UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
------------------
Commission File Number 333-42147
------------------
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) 733-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 6 1998.
Class Outstanding at November 6, 1998
- ----------------------------------- -----------------------------------
Common Stock, $.10 par value 925,000 shares
Las Vegas Sands, Inc.
Table of Contents
Part I
FINANCIAL INFORMATION
Item 1. Consolidated Statements of
Operations for the Three Months and Nine Months Ended
September 30, 1998 and September 30, 1997 ................... 1
Consolidated Balance Sheets
At September 30, 1998 and December 31, 1997 ................. 2
Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1998 and September 30, 1997 ................... 3
Notes to Consolidated Financial Statements ................. 4-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ........... 9-12
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K ........................... 13
Signatures ................................................. 14
Part I
Financial Information
Item 1. Financial Statements
LAS VEGAS SANDS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1998 1997 1998 1997
------- ------- -------- -------
Revenues:
Other $ 182 $ 217 $ 629 $ 683
------- ----- -------- -----
Operating expenses:
Payroll 1,288 1,837
Advertising 479 604
Professional services 348 594
Other general & administrative expenses 781 1,733
Amortization 25 25 75 75
------- ----- -------- -----
Total operating expenses 2,921 25 4,843 75
------- ----- -------- -----
Operating income (loss) (2,739) 192 (4,214) 608
------- ----- -------- -----
Other income (expense):
Interest income 3,929 48 14,621 97
Interest expense, net of amounts capitalized (8,913) (32,533)
------- ----- -------- -----
Net income (loss) $(7,723) $ 240 $(22,126) $ 705
======= ===== ======== =====
Basic and diluted income (loss) per share $(20.33) $0.26 $ (35.90) $0.76
======= ===== ======== =====
The accompanying notes are an integral part of these consolidated financial
statements.
1
LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
September 30,
1998 December 31,
(Unaudited) 1997
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,435 $ 857
Restricted cash and investments 238,199 341,725
Other current assets 239 213
--------- ---------
Total current assets 239,873 342,795
Property and equipment, net 656,597 279,770
Restricted investments 85,186
Deferred offering costs, net 35,450 38,618
Other assets 1,406 1,398
--------- ---------
$ 933,326 $ 747,767
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ $ 1,701
Construction payables 66,611 32,141
Other accrued liabilities 26,531 9,913
Current maturities of long term debt 5,337
--------- ---------
Total current liabilities 98,479 43,755
Long-term debt 668,573 515,612
--------- ---------
767,052 559,367
--------- ---------
Preferred Interest in Venetian Casino Resort, LLC, a wholly owned subsidiary 88,134 77,053
--------- ---------
Commitments and contingencies
Stockholder's equity:
Common stock, $.10 par value, 3,000,000 shares authorized, 925,000 shares
issued and outstanding 92 92
Capital in excess of par value 101,896 112,977
Accumulated deficit since June 30, 1996 (23,848) (1,722)
--------- ---------
78,140 111,347
--------- ---------
$ 933,326 $ 747,767
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
--------- --------
Cash flows from operating activities:
Net income (loss) $ (22,126) $ 705
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization 75 75
Interest earned on restricted investments (6,388)
Changes in assets and liabilities:
Other current assets (26) (92)
Other assets (83) 491
Accounts payable (1,701) 8,822
Other accrued liabilities 16,618 454
--------- --------
Net cash provided by (used in) operating activities (13,631) 10,455
--------- --------
Cash flows from investing activities:
Proceeds from sale of investments 195,100
Construction of Casino Resort (338,533) (86,770)
--------- --------
Net cash used in investing activities (143,433) (86,770)
--------- --------
Cash flows from financing activities:
Proceeds from capital contributions (2,100)
Proceeds from preferred interest in Venetian 72,053
Proceeds from bridge loan 15,050
Proceeds from Mall Construction Loan Facility 66,688
Proceeds from Bank Credit Facility-term loan 77,000
Proceeds from Bank Credit Facility-revolver 8,285
Proceeds from FF&E Credit Facility 5,669
--------- --------
Net cash provided by financing activities 157,642 85,003
--------- --------
Increase in cash and cash equivalents 578 8,688
Cash and cash equivalents at beginning of period 857 879
--------- --------
Cash and cash equivalents at end of period $ 1,435 $ 9,567
========= ========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 35,486 $
========= ========
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 Basis of Presentation
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. Effective April
28, 1989, LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring
the Sands Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the
Sands and subsequently demolished the facility to make way for a planned two
phase hotel-casino resort. The first phase of the hotel casino resort (the
"Casino Resort") will include approximately 3,036 suites, casino space
approximating 116,000 square feet, approximately 500,000 square feet of
convention space, and approximately 500,000 square feet of retail shops and
restaurants.
The consolidated financial statements as of September 30, 1998, September
30, 1997 and December 31, 1997 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"), Lido Casino
Resort, LLC, 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, Lido Casino Resort Holding Company, LLC, Grand Canal Shops Mall
MM, Inc. and Lido Casino Resort MM, Inc. (collectively, the "Company"). Each of
LVSI and the Subsidiaries is a separate legal entity and the assets of each such
entity are intended to be available only to the creditors of such entity.
Venetian was formed on March 20, 1997 to own and operate certain portions
of the Casino Resort. LVSI is the managing member and owns 100% of the common
voting equity in Venetian. The entire preferred interest in Venetian is owned by
Interface Group Holding Company Inc. ("Interface Holding"), which is wholly
owned by LVSI's sole stockholder (the "Sole Stockholder").
Mall Intermediate, Mall Construction 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 Mall Subsidiary is an indirect wholly owned subsidiary of Mall
Intermediate and was formed on March 20, 1997 to own and operate the retail mall
in the Casino Resort.
Construction of the Casino Resort commenced in April 1997 and completion
is scheduled for the second quarter of 1999. The Company expects to expend
approximately $1.0 billion (including capitalized interest, financing costs and
excluding land acquisition costs) to complete construction and open the Casino
Resort. There can be no assurance, however, as to when or if such construction
will be completed due to risks inherent in the development process. Pre-opening
expenses for the three and nine months ended September 30, 1998 were $2.9
million and $4.8 million, respectively.
Note 2 Per Share Data
Basic and diluted per share amounts are calculated based upon the weighted
average number of shares outstanding. The weighted average number of shares
outstanding used in the computation of per share amounts of common stock was
925,000 for all periods presented. The net loss available to common stockholders
used in computing the basic loss per share includes preferred dividends of $11.1
million for the three and nine month periods ended September 30, 1998.
4
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 3 Property and Equipment
Property and equipment includes costs incurred to construct the Casino
Resort and consists of the following (in thousands):
September 30, December 31,
1998 1997
------------- ------------
Land and land improvements $ 93,634 $ 93,634
Equipment, furniture and fixtures 422 422
Construction in progress 562,541 185,714
-------- --------
$656,597 $279,770
======== ========
Construction in progress at September 30, 1998 and December 31, 1997
consists of construction costs, including capitalized interest of $26.6 million
and $2.2 million at September 30, 1998 and December 31, 1997, respectively.
Note 4 Long-Term Debt
Long-term debt consists of the following (in thousands):
September 30, December 31,
1998 1997
------------- ------------
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 $6,232 and $6,888) 91,268 90,612
Mall Construction Loan Facility 66,688
Bank Credit Facility-revolver 8,285
Bank Credit Facility-term loan 77,000
FF&E Credit Facility 5,669
Less: current maturities (5,337)
-------- --------
Total long-term debt $668,573 $515,612
======== ========
In connection with the financing for the Casino Resort, the Company
entered into a series of transactions during 1997 to provide for the development
and construction of the Casino Resort. In November 1997, the Company issued
$425.0 million aggregate principal amount of Mortgage Notes (the "Mortgage
Notes") and $97.5 million aggregate principal amount of Senior Subordinated
Notes (the "Senior Subordinated Notes" and, together with the Mortgage Notes,
the "Notes") in a private placement. On June 1, 1998 LVSI and Venetian completed
an exchange offer to exchange the Notes for notes with substantially the same
terms. In November 1997, LVSI, Venetian and a syndicate of lenders entered into
a bank credit facility (the "Bank Credit Facility"). The Bank Credit Facility
provides up to $150.0 million in multiple draw term loans to the Company for
construction and development of the Casino Resort. Up to $20.0 million of
additional credit in the form of revolving loans under the Bank Credit Facility
is available generally for working capital beginning six months prior to the
completion date. During the construction of the Casino Resort, up to $15.0
million of the revolving loans or letters of credit will be available to fund
purchases of certain furniture, fixtures and equipment. In November 1997, LVSI,
Venetian, Mall Construction and a major non-bank lender entered into a mall
construction loan facility to provide up to $140.0 million in financing for the
retail mall in the Casino Resort (the "Mall Construction Loan Facility"). In
December 1997, the Company entered into an agreement (the "FF&E Credit
Facility") with certain lenders to provide for $97.7 million of financing for
certain furniture, fixtures and equipment to be secured under the FF&E Credit
Facility and an electrical substation.
During the nine months ended September 30, 1998, $66.7 million, $85.3
million and $5.7 million were drawn from the Mall Construction Loan Facility,
Bank Credit Facility and the FF&E Credit Facility, respectively. In addition, at
September 30, 1998 the Company has committed to $3.2 million of irrevocable
letters of credit drawn under the revolver facility of the Bank Credit Facility.
5
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 5 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"). During the quarter ended September 30, 1998, the
Series A Preferred Interest was converted into the Series B Preferred Interest.
The rights of the Series B Preferred Interest include the accrual of a preferred
return of 12% from the date of contribution in respect of the Series A Preferred
Interest. Until the indebtedness under the Bank Credit Facility is repaid and
cash payments are permitted under the restricted payment covenants of the
indentures entered into in connection with the Notes, the preferred return on
the Series B Preferred Interest will accrue and will not be paid in cash.
Commencing in November 2009, distributions must be made to the extent of the
positive capital account of the holder. During the quarter ended September 30,
1998, $11.1 million was accrued on the Series B Preferred Interest related to
the contributions made during 1997 and there were no distributions of preferred
interest or preferred return paid.
Note 6 Commitments and Contingencies
Construction Costs
Ground breaking for the Casino Resort occurred in April 1997. The
redevelopment of the site of the Sands is expected to be completed in two phases
(with the first phase being construction of the Casino Resort). There can be no
assurance, however, as to when, or if, such construction will be completed due
to risks and uncertainties inherent in the development process. The cost of the
Casino Resort (excluding land acquisition cost) is currently estimated at
approximately $1.0 billion.
Litigation
The Company is party to litigation matters and claims related to its
operations. The financial statements include provisions for estimated losses
related thereto. Management does not expect that the final resolution of these
matters will have a material impact on the financial position and results of
operations of the Company.
Note 7 Summarized Financial Information
Venetian, Mall Intermediate, Mall Construction, and Lido Intermediate
(collectively, the "Subsidiary Guarantors") are wholly owned subsidiaries of
LVSI. 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. The Subsidiary Guarantors have jointly
and severally guaranteed (or are co-obligors of) such debt on a full and
unconditional basis (other than indebtedness under the Mall Construction Loan
Facility which is guaranteed only by Mall Intermediate and Mall Construction).
No other subsidiary of LVSI is an obligor or guarantor of any of the Casino
Resort financing. Summarized financial information is presented for
non-guarantor subsidiaries of the Company through September 30, 1998. Separate
financial statements and other disclosures concerning each of Venetian, the
Subsidiary Guarantors and non-guarantor subsidiaries are not presented because
management believes that they are not material to investors. Summarized
financial information of LVSI, Venetian and the Subsidiary Guarantors, and
non-guarantor subsidiaries on a combined basis as of and for the nine months
ended September 30, 1998 is as follows (in thousands):
6
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information
CONDENSED BALANCE SHEETS
Venetian
and the Non- Consolidating/
Las Vegas Subsidiary Guarantor Eliminating
Sands, Inc. Guarantors Subsidiaries Entries Total
----------- ---------- ------------ ------------- --------
Cash and cash equivalents $ 822 $ 605 $ 8 $ $ 1,435
Restricted cash and investments 238,199 238,199
Amounts due from Venetian 760 (760)
Other current assets 5 234 239
-------- --------- --------- --------- --------
Total current assets 1,587 239,038 8 (760) 239,873
-------- --------- --------- --------- --------
Property and equipment, net 656,597 656,597
Investment in Subsidiaries 114,197 198 (114,395)
Deferred offering costs 35,450 35,450
Other assets 1,342 64 1,406
-------- --------- --------- --------- --------
$117,126 $ 931,347 $ 8 $(115,155) $933,326
======== ========= ========= ========= ========
Construction payables $ $ 66,611 $ $ $ 66,611
Amounts due to LVSI 760 (760)
Other accrued liabilities 1,947 24,584 26,531
Current maturities of long term debt 5,337 5,337
-------- --------- --------- --------- --------
Total current liabilities 1,947 97,292 (760) 98,479
Long-term debt 668,573 668,573
-------- --------- --------- --------- --------
1,947 765,865 (760) 767,052
Preferred interest in Venetian 88,134 88,134
-------- --------- --------- --------- --------
Stockholder's equity 115,179 77,348 8 (114,395) 78,140
-------- --------- --------- --------- --------
$117,126 $ 931,347 $ 8 $(115,155) $933,326
======== ========= ========= ========= ========
7
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information
CONDENSED STATEMENTS OF OPERATIONS
Venetian
and the Non- Consolidating/
Las Vegas Subsidiary Guarantor Eliminating
Sands, Inc. Guarantors Subsidiaries Entries Total
----------- ---------- ------------ ------------- --------
Revenues $ 612 $ 17 $ $ $ 629
Operating expenses 75 4,643 125 4,843
-------- --------- --------- ---------- --------
Operating income (loss) 537 (4,626) (125) (4,214)
Other income (expense):
Interest income 42 14,579 14,621
Interest expense (32,533) (32,533)
-------- --------- --------- ---------- --------
Net income (loss) $ 579 $ (22,580) $ (125) $ $(22,126)
======== ========= ========= ========== ========
CONDENSED STATEMENTS OF CASH FLOWS
Venetian
and the Non- Consolidating/
Las Vegas Subsidiary Guarantor Eliminating
Sands, Inc. Guarantors Subsidiaries Entries Total
----------- ---------- ------------ ------------- --------
Net cash provided by ( used in) operating
activities $ 744 $ (14,250) $ (125) $ $(13,631)
-------- --------- --------- ---------- --------
Cash flows from investing activities:
Proceeds from sale of investments 195,100 195,100
Investment in subsidiaries (65) (197) 262
Construction of Casino Resort (338,533) (338,533)
-------- --------- --------- ---------- --------
Net cash used in investing activities (65) (143,630) 262 (143,433)
Cash flows from financing activities:
Proceeds from Mall Construction Loan Facility 66,688 66,688
Proceeds from Bank Credit Facility-term loan 77,000 77,000
Proceeds from Bank Credit Facility-revolver 8,285 8,285
Proceeds from FF&E Credit Facility 5,669 5,669
Proceeds from capital contributions 129 133 (262)
-------- --------- --------- ---------- --------
Net cash provided by financing activities 157,771 133 (262) 157,642
-------- --------- --------- ---------- --------
Increase (decrease) in cash and cash equivalents 679 (109) 8 578
Cash and cash equivalents at beginning of period 142 715 857
-------- --------- --------- ---------- --------
Cash and cash equivalents at end of period $ 821 $ 606 $ 8 $ $ 1,435
======== ========= ========= ========== ========
8
LAS VEGAS SANDS, INC.
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 1997 Annual Report
on Form 10-K. Certain statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" are forward-looking
statements. See "Special Note Regarding Forward-Looking Statements."
Results of Operations
The Company owns and is developing approximately 45 acres on the Las Vegas
Strip. The Company is constructing and will own and operate the Casino Resort, a
large-scale Venetian-themed hotel, casino, retail, meeting and entertainment
complex in Las Vegas, Nevada. The Casino Resort is expected to commence
operations in the second quarter of 1999. On June 30, 1996 the Company suspended
operations and closed the Sands to begin the construction of the Casino Resort.
The Company's operating income since June 30, 1996 primarily consists of rental
and royalty income. Pre-opening activities associated with the opening of the
Casino Resort commenced during the second quarter of 1998 and related costs are
included in operating expenses. Other income and expense consists of interest
income earned and non-capitalized interest expense associated with financing the
development of the Casino Resort.
As of October 22, 1998, preliminary group sales efforts have resulted in
hotel bookings of approximately 66% of the projected group-booking goal of
510,000 room nights for the first year of operations of the Casino Resort.
Approximately 20% of the projected first year goal has been contractually
reserved, with cancellation clauses, for in-house groups and conventions. The
remainder has been set aside pursuant to contractual arrangements with trade
show vendors. The contractual arrangements for rooms with trade show vendors are
subject to standard cancellation terms without penalty. Marketing and sales
efforts for individual room reservations from trade show attendees and retail
reservations are expected to begin during the fourth quarter of this year. See
"Special Note Regarding Forward-Looking Statements."
Third Quarter Ended 1998 compared to Third Quarter Ended 1997
Operating Revenues. Revenues for the third quarter of 1998 were $182,000
compared with $217,000 during the same period last year and consisted primarily
of rental and royalty income.
Operating Expenses. Pre-opening expenses of $2.9 million were incurred
during the third quarter of 1998 compared with $0 during the same period in
1997. Pre-opening expenses included payroll, advertising, professional services
and other general and administrative expenses related to the opening of the
Casino Resort. Amortization expense was $25,000 in both quarters.
Interest Income (Expense). Interest income increased to $3.9 million
during the third quarter of 1998 from $48,000 during the same period last year
as a result of investing proceeds received from the sale of the Notes in the
aggregate principal amount of $522.5 million on November 14, 1997. The increase
in interest expense to $8.9 million for the quarter ended September 30, 1998
from $0 during the same period in 1997 represents the non-capitalized interest
expense resulting from debt incurred related to the financing of the Casino
Resort.
9
LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
Nine Months Ended 1998 compared to Nine Months Ended 1997
Operating Revenues. Revenues for the first nine months of 1998 were
$629,000 compared with $683,000 during the same period last year and consisted
primarily of rental and royalty income.
Operating Expenses. Pre-opening expenses of $4.8 million were incurred
during the first nine months of 1998 compared with $0 during the same period in
1997. Pre-opening expenses included payroll, advertising, professional services
and other general and administrative expenses related to the opening of the
Casino Resort. Amortization expense was $75,000 in both periods.
Interest Income (Expense). Interest income increased to $14.6 million
during the first nine months of 1998 from $97,000 during the same period last
year as a result of investing proceeds received from the sale of the Notes in
the aggregate principal amount of $522.5 million on November 14, 1997. The
increase in interest expense to $32.5 million for the nine months ended
September 30, 1998 from $0 during the same period in 1997 represents the
non-capitalized interest expense resulting from debt incurred related to the
financing of the Casino Resort.
Liquidity and Capital Resources
As of September 30, 1998 and December 31, 1997, the Company held cash and
cash equivalents of $1.4 million and $0.9 million, respectively. As of September
30, 1998 and December 31, 1997, the Company held restricted cash and cash
equivalents of $238.2 million and $426.9 million, respectively. Net cash used in
operating activities for the first nine months of 1998 was $13.6 million,
compared with net cash provided by operating activities of $10.5 million for the
same period in 1997.
Capital expenditures during the first nine months of 1998 were $338.5
million, consisting of construction of the Casino Resort. Of the cost expended
or incurred during the first nine months of 1998, $85.3 million, $66.7 million
and $5.7 million were drawn from the Bank Credit Facility (including $8.3
million under the revolving credit facility), Mall Construction Loan Facility
and FF&E Credit Facility, respectively. The balance of the capital expenditures
represents proceeds from the Notes and period end accruals for construction
payables and contractor retention amounts. As of September 30, 1998,
approximately $623.7 million of the total project cost of approximately $1.0
billion (excluding land acquisitions costs) had been expended or incurred to
fund construction and development of the Casino Resort. The remaining
approximately $376.3 million of estimated construction and development costs for
the Casino Resort is expected to be funded from a combination of (i) continued
borrowings under the Bank Credit Facility, (ii) remaining proceeds from the
offering of the Mortgage Notes, (iii) continued borrowings under the Mall
Construction Loan Facility and (iv) borrowings under the FF&E Credit Facility.
In addition, a heating, ventilating and air conditioning provider (the "HVAC
Provider") will separately contribute up to $67.0 million for the purchase and
installation of heating, ventilating and air conditioning equipment which the
HVAC Provider will own and operate.
The construction of the principal components of the Casino Resort was undertaken
under a Construction Management Contract, dated as of February 15, 1997 (the
"Construction Management Contract"), between LVSI and Lehrer McGovern Bovis,
Inc., as construction manager (the "Construction Manager). The Construction
Management Contract provided that the Company and the Construction Manager would
establish a final guaranteed maximum price ("Final GMP") after completion of
final design documents and the execution of trade contracts for 90% (by dollar
amount) of the trade contracts portion of the guaranteed maximum price. The
Company entered into the Final GMP amendment to the Construction Management
Contract (the "Amendment") during the quarter ended September 30, 1998. Subject
to certain exceptions, if the cost of the work covered by the Construction
Management Contract exceeds the amount of the Final GMP, the Construction
Manager is responsible for such excess costs. The Amendment re-affirms the date
for substantial completion of the Casino Resort as April 21, 1999 and provides
that the Construction Manager will use its best efforts to achieve substantial
completion by April 13, 1999. The Amendment provides for a Final GMP for work
included within the scope of work of the Construction Manager of $624.4 million.
As contemplated by the project documents, certain funds, such as the original
$40.0 million general project contingency, realized cost savings and other
available funds have been reallocated to this Final GMP amount to balance the
project budget. Included within the scope of the Final GMP amount is $67.0
million to construct and install the heating, ventilating and air conditioning
equipment which the HVAC Provider will own and operate. In addition,
10
LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations (Continued)
the following funds are available or have been allocated to pay for cost
overruns: (i) a $10.0 million contingency included in the Construction Manager's
Final GMP and (ii) $26.7 million of the Sole Stockholder's collateralized
completion guaranty.
Following completion of the Casino Resort, the Company expects to fund its
operations and capital requirements from (i) operating cash flow, (ii)
additional indebtedness of up to $20.0 million of revolving loans under the Bank
Credit Facility (although $8.3 million and $3.2 million have been drawn to fund
FF&E deposits and undrawn letters of credit, respectively, such amounts will be
repaid from the FF&E Credit Facility and the Bank Credit Facility, respectively,
prior to completion of the Casino Resort) and (iii) its ability to obtain
additional working capital indebtedness of up to $20.0 million under the
existing debt covenants and the indentures entered into in connection with the
Notes.
Although no additional financing for the Casino Resort is currently
contemplated (other than that described above), the Company will seek, if
necessary and to the extent permitted under the indentures entered into in
connection with the issuance of each of the Mortgage Notes and the Senior
Subordinated Notes and the terms of the Bank Credit Facility and the Mall
Construction Loan Facility, additional financing through additional or
replacement bank borrowings or debt or equity financings. There can be no
assurance that additional or replacement financing, if needed, will be available
to the Company, and, if available, that the financing will be on terms favorable
to the Company, or that the Sole Stockholder or any of his affiliates will
provide any such financing. Finally, there can be no assurance that new business
developments or other unforeseen events will not occur resulting in the need to
raise additional funds.
Year 2000 Update
The Company is in the process of purchasing and installing new computer
hardware and software to operate the Casino Resort. The Company is addressing
the issue of computer programs and embedded computer chips being unable to
distinguish between the years 1900 and 2000. The Company has established an
internal review system to ensure that all new systems purchased and installed to
operate the Casino Resort are year 2000 compliant. The new systems are scheduled
for implementation upon the opening of the Casino Resort on April 21, 1999. The
review system includes testing all new systems for year 2000 compliance prior to
opening the Casino Resort. The review system is being undertaken under the
direction of the Casino Resort's Vice President of information systems.
Cost
The total cost associated with required testing of systems to become year
2000 compliant is not expected to be material to the Company's financial
position. Funds for the screening and testing of the new systems are included in
the project budget for the purchase of computer systems.
Risks
Due to the general uncertainty inherent in the year 2000 problem,
resulting in part from the uncertainty of the year 2000 readiness of third party
suppliers and customers, the Company is unable to determine at this time whether
the consequences of year 2000 failures will have a material impact of the
Company's results of operations, liquidity or financial condition. The Company
believes that with the screening process in place the possibility of significant
interruptions of normal operations should be reduced. The Company is presently
making inquiries to determine whether the year 2000 issue will have any effect
on its suppliers and business partners. The Company has not, however, determined
the adequacy of year 2000 compliance for other industries that the Casino Resort
will rely upon, including but not limited to, airline industry and telephone
service suppliers. See "Special Note Regarding Forward-Looking Statements."
11
LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
Special Note Regarding Forward-Looking Statements
Certain statements in this section and elsewhere in this Quarterly Report
on Form 10-Q (as well as information included in oral statements or other
written statements made or to be made by the Company) constitute
"forward-looking statements." Such forward-looking statements include the
discussions of the business strategies of the Company and expectations
concerning future operations, margins, profitability, liquidity and capital
resources. Although the Company believes that such forward-looking statements
are reasonable, it can give no assurance that any forward-looking statements
will prove to be correct. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the risks
associated with entering into a new venture and new construction, competition
and other planned construction in Las Vegas, government regulation related to
the casino industry (including the legalization of gaming in certain
jurisdictions, such as Indian reservations in the state of California), leverage
and debt service (including sensitivity to fluctuations in interest rates),
uncertainty of casino spending and vacationing in casino resorts in Las Vegas,
occupancy rates and average daily room rates in Las Vegas, demand for all-suites
rooms, the popularity of Las Vegas as a convention and trade show destination,
the completion of infrastructure improvements in Las Vegas, including the recent
expansion of McCarran International Airport, and general economic and business
conditions which may impact levels of disposable income of consumers and pricing
of hotel rooms.
12
LAS VEGAS SANDS, INC.
Part II
OTHER INFORMATION
Items 1 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 Guaranteed Maximum Price Amendment to Construction
Management Agreement, dated June 17, 1998 (effective
September 9, 1998), between Lehrer McGovern Bovis,
Inc. and Venetian Casino Resort, LLC.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
September 30, 1998.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAS VEGAS SANDS, INC.
November 13, 1998 By: /s/ Sheldon G. Adelson
------------------------------
Sheldon G. Adelson
Chairman of the Board, Chief
Executive Officer and Director
November 13, 1998 By: /s/ Harry D. Miltenberger
------------------------------
Harry D. Miltenberger
Vice President-Finance
(principal financial and
accounting officer)
14