For the quarterly period ended September 30, 2003March 31, 2004
For the Transition period from _______________ to ________________
Commission File Number 333-42147
LAS VEGAS SANDS, INC.
(Exact name of registration as specified in its charter)
Nevada | 04-3010100 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3355 Las Vegas Boulevard South, Room 1A | |
Las Vegas, Nevada | 89109 |
(Address of principal executive offices) | (Zip Code) |
(702) 414-1000 |
(Registrant's telephone number, including area code) |
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 by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). [ ]Yes [X] No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 14, 2003May 17, 2004
Class | Outstanding at |
Common Stock, $.10 par value | 1,000,000 shares |
LAS VEGAS SANDS, INC. | ||||||||||||||
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Table of Contents | ||||||||||||||
Part I | ||||||||||||||
FINANCIAL INFORMATION | ||||||||||||||
Item 1 | Financial Statments | |||||||||||||
Consolidated Balance Sheets at | 1 | |||||||||||||
Consolidated Statements of Operations for the Three | 2 | |||||||||||||
Consolidated Statements of Cash Flows for the | 3 | |||||||||||||
Notes to Consolidated Financial Statements | 4 | |||||||||||||
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operation | 24 | ||||||||||||
Item 3 | Quantitative and Qualitative Disclosures | 39 | ||||||||||||
Item 4 | Controls and Procedures | 40 | ||||||||||||
Part II | ||||||||||||||
OTHER INFORMATION | ||||||||||||||
Item 1 | Legal Proceedings | 41 | ||||||||||||
Item 5 | Other Information | 41 | ||||||||||||
Item 6 | Exhibits and Reports on Form 8-K | 41 | ||||||||||||
Signatures | ||||||||||||||
42 |
September 30, | December 31, | |||||||||||||||||
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2003 | 2002 | |||||||||||||||||
(Unaudited) | March 31, 2004 | December 31, 2003 | ||||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 145,996 | $ | 93,742 | $ | 151,582 | $ | 142,360 | ||||||||||
Restricted cash | 138,564 | 21,880 | ||||||||||||||||
Restricted cash and cash equivalents | 41,284 | 36,358 | ||||||||||||||||
Accounts receivable, net | 57,860 | 53,312 | 64,136 | 52,542 | ||||||||||||||
Inventories | 6,064 | 5,070 | 6,029 | 6,093 | ||||||||||||||
Prepaid expenses | 4,260 | 5,004 | 4,584 | 3,462 | ||||||||||||||
Total current assets | 352,744 | 179,008 | 267,615 | 240,815 | ||||||||||||||
Property and equipment, net | 1,376,025 | 1,191,828 | 1,510,874 | 1,432,176 | ||||||||||||||
Deferred offering costs, net | 35,974 | 38,015 | 36,669 | 38,489 | ||||||||||||||
Restricted cash | – | 83,370 | ||||||||||||||||
Restricted cash and cash equivalents | 37,382 | 86,144 | ||||||||||||||||
Other assets, net | 34,148 | 24,460 | 39,543 | 34,270 | ||||||||||||||
$ | 1,798,891 | $ | 1,516,681 | |||||||||||||||
$ | 1,892,083 | $ | 1,831,894 | |||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 14,760 | $ | 12,201 | $ | 16,142 | $ | 14,991 | ||||||||||
Construction payables | 28,563 | 29,727 | 43,862 | 42,155 | ||||||||||||||
Construction payables-contested | 7,232 | 7,232 | 7,232 | 7,232 | ||||||||||||||
Accrued interest payable | 29,410 | 4,336 | 28,187 | 4,809 | ||||||||||||||
Other accrued liabilities | 78,571 | 80,585 | 85,247 | 95,940 | ||||||||||||||
Current maturities of long-term debt | 11,800 | 2,500 | 14,067 | 12,633 | ||||||||||||||
Long-term debt classified as current | 120,000 | – | ||||||||||||||||
Total current liabilities | 290,336 | 136,581 | 194,737 | 177,760 | ||||||||||||||
Other long-term liabilities | 6,534 | 1,122 | 6,346 | 6,445 | ||||||||||||||
Redeemable Preferred Interest in Venetian | ||||||||||||||||||
Casino Resort, LLC, a wholly owned subsidiary | 245,477 | – | ||||||||||||||||
Long-term debt | 1,285,075 | 1,216,250 | 1,432,625 | 1,426,350 | ||||||||||||||
1,581,945 | 1,353,953 | 1,879,185 | 1,610,555 | |||||||||||||||
Redeemable Preferred Interest in Venetian Casino | ||||||||||||||||||
Resort, LLC, a wholly owned subsidiary | 231,582 | 212,111 | ||||||||||||||||
Redeemable Preferred Interest in Venetian | ||||||||||||||||||
Casino Resort, LLC, a wholly owned subsidiary | – | 238,328 | ||||||||||||||||
Stockholders' equity (deficit): | ||||||||||||||||||
Common stock, $.10 par value, 3,000,000 shares | ||||||||||||||||||
authorized, 1,000,000 shares | ||||||||||||||||||
issued and outstanding | 100 | 100 | ||||||||||||||||
authorized, 1,000,000 shares issued and outstanding | 100 | 100 | ||||||||||||||||
Notes receivable from stockholders | (834 | ) | – | (851 | ) | (843 | ) | |||||||||||
Capital in excess of par value | 140,760 | 140,760 | 128,653 | 136,562 | ||||||||||||||
Accumulated deficit since June 30, 1996 | (154,662 | ) | (190,243 | ) | ||||||||||||||
Accumulated deficit | (115,004 | ) | (152,808 | ) | ||||||||||||||
(14,636 | ) | (49,383 | ) | 12,898 | (16,989 | ) | ||||||||||||
$ | 1,798,891 | $ | 1,516,681 | $ | 1,892,083 | $ | 1,831,894 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Three Months Ended | Nine Months Ended | Three Months Ended March 31, | |||||||||||||||||||||||||||||
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September 30, | 2004 | 2003 | |||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||
Casino | $ | 69,236 | $ | 80,086 | $ | 205,927 | $ | 177,379 | $ | 94,708 | $ | 73,313 | |||||||||||||||||||
Rooms | 67,752 | 47,592 | 181,682 | 156,605 | 85,367 | 57,491 | |||||||||||||||||||||||||
Food and beverage | 22,439 | 15,305 | 63,324 | 54,838 | 33,455 | 20,068 | |||||||||||||||||||||||||
Retail and other | 20,905 | 18,103 | 57,923 | 53,550 | 21,031 | 17,797 | |||||||||||||||||||||||||
180,332 | 161,086 | 508,856 | 442,372 | 234,561 | 168,669 | ||||||||||||||||||||||||||
Less-promotional allowances | (12,068 | ) | (8,330 | ) | (31,505 | ) | (25,018 | ) | (13,760 | ) | (10,004 | ) | |||||||||||||||||||
Net revenues | 168,264 | 152,756 | 477,351 | 417,354 | 220,801 | 158,665 | |||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||
Casino | 32,296 | 31,878 | 95,751 | 86,742 | 36,628 | 32,918 | |||||||||||||||||||||||||
Rooms | 18,114 | 13,502 | 47,196 | 40,128 | 20,041 | 14,527 | |||||||||||||||||||||||||
Food and beverage | 11,776 | 8,329 | 30,890 | 27,049 | 15,498 | 9,442 | |||||||||||||||||||||||||
Retail and other | 8,386 | 8,547 | 25,001 | 23,511 | 9,506 | 7,824 | |||||||||||||||||||||||||
Provision for doubtful accounts | 778 | 5,266 | 5,534 | 13,540 | 3,244 | 3,721 | |||||||||||||||||||||||||
General and administrative | 26,198 | 25,290 | 77,161 | 69,682 | 31,962 | 26,612 | |||||||||||||||||||||||||
Corporate expense | 2,441 | 2,697 | 7,230 | 7,520 | 2,660 | 2,601 | |||||||||||||||||||||||||
Rental expense | 2,538 | 2,006 | 7,605 | 5,535 | 2,451 | 2,543 | |||||||||||||||||||||||||
Pre-opening and developmental expense | 1,872 | 1,026 | 6,717 | 3,097 | 8,379 | 1,827 | |||||||||||||||||||||||||
Depreciation and amortization | 14,183 | 11,066 | 36,171 | 33,015 | 14,781 | 10,737 | |||||||||||||||||||||||||
118,582 | 109,607 | 339,256 | 309,819 | ||||||||||||||||||||||||||||
145,150 | 112,752 | ||||||||||||||||||||||||||||||
Operating income | 49,682 | 43,149 | 138,095 | 107,535 | 75,651 | 45,913 | |||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||||
Interest income | 402 | 1,079 | 1,226 | 1,729 | 358 | 446 | |||||||||||||||||||||||||
Interest expense, net of amounts capitalized | (30,356 | ) | (29,466 | ) | (85,088 | ) | (81,531 | ) | (31,046 | ) | (27,536 | ) | |||||||||||||||||||
Interest expense on indebtedness to | |||||||||||||||||||||||||||||||
Principal Stockholder | – | – | – | (4,010 | ) | ||||||||||||||||||||||||||
Preferred return on Redeemable Preferred Interest | |||||||||||||||||||||||||||||||
in Venetian Casino Resort, LLC | (7,150 | ) | – | ||||||||||||||||||||||||||||
Other income (expense) | 1 | 280 | 820 | 643 | (9 | ) | 560 | ||||||||||||||||||||||||
Loss on early retirement of debt | – | (8,629 | ) | – | (51,392 | ) | |||||||||||||||||||||||||
Income (loss) before preferred return | 19,729 | 6,413 | 55,053 | (27,026 | ) | ||||||||||||||||||||||||||
Income before preferred return | 37,804 | 19,383 | |||||||||||||||||||||||||||||
Preferred return on Redeemable Preferred Interest | |||||||||||||||||||||||||||||||
in Venetian Casino Resort, LLC | (6,745 | ) | (6,003 | ) | (19,472 | ) | (17,330 | ) | – | (6,363 | ) | ||||||||||||||||||||
Net income (loss) | $ | 12,984 | $ | 410 | $ | 35,581 | $ | (44,356 | ) | ||||||||||||||||||||||
Net income | $ | 37,804 | $ | 13,020 | |||||||||||||||||||||||||||
Basic earnings (loss) per share | $ | 12.98 | $ | 0.41 | $ | 35.58 | $ | (44.36 | ) | ||||||||||||||||||||||
Basic earnings per share | $ | 37.80 | $ | 13.02 | |||||||||||||||||||||||||||
Diluted earnings (loss) per share | $ | 12.96 | $ | 0.41 | $ | 35.51 | $ | (44.36 | ) | ||||||||||||||||||||||
Diluted earnings per share | $ | 37.78 | $ | 12.98 | |||||||||||||||||||||||||||
Dividends declared per share | $ | 7.91 | $ | – | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Nine Months Ended | Three Months Ended March 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, | 2004 | 2003 | ||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||
Net income (loss) | $ | 35,581 | $ | (44,356 | ) | |||||||||||||||||
Adjustments to reconcile net income (loss) to net cash | ||||||||||||||||||||||
Net income | $ | 37,804 | $ | 13,020 | ||||||||||||||||||
Adjustments to reconcile net income to net cash | ||||||||||||||||||||||
provided by operating activities: | ||||||||||||||||||||||
Depreciation and amortization | 36,171 | 33,015 | 14,781 | 10,737 | ||||||||||||||||||
Amortization of debt offering costs and | ||||||||||||||||||||||
original issue discount | 4,871 | 6,614 | ||||||||||||||||||||
Amortization of debt offering costs and original | ||||||||||||||||||||||
issue discount | 2,008 | 1,583 | ||||||||||||||||||||
Non-cash preferred return on Redeemable | ||||||||||||||||||||||
Preferred Interest in Venetian | 19,472 | 17,330 | 7,150 | 6,363 | ||||||||||||||||||
Loss on early retirement of debt | – | 51,392 | ||||||||||||||||||||
Loss on disposition of fixed asset | 269 | 301 | 23 | 156 | ||||||||||||||||||
Provision for doubtful accounts | 5,534 | 13,540 | 3,244 | 3,721 | ||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||
Accounts receivable | (10,082 | ) | (7,727 | ) | (14,838 | ) | (761 | ) | ||||||||||||||
Inventories | (994 | ) | 171 | 64 | (96 | ) | ||||||||||||||||
Prepaid expenses | 744 | 112 | (1,122 | ) | 594 | |||||||||||||||||
Other assets | (9,688 | ) | 2,440 | (5,273 | ) | (997 | ) | |||||||||||||||
Accounts payable | 2,559 | (20,145 | ) | 1,151 | 1,570 | |||||||||||||||||
Accrued interest payable | 25,074 | 20,685 | 23,378 | 23,352 | ||||||||||||||||||
Other accrued liabilities | 3,398 | (5,800 | ) | (13,698 | ) | (6,626 | ) | |||||||||||||||
Net cash provided by operating activities | 112,909 | 67,572 | 54,672 | 52,616 | ||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Increase in restricted cash | (33,314 | ) | (154,686 | ) | ||||||||||||||||||
Decrease in restricted cash | 43,836 | 51,870 | ||||||||||||||||||||
Notes receivable from stockholders | (834 | ) | – | (8 | ) | – | ||||||||||||||||
Capital expenditures | (221,801 | ) | (72,476 | ) | (91,795 | ) | (87,810 | ) | ||||||||||||||
Net cash used in investing activities | (255,949 | ) | (227,162 | ) | (47,967 | ) | (35,940 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Repayments on 12 1/4 % mortgage notes | – | (425,000 | ) | |||||||||||||||||||
Proceeds from 11% mortgage notes | – | 850,000 | ||||||||||||||||||||
Repayments on senior subordinated notes | – | (97,500 | ) | |||||||||||||||||||
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 A | 50,000 | – | ||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Dividends paid to shareholders | (5,003 | ) | – | |||||||||||||||||||
Repayments on senior secured credit facility-term A | (1,667 | ) | – | |||||||||||||||||||
Repayments on senior secured credit facility-term B | (1,875 | ) | (625 | ) | (625 | ) | (625 | ) | ||||||||||||||
Proceeds from senior secured credit facility-term B | – | 250,000 | ||||||||||||||||||||
Proceeds from Venetian Macau senior secured notes-tranche A | 75,000 | – | ||||||||||||||||||||
Proceeds from Venetian Macau senior secured notes-tranche B | 45,000 | – | ||||||||||||||||||||
Proceeds from Venetian Intermediate credit facility | 15,000 | – | 10,000 | – | ||||||||||||||||||
Repayments on bank credit term facility | – | (151,986 | ) | |||||||||||||||||||
Repayments on bank credit facility-revolver | (470 | ) | (61,000 | ) | – | (58 | ) | |||||||||||||||
Proceeds from bank credit facility-revolver | 470 | 21,000 | – | 58 | ||||||||||||||||||
Repayments on FF&E credit facility | – | (53,735 | ) | |||||||||||||||||||
Proceeds from FF&E credit facility | 15,000 | – | ||||||||||||||||||||
Repayments on Phase II Subsidary credit facility | – | (3,933 | ) | |||||||||||||||||||
Repayments on Phase II Subsidiary unsecured bank loan | – | (1,092 | ) | |||||||||||||||||||
Repurchase premiums incurred in connection | ||||||||||||||||||||||
with refinancing transactions | – | (33,478 | ) | |||||||||||||||||||
Payments of deferred offering costs | (2,831 | ) | (41,231 | ) | ||||||||||||||||||
Payments of debt offering costs | (188 | ) | (433 | ) | ||||||||||||||||||
Net cash provided by financing activities | 195,294 | 200,296 | ||||||||||||||||||||
Net cash provided by (used in) financing activities | 2,517 | (1,058 | ) | |||||||||||||||||||
Increase in cash and cash equivalents | 52,254 | 40,706 | 9,222 | 15,618 | ||||||||||||||||||
Cash and cash equivalents at beginning of period | 93,742 | 54,936 | 142,360 | 93,742 | ||||||||||||||||||
Cash and cash equivalents at end of period | $ | 145,996 | $ | 95,642 | $ | 151,582 | $ | 109,360 | ||||||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||||||||
Cash payments for interest | $ | 59,046 | $ | 59,689 | $ | 6,266 | $ | 3,914 | ||||||||||||||
Declared and unpaid dividends included in accrued liablities | $ | 7,104 | $ | – | ||||||||||||||||||
Property and equipment asset acquisitions included in | ||||||||||||||||||||||
accounts payable | $ | 51,094 | $ | 49,387 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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, 2002.2003. The year endyear-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 20022003 financial statements have been reclassified to conform with the 20032004 presentation. In the opinion of management, all adjustments and normal recurring accruals considered necessary for a fair statement 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 acquiringand its subsidiaries (collectively, the Sands Hotel“Company”) own and operate the Venetian 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 resortResort (the “Casino Resort”) opened, a Renaissance Venice-themed resort situated at one of the premier locations on May 4, 1999, except for the mall, which opened on June 19, 1999.Las Vegas Strip (the “Strip”). The Casino Resort was expanded duringis located across from The Mirage and the second quarter of 2003, which expansion was opened for business on June 26, 2003 (the “Phase IA Addition”). As expanded, theTreasure Island Hotel and Casino. The Casino Resort includes the only all-suites hotel on the Strip with 4,049 suites casino space approximating(the “Hotel”); a gaming facility of approximately 116,000 square feet (the “Casino”); an enclosed retail, dining and entertainment complex of approximately 446,000 net leasable square feet (the “Mall”); and a meeting and conference facility of approximately 650,000 square feet (the “Congress Center”).
The Company has begun extensive design and planning work and has commenced demolition and clearing work on the site of convention space,a second similarly sized theme resort on a 15-acre site situated between the Casino Resort and approximately 446,000 gross leasable square feet of retail shops and restaurants. In December 2002,Wynn Las Vegas (the “Phase II Resort”).
On April 12, 2004, the Company through a subsidiary, began constructingentered into an agreement with General Growth Properties (the “Mall Purchaser”) to sell the Mall and certain other restaurant and retail assets of the Casino Resort for approximately $766.0 million (the “Mall Sale”) and the multi-level retail space of the Phase II Resort for approximately $250.0 million subject to an upward adjustment based on operating income performance. The Mall Sale is subject to customary conditions and is expected to close on May 17, 2004.See “Note 5 – Commitments and Contingencies.”
The Company is involved in significant litigation relating to the cost of construction of the Casino Resort.See “Note 5 – Commitments and Contingencies”.
One of the Company’s indirect wholly owned subsidiaries, Venetian Macau, S.A. (“Venetian Macau”), has commenced construction of the Sands Macau casino, a Las Vegas-styleVegas style casino, in the Macau Special Administrative RegionZone of the People’s Republic of China (the “Macau Casino”). TheVenetian Macau expects to open the main casino portion of the Macau Casino is expected to include approximately 163,000 gross square feet of gaming facilities andon May 18, 2004 with the remainder to be completed byopened in June 2004.
The consolidated financial statements include the accounts of LVSI and its subsidiaries (the “Subsidiaries”), including Venetian Casino Resort, LLC (“Venetian”), Mall Intermediate Holding Company, LLC (“Mall Intermediate”), Grand Canal Shops Mall Subsidiary, LLC (the “Mall“New Mall Subsidiary”), Grand Canal Shops II, LLC (the “Mall II Subsidiary”), Grand Canal Shops Mall MM Subsidiary, Inc., Venetian Hotel Operations, LLC (“Venetian Hotel Operations”Mall Construction”), Lido Intermediate Holding Company, LLC (“Lido Intermediate”), Lido Casino Resort Holding Company, LLC, Lido Casino Resort, LLC (the “Phase II Subsidiary”), Lido Casino Resort MM, Inc., Venetian Transport, LLC (“Venetian Transport”), Venetian Venture Development, LLC (“Venetian Venture”), Venetian Venture Development Intermediate Limited Venetian Macau, S.A. (“Venetian Macau”Intermediate”), Venetian Macau Finance Company (“Venetian Finance”), Venetian Marketing, Inc. (“Venetian Marketing”), Venetian Far East Limited, Venetian Venture Development Intermediate I, Venetian Venture Development Intermediate II, Venetian Macau Finance Company, VI Limited, Las Vegas Sands (UK) Limited, Las Vegas Sands (Ibrox) Limited, Las Vegas Sands (Sheffield) Limited, Venetian Macau Limited (“Venetian Macau”), Venetian Macau Holdings Limited, VIVenetian 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.entity, except to the extent of guarantees on indebtedness.See “Note 4- Long-Term Debt”.
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-ownedwholly owned by LVSI’s principal stockholder (the “Principal Stockholder”).
Various Subsidiaries are guarantors or co-obligors of certain indebtedness related to the Casino Resort.See Note“Note 4 – Long-Term DebtDebt.”.
The Mall II Subsidiary is an indirect, wholly-ownedwholly owned subsidiary of LVSI, and owns and operates the retail mall in the Casino Resort (the “Mall”).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“Note 4 – Long-Term Debt.”
LAS VEGAS SANDS, INC.
The Casino Resort is physically connected to the approximately 1.15 million square footfeet Sands Expo and Convention Center (the “Expo Center”). Interface Group-Nevada, Inc. (“IGN”Interface”), the owner of the Expo Center, is beneficially owned by the Principal Stockholder. Venetian, the Mall II Subsidiary, and IGNInterface transact business with each other and are parties to certain agreements.
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.
During the first quarter of 2002, the Company entered into a stockholders’ agreement (the “Stockholders’ Agreement”) with the employees to whom options were granted (the “Additional Stockholders”) and the Principal Stockholder. The Stockholders’ Agreement restricts the ability of the Additional Stockholders and any of their permitted transferees who have 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 Stockholders’ Agreement. If at any time before LVSI completes an initial public offering, the Principal Stockholder wishes to sell 20% or more of his ownership interest in LVSI to any third party transferee, each Additional Stockholder shall have the right to participate in such sale on the same terms as those offered to the Principal Stockholder. The Additional Stockholders also have certain piggyback registration rights. Finally, if at any time prior to the completion by LVSI of an initial public offering LVSI wishes to issue any new securities, the Additional Stockholders will have the right to purchase that number of shares of LVSI common stock, at the proposed purchase price of the new securities, such that the Additional Stockholders’ percentage ownership of LVSI would remain the same following such issuance.
Basic and diluted income 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 time 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. As of DecemberMarch 31, 20022004, there were unexercised options to purchase 5,5002,000 shares of the Company’s common stock. During the nine months ended September 30, 2003 options to purchase 2,500 shares of common stock were exercised and 1,000 options to purchase common stock were forfeited. The impact of the unexercised options to purchase shares of the Company’s common stock have been included in the computation of diluted earnings per share for the three and nine months ended September 30, 2003March 31, 2004 and for the three months ended September 30, 2002, but have been excluded from the computation of earnings per share for the nine months ended September 30, 2002 as their impact would have been antidilutive.March 31, 2003.
The Company has elected to follow Accounting Principles Board Opinion No. 25 entitled “Accounting For Stock Issued to Employees” and accounts for its stock-based compensation to employees using the intrinsic value method. Under this method, compensation expense is the difference between the market value of the Company’s stock and the stock option’s exercise price at the measurement date. Under APB 25, if the exercise price of the stock options is equal to or less than the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Had the Company accounted for the plan under the fair value method allowed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company’s net income and earnings per share would have been reduced to the following pro forma amounts:
For the Three | For the Three | For the Nine | For the Nine | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
Net income (loss), as reported | $ | 12,984 | $ | 410 | $ | 35,581 | $ | (44,356 | ) | |||||
Deduct: Total stock-based employee | ||||||||||||||
compensation expense determined under | ||||||||||||||
the minimum value method for all | ||||||||||||||
awards, net of related tax effects | – | – | – | (55 | ) | |||||||||
Add: Forfeitures of options to | ||||||||||||||
purchase common stock | 1 | 1 | – | – | ||||||||||
| ||||||||||||||
Pro forma net income | $ | 12,985 | $ | 411 | $ | 35,581 | $ | (44,411 | ) | |||||
Basic earnings per share, as reported | $ | 12.98 | $ | 0.41 | $ | 35.58 | $ | (44.36 | ) | |||||
Basic earnings per share, pro-forma | $ | 12.99 | $ | 0.41 | $ | 35.58 | $ | (44.41 | ) | |||||
Diluted earnings per share, as reported | $ | 12.96 | $ | 0.41 | $ | 35.51 | $ | (44.36 | ) | |||||
Diluted earnings per share, pro-forma | $ | 12.96 | $ | 0.41 | $ | 35.51 | $ | (44.41 | ) | |||||
The fair value of each option grant was estimated on the date of grant using an appraisal of the value of LVSI and its common stock. The estimated fair value of options granted in 2002 was $1 per share. The fair value of each option grant was estimated on the date of grant using the minimum value method with the following weighted-average assumptions: risk-free interest rate of 3.84%; no expected dividend yields; and expected lives of 2 years.
For the Three Months Ended March 31, 2004 | For the Three Months Ended March 31, 2003 | |||||||
---|---|---|---|---|---|---|---|---|
Net income, as reported | $ | 37,804 | $ | 13,020 | ||||
Deduct: Total stock-based employee | ||||||||
compensation expense determined under | ||||||||
the minimum value method for all | ||||||||
awards, net of related tax effects | – | – | ||||||
Pro forma net income | $ | 37,804 | $ | 13,020 | ||||
Basic earnings per share, as reported | $ | 37.80 | $ | 13.02 | ||||
Basic earnings per share, pro-forma | $ | 37.80 | $ | 13.02 | ||||
Diluted earnings per share, as reported | $ | 37.78 | $ | 12.98 | ||||
Diluted earnings per share, pro-forma | $ | 37.78 | $ | 12.98 | ||||
Property and equipment consists of the following (in thousands):
September 30 | December 31, | March 31, 2004 | December 31, 2003 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||||||||||
Land and land improvements | $ | 120,964 | $ | 113,428 | $ | 121,214 | $ | 121,195 | ||||||||
Building and improvements | 1,156,619 | 888,688 | 1,168,756 | 1,157,784 | ||||||||||||
Equipment, furniture, fixtures and leasehold improvements | 182,394 | 142,004 | 191,866 | 186,485 | ||||||||||||
Construction in progress | 102,060 | 197,882 | 244,271 | 167,235 | ||||||||||||
1,562,037 | 1,342,002 | 1,726,107 | 1,632,699 | |||||||||||||
Less: accumulated depreciation and amortization | (186,012 | ) | (150,174 | ) | (215,233 | ) | (200,523 | ) | ||||||||
$ | 1,376,025 | $ | 1,191,828 | $ | 1,510,874 | $ | 1,432,176 | |||||||||
During the three month period ended March 31, 2004 and nine month periods ended September 30,March 31, 2003, and September 30, 2002, the Company capitalized interest expense of $0.4$1.2 million and $5.1 million, and $0.7 million and $1.5$2.0 million, respectively.
As of September 30, 2003,March 31, 2004, construction in progress represented design, pre-development, and construction costs for the Macau Casino, design and shared facilities cost for the planned second phase of the Casino Resort, to be owned by the Phase II Subsidiary (the “Phase II Resort”)Resort and on-going capital improvement projects at the Casino Resort.
Long-term debt consists of the following (in thousands):
September 30, | December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | March 31, 2004 | December 31, 2003 | |||||||||||||
| ||||||||||||||||
Indebtedness of the Company and its Subsidiaries | ||||||||||||||||
other than the Mall II and Macau Subsidiaries: | ||||||||||||||||
11% Mortgage Notes, due June 15, 2010 | $ | 850,000 | $ | 850,000 | $ | 850,000 | $ | 850,000 | ||||||||
Senior Secured Credit Facility - Term B | 246,875 | 248,750 | 245,625 | 246,250 | ||||||||||||
Senior Secured Credit Facility - Term A | 50,000 | – | 46,667 | 48,333 | ||||||||||||
FF&E Credit Facility | 15,000 | – | 14,400 | 14,400 | ||||||||||||
Indebtedness of the Mall II Subsidiary: | ||||||||||||||||
Secured Mall Facility | 120,000 | 120,000 | 120,000 | 120,000 | ||||||||||||
Indebtedness of the Macau Subsidiaries: | ||||||||||||||||
Venetian Macau Senior Secured Notes - Tranche A | 75,000 | – | 75,000 | 75,000 | ||||||||||||
Venetian Macau Senior Secured Notes - Tranche B | 45,000 | – | 45,000 | 45,000 | ||||||||||||
Venetian Intermediate Credit Facility | 15,000 | – | 50,000 | 40,000 | ||||||||||||
1,416,875 | 1,218,750 | 1,446,692 | 1,438,983 | |||||||||||||
Less: current maturities | (11,800 | ) | (2,500 | ) | (14,067 | ) | (12,633 | ) | ||||||||
Less: long term debt classified as current | (120,000 | ) | – | |||||||||||||
Total long-term debt | $ | 1,285,075 | $ | 1,216,250 | $ | 1,432,625 | $ | 1,426,350 | ||||||||
On June 4, 2002, the Company completed a series of refinancing transactions (collectively, the “Refinancing Transactions”) including: (1) the issuance of $850.0 million in aggregate principal amount of 11% mortgage notes due 2010 (the “Mortgage Notes”) in a private placement; (2) entering into a new senior secured credit facility (the “Senior Secured Credit Facility”) with a syndicate of lenders in an aggregate amount of $375.0 million; and (3) entering into a secured mall facility (the “Secured Mall Facility”) in an aggregate amount of $105.0 million, which was subsequently increased to $120.0 million on June 28, 2002. The Company used the proceeds of the Refinancing Transactions to repay, redeem, or repurchase all of its previously outstanding indebtedness, to finance the construction and development of the Phase IA Addition and to pay all fees and expenses associated with the Refinancing Transactions. In addition, the completion guarantee provided by the Principal Stockholder 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.
The Mortgage Notes bear interest at 11%, payable each June 15th and December 15th. The Mortgage Notes are secured by second priority liens 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 Mortgage 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, 2006, 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. On or prior to June 15, 2005, the Company may redeem up to 35% of the Mortgage Notes with the net cash proceeds of one or more offerings of equity securities at a redemption price of 111% of the principal amount of the Mortgage Notes, plus accrued and unpaid interest. 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 Mortgage Notes have been registered under the Securities Act of 1933, as amended (the “Securities Act”).
On December 27, 2002,As a result of the Company completedconsummation of the Mall Sale, which is currently expected to occur on May 17, 2004, LVSI and Venetian will be obligated to use the Excess Proceeds (as defined under the Indenture) from the Mall Sale to make an exchange offer to exchangepurchase the maximum principal amount of Mortgage Notes that may be purchased out of the Excess Proceeds of the Mall Sale at an offer price in cash equal to 100% of the principal amount of the Mortgage Notes, for mortgage notes with substantiallyplus accrued and unpaid interest and liquidated damages, if any, to the same terms.closing date of the offer (the “Asset Sale Offer”). The Company currently intends to make such an Asset Sale Offer as soon as practicable following the consummation of the Mall Sale.
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 “TermTerm A Facility”), and a $75.0 million senior secured revolving facility (the “Revolving Facility”). The net proceeds from the Term A and Term B Facility proceedsFacilities of $185.0$235.0 million were deposited into a disbursement account for the Phase IA Addition, invested in cash or permitted investments, and pledged to a disbursement agent for the Senior Secured Credit Facility lenders. The $185.0 million waslenders and 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 favorAs of the lenders under the Senior Secured Credit Facility.March 31, 2004 all funds had been drawn.
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 $50.0 million Term A Facility was drawn in full on May 16, 2003. Pending their use, the proceeds from this loan were deposited into the Phase IA Addition disbursement account and pledged to the disbursement agent for the Senior Secured Credit Facility lender. The Term A Facility26, 2003, matures on June 4, 2007, and is subject to quarterly amortization payments commencing on DecemberMarch 31, 20032004 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 Revolving Facility as of September 30, 2003.March 31, 2004. However, as described below, LVSI has guaranteed borrowings under a $50 million credit facility of its wholly owned subsidiary Venetian Venture Development Intermediate, Limited, a wholly-owned subsidiary of the Company (“Venetian Intermediate”), to fund construction and development costs of the Macau Casino. These guarantees will beare supported by $50 million of letters of credit to be issued under the Revolving Facility, all of which a $15.0 million letter of credit had been issued as of September 30, 2003.March 31, 2004. In addition, LVSI is expected to guaranteeguaranteed funding of certain cost overruns of the Macau Casino as further described in Note 6. It5. This guaranty is currently anticipated that this guaranty will be supported by a $10 million letter of credit, to bewhich was issued under the Revolving Facility.Facility during January 2004. As a result of the issuance and the expected future issuance of these letters of credit, the amountsamount available for working capital loans under the Revolving Facility are expected to decrease from the $60.0is $15.0 million as of current availability to $15.0 million.March 31, 2004.
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. Since the substantial completion of the Phase IA Addition, the applicable margin for amounts outstanding under the Term A Facility and the Revolving Facility is determined by a grid based upon a leverage ratio. The leverage ratio is 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 average interest rate for the Senior Secured Credit Facility was 4.26%4.2% during the first ninethree months of 2003.ended March 31, 2004.
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 comply 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 September 30, 2003,March 31, 2004, the Company was in compliance with all required covenants and ratios under the Senior Secured Credit Facility.
Pursuant to the terms of the Senior Secured Credit Facility, the Company is also required to maintain certain funds in escrow for insurance and property taxes. At September 30, 2003,March 31, 2004, $2.1 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 has obtained an amendment or waiver to its Senior Secured Credit Facility (the “Bank Amendment”) to, among other things; permit the consummation of the Mall Sale, the purchase of a parcel of real property adjacent to the Casino Resort and waiving any events of default resulting therefrom. The parcel will be used either as a parking lot for the Phase II Resort or for constructing additional convention space. The Bank Amendment also permit the Company to use the proceeds from the Mall Sale to repurchase Mortgage Notes tendered pursuant to the Asset Sale Offer.
In September 2003, the Company and a lender entered into a credit facility (the “FF&E Credit Facility”) to provide $15.0 million of financing for the Phase IA Addition. The proceeds from the FF&E Credit Facility were used to finance certain furniture, fixtures and equipment (the “Specified FF&E”) for the Phase IA Addition and the facility is secured by the specified FF&E. The FF&E Credit Facility provides for a 60-month basic term loan. Interest on the term loan is three month LIBOR plus 3.00% and is payable quarterly. The FF&E Credit Facility is subject to nineteen quarterly amortization payments of $600,000 beginning January 1, 2004, and one final payment of $3,600,000 on October 1, 2008. The average interest rate for the FF&E Credit Facility was 4.1% during the three months ended March 31, 2004.
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 Mall II Subsidiary. The initial $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 certain Mall indebtedness pursuant to the Mall Take-out FinancingRefinancing Transactions and costs previously owed by the Mall Subsidiary. Upon the consummation of the Refinancing Transactions, the 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”). The average interest rate for the Secured Mall Facility was 3.15%3.0% during the first ninethree months of 2003.ended March 31, 2004.
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 10, 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 cash sweep of excess cash flow to reduce amounts outstanding under the Secured Mall Facility.
The Company is required to maintain an interest rate cap agreement to limit the impact of increases in interest rates on its floating rate debt derived from the Secured 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 counterparties 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 ninethree months ended September 30, 2003.March 31, 2004. The notional amount of the Mall Cap Agreement (which expires on June 28, 2005) at September 30, 2003March 31, 2004 was $120.0 million.
Pursuant to the terms of theThe Secured Mall Facility will be fully paid off with the proceeds from the Mall II Subsidiary is also required to maintain certain funds in escrow for debt service and property taxes. At September 30, 2003, $2.0 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.Sale.
As further described in Note 6,5, Venetian Macau is currently constructing the Macau Casino, which it expects to complete by June 2004. On March 27, 2003, Venetian Intermediate entered into a credit agreement (“Venetian Intermediate Credit Agreement”) with a lender to provide $50.0 million of financing for the Macau Casino. Venetian Intermediate owns 100% of Venetian Macau. The obligations under the loans to be made under the Venetian Intermediate Credit Agreement are guaranteed by the Company and Venetian and supported by letters of credit to be issued under the Revolving Facility in favor of the Venetian Intermediate Credit Agreement lenders. As a result of the expected issuance of the letters of credit, the amounts available for working capital loans under the Revolving Facility will behave been reduced on a dollar for dollar basis. The amounts outstanding under the Venetian Intermediate Credit Facility bear interest at the base rate or the adjusted Eurodollar rate plus 0.5% per annum. Interest is payable on the base rate loans on a quarterly basis and is payable on Eurodollar loans at the end of the applicable interest period, and there is no scheduled principal amortization. The credit facility is due in full on March 27, 2006. As of September 30, 2003, $15.0March 31, 2004, $50.0 million was outstanding under the Venetian Intermediate Credit Agreement and was supported by a $15.0$50.0 million letterof letters of credit issued under the Revolving Facility. The average interest rate was 1.7% for the Venetian Intermediate Credit Facility was 1.64% during the first ninethree months of 2003.ended March 31, 2004.
On August 21, 2003, a wholly-ownedwholly owned subsidiary of Venetian Macau, Venetian Macau Finance Company issued $120.0 million in aggregate principal amount of floating rate senior secured notes due August 2008 (the “Notes”“Venetian Macau Senior Secured Notes”). The Venetian Macau Senior Secured Notes issued by Venetian Macau Finance Company are guaranteed by Venetian Macau. All assets of Venetian Macau and its subsidiaries secure the Venetian Macau Senior Secured Notes and restrictions have been placed on the guarantee.payment of dividends to LVSI from Venetian Macau and its subsidiaries. As a result of the restrictions, approximately $73.9 in net assets for the Venetian Macau at March 31, 2004 are not available at the parent level and are considered to be restricted net assets of subsidiaries at such date.
$75.0 million in aggregate principal amount of the Venetian Macau Senior Secured Notes bear interest at the rate of three month U.S. dollar LIBOR plus 3.25%, payable quarterly (“Tranche A Notes”), and $45 million in aggregate principal amount of the Venetian Macau Senior Secured Notes bear interest at the rate of three month U.S. dollar LIBOR plus 4.00%, payable quarterly (“Tranche B Notes”). The average interest rate for the Notes was 4.76% during the first nine months of 2003.The Tranche A Notes have a mandatory redemption of $7.5 million on August 21, 2005, $11.2 million on August 21, 2006, $18.8 million on August 21, 2007, and $37.5 million on August 21, 2008. The Tranche B Notes have no interim amortization and are due in full on August 21, 2008. At closing,The average interest rate on the grossVenetian Macau Senior Secured Notes was 4.8% during the three months ended March 31, 2004.
As of March 31, 2004, approximately $73.9 million of these proceeds remained unused. Venetian Macau is currently in the process of seeking consents from the holders of the Venetian Macau Senior Secured Notes offering, together with interestto permit the creation of a junior lien on such Notes proceeds, were placed into an escrow account, pendingVenetian Macau’s rights over the receipt of certain regulatory approvalsland upon which the Macau Casino is being constructed in Macau to support the execution of a final credit agreement forguarantee being issued by the Macau bank under Venetian Macau’s subconcession and described in Note 5 below.
On December 18, 2003, Venetian Macau and Venetian Macau Finance Company entered into a $20.0 million revolving credit facility and(“Macau Revolver”) with a group of lenders. The Macau Revolver is secured on a pari passu basis with the satisfaction of certain other conditions. Uponsame collateral as the satisfaction of these conditions, the net proceeds from the Notes offering will be released to Venetian Macau to fund the constructionSenior Secured Notes. The Macau Revolver matures December 18, 2006 and development ofbears interest at Libor plus 3.75%. No amounts have been drawn under the Macau Casino. The escrow had an initial term of 60 days with two additional 30- day extension options. The Company has exercised one extension option. If the escrow conditions are not satisfied by December 19, 2003, the Notes will be redeemed at 100% of their principal amount plus unpaid interest. Accordingly, the Tranche A Notes and Tranche B Notes are classified as current liabilities in the accompanying balance sheet.Revolver.
During 1997, Interface Holding contributedowns $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.Interest in Venetian. 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.June 30, 1997. Until the indebtedness under the Senior Secured Credit Facility is repaid and cash payments are permitted under the restricted payment covenants of the Indenture, the preferred return on the Series B Preferred Interest will accrue but will not be paid in cash. Commencing 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 month period ended March 31, 2004 and nine month periods ended September 30,March 31, 2003, and September 30, 2002, $6.7$7.2 million and $19.5 million and $6.0 million and $17.3$6.4 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.
Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board issued Statement No. 150 (“SFAS 150”) “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The Company is considered a non-public entity, as defined by SFAS 150 because its equity securities are not listed on a public exchange. Accordingly, for the Company, the provisions of SFAS 150 will becomebecame effective during the quarter ending March 31, 2004. UponAs a result of the adoption of SFAS 150, the Company anticipates that the Series B Preferred Interest in Venetian will no longer beis now presented in the “Mezzanine” but rather will be reclassified as a liability and dividends are presented as interest expense of the Company.
Construction Litigation
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 $639.0$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 $639.0$645.0 million. The Construction Management Contract also established a required “substantial completion” date (the date on which the construction of the Casino Resort was sufficiently complete, including the receipt of necessary permits, licenses and approvals, so that all components of the Casino Resort could be open to the general public) of April 21, 1999 (subject to extensions on account of “scope changes” and force majeure events), with a per-day liquidated damages penalty for failure to meet such deadline.
The obligations of the Construction Manager under the Construction Management Contract were guaranteed by Bovis, Inc. (“Bovis”), the Construction Manager’s direct parent at the time the Construction Management Contract was entered into (such guaranty, the “Bovis Guaranty”). Bovis’ obligations under the Bovis Guaranty were guaranteed by The Peninsula and Oriental Steam Navigation Company (“P&O”), a British public company and the Construction Manager’s ultimate parent at the time the Construction Management Contract was entered into (such guaranty, the “P&O Guaranty”).
On July 30, 1999, Venetian filed a complaint against the Construction Manager and Bovis in the United States District Court for the District of Nevada (the “Federal Court Action”). 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. 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 “State Court Action”). The action alleges a breach of contract andquantum 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. Simultaneously, commencing in March 2000, the Construction Manager and the Company engaged in arbitration proceedings ordered by the Federal Court to determine the cost and schedule impact of any changes in the scope of services of the Construction Manager under the Construction Management Contract (the “Arbitration Proceedings”).
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 exceeded 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.
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.
On June 3, 2003, an approximate 10 month10-month trial was concluded in the State Court Action when a jury returned a verdict, awardingwhich awarded the Construction Manager approximately $44.0 million in additional costs under the Construction Management Contract and awardingawarded the Company approximately $2.0 million in damages for defective and incomplete work performed by the Construction Manager. The verdict also allows each party to seekreturned a defense verdict in favor of the Company on the Construction Manager’s fraud claim, and denied the Construction Manager’s claim for punitive damages. The verdict did not address pre-judgment interest and reimbursement of attorney’s costs. As ofcosts, which are being sought from the date of this filing, theState Court by both parties.
The judge in the State Court Action has notarguably entered a final judgment on that verdict.the verdict on December 24, 2003. The Company has requestedfiled motions requesting that finalthe State Court reconsider the entry of the judgment, not be enteredand stay the verdict until the conclusion of the Arbitration Proceedings, which proceedings the Company contends must be considered in determination of any final award between the parties. The Company believes that results of the Arbitration Proceedings will result in the lowering of the verdict that was awarded to the Construction Manager in the State Court Action and will provide a basis to increase the amount that was awarded to the Company. As of May 13, 2004, the state court had not yet ruled on these motions.
While there are pending subcontractor claims against the Construction Manager and the Company and related claims for indemnity by and against the Construction Manager, Thethe Company believes that all such claims asserted against the Company in those actions wouldwill be subsumed within the verdict in the State Court Action and that the Company’s liability will be limited to the amount of any final judgment which may be ultimately entered in the State Court Action. If and when the verdict in the State Court Action is entered as a final judgment, the Company intends to file appropriate post judgment motions and appeals. If a judgment for the Construction Manager is entered on the verdict and such a judgment can be executed upon by the Construction Manager following the resolution of all appeals, the Company believes its payment of such a judgment shall be in satisfaction of and shall be capped at its $45.0 million self-insurance requirement under the Insurance Policy. The Company intends to seek an elimination or reduction of the Construction Manager’s and its subcontractors’ mechanic’s liens in an amount to be consistent with any final judgment on the verdict.
Notwithstanding the pendencyentry of the verdictjudgment in the State Court Action, the Company is proceeding withhas continued to pursue certain claims in the Arbitration Proceedings to determine, among other things, the impact of certain changes which determination by the arbitrator the Company believes may provide a basis for reducing the amount awarded to the Construction Manager in the State Court Action and raising the amount of the verdict for the Company or otherwise establishing a basis foroffsetting claims for the Company against the Construction Manager. The Company also intends to pursue additional affirmative claims in the Federal Court Action and in other proceedings that were not resolved by the verdict in the State Court Action. TheBecause of the magnitude of remaining open items in the Arbitration Proceedings, which the Company believes must be considered in any ultimate award between the parties the Company is not able to determine with any reasonable certainty the value of such claims or the probability of success on such claims at this time. Accordingly, no accrual for a liability has been reflected in the accompanying financial statements for this matter, other than approximately $7.2 million, which the Company had previously accrued in 1999 for unpaid construction costs and which have not yet been paid pending outcome of the litigation.
Based on the recent judgment in the State Court Action and the remaining open items in the Arbitration Proceedings, the Company estimates that its range of loss in this matter is from none (or a gain if all remaining matters are determined in the Company’s favor and considering the existing accrual of approximately $7.2 million for unpaid construction costs) to approximately $70.0 million (see below) if the Company were to lose all remaining arbitration matters and related pending actions and appeals that counsel has advised are possible of loss, and which are not already included in the State Court Action. Such range of loss is before attorney costs and interest, which have not yet been considered by the State Court and the total amounts of which cannot currently be quantified. While the range of loss is possibly as high as $70.0 million, (the original verdict of $42.0 million plus $28.0 million, representing all remaining indemnity claims and arbitration matters), plus attorney’s fees and interest, the Company believes the Insurance Policy will provide coverage of in excess of the Company’s insured retention of $45.0 million and up to total loss of $125.0 million as further defined in the Insurance Policy. At this time, no amount within the range of loss can be reasonably determined as an estimated loss. It is possible that the Arbitration Proceedings will be concluded (or interim decisions rendered) in the near future, at which time an estimate of loss could be determined. Such loss could be material to the Company’s results of operations in the period that the estimate is recorded.
On June 26, 2002, the Macau government granted a provisional concession to operate casinos in Macau to the Company’s subsidiary Venetian Macau and to Galaxy Casino Company Limited, a consortium of Macau and Hong Kong-based investors (“Galaxy”). During December 2002, Venetian Macau and Galaxy entered into a subconcession agreement. The subconcession agreement with Galaxy was recognized and approved by the Macau government and allows Venetian Macau to develop and operate certain casino projects, including the Macau Casino, separately from Galaxy.
In addition to the Macau Casino, the Company also intends to build in Macau a hotel, casino and convention center complex with a Venetian-style theme similar to the Company’s Las Vegas property (the “Macau Venetian Casino Resort”).
Under the subconcession agreement, Venetian Macau is obligated to develop and open the Macau Venetian Casino Resort by June 2006 and invest, or cause to be invested, at least 4.4 billion Patacaspatacas (approximately $533.8$566.5 million at exchange rates in effect on September 30, 2003)March 31, 2004) in various development projects in Macau by June 2009. The construction and development costs of the Macau Casino will be applied to the fulfillment of this total investment obligation to the Macau government. It is expected thatThe Company currently estimates the constructiontotal cost of constructing, developing, and development costs ofoperating the Macau Venetian Casino, Resortincluding design costs, construction costs, equipment costs, working capital and pre-opening expenses, will satisfybe approximately $257.9 million, all of which qualifies to meet the remainder of this obligation.investment obligation to the Macau government. Assuming that all of the current estimated construction and development costs of the Macau Casino are applied towards fulfilling the investment obligations under the subconcession agreement, remaining investment obligations under the subconcession agreement will be approximately $293.8$308.6 million. It is expected that the construction and development costs of the Macau Venetian Casino Resort will satisfy the remainder of this obligation. To support this obligation, a Macau bank and a subsidiary of the Company, Lido Casino Resort Holding Company, LLC, have guaranteed 500 million Patacaspatacas (approximately $60.7$64.4 million at exchange rates in effect on September 30, 2003)March 31, 2004) of Venetian Macau’s legal and contractual liabilities to the Macau government until March 31, 2007. TheseVenetian Macau is currently in the process of seeking consents from the holders of the Venetian Macau Senior Secured Notes to permit the creation of a junior lien on Venetian Macau’s rights over the land upon which the Macau Casino is being constructed in Macau to support the guarantee being issued by the Macau bank under the Venetian Macau subconcession.
Venetian Macau’s development and investment obligations under its subconcession agreement may be satisfied by Venetian Macau and/or its affiliates, including the Company.
The Company currently estimatesAs of March 31, 2004, approximately $141.8 million of the total cost of constructing, developing and operatingcosts relating to the Macau Casino including design costs, construction costs, equipment costs, working capital and pre-opening expenses, will be approximately $240.0 million. As of September 30, 2003, approximately $40.0 million of these costs had been expended. The Company anticipates funding the remaining estimated costs of construction from a combination of the following sources:
• | a completion guaranty |
— |
— |
in each case, to the extent permitted under the Senior Secured Credit Facility and the Indenture for the Mortgage Notes. |
On August 21, 2003, the gross proceeds from the Notes offering, together with interest on such Notes proceeds, were placed into an escrow account pending the receipt of certain regulatory approvals in Macau, the execution of a final credit agreement for the Proposed Macau Revolver and the satisfaction of certain other conditions. Upon the satisfaction of these conditions, the net proceeds from the Notes offering will be released to Venetian Macau to fund the remaining costs of construction and development of the Macau Casino. The escrow had an initial term of 60 days with two additional 30-day extension options. The Company has exercised one extension option. If the escrow conditions are not satisfied by December 19, 2003, the Notes will be redeemed at 100% of their principal amount plus unpaid interest. Accordingly, the Notes have been presented as a current liability in the accompanying balance sheet. Venetian Macau is currently in the process of negotiating a FF&E commitment with a FF&E lender.
The Company expects the funds provided by these sources to be sufficient to construct, develop, and operate the Macau Casino, assuming there are no significant delay costs or construction cost overruns. If Venetian Macau incurs significant cost overruns, it may need to arrange for additional financing to pay for these costs. If it requires additional financing, the Company or its affiliates may incur additional bank borrowings or debt or equity financing. However, no assurance can be given that such funds will be available or that such funds will be on terms that will be favorable to the Company. In addition, the construction and development of the Macau Venetian Casino Resort will require significant additional debt and/or equity financing.
Venetian Macau, Venetian Intermediate 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 for the Mortgage Notes or the Senior Secured Credit Facility. Restrictions have been placed on the payment of dividends to LVSI from Venetian Macau and its subsidiaries.
Other Ventures and Commitments
During 2003, the Company entered into three lease termination and asset purchase agreements with Mall tenants. The first agreement provided for payments by the Company to a tenant of $800,000 during 2003, with 27 additional annual payments of $400,000.$400,000, thereafter. The second agreement provided for an initial deposit of $5.0 million, which was paid by the Company during May 2003 and 15 subsequent monthly payments totaling $10.0 million beginning January 2004 plus interest at 6% per annum. The lease termination and asset transfer is expected to be completed at the end of 2003 at which time theduring May 2004. The subsequent monthly payments will commence.commenced beginning January 2004. The third agreement and asset purchase agreement provided for an initial payment of $500,000 during 2003 and subsequent quarterly payments of $62,500 for ten years. In each case, the Company has obtained title to leasehold improvements and other fixed assets, which were originally purchased by the Mall tenants, and which have been recorded at estimated fair market value, which approximated the discounted present value of the Company’s obligation to the former tenants. The Company is negotiating with other potential tenants for the spaces to be vacated under the above-described agreements.
Mall Sale and Related Matters
On April 12, 2004, the Company entered into an agreement with the Mall Purchaser to sell the Mall and certain restaurant and other retail assets of the Casino Resort for approximately $766 million and the multi-level retail space of the Phase II Resort for approximately $250.0 million subject to an upward adjustment based on operating income performance. The Mall Sale is subject to customary conditions and is expected to close on May 17, 2004. As of March 31, 2004, the Mall II Subsidiary had total assets of $173.4 million and total liabilities of $130.3 million. In conjunction with the Mall Sale, the Company must pay off the existing $120.0 million Secured Mall Facility. The agreement also provides for the Casino Resort to lease nineteen spaces currently occupied by various tenants to the Mall Purchaser for 89 years with annual rent of one dollar per year and the Mall Purchaser will assume the various leases. In addition the Company will: (i) continue to be obligated to fulfill certain lease termination and asset purchase agreements; (ii) lease the C2K Showroom space located within the Mall from the Mall Purchaser for a period of 25 years with fixed minimum rent of $3.3 million per year with cost of living adjustments; (iii) operate the Gondola ride under an operating agreement for a period of 25 years for an annual fee of $3.5 million; and (iv) lease certain office space from the Mall Purchaser for a period of 10 years, subject to extension options for a period of up to 65 years, with annual rent of $860,350. The lease payments under clauses (ii) through (iv) above are subject to automatic increases beginning on the sixth lease year.
As a result of the consummation of the Mall Sale, the Company will also be obligated to use the Excess Proceeds from the Mall Sale to make the Asset Sale Offer. The Company currently intends to make such an Asset Sale Offer as soon as practicable following the consummation of the Mall Sale.
Other
The Company has also committed to enterentered into a joint venture to develop a new restaurant in the Venetizia room towerCasino Resort and invest $6.5has contributed $7.4 million inof capital into the joint venture, which amount includes tenant allowances.venture. Such contributions were comprised of $5.4 million of property, plant, and equipment and $2.0 million was comprised of leasehold improvements. The investment is expected to bewas funded during the fourth quarter of 2003 and the first quarter of 2004 through available cash flow provided by operating activities.activities of the Casino Resort. The restaurant opened during January 2004.
LVSI and Venetian are co-obligors of the Mortgage Notes and the indebtedness under the Senior Secured Credit Facility and are jointly and severally liable for such indebtedness. Venetian, Mall Intermediate, Mall Construction, Lido Intermediate, Venetian Venture, Venetian Athens, Venetian Marketing and Venetian Operating (collectively, the “Subsidiary Guarantors”) are subsidiaries of 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. The Mall is owned by the Mall II Subsidiary, a non-guarantor subsidiary which is the borrower under the Secured Mall Facility. The Macau Casino is owned by Venetian Macau, a non-guarantor subsidiary which is the guarantor for the Venetian Macau Senior Secured Notes.
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. The following information represents the summarized financial information of LVSI, Venetian, the Subsidiary Guarantors and the non-guarantor subsidiaries on a combined basis as of September 30, 2003March 31, 2004 and December 31, 2002,2003, and for the three and nine month periods ended September 30, 2003March 31, 2004 and September 30, 2002.March 31, 2003. In addition, certain amounts in the 20022003 information hashave been reclassified to conform with the 20032004 presentation.
CONDENSED BALANCE SHEETS March 31, 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Venetian | Other | Other Non- | Consolidating/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Las Vegas | Casino | Guarantor | Eliminating | Las Vegas Sands, Inc. | Venetian Casino Resort LLC | Other Guarantor Subsidiaries | Other Non- Guarantor Subsidiaries | Consolidating/ Eliminating Entries | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Entries | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 91,518 | $ | 25,309 | $ | 6 | $ | 29,163 | $ | – | $ | 145,996 | $ | 75,328 | $ | 25,779 | $ | 4 | $ | 50,471 | $ | – | $ | 151,582 | |||||||||||||||||||||||||||||||
Restricted cash | – | 15,533 | – | 123,031 | – | 138,564 | |||||||||||||||||||||||||||||||||||||||||||||||||
Restricted cash and cash equivalents | – | 2,119 | – | 39,165 | – | 41,284 | |||||||||||||||||||||||||||||||||||||||||||||||||
Intercompany receivable | 1,455 | 18,070 | – | – | (19,525 | ) | – | – | 56,387 | – | – | (56,387 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Accounts receivable, net | 33,224 | 23,825 | – | 811 | – | 57,860 | 33,233 | 29,720 | – | 1,183 | – | 64,136 | |||||||||||||||||||||||||||||||||||||||||||
Inventories | – | 6,064 | – | – | – | 6,064 | – | 6,029 | – | – | – | 6,029 | |||||||||||||||||||||||||||||||||||||||||||
Prepaid expenses | 829 | 2,846 | – | 585 | – | 4,260 | 478 | 3,467 | – | 639 | – | 4,584 | |||||||||||||||||||||||||||||||||||||||||||
Total current assets | 127,026 | 91,647 | 6 | 153,590 | (19,525 | ) | 352,744 | 109,039 | 123,501 | 4 | 91,458 | (56,387 | ) | 267,615 | |||||||||||||||||||||||||||||||||||||||||
Property and equipment, net | 4,783 | 1,100,293 | – | 270,949 | – | 1,376,025 | 4,269 | 1,098,099 | – | 408,506 | – | 1,510,874 | |||||||||||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 1,030,720 | 143,409 | – | – | (1,174,129 | ) | – | 1,106,192 | 170,881 | – | – | (1,277,073 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Deferred offering costs, net | – | 31,774 | – | 4,200 | – | 35,974 | – | 29,191 | – | 7,478 | – | 36,669 | |||||||||||||||||||||||||||||||||||||||||||
Restricted cash and cash equivalents | – | – | – | 37,382 | – | 37,382 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other assets, net | 4,887 | 19,287 | – | 9,974 | – | 34,148 | 6,613 | 18,192 | – | 14,738 | – | 39,543 | |||||||||||||||||||||||||||||||||||||||||||
$ | 1,167,416 | $ | 1,386,410 | $ | – | $ | 438,713 | $ | (1,193,654 | ) | $ | 1,798,891 | $ | 1,226,113 | $ | 1,439,864 | $ | 4 | $ | 559,562 | $ | (1,333,460 | ) | $ | 1,892,083 | ||||||||||||||||||||||||||||||
Accounts payable | $ | 1,426 | $ | 11,967 | $ | – | $ | 1,367 | $ | – | $ | 14,760 | $ | 8,982 | $ | 5,850 | $ | – | $ | 1,310 | $ | – | $ | 16,142 | |||||||||||||||||||||||||||||||
Construction payables | – | 17,971 | – | 10,592 | – | 28,563 | – | 6,542 | – | 37,320 | – | 43,862 | |||||||||||||||||||||||||||||||||||||||||||
Construction payables-contested | – | 7,232 | – | – | – | 7,232 | – | 7,232 | – | – | – | 7,232 | |||||||||||||||||||||||||||||||||||||||||||
Intercompany payables | – | – | – | 19,525 | (19,525 | ) | – | 31,131 | – | – | 25,256 | (56,387 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Accrued interest payable | – | 28,570 | – | 840 | – | 29,410 | – | 27,420 | – | 767 | – | 28,187 | |||||||||||||||||||||||||||||||||||||||||||
Other accrued liabilities | 18,751 | 57,842 | – | 1,978 | – | 78,571 | 16,410 | 65,888 | – | 2,949 | – | 85,247 | |||||||||||||||||||||||||||||||||||||||||||
Current maturities of long-term debt(1) | 11,800 | 11,800 | – | – | (11,800 | ) | 11,800 | 14,067 | 14,067 | – | – | (14,067 | ) | 14,067 | |||||||||||||||||||||||||||||||||||||||||
Long-term debt classified as current(1) | – | – | – | 120,000 | – | 120,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total current liabilities | 31,977 | 135,382 | – | 154,302 | (31,325 | ) | 290,336 | 70,590 | 126,999 | – | 67,602 | (70,454 | ) | 194,737 | |||||||||||||||||||||||||||||||||||||||||
Other long-term liabilities | – | 934 | – | 5,600 | – | 6,534 | – | 833 | – | 5,513 | – | 6,346 | |||||||||||||||||||||||||||||||||||||||||||
Redeemable Preferred Interest in Venetian Casino | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Resort, LLC a wholly owned subsidiary | – | 245,477 | – | – | – | 245,477 | |||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt(1) | 1,150,075 | 1,150,075 | – | 135,000 | (1,150,075 | ) | 1,285,075 | 1,142,625 | 1,142,625 | – | 290,000 | (1,142,625 | ) | 1,432,625 | |||||||||||||||||||||||||||||||||||||||||
1,182,052 | 1,286,391 | – | 294,902 | (1,181,400 | ) | 1,581,945 | |||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Preferred Interest in Venetian | – | 231,582 | – | – | – | 231,582 | |||||||||||||||||||||||||||||||||||||||||||||||||
1,213,215 | 1,515,934 | – | 363,115 | (1,213,079 | ) | 1,879,185 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' equity (deficit) | (14,636 | ) | (131,563 | ) | 6 | 143,811 | (12,254 | ) | (14,636 | ) | 12,898 | (76,070 | ) | 4 | 196,447 | (120,381 | ) | 12,898 | |||||||||||||||||||||||||||||||||||||
$ | 1,226,113 | $ | 1,439,864 | $ | 4 | $ | 559,562 | $ | (1,333,460 | ) | $ | 1,892,083 | |||||||||||||||||||||||||||||||||||||||||||
$ | 1,167,416 | $ | 1,386,410 | $ | 6 | $ | 438,713 | $ | (1,193,654 | ) | $ | 1,798,891 | |||||||||||||||||||||||||||||||||||||||||||
(1) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian 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.
CONDENSED BALANCE SHEETS December 31, 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Venetian | Other | Other Non- | Consolidating/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Las Vegas | Casino | Guarantor | Eliminating | Las Vegas Sands, Inc. | Venetian Casino Resort LLC | Other Guarantor Subsidiaries | Other Non- Guarantor Subsidiaries | Consolidating/ Eliminating Entries | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Entries | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 46,746 | $ | 9,973 | $ | 6 | $ | 37,017 | $ | – | $ | 93,742 | $ | 73,049 | $ | 29,549 | $ | 5 | $ | 39,757 | $ | – | $ | 142,360 | |||||||||||||||||||||||||||||||
Restricted cash | – | 19,936 | – | 1,944 | – | 21,880 | |||||||||||||||||||||||||||||||||||||||||||||||||
Restricted cash and cash equivalents | – | 2,121 | – | 34,237 | – | 36,358 | |||||||||||||||||||||||||||||||||||||||||||||||||
Intercompany receivable | 686 | 529 | – | – | (1,215 | ) | – | – | 48,016 | – | – | (48,016 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Accounts receivable, net | 37,853 | 13,953 | – | 1,506 | – | 53,312 | 28,772 | 22,592 | – | 1,178 | – | 52,542 | |||||||||||||||||||||||||||||||||||||||||||
Inventories | – | 5,070 | – | – | – | 5,070 | – | 6,093 | – | – | – | 6,093 | |||||||||||||||||||||||||||||||||||||||||||
Prepaid expenses | 562 | 3,863 | – | 579 | – | 5,004 | 687 | 1,886 | – | 889 | – | 3,462 | |||||||||||||||||||||||||||||||||||||||||||
Total current assets | 85,847 | 53,324 | 6 | 41,046 | (1,215 | ) | 179,008 | 102,508 | 110,257 | 5 | 76,061 | (48,016 | ) | 240,815 | |||||||||||||||||||||||||||||||||||||||||
Property and equipment, net | 4,722 | 967,442 | – | 219,664 | – | 1,191,828 | 4,687 | 1,101,726 | – | 325,763 | – | 1,432,176 | |||||||||||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 981,077 | 140,165 | – | – | (1,121,242 | ) | – | 1,078,595 | 152,494 | – | – | (1,231,089 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Deferred offering costs, net | – | 35,351 | – | 2,664 | – | 38,015 | – | 30,513 | – | 7,976 | – | 38,489 | |||||||||||||||||||||||||||||||||||||||||||
Restricted cash | – | 83,370 | – | – | – | 83,370 | |||||||||||||||||||||||||||||||||||||||||||||||||
Restricted cash and cash equivalents | – | – | – | 86,144 | – | 86,144 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other assets, net | 4,115 | 17,195 | – | 3,150 | – | 24,460 | 3,922 | 18,894 | – | 11,454 | – | 34,270 | |||||||||||||||||||||||||||||||||||||||||||
$ | 1,075,761 | $ | 1,296,847 | $ | 6 | $ | 266,524 | $ | (1,122,457 | ) | $ | 1,516,681 | $ | 1,189,712 | $ | 1,413,884 | $ | 5 | $ | 507,398 | $ | (1,279,105 | ) | $ | 1,831,894 | ||||||||||||||||||||||||||||||
Accounts payable | $ | 1,655 | $ | 9,804 | $ | – | $ | 742 | $ | – | $ | 12,201 | $ | 2,076 | $ | 11,778 | $ | – | $ | 1,137 | $ | – | $ | 14,991 | |||||||||||||||||||||||||||||||
Construction payables | – | 27,332 | – | 2,395 | – | 29,727 | – | 10,330 | – | 31,825 | – | 42,155 | |||||||||||||||||||||||||||||||||||||||||||
Construction payables-contested | – | 7,232 | – | – | – | 7,232 | – | 7,232 | – | – | – | 7,232 | |||||||||||||||||||||||||||||||||||||||||||
Intercompany payables | – | – | – | 1,215 | (1,215 | ) | – | 16,526 | – | – | 31,490 | (48,016 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Accrued interest payable | – | 4,156 | – | 180 | – | 4,336 | – | 3,896 | – | 913 | – | 4,809 | |||||||||||||||||||||||||||||||||||||||||||
Other accrued liabilities | 24,739 | 54,182 | – | 1,664 | – | 80,585 | 29,116 | 63,341 | – | 3,483 | – | 95,940 | |||||||||||||||||||||||||||||||||||||||||||
Current maturities of long-term debt(1) | 2,500 | 2,500 | – | – | (2,500 | ) | 2,500 | 12,633 | 12,633 | – | – | (12,633 | ) | 12,633 | |||||||||||||||||||||||||||||||||||||||||
Total current liabilities | 28,894 | 105,206 | – | 6,196 | (3,715 | ) | 136,581 | 60,351 | 109,210 | – | 68,848 | (60,649 | ) | 177,760 | |||||||||||||||||||||||||||||||||||||||||
Other long-term liabilities | – | 1,122 | – | – | – | 1,122 | – | 883 | – | 5,562 | – | 6,445 | |||||||||||||||||||||||||||||||||||||||||||
Long-term debt(1) | 1,096,250 | 1,096,250 | – | 120,000 | (1,096,250 | ) | 1,216,250 | 1,146,350 | 1,146,350 | – | 280,000 | (1,146,350 | ) | 1,426,350 | |||||||||||||||||||||||||||||||||||||||||
1,206,701 | 1,256,443 | – | 354,410 | (1,206,999 | ) | 1,610,555 | |||||||||||||||||||||||||||||||||||||||||||||||||
1,125,144 | 1,202,578 | – | 126,196 | (1,099,965 | ) | 1,353,953 | |||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Preferred Interest in Venetian | – | 212,111 | – | – | – | 212,111 | |||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Preferred Interest in Venetian Casino | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Resort, LLC a wholly owned subsidiary | – | 238,328 | – | – | – | 238,328 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' equity (deficit) | (49,383 | ) | (117,842 | ) | 6 | 140,328 | (22,492 | ) | (49,383 | ) | (16,989 | ) | (80,887 | ) | 5 | 152,988 | (72,106 | ) | (16,989 | ) | |||||||||||||||||||||||||||||||||||
$ | 1,189,712 | $ | 1,413,884 | $ | 5 | $ | 507,398 | $ | (1,279,105 | ) | $ | 1,831,894 | |||||||||||||||||||||||||||||||||||||||||||
$ | 1,075,761 | $ | 1,296,847 | $ | 6 | $ | 266,524 | $ | (1,122,457 | ) | $ | 1,516,681 | |||||||||||||||||||||||||||||||||||||||||||
(1) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian are co-obligors of certain of the Company'sCompany’s indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above balance sheets.
CONDENSED STATEMENT OF OPERATIONS For the three months ended March 31, 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Venetian | Other | Other Non- | Consolidating/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Las Vegas | Casino | Guarantor | Eliminating | Las Vegas Sands, Inc. | Venetian Casino Resort LLC | Other Guarantor Subsidiaries | Other Non- Guarantor Subsidiaries | Consolidating/ Eliminating Entries | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Entries | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casino | $ | 69,236 | $ | – | $ | – | $ | – | $ | – | $ | 69,236 | $ | 94,708 | $ | – | $ | – | $ | – | $ | – | $ | 94,708 | |||||||||||||||||||||||||||||||
Rooms | – | 67,752 | – | – | – | 67,752 | – | 85,367 | – | – | – | 85,367 | |||||||||||||||||||||||||||||||||||||||||||
Food and beverage | – | 22,439 | – | – | – | 22,439 | – | 33,505 | – | – | (50 | ) | 33,455 | ||||||||||||||||||||||||||||||||||||||||||
Casino rental revenues from LVSI | – | 10,824 | – | – | (10,824 | ) | – | – | 10,824 | – | – | (10,824 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Retail and other | 202 | 10,495 | – | 10,496 | (288 | ) | 20,905 | 58 | 10,520 | – | 10,892 | (439 | ) | 21,031 | |||||||||||||||||||||||||||||||||||||||||
Total revenues | 69,438 | 111,510 | – | 10,496 | (11,112 | ) | 180,332 | 94,766 | 140,216 | – | 10,892 | (11,313 | ) | 234,561 | |||||||||||||||||||||||||||||||||||||||||
Less promotional allowances | – | (1,112 | ) | – | – | (10,956 | ) | (12,068 | ) | – | (1,596 | ) | – | – | (12,164 | ) | (13,760 | ) | |||||||||||||||||||||||||||||||||||||
Net revenues | 69,438 | 110,398 | – | 10,496 | (22,068 | ) | 168,264 | 94,766 | 138,620 | – | 10,892 | (23,477 | ) | 220,801 | |||||||||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casino | 49,687 | – | – | – | (17,391 | ) | 32,296 | 55,203 | – | – | – | (18,575 | ) | 36,628 | |||||||||||||||||||||||||||||||||||||||||
Rooms | – | 20,218 | – | – | (2,104 | ) | 18,114 | – | 22,050 | – | – | (2,009 | ) | 20,041 | |||||||||||||||||||||||||||||||||||||||||
Food and beverage | – | 13,926 | – | – | (2,150 | ) | 11,776 | – | 17,867 | – | – | (2,369 | ) | 15,498 | |||||||||||||||||||||||||||||||||||||||||
Retail and other | – | 5,291 | – | 3,378 | (283 | ) | 8,386 | – | 5,289 | – | 4,481 | (264 | ) | 9,506 | |||||||||||||||||||||||||||||||||||||||||
Provision for doubtful accounts | 530 | 223 | – | 25 | – | 778 | 3,344 | (100 | ) | – | – | – | 3,244 | ||||||||||||||||||||||||||||||||||||||||||
General and administrative | 910 | 25,013 | – | 415 | (140 | ) | 26,198 | 1,215 | 30,606 | 1 | 400 | (260 | ) | 31,962 | |||||||||||||||||||||||||||||||||||||||||
Corporate expense | 1,259 | 1,182 | – | – | – | 2,441 | 1,498 | 1,162 | – | – | – | 2,660 | |||||||||||||||||||||||||||||||||||||||||||
Rental expense | 196 | 1,705 | – | 637 | – | 2,538 | 121 | 1,701 | – | 629 | – | 2,451 | |||||||||||||||||||||||||||||||||||||||||||
Pre-opening and developmental expense | – | (8 | ) | – | 1,880 | – | 1,872 | – | 1,354 | – | 7,025 | – | 8,379 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 502 | 12,367 | – | 1,314 | – | 14,183 | 525 | 12,847 | – | 1,409 | – | 14,781 | |||||||||||||||||||||||||||||||||||||||||||
53,084 | 79,917 | – | 7,649 | (22,068 | ) | 118,582 | 61,906 | 92,776 | 1 | 13,944 | (23,477 | ) | 145,150 | ||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 16,354 | 30,481 | – | 2,847 | – | 49,682 | 32,860 | 45,844 | (1 | ) | (3,052 | ) | – | 75,651 | |||||||||||||||||||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | 121 | 208 | – | 249 | (176 | ) | 402 | 74 | 337 | – | 940 | (993 | ) | 358 | |||||||||||||||||||||||||||||||||||||||||
Interest expense, net of amounts capitialized | 1 | (28,305 | ) | – | (2,228 | ) | 176 | (30,356 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net of amounts capitalized | (17 | ) | (28,047 | ) | – | (3,975 | ) | 993 | (31,046 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Preferred return on Redeemable Preferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest in Venetian Casino Resort, LLC | (7,150 | ) | – | – | – | – | (7,150 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense) | – | – | – | 1 | – | 1 | – | – | – | (9 | ) | – | (9 | ) | |||||||||||||||||||||||||||||||||||||||||
Income from equity investment in Grand | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Canal Shops II | 102 | 3,274 | – | – | (3,376 | ) | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from equity investment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
VCR and subsidiaries | 3,151 | (2,507 | ) | – | – | (644 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||
Income from equity investment in Grand Canal Shops II | 70 | 2,268 | – | – | (2,338 | ) | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from equity investment in VCR and subsidiaries | 11,967 | (8,435 | ) | – | – | (3,532 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before preferred return | 19,729 | 3,151 | – | 869 | (4,020 | ) | 19,729 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 37,804 | $ | 11,967 | $ | (1 | ) | $ | (6,096 | ) | $ | (5,870 | ) | $ | 37,804 | ||||||||||||||||||||||||||||||||||||||||
Preferred return on Redeemable Preferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest in Venetian Casino Resort, LLC | (6,745 | ) | – | – | – | – | (6,745 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 12,984 | $ | 3,151 | $ | – | $ | 869 | $ | (4,020 | ) | $ | 12,984 | ||||||||||||||||||||||||||||||||||||||||||
CONDENSED STATEMENT OF OPERATIONS For the three months ended March 31, 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Venetian | Other | Other Non- | Consolidating/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Las Vegas | Casino | Guarantor | Eliminating | Las Vegas Sands, Inc. | Venetian Casino Resort LLC | Other Guarantor Subsidiaries | Other Non- Guarantor Subsidiaries | Consolidating/ Eliminating Entries | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Entries | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casino | $ | 80,086 | $ | – | $ | – | $ | – | $ | – | $ | 80,086 | $ | 73,313 | $ | – | $ | – | $ | – | $ | – | $ | 73,313 | |||||||||||||||||||||||||||||||
Rooms | – | 47,592 | – | – | – | 47,592 | – | 57,491 | – | – | – | 57,491 | |||||||||||||||||||||||||||||||||||||||||||
Food and beverage | – | 15,305 | – | – | – | 15,305 | – | 20,068 | – | – | – | 20,068 | |||||||||||||||||||||||||||||||||||||||||||
Casino rental revenue from LVSI | – | 10,632 | – | – | (10,632 | ) | – | – | 10,632 | – | – | (10,632 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Retail and other | 164 | 8,642 | – | 9,643 | (346 | ) | 18,103 | (107 | ) | 8,376 | – | 9,814 | (286 | ) | 17,797 | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 80,250 | 82,171 | – | 9,643 | (10,978 | ) | 161,086 | 73,206 | 96,567 | – | 9,814 | (10,918 | ) | 168,669 | |||||||||||||||||||||||||||||||||||||||||
Less promotional allowances | – | (998 | ) | – | – | (7,332 | ) | (8,330 | ) | – | (1,037 | ) | – | – | (8,967 | ) | (10,004 | ) | |||||||||||||||||||||||||||||||||||||
Net revenues | 80,250 | 81,173 | – | 9,643 | (18,310 | ) | 152,756 | 73,206 | 95,530 | – | 9,814 | (19,885 | ) | 158,665 | |||||||||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casino | 46,445 | – | – | – | (14,567 | ) | 31,878 | 48,874 | – | – | – | (15,956 | ) | 32,918 | |||||||||||||||||||||||||||||||||||||||||
Rooms | – | 14,692 | – | – | (1,190 | ) | 13,502 | – | 15,992 | – | – | (1,465 | ) | 14,527 | |||||||||||||||||||||||||||||||||||||||||
Food and beverage | – | 10,397 | – | – | (2,068 | ) | 8,329 | – | 11,513 | – | – | (2,071 | ) | 9,442 | |||||||||||||||||||||||||||||||||||||||||
Retail and other | – | 5,221 | – | 3,672 | (346 | ) | 8,547 | – | 4,444 | – | 3,629 | (249 | ) | 7,824 | |||||||||||||||||||||||||||||||||||||||||
Provision for doubtful accounts | 3,891 | 1,350 | – | 25 | – | 5,266 | 3,421 | 300 | – | – | – | 3,721 | |||||||||||||||||||||||||||||||||||||||||||
General and administrative | 534 | 24,360 | 2 | 533 | (139 | ) | 25,290 | 1,059 | 25,165 | – | 532 | (144 | ) | 26,612 | |||||||||||||||||||||||||||||||||||||||||
Corporate expense | 1,472 | 1,225 | – | – | – | 2,697 | 1,338 | 1,263 | – | – | – | 2,601 | |||||||||||||||||||||||||||||||||||||||||||
Rental expense | 211 | 1,167 | – | 628 | – | 2,006 | 188 | 1,709 | – | 646 | – | 2,543 | |||||||||||||||||||||||||||||||||||||||||||
Pre-opening and developmental expense | – | (5 | ) | – | 1,031 | – | 1,026 | – | – | – | 1,827 | – | 1,827 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | – | 9,895 | – | 1,171 | – | 11,066 | 444 | 9,078 | – | 1,215 | – | 10,737 | |||||||||||||||||||||||||||||||||||||||||||
52,553 | 68,302 | 2 | 7,060 | (18,310 | ) | 109,607 | 55,324 | 69,464 | – | 7,849 | (19,885 | ) | 112,752 | ||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 27,697 | 12,871 | (2 | ) | 2,583 | – | 43,149 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | 17,882 | 26,066 | – | 1,965 | – | 45,913 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | 121 | 942 | – | 16 | – | 1,079 | 76 | 270 | – | 100 | – | 446 | |||||||||||||||||||||||||||||||||||||||||||
Interest expense, net of amounts capitalized | – | (28,054 | ) | – | (1,412 | ) | – | (29,466 | ) | (52 | ) | (26,244 | ) | – | (1,240 | ) | – | (27,536 | ) | ||||||||||||||||||||||||||||||||||||
Other income (expense) | – | 202 | – | 78 | – | 280 | |||||||||||||||||||||||||||||||||||||||||||||||||
Loss on early retirement of debt | – | (8,629 | ) | – | – | – | (8,629 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Loss from equity investment in | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Grand Canal Shops II | 69 | 2,227 | – | – | (2,296 | ) | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Loss from equity investment in | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
VCR and subsidiaries | (21,474 | ) | (1,033 | ) | – | – | 22,507 | – | |||||||||||||||||||||||||||||||||||||||||||||||
Other income | – | 580 | – | (20 | ) | – | 560 | ||||||||||||||||||||||||||||||||||||||||||||||||
Income from equity investment in Grand Canal Shops II | 77 | 2,488 | – | – | (2,565 | ) | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from equity investment in VCR and subsidiaries | 1,400 | (1,760 | ) | – | – | 360 | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before preferred return | 6,413 | (21,474 | ) | (2 | ) | 1,265 | 20,211 | 6,413 | |||||||||||||||||||||||||||||||||||||||||||||||
Income before preferred return | 19,383 | 1,400 | – | 805 | (2,205 | ) | 19,383 | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred return on Redeemable Preferred | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest in Venetian Casino Resort, LLC | (6,003 | ) | – | – | – | – | (6,003 | ) | (6,363 | ) | – | – | – | – | (6,363 | ) | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 410 | $ | (21,474 | ) | $ | (2 | ) | $ | 1,265 | $ | 20,211 | $ | 410 | |||||||||||||||||||||||||||||||||||||||||
Net income | $ | 13,020 | $ | 1,400 | $ | – | $ | 805 | $ | (2,205 | ) | $ | 13,020 | ||||||||||||||||||||||||||||||||||||||||||
Venetian | Other | Other Non- | Consolidating/ | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Las Vegas | Casino | Guarantor | Guarantor | Eliminating | ||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Subsidiaries | Entries | Total | |||||||||||||||
Revenues: | ||||||||||||||||||||
Casino | $ | 205,927 | $ | – | $ | – | $ | – | $ | – | $ | 205,927 | ||||||||
Rooms | – | 181,682 | – | – | – | 181,682 | ||||||||||||||
Food and beverage | – | 63,324 | – | – | – | 63,324 | ||||||||||||||
Casino rental revenues from LVSI | – | 32,137 | – | – | (32,137 | ) | – | |||||||||||||
Retail and other | 327 | 28,595 | – | 29,858 | (857 | ) | 57,923 | |||||||||||||
Total revenues | 206,254 | 305,738 | – | 29,858 | (32,994 | ) | 508,856 | |||||||||||||
Less promotional allowances | – | (3,494 | ) | – | – | (28,011 | ) | (31,505 | ) | |||||||||||
Net revenues | 206,254 | 302,244 | – | 29,858 | (61,005 | ) | 477,351 | |||||||||||||
Operating expenses: | ||||||||||||||||||||
Casino | 144,612 | – | – | – | (48,861 | ) | 95,751 | |||||||||||||
Rooms | – | 52,140 | – | – | (4,944 | ) | 47,196 | |||||||||||||
Food and beverage | – | 36,890 | – | – | (6,000 | ) | 30,890 | |||||||||||||
Retail and other | – | 15,097 | – | 10,714 | (810 | ) | 25,001 | |||||||||||||
Provision for doubtful accounts | 4,686 | 823 | – | 25 | – | 5,534 | ||||||||||||||
General and administrative | 2,468 | 73,723 | – | 1,360 | (390 | ) | 77,161 | |||||||||||||
Corporate expense | 3,787 | 3,443 | – | – | – | 7,230 | ||||||||||||||
Rental expense | 559 | 5,127 | – | 1,919 | – | 7,605 | ||||||||||||||
Pre-opening and developmental expense | – | 1,118 | – | 5,599 | – | 6,717 | ||||||||||||||
Depreciation and amortization | 1,396 | 30,947 | – | 3,828 | – | 36,171 | ||||||||||||||
157,508 | 219,308 | – | 23,445 | (61,005 | ) | 339,256 | ||||||||||||||
Operating income (loss) | 48,746 | 82,936 | – | 6,413 | – | 138,095 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 362 | 622 | – | 418 | (176 | ) | 1,226 | |||||||||||||
Interest expense, net of amounts capitalized | (51 | ) | (80,461 | ) | – | (4,752 | ) | 176 | (85,088 | ) | ||||||||||
Other income (expense) | – | 886 | – | (66 | ) | – | 820 | |||||||||||||
Income from equity investment in Grand | ||||||||||||||||||||
Canal Shops II | 245 | 7,891 | – | – | (8,136 | ) | – | |||||||||||||
Income (loss) from equity investment | ||||||||||||||||||||
VCR and subsidiaries | 5,751 | (6,123 | ) | – | – | 372 | – | |||||||||||||
Income (loss) before preferred return | 55,053 | 5,751 | – | 2,013 | (7,764 | ) | 55,053 | |||||||||||||
Preferred return on Redeemable Preferred | ||||||||||||||||||||
Interest in Venetian Casino Resort, LLC | (19,472 | ) | – | – | – | – | (19,472 | ) | ||||||||||||
Net income (loss) | $ | 35,581 | $ | 5,751 | $ | – | $ | 2,013 | $ | (7,764 | ) | $ | 35,581 | |||||||
CONDENSED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2004 | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Las Vegas Sands, Inc. | Venetian Casino Resort LLC | Other Guarantor Subsidiaries | Other Non- Guarantor Subsidiaries | Consolidating/ Eliminating Entries | Total | ||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 12,812 | $ | 49,461 | $ | (1 | ) | $ | (7,600 | ) | $ | – | $ | 54,672 | |||||||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||||||||||||||
Decrease in restricted cash | – | 2 | – | 43,834 | – | 43,836 | |||||||||||||||||||||||||||||
Notes receivable from stockholders | (8 | ) | – | – | – | – | (8 | ) | |||||||||||||||||||||||||||
Capital expenditures | (130 | ) | (13,008 | ) | – | (78,657 | ) | – | (91,795 | ) | |||||||||||||||||||||||||
Capital contributions to subsidiaries | (25,000 | ) | (24,555 | ) | – | – | 49,555 | – | |||||||||||||||||||||||||||
Net cash used in investing activities | (25,138 | ) | (37,561 | ) | – | (34,823 | ) | 49,555 | (47,967 | ) | |||||||||||||||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||||||||||||||
Dividends paid to shareholders | – | (5,003 | ) | – | – | – | (5,003 | ) | |||||||||||||||||||||||||||
Capital contribution from Venetian Casino Resort LLC | – | – | – | 49,555 | (49,555 | ) | – | ||||||||||||||||||||||||||||
Repayments on senior secured credit facility-term A | – | (1,667 | ) | – | – | – | (1,667 | ) | |||||||||||||||||||||||||||
Repayments on senior secured credit facility-term B | – | (625 | ) | – | – | – | (625 | ) | |||||||||||||||||||||||||||
Proceeds from Venetian Intermediate credit facility | – | – | – | 10,000 | – | 10,000 | |||||||||||||||||||||||||||||
Payments of deferred offering costs | – | (4 | ) | – | (184 | ) | – | (188 | ) | ||||||||||||||||||||||||||
Net change in intercompany accounts | 14,605 | (8,371 | ) | – | (6,234 | ) | – | – | |||||||||||||||||||||||||||
Net cash provided by (used in) financing activities | 14,605 | (15,670 | ) | – | 53,137 | (49,555 | ) | 2,517 | |||||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | 2,279 | (3,770 | ) | (1 | ) | 10,714 | – | 9,222 | |||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 73,049 | 29,549 | 5 | 39,757 | – | 142,360 | |||||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 75,328 | $ | 25,779 | $ | 4 | $ | 50,471 | $ | – | $ | 151,582 | |||||||||||||||||||||||
Venetian | Other | Other Non- | Consolidating/ | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Las Vegas | Casino | Guarantor | Guarantor | Eliminating | ||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Subsidiaries | Entries | Total | |||||||||||||||
Revenues: | ||||||||||||||||||||
Casino | $ | 177,379 | $ | – | $ | – | $ | – | $ | – | $ | 177,379 | ||||||||
Rooms | – | 156,605 | – | – | – | 156,605 | ||||||||||||||
Food and beverage | – | 54,838 | – | – | – | 54,838 | ||||||||||||||
Casino rental revenue from LVSI | – | 33,163 | – | – | (33,163 | ) | – | |||||||||||||
Retail and other | 1,733 | 25,613 | – | 30,595 | (4,391 | ) | 53,550 | |||||||||||||
Total revenue | 179,112 | 270,219 | – | 30,595 | (37,554 | ) | 442,372 | |||||||||||||
Less promotional allowances | – | (2,763 | ) | – | – | (22,255 | ) | (25,018 | ) | |||||||||||
Net revenues | 179,112 | 267,456 | – | 30,595 | (59,809 | ) | 417,354 | |||||||||||||
Operating expenses: | ||||||||||||||||||||
Casino | 132,487 | – | – | – | (45,745 | ) | 86,742 | |||||||||||||
Rooms | – | 43,387 | – | – | (3,259 | ) | 40,128 | |||||||||||||
Food and beverage | – | 33,053 | – | – | (6,004 | ) | 27,049 | |||||||||||||
Retail and other | – | 14,257 | – | 10,303 | (1,049 | ) | 23,511 | |||||||||||||
Provision for doubtful accounts | 9,015 | 4,500 | – | 25 | – | 13,540 | ||||||||||||||
General and administrative | 1,954 | 66,729 | 2 | 1,416 | (419 | ) | 69,682 | |||||||||||||
Corporate expense | 4,409 | 3,111 | – | – | – | 7,520 | ||||||||||||||
Rental expense | 673 | 6,473 | – | 1,722 | (3,333 | ) | 5,535 | |||||||||||||
Pre-opening and developmental expense | – | – | – | 3,097 | – | 3,097 | ||||||||||||||
Depreciation and amortization | – | 29,499 | – | 3,516 | – | 33,015 | ||||||||||||||
148,538 | 201,009 | 2 | 20,079 | (59,809 | ) | 309,819 | ||||||||||||||
Operating income (loss) | 30,574 | 66,447 | (2 | ) | 10,516 | – | 107,535 | |||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 281 | 1,404 | – | 44 | – | 1,729 | ||||||||||||||
Interest expense, net of amounts capitalized | (17 | ) | (75,921 | ) | – | (5,593 | ) | – | (81,531 | ) | ||||||||||
Interest expense on indebtedness to | ||||||||||||||||||||
Principal Stockholder | – | (1,914 | ) | – | (2,096 | ) | – | (4,010 | ) | |||||||||||
Other income | – | 565 | – | 78 | – | 643 | ||||||||||||||
Loss on early retirement of debt | – | (49,865 | ) | – | (1,527 | ) | – | (51,392 | ) | |||||||||||
Loss from equity investment in | ||||||||||||||||||||
Grand Canal Shops II | 67 | 2,162 | – | – | (2,229 | ) | – | |||||||||||||
Loss from equity investment in | ||||||||||||||||||||
VCR and subsidiaries | (57,931 | ) | (809 | ) | – | – | 58,740 | – | ||||||||||||
Income (loss) before preferred return | (27,026 | ) | (57,931 | ) | (2 | ) | 1,422 | 56,511 | (27,026 | ) | ||||||||||
Preferred return on Redeemable Preferred | ||||||||||||||||||||
Interest in Venetian Casino Resort, LLC | (17,330 | ) | – | – | – | – | (17,330 | ) | ||||||||||||
Net income (loss) | $ | (44,356 | ) | $ | (57,931 | ) | $ | (2 | ) | $ | 1,422 | $ | 56,511 | $ | (44,356 | ) | ||||
CONDENSED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2003 | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Las Vegas Sands, Inc. | Venetian Casino Resort LLC | Other Guarantor Subsidiaries | Other Non- Guarantor Subsidiaries | Consolidating/ Eliminating Entries | Total | ||||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 9,334 | $ | 35,422 | $ | – | $ | 7,860 | $ | – | $ | 52,616 | |||||||||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||||||||||||||
(Increase) decrease in restricted cash | – | 52,654 | – | (784 | ) | – | 51,870 | ||||||||||||||||||||||||||||
Capital expenditures | (287 | ) | (74,084 | ) | – | (13,439 | ) | – | (87,810 | ) | |||||||||||||||||||||||||
Capital contributions to subsidiaries | – | (770 | ) | – | – | 770 | – | ||||||||||||||||||||||||||||
Net cash used in investing activities | (287 | ) | (22,200 | ) | – | (14,223 | ) | 770 | (35,940 | ) | |||||||||||||||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||||||||||||||
Capital contribution from Venetian Casino Resort LLC | – | – | – | 770 | (770 | ) | – | ||||||||||||||||||||||||||||
Repayments on senior secured credit facility-term B | – | (625 | ) | – | – | – | (625 | ) | |||||||||||||||||||||||||||
Repayments on bank credit facility-revolver | – | (58 | ) | – | – | – | (58 | ) | |||||||||||||||||||||||||||
Proceeds from bank credit facility-revolver | – | 58 | – | – | – | 58 | |||||||||||||||||||||||||||||
Payments of deferred offering costs | – | (8 | ) | – | (425 | ) | – | (433 | ) | ||||||||||||||||||||||||||
Net change in intercompany accounts | 12,449 | (12,941 | ) | – | 492 | – | – | ||||||||||||||||||||||||||||
Net cash provided by (used in) financing activity | 12,449 | (13,574 | ) | – | 837 | (770 | ) | (1,058 | ) | ||||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | 21,496 | (352 | ) | – | (5,526 | ) | – | 15,618 | |||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 46,746 | 9,973 | 6 | 37,017 | – | 93,742 | |||||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 68,242 | $ | 9,621 | $ | 6 | $ | 31,491 | $ | – | $ | 109,360 | |||||||||||||||||||||||
Venetian | Other | Other Non- | Consolidating/ | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Las Vegas | Casino | Guarantor | Guarantor | Eliminating | ||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Subsidiaries | Entries | Total | |||||||||||||||
Net cash provided by (used in) operating activities | $ | 47,832 | $ | 55,751 | $ | – | $ | 9,326 | $ | – | $ | 112,909 | ||||||||
Cash flows from investing activities: | ||||||||||||||||||||
(Increase) decrease in restricted cash | – | 87,773 | – | (121,087 | ) | – | (33,314 | ) | ||||||||||||
Notes receivable from stockholders | (834 | ) | – | – | – | – | (834 | ) | ||||||||||||
Capital expenditures | (1,457 | ) | (173,428 | ) | – | (46,916 | ) | – | (221,801 | ) | ||||||||||
Net cash used in investing activities | (2,291 | ) | (85,655 | ) | – | (168,003 | ) | – | (255,949 | ) | ||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from senior secured credit facility-term A | – | 50,000 | – | – | – | 50,000 | ||||||||||||||
Repayments on senior secured | ||||||||||||||||||||
credit facility-term B | – | (1,875 | ) | – | – | – | (1,875 | ) | ||||||||||||
Proceeds from Venetian Macau senior | ||||||||||||||||||||
secured notes-tranche A | – | – | – | 75,000 | – | 75,000 | ||||||||||||||
Proceeds from Venetian Macau senior | ||||||||||||||||||||
secured notes-tranche B | – | – | – | 45,000 | – | 45,000 | ||||||||||||||
Proceeds from Venetian Intermediate credit facility | – | – | – | 15,000 | – | 15,000 | ||||||||||||||
Repayments on bank credit facility-revolver | – | (470 | ) | – | – | – | (470 | ) | ||||||||||||
Proceeds from bank credit facility-revolver | – | 470 | – | – | – | 470 | ||||||||||||||
Proceeds from FF&E credit facility | – | 15,000 | – | – | – | 15,000 | ||||||||||||||
Payments of deferred offering costs | – | (344 | ) | – | (2,487 | ) | – | (2,831 | ) | |||||||||||
Net change in intercompany accounts | (769 | ) | (17,541 | ) | – | 18,310 | – | – | ||||||||||||
Net cash provided by (used in) financing activities | (769 | ) | 45,240 | – | 150,823 | – | 195,294 | |||||||||||||
Increase (decrease) in cash and cash equivalents | 44,772 | 15,336 | – | (7,854 | ) | – | 52,254 | |||||||||||||
Cash and cash equivalents at beginning of period | 46,746 | 9,973 | 6 | 37,017 | – | 93,742 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 91,518 | $ | 25,309 | $ | 6 | $ | 29,163 | $ | – | $ | 145,996 | ||||||||
Venetian | Other | Other Non- | Consolidating/ | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Las Vegas | Casino | Guarantor | Guarantor | Eliminating | ||||||||||||||||
Sands, Inc. | Resort LLC | Subsidiaries | Subsidiaries | Entries | Total | |||||||||||||||
Net cash provided by (used in) | ||||||||||||||||||||
operating activities | $ | 23,194 | $ | 36,556 | $ | (2 | ) | $ | 7,824 | $ | – | $ | 67,572 | |||||||
Cash flows from investing activities: | ||||||||||||||||||||
Increase in restricted cash | – | (153,994 | ) | – | (692 | ) | – | (154,686 | ) | |||||||||||
Capital expenditures | – | (67,138 | ) | – | (5,338 | ) | – | (72,476 | ) | |||||||||||
Dividend from Grand Canal Shops II LLC | – | 21,590 | – | – | (21,590 | ) | – | |||||||||||||
Capital contributions to subsidiaries | – | (43,535 | ) | – | – | 43,535 | – | |||||||||||||
Net cash used in investing activities | – | (243,077 | ) | – | (6,030 | ) | 21,945 | (227,162 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Dividend to Venetian Casino Resort LLC | – | – | – | (21,590 | ) | 21,590 | – | |||||||||||||
Capital contribution from Venetian | ||||||||||||||||||||
Casino Resort LLC | – | – | – | 43,535 | (43,535 | ) | – | |||||||||||||
Repayments on 12 ¼% mortgage notes | – | (425,000 | ) | – | – | – | (425,000 | ) | ||||||||||||
Proceeds from 11% mortgage notes | – | 850,000 | – | – | – | 850,000 | ||||||||||||||
Repayments on senior subordinated notes | – | (97,500 | ) | – | – | – | (97,500 | ) | ||||||||||||
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 | ) | – | – | – | (31,124 | ) | ||||||||||||
Repayments on senior secured | ||||||||||||||||||||
credit facility-term B | – | (625 | ) | – | – | – | (625 | ) | ||||||||||||
Proceeds from senior secured | ||||||||||||||||||||
credit facility-term B | – | 250,000 | – | – | – | 250,000 | ||||||||||||||
Repayments on bank credit facility-term | – | (151,986 | ) | – | – | – | (151,986 | ) | ||||||||||||
Repayments on bank credit facility-revolver | – | (61,000 | ) | – | – | – | (61,000 | ) | ||||||||||||
Proceeds from bank credit facility-revolver | – | 21,000 | – | – | – | 21,000 | ||||||||||||||
Repayments on FF&E credit facility | – | (53,735 | ) | – | – | – | (53,735 | ) | ||||||||||||
Repayments on Phase II Subidiary credit facility | – | – | – | (3,933 | ) | – | (3,933 | ) | ||||||||||||
Repayments on Phase II | ||||||||||||||||||||
Subidiary unsecured bank loan | – | – | – | (1,092 | ) | – | (1,092 | ) | ||||||||||||
Repurchase premiums incurred in connection | ||||||||||||||||||||
with refinancing transctions | – | (33,478 | ) | – | – | – | (33,478 | ) | ||||||||||||
Payments of deferred offering costs | – | (38,004 | ) | – | (3,227 | ) | – | (41,231 | ) | |||||||||||
Net change in intercompany accounts | 16,258 | (18,424 | ) | – | 2,166 | – | – | |||||||||||||
Net cash provided by (used in) | ||||||||||||||||||||
financing activities | 16,258 | 210,124 | – | (4,141 | ) | (21,945 | ) | 200,296 | ||||||||||||
Increase (decrease) in cash and cash equivalents | 39,452 | 3,603 | (2 | ) | (2,347 | ) | – | 40,706 | ||||||||||||
Cash and cash equivalents at beginning of period | 37,367 | 7,806 | 8 | 9,755 | – | 54,936 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 76,819 | $ | 11,409 | $ | 6 | $ | 7,408 | $ | – | $ | 95,642 | ||||||||
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, 2002.2003. 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.”
The Company owns and operates the Venetian Casino Resort, (the "Casino Resort"), a large-scale Renaissance Venice-themed hotel, casino, retail, meeting, and entertainment complex in Las Vegas, Nevada.Nevada, a major expansion of which was completed and opened for business during the second quarter of 2003. Approximately 76.8% of the Company’s gross revenues in the first quarter of 2004 were derived from gaming and hotel rooms at the Casino Resort of which approximately 40.4% is derived from gaming and 36.4% is derived from hotel rooms. Las Vegas has continued to experience an upward trend in visitation, convention, and trade show attendees, and gaming win, hotel occupancy and hotel average daily room rates. The Casino Resort has benefited from these trends along with low interest rates during 2003 and the first quarter of 2004.
The Company completed an expansion of the Casino Resort during the second quarter of 2003, which opened for business on June 26, 2003. The expansion included a 1,013-room hotel tower on top of the Casino Resort’s existing parking garage, an approximately 1,000-parking space expansion to the existing parking garage and approximately 150,000 square feet of additional meeting and conference space. Following its expansion, the Casino Resort includes the only all-suites hotel on the Las Vegas Strip with 4,049 suites; a gaming facility of approximately 116,000 square feet; an enclosed retail, dining and entertainment complex of approximately 446,000 grossnet leasable square feet; and a meeting and conference facility of approximately 650,000 square feetfeet. The total cost of convention space.
On June 4, 2002, the Company completed a series of refinancing transactions (collectively, the “Refinancing Transactions”) including: (1) the issuance of $850.0 million in aggregate principal amount of 11% mortgage notes due 2010 (the “Mortgage Notes”) in a private placement; (2) entering into a new senior secured credit facility (the “Senior Secured Credit Facility”) with a syndicate of lenders in an aggregate amount of $375.0 million; and (3) entering into a secured mall facility (the “Secured Mall Facility”) in an aggregate amount of $105.0 million, which was subsequently increased to $120.0 million on June 28, 2002, and used the proceeds to repay, redeem or repurchase all of its previously outstanding indebtedness, to finance the construction and development of the extension to the Casino Resort to add a 1,013-room hotel tower on top of the Casino Resort’s existing parking garage, an approximately 1,000-parking space expansion to the existing parking garage and approximately 150,000 square feet of additional meeting and conference space (the “Phase IA Addition”) and to pay all fees and expenses associated with the Refinancing Transactions. The Phase IA Addition construction was completed during the second quarter of 2003 and the new facilities were open for business on June 26, 2003 at a total cost of approximately $275.0$285.0 million, excludingincluding $9.0 million to expand the Casino Resort’s heating, ventilation and air conditioning facility (the “HVAC Plant Expansion”) to accommodate the Phase IA Addition.
On June 26, 2002,April 12, 2004, the Macau government granted a provisional concession to operate casinos in Macau to Venetian Macau and Galaxy, a consortium of Macau and Hong Kong-based investors. During December 2002, Venetian Macau and GalaxyCompany entered into a subconcession agreement. The subconcessionan agreement with Galaxy was recognizedthe Mall Purchaser to sell the Mall and approvedcertain restaurant and other retail assets of the Casino Resort for approximately $766 million and the multi-level retail space of the Phase II Resort for approximately $250.0 million subject to an upward adjustment based on operating income performance. The Mall Sale is subject to customary conditions and is expected to close on May 17, 2004. As of March 31, 2004, the Mall II Subsidiary had total assets of $173.4 million and total liabilities of $130.3 million. In conjunction with the Mall Sale, the Company must pay off the existing $120.0 million Secured Mall Facility. The agreement also provides for the Casino Resort to lease nineteen spaces currently occupied by various tenants to the Macau governmentMall Purchaser for 89 years with annual rent of one dollar per year and allows Venetian Macauthe Mall Purchaser will assume the various leases. In addition the Company will: (i) continue to develop and operate certain casino projects, including the Macau Casino, separately from Galaxy.
Under the subconcession agreement, Venetian Macau isbe obligated to developfulfill certain lease termination and openasset purchase agreements; (ii) lease the Macau Venetian Casino Resort by June 2006C2K Showroom space located within the Mall from the Mall Purchaser for a period of 25 years with fixed minimum rent of $3.3 million per year with cost of living adjustments; (iii) operate the Gondola ride under an operating agreement for a period of 25 years for an annual fee of $3.5 million; and invest, or cause(iv) lease certain office space from the Mall Purchaser for a period of 10 years, subject to be invested, at least 4.4 billion Patacas (approximately $533.8 million at exchange rates in effectextension options for a period of up to 65 years, with annual rent of $860,350. The lease payments under clauses (ii) through (iv) above are subject to automatic increases beginning on September 30, 2003) in various development projects in Macau by June 2009.the sixth lease year.
The constructionCompany has begun extensive design and development costsplanning work, and has commenced design, demolition and work on the site of, the Macau Casino will be applied toPhase II Resort. During the fulfillmentfirst quarter of this total investment obligation to2004, the Macau government. It is expected thatCompany invested $13.5 million toward the construction and development costs of the Macau Venetian Casino Resort will satisfy the remainder of this obligation. Assuming that all of the current estimated construction and development costs of the Macau Casino are applied towards fulfilling the investment obligations under the subconcession agreement, remaining investment obligations under the subconcession agreement will be approximately $293.8 million. To support this obligation, a Macau bank and a subsidiary of the Company, Lido Casino Resort Holding Company, LLC, have guaranteed 500 million Patacas (approximately $60.7 million at exchange rates in effect on September 30, 2003) of Venetian Macau’s legal and contractual liabilities to the Macau government until March 31, 2007. These development and investment obligations may be satisfied by Venetian Macau and/or its affiliates, including the Company.Phase II Resort.
During 2003, Venetian Macau, a subsidiary of the Company, commenced construction of the Macau Casino, a Las Vegas style casino on an approximately six-acre, waterfront parcel near the Macau-Hong Kong Ferry Terminal in the Macau Special Administrative Region of the People’s Republic of China under a subconcession agreement.
Venetian Macau began construction of the Macau Casino in December 2002 and expects to open the main casino portion of the Macau Casino during Aprilon May 18, 2004 and the remainder of the Macau Casino by June 2004. The Company currently estimates that the total cost of constructing, developing, and operating the Macau Casino, including design costs, construction costs, equipment costs, working capital and pre-opening expenses, will be approximately $240.0$257.9 million.
Through September 30, 2003,March 31, 2004, the Company has expended pre-opening and developmental expenses and capital expenditures of $40.0$141.8 million, in connection with the Macau Casino project. In addition, under the subconcession agreement, Venetian Macau is obligated to develop and open the Macau Venetian Casino Resort by June 2006 and invest, or cause to be invested, at least 4.4 billion patacas (approximately $566.5 million at exchange rates in effect on March 31, 2004) in various development projects in Macau by June 2009. The cost of the Macau Casino and the Macau Venetian Casino Resort will be included towards the satisfaction of these investment obligations.See “–Liquidity and Capital Resources – Macau Casino Projects”.
The Company is assessing the feasibility of, and developing, an Internet gaming site and continues to pursuesite. Through March 31, 2004, the feasibilityCompany had invested $1.3 million in development costs of an Internet gaming site. The Company received an interactive gaming license and an electronic betting center license from the Alderney Gambling Control Commission during March 2003, but has not yet established any operations. Through September 30, 2003,
The Company has entered into agreements in principle subject to the Company had invested $1.3 millionsuccessful negotiation of final documentation, with two prominent football clubs in development costs of an Internetthe United Kingdom to build entertainment and gaming site.facilities.
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.
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 currently offers hotel, gaming, dining, entertainment, retail and spa amenities at one location in the Casino Resort in Las Vegas and under one operating segment. Approximately 40.4% of the Company’s gross revenues are derived from gaming, while 36.4% are derived from hotel rooms during the first quarter of 2004. The percentage of gaming revenue is one of the lowest on the Las Vegas Strip because of the Company’s emphasis on the group convention and trade show business and the resulting higher occupancy and room rates during mid-week periods.
The following table summarizes the Company’s results of operations:
Three Months Ended March 31, (dollars in thousands) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | Percent Change | 2003 | |||||||||||||||
Net revenues | $ | 220,801 | 39 | .2% | $ | 158,665 | |||||||||||
Operating income | 75,651 | 64 | .8% | 45,913 | |||||||||||||
General and administrative expenses | 31,962 | 20 | .1% | 26,612 | |||||||||||||
Net income (loss) | 37,804 | 190 | .4% | 13,020 |
Percent of Net Revenues | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
Operating income | 34 | .3% | 28 | .9% | |||||||
General and administrative expenses | 14 | .5% | 16 | .8% | |||||||
Net income (loss) | 17 | .1% | 8 | .2% |
Three Months Ended September 30, 2003March 31, 2004 compared to the Three Months Ended September 30, 2002March 31, 2003
Operating Revenues
Operating RevenuesKey operating revenue measurements:
The Casino Resort’s operating revenue is dependent upon the volume of customers that stay at the hotel, which affects the price that can be charged for hotel rooms and the volume of table games and slot machine play. Following are the key measurements the Company uses to evaluate operating revenue.
Hotel revenue measurements: hotel occupancy is the average percentage of available hotel rooms occupied during a period. Average daily room rate (“ADR”) is the average price of occupied rooms per day. Revenue per available room (“Rev Par”) represents a summary of hotel average daily room rates and occupancy.
Casino revenue measurements: table games drop and slot handle are volume measurements. Win or hold percentage represents the percentage of drop or handle that is won by the casino. Normal table games win percentage is 19% to 21% of table games drop and normal slot machine win percentage is 6% to 7% of slot handle. Generally, slot machine play is conducted on a cash basis, while the Casino Resort’s table games revenue is from higher wagering guests, generally on a credit basis.
The Company’s net revenues consisted of the following:
Three Months Ended March 31, (dollars in thousands) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | Percent Change | |||||||||||||||
Net Revenues | |||||||||||||||||
Casino | $ | 94,708 | 73,313 | 29.2 | % | ||||||||||||
Rooms | 85,367 | 57,491 | 48.5 | % | |||||||||||||
Food and beverage | 33,455 | 20,068 | 66.7 | % | |||||||||||||
Grand Canal Shops | 10,621 | 9,528 | 11.5 | % | |||||||||||||
Retail | 2,208 | 1,887 | 17.0 | % | |||||||||||||
Other | 8,202 | 6,382 | 28.5 | % | |||||||||||||
234,561 | 168,669 | 39.1 | % | ||||||||||||||
Less - Promotional Allowances | (13,760 | ) | (10,004 | ) | (37.5 | )% | |||||||||||
Total net revenues | $ | 220,801 | $ | 158,665 | 39.2 | % | |||||||||||
Consolidated net revenues forwere $220.8 million during the thirdfirst quarter of 2003 were $168.3 million,2004 representing an increase of $15.5$62.1 million whenor 39.2% compared with $152.8to $158.7 million of consolidated net revenues duringfor the thirdfirst quarter of 2002.2003. The increase in net revenues was due primarily toto: (1) an increase of casino revenue of $21.4 million, primarily as a result of increased table games and slot machine volumes and win percentages; (2) an increase in room revenue of $27.9 million as a result of (a) adding an additional 1,013 new hotel rooms during June 2003 as part of the Phase IA Addition project (b) an increase in average daily hotel room rates and (c) a slight increase in hotel room occupancy; (3) an increase in food and beverage revenue of $13.4 million which resulted from the additional rooms and the associated increased banquet revenues; and (4) an increase in Grand Canal Shops, retail and other revenues offset by a decline in casinoto $21.0 million during the first quarter of 2004 as compared to $17.8 million during the first quarter of 2003.
Casino revenues atwere $94.7 million during the Casino Resort. This favorable comparisonfirst quarter of net revenues2004, an increase of $21.4 million or 29.2% compared to $73.3 million for the thirdfirst quarter of 2003. The increase was attributable to several factors, including slot handle (volume) in the three months ended March 31, 2004 increase to $482.9 billion from $449.4 billion during the same period of 2003, with net revenues for the 2002 third quarter is theprimarily as a result of an improved hotel average daily room rate, and the addition ofadding 1,013 new hotel rooms offset by a decline in table games revenue. The Casino Resort completed its Phase IA Addition of 1,013 hotel rooms and 150,000 square feet of additional meeting space on June 26, 2003.
The Casino Resort’s casino revenues were $69.2 million in the third quarter of 2003, a decrease of $10.9 million when compared to $80.1 million of casino revenues during the third quarter of 2002. The decrease was attributable to a decrease in table games(slot machine win percentage during the third quarteras a percentage of 2003 as compared to the table games win percentage in the third quarter of 2002, and a decrease in table games drop (volume) to $196.9 million in the third quarter of 2003 from $243.3 million during the third quarter of 2002. Table games win percentageslot handle was within a normal range during the thirdfirst quarter of 2003, but was significantly higherboth 2004 and 2003). Table games drop (volume) increased to $259.5 million in the thirdfirst quarter of 2002. Casino2004 from $220.8 million during the first quarter of 2003. Table game win as a percentage of table games drop was higher than normal during both the first quarter of 2004 and 2003 (casino win percentage is relatively predicablereasonably predictable over long periods of time, but can fluctuate significantly overmay vary considerably during shorter periods, such as between fiscal quarters.periods).
The Casino Resort achieved hotelmaintained an average daily room rate of $235 for the first quarter of 2004 as compared to $217 in the first quarter of 2003. The Casino Resort generated revenue per available room of $233 during the first quarter of 2004 as compared to $211 during the first quarter of 2003. Room revenues during the first quarter of $67.82004 were $85.4 million, representing an increase of $27.9 million or 48.5% when compared to $57.5 million during the thirdfirst quarter of 2003, as compared to $47.6 million during the third quarter of 2002.2003. The increase in hotelroom revenues was the result of an increase in the number of available hotel rooms, andafter the opening of the Phase IA Addition on June 27, 2003, an increase in average daily room rates. The Casino Resort’sthe average daily room rate was $191and a slight increase in the third quarter of 2003, as compared to $178 during the third quarter of 2002. The occupancy of available guestrooms was 96.6% during the third quarter of 2003, as compared to 96.6% during the third quarter of 2002. Revenue per available room (REVPAR) was $185 in the third quarter of 2003, as compared to $172 during the third quarter of 2002.occupancy.
Food and beverage revenues were $33.5 million during the first quarter of 2004, representing an increase of $13.4 million or 66.7% compared to $20.1 million for the first quarter of 2003. The increase was attributable to the additional hotel rooms and higher room occupancy.
Grand Canal Shops revenues, which are included in retail and other revenues, were $43.3$10.6 million during the thirdfirst quarter of 2003, as2004, representing an increase of $1.1 million or 11.6% compared to $33.4$9.5 million during the thirdfirst quarter of 2002.2003. The increase was attributable to higher foot traffic, additional tenants, and increased proceeds from rents calculated on tenant gross revenues. The Company expects to consummate the Mall Sale on May 17, 2004.
Retail and other revenues (excluding the Grand Canal Shops) were $10.4 million in the first quarter of 2004, representing an increase of $2.1 million or 25.3% compared to $8.3 million in the first quarter of 2003. The increase was primarily attributable to an increase in food, beverage, retail and other revenue associated with the additional 1,013 new hotel rooms and 150,000 square feet of additional meeting space.associated increase in visitor volumes to the Casino Resort.
Operating Expenses
ConsolidatedVariations in the Company’s operating expenses were $118.6 millionare generally based upon volume of guests staying in the third quarterhotel and utilizing the Casino Resort’s amenities, including the casino, food and beverage, spa and retail outlets. Operating expenses not related to the operations of 2003,the Casino Resort such as, compared with $109.6corporate, pre-opening and developmental expenses are not based upon guests of the Casino Resort but on strategic decisions as to new opportunities for the Company such as in Macau and Internet gaming.
The breakdown of operating expenses is as follows:
Three Months Ended March 31, (dollars in thousands) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | Percent Change | |||||||||||||||
Operating Expenses | |||||||||||||||||
Casino | $ | 36,628 | $ | 32,918 | 11.3 | % | |||||||||||
Rooms | 20,041 | 14,527 | 38.0 | % | |||||||||||||
Food and beverage | 15,498 | 9,442 | 64.1 | % | |||||||||||||
Grand Canal Shops | 6,856 | 6,022 | 13.8 | % | |||||||||||||
Retail and other | 2,650 | 1,802 | 47.1 | % | |||||||||||||
Provision for doubtful accounts | 3,244 | 3,721 | (12.8 | )% | |||||||||||||
General and administrative | 31,962 | 26,612 | 20.1 | % | |||||||||||||
Corporate | 2,660 | 2,601 | 2.3 | % | |||||||||||||
Rental expense | 2,451 | 2,543 | (3.6 | )% | |||||||||||||
Pre-opening and developmental expense | 8,379 | 1,827 | 358.6 | % | |||||||||||||
Depreciation and amortization | 14,781 | 10,737 | 37.7 | % | |||||||||||||
Total operating expenses | $ | 145,150 | $ | 112,752 | 28.7 | % | |||||||||||
Operating expenses (including pre-opening, developmental, and corporate expenses) were $145.2 million during the thirdfirst quarter of 2002.2004, representing an increase of $32.4 million or 28.7% compared to $112.8 million during the first quarter of 2003. The increase in operating expenses was primarily attributable to an increasehigher operating revenues and business volumes in hotelall departments of the Casino Resort due to the completion of the Phase IA Addition, increased pre-opening and food and beverage operating costs and additional depreciationdevelopment expense associated with the additionconstruction of 1,013 new hotel roomsthe Macau Casino, increased general and administrative costs, partially offset by a declinedecrease in the provision for bad debt during the third quarterdoubtful accounts. Casino department expenses increased $3.7 million or 11.3% as a result of 2003 as compared to the third quarter of 2002.
Casino expenses were $32.3 million in the third quarter of 2003, as compared to $31.9 million during the third quarter of 2002. The increase was primarily attributable to an increase in operating expenses due to increased slot handlemachine volume and revenue duringincreased table games marketing cost. Room’s department expense increased $5.5 million or 38.0% as a result of the third quarteraddition of 20031,013 hotel rooms and slightly higher room occupancy. Food and beverage expense increased $6.1 million or 64.1% as compared to the third quartera result of 2002.
increased food and beverage sales. General and administrative expenses were $26.2cost increased $5.4 million in the third quarter of 2003,primarily as compared to $25.3 million in the third quarter of 2002.
Food and beverage, retail and other expenses during the third quarter of 2003 were $20.2 million as compared to $16.9 million during the third quarter of 2002. The increase was primarily the result of increased operatingutility cost, associated with increased foodlegal expense, management bonus program, and beverage revenues.property taxes.
RentalMall operating expenses primarily related towere $6.9 million during the Casino Resort’s heating, ventilation and air conditioning plant, rental of gaming devices and employee parking, were $2.5 million for the thirdfirst quarter of 2003, as2004, representing an increase of $0.9 million or 15.0% compared to $2.0$6.0 million induring the thirdfirst quarter of 2002.2003. The increase was primarily attributableCompany expects to increased cost associated withconsummate the expanded HVAC Plant and the rental of additional parking spaces for employees of the Casino Resort.Mall Sale on May 17, 2004.
The provision for doubtful accounts were $0.8was $3.2 million in the thirdfirst quarter of 2003 as2004, representing a decrease of $.5 million or 13.5% compared to $5.3$3.7 million during the thirdfirst quarter of 2002.2003. The decrease was primarily the result of improved collections and increased cash play inof table games receivables during the casino, a decline infirst quarter of 2004. Net casino receivables and an increase in hotel and convention receivables which have a more favorable collection historywere $32.8 million as of March 31, 2004 as compared to casino receivables.
Interest Expense
Interest expense was $30.4$36.3 million inas of March 31, 2003. Net hotel receivables were $28.5 million the thirdfirst quarter of 2003, as compared to $29.5 million in the third quarter of 2002. Of the $30.4 million incurred during the third quarter of 2003, $28.3 million was related to the Casino Resort (excluding the Mall), $1.4 million was related to the Mall and $0.7 million was related to the Macau Casino. The increase in interest expense was attributable to additional borrowings to finance construction and development of the Phase IA Addition and the Macau Casino offset by the capitalization of $0.4 million in interest expense.
Nine Months Ended September 30, 2003 compared to Nine Months Ended September 30, 2002
Consolidated net revenues for the nine months ended September 30, 2003 were $477.4 million,2004 representing an increase of $60.0$17.1 million whenor 150.0% compared with $417.4to $11.4 million the first quarter of consolidated net revenues during the nine months ended September 30, 2002.2003. The increase in net revenueshotel receivables was primarily due to anthe result of the increase in the number of hotel rooms and group convention and banquet business. Hotel receivables are generally secured by credit cards or cash deposits, and therefore rarely have significant allowances associated with outstanding balances.
Pre-opening and developmental expense was $8.4 million during the resultingfirst quarter of 2004, representing an increase of casino, hotel, food and beverage retail$6.6 million or 366.7% compared to $1.8 million during the first quarter of 2003. The increase was primarily a result of the Company’s development of the Macau Casino and other revenueprojects at the Casino Resort associated with the new rooms.Resort.
Interest Income (Expense)
The following table summarizes information related to interest expense on long-term debt, excluding Redeemable Preferred Interest:
Three Months Ended March 31, (in thousands, except percentages) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
Interest cost | $ | 32,256 | $ | 29,487 | |||||||
Less: Capitalized interest | 1,210 | 1,951 | |||||||||
Interest expense, net | $ | 31,046 | $ | 27,536 | |||||||
Cash paid for interest, net of amounts capitalized | $ | 6,266 | $ | 3,914 | |||||||
Average total debt balance | $ | 1,448,219 | $ | 1,218,750 | |||||||
Weighted average interest rate | 8.1% | 9.0% |
The Casino Resort’s casino revenues were $205.9Interest expense net of amounts capitalized was $31.0 million for the nine months ended September 30, 2003;first quarter of 2004, representing an increase of $28.5$3.5 million whenor 12.7% compared to $177.4$27.5 million in the first quarter of 2003. Of the net interest expense incurred during the nine months ended September 30, 2002. The increasefirst quarter of 2004, $28.0 million was attributable to an improved table games win percentage offset by decreased table games drop (volume) to $616.2 million for the nine months ended September 30, 2003 from $642.1 million during the nine months ended September 30, 2002. Casino win percentage is relatively predictable over long periods of time, but can fluctuate significantly over shorter periods, such as between fiscal quarters.
The Casino Resort’s hotel occupancy percentages were 97.3% during the nine months ended September 30, 2003, as compared to 97.4% during the nine months ended September 30, 2002. The Casino Resort achieved room revenues during the nine months ended September 30, 2003 of $181.7 million, compared to $156.6 million during the nine months ended September 30, 2002. The increase was attributable to an increase in the number of hotel rooms and higher average daily room rates at the Casino Resort. The Casino Resort’s average daily room rate was $203 for the nine months ended September 30, 2003, compared to $195 during the nine months ended September 30, 2002. Revenue per available room (REVPAR) was $198 during the nine month ended September 30, 2003, as compared to $190 during the nine months ended September 30, 2002.
Food and beverage, retail and other revenues were $121.2 million during the nine months ended September 30, 2003, compared to $108.4 million during the nine months ended September 30, 2002. The increase was primarily attributable to an increase in the number of hotel rooms and the resulting increase of food and beverage retail and other revenues associated with the new rooms.
Operating Expenses
Consolidated operating expenses were $339.3 million for the nine months ended September 30, 2003, compared with $309.8 million during the nine months ended September 30, 2002. The increase in operating expenses was primarily attributable to increased operating cost associated with the increase in the number of hotel rooms, and increased casino marketing and incentive costs, and casino payroll costs associated with higher casino revenue.
Casino expenses were $95.8 million for the nine months ended September 30, 2003, compared to $86.7 million during the nine months ended September 30, 2002. The increase was primarily attributable to increased casino marketing and incentive costs as well as increases in payroll costs and gaming taxes due to higher gaming revenues.
Food and beverage, retail and other expenses during the nine months ended September 30, 2003 were $55.9 million, as compared to $50.6 million during the nine months ended September 30, 2002. The increase was the result of an increase in banquet revenue and related operating expense during the nine months ended September 30, 2003, as compared to the nine months ended September 30, 2002.
Rental expenses primarily related to the Casino Resort’s heating, ventilationResort (excluding the Mall), $1.7 million was related to the Mall, and air conditioning plant, rental of gaming devices and employee parking for$1.3 million was related to the nine months ended September 30, 2003 were $7.6 million as compared to $5.5 million for the nine months ended September 30, 2002.Macau Casino. The increase in rental expensesinterest expense was primarily attributable to increased costs,borrowings associated with the expanded HVAC Plantconstruction of the Phase IA Addition and rental of employee parking space.the Macau Casino.
During the three months ended March 31, 2004 and March 31, 2003, $7.2 million and $6.4 million, respectively, were accrued on the Series B preferred interest in Venetian.
Cash Flows – Summary
The provision for doubtful accounts was $5.5 million inCompany’s cash flows consist of the nine months ended September 30, 2003 as compared to $13.5 million during the nine months ended September 30, 2002. The decrease was primarily the result of improved casino collections, increased cash play in the casino and improved hotel related receivable collections.following:
Three Months Ended March 31, (in thousands) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
Net cash provided by operations | $ | 54,672 | $ | 52,616 | |||||||
Investing cash flows: | |||||||||||
Capital expenditures | (91,795 | ) | (87,810 | ) | |||||||
Decrease in restricted cash | 43,836 | 51,870 | |||||||||
Shareholder loans | (8 | ) | – | ||||||||
Net cash used in investing activities | (47,967 | ) | (35,940 | ) | |||||||
Financing cash flows: | |||||||||||
Dividends to shareholders | (5,003 | ) | – | ||||||||
Repayments of long-term debt | (2,292 | ) | (683 | ) | |||||||
Issuance of long-term debt | 10,000 | 58 | |||||||||
Other | (188 | ) | (433 | ) | |||||||
Net cash provided by (used in) financing activities | 2,517 | (1,058 | ) | ||||||||
Net increase in cash and cash equivalents | $ | 9,222 | $ | 15,618 | |||||||
Interest expense was $85.1 million for the nine months ended September 30, 2003, compared to $85.5 million in the nine months ended September 30, 2002. Of the $85.1 million incurred during the nine months ended September 30, 2003, $80.5 million was related toThe Casino Resort’s slot machine and retail hotel rooms business are generally conducted on a cash basis while the Casino Resort (excluding the Mall), $3.9 million was related to the MallResort’s table games, group hotel, and $0.7 million was related to the Macau Subsidiary. The increasebanquet businesses are conducted on a credit basis resulting in interest expense was attributable to the increase interest expense associated with additional borrowings associated with the Company’s Refinancing Transactions, Phase IA Addition construction,operating cash flows being generally affected by changes in operating income and the Macau Casino construction offset by the capitalizationaccounts receivables. As of $5.1 million of interest expense.
During the threeMarch 31, 2004 and nine months ended September 30, 2003 and September 30, 2002, $6.7 million and $19.5 million, and $6.0 million and $17.3 million respectively, were accrued on the Series B preferred interest in Venetian.
During the three and nine months ended September 30,March 31, 2003, the Company incurred $1.9held unrestricted cash and cash equivalents of $151.6 million and $6.7$142.4 million, respectively, of pre-opening and development expenses, primarily related to pre-development expenses for the Macau Casino 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 casino-populated area of Las Vegas Boulevard (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.
Cash Flow and Capital Expenditures
respectively. Net cash provided by operating activities for the nine months ended September 30, 2003first quarter of 2004 was $112.9$54.7 million, as compared to $67.6$52.6 million infor the same periodfirst quarter of 2002.2003. The Company’s operating cash flow in the first nine monthsquarter of 20032004 was positively impacted as compared to the prior year’s nine month periodyear primarily because of the $30.6$29.7 million increase in operating income. The increase in operating income and increaseswas primarily the result of an increase of $22.4 million in accounts payable and accrued liabilities.the Casino Resort’s room division operating profit during the first quarter of 2004 as compared to the first quarter of 2003. Net trade receivables were $64.1 million as of March 31, 2004 compared to $52.5 million as of March 31, 2003.
Capital Expenditures
Capital expenditures during the nine months ended September 30, 2003first quarter of 2004 were $221.8$91.8 million, of which $155.7 million was attributable to construction of the Phase IA Addition, $29.4$64.3 million was attributable to the Macau Casino project and $4.9 million was attributable to Phase II Resort planning, with the balance having been incurred for maintenance type capital expenditures at the Casino Resort. DuringThe Company expects capital expenditures (excluding the thirdPhase II Resort) in 2004 to total approximately $240.0 million, including Macau Casino construction costs of approximately $190.0 million, and approximately $50.0 million for operating capital expenditures at the Casino Resort. The Phase II Resort design, planning, and other development costs during the first quarter of 2003,2004 were $13.5 million. The Company has proceeded with Phase II design, demolition, and site work during the Company entered into a new $15.0 million FF&E Facilitysecond quarter of 2004 and plans to fund certain furniture fixture and equipment purchases and HVAC costs associated withcontinue development work on the Phase IA Addition. Substantial completionII Resort during 2004. The Company is pursuing and evaluating alternatives to finance the development and construction of the Phase 1A Addition occurredII Resort. The construction and development of the Phase II Resort will require significant additional debt and/or equity financing and there can be no assurance that such funds will be available or that such funds will be on June 26, 2003.terms that will be favorable to the Company. The Company currently estimates the cost to develop and construct the Phase II Resort to be approximately $1.5 billion, excluding the cost of the land, capitalized interest, and pre-opening expenses.
The Company also held restricted cash balances of $78.7 million as of March 31, 2004. Of this amount, $74.7 million was held in restricted accounts and invested in cash or permitted investments by a disbursement agent for the holders of the Venetian Macau Senior Secured Notes until required for the Macau Casino project costs under the disbursement terms of the Venetian Macau Senior Secured Notes.
As of September 30, 2003 and December 31, 2002, the Company held unrestricted cash and cash equivalents of $146.0 million and $93.7 million, respectively. The Company also held restricted cash balances of $138.6 million as of September 30, 2003. Of this amount, $121.1 million was held in escrow for the benefit of the holders of the Venetian Macau Notes and invested in cash or permitted investments by an escrow agent for the Venetian Macau Senior Secured Notes until certain terms are met under the escrow agreement governing these funds. Also, $13.5 million of restricted cash was held by the Phase IA disbursement agent to fund final Phase IA Project costs. The remaining restricted cash, $4.0 million was held in various insurance and property tax escrow accounts.
The Company has also committed to enter into a joint venture to develop a new restaurant in the Venezia room tower and invest $6.5 million in the joint venture and tenant allowances. To date $1.2 million has been funded. The remainder will be funded during the fourth quarter of 2003 with available cash provided by operating activities.
Aggregate Indebtedness and Other Fixed PaymentKnown Contractual Obligations
The Company’s total long-term indebtedness and its fixed paymentother known contractual obligations are summarized below for the twelve month periods ended September 30:as of March 31, 2004:
2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long - Term Indebtedness | |||||||||||||||||||||||
Mortgage Notes | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 850,000 | $ | 850,000 | |||||||||
Senior Secured Credit Facility(1) | 10,000 | 13,750 | 18,750 | 76,250 | 178,125 | – | 296,875 | ||||||||||||||||
Secured Mall Facility(2) | – | 120,000 | – | – | – | – | 120,000 | ||||||||||||||||
FF&E Credit Facility(3) | 1,800 | 2,400 | 2,400 | 2,400 | 2,400 | 3,600 | 15,000 | ||||||||||||||||
Venetian Intermediate Credit Facility(4) | – | – | 15,000 | – | – | – | 15,000 | ||||||||||||||||
Venetian Macau Senior Secured Notes(5) | 120,000 | – | – | – | – | – | 120,000 | ||||||||||||||||
Fixed Payment Obligations | |||||||||||||||||||||||
HVAC Provider(6) | 7,657 | 7,657 | 7,657 | 7,657 | 7,657 | 5,743 | 44,028 | ||||||||||||||||
Former Tenants(7) | 6,650 | 4,650 | 650 | 650 | 650 | 10,102 | 23,352 | ||||||||||||||||
Total indebtedness and other fixed | |||||||||||||||||||||||
payment obligations | $ | 146,107 | $ | 148,457 | $ | 44,457 | $ | 86,957 | $ | 188,832 | $ | 869,445 | $ | 1,484,255 | |||||||||
Payments due by Period (dollars in thousands) | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Less than 1 Year | 1-3 Years | 3-5 Years | Thereafter | Total | |||||||||||||||||||||||||
Long - Term Indebtedness | |||||||||||||||||||||||||||||
Mortgage Notes | $ | – | $ | – | $ | – | $ | 850,000 | $ | 850,000 | |||||||||||||||||||
Senior Secured Credit Facility - Term A(1) | 9,167 | 32,500 | 5,000 | – | 46,667 | ||||||||||||||||||||||||
Senior Secured Credit Facility - Term B(1) | 2,500 | 5,000 | 238,125 | – | 245,625 | ||||||||||||||||||||||||
Secured Mall Facility(2) | – | 120,000 | – | – | 120,000 | ||||||||||||||||||||||||
FF&E Credit Facility(3) | 2,400 | 4,800 | 7,200 | – | 14,400 | ||||||||||||||||||||||||
Venetian Macau Senior Secured Notes Tranche A(3) | – | 18,700 | 56,300 | – | 75,000 | ||||||||||||||||||||||||
Venetian Macau Senior Secured Notes Tranche B(3) | – | – | 45,000 | – | 45,000 | ||||||||||||||||||||||||
Venetian Intermediate Credit Facility(4) | – | 50,000 | – | – | 50,000 | ||||||||||||||||||||||||
Redeemable Preferred Interest(5) | – | – | – | 245,477 | 245,477 | ||||||||||||||||||||||||
Other Contractual Obligations | |||||||||||||||||||||||||||||
HVAC Provider fixed payments(6) | 7,657 | 15,314 | 15,314 | 1,914 | 40,199 | ||||||||||||||||||||||||
Former Tenants(7) | 8,650 | 1,300 | 1,300 | 9,514 | 20,764 | ||||||||||||||||||||||||
Macau Casino Land Lease(8) | 5,733 | 8,744 | 323 | 3,072 | 17,872 | ||||||||||||||||||||||||
Macau Casino Operating Leases | 458 | 618 | 328 | – | 1,404 | ||||||||||||||||||||||||
Total | $ | 36,565 | $ | 256,976 | $ | 368,890 | $ | 1,109,977 | $ | 1,772,408 | |||||||||||||||||||
_________________
(1) | The Senior Secured Credit Facility – Term A for draw down and amounts borrowed at March 31, 2004 will mature on June 4, 2007 and is subject to quarterly amortization payments commencing on March 31, 2004. The Senior Secured Credit Facility – Term B |
(2) | The $120.0 million Secured Mall Facility will mature on June 10, 2005 (subject to extension for two terms of one year each), with no amortization. The Company expects to consummate the Mall Sale on May 17, 2004. The Company is obligated to repay the Secured Mall Facility in full on the closing date with the proceeds from the Mall Sale. |
(3) | The $15.0 million FF&E |
(4) | The $50.0 million Venetian Intermediate Credit Facility will mature on March 27, 2006, with no |
(5) | The |
(6) | The Company and the New Mall |
(7) | The Company and the Mall |
(8) | The Macau Subsidiary is party to a long-term land lease of 25 years; the total remaining payment obligation under this arrangement is $17.9 million as of March 31, 2004. |
Under the terms of its existing indebtedness, excluding the Venetian Macau Senior Secured Notes, the Company has debt principal payments due aggregating $11.8million$14.1 million during the next twelve months, representing principal payments on the Senior Secured Credit Facility and the FF&E Credit Facility. Based on current outstanding indebtedness and current interest rates on the Senior Secured Credit Facility, and the Secured Mall Facility, the FF&E Facility, the Venetian Intermediate Credit Facility and the Venetian Macau Senior Secured Notes, the Company has estimated total interest payments during the next twelvethree months (excluding noncash amortization of debt offering costs) of approximately $106.2$105.9 million for indebtedness secured by the Casino Resort, and(including the Venetian Intermediate Credit Facility), approximately $3.8 million for indebtedness secured by the Mall.Mall(See discussion of Mall Sale), and $6.4 million for indebtedness secured by the Macau Casino. In addition, Venetian Macau’sMacau is required to obtain, and is in the process of seeking, an additional $25.0 million of FF&E indebtedness to complete the Macau Casino which would require additional interest expenseexpense. If Venetian Macau is estimatedunable to be $5.8obtain this Financing, LVSI, Venetian or another of their subsidiaries is obligated to either purchase gaming equipment or other assets with a cost of up to $25.0 million during the next twelve months.or enter into lease or other arrangements with Venetian Macau or enter into other transactions with Venetian Macau that will enable it to purchase this gaming equipment or these assets.See “Item 1 – Financial Statements and Supplementary Data – Notes to Financial Statements – Note 64 – Commitments and Contingencies – Macau Casino Projects.Long-Term Debt.”
During 2003, the Company entered into three lease termination and asset purchase agreements with Mall tenants. The first agreement provided for payments by the Company to a tenant of $800,000 during 2003, with 27 additional annual payments of $400,000. The second agreement provided for an initial deposit of $5.0 million which was paid by the Company during May 2003 and 15 subsequent monthly payments totaling $10.0 million beginning January 2004 plus interest at 6% per annum. The lease termination and asset transfer is expected to be completed at the end of 2003 at which time the subsequent monthly payments will commence. The third agreement and asset purchase agreement provided for an initial payment of $500,000 during 2003 and subsequent quarterly payments of $62,500 for ten years. In each case, the Company has obtained title to leasehold improvements and other fixed assets, which have been recorded at estimated fair market value, which approximated the discounted present value of the Company’s obligation to the former tenants. The Company is negotiating with other potential tenants for the spaces to be vacated under the above-described agreements.
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 $44.0$40.2 million, payable in equal monthly installments during the period of Octoberfrom April 1, 20032004 through July 1, 2009.
Existing DebtOff – Balance Sheet Arrangements
On June 4, 2002, During 1997, the Company issued $850.0 million in aggregate principal amount of Mortgage Notes in a private placement offering and the Mall Subsidiary entered into off-balance sheet arrangements with a heating and air conditioning (“HVAC”) provider (the “HVAC Provider”). Under the Senior Secured Credit Facilityterms of these energy service agreements, HVAC energy and services will be purchased by the Company, the New Mall Subsidiary, its mall tenants and Interface over initial terms expiring in 2009 with an aggregate amountoption to collectively extend the terms of $375.0 million and the Secured Mall Facility in the aggregate amount of $105.0 million (subsequently increased to $120.0 million on June 28, 2002).See “- Item 1 – Notes to Financial Statements — Note 4 – Long-Term Debt – Mortgage Notes” and “-Senior Secured Credit Facility.”their agreements for two consecutive five-year periods. The Company usedhas fixed payments obligations due during the proceedsnext three months of $7.7 million under its energy services agreements with the HVAC Provider. The total remaining payment obligations under these arrangements was $40.2 million as of March 31, 2004, payable in equal monthly installments through July 1, 2009. The Company has the right to terminate the agreement based upon the failure of the Refinancing TransactionsHVAC Provider to repay, redeem or repurchase allprovide HVAC service. The Company has no other off-balance sheet arrangements.
Capital and Liquidity
For the next twelve months, the Company expects to fund Casino Resort operations, capital expenditures, the Macau Casino construction, the Phase II Resort development costs, and debt service requirements from existing cash balances, operating cash flow, borrowings under the Revolving Facility, proceeds from the Mall Sale and borrowings by the Phase II Subsidiary in each case, to the extent permitted under the terms of its outstanding indebtedness,the Company’s indebtedness. In addition, the Company is pursuing and evaluating alternatives to finance the development and construction of the Phase II Resort. The construction and development of the Phase IA AdditionII Resort will require significant additional debt and/or equity financing and, there can be no assurance that such funds will be available or that such funds will be on terms that will be favorable to pay all feesthe Company. As of March 31, 2004, the Company had $151.6 million in cash and expenses associated withcash equivalents (plus $78.7 million in restricted cash for Macau and insurance and tax revenue) and there was $15.0 million available for borrowing under the Refinancing Transactions.See “Item 1 – Financial Statements and Supplementary Data – Notes to Financial Statements – Note 4 – Long-Term Debt.”Revolving Facility.
ForThe Company must use the next twelve months, the Company expects to fund Casino Resort operations, capital expenditures, the Macau Casino construction, other development activities and debt service requirements from:
Asoffer. The Company currently intends to make such an Asset Sale Offer as soon as practicable following the consummation of September 30, 2003, there was $60.0 million available for borrowing under the Revolving Facility.Mall Sale. The availability underCompany is currently seeking an amendment or waiver to its Senior Secured Credit Facility to, among other things permits the Revolving Facility will decrease by an additional $45.0 million as loans are made and letters of credit are issued with respectCompany to use the proceeds from the Mall Sale to repurchase Mortgage Notes tendered pursuant to the $50.0 million Venetian Intermediate Credit Agreement andAssets Sale Offer. Following the consummation of the Asset Sale Offer, the Company will be entitled to use any remaining proceeds from the Mall Sale for general corporate purposes. The Company is currently reviewing its options as to the use of such remaining proceeds, including for the financing of a $10.0 million letterportion of credit is issued to secure the Completion Guaranty.See Note 6 – Commitments and Contigencies.cost of the Phase II Resort.
Debt Instruments
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 Senior Secured Credit Facility include total debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum net worth covenants and maximum capital expenditure limitations. The financial covenants in the Senior Secured Credit Facility involving EBITDA are applied on a rolling four-quarter basis. For purposes of debt compliance, EBITDA is defined as net income plus interest expense, income taxes and depreciation and amortization expenses. The inability of the Company to incur additional indebtedness because it does not meet the financial ratios required to incur additional debt under such debt instruments could restrict the Company’s ability to develop the Phase II Resort, or invest additional funds in its Macau Subsidiaries. As of September 30, 2003,March 31, 2004, the Company was in compliance with all required covenants and ratios under its current debt instruments.See “Item” Item 1 – Financial Statements and Supplementary Data – Notes to Financial Statements – Note 4 – Long-Term Debt.”
On June 26, 2002, the Macau government granted a provisional concession to operate casinos in Macau to the Company’s subsidiary Venetian Macau and to Galaxy, a consortium of Macau and Hong Kong-based investors. During December 2002, Venetian Macau and Galaxy entered into a subconcession agreement. The subconcession agreement with Galaxy was recognized and approved by the Macau government and allows Venetian Macau to develop and operate certain casino projects, including the Macau Casino, separately from Galaxy.
In addition to the Macau Casino, the Company also intends to build in Macau the Macau Venetian Casino Resort, a hotel, casino and convention center complex with a Venetian-style theme similar to the Company’s Las Vegas property.
Under the subconcession agreement, Venetian Macau is obligated to develop and open the Macau Venetian Casino Resort by June 2006 and invest, or cause to be invested, at least 4.4 billion Patacaspatacas (approximately $533.8$566.5 million at exchange rates in effect on September 30, 2003)March 31, 2004) in various development projects in Macau by June 2009. The construction and development costs of the Macau Casino will be applied to the fulfillment of this total investment obligation to the Macau government. It is expected thatThe Company currently estimates the constructiontotal cost of constructing, developing, and development costs ofoperating the Macau Venetian Casino, Resortincluding design costs, construction costs, equipment costs, working capital and pre-opening expenses, will satisfybe approximately $257.9 million, all of which qualifies to meet the remainder of this obligation.investment obligation to the Macau government. Assuming that all of the current estimated construction and development costs of the Macau Casino are applied towards fulfilling the investment obligations under the subconcession agreement, remaining investment obligations under the subconcession agreement will be approximately $293.8$308.6 million. It is expected that the construction and development costs of the Macau Venetian Casino Resort will satisfy the remainder of this obligation. To support this obligation, a Macau bank and a subsidiary of the Company, Lido Casino Resort Holding Company, LLC, have guaranteed 500 million Patacaspatacas (approximately $60.7$64.4 million at exchange rates in effect on September 30, 2003)March 31, 2004) of Venetian Macau’s legal and contractual liabilities to the Macau government until March 31, 2007. TheseVenetian Macau is currently in the process of seeking consents from the holders of the Venetian Macau Senior Secured Notes to permit the creation of a junior lien on Venetian Macau’s rights over the land upon which the Macau Casino is being constructed in Macau to support the guarantee being issued by the Macau bank under the Venetian Macau subconcession. Venetian Macau’s development and investment obligations under its subconcession agreement may be satisfied by Venetian Macau and/or its affiliates, including the Company.
Item 2. Management’s Discussion and Analysis As of Financial Condition and ResultsMarch 31, 2004, approximately $141.8 million of Operations (Continued)
The Company currently estimates the total cost of constructing, developing and operatingcosts relating to the Macau Casino including design costs, construction costs, equipment costs, working capital and pre-opening expenses, will be approximately $240.0 million. As of September 30, 2003, approximately $40.0 million of these costs had been expended. The Company anticipates funding the remaining estimated costs of construction from a combination of the following sources:
• |
— |
— |
in each case, to the extent permitted under the Senior Secured Credit Facility and the Indenture for the Mortgage Notes. |
On August 21, 2003, the gross proceeds from the Notes offering, together with interest on such Notes proceeds, were placed into an escrow account pending the receipt of certain regulatory approvals in Macau, the execution of a final credit agreement for the Proposed Macau Revolver and the satisfaction of certain other conditions. Upon the satisfaction of these conditions, the net proceeds from the Notes offering will be released to Venetian Macau to fund the remaining costs of construction and development of the Macau Casino. The escrow had an initial term of 60 days with two additional 30-day extension options, The Company has exercised one extension options. If the escrow conditions are not satisfied by December 19, 2003 the Notes will be redeemed at 100% of their principal amount plus unpaid interest. Accordingly, the Notes have been presented as a current liability of the Company as of September 30, 2003. Venetian Macau is currently in the process of negotiating a FF&E commitment with a FF&E Lender.
The Company expects the funds provided by these sources to be sufficient to construct, develop, and operate the Macau Casino, assuming there are no significant delay costs or construction cost overruns. If Venetian Macau incurs significant cost overruns, it may need to arrange for additional financing to pay for these costs. If it requires additional financing, the Company or its affiliates may incur additional bank borrowings or debt or equity financing. However, no assurance can be given that such funds will be available or that such funds will be on terms that will be favorable to the Company. In addition, the construction and development of the Macau Venetian Casino Resort will require significant additional debt and/or equity financing.
Venetian Macau, Venetian Intermediate 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.
Phase II Resort
The Company has begun extensive design and site work on the Phase II Resort and has incurred demolition and clearing costs on the site of the Phase II Resort. During the first quarter of 2004, the Company invested $13.5 million toward the development of the Phase II Resort. The Company currently estimates the cost to develop and construct the Phase II Resort to be approximately $1.5 billion, excluding the cost of the land, capitalized interest, and pre-opening expenses. The Company has not yet set a date to begin construction or financing of the planned second phase of the Casino Resort (the “PhasePhase II Resort”) to be owned by Lido Casino Resort, LLC (the “Phase II Subsidiary”).Resort. If the Company determines to construct the Phase II Resort, it will be required to raise substantial debt and/or equity financings. Currently,The Company is currently exploring financing alternatives for the CompanyPhase II Resort and has no commitments to fund the hard construction costs of the Phase II Resort. In addition, the development of the Phase II Resort may also require obtaining additional regulatory approvals. The Company’s debt instruments limit its ability to guarantee or otherwise become liable for any indebtedness of the Phase II Subsidiary. These debt instruments also restrict the Company’s and its subsidiaries’ ability to sell or otherwise dispose of the capital stock of the Phase II Subsidiary, including a sale to the Principal Stockholder or to any of his affiliates. In addition, the Indenture allows the Company to make investments of up to $20.0 million for the development of the Phase II Resort and to incur up to $20.0 million of additional debt to fund such investment. For the nine months ended September 30, 2003, the Company has expended $5.4 million on the Phase II development. Until further design and pre-development work is completed, a more specific development plan and budget cannot be established. The Phase II Subsidiary is an unrestricted subsidiary that is not subject to the terms of the Indenture or the Senior Secured Credit Facility and is not a guarantor under the Mortgage Notes or the Senior Secured Credit Facility.
Litigation Contingencies and Available Resources
The Company is a party to certain litigation matters and claims related to the construction of the Casino Resort.Resort and is subject to a $42.0 million net judgment awarded to the Construction Manager, pending the outcome of remaining arbitration and various appeals. If the Company is required to pay any of the Construction Manager’s judgment or 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 Insurance Policy; (ii) the Construction Manager, Bovis and P&O pursuant to the Construction Management Contract, the Bovis Guarantee and the P&O Guaranty, respectively; (iii)(ii) 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)(iii) borrowings under the Revolving Facility; (vi)(iv) additional debt or equity financings; and (vii)(v) operating cash flow.
The Company is not able to determine with any reasonable certaintyBased on the value of such claims or the probability of success on such claims at this time. Accordingly, no accrual for a liability has been reflectedrecent judgment in the accompanying financial statements forState Court Action and the remaining open items in the Arbitration Proceedings, the Company estimates that its range of loss in this matter other thanis from none (or a gain if all remaining matters are determined in the Company’s favor and considering the existing accrual of approximately $7.2 million which the Company had previously accrued in 1999 for unpaid construction costs) to approximately $28.0 million if the Company were to lose all remaining arbitration matters and related pending actions and appeals that counsel has advised are possible of loss, and which are not already included in the State Court Action. Such range of loss is before attorney costs and interest, which have not yet been paid pending outcomeconsidered by the State Court and the total amounts of which cannot currently be quantified. While the litigation.
Ifrange of loss is possibly as high as $70.0 million, (the original verdict of $42.0 million plus the Companyabove referenced arbitration matters) plus attorney’s fees and interest, the Insurance Policy is requiredavailable to pay certain significant Contested Construction Costs, or ifprovide coverage of amounts, together with any other in excess of $45.0 million. At this time, no amount within the Companyrange of loss can be reasonably determined as an estimated loss. It is unable to meet its debt service requirements,possible that the CompanyArbitration Proceedings will seek, if necessary andbe concluded (or interim decisions be rendered) in the near future, at which time an estimate of loss could be determined. Such loss could be material to the extent permitted under the Indenture and the terms of the 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 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.
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 objectives of SFAS 143 are to establish accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 is effective for fiscal years beginning after June 15, 2002.
In 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.
The adoptions of SFAS 143 and SFAS 146 did not have a material impact on its financial condition,Company’s results of operations or cash flows.in the period that the estimate is recorded.
In November 2002, the FinancialRecent Accounting Standards Board issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies (for guarantees issued after January 1, 2003) that a guarantor is required to recognize at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing the guarantee. At September 30, 2003, the Company does not have any guarantees outside of its consolidated group and accordingly does not expect the adoption of FIN 45 to have a material impact on its financial condition, results of operations or cash flows.
In December 2002 the Financial Accounting Standards Board issued Statement No. 148 (“SFAS 148”) “Accounting for Stock-Based Compensation.” The provisions of SFAS 148 became effective December 15, 2002. The Company has adopted the disclosure requirements of SFAS 148.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” This interpretation addresses the requirements for business enterprises to consolidate related entities in which they are determined to be the primary economic beneficiary as a result of their variable economic interests. The interpretation is intended to provide guidance in judging multiple economic interest in an entity and in determining the primary beneficiary. The interpretation outlines disclosure requirements for variable interest entities in existence prior to January 31, 2003, and outlines consolidation requirements for variable interest entities created after January 31, 2003. The Company has reviewed its major relationships and its overall economic interests with other companies consisting of related parties, companies in which it has an equity position and other suppliers to determine the extent of its variable economic interest in these parties. The adoption of FIN 46 will not have a material impact on the Company’s financial position, results of operations or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)Pronouncements
In May 2003, the Financial Accounting Standards Board issued Statement No. 150 (“SFAS 150”) “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The Company is considered a non-public entity, as defined by SFAS 150 because its equity securities are not listed on a public exchange.150. Accordingly, for the Company, the provisions of SFAS 150 will becomebecame effective during the quarter ending March 31, 2004. UponAs a result of the adoption of SFAS 150, the Company anticipates that the Series B Preferred Interest in Venetian willis no longer be presented in the “Mezzanine”as “member’s interest” but rather will behas been reclassified as a liability of the Company.and dividends have been classified as interest expenses.
Certain statements in this section, and elsewhere in this Quarterly Report on Form 10-Q (as well as information included in oral statements or other written statements made or to be made by the Company) constitute “forward-looking statements.” Such forward-looking statements include the discussions of the business strategies of the Company and expectations concerning future operations, margins, profitability, liquidity, and capital resources. In addition, in certain portions of this Form 10-Q, the words: “anticipates”, “believes”, “estimates”, “seeks”, “expects”, “plans”, “intends” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Although the Company believes that such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risks associated with entering into new construction and new ventures, including the Phase II Resort and the Macau Casino,project, 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 due to the September 11th attacks, the war with Iraq and any future terrorist incidents, outbreaks of SARS illness in the Company’s market areas, new taxes or changes to existing tax rates, 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 has not obtained sufficient coverage against acts of terrorism or will only be able to obtain additional 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.
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 deliverablederivative 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 qualify for hedge accounting. Interest differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expense.
To manage exposure to counterparty credit risk in interest rate cap and floor agreements, the Company enters into agreements with highly-ratedhighly 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 twelvethree month periods ended September 30:March 31:
FAIR | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2004 | 2005 | 2006 | 2007 | 2008 | THEREAFTER | TOTAL | VALUE(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair | (dollars in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Total | Value(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate | $131.8 | – | – | – | – | – | $ | 131 | .8 | $ | 131 | .8 | $ | 14 | .1 | – | – | – | – | – | $ | 14 | .1 | $ | 14 | .1 | |||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate(2) | 4.3 | % | – | – | – | – | – | 4 | .3% | 4 | .3% | 3 | .8% | – | – | – | – | – | 3 | .8% | 3 | .8% | |||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate | – | – | – | – | – | $ | 850 | .0 | $ | 850 | .0 | $ | 960 | .5 | – | – | – | – | – | $ | 1,095 | .5 | $ | 1,095 | .5 | $ | 1,206 | .0 | |||||||||||||||||||||||||||||||||||||||||||||
Average interest rate(2) | – | – | – | – | – | 11 | .0% | 11 | .0% | 11 | .0% | – | – | – | – | – | 11 | .0% | 11 | .0% | 11 | .0% | |||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate | – | $136.2 | $36.2 | $78.6 | $180.5 | $3 | .6 | $ | 435 | .1 | $ | 435 | .1 | – | $ | 196 | .1 | $ | 34 | .9 | $ | 205 | .0 | $ | 146 | .6 | – | $ | 582 | .6 | $ | 582 | .6 | ||||||||||||||||||||||||||||||||||||||||
Average interest rate(2) | – | 3.9 | % | 4.1 | % | 4.1 | % | 4.1 | % | 4 | .1% | 4 | .1% | 4 | .1% | – | 3 | .8% | 4 | .3% | 4 | .3% | 4 | .3% | – | 4 | .2% | 4 | .2% |
_________________
(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. |
Foreign currency translation gains and losses were not material to the Company’s results of operations for the quarter ended September 30, 2003,March 31, 2004, but may be in future periods in relation to activity associated with the Macau venture.subsidiaries.
a) | Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits, is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s Chief Executive Officer and its Vice President-Finance (its principal financial officer) have evaluated the disclosure controls and procedures of the Company as of |
b) | Changes in Internal |
It should be noted that any system of controls however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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 onForm 10-K for the year ended DecemberMarch 31, 20022003 and“Part I — Item 1 – Financial Statements – Notes to Financial Statements Note 65 – Commitments and Contingencies” of this Quarterly Report on Form 10-Q.
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.
(a) | List of Exhibits |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1) |
31.2 | Certification of the Vice President-Finance (the principal financial officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1) |
(1) | Filed herewith. |
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(b) | Reports on Form 8-K |
Current report on Form 8-K furnished to the Securities and Exchange Commission on |
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. | ||
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By: | /s/ Sheldon G. Adelson | |
Sheldon G. Adelson | ||
Chairman of the Board | ||
Chief Executive Officer and Director |
By: | /s/ Harry D. Miltenberger | |
Harry D. Miltenberger | ||
Vice President-Finance | ||
(principal financial and accounting officer) |