter ended June 30, 2001 was $0.4 million
and was also $0.4 million in the same period in 2000.
Six Months Ended June 30, 2001 compared to Six Months Ended June 30,
2000.
Operating Revenues
------------------
Consolidated net revenues for the six months ended June 30, 2001 were
$278.9 million, representing a decrease of $18.4 million when compared with
$297.3 million of consolidated net revenues during the six months ended June 30,
2000. The decrease in net revenues was due to a decline of casino revenue at the
Casino Resort.
The Casino Resort's casino revenues were $112.7 million for the six
months ended June 30, 2001, a decrease of $44.9 million when compared to $157.6
million during the six months ended June 30, 2000. The decrease was attributable
to an unusually low table games win percentage. Table games drop (volume)
increased to $568.3 million for the six months ended June 30, 2001 from $565.0
million during the six months ended June 30, 2000. Slot revenue for the six
months ended June 30, 2001 increased to $48.4 million from $45.6 million
reported during the six months ended June 30, 2000, or an increase of 6.1%. The
increase resulted from an increase in slot handle (volume) to $932.3 million for
the six months ended June 30, 2001 compared to $915.3 million during the six
months ended June 30, 2000, and an increase in slot win percentage.
The Casino Resort's room rates and occupancy levels continued to
increase during the six months ended June 30, 2001. The Casino Resort achieved
room revenues during the six months ended June 30, 2001 of $116.0 million,
compared to $95.5 million during the six months ended June 30, 2000. The Casino
Resort's average daily room rate increased to $216 for the six months ended June
30, 2001 compared to $182 during the six months ended June 30, 2000. The
increase in room rates occurred in all major segments of the Casino Resort's
hotel rooms business, including the mid-week, group and convention business, and
the weekend retail business. The occupancy of available guestrooms was 98.1%
during the six months ended June 30, 2001 compared to 95.2% during the six
months ended June 30, 2000.
Food and beverage, retail and other revenues were $55.8 million during
the six months ended June 30, 2001 compared to $52.9 million during the six
months ended June 30, 2000. The increase was attributable to higher room
occupancy and banquet sales associated with the Casino Resort group room
business.
The Mall generated rental and related revenues of $16.3 million during
the six months ended June 30, 2001 compared to $13.9 million during the six
months ended June 30, 2000. The increase was attributable to additional tenants
and increased proceeds from rents calculated on tenant gross revenues.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Operating Expenses
------------------
Consolidated operating expenses were $218.3 million for the six months
ended June 30, 2001, compared with $220.7 million during the six months ended
June 30, 2000. The decrease in operating expenses was primarily attributable to
lower provision for bad debts and gross gaming taxes associated with lower
casino revenue. Corporate expenses totaled $4.0 million during the six months
ended June 30, 2001, as compared to $2.8 million during the six months ended
June 30, 2000.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant for the six months ended June 30, 2001
were $4.2 million, including $3.1 million for the Casino Resort and $1.1 million
for the Mall. Rental expenses were $5.9 million for the six months ended June
30, 2000. The decline in rental expense was primarily attributable to reduced
usage of rented or participation gaming devices during 2001.
The Mall incurred operating expenses of $10.3 million during the six
months ended June 30, 2001 compared to $9.0 million during the six months ended
June 30, 2000. The increase in Mall operating expenses was attributable to
increases in advertising, property taxes and utility cost during the six months
ended June 30, 2001.
Interest Income (Expense)
-------------------------
Net interest expense was $56.3 million for the six months ended June
30, 2001, compared to $59.2 million in the same period of 2000. Of the $56.3
million incurred during the six months ended June 30, 2001, $48.2 million was
related to the Casino Resort (excluding the Mall) and $8.1 million was related
to the Mall. The decrease in interest expense was attributable to decreases in
interest rates on the Company's variable rate debt during the six months ended
June 30, 2001 and scheduled repayment of debt.
Interest income for the six months ended June 30, 2001 was $0.8 million
and was also $0.8 million in the same period in 2000.
Other Factors Affecting Earnings
- --------------------------------
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 as well as bank collection accounts in several foreign
countries to accommodate this change in business strategy, thereby increasing
marketing costs.
Liquidity and Capital Resources
- -------------------------------
Cash Flow
---------
As of June 30, 2001 and December 31, 2000, the Company held cash and
cash equivalents of $39.8 million and $42.6 million, respectively. Net cash
provided by operating activities for the first six months of 2001 was $7.8
million, compared with $30.7 million for the same period in 2000. The Company's
operating cash flow in the first six months of 2001 was negatively impacted by a
$44.9 million decrease in casino revenue, as compared to the prior year's six
month period. Net trade receivables were $64.9 million as of June 30, 2001 and
$64.3 million as of December 31, 2000.
29
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Due to decreased casino revenues attributable to an unusually low table
games win percentage, the Company would not have met its financial covenants in
the second quarter of 2001. As a result, on June 29, 2001, the Company entered
into a limited waiver, consent and second amendment to the Bank Credit Facility
in order to, among other things, (1) obtain a waiver with respect to each of its
minimum fixed charge ratio covenant, maximum leverage ratio covenant and minimum
consolidated adjusted EBITDA covenant for the quarter ending June 30, 2001, (2)
amend the maximum consolidated capital expenditures covenant and (3) obtain the
Tranche C Term Loan, used to fund principal payments that were due on June 30,
2001 under the Bank Credit Facility. On the same date, the Company also entered
into modifications and waivers similar to those made to the Bank Credit Facility
to the FF&E Credit Facility, which has substantially identical financial
covenants. As discussed below, the Company anticipates that it may need to
obtain further amendments to the Bank Credit Facility and the FF&E Credit
Facility in order to stay in compliance beginning in the quarter ending
September 30, 2001 and for future periods.
Capital Expenditures
--------------------
Capital expenditures paid from operating cash flow during the first six
months of 2001 were $21.6 million, including the two Guggenheim Museum projects.
Capital expenditures for the same period in 2000 were $6.6 million and $11.4
million for construction of the Casino Resort. The Company estimates total
capital expenditures for the Phase IA Addition of approximately $200 million,
including an expansion and proposed financing of the Company's heating,
ventilating and air conditioning plant that supports the Casino Resort
(excluding financing costs, capitalized interest and pre-opening expenses), and
for the Additional Conference Center Space of approximately $35 million
(excluding financing costs, capitalized interest and pre-opening expenses). The
Company estimates that each project will be completed in the fall of 2002. The
Casino Resort's other capital expenditures (excluding Phase IA Addition and
Additional Conference Center Space) for the remainder of 2001 are expected to
total approximately $32 million.
The Company expects to fund the Phase IA Addition and the Additional
Conference Center Space using (1) excess cash flows, including deferred
amortization payments under the Bank Credit Facility and the FF&E Credit
Facility, and the Revolver, (2) an $80 million senior secured revolving loan
facility to be entered into by the Phase II Subsidiary (the "Phase II Subsidiary
Credit Facility"), including a $30 million revolver which management expects
would be used to construct the Additional Convention Center Space and the
remaining funds, which would be used for a non-recourse loan to Venetian or a
subsidiary of Venetian for construction of the Phase IA Addition, and (3)
additional furniture, fixtures and equipment financings and heating, ventilating
and air conditioning plant leases of approximately $95 million.
The parties have proposed to defer all or a portion of the Company's
scheduled amortization payments for approximately two years under the Bank
Credit Facility, and for the next year under the FF&E Credit Facility and, under
the Bank Credit Facility, to amend the commitment termination date of the
Company's existing revolver to June 30, 2003 and to eliminate the "cash sweep"
provision in such agreement in connection with excess cash flows of the Company.
The Company has also tentatively agreed to an increase of the interest rates
applicable to certain of its term loans and revolving loans under the Bank
Credit Facility and to a similar increase under the FF&E Credit Facility during
the period of deferred amortization payments. In order to permit the financing
of the Phase IA Addition and the Additional Conference Center Space, the lenders
under the Bank Credit Facility and the FF&E Credit Facility have also proposed
to amend each of the Company's financial covenants.
The Phase II Subsidiary Credit Facility is expected to be secured by
all of the Phase II Land, the Phase II Subsidiary's interest as landlord under
the convention center lease and the non-recourse loan to Venetian or a
subsidiary of Venetian. The Phase II Subsidiary Credit Facility is expected to
have a maturity date of June 30, 2003 and to bear interest at a margin over
LIBOR or prime lending rates, at the Company's option.
No definitive agreements relating to the Phase IA Addition or the
Additional Conference Center Space, including the amendments to the Bank Credit
Facility and the FF&E Credit Facility discussed above, have been entered into by
the parties. The execution of any definitive agreements will be conditioned upon
lender due diligence, market conditions and other customary conditions. No
assurance can be given that any such definitive agreements for the construction
of the Phase IA Addition or the Additional Convention Center Space will be
entered into, that the terms will be those as set forth above or that such terms
will be favorable to the Company.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Litigation Contingencies, Debt Service Payments and Available Resources
-----------------------------------------------------------------------
As discussed in "Part I, Item 1 - Financial Statements - Notes to
Financial Statements - Note 6 Commitments and Contingencies" above, the Company
is a party to certain litigation matters and claims related to construction of
the Casino Resort. If the Company is required to pay any of the Construction
Manager's contested construction costs (the "Contested Construction Costs")
which are not covered by the Insurance Policy, 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. 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). 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.
During the first six months of 2001, the Company paid principal
payments of $5.6 million on the Tranche A Term Loan and $250,000 on the Tranche
B Term Loan, each from the proceeds of the Tranche C Term Loan, and $10.7
million on the FF&E Credit Facility. The Company currently has significant debt
service payments due, including principal payments on the Bank Credit Facility
and the FF&E Credit Facility, aggregating $33.5 million during the last six
months of 2001 and $70.7 million during 2002. The proposed amendments to the
Bank Credit Facility and the FF&E Credit Facility would reduce these amounts to
$3.7 million during the last six months of 2001 and $20.9 million during 2002.
Based on current LIBOR rates and the expected interest rates under the
amendments to the Bank Credit Facility and the FF&E Credit Facility, the Company
has estimated total interest payments (excluding noncash amortization of debt
offering costs) of (1) approximately $43.0 million during the last six months of
2001, and $86.3 million during fiscal 2002 for indebtedness secured by the
Casino Resort, (2) approximately $6.4 million during the last six months of
2001, and $12.8 million during fiscal 2002 for indebtedness secured by the Mall,
and, (3) if the Phase II Subsidiary Credit Facility is successfully entered
into, approximately $1.5 million during the last six months of 2001 and $5.1
million during fiscal 2002 for indebtedness under the Phase II Subsidiary Credit
Facility.
For the next twelve months, the Company expects to fund its operations,
capital expenditures (including the Phase IA Addition and the Additional
Conference Center Space) and debt service requirements from existing cash
balances, operating cash flow, borrowings under the Revolver, deferral of
principal amortization under the Bank Credit Facility and the FF&E Credit
Facility, and borrowings under the Phase II Subsidiary Credit Facility. As of
June 30, 2001, $22.0 million of the Company's $40.0 million Revolver
availability was drawn (as of August 14, 2001, $14.0 million was drawn). The
proposed amendments with the lenders under the Bank Credit Facility to fund the
Phase IA Addition and the Additional Convention Center Space would extend the
revolver availability date from September 15, 2001 to June 30, 2003.
The Company's debt instruments contain certain restrictions that, among
other things, limit the ability of the Company and/or certain subsidiaries to
incur additional indebtedness, issue disqualified stock or equity interests, pay
dividends or make other distributions, repurchase equity interests or certain
indebtedness, create certain liens, enter into certain transactions with
affiliates, enter into certain mergers or consolidations or sell assets of the
Company without prior approval of the lenders or noteholders. The financial
covenants in the Bank Credit Facility and the FF&E Credit Facility involving
EBITDA are applied on a rolling four-quarter basis, and the Company's compliance
with financial covenants can be temporarily affected if the Company experiences
an unusually low win percentage in a particular quarter, which is not offset in
subsequent quarters or by other results of operations. As a result of these
fluctuations, no assurance can be given that the Company will be in compliance
with its financial covenants with or without the proposed amendments to the Bank
Credit Facility and the FF&E Credit Facility described above.
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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 and the FF&E
Credit Facility or any other credit facility then outstanding, additional
financing through bank borrowings or debt or equity financings. Also, there can
be no assurance that new business developments or unforeseen events will not
occur resulting in the need to raise additional funds. There also 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, the Mall Assets were released as
security to the holders of the Mortgage Notes and for the indebtedness under the
Bank Credit Facility, the indebtedness under the $140.0 million mall
construction loan facility (the "Mall Construction Loan Facility") was assumed
by the Mall Subsidiary and 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 the Mall Take-out Financing. The Mall Take-out
Financing is secured by a $20.0 million guaranty made by the Sole Stockholder
(the "Mall Take-out Guaranty"). The annual interest rate on the Tranche A
Take-out Loan is 350 basis points over 30 day LIBOR. The Tranche A Take-out Loan
is due in full on December 20, 2002 and no principal payments are due thereunder
until such date. The Tranche B Take-out Loan bears interest at 14% per annum.
The initial maturity date is December 20, 2004 with a right of extension to
December 20, 2007. No principal payments are due until maturity. Also on
December 20, 1999, the Mall Assets were transferred from the Mall Subsidiary to
the New Mall Subsidiary, the obligor under the Mall Take-out Financing.
Because the New Mall Subsidiary is not a guarantor of any indebtedness
of the Company (other than the Mall Take-out Financing), creditors of the
Company (including the holders of the Notes but excluding creditors of the New
Mall Subsidiary) do not have a direct claim against the Mall Assets. As a
result, indebtedness of the entities comprising the Company other than the New
Mall Subsidiary (including the Notes) is now, with respect to the Mall Assets,
effectively subordinated to indebtedness of the New Mall Subsidiary. The New
Mall Subsidiary is not restricted by any of the debt instruments of LVSI,
Venetian or the Company's other subsidiary guarantors (including the Indentures)
from incurring any indebtedness. The terms of the Tranche A Take-out Loan
prohibit the New Mall Subsidiary from paying dividends or making distributions
to any of the other entities comprising the Company unless payments under the
Tranche A Take-out Loan are current, and, with certain limited exceptions,
prohibit the New Mall Subsidiary from making any loans to such entities. Any
additional indebtedness incurred by the New Mall Subsidiary may include
additional restrictions on the ability of the New Mall Subsidiary to pay any
such dividends and make any such distributions or loans.
Phase II Resort and Transfer of Phase II Land
---------------------------------------------
If the Phase II Subsidiary determines to construct the Phase II Resort,
the Phase II Subsidiary will be required to raise substantial debt and/or equity
financings. Currently, there are no commitments to fund the construction costs
of the Phase II Resort. The Phase II Land was transferred to the Phase II
Subsidiary in 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 has not yet set a date to begin construction of the Phase
II Resort.
The Phase II Subsidiary has outstanding project payables in the amount
of $2.9 million to be funded from future equity contributions or borrowings by
the Phase II Subsidiary. During the first quarter of 2001, the Phase II
Subsidiary borrowed $792,000 under a bank line of credit, which is due and
payable on July 15, 2002. The proceeds were used to fund payments of Phase II
Subsidiary operating costs.
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 existing 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
32
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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 to be incurred by the Phase II Subsidiary,
including the Phase II Subsidiary Credit Facility, 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 such 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.
Other Matters
- -------------
In June 1998, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 133 ("SFAS 133") entitled
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If specific conditions are met, a derivative
may be specifically designated as a hedge of specific financial exposures. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and, if used in hedging activities, it depends on its
effectiveness as a hedge. SFAS 133 as amended is effective for all fiscal
quarters of fiscal years beginning after December 31, 2000. SFAS 133 should not
be applied retroactively to financial statements of prior periods. The Company
adopted SFAS 133 on January 1, 2001. Because of the Company's minimal use of
derivatives, the adoption of SFAS 133 did not have a significant effect on the
Company's earnings or financial position.
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
33
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Vegas, government regulation related to the casino industry (including the
legalization of gaming in certain jurisdictions, such as Native American
reservations in the State of California), leverage and debt service (including
sensitivity to fluctuations in interest rates), uncertainty of casino spending
and vacationing in casino resorts in Las Vegas, occupancy rates and average
daily room rates in Las Vegas, demand for all-suites rooms, the popularity of
Las Vegas as a convention and trade show destination, the completion of
infrastructure projects in Las Vegas, including the current expansion of the Las
Vegas Convention Center and the recent expansion of McCarran International
Airport, litigation risks, including the outcome of the pending disputes with
the Construction Manager and its subcontractors, and general economic and
business conditions which may impact levels of disposable income of consumers
and pricing of hotel rooms.
Item 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 Tranche A
Take-out Loan and the FF&E Credit Facility, and by use of interest rate cap and
floor agreements. The ability to enter into interest rate cap and floor
agreements will allow the Company to manage its interest rate risk associated
with its variable rate debt. See "Part I, Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Part 1, Item 1 - Financial Statements - Notes to
Financial Statements - Note 4 Long-Term Debt."
34
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, 2000
and "Part I, Item 1 - Financial Statements - Notes to Financial Statements Note
6 Commitments and Contingencies."
35
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
======= =======================
3.1 Amended and Restated Articles of Incorporation of Las Vegas Sands,
Inc.*
3.2 Certificate of Amendment of Amended and Restated Articles of
Incorporation of Las Vegas Sands, Inc.*
3.3 Amended and Restated By-laws of Las Vegas Sands, Inc. *
3.4 Amended and Restated Limited Liability Company Agreement of Venetian
Casino Resort, LLC *
4.1 Indenture, dated as of November 14, 1997, by and among Las Vegas
Sands, Inc. and Venetian Casino Resort, LLC, as issuers, Mall
Intermediate Holding Company, LLC, Lido Intermediate Holding Company,
LLC and Grand Canal Shops Mall Construction, LLC, as mortgage note
guarantors, and U.S. Bank Trust .......National Association
(previously known as First Trust National Association), as mortgage
note trustee. *
10.1 Limited Waiver, Consent and Second Amendment to Credit Agreement,
dated as of June 29, 2001, amending Credit Agreement dated as of
November 14, 1997, by and among Las Vegas Sands, Inc. and Venetian
Casino Resort, LLC, as borrowers, the lender parties thereto, the Bank
of Nova Scotia ("Scotiabank"), as administrative agent for the
lenders, Scotiabank and Goldman Sachs Credit Partners, L.P.
("Goldman"), as joint lead arrangers, and Goldman, as syndication
agent.**
10.2 Limited Waiver, Consent and Third Amendment to Term Loan and Security
Agreement, dated as of June 29, 2001, by and among Las Vegas Sands,
Inc. and Venetian Casino Resort, LLC, as borrowers, General Electric
Capital Corporation, as administrative agent, and the lender parties
thereto.**
<FN>
- ----------
* Incorporated by reference from Registration Statement on Form S-4 of
the Company and certain of its subsidiaries (File No. 333-42147).
** Filed herewith.
</FN>
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
June 30, 2001.
36
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.
August 14, 2001 By: /s/ Sheldon G. Adelson
---------------------------
Sheldon G. Adelson
Chairman of the Board, Chief
Executive Officer and Director
August 14, 2001 By: /s/ Harry D. Miltenberger
--------------------------
Harry D. Miltenberger
Vice President-Finance
(principal financial and accounting
officer)
37