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LAS VEGAS SANDS, INC.
UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _______ to ______
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Commission File Number 333-42147
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LAS VEGAS SANDS, INC.
(Exact name of registration as specified in its charter)
Nevada 04-3010100
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3355 Las Vegas Boulevard South, Room 1A
Las Vegas, Nevada 89109
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(702) 414-1000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 14, 2002
Class Outstanding at August 14, 2002
- -------------------------------------- -----------------------------------
Common Stock, $.10 par value 1,000,000 shares
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LAS VEGAS SANDS, INC.
Table of Contents
Part I
FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
At June 30, 2002 (unaudited) and December 31, 2001.............1
Consolidated Statements of
Operations for the Three and Six Months Ended
June 30, 2002 (unaudited) and June 30, 2001 (unaudited)........2
Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 2002 (unaudited) and June 30, 2001 (unaudited)........3
Notes to Consolidated Financial Statements.....................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..............24
Item 3. Quantitative and Qualitative Disclosures About Market Risk....35
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.............................................38
Item 5. Other Information.............................................38
Item 6. Exhibits and Reports on Form 8-K..............................38
Signatures....................................................42
LAS VEGAS SANDS, INC.
Consolidated Balance Sheets
(Dollars in thousands)
June 30, December 31,
2002 2001
----------- -----------
Unaudited
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 51,179 $ 54,936
Restricted cash and investments ......................... 130,358 2,646
Accounts receivable, net ................................ 49,445 57,092
Inventories ............................................. 4,371 4,747
Prepaid expenses ........................................ 3,992 3,862
----------- -----------
Total current assets ........................................ 239,345 123,283
Property and equipment, net ................................. 1,097,104 1,096,307
Deferred offering costs, net ................................ 41,169 18,989
Restricted cash and investments ............................. 175,231 --
Other assets, net ........................................... 31,304 33,207
----------- -----------
$ 1,584,153 $ 1,271,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................ $ 16,595 $ 36,353
Construction payables ................................... 13,564 26,115
Construction payables-contested ......................... 7,232 7,232
Accrued interest payable ................................ 9,237 10,008
Other accrued liabilities ............................... 61,635 70,035
Current maturities of long-term debt .................... 112,695 129,113
----------- -----------
Total current liabilities ................................... 220,958 278,856
Other long-term liabilities ................................. 1,347 3,274
Long-term debt .............................................. 1,217,500 745,746
Long-term subordinated loans payable to Principal Stockholder -- 66,123
----------- -----------
1,439,805 1,093,999
----------- -----------
Redeemable Preferred Interest in Venetian Casino Resort, LLC,
a wholly owned subsidiary ............................... 200,105 188,778
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.10 par value, 3,000,000
shares authorized, 1,000,000 shares
issued and outstanding ............................... 100 92
Capital in excess of par value .......................... 140,760 140,768
Accumulated deficit since June 30, 1996 ................. (196,617) (151,851)
----------- -----------
(55,757) (10,991)
----------- -----------
$ 1,584,153 $ 1,271,786
----------- -----------
The accompanying notes are an integral part of these consolidated financial statements.
1
LAS VEGAS SANDS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------------------- --------------------------
Revenues:
Casino ........................................... $ 46,820 $ 54,265 $ 97,293 $ 112,741
Rooms ............................................ 52,635 56,428 109,013 116,014
Food and beverage ................................ 17,654 18,528 39,533 37,357
Retail and other ................................. 18,686 17,446 35,447 34,730
-------- -------- -------- ---------
135,795 146,667 281,286 300,842
Less-promotional allowances ......................... (7,630) (9,658) (16,688) (21,944)
-------- -------- -------- ---------
Net revenues ..................................... 128,165 137,009 264,598 278,898
-------- -------- -------- ---------
Operating expenses:
Casino ........................................... 25,169 36,158 54,864 76,156
Rooms ............................................ 13,592 13,685 26,626 26,856
Food and beverage ................................ 8,749 8,941 18,720 17,248
Retail and other ................................. 7,862 7,833 14,964 15,031
Provision for doubtful accounts .................. 4,939 5,171 8,274 8,889
General and administrative ....................... 22,925 23,415 44,392 45,426
Corporate expense ................................ 2,914 2,090 4,823 3,978
Rental expense ................................... 1,875 2,022 3,529 4,213
Pre-opening and developmental expense ............ 1,406 - 2,071 -
Depreciation and amortization .................... 10,964 10,305 21,949 20,511
-------- -------- -------- ---------
100,395 109,620 200,212 218,308
-------- -------- -------- ---------
Operating income 27,770 27,389 64,386 60,590
Other income (expense):
Interest income ................................... 469 388 650 806
Interest expense, net of amounts capitalized ...... (27,683) (25,114) (52,065) (51,865)
Interest expense on indebtedness to
Principal Stockholder ........................... (1,676) (2,249) (4,010) (4,438)
Other income (expense) ............................ (307) - 363 -
Loss on early retirement of debt .................. (42,763) - (42,763) -
-------- -------- -------- ---------
Income (loss) before preferred return ............... (44,190) 414 (33,439) 5,093
Preferred return on Redeemable Preferred
Interest in Venetian Casino Resort, LLC
(2001, as restated) ............................ (5,664) (5,040) (11,327) (10,080)
-------- -------- -------- ---------
Net loss (2001, as restated) ........................ $(49,854) $ (4,626) $ (44,766) $ (4,987)
======== ======== ========= ========
Basic and diluted loss per share .................... $ (49.85) $ (4.63) $ (44.77) $ (4.99)
======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
2
LAS VEGAS SANDS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
-------- --------
Cash flows from operating activities:
Net loss (2001, as restated) ................................. $(44,766) $ (4,987)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 21,949 20,511
Amortization of debt offering costs and
original issue discount ............................ 5,052 4,080
Non-cash preferred return on Redeemable
Preferred Interest in Venetian (2001, as restated) . 11,327 10,080
Loss on early retirement of debt ..................... 42,763 -
Loss on disposition of fixed asset ................... 301 -
Non-cash interest on completion guaranty loan ........ - 1,940
Provision for doubtful accounts ...................... 8,274 8,889
Changes in operating assets and liabilities:
Accounts receivable ................................ (627) (9,484)
Inventories ........................................ 376 (544)
Prepaid expenses ................................... (130) (494)
Other assets ....................................... 1,903 3,060
Accounts payable ................................... (19,758) (4,563)
Accrued interest payable ........................... (771) (1,420)
Other accrued liabilities .......................... (10,327) (19,304)
-------- --------
Net cash provided by (used in) operating activities .......... 15,566 7,764
-------- --------
Cash flows from investing activities:
Increase in restricted cash ($185.0 million for
Phase IA construction and $116.9 million for debt
defeasance on July 5, 2002) ................................ (302,943) (52)
Capital expenditures ......................................... (35,598) (21,646)
-------- --------
Net cash used in investing activities ........................ (338,541) (21,698)
-------- --------
Cash flows from financing activities:
Repayments on 121/4 % mortgage notes ......................... (316,558) -
Proceeds from 11% mortgage notes ............................. 850,000 -
Repayments on senior subordinated notes ...................... (95,690) -
Proceeds from secured mall facility .......................... 120,000 -
Repayments on mall-tranche A take-out Loan ................... (105,000) -
Repayments on mall-tranche B take-out Loan ................... (35,000) -
Repayments on completion guaranty loan ....................... (31,124) -
Proceeds from senior secured credit facility-term B .......... 250,000 -
Repayments on bank credit facility-tranche A term loan ....... - (5,625)
Repayments on bank credit facility-tranche B term loan ....... - (250)
Proceeds from bank credit facility-tranche C term loan ....... - 5,750
Repayments on bank credit term facility ...................... (151,986) -
Repayments on bank credit facility-revolver .................. (61,000) -
Proceeds from bank credit facility-revolver .................. 21,000 22,000
Repayments on FF&E credit facility ........................... (53,735) (10,747)
Repayments on Phase II Subsidary credit facility ............. (3,933) -
Repayments on Phase II Subsidiary unsecured bank loan ........ (1,092) -
Proceeds from Phase II Subsidiary unsecured bank loan ........ - 792
Repurchase premiums incurred in connection with
refinancing transactions ................................... (26,691) -
Payments of deferred offering costs .......................... (39,973) (820)
-------- --------
Net cash provided by financing activities .................... 319,218 11,100
-------- --------
Decrease in cash and cash equivalents ........................ (3,757) (2,834)
Cash and cash equivalents at beginning of period ............. 54,936 42,606
-------- --------
Cash and cash equivalents at end of period ................... $ 51,179 $ 39,772
======== ========
Supplemental disclosure of cash flow information:
Cash payments for interest ................................. $ 52,563 $ 52,287
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
3
Notes to Financial Statements
Note 1 Organization and Business of Company
- ------ ------------------------------------
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. The year end balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. In addition, certain amounts in the 2001 financial
statements have been reclassified to conform with the 2002 presentation. In the
opinion of management, all adjustments and normal recurring accruals considered
necessary for a fair presentation of the results for the interim period have
been included. The interim results reflected in the unaudited financial
statements are not necessarily indicative of expected results for the full year.
Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. On April 28,
1989, LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring the
Sands Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the Sands
and subsequently demolished the facility in order to construct a planned
two-phase hotel-casino resort. The first phase of the hotel-casino resort (the
"Casino Resort") includes 3,036 suites, casino space approximating 116,000
square feet, approximately 500,000 square feet of convention space, and
approximately 475,000 gross leasable square feet of retail shops and
restaurants.
The consolidated financial statements include the accounts of LVSI and
its subsidiaries (the "Subsidiaries"), including Venetian Casino Resort, LLC
("Venetian"), Mall Intermediate Holding Company, LLC ("Mall Intermediate"),
Grand Canal Shops Mall Subsidiary, LLC (the "Mall Subsidiary"), Grand Canal
Shops II, LLC (the "Mall II Subsidiary"), Grand Canal Shops Mall MM Subsidiary,
Inc., Grand Canal Shops Mall Construction, LLC ("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 Casino Resort Athens, LLC (Venetian Athens"),
Venetian Venture Development, LLC ("Venetian Venture"), Venetian Venture
Development Intermediate Limited, Venetian Macau Management Limited, Venetian
Macau Holdings Limited ("Venetian Macau"), Venetian Marketing, Inc. ("Venetian
Marketing"), Venetian Far East Limited and Venetian Operating Company, LLC
("Venetian Operating") (collectively, and including all other direct and
indirect subsidiaries of LVSI, the "Company"). Each of LVSI and the Subsidiaries
is a separate legal entity and the assets of each such entity are intended to be
available only to the creditors of such entity.
Venetian was formed on March 20, 1997 to own and operate certain
portions of the Casino Resort. LVSI is the managing member and owns 100% of the
common voting equity in Venetian. The entire preferred interest in Venetian is
owned by Interface Group Holding Company, Inc. ("Interface Holding"), which is
wholly-owned by LVSI's principal stockholder (the "Principal Stockholder").
Mall Intermediate, Lido Intermediate and Venetian Venture are
intermediate holding companies which are wholly-owned subsidiaries of Venetian.
They are guarantors or co-obligors of certain indebtedness related to the Casino
Resort. See Note 4 Long-Term Debt.
The Mall II Subsidiary is an indirect wholly-owned subsidiary of LVSI
and owns and operates the retail mall in the Casino Resort (the "Mall") . The
Mall II Subsidiary was formed on May 31, 2002 and became a successor to the Mall
Subsidiary in connection with the refinancing of the Mall's indebtedness. See
Note 4 Long-Term Debt.
The Casino Resort is physically connected to the approximately 1.15
million square foot Sands Expo and Convention Center (the "Expo Center").
Interface Group-Nevada, Inc. ("IGN"), the owner of the Expo Center, is
beneficially owned by the Principal Stockholder. Venetian, the Mall II
Subsidiary and IGN transact business with each other and are parties to certain
agreements.
Restatement of Previously Reported Amounts
------------------------------------------
As more fully described above, Interface Holding (an entity controlled
by the Principal Stockholder) owns a redeemable preferred interest in LVSI's
wholly-owned subsidiary, Venetian. The preferred return on the redeemable
preferred interest has not been paid, but it has been accrued by Venetian each
year and historically accounted for as a charge against capital (See Note 5).
Under guidance by the Emerging Issues Task Force of the Financial Accounting
Standards Board, dividends on a subsidiary's preferred stock should be reflected
as a minority interest and recognized as a charge against income.
4
Notes to Financial Statements
Note 1 Organization and Business of Company (Continued)
- ------ ------------------------------------------------
The Company has recognized the preferred return as a charge against
income in the accompanying 2002 financial statements, and has restated certain
income statement items for the three and six month periods ended June 30, 2001
to include the preferred return, which amounts were $5.0 million and $10.1
million, respectively. The restatement has no impact on the previously reported
carrying balances of the redeemable preferred interest or on the previously
reported financial position of the Company. In addition, because the preferred
return was deducted from income available to common stockholders in calculating
earnings per share, the restatement has no impact on previously reported amounts
for earnings per share.
New Accounting Pronouncement
----------------------------
In April 2002, the Financial Accounting Standards Board issued
statement No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64
and Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations. The Company
has adopted SFAS 145 and will no longer present losses on early retirements of
debt as an extraordinary item. Additionally, prior period extraordinary losses
will be reclassified to conform to this new presentation. Adoption of SFAS 145
had no impact on the Company's financial condition or cash flows.
Note 2 Stockholders' Equity and Per Share Data
- ------ ---------------------------------------
The Company established a nonqualified stock option plan, which
provides for the granting of stock options pursuant to the applicable provisions
of the Internal Revenue Code and regulations. The stock option plan provides
that the Principal Stockholder may assume the obligations of the Company under
the plan and provides for the granting of up to 75,000 shares of common stock to
officers and other key employees of the Company. As of December 31, 2001, no
grants under the stock option plan had occurred. In the first quarter of 2002,
options to purchase 49,900 shares, which represented approximately 5% of the
Company's outstanding common stock, were granted from the Company to certain key
employees of the Company. Immediately thereafter, the Principal Stockholder
assumed the obligations of the Company under the stock option plan. On the date
of grant, the exercise price of the options of $271 per share was higher than
the fair market value of the Company's common stock based upon a determination
of the fair market value of a per share minority interest in the common stock of
LVSI, performed by an independent third-party appraiser. The options granted
were fully vested and exercisable upon grant. All of the options were exercised
immediately after issuance by the respective employees by delivery of a notice
of exercise. There has been no change in outstanding shares of the Company and
the notes receivable are not reflected in the accompanying financial statements
because the shares issued were from the Principal Stockholder's existing
holdings. The exercise price of the options was loaned to the optionees by the
Principal Stockholder on a collateralized basis under full recourse notes.
During the first quarter of 2002, the Company entered into a
stockholders' agreement (the "Stockholders' Agreement") with the respective
employees (the "Additional Stockholders") 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. All transfers are subject to certain
conditions, including:
o compliance with applicable state and foreign securities laws,
o receipt of necessary licenses or approvals from the Nevada gaming
authorities, and
o compliance with all federal laws, rules and regulations relating
to subchapter S corporations.
If at any time before LVSI completes an initial public offering, the
Principal Stockholder wishes to sell 20% or more of his ownership interest in
LVSI to any third party transferee, each Additional Stockholder shall have the
right to participate in such sale on the same terms as those offered to the
Principal Stockholder.
The Additional Stockholders also have certain piggyback registration
rights. If at any time LVSI completes an initial public offering or proposes to
register any shares of common stock, the Additional Stockholders may request
registration of their securities. Common stock will be included in the
registration statement in the following order of priority: first, all securities
of LVSI to be sold for its own account, second, securities of stockholders
(other than the Principal Stockholder) who have demand registration rights and
5
Notes to Financial Statements (Continued)
Note 2 Stockholders' Equity and Per Share Data (Continued)
- ------ ---------------------------------------------------
third, such securities requested to be included in such registration statement
by the Principal Stockholder and the Additional Stockholders (pro rata based on
the number of registrable securities owned by such stockholders). Finally, if at
any time prior to the completion by LVSI of an initial public offering LVSI
wishes to issue any new securities, the Additional Stockholders will have the
right to purchase that number of shares of LVSI common stock, at the proposed
purchase price of the new securities, such that the Additional Stockholders'
percentage ownership of LVSI would remain the same following such issuance.
During the second quarter of 2002, options to purchase an additional
5,500 shares at an exercise price of $271 per share were reserved under the
stock option plan. The granting of these options are subject to approval by the
Nevada gaming authorities.
Basic and diluted income (loss) per share are calculated based upon the
weighted average number of shares outstanding. In the first quarter of 2002, the
Company completed a stock split whereby the number of shares of common stock
outstanding was increased from 925,000 to 1,000,000. At the 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.
Note 3 Property and Equipment
- ------ ----------------------
Property and equipment consists of the following (in thousands):
June 30, December 31,
2002 2001
----------- -----------
Land and land improvements $ 113,428 $ 113,309
Building and improvements 885,832 882,395
Equipment, furniture, fixtures and
leasehold improvements 139,484 138,978
Construction in progress 86,966 68,542
----------- -----------
1,225,710 1,203,224
Less: accumulated depreciation and
amortization (128,606) (106,917)
----------- -----------
$ 1,097,104 $ 1,096,307
=========== ===========
During the three month and six month periods ended June 30, 2002 and
June 30, 2001, the Company capitalized interest expense of $0.5 million and $0.8
million, and zero and $0.6 million, respectively.
As of June 30, 2002, construction in progress represented construction
in progress and project design for an approximately 1,000-room hotel tower on
top of the Casino Resort's existing parking garage, an approximately
1,000-parking space expansion to the parking garage and approximately 150,000
square feet of additional convention center space on the Phase II Land
(collectively, the "Phase IA Addition"), shared facilities costs for the planned
second phase of the Casino Resort, to be owned by the Phase II Subsidiary (the
"Phase II Resort"), and on-going capital improvement projects at the Casino
Resort.
7
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt
- ------ --------------
Long-term debt consists of the following (in thousands):
June 30, December 31,
2002 2001
---------- ----------
Indebtedness of the Company and its Subsidiaries other
than the Mall II Subsidiary, the Mall Subsidiary and
the Phase II Subsidiary:
- -------------------------------------------------------
12 1/4% Mortgage Notes, due November 15, 2004
- redeemed July 5, 2002 $ 108,442 $ 425,000
14 1/4% Senior Subordinated Notes, due November
15, 2005 (net of unamortized discount of $57
in 2002 and $3,825 in 2001) - redeemed July 5, 2002 1,753 94,113
Bank Credit Facility-Revolver -- 40,000
Bank Credit Facility- Term Loan -- 151,986
FF&E Credit Facility -- 53,735
11% Mortgage Notes, due June 15, 2010 850,000 --
Senior Secured Credit Facility - Term B 250,000 --
Indebtedness of the Mall II Subsidiary:
- ---------------------------------------
Secured Mall Facility 120,000 --
Indebtedness of the Mall Subsidiary:
- ------------------------------------
Mall Tranche A Take-out Loan -- 105,000
Indebtedness of the Phase II Subsidiary:
- ---------------------------------------
Phase II Subsidiary Credit Facility -- 3,933
Phase II Unsecured Bank Loan -- 1,092
Less: current maturities, including amounts redeemed
on July 5, 2002 (112,695) (129,113)
---------- ----------
Total long-term debt $1,217,500 $ 745,746
========== ==========
Subordinated Owner Indebtedness:
- --------------------------------
Completion Guaranty Loan (Indebtedness of Venetian) $ -- $ 31,123
Subordinated Mall Tranche B Take-out Loan
from Principal Stockholder (Indebtedness of
Mall Subsidiary) -- 35,000
---------- ----------
Total long-term subordinated loans payable to
Principal Stockholder $ -- $ 66,123
========== ==========
In connection with the construction financing for the Casino Resort,
the Company entered into a series of transactions during 1997 to build the
Casino Resort. In November 1997, the Company issued $425.0 million in aggregate
principal amount of 12 1/4% Mortgage Notes (the "Old Mortgage Notes") and $97.5
million in aggregate principal amount of 14 1/4% Senior Subordinated Notes (the
"Old Subordinated Notes" and, together with the Old Mortgage Notes, the "Old
Notes") in a private placement. Also in November 1997, LVSI and Venetian and a
syndicate of lenders entered into a Bank Credit Facility (the "Bank Credit
Facility") providing for multiple draw term loans to the Company for
construction and development of the Casino Resort. In December 1997, the Company
entered into an agreement (the "FF&E Facility") with certain lenders to provide
for $97.7 million of financing for certain furniture, fixtures, and equipment to
be secured under the FF&E Credit Facility and an electrical substation.
8
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
On November 12, 1999, an advance of approximately $23.5 million was
made under the Principal Stockholder's completion guaranty (the "Completion
Guaranty Loan"), a junior loan from the Principal Stockholder to the Venetian.
On December 20, 1999, certain take-out lenders funded a $105.0 million tranche A
take-out loan to the Mall Subsidiary (the "Tranche A Take-out Loan") and an
entity wholly-owned by the Principal Stockholder funded a $35.0 million loan to
the Mall Subsidiary (the "Tranche B Take-out Loan" and, together with the
Tranche A Take-out Loan, the "Mall Take-out Financing"), the proceeds of which
were used to repay an existing mall construction loan facility.
In February 2001, the Phase II Subsidiary entered into an unsecured
bank line of credit (the "Phase II Unsecured Bank Loan") of $1.1 million for
Phase II Subsidiary operating costs. On October 19, 2001, the Phase II
Subsidiary also entered into a loan agreement providing for a $17.5 million term
and revolving loan (the "Phase II Subsidiary Credit Facility") for Phase II
Resort pre-development expenses and loans or distributions to the Company for
other liquidity needs.
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 or will use the proceeds of the Refinancing
Transactions to repay, redeem or repurchase all of its outstanding indebtedness
(including the Old Notes, the Bank Credit Facility, the FF&E Facility, the
Completion Guaranty Loan, the Mall Take-out Financing, the Phase II Unsecured
Bank Loan and the Phase II Subsidiary Credit Facility), 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
Principal Stockholder's completion guarantee relating to the construction of the
Casino Resort was terminated upon the consummation of the Refinancing
Transactions and the remaining cash collateral was returned to the Principal
Stockholder. In connection with the Refinancing Transactions, the Company
incurred a loss on early retirement of indebtedness of $42.8 million during the
three months ended June 30, 2002.
As part of the Refinancing Transactions, the Company also commenced a
cash tender offer on May 6, 2002 to repurchase the Old Notes. Upon the
consummation of the Refinancing Transactions, the Company repurchased $316.6
million of the Old Mortgage Notes and $95.7 million of the Old Subordinates
Notes and effected a covenant defeasance with respect to the remaining Mortgage
Notes. The Company called all of the remaining Old Notes upon the closing of the
Refinancing Transactions and redeemed the balance of the Old Mortgage Notes
($108.4 million) and the Old Subordinated Notes ($1.8 million) on July 5, 2002.
On July 5, 2002, the Company incurred a loss of $8.7 million on early retirement
of debt related to the redemption of the Old Notes.
Mortgages Notes
- ---------------
The Mortgage Notes bear interest at 11%, payable each June 15th and
December 15th, beginning December 15, 2002. The Mortgage Notes are secured by
second priority liens on certain assets of the Company (the 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, 2002, LVSI and Venetian may redeem the Mortgage Notes at their
principal amount plus an applicable make-whole premium. Upon a change of control
(as defined in the Indenture), each Mortgage Note holder may require LVSI and
Venetian to repurchase such Mortgage Notes at 101% of the principal amount
thereof plus accrued interest and other amounts which are then due, if any. Upon
an event of loss or certain asset sales, the Company may also be required to
offer to purchase all or a portion of the Mortgage Notes with the proceeds of
such event of loss or sale. The Mortgage Notes are not subject to a sinking fund
requirement.
The Company is committed under a registration rights agreement to use
its commercially reasonable efforts prior to 180 days after the closing date to
effect a registered exchange offer for the Mortgage Notes or, subject to certain
conditions, to provide a shelf registration for the Mortgage Notes. Should the
Company not meet certain requirements of the registration rights agreement,
liquidated damages in the amount of 0.25% to 2.00% per annum of the aggregate
principal amount of the Mortgage Notes would accrue until such defaults are
cured.
9
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
Senior Secured Credit Facility
- ------------------------------
The Senior Secured Credit Facility provides for a $250.0 million single
draw senior secured term loan facility (the "Term B Facility"), a $50.0 million
senior secured delayed draw facility (the "Term A Facility") and a $75.0 million
senior secured revolving facility (the "Revolving Facility"). Term B Facility
proceeds of $185.0 million were deposited into restricted accounts, invested in
cash or permitted investments and pledged to a disbursement agent for the Senior
Secured Credit Facility lenders. The $185.0 million will be used as required for
Phase IA Addition project costs under disbursement terms specified in the Senior
Secured Credit Facility. The disbursement account is subject to a security
interest in favor of the lenders under the Senior Secured Credit Facility.
The Term B Facility matures on June 4, 2008 and is subject to quarterly
amortization payments in the amount of $625,000 from September 30, 2002 until
September 30, 2007, followed by four equal quarterly amortization payments of
$59.4 million until the maturity date. The Term A Facility is available from the
closing date of the Senior Secured Credit Facility through the first anniversary
of the closing date, subject to certain conditions. The Term A Facility matures
on June 4, 2007 and is subject to quarterly amortization payments commencing on
December 31, 2003 in the amount of $1,666,667 for three quarters, $2,500,000 for
the succeeding four quarters, $3,750,000 for the next four quarters and
$5,000,000 for the final four quarters. The Revolving Facility matures on June
4, 2007 and has no interim amortization. No amounts had been drawn under the
Term A Facility or the Revolving Facility as of June 30, 2002.
All amounts outstanding under the Senior Secured Credit Facility bear
interest at the option of the Company at the prime rate plus 2% per annum, or at
the reserve adjusted Eurodollar rate plus 3% per annum. After the Phase IA
Addition is substantially complete, the applicable margin for amounts
outstanding under the Term A Facility and the Revolving Facility will be
determined by a grid based upon a leverage ratio. The leverage ratio will be
calculated as the ratio of consolidated total debt as of the last day of each
fiscal quarter to EBITDA (as defined in the Senior Secured Credit Facility) for
the four-fiscal quarter period ending on such date. Commitment fees equal to
0.50% per annum of the daily average unused portion of the commitment under the
Revolving Facility and 0.75% per annum of the daily average unused portion of
the Term A Facility are payable quarterly in arrears.
The Senior Secured Credit Facility is secured by a first priority lien
on certain assets of the Company (the personal property and the real estate
improvements that comprise the hotel, the casino and the convention space, with
certain exceptions). The Senior Secured Credit Facility contains affirmative,
negative and financial covenants including limitations on indebtedness, liens,
investments, guarantees, restricted junior payments, mergers and acquisitions,
sales of assets, leases, transactions with affiliates and scope-changes and
modifications to material contracts. Additionally, the Company is required to
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 June 30, 2002,
the Company was in compliance with all required covenants and ratios under the
Senior Secured Credit Facility.
Secured Mall Facility
- ---------------------
In June 2002, the Company also entered into an agreement (the "Secured
Mall Facility") with certain lenders to provide for a $105.0 million loan
(subsequently increased to $120.0 million on June 28, 2002) to the 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 the Mall
Take-out Financing 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").
10
Notes to Financial Statements (Continued)
Note 4 Long-Term Debt (Continued)
- ------ --------------------------
The amounts outstanding under the Secured Mall Facility bear interest
at the adjusted one month Eurodollar rate plus 1.875% per annum. Interest is
paid monthly and there is no scheduled principal amortization. The Secured Mall
Facility is due in full on June 28, 2005 and provides for two one-year
extensions at the option of the Company, subject to certain criteria. The
Secured Mall Facility contains affirmative, negative and financial covenants
including net operating income performance standards. Failure to meet these
financial covenants in certain circumstances allows the lenders' agent to
control collection of rents, to approve operating budgets and provides for a
cash sweep of excess cash flow to reduce amounts outstanding under the Secured
Mall Facility.
The Company is required to enter into an interest rate cap agreement to
limit the impact of increases in interest rates on its floating rate debt
derived from the 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 three months ended June 30, 2002. If the Company had terminated the Mall Cap
Agreement as of June 30, 2002, the Company would not have had to pay any amounts
based on quoted market values from the various institutions holding the swaps.
The notional amount of the Mall Cap Agreement (which expires on June 28, 2005)
at June 30, 2002 was $120.0 million.
Pursuant to the terms of the Secured Mall Facility, the Mall II
Subsidiary is also required to maintain certain funds in escrow for debt service
and property taxes. At June 30, 2002, $1.3 million was held by the lenders'
agent in escrow for these purposes. The amounts in escrow are classified as
restricted cash in the accompanying financial statements.
The Company entered into interest rate cap and/or floor agreements
related to the Bank Credit Facility (the "Bank Cap Agreement") during 1998 and
the Tranche A Take-out Loan during 1999 (the "Mall Cap Agreement" and, together
with the Bank Cap Agreement, the "Old Rate Cap Agreements"). The notional amount
of the Bank Cap Agreement at June 30, 2002 was $76.2 million. The Bank Cap
Agreement expires in June 2003, the maturity date of the Bank Credit Facility,
unless terminated earlier by the Company. The notional amount of the Mall Cap
Agreement at June 30, 2002 was $42.3 million. The Mall Cap Agreement expires on
December 20, 2002, the original maturity date of the Tranche A Take-out Loan,
unless terminated earlier by the Company.
The net effect of the Old Rate Cap Agreements resulted in an increase
of interest expense of $0.5 million for the quarter ended June 30, 2002.
Currently, the Old Rate Cap Agreements remain outstanding. If the Company had
terminated the Old Rate Cap Agreements as of June 30, 2002, the Company would
have had to pay a net amount of $1.6 million based on quoted market values from
the various institutions holding the swaps. In accordance with Financial
Accounting Standards Board Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, the Company has recorded the fair value of
its obligations under the Old Rate Cap Agreements in the accompanying financial
statements and will continue to do so while the agreements are in effect.
Note 5 Redeemable Preferred Interest in Venetian Casino Resort, LLC
- ------ ------------------------------------------------------------
During 1997, Interface Holding contributed $77.1 million in cash to
Venetian in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the 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 and 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 and six month periods ended June 30, 2002 and June
30, 2001, $5.7 million and $11.3 million, and $5.0 million and $10.1 million,
respectively, were accrued on the Series B Preferred Interest related to the
contributions made. Since 1997, no distributions of preferred interest or
preferred return have been paid on the Series B Preferred Interest.
11
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies
- ------ -----------------------------
Construction Litigation
-----------------------
The Company is party to litigation matters and claims related to its
operations and construction of the Casino Resort that could have a material
adverse effect on the financial position, results of operations or cash flows of
the Company to the extent such litigation is not covered by the Insurance Policy
(as defined below).
The construction of the principal components of the Casino Resort was
undertaken by Lehrer McGovern Bovis, Inc. (the "Construction Manager") pursuant
to a construction management agreement and certain amendments thereto (as so
amended, the "Construction Management Contract"). The Construction Management
Contract established a final guaranteed maximum price (the "Final GMP") of
$645.0 million, so that, subject to certain exceptions (including an exception
for cost overruns due to "scope changes"), the Construction Manager was
responsible for any costs of the work covered by the Construction Management
Contract in excess of the Final GMP. The obligations of the Construction Manager
under the Construction Management Contract are guaranteed by Bovis, Inc.
("Bovis" and such guaranty, the "Bovis Guaranty"), the Construction Manager's
direct parent at the time the Construction Management Contract was entered into.
Bovis' obligations under the Bovis Guaranty are guaranteed by The Peninsular and
Oriental Steam Navigation Company ("P&O"), a British public company and the
Construction Manager's ultimate parent at the time the Construction Management
Contract was entered into (such guaranty, the "P&O Guaranty").
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. The Company amended this complaint on November 23,
1999 to add P&O as an additional defendant. The suit is intended to ask the
courts, among other remedies, to require the Construction Manager and its
guarantors to pay its contractors, to compensate Venetian for the Construction
Manager's failure to perform its duties under the Construction Management
Contract and to pay the Company the agreed upon liquidated damages penalty for
failure to meet the guaranteed substantial completion date. Venetian seeks total
damages in excess of $100.0 million. The Construction Manager subsequently filed
motions to dismiss the Company's complaint on various grounds, which the Company
opposed. The Construction Manager's motions were either denied by the court or
voluntarily withdrawn.
In response to Venetian's breach of contract claims against the
Construction Manager, Bovis and P&O, the Construction Manager filed a complaint
on August 3, 1999 against Venetian in the District Court of Clark County,
Nevada. The action alleges a breach of contract and quantum meruit claims under
the Construction Management Contract and also alleges that Venetian defrauded
the Construction Manager in connection with the construction of the Casino
Resort. The Construction Manager seeks damages, attorney's fees and costs and
punitive damages. In the lawsuit, the Construction Manager claims that it is
owed approximately $90.0 million from Venetian and its affiliates. This
complaint was subsequently amended by the Construction Manager, which also filed
an additional complaint against the Company relating to work done and funds
advanced with respect to the contemplated development of the Phase II Resort.
Based upon its review of the complaints, the Company believes that the
Construction Manager has not provided Venetian with reasonable documentation to
support such claims, the Construction Manager has materially breached its
agreements with the Company and the Construction Manager's claims are without
merit. The Company intends to vigorously defend itself and pursue its claims
against the Construction Manager in any litigation.
In connection with these disputes, as of December 31, 1999 the
Construction Manager and its subcontractors filed mechanics liens against the
Casino Resort for $145.6 million and $182.2 million, respectively. The Company
believes that a major reason these lien amounts exceed the Construction
Manager's claims of $90.0 million is based upon a duplication of liens through
the inclusion of lower-tier claims by subcontractors in the liens of higher-tier
contractors, including the lien of the Construction Manager. As of December 31,
1999, the Company had purchased surety bonds for virtually all of the claims
underlying these liens (other than approximately $15.0 million of claims with
respect to which the Construction Manager purchased bonds). As a result, there
can be no foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
12
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies (Continued)
- ------ -----------------------------------------
The Company believes that these claims are, in general,
unsubstantiated, without merit, overstated, and/or duplicative. The Construction
Manager itself has publicly acknowledged that at least some of the claims of its
subcontractors are without merit. In addition, the Company believes that
pursuant to the Construction Management Contract and the Final GMP, the
Construction Manager is responsible for payment of any subcontractors' claims to
the extent they are determined to be valid. The Company may also have a variety
of other defenses to the liens that have been filed, including, for example, the
fact that the Construction Manager and its subcontractors previously waived or
released their rights to file liens against the Casino Resort. The Company
intends to vigorously defend itself in any lien proceedings.
On August 9, 1999, the Company notified the insurance companies
providing coverage under its liquidated damages insurance policy (the "LD
Policy") that it has a claim under the LD Policy. The LD Policy provides
insurance coverage for the failure of the Construction Manager to achieve
substantial completion of the portions of the Casino Resort covered by the
Construction Management Contract within 30 days of the April 21, 1999 deadline,
with a maximum liability under the LD Policy of approximately $24.1 million and
with coverage being provided, on a per-day basis, for days 31-120 of the delay
in the achievement of substantial completion. Because the Company believes that
substantial completion was not achieved until November 12, 1999, the Company's
claim under the LD Policy is likely to be for the above-described maximum
liability of $24.1 million. The Company expects the LD Policy insurers to assert
many of the same claims and defenses that the Construction Manager has asserted
or will assert in the above-described litigations. Liability under the LD Policy
may ultimately be determined by binding arbitration.
In June 2000, the Company purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the "Construction Litigation"). Under the
Insurance Policy, the Company will self-insure the first $45.0 million and the
insurer will insure up to the next $80.0 million of any possible covered losses.
The Insurance Policy provides coverage for any amounts determined in the
Construction Litigation to be owed to the Construction Manager or its
subcontractors relating to claimed delays, inefficiencies, disruptions, lack of
productivity/unauthorized overtime or schedule impact, allegedly caused by the
Company during construction of the Casino Resort, as well as any defense costs.
The Company and the Construction Manager are currently scheduled to
commence a trial to litigate certain of their respective claims in August 2002,
although there can be no assurance that the trial will commence at such time.
Many of the remaining claims between the parties will be proceeding concurrently
in independent arbitration hearings. It is not yet possible to determine a range
of loss or the ultimate outcome of the pending litigation described above. If
any litigation or other lien proceedings concerning the claims of the
Construction Manager or its subcontractors were decided adversely to the
Company, such litigation or other lien proceedings could have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company to the extent such litigation or lien proceedings are not covered by the
Insurance Policy.
Macau Joint Venture and Internet Gaming
- ---------------------------------------
On June 26, 2002, the Company announced that a joint venture comprised
of Venetian Macau and a group of Macau and Hong Kong-based investors had entered
into a final concession contract with the Government of the Macau Special
Administrative Region of the People's Republic of China to operate casinos in
Macau. Through June 30, 2002, the Company had incurred developmental expenses of
$2.4 million in connection with the proposed Macau project. Venetian Macau
continues to negotiate the final terms of a joint venture and management expects
that those negotiations will be concluded in the third quarter of 2002. The
final terms of a joint venture agreement may include financial obligations to
the joint venture and/or to the Government of Macau or Venetian Macau may be
obligated to pay for certain costs of developing and constructing the
contemplated casinos in Macau. Under the Indenture, the Company is permitted to
make investments in the amount of $40.0 million in, and extend guarantees with
respect to $90.0 million of indebtedness and/or obligations of, its Macau
subsidiaries. The Company may use cash received from the following sources to
fund the Macau venture:
o borrowings by Venetian under the Revolving Facility;
o additional debt or equity financings; and
o operating cash flow (subject to certain limitations contained in the
Company's debt instruments).
13
Notes to Financial Statements (Continued)
Note 6 Commitments and Contingencies (Continued)
- ------ -----------------------------------------
Venetian Macau and the Company's other Macau subsidiaries are not
guarantors under the Mortgage Notes or the Senior Secured Credit Facility and,
subject to certain limited exceptions, are not restricted subsidiaries under the
Indenture or the Senior Secured Credit Facility.
The Company has also entered into a joint venture agreement to assess
the feasibility of and develop an Internet gaming site. The Company has applied
for an Internet gaming license in Alderney, but has not yet established any
operations. The Company estimates that it is committed to contribute
approximately $1.0 million, approximately one-third of the required capital, to
the joint venture during the next year. After recovery of each partner's initial
capital contribution, the Company will receive 50% to 80% of the net profit of
the joint venture, based upon an increasing scale of net profit (if any). The
joint venture provides that the agreement will be automatically terminated
should the Company fail to obtain any required regulatory approvals from
Alderney, the Nevada gaming authorities or any other applicable jurisdiction
prior to launching its operations.
Note 7 Summarized Financial Information
- ------ --------------------------------
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.
Separate financial statements and other disclosures concerning each of
Venetian and the Subsidiary Guarantors are not presented below because
management believes that they are not material to investors. Summarized
financial information of LVSI, Venetian, the Subsidiary Guarantors and the
non-guarantor subsidiaries on a combined basis as of June 30, 2002 and December
31, 2001, and for the three and six month periods ended June 30, 2002 and June
30, 2001, is as follows (in thousands):
14
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
June 30, 2002
GUARANTOR SUBSIDIARIES
-----------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ ------------
Cash and cash equivalents ............................... $ 30,648 $ 16,494 $ 4 $ 4 $ --
Restricted cash and investments ......................... -- 129,093 -- -- --
Intercompany receivable ................................. 16,741 -- -- -- --
Accounts receivable, net ................................ 28,191 20,572 -- -- --
Inventories ............................................. -- 4,371 -- -- --
Prepaid expenses ........................................ 712 2,596 -- -- --
----------- ----------- ----------- ----------- -----------
Total current assets .................................. 76,292 173,126 4 4 --
Property and equipment, net ............................. -- 880,920 -- -- --
Investment in Subsidiaries .............................. 1,089,672 106,203 -- -- --
Deferred offering costs, net ............................ -- 38,101 -- -- --
Restricted cash and investments ......................... -- 175,231 -- -- --
Other assets, net ....................................... 3,397 24,326 -- -- --
----------- ----------- ----------- ----------- -----------
$ 1,169,361 $ 1,397,907 $ 4 $ 4 $ --
=========== =========== =========== =========== ===========
Accounts payable ........................................ $ 1,621 $ 14,722 $ -- $ -- $ --
Construction payable .................................... -- 13,564 -- -- --
Construction payable-contested .......................... -- 7,232 -- -- --
Intercompany payables ................................... -- 15,242 -- -- --
Accrued interest payable ................................ -- 9,130 -- -- --
Other accrued liabilities ............................... 13,302 46,955 -- -- --
Current maturities of long-term debt (3) ................ 112,695 112,695 -- -- --
----------- ----------- ----------- ----------- -----------
Total current liabilities ............................. 127,618 219,540 -- -- --
Other long-term liabilities ............................. -- 1,280 -- -- --
Long-term debt (3) ...................................... 1,097,500 1,097,500 -- -- --
----------- ----------- ----------- ----------- -----------
1,225,118 1,318,320 -- -- --
----------- ----------- ----------- ----------- -----------
Redeemable Preferred Interest in Venetian ............... -- 200,105 -- -- --
----------- ----------- ----------- ----------- -----------
Stockholders' equity (deficit) .......................... (55,757) (120,518) 4 4 --
----------- ----------- ----------- ----------- -----------
$ 1,169,361 $ 1,397,907 $ 4 $ 4 $ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no assets and liabilities
as of June 30, 2002.
(2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II
Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by
the Principal Stockholder during December 1999.
(3) As more fully described in Note 4 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.
15
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS, (continued)
June 30, 2002
NON-GUARANTOR SUBSIDIARIES
------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries (2) Entries Total
-------------- --------------- --------------- --------------
Cash and cash equivalents .................................... $ 3,826 $ 203 $ -- $ 51,179
Restricted cash and investments .............................. 1,265 -- -- 130,358
Intercompany receivable ...................................... -- -- (16,741) --
Accounts receivable, net ..................................... 682 -- -- 49,445
Inventories .................................................. -- -- -- 4,371
Prepaid expenses ............................................. 684 -- -- 3,992
----------- ----------- ----------- -----------
Total current assets ....................................... 6,457 203 (16,741) 239,345
Property and equipment, net .................................. 133,872 82,312 -- 1,097,104
Investment in Subsidiaries ................................... -- -- (1,195,875) --
Deferred offering costs, net ................................. 3,068 -- -- 41,169
Restricted cash and investments .............................. -- -- -- 175,231
Other assets, net ............................................ 3,581 -- -- 31,304
----------- ----------- ----------- -----------
$ 146,978 $ 82,515 $(1,212,616) $ 1,584,153
=========== =========== =========== ===========
Accounts payable ............................................. $ 252 $ -- $ -- $ 16,595
Construction payable ......................................... -- -- -- 13,564
Construction payable-contested ............................... -- -- -- 7,232
Intercompany payables ........................................ 1,499 -- (16,741) --
Accrued interest payable ..................................... 107 -- -- 9,237
Other accrued liabilities .................................... 1,286 92 -- 61,635
Current maturities of long-term debt (3) ..................... -- -- (112,695) 112,695
----------- ----------- ----------- -----------
Total current liabilities .................................. 3,144 92 (129,436) 220,958
Other long-term liabilities .................................. 67 -- -- 1,347
Long-term debt (3) ........................................... 120,000 -- (1,097,500) 1,217,500
----------- ----------- ----------- -----------
123,211 92 (1,226,936) 1,439,805
----------- ----------- ----------- -----------
Redeemable Preferred Interest in Venetian .................... -- -- -- 200,105
----------- ----------- ----------- -----------
Stockholders' equity (deficit) ............................... 23,767 82,423 14,320 (55,757)
----------- ----------- ----------- -----------
$ 146,978 $ 82,515 $(1,212,616) $ 1,584,153
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall Subsidiary
on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on June 4, 2002. As
a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no assets and liabilities as of June 30, 2002.
(2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II
Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by the
Principal Stockholder during December 1999.
(3) As more fully described in Note 4 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.
16
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS
December 31, 2001
GUARANTOR SUBSIDIARIES
-----------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ ------------
Cash and cash equivalents ............................... $ 37,367 $ 7,806 $ 4 $ 4 $ --
Restricted cash and investments ......................... -- 1,528 -- -- --
Intercompany receivable ................................. 6,772 -- -- -- --
Accounts receivable, net ................................ 37,416 18,240 -- -- --
Inventories ............................................. -- 4,747 -- -- --
Prepaid expenses ........................................ 546 2,953 -- -- --
----------- ----------- ----------- ----------- -----------
Total current assets .................................. 82,101 35,274 4 4 --
Property and equipment, net ............................. -- 878,239 -- -- --
Investment in Subsidiaries .............................. 692,100 86,657 -- -- --
Deferred offering costs, net ............................ -- 16,250 -- -- --
Other assets, net ....................................... 3,771 25,691 -- -- --
----------- ----------- ----------- ----------- -----------
$ 777,972 $1,042,111 $ 4 $ 4 $ --
=========== =========== =========== =========== ===========
Accounts payable ........................................ $ 2,880 $ 33,105 $ -- $ -- $ --
Construction payable .................................... -- 22,955 -- -- --
Construction payable-contested .......................... -- 7,232 -- -- --
Intercompany payables ................................... -- 7,345 -- -- --
Accrued interest payable ................................ -- 9,125 -- -- --
Other accrued liabilities ............................... 21,249 47,074 -- -- --
Current maturities of long-term debt (3) ................ 23,021 23,021 -- -- --
----------- ----------- ----------- ----------- -----------
Total current liabilities ............................. 47,150 149,857 -- -- --
Other long-term liabilities ............................. -- 3,274 -- -- --
Long-term debt (3) ...................................... 741,813 741,813 -- -- --
Long-term subordinated loans
payable to Principal Stockholder ....................... -- 31,123 -- -- --
----------- ----------- ----------- ----------- -----------
788,963 926,067 -- --
----------- ----------- ----------- ----------- -----------
Redeemable Preferred Interest in Venetian ............... -- 188,778 -- -- --
----------- ----------- ----------- ----------- -----------
Stockholders' equity (deficit) .......................... (10,991) (72,734) 4 4 --
----------- ----------- ----------- ----------- -----------
$ 777,972 $1,042,111 $ 4 $ 4 $ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any assets or
liabilities as of December 31, 2001.
(2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II
Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by
the Principal Stockholder during December 1999.
(3) As more fully described in Note 4 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.
17
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS (continued)
December 31, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries (2) Entries Total
-------------- --------------- --------------- --------------
Cash and cash equivalents ................................... $ 6,650 $ 3,105 $ -- $ 54,936
Restricted cash and investments ............................. 1,118 -- -- 2,646
Intercompany receivable ..................................... -- 1,508 (8,280) --
Accounts receivable, net .................................... 1,436 -- -- 57,092
Inventories ................................................. -- -- -- 4,747
Prepaid expenses ............................................ 363 -- -- 3,862
----------- ----------- ----------- -----------
Total current assets ...................................... 9,567 4,613 (8,280) 123,283
Property and equipment, net ................................. 136,167 81,901 -- 1,096,307
Investment in Subsidiaries .................................. -- -- (778,757) --
Deferred offering costs, net ................................ 1,903 836 -- 18,989
Other assets, net ........................................... 3,745 -- -- 33,207
----------- ----------- ----------- -----------
$ 151,382 $ 87,350 $ (787,037) $ 1,271,786
=========== =========== =========== ===========
Accounts payable ............................................ $ 368 $ -- $ -- $ 36,353
Construction payable ........................................ -- 3,160 -- 26,115
Construction payable-contested .............................. -- -- -- 7,232
Intercompany payables ....................................... 935 -- (8,280) --
Accrued interest payable .................................... 872 11 -- 10,008
Other accrued liabilities ................................... 1,647 65 -- 70,035
Current maturities of long-term debt (3) .................... 105,000 1,092 (23,021) 129,113
----------- ----------- ----------- -----------
Total current liabilities ................................. 108,822 4,328 (31,301) 278,856
Other long-term liabilities ................................. -- -- -- 3,274
Long-term debt (3) .......................................... -- 3,933 (741,813) 745,746
Long-term subordinated loans
payable to Principal Stockholder ........................... 35,000 -- -- 66,123
----------- ----------- ----------- -----------
143,822 8,261 (773,114) 1,093,999
----------- ----------- ----------- -----------
Redeemable Preferred Interest in Venetian ................... -- -- -- 188,778
----------- ----------- ----------- -----------
Stockholders' equity (deficit) .............................. 7,560 79,089 (13,923) (10,991)
----------- ----------- ----------- -----------
$ 151,382 $ 87,350 $ (787,037) $ 1,271,786
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any assets or
liabilities as of December 31, 2001.
(2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II
Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by
the Principal Stockholder during December 1999.
(3) As more fully described in Note 4 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.
18
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the three months ended June 30, 2002
GUARANTOR SUBSIDIARIES
---------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino ................................................ $ 46,820 $ -- $ -- $ -- $ --
Room .................................................. -- 52,635 -- -- --
Food and beverage ..................................... -- 17,654 -- -- --
Casino rental revenues from LVSI ...................... -- 10,969 -- -- --
Retail and other ...................................... 1,420 8,622 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues ........................................ 48,240 89,880 -- -- --
Less promotional allowances ............................. -- (1,015) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues .......................................... 48,240 88,865 -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino ................................................ 39,798 -- -- -- --
Rooms ................................................. -- 14,496 -- -- --
Food and beverage ..................................... -- 10,670 -- -- --
Retail and other ...................................... -- 4,715 -- -- --
Provision for doubtful accounts ....................... 2,839 2,100 -- -- --
General and administrative ............................ 673 21,872 -- -- --
Corporate expense ..................................... 1,938 976 -- -- --
Rental expense ........................................ 252 2,350 -- -- --
Pre-opening and developmental expense ................. -- 5 -- -- 1,401
Depreciation and amortization ......................... -- 9,794 -- -- --
----------- ----------- ----------- ----------- -----------
45,500 66,978 -- -- 1,401
----------- ----------- ----------- ----------- -----------
Operating income (loss) ................................. 2,740 21,887 -- -- (1,401)
Other income (expense): ----------- ----------- ----------- ----------- -----------
Interest income ..................................... 44 414 -- -- --
Interest expense, net of amounts capitalized ........ (15) (25,759) -- -- --
Interest expense on indebtedness to
Principal Stockholder ............................. -- (805) -- -- --
Other income (expense) .............................. -- (307) -- -- --
Loss on early retirement of debt .................... -- (41,236) -- -- --
Income (loss) from equity investment in
Grand Canal Shops II............................... (12) (376) -- -- --
Income (loss) from equity investment in VCR
and subsidiaries .................................. (52,611) (765) -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ................... (49,854) (46,947) -- -- (1,401)
Preferred return on Redeemable Preferred
Interest in Venetian ................................ -- (5,664) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (49,854) $ (52,611) $ -- $ -- $ (1,401)
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
19
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the three months ended June 30, 2002
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Casino .................................................... $ -- $ -- $ -- $ 46,820
Room ...................................................... -- -- -- 52,635
Food and beverage ......................................... -- -- -- 17,654
Casino rental revenues from LVSI .......................... -- -- (10,969) --
Retail and other .......................................... 9,025 1,333 (1,714) 18,686
-------------- -------------- ------------ -----------
Total revenues ............................................ 9,025 1,333 (12,683) 135,795
Less promotional allowances ................................. -- -- (6,615) (7,630)
-------------- -------------- ------------ -----------
Net revenues .............................................. 9,025 1,333 (19,298) 128,165
-------------- -------------- ------------ -----------
Operating expenses:
Casino .................................................... -- -- (14,629) 25,169
Rooms ..................................................... -- -- (904) 13,592
Food and beverage ......................................... -- -- (1,921) 8,749
Retail and other .......................................... 3,522 -- (375) 7,862
Provision for doubtful accounts ........................... -- -- -- 4,939
General and administrative ................................ 516 -- (136) 22,925
Corporate expense ......................................... -- -- -- 2,914
Rental expense ............................................ 606 -- (1,333) 1,875
Pre-opening and developmental expense ..................... -- -- -- 1,406
Depreciation and amortization ............................. 1,170 -- -- 10,964
-------------- -------------- ------------ -----------
5,814 -- (19,298) 100,395
-------------- -------------- ------------ -----------
Operating income (loss) ..................................... 3,211 1,333 -- 27,770
Other income (expense): -------------- -------------- ------------ -----------
Interest income ......................................... 11 -- -- 469
Interest expense, net of amounts capitalized ............ (1,719) (190) -- (27,683)
Interest expense on indebtedness to
Principal Stockholder ................................. (871) -- -- (1,676)
Other income (expense) .................................. -- -- -- (307)
Loss on early retirement of debt ........................ (1,020) (507) -- (42,763)
Income (loss) from equity investment in
Grand Canal Shops II .................................. -- -- 388 --
Income (loss) from equity investment in VCR
and subsidiaries ...................................... -- -- 53,376 --
-------------- -------------- ------------ -----------
Income (loss) before preferred return ....................... (388) 636 53,764 (44,190)
Preferred return on Redeemable Preferred
Interest in Venetian .................................... -- -- -- (5,664)
-------------- -------------- ------------ -----------
Net income (loss)
........................................................... $ (388) $ 636 $ 53,764 $ (49,854)
============== ============== ============ ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
20
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the three months ended June 30, 2001
GUARANTOR SUBSIDIARIES
---------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino ................................................ $ 54,265 $ -- $ -- $ -- $ --
Room .................................................. -- 56,428 -- -- --
Food and beverage ..................................... -- 18,528 -- -- --
Casino rental revenue from LVSI ....................... -- 11,488 -- -- --
Retail and other ...................................... 152 8,758 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues ........................................ 54,417 95,202 -- -- --
Less promotional allowances ............................. -- (1,446) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues .......................................... 54,417 93,756 -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino ................................................ 52,500 -- -- -- --
Rooms ................................................. -- 14,775 -- -- --
Food and beverage ..................................... -- 11,019 -- -- --
Retail and other ...................................... -- 4,867 -- -- --
Provision for doubtful accounts ....................... 5,171 -- -- -- --
General and administrative ............................ 391 22,774 -- -- --
Corporate expense ..................................... 1,057 1,033 -- -- --
Rental expense ........................................ 86 1,398 -- -- --
Depreciation and amortization ......................... -- 9,144 -- -- --
----------- ----------- ----------- ----------- -----------
59,205 65,010 -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss) ................................. (4,788) 28,746 -- -- --
Other income (expense): ----------- ----------- ----------- ----------- -----------
Interest income ..................................... 176 178 -- -- --
Interest expense, net of amounts capitalized ........ -- (22,465) -- -- --
Interest expense on indebtedness to
Principal Stockholder ............................. -- (1,010) -- -- --
Income (loss) from equity investment in
Grand Canal Shops II .............................. (13) (410) -- -- --
Income (loss) from equity investment in VCR
and subsidiaries .................................. (1) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ................... (4,626) 5,039 -- -- --
Preferred return on Redeemable Preferred
Interest in Venetian ................................ -- (5,040) -- -- --
----------- ----------- ----------- ----------- -----------
Net loss ................................................ $ (4,626) $ (1) $ -- $ -- $ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or
expenses as of June 30, 2001.
21
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the three months ended June 30, 2001
NON-GUARANTOR SUBSIDIARIES
--------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenues:
Casino .................................................... $ -- $ -- $ -- $ 54,265
Room ...................................................... -- -- -- 56,428
Food and beverage ......................................... -- -- -- 18,528
Casino rental revenue from LVSI ........................... -- -- (11,488) --
Retail and other .......................................... 8,792 -- (256) 17,446
----------- ----------- ----------- -----------
Total revenues ............................................ 8,792 -- (11,744) 146,667
Less promotional allowances ................................. -- -- (8,212) (9,658)
----------- ----------- ----------- -----------
Net revenues .............................................. 8,792 -- (19,956) 137,009
----------- ----------- ----------- -----------
Operating expenses:
Casino .................................................... -- -- (16,342) 36,158
Rooms ..................................................... -- -- (1,090) 13,685
Food and beverage ......................................... -- -- (2,078) 8,941
Retail and other .......................................... 3,196 -- (230) 7,833
Provision for doubtful accounts ........................... -- -- -- 5,171
General and administrative ................................ 466 -- (216) 23,415
Corporate expense ......................................... -- -- -- 2,090
Rental expense ............................................ 538 -- -- 2,022
Depreciation and amortization ............................. 1,161 -- -- 10,305
----------- ----------- ----------- -----------
5,361 -- (19,956) 109,620
----------- ----------- ----------- -----------
Operating income (loss) ..................................... 3,431 -- -- 27,389
Other income (expense): ----------- ----------- ----------- -----------
Interest income ......................................... 34 -- -- 388
Interest expense, net of amounts capitalized ............ (2,649) -- -- (25,114)
Interest expense on indebtedness to
Principal Stockholder ................................. (1,239) -- -- (2,249)
Income (loss) from equity investment in
Grand Canal Shops II .................................. -- -- 423 --
Income (loss) from equity investment in VCR
and subsidiaries ....................................... -- -- 1 --
----------- ----------- ----------- -----------
Income (loss) before preferred return ....................... (423) -- 424 414
Preferred return on Redeemable Preferred
Interest in Venetian .................................... -- -- -- (5,040)
----------- ----------- ----------- -----------
Net loss .................................................... $ (423) $ -- $ 424 $ (4,626)
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or
expenses as of June 30, 2001.
22
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the six months ended June 30, 2002
GUARANTOR SUBSIDIARIES
---------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino .............................................. $ 97,293 $ -- $ -- $ -- $ --
Room ................................................ -- 109,013 -- -- --
Food and beverage ................................... -- 39,533 -- -- --
Casino rental revenues from LVSI .................... -- 22,531 -- -- --
Retail and other .................................... 1,569 16,971 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenues ...................................... 98,862 188,048 -- -- --
Less promotional allowances ........................... -- (1,765) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues ........................................ 98,862 186,283 -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino .............................................. 86,042 -- -- -- --
Rooms ............................................... -- 28,695 -- -- --
Food and beverage ................................... -- 22,656 -- -- --
Retail and other .................................... -- 9,036 -- -- --
Provision for doubtful accounts ..................... 5,124 3,150 -- -- --
General and administrative .......................... 1,420 42,369 -- -- --
Corporate expense ................................... 2,937 1,886 -- -- --
Rental expense ...................................... 462 5,306 -- -- --
Pre-opening and developmental expense ............... -- 5 -- -- 2,066
Depreciation and amortization ....................... -- 19,604 -- -- --
----------- ----------- ----------- ----------- -----------
95,985 132,707 -- -- 2,066
----------- ----------- ----------- ----------- -----------
Operating income (loss) ............................... 2,877 53,576 -- -- (2,066)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income ................................... 160 462 -- -- --
Interest expense, net of amounts capitalized ...... (17) (47,867) -- -- --
Interest expense on indebtedness
to Principal Stockholder ......................... -- (1,914) -- -- --
Other income (expense) ............................ -- 363 -- -- --
Loss on early retirement of debt .................. -- (41,236) -- -- --
Income (loss) from equity investment in
Grand Canal Shops II ............................. (2) (65) -- -- --
Income (loss) from equity investment in VCR
and subsidiaries ................................. (47,784) 224 -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return ................. (44,766) (36,457) -- -- (2,066)
Preferred return on Redeemable Preferred
Interest in Venetian .............................. -- (11,327) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (44,766) $ (47,784) $ -- $ -- $ (2,066)
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
23
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the six months ended June 30, 2002
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenues:
Casino .................................................... $ -- $ -- $ -- $ 97,293
Room ...................................................... -- -- -- 109,013
Food and beverage ......................................... -- -- -- 39,533
Casino rental revenues from LVSI .......................... -- -- (22,531) --
Retail and other .......................................... 17,619 3,333 (4,045) 35,447
---------- --------- ----------- -----------
Total revenues ............................................ 17,619 3,333 (26,576) 281,286
Less promotional allowances ................................. -- -- (14,923) (16,688)
---------- --------- ----------- -----------
Net revenues .............................................. 17,619 3,333 (41,499) 264,598
---------- --------- ----------- -----------
Operating expenses:
Casino .................................................... -- -- (31,178) 54,864
Rooms ..................................................... -- -- (2,069) 26,626
Food and beverage ......................................... -- -- (3,936) 18,720
Retail and other .......................................... 6,631 -- (703) 14,964
Provision for doubtful accounts ........................... -- -- -- 8,274
General and administrative ................................ 883 -- (280) 44,392
Corporate expense ......................................... -- -- -- 4,823
Rental expense ............................................ 1,094 -- (3,333) 3,529
Pre-opening and developmental expense ..................... -- -- -- 2,071
Depreciation and amortization ............................. 2,345 -- -- 21,949
---------- --------- ----------- -----------
10,953 -- (41,499) 200,212
---------- --------- ----------- -----------
Operating income (loss) ..................................... 6,666 3,333 -- 64,386
Other income (expense): ---------- --------- ----------- -----------
Interest income ......................................... 28 -- -- 650
Interest expense, net of amounts capitalized ............ (3,645) (536) -- (52,065)
Interest expense on indebtedness
to Principal Stockholder ............................... (2,096) -- -- (4,010)
Other income (expense) .................................. -- -- -- 363
Loss on early retirement of debt ........................ (1,020) (507) -- (42,763)
Income (loss) from equity investment in
Grand Canal Shops II ................................... -- -- 67 --
Income (loss) from equity investment in VCR
and subsidiaries ........................................ -- -- 47,560 --
---------- --------- ----------- -----------
Income (loss) before preferred return ....................... (67) 2,290 47,627 (33,439)
Preferred return on Redeemable Preferred
Interest in Venetian .................................... -- -- -- (11,327)
Net income (loss) ---------- --------- ----------- -----------
$ (67) $ 2,290 $ 47,627 $ (44,766)
========== ========= =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses
as of June 30, 2002.
24
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS
For the six months ended June 30, 2001
GUARANTOR SUBSIDIARIES
--------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
-------------- ----------- ------------ ------------ -----------
Revenues:
Casino ............................................... $ 112,741 $ -- $ -- $ -- $ --
Room ................................................. -- 116,014 -- -- --
Food and beverage .................................... -- 37,357 -- -- --
Casino rental revenue from LVSI ...................... -- 22,847 -- -- --
Retail and other ..................................... 441 18,001 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenue ........................................ 113,182 194,219 -- -- --
Less promotional allowances ............................ -- (2,708) -- -- --
----------- ----------- ----------- ----------- -----------
Net revenues ......................................... 113,182 191,511 -- -- --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino ............................................... 110,624 -- -- -- --
Rooms ................................................ -- 29,437 -- -- --
Food and beverage .................................... -- 21,803 -- -- --
Retail and other ..................................... -- 9,571 -- -- --
Provision for doubtful accounts ...................... 8,889 -- -- -- --
General and administrative ........................... 1,372 43,752 -- -- --
Corporate expense .................................... 2,082 1,896 -- -- --
Rental expense ....................................... 279 2,850 -- -- --
Depreciation and amortization ........................ -- 18,054 -- -- --
----------- ----------- ----------- ----------- -----------
123,246 127,363 -- -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss) ................................ (10,064) 64,148 -- -- --
Other income (expense): ----------- ----------- ----------- ----------- -----------
Interest income .................................... 387 349 -- -- --
Interest expense, net of amounts capitalized ....... -- (46,247) -- -- --
Interest expense on indebtedness to
Principal Stockholder ............................. -- (1,974) -- -- --
Income (loss) from equity investment in
Grand Canal Shops II .............................. (45) (1,461) -- -- --
Income (loss) from equity investment in VCR
and subsidiaries .................................. 4,735 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before preferred return .................. (4,987) 14,815 -- -- --
Preferred return on Redeemable Preferred
Interest in Venetian ............................... -- (10,080) -- -- --
----------- ----------- ----------- ----------- -----------
Net loss ............................................... $ (4,987) $ 4,735 $ -- $ -- $ --
=========== =========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or
expenses as of June 30, 2001.
25
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued)
For the six months ended June 30, 2001
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- --------------
Revenues:
Casino .................................................... $ -- $ -- $ -- $ 112,741
Room ...................................................... -- -- -- 116,014
Food and beverage ......................................... -- -- -- 37,357
Casino rental revenue from LVSI ........................... -- -- (22,847) --
Retail and other .......................................... 16,826 -- (538) 34,730
----------- ----------- ----------- -----------
Total revenue ............................................. 16,826 -- (23,385) 300,842
Less promotional allowances ................................. -- -- (19,236) (21,944)
----------- ----------- ----------- -----------
Net revenues .............................................. 16,826 -- (42,621) 278,898
----------- ----------- ----------- -----------
Operating expenses:
Casino .................................................... -- -- (34,468) 76,156
Rooms ..................................................... -- -- (2,581) 26,856
Food and beverage ......................................... -- -- (4,555) 17,248
Retail and other .......................................... 5,944 -- (484) 15,031
Provision for doubtful accounts ........................... -- -- -- 8,889
General and administrative ................................ 835 -- (533) 45,426
Corporate expense ......................................... -- -- -- 3,978
Rental expense ............................................ 1,084 -- -- 4,213
Depreciation and amortization ............................. 2,457 -- -- 20,511
----------- ----------- ----------- -----------
10,320 -- (42,621) 218,308
----------- ----------- ----------- -----------
Operating income (loss) ..................................... 6,506 -- -- 60,590
Other income (expense): ----------- ----------- ----------- -----------
Interest income ......................................... 70 -- -- 806
Interest expense, net of amounts capitalized ............ (5,618) -- -- (51,865)
Interest expense on indebtedness to
Principal Stockholder .................................. (2,464) -- -- (4,438)
Income (loss) from equity investment in
Grand Canal Shops II ................................... -- -- 1,506 --
Income (loss) from equity investment in VCR
and subsidiaries ....................................... -- -- (4,735) --
----------- ----------- ----------- -----------
Income (loss) before preferred return ....................... (1,506) -- (3,229) 5,093
Preferred return on Redeemable Preferred
Interest in Venetian .................................... -- -- -- (10,080)
----------- ----------- ----------- -----------
Net loss .................................................... $ (1,506) $ -- $ (3,229) $ (4,987)
=========== =========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or
expenses as of June 30, 2001.
26
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002
GUARANTOR SUBSIDIARIES
--------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
------------------------- ------------ ------------ -----------
Net cash provided by (used in) operating activities ......... $ 3,250 $ 7,552 $ -- $ -- $ (2,066)
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Increase in restricted cash ($185.0 million for
Phase IA construction and $116.9 million for
debt defeasance on July 5, 2002)......................... -- (302,796) -- -- --
Capital expenditures ...................................... -- (31,977) -- -- --
Dividend from Grand Canal Shops II LLC .................... -- 21,590 -- -- --
Capital contributions to subsidiaries ..................... -- (40,974) -- -- --
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities ....................... -- (354,157) -- -- --
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Dividend to Venetian Casino Resort LLC .................... -- -- -- -- --
Capital contribution from Venetian Casino Resort, LLC ..... -- -- -- -- 2,066
Repayments on 12 1/4% mortgage notes ...................... -- (316,558) -- -- --
Proceeds from 11% mortgage notes .......................... -- 850,000 -- -- --
Repayments on senior subordinated notes ................... -- (95,690) -- -- --
Proceeds from secured mall facility ....................... -- -- -- -- --
Repayments on mall-tranche A take-out loan ................ -- -- -- -- --
Repayments on mall-tranche B take-out loan ................ -- -- -- -- --
Repayments on completion guaranty loan .................... -- (31,124) -- -- --
Proceeds from senior secured credit facility-term B ....... -- 250,000 -- -- --
Repayments on bank credit facility-term ................... -- (151,986) -- -- --
Repayments on bank credit facility-revolver ............... -- (61,000) -- -- --
Proceeds from bank credit facility-revolver ............... -- 21,000 -- -- --
Repayments on FF&E credit facility ........................ -- (53,735) -- -- --
Repayments on Phase II Subidiary credit facility .......... -- -- -- -- --
Repayments on Phase II Subidiary unsecured bank loan ...... -- -- -- -- --
Repurchase premiums incurred in
connection with refinancing transctions .................. -- (26,691) -- -- --
Payments of deferred offering costs ....................... -- (36,820) -- -- --
Net increase (decrease) in intercompany accounts .......... (9,969) 7,897 -- -- --
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) financing activities ......... (9,969) 355,293 -- -- 2,066
----------- ----------- ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents ............ (6,719) 8,688 -- -- --
Cash and cash equivalents at beginning of period ............ 37,367 7,806 4 4 --
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period .................. $ 30,648 $ 16,494 $ 4 $ 4 $ --
=========== =========== ============ =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no cash flows as of June
30, 2002.
27
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- -------------
Net cash provided by (used in) operating activities ......... $ 3,682 $ 3,148 $ -- $ 15,566
------------ ------------ ----------- -----------
Cash flows from investing activities:
Increase in restricted cash ($185.0 million for
Phase IA construction and $116.9 million for
debt defeasance on July 5, 2002)......................... (147) -- -- (302,943)
Capital expenditures ...................................... (50) (3,571) -- (35,598)
Dividend from Grand Canal Shops II LLC .................... -- -- (21,590) --
Capital contributions to subsidiaries ..................... -- -- 40,974 --
------------ ------------ ----------- -----------
Net cash used in investing activities ....................... (197) (3,571) 19,384 (338,541)
------------ ------------ ----------- -----------
Cash flows from financing activities:
Dividend to Venetian Casino Resort LLC .................... (21,590) -- 21,590 --
Capital contribution from Venetian Casino Resort, LLC ..... 37,864 1,044 (40,974) --
Repayments on 12 1/4% mortgage notes ...................... -- -- -- (316,558)
Proceeds from 11% mortgage notes .......................... -- -- -- 850,000
Repayments on senior subordinated notes ................... -- -- -- (95,690)
Proceeds from secured mall facility ....................... 120,000 -- -- 120,000
Repayments on mall-tranche A take-out loan ................ (105,000) -- -- (105,000)
Repayments on mall-tranche B take-out loan ................ (35,000) -- -- (35,000)
Repayments on completion guaranty loan .................... -- -- -- (31,124)
Proceeds from senior secured credit facility-term B ....... -- -- -- 250,000
Repayments on bank credit facility-term ................... -- -- -- (151,986)
Repayments on bank credit facility-revolver ............... -- -- -- (61,000)
Proceeds from bank credit facility-revolver ............... -- -- -- 21,000
Repayments on FF&E credit facility ........................ -- -- -- (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 .................. -- -- -- (26,691)
Payments of deferred offering costs ....................... (3,147) (6) -- (39,973)
Net increase (decrease) in intercompany accounts .......... 564 1,508 -- --
------------ ------------ ----------- -----------
Net cash provided by (used in) financing activities ......... (6,309) (2,479) (19,384) 319,218
------------ ------------ ----------- -----------
Increase (decrease) in cash and cash equivalents ............ (2,824) (2,902) -- (3,757)
Cash and cash equivalents at beginning of period ............ 6,650 3,105 -- 54,936
------------ ------------ ----------- -----------
Cash and cash equivalents at end of period .................. $ 3,826 $ 203 $ -- $ 51,179
============ ============ =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, subsequently transferred to the Mall
Subsidiary on December 20, 1999 and, in connection with the Refinancing Transactions, transferred to the Mall II Subsidiary on
June 4, 2002. As a result, Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no cash flows as of June
30, 2002.
28
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001
GUARANTOR SUBSIDIARIES
--------------------------------------
Lido Mall Venetian
Venetian Intermediate Intermediate Venture
Las Vegas Casino Holding Holding Development
Sands, Inc. Resort LLC Company LLC Company LLC LLC
------------------------- ------------ ------------ -----------
Net cash provided by (used in) operating activities ......... $ (19,451) $ 26,140 $ -- $ -- $ --
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Increase in restricted cash ............................... -- (26) -- -- --
Capital expenditures ...................................... -- (20,924) -- -- --
----------- ----------- ------------ ----------- ----------
Net cash used in investing activities ....................... -- (20,950) -- -- --
----------- ----------- ------------ ----------- ----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan .... -- (5,625) -- -- --
Repayments on bank credit facility-tranche B term loan .... -- (250) -- -- --
Proceeds from bank credit facility-tranche C term loan .... -- 5,750 -- -- --
Proceeds from bank credit facility-revolver ............... -- 22,000 -- -- --
Repayments on FF&E credit facility ........................ -- (10,747) -- -- --
Proceeds from Phase II Subsidiary unsecured bank loan ..... -- -- -- -- --
Payments of deferred offering costs ....................... -- (520) -- -- --
Net increase (decrease) in intercompany accounts .......... 11,898 (11,962) -- -- --
----------- ----------- ------------ ----------- ----------
Net cash provided by (used in) financing activities ......... 11,898 (1,354) -- -- --
----------- ----------- ------------ ----------- ----------
Increase (decrease) in cash and cash equivalents ............ (7,553) 3,836 -- -- --
Cash and cash equivalents at beginning of period ............ 35,332 4,260 4 4 --
----------- ----------- ------------ ----------- ----------
Cash and cash equivalents at end of period .................. $ 27,779 $ 8,096 $ 4 $ 4 $ --
----------- ----------- ------------ ----------- ----------
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any cash flows as
of June 30, 2001.
29
LAS VEGAS SANDS, INC.
Notes to Financial Statements (continued)
Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS (continued)
For the six months ended June 30, 2001
NON-GUARANTOR SUBSIDIARIES
-------------------------------
Grand Canal Other Non- Consolidating/
Shops II Guarantor Eliminating
LLC (1) Subsidiaries Entries Total
-------------- --------------- --------------- -------------
Net cash used in investing activities ....................... $ 1,084 $ (9) $ -- $ 7,764
----------- ----------- ----------- -----------
Cash flows from investing activities:
Increase in restricted cash ............................... (26) -- -- (52)
Capital expenditures ...................................... (294) (428) -- (21,646)
----------- ----------- ----------- -----------
Net cash used in investing activities ....................... (320) (428) -- (21,698)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments on bank credit facility-tranche A term loan .... -- -- -- (5,625)
Repayments on bank credit facility-tranche B term loan .... -- -- -- (250)
Proceeds from bank credit facility-tranche C term loan .... -- -- -- 5,750
Proceeds from bank credit facility-revolver ............... -- -- -- 22,000
Repayments on FF&E credit facility ........................ -- -- -- (10,747)
Proceeds from Phase II Subsidiary unsecured bank loan ..... -- 792 -- 792
Payments of deferred offering costs ....................... -- (300) -- (820)
Net increase (decrease) in intercompany accounts .......... 64 -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities ......... 64 492 -- 11,100
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ............ 828 55 -- (2,834)
Cash and cash equivalents at beginning of period ............ 2,972 34 -- 42,606
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period .................. $ 3,800 $ 89 $ -- $ 39,772
=========== ========== =========== ===========
- ----------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The assets and
liabilities of Mall Construction, a guarantor subsidiary, were transferred to Grand Canal Shops Mall, LLC, a non- guarantor
subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the Mall
Subsidiary on December 20, 1999. As a result, neither Mall Construction nor Grand Canal Shops Mall, LLC had any cash flows as
of June 30, 2001.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and the
notes thereto and other financial information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. Certain statements in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements. See "-Special Note Regarding
Forward-Looking Statements."
General
- -------
The Company owns and operates the Casino Resort, a large-scale
Venetian-themed hotel, casino, retail, meeting and entertainment complex in Las
Vegas, Nevada. The Casino Resort includes the first and only all-suites hotel on
the Las Vegas Strip (the "Strip") with 3,036 suites; a gaming facility of
approximately 116,000 square feet; an enclosed retail, dining and entertainment
complex of approximately 475,000 gross leasable square feet; and a meeting and
conference facility of approximately 500,000 square feet of convention space.
The Company is party to litigation matters and claims related to its operations
and construction of the Casino Resort that could have a material adverse effect
on the financial position, results of operations or cash flows of the Company to
the extent such litigation is not covered by the Insurance Policy. See "Part II-
Item 1 - Legal Proceedings."
Over the last year, the Company's operating results have been
negatively impacted by a decline in tourism following the terrorist attacks of
September 11, 2001, an economic downturn as well as an unusually low table games
win percentage. Consolidated net revenues for the three months ended June 30,
2002 were $128.2 million, representing a decrease of $8.8 million of
consolidated net revenues from the quarter ended June 30, 2001. Despite these
negative factors, several of the Company's financial indicators continue to
improve, due in large part to: (1) forward hotel room and meeting space bookings
from conventions and trade shows at the Casino Resort; (2) stable room
occupancies; (3) a recurring revenue stream from the Mall; and (4) successful
cost-cutting initiatives. Although the Company expects to continue to recover,
the extent to which these factors will directly or indirectly impact operating
results in the future cannot be predicted, nor can the Company predict the
extent to which future security alerts and/or additional terrorist attacks may
impact operations.
During 2001, the Company also began designing, planning, permitting and
constructing the Phase IA Addition. Due to the travel disruption to Las Vegas
during the fourth quarter of 2001, the Company decided to suspend construction
of the Phase IA Addition at that time. The Company continued certain designing,
planning and permitting of the Phase IA Addition, however, and on June 4, 2002
upon the completion of the Refinancing Transactions, construction was
re-commenced. To date, the Company has completed the design, and has
substantially completed the foundation and support systems for, each of the
1,000-room hotel tower on top of the existing parking garage and the additional
convention center space. The Company currently anticipates that the Phase IA
Addition will be open for business in June 2003 with a remaining cost of
approximately $235.0 million. The Phase IA Addition is being funded from the
proceeds of the Senior Secured Credit Facility.
On June 26, 2002, the Company announced that a joint venture comprised
of Venetian Macau and a group of Macau and Hong Kong-based investors had entered
into a final concession contract with the Government of the Macau Special
Administrative Region of the People's Republic of China to operate casinos in
Macau. Venetian Macau continues to negotiate the final terms of a joint venture
and management expects that those negotiations will be concluded in the third
quarter of 2002. The final terms of a joint venture agreement may include
financial obligations to the joint venture and/or to the Government of Macau or
Venetian Macau may be obligated to pay for certain costs of developing and
constructing the contemplated casinos in Macau. Through June 30, 2002, the
Company had incurred developmental expenses of $2.4 million in connection with
the proposed Macau project.
The Company has also entered into a joint venture agreement to assess
the feasibility of and develop an Internet gaming site. The Company has applied
for an Internet gaming license in Alderney, but has not yet established any
operations. The Company estimates that it is committed to contribute
approximately $1.0 million, approximately one-third of the required capital, to
the joint venture during the next year. After recovery of each partner's initial
capital contribution, the Company will receive 50% to 80% of the net profit of
the joint venture, based upon an increasing scale of net profit (if any). The
joint venture provides that the agreement will be automatically terminated
should the Company fail to obtain any required regulatory approvals from
Alderney, the Nevada gaming authorities or any other applicable jurisdiction
prior to launching its operations.
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Critical Accounting Policies and Estimates
- ------------------------------------------
Management has identified the following critical accounting policies
that affect the Company's more significant judgments and estimates used in the
preparation of the Company's consolidated financial statements. The preparation
of the Company's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company's
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
those estimates, including those related to asset impairment, accruals for slot
marketing points, self-insurance, compensation and related benefits, revenue
recognition, allowance for doubtful accounts, contingencies and litigation. The
Company states these accounting policies in the notes to the consolidated
financial statements and in relevant sections in this discussion and analysis.
These estimates are based on the information that is currently available to the
Company and on various other assumptions that management believes to be
reasonable under the circumstances. Actual results could vary from those
estimates.
The Company believes that the following critical accounting policies
affect significant judgments and estimates used in the preparation of its
consolidated financial statements:
o The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the failure of its customers to make required
payments, which results in bad debt expense. Management determines the
adequacy of this allowance by continually evaluating individual customer
receivables, considering the customer's financial condition, credit history
and current economic conditions. If the financial condition of customers
were to deteriorate, or if a customer refuses to pay or disputes any such
payment, additional allowances may be required.
o The Company maintains accruals for health and workers compensation
self-insurance, slot club point redemption and group sales commissions,
which are classified in other accrued liabilities in the consolidated
balance sheets. Management determines the adequacy of these accruals by
periodically evaluating the historical experience and projected trends
related to these accruals. If such information indicates that the accruals
are overstated or understated, the Company will adjust the assumptions
utilized in the methodologies and reduce or provide for additional accruals
as appropriate.
o The Company is subject to various claims and legal actions, including
lawsuits with the Construction Manager for the original construction of the
Casino Resort. Some of these matters relate to personal injuries to
customers and damage to customers' personal assets. Management estimates
guest claims expense and accrues for such liabilities based upon historical
experience in the other accrued liability category in its consolidated
balance sheet.
Operating Results
- -----------------
Three Months Ended June 30, 2002 compared to Three Months Ended June
30, 2001
--------------------------------------------------------------------
Operating Revenues
------------------
Consolidated net revenues for the second quarter of 2002 were $128.2
million, representing a decrease of $8.8 million when compared with $137.0
million of consolidated net revenues during the second quarter of 2001. The
decrease in net revenues was due primarily to a decline of casino, hotel and
food and beverage revenues at the Casino Resort, which was partially offset by
an increase in retail and other revenues.
The Casino Resort's casino revenues were $46.8 million in the second
quarter of 2002, a decrease of $7.5 million when compared to $54.3 million
during the second quarter of 2001. The decrease was attributable to the
continuing impact of the September 11th terrorist attacks and an increased
selectivity of high-end casino customers to reduce variable marketing and
incentive costs. Table games drop (volume) decreased to $181.3 million in the
second quarter of 2002 from $259.8 million during the second quarter of 2001.
However, as more fully explained below, casino expenses (primarily variable
costs associated with marketing) decreased more than the decline in casino
revenues, improving the profitability of the casino department.
32
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Casino Resort achieved room revenues of $52.6 million during the
second quarter of 2002, compared to $56.4 million during the second quarter of
2001. The decline in hotel revenues was the result of a decline in overall
average daily room rates attributable to additional reliance on wholesale room
sales because of reduced group room sales during the month of June. The Casino
Resort's average daily room rate was $196 in the second quarter of 2002,
compared to $213 during the second quarter of 2001. The occupancy of available
guestrooms was 97.6% during the second quarter of 2002, compared to 96.5% during
the second quarter of 2001.
Food and beverage, retail and other revenues were $36.3 million during
the second quarter of 2002, compared to $36.0 million during the second quarter
of 2001. The increase was attributable to a favorable arbitration award in the
amount of $1.5 million for royalties which was offset by a decline in food and
beverage revenues related to a decrease in banquet activity during the second
quarter of 2002.
Operating Expenses
------------------
Consolidated operating expenses were $100.4 million in the second
quarter of 2002, compared with $109.6 million during the second quarter of 2001.
The decrease was primarily attributable to a reduction in casino marketing and
incentive costs and casino payroll costs during the second quarter. The Company
renewed its casualty and liability insurance coverage during April 2002 and
incurred a substantial increase in premium cost. In addition, effective June 4,
2002, the Company was required by certain lenders in the Refinancing
Transactions to obtain terrorism insurance coverage. The additional insurance
premium costs are estimated to be $2.7 million per year. Corporate expenses
totaled $2.9 million during the second quarter of 2002, compared to $2.1 million
during the second quarter 2001. The increase in corporate expenses was the
result of the adoption of an executive bonus program.
Casino expenses were $25.2 million in the second quarter of 2002,
compared to $36.2 million during the second quarter of 2001. The decrease was
primarily attributable to a reduction in casino marketing and incentive costs,
casino payroll costs and decreases in gaming taxes and promotional allowances
due to lower gaming volumes during the second quarter of 2002. The decrease in
marketing and incentive costs related to a decrease in table games revenues as
further described above.
Food and beverage, retail and other expenses during the second quarter
of 2002 were $16.6 million as compared to $16.8 million during the second
quarter of 2001. The decrease was associated with a decrease in banquet revenue
during the second quarter of 2002 as compared to the second quarter of 2001 and
reduced group room business in June 2002.
Rental expenses, primarily related to the Casino Resort's heating,
ventilation and air conditioning plant and rental gaming devices, were $1.9
million for the second quarter of 2002, as compared to $2.0 million in the
second quarter of 2001.
Interest Income (Expense)
-------------------------
Interest expense was $29.4 million in the second quarter of 2002,
compared to $27.4 million in the same period of 2001. Of the $29.4 million
incurred during the second quarter of 2002, $26.6 million was related to the
Casino Resort (excluding the Mall), $2.6 million was related to the Mall and
$0.2 million was related to the Phase II Subsidiary. The increase in interest
expense was attributable to additional borrowings from the Refinancing
Transactions, offset by decreases in the average interest rates of outstanding
debt and the capitalization of interest expense in connection with construction
of the Phase IA Addition.
Interest income for the quarter ended June 30, 2002 was $0.5 million,
compared to $0.4 million in the same period of 2001. The Company had other
expenses of $0.3 million during the quarter ended June 30, 2002 resulting from a
change in the market value of the Old Rate Cap Agreements.
33
Six Months Ended June 30, 2002 compared to Six Months Ended June 30,
2001
--------------------------------------------------------------------
Operating Revenues
------------------
Consolidated net revenues for the six months ended June 30, 2002 were
$264.6 million, representing a decrease of $14.3 million when compared with
$278.9 million of consolidated net revenues during the six months ended June 30,
2001. The decrease in net revenues was primarily due to a decline of casino and
hotel revenue at the Casino Resort, which was partially offset by increases in
food and beverage and retail and other revenues.
The Casino Resort's casino revenues were $97.3 million for the six
months ended June 30, 2002, a decrease of $15.4 million when compared to $112.7
million during the six months ended June 30, 2001. The decrease was attributable
to the continuing impact of the September 11th terrorist attacks and increased
selectivity of high-end casino customers. Table games drop (volume) decreased to
$398.8 million for the six months ended June 30, 2002 from $568.3 million during
the six months ended June 30, 2001.
The Casino Resort's hotel occupancy percentages were 97.8% during the
six months ended June 30, 2002, as compared to 98.1% during the same period
2001. The Casino Resort achieved room revenues during the six months ended June
30, 2002 of $109.0 million, compared to $116.0 million during the six months
ended June 30, 2001. The Casino Resort's average daily room rate was $204 for
the six months ended June 30, 2002, compared to $216 during the six months ended
June 30, 2001. The decrease in room rates was partially the result of the Casino
Resort's additional reliance on wholesale rooms during the month of June 2002
over the mid-week, group and convention business, weekend retail business as
compared to June 2001 and the decline in tourism following the terrorist attacks
on September 11, 2001.
Food and beverage, retail and other revenues were $75.0 million during
the six months ended June 30, 2002, compared to $72.1 million during the six
months ended June 30, 2001. The increase was primarily attributable to a
favorable $1.5 million arbitration award for royalties.
Operating Expenses
------------------
Consolidated operating expenses were $200.2 million for the six months
ended June 30, 2002, compared with $218.3 million during the six months ended
June 30, 2001. The decrease in operating expenses was primarily attributable to
a reduction in casino marketing and incentive costs, promotional allowances and
casino payroll costs associated with lower casino revenue. Corporate expenses
totaled $4.8 million during the six months ended June 30, 2002, as compared to
$4.0 million during the six months ended June 30, 2001. The increase in
corporate expenses was attributable to the adoption of an executive bonus
program.
Casino expenses were $54.9 million for the six months ended June 30,
2002, compared to $76.2 million during the same period of 2001. The decrease was
primarily attributable to a reduction in casino marketing and incentive costs
during the six months ended June 30, 2002 as well as decreases in payroll costs
and gaming taxes due to lower gaming volumes. The decrease in marketing and
incentive costs resulted from heightened selectivity of casino customers to
improve casino operating margins.
Food and beverage, retail and other expenses during the six months
ended June 30, 2002 were $33.7 million as compared to $32.3 million during the
second quarter of 2001. The increase was associated with an increase in banquet
revenue during the six months ended June 30, 2002 as compared to the six months
ended June 30, 2001.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant and rental of gaming devices for the six
months ended June 30, 2002 were $3.5 million. Rental expenses were $4.2 million
for the six months ended June 30, 2001. The decline in rental expenses was
primarily attributable to reduced usage of rented or participation gaming
devices during 2002.
Interest Income (Expense)
-------------------------
Interest expense was $56.1 million for the six months ended June 30,
2002, compared to $56.3 million in the same period of 2001. Of the $56.1 million
incurred during the six months ended June 30, 2002, $49.9 million was related to
the Casino Resort (excluding the Mall), $5.7 million was related to the Mall and
$0.5 million was related to the Phase II Subsidiary. The decrease in interest
expense was attributable to decreases in the average interest rates of the
Company's outstanding debt during the six months ended June 30, 2002 and the
capitalization of interest expense in connection with the Phase IA Addition, net
of increased interest expense associated with additional borrowings from the
Company's Refinancing Transactions.
34
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Interest income for the six months ended June 30, 2002 was $0.7 million
as compared to $0.8 million in the same period in
2001.
Other Factors Affecting Earnings
- --------------------------------
Depreciation expense for the three and six months ended June 30, 2002
was $11.0 million and $21.9 million, respectively, compared to $10.3 million and
$20.5 million in the second quarter of 2001, respectively. Each of the increases
was attributable to placing various capital improvement projects into service
during the fourth quarter of 2001, including the Guggenheim Museum projects.
During the three and six month periods ended June 30, 2002 and June 30,
2001, $5.7 million and $11.3 million, and $5.0 million and $10.1 million,
respectively, were accrued on the Series B Preferred Interest related to the
contributions made.
During the three and six month periods ended June 30, 2002, the Company
incurred $1.4 million and $2.1 million, respectively, of pre-development
expenses for the proposed Macau project.
During early 2000, the Company modified its business strategy as it
relates to premium casino customers and marketing to foreign premium casino
customers. The Company has generally raised its betting limits for table games
to be competitive with other premium resorts on the Strip. There are additional
risks associated with this change in strategy, including risk of bad debts,
risks to profitability margins in a highly competitive market and the need for
additional working capital to accommodate possible higher levels of trade
receivables and foreign currency fluctuations associated with collection of
trade receivables in other countries. The Company has opened domestic and
foreign marketing offices as well as bank collection accounts in several foreign
countries to accommodate this change in business strategy, thereby increasing
marketing costs. The Company continually evaluates its costs associated with
marketing to the various segments of the premium casino customer market and has
recently increased selectivity of casino customers to reduce variable marketing
and incentive costs.
Liquidity and Capital Resources
- -------------------------------
Cash Flow and Capital Expenditures
----------------------------------
As of June 30, 2002 and December 31, 2001, the Company held
unrestricted cash and cash equivalents of $51.2 million and $54.9 million,
respectively. Net cash provided by operating activities for the six months ended
June 30, 2002 was $15.6 million, compared to net cash provided by operating
activities of $7.8 million for the six months ended June 30, 2001. Net trade
receivables were $49.4 million as of June 30, 2002 and $57.1 million as of
December 31, 2001. The decrease in net trade receivable is primarily related to
reduced casino revenue during the first six months of 2002 as compared to the
same period in 2001.
Capital expenditures during the six months ended June 30, 2002 were
$35.6 million, primarily attributable to construction of the Phase IA Addition.
Capital expenditures for the six months ended June 30 2001 were $21.6 million.
The Company also held restricted cash balances of $305.6 million as of
June 30, 2002. Of this amount, $185.0 million was deposited into restricted
accounts and invested in cash or permitted investments by a disbursement agent
for the Senior Secured Credit Facility lenders until required for Phase IA
Addition project costs under the disbursement terms of the Senior Secured Credit
Facility. In addition to the cash in the disbursement account, the Term A
Facility provides for a delayed draw term loan of $50.0 million which the
Company expects to draw upon in full by June 4, 2003 to pay additional Phase IA
Addition project costs. The Company estimates that the cost to complete the
Phase IA Addition is $235.0 million and expects substantial completion to occur
by June 2003. Through June 30, 2002, the Company had paid approximately $30.3
million to complete the Phase IA Addition. The Company currently anticipates
that the funds in the disbursement account and the delayed draw facility will be
sufficient to pay for all of the remaining costs of the Phase IA Addition.
35
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Aggregate Indebtedness and Fixed Payment Obligations to the HVAC Provider
- -------------------------------------------------------------------------
The Company's total long-term indebtedness and its fixed payment
obligations to Atlantic Pacific Las Vegas, LLC, the provider of heating and air
conditioning to the Casino Resort and the Expo Center (the "HVAC Provider"), are
summarized below for the twelve month periods ended June 30:
2003 2004 2005 2006 Thereafter
---------- ---------- ----------- ---------- ----------
(Dollars in Thousands)
Long -Term Indebtedness
Mortgage Notes $ -- $ -- $ -- $ -- $ 850,000
Old Mortgage Notes (redeemed July 5, 2002) 108,442 -- -- -- --
Old Subordinated Notes (redeemed July 5, 2002) 1,753 -- -- -- --
Senior Secured Credit Facility 2,500 2,500 2,500 2,500 240,000
Secured Mall Facility -- -- 120,000 -- --
Fixed Payment Obligations To The HVAC Provider
HVAC Provider fixed payments 7,657 7,657 7,657 7,657 22,971
---------- ---------- ----------- ---------- ----------
Total indebtedness and HVAC fixed
payment obligations $ 120,352 $ 10,157 $ 130,157 $ 10,157 $1,112,971
========== ========== =========== ========== ==========
Under the terms of its existing indebtedness and after giving effect to
the redemption of the Old Notes on July 5, 2002, the Company has debt service
payments due aggregating $2.5 million during the next twelve months,
representing principal payments on the Senior Secured Credit Facility. Based on
current outstanding indebtedness and current interest rates on the Senior
Secured Credit Facility and the Secured Mall Facility, the Company has estimated
total interest payments during the next twelve months (excluding noncash
amortization of debt offering costs) of approximately $106.0 million for
indebtedness secured by the Casino Resort and approximately $4.5 million for
indebtedness secured by the Mall.
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 $53.6
million, payable in equal monthly installments during the period of July 1, 2002
through July 1, 2009.
Refinancing Transactions
------------------------
On June 4, 2002, the Company issued $850.0 million in aggregate
principal amount of Mortgage Notes in a private placement offering and entered
into the Senior Secured Credit Facility in an aggregate amount 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). The Company used or
will use the proceeds of the Refinancing Transactions to repay, redeem or
repurchase all of its outstanding indebtedness (including the Old Notes, the
Bank Credit Facility, the FF&E Facility, the Completion Guaranty Loan, the Mall
Take-out Financing, the Phase II Unsecured Bank Loan and the Phase II Subsidiary
Credit Facility), 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 Principal Stockholder's completion guarantee
relating to the construction of the Casino Resort was terminated upon the
consummation of the Refinancing Transactions and the remaining cash collateral
was returned to the Principal Stockholder. In connection with the Refinancing
Transactions, the Company incurred a loss on early retirement of indebtedness of
$42.8 million during the three months ended June 30, 2002. See "Item 1 -
Financial Statements and Supplementary Data - Notes to Financial Statements -
Note 4 Long-Term Debt."
As part of the Refinancing Transactions, the Company commenced a cash
tender offer on May 6, 2002 to repurchase the Old Notes. Upon the consummation
of the Refinancing Transactions, the Company repurchased $316.6 million of the
Old Mortgage Notes and $95.7 million of the Old Subordinates Notes and effected
a covenant defeasance with respect to the remaining Mortgage Notes. The Company
called all of the remaining Old Notes upon the closing of the Refinancing
Transactions and redeemed the balance of the Old Mortgage Notes ($108.4 million)
and the Old Subordinated Notes (1.8 million) on July 5, 2002. As result of the
redemptions of the Old Notes on July 5, 2002, the Company will incur a loss of
$8.7 million on early retirement of debt in the third quarter of 2002.
36
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The sources and uses of funds from the Refinancing Transactions were as
follows:
(Dollars in Millions)
Sources:
Mortgage Notes $ 850.0
Senior Secured Credit Facility 250.0
Secured Mall Facility 120.0
---------
$ 1,220.0
=========
Uses:
Redemption of Old Mortgage Notes $ 316.6
Restricted cash - Old Mortgage Notes defeasance 116.9
Redemption of Old Subordinated Notes 95.7
Redemption of Old Subordinated Notes (redeemed on July 5, 2002) 2.0
Repayment of Bank Credit Facility 191.6
Repayment of FF&E Facility 48.4
Repayment of Mall Tranche A Take-out Loan 105.0
Repayment of Mall Tranche B Take-out Loan 35.0
Repayment of Phase II Subsidiary Credit Facility 1.4
Repayment of Phase II Unsecured Bank Loan 1.1
Repayment of Completion Guaranty Loan 33.4
Payment of Refinancing Transactions costs and fees 66.7
Restricted cash - Phase IA Addition 185.0
Unrestricted cash 21.2
---------
$1,220.0
=========
For the next twelve months, the Company expects to fund Casino Resort
operations, capital expenditures, the Macau joint venture, Internet gaming
development activities and debt service requirements from existing cash
balances, operating cash flow, borrowings under the Revolving Facility to the
extent that funds are available, drawings under the Term A Facility and
distributions of excess cash from the Mall II Subsidiary to Venetian to the
extent permitted under the terms of the Company's indebtedness.
The Company's existing debt instruments contain certain restrictions
that, among other things, limit the ability of the Company and/or certain
subsidiaries to incur additional indebtedness, issue disqualified stock or
equity interests, pay dividends or make other distributions, repurchase equity
interests or certain indebtedness, create certain liens, enter into certain
transactions with affiliates, enter into certain mergers or consolidations or
sell assets of the Company without prior approval of the lenders or noteholders.
Financial covenants included in the 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. As of June 2002, the Company was in compliance with all
required covenants and ratios under its current debt instruments. See "Item 1 -
Financial Statements and Supplementary Data - Notes to Financial Statements -
Note 4 Long-Term Debt."
Litigation Contingencies and Available Resources
------------------------------------------------
The Company is a party to certain litigation matters and claims related
to the construction of the Casino Resort. If the Company is required to pay any
of the Construction Manager's contested construction costs (the "Contested
Construction Costs") which are not covered by the Insurance Policy, the Company
may use cash received from the following sources to fund such costs: (i) the LD
Policy; (ii) the Construction Manager, Bovis and P&O pursuant to the
Construction Management Contract, the Bovis Guaranty and the P&O Guaranty,
respectively; (iii) third parties, pursuant to their liability to the Company
under their agreements with the Company; (iv) amounts received from the Phase II
Subsidiary for shared facilities designed and constructed to accommodate the
operations of the Casino Resort and the Phase II Resort; (v) borrowings under
the Revolving Facility; (vi) additional debt or equity financings; and (vii)
operating cash flow. If the Company were required to pay substantial Contested
Construction Costs, and if it were unable to raise or obtain the funds from the
sources described above, there could be a material adverse effect on the
Company's financial position, results of operations or cash flows.
37
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
If the Company is required to pay certain significant contested
construction costs, or if the Company is unable to meet its debt service
requirements, the Company will seek, if necessary and to the extent permitted
under 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.
Phase II Resort
---------------
The Company has not yet set a date to begin construction of the Phase
II 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 has no commitments to fund the hard construction costs of the Phase II
Resort. In addition, the development of the Phase II Resort may 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. 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.
Macau Joint Venture
-------------------
The Company is currently in the process of negotiating agreements to
operate casinos in Macau. Through June 30, 2002, the Company had incurred
developmental expenses of $2.4 million in connection with the proposed Macau
project. Under the contemplated terms of Venetian Macau's agreements with its
joint venture partners, Venetian Macau may have financial obligations to the
joint venture and/or to the Government of Macau or it may be obligated to pay
for certain costs of developing and constructing the contemplated casinos in
Macau. Under the Indenture, the Company is permitted to make investments in the
amount of $40.0 million in, and extend guarantees with respect to $90.0 million
of indebtedness and/or obligations of, its Macau subsidiaries. The Company may
use cash received from the following sources to fund the Macau venture:
o borrowings by Venetian under the Revolving Facility;
o additional debt or equity financings; and
o operating cash flow (subject to certain limitations contained in the
Company's debt instruments).
Venetian Macau and the Company's other Macau subsidiaries are not
guarantors under the Mortgage Notes or the Senior Secured Credit Facility and,
subject to certain limited exceptions, are not restricted subsidiaries under the
Indenture or the Senior Secured Credit Facility.
Recent Accounting Pronouncements
- --------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141 ("SFAS 141"), entitled "Business Combination," and Statement No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 141 provides as
follows: (a) use of the pooling-of-interests method is prohibited for business
combinations initiated after June 30, 2001; and (b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. There are also transition provisions
that apply to business combinations completed before July 1, 2001 that were
accounted for by the purchase method. SFAS 142 is effective for fiscal years
beginning after December 15, 2001 and applies to all goodwill and other
intangible assets recognized in an entity's statement of financial position at
that date, regardless of when those assets were initially recognized.
In August 2001, the Financial Accounting Standards Board issued
Statement No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the
Retirement of Long-Lived Assets". The objective of SFAS 143 is to establish
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. SFAS 143 is effective for
fiscal years beginning after June 15, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
In October 2001, the Financial Accounting Standards Board issued
Statement No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. SFAS 144 is effective for
fiscal years beginning after December 15, 2001 and, generally, is to be applied
prospectively.
In April 2002, the Financial Accounting Standards Board issued SFAS
145. SFAS 145 addresses the presentation for losses on early retirements of debt
in the statement of operations. The Company has adopted SFAS 145 and will no
longer present losses on early retirements of debt as an extraordinary item.
Additionally, prior period extraordinary losses will be reclassified to conform
to this new presentation. Adoption of SFAS 145 had no impact on the Company's
financial condition, or cash flows.
In June 2002, the Financial Accounting Standard Board issued Statement
No. 146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS 146 become effective for exit or disposal
activities commenced subsequent to December 31, 2002 and the Company does not
expect any impact on its financial condition, results of operations or cash
flows.
The adoptions of SFAS 141, SFAS 142 and SFAS 144 had no impact on the
Company's financial position, results of operations or cash flows. The Company
does not expect the impact of the adoptions of SFAS 143 or SFAS 146 to be
material to its financial condition, results of operations or cash flows.
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Certain statements in this section, in the risk factors see forth in
Exhibit 99.1 to this Quarterly Report on Form 10-Q and elsewhere in this
Quarterly Report on Form 10-Q (as well as information included in oral
statements or other written statements made or to be made by the Company)
constitute "forward-looking statements." Such forward-looking statements include
the discussions of the business strategies of the Company and expectations
concerning future operations, margins, profitability, liquidity and capital
resources. In addition, in certain portions of this Form 10-Q, the words:
"anticipates", "believes", "estimates", "seeks", "expects", "plans", "intends"
and similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Although the Company believes
that such forward-looking statements are reasonable, it can give no assurance
that any forward-looking statements will prove to be correct. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the risks associated with entering into new
construction and new ventures, including the Phase IA Addition and the Macau
joint venture, increased competition and other planned construction in Las
Vegas, including the opening of a new casino resort on the site of the former
Desert Inn and upcoming increases in meeting and convention space, the
completion of infrastructure projects in Las Vegas, government regulation of the
casino industry, including gaming license approvals and regulation in foreign
jurisdictions, the legalization of gaming in certain jurisdictions, such as
Native American reservations in the States of California and New York and
regulation of gaming on the Internet, leverage and debt service (including
sensitivity to fluctuations in interest rates and other capital markets trends),
uncertainty of casino spending and vacationing at casino resorts in Las Vegas,
disruptions or reductions in travel to Las Vegas, the September 11th attacks and
any future terrorist incidents, fluctuations in occupancy rates and average
daily room rates in Las Vegas, demand for all-suites rooms, the popularity of
Las Vegas as a convention and trade show destination, insurance risks (including
the risk that the Company 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.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Company's primary exposure to market risk is interest rate
risk associated with its long-term debt. The Company attempts to manage its
interest rate risk by managing the mix of its long-term fixed-rate borrowings
and variable rate borrowings, and by use of interest rate cap and floor
agreements. The ability to enter into interest rate cap and floor agreements
allows the Company to manage its interest rate risk associated with its variable
rate debt.
The Company does not hold or issue financial instruments for trading
purposes and does not enter into deliverable transactions that would be
considered speculative positions. The Company's derivative financial instruments
consist exclusively of interest rate cap and floor agreements, which do not
quality for hedge accounting. Interest differentials resulting from these
agreements are recorded on an accrual basis as an adjustment to interest
expense.
38
Item 3. Quantitative And Qualitative Disclosures About Market Risk (Continued)
To manage exposure to counterparty credit risk in interest rate cap and
floor agreements, the Company enters into agreements with highly-rated
institutions that can be expected to fully perform under the terms of such
agreements. Frequently, these institutions are also members of the bank group
providing the Company's credit facility, which management believes further
minimizes the risk of nonperformance.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents notional amounts and weighted average interest
rates by contractual maturity dates for the twelve month periods ended June 30:
2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE(1)
--------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Millions)
Liabilities
- -----------
Short-term debt
Variable rate (3) $2.5 -- -- -- -- $2.5 $2.5
Average interest rate (2) 4.8% -- -- -- -- 4.8% 4.8%
Long-term debt
Fixed rate -- -- -- -- 850.0 850.0 850.0
Average interest rate (2) -- -- -- -- 11.0% 11.0% 11.0%
Variable rate -- 2.5 122.5 2.5 240.0 367.5 367.5
Average interest rate (2) -- 4.8% 4.1% 4.8% 4.8% 4.6% 4.6%
- ----------------
(1) The fair values are based on the borrowing rates currently available for debt instruments with similar terms and maturities and
market quotes of the Company's publicly traded debt.
(2) Based upon contractual interest rates for fixed rate indebtedness or current LIBOR rates for variable rate indebtedness.
(3) The above amounts exclude $110.2 million of defeasance notes redeemed on July 5, 2002. See " Item 1 - Financial Statements and
Supplementary Data - Notes to Financial Statements - Note 4 Long-Term Debt."
Foreign currency translation gains and losses were not material to the
Company's results of operations for the quarter ended June 30, 2002.
See also "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and "
Item 1 - Financial Statements and Supplementary Data - Notes to Financial
Statements - Note 4 Long-Term Debt."
39
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to litigation matters and claims related to its
operations and the construction of the Casino Resort. For more information, see
the Company's Annual Report on Form 10-K for the year ended December 31, 2001
and "Part I, Item 1 - Financial Statements - Notes to Financial Statements Note
6 - Commitments and Contingencies."
Items 2 through 4 of Part II are not applicable.
Item 5. Other Information
The Company is not required to file this Quarterly Report on Form 10-Q
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The
filing is required, however, pursuant to the terms of the Indenture.
The risk factors set forth in Exhibit 99.1 to this Quarterly Report on
Form 10-Q, which are incorporated by reference into this document, describe
certain risks of owning the Company's securities. Additional risks and
uncertainties not currently known to the Company, or that the Company deems to
be immaterial may also materially and adversely affect the Company's business,
financial condition or results of operations. Certain statements in Exhibit 99.1
are forward-looking statements. See "Part II, Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations--Special Note
Regarding Forward-Looking Statements."
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit No. Description of Document
----------- -----------------------
3.1 Amended and Restated Articles of Incorporation of Las Vegas Sands,
Inc. (1)
3.2 Amended and Restated By-laws of Las Vegas Sands, Inc. (1)
4.1 Indenture, dated as of June 4, 2002, by and among Las Vegas Sands,
Inc. and Venetian Casino Resort, LLC, as issuers, Mall Intermediate
Holding Company, LLC, Grand Canal Shops Mall Construction, LLC, Lido
Intermediate Holding Company, LLC, Venetian Casino Resort Athens, LLC,
Venetian Venture Development, LLC, Venetian Operating Company, LLC and
Venetian Marketing, Inc. (collectively, the "Subsidiary Guarantors")
and U.S. Bank National Association, as trustee. (1)
4.2 Registration Rights Agreement, dated as of June 4, 2002, by and among
Las Vegas Sands, Inc., Venetian Casino Resort, LLC, the Subsidiary
Guarantors named therein, Goldman, Sachs & Co. and Scotia Capital
(USA) Inc. (1)
4.3 Security Agreement, dated as of June 4, 2002, by and among Las Vegas
Sands, Inc., Venetian Casino Resort, LLC, the Subsidiary Guarantors
and The Bank of Nova Scotia, as Intercreditor Agent. (1)
4.4 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Fixture Filing, dated as of June 4,
2002, made by Venetian Casino Resort, LLC and Las Vegas Sands, Inc.,
jointly and severally as trustor, to First American Title Insurance
Company, as trustee, for the benefit of U.S. Bank National Association
in its capacity as Mortgage Note Indenture Trustee, as beneficiary.
(1)
4.5 Intercreditor Agreement, dated as of June 4, 2002, by and among The
Bank of Nova Scotia, as Bank Agent and Intercreditor Agent, and U.S.
Bank National Association, as Mortgage Notes Indenture Trustee. (1)
4.6 Unsecured Indemnity Agreement, dated as of June 4, 2002, by and among
Las Vegas Sands, Inc. and Venetian Casino Resort, LLC, to and for the
benefit of U.S. Bank National Association, and the Indemnified Parties
defined therein. (1)
10.1 Bank Credit Agreement, dated as of June 4, 2002, by and among Las
Vegas Sands, Inc., Venetian Casino Resort, LLC, the Subsidiary
Guarantors, the lenders party thereto, Goldman Sachs Credit Partners,
L.P., as joint lead arranger, joint bookrunner and syndication agent,
and The Bank of Nova Scotia, as joint lead arranger, joint bookrunner
and administrative agent. (2)
40
Exhibit No. Description of Document
----------- -----------------------
10.2 Deed of Trust, Assignment of Rents and Leases and Security Agreement,
dated as of June 4, 2002, made by Venetian Casino Resort, LLC and Las
Vegas Sands, Inc., jointly and severally as trustor, to First American
Title Insurance Company, as trustee, for the benefit of The Bank of
Nova Scotia (as administrative agent), as beneficiary. (1)
10.3 Subsidiary Guaranty, dated as of June 4, 2002, by the Subsidiary
Guarantors for the benefit of The Bank of Nova Scotia, as
Administrative Agent. (1)
10.4 Disbursement Account Agreement, dated as of June 4, 2002, by and among
Las Vegas Sands, Inc., Venetian Casino Resort, LLC and The Bank of
Nova Scotia, as secured party and securities intermediary. (1)
10.5 Environmental Indemnity Agreement, dated as of June 4, 2002, by and
among Las Vegas Sands, Inc. and Venetian Casino Resort, LLC, to and
for the benefit of The Bank of Nova Scotia, as Administrative Agent
for itself and for the other lenders under the Bank Agreement. (1)
10.6 Loan Agreement, dated as of June 4, 2002, by and between Archon
Financial, L.P., as lender, and Grand Canal Shops II, LLC. (1)
10.7 Amendment No. 1 to Loan Agreement, dated June 28, 2002, by and between
Goldman Sachs Mortgage Company (as successor in interest to Archon
Financial, L.P.), as lender, and Grand Canal Shops II, LLC, as
borrower. (1)
10.8 Indemnity Agreement, dated as of August 25, 2000, by and among Las
Vegas Sands, Inc., Venetian Casino Resort, LLC, Grand Canal Shops Mall
Subsidiary, LLC, Grand Canal Shops Mall Construction, LLC, Grand Canal
Shops Mall, LLC, Interface Group Holding Company, and American
Insurance Companies (of which American Home Assurance Company is a
member company). (1)
10.9 Second Amendment to Amended and Restated Reciprocal Easement, Use and
Operating Agreement, dated as of June 4, 2002, by and among Interface
Group-Nevada, Inc., Grand Canal Shops II, LLC, Lido Casino Resort, LLC
and Venetian Casino Resort, LLC. (1)
10.10 Amended and Restated Las Vegas Sands, Inc. 1997 Fixed Stock Option
Plan (the "Stock Option Plan"). (1)
10.11 First Amendment to the Stock Option Plan, dated June 4, 2002. (1)
10.12 Amended and Restated Employment Agreement, dated as of January 1,
2002, by and between Las Vegas Sands, Inc. and William P. Weidner. (1)
10.13 Amended and Restated Employment Agreement, dated as of January 1,
2002, by and between Las Vegas Sands, Inc. and Bradley H. Stone. (1)
10.14 Amended and Restated Employment Agreement, dated as of January 1,
2002, by and between Las Vegas Sands, Inc. and Robert G. Goldstein.
(1)
10.15 Catastrophic Equity Protection Insurance Agreement, dated as of June
28, 2000, by and among American Home Assurance Company, Las Vegas
Sands, Inc. and Venetian Casino Resort, LLC. (1) (3)
99.1 Risk Factors (1)
- ----------
(1) Filed herewith.
(2) Incorporated by reference to the Company's report on Form 8-K, dated
as of June 18, 2002.
(3) Material has been omitted from this exhibit pursuant to a request for
confidential treatment and that material has been filed separately
with the Securities and Exchange Commission.
41
(b) Reports on Form 8-K
1. On May 9, 2002, the Company filed a report on Form 8-K announcing its
intent to offer approximately $850 million in aggregate principal
amount of mortgage notes in a Rule 144A offering, and to enter into
new senior secured credit facilities in aggregate amount of
approximately $480 million.
2. On May 24, 2002, the Company filed a report on Form 8-K announcing the
pricing of approximately $850 million in aggregate principal amount of
11% mortgage notes maturing on June 15, 2010.
3. On June 5, 2002, the Company filed a report on Form 8-K announcing the
closing of a Rule 144A offering for $850 million in aggregate
principal amount of 11% mortgage notes.
4. On June 18, 2002, the Company filed a report on Form 8-K attaching its
new $375 million senior secured credit facility entered into on June
4, 2001.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAS VEGAS SANDS, INC.
August 14, 2002 By: /s/ Sheldon G. Adelson
---------------------------------
Sheldon G. Adelson,
Chairman of the Board, Chief
Executive Officer and Director
August 14, 2002 By: /s/ Harry D. Miltenberger
---------------------------------
Harry D. Miltenberger,
Vice President-Finance
(principal financial and
accounting officer)
43