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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 September 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 November 13, 2001
Class Outstanding at November 13, 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 September 30, 2001
(unaudited) and December 31, 2000 .................................1
Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 2001
(unaudited) and September 30, 2000 (unaudited) ....................2
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2001 (unaudited) and
September 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)
September 30, December 31,
2001 2000
------------- ------------
Unaudited
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 55,489 $ 42,606
Restricted cash and investments ......................... 2,631 2,549
Accounts receivable, net ................................ 54,355 64,328
Inventories ............................................. 4,413 3,868
Prepaid expenses ........................................ 5,264 3,672
----------- -----------
Total current assets ........................................ 122,152 117,023
Property and equipment, net ................................. 1,104,262 1,062,093
Deferred offering costs, net ................................ 20,538 22,314
Other assets, net ........................................... 35,581 30,955
----------- -----------
$ 1,282,533 $ 1,232,385
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ........................................ $ 26,700 $ 23,835
Construction payables ................................... 36,499 6,212
Construction payables-contested ......................... 7,232 7,232
Accrued interest payable ................................ 27,619 13,277
Other accrued liabilities ............................... 59,895 76,735
Current maturities of long-term debt .................... 24,113 50,119
----------- -----------
Total current liabilities ................................... 182,058 177,410
Other long-term liabilities ................................. 5,197 10,494
Long-term debt .............................................. 916,359 863,293
----------- -----------
1,103,614 1,051,197
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Redeemable Preferred Interest in Venetian
Casino Resort, LLC,
a wholly owned subsidiary ............................... 183,435 168,012
----------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock, $.10 par value, 3,000,000 shares
authorized, 925,000 shares
issued and outstanding ............................... 92 92
Capital in excess of par value .......................... 78,817 94,240
Accumulated deficit since June 30, 1996 ................. (83,425) (81,156)
----------- -----------
(4,516) 13,176
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$ 1,282,533 $ 1,232,385
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<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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Casino ...................................................... $ 61,392 $ 72,363 $ 174,133 $ 229,997
Rooms ....................................................... 43,688 45,038 159,702 140,549
Food and beverage ........................................... 11,731 13,873 49,088 49,472
Retail and other ............................................ 16,783 17,234 51,513 48,419
--------- ---------- --------- ---------
133,594 148,508 434,436 468,437
Less-promotional allowances .................................... (10,440) (11,971) (32,384) (34,597)
--------- ---------- --------- ---------
Net revenues ................................................ 123,154 136,537 402,052 433,840
--------- ---------- --------- ---------
Operating expenses:
Casino ...................................................... 33,814 40,297 109,970 120,931
Rooms ....................................................... 12,415 13,244 39,271 36,587
Food and beverage ........................................... 6,333 6,673 23,581 24,575
Retail and other ............................................ 8,845 8,252 23,876 21,431
Provision for doubtful accounts ............................. 5,767 3,214 14,656 14,554
General and administrative .................................. 22,911 25,079 68,337 69,836
Corporate expense ........................................... 763 1,657 4,741 4,501
Rental expense .............................................. 2,074 2,142 6,287 8,028
Depreciation and amortization ............................... 9,827 10,456 30,338 31,245
--------- ---------- --------- ---------
102,749 111,014 321,057 331,688
--------- ---------- --------- ---------
Operating income ............................................... 20,405 25,523 80,995 102,152
--------- ---------- --------- ---------
Other income (expense):
Interest income ............................................. 329 359 1,135 1,199
Interest expense, net of amounts capitalized ................ (26,713) (30,558) (83,016) (89,762)
--------- ---------- --------- ---------
Income (loss) before extraordinary item ........................ (5,979) (4,676) (886) 13,589
Extraordinary item-loss on early retirement of debt ......... (1,383) -- (1,383) (2,785)
--------- ---------- --------- ---------
Net income (loss) .............................................. $ (7,362) $ (4,676) $ (2,269) $ 10,804
========= ========== ========= =========
Basic and diluted income (loss) per share before
extraordinary item .......................................... $ (12.24) $ (10.20) $ (17.63) $ (0.15)
========= ========== ========= =========
Basic and diluted income (loss) per share ...................... $ (13.74) $ (10.20) $ (19.13) $ (3.16)
========= ========== ========= =========
<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)
Nine Months Ended
September 30,
2001 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) ............................................ $ (2,269) $ 10,804
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................ 30,338 31,245
Amortization of debt offering costs and original
issue discount ..................................... 6,046 6,296
Loss on early retirement of debt ..................... 1,383 2,785
Non cash interest on completion guaranty loan ........ 1,940 1,730
Provision for doubtful accounts ...................... 14,656 14,554
Changes in operating assets and liabilities:
Accounts receivable ................................ (4,683) (28,256)
Inventories ........................................ (545) 854
Prepaid expenses ................................... (1,592) 1
Other assets ....................................... (4,626) (15,056)
Accounts payable ................................... 2,865 3,787
Accrued interest payable ........................... 14,342 21,479
Other accrued liabilities .......................... (22,137) 26,184
--------- ---------
Net cash provided by operating activities .................... 35,718 76,407
--------- ---------
Cash flows from investing activities:
(Increase) decrease in restricted cash ....................... (82) 8,808
Capital expenditures ......................................... (42,220) (10,607)
Construction of Casino Resort ................................ -- (12,827)
--------- ---------
Net cash used in investing activities ........................ (42,302) (14,626)
--------- ---------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan ....... (103,125) (35,625)
Repayments on bank credit facility-tranche B term loan ....... (49,750) (125)
Proceeds from bank credit facility-tranche B term loan ....... -- 50,000
Repayments on bank credit facility-tranche C term loan ....... (5,750) --
Proceeds from bank credit facility-tranche C term loan ....... 5,750 --
Repayments on bank credit facility-term ...................... (382) --
Proceeds from bank credit facility-term ...................... 152,750 --
Repayments on bank credit facility-revolver .................. (8,000) (50,160)
Proceeds from bank credit facility-revolver .................. 48,000 11,000
Repayments on FF&E credit facility ........................... (16,121) (11,236)
Proceeds from Phase II Subsidiary unsecured bank loan ........ 1,092 --
Payments of deferred offering costs .......................... (4,997) (2,460)
--------- ---------
Net cash provided by (used in) financing activities .......... 19,467 (38,606)
--------- ---------
Increase in cash and cash equivalents ........................ 12,883 23,175
Cash and cash equivalents at beginning of period ............. 42,606 26,252
--------- ---------
Cash and cash equivalents at end of period ................... $ 55,489 $ 49,427
========= =========
Supplemental disclosure of cash flow information:
Cash payments for interest ................................. $ 61,917 $ 60,053
========= =========
<FN>
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The accompanying notes are an integral part of these consolidated financial statements.
</FN>
3
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
$5.3 million and $15.4 million, respectively, for the three and nine month
periods ended September 30, 2001 and $4.7 million and $13.7 million,
respectively, for the three and nine month periods ended September 30, 2000. The
accrued dividends have been reflected as a charge against capital in excess of
par value in the accompanying financial statements.
4
Notes to Financial Statements (Continued)
Note 3 Property and Equipment
Property and equipment consists of the following (in thousands):
September 30, December 31,
2001 2000
------------ ------------
Land and land improvements ..................... $ 111,747 $ 109,863
Building and improvements ...................... 839,646 832,429
Equipment, furniture, fixtures and
leasehold improvements ....................... 135,772 134,008
Construction in progress ....................... 113,591 52,129
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1,200,756 1,128,429
Less: accumulated depreciation and amortization (96,494) (66,336)
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$ 1,104,262 $ 1,062,093
=========== ===========
During the three and nine month periods ended September 30, 2001, the
Company capitalized interest expense of $0.8 million and $1.4 million,
respectively. No interest was capitalized in 2000 as the Company was not engaged
in active construction or development during such period.
As of September 30, 2001, construction in progress represented project
design and shared facilities costs for the planned second phase of the Casino
Resort (the "Phase II Resort") to be owned by the Phase II Subsidiary, and
ongoing capital improvement projects at the Casino Resort.
Note 4 Long-Term Debt
Long-term debt consists of the following (in thousands):
September 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 $3,607 in 2001 and $4,263 in 2000 ............. 93,893 93,237
Bank Credit Facility-Tranche A Term Loan ........... -- 103,125
Bank Credit Facility-Tranche B Term Loan ........... -- 49,750
Bank Credit Facility-Term Loan ..................... 152,368 --
Bank Credit Facility-Revolver Loan ................. 40,000 --
FF&E Credit Facility ............................... 59,108 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 .......................................... 1,092 --
Less: current maturities ........................... (24,113) (50,119)
----------- -----------
Total long-term debt ............................... $ 916,359 $ 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.
In November 1997, 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.
On September 17, 2001, the Company entered into its second amendment and
restatement of the Bank Credit Facility in order to (1) combine the $97.5
million tranche A term loan, $49.5 million tranche B term loan and $5.8 million
tranche C term loan into a single term loan of $152.8 million, (2) modify the
Company's scheduled amortization payments to now repay $381,875 per quarter
until December 2002, to be followed by two bullet payments of $75.2 million
during each of March 2003 and June 2003, (3) extend the commitment termination
date of the Company's $40.0 million revolving credit line (the "Revolver") from
September 15, 2001 to June 30, 2003, (4) eliminate the "cash sweep" provision of
such agreement in connection with any excess cash flows of the Company, and (5)
modify the financial covenants. Each of the term loan and revolving loans under
the Bank Credit Facility has an interest rate of 350 basis points over LIBOR.
The Company recorded a $1.4 million extraordinary loss on early retirement of
debt in connection with this transaction.
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. On September 28, 2001, the Company
entered into a fourth amendment to the FF&E Credit Facility in order to modify
its financial covenants to substantially match those under the amended and
restated Bank Credit Facility and consent to the amendments to the Bank Credit
Facility.
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. Financial
covenants included in the Bank Credit Facility and the FF&E Credit Facility
include a minimum fixed charge ratio, maximum leverage ratio, minimum
consolidated adjusted EBITDA standard, minimum equity standard and maximum
capital expenditures standard. 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 a decline in hotel occupancy or
room rates, or 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.
Although the Company has remained in compliance with its financial
covenants under the Bank Credit Facility and the FF&E Credit Facility, meeting
certain financial covenant tests in the third quarter of 2001 was difficult due
to a decline in visitor volume to Las Vegas after the terrorist attacks of
September 11, 2001 and an extremely low win percentage for certain quarters
during the rolling four quarter measurement period. The Company's financial
covenants allow the Sole Stockholder to increase EBITDA for measurement purposes
in two consecutive quarters by issuing a standby letter of credit to the
Company's lenders. The Company used this letter of credit mechanism in the
amount of $6.9 million to meet the minimum EBITDA covenant test during the third
quarter of 2001. In the short term, the Company remains in a challenging
business environment and no assurance can be given that it will remain in
compliance with its existing financial covenants. If visitor volume to Las Vegas
returns to normal levels, the Company does anticipate that results and
operations and its overall win percentage will return to normal levels over
time.
6
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
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 September 30, 2001. Advances made
under the Completion Guaranty up to $25.0 million (excluding accrued interest)
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 $1,092,000 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.
On October 19, 2001, the Phase II Subsidiary entered into a loan agreement
providing for a $17.5 million term and revolving loan, with a one time option to
increase such loan to $30.0 million (the "Phase II Subsidiary Credit Facility").
The Phase II Subsidiary Credit Facility is secured by the Phase II Subsidiary's
land on the site located adjacent to the Casino Resort (the "Phase II Land"), as
well as the Phase II Subsidiary's leasehold interest in a five year lease of the
Phase II Land to Venetian for an annual rental payment of $8.0 million (the
"Phase II Lease"). The Phase II Subsidiary immediately drew $12.5 million for a
letter of credit under the revolver portion of the Phase II Subsidiary Credit
Facility (the "Letter of Credit") pursuant to the terms of and to be provided as
credit support for the Bank Credit Facility. The Letter of Credit will be
reduced by $3.125 million at the end of each of the next four fiscal quarters
that the Company makes its required interest payments under the Bank Credit
Facility, and will be released in full upon the earlier of October 31, 2002 or
immediately following the first fiscal quarter period ending after September 30,
2001 in which the Company's consolidated adjusted EBITDA equals or exceeds $30.0
million. The remaining portion of the Phase II Subsidiary Credit Facility and
proceeds from rental payments from Venetian to the Phase II Subsidiary under the
Phase II Lease are each available for any Phase II Resort pre-development
expenses (up to $30 million after October 19, 2001) or may be loaned or
distributed by the Phase II Subsidiary to the Company for other liquidity needs.
The Phase II Subsidiary Credit Facility bears interest at LIBOR plus 400 basis
points and is due on June 30, 2003.
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 nine month periods ended September 30, 2001 and September 30, 2000, $5.3
million and $15.4 million and $4.7 million and $13.7 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.
7
Notes to Financial Statements (Continued)
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.
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 review of the complaints, discovery taken to date, the fact that
the Construction Manager still 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 at the earliest November 12, 1999, the Company's claim
under the LD Policy is 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 subsequent to 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.
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 September 30, 2001 and
December 31, 2000 and for the three and nine month periods ended September 30,
2001 and September 30, 2000 is as follows (in thousands):
10
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED BALANCE SHEETS
September 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 ................ $ 32,614 $ 18,652 $ 4 $ 4
Restricted cash and investments .......... -- 1,518 -- --
Intercompany receivable .................. 49,341 -- -- --
Accounts receivable, net ................. 41,187 11,546 -- --
Inventories .............................. -- 4,413 -- --
Prepaid expenses ......................... 905 4,038 -- --
----------- ----------- ----------- -----------
Total current assets ................... 124,047 40,167 4 4
Property and equipment, net .............. -- 885,535 -- --
Investment in Subsidiaries ............... 126,022 67,120 -- --
Deferred offering costs, net ............. -- 17,816 -- --
Other assets, net ........................ 4,622 27,173 -- --
----------- ----------- ----------- -----------
$ 254,691 $ 1,037,811 $ 4 $ 4
=========== =========== =========== ===========
Accounts payable ......................... $ 3,311 $ 22,962 $ -- $ --
Construction payable ..................... -- 33,584 -- --
Construction payable-contested ........... -- 7,232 -- --
Intercompany payables .................... -- 26,674 -- --
Accrued interest payable ................. -- 26,640 -- --
Other accrued liabilities ................ 16,834 41,663 -- --
Current maturities of long term debt ..... -- 23,021 -- --
----------- ----------- ----------- -----------
Total current liabilities .............. 20,145 181,776 -- --
Other long-term liabilities .............. -- 5,197 -- --
Long-term debt ........................... -- 776,359 -- --
----------- ----------- ----------- -----------
20,145 963,332 -- --
Redeemable Preferred Interest in Venetian -- 183,435 -- --
----------- ----------- ----------- -----------
Stockholder's equity ..................... 234,546 (108,956) 4 4
----------- ----------- ----------- -----------
$ 254,691 $ 1,037,811 $ 4 $ 4
=========== =========== =========== ===========
11
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED BALANCE SHEETS, CONTINUED
September 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 ................ $ 4,154 $ 61 $ -- $ 55,489
Restricted cash and investments .......... 1,113 -- -- 2,631
Intercompany receivable .................. -- -- (49,341) --
Accounts receivable, net ................. 1,622 -- -- 54,355
Inventories .............................. -- -- -- 4,413
Prepaid expenses ......................... 321 -- -- 5,264
----------- ----------- ----------- -----------
Total current assets ................... 7,210 61 (49,341) 122,152
Property and equipment, net .............. 136,924 81,803 -- 1,104,262
Investment in Subsidiaries ............... -- -- (193,142) --
Deferred offering costs, net ............. 2,422 300 -- 20,538
Other assets, net ........................ 3,786 -- -- 35,581
----------- ----------- ----------- -----------
$ 150,342 $ 82,164 $ (242,483) $ 1,282,533
=========== =========== =========== ===========
Accounts payable ......................... $ 427 $ -- $ -- $ 26,700
Construction payable ..................... -- 2,915 -- 36,499
Construction payable-contested ........... -- -- -- 7,232
Intercompany payables .................... 22,667 -- (49,341) --
Accrued interest payable ................. 966 13 -- 27,619
Other accrued liabilities ................ 1,327 71 -- 59,895
Current maturities of long term debt ..... -- 1,092 -- 24,113
----------- ----------- ----------- -----------
Total current liabilities .............. 25,387 4,091 (49,341) 182,058
Other long-term liabilities .............. -- -- -- 5,197
Long-term debt ........................... 140,000 -- -- 916,359
----------- ----------- ----------- -----------
165,387 4,091 (49,341) 1,103,614
Redeemable Preferred Interest in Venetian -- -- -- 183,435
----------- ----------- ----------- -----------
Stockholder's equity ..................... (15,045) 78,073 (193,142) (4,516)
----------- ----------- ----------- -----------
$ 150,342 $ 82,164 $ (242,483) $ 1,282,533
=========== =========== =========== ===========
<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 September 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 September 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 .................................. $ 61,392 $ -- $ -- $ --
Room .................................... -- 43,688 -- --
Food and beverage ....................... -- 11,731 -- --
Retail and other ........................ 179 19,634 -- --
----------- ----------- ----------- -----------
Total revenue ........................... 61,571 75,053 -- --
Less promotional allowance .............. -- (10,440) -- --
----------- ----------- ----------- -----------
Net revenues ............................ 61,571 64,613 -- --
----------- ----------- ----------- -----------
Operating expenses:
Casino .................................. 45,377 -- -- --
Room .................................... -- 12,415 -- --
Food and beverage ....................... -- 6,333 -- --
Retail and other ........................ -- 5,795 -- --
Provision for doubtful accounts ......... 5,501 266 -- --
General and administrative .............. 674 21,867 -- --
Corporate expense ....................... (233) 996 -- --
Rental expense .......................... 287 1,235 -- --
Depreciation and amortization ........... -- 8,667 -- --
----------- ----------- ----------- -----------
51,606 57,574 -- --
----------- ----------- ----------- -----------
Operating income (loss) ................. 9,965 7,039 -- --
----------- ----------- ----------- -----------
Other income (expense):
Interest income ..................... 104 192 -- --
Interest expense .................... -- (23,001) -- --
----------- ----------- ----------- -----------
Income (loss) before extraordinary item . 10,069 (15,770) -- --
Loss on early retirement of debt .... -- (1,383) -- --
----------- ----------- ----------- -----------
Net income (loss) ....................... $ 10,069 $ (17,153) $ -- $ --
=========== =========== =========== ===========
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 September 30, 2001
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ ------------
Casino .................................. $ -- $ -- $ -- $ 61,392
Room .................................... -- -- -- 43,688
Food and beverage ....................... -- -- -- 11,731
Retail and other ........................ 8,854 -- (11,884) 16,783
----------- ----------- ----------- -----------
Total revenue ........................... 8,854 -- (11,884) 133,594
Less promotional allowance .............. -- -- -- (10,440)
----------- ----------- ----------- -----------
Net revenues ............................ 8,854 -- (11,884) 123,154
----------- ----------- ----------- -----------
Operating expenses:
Casino .................................. -- -- (11,563) 33,814
Room .................................... -- -- -- 12,415
Food and beverage ....................... -- -- -- 6,333
Retail and other ........................ 3,371 -- (321) 8,845
Provision for doubtful accounts ......... -- -- -- 5,767
General and administrative .............. 369 1 -- 22,911
Corporate expense ....................... -- -- -- 763
Rental expense .......................... 552 -- -- 2,074
Depreciation and amortization ........... 1,160 -- -- 9,827
----------- ----------- ----------- -----------
5,452 1 (11,884) 102,749
----------- ----------- ----------- -----------
Operating income (loss) ................. 3,402 (1) -- 20,405
----------- ----------- ----------- -----------
Other income (expense):
Interest income ..................... 33 -- -- 329
Interest expense .................... (3,712) -- -- (26,713)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item . (277) (1) -- (5,979)
Loss on early retirement of debt .... -- -- -- (1,383)
----------- ----------- ----------- -----------
Net income (loss) ....................... $ (277) $ (1) $ -- $ (7,362)
=========== =========== =========== ===========
<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 September 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 September 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 ................................... $ 72,363 $ -- $ -- $ --
Room ..................................... -- 45,038 -- --
Food and beverage ........................ -- 13,873 -- --
Retail and other ......................... 337 19,730 -- --
----------- ----------- ----------- -----------
Total revenue ............................ 72,700 78,641 -- --
Less promotional allowance ............... -- (11,971) -- --
----------- ----------- ----------- -----------
Net revenues ............................. 72,700 66,670 -- --
----------- ----------- ----------- -----------
Operating expenses:
Casino ................................... 51,456 -- -- --
Room ..................................... -- 13,244 -- --
Food and beverage ........................ -- 6,673 -- --
Retail and other ......................... -- 4,688 -- --
Provision for doubtful accounts .......... 2,614 600 -- --
General and administrative ............... 1,136 23,622 -- 5
Corporate expense ........................ 655 1,002 -- --
Rental expense ........................... 118 1,462 -- --
Depreciation and amortization ............ -- 9,324 -- --
----------- ----------- ----------- -----------
55,979 60,615 -- 5
----------- ----------- ----------- -----------
Operating income (loss)................... 16,721 6,055 -- (5)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 147 192 -- --
Interest expense ..................... -- (25,873) -- --
----------- ----------- ----------- -----------
Income (loss) before extraordinary item .. 16,868 (19,626) -- (5)
Loss on early retirement of debt ..... -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) ........................ $ 16,868 $ (19,626) $ -- $ (5)
=========== =========== =========== ===========
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 September 30, 2000
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ ------------
Revenues:
Casino ................................... $ -- $ -- $ -- $ 72,363
Room ..................................... -- -- -- 45,038
Food and beverage ........................ -- -- -- 13,873
Retail and other ......................... 8,850 -- (11,683) 17,234
----------- ----------- ----------- -----------
Total revenue ............................ 8,850 -- (11,683) 148,508
Less promotional allowance ............... -- -- -- (11,971)
----------- ----------- ----------- -----------
Net revenues ............................. 8,850 -- (11,683) 136,537
----------- ----------- ----------- -----------
Operating expenses:
Casino ................................... -- -- (11,159) 40,297
Room ..................................... -- -- -- 13,244
Food and beverage ........................ -- -- -- 6,673
Retail and other ......................... 4,088 -- (524) 8,252
Provision for doubtful accounts .......... -- -- -- 3,214
General and administrative ............... 295 21 -- 25,079
Corporate expense ........................ -- -- -- 1,657
Rental expense ........................... 562 -- -- 2,142
Depreciation and amortization ............ 1,132 -- -- 10,456
----------- ----------- ----------- -----------
6,077 21 (11,683) 111,014
----------- ----------- ----------- -----------
Operating income ......................... 2,773 (21) -- 25,523
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 20 -- -- 359
Interest expense ..................... (4,685) -- -- (30,558)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item .. (1,892) (21) -- (4,676)
Loss on early retirement of debt ..... -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) ........................ $ (1,892) $ (21) $ -- $ (4,676)
=========== =========== =========== ===========
<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 September 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 nine months ended September 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 ................................... $ 174,133 $ -- $ -- $ --
Room ..................................... -- 159,702 -- --
Food and beverage ........................ -- 49,088 -- --
Retail and other ......................... 620 60,482 -- --
----------- ----------- ----------- -----------
Total revenue ............................ 174,753 269,272 -- --
Less promotional allowance ............... -- (32,384) -- --
----------- ----------- ----------- -----------
Net revenues ............................. 174,753 236,888 -- --
----------- ----------- ----------- -----------
Operating expenses:
Casino ................................... 144,380 -- -- --
Room ..................................... -- 39,271 -- --
Food and beverage ........................ -- 23,581 -- --
Retail and other ......................... -- 15,419 -- --
Provision for doubtful accounts .......... 14,390 266 -- --
General and administrative ............... 2,046 65,087 -- --
Corporate expense ........................ 1,849 2,892 -- --
Rental expense ........................... 566 4,085 -- --
Depreciation and amortization ............ -- 26,721 -- --
----------- ----------- ----------- -----------
163,231 177,322 -- --
----------- ----------- ----------- -----------
Operating income (loss) .................. 11,522 59,566 -- --
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 491 541 -- --
Interest expense ..................... -- (71,222) -- --
----------- ----------- ----------- -----------
Income (loss) before extraordinary item... 12,013 (11,115) -- --
Loss on early retirement of debt ..... -- (1,383) -- --
----------- ----------- ----------- -----------
Net income (loss) ........................ $ 12,013 $ (12,498) $ -- $ --
=========== =========== =========== ===========
19
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the nine months ended September 30, 2001
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ ------------
Revenues:
Casino ................................... $ -- $ -- $ -- $ 174,133
Room ..................................... -- -- -- 159,702
Food and beverage ........................ -- -- -- 49,088
Retail and other ......................... 25,680 -- (35,269) 51,513
----------- ----------- ----------- -----------
Total revenue ............................ 25,680 -- (35,269) 434,436
Less promotional allowance ............... -- -- -- (32,384)
----------- ----------- ----------- -----------
Net revenues ............................. 25,680 -- (35,269) 402,052
----------- ----------- ----------- -----------
Operating expenses:
Casino ................................... -- -- (34,410) 109,970
Room ..................................... -- -- -- 39,271
Food and beverage ........................ -- -- -- 23,581
Retail and other ......................... 9,316 -- (859) 23,876
Provision for doubtful accounts .......... -- -- -- 14,656
General and administrative ............... 1,203 1 -- 68,337
Corporate expense ........................ -- -- -- 4,741
Rental expense ........................... 1,636 -- -- 6,287
Depreciation and amortization ............ 3,617 -- -- 30,338
----------- ----------- ----------- -----------
15,772 1 (35,269) 321,057
----------- ----------- ----------- -----------
Operating income (loss) .................. 9,908 (1) -- 80,995
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 103 -- -- 1,135
Interest expense ..................... (11,794) -- -- (83,016)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item... (1,783) (1) -- (886)
Loss on early retirement of debt ..... -- -- -- (1,383)
----------- ----------- ----------- -----------
Net income (loss) ........................ $ (1,783) $ (1) $ -- $ (2,269)
=========== =========== =========== ===========
<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 September 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 nine months ended September 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 ................................... $ 229,997 $ -- $ -- $ --
Room ..................................... -- 140,549 -- --
Food and beverage ........................ -- 49,472 -- --
Retail and other ......................... 947 58,727 -- --
----------- ----------- ----------- -----------
Total revenue ............................ 230,944 248,748 -- --
Less promotional allowance ............... -- (34,597) -- --
----------- ----------- ----------- -----------
Net revenues ............................. 230,944 214,151 -- --
----------- ----------- ----------- -----------
Operating expenses:
Casino ................................... 154,408 -- -- --
Room ..................................... -- 36,587 -- --
Food and beverage ........................ -- 24,575 -- --
Retail and other ......................... -- 13,429 -- --
Provision for doubtful accounts .......... 12,954 1,200 -- --
General and administrative ............... 2,898 66,040 -- 6
Corporate expense ........................ 1,798 2,703 -- --
Rental expense ........................... 1,932 4,428 -- --
Depreciation and amortization ............ -- 27,836 -- --
----------- ----------- ----------- -----------
173,990 176,798 -- 6
----------- ----------- ----------- -----------
Operating income (loss) .................. 56,954 37,353 -- (6)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 426 717 -- --
Interest expense ..................... -- (76,492) -- --
----------- ----------- ----------- -----------
Income (loss) before extraordinary item .. 57,380 (38,422) -- (6)
Loss on early retirement of debt ..... -- (2,785) -- --
----------- ----------- ----------- -----------
Net income (loss) ........................ $ 57,380 $ (41,207) $ -- $ (6)
=========== =========== =========== ===========
21
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF OPERATIONS (Continued)
For the nine months ended September 30, 2000
(Unaudited)
NON-GUARANTOR SUBSIDIARIES
-----------------------------
Grand Canal
Shops Mall Other Consolidating/
Subsidiary Non-Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
------------ ------------- ------------ ------------
Revenues:
Casino ................................... $ -- $ -- $ -- $ 229,997
Room ..................................... -- -- -- 140,549
Food and beverage ........................ -- -- -- 49,472
Retail and other ......................... 22,957 -- (34,212) 48,419
----------- ----------- ----------- -----------
Total revenue ............................ 22,957 -- (34,212) 468,437
Less promotional allowance ............... -- -- -- (34,597)
----------- ----------- ----------- -----------
Net revenues ............................. 22,957 -- (34,212) 433,840
----------- ----------- ----------- -----------
Operating expenses:
Casino ................................... -- -- (33,477) 120,931
Room ..................................... -- -- -- 36,587
Food and beverage ........................ -- -- -- 24,575
Retail and other ......................... 8,737 -- (735) 21,431
Provision for doubtful accounts .......... 400 -- -- 14,554
General and administrative ............... 871 21 -- 69,836
Corporate expense ........................ -- -- -- 4,501
Rental expense ........................... 1,668 -- -- 8,028
Depreciation and amortization ............ 3,409 -- -- 31,245
----------- ----------- ----------- -----------
15,085 21 (34,212) 331,688
----------- ----------- ----------- -----------
Operating income (loss) .................. 7,872 (21) -- 102,152
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 56 -- -- 1,199
Interest expense ..................... (13,270) -- -- (89,762)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item .. (5,342) (21) -- 13,589)
Loss on early retirement of debt ..... -- -- -- (2,785)
----------- ----------- ----------- -----------
Net income (loss) ........................ $ (5,342) $ (21) $ -- $ 10,804
=========== =========== =========== ===========
<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 JSeptember 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 nine months ended September 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 operating activities .............. $ 3,706 $ 30,490 $ -- $ --
----------- ----------- ----------- -----------
Cash flows from investing activities:
(Increase) decrease in restricted cash ............... -- (47) -- --
Capital expenditures ................................. -- (41,009) -- --
----------- ----------- ----------- -----------
Net cash used in investing activities .................. -- (41,056) -- --
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan -- (103,125) -- --
Repayments on bank credit facility-tranche B term loan -- (49,750) -- --
Repayments on bank credit facility-tranche C term loan -- (5,750) -- --
Proceeds from bank credit facility-tranche C term loan -- 5,750 -- --
Repayments on bank credit facility-term .............. -- (382) -- --
Proceeds on bank credit facility-term ................ -- 152,750 -- --
Repayments on bank credit facility-revolver .......... -- (8,000) -- --
Proceeds from bank credit facility-revolver .......... -- 48,000 -- --
Repayments on FF&E credit facility ................... -- (16,121) -- --
Proceeds from Phase II Subsidiary unsecured bank loan -- -- -- --
Payments of deferred offering costs .................. -- (4,697) -- --
Net increase (decrease) in intercompany accounts ..... (6,424) 6,283 -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities .... (6,424) 24,958 -- --
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ....... (2,718) 14,392 -- --
Cash and cash equivalents at beginning of period ....... 35,332 4,260 4 4
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ............. $ 32,614 $ 18,652 $ 4 $ 4
=========== =========== =========== ===========
23
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
For the nine months ended September 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 operating activities .............. $ 1,432 $ 90 $ -- $ 35,718
----------- ----------- ----------- -----------
Cash flows from investing activities:
(Increase) decrease in restricted cash ............... (35) -- -- (82)
Capital expenditures ................................. (356) (855) -- (42,220)
----------- ----------- ----------- -----------
Net cash used in investing activities .................. (391) (855) -- (42,302)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan -- -- -- (103,125)
Repayments on bank credit facility-tranche B term loan -- -- -- (49,750)
Repayments on bank credit facility-tranche C term loan -- -- -- (5,750)
Proceeds from bank credit facility-tranche C term loan -- -- -- 5,750
Repayments on bank credit facility-term .............. -- -- -- (382)
Proceeds on bank credit facility-term ................ -- -- -- 152,750
Repayments on bank credit facility-revolver .......... -- -- -- (8,000)
Proceeds from bank credit facility-revolver .......... -- -- -- 48,000
Repayments on FF&E credit facility ................... -- -- -- (16,121)
Proceeds from Phase II Subsidiary unsecured bank loan -- 1,092 -- 1,092
Payments of deferred offering costs .................. -- (300) -- (4,997)
Net increase (decrease) in intercompany accounts ..... 141 -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities .... 141 792 -- 19,467
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ....... 1,182 27 -- 12,883
Cash and cash equivalents at beginning of period ....... 2,972 34 -- 42,606
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ............. $ 4,154 $ 61 $ -- $ 55,489
=========== =========== =========== ===========
<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 September 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 nine months ended September 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 ... $ 47,154 $ 25,351 $ -- $ (6)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investments .................... -- 7,679 -- --
Capital expenditures ................................. -- (10,011) -- --
Construction of Casino Resort ........................ -- (12,827) -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities .... -- (15,159) -- --
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions .................. -- (30) -- 5
Repayments on bank credit facility-tranche A term loan -- (35,625) -- --
Repayments on bank credit facility-tranche B term loan -- (125) -- --
Proceeds from bank credit facility-tranche B term loan -- 50,000 -- --
Repayments on bank credit facility-revolver .......... -- (50,160) -- --
Proceeds from bank credit facility-revolver .......... -- 11,000 -- --
Repayments on FF&E credit facility ................... -- (11,236) -- --
Payments of deferred offering costs .................. -- (2,379) -- --
Net increase (decrease) in intercompany accounts ..... (36,636) 40,728 -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities .... (36,636) 2,173 -- 5
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ....... 10,518 12,365 -- (1)
Cash and cash equivalents at beginning of period ....... 23,961 2,237 4 5
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ............. $ 34,479 $ 14,602 $ 4 $ 4
=========== =========== =========== ===========
25
LAS VEGAS SANDS, INC.
Notes to Financial Statements (Continued)
Note 7 Summarized Financial Information (Continued)
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
For the nine months ended September 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 ... $ 3,923 $ (15) $ -- $ 76,407
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investments .................... 1,129 -- -- 8,808
Capital expenditures ................................. (596) -- -- (10,607)
Construction of Casino Resort ........................ -- -- -- (12,827)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities .... 533 -- -- (14,626)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions .................. 5 20 -- --
Repayments on bank credit facility-tranche A term loan -- -- -- (35,625)
Repayments on bank credit facility-tranche B term loan -- -- -- (125)
Proceeds from bank credit facility-tranche B term loan -- -- -- 50,000
Repayments on bank credit facility-revolver .......... -- -- -- (50,160)
Proceeds from bank credit facility-revolver .......... -- -- -- 11,000
Repayments on FF&E credit facility ................... -- -- -- (11,236)
Payments of deferred offering costs .................. (81) -- -- (2,460)
Net increase (decrease) in intercompany accounts ..... (4,092) -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities .... (4,168) 20 -- (38,606)
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ....... 288 5 -- 23,175
Cash and cash equivalents at beginning of period ....... -- 45 -- 26,252
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ............. $ 288 $ 50 $ -- $ 49,427
=========== =========== =========== ===========
<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 September 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 opened additional attractions at the Casino Resort on October
7, 2001, including the Guggenheim Las Vegas Museum and the Guggenheim Hermitage
Museum. During September 2001, the Company suspended its 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 on the
Phase II Land.
Operating Results
- -----------------
Third Quarter Ended September 30, 2001 compared to Third Quarter Ended
September 30, 2000.
Operating Revenues
------------------
Consolidated net revenues for the third quarter of 2001 were $123.2
million, representing a decrease of $13.3 million when compared with $136.5
million of consolidated net revenues during the third quarter of 2000. The
decrease in net revenues was primarily due to a decline of casino revenue at the
Casino Resort.
The Casino Resort's casino revenues were $61.4 million in the third quarter
of 2001, a decrease of $11.0 million when compared to $72.4 million during the
third quarter of 2000. The decrease was attributable to more stringent table
games marketing parameters implemented during the third quarter of 2001 and
decreased visitor traffic to Las Vegas after the terrorist attacks of September
11, 2001. Table games drop (volume) decreased to $214.1 million in the third
quarter of 2001 from $294.1 million during the third quarter of 2000. Slot
handle (volume) in the third quarter of 2001 decreased to $475.7 million from
$505.3 million reported during the third quarter of 2000, as a result of
decreased visitor traffic to Las Vegas after September 11, 2001.
The Casino Resort's room rates increased, and occupancy levels
decreased in the third quarter of 2001 as compared to the third quarter of 2000.
The Casino Resort achieved room revenues during the third quarter of 2001 of
$43.7 million, compared to $45.0 million during the third quarter of 2000. The
Casino Resort's average daily room rate increased to $181 in the third quarter
of 2001 compared to $168 during the third 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 87.1% during the
third quarter of 2001 compared to 96.0% during the third quarter of 2000.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Food and beverage, retail and other revenues were $20.0 million during the
third quarter of 2001 compared to $22.8 million during the third quarter of
2000. The decrease was attributable to lower room occupancy and banquet sales
associated with the Casino Resort's group room business.
The Mall generated rental and related revenues of $8.5 million during the
third quarter of 2001 compared to $8.3 million during the third quarter of 2000.
The increase was attributable to additional tenants and increased proceeds from
rents calculated on tenant gross revenues.
Operating Expenses
------------------
Consolidated operating expenses were $102.7 million in the third quarter of
2001, compared to $111.0 million during the third quarter of 2000. The decrease
in operating expenses was primarily attributable to lower operating revenues and
business volumes in all departments of the Casino Resort. Corporate expenses
totaled $0.8 million during the third quarter of 2001, as compared to $1.7
million during the third quarter of 2000, as a result of a reduction in a
corporate bonus program.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant for the third quarter of 2001 were $2.1
million, including $1.5 million for the Casino Resort and $0.6 million for the
Mall. Rental expenses were also $2.1 million in the third quarter of 2000.
The Mall incurred operating expenses of $5.5 million during the third
quarter of 2001 compared to $6.1 million during the third quarter of 2000. The
decrease in Mall operating expenses was attributable to decreases in
advertising, and increased allocation of utility cost and property taxes to
tenant common area maintenance charges during the third quarter of 2001.
Interest Income (Expense)
-------------------------
Net interest expense was $26.7 million in the third quarter of 2001,
compared to $30.6 million in the same period of 2000. Of the interest expense
incurred during the third quarter of 2001, $23.0 million was related to the
Casino Resort (excluding the Mall) and $3.7 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 third quarter of 2001 and
capitalization of interest in connection with current construction projects.
Interest income for the quarter ended September 30, 2001 was $0.3 million
as compared to $0.4 million in the same period in 2000.
Nine Months Ended September 30, 2001 compared to Nine Months Ended
September 30, 2000.
Operating Revenues
------------------
Consolidated net revenues for the nine months ended September 30, 2001 were
$402.1 million, representing a decrease of $31.7 million when compared with
$433.8 million of consolidated net revenues during the nine months ended
September 30, 2000. The Casino Resort's casino revenues were $174.1 million for
the nine months ended September 30, 2001, a decrease of $55.9 million when
compared to $230.0 million during the nine months ended September 30, 2000. The
decreases in net revenues and casino revenues were attributable to more
stringent table games marketing parameters implemented during the third quarter
of 2001, a decline in travel to Las Vegas after the terrorist attacks of
September 11, 2001, and 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
$782.4 million for the nine months ended September 30, 2001 from $859.1 million
during the nine months ended September 30, 2000. Slot revenue for the nine
months ended September 30, 2001 increased to $76.9 million from $75.9 million
reported during the nine months ended September 30, 2000. The slot handle
(volume) was $1.408 billion for the nine months ended September 30, 2001
compared to $1.421 billion during the nine months ended September 30, 2000.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Casino Resort's room rates increased and occupancy levels decreased
during the nine months ended September 30, 2001. The Casino Resort achieved room
revenues during the nine months ended September 30, 2001 of $159.7 million,
compared to $140.5 million during the nine months ended September 30, 2000. The
Casino Resort's average daily room rate increased to $205 for the nine months
ended September 30, 2001 compared to $177 during the nine months ended September
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 94.4% during the nine months ended September 30, 2001 compared to
95.5% during the nine months ended September 30, 2000.
Food and beverage, retail and other revenues were $75.8 million during the
nine months ended September 30, 2001 compared to $75.7 million during the nine
months ended September 30, 2000. The increase was attributable to banquet sales
associated with the Casino Resort group room business.
The Mall generated rental and related revenues of $24.8 million during the
nine months ended September 30, 2001 compared to $22.2 million during the nine
months ended September 30, 2000. The increase was attributable to additional
tenants and increased proceeds from rents calculated on tenant gross revenues.
Operating Expenses
------------------
Consolidated operating expenses were $321.1 million for the nine months
ended September 30, 2001, compared with $331.7 million during the nine months
ended September 30, 2000. The decrease in operating expenses was primarily
attributable to lower business volumes related to decreased travel to Las Vegas
after September 11, 2001 and reduced marketing expenses associated with lower
casino revenue. Corporate expenses totaled $4.7 million during the nine months
ended September 30, 2001, as compared to $4.5 million during the nine months
ended September 30, 2000.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant for the nine months ended September 30,
2001 were $6.3 million, including $4.7 million for the Casino Resort and $1.6
million for the Mall. Rental expenses were $8.0 million for the nine months
ended September 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 $15.8 million during the nine
months ended September 30, 2001 compared to $15.1 million during the nine months
ended September 30, 2000. The increase in Mall operating expenses was
attributable to increases in advertising, property taxes and utility cost during
the nine months ended September 30, 2001.
Interest Income (Expense)
-------------------------
Net interest expense was $83.0 million for the nine months ended September
30, 2001, compared to $89.8 million in the same period of 2000. Of the $83.0
million incurred during the nine months ended September 30, 2001, $71.2 million
was related to the Casino Resort (excluding the Mall) and $11.8 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 nine
months ended September 30, 2001 and capitalization of interest in connection
with current construction projects.
Interest income for the nine months ended September 30, 2001 was $1.1
million, as compared to $1.2 million for the same period in 2000.
Other Factors Affecting Earnings
- --------------------------------
During the third quarter of 2001, the Casino Resort recorded an
extraordinary item of $1.4 million for loss on early retirement of debt relating
to the restructuring of the Bank Credit Facility. See Part I, Item 1. Financial
Statements - Notes to Financial Statements - Note 4 Long-Term Debt.
29
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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 and Capital Expenditures
----------------------------------
As of September 30, 2001 and December 31, 2000, the Company held cash and
cash equivalents of $58.1 million and $45.2 million, respectively. Net cash
provided by operating activities for the first nine months of 2001 was $35.7
million, compared with $76.4 million for the same period in 2000. The Company's
operating cash flow in the first nine months of 2001 was negatively impacted by
a $55.9 million decrease in casino revenue, as compared to the prior year's
nine-month period. Net trade receivables were $54.4 million as of September 30,
2001 and $64.3 million as of December 31, 2000.
Capital expenditures paid from operating cash flow during the first nine
months of 2001 were $42.2 million, including expenditures for the two Guggenheim
Museum projects and the Phase IA Addition. Capital expenditures for the same
period in 2000 were $10.6 million for a variety of ongoing capital improvement
projects and $12.8 million for construction of the Casino Resort. The Casino
Resort's capital expenditures for the fourth quarter of 2001 and for the first
quarter of 2002 are expected to total approximately $12.0 million and $20.0
million, respectively. These expenditures primarily relate to liquidation of
construction payables and commitments related to the Phase IA Addition and other
capital expenditure projects undertaken during the first nine months of 2001.
Although the Company suspended its Phase IA Addition project during the third
quarter of 2001, it will continue certain design, planning and permitting of the
project during the fourth quarter of 2001.
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 third quarter of 2001, the Company paid principal payments of
$381,875 and $5.4 million on the Bank Credit Facility and the FF&E Credit
Facility, respectively. The Company currently has debt service payments due,
including principal payments on the Bank Credit Facility and the FF&E Credit
Facility aggregating $5.8 million during the last quarter of 2001 and $23.0
million during 2002. Based on current interest rates under 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 $37.5 million during the last quarter of 2001, and $81.9 million
during fiscal 2002 for indebtedness secured by the Casino Resort and (2)
approximately $2.9 million during the last quarter of 2001 and $11.3 million
during fiscal 2002 for indebtedness secured by the Mall.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
On September 17, 2001, the Company entered into its second amendment and
restatement of the Bank Credit Facility in order to (1) combine the $97.5
million tranche A term loan, $49.5 million tranche B term loan and $5.8 million
tranche C term loan into a single term loan of $152.8 million, (2) modify the
Company's scheduled amortization payments to now repay $381,875 per quarter
until December 2002, to be followed by two bullet payments of $75.2 million
during each of March 2003 and June 2003, (3) extend the commitment termination
date of the Revolver from September 15, 2001 to June 30, 2003, (4) eliminate the
"cash sweep" provision of such agreement in connection with any excess cash
flows of the Company, and (5) modify the financial covenants. On September 28,
2001, the Company entered into a fourth amendment to the FF&E Credit Facility in
order to modify its financial covenants to substantially match those under the
amended and restated Bank Credit Facility and consent to the amendments to the
Bank Credit Facility.
On October 19, 2001, the Phase II Subsidiary entered into the Phase II
Subsidiary Credit Facility. The Phase II Subsidiary Credit Facility is secured
by the Phase II Land, as well as the Phase II Subsidiary's leasehold interest in
the Phase II Lease. The Phase II Subsidiary immediately drew $12.5 million for
the Letter of Credit pursuant to the terms of and to be provided as credit
support for the Bank Credit Facility. The Letter of Credit will be reduced by
$3.125 million at the end of each of the next four fiscal quarters that the
Company makes its required interest payments under the Bank Credit Facility, and
will be released in full upon the earlier of October 31, 2002 or immediately
following the first fiscal quarter period ending after September 30, 2001 in
which the Company's consolidated adjusted EBITDA equals or exceeds $30.0
million. The remaining portion of the Phase II Subsidiary Credit Facility and
proceeds from rental payments from Venetian to the Phase II Subsidiary under the
Phase II Lease are each available for any Phase II Resort pre-development
expenses (up to $30 million after October 19, 2001) or may be loaned or
distributed by the Phase II Subsidiary to the Company for other liquidity needs.
For the next twelve months, the Company expects to fund its operations,
capital expenditures and debt service requirements from existing cash balances,
operating cash flow, borrowings under the Revolver to the extent that funds are
available, and loans or distributions from the Phase II Subsidiary as a result
of borrowings under the Phase II Subsidiary Credit Facility. As of September 30,
2001, all of the Company's $40.0 million Revolver availability was drawn.
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. Financial
covenants included in the Bank Credit Facility and FF&E Credit Facility include
a minimum fixed charge ratio, maximum leverage ratio, minimum consolidated
adjusted EBITDA standard, minimum equity standard and maximum capital
expenditures standard. 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 a decline in hotel occupancy or room rates,
or 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.
Although the Company has remained in compliance with its financial
covenants under the Bank Credit Facility and the FF&E Credit Facility, meeting
certain financial covenant tests in the third quarter of 2001 was difficult due
to a decline in visitor volume to Las Vegas after the terrorist attacks of
September 11, 2001 and an extremely low win percentage for certain quarters
during the rolling four quarter measurement period. The Company's financial
covenants allow the Sole Stockholder to increase EBITDA for measurement purposes
in two consecutive quarters by issuing a standby letter of credit to the
Company's lenders. The Company used this letter of credit mechanism in the
amount of $6.9 million to meet the minimum EBITDA covenant test during the third
quarter of 2001. In the short term, the Company remains in a challenging
business environment and no assurance can be given that it will remain in
compliance with its existing financial covenants. If visitors volume to Las
Vegas returns to normal levels, the Company does anticipate that results and
operations and its overall win percentage will return to normal levels over
time.
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 $1.1 million 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. See also " - Litigation Contingencies, Debt Service Payments
and Available Resources" for a description of the Phase II Subsidiary Credit
Facility.
32
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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
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,
subsequent to 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
33
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
factors include, among others, the risks associated with entering into a new
venture and new construction, competition and other planned construction in Las
Vegas, government regulation related to the casino industry (including the
legalization of gaming in certain jurisdictions, such as Native American
reservations in the State of California), leverage and debt service (including
sensitivity to fluctuations in interest rates), uncertainty of casino spending
and vacationing in casino resorts in Las Vegas, disruptions or reductions in
travel to Las Vegas, the September 11, 2001 attack or other terrorist incidents,
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
- ----------- -----------------------
10.1 Amended and Restated Credit Agreement, dated as of September 17,
2001, by and among Las Vegas Sands, Inc. and Venetian Casino Resort,
LLC, as Borrowers, the lenders party thereto and The Bank of
Nova Scotia, as Lead Arranger and Administrative Agent.*
10.2 Fourth Amendment to Term Loan and Security Agreement, dated as of
September 28, 2001, by and among Las Vegas Sands, Inc. and Venetian
Casino Resort, LLC, as joint and several obligors, the financial
institutions party thereto and General Electric Capital Corporation, as
Administrative Agent.*
10.3 Credit Agreement, dated as of October 19, 2001, by and among Lido
Casino Resort, LLC, as Borrower, the lenders party thereto and the
Bank of Nova Scotia, as Administrative Agent.*
<FN>
- ----------
* Filed herewith.
</FN>
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
September 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.
November 13, 2001 By: /s/ Sheldon G. Adelson
---------------------------
Sheldon G. Adelson
Chairman of the Board, Chief
Executive Officer and Director
November 13, 2001 By: /s/ Harry D. Miltenberger
--------------------------
Harry D. Miltenberger
Vice President-Finance
(principal financial and
accounting officer)
37