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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 March 31, 2002
[ ] 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 May 8, 2002
Class Outstanding at May 8, 2002
- -------------------------------------- -----------------------------------
Common Stock, $.10 par value 1,000,000 shares
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1
LAS VEGAS SANDS, INC.
Table of Contents
Part I
FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
At March 31, 2002 (unaudited) and December 31, 2001................1
Consolidated Statements of
Operations for the Three Months Ended
March 31, 2002 (unaudited) and March 31, 2001 (unaudited)..........2
Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 2002 (unaudited) and March 31, 2001 (unaudited)..........3
Notes to Consolidated Financial Statements.........................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk........27
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.................................................29
Item 2. Changes in Securities and Use of Proceeds.........................29
Item 6. Exhibits and Reports on Form 8-K..................................29
Signatures........................................................30
Item 1. Financial Statements
LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
2002 2001
----------- -----------
Unaudited
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 35,365 $ 54,936
Restricted cash and investments .......................... 435 2,646
Accounts receivable, net ................................. 64,262 57,092
Inventories .............................................. 4,465 4,747
Prepaid expenses ......................................... 3,917 3,862
----------- -----------
Total current assets ......................................... 108,444 123,283
Property and equipment, net .................................. 1,093,617 1,096,307
Deferred offering costs, net ................................. 16,680 18,989
Other assets, net ............................................ 31,926 33,207
----------- -----------
$ 1,250,667 $ 1,271,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ......................................... $ 24,294 $ 36,353
Construction payables .................................... 9,746 26,115
Construction payables-contested .......................... 7,232 7,232
Accrued interest payable ................................. 27,524 10,008
Other accrued liabilities ................................ 69,029 70,035
Current maturities of long-term debt ..................... 203,961 129,113
----------- -----------
Total current liabilities .................................... 341,786 278,856
Other long-term liabilities .................................. 1,359 3,274
Long-term debt ............................................... 652,861 745,746
Long-term subordinated loans payable to Principal Stockholder 66,123 66,123
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1,062,129 1,093,999
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Redeemable Preferred Interest in Venetian Casino Resort, LLC,
a wholly owned subsidiary ................................ 194,441 188,778
----------- -----------
Commitments and contingencies
Stockholders' equity (Deficit):
Common stock, $.10 par value, 3,000,000 shares authorized,
1,000,000 shares issued and outstanding ............... 100 92
Capital in excess of par value ........................... 140,760 140,768
Accumulated deficit since June 30, 1996 .................. (146,763) (151,851)
----------- -----------
(5,903) (10,991)
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$ 1,250,667 $ 1,271,786
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
1
LAS VEGAS SANDS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2002 2001
--------- --------
Revenues:
Casino ................................................. $ 50,473 $ 58,477
Rooms .................................................. 56,378 59,586
Food and beverage ...................................... 21,879 18,829
Retail and other ....................................... 16,761 17,284
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145,491 154,176
Less-promotional allowances ............................... (9,058) (12,286)
--------- --------
Net revenues ........................................... 136,433 141,890
--------- --------
Operating expenses:
Casino ................................................. 29,695 39,999
Rooms .................................................. 13,034 13,171
Food and beverage ...................................... 9,971 8,307
Retail and other ....................................... 7,102 7,198
Provision for doubtful accounts ........................ 3,335 3,718
General and administrative ............................. 21,467 22,011
Corporate expense ...................................... 1,909 1,888
Rental expense ......................................... 1,654 2,191
Pre-opening and developmental expense .................. 665
Depreciation and amortization .......................... 10,985 10,206
--------- --------
99,817 108,689
--------- --------
Operating income .......................................... 36,616 33,201
Other income (expense):
Interest income ......................................... 181 418
Interest expense, net of amounts capitalized ............ (24,382) (26,751)
Interest expense on indebtedness to Principal Stockholder (2,334) (2,189)
Other income (expense) .................................. 670 --
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Income before preferred return ............................ 10,751 4,679
Preferred return on Redeemable Preferred Interest
in Venetian Casino Resort, LLC (2001, as restated) ... (5,663) (5,040)
--------- --------
Net income (loss) (2001, as restated) ..................... $ 5,088 $ (361)
========= =========
Basic and diluted income (loss) per share ................. $ 5.09 $ (0.36)
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
2
LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2002 2001
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Cash flows from operating activities:
Net income (loss) (2001, as restated) ................................. $ 5,088 $ (361)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................. 10,985 10,206
Amortization of debt offering costs and original issue discount 2,664 2,125
Non-cash preferred return on Redeemable Preferred Interest
in Venetian (2001, as restated) ............................. 5,663 5,040
Provision for doubtful accounts ............................... 3,335 3,718
Changes in operating assets and liabilities:
Accounts receivable ......................................... (10,505) (7,259)
Inventories ................................................. 282 (230)
Prepaid expenses ............................................ (55) 448
Other assets ................................................ 1,281 1,851
Accounts payable ............................................ (12,059) (5,119)
Accrued interest payable .................................... 17,516 16,435
Other accrued liabilities ................................... (2,921) (12,918)
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Net cash provided by operating activities ............................. 21,274 13,936
----------- -----------
Cash flows from investing activities:
(Increase) decrease in restricted cash ................................ 2,211 (25)
Capital expenditures .................................................. (24,664) (9,566)
----------- -----------
Net cash used in investing activities ................................. (22,453) (9,591)
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Cash flows from financing activities:
Repayments on bank credit facility-tranche B term loan ................ -- (125)
Repayments on bank credit term facility ............................... (382) --
Repayments on bank credit facility-revolver ........................... (15,000) --
Proceeds from bank credit facility-revolver ........................... 5,000 --
Repayments on FF&E credit facility .................................... (5,374) (5,374)
Repayments on Phase II Subsidary credit facility ...................... (2,500) --
Proceeds from Phase II Subsidiary unsecured bank loan ................. -- 792
Payments of deferred offering costs ................................... (136) (477)
----------- -----------
Net cash used in financing activities ................................. (18,392) (5,184)
----------- -----------
Decrease in cash and cash equivalents ................................. (19,571) (839)
Cash and cash equivalents at beginning of period ...................... 54,936 42,606
----------- -----------
Cash and cash equivalents at end of period ............................ $ 35,365 $ 41,767
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments for interest .......................................... $ 6,282 $ 10,384
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The accompanying notes are an integral part of these consolidated financial statements.
3
LAS VEGAS SANDS, INC.
Notes to Financial Statements
Note 1. Organization and Business of Company
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, 2001. 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 2001 financial
statements have been reclassified to conform with the 2002 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 in order to construct a planned two-phase
hotel-casino resort. The first phase of the hotel-casino resort (the "Casino
Resort") includes 3,036 suites, casino space approximating 116,000 square feet,
approximately 500,000 square feet of convention space, and approximately 475,000
gross leasable square feet of retail shops and restaurants.
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, and including all
other direct and indirect subsidiaries of LVSI, 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 principal stockholder (the "Principal 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 retail mall in the Casino
Resort (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 Principal Stockholder. Venetian, the New Mall Subsidiary and IGN transact
business with each other and are parties to certain agreements.
Restatement of Previously Reported Amounts
------------------------------------------
As more fully described above, Interface Holding (an entity controlled by
the Principal Stockholder) owns a redeemable preferred interest in LVSI's
wholly-owned subsidiary, Venetian. The preferred return on the redeemable
preferred interest has not been paid, but it has been accrued by Venetian each
year and historically accounted for as a charge against capital (Note 5). Under
guidance by the Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board, dividends on a subsidiary's preferred stock should be reflected
as a minority interest and recognized as a charge against income.
4
Notes to Financial Statements
Note 1. Organization and Business of Company (Continued)
The Company has recognized the preferred return as a charge against income
in the accompanying 2002 financial statements, and has restated certain income
statement items for the period ended March 31, 2001 to include the preferred
return, which amount was $5.0 million. The restatement has no impact on the
previously reported carrying balances of the redeemable preferred interest, or
on the previously reported financial position of the Company. In addition,
because such preferred return was deducted from income available to common
stockholders in calculating earnings per share, the restatement has no impact on
previously reported amounts for earnings per share.
Note 2. Stockholders' Equity, Stockholders' Agreement and Per Share Data
The Company established a nonqualified stock option plan, which provides
for the granting of stock options pursuant to the applicable provisions of the
Internal Revenue Code and regulations. The stock option plan provides that the
Principal Stockholder may assume the obligations of the Company under the plan
and provides for the granting of up to 75,000 shares of common stock to officers
and other key employees of the Company. As of December 31, 2001, no grants under
the stock option plan had occurred. In the first quarter of 2002, options to
purchase 49,900 shares, which represented approximately 5% of the Company's
outstanding common stock, were granted from the Company to certain key employees
of the Company. Immediately thereafter, the Principal Stockholder assumed the
obligations of the Company under the stock option plan. On the date of grant,
the exercise price of the options of $271 per share was higher than the fair
market value of the Company's common stock based upon a determination of the
fair market value of a per share minority interest in the common stock of LVSI,
performed by an independent third-party appraiser. The options granted were
fully vested and exercisable upon grant. All of the options were exercised
immediately after issuance by the respective employees by delivery of a notice
of exercise. The exercise price of the options was loaned to the optionees by
the Principal Stockholder on a collateralized basis under full recourse notes.
During the first quarter of 2002, the Company entered into a stockholders'
agreement with the respective employees (the "additional stockholders") and the
Principal Stockholder. This agreement restricts the ability of the additional
stockholders and any of their permitted transferees who has agreed to be bound
by the terms and conditions of the agreement to sell, assign, pledge, encumber
or otherwise dispose of any shares of common stock of LVSI, except in accordance
with the provisions of the agreement. All transfers are subject to certain
conditions, including:
compliance with applicable state and foreign securities laws,
receipt of necessary licenses or approvals from the Nevada gaming
authorities, and
compliance with all federal laws, rules and regulations relating to
subchapter S corporations.
If at any time before LVSI completes an initial public offering, the
Principal Stockholder wishes to sell 20% or more of his ownership interest in
LVSI to any third party transferee, each additional stockholder shall have the
right to participate in such sale on the same terms as those offered to the
Principal Stockholder.
The additional stockholders also have certain piggyback registration
rights. If at any time LVSI completes an initial public offering or proposes to
register any shares of common stock, the additional stockholders may request
registration of their securities. Common stock will be included in the
registration statement in the following order of priority: first, all securities
of LVSI to be sold for its own account, second, securities of stockholders
(other than the Principal Stockholder) who have demand registration rights and
third, such securities requested to be included in such registration statement
by the Principal Stockholder and the additional stockholders (pro rata based on
the number of registrable securities owned by such stockholders). Finally, if at
any time prior to the completion by LVSI of an initial public offering LVSI
wishes to issue any new securities, the additional stockholders will have the
right to purchase that number of shares of LVSI common stock, at the proposed
purchase price of the new securities, such that the additional stockholders'
percentage ownership of LVSI would remain the same following such issuance.
Basic and diluted income (loss) per share are calculated based upon the
weighted average number of shares outstanding. In the first quarter of 2002, the
Company completed a stock split whereby the number of shares of common stock
outstanding was increased from 925,000 to 1,000,000. At the date of the stock
split, the Principal Stockholder maintained 100% ownership of the Company's
common stock. All references to share and per share data herein have been
adjusted retroactively to give effect to the increase in shares of common stock
outstanding to 1,000,000.
Note 3. Property and Equipment
Property and equipment consists of the following (in thousands):
March 31, December 31,
2002 2001
----------- -----------
Land and land improvements .............................. $ 113,309 $ 113,309
Building and improvements ............................... 886,624 882,395
Equipment, furniture, fixtures and leasehold improvements 139,378 138,978
Construction in progress ................................ 72,148 68,542
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1,211,459 1,203,224
Less: accumulated depreciation and amortization (117,842) (106,917)
----------- -----------
$ 1,093,617 $ 1,096,307
=========== ===========
During the three month periods ended March 31, 2002 and March 31, 2001, the
Company capitalized interest expense of $0.3 million and $0.0 million,
respectively.
As of March 31, 2002, construction in progress represented project design
and shared facilities costs for the planned second phase of the Casino Resort,
to be owned by the Phase II Subsidiary (the "Phase II Resort"), and on-going
capital improvement projects at the Casino Resort.
5
Notes to Financial Statements (Continued)
Note 4. Long-Term Debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
2002 2001
----------- -----------
Indebtedness of the Company and its Subsidiaries
other than the New Mall 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 $3,168
in 2002 and $3,387 in 2001) 94,332 94,113
Bank Credit Facility-Revolver 30,000 40,000
Bank Credit Facility- Term Loan 151,604 151,986
FF&E Credit Facility 48,361 53,735
Indebtedness of the New Mall Subsidiary:
- ----------------------------------------
Mall Tranche A Take-out Loan 105,000 105,000
Indebtedness of the Phase II Subsidiary:
- ----------------------------------------
Phase II Subsidiary Credit Facility 1,433 3,933
Phase II Unsecured Bank Loan 1,092 1,092
Less: current maturities (203,961) (129,113)
----------- -----------
Total long-term debt $ 652,861 $ 745,746
=========== ===========
Subordinated Owner Indebtedness:
- --------------------------------
Completion Guaranty Loan (Indebtedness of Venetian) $ 31,123 $ 31,123
Subordinated Mall Tranche B Take-out Loan
from Principal Stockholder (Indebtedness of New
Mall Subsidiary) 35,000 35,000
----------- -----------
Total long-term subordinated loans payable to
Principal Stockholder $ 66,123 $ 66,123
=========== ===========
6
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.
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.
On November 12, 1999, an advance of approximately $23.5 million was made
under the Principal Stockholder's completion guaranty (the "Completion
Guaranty"). Interest expense added to the principal balance increased the
balance of the Completion Guaranty to $31.1 million as of March 31, 2002.
Advances made under the Completion Guaranty up to $25.0 million (excluding
accrued interest) are treated as a junior loan from the Principal 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 Principal 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 (the "Phase II Unsecured Bank Loan"), as amended on May 31, 2001,
for $1.1 million 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.
7
Notes to Financial Statements (Continued)
Note 4. Long-Term Debt (Continued)
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 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.
The Company's existing 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.
The Company was challenged to meet these covenant tests for certain
quarters in 2001 and the first quarter of 2002 due to an extremely low win
percentage and reduced travel to Las Vegas because of the September 11th
terrorist attacks. These covenants allow the Principal Stockholder to increase
EBITDA for measurement purposes by issuing a standby letter of credit to the
Company's lenders. The covenants also allow the New Mall Subsidiary and the
Phase II Subsidiary, subject to certain limitations, to make distributions to
LVSI which would increase EBITDA for debt covenant measurement purposes. The
Company used the letter of credit mechanism in the amount of $10.0 million
during the first quarter of 2001. Pursuant to the terms of the Company's
indebtedness, the letter of credit was subsequently reduced to $6.9 million
during the third quarter of 2001. During the fourth quarter of 2001 and the
first quarter of 2002, the Company entered into a limited waiver amendment to
the Bank Credit Facility and FF&E Credit Facility to obtain a waiver with
respect to the minimum consolidated adjusted EBITDA requirement. During the
first quarter of 2002, the New Mall Subsidiary paid a $7.0 million distribution
to Venetian.
The Company expects to be challenged to meet certain of its existing
covenant tests in the second quarter of 2002 due to the carry-over effects that
the terrorist attacks on September 11th and the extremely low win percentage for
certain of its fiscal 2001 quarters will have on the rolling measurement period.
The Company has certain options available to it in the event that it needs to
seek a cure in order to meet such covenants, including the ability to draw down
on the Phase II Subsidiary Credit Facility, make distributions of excess cash
from the Mall under the terms of the Tranche A Take-out Loan. The Company
anticipates that ultimately its win percentage will return to normal levels and
that it will no longer need to rely on the various cures and waivers described
above.
On May 6, 2002, the Company announced its intention to offer approximately
$850 million in aggregate principal amount of mortgage notes in a Rule 144A
offering, and to enter into a new senior secured credit facility and Mall loan
facility, in an aggregate amount of approximately $480 million, during the
second quarter of 2002 (collectively, the "Refinancing Transactions"). The
Company intends to use the proceeds of the Refinancing Transactions to repay,
redeem or repurchase all of its outstanding indebtedness (including the Notes,
the Bank Credit Facility, the FF&E Facility, the Mall Take-out Financing, the
Completion Guaranty, the Phase II Subsidiary Credit Facility and the Phase II
Unsecured Bank Loan), to finance the construction and development of the Phase
IA Addition (which the Company currently estimates will cost $235.0 million to
complete) and to pay all fees and expenses associated with the Refinancing
Transactions. In connection with the Refinancing Transactions, the Company
expects to incur an extraordinary loss on early retirement of indebtedness of
$53.3 million which will be comprised of $33.5 million of call premiums to be
incurred in connection with the Refinancing Transactions and the write-off of
$19.8 million related to the write-off of unamortized debt offering costs and
unamortized original issue discount.
8
Notes to Financial Statements (Continued)
Note 4. Long-Term Debt (Continued)
The Company also commenced a cash tender offer on May 6, 2002 to purchase
any and all of the Notes (the "Tender Offer"). The purchase price (including
consent fees) is $1,061.25 per $1,000 principal amount for the Mortgage Notes
and $1,071.25 per $1,000 principal amount for the Senior Subordinated Notes, in
each case, plus accrued but unpaid interest.
In conjunction with the Tender Offer, the Company is soliciting consents to
eliminate substantially all of the restrictive covenants of the indentures
governing the Notes and make certain other amendments. Adoption of the proposed
amendments requires the consent of holders of not less than a majority of the
aggregate principal amount of each issue of Notes. Holders who tender their
Notes will be required to consent to the proposed amendments.
The Tender Offer and the Refinancing Transactions are subject to a number
of conditions, including entering into definitive agreements for the Refinancing
Transactions. No assurance can be given that the Tender Offer or the Refinancing
Transactions will be completed, or that a refinancing will be on terms that will
be favorable to the Company.
Assuming that the Company is successful in refinancing all or a substantial
portion of its outstanding indebtedness, for the next twelve months the Company
expects to fund Casino Resort operations, capital expenditures and debt service
requirements from existing cash balances, operating cash flow, borrowings under
a revolver to the extent that funds are available and distributions of excess
cash from the owner of the Mall to the extent permitted under the terms of the
Company's indebtedness.
Note 5. Redeemable Preferred Interest in Venetian Casino Resort, LLC
During 1997, Interface Holding contributed $77.1 million in cash to
Venetian in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the Bank Credit Facility is repaid and cash payments are
permitted under the restricted payment covenants of the indentures entered into
in connection with the Notes (the "Indentures"), the preferred return on the
Series B Preferred Interest will accrue and will not be paid in cash. Commencing
in November 2009, distributions must be made to the extent of the positive
capital account of the holder. During the second and third quarters of 1999,
Interface Holding contributed $37.3 million and $7.1 million, respectively, in
cash in exchange for an additional Series B Preferred Interest. During the three
month periods ended March 31, 2002 and March 31, 2001, $5.7 million and $5.0
million, respectively, were accrued on the Series B Preferred Interest related
to the contributions made. Since 1997, no distributions of preferred interest or
preferred return have been paid on the Series B Preferred Interest.
Note 6. Commitments and Contingencies
The Company is party to litigation matters and claims related to its
operations and construction of the Casino Resort that 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
(as defined below).
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").
9
Notes to Financial Statements (Continued)
Note 6. Commitments and Contingencies (Continued)
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations 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 $100.0 million. The Construction Manager subsequently filed
motions to dismiss the Company's complaint on various grounds, which the Company
opposed. The Construction Manager's motions were either 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 claims 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, the fact that the Construction Manager
has not provided Venetian with reasonable documentation to support such claims,
and the Company's belief that the Construction Manager has materially breached
its agreements with the Company, the Company believes that the Construction
Manager's claims are without merit and intends to vigorously defend itself and
pursue its claims against the Construction Manager in any litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. The Company believes that a
major reason these lien amounts exceed the Construction Manager's claims of
$90.0 million is based upon a duplication of liens through the inclusion of
lower-tier claims by subcontractors in the liens of higher-tier contractors,
including the lien of the Construction Manager. As of December 31, 1999, the
Company had purchased surety bonds for virtually all of the claims underlying
these liens (other than approximately $15.0 million of claims with respect to
which the Construction Manager purchased bonds). As a result, there can be no
foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated, and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have 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
rights to file liens against the Casino Resort. The Company intends to
vigorously defend itself in any lien proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because the Company believes that substantial completion
was not achieved until November 12, 1999, the Company's claim under the LD
Policy is likely to be for the above-described maximum liability of $24.1
million. The Company expects the LD Policy insurers to assert many of the same
claims and defenses that the Construction Manager has asserted or will assert in
the above-described litigations. Liability under the LD Policy may ultimately be
determined by binding arbitration.
10
Notes to Financial Statements (Continued)
Note 6. Commitments and Contingencies (Continued)
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 Principal 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 a range of loss or its ultimate outcome. If
any litigation or other lien 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 or lien proceedings are 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 governing the
Notes) from incurring any indebtedness. The terms of the Tranche A Take-out Loan
prohibit the New Mall Subsidiary from paying dividends or making distributions
to any of the other entities comprising the Company unless payments under the
Tranche A Take-out Loan are current, and, with certain limited exceptions,
prohibit the New Mall Subsidiary from making any loans to such entities. Any
additional indebtedness incurred by the New Mall Subsidiary may include
additional restrictions on the ability of the New Mall Subsidiary to pay any
such dividends and make any such distributions or loans.
Prior to October 1998, Venetian owned approximately 44 acres of land on or
near the Las Vegas Strip (the "Strip"), on the site of the former Sands. Such
property includes the site on which the Casino Resort was constructed.
Approximately 14 acres of such land was transferred to the Phase II Subsidiary
in October 1998. On December 31, 1999, an additional 1.75 acres of land was
contributed indirectly by the Principal 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, with respect
to these assets, 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 in addition 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 March 31, 2002 and December
31, 2001 and for the three month periods ended March 31, 2002 and March 31, 2001
is as follows (in thousands):
11
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
March 31, 2002
GUARANTOR SUBSIDIARIES
--------------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Holding Holding
Sands, Inc. Resort LLC Company LLC Company LLC
-------------- --------------- -------------- --------------
Cash and cash equivalents ................................... $ 25,538 $ 7,025 $ 4 $ 4
Restricted cash and investments ............................. -- -- -- --
Intercompany receivable ..................................... 75,811 -- -- --
Accounts receivable, net .................................... 35,274 27,936 -- --
Inventories ................................................. -- 4,465 -- --
Prepaid expenses ............................................ 507 3,080 -- --
-------------- --------------- -------------- --------------
Total current assets ...................................... 137,130 42,506 4 4
Property and equipment, net ................................. -- 875,662 -- --
Investment in Subsidiaries .................................. 830,052 -- -- --
Deferred offering costs, net ................................ -- 14,657 -- --
Other assets, net ........................................... 3,366 24,937 -- --
-------------- --------------- -------------- --------------
$ 970,548 $ 957,762 $ 4 $ 4
============== =============== ============== ==============
Accounts payable ............................................ $ 1,816 $ 22,205 $ -- $ --
Construction payable ........................................ -- 6,560 -- --
Construction payable-contested .............................. -- 7,232 -- --
Intercompany payables ....................................... -- 55,694 -- --
Accrued interest payable .................................... -- 26,615 -- --
Other accrued liabilities ................................... 17,590 49,862 -- --
Current maturities of long-term debt (3) .................... 97,869 97,869 -- --
-------------- --------------- -------------- --------------
Total current liabilities ................................. 117,275 266,037 -- --
Other long-term liabilities ................................. -- 1,359 -- --
Long-term debt (3) .......................................... 651,428 651,428 -- --
Long-term subordinated loans payable to
Principal Stockholder ..................................... -- 31,123 -- --
Accumulated losses of subsidiaries in excess of investment .. 207,748 -- -- --
-------------- --------------- -------------- --------------
976,451 949,947 -- --
-------------- --------------- -------------- --------------
Redeemable Preferred interest in Venetian ................... -- 194,441 -- --
-------------- --------------- -------------- --------------
Stockholders' equity (deficit) .............................. (5,903) (186,626) 4 4
-------------- --------------- -------------- --------------
$ 970,548 $ 957,762 $ 4 $ 4
============== =============== ============== ==============
<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 March 31, 2002.
(2) Land with a historical cost basis of $29.2 million 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 Principal Stockholder during December 1999.
(3) As more fully described in Note 4, Las Vegas Sands, Inc. and Venetian Casino Resort LLC are co-obligors of certain of the
Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above
balance sheets.
</FN>
12
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS (continued)
March 31, 2002
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
Subsidiary Guarantor Eliminating
LLC (1) Subsidiaries (2) Entries Total
-------------- --------------- --------------- --------------
Cash and cash equivalents ................................... $ 2,357 $ 437 $ -- $ 35,365
Restricted cash and investments ............................. 435 -- -- 435
Intercompany receivable ..................................... -- 2,496 (78,307) --
Accounts receivable, net .................................... 1,052 -- -- 64,262
Inventories ................................................. -- -- -- 4,465
Prepaid expenses ............................................ 330 -- -- 3,917
-------------- --------------- -------------- --------------
Total current assets ...................................... 4,174 2,933 (78,307) 108,444
Property and equipment, net ................................. 135,003 82,952 -- 1,093,617
Investment in Subsidiaries .................................. -- -- (830,052) --
Deferred offering costs, net ................................ 1,384 639 -- 16,680
Other assets, net ........................................... 3,623 -- -- 31,926
-------------- --------------- -------------- --------------
$ 144,184 $ 86,524 $ (908,359) $ 1,250,667
============== =============== ============== ==============
Accounts payable ............................................ $ 273 $ -- $ -- $ 24,294
Construction payable ........................................ -- 3,186 -- 9,746
Construction payable-contested .............................. -- -- -- 7,232
Intercompany payables ....................................... 22,613 -- (78,307) --
Accrued interest payable .................................... 907 2 -- 27,524
Other accrued liabilities ................................... 1,509 68 -- 69,029
Current maturities of long-term debt (3) .................... 105,000 1,092 (97,869) 203,961
-------------- --------------- -------------- --------------
Total current liabilities ................................. 130,302 4,348 (176,176) 341,786
Other long-term liabilities ................................. -- -- -- 1,359
Long-term debt (3) .......................................... -- 1,433 (651,428) 652,861
Long-term subordinated loans payable to
Principal Stockholder ..................................... 35,000 -- -- 66,123
Accumulated losses of subsidiaries in excess of investment .. -- -- (207,748) --
-------------- --------------- -------------- --------------
165,302 5,781 (1,035,352) 1,062,129
-------------- --------------- -------------- --------------
Redeemable Preferred interest in Venetian ................... -- -- -- 194,441
-------------- --------------- -------------- --------------
Stockholders' equity (deficit) .............................. (21,118) 80,743 126,993 (5,903)
-------------- --------------- -------------- --------------
$ 144,184 $ 86,524 $ (908,359) $ 1,250,667
============== =============== ============== ==============
<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 March 31, 2002.
(2) Land with a historical cost basis of $29.2 million 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 Principal Stockholder during December 1999.
(3) As more fully described in Note 4, Las Vegas Sands, Inc. and Venetian Casino Resort LLC are co-obligors of certain of the
Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above
balance sheets.
</FN>
13
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
December 31, 2001
GUARANTOR SUBSIDIARIES
-------------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
-------------- -------------- -------------- --------------
Cash and cash equivalents ................................... $ 37,367 $ 7,806 $ 4 $ 4
Restricted cash and investments ............................. -- 1,528 -- --
Intercompany receivable ..................................... 60,882 -- -- --
Accounts receivable, net .................................... 37,416 18,240 -- --
Inventories ................................................. -- 4,747 -- --
Prepaid expenses ............................................ 546 2,953 -- --
-------------- --------------- -------------- --------------
Total current assets ...................................... 136,211 35,274 4 4
Property and equipment, net ................................. -- 878,239 -- --
Investment in Subsidiaries .................................. 843,935 -- -- --
Deferred offering costs, net ................................ -- 16,250 -- --
Other assets, net ........................................... 3,771 25,691 -- --
-------------- --------------- -------------- --------------
$ 983,917 $ 955,454 $ 4 $ 4
============== =============== ============== ==============
Accounts payable ............................................ $ 2,880 $ 33,105 $ -- $ --
Construction payable ........................................ -- 22,955 -- --
Construction payable-contested .............................. -- 7,232 -- --
Intercompany payables ....................................... -- 39,455 -- --
Accrued interest payable .................................... -- 9,125 -- --
Other accrued liabilities ................................... 21,249 47,074 -- --
Current maturities of long-term debt (3) .................... 23,021 23,021 -- --
-------------- --------------- -------------- --------------
Total current liabilities ................................. 47,150 181,967 -- --
Other long-term liabilities ................................. -- 3,274 -- --
Long-term debt (3) .......................................... 741,813 741,813 -- --
Long-term subordinated loans payable to
Principal Stockholder ..................................... -- 31,123 -- --
Accumulated losses of subsidiaries in excess of investment .. 205,945 -- -- --
-------------- --------------- -------------- --------------
994,908 958,177 -- --
-------------- --------------- -------------- --------------
Redeemable Preferred interest in Venetian ................... -- 188,778 -- --
-------------- --------------- -------------- --------------
Stockholders' equity (deficit) .............................. (10,991) (191,501) 4 4
-------------- --------------- -------------- --------------
$ 983,917 $ 955,454 $ 4 $ 4
============== =============== ============== ==============
<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, 2001.
(2) Land with a historical cost basis of $29.2 million 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 Principal Stockholder during December 1999.
(3) As more fully described in Note 4, Las Vegas Sands, Inc. and Venetian Casino Resort LLC are co-obligors of certain of the
Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above
balance sheets.
</FN>
14
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS (continued)
December 31, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
Subsidiary Guarantor Eliminating
LLC (1) Subsidiaries (2) Entries Total
-------------- --------------- --------------- --------------
Cash and cash equivalents ................................... $ 6,650 $ 3,105 $ -- $ 54,936
Restricted cash and investments ............................. 1,118 -- -- 2,646
Intercompany receivable ..................................... -- 1,508 (62,390) --
Accounts receivable, net .................................... 1,436 -- -- 57,092
Inventories ................................................. -- -- -- 4,747
Prepaid expenses ............................................ 363 -- -- 3,862
-------------- --------------- -------------- --------------
Total current assets ...................................... 9,567 4,613 (62,390) 123,283
Property and equipment, net ................................. 136,167 81,901 -- 1,096,307
Investment in Subsidiaries .................................. -- -- (843,935) --
Deferred offering costs, net ................................ 1,903 836 -- 18,989
Other assets, net ........................................... 3,745 -- -- 33,207
-------------- --------------- -------------- --------------
$ 151,382 $ 87,350 $ (906,325) $ 1,271,786
============== =============== ============== ==============
Accounts payable ............................................ $ 368 $ -- $ -- $ 36,353
Construction payable ........................................ -- 3,160 -- 26,115
Construction payable-contested .............................. -- -- -- 7,232
Intercompany payables ....................................... 22,935 -- (62,390) --
Accrued interest payable .................................... 872 11 -- 10,008
Other accrued liabilities ................................... 1,647 65 -- 70,035
Current maturities of long-term debt (3) .................... 105,000 1,092 (23,021) 129,113
-------------- --------------- -------------- --------------
Total current liabilities ................................. 130,822 4,328 (85,411) 278,856
Other long-term liabilities ................................. -- -- -- 3,274
Long-term debt (3) .......................................... -- 3,933 (741,813) 745,746
Long-term subordinated loans payable to
Principal Stockholder ..................................... 35,000 -- -- 66,123
Accumulated losses of subsidiaries in excess of investment .. -- -- (205,945) --
-------------- --------------- -------------- --------------
165,822 8,261 (1,033,169) 1,093,999
-------------- --------------- -------------- --------------
Redeemable Preferred interest in Venetian ................... -- -- -- 188,778
-------------- --------------- -------------- --------------
Stockholders' equity (deficit) .............................. (14,440) 79,089 126,844 (10,991)
-------------- --------------- -------------- --------------
$ 151,382 $ 87,350 $ (906,325) $ 1,271,786
============== =============== ============== ==============
<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, 2001.
(2) Land with a historical cost basis of $29.2 million 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 Principal Stockholder during December 1999.
(3) As more fully described in Note 4, Las Vegas Sands, Inc. and Venetian Casino Resort LLC are co-obligors of certain of the
Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above
balance sheets.
</FN>
15
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the three months ended March 31, 2002
GUARANTOR SUBSIDIARIES
-------------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
-------------- -------------- -------------- --------------
Revenue:
Casino .................................................... $ 50,473 $ -- $ -- $ --
Room ...................................................... -- 56,378 -- --
Food and beverage ......................................... -- 21,879 -- --
Retail and other .......................................... 150 19,911 --
-------------- -------------- -------------- --------------
Total revenue ............................................. 50,623 98,168 --
Less promotional allowance .................................. -- (9,058) -- --
-------------- -------------- -------------- --------------
Net revenues .............................................. 50,623 89,110 --
-------------- -------------- -------------- --------------
Operating expenses:
Casino .................................................... 41,258 -- --
Rooms ..................................................... -- 13,034 -- --
Food and beverage ......................................... -- 9,971 -- --
Retail and other .......................................... -- 4,324 -- --
Provision for doubtful accounts ........................... 2,285 1,050 -- --
General and administrative ................................ 748 20,352 -- --
Corporate expense ......................................... 999 910 -- --
Rental expense ............................................ 212 2,954 -- --
Pre-opening and developmental expense ..................... -- 665 -- --
Depreciation and amortization ............................. -- 9,811 -- --
-------------- -------------- -------------- --------------
45,502 63,071 --
-------------- -------------- -------------- --------------
Operating income ............................................ 5,121 26,039 -- --
-------------- -------------- -------------- --------------
Other income (expense):
Interest income ......................................... 116 48 -- --
Interest expense, net of amounts capitalized ............ -- (22,110) -- --
Interest expense on indebtedness to
Principal Stockholder ................................... -- (1,109) -- --
Other income (expense) .................................. -- 670 -- --
Income (loss) from equity investment in subsidiaries .... (149) -- -- --
-------------- -------------- -------------- --------------
Income before preferred return .............................. 5,088 3,538 -- --
Preferred return on Redeemable Preferred
Interest in Venetian ................................... -- (5,663) -- --
-------------- -------------- -------------- --------------
Net income (loss) ........................................... $ 5,088 $ (2,125) $ -- $ --
============== ============== ============== ==============
<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 March 31, 2002.
</FN>
16
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the three months ended March 31, 2002
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
Subsidiary Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenue:
Casino .................................................... $ -- $ -- $ -- $ 50,473
Room ...................................................... -- -- -- 56,378
Food and beverage ......................................... -- -- -- 21,879
Retail and other .......................................... 8,594 2,000 (13,894) 16,761
-------------- -------------- -------------- --------------
Total revenue ............................................. 8,594 2,000 (13,894) 145,491
Less promotional allowance .................................. -- -- -- (9,058)
-------------- -------------- -------------- --------------
Net revenues .............................................. 8,594 2,000 (13,894) 136,433
-------------- -------------- -------------- --------------
Operating expenses:
Casino .................................................... -- -- (11,563) 29,695
Rooms ..................................................... -- -- -- 13,034
Food and beverage ......................................... -- -- -- 9,971
Retail and other .......................................... 3,109 -- (331) 7,102
Provision for doubtful accounts ........................... -- -- -- 3,335
General and administrative ................................ 367 -- -- 21,467
Corporate expense ......................................... -- -- -- 1,909
Rental expense ............................................ 488 -- (2,000) 1,654
Pre-opening and developmental expense ..................... -- -- -- 665
Depreciation and amortization ............................. 1,174 -- -- 10,985
-------------- -------------- -------------- --------------
5,138 -- (13,894) 99,817
-------------- -------------- -------------- --------------
Operating income ............................................ 3,456 2,000 -- 36,616
-------------- -------------- -------------- --------------
Other income (expense):
Interest income ......................................... 17 -- -- 181
Interest expense, net of amounts capitalized ............ (1,926) (346) -- (24,382)
Interest expense on indebtedness to
Principal Stockholder ................................... (1,225) -- -- (2,334)
Other income (expense) .................................. -- -- -- 670
Income (loss) from equity investment in subsidiaries .... -- -- 149 --
-------------- -------------- -------------- --------------
Income before preferred return .............................. 322 1,654 149 10,751
Preferred return on Redeemable Preferred
Interest in Venetian ................................... -- -- -- (5,663)
-------------- -------------- -------------- --------------
Net income (loss) ........................................... $ 322 $ 1,654 $ 149 $ 5,088
============== ============== ============== ==============
<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 March 31, 2002.
</FN>
17
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the three months ended March 31, 2001
GUARANTOR SUBSIDIARIES
-------------------------------
Lido Mall
Venetian Intermediate Intermediate
Las Vegas Casino Resort Holding Holding
Sands, Inc. LLC Company LLC Company LLC
-------------- -------------- -------------- --------------
Revenues:
Casino .................................................... $ 58,477 $ -- $ -- $ --
Room ...................................................... -- 59,586 -- --
Food and beverage ......................................... -- 18,829 -- --
Retail and other .......................................... 289 20,602 --
-------------- -------------- -------------- --------------
Total revenue ............................................. 58,766 99,017 --
-------------- -------------- -------------- --------------
Less promotional allowance .................................. -- (12,286) -- --
Net revenues .............................................. 58,766 86,731 --
-------------- -------------- -------------- --------------
Operating expenses:
Casino .................................................... 51,358 -- --
Rooms ..................................................... -- 13,171 -- --
Food and beverage ......................................... -- 8,307 -- --
Retail and other .......................................... -- 4,734 -- --
Provision for doubtful accounts ........................... 3,718 -- -- --
General and administrative ................................ 982 20,659 -- --
Corporate expense ......................................... 1,025 863 -- --
Rental expense ............................................ 193 1,452 -- --
Depreciation and amortization ............................. -- 8,910 -- --
-------------- -------------- -------------- --------------
57,276 58,096 -- --
Operating income ............................................ 1,490 28,635 -- --
-------------- -------------- -------------- --------------
Other income (expense):
Interest income ......................................... 211 171 -- --
Interest expense, net of amounts capitalized ............ -- (23,782) -- --
Interest expense on indebtedness to
Principal Stockholder ................................. -- (964) -- --
Income (loss) from equity investment in subsidiaries .... (2,062) -- -- --
-------------- -------------- -------------- --------------
Income (loss) before preferred return ....................... (361) 4,060 -- --
Preferred return on Redeemable Preferred
Interest in Venetian ................................... -- (5,040) -- --
-------------- -------------- -------------- --------------
Net income (loss) ........................................... $ (361) $ (980) $ -- $ --
============== ============== ============== ==============
<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 March 31, 2001.
</FN>
18
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the three months ended March 31, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
Subsidiary Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenue:
Casino .................................................... $ -- $ -- $ -- $ 58,477
Room ...................................................... -- -- -- 59,586
Food and beverage ......................................... -- -- -- 18,829
Retail and other .......................................... 8,034 -- (11,641) 17,284
-------------- --------------- --------------- -------------
Total revenue ............................................. 8,034 -- (11,641) 154,176
Less promotional allowance .................................. -- -- -- (12,286)
-------------- --------------- --------------- -------------
Net revenues .............................................. 8,034 -- (11,641) 141,890
-------------- --------------- --------------- -------------
Operating expenses:
Casino .................................................... -- -- (11,359) 39,999
Rooms ..................................................... -- -- -- 13,171
Food and beverage ......................................... -- -- -- 8,307
Retail and other .......................................... 2,746 -- (282) 7,198
Provision for doubtful accounts ........................... -- -- -- 3,718
General and administrative ................................ 370 -- -- 22,011
Corporate expense ......................................... -- -- -- 1,888
Rental expense ............................................ 546 -- -- 2,191
Depreciation and amortization ............................. 1,296 -- -- 10,206
-------------- --------------- --------------- -------------
4,958 -- (11,641) 108,689
-------------- --------------- --------------- -------------
--
Operating income ............................................ 3,076 -- 33,201
-------------- --------------- --------------- -------------
Other income (expense):
Interest income ......................................... 36 -- -- 418
Interest expense, net of amounts capitalized ............ (2,969) -- -- (26,751)
Interest expense on indebtedness to
Principal Stockholder ................................. (1,225) -- -- (2,189)
Income (loss) from equity investment in subsidiaries .... -- -- 2,062 --
-------------- --------------- --------------- -------------
Income (loss) before preferred return ....................... (1,082) -- 2,062 4,679
Preferred return on Redeemable Preferred
Interest in Venetian ................................... -- -- -- (5,040)
-------------- --------------- --------------- -------------
Net income (loss) ........................................... $ (1,082) $ -- $ 2,062 $ (361)
============== ============== =============== =============
<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 March 31, 2001.
</FN>
19
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2002
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 ................... $ 3,100 $ 13,973 $ -- $ --
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Decrease in restricted cash ............................... -- 1,528 -- --
Capital expenditures ...................................... -- (23,629) -- --
-------------- -------------- -------------- --------------
Net cash used in investing activities ....................... -- (22,101) -- --
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Dividend from Grand Canal Shops Mall Subsidiary,LLC ....... 7,000 -- -- --
Capital contribution to Venetian Casino Resort, LLC ....... (7,000) 7,000 -- --
Repayments on bank credit facility-term ................... -- (382) -- --
Repayments on bank credit facility-revolver ............... -- (15,000) -- --
Proceeds from bank credit facility-revolver ............... -- 5,000 -- --
Repayments on FF&E credit facility ........................ -- (5,374) -- --
Repayments on Phase II Subidiary credit facility .......... -- -- -- --
Payments of deferred offering costs ....................... -- (136) -- --
Net increase(decrease) in intercompany accounts ........... (14,929) 16,239 -- --
-------------- -------------- -------------- --------------
Net cash provided by (used in) financing activities ......... (14,929) 7,347 -- --
-------------- -------------- -------------- --------------
Decrease in cash and cash equivalents ....................... (11,829) (781) -- --
Cash and cash equivalents at beginning of period............. 37,367 7,806 4 4
-------------- -------------- -------------- --------------
Cash and cash equivalents at end of period................... $ 25,538 $ 7,025 $ 4 $ 4
============== ============== ============== ==============
<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 March 31, 2002.
</FN>
20
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2002
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
Subsidiary Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Net cash provided by operating activities ................... $ 2,356 $ 1,845 $ -- $ 21,274
-------------- --------------- --------------- --------------
Cash flows from investing activities:
Decrease in restricted cash ............................... 683 -- -- 2,211
Capital expenditures ...................................... (10) (1,025) -- (24,664)
-------------- --------------- --------------- --------------
Net cash used in investing activities ....................... 673 (1,025) -- (22,453)
-------------- --------------- --------------- --------------
Cash flows from financing activities:
Dividend from Grand Canal Shops Mall Subsidiary,LLC ....... (7,000) -- -- --
Capital contribution to Venetian Casino Resort, LLC ....... -- -- -- --
Repayments on bank credit facility-term ................... -- -- -- (382)
Repayments on bank credit facility-revolver ............... -- -- -- (15,000)
Proceeds from bank credit facility-revolver ............... -- -- -- 5,000
Repayments on FF&E credit facility ........................ -- -- -- (5,374)
Repayments on Phase II Subidiary credit facility .......... -- (2,500) -- (2,500)
Payments of deferred offering costs ....................... -- -- -- (136)
Net increase(decrease) in intercompany accounts ........... (322) (988) -- --
-------------- --------------- --------------- --------------
Net cash provided by (used in) financing activities ......... (7,322) (3,488) -- (18,392)
-------------- --------------- --------------- --------------
Decrease in cash and cash equivalents ....................... (4,293) (2,668) -- (19,571)
Cash and cash equivalents at beginning of period ............ 6,650 3,105 -- 54,936
-------------- --------------- --------------- --------------
Cash and cash equivalents at end of period .................. $ 2,357 $ 437 $ -- $ 35,365
============== ============== ============== ==============
<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 March 31, 2002.
</FN>
21
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2001
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 ................................................ $ (7,032) $ 20,779 $ -- $ --
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Increase in restricted cash ............................... -- (10) -- --
Capital expenditures ...................................... -- (9,021) -- --
-------------- -------------- -------------- --------------
Net cash used in investing activities ....................... -- (9,031) -- --
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Repayments on bank credit facility-tranche B term loan .... -- (125) -- --
Repayments on FF&E credit facility ........................ -- (5,374) -- --
Proceeds from Phase II Subsidiary unsecured bank loan ..... -- -- -- --
Payments of deferred offering costs ....................... -- (177) -- --
Net increase(decrease) in intercompany accounts ........... 798 (539) -- --
-------------- -------------- -------------- --------------
Net cash provided by (used in) financing activities ......... 798 (6,215) -- --
-------------- -------------- -------------- --------------
Increase (decrease) in cash and cash equivalents ............ (6,234) 5,533 -- --
Cash and cash equivalents at beginning of period............. 35,332 4,260 4 4
-------------- -------------- -------------- --------------
Cash and cash equivalents at end of period .................. $ 29,098 $ 9,793 $ 4 $ 4
============== ============== ============== ==============
<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 March 31, 2001.
</FN>
22
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7. Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS (continued)
For the three months ended March 31, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
Subsidiary Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Net cash provided by (used in) operating
activities ................................................ $ 179 $ 10 $ -- $ 13,936
-------------- --------------- --------------- --------------
Cash flows from investing activities:
Increase in restricted cash ............................... (15) -- -- (25)
Capital expenditures ...................................... (87) (458) -- (9,566)
-------------- --------------- --------------- --------------
Net cash used in investing activities ....................... (102) (458) -- (9,591)
-------------- --------------- --------------- --------------
Cash flows from financing activities:
Repayments on bank credit facility-tranche B term loan .... -- -- -- (125)
Repayments on FF&E credit facility ........................ -- -- -- (5,374)
Proceeds from Phase II Subsidiary unsecured bank loan ..... -- 792 -- 792
Payments of deferred offering costs ....................... -- (300) -- (477)
Net increase(decrease) in intercompany accounts ........... (259) -- -- --
-------------- --------------- --------------- --------------
Net cash provided by (used in) financing activities ......... (259) 492 -- (5,184)
-------------- --------------- --------------- --------------
Increase (decrease) in cash and cash equivalents ............ (182) 44 -- (839)
Cash and cash equivalents at beginning of period ............ 2,972 34 -- 42,606
-------------- --------------- --------------- --------------
Cash and cash equivalents at end of period .................. $ 2,790 $ 78 $ -- $ 41,767
============== =============== =============== ==============
<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 March 31, 2001.
</FN>
23
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, 2001. 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 and only 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
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. See "Part II- Item 1 - Legal Proceedings."
The Company was significantly impacted by a decline in tourism following
the terrorist attacks of September 11, 2001, as well as an unusually low table
games win percentage. Consolidated net revenues for the three months ended March
31, 2002 were $136.4 million, representing a decrease of $5.5 million of
consolidated net revenues as compared to $141.9 million for the quarter ended
March 31, 2001. Despite the impact of the terrorist attacks, the Company's
financial position continues to improve, due in large part to: (1) forward hotel
room and meeting space bookings from conventions and trade shows at the Expo
Center and Casino Resort; (2) increases in average daily room rates in all major
segments of the Casino Resort's hotel rooms business since September 11; (3) a
stable recurring revenue stream from the Mall; and (4) successful cost cutting
initiatives. Although the Company continues to recover, the extent to which the
events of September 11th will continue to directly or indirectly impact
operating results in the future cannot be predicted, nor can the Company predict
the extent to which future security alerts and/or additional terrorist attacks
may impact operations.
The Company opened additional attractions at the Casino Resort on October
7, 2001, including the Guggenheim Las Vegas Museum and the Guggenheim Hermitage
Museum (the "Guggenheim Museum Projects"). During 2001, the Company also began
designing, planning, permitting and constructing: (1) an approximately
1,000-room hotel tower on top of the Casino Resort's existing parking garage;
(2) an approximately 1,000-parking space expansion to the parking garage; and
(3) approximately 150,000 square feet of additional convention center space on
the Phase II Land (collectively, the "Phase IA Addition"). To date, the Company
has completed the design of, and has substantially completed the foundation and
support systems for, the 1,000-room hotel tower on top of the existing parking
garage. Due to the travel disruption to Las Vegas during the fourth quarter of
2001, the Company decided to suspend construction of the Phase IA Addition at
that time. Certain designing, planning and permitting of the Phase IA Addition
is, however, continuing. The Company is currently exploring financing
alternatives to complete construction of the Phase IA Addition, which it
estimates will cost approximately $235.0 million to complete.
The Company has also recently announced its intention (with joint venture
partners) to seek a license to operate casinos in Macau, is pursuing the
possibility of developing an Internet gaming site and is currently exploring
other business opportunities for expansion.
Critical Accounting Policies and Estimates
- ------------------------------------------
Management has identified the following critical accounting policies that
affect the Company's more significant judgments and estimates used in the
preparation of the Company's consolidated financial statements. The preparation
of the Company's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company's
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
those estimates, including those related to asset impairment, accruals for slot
marketing points, self-insurance, compensation and related benefits, revenue
recognition, allowance for doubtful accounts, contingencies and litigation. The
Company states these accounting policies in the notes to the consolidated
financial statements and in relevant sections in this discussion and analysis.
These estimates are based on the information that is currently available to the
Company and on various other assumptions that management believes to be
reasonable under the circumstances. Actual results could vary from those
estimates.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Company believes that the following critical accounting policies affect
significant judgments and estimates used in the preparation of its consolidated
financial statements:
The Company recognizes revenue upon occupancy of hotel rooms, as net
wins and losses occur in the casino and upon delivery of food,
beverage and other services. Cancellation fees for hotel and food and
beverage services are recognized as revenue when collection is
probable and upon cancellation by the customer as defined by a written
contract entered into with the customer. Minimum rental revenues in
the Mall and Casino Resort are recognized on a straight-line basis
over the terms of the related lease. Percentage rents are recognized
in the period in which the tenants exceed their respective percentage
rent thresholds. Recoveries from tenants for real estate taxes,
insurance and other shopping center operating expenses are recognized
as revenues in the period billed, which approximates the period in
which the applicable costs are incurred.
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments, which results in bad debt expense. Management determines the
adequacy of this allowance by continually evaluating individual
customer receivables, considering the customer's financial condition,
credit history and current economic conditions. If the financial
condition of customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be
required.
The Company maintains accruals for health and workers compensation
self-insurance, slot club point redemption and group sales
commissions, which are classified in other accrued liabilities in the
consolidated balance sheets. Management determines the adequacy of
these accruals by periodically evaluating the historical experience
and projected trends related to these accruals. If such information
indicates that the accruals are overstated or understated, the Company
will adjust the assumptions utilized in the methodologies and reduce
or provide for additional accruals as appropriate.
The Company is subject to various claims and legal actions including
our lawsuits with the Construction Manager for the original
construction of the Casino Resort. Some of these matters relate to
personal injuries to customers and damage to customers' personal
assets. Management estimates guest claims expense and accrues for such
liability based upon historical experience in the other accrued
liability category in its consolidated balance sheet.
Operating Results
- -----------------
First Quarter Ended March 31, 2002 compared to First Quarter Ended March
31,2001
-------
Operating Revenues
------------------
Consolidated net revenues for the first quarter of 2002 were $136.4
million, representing a decrease of $5.5 million when compared with $141.9
million of consolidated net revenues during the first quarter of 2001. The
decrease in net revenues was due primarily to a decline of casino and hotel
revenue at the Casino Resort, which was partially offset by an increase in food
and beverage revenue.
The Casino Resort's casino revenues were $50.5 million in the first quarter
of 2002, a decrease of $8.0 million when compared to $58.5 million during the
first quarter of 2001. The decrease was attributable to the continuing impact of
the September 11th terrorist attacks and an increased selectivity of casino
customers to reduce variable marketing and incentive costs. Table games drop
(volume) decreased to $217.5 million in the first quarter of 2002 from $308.4
million during the first quarter of 2001. Slot revenue in the first quarter of
2002 decreased to $25.1 million from $27.0 million reported during the first
quarter of 2001, or a decrease of 7.0%.
The Casino Resort achieved room revenues during the first quarter of 2002
of $56.4 million, compared to $59.6 million during the first quarter of 2001.
The Casino Resort's average daily room rate was $211 in the first quarter of
2002 compared to $220 during the first quarter of 2001. The occupancy of
available guestrooms was 98.0% during the first quarter of 2002 compared to
99.6% during the first quarter of 2001.
Food and beverage, retail and other revenues were $38.6 million during the
first quarter of 2002 compared to $36.1 million during the first quarter of
2001. The increase was primarily attributable to increased banquet business
associated with the Company's group room business.
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Mall generated rental and related revenues of $8.3 million during the
first quarter of 2002 compared to $7.8 million during the first quarter of 2001.
The increase was attributable to additional tenants and increased proceeds from
rents calculated on tenant gross revenues.
Operating Expenses
------------------
Consolidated operating expenses were $99.8 million in the first quarter of
2002, compared with $108.7 million during the first quarter of 2001. Corporate
expenses totaled $1.9 million during each of the first quarter of 2002 and 2001.
Casino expenses were $29.7 million in the first quarter of 2002 compared to
$40.0 million during the first quarter of 2001, a decrease of $10.3 million. The
decrease is attributable to a reduction in table games marketing and incentive
costs during the first quarter. The decrease in marketing and incentive costs
resulted from heightened selectivity of table games customers to improve casino
operating margins.
Food and beverage expenses during the first quarter of 2002 were $10.0
million as compared to $8.3 million during the first quarter of 2001. The
increase was associated with an increase in food and beverage revenue during the
first quarter of 2002 as compared to the first quarter of 2001.
Rental expenses, primarily related to the Casino Resort's heating,
ventilation and air conditioning plant and rental gaming devices, were $1.7
million for the first quarter of 2002. Rental expenses were $2.2 million in the
first quarter of 2001. The decline in rental expenses during the first quarter
of 2002 was the result of additional charges of related costs to Casino Resort
tenants as compared to the first quarter of 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Mall incurred operating expenses of $5.1 million during the first
quarter of 2002 compared to $5.0 million during the first quarter of 2001. The
increase in Mall operating expenses was attributed to increases in advertising,
property taxes and utility cost during the first quarter of 2002.
Interest Income (Expense)
-------------------------
Interest expense was $26.7 million in the first quarter of 2002, compared
to $28.9 million in the same period of 2001. Of the $26.7 million incurred
during the first quarter of 2002, $23.2 million was related to the Casino Resort
(excluding the Mall), $3.2 million was related to the Mall and $0.3 million was
related to the Phase II Subsidiary. The decrease in interest expense was
attributed to decreases in interest rates associated with the companies variable
rate debt and scheduled repayment of debt.
Interest income for the quarter ended March 31, 2002 was $0.2 million
compared to $0.4 million in the same period in 2001. The Company had other
income of $0.7 million during the quarter ended March 31, 2002 resulting from a
change in market value of interest rate cap and floor agreements.
Other Factors Affecting Earnings
- --------------------------------
The provision for doubtful accounts was $3.3 million during the quarter
ended March 31, 2002 as compared to $3.7 million during the first quarter of
2001. The decrease was a result of lower table games revenue and the associated
credit during the first quarter of 2002 as compared to the prior year's first
quarter.
Depreciation expense for the quarter ended March 31, 2002 was $11.0 million
as compared to $10.2 million in the first quarter of 2001. The increase was
attributable to placing into service during the fourth quarter of 2001 various
capital improvement projects, including the Guggenheim Museum Projects.
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. The
Company continually evaluates its costs associated with marketing to the various
segments of the premium casino customer market and has recently increased
selectivity of casino customers to reduce variable marketing and incentive
costs.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
- -------------------------------
Cash Flow and Capital Expenditures
----------------------------------
As of March 31, 2002 and December 31, 2001, the Company held cash and cash
equivalents of $35.8 million and $57.6 million (including restricted cash of
$0.4 million and $2.6 million), respectively. Net cash provided by operating
activities for the quarter ended March 31, 2002 was $21.3 million, compared with
$13.9 million for the quarter ended March 31, 2001. Net trade receivables were
$64.3 million as of March 31, 2002 and $57.1 million as of December 31, 2001.
Capital expenditures during the quarter ended March 31, 2002 were $24.7
million, primarily attributable to liquidating construction payables relating to
the Guggenheim Museum Projects and the Phase IA Addition. Capital expenditures
for the first quarter of 2001 were $9.6 million.
Aggregate Indebtedness and Fixed Payment Obligations to the HVAC Provider
-------------------------------------------------------------------------
The Company's total long-term indebtedness and fixed payment obligations to
Atlantic Pacific Las Vegas, LLC, the provider of heating and air conditioning to
the Casino Resort and the Expo Center (the "HVAC Provider"), are summarized
below for the twelve month periods ended March 31:
2003 2004 2005 2006 Thereafter
------- ------- ------- ------- ----------
Long-Term Indebtedness
- ----------------------
Mortgage Notes -- -- 425,000 -- --
Subordinated Notes -- -- -- 94,332 --
Bank Credit Facility 76,375 105,229 -- -- --
FF&E Credit Facility 21,494 21,494 5,373 -- --
Tranche A Take-out Loan 105,000 -- -- -- --
Tranche B Take-out Loan -- -- 35,000 -- --
Completion Guaranty Loan -- -- -- 31,123 --
Phase II Subsidiary Credit Facility -- 1,433 -- -- --
Phase II Unsecured Bank Loan 1,092 -- -- -- --
Fixed Payment Obligations
To The HVAC Provider
- --------------------
HVAC Provider fixed payments 7,657 7,657 7,657 7,657 24,885
------- ------- ------- ------- ------
Total indebtedness and HVAC fixed
payment obligations 211,618 135,813 473,030 133,112 24,885
======= ======= ======= ======= ======
During the quarter ended March 31, 2002, the Company made principal
payments of $0.4 million and $5.4 million on the Bank Credit Facility and the
FF&E Credit Facility, respectively. Under the terms of its existing
indebtedness, the Company has debt service payments due aggregating $204.0
million during the next twelve months, including principal payments on: (1) the
Bank Credit Facility of $76.4 million; (2) the FF&E Credit Facility of $21.5
million; (3) the Phase II Unsecured Bank Loan of $1.1 million; and (4) Tranche A
Take-out Loan of $105.0 million. Based on current interest rates under the Bank
Credit Facility, the FF&E Credit Facility and the Tranche A Take-out Loan, the
Company has estimated total interest payments (excluding noncash amortization of
debt offering costs) of: (1) approximately $78.7 million during the next twelve
months for indebtedness secured by the Casino Resort; and (2) approximately $9.6
million during the next twelve months for indebtedness secured by the Mall.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Company also has fixed payments obligations due during the next twelve
months of $7.7 million under its energy service agreements with the HVAC
Provider. The total remaining payment obligation under this arrangement is $55.5
million, payable in equal monthly installments during the period of April 1,
2002 through July 1, 2009.
On October 19, 2001, the Phase II Subsidiary entered into the Phase II
Subsidiary Credit Facility, which is secured by the Phase II Land as well as the
Phase II Subsidiary's interest in the Phase II Lease. There was $1.4 million
outstanding under the Phase II Credit Facility as of March 31, 2002. The undrawn
portion of the Phase II Subsidiary Credit Facility of $16.1 million, as well as
proceeds from rental payments of $8.0 million per year from Venetian to the
Phase II Subsidiary under the Phase II Lease, are each available for any Phase
II Resort pre-development expenses or may be loaned or distributed by the Phase
II Subsidiary to the Company for other liquidity needs.
On May 6, 2002, the Company announced its intention to offer approximately
$850 million in aggregate principal amount of mortgage notes in a Rule 144A
offering, and to enter into a new senior secured credit facility and Mall loan
facility, in an aggregate amount of approximately $480 million, during the
second quarter of 2002. The Company intends to use the proceeds of the
Refinancing Transactions to repay, redeem or repurchase all of its outstanding
indebtedness (including the Notes, the Bank Credit Facility, the FF&E Facility,
the Mall Take-out Financing, the Completion Guaranty, the Phase II Subsidiary
Credit Facility and the Phase II Unsecured Bank Loan), to finance the
construction and development of the Phase IA Addition (which the Company
currently estimates will cost $235.0 million to complete) and to pay all fees
and expenses associated with the Refinancing Transactions. In connection with
the Refinancing Transactions, the Company expects to incur an extraordinary loss
on early retirement of indebtedness of $53.3 million which will be comprised of
$33.5 million of call premiums to be incurred in connection with the Refinancing
Transactions and the write-off of $19.8 million related to the write-off of
unamortized debt offering costs and unamortized original issue discount.
The Company also commenced a cash tender offer on May 6, 2002 to purchase
any and all of the Notes (the "Tender Offer"). The purchase price (including
consent fees) is $1,061.25 per $1,000 principal amount for the Mortgage Notes
and $1,071.25 per $1,000 principal amount for the Senior Subordinated Notes, in
each case, plus accrued but unpaid interest.
In conjunction with the Tender Offer, the Company is soliciting consents to
eliminate substantially all of the restrictive covenants of the indentures
governing the Notes and make certain other amendments. Adoption of the proposed
amendments requires the consent of holders of not less than a majority of the
aggregate principal amount of each issue of Notes. Holders who tender their
Notes will be required to consent to the proposed amendments.
The Tender Offer and the Refinancing Transactions are subject to a number
of conditions, including entering into definitive agreements for the Refinancing
Transactions. No assurance can be given that the Tender Offer or the Refinancing
Transactions will be completed, or that a refinancing will be on terms that will
be favorable to the Company.
Assuming that the Company is successful in refinancing all or a substantial
portion of its outstanding indebtedness, for the next twelve months the Company
expects to fund Casino Resort operations, capital expenditures and debt service
requirements from existing cash balances, operating cash flow, borrowings under
a revolver to the extent that funds are available and distributions of excess
cash from the owner of the Mall to the extent permitted under the terms of the
Company's indebtedness.
The Company's existing 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
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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 existing financial covenants. See "Item 1 - Financial
Statements and Supplementary Data - Notes to Financial Statements - Note 4
Long-Term Debt."
The Company was challenged to meet these covenant tests in the first
quarter of 2002 during the rolling four quarter measurement period due to an
extremely low win percentage during certain quarters and reduced travel to Las
Vegas during the fourth quarter of 2001 because of the September 11th terrorist
attacks. These covenants allow the Principal Stockholder to increase EBITDA for
measurement purposes by issuing a standby letter of credit to the Company's
lenders. The covenants also allow the New Mall Subsidiary and the Phase II
Subsidiary, subject to certain limitations, to make distributions to LVSI which
would increase EBITDA for debt covenant measurement purposes.
During the first quarter of 2002, the Company entered into a limited waiver
amendment to the Bank Credit Facility and FF&E Credit Facility to obtain a
waiver with respect to the minimum consolidated adjusted EBITDA requirement.
Also during the first quarter of 2002, the New Mall Subsidiary paid a $7.0
million distribution to Venetian.
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 its indentures and the terms of the Bank Credit Facility and the FF&E
Credit Facility or any other debt instruments 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 Principal Stockholder or any of his affiliates will
provide any such financing.
Litigation Contingencies and Available Resources
------------------------------------------------
The Company is a party to certain litigation matters and claims related to
the 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 Principal
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 Principal 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), provided that there is no cap on the Principal Stockholder's
liability for excess construction costs due to scope changes. 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.
New Mall Subsidiary and Transfer of Mall Assets and Related Assets
------------------------------------------------------------------
On November 12, 1999, Mall Construction transferred the Mall Assets to its
subsidiary, 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 a $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.
29
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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 Principal
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 Company currently plans to refinance the
Tranche A Take-out Loan prior to its due date, however, no assurance can be
given that refinancing for such indebtedness will be available to the Company
prior to this 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 its 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 hard construction
costs of the Phase II Resort. Approximately 14-acres of the Phase II Land was
transferred to the Phase II Subsidiary in 1998. On December 31, 1999, an
additional 1.75 acres of land were contributed indirectly by the Principal
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
$3.2 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 the Phase II Unsecured Bank Loan, which is due and
payable on July 15, 2002. The proceeds were used to fund payments of Phase II
Subsidiary operating costs. The Phase II Subsidiary also owed $1.4 million under
the Phase II Subsidiary Credit Facility as of March 31, 2002.
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, with
respect to these assets, 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 in addition 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
Principal Stockholder or any affiliate of the Principal 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.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Risk Related to the Subordination Structure of the Mortgage Notes
- -----------------------------------------------------------------
The Mortgage Notes represent senior secured debt obligations of LVSI and
Venetian, secured by second priority liens on the collateral securing the
Mortgage Notes (the "Note Collateral"). However, the guarantees of the Mortgage
Notes by its subsidiaries, Mall Intermediate Holding Company, LLC and Lido
Intermediate Holding Company, LLC, each a special purpose entity which is a
wholly-owned subsidiary of LVSI and Venetian (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.
Recent Accounting Pronouncements
- --------------------------------
Effective in the fourth quarter of 2000 and the first quarter of 2001, the
Company adopted Emerging Issues Task Force Issue 00-14 ("EITF 00-14") and
Emerging Issues Task Force Issue 00-22 ("EITF 00-22"), respectively. EITF 00-14
and EITF 00-22 require that cash discounts and other cash incentives related to
gaming play be recorded as a reduction of gross casino revenues. EITF 00-14 and
EITF 00-22 also require that prior periods be restated to conform to this
presentation. The Company previously recorded such discounts as an operating
expense and has reclassified prior period amounts, which has no effect on
previously reported net income.
In July 2001, the Financial Accounting Standards Board issued Statement No.
141 ("SFAS 141"), entitled "Business Combination," and Statement No. 142 ("SFAS
142"), "Goodwill and Other Intangible Assets". SFAS 141 provides as follows: (a)
use of the pooling-of-interests method is prohibited for business combinations
initiated after June 30, 2001; and (b) the provisions of SFAS 141 also apply to
all business combinations accounted for by the purchase method that are
completed after June 30, 2001. There are also transition provisions that apply
to business combinations completed before July 1, 2001 that were accounted for
by the purchase method. SFAS 142 is effective for fiscal years beginning after
December 15, 2001 and applies to all goodwill and other intangible assets
recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the Retirement
of Long-Lived Assets". The objective of SFAS 143 is to establish accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective for fiscal years
beginning after June 15, 2002.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets". SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and, generally, is to be applied
prospectively.
The adoptions of SFAS 141, SFAS 142 and SFAS 144 had no impact on the
Company's financial position or results of operations. We do not expect the
impact of the adoption of SFAS 143 to be material to our financial position,
results of operations or cash flows.
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, in certain portions of this Form 10-Q, the words:
"anticipates", "believes", "estimates", "seeks", "expects", "plans", "intends"
and similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Although the Company believes
that such forward-looking statements are reasonable, it can give no assurance
that any forward-looking statements will prove to be correct. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the risks associated with entering into new
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
construction and new ventures, including the Phase IA Addition and the Macau
joint venture, increased competition and other planned construction in Las
Vegas, including the opening of a new casino resort on the site of the former
Desert Inn and upcoming increases in meeting and convention space, the
completion of infrastructure projects in Las Vegas, government regulation of the
casino industry, including gaming license approvals and regulation in foreign
jurisdictions, the legalization of gaming in certain jurisdictions, such as
Native American reservations in the States of California and New York and
regulation of gaming on the Internet, leverage and debt service (including
sensitivity to fluctuations in interest rates and other capital markets trends),
uncertainty of casino spending and vacationing at casino resorts in Las Vegas,
disruptions or reductions in travel to Las Vegas, the September 11, 2001 attacks
and any future terrorist incidents, fluctuations in 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, insurance risks (including
the risk that the Company will not be able to obtain coverage against acts of
terrorism or will only be able to obtain such coverage at significantly
increased rates), 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,
consumer spending 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, and by use of interest rate cap and floor
agreements. The ability to enter into interest rate cap and floor agreements
allows the Company to manage its interest rate risk associated with its variable
rate debt.
The Company does not hold or issue financial instruments for trading
purposes and does not enter into deliverable transactions that would be
considered speculative positions. The Company's derivative financial instruments
consist exclusively of interest rate cap and floor agreements, which do not
quality for hedge accounting. Interest differentials resulting from these
agreements are recorded on an accrual basis as an adjustment to interest
expense.
To manage exposure to counterparty credit risk in interest rate cap and
floor agreements, the Company enters into agreements with highly-rated
institutions that can be expected to fully perform under the terms of such
agreements. Frequently, these institutions are also members of the bank group
providing the Company's credit facility, which management believes further
minimizes the risk of nonperformance.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents notional amounts and weighted average interest
rates by contractual maturity dates for the twelve month periods ended March 31:
FAIR
2003 2004 2005 2006 TOTAL VALUE(1)
------- ------- ------- ------- ------- -------
(Dollars In Millions)
LIABILITIES
Short-term debt
Variable rate ............. $204.0 -- -- -- $204.0 $204.0
Average interest rate (2) 5.0% -- -- -- 5.0% --
Long-term debt
Fixed rate ................ -- -- $460.0 $125.4 $585.4 $617.1
Average interest rate (2) -- -- 13.1% 14.3% 13.7% --
Variable rate ............. -- $128.1 $ 5.4 -- $133.5 $133.5
Average interest rate (2) -- 5.7% 5.8% -- 5.8% --
<FN>
- ----------
(1) The fair values are based on the borrowing rates currently available for debt instruments with similar
terms and maturities and market quotes of the Company's publicly traded debt.
(2) Based upon contractual interest rates for fixed rate indebtedness or current LIBOR rates for variable
rate indebtedness.
</FN>
32
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Foreign currency translation gains and losses were not material to the
Company's results of operations for the quarter ended March 31, 2002.
See also "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and "
Item 1 - Financial Statements and Supplementary Data - Notes to Financial
Statements - Note 4 Long-Term Debt."
33
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, 2001
and "Part I, Item 1 - Financial Statements - Notes to Financial Statements Note
6 Commitments and Contingencies."
Item 2. Changes in Securities and Use of Proceeds
In the first quarter of 2002, the Company granted options to purchase an
aggregate of 49,900 shares of common stock to certain key employees of the
Company at an exercise price of $271 per share. Immediately thereafter, the
Principal Stockholder assumed the obligations of the Company under the stock
option plan. The issuances were exempt from registration by virtue of Section
4(2) of the Securities Act of 1933, as amended, as transactions not involving a
public offering.
Items 3 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 Stock Option Agreement, dated as of January 2, 2002, between Las Vegas Sands,
Inc., Sheldon G. Adelson and William P. Weidner. (1)
10.2 Stock Option Agreement, dated as of January 2, 2002, between Las Vegas Sands,
Inc., Sheldon G. Adelson and Bradley H. Stone. (1)
10.3 Stock Option Agreement, dated as of January 2, 2002, between Las Vegas Sands,
Inc., Sheldon G. Adelson and Robert G. Goldstein. (1)
10.4 Stock Option Agreement, dated as of January 2, 2002, between Las Vegas Sands,
Inc., Sheldon G. Adelson and David Friedman. (1)
10.5 Assumption Agreement, dated as of January 2, 2002, by Sheldon G. Adelson. (1)
10.6 Stockholders' Agreement, dated as of January 2, 2002, among Las Vegas Sands,
Inc., Sheldon G. Adelson, William P. Weidner, Bradley H. Stone, Robert G.
Goldstein and David Friedman. (1)
10.7 Limited Waiver under Term Loan and Security Agreement, dated as of March 31,
2002, by and among LVSI and Venetian, as borrowers, General Electric Capital
Corporation, as Administrative Agent, and the lender parties thereto. (1)
10.8 Limited Waiver Regarding Credit Agreement, dated as of March 31, 2002, by and
among LVSI and Venetian, as borrowers, Scotiabank, as Lead Arranger and
Administrative Agent, and the lender parties thereto. (1)
10.9 Limited Waiver Regarding Credit Agreement, dated as of March 31, 2002, by and
among Lido Casino Resort, LLC, as borrower, Scotiabank, as Administrative
Agent, and the other lender parties thereto. (1)
<FN>
- ----------
(1) Filed herewith.
</FN>
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31,
2002.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAS VEGAS SANDS, INC.
May 8, 2002 By: /s/ Sheldon G. Adelson
------------------------------------
Sheldon G. Adelson
Chairman of the Board, Chief
Executive Officer and Director
May 8, 2002 By: /s/ Harry D. Miltenberger
------------------------------------
Harry D. Miltenberger
Vice President-Finance
(principal financial and accounting
officer)
35