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, 1999
[ ] 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
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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 incorporation or organization) (I.R.S. Employer Identification No.)
3355 Las Vegas Boulevard South, Room 1A
Las Vegas, Nevada 89109
- -------------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 414-1000
----------------------------------------------------
(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 May 14, 1999.
Class Outstanding at May 14, 1999
- ---------------------------- ---------------------------
Common Stock, $.10 par value 925,000 shares
Las Vegas Sands, Inc.
Table of Contents
Part I
FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
At March 31, 1999 and December 31, 1998 ..................... 1
Consolidated Statements of
Operations for the Three Months Ended
March 31, 1999 and March 31, 1998 ........................... 2
Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 1999 and March 31, 1998 ........................... 3
Notes to Consolidated Financial Statements ................. 4-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ........... 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 15
Part II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........................... 16
Signatures ................................................. 17
PART 1
Financial Information
Item 1. Financial Statements
LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
March 31,
1999 December 31,
(Unaudited) 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,464 $ 2,285
Restricted cash and investments 47,095 133,936
Other current assets 126 187
------------ ------------
Total current assets 63,685 136,408
Property and equipment, net 1,033,128 833,054
Deferred offering costs, net 33,629 35,101
Other assets 1,353 1,381
------------ ------------
$ 1,131,795 $ 1,005,944
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 206 $ 265
Construction payables 100,470 77,025
Other accrued liabilities 28,790 12,074
Current maturities of long-term debt 25,357 13,788
------------ ------------
Total current liabilities 154,823 103,152
Long-term debt 827,451 744,154
------------ ------------
982,274 847,306
------------ ------------
Redeemable Preferred Interest in Venetian Casino Resort, LLC, a wholly
owned subsidiary 94,329 90,701
------------ ------------
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 95,702 99,330
Accumulated deficit since June 30, 1996 (40,602) (31,485)
------------ ------------
55,192 67,937
------------ ------------
$ 1,131,795 $ 1,005,944
============ ============
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,
-----------------------
1999 1998
--------- ---------
Revenues:
Other $ 257 $ 149
--------- ---------
Operating expenses:
Pre-opening 6,778
Amortization 25 25
--------- ---------
Total operating expenses 6,803 25
--------- ---------
Operating income (loss) (6,546) 124
--------- ---------
Other income (expense):
Interest income 1,268 5,699
Interest expense, net of amounts capitalized (3,838) (12,602)
--------- ---------
Net loss $ (9,116) $ (6,779)
========= =========
Basic and diluted loss per share $ (13.78) $ (7.33)
========= =========
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)
Three Months Ended
March 31,
---------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net loss $(9,116) $ (6,779)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization 25 25
Interest earned on restricted investments 5,037 4,228
Changes in assets and liabilities:
Other current assets 61 (49)
Other assets 4 (24)
Accounts payable (59) (1,648)
Other accrued liabilities 16,714 15,564
--------- ---------
Net cash provided by operating activities 12,666 11,317
--------- ---------
Cash flows from investing activities:
Proceeds from sale of investments 81,804 33,421
Construction of Casino Resort (174,938) (71,288)
--------- ---------
Net cash used in investing activities (93,134) (37,867)
--------- ---------
Cash flows from financing activities:
Proceeds from Mall Construction Loan Facility 30,815 11,898
Proceeds from Bank Credit Facility-term loan 34,000 15,000
Proceeds from Bank Credit Facility-revolver 4,763
Proceeds from FF&E Credit Facility 25,069
--------- ---------
Net cash provided by financing activities 94,647 26,898
--------- ---------
Increase in cash and cash equivalents 14,179 348
Cash and cash equivalents at beginning of period 2,285 857
--------- ---------
Cash and cash equivalents at end of period $16,464 $ 1,205
========= =========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 6,302 $ 566
========= =========
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, 1998. The year end balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. On April 28,
1989, LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring the
Sands Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the Sands
and subsequently demolished the facility to make way for a planned two phase
hotel-casino resort. The first phase of the hotel-casino resort (the "Casino
Resort") will include approximately 3,036 suites, casino space approximating
120,000 square feet, approximately 500,000 square feet of convention space, and
approximately 475,000 gross leasable square feet of retail shops and restaurants
(the "Mall").
The consolidated financial statements as of March 31, 1999, March 31,
1998 and December 31, 1998 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 (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, 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 Mall.
Construction of the Casino Resort commenced in April 1997. The casino
space and certain suites at the Casino Resort opened on May 4, 1999. Subject to
the receipt of certain temporary certificates of occupancy, the Company expects
that the Mall and the remaining suites will open on or prior to May 24, 1999.
Pre-opening expenses for the three months ended March 31, 1999 and March 31,
1998 were $6.8 million and $0, respectively.
Note 2 Per Share Data
Basic and diluted loss per share are calculated based upon the weighted
average number of shares outstanding. The weighted average number of shares
outstanding used in the computation of loss per share of common stock was
925,000 for all periods presented. The net loss available to common stockholders
used in computing the basic and diluted loss per share includes accrued
preferred dividends of $3.6 million for the three-month period ended March 31,
1999.
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):
March 31, December 31,
1999 1998
--------- ------------
Land and land improvements $ 93,634 $ 93,634
Equipment, furniture and fixtures 392 392
Construction in progress 939,102 739,028
---------- ---------
$1,033,128 $ 833,054
========== =========
Construction in progress at March 31, 1999 and December 31, 1998
consists of payments for construction of the Casino Resort, including
capitalized interest of $61.2 million and $41.9 million, respectively.
Note 4 Long-Term Debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
1999 1998
--------- ------------
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 $5,794 and $6,014) 91,706 91,486
Mall Construction Loan Facility 133,528 102,713
Bank Credit Facility-revolver 13,648 8,885
Bank Credit Facility-term loan 150,000 116,000
FF&E Credit Facility 38,926 13,858
Less: current maturities (25,357) (13,788)
---------- ---------
Total long-term debt $ 827,451 $ 744,154
========== =========
In connection with the financing for the Casino Resort, the Company
entered into a series of transactions during 1997 to provide for the development
and construction of the Casino Resort. In November 1997, the Company issued
$425.0 million aggregate principal amount of Mortgage Notes (the "Mortgage
Notes") and $97.5 million aggregate principal amount of Senior Subordinated
Notes (the "Senior Subordinated Notes" and, together with the Mortgage Notes,
the "Notes") in a private placement. On June 1, 1998, LVSI and Venetian
completed an exchange offer to exchange the Notes for Notes with substantially
the same terms. In November 1997, LVSI, Venetian and a syndicate of lenders
entered into a bank credit facility (the "Bank Credit Facility"). The Bank
Credit Facility provides up to $150.0 million in multiple draw term loans to the
Company for construction and development of the Casino Resort. Up to $40.0
million of additional credit in the form of revolving loans under the Bank
Credit Facility is available generally for working capital. During the
construction of the Casino Resort, up to $15.0 million of the revolving loans or
letters of credit was 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 three months ended March 31, 1999, $30.8 million, $38.8
million and $25.1 million were drawn from the Mall Construction Loan Facility,
the Bank Credit Facility and the FF&E Credit Facility, respectively. In
addition, at March 31, 1999 the Company had committed to $1.4 million of
irrevocable letters of credit drawn on the revolver of the Bank Credit Facility.
5
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 5 Redeemable Preferred Interest in Venetian Casino Resort, LLC
During 1997, Interface Holding contributed $77.1 million in cash to
Venetian in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the Bank Credit Facility is repaid and cash payments are
permitted under the restricted payment covenants of the indentures entered into
in connection with the Notes (the "Indentures"), the preferred return on the
Series B Preferred Interest will accrue and will not be paid in cash. Commencing
in November 2009, distributions must be made to the extent of the positive
capital account of the holder. During the quarter ended March 31, 1999, $3.6
million was accrued on the Series B Preferred Interest.
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 and the second
phase being construction of a second casino resort and referred to herein as the
"Phase II 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 is currently estimated at
approximately $1.0 billion. In connection with the construction of the Casino
Resort, the Company has signed a construction management agreement (the
"Construction Management Agreement") with a major construction management firm
(the "Construction Manager"). Such agreement provides for a maximum guaranteed
price (the "Final GMP") for certain construction costs set at $624.4 million
(the "Final GMP Amendment"), subsequently increased to $643.3 million with
approved change orders, and a guaranteed completion period of 24 months from the
effective starting date of construction.
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, based upon advice from legal counsel, does not
expect that the final resolution of these matters will have a material impact on
the financial position, results of operations and cash flows of the Company.
Note 7 Summarized Financial Information
Venetian and LVSI are co-obligors of the Notes and certain other
indebtedness related to construction of the Casino Resort and are jointly and
severally liable for such indebtedness (including the Notes). Venetian and 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 (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.
Venetian, Mall Construction and the Mall Subsidiary, have entered into
a Sale and Contribution Agreement (the "Sale and Contribution Agreement")
whereby, upon substantial completion of the Casino Resort, Mall Construction, a
guarantor, has agreed to sell and the Mall Subsidiary has agreed to purchase,
among other things, (i) all of its right, title and interest (whether in fee or
in leasehold) in and to the property and improvements that constitute the Mall
in their "as is" condition on the date of Completion (as defined in the funds
disbursement and administration agreement among certain lenders of the Company
(the "Disbursement Agreement")), (ii) monies deposited in certain reserve
accounts relating to the Mall, (iii) all right, title and interest of Mall
Construction in and to a lease for an entertainment complex which is adjacent to
the casino floor and (iv) all right, title and interest of Mall Construction (a)
as landlord under Mall tenant leases, (b) under an Amended and Restated
6
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
Reciprocal, Easement, Use and Operating Agreement among Venetian, Mall
Construction and Interface Group-Nevada, Inc. (the "Cooperation Agreement"), (c)
in and to all other easements, fixtures and improvements appurtenant thereto,
(d) under an Energy Services Agreement, dated as of June 1, 1997, with a
heating, ventilating and air conditioning provider (the "HVAC Provider") and any
other Mall intangible property rights and (e) in and to all Mall personal
property (collectively, the "Mall Assets"). In connection with the sale of the
Mall, Mall Construction also will transfer to the Mall Subsidiary the proceeds
of the final draw under the Mall Construction Loan Facility (and, under certain
circumstances, a specified amount under a guaranty through which the Sole
Stockholder has provided a $25.0 million collateralized completion guaranty (the
"Completion Guaranty")). As consideration for such transfers, the Mall
Subsidiary shall, among other things, repay or assume in full the outstanding
balance of the indebtedness under the Mall Construction Loan Facility (or
certain refinancings thereof), including the amount of the final draw
thereunder.
Because the Mall Subsidiary will not be a guarantor of any indebtedness
of the Company, creditors of the Company (including the holders of the Notes)
will not have a direct claim against the assets of the Mall Subsidiary. As a
result, indebtedness of the Company (including the Notes) will be effectively
subordinated to indebtedness of the Mall Subsidiary. The Mall Subsidiary is not
restricted by any of the debt instruments of the Company (including the
Indentures) from incurring any indebtedness. Any indebtedness incurred by the
Mall Subsidiary may include material restrictions on the ability of the Mall
Subsidiary to pay dividends or to make distributions or loans to the Company and
its subsidiaries.
Prior to October 1998, Venetian owned approximately 44 acres of land on
or near the Las Vegas Strip, on the site of the former Sands. Such property
includes the site on which the Casino Resort is being constructed. Approximately
14 acres of such land was transferred to the Phase II Subsidiary in October
1998. The Phase II Resort is planned to be constructed adjacent to the Casino
Resort. Because the Phase II Subsidiary will not be a guarantor of the Company's
indebtedness, creditors of the Company (including the holders of the Notes) will
not have a direct claim against the assets of the Phase II Subsidiary. As a
result, the indebtedness of the Company (including the Notes) will be
effectively subordinated to indebtedness of the Phase II Subsidiary. The Phase
II Subsidiary is not subject to any of the restrictive covenants of the debt
instruments of the Company (including the Notes). Any indebtedness incurred by
the Phase II Subsidiary is expected to include material restrictions on the
ability of the Phase II Subsidiary to pay dividends or make distributions or
loans to the Company and its subsidiaries.
Separate financial statements and other disclosures concerning each of
Venetian and the Subsidiary Guarantors are not presented below because
management believes that they are not material to investors. Summarized
financial information of LVSI, Venetian, the Subsidiary Guarantors and the
non-guarantor subsidiaries on a combined basis as of and for the quarter ended
March 31, 1999 is as follows (in thousands):
7
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
March 31, 1999
(1)
Lido Mall Grand Canal
Venetian Intermediate Intermediate Shops Mall
Las Vegas Casino Resort Holding Holding Construction
Sands, Inc. LLC Company LLC Company LLC LLC
----------- ------------- -------------- ----------------- -------------- -
Cash and cash equivalents $ 6,376 $ 10,044 $ 5 $ 5 $ 5
Restricted cash and investments 47,095
Amounts due from LVSI 4,458
Amounts due from Venetian 13,157
Amounts due from Phase II Subsidiary 170
Other current assets 22 104
-------- --------- --------- ----------- ---------
Total current assets 6,398 61,871 5 5 13,162
-------- --------- --------- ----------- ---------
Property and equipment, net 877,966 125,993
Investment in Subsidiaries 114,225 29,330
Deferred offering costs,net 27,248 6,381
Other assets 1,289 64
-------- --------- --------- ----------- ---------
$121,912 $ 996,479 $ 5 $ 5 $ 145,536
======== ========= ========= =========== =========
Accounts payable $ $ 206 $ $ $
Construction payable 88,467 12,003
Amounts due to Mall Construction 13,157
Amounts due to Venetian 4,458
Other accrued liabilities 1,922 26,868
Current maturities of long-term debt 25,357
-------- --------- --------- ----------- ---------
Total current liabilities 6,380 154,055 12,003
Long-term debt 693,923 133,528
-------- --------- --------- ----------- ---------
6,380 847,978 145,531
Redeemable Preferred interest in Venetian 94,329
-------- --------- --------- ----------- ---------
Stockholder's equity 115,532 54,172 5 5 5
-------- --------- --------- ----------- ---------
$121,912 $ 996,479 $ 5 $ 5 $ 145,536
======== ========= ========= =========== =========
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
------------- --------------- ---------------
Cash and cash equivalents $ 29 $ $ 16,464
Restricted cash and investments 47,095
Amounts due from LVSI (4,458)
Amounts due from Venetian (13,157)
Amounts due from Phase II Subsidiary (170)
Other current assets 126
--------- ----------- ----------
Total current assets 29 (17,785) 63,685
--------- ----------- ----------
Property and equipment, net 29,169 1,033,128
Investment in Subsidiaries (143,555)
Deferred offering costs,net 33,629
Other assets 1,353
--------- ----------- ----------
$ 29,198 $ (161,340) $1,131,795
========= =========== ==========
Accounts payable $ $ $ 206
Construction payable 100,470
Amounts due to Mall Construction (13,157)
Amounts due to Venetian 170 (4,628)
Other accrued liabilities 28,790
Current maturities of long-term debt 25,357
--------- ----------- ----------
Total current liabilities 170 (17,785) 154,823
Long-term debt 827,451
--------- ----------- ----------
170 (17,785) 982,274
Redeemable Preferred interest in Venetian 94,329
--------- ----------- ----------
Stockholder's equity 29,028 (143,555) 55,192
--------- ----------- ----------
$ 29,198 $ (161,340) $1,131,795
========= =========== ==========
(1) The assets and liabilities of Grand Canal Shops Mall Construction, LLC, a
guarantor, will be transferred to Grand Canal Shops Mall, LLC, a non-guarantor
subsidiary, upon substantial completion of the Casino Resort.
8
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1999
Lido Mall Grand Canal
Venetian Intermediate Intermediate Shops Mall
Las Vegas Casino Resort Holding Holding Construction
Sands, Inc. LLC Company LLC Company LLC LLC
------------- --------------- -------------- ----------------- -------------
Revenues $ 154 $ 103 $ $ $
Operating expenses 24 6,779
------------ --------------- -------------- ----------------- --------------
Operating income (loss) 130 (6,676)
Other income (expense):
Interest income 29 1,239
Interest expense, net of amounts capitalized (3,838)
------------ --------------- -------------- ----------------- --------------
Net income (loss) $ 159 $ (9,275) $ $ $
============ =============== ============== ================= ==============
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
------------- --------------- ----------------
Revenues $ $ $ 257
Operating expenses 6,803
------------- --------------- ----------------
Operating income (loss) (6,546)
Other income (expense):
Interest income 1,268
Interest expense, net of amounts capitalized (3,838)
------------- --------------- ----------------
Net income (loss) $ $ $ (9,116)
============= =============== ================
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999
Lido Mall Grand Canal
Venetian Intermediate Intermediate Shops Mall
Las Vegas Casino Resort Holding Holding Construction
Sands, Inc. LLC Company LLC Company LLC LLC
------------ --------------- -------------- ----------------- -------------
Net cash provided by operating
activities $ 5,160 $ 7,506 $ $ $
---------- ------------ -------------- ----------------- -------------
Cash flows from investing activities:
Proceeds from purchases of investments 81,804
Construction of Casino Resort (174,938)
---------- ------------ -------------- ----------------- -------------
Net cash used in investing activities (93,134)
Cash flows from financing activities:
Proceeds from Mall Construction Loan Facility 30,815
Proceeds from Bank Credit Facility-term loan 34,000
Proceeds from Bank Credit Facility-revolver 4,763
Proceeds from FF&E Credit Facility 25,069
---------- ------------ -------------- ----------------- -------------
Net cash provided by financing activities 94,647
---------- ------------ -------------- ----------------- -------------
Increase in cash and cash equivalents 5,160 9,019
Cash and cash equivalents at beginning of period 1,216 1,025 5 5 5
---------- ------------ -------------- ----------------- -------------
Cash and cash equivalents at end of period $ 6,376 $ 10,044 $ 5 $ 5 $ 5
========== ============ ============== ================= =============
Non- Consolidating/
Guarantor Eliminating
Subsidiaries Entries Total
------------- --------------- -----------
Net cash provided by operating
activities $ $ $ 12,666
------------- --------------- -----------
Cash flows from investing activities:
Proceeds from purchases of investments 81,804
Construction of Casino Resort (174,938)
------------- --------------- -----------
Net cash used in investing activities (93,134)
Cash flows from financing activities:
Proceeds from Mall Construction Loan Facility 30,815
Proceeds from Bank Credit Facility-term loan 34,000
Proceeds from Bank Credit Facility-revolver 4,763
Proceeds from FF&E Credit Facility 25,069
------------- --------------- -----------
Net cash provided by financing activities 94,647
------------- --------------- -----------
Increase in cash and cash equivalents 14,179
Cash and cash equivalents at beginning of period 29 2,285
------------- --------------- -----------
Cash and cash equivalents at end of period $ 29 $ $ 16,464
============= =============== ===========
9
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 Company's Annual
Report on Form 10-K for the year ended December 31, 1998. 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 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 opened on May 4, 1999 and, after
receipt of certain temporary certificates of occupancy on May 8, 1999, had
approximately 2400 hotel rooms and 2000 restaurant seats available for use.
Subject to the receipt of certain additional temporary certificates of occupancy
the Company expects to open the Mall and the remaining standard suites on or
prior to May 24, 1999. Three additional restaurants in the Casino Resort are
expected to open by July 22, 1999.
The construction of the principal components of the Casino Resort was
undertaken under the Construction Management Agreement. The Construction
Management Agreement provided that the Company and the Construction Manager
would establish the Final GMP. The Final GMP Amendment provided for a Final GMP
for work included within the scope of work of the Construction Manager of $624.4
million. Since then, the Final GMP has increased to $643.3 million with approved
scope changes. Included within the scope of the Final GMP amount is up to $70.0
million to construct and install certain heating, ventilating and air
conditioning equipment (the "HVAC Equipment"). Subject to certain exceptions, if
the cost of the work covered by the Construction Management Agreement exceeds
the amount of the Final GMP plus approved change orders, the Construction
Manager is responsible for such excess costs. 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. The Sole Stockholder's Completion Guaranty
is available for additional cost overruns or change orders.
The Construction Management Agreement provided that the date of
substantial completion for the Casino Resort was April 21, 1999. The
Construction Manager requested that this date be extended to June 20, 1999. The
Company does not believe that the requested extension is warranted, has rejected
the Construction Manager's request and has advised it to proceed with the
construction of the Casino Resort. The Company believes that this request by the
Construction Manager was intended to preserve the Construction Manager's claims
for overtime and delay relating to the project, which claims the Company
believes are unfounded and has contested. The Construction Manager has recently
formally asserted scope change claims aggregating $27.3 million which are
currently under review by the Company. The Construction Manager has also advised
the Company that it may assert additional claims in the future.
Results of Operations
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.
First Quarter Ended 1999 compared to First Quarter Ended 1998
Operating Revenues. Revenues for the first quarter of 1999 were
$257,000, compared with $149,000 during the same period last year, and consisted
primarily of rental and royalty income.
Operating Expenses. Pre-opening expenses of $6.8 million were incurred
during the first quarter of 1999. No pre-opening expenses were incurred during
the same period of 1998. Pre-opening expenses included payroll,
10
LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
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 decreased to $1.3 million
during the first quarter of 1999, from $5.7 million during the same period last
year, as a result of expending proceeds received from the sale of the Notes. The
decrease in interest expense to $3.8 million for the quarter ended March 31,
1999 from $12.6 million during the same period in 1998 represents the
capitalized interest expense resulting from debt incurred related to the
financing of the Casino Resort.
Liquidity and Capital Resources
Venetian Casino Resort
As of March 31, 1999 and December 31, 1998, the Company held cash and
cash equivalents of $16.5 million and $2.3 million, respectively. As of March
31, 1999 and December 31, 1998, the Company held restricted cash and cash
equivalents of $47.1 million and $133.9 million, respectively. Net cash provided
by operating activities for the first three months of 1999 was $12.7 million,
compared with $7.1 million for the same period in 1998.
Capital expenditures during the first three months of 1999 were $174.9
million, consisting of construction of the Casino Resort. Of the cost expended
or incurred during the first three months of 1999, $38.8 million, $30.8 million
and $25.1 million were drawn from the Bank Credit Facility (including $4.8
million under the revolving credit facility), the Mall Construction Loan
Facility and the 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 March 31, 1999,
approximately $970.0 million of the total project cost had been expended or
incurred to fund construction and development of the Casino Resort. Any
remaining estimated construction and development costs for the Casino Resort as
of March 31, 1999 were expected to be funded from a combination of (i) remaining
proceeds from the offering of the Mortgage Notes, (ii) continued borrowings
under the Mall Construction Loan Facility, (iii) borrowings under the FF&E
Credit Facility, (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 and (v) borrowings under the Bank Credit Facility
Revolving Credit Facility. Subsequent to March 31, 1999, the Company received
$21.0 million from the Phase II Subsidiary (which was funded from indirect
equity contributions by the Sole Stockholder through Venetian) for a portion of
such shared facilities costs. In addition, the HVAC Provider will separately
contribute up to $70.0 million (of which $58.0 million has been expended) for
the purchase and installation of the HVAC Equipment, which the HVAC Provider
will own and operate.
The funds provided by the above sources (together with amounts to be
provided by the HVAC Provider) are expected to be sufficient to complete
construction of the Casino Resort, assuming there are no additional delay costs
or construction cost overruns. If there are any additional delay costs and
construction cost overruns, the Company may use cash received from the following
sources to fund such delay costs and cost overruns: (i) a liquidated damages
insurance policy for costs of certain construction delays and the proceeds of
other (e.g., casualty) insurance policies, (ii) the Construction Manager, the
Construction Manager's indirect parent, Bovis, Inc. ("Bovis"), and its ultimate
parent corporation, Peninsular and Oriental Steam Navigation Company ("P & O"),
pursuant to the Construction Management Agreement, a guaranty of the
Construction Management Agreement by Bovis and a guaranty of Bovis's obligation
under such guaranty by P & O, respectively, (iii) other third parties, pursuant
to their liability to the Company under their agreements with the Company, and
(iv) the Sole Stockholder, pursuant to his liability under the Completion
Guaranty. The Completion Guaranty provides that, subject to certain conditions
and limitations, if available funds are not sufficient to fund all construction
and development costs, the Sole Stockholder is obligated to fund excess costs up
to a maximum aggregate amount of $25.0 million. The Sole Stockholder's
obligation to fund such excess construction and development costs is
collateralized by $25.0 million of cash or cash equivalents pledged to the Bank
of Nova Scotia, as disbursement agent under the Disbursement Agreement. If the
Sole Stockholder provides funds under the Completion Guaranty, the amount of
such funds will be treated as a junior subordinated loan from the Sole
Stockholder to Venetian.
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LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
After opening, the Company expects to fund its operations and capital
requirements from (i) operating cash flow and (ii) additional indebtedness of up
to $40.0 million of revolving loans under the Bank Credit Facility (net of $1.4
and $2.2 million 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). As of March 31, 1999, approximately $13.6
million of indebtedness was outstanding under such revolving loans.
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 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.
Mall Subsidiary and Transfer of Mall Assets
Upon the completion of the Casino Resort and the satisfaction of
certain other conditions, Mall Construction will transfer the Mall Assets to the
Mall Subsidiary pursuant to the Sale and Contribution Agreement. Upon such
transfer, (i) the Mall Assets will be released by the trustee under the Mortgage
Notes and the agent under the Bank Credit Facility and will not be available as
security to the holders of the Mortgage Notes or for the indebtedness under the
Bank Credit Facility, and (ii) the indebtedness under the Mall Construction Loan
Facility will either be repaid or assumed by the Mall Subsidiary (and the
Company and its subsidiary guarantors will be released from all obligations
under such indebtedness).
To finance the obligations of the Mall Subsidiary under the Sale and
Contribution Agreement, Goldman Sachs Mortgage Company ("GSMC") and an entity
wholly owned by the Sole Stockholder (the "Tranche B Take-out Lender")
separately have entered into commitment agreements with the Mall Subsidiary
whereby GSMC has agreed to provide debt financing to the Mall Subsidiary of up
to $105.0 million (the "Tranche A Take-out Financing") and the Tranche B
Take-out Lender has agreed to provide debt financing to the Mall Subsidiary of
up to $35.0 million (the "Tranche B Take-out Financing" and, together with the
Tranche A Take-out Financing, the "Mall Take-out Financing"). The consummation
of the Tranche A Take-out Financing is subject to certain conditions, including
completion of the Casino Resort and delivery of legal opinions (including
certain substantive non-consolidation opinions).
The Company has requested that the lender under the Mall Construction
Loan Facility permit its debt to be assumed by the Mall Subsidiary and to remain
outstanding for a period of six months following the transfer of the Mall Assets
to the Mall Subsidiary. During such period, the Company expects to explore or
examine refinancing alternatives to the Mall Take-out Financing. No assurance
can be given that any such alternative financing will be completed.
Because the Mall Subsidiary will not be a guarantor of any indebtedness
of the Company, creditors of the Company (including the holders of the Notes)
will not have a direct claim against the assets of the Mall Subsidiary. As a
result, indebtedness of the Company (including the Notes) will be effectively
subordinated to indebtedness of the Mall Subsidiary. The Mall Subsidiary is not
restricted by any of the debt instruments of LVSI, Venetian or the Company's
subsidiary guarantors (including the Indentures) from incurring any
indebtedness. Any indebtedness incurred by the Mall Subsidiary (including the
Tranche A Take-Out Financing) may include material restrictions on the ability
of the Mall Subsidiary to pay dividends or to make distributions or loans to the
Company and its subsidiaries.
12
LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
Phase II Resort and Transfer of Phase II Land
If the Phase II Subsidiary determines to construct the Phase II Resort,
the Phase II Subsidiary will be required to raise substantial debt and/or equity
financings. Currently, there are no commitments to fund any portion of the
construction and development costs of the Phase II Resort. In accordance with
the Disbursement Agreement, land on which the Phase II Resort (the "Phase II
Land") will be built was transferred to the Phase II Subsidiary in October 1998.
The development, construction and opening of the Casino Resort is not
dependent on the construction and opening of the Phase II Resort. The
development of the Phase II Resort may require obtaining additional regulatory
approvals.
Because the Phase II Subsidiary will not be a guarantor of the
Company's indebtedness, creditors of the Company (including the holders of the
Notes) will not have a direct claim against the assets of the Phase II
Subsidiary. As a result, the indebtedness of the Company (including the Notes)
will be effectively subordinated to indebtedness of the Phase II Subsidiary. The
Phase II Subsidiary is not subject to any of the restrictive covenants of the
debt instruments of the Company (including, without limitation, the covenants
with respect to the limitations on indebtedness and restrictions on the ability
to pay dividends or to make distributions or loans to the Company and its
subsidiaries). Any indebtedness incurred by the Phase II Subsidiary is expected
to include material restrictions on the ability of the Phase II Subsidiary to
pay dividends or make distributions or loans to the Company and its
subsidiaries.
However, such debt instruments of the Company limit the ability of
LVSI, Venetian or any of their subsidiaries to guarantee or otherwise become
liable for any indebtedness of the Phase II Subsidiary. Such debt instruments
also restrict the sale or other disposition by the Company and its subsidiaries
of capital stock of the Phase II Subsidiary, including the sale of any such
capital stock to the Sole Stockholder or any affiliate of the Sole Stockholder.
In addition, prior to commencement of construction of the Phase II Resort,
Venetian has the right to approve the plans and specifications for the Phase II
Resort.
Risk Related to the Subordination Structure Of the Mortgage Notes
The Mortgage Notes represent senior secured debt obligations of LVSI
and Venetian, secured by second priority liens on the collateral securing the
Mortgage Notes (the "Note Collateral") and third priority liens on the Mall
Assets. The Mortgage Notes are also guaranteed on a senior secured basis by Mall
Construction and are secured by third priority liens on the Mall Assets held by
such subsidiary. However, the guarantees of the Mortgage Notes by its
subsidiaries, Mall Intermediate and Lido Intermediate (collectively, the
"Subordinated Guarantors") are unsecured, subordinated debt obligations of the
guarantors. The structure of these guarantees present certain risks for holders
of the Mortgage Notes. For example, if the Note Collateral and the Mall Assets
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 the Company, Venetian and Mall
Construction. 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.
Year 2000
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 being
implemented in connection with the opening of the Casino Resort. The review
system includes requiring all computer software vendors to certify in writing
that the software being acquired is year 2000 compliant and testing all new
systems for year 2000 compliance by the Company prior to opening the Casino
Resort. The review system is under the direction of the Casino Resort's Vice
President of Information Systems.
13
LAS VEGAS SANDS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
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 on 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, the airline industry and telephone
service suppliers.
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 statement 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, year 2000 risks, government regulation related to the
casino industry (including the legalization of gaming in certain jurisdictions,
such as Native American reservations in the state of California), leverage and
debt service (including sensitivity to fluctuations in interest rates),
uncertainty of casino spending and vacationing in casino resorts in Las Vegas,
occupancy rates and average daily room rates in Las Vegas, demand for all-suites
rooms, the popularity of Las Vegas as a convention and trade show destination,
the completion of infrastructure 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.
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LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
ITEM 3.--Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Company's primary exposure to market risk is interest rate
risk associated with its long-term debt. The Company attempts to manage its
interest rate risk by managing the mix of its long-term fixed-rate borrowings
and variable rate borrowings under the Bank Credit Facility, the Mall
Construction Loan Facility and the FF&E Credit Facility, and by use of interest
rate cap and floor agreements. The ability to enter into interest rate cap and
floor agreements will allow the Company to manage its interest rate risk
associated with its variable rate debt. See "Item 2-Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
15
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 Amendment to Bank Credit Agreement, dated as
of May 10, 1999, among Las Vegas Sands,
Inc., Venetian Casino Resort, LLC., and the
lender parties thereto, Goldman Sachs Credit
Partners, as arranger and syndication agent,
and The Bank of Nova Scotia, as
administrative agent
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March
31, 1999.
16
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 14, 1999 By: /s/ Sheldon G. Adelson
--------------------------------
Sheldon G. Adelson
Chairman of the Board, Chief
Executive Officer and Director
May 14, 1999 By: /s/ Harry D. Miltenberger
--------------------------------
Harry D. Miltenberger
Vice President-Finance
(principal financial and accounting officer)
17