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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, 2004

[   ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from _______________ to ________________

Commission File Number   333-42147

LAS VEGAS SANDS, INC.
(Exact name of registration as specified in its charter)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [   ] No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). [   ]Yes [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 16, 2004

LAS VEGAS SANDS, INC.

Item 1. Financial Statements

Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

LAS VEGAS SANDS, INC.

Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

LAS VEGAS SANDS, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)
(Dollars in thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

LAS VEGAS SANDS, INC.

Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

LAS VEGAS SANDS, INC.

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, 2003. 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 2003 financial statements have been reclassified to conform with the 2004 presentation. In the opinion of management, all adjustments and normal recurring accruals considered necessary for a fair statement of the results for the interim period have been included. The interim results reflected in the unaudited financial statements are not necessarily indicative of expected results for the full year.

        Las Vegas Sands, Inc. (“LVSI”) and its subsidiaries (collectively, the “Company”) own and operate the Venetian Casino Resort (the “Casino Resort”), a Renaissance Venice-themed resort situated at one of the premier locations on the Las Vegas Strip (the “Strip”). On May 18, 2004, the Company opened a portion of the Sands Macao Casino, a Las Vegas style casino (the “Macao Casino”) located in Macao, a Special Administrative Region of the People’s Republic of China. The remainder of the Macao Casino is scheduled to open in late August 2004. The Company is also in the process of developing two additional casino resorts: the Palazzo Casino Resort in Las Vegas and the Macao Venetian Casino Resort in Macao.

        Las Vegas Properties

        The Casino Resort is located across from The Mirage and the Treasure Island Hotel and Casino. The Casino Resort includes the only all-suites hotel on the Strip with 4,049 suites (the “Hotel”); a gaming facility of approximately 116,000 square feet (the “Casino”); an enclosed retail, dining and entertainment complex of approximately 446,000 net leasable square feet (the “Mall”); and a meeting and conference facility of approximately 650,000 square feet (the “Congress Center”). On May 17, 2004, the Company sold the Mall to General Growth Properties (the “Mall Purchaser”) and leased certain other restaurant and retail assets of the Casino Resort for approximately $766.0 million (the “Mall Sale”). See “Note 5 – Commitments and Contingencies.” The Company is involved in significant litigation relating to the cost of construction of the Casino Resort. See “Note 5 – Commitments and Contingencies”.

        The Company has begun design and construction work and has completed demolition and clearing on the site of the Palazzo Casino Resort, a second resort similar in size to the Casino Resort, which will be situated on a 15-acre site situated adjacent to the Casino Resort and the Sands Convention and Expo Center (the “Expo Center”), across Sands Boulevard from the Wynn Resort (the “Palazzo”). The Palazzo will consist of an all-suite, 50-floor luxury hotel tower with approximately 3,025 rooms, a gaming facility of approximately 105,000 square feet, an enclosed shopping, dining and entertainment complex of approximately 375,000 square feet and additional meeting and conference space of approximately 450,000 square feet. As part of the Mall Sale, the Company entered into an agreement to construct and sell the multi-level retail space of the Palazzo for approximately $250.0 million subject to an upward adjustment based on operating income performance upon completion of construction of the Palazzo (the “Phase II Mall Sale”). The Company has commenced the marketing of a new $1.01 billion senior secured credit facility, consisting of a revolving facility and term loan facilities, the proceeds of which will be used, among other things, to fund the design, development, construction, and pre-opening costs of the Palazzo. The Palazzo is expected to be completed in 2007.

        On July 29, 2004, the Company acquired all of the capital stock of Interface Group Holding Company, Inc. (“Interface Holding”) from the Company’s principal stockholder (the “Principal Stockholder”) in exchange for the issuance to the Principal Stockholder of 220,370 additional shares of LVSI common stock. Interface Holding is the indirect owner of the Expo Center and the holder of all the Series B Preferred Interest in Venetian Casino Resort, LLC (the “Redeemable Preferred Interest”). With approximately 1.15 million square feet, the Expo Center is one of the largest convention and trade show facilities in the United States. The Expo Center is physically connected to the Casino Resort.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 1 Organization and Business of Company (Continued)

        Macao Properties

        The Company intends to develop a “Las Vegas-style” collection of properties in Macao. On May 18, 2004, the Company opened a portion of the Macao Casino with the remainder scheduled to open in late August 2004. Upon its completion, the Macao Casino will consist of approximately 160,000 gross square feet of gaming facilities, including approximately 319 table games and 619 slot machines or other similar electronic devices, as well as numerous restaurants and private VIP gaming room facilities.

        In addition, the Company has begun design and planning work for the Macao Venetian Casino Resort, a 500-suite hotel, casino and convention center complex, with a Venetian-style theme similar to that of the Casino Resort to be located in the area of Macao known as Cotai (the “Macao Venetian Casino Resort”).

        Subsidiaries

        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 “New Mall Subsidiary”), Grand Canal Shops II, LLC (the “Mall II Subsidiary”)(which was sold May 17, 2004), Grand Canal Shops Mall MM Subsidiary, Inc, Venetian Hotel Operations, 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 Transport, LLC (“Venetian Transport”), Venetian Venture Development, LLC (“Venetian Venture”), Venetian Venture Development Intermediate Limited (“Venetian Intermediate”), Venetian Venture Development Intermediate I, Venetian Venture Development Intermediate II, Venetian Macau Finance Company, VI Limited, Las Vegas Sands (UK) Limited, Las Vegas Sands (Ibrox) Limited, Las Vegas Sands (Sheffield) Limited, Venetian Macau Limited (“Venetian Macao”), Venetian Global Holdings Limited, Venetian Marketing, Inc. (“Venetian Marketing”), Venetian Far East Limited, Venetian Operating Company, LLC (“Venetian Operating”), Venetian Resort Development Limited, Phase II Mall Subsidiary, LLC and Phase II Mall Holding, LLC. Each of LVSI and its 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, except to the extent of guarantees on indebtedness. See “Note 4- Long-Term Debt”.

        Venetian was formed on March 20, 1997 to own and operate certain portions of the Casino Resort. LVSI is the managing member and owns 100% of the common voting equity in Venetian. The entire preferred interest in Venetian is owned by Interface Holding, which became a wholly owned subsidiary of LVSI following the acquisition by LVSI of all of its capital stock on July 29, 2004.

        Various subsidiaries are guarantors or co-obligors of certain indebtedness related to the Casino Resort. See “Note 4 – Long-Term Debt.”

        The Mall II Subsidiary was an indirect, wholly owned subsidiary of LVSI that owned and operated the Mall and was formed on May 31, 2002 and became a successor to the New Mall Subsidiary in connection with the refinancing of the Mall’s indebtedness. The Mall II Subsidiary was sold on May 17, 2004. See “Note 4 – Long-Term Debt.”

        Venetian Macao is an indirect subsidiary of LVSI, which owns and operates the Macao Casino. See “Note 4 – Long-Term Debt.”

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 2 Stockholders’ Equity and Per Share Data

        The Company has a nonqualified stock option plan, which provides for the granting of stock options pursuant to the applicable provisions of the Internal Revenue Code and regulations. The stock option plan provides that the Principal Stockholder may assume the obligations of the Company under the plan and provides for the granting of up to 75,000 shares of common stock to officers and other key employees of the Company.

        During the first quarter of 2002, the Company entered into a stockholders’ agreement (the “Stockholders’ Agreement”) with the employees to whom options were granted (the “Additional Stockholders”) and the Principal Stockholder. The Stockholders’ Agreement restricts the ability of the Additional Stockholders and any of their permitted transferees who have agreed to be bound by the terms and conditions of the agreement to sell, assign, pledge, encumber, or otherwise dispose of any shares of common stock of LVSI, except in accordance with the provisions of the Stockholders’ Agreement. If at any time before LVSI completes an initial public offering, the Principal Stockholder wishes to sell 20% or more of his ownership interest in LVSI to any third party transferee, each Additional Stockholder shall have the right to participate in such sale on the same terms as those offered to the Principal Stockholder. The Additional Stockholders also have certain piggyback registration rights. Finally, if at any time prior to the completion by LVSI of an initial public offering LVSI wishes to issue any new securities, the Additional Stockholders will have the right under certain circumstances to purchase that number of shares of LVSI common stock, at the proposed purchase price of the new securities, such that the Additional Stockholders’ percentage ownership of LVSI would remain the same following such issuance.

        Basic and diluted income per share is calculated based upon the weighted average number of shares outstanding. In the first quarter of 2002, the Company completed a stock split whereby the number of shares of common stock outstanding was increased from 925,000 to 1,000,000. At the time of the stock split, the Principal Stockholder maintained 100% ownership of the Company’s common stock. All references to share and per share data herein have been adjusted retroactively to give effect to the increase in shares of common stock outstanding to 1,000,000. As of June 30, 2004, there were unexercised options to purchase 2,000 shares of the Company’s common stock. The impact of the unexercised options to purchase shares of the Company’s common stock have been included in the computation of diluted earnings per share for the three and six month periods ended June 30, 2004 and 2003.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 2 Stockholders’ Equity and Per Share Data (Continued)

        The Company has elected to follow Accounting Principles Board Opinion No. 25 entitled “Accounting For Stock Issued to Employees” and accounts for its stock-based compensation to employees using the intrinsic value method. Under this method, compensation expense is the difference between the market value of the Company’s stock and the stock option’s exercise price at the measurement date. Under APB 25, if the exercise price of the stock options is equal to or less than the market price of the underlying stock on the date of grant, no compensation expense is recognized.

        Had the Company accounted for the plan under the fair value method allowed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company’s net income, and earnings per share would have been reduced to the following pro forma amounts (dollars in thousands except per share data):

Note 3 Property and Equipment

        Property and equipment consists of the following (in thousands):

        During the three and six month periods ended June 30, 2004 and June 30, 2003, the Company capitalized interest expense of $1.2 million and $2.4 million, $2.7 million and $4.7 million, respectively.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 3 Property and Equipment (Continued)

        As of June 30, 2004, construction in progress represented design, pre-development, construction costs and shared facilities costs of $120.9 million for the Palazzo, of $25.8 million for the Venetian Macao, and $24.3 million for on-going capital improvement projects at the Casino Resort.

        Property and equipment with a net book value of approximately $132.4 million were sold in connection with the Mall Sale as further described in Note 5.

Note 4 Long-Term Debt

        Long-term debt consists of the following (in thousands):

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 4 Long-Term Debt (Continued)

Mortgage Notes

        On June 4, 2002, the Company issued $850.0 million in aggregate principal amount of 11.0% mortgage notes due 2010 (the “Mortgage Notes”). The Mortgage Notes bear interest at 11%, payable each June 15th and December 15th. The Mortgage Notes are secured by second priority liens on certain assets of the Company (the personal property and the real estate improvements that comprise the hotel, the casino, and the convention space, with certain exceptions). The Mortgage Notes are redeemable at the option of LVSI and Venetian at prices ranging from 100% to 105.5% commencing on or after June 15, 2006, as set forth in the Mortgage Notes and the indenture pursuant to which the Mortgage Notes were issued (the “Indenture”). Prior to June 15, 2006, LVSI and Venetian may redeem the Mortgage Notes at their principal amount plus an applicable make-whole premium. Upon a change of control (as defined in the Indenture), each Mortgage Note holder may require LVSI and Venetian to repurchase such Mortgage Notes at 101% of the principal amount thereof plus accrued interest and other amounts which are then due, if any. On or prior to June 15, 2005, the Company may redeem up to 35% of the Mortgage Notes with the net cash proceeds of one or more offerings of equity securities at a redemption price of 111% of the principal amount of the Mortgage Notes, plus accrued and unpaid interest. Upon an event of loss or certain asset sales, the Company may also be required to offer to purchase all or a portion of the Mortgage Notes with the proceeds of such event of loss or sale. The Mortgage Notes are not subject to a sinking fund requirement. The Mortgage Notes have been registered under the Securities Act of 1933, as amended (the “Securities Act”).

        As a result of the consummation of the Mall Sale on May 17, 2004 (as further described in Note 5), LVSI and Venetian were obligated to use the Excess Proceeds (as defined under the Indenture) from the Mall Sale to make an offer to purchase the maximum principal amount of Mortgage Notes that may be purchased out of the Excess Proceeds of the Mall Sale at an offer price in cash equal to 100% of the principal amount of the Mortgage Notes, plus accrued and unpaid interest and liquidated damages, if any, to the closing date of the offer (the “Asset Sale Offer”). The Asset Sale Offer closed on June 6, 2004, and $6.4 million of Mortgage Notes were tendered and re-purchased by the Company.

Senior Secured Credit Facility

        On June 4, 2002, the Company entered into a senior secured credit facility with a syndicate of lenders in an aggregate amount of $375.0 million (the “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”). The net proceeds from the Term A and Term B Facilities of $235.0 million were deposited into a disbursement account for an expansion of the Casino Resort the (“Phase IA Addition”), invested in cash or permitted investments, pledged to a disbursement agent for the Senior Secured Credit Facility lenders and used as required for Phase IA Addition project costs under disbursement terms specified in the Senior Secured Credit Facility. As of June 30, 2004 all funds had been drawn.

        The Term B Facility matures on June 4, 2008 and is subject to quarterly amortization payments in the amount of $625,000 from September 30, 2002 until September 30, 2007, followed by four equal quarterly amortization payments of $59.4 million until the maturity date. The Term A Facility was drawn in full on May 26, 2003, 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.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 4 Long-Term Debt (Continued)

        The Revolving Facility matures on June 4, 2007 and has no interim amortization. No amounts had been drawn under the Revolving Facility as of June 30, 2004. However, as described below, LVSI has guaranteed borrowings under a $50.0 million credit facility of its wholly owned subsidiary, Venetian Intermediate, to fund construction and development costs of the Macao Casino. These guarantees are supported by $50.0 million of letters of credit that were issued under the Revolving Facility. In addition, LVSI guaranteed funding of certain cost overruns of the Macao Casino as further described in Note 5. This guaranty is supported by a $10.0 million letter of credit, which was issued under the Revolving Facility during January 2004. As a result of the issuance of these letters of credit, the amount available for working capital loans under the Revolving Facility is $15.0 million as of June 30, 2004.

        All amounts outstanding under the Senior Secured Credit Facility bear interest at the option of the Company at the prime rate plus 2% per annum, or at the reserve adjusted Eurodollar rate plus 3% per annum. Since the substantial completion of the Phase IA Addition, the applicable margin for amounts outstanding under the Term A Facility and the Revolving Facility is determined by a grid based upon a leverage ratio. The leverage ratio is calculated as the ratio of consolidated total debt as of the last day of each fiscal quarter to EBITDA (as defined in the Senior Secured Credit Facility) for the four-fiscal quarter period ending on such date. Commitment fees equal to 0.50% per annum of the daily average unused portion of the commitment under the Revolving Facility are payable quarterly in arrears. The average interest rate for the Senior Secured Credit Facility was 4.1% during the three and six months ended June 30, 2004.

        The Senior Secured Credit Facility is secured by a first priority lien on certain assets of the Company (the personal property and the real estate improvements that comprise the hotel, the casino, and the convention space, with certain exceptions). The Senior Secured Credit Facility contains affirmative, negative, and financial covenants including limitations on indebtedness, liens, investments, guarantees, restricted junior payments, mergers and acquisitions, sales of assets, leases, transactions with affiliates and scope-changes and modifications to material contracts. Additionally, the Company is required to comply with certain financial ratios and other financial covenants including total debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum net worth covenants and maximum capital expenditure limitations. At June 30, 2004, the Company was in compliance with all required covenants and ratios under the Senior Secured Credit Facility.

        Pursuant to the terms of the Senior Secured Credit Facility, the Company is also required to maintain certain funds in escrow for insurance and property taxes. At June 30, 2004, $2.1 million was held by the lenders’ agent in escrow for these purposes. The amounts in escrow are classified as restricted cash in the accompanying financial statements.

        The Company has obtained an amendment or waiver to its Senior Secured Credit Facility (the “Bank Amendment”) to, among other things; permit the consummation of the Mall Sale, the purchase of a parcel of real property adjacent to the Casino Resort and waiving any events of default resulting therefrom. The parcel will be used either as a parking lot for the Palazzo or for constructing additional convention space. The Bank Amendment permitted the Company to use the proceeds from the Mall Sale to repurchase Mortgage Notes tendered pursuant to the Asset Sale Offer.

        The Company is in the process of marketing and completing documentation for a new $1.01 billion senior secured credit facility, the proceeds of which will be used to repay the Senior Secured Credit Facility in full, fund the design, development, construction, and pre-opening costs of the Palazzo and pay related fees and expenses. The Company expects to close on this transaction during late August 2004.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 4 Long-Term Debt (Continued)

FF&E Financing

        In September 2003, the Company and a lender entered into a credit facility (the “FF&E Credit Facility”) to provide $15.0 million of financing for the Phase IA Addition. The proceeds from the FF&E Credit Facility were used to finance certain furniture, fixtures and equipment (the “Specified FF&E”) for the Phase IA Addition and the facility is secured by the specified FF&E. The FF&E Credit Facility provides for a 60-month basic term loan. Interest on the term loan is three month LIBOR plus 3.00% and is payable quarterly. The FF&E Credit Facility is subject to nineteen quarterly amortization payments of $600,000 beginning January 1, 2004, and one final payment of $3,600,000 on October 1, 2008. The average interest rate for the FF&E Credit Facility was 4.1% during the three and six months ended June 30, 2004.

Venetian Intermediate Credit Facility

        On March 27, 2003, Venetian Intermediate entered into a credit agreement (“Venetian Intermediate Credit Agreement”) with a lender to provide $50.0 million of financing for the Macao Casino. Venetian Intermediate owns 100% of Venetian Macao, the owner and operator of the Macao Casino. The obligations under the loans to be made under the Venetian Intermediate Credit Agreement are guaranteed by the Company and Venetian and supported by letters of credit, which have been issued under the Revolving Facility in favor of the Venetian Intermediate Credit Agreement lender. As a result of the issuance of the letters of credit, the amounts available for working capital loans under the Revolving Facility have been reduced on a dollar for dollar basis. The amounts outstanding under the Venetian Intermediate Credit Agreement bear interest at the base rate or the adjusted Eurodollar rate plus 0.5% per annum. Interest is payable on the base rate loans on a quarterly basis and is payable on Eurodollar loans at the end of the applicable interest period, and there is no scheduled principal amortization. The credit facility is due in full on March 27, 2006. As of June 30, 2004, $50.0 million was outstanding under the Venetian Intermediate Credit Agreement and was supported by $50.0 million of letters of credit issued under the Revolving Facility. The average interest rate was 1.6% for the three and six months ended June 30, 2004.

Venetian Macao Senior Secured Notes

        On August 21, 2003, a wholly owned subsidiary of Venetian Macao, Venetian Macao Finance Company, issued $120.0 million in aggregate principal amount of floating rate senior secured notes due August 2008 (the “Venetian Macao Senior Secured Notes”). The Venetian Macao Senior Secured Notes issued by Venetian Macao Finance Company are guaranteed by Venetian Macao. All assets of Venetian Macao and its subsidiaries secure the Venetian Macao Senior Secured Notes and restrictions have been placed on the payment of dividends to LVSI and its subsidiaries from Venetian Macao and its subsidiaries. As of June 30, 2004, approximately $9.6 million of the proceeds from the issuance of the Venetian Macao Senior Secured Notes remained unused and have been classified as restricted cash in the accompanying balance sheet. As a result of the restrictions on dividend payments described above, approximately $9.6 million in net assets for the Venetian Macao at June 30, 2004 are not available at the parent level and are considered to be restricted net assets of subsidiaries at such date.

        The Venetian Macao Senior Secured Notes of $75.0 million in aggregate principal amount bear interest at the rate of three month U.S. dollar LIBOR plus 3.25%, payable quarterly (“Tranche A Notes”), and $45.0 million in aggregate principal amount of the Venetian Macao Senior Secured Notes bear interest at the rate of three month U.S. dollar LIBOR plus 4.00%, payable quarterly (“Tranche B Notes”). The Tranche A Notes have a mandatory redemption of $7.5 million on August 21, 2005, $11.2 million on August 21, 2006, $18.8 million on August 21, 2007, and $37.5 million on August 21, 2008. The Tranche B Notes have no interim amortization and are due in full on August 21, 2008. The average interest rate on the Venetian Macao Senior Secured Notes was 4.8% during the three and six months ended June 30, 2004.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 4 Long-Term Debt (Continued)

Macao Revolver

        On December 18, 2003, Venetian Macao and Venetian Macao Finance Company entered into a $20.0 million revolving credit facility (“Macao Revolver”) with a group of lenders. The Macao Revolver is secured on a pari passu basis with the same collateral as the Venetian Macao Senior Secured Notes. The Macao Revolver matures on December 18, 2006 and bears interest at LIBOR plus 3.75%. As of June 30, 2004, $10.0 million has been drawn under the Macao Revolver.

Redeemable Preferred Interest in Venetian Casino Resort, LLC

        Interface Holding owns the $77.1 million Redeemable Preferred Interest. The rights of the Redeemable Preferred Interest include the accrual of a preferred return of 12% from June 30, 1997. Until the indebtedness under the Senior Secured Credit Facility is repaid and cash payments are permitted under the restricted payment covenants of the Indenture, the preferred return on the Redeemable Preferred Interest will accrue but will not be paid in cash. Commencing June 30, 2011, distributions must be made to the extent of the positive capital account of the holder. During the second and third quarters of 1999, Interface Holding contributed $37.3 million and $7.1 million, respectively, in cash in exchange for an additional Redeemable Preferred Interest. During the three and six month periods ended June 30, 2004 and June 30, 2003, $7.2 million and $14.3 million, and $6.4 million and $12.7 million, respectively, were accrued on the Redeemable Preferred Interest related to the contributions made. Since 1997, no distributions of preferred interest or preferred return have been paid on the Redeemable Preferred Interest. As further described in Note 5, on July 29, 2004, the Company acquired all of the capital stock of Interface Holding from the Principal Stockholder in exchange for the issuance to the Principal Stockholder of 220,370 additional shares of LVSI’s common stock. The Company currently plans to cease accrual of the preferred return and to retire the Redeemable Preferred Interest upon approval of the Nevada Gaming Authorities.

        In May 2003, the Financial Accounting Standards Board issued Statement No. 150 (“SFAS 150”) “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The Company is considered a non-public entity, as defined by SFAS 150 because its equity securities are not listed on a public exchange. Accordingly, for the Company, the provisions of SFAS 150 became effective during the quarter ending March 31, 2004. As a result of the adoption of SFAS 150, the Redeemable Preferred Interest in Venetian is now presented as a liability and the accrual of dividends is presented as interest expense of the Company. In accordance with the provisions of SFAS 150, prior period amounts have not been reclassified to conform with the new presentation.

        Construction Litigation

        The construction of the principal components of the Casino Resort was undertaken by Lehrer McGovern Bovis, Inc. (the “Construction Manager”) pursuant to a construction management agreement and certain amendments thereto (as so amended, the “Construction Management Contract”). The Construction Management Contract established a final guaranteed maximum price (the “Final GMP”) of $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 $645.0 million. The Construction Management Contract also established a required “substantial completion” date (the date on which the construction of the Casino Resort was sufficiently complete, including the receipt of necessary permits, licenses and approvals, so that all components of the Casino Resort could be open to the general public) of April 21, 1999 (subject to extensions on account of “scope changes” and force majeure events), with a per-day liquidated damages penalty for failure to meet such deadline.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 5 Commitments and Contingencies

        The obligations of the Construction Manager under the Construction Management Contract were guaranteed by Bovis, Inc. (“Bovis”), the Construction Manager’s direct parent at the time the Construction Management Contract was entered into (such guaranty, the “Bovis Guaranty”). Bovis’ obligations under the Bovis Guaranty were guaranteed by The Peninsula and Oriental Steam Navigation Company (“P&O”), a British public company and the Construction Manager’s ultimate parent at the time the Construction Management Contract was entered into (such guaranty, the “P&O Guaranty”).

        On July 30, 1999, Venetian filed a complaint against the Construction Manager and Bovis in the United States District Court for the District of Nevada (the “Federal Court Action”). The action alleges breach of contract by the Construction Manager of its obligations under the Construction Management Contract and a breach of contract by Bovis of its obligations under the Bovis Guaranty, including failure to fully pay trade contractors and vendors and failure to meet the April 21, 1999 guaranteed completion date. The Company amended this complaint on November 23, 1999 to add P&O as an additional defendant. In response to Venetian’s breach of contract claims against the Construction Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3, 1999 against Venetian in the District Court of Clark County, Nevada (the “State Court Action”). The action alleges a breach of contract 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 Palazzo. Simultaneously, commencing in March 2000, the Construction Manager and the Company engaged in arbitration proceedings ordered by the Federal Court to determine the cost and schedule impact of any changes in the scope of services of the Construction Manager under the Construction Management Contract (the “Arbitration Proceedings”).

        In connection with these disputes, as of December 31, 1999 the Construction Manager and its subcontractors filed mechanics liens against the Casino Resort for $145.6 million and $182.2 million, respectively. The Company believes that a major reason these lien amounts exceeded the Construction Manager’s claims of $90.0 million is based upon a duplication of liens through the inclusion of lower-tier claims by subcontractors in the liens of higher-tier contractors, including the lien of the Construction Manager. As of December 31, 1999, the Company had purchased surety bonds for virtually all of the claims underlying these liens (other than approximately $15.0 million of claims with respect to which the Construction Manager purchased bonds). As a result, there can be no foreclosure of the Casino Resort in connection with the claims of the Construction Manager and its subcontractors. However, the Company will be required to pay or immediately reimburse the bonding company if and to the extent that the underlying claims are judicially determined to be valid. If such claims are not settled, it is likely to take a significant amount of time for their validity to be judicially determined.

        In June 2000, the Company purchased an insurance policy (the “Insurance Policy”) for loss coverage in connection with all litigation relating to the construction of the Casino Resort (the “Construction Litigation”). Under the Insurance Policy, the Company will self-insure $45.0 million and the insurer will insure up to $80.0 million of any 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, and lien claims of, or acquired by, the Construction Manager as well as any defense costs.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 5 Commitments and Contingencies (Continued)

        On June 3, 2003, an approximate 10-month trial was concluded in the State Court Action when a jury returned a verdict, which awarded the Construction Manager approximately $44.0 million in additional costs under the Construction Management Contract and awarded the Company approximately $2.0 million in damages for defective and incomplete work performed by the Construction Manager. The verdict also returned a defense verdict in favor of the Company on the Construction Manager’s fraud claim, and denied the Construction Manager’s claim for punitive damages. The verdict did not address pre-judgment interest and reimbursement of attorney’s costs, which are being sought from the State Court by both parties.

        The judge in the State Court Action arguably entered judgment on the verdict on December 24, 2003. The Company has filed motions requesting that the State Court reconsider the entry of the judgment, and stay the verdict until the conclusion of the Arbitration Proceedings, which proceedings the Company contends must be considered in determination of any final award between the parties. The request for a stay was denied. The Company believes that results of the Arbitration Proceedings will result in the lowering of the verdict that was awarded to the Construction Manager in the State Court Action and will provide a basis to increase the amount that was awarded to the Company.

        By orders dated June 17 and July 19, 2004, the post trial motions were denied in all material respects. The Company intends to appeal the denial.

        While there are pending subcontractor claims against the Construction Manager and the Company and related claims for indemnity by and against the Construction Manager, the Company believes that all such claims asserted against the Company in those actions should be subsumed within the verdict in the State Court Action and that the Company’s liability should be limited to the amount of any final judgment which may be ultimately entered in the State Court Action. If a judgment for the Construction Manager is entered on the verdict and such a judgment can be executed upon by the Construction Manager following the resolution of all appeals, the Company believes its payment of such a judgment shall be in satisfaction of, and shall be capped at, its $45.0 million self-insured retention under the Insurance Policy. The Company intends to seek an elimination or reduction of the Construction Manager’s and its subcontractors’ mechanic’s liens in an amount to be consistent with any final judgment on the verdict.

        Notwithstanding the entry of judgment in the State Court Action, the Company has continued to pursue certain claims in the Arbitration Proceedings to determine, among other things, the impact of certain changes, which determination by the arbitrator the Company believes may provide a basis for reducing the amount awarded to the Construction Manager in the State Court Action and raising the amount of the verdict for the Company or otherwise establishing offsetting claims for the Company against the Construction Manager. The Company also intends to pursue additional affirmative claims in the Federal Court Action and in other proceedings that were not resolved by the verdict in the State Court Action. Because of the magnitude of the remaining open items in the Arbitration Proceedings, which the Company believes must be considered in any ultimate award between the parties, the Company is not able to determine with any reasonable certainty the value of such claims or the probability of success on such claims at this time. Accordingly, no accrual for a liability has been reflected in the accompanying financial statements for this matter, other than approximately $7.2 million, which the Company had previously accrued in 1999 for unpaid construction costs and which have not yet been paid pending outcome of the litigation.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 5 Commitments and Contingencies (Continued)

        Based on the recent judgment in the State Court Action and the remaining open items in the Arbitration Proceedings, the Company estimates that its range of loss in this matter is from none (or a gain if all remaining matters are determined in the Company’s favor and considering the existing accrual of approximately $7.2 million for unpaid construction costs) to approximately $70.0 million (see below) if the Company were to lose all remaining arbitration matters and related pending actions and appeals that counsel has advised are possible of loss, and which are not already included in the State Court Action.  Such range of loss is before attorney costs and interest, which have not yet been considered by the State Court and the total amounts of which cannot currently be quantified. While the range of loss is possibly as high as $70.0 million, (the original verdict of $42.0 million plus $28.0 million, representing all remaining indemnity claims and arbitration matters), plus attorney’s fees, any uncovered claims not within the self-insured retention, and interest, the Company believes the Insurance Policy will provide coverage in excess of the Company’s self-insured retention of $45.0 million for up to a total of $80.0 million of covered claims as further defined in the Insurance Policy. While the State Court’s orders denying the Company’s post trial motions could be viewed as increasing the possibility that the Company will be exposed to loss in this litigation, there are appellate issues that the Company intends to pursue and ongoing Arbitration Proceedings that the Company believes will impact the amount of loss and/or any award to which the Company may be entitled. Therefore, at this time, no amount within the range of any loss can be reasonably determined as an estimated loss. If there is a loss, such loss could be material to the Company’s results of operations in the period that the estimate is recorded.

        Macao Casino Projects

        On June 26, 2002, the Macao government granted a provisional concession to operate casinos in Macao through June 26, 2027 to the Company’s subsidiary Venetian Macao and to Galaxy Casino Company Limited, a consortium of Macao and Hong Kong-based investors (“Galaxy”). During December 2002, Venetian Macao and Galaxy entered into a subconcession agreement. The subconcession agreement with Galaxy was recognized and approved by the Macao government and allows Venetian Macao to develop and operate certain casino projects, including the Macao Casino, separately from Galaxy. The Macao Casino opened on May 18, 2004. Additional facilities, including restaurants and entertainment venues and 49 of 52 high-end suites are expected to open during late August 2004.

        In addition to the Macao Casino, the Company also intends to build the Macao Venetian Casino Resort in Macao, a hotel, casino and convention center complex with a Venetian-style theme similar to the Company’s Las Vegas property.

        Under the subconcession agreement, Venetian Macao is obligated to develop and open the Macao Venetian Casino Resort by June 2006 and invest, or cause to be invested, at least 4.4 billion Patacas (approximately $533.3 million at exchange rates in effect on June 30, 2004) in various development projects in Macao by June 2009. The construction and development costs of the Macao Casino will be applied to the fulfillment of this total investment obligation to the Macao government. The Company currently estimates the total cost of constructing, developing, and operating the Macao Casino, including design costs, construction costs, equipment costs, working capital and pre-opening expenses, will be approximately $265.0 million, all of which qualifies to meet the investment obligation to the Macao government. Assuming that all of the current estimated construction and development costs of the Macao Casino are applied towards fulfilling the investment obligations under the subconcession agreement, remaining investment obligations under the subconcession agreement will be approximately $268.3 million. It is expected that the construction and development costs of the Macao Venetian Casino Resort will satisfy the remainder of this obligation. To support this obligation, a Macao bank and a subsidiary of the Company, Lido Casino Resort Holding Company, LLC, have guaranteed 500 million Patacas (approximately $60.6 million at exchange rates in effect on June 30, 2004) of Venetian Macao’s legal and contractual obligations to the Macao government until March 31, 2007. Venetian Macao received consents during June 2004 from the holders of the Venetian Macao Senior Secured Notes to permit the creation of a junior lien on Venetian Macao’s rights over the land upon which the Macao Casino is being constructed in Macao to support the guarantee being issued by the Macao bank under the Venetian Macao subconcession.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 5 Commitments and Contingencies (Continued)

        Venetian Macao’s development and investment obligations under its subconcession agreement may be satisfied by Venetian Macao and/or its affiliates, including the Company.

        As of June 30, 2004, approximately $185.1 million of the costs relating to the Macao Casino had been expended. The Company anticipates funding the $79.9 million of remaining estimated costs of construction related to the additional restaurant and entertainment facilities and the guest suites from a combination of the following sources:

        The Company expects the funds provided by these sources to be sufficient to complete construction and opening of the remainder of the Macao Casino. The construction and development of the Macao Venetian Casino Resort will require significant additional debt and/or equity financing.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 5 Commitments and Contingencies (continued)

        Venetian Macao, Venetian Intermediate and the Company’s other Macao subsidiaries are not guarantors under the Mortgage Notes or the Senior Secured Credit Facility and, subject to certain limited exceptions, are not restricted subsidiaries under the Indenture for the Mortgage Notes or the Senior Secured Credit Facility. Restrictions have been placed on the payment of dividends to LVSI and its subsidiaries from Venetian Macao and its subsidiaries.

        Mall Sale and Related Matters

        On April 12, 2004, the Company entered into an agreement with the Mall Purchaser to sell the Mall and lease certain restaurant and other retail assets of the Casino Resort (the “Master Lease”) for approximately $766.0 million. The Mall Sale closed on May 17, 2004 and the Company realized a gain of $418.2 million in connection with the Mall Sale. In conjunction with the Mall Sale, the Company repaid all of its $120.0 million secured Mall facility and redeemed $6.4 million of the Mortgage Notes pursuant to the Asset Sale Offer. The Master Lease agreement provides for the Casino Resort to lease nineteen spaces currently occupied by various tenants to the Mall Purchaser for 89-years with annual rent of one dollar per year and for the Mall Purchaser to assume the various leases. Under generally accepted accounting principles (“GAAP”), the Master Lease agreement does not qualify as a sale of the related assets, which were not separately legally demised. Accordingly, $109.2 million of the transaction has been deferred as prepaid operating lease payments to the Casino Resort, which will amortize into income on a straight-line basis over the 89-year lease term. In addition the Company will: (i) continue to be obligated to fulfill certain lease termination and asset purchase agreements; (ii) lease the C2K Showroom space located within the Mall from the Mall Purchaser for a period of 25 years with fixed minimum rent of $3.3 million per year with cost of living adjustments; (iii) operate the Gondola ride under an operating agreement for a period of 25 years for an annual fee of $3.5 million; and (iv) lease certain office space from the Mall Purchaser for a period of 10 years, subject to extension options for a period of up to 65 years, with annual rent of $860,350. The lease payments under clauses (ii) through (iv) above are subject to automatic increases beginning on the sixth lease year. The net present value of the lease payments under clauses (ii) through (iv) is $77.2 million. Under GAAP, a portion of the transaction must be deferred in an amount equal to the present value of the minimum lease payments set forth in the lease back agreements. This deferred gain will be amortized to reduce lease expense on a straight-line basis over the life of the leases.

        Phase II Mall

        The Company formed the Phase II Mall Subsidiary on July 1, 2004 to develop and construct the Phase II Mall. As part of the Mall Sale, the Company entered into an agreement with the Mall Purchaser to construct and sell the multi-level retail space of the Palazzo for an amount equal to the greater of (i) $250.0 million; or (ii) the projected net operating income divided by a cap rate. Such cap rate is .06 for every dollar of net operating income up to $38,000,000, and .08 for every dollar of operating income above $38,000,000. The Phase II Mall is expected to cost approximately $275.0 million (excluding incentive payments described below). The Phase II Mall is expected to be constructed using the proceeds of a construction loan of $250.0 million (the “Phase II Mall Construction Loan”) and a $25.0 million investment from the Company.

        The Company made an equity contribution to the Phase II Mall Subsidiary of $62.0 million on July 15, 2004, which was used to make certain incentive payments to the Principal Stockholder and other senior executives of the Company for their work in connection with the Phase II Mall Sale and related financing transactions.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 5 Commitments and Contingencies (continued)

        Dividends

        During the six months ending June 30, 2004, the Company paid $107.9 million of dividends to its stockholders for their tax obligations related to their allocated portion of the Company’s earnings. The Company’s debt agreements, generally restrict payments of cash dividends. However, the debt agreements allow for tax distributions to stockholders.

        Acquisition of Interface Holding

        On July 29, 2004, the Company acquired all of the capital stock of Interface Holding from the Principal Stockholder in exchange for the issuance to the Principal Stockholder of 220,370 additional shares of LVSI’s common stock. Interface Holding indirectly owns the Expo Center and holds the $252.6 million Redeemable Preferred Interest in Venetian Casino Resort, LLC. Following this acquisition, the Company made an equity contribution of $27.0 million to Interface-Group Nevada, Inc. (“Interface Nevada”), the direct owner of the Expo Center. On July 30, 2004, Interface Nevada entered into a mortgage loan (the “Interface Mortgage Loan”) pursuant to which it borrowed $100.0 million. The proceeds from the loan and a portion of the equity contribution were used to repay in full the amounts outstanding under its prior mortgage loan and to pay for related fees and expenses. Interface Nevada’s obligations under the loan are secured by a first priority mortgage on the Expo Center and by certain other related collateral.

        Interface Nevada must repay in full all amounts outstanding under the Interface Mortgage Loan by August 10, 2006, unless it exercises its renewal options, in which event the loan must be repaid by February 10, 2009. The loan will amortize pursuant to a 20-year mortgage schedule, based on a 9.25% interest rate assumption. If cash flow is available after the payment of interest and mandatory amortization, tax and insurance reserve amounts, operating expenses, capital expenditures and deposits into a deferred revenue reserve, additional principal payments must be made equal to the difference between (i) the principal payments necessary to amortize the loan pursuant to a 15-year schedule, based on a 7.00% interest rate and (ii) the mandatory amortization payment. The loan bears interest at an interest rate equal to LIBOR plus 3.75%. After a twelve-month lockout period, the loan may be prepaid in whole or in part.

LAS VEGAS SANDS, INC.

Notes to Financial Statements (Continued)

Note 6 Segment Information

        The Company reviews the results of operations based on the following distinct geographic gaming market segments, which are the Casino Resort on the Las Vegas Strip, the Macao Casino in Macao and the United Kingdom. The Company’s segment information is as follows for the three and six month periods ended June 30, 2004 and 2003 (in thousands):