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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,June 30, 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
-----------------------------------------------------
(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 8,August 14, 2002
Class Outstanding at May 8,August 14, 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. Consolidated Balance Sheets
At June 30, 2002 (unaudited) and December 31, 2001.............1
Consolidated Statements of
Operations for the Three and Six Months Ended
June 30, 2002 (unaudited) and June 30, 2001 (unaudited)........2
Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 2002 (unaudited) and June 30, 2001 (unaudited)........3
Notes to Consolidated Financial StatementsStatements.....................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..............24
Item 3. Quantitative and Qualitative Disclosures About Market Risk....35
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.............................................38
Item 5. Other Information.............................................38
Item 6. Exhibits and Reports on Form 8-K..............................38
Signatures....................................................42
LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(Dollars in thousands)
March 31,June 30, December 31,
2002 2001
----------- -----------
Unaudited
ASSETS
Current assets:
Cash and cash equivalents ............................................................... $ 35,36551,179 $ 54,936
Restricted cash and investments .......................... 435......................... 130,358 2,646
Accounts receivable, net ................................. 64,262................................ 49,445 57,092
Inventories .............................................. 4,465............................................. 4,371 4,747
Prepaid expenses ......................................... 3,917........................................ 3,992 3,862
----------- -----------
Total current assets ......................................... 108,444........................................ 239,345 123,283
Property and equipment, net .................................. 1,093,617................................. 1,097,104 1,096,307
Deferred offering costs, net ................................. 16,680................................ 41,169 18,989
Restricted cash and investments ............................. 175,231 --
Other assets, net ............................................ 31,926........................................... 31,304 33,207
----------- -----------
$ 1,250,6671,584,153 $ 1,271,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................................................................. $ 24,29416,595 $ 36,353
Construction payables .................................... 9,746................................... 13,564 26,115
Construction payables-contested ................................................... 7,232 7,232
Accrued interest payable ................................. 27,524................................ 9,237 10,008
Other accrued liabilities ................................ 69,029............................... 61,635 70,035
Current maturities of long-term debt ..................... 203,961.................... 112,695 129,113
----------- -----------
Total current liabilities .................................... 341,786................................... 220,958 278,856
Other long-term liabilities .................................. 1,359................................. 1,347 3,274
Long-term debt ............................................... 652,861.............................................. 1,217,500 745,746
Long-term subordinated loans payable to Principal Stockholder 66,123-- 66,123
----------- -----------
1,062,1291,439,805 1,093,999
----------- -----------
Redeemable Preferred Interest in Venetian Casino Resort, LLC,
a wholly owned subsidiary ................................ 194,441............................... 200,105 188,778
----------- -----------
Commitments and contingencies
Stockholders' equity (Deficit)(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)................. (196,617) (151,851)
----------- -----------
(5,903)(55,757) (10,991)
----------- -----------
$ 1,250,6671,584,153 $ 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,Six Months Ended
June 30, June 30,
2002 2001 --------- --------2002 2001
-------------------------- --------------------------
Revenues:
Casino ............................................................................................ $ 50,47346,820 $ 58,47754,265 $ 97,293 $ 112,741
Rooms .................................................. 56,378 59,586............................................ 52,635 56,428 109,013 116,014
Food and beverage ...................................... 21,879 18,829................................ 17,654 18,528 39,533 37,357
Retail and other ....................................... 16,761 17,284................................. 18,686 17,446 35,447 34,730
-------- -------- -------- ---------
--------
145,491 154,176135,795 146,667 281,286 300,842
Less-promotional allowances ............................... (9,058) (12,286)......................... (7,630) (9,658) (16,688) (21,944)
-------- -------- -------- --------- --------
Net revenues ........................................... 136,433 141,890..................................... 128,165 137,009 264,598 278,898
-------- -------- -------- --------- --------
Operating expenses:
Casino ................................................. 29,695 39,999........................................... 25,169 36,158 54,864 76,156
Rooms .................................................. 13,034 13,171............................................ 13,592 13,685 26,626 26,856
Food and beverage ...................................... 9,971 8,307................................ 8,749 8,941 18,720 17,248
Retail and other ....................................... 7,102 7,198................................. 7,862 7,833 14,964 15,031
Provision for doubtful accounts ........................ 3,335 3,718.................. 4,939 5,171 8,274 8,889
General and administrative ............................. 21,467 22,011....................... 22,925 23,415 44,392 45,426
Corporate expense ...................................... 1,909 1,888................................ 2,914 2,090 4,823 3,978
Rental expense ......................................... 1,654 2,191................................... 1,875 2,022 3,529 4,213
Pre-opening and developmental expense .................. 665............ 1,406 - 2,071 -
Depreciation and amortization .......................... 10,985 10,206.................... 10,964 10,305 21,949 20,511
-------- -------- -------- ---------
100,395 109,620 200,212 218,308
-------- 99,817 108,689-------- -------- --------- --------
Operating income .......................................... 36,616 33,20127,770 27,389 64,386 60,590
Other income (expense):
Interest income ......................................... 181 418................................... 469 388 650 806
Interest expense, net of amounts capitalized ............ (24,382) (26,751)...... (27,683) (25,114) (52,065) (51,865)
Interest expense on indebtedness to
Principal Stockholder (2,334) (2,189)........................... (1,676) (2,249) (4,010) (4,438)
Other income (expense) .................................. 670 --............................ (307) - 363 -
Loss on early retirement of debt .................. (42,763) - (42,763) -
-------- -------- -------- ---------
--------
Income (loss) before preferred return ............................ 10,751 4,679............... (44,190) 414 (33,439) 5,093
Preferred return on Redeemable Preferred
Interest in Venetian Casino Resort, LLC
(2001, as restated) ... (5,663)............................ (5,664) (5,040) (11,327) (10,080)
-------- -------- -------- ---------
--------
Net income (loss)loss (2001, as restated) ............................................. $(49,854) $ 5,088(4,626) $ (361)(44,766) $ (4,987)
======== ======== ========= =================
Basic and diluted income (loss)loss per share ..................................... $ 5.09(49.85) $ (0.36)(4.63) $ (44.77) $ (4.99)
======== ======== ========= =================
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)
ThreeSix Months Ended
March 31,June 30,
2002 2001
----------- ------------------- --------
Cash flows from operating activities:
Net income (loss)loss (2001, as restated) ................................. $(44,766) $ 5,088 $ (361)(4,987)
Adjustments to reconcile net income (loss)loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................. 10,985 10,206........................ 21,949 20,511
Amortization of debt offering costs and
original issue discount 2,664 2,125............................ 5,052 4,080
Non-cash preferred return on Redeemable
Preferred Interest in Venetian (2001, as restated) ............................. 5,663 5,040. 11,327 10,080
Loss on early retirement of debt ..................... 42,763 -
Loss on disposition of fixed asset ................... 301 -
Non-cash interest on completion guaranty loan ........ - 1,940
Provision for doubtful accounts ............................... 3,335 3,718...................... 8,274 8,889
Changes in operating assets and liabilities:
Accounts receivable ......................................... (10,505) (7,259)................................ (627) (9,484)
Inventories ................................................. 282 (230)........................................ 376 (544)
Prepaid expenses ............................................ (55) 448................................... (130) (494)
Other assets ................................................ 1,281 1,851....................................... 1,903 3,060
Accounts payable ............................................ (12,059) (5,119)................................... (19,758) (4,563)
Accrued interest payable .................................... 17,516 16,435........................... (771) (1,420)
Other accrued liabilities ................................... (2,921) (12,918)
----------- -----------.......................... (10,327) (19,304)
-------- --------
Net cash provided by (used in) operating activities ............................. 21,274 13,936
----------- -----------.......... 15,566 7,764
-------- --------
Cash flows from investing activities:
(Increase) decreaseIncrease in restricted cash ($185.0 million for
Phase IA construction and $116.9 million for debt
defeasance on July 5, 2002) ................................ 2,211 (25)(302,943) (52)
Capital expenditures .................................................. (24,664) (9,566)
----------- -----------......................................... (35,598) (21,646)
-------- --------
Net cash used in investing activities ................................. (22,453) (9,591)
----------- -----------........................ (338,541) (21,698)
-------- --------
Cash flows from financing activities:
Repayments on 121/4 % mortgage notes ......................... (316,558) -
Proceeds from 11% mortgage notes ............................. 850,000 -
Repayments on senior subordinated notes ...................... (95,690) -
Proceeds from secured mall facility .......................... 120,000 -
Repayments on mall-tranche A take-out Loan ................... (105,000) -
Repayments on mall-tranche B take-out Loan ................... (35,000) -
Repayments on completion guaranty loan ....................... (31,124) -
Proceeds from senior secured credit facility-term B .......... 250,000 -
Repayments on bank credit facility-tranche A term loan ....... - (5,625)
Repayments on bank credit facility-tranche B term loan ................ -- (125)....... - (250)
Proceeds from bank credit facility-tranche C term loan ....... - 5,750
Repayments on bank credit term facility ............................... (382) --...................... (151,986) -
Repayments on bank credit facility-revolver ........................... (15,000) --.................. (61,000) -
Proceeds from bank credit facility-revolver ........................... 5,000 --.................. 21,000 22,000
Repayments on FF&E credit facility .................................... (5,374) (5,374)........................... (53,735) (10,747)
Repayments on Phase II Subsidary credit facility ...................... (2,500) --............. (3,933) -
Repayments on Phase II Subsidiary unsecured bank loan ........ (1,092) -
Proceeds from Phase II Subsidiary unsecured bank loan ................. --........ - 792
Repurchase premiums incurred in connection with
refinancing transactions ................................... (26,691) -
Payments of deferred offering costs ................................... (136) (477)
----------- -----------.......................... (39,973) (820)
-------- --------
Net cash used inprovided by financing activities ................................. (18,392) (5,184)
----------- -----------.................... 319,218 11,100
-------- --------
Decrease in cash and cash equivalents ................................. (19,571) (839)........................ (3,757) (2,834)
Cash and cash equivalents at beginning of period ................................... 54,936 42,606
----------- ------------------- --------
Cash and cash equivalents at end of period ............................................... $ 35,36551,179 $ 41,767
=========== ===========39,772
======== ========
Supplemental disclosure of cash flow information:
Cash payments for interest ........................................................................... $ 6,28252,563 $ 10,384
=========== ===========52,287
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
3
LAS VEGAS SANDS, INC.
Notes to Financial Statements
Note 1.1 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"), Mall Intermediate Holding Company, LLC ("Mall Intermediate"),
Grand Canal Shops Mall Subsidiary, LLC (the "Mall Subsidiary"), Grand Canal
Shops Mall Subsidiary,II, LLC (the "New Mall Subsidiary"), Lido Casino
Resort, LLC (the "Phase"Mall II Subsidiary"), Grand Canal Shops Mall Intermediate Holding Company, LLC
("Mall Intermediate")MM Subsidiary,
Inc., 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. andLido Casino Resort, LLC (the "Phase II Subsidiary"), Lido
Casino Resort MM, Inc., Venetian Casino Resort Athens, LLC (Venetian Athens"),
Venetian Venture Development, LLC ("Venetian Venture"), Venetian Venture
Development Intermediate Limited, Venetian Macau Management Limited, Venetian
Macau Holdings Limited ("Venetian Macau"), Venetian Marketing, Inc. ("Venetian
Marketing"), Venetian Far East Limited and Venetian Operating Company, LLC
("Venetian Operating") (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 and Venetian Venture are
special purposeintermediate holding 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. See Note 4 Long-Term Debt.
The New Mall II Subsidiary is 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
Mall II Subsidiary was formed on May 31, 2002 and became a successor to the Mall
Subsidiary in connection with the refinancing of the Mall's indebtedness. See
Note 4 Long-Term Debt.
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 II
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(See 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 1.1 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 periodthree and six month periods ended March 31,June 30, 2001
to include the preferred return, which amount wasamounts were $5.0 million.million and $10.1
million, respectively. 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 suchthe 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.
New Accounting Pronouncement
----------------------------
In April 2002, the Financial Accounting Standards Board issued
statement No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64
and Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations. The Company
has adopted SFAS 145 and will no longer present losses on early retirements of
debt as an extraordinary item. Additionally, prior period extraordinary losses
will be reclassified to conform to this new presentation. Adoption of SFAS 145
had no impact on the Company's financial condition or cash flows.
Note 2.2 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. There has been no change in outstanding shares of the Company and
the notes receivable are not reflected in the accompanying financial statements
because the shares issued were from the Principal Stockholder's existing
holdings. 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 (the "Stockholders' Agreement") with the respective
employees (the "additional stockholders""Additional Stockholders") and the Principal Stockholder. This agreementThe
Stockholders' Agreement restricts the ability of the additional
stockholdersAdditional Stockholders and
any of their permitted transferees who hashave 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.Stockholders' Agreement. All transfers are subject to certain
conditions, including:
o compliance with applicable state and foreign securities laws,
o receipt of necessary licenses or approvals from the Nevada gaming
authorities, and
o 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 stockholderAdditional Stockholder shall have the
right to participate in such sale on the same terms as those offered to the
Principal Stockholder.
The additional stockholdersAdditional 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 stockholdersAdditional 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
5
Notes to Financial Statements (Continued)
Note 2 Stockholders' Equity and Per Share Data (Continued)
- ------ ---------------------------------------------------
third, such securities requested to be included in such registration statement
by the Principal Stockholder and the additional stockholdersAdditional 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 stockholdersAdditional 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'Additional Stockholders'
percentage ownership of LVSI would remain the same following such issuance.
During the second quarter of 2002, options to purchase an additional
5,500 shares at an exercise price of $271 per share were reserved under the
stock option plan. The granting of these options are subject to approval by the
Nevada gaming authorities.
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 datetime 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 3.3 Property and Equipment
- ------ ----------------------
Property and equipment consists of the following (in thousands):
March 31,June 30, December 31,
2002 2001
----------- -----------
Land and land improvements .............................. $ 113,309113,428 $ 113,309
Building and improvements ............................... 886,624885,832 882,395
Equipment, furniture, fixtures and
leasehold improvements 139,378139,484 138,978
Construction in progress ................................ 72,14886,966 68,542
----------- -----------
1,211,4591,225,710 1,203,224
Less: accumulated depreciation and
amortization (117,842)(128,606) (106,917)
----------- -----------
$ 1,093,6171,097,104 $ 1,096,307
=========== ===========
During the three month and six month periods ended March 31,June 30, 2002 and
March 31,June 30, 2001, the Company capitalized interest expense of $0.3$0.5 million and $0.0$0.8
million, and zero and $0.6 million, respectively.
As of March 31,June 30, 2002, construction in progress represented construction
in progress and project design for an approximately 1,000-room hotel tower on
top of the Casino Resort's existing parking garage, an approximately
1,000-parking space expansion to the parking garage and approximately 150,000
square feet of additional convention center space on the Phase II Land
(collectively, the "Phase IA Addition"), 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.
57
Notes to Financial Statements (Continued)
Note 4.4 Long-Term Debt
- ------ --------------
Long-term debt consists of the following (in thousands):
March 31,June 30, December 31,
2002 2001
----------- -----------
---------- ----------
Indebtedness of the Company and its Subsidiaries other
than the New Mall II Subsidiary, the Mall Subsidiary and
the Phase II Subsidiary:
- ------------------------------------------------------------------------------------------
12 1/4% Mortgage Notes, due November 15, 2004
- redeemed July 5, 2002 $ 425,000108,442 $ 425,000
14 1/4% Senior Subordinated Notes, due November
15, 2005 (net of unamortized discount of $3,168$57
in 2002 and $3,387$3,825 in 2001) 94,332- redeemed July 5, 2002 1,753 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
11% Mortgage Notes, due June 15, 2010 850,000 --
Senior Secured Credit Facility - Term B 250,000 --
Indebtedness of the NewMall II Subsidiary:
- ---------------------------------------
Secured Mall Facility 120,000 --
Indebtedness of the 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)including amounts redeemed
on July 5, 2002 (112,695) (129,113)
----------- --------------------- ----------
Total long-term debt $ 652,861$1,217,500 $ 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 construction financing for the Casino Resort,
the Company entered into a series of transactions during 1997 to provide for the development and
construction ofbuild the
Casino Resort. In November 1997, the Company issued $425.0 million in aggregate
principal amount of 12 1/4% Mortgage Notes (the "Mortgage"Old Mortgage Notes") and $97.5
million in aggregate principal amount of 14 1/4% Senior Subordinated Notes (the
"Senior"Old Subordinated Notes" and, together with the Old Mortgage Notes, the "Notes""Old
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.
InAlso 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 amendment8
Notes 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.Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
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 asLoan"), 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.Venetian.
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, and an
entity wholly-owned by the Principal Stockholder funded a tranche B take-out$35.0 million 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, the proceeds along with $105.0
million of proceeds from the Tranche A Take-out Loan,which
were used to repay thean existing mall construction loan facility in full.facility.
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 of $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 offor
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 also 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)and loans or may be loaned or distributed by the Phase
II Subsidiarydistributions to the Company for
other liquidity needs.
The Phase II Subsidiary
Credit Facility bears interest at LIBOR plus 400 basis points and is due onOn 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 of4, 2002, the Company entered intocompleted a limited waiver amendment toseries of refinancing
transactions (collectively, the Bank Credit Facility and FF&E Credit Facility to obtain a waiver with
respect to"Refinancing Transactions") including (1) the
minimum consolidated adjusted EBITDA requirement. During the
first quarterissuance 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$850.0 million in aggregate principal amount of 11% mortgage notes
due 2010 (the "Mortgage Notes") in a Rule 144A
offering, and to enterprivate placement, (2) entering into a new
senior secured credit facility and Mall loan
facility,(the "Senior Secured Credit Facility") with a
syndicate of lenders in an aggregate amount of approximately $480$375.0 million, during the
second quarterand (3) entering
into a secured mall facility (the "Secured Mall Facility") in an aggregate
amount of 2002 (collectively, the "Refinancing Transactions").$105.0 million, which was subsequently increased to $120.0 million on
June 28, 2002. The Company intends toused or will use the proceeds of the Refinancing
Transactions to repay, redeem or repurchase all of its outstanding indebtedness
(including the Old Notes, the Bank Credit Facility, the FF&E Facility, the
Completion Guaranty Loan, the Mall Take-out Financing, the Completion Guaranty,Phase II Unsecured
Bank Loan and the Phase II Subsidiary Credit Facility and the Phase II
Unsecured Bank Loan)Facility), 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 addition, the
Principal Stockholder's completion guarantee relating to the construction of the
Casino Resort was terminated upon the consummation of the Refinancing
Transactions and the remaining cash collateral was returned to the Principal
Stockholder. In connection with the Refinancing Transactions, the Company
expects to incur an extraordinaryincurred a loss on early retirement of indebtedness of $53.3$42.8 million which will be comprisedduring the
three months ended June 30, 2002.
As part 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
anyrepurchase the Old Notes. Upon the
consummation of the Refinancing Transactions, the Company repurchased $316.6
million of the Old Mortgage Notes and $95.7 million of the Old Subordinates
Notes and effected a covenant defeasance with respect to the remaining Mortgage
Notes. The Company called all of the remaining Old Notes upon the closing of the
Refinancing Transactions and redeemed the balance of the Old Mortgage Notes
($108.4 million) and the Old Subordinated Notes ($1.8 million) on July 5, 2002.
On July 5, 2002, the Company incurred a loss of $8.7 million on early retirement
of debt related to the redemption of the Old Notes.
Mortgages Notes
- ---------------
The Mortgage Notes bear interest at 11%, payable each June 15th and
December 15th, beginning December 15, 2002. The Mortgage Notes are secured by
second priority liens on certain assets of the Company (the "Tender Offer")personal property
and the real estate improvements that comprise the hotel, the casino and the
convention space, with certain exceptions). The purchase price (including
consent fees) is $1,061.25 per $1,000Mortgage Notes are redeemable at
the option of LVSI and Venetian at prices ranging from 100% to 105.5% commencing
on or after June 15, 2006, as set forth in the Mortgage Notes and the indenture
pursuant to which the Mortgage Notes were issued (the "Indenture"). Prior to
June 15, 2002, LVSI and Venetian may redeem the Mortgage Notes at their
principal amount plus an applicable make-whole premium. Upon a change of control
(as defined in the Indenture), each Mortgage Note holder may require LVSI and
Venetian to repurchase such Mortgage Notes at 101% of the principal amount
thereof plus accrued interest and other amounts which are then due, if any. Upon
an event of loss or certain asset sales, the Company may also be required to
offer to purchase all or a portion of the Mortgage Notes with the proceeds of
such event of loss or sale. The Mortgage Notes are not subject to a sinking fund
requirement.
The Company is committed under a registration rights agreement to use
its commercially reasonable efforts prior to 180 days after the closing date to
effect a registered exchange offer for the Mortgage Notes and $1,071.25 per $1,000 principal amountor, subject to certain
conditions, to provide a shelf registration for the Senior Subordinated Notes, in
each case, plus accrued but unpaid interest.
In conjunction with the Tender Offer,Mortgage Notes. Should the
Company is soliciting consents to
eliminate substantially allnot meet certain requirements of the restrictive covenantsregistration rights agreement,
liquidated damages in the amount 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 majority0.25% to 2.00% per annum of the aggregate
principal amount of each issuethe Mortgage Notes would accrue until such defaults are
cured.
9
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
Senior Secured Credit Facility
- ------------------------------
The Senior Secured Credit Facility provides for a $250.0 million single
draw senior secured term loan facility (the "Term B Facility"), a $50.0 million
senior secured delayed draw facility (the "Term A Facility") and a $75.0 million
senior secured revolving facility (the "Revolving Facility"). Term B Facility
proceeds of Notes. Holders who tender their
Notes$185.0 million were deposited into restricted accounts, invested in
cash or permitted investments and pledged to a disbursement agent for the Senior
Secured Credit Facility lenders. The $185.0 million will be used as required for
Phase IA Addition project costs under disbursement terms specified in the Senior
Secured Credit Facility. The disbursement account is subject to a security
interest in favor of the lenders under the Senior Secured Credit Facility.
The Term B Facility matures on June 4, 2008 and is subject to quarterly
amortization payments in the amount of $625,000 from September 30, 2002 until
September 30, 2007, followed by four equal quarterly amortization payments of
$59.4 million until the maturity date. The Term A Facility is available from the
closing date of the Senior Secured Credit Facility through the first anniversary
of the closing date, subject to certain conditions. The Term A Facility matures
on June 4, 2007 and is subject to quarterly amortization payments commencing on
December 31, 2003 in the amount of $1,666,667 for three quarters, $2,500,000 for
the succeeding four quarters, $3,750,000 for the next four quarters and
$5,000,000 for the final four quarters. The Revolving Facility matures on June
4, 2007 and has no interim amortization. No amounts had been drawn under the
Term A Facility or the Revolving Facility as of June 30, 2002.
All amounts outstanding under the Senior Secured Credit Facility bear
interest at the option of the Company at the prime rate plus 2% per annum, or at
the reserve adjusted Eurodollar rate plus 3% per annum. After the Phase IA
Addition is substantially complete, the applicable margin for amounts
outstanding under the Term A Facility and the Revolving Facility will be
determined by a grid based upon a leverage ratio. The leverage ratio will be
calculated as the ratio of consolidated total debt as of the last day of each
fiscal quarter to EBITDA (as defined in the Senior Secured Credit Facility) for
the four-fiscal quarter period ending on such date. Commitment fees equal to
0.50% per annum of the daily average unused portion of the commitment under the
Revolving Facility and 0.75% per annum of the daily average unused portion of
the Term A Facility are payable quarterly in arrears.
The Senior Secured Credit Facility is secured by a first priority lien
on certain assets of the Company (the personal property and the real estate
improvements that comprise the hotel, the casino and the convention space, with
certain exceptions). The Senior Secured Credit Facility contains affirmative,
negative and financial covenants including limitations on indebtedness, liens,
investments, guarantees, restricted junior payments, mergers and acquisitions,
sales of assets, leases, transactions with affiliates and scope-changes and
modifications to material contracts. Additionally, the Company is required to
consentcomply with certain financial ratios and other financial covenants including
total debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum net
worth covenants and maximum capital expenditure limitations. At June 30, 2002,
the Company was in compliance with all required covenants and ratios under the
Senior Secured Credit Facility.
Secured Mall Facility
- ---------------------
In June 2002, the Company also entered into an agreement (the "Secured
Mall Facility") with certain lenders to provide for a $105.0 million loan
(subsequently increased to $120.0 million on June 28, 2002) to the proposed amendments.Mall II
Subsidiary. The Tender Offerinitial $105.0 million of proceeds (net of financing costs) from
the Secured Mall Facility, along with the proceeds of a $37.9 million capital
contribution in Mall II Subsidiary by Venetian, were used to repay the Mall
Take-out Financing and costs previously owed by the Mall Subsidiary. Upon the
consummation of the Refinancing Transactions, arethe assets of the Mall were
transferred to the Mall II Subsidiary, the borrower under the Secured Mall
Facility. The additional $15.0 million of proceeds (net of financing costs) were
distributed to Venetian and used for general corporate purposes. The
indebtedness under the Secured Mall Facility is secured by a first priority lien
on the assets that comprise the Mall (the "Mall Assets").
10
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
The amounts outstanding under the Secured Mall Facility bear interest
at the adjusted one month Eurodollar rate plus 1.875% per annum. Interest is
paid monthly and there is no scheduled principal amortization. The Secured Mall
Facility is due in full on June 28, 2005 and provides for two one-year
extensions at the option of the Company, subject to certain criteria. The
Secured Mall Facility contains affirmative, negative and financial covenants
including net operating income performance standards. Failure to meet these
financial covenants in certain circumstances allows the lenders' agent to
control collection of rents, to approve operating budgets and provides for 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 distributionssweep of excess cash flow to reduce amounts outstanding under the Secured
Mall Facility.
The Company is required to enter into an interest rate cap agreement to
limit the impact of increases in interest rates on its floating rate debt
derived from the ownerSecured Mall Facility. To meet the requirements of the Secured
Mall Facility, the Company entered into a cap agreement during June 2002 (the
"Mall Cap Agreement") that resulted in a premium payment to counterparties based
upon notional principal amounts for a term equal to the term of the Secured Mall
Facility. The provisions of the Mall Cap Agreement entitle the Company to
receive from the extent permitted undercounterparties the amounts, if any, by which the selected
market interest rates exceed the strike rates stated in such agreement. There
was no net effect on interest expense as a result of the Mall Cap Agreement for
the three months ended June 30, 2002. If the Company had terminated the Mall Cap
Agreement as of June 30, 2002, the Company would not have had to pay any amounts
based on quoted market values from the various institutions holding the swaps.
The notional amount of the Mall Cap Agreement (which expires on June 28, 2005)
at June 30, 2002 was $120.0 million.
Pursuant to the terms of the Company's indebtedness.Secured Mall Facility, the Mall II
Subsidiary is also required to maintain certain funds in escrow for debt service
and property taxes. At June 30, 2002, $1.3 million was held by the lenders'
agent in escrow for these purposes. The amounts in escrow are classified as
restricted cash in the accompanying financial statements.
The Company entered into interest rate cap and/or floor agreements
related to the Bank Credit Facility (the "Bank Cap Agreement") during 1998 and
the Tranche A Take-out Loan during 1999 (the "Mall Cap Agreement" and, together
with the Bank Cap Agreement, the "Old Rate Cap Agreements"). The notional amount
of the Bank Cap Agreement at June 30, 2002 was $76.2 million. The Bank Cap
Agreement expires in June 2003, the maturity date of the Bank Credit Facility,
unless terminated earlier by the Company. The notional amount of the Mall Cap
Agreement at June 30, 2002 was $42.3 million. The Mall Cap Agreement expires on
December 20, 2002, the original maturity date of the Tranche A Take-out Loan,
unless terminated earlier by the Company.
The net effect of the Old Rate Cap Agreements resulted in an increase
of interest expense of $0.5 million for the quarter ended June 30, 2002.
Currently, the Old Rate Cap Agreements remain outstanding. If the Company had
terminated the Old Rate Cap Agreements as of June 30, 2002, the Company would
have had to pay a net amount of $1.6 million based on quoted market values from
the various institutions holding the swaps. In accordance with Financial
Accounting Standards Board Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, the Company has recorded the fair value of
its obligations under the Old Rate Cap Agreements in the accompanying financial
statements and will continue to do so while the agreements are in effect.
Note 5.5 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 BankSenior Secured 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"),Indenture,
the preferred return on the Series B Preferred Interest will accrue and will not
be paid in cash. Commencing in November 2009,June 30, 2011, distributions must be made to the
extent of the positive capital account of the holder. During the second and
third quarters of 1999, Interface Holding contributed $37.3 million and $7.1
million, respectively, in cash in exchange for an additional Series B Preferred
Interest. During the three and six month periods ended March 31,June 30, 2002 and March 31,June
30, 2001, $5.7 million and $11.3 million, and $5.0 million and $10.1 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.
11
Notes to Financial Statements (Continued)
Note 6.6 Commitments and Contingencies
- ------ -----------------------------
Construction Litigation
-----------------------
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 factCompany believes 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 thatand the Construction Manager's claims are without
merit andmerit. The Company 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.
12
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies (Continued)
- ------ -----------------------------------------
The Company believes that these claims are, in general,
unsubstantiated, without merit, overstated, and/or duplicative. The Construction
Manager itself has publicly acknowledged that at least some of the claims of its
subcontractors are without merit. In addition, the Company believes that
pursuant to the Construction Management Contract and the Final GMP, the
Construction Manager is responsible for payment of any subcontractors' claims to
the extent they are determined to be valid. The Company may also have a variety
of other defenses to the liens that have been filed, including, for example, the
fact that the Construction Manager and its subcontractors previously waived or
released their 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 isCompany and the Construction Manager are currently scheduled to
commence a trial to litigate certain of their respective claims in addition to, and does not affect, any scope change
guarantees provided byAugust 2002,
although there can be no assurance that the Principal Stockholder pursuant to the Completion
Guaranty.
Alltrial will commence at such time.
Many of the pending litigation described above isremaining claims between the parties will be proceeding concurrently
in preliminary stages and
itindependent arbitration hearings. It is not yet possible to determine a range
of loss or itsthe ultimate outcome.outcome of the pending litigation described above. 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,condition, results of operations or cash flows of the
Company to the extent such litigation or lien proceedings are not covered by the
Insurance Policy.
Macau Joint Venture and Internet Gaming
- ---------------------------------------
On June 26, 2002, the Company announced that a joint venture comprised
of Venetian Macau and a group of Macau and Hong Kong-based investors had entered
into a final concession contract with the Government of the Macau Special
Administrative Region of the People's Republic of China to operate casinos in
Macau. Through June 30, 2002, the Company had incurred developmental expenses of
$2.4 million in connection with the proposed Macau project. Venetian Macau
continues to negotiate the final terms of a joint venture and management expects
that those negotiations will be concluded in the third quarter of 2002. The
final terms of a joint venture agreement may include financial obligations to
the joint venture and/or to the Government of Macau or Venetian Macau may be
obligated to pay for certain costs of developing and constructing the
contemplated casinos in Macau. Under the Indenture, the Company is permitted to
make investments in the amount of $40.0 million in, and extend guarantees with
respect to $90.0 million of indebtedness and/or obligations of, its Macau
subsidiaries. The Company may use cash received from the following sources to
fund the Macau venture:
o borrowings by Venetian under the Revolving Facility;
o additional debt or equity financings; and
o operating cash flow (subject to certain limitations contained in the
Company's debt instruments).
13
Notes to Financial Statements (Continued)
Note 7.6 Commitments and Contingencies (Continued)
- ------ -----------------------------------------
Venetian Macau and the Company's other Macau subsidiaries are not
guarantors under the Mortgage Notes or the Senior Secured Credit Facility and,
subject to certain limited exceptions, are not restricted subsidiaries under the
Indenture or the Senior Secured Credit Facility.
The Company has also entered into a joint venture agreement to assess
the feasibility of and develop an Internet gaming site. The Company has applied
for an Internet gaming license in Alderney, but has not yet established any
operations. The Company estimates that it is committed to contribute
approximately $1.0 million, approximately one-third of the required capital, to
the joint venture during the next year. After recovery of each partner's initial
capital contribution, the Company will receive 50% to 80% of the net profit of
the joint venture, based upon an increasing scale of net profit (if any). The
joint venture provides that the agreement will be automatically terminated
should the Company fail to obtain any required regulatory approvals from
Alderney, the Nevada gaming authorities or any other applicable jurisdiction
prior to launching its operations.
Note 7 Summarized Financial Information
Venetian- ------ --------------------------------
LVSI and LVSIVenetian are co-obligors of the Mortgage Notes and certain otherthe
indebtedness related to construction ofunder the Casino ResortSenior Secured Credit Facility and are jointly and
severally liable for such indebtedness (including the Notes).indebtedness. Venetian, Mall Intermediate, Mall
Construction, and Lido Intermediate, Venetian Venture, Venetian Athens, Venetian
Marketing and Venetian Operating (collectively, the "Subsidiary Guarantors") are
wholly-owned subsidiaries of LVSI.LVSI, all of the capital stock of which is owned by LVSI and
Venetian. 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 LVSIThe Mall 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 thanowned by the Mall Take-out Financing), creditors ofII Subsidiary, a non-guarantor subsidiary which is 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 paymentsborrower under the Tranche A Take-out Loan are current, and, with certain limited exceptions,
prohibit the NewSecured 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.Facility.
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,June 30, 2002 and December
31, 2001, and for the three and six month periods ended March 31,June 30, 2002 and March 31,June
30, 2001, is as follows (in thousands):
1114
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
June 30, 2002
CONDENSED BALANCE SHEETS
March 31, 2002
GUARANTOR SUBSIDIARIES
-------------------------------------------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- --------------- -------------- ------------------------- ------------ ------------ ------------
Cash and cash equivalents .................................................................. $ 25,53830,648 $ 7,02516,494 $ 4 $ 4 $ --
Restricted cash and investments ...................................................... -- 129,093 -- -- --
Intercompany receivable ..................................... 75,811................................. 16,741 -- -- -- --
Accounts receivable, net .................................... 35,274 27,936................................ 28,191 20,572 -- -- --
Inventories .............................................................................................. -- 4,4654,371 -- -- --
Prepaid expenses ............................................ 507 3,080........................................ 712 2,596 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Total current assets ...................................... 137,130 42,506.................................. 76,292 173,126 4 4 --
Property and equipment, net .............................................................. -- 875,662880,920 -- -- --
Investment in Subsidiaries .................................. 830,052.............................. 1,089,672 106,203 -- -- --
Deferred offering costs, net ............................................................ -- 14,65738,101 -- -- --
Restricted cash and investments ......................... -- 175,231 -- -- --
Other assets, net ........................................... 3,366 24,937....................................... 3,397 24,326 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
$ 970,5481,169,361 $ 957,7621,397,907 $ 4 $ 4 ============== =============== ============== ==============$ --
=========== =========== =========== =========== ===========
Accounts payable .................................................................................... $ 1,8161,621 $ 22,20514,722 $ -- $ -- $ --
Construction payable ............................................................................ -- 6,56013,564 -- -- --
Construction payable-contested ........................................................ -- 7,232 -- -- --
Intercompany payables .......................................................................... -- 55,69415,242 -- -- --
Accrued interest payable .................................................................... -- 26,6159,130 -- -- --
Other accrued liabilities ................................... 17,590 49,862............................... 13,302 46,955 -- -- --
Current maturities of long-term debt (3) .................... 97,869 97,869................ 112,695 112,695 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Total current liabilities ................................. 117,275 266,037............................. 127,618 219,540 -- -- --
Other long-term liabilities .............................................................. -- 1,3591,280 -- -- --
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...................................... 1,097,500 1,097,500 -- -- --
-------------- --------------- -------------- --------------
976,451 949,947----------- ----------- ----------- ----------- -----------
1,225,118 1,318,320 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Redeemable Preferred interestInterest in Venetian .................................. -- 194,441200,105 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Stockholders' equity (deficit) .............................. (5,903) (186,626).......................... (55,757) (120,518) 4 4 -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
$ 970,5481,169,361 $ 957,7621,397,907 $ 4 $ 4 ============== =============== ============== ==============$ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall
Subsidiary on December 20, 1999.1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no assets orand liabilities
as of March 31,June 30, 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.Long-Term Debt, LVSI 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.
1215
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS, (continued)
March 31,June 30, 2002
NON-GUARANTOR SUBSIDIARIES
--------------------------------------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
SubsidiaryShops II Guarantor Eliminating
LLC (1) Subsidiaries (2) Entries Total
-------------- --------------- --------------- --------------
Cash and cash equivalents ....................................................................... $ 2,3573,826 $ 437203 $ -- $ 35,36551,179
Restricted cash and investments ............................. 435.............................. 1,265 -- -- 435130,358
Intercompany receivable ........................................................................... -- 2,496 (78,307)-- (16,741) --
Accounts receivable, net .................................... 1,052..................................... 682 -- -- 64,26249,445
Inventories ................................................................................................... -- -- -- 4,4654,371
Prepaid expenses ............................................ 330............................................. 684 -- -- 3,917
-------------- --------------- -------------- --------------3,992
----------- ----------- ----------- -----------
Total current assets ...................................... 4,174 2,933 (78,307) 108,444....................................... 6,457 203 (16,741) 239,345
Property and equipment, net ................................. 135,003 82,952.................................. 133,872 82,312 -- 1,093,6171,097,104
Investment in Subsidiaries ..................................................................... -- -- (830,052)(1,195,875) --
Deferred offering costs, net ................................ 1,384 639................................. 3,068 -- 16,680-- 41,169
Restricted cash and investments .............................. -- -- -- 175,231
Other assets, net ........................................... 3,623............................................ 3,581 -- -- 31,926
-------------- --------------- -------------- --------------31,304
----------- ----------- ----------- -----------
$ 144,184146,978 $ 86,52482,515 $(1,212,616) $ (908,359) $ 1,250,667
============== =============== ============== ==============1,584,153
=========== =========== =========== ===========
Accounts payable ......................................................................................... $ 273252 $ -- $ -- $ 24,29416,595
Construction payable ................................................................................. -- 3,186 -- 9,746-- 13,564
Construction payable-contested ............................................................. -- -- -- 7,232
Intercompany payables ....................................... 22,613........................................ 1,499 -- (78,307)(16,741) --
Accrued interest payable .................................... 907 2..................................... 107 -- 27,524-- 9,237
Other accrued liabilities ................................... 1,509 68.................................... 1,286 92 -- 69,02961,635
Current maturities of long-term debt (3) .................... 105,000 1,092 (97,869) 203,961
-------------- --------------- -------------- --------------..................... -- -- (112,695) 112,695
----------- ----------- ----------- -----------
Total current liabilities ................................. 130,302 4,348 (176,176) 341,786.................................. 3,144 92 (129,436) 220,958
Other long-term liabilities ................................................................... 67 -- -- 1,347
Long-term debt (3) ........................................... 120,000 -- (1,097,500) 1,217,500
----------- ----------- ----------- -----------
123,211 92 (1,226,936) 1,439,805
----------- ----------- ----------- -----------
Redeemable Preferred Interest in Venetian .................... -- -- -- 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
-------------- --------------- -------------- --------------200,105
----------- ----------- ----------- -----------
Stockholders' equity (deficit) .............................. (21,118) 80,743 126,993 (5,903)
-------------- --------------- -------------- --------------............................... 23,767 82,423 14,320 (55,757)
----------- ----------- ----------- -----------
$ 144,184146,978 $ 86,52482,515 $(1,212,616) $ (908,359) $ 1,250,667
============== =============== ============== ==============1,584,153
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary
on December 20, 1999.1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on June 4, 2002. As
a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no assets orand liabilities as of March 31,June 30, 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.Long-Term Debt, LVSI 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.
1316
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
December 31, 2001
GUARANTOR SUBSIDIARIES
------------------------------------------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Resort Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- -------------- -------------- ------------------------- ------------ ------------ ------------
Cash and cash equivalents .................................................................. $ 37,367 $ 7,806 $ 4 $ 4 $ --
Restricted cash and investments ...................................................... -- 1,528 -- -- --
Intercompany receivable ..................................... 60,882................................. 6,772 -- -- -- --
Accounts receivable, net .................................................................... 37,416 18,240 -- -- --
Inventories .............................................................................................. -- 4,747 -- -- --
Prepaid expenses .................................................................................... 546 2,953 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Total current assets ...................................... 136,211.................................. 82,101 35,274 4 4 --
Property and equipment, net .............................................................. -- 878,239 -- -- --
Investment in Subsidiaries .................................. 843,935.............................. 692,100 86,657 -- -- --
Deferred offering costs, net ............................................................ -- 16,250 -- -- --
Other assets, net .................................................................................. 3,771 25,691 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
$ 983,917 $ 955,454777,972 $1,042,111 $ 4 $ 4 ============== =============== ============== ==============$ --
=========== =========== =========== =========== ===========
Accounts payable .................................................................................... $ 2,880 $ 33,105 $ -- $ -- $ --
Construction payable ............................................................................ -- 22,955 -- -- --
Construction payable-contested ........................................................ -- 7,232 -- -- --
Intercompany payables .......................................................................... -- 39,4557,345 -- -- --
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 .............................................................. 47,150 181,967149,857 -- -- --
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--
----------- ----------- ----------- ----------- -----------
788,963 926,067 -- --
--
-------------- --------------- -------------- --------------
994,908 958,177 -- --
-------------- --------------- -------------- ------------------------- ----------- ----------- ----------- -----------
Redeemable Preferred interestInterest in Venetian .................................. -- 188,778 -- -- -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Stockholders' equity (deficit) ........................................................ (10,991) (191,501)(72,734) 4 4 -------------- --------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
$ 983,917 $ 955,454777,972 $1,042,111 $ 4 $ 4 ============== =============== ============== ==============$ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany 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.Long-Term Debt, LVSI 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.
1417
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS (continued)
December 31, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Shops Mall Other Non- Consolidating/
SubsidiaryShops II 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)(8,280) --
Accounts receivable, net .................................... 1,436 -- -- 57,092
Inventories ................................................. -- -- -- 4,747
Prepaid expenses ............................................ 363 -- -- 3,862
-------------- --------------- -------------- ------------------------- ----------- ----------- -----------
Total current assets ...................................... 9,567 4,613 (62,390)(8,280) 123,283
Property and equipment, net ................................. 136,167 81,901 -- 1,096,307
Investment in Subsidiaries .................................. -- -- (843,935)(778,757) --
Deferred offering costs, net ................................ 1,903 836 -- 18,989
Other assets, net ........................................... 3,745 -- -- 33,207
-------------- --------------- -------------- ------------------------- ----------- ----------- -----------
$ 151,382 $ 87,350 $ (906,325)(787,037) $ 1,271,786
============== =============== ============== ========================= =========== =========== ===========
Accounts payable ............................................ $ 368 $ -- $ -- $ 36,353
Construction payable ........................................ -- 3,160 -- 26,115
Construction payable-contested .............................. -- -- -- 7,232
Intercompany payables ....................................... 22,935935 -- (62,390)(8,280) --
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 ................................. 130,822108,822 4,328 (85,411)(31,301) 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----------- ----------- ----------- -----------
143,822 8,261 (1,033,169)(773,114) 1,093,999
-------------- --------------- -------------- ------------------------- ----------- ----------- -----------
Redeemable Preferred interestInterest in Venetian ................... -- -- -- 188,778
-------------- --------------- -------------- ------------------------- ----------- ----------- -----------
Stockholders' equity (deficit) .............................. (14,440)7,560 79,089 126,844(13,923) (10,991)
-------------- --------------- -------------- ------------------------- ----------- ----------- -----------
$ 151,382 $ 87,350 $ (906,325)(787,037) $ 1,271,786
============== =============== ============== ========================= =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany 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.Long-Term Debt, LVSI 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.
1518
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the three months ended March 31,June 30, 2002
GUARANTOR SUBSIDIARIES
----------------------------------------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Resort Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- -------------- -------------- ------------------------- ------------ ------------ -----------
Revenue:
Revenues:
Casino .................................................................................................... $ 50,47346,820 $ -- $ -- $ -- $ --
Room ........................................................................................................ -- 56,37852,635 -- -- --
Food and beverage .............................................................................. -- 21,87917,654 -- -- --
Casino rental revenues from LVSI ...................... -- 10,969 -- -- --
Retail and other .......................................... 150 19,911...................................... 1,420 8,622 -- -------------- -------------- -------------- ---------------- --
----------- ----------- ----------- ----------- -----------
Total revenue ............................................. 50,623 98,168revenues ........................................ 48,240 89,880 -- -- --
Less promotional allowance ..................................allowances ............................. -- (9,058)(1,015) -- -- -------------- -------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Net revenues .............................................. 50,623 89,110.......................................... 48,240 88,865 -- -------------- -------------- -------------- ---------------- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino .................................................... 41,258................................................ 39,798 -- -- -- --
Rooms ...................................................................................................... -- 13,03414,496 -- -- --
Food and beverage .............................................................................. -- 9,97110,670 -- -- --
Retail and other ................................................................................ -- 4,3244,715 -- -- --
Provision for doubtful accounts ........................... 2,285 1,050....................... 2,839 2,100 -- -- --
General and administrative ................................ 748 20,352............................ 673 21,872 -- -- --
Corporate expense ......................................... 999 910..................................... 1,938 976 -- -- --
Rental expense ............................................ 212 2,954........................................ 252 2,350 -- -- --
Pre-opening and developmental expense ...................................... -- 6655 -- -- 1,401
Depreciation and amortization ...................................................... -- 9,8119,794 -- -- -------------- -------------- -------------- --------------
45,502 63,071 --
-------------- -------------- -------------- ------------------------- ----------- ----------- ----------- -----------
45,500 66,978 -- -- 1,401
----------- ----------- ----------- ----------- -----------
Operating income ............................................ 5,121 26,039(loss) ................................. 2,740 21,887 -- -- -------------- -------------- -------------- --------------(1,401)
Other income (expense): ----------- ----------- ----------- ----------- -----------
Interest income ......................................... 116 48..................................... 44 414 -- -- --
Interest expense, net of amounts capitalized .................... (15) (25,759) -- (22,110) -- --
Interest expense on indebtedness to
Principal Stockholder ................................................................ -- (1,109)(805) -- -- --
Other income (expense) ................................................................ -- 670(307) -- -- --
Loss on early retirement of debt .................... -- (41,236) -- -- --
Income (loss) from equity investment in
subsidiaries .... (149)Grand Canal Shops II............................... (12) (376) -- -- --
-------------- -------------- -------------- --------------
Income (loss) from equity investment in VCR
and subsidiaries .................................. (52,611) (765) -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ................... (49,854) (46,947) -- -- (1,401)
Preferred return on Redeemable Preferred
Interest in Venetian ................................ -- (5,664) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (49,854) $ (52,611) $ -- $ -- $ (1,401)
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
19
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 June 30, 2002
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Casino .................................................... $ -- $ -- $ -- $ 46,820
Room ...................................................... -- -- -- 52,635
Food and beverage ......................................... -- -- -- 17,654
Casino rental revenues from LVSI .......................... -- -- (10,969) --
Retail and other .......................................... 9,025 1,333 (1,714) 18,686
-------------- -------------- ------------ -----------
Total revenues ............................................ 9,025 1,333 (12,683) 135,795
Less promotional allowances ................................. -- -- (6,615) (7,630)
-------------- -------------- ------------ -----------
Net revenues .............................................. 9,025 1,333 (19,298) 128,165
-------------- -------------- ------------ -----------
Operating expenses:
Casino .................................................... -- -- (14,629) 25,169
Rooms ..................................................... -- -- (904) 13,592
Food and beverage ......................................... -- -- (1,921) 8,749
Retail and other .......................................... 3,522 -- (375) 7,862
Provision for doubtful accounts ........................... -- -- -- 4,939
General and administrative ................................ 516 -- (136) 22,925
Corporate expense ......................................... -- -- -- 2,914
Rental expense ............................................ 606 -- (1,333) 1,875
Pre-opening and developmental expense ..................... -- -- -- 1,406
Depreciation and amortization ............................. 1,170 -- -- 10,964
-------------- -------------- ------------ -----------
5,814 -- (19,298) 100,395
-------------- -------------- ------------ -----------
Operating income (loss) ..................................... 3,211 1,333 -- 27,770
Other income (expense): -------------- -------------- ------------ -----------
Interest income ......................................... 11 -- -- 469
Interest expense, net of amounts capitalized ............ (1,719) (190) -- (27,683)
Interest expense on indebtedness to
Principal Stockholder ................................. (871) -- -- (1,676)
Other income (expense) .................................. -- -- -- (307)
Loss on early retirement of debt ........................ (1,020) (507) -- (42,763)
Income (loss) from equity investment in
Grand Canal Shops II .................................. -- -- 388 --
Income (loss) from equity investment in VCR
and subsidiaries ...................................... -- -- 53,376 --
-------------- -------------- ------------ -----------
Income (loss) before preferred return ....................... (388) 636 53,764 (44,190)
Preferred return on Redeemable Preferred
Interest in Venetian .................................... -- -- -- (5,664)
-------------- -------------- ------------ -----------
Net income (loss)
........................................................... $ (388) $ 636 $ 53,764 $ (49,854)
============== ============== ============ ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
20
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the three months ended June 30, 2001
GUARANTOR SUBSIDIARIES
---------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino ................................................ $ 54,265 $ -- $ -- $ -- $ --
Room .................................................. -- 56,428 -- -- --
Food and beverage ..................................... -- 18,528 -- -- --
Casino rental revenue from LVSI ....................... -- 11,488 -- -- --
Retail and other ...................................... 152 8,758 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues ........................................ 54,417 95,202 -- -- --
Less promotional allowances ............................. -- (1,446) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues .......................................... 54,417 93,756 -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino ................................................ 52,500 -- -- -- --
Rooms ................................................. -- 14,775 -- -- --
Food and beverage ..................................... -- 11,019 -- -- --
Retail and other ...................................... -- 4,867 -- -- --
Provision for doubtful accounts ....................... 5,171 -- -- -- --
General and administrative ............................ 391 22,774 -- -- --
Corporate expense ..................................... 1,057 1,033 -- -- --
Rental expense ........................................ 86 1,398 -- -- --
Depreciation and amortization ......................... -- 9,144 -- -- --
----------- ----------- ----------- ----------- -----------
59,205 65,010 -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss) ................................. (4,788) 28,746 -- -- --
Other income (expense): ----------- ----------- ----------- ----------- -----------
Interest income ..................................... 176 178 -- -- --
Interest expense, net of amounts capitalized ........ -- (22,465) -- -- --
Interest expense on indebtedness to
Principal Stockholder ............................. -- (1,010) -- -- --
Income (loss) from equity investment in
Grand Canal Shops II .............................. 5,088 3,538(13) (410) -- -- --
Income (loss) from equity investment in VCR
and subsidiaries .................................. (1) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ................... (4,626) 5,039 -- -- --
Preferred return on Redeemable Preferred
Interest in Venetian ................................................................... -- (5,663)(5,040) -- -- -------------- -------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Net income (loss) ...........................................loss ................................................ $ 5,088(4,626) $ (2,125)(1) $ -- $ -- ============== ============== ============== ==============$ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany revenues or
expenses as of March 31, 2002.June 30, 2001.
1621
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the three months ended March 31, 2002June 30, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Shops Mall Other Non- Consolidating/
SubsidiaryShops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenue:Revenues:
Casino .................................................... $ -- $ -- $ -- $ 50,47354,265
Room ...................................................... -- -- -- 56,37856,428
Food and beverage ......................................... -- -- -- 21,87918,528
Casino rental revenue from LVSI ........................... -- -- (11,488) --
Retail and other .......................................... 8,594 2,000 (13,894) 16,761
-------------- -------------- -------------- --------------8,792 -- (256) 17,446
----------- ----------- ----------- -----------
Total revenue ............................................. 8,594 2,000 (13,894) 145,491revenues ............................................ 8,792 -- (11,744) 146,667
Less promotional allowance ..................................allowances ................................. -- -- -- (9,058)
-------------- -------------- -------------- --------------(8,212) (9,658)
----------- ----------- ----------- -----------
Net revenues .............................................. 8,594 2,000 (13,894) 136,433
-------------- -------------- -------------- --------------8,792 -- (19,956) 137,009
----------- ----------- ----------- -----------
Operating expenses:
Casino .................................................... -- -- (11,563) 29,695(16,342) 36,158
Rooms ..................................................... -- -- -- 13,034(1,090) 13,685
Food and beverage ......................................... -- -- -- 9,971(2,078) 8,941
Retail and other .......................................... 3,1093,196 -- (331) 7,102(230) 7,833
Provision for doubtful accounts ........................... -- -- -- 3,3355,171
General and administrative ................................ 367466 -- -- 21,467(216) 23,415
Corporate expense ......................................... -- -- -- 1,9092,090
Rental expense ............................................ 488 -- (2,000) 1,654
Pre-opening and developmental expense .....................538 -- -- -- 6652,022
Depreciation and amortization ............................. 1,1741,161 -- -- 10,985
-------------- -------------- -------------- --------------
5,13810,305
----------- ----------- ----------- -----------
5,361 -- (13,894) 99,817
-------------- -------------- -------------- --------------(19,956) 109,620
----------- ----------- ----------- -----------
Operating income ............................................ 3,456 2,000(loss) ..................................... 3,431 -- 36,616
-------------- -------------- -------------- ---------------- 27,389
Other income (expense): ----------- ----------- ----------- -----------
Interest income ......................................... 1734 -- -- 181388
Interest expense, net of amounts capitalized ............ (1,926) (346)(2,649) -- (24,382)-- (25,114)
Interest expense on indebtedness to
Principal Stockholder ................................... (1,225)................................. (1,239) -- -- (2,334)
Other income (expense) .................................. -- -- -- 670(2,249)
Income (loss) from equity investment in
subsidiaries ....Grand Canal Shops II .................................. -- -- 149423 --
-------------- -------------- -------------- --------------
Income (loss) from equity investment in VCR
and subsidiaries ....................................... -- -- 1 --
----------- ----------- ----------- -----------
Income (loss) before preferred return .............................. 322 1,654 149 10,751....................... (423) -- 424 414
Preferred return on Redeemable Preferred
Interest in Venetian ....................................................................... -- -- -- (5,663)
-------------- -------------- -------------- --------------(5,040)
----------- ----------- ----------- -----------
Net income (loss) ...........................................loss .................................................... $ 322(423) $ 1,654-- $ 149424 $ 5,088
============== ============== ============== ==============(4,626)
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany revenues or
expenses as of March 31, 2002.June 30, 2001.
1722
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the threesix months ended March 31, 2001June 30, 2002
GUARANTOR SUBSIDIARIES
----------------------------------------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Resort Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino .............................................. $ 97,293 $ -- $ -- $ -- $ --
Room ................................................ -- 109,013 -- -- --
Food and beverage ................................... -- 39,533 -- -- --
Casino rental revenues from LVSI .................... -- 22,531 -- -- --
Retail and other .................................... 1,569 16,971 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues ...................................... 98,862 188,048 -- -- --
Less promotional allowances ........................... -- (1,765) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues ........................................ 98,862 186,283 -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino .............................................. 86,042 -- -- -- --
Rooms ............................................... -- 28,695 -- -- --
Food and beverage ................................... -- 22,656 -- -- --
Retail and other .................................... -- 9,036 -- -- --
Provision for doubtful accounts ..................... 5,124 3,150 -- -- --
General and administrative .......................... 1,420 42,369 -- -- --
Corporate expense ................................... 2,937 1,886 -- -- --
Rental expense ...................................... 462 5,306 -- -- --
Pre-opening and developmental expense ............... -- 5 -- -- 2,066
Depreciation and amortization ....................... -- 19,604 -- -- --
----------- ----------- ----------- ----------- -----------
95,985 132,707 -- -- 2,066
----------- ----------- ----------- ----------- -----------
Operating income (loss) ............................... 2,877 53,576 -- -- (2,066)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income ................................... 160 462 -- -- --
Interest expense, net of amounts capitalized ...... (17) (47,867) -- -- --
Interest expense on indebtedness
to Principal Stockholder ......................... -- (1,914) -- -- --
Other income (expense) ............................ -- 363 -- -- --
Loss on early retirement of debt .................. -- (41,236) -- -- --
Income (loss) from equity investment in
Grand Canal Shops II ............................. (2) (65) -- -- --
Income (loss) from equity investment in VCR
and subsidiaries ................................. (47,784) 224 -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ................. (44,766) (36,457) -- -- (2,066)
Preferred return on Redeemable Preferred
Interest in Venetian .............................. -- (11,327) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (44,766) $ (47,784) $ -- $ -- $ (2,066)
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
23
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the six months ended June 30, 2002
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- ----------------------------- --------------- --------------
Revenues:
Casino .................................................... $ 58,477-- $ -- $ -- $ 97,293
Room ...................................................... -- -- -- 109,013
Food and beverage ......................................... -- -- -- 39,533
Casino rental revenues from LVSI .......................... -- -- (22,531) --
Retail and other .......................................... 17,619 3,333 (4,045) 35,447
---------- --------- ----------- -----------
Total revenues ............................................ 17,619 3,333 (26,576) 281,286
Less promotional allowances ................................. -- -- (14,923) (16,688)
---------- --------- ----------- -----------
Net revenues .............................................. 17,619 3,333 (41,499) 264,598
---------- --------- ----------- -----------
Operating expenses:
Casino .................................................... -- -- (31,178) 54,864
Rooms ..................................................... -- -- (2,069) 26,626
Food and beverage ......................................... -- -- (3,936) 18,720
Retail and other .......................................... 6,631 -- (703) 14,964
Provision for doubtful accounts ........................... -- -- -- 8,274
General and administrative ................................ 883 -- (280) 44,392
Corporate expense ......................................... -- -- -- 4,823
Rental expense ............................................ 1,094 -- (3,333) 3,529
Pre-opening and developmental expense ..................... -- -- -- 2,071
Depreciation and amortization ............................. 2,345 -- -- 21,949
---------- --------- ----------- -----------
10,953 -- (41,499) 200,212
---------- --------- ----------- -----------
Operating income (loss) ..................................... 6,666 3,333 -- 64,386
Other income (expense): ---------- --------- ----------- -----------
Interest income ......................................... 28 -- -- 650
Interest expense, net of amounts capitalized ............ (3,645) (536) -- (52,065)
Interest expense on indebtedness
to Principal Stockholder ............................... (2,096) -- -- (4,010)
Other income (expense) .................................. -- -- -- 363
Loss on early retirement of debt ........................ (1,020) (507) -- (42,763)
Income (loss) from equity investment in
Grand Canal Shops II ................................... -- -- 67 --
Income (loss) from equity investment in VCR
and subsidiaries ........................................ -- -- 47,560 --
---------- --------- ----------- -----------
Income (loss) before preferred return ....................... (67) 2,290 47,627 (33,439)
Preferred return on Redeemable Preferred
Interest in Venetian .................................... -- -- -- (11,327)
Net income (loss) ---------- --------- ----------- -----------
$ (67) $ 2,290 $ 47,627 $ (44,766)
========== ========= =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
24
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the six months ended June 30, 2001
GUARANTOR SUBSIDIARIES
--------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino ............................................... $ 112,741 $ -- $ -- $ -- $ --
Room ....................................................................................................... -- 59,586116,014 -- -- --
Food and beverage ............................................................................. -- 18,82937,357 -- -- --
Casino rental revenue from LVSI ...................... -- 22,847 -- -- --
Retail and other .......................................... 289 20,602..................................... 441 18,001 -- -------------- -------------- -------------- ---------------- --
----------- ----------- ----------- ----------- -----------
Total revenue ............................................. 58,766 99,017........................................ 113,182 194,219 -- -------------- -------------- -------------- ---------------- --
Less promotional allowance ..................................allowances ............................ -- (12,286)(2,708) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues .............................................. 58,766 86,731......................................... 113,182 191,511 -- -------------- -------------- -------------- ---------------- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino .................................................... 51,358............................................... 110,624 -- -- -- --
Rooms ..................................................................................................... -- 13,17129,437 -- -- --
Food and beverage ............................................................................. -- 8,30721,803 -- -- --
Retail and other ............................................................................... -- 4,7349,571 -- -- --
Provision for doubtful accounts ........................... 3,718...................... 8,889 -- -- -- --
General and administrative ................................ 982 20,659........................... 1,372 43,752 -- -- --
Corporate expense ......................................... 1,025 863.................................... 2,082 1,896 -- -- --
Rental expense ............................................ 193 1,452....................................... 279 2,850 -- -- --
Depreciation and amortization ..................................................... -- 8,91018,054 -- -- -------------- -------------- -------------- --------------
57,276 58,096--
----------- ----------- ----------- ----------- -----------
123,246 127,363 -- -- --
----------- ----------- ----------- ----------- -----------
Operating income ............................................ 1,490 28,635(loss) ................................ (10,064) 64,148 -- -- -------------- -------------- -------------- ----------------
Other income (expense): ----------- ----------- ----------- ----------- -----------
Interest income ......................................... 211 171.................................... 387 349 -- -- --
Interest expense, net of amounts capitalized ................... -- (23,782)(46,247) -- -- --
Interest expense on indebtedness to
Principal Stockholder .............................................................. -- (964)(1,974) -- -- --
Income (loss) from equity investment in
subsidiaries .... (2,062)Grand Canal Shops II .............................. (45) (1,461) -- -- --
-------------- -------------- -------------- --------------Income (loss) from equity investment in VCR
and subsidiaries .................................. 4,735 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ....................... (361) 4,060.................. (4,987) 14,815 -- -- --
Preferred return on Redeemable Preferred
Interest in Venetian .................................................................. -- (5,040)(10,080) -- -- -------------- -------------- -------------- ----------------
----------- ----------- ----------- ----------- -----------
Net income (loss) ...........................................loss ............................................... $ (361)(4,987) $ (980)4,735 $ -- $ -- ============== ============== ============== ==============$ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany revenues or
expenses as of March 31,June 30, 2001.
1825
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the threesix months ended March 31,June 30, 2001
NON-GUARANTOR SUBSIDIARIES
---------------------------------------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
SubsidiaryShops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenue:Revenues:
Casino .................................................... $ -- $ -- $ -- $ 58,477112,741
Room ...................................................... -- -- -- 59,586116,014
Food and beverage ......................................... -- -- -- 18,82937,357
Casino rental revenue from LVSI ........................... -- -- (22,847) --
Retail and other .......................................... 8,03416,826 -- (11,641) 17,284
-------------- --------------- --------------- -------------(538) 34,730
----------- ----------- ----------- -----------
Total revenue ............................................. 8,03416,826 -- (11,641) 154,176(23,385) 300,842
Less promotional allowance ..................................allowances ................................. -- -- -- (12,286)
-------------- --------------- --------------- -------------(19,236) (21,944)
----------- ----------- ----------- -----------
Net revenues .............................................. 8,03416,826 -- (11,641) 141,890
-------------- --------------- --------------- -------------(42,621) 278,898
----------- ----------- ----------- -----------
Operating expenses:
Casino .................................................... -- -- (11,359) 39,999(34,468) 76,156
Rooms ..................................................... -- -- -- 13,171(2,581) 26,856
Food and beverage ......................................... -- -- -- 8,307(4,555) 17,248
Retail and other .......................................... 2,7465,944 -- (282) 7,198(484) 15,031
Provision for doubtful accounts ........................... -- -- -- 3,7188,889
General and administrative ................................ 370835 -- -- 22,011(533) 45,426
Corporate expense ......................................... -- -- -- 1,8883,978
Rental expense ............................................ 5461,084 -- -- 2,1914,213
Depreciation and amortization ............................. 1,2962,457 -- -- 10,206
-------------- --------------- --------------- -------------
4,95820,511
----------- ----------- ----------- -----------
10,320 -- (11,641) 108,689
-------------- --------------- --------------- -------------
--(42,621) 218,308
----------- ----------- ----------- -----------
Operating income ............................................ 3,076(loss) ..................................... 6,506 -- 33,201
-------------- --------------- --------------- --------------- 60,590
Other income (expense): ----------- ----------- ----------- -----------
Interest income ......................................... 3670 -- -- 418806
Interest expense, net of amounts capitalized ............ (2,969)(5,618) -- -- (26,751)(51,865)
Interest expense on indebtedness to
Principal Stockholder ................................. (1,225).................................. (2,464) -- -- (2,189)(4,438)
Income (loss) from equity investment in
subsidiaries ....Grand Canal Shops II ................................... -- -- 2,0621,506 --
-------------- --------------- --------------- -------------Income (loss) from equity investment in VCR
and subsidiaries ....................................... -- -- (4,735) --
----------- ----------- ----------- -----------
Income (loss) before preferred return ....................... (1,082)(1,506) -- 2,062 4,679(3,229) 5,093
Preferred return on Redeemable Preferred
Interest in Venetian ....................................................................... -- -- -- (5,040)
-------------- --------------- --------------- -------------(10,080)
----------- ----------- ----------- -----------
Net income (loss) ...........................................loss .................................................... $ (1,082)(1,506) $ -- $ 2,062(3,229) $ (361)
============== ============== =============== =============(4,987)
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany revenues or
expenses as of March 31,June 30, 2001.
1926
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the threesix months ended March 31,June 30, 2002
GUARANTOR SUBSIDIARIES
---------------------------------------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Resort Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC -------------- -------------- -------------- --------------LLC
------------------------- ------------ ------------ -----------
Net cash provided by (used in) operating activities ............................ $ 3,1003,250 $ 13,9737,552 $ -- $ -- -------------- -------------- -------------- --------------$ (2,066)
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
DecreaseIncrease in restricted cash ...............................($185.0 million for
Phase IA construction and $116.9 million for
debt defeasance on July 5, 2002)......................... -- 1,528(302,796) -- -- --
Capital expenditures ...................................... -- (23,629)(31,977) -- -- -------------- -------------- -------------- ----------------
Dividend from Grand Canal Shops II LLC .................... -- 21,590 -- -- --
Capital contributions to subsidiaries ..................... -- (40,974) -- -- --
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities ....................... -- (22,101)(354,157) -- -- -------------- -------------- -------------- ----------------
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Dividend from Grand Canal Shops Mall Subsidiary,to Venetian Casino Resort LLC ....... 7,000.................... -- -- -- -- --
Capital contribution tofrom Venetian Casino Resort, LLC ..... -- -- -- -- 2,066
Repayments on 12 1/4% mortgage notes ...................... -- (316,558) -- -- --
Proceeds from 11% mortgage notes .......................... -- 850,000 -- -- --
Repayments on senior subordinated notes ................... -- (95,690) -- -- --
Proceeds from secured mall facility ....................... -- -- -- -- --
Repayments on mall-tranche A take-out loan ................ -- -- -- -- --
Repayments on mall-tranche B take-out loan ................ -- -- -- -- --
Repayments on completion guaranty loan .................... -- (31,124) -- -- --
Proceeds from senior secured credit facility-term B ....... (7,000) 7,000-- 250,000 -- -- --
Repayments on bank credit facility-term ................... -- (382)(151,986) -- -- --
Repayments on bank credit facility-revolver ............... -- (15,000)(61,000) -- -- --
Proceeds from bank credit facility-revolver ............... -- 5,00021,000 -- -- --
Repayments on FF&E credit facility ........................ -- (5,374)(53,735) -- -- --
Repayments on Phase II Subidiary credit facility .......... -- -- -- -- --
Repayments on Phase II Subidiary unsecured bank loan ...... -- -- -- -- --
Repurchase premiums incurred in
connection with refinancing transctions .................. -- (26,691) -- -- --
Payments of deferred offering costs ....................... -- (136)(36,820) -- -- --
Net increase(decrease)increase (decrease) in intercompany accounts ........... (14,929) 16,239.......... (9,969) 7,897 -- -- -------------- -------------- -------------- ----------------
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) financing activities ......... (14,929) 7,347(9,969) 355,293 -- -- -------------- -------------- -------------- --------------
Decrease2,066
----------- ----------- ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents ....................... (11,829) (781)............ (6,719) 8,688 -- -- --
Cash and cash equivalents at beginning of period.............period ............ 37,367 7,806 4 4 -------------- -------------- -------------- ----------------
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period...................period .................. $ 25,53830,648 $ 7,02516,494 $ 4 $ 4 ============== ============== ============== ==============$ --
=========== =========== ============ =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall
Subsidiary on December 20, 1999.1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no cash flows as of March 31,June
30, 2002.
2027
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the threesix months ended March 31,June 30, 2002
NON-GUARANTOR SUBSIDIARIES
---------------------------------------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
SubsidiaryShops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- ---------------------------
Net cash provided by (used in) operating activities ............................ $ 2,3563,682 $ 1,8453,148 $ -- $ 21,274
-------------- --------------- --------------- --------------15,566
------------ ------------ ----------- -----------
Cash flows from investing activities:
DecreaseIncrease in restricted cash ............................... 683($185.0 million for
Phase IA construction and $116.9 million for
debt defeasance on July 5, 2002)......................... (147) -- -- 2,211(302,943)
Capital expenditures ...................................... (10) (1,025)(50) (3,571) -- (24,664)
-------------- --------------- --------------- --------------(35,598)
Dividend from Grand Canal Shops II LLC .................... -- -- (21,590) --
Capital contributions to subsidiaries ..................... -- -- 40,974 --
------------ ------------ ----------- -----------
Net cash used in investing activities ....................... 673 (1,025) -- (22,453)
-------------- --------------- --------------- --------------(197) (3,571) 19,384 (338,541)
------------ ------------ ----------- -----------
Cash flows from financing activities:
Dividend from Grand Canal Shops Mall Subsidiary,LLC ....... (7,000) -- -- --
Capital contribution to Venetian Casino Resort LLC .................... (21,590) -- 21,590 --
Capital contribution from Venetian Casino Resort, LLC ..... 37,864 1,044 (40,974) --
Repayments on 12 1/4% mortgage notes ...................... -- -- -- (316,558)
Proceeds from 11% mortgage notes .......................... -- -- -- 850,000
Repayments on senior subordinated notes ................... -- -- -- (95,690)
Proceeds from secured mall facility ....................... 120,000 -- -- 120,000
Repayments on mall-tranche A take-out loan ................ (105,000) -- -- (105,000)
Repayments on mall-tranche B take-out loan ................ (35,000) -- -- (35,000)
Repayments on completion guaranty loan .................... -- -- -- (31,124)
Proceeds from senior secured credit facility-term B ....... -- -- -- --250,000
Repayments on bank credit facility-term ................... -- -- -- (382)(151,986)
Repayments on bank credit facility-revolver ............... -- -- -- (15,000)(61,000)
Proceeds from bank credit facility-revolver ............... -- -- -- 5,00021,000
Repayments on FF&E credit facility ........................ -- -- -- (5,374)(53,735)
Repayments on Phase II Subidiary credit facility .......... -- (2,500)(3,933) -- (2,500)(3,933)
Repayments on Phase II Subidiary unsecured bank loan ...... -- (1,092) -- (1,092)
Repurchase premiums incurred in
connection with refinancing transctions .................. -- -- -- (26,691)
Payments of deferred offering costs ....................... (3,147) (6) -- -- -- (136)(39,973)
Net increase(decrease)increase (decrease) in intercompany accounts ........... (322) (988).......... 564 1,508 -- --
-------------- --------------- --------------- -------------------------- ------------ ----------- -----------
Net cash provided by (used in) financing activities ......... (7,322) (3,488) -- (18,392)
-------------- --------------- --------------- --------------
Decrease(6,309) (2,479) (19,384) 319,218
------------ ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents ....................... (4,293) (2,668)............ (2,824) (2,902) -- (19,571)(3,757)
Cash and cash equivalents at beginning of period ............ 6,650 3,105 -- 54,936
-------------- --------------- --------------- -------------------------- ------------ ----------- -----------
Cash and cash equivalents at end of period .................. $ 2,3573,826 $ 437203 $ -- $ 35,365
============== ============== ============== ==============51,179
============ ============ =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a non-guarantorresult, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no cash flows as of June
30, 2002.
28
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001
GUARANTOR SUBSIDIARIES
--------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
------------------------- ------------ ------------ -----------
Net cash provided by (used in) operating activities ......... $ (19,451) $ 26,140 $ -- $ -- $ --
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Increase in restricted cash ............................... -- (26) -- -- --
Capital expenditures ...................................... -- (20,924) -- -- --
----------- ----------- ------------ ----------- ----------
Net cash used in investing activities ....................... -- (20,950) -- -- --
----------- ----------- ------------ ----------- ----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan .... -- (5,625) -- -- --
Repayments on bank credit facility-tranche B term loan .... -- (250) -- -- --
Proceeds from bank credit facility-tranche C term loan .... -- 5,750 -- -- --
Proceeds from bank credit facility-revolver ............... -- 22,000 -- -- --
Repayments on FF&E credit facility ........................ -- (10,747) -- -- --
Proceeds from Phase II Subsidiary unsecured bank loan ..... -- -- -- -- --
Payments of deferred offering costs ....................... -- (520) -- -- --
Net increase (decrease) in intercompany accounts .......... 11,898 (11,962) -- -- --
----------- ----------- ------------ ----------- ----------
Net cash provided by (used in) financing activities ......... 11,898 (1,354) -- -- --
----------- ----------- ------------ ----------- ----------
Increase (decrease) in cash and cash equivalents ............ (7,553) 3,836 -- -- --
Cash and cash equivalents at beginning of period ............ 35,332 4,260 4 4 --
----------- ----------- ------------ ----------- ----------
Cash and cash equivalents at end of period .................. $ 27,779 $ 8,096 $ 4 $ 4 $ --
----------- ----------- ------------ ----------- ----------
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany cash flows as
of March 31, 2002.June 30, 2001.
2129
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
============== ============== ============== ==============
- ----------------
(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.
22
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7.7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS (continued)
For the threesix months ended March 31,June 30, 2001
NON-GUARANTOR SUBSIDIARIES
---------------------------------------------------------------
Grand Canal
Shops Mall Other Non- Consolidating/
SubsidiaryShops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- ---------------------------
Net cash provided by (used in) operatingused in investing activities ....................................................................... $ 1791,084 $ 10(9) $ -- $ 13,936
-------------- --------------- --------------- --------------7,764
----------- ----------- ----------- -----------
Cash flows from investing activities:
Increase in restricted cash ............................... (15)(26) -- -- (25)(52)
Capital expenditures ...................................... (87) (458)(294) (428) -- (9,566)
-------------- --------------- --------------- --------------(21,646)
----------- ----------- ----------- -----------
Net cash used in investing activities ....................... (102) (458)(320) (428) -- (9,591)
-------------- --------------- --------------- --------------(21,698)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan .... -- -- -- (5,625)
Repayments on bank credit facility-tranche B term loan .... -- -- -- (125)(250)
Proceeds from bank credit facility-tranche C term loan .... -- -- -- 5,750
Proceeds from bank credit facility-revolver ............... -- -- -- 22,000
Repayments on FF&E credit facility ........................ -- -- -- (5,374)(10,747)
Proceeds from Phase II Subsidiary unsecured bank loan ..... -- 792 -- 792
Payments of deferred offering costs ....................... -- (300) -- (477)(820)
Net increase(decrease)increase (decrease) in intercompany accounts ........... (259).......... 64 -- -- --
-------------- --------------- --------------- ------------------------- ----------- ----------- -----------
Net cash provided by (used in) financing activities ......... (259)64 492 -- (5,184)
-------------- --------------- --------------- --------------11,100
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ............ (182) 44828 55 -- (839)(2,834)
Cash and cash equivalents at beginning of period ............ 2,972 34 -- 42,606
-------------- --------------- --------------- ------------------------- ----------- ----------- -----------
Cash and cash equivalents at end of period .................. $ 2,7903,800 $ 7889 $ -- $ 41,767
============== =============== =============== ==============39,772
=========== ========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to theGrand Canal Shops Mall, Subsidiary,LLC, a non-guarantornon- 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, neither Mall Construction nor Grand Canal Shops Mall, LLC had noany cash flows as
of March 31,June 30, 2001.
2330
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 Las Vegas Strip (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 net475,000 gross leasable square feet; and a meeting and
conference facility of approximately 500,000 square feet.feet of convention space.
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 significantlyOver the last year, the Company's operating results have been
negatively impacted by a decline in tourism following the terrorist attacks of
September 11, 2001, an economic downturn as well as an unusually low table games
win percentage. Consolidated net revenues for the three months ended March
31,June 30,
2002 were $136.4$128.2 million, representing a decrease of $5.5$8.8 million of
consolidated net revenues as compared to $141.9 million forfrom the quarter ended March 31,June 30, 2001. Despite the impactthese
negative factors, several of the terrorist attacks, the Company's financial position continuesindicators continue 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 dailystable room
rates in all major
segments of the Casino Resort's hotel rooms business since September 11;occupancies; (3) a
stable recurring revenue stream from the Mall; and (4) successful
cost cuttingcost-cutting initiatives. Although the Company continuesexpects to continue to recover,
the extent to which the
events of September 11ththese factors 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 onconstructing 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.Addition. 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. CertainThe Company continued certain designing,
planning and permitting of the Phase IA Addition, is, however, continuing.and on June 4, 2002
upon the completion of the Refinancing Transactions, construction was
re-commenced. To date, the Company has completed the design, and has
substantially completed the foundation and support systems for, each of the
1,000-room hotel tower on top of the existing parking garage and the additional
convention center space. The Company is currently exploring financing
alternatives to complete construction ofanticipates that the Phase IA
Addition which it
estimates will be open for business in June 2003 with a remaining cost of
approximately $235.0 million. The Phase IA Addition is being funded from the
proceeds of the Senior Secured Credit Facility.
On June 26, 2002, the Company announced that a joint venture comprised
of Venetian Macau and a group of Macau and Hong Kong-based investors had entered
into a final concession contract with the Government of the Macau Special
Administrative Region of the People's Republic of China to operate casinos in
Macau. Venetian Macau continues to negotiate the final terms of a joint venture
and management expects that those negotiations will be concluded in the third
quarter of 2002. The final terms of a joint venture agreement may include
financial obligations to the joint venture and/or to the Government of Macau or
Venetian Macau may be obligated to pay for certain costs of developing and
constructing the contemplated casinos in Macau. Through June 30, 2002, the
Company had incurred developmental expenses of $2.4 million to complete.in connection with
the proposed Macau project.
The Company has also recently announced its intention (withentered into a joint venture partners)agreement to seek a license to operate casinos in Macau, is pursuingassess
the possibilityfeasibility of developingand develop an Internet gaming sitesite. The Company has applied
for an Internet gaming license in Alderney, but has not yet established any
operations. The Company estimates that it is committed to contribute
approximately $1.0 million, approximately one-third of the required capital, to
the joint venture during the next year. After recovery of each partner's initial
capital contribution, the Company will receive 50% to 80% of the net profit of
the joint venture, based upon an increasing scale of net profit (if any). The
joint venture provides that the agreement will be automatically terminated
should the Company fail to obtain any required regulatory approvals from
Alderney, the Nevada gaming authorities or any other applicable jurisdiction
prior to launching its operations.
31
Item 2. Management's Discussion and is currently exploring
other business opportunities for expansion.Analysis of Financial Condition and Results
of Operations (Continued)
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.o The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inabilityfailure 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 abilityor if a customer refuses to make payments,pay or disputes any such
payment, additional allowances may be required.
o 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.
o 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 liabilityliabilities based upon historical
experience in the other accrued liability category in its consolidated
balance sheet.
Operating Results
- -----------------
First QuarterThree Months Ended March 31,June 30, 2002 compared to First QuarterThree Months Ended March
31,2001
-------June
30, 2001
--------------------------------------------------------------------
Operating Revenues
------------------
Consolidated net revenues for the firstsecond quarter of 2002 were $136.4$128.2
million, representing a decrease of $5.5$8.8 million when compared with $141.9$137.0
million of consolidated net revenues during the firstsecond quarter of 2001. The
decrease in net revenues was due primarily to a decline of casino, hotel and
hotel
revenuefood and beverage revenues at the Casino Resort, which was partially offset by
an increase in foodretail and beverage revenue.other revenues.
The Casino Resort's casino revenues were $50.5$46.8 million in the firstsecond
quarter of 2002, a decrease of $8.0$7.5 million when compared to $58.5$54.3 million
during the firstsecond quarter of 2001. The decrease was attributable to the
continuing impact of the September 11th terrorist attacks and an increased
selectivity of high-end casino customers to reduce variable marketing and
incentive costs. Table games drop (volume) decreased to $217.5$181.3 million in the
firstsecond quarter of 2002 from $308.4$259.8 million during the firstsecond 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 businessHowever, as more fully explained below, casino expenses (primarily variable
costs associated with marketing) decreased more than the Company's group room business.
25decline in casino
revenues, improving the profitability of the casino department.
32
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Mall generated rental and relatedCasino Resort achieved room revenues of $8.3$52.6 million during the
firstsecond quarter of 2002, compared to $7.8$56.4 million during the firstsecond quarter of
2001. The decline in hotel revenues was the result of a decline in overall
average daily room rates attributable to additional reliance on wholesale room
sales because of reduced group room sales during the month of June. The Casino
Resort's average daily room rate was $196 in the second quarter of 2002,
compared to $213 during the second quarter of 2001. The occupancy of available
guestrooms was 97.6% during the second quarter of 2002, compared to 96.5% during
the second quarter of 2001.
Food and beverage, retail and other revenues were $36.3 million during
the second quarter of 2002, compared to $36.0 million during the second quarter
of 2001. The increase was attributable to additional tenantsa favorable arbitration award in the
amount of $1.5 million for royalties which was offset by a decline in food and
increased proceeds from
rents calculated on tenant gross revenues.beverage revenues related to a decrease in banquet activity during the second
quarter of 2002.
Operating Expenses
------------------
Consolidated operating expenses were $99.8$100.4 million in the firstsecond
quarter of 2002, compared with $108.7$109.6 million during the firstsecond quarter of 2001.
The decrease was primarily attributable to a reduction in casino marketing and
incentive costs and casino payroll costs during the second quarter. The Company
renewed its casualty and liability insurance coverage during April 2002 and
incurred a substantial increase in premium cost. In addition, effective June 4,
2002, the Company was required by certain lenders in the Refinancing
Transactions to obtain terrorism insurance coverage. The additional insurance
premium costs are estimated to be $2.7 million per year. Corporate expenses
totaled $1.9$2.9 million during each of the first quarter of 2002 and 2001.
Casino expenses were $29.7 million in the firstsecond quarter of 2002, compared to $40.0$2.1 million
during the firstsecond quarter 2001. The increase in corporate expenses was the
result of the adoption of an executive bonus program.
Casino expenses were $25.2 million in the second quarter of 2001, a decrease2002,
compared to $36.2 million during the second quarter of $10.3 million.2001. The decrease iswas
primarily attributable to a reduction in table gamescasino marketing and incentive costs,
casino payroll costs and decreases in gaming taxes and promotional allowances
due to lower gaming volumes during the first quarter.second quarter of 2002. The decrease in
marketing and incentive costs resulted from heightened selectivity ofrelated to a decrease in table games customers to improve casino
operating margins.revenues as
further described above.
Food and beverage, retail and other expenses during the firstsecond quarter
of 2002 were $10.0$16.6 million as compared to $8.3$16.8 million during the firstsecond
quarter of 2001. The increasedecrease was associated with an increasea decrease in food and beveragebanquet revenue
during the firstsecond quarter of 2002 as compared to the firstsecond quarter of 2001.2001 and
reduced group room business in June 2002.
Rental expenses, primarily related to the Casino Resort's heating,
ventilation and air conditioning plant and rental gaming devices, were $1.7$1.9
million for the firstsecond quarter of 2002.2002, as compared to $2.0 million in the
second quarter of 2001.
Interest Income (Expense)
-------------------------
Interest expense was $29.4 million in the second quarter of 2002,
compared to $27.4 million in the same period of 2001. Of the $29.4 million
incurred during the second quarter of 2002, $26.6 million was related to the
Casino Resort (excluding the Mall), $2.6 million was related to the Mall and
$0.2 million was related to the Phase II Subsidiary. The increase in interest
expense was attributable to additional borrowings from the Refinancing
Transactions, offset by decreases in the average interest rates of outstanding
debt and the capitalization of interest expense in connection with construction
of the Phase IA Addition.
Interest income for the quarter ended June 30, 2002 was $0.5 million,
compared to $0.4 million in the same period of 2001. The Company had other
expenses of $0.3 million during the quarter ended June 30, 2002 resulting from a
change in the market value of the Old Rate Cap Agreements.
33
Six Months Ended June 30, 2002 compared to Six Months Ended June 30,
2001
--------------------------------------------------------------------
Operating Revenues
------------------
Consolidated net revenues for the six months ended June 30, 2002 were
$264.6 million, representing a decrease of $14.3 million when compared with
$278.9 million of consolidated net revenues during the six months ended June 30,
2001. The decrease in net revenues was primarily due to a decline of casino and
hotel revenue at the Casino Resort, which was partially offset by increases in
food and beverage and retail and other revenues.
The Casino Resort's casino revenues were $97.3 million for the six
months ended June 30, 2002, a decrease of $15.4 million when compared to $112.7
million during the six months ended June 30, 2001. The decrease was attributable
to the continuing impact of the September 11th terrorist attacks and increased
selectivity of high-end casino customers. Table games drop (volume) decreased to
$398.8 million for the six months ended June 30, 2002 from $568.3 million during
the six months ended June 30, 2001.
The Casino Resort's hotel occupancy percentages were 97.8% during the
six months ended June 30, 2002, as compared to 98.1% during the same period
2001. The Casino Resort achieved room revenues during the six months ended June
30, 2002 of $109.0 million, compared to $116.0 million during the six months
ended June 30, 2001. The Casino Resort's average daily room rate was $204 for
the six months ended June 30, 2002, compared to $216 during the six months ended
June 30, 2001. The decrease in room rates was partially the result of the Casino
Resort's additional reliance on wholesale rooms during the month of June 2002
over the mid-week, group and convention business, weekend retail business as
compared to June 2001 and the decline in tourism following the terrorist attacks
on September 11, 2001.
Food and beverage, retail and other revenues were $75.0 million during
the six months ended June 30, 2002, compared to $72.1 million during the six
months ended June 30, 2001. The increase was primarily attributable to a
favorable $1.5 million arbitration award for royalties.
Operating Expenses
------------------
Consolidated operating expenses were $200.2 million for the six months
ended June 30, 2002, compared with $218.3 million during the six months ended
June 30, 2001. The decrease in operating expenses was primarily attributable to
a reduction in casino marketing and incentive costs, promotional allowances and
casino payroll costs associated with lower casino revenue. Corporate expenses
totaled $4.8 million during the six months ended June 30, 2002, as compared to
$4.0 million during the six months ended June 30, 2001. The increase in
corporate expenses was attributable to the adoption of an executive bonus
program.
Casino expenses were $54.9 million for the six months ended June 30,
2002, compared to $76.2 million during the same period of 2001. The decrease was
primarily attributable to a reduction in casino marketing and incentive costs
during the six months ended June 30, 2002 as well as decreases in payroll costs
and gaming taxes due to lower gaming volumes. The decrease in marketing and
incentive costs resulted from heightened selectivity of casino customers to
improve casino operating margins.
Food and beverage, retail and other expenses during the six months
ended June 30, 2002 were $33.7 million as compared to $32.3 million during the
second quarter of 2001. The increase was associated with an increase in banquet
revenue during the six months ended June 30, 2002 as compared to the six months
ended June 30, 2001.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant and rental of gaming devices for the six
months ended June 30, 2002 were $3.5 million. Rental expenses were $2.2$4.2 million
infor the first quarter ofsix months ended June 30, 2001. The decline in rental expenses was
primarily attributable to reduced usage of rented or participation gaming
devices during 2002.
Interest Income (Expense)
-------------------------
Interest expense was $56.1 million for the six months ended June 30,
2002, compared to $56.3 million in the same period of 2001. Of the $56.1 million
incurred during the first quarter
ofsix months ended June 30, 2002, $49.9 million was the result of additional charges of related costs to
the Casino Resort tenants as compared(excluding the Mall), $5.7 million was related to the first quarterMall and
$0.5 million was related to the Phase II Subsidiary. The decrease in interest
expense was attributable to decreases in the average interest rates of 2001.the
Company's outstanding debt during the six months ended June 30, 2002 and the
capitalization of interest expense in connection with the Phase IA Addition, net
of increased interest expense associated with additional borrowings from the
Company's Refinancing Transactions.
34
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 quartersix months ended March 31,June 30, 2002 was $0.2$0.7 million
as compared to $0.4$0.8 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 quarterthree and six months ended March 31,June 30, 2002
was $11.0 million asand $21.9 million, respectively, compared to $10.2$10.3 million and
$20.5 million in the firstsecond quarter of 2001. The increase2001, respectively. Each of the increases
was attributable to placing various capital improvement projects into service
during the fourth quarter of 2001, various
capital improvement projects, including the Guggenheim Museum Projects.projects.
During the three and six month periods ended June 30, 2002 and June 30,
2001, $5.7 million and $11.3 million, and $5.0 million and $10.1 million,
respectively, were accrued on the Series B Preferred Interest related to the
contributions made.
During the three and six month periods ended June 30, 2002, the Company
incurred $1.4 million and $2.1 million, respectively, of pre-development
expenses for the proposed Macau project.
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.
26Liquidity and Capital Resources
- -------------------------------
Cash Flow and Capital Expenditures
----------------------------------
As of June 30, 2002 and December 31, 2001, the Company held
unrestricted cash and cash equivalents of $51.2 million and $54.9 million,
respectively. Net cash provided by operating activities for the six months ended
June 30, 2002 was $15.6 million, compared to net cash provided by operating
activities of $7.8 million for the six months ended June 30, 2001. Net trade
receivables were $49.4 million as of June 30, 2002 and $57.1 million as of
December 31, 2001. The decrease in net trade receivable is primarily related to
reduced casino revenue during the first six months of 2002 as compared to the
same period in 2001.
Capital expenditures during the six months ended June 30, 2002 were
$35.6 million, primarily attributable to construction of the Phase IA Addition.
Capital expenditures for the six months ended June 30 2001 were $21.6 million.
The Company also held restricted cash balances of $305.6 million as of
June 30, 2002. Of this amount, $185.0 million was deposited into restricted
accounts and invested in cash or permitted investments by a disbursement agent
for the Senior Secured Credit Facility lenders until required for Phase IA
Addition project costs under the disbursement terms of the Senior Secured Credit
Facility. In addition to the cash in the disbursement account, the Term A
Facility provides for a delayed draw term loan of $50.0 million which the
Company expects to draw upon in full by June 4, 2003 to pay additional Phase IA
Addition project costs. The Company estimates that the cost to complete the
Phase IA Addition is $235.0 million and expects substantial completion to occur
by June 2003. Through June 30, 2002, the Company had paid approximately $30.3
million to complete the Phase IA Addition. The Company currently anticipates
that the funds in the disbursement account and the delayed draw facility will be
sufficient to pay for all of the remaining costs of the Phase IA Addition.
35
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 its 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:June 30:
2003 2004 2005 2006 Thereafter
------- ------- ------- ------- ---------- ---------- ----------- ---------- ----------
(Dollars in Thousands)
Long -Term Indebtedness
Long-Term Indebtedness
- ----------------------
Mortgage Notes $ -- $ -- 425,000$ -- $ -- Subordinated$ 850,000
Old Mortgage 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(redeemed July 5, 2002) 108,442 -- -- -- --
Tranche B Take-out Loan -- -- 35,000 -- --
Completion Guaranty LoanOld Subordinated Notes (redeemed July 5, 2002) 1,753 -- -- -- 31,123 --
Phase II SubsidiarySenior Secured Credit Facility -- 1,4332,500 2,500 2,500 2,500 240,000
Secured Mall Facility -- -- --
Phase II Unsecured Bank Loan 1,092 -- --120,000 -- --
Fixed Payment Obligations To The HVAC Provider
- --------------------
HVAC Provider fixed payments 7,657 7,657 7,657 7,657 24,885
------- ------- ------- ------- ------22,971
---------- ---------- ----------- ---------- ----------
Total indebtedness and HVAC fixed
payment obligations 211,618 135,813 473,030 133,112 24,885
======= ======= ======= ======= ======$ 120,352 $ 10,157 $ 130,157 $ 10,157 $1,112,971
========== ========== =========== ========== ==========
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 and after giving effect to
the redemption of the Old Notes on July 5, 2002, the Company has debt service
payments due aggregating $204.0$2.5 million during the next twelve months,
includingrepresenting principal payments on: (1)on the BankSenior Secured 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.Facility. Based on
current outstanding indebtedness and current interest rates underon the Bank
Credit Facility, the FF&ESenior
Secured Credit Facility and the Tranche A Take-out Loan,Secured Mall Facility, the Company has estimated
total interest payments during the next twelve months (excluding noncash
amortization of debt offering costs) of: (1)of approximately $78.7$106.0 million during the next twelve
months for
indebtedness secured by the Casino Resort;Resort and (2) approximately $9.6$4.5 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$53.6
million, payable in equal monthly installments during the period of AprilJuly 1, 2002
through July 1, 2009.
Refinancing Transactions
------------------------
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,June 4, 2002, the Company announced its intention to offer approximately
$850issued $850.0 million in aggregate
principal amount of mortgage notesMortgage Notes in a Rule 144Aprivate placement offering and to enterentered
into a new senior secured credit facility and Mall loan
facility,the Senior Secured Credit Facility in an aggregate amount of approximately $480$375.0 million
duringand the second quarterSecured Mall Facility in the aggregate amount of 2002.$105.0 million
(subsequently increased to $120.0 million on June 28, 2002). The Company intends toused or
will use the proceeds of the Refinancing Transactions to repay, redeem or
repurchase all of its outstanding indebtedness (including the Old Notes, the
Bank Credit Facility, the FF&E Facility, the Completion Guaranty Loan, the Mall
Take-out Financing, the Completion Guaranty,Phase II Unsecured Bank Loan and the Phase II Subsidiary
Credit Facility and the Phase II Unsecured Bank Loan)Facility), 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 addition, the Principal Stockholder's completion guarantee
relating to the construction of the Casino Resort was terminated upon the
consummation of the Refinancing Transactions and the remaining cash collateral
was returned to the Principal Stockholder. In connection with the Refinancing
Transactions, the Company expects to incur an extraordinaryincurred a loss on early retirement of indebtedness of
$53.3$42.8 million which will be comprisedduring the three months ended June 30, 2002. See "Item 1 -
Financial Statements and Supplementary Data - Notes to Financial Statements -
Note 4 Long-Term Debt."
As part 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
anyrepurchase the Old Notes. Upon the consummation
of the Refinancing Transactions, the Company repurchased $316.6 million of the
Old Mortgage Notes and $95.7 million of the Old Subordinates Notes and effected
a covenant defeasance with respect to the remaining Mortgage Notes. The Company
called all of the remaining Old Notes (the "Tender Offer"). The purchase price (including
consent fees) is $1,061.25 per $1,000 principal amount forupon 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 allclosing 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 toand redeemed the balance of the Old Mortgage Notes ($108.4 million)
and the Old Subordinated Notes (1.8 million) on July 5, 2002. As result of the
redemptions of the Old Notes on July 5, 2002, the Company will incur a numberloss of
conditions, including entering into definitive agreements for$8.7 million on early retirement of debt in the Refinancing
Transactions. No assurance can be given that the Tender Offer orthird quarter of 2002.
36
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The sources and uses of funds from 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, forwere as
follows:
(Dollars in Millions)
Sources:
Mortgage Notes $ 850.0
Senior Secured Credit Facility 250.0
Secured Mall Facility 120.0
---------
$ 1,220.0
=========
Uses:
Redemption of Old Mortgage Notes $ 316.6
Restricted cash - Old Mortgage Notes defeasance 116.9
Redemption of Old Subordinated Notes 95.7
Redemption of Old Subordinated Notes (redeemed on July 5, 2002) 2.0
Repayment of Bank Credit Facility 191.6
Repayment of FF&E Facility 48.4
Repayment of Mall Tranche A Take-out Loan 105.0
Repayment of Mall Tranche B Take-out Loan 35.0
Repayment of Phase II Subsidiary Credit Facility 1.4
Repayment of Phase II Unsecured Bank Loan 1.1
Repayment of Completion Guaranty Loan 33.4
Payment of Refinancing Transactions costs and fees 66.7
Restricted cash - Phase IA Addition 185.0
Unrestricted cash 21.2
---------
$1,220.0
=========
For the next twelve months, the Company expects to fund Casino Resort
operations, capital expenditures, the Macau joint venture, Internet gaming
development activities and debt service requirements from existing cash
balances, operating cash flow, borrowings under a revolverthe Revolving Facility to the
extent that funds are available, drawings under the Term A Facility and
distributions of excess cash from the owner of the Mall II Subsidiary to Venetian 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&ESenior Secured Credit Facility include atotal
debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum fixed charge ratio, maximum leverage ratio, minimum
consolidated adjusted EBITDA standard, minimum equity standardnet worth
covenants and maximum capital expenditures standard.expenditure limitations. 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&ESenior Secured Credit Facility involving EBITDA are applied on a rolling
four quarter basis, and the Company's compliance with financial covenants can be
temporarily affected ifbasis. As of June 2002, 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 bewas in compliance with all
required covenants and ratios under its existing financial covenants.current debt instruments. 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)Revolving Facility; (vi) additional debt or equity financings; and (viii)(vii)
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.
2937
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
On December 20, 1999,If the Mall Construction Loan Facility was paid off in
full withCompany is required to pay certain significant contested
construction costs, or if the proceedsCompany is unable to meet its debt service
requirements, the Company will seek, if necessary and to the extent permitted
under the Indenture and the terms 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,Senior Secured 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 givenno assurance that refinancing for such indebtednessadditional
or replacement financing, if needed, 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. Alsoand, if
available, that the financing will be on December 20, 1999, the Mall Assets were transferred from the Mall Subsidiaryterms favorable 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.Company.
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 inIf the amount of
$3.2 millionCompany determines to be funded from future equity contributions or borrowings byconstruct the Phase II Subsidiary. DuringResort, it will
be required to raise substantial debt and/or equity financings. Currently, 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 usedCompany has no commitments 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 assetshard construction costs of the Phase II
Subsidiary. As a
result,Resort. In addition, the existing indebtedness of the Company (including the Notes) is, with
respect to these assets, effectively subordinated to indebtednessdevelopment of the Phase II Subsidiary.Resort may require
obtaining additional regulatory approvals. The Phase II Subsidiary is not subject to any of the restrictive
covenants of theCompany's debt instruments of the Company (including, without limitation,
the covenants with respect to the limitations on indebtedness and restrictions
on thelimit
its 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. SuchThese debt instruments also restrict the sale or other disposition by the CompanyCompany's and its
subsidiariessubsidiaries' ability to sell or otherwise dispose of the capital stock of the
Phase II Subsidiary, including thea sale of any such capital stock to the Principal Stockholder or to any affiliate of
the Principal Stockholder.his affiliates. In addition, priorthe Indenture allows the Company to commencementmake
investments of constructionup to $20.0 million for the development of the Phase II Resort
Venetian
has the rightand to approve the plans and specifications for theincur up to $20.0 million of additional debt to fund such investment. The
Phase II Resort.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Risk RelatedSubsidiary is an unrestricted subsidiary that is not subject to the
Subordination Structureterms of the Indenture or the Senior Secured Credit Facility and is not a
guarantor under the Mortgage Notes - -----------------------------------------------------------------or the Senior Secured Credit Facility.
Macau Joint Venture
-------------------
The Mortgage Notes represent senior secured debtCompany is currently in the process of negotiating agreements to
operate casinos in Macau. Through June 30, 2002, the Company had incurred
developmental expenses of $2.4 million in connection with the proposed Macau
project. Under the contemplated terms of Venetian Macau's agreements with its
joint venture partners, Venetian Macau may have financial obligations to the
joint venture and/or to the Government of Macau or it may be obligated to pay
for certain costs of developing and constructing the contemplated casinos in
Macau. Under the Indenture, the Company is permitted to make investments in the
amount of $40.0 million in, and extend guarantees with respect to $90.0 million
of indebtedness and/or obligations of, LVSIits Macau subsidiaries. The Company may
use cash received from the following sources to fund the Macau venture:
o borrowings by Venetian under the Revolving Facility;
o additional debt or equity financings; and
o operating cash flow (subject to certain limitations contained in the
Company's debt instruments).
Venetian secured by second priority liens onMacau and the collateral securingCompany's other Macau subsidiaries are not
guarantors under the Mortgage Notes (the "Note Collateral"). However,or the guarantees ofSenior Secured Credit Facility and,
subject to certain limited exceptions, are not restricted subsidiaries under 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,Indenture or 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.Senior Secured Credit Facility.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
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.
In April 2002, the Financial Accounting Standards Board issued SFAS
145. SFAS 145 addresses the presentation for losses on early retirements of debt
in the statement of operations. The Company has adopted SFAS 145 and will no
longer present losses on early retirements of debt as an extraordinary item.
Additionally, prior period extraordinary losses will be reclassified to conform
to this new presentation. Adoption of SFAS 145 had no impact on the Company's
financial condition, or cash flows.
In June 2002, the Financial Accounting Standard Board issued Statement
No. 146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS 146 become effective for exit or disposal
activities commenced subsequent to December 31, 2002 and the Company does not
expect any impact on its financial condition, results of operations or cash
flows.
The adoptions of SFAS 141, SFAS 142 and SFAS 144 had no impact on the
Company's financial position, or results of operations. We dooperations or cash flows. The Company
does not expect the impact of the adoptionadoptions of SFAS 143 or SFAS 146 to be
material to ourits financial position,condition, results of operations or cash flows.
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Certain statements in this section, in the risk factors see forth in
Exhibit 99.1 to this Quarterly Report on Form 10-Q 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, 200111th 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 willhas not be able to obtainobtained sufficient coverage against acts of
terrorism or will only be able to obtain suchadditional 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.
38
Item 3. Quantitative And Qualitative Disclosures About Market Risk (Continued)
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:June 30:
FAIR
2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE(1)
------- ------- ------- ------- ------- ---------------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars Inin Millions)
LIABILITIES
Liabilities
- -----------
Short-term debt
Variable rate ............. $204.0(3) $2.5 -- -- -- $204.0 $204.0-- $2.5 $2.5
Average interest rate (2) 5.0%4.8% -- -- -- 5.0% -- 4.8% 4.8%
Long-term debt
Fixed rate ................ -- -- $460.0 $125.4 $585.4 $617.1-- -- 850.0 850.0 850.0
Average interest rate (2) -- -- 13.1% 14.3% 13.7% -- -- 11.0% 11.0% 11.0%
Variable rate ............. -- $128.1 $ 5.4 -- $133.5 $133.52.5 122.5 2.5 240.0 367.5 367.5
Average interest rate (2) -- 5.7% 5.8% -- 5.8% --4.8% 4.1% 4.8% 4.8% 4.6% 4.6%
- --------------------------
(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.
(3) The above amounts exclude $110.2 million of defeasance notes redeemed on July 5, 2002. See " Item 1 - Financial Statements and
Supplementary Data - Notes to Financial Statements - Note 4 Long-Term Debt."
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,June 30, 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."
3339
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 32 through 54 of Part II are not applicable.
Item 5. Other Information
The Company is not required to file this Quarterly Report on Form 10-Q
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The
filing is required, however, pursuant to the terms of the Indenture.
The risk factors set forth in Exhibit 99.1 to this Quarterly Report on
Form 10-Q, which are incorporated by reference into this document, describe
certain risks of owning the Company's securities. Additional risks and
uncertainties not currently known to the Company, or that the Company deems to
be immaterial may also materially and adversely affect the Company's business,
financial condition or results of operations. Certain statements in Exhibit 99.1
are forward-looking statements. See "Part II, Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations--Special Note
Regarding Forward-Looking Statements."
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit No. Description of Document
----------- -----------------------
10.1 Stock Option3.1 Amended and Restated Articles of Incorporation of Las Vegas Sands,
Inc. (1)
3.2 Amended and Restated By-laws of Las Vegas Sands, Inc. (1)
4.1 Indenture, dated as of June 4, 2002, by and among Las Vegas Sands,
Inc. and Venetian Casino Resort, LLC, as issuers, Mall Intermediate
Holding Company, LLC, Grand Canal Shops Mall Construction, LLC, Lido
Intermediate Holding Company, LLC, Venetian Casino Resort Athens, LLC,
Venetian Venture Development, LLC, Venetian Operating Company, LLC and
Venetian Marketing, Inc. (collectively, the "Subsidiary Guarantors")
and U.S. Bank National Association, as trustee. (1)
4.2 Registration Rights 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,June 4, 2002, by Sheldon G. Adelson. (1)
10.6 Stockholders' Agreement, dated as of January 2, 2002,and among
Las Vegas Sands, Inc., Sheldon G. Adelson, William P. Weidner, Bradley H. Stone, Robert G.
GoldsteinVenetian Casino Resort, LLC, the Subsidiary
Guarantors named therein, Goldman, Sachs & Co. and David Friedman.Scotia Capital
(USA) Inc. (1)
10.7 Limited Waiver under Term Loan4.3 Security Agreement, dated as of June 4, 2002, by and among Las Vegas
Sands, Inc., Venetian Casino Resort, LLC, the Subsidiary Guarantors
and The Bank of Nova Scotia, as Intercreditor Agent. (1)
4.4 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Fixture Filing, dated as of June 4,
2002, made by Venetian Casino Resort, LLC and Las Vegas Sands, Inc.,
jointly and severally as trustor, to First American Title Insurance
Company, as trustee, for the benefit of U.S. Bank National Association
in its capacity as Mortgage Note Indenture Trustee, as beneficiary.
(1)
4.5 Intercreditor Agreement, dated as of June 4, 2002, by and among The
Bank of Nova Scotia, as Bank Agent and Intercreditor Agent, and U.S.
Bank National Association, as Mortgage Notes Indenture Trustee. (1)
4.6 Unsecured Indemnity Agreement, dated as of June 4, 2002, by and among
Las Vegas Sands, Inc. and Venetian Casino Resort, LLC, to and for the
benefit of U.S. Bank National Association, and the Indemnified Parties
defined therein. (1)
10.1 Bank Credit Agreement, dated as of June 4, 2002, by and among Las
Vegas Sands, Inc., Venetian Casino Resort, LLC, the Subsidiary
Guarantors, the lenders party thereto, Goldman Sachs Credit Partners,
L.P., as joint lead arranger, joint bookrunner and syndication agent,
and The Bank of Nova Scotia, as joint lead arranger, joint bookrunner
and administrative agent. (2)
40
Exhibit No. Description of Document
----------- -----------------------
10.2 Deed of Trust, Assignment of Rents and Leases and Security Agreement,
dated as of March 31,June 4, 2002, made by Venetian Casino Resort, LLC and Las
Vegas Sands, Inc., jointly and severally as trustor, to First American
Title Insurance Company, as trustee, for the benefit of The Bank of
Nova Scotia (as administrative agent), as beneficiary. (1)
10.3 Subsidiary Guaranty, dated as of June 4, 2002, by the Subsidiary
Guarantors for the benefit of The Bank of Nova Scotia, as
Administrative Agent. (1)
10.4 Disbursement Account Agreement, dated as of June 4, 2002, by and among
LVSILas Vegas Sands, Inc., Venetian Casino Resort, LLC and Venetian,The Bank of
Nova Scotia, as borrowers, General Electric Capital
Corporation, as Administrative Agent,secured party and the lender parties thereto.securities intermediary. (1)
10.8 Limited Waiver Regarding Credit10.5 Environmental Indemnity Agreement, dated as of March 31,June 4, 2002, by and
among LVSILas Vegas Sands, Inc. and Venetian Casino Resort, LLC, to and
for the benefit of The Bank of Nova Scotia, as borrowers, Scotiabank, as Lead Arranger and Administrative Agent
for itself and for the lender parties thereto.other lenders under the Bank Agreement. (1)
10.9 Limited Waiver Regarding Credit10.6 Loan Agreement, dated as of March 31,June 4, 2002, by and between Archon
Financial, L.P., as lender, and Grand Canal Shops II, LLC. (1)
10.7 Amendment No. 1 to Loan Agreement, dated June 28, 2002, by and between
Goldman Sachs Mortgage Company (as successor in interest to Archon
Financial, L.P.), as lender, and Grand Canal Shops II, LLC, as
borrower. (1)
10.8 Indemnity Agreement, dated as of August 25, 2000, by and among Las
Vegas Sands, Inc., Venetian Casino Resort, LLC, Grand Canal Shops Mall
Subsidiary, LLC, Grand Canal Shops Mall Construction, LLC, Grand Canal
Shops Mall, LLC, Interface Group Holding Company, and American
Insurance Companies (of which American Home Assurance Company is a
member company). (1)
10.9 Second Amendment to Amended and Restated Reciprocal Easement, Use and
Operating Agreement, dated as of June 4, 2002, by and among Interface
Group-Nevada, Inc., Grand Canal Shops II, LLC, Lido Casino Resort, LLC
and Venetian Casino Resort, LLC. (1)
10.10 Amended and Restated Las Vegas Sands, Inc. 1997 Fixed Stock Option
Plan (the "Stock Option Plan"). (1)
10.11 First Amendment to the Stock Option Plan, dated June 4, 2002. (1)
10.12 Amended and Restated Employment Agreement, dated as borrower, Scotiabank,of January 1,
2002, by and between Las Vegas Sands, Inc. and William P. Weidner. (1)
10.13 Amended and Restated Employment Agreement, dated as Administrative
Agent,of January 1,
2002, by and the other lender parties thereto.between Las Vegas Sands, Inc. and Bradley H. Stone. (1)
10.14 Amended and Restated Employment Agreement, dated as of January 1,
2002, by and between Las Vegas Sands, Inc. and Robert G. Goldstein.
(1)
10.15 Catastrophic Equity Protection Insurance Agreement, dated as of June
28, 2000, by and among American Home Assurance Company, Las Vegas
Sands, Inc. and Venetian Casino Resort, LLC. (1) (3)
99.1 Risk Factors (1)
- ----------
(1) Filed herewith.
(2) Incorporated by reference to the Company's report on Form 8-K, dated
as of June 18, 2002.
(3) Material has been omitted from this exhibit pursuant to a request for
confidential treatment and that material has been filed separately
with the Securities and Exchange Commission.
41
(b) Reports on Form 8-K
No1. On May 9, 2002, the Company filed a report on Form 8-K wasannouncing its
intent to offer approximately $850 million in aggregate principal
amount of mortgage notes in a Rule 144A offering, and to enter into
new senior secured credit facilities in aggregate amount of
approximately $480 million.
2. On May 24, 2002, the Company filed duringa report on Form 8-K announcing the
quarter ended March 31,
2002.
34pricing of approximately $850 million in aggregate principal amount of
11% mortgage notes maturing on June 15, 2010.
3. On June 5, 2002, the Company filed a report on Form 8-K announcing the
closing of a Rule 144A offering for $850 million in aggregate
principal amount of 11% mortgage notes.
4. On June 18, 2002, the Company filed a report on Form 8-K attaching its
new $375 million senior secured credit facility entered into on June
4, 2001.
42
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,August 14, 2002 By: /s/ Sheldon G. Adelson
---------------------------------------------------------------------
Sheldon G. Adelson,
Chairman of the Board, Chief
Executive Officer and Director
May 8,August 14, 2002 By: /s/ Harry D. Miltenberger
---------------------------------------------------------------------
Harry D. Miltenberger,
Vice President-Finance
(principal financial and
accounting officer)
3543