-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KEt3hT2vDkmmK8MPoGnqDX42EuHrbIlEdMGdTBocupaUlocfkBcj5jfyi31PKe1E GntGtkICuLz1wehqrhDyaw== 0000850994-01-500003.txt : 20010511 0000850994-01-500003.hdr.sgml : 20010511 ACCESSION NUMBER: 0000850994-01-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAS VEGAS SANDS INC CENTRAL INDEX KEY: 0000850994 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 043010100 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-42147 FILM NUMBER: 1628064 BUSINESS ADDRESS: STREET 1: 3355 LAS VEGAS BLVD SOUTH RM 1A CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 702414452 MAIL ADDRESS: STREET 1: 3355 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89109 10-Q 1 lvsi1st10q.txt 1ST QUARTER FINANCIAL REPORT ================================================================================ LAS VEGAS SANDS, INC. UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 [ ] 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) Nevada 04-3010100 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3355 Las Vegas Boulevard South, Room 1A Las Vegas, Nevada 89109 - --------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) (702) 414-1000 ----------------------------------------------------- (Registrant's telephone number, including area code) -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 10, 2001 Class Outstanding at May 10, 2001 - -------------------------------------- ----------------------------------- Common Stock, $.10 par value 925,000 shares ================================================================================ LAS VEGAS SANDS, INC. Table of Contents Part I FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets At March 31, 2001 (unaudited) and December 31, 2000................1 Consolidated Statements of Operations for the Three Months Ended March 31, 2001 (unaudited) and March 31, 2000 (unaudited)..........2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 (unaudited) and March 31, 2000 (unaudited)..........3 Notes to Consolidated Financial Statements.........................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................21 Item 3. Quantitative and Qualitative Disclosures About Market Risk........26 Part II OTHER INFORMATION Item 1. Legal Proceedings.................................................27 Item 6. Exhibits and Reports on Form 8-K..................................28 Signatures........................................................29 Part I Financial Information Item 1. Financial Statements LAS VEGAS SANDS, INC. Consolidated Balance Sheets (In thousands, except share data)
March 31, December 31, 2001 2000 ----------- ----------- Unaudited ASSETS Current assets: Cash and cash equivalents .......................................... $ 41,767 $ 42,606 Restricted cash and investments .................................... 2,574 2,549 Accounts receivable, net ........................................... 67,869 64,328 Inventories ........................................................ 4,098 3,868 Prepaid expenses ................................................... 3,224 3,672 ----------- ----------- Total current assets ................................................... 119,532 117,023 Property and equipment, net ............................................ 1,061,436 1,062,093 Deferred offering costs, net ........................................... 20,885 22,314 Other assets, net ...................................................... 29,104 30,955 ----------- ----------- $ 1,230,957 $ 1,232,385 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ................................................... $ 18,716 $ 23,835 Construction payables .............................................. 6,195 6,212 Construction payables-contested .................................... 7,232 7,232 Accrued interest payable ........................................... 29,712 13,277 Other accrued liabilities .......................................... 65,671 76,735 Current maturities of long-term debt ............................... 62,161 50,119 ----------- ----------- Total current liabilities .............................................. 189,687 177,410 Other long-term liabilities ............................................ 8,640 10,494 Long-term debt ......................................................... 846,763 863,293 ----------- ----------- 1,045,090 1,051,197 ----------- ----------- Redeemable Preferred Interest in Venetian Casino Resort, LLC, a wholly owned subsidiary .......................................... 173,052 168,012 ----------- ----------- Commitments and contingencies Stockholder's equity: Common stock, $.10 par value, 3,000,000 shares authorized, 925,000 shares issued and outstanding ........................... 92 92 Capital in excess of par value ..................................... 89,200 94,240 Accumulated deficit since June 30, 1996 ............................ (76,477) (81,156) ----------- ----------- 12,815 13,176 ----------- ----------- $ 1,230,957 $ 1,232,385 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
1 LAS VEGAS SANDS, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, 2001 2000 --------- --------- Revenues: Casino ......................................................... $ 60,136 $ 85,693 Rooms .......................................................... 59,586 46,980 Food and beverage .............................................. 18,829 18,781 Retail and other ............................................... 17,375 15,393 --------- --------- 155,926 166,847 Less-promotional allowances ....................................... (12,286) (10,933) --------- --------- Net revenues ................................................... 143,640 155,914 --------- --------- Operating expenses: Casino ......................................................... 41,658 41,232 Rooms .......................................................... 13,171 11,297 Food and beverage .............................................. 8,307 9,668 Retail and other ............................................... 7,289 6,238 Provision for doubtful accounts ................................ 3,718 6,282 General and administrative ..................................... 22,011 21,556 Corporate expense .............................................. 1,888 1,368 Rental expense ................................................. 2,191 2,850 Depreciation and amortization .................................. 10,206 9,845 --------- --------- 110,439 110,336 --------- --------- Operating income .................................................. 33,201 45,578 --------- --------- Other income (expense): Interest income ................................................. 418 463 Interest expense, net of amounts capitalized .................... (28,940) (29,411) --------- --------- Net income ........................................................ $ 4,679 $ 16,630 ========= ========= Basic and diluted income (loss) per share ......................... $ (0.39) $ 13.20 ========= ========= 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)
Three Months Ended March 31, 2001 2000 -------- -------- Cash flows from operating activities: Net income ................................................................. $ 4,679 $ 16,630 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...................................... 10,206 9,845 Amortization of debt offering costs and original issue discount .... 2,125 2,065 Provision for doubtful accounts .................................... 3,718 6,282 Changes in operating assets and liabilities: Accounts receivable .............................................. (7,259) (25,679) Inventories ...................................................... (230) 881 Prepaid expenses ................................................. 448 468 Other assets ..................................................... 1,851 (253) Accounts payable ................................................. (5,119) (5,418) Accrued interest payable ......................................... 16,435 19,252 Other accrued liabilities ........................................ (12,918) 2,811 -------- -------- Net cash provided by operating activities .................................. 13,936 26,884 -------- -------- Cash flows from investing activities: (Increase) decrease in restricted cash ..................................... (25) 8,638 Capital expenditures ....................................................... (9,566) (2,300) Construction of Casino Resort .............................................. -- (8,544) -------- -------- Net cash used in investing activities ...................................... (9,591) (2,206) -------- -------- Cash flows from financing activities: Repayments on bank credit facility-tranche A term loan ..................... -- (5,625) Repayments on bank credit facility-tranche B term loan ..................... (125) -- Repayments on bank credit facility-revolver ................................ -- (9,292) Repayments on FF&E credit facility ......................................... (5,374) (2,931) Proceeds from Phase II Subsidiary unsecured bank loan ...................... 792 -- Payments of deferred offering costs ........................................ (477) (449) -------- -------- Net cash used in financing activities ...................................... (5,184) (18,297) -------- -------- Increase (decrease) in cash and cash equivalents ........................... (839) 6,381 Cash and cash equivalents at beginning of period ........................... 42,606 26,252 -------- -------- Cash and cash equivalents at end of period ................................. $ 41,767 $ 32,633 ======== ======== Supplemental disclosure of cash flow information: Cash payments for interest ............................................... $ 10,384 $ 8,094 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
3 LAS VEGAS SANDS, INC. Notes to Financial Statements Note 1. Organization and Basis of Presentation The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 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 2000 financial statements have been reclassified to conform with the 2001 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 to make way for 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 (the "Casino"), approximately 500,000 square feet of convention space and approximately 475,000 gross leasable square feet of retail shops and restaurants (the "Mall"). Construction of the Casino Resort commenced in April 1997. The Casino and certain suites and facilities at the Casino Resort opened on May 4, 1999 and the Mall opened on June 19, 1999. The consolidated financial statements include the accounts of LVSI and its wholly owned subsidiaries (the "Subsidiaries"), including Venetian Casino Resort, LLC ("Venetian"), Grand Canal Shops Mall, LLC (the "Mall Subsidiary"), Grand Canal Shops Mall Subsidiary, LLC (the "New Mall Subsidiary"), Lido Casino Resort, LLC (the "Phase II Subsidiary"), Mall Intermediate Holding Company, LLC ("Mall Intermediate"), Grand Canal Shops Mall Construction, LLC ("Mall Construction"), Lido Intermediate Holding Company, LLC ("Lido Intermediate"), Grand Canal Shops Mall Holding Company, LLC, Grand Canal Shops Mall MM Subsidiary, Inc., Lido Casino Resort Holding Company, LLC, Grand Canal Shops Mall MM, Inc. and Lido Casino Resort MM, Inc. (collectively, the "Company"). Each of LVSI and the Subsidiaries is a separate legal entity and the assets of each such entity are intended to be available only to the creditors of such entity. Venetian was formed on March 20, 1997 to own and operate certain portions of the Casino Resort. LVSI is the managing member and owns 100% of the common voting equity in Venetian. The entire preferred interest in Venetian is owned by Interface Group Holding Company, Inc. ("Interface Holding"), which is wholly owned by LVSI's sole stockholder (the "Sole Stockholder") . Mall Intermediate and Lido Intermediate are special purpose companies, which are wholly owned subsidiaries of Venetian. They are guarantors or co-obligors of certain indebtedness related to the construction of the Casino Resort. The New Mall Subsidiary, an indirect wholly-owned subsidiary of LVSI, was formed on December 9, 1999 and owns and operates the Mall. 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 Sole Stockholder. Venetian, the New Mall Subsidiary and IGN transact business with each other and are parties to certain agreements. Note 2. Per Share Data Basic and diluted income (loss) per share are calculated based upon the weighted average number of shares outstanding. The weighed average number of shares outstanding used in the computation of income (loss) per share of common stock was 925,000 for all periods presented. There were no options or warrants to purchase common stock outstanding during any period presented. The net income (loss) available to common stockholders used in computing the basic and diluted income (loss) per share includes accrued preferred dividends of approximately $5.0 million and $4.4 million, respectively, for the three month periods ended March 31, 2001 and March 31, 2000. The accrued dividends have been reflected as a charge against capital in excess of par value in the accompanying financial statements. 4 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 3. Property and Equipment Property and equipment consists of the following (in thousands):
March 31, December 31, 2001 2000 ----------- ---------- Land and land improvements .............................. $ 109,864 $ 109,863 Building and improvements ............................... 832,640 832,429 Equipment, furniture, fixtures and leasehold improvements 134,730 134,008 Construction in progress ................................ 60,683 52,129 ----------- ----------- 1,137,917 1,128,429 Less: accumulated depreciation and amortization ........ (76,481) (66,336) ----------- ----------- $ 1,061,436 $ 1,062,093 =========== ===========
During the three month periods ended March 31, 2001 and March 31, 2000, the Company did not capitalize any interest expense. As of March 31,2001, construction in progress represented project design and shared facilities costs for the planned second phase of the Casino Resort, to be owned by a subsidiary of the Company (the "Phase II Resort"), and ongoing capital improvement projects at the Casino Resort. Note 4. Long-Term Debt Long-term debt consists of the following (in thousands):
March 31, December 31, 2001 2000 -------- -------- Indebtedness of the Company and its Subsidiaries other than the New Mall Subsidiary and the Phase II Subsidiary: ------------------------------------------------ 12 1/4% Mortgage Notes, due November 15, 2004 $425,000 $ 425,000 14 1/4% Senior Subordinated Notes, due November 15, 2005 (Net of unamortized discount of $4,044 in 2001 and $4,263 in 2000 93,456 93,237 Bank Credit Facility-Tranche A Term Loan 103,125 103,125 Bank Credit Facility-Tranche B Term Loan 49,625 49,750 FF&E Credit Facility 69,855 75,229 Subordinated Owner Indebtedness: -------------------------------- Completion Guaranty Loan 27,071 27,071 Indebtedness of the New Mall Subsidiary: ---------------------------------------- Mall Tranche A Take-out Loan 105,000 105,000 Mall Tranche B Take-out Loan 35,000 35,000 Indebtedness of the Phase II Subsidiary: ---------------------------------------- Bank Loan 792 -- Less: current maturities (62,161) (50,119) -------- -------- Total long-term debt $846,763 $863,293 ======== ========
5 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 4. Long-Term Debt (Continued) In connection with the financing for the Casino Resort, the Company entered into a series of transactions during 1997 to provide for the development and construction of the Casino Resort. In November 1997, the Company issued $425.0 million aggregate principal amount of Mortgage Notes (the "Mortgage Notes") and $97.5 million aggregate principal amount of Senior Subordinated Notes (the "Senior Subordinated Notes" and, together with the Mortgage Notes, the "Notes") in a private placement. On June 1, 1998, LVSI and Venetian completed an exchange offer to exchange the Notes for other notes with substantially the same terms. In November 1997, LVSI, Venetian and a syndicate of lenders entered into a Bank Credit Facility (the "Bank Credit Facility") providing for up to $150.0 million in multiple draw term loans (the "Tranche A Term Loan") to the Company for construction and development of the Casino Resort. Up to $40.0 million of additional credit in the form of revolving loans under the Bank Credit Facility (the "Revolver") is available generally for working capital. The Revolver availability date was extended from March 15, 2001 to September 15, 2001 during the first quarter of 2001 and no amounts were outstanding under the Revolver as of March 31, 2001. In June 2000, the Company amended certain terms of the Bank Credit Facility in order to (i) add a new senior secured tranche B term loan (the "Tranche B Term Loan") in the amount of $50.0 million, the proceeds of which were applied to (x) prepay the Tranche A Term Loan in forward order of maturity in the amount of $30.0 million and (y) reduce outstanding loans under the Revolver by $20.0 million (net of fees and expenses) without decreasing available commitments of the Revolver and (ii) adjust certain financial covenants provided for in the Bank Credit Facility. The purpose of the June 2000 modifications to the Bank Credit Facility was to refinance a portion of the Tranche A Term Loan and to provide additional flexibility and the ability to fund capital expenditures and possible working capital requirements associated with the Company's premium gaming business. The Tranche B Term Loan has a four year maturity, and an interest rate of LIBOR plus 350 basis points. In December 1997, the Company also entered into an agreement (the "FF&E Credit Facility") with certain lenders to provide for $97.7 million of financing for certain furniture, fixtures and equipment to be secured under the FF&E Credit Facility and an electrical substation. Financial covenant modifications similar to those made to the Bank Credit Facility were made in June 2000 to the FF&E Credit Facility, which has substantially identical financial covenants. The Bank Credit Facility and FF&E Credit Facility contain certain covenants that require the Company to pass a number of financial tests relating to, among other things, a minimum consolidated earnings before interest, taxes, depreciation and amortization ("EDITDA"), a consolidated leverage ratio; and a fixed charge coverage ratio (all as defined in the respective credit agreements). Additionally, the 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. The Company is also a party to certain intercreditor arrangements. The intercreditor agreements set forth the lender's interests and claims in the Company's assets as collateral for borrowings. Consolidated EBITDA is dependent on the Company's results of operations, which in turn are partially dependent on table games revenues. While the table games win percentage is reasonably predictable over the long term, it can fluctuate significantly from quarter to quarter, affecting table games revenues. The financial covenants involving EBITDA are applied on a rolling four-quarter basis, and the Company's compliance with financial covenants can be temporarily affected if the Company experiences an unusually low win percentage in a particular quarter, which is not offset in subsequent quarters or by other results of operations. The Company has remained in compliance with these covenants, however, the Company was challenged to meet certain covenant tests in the first quarter of 2001 due to an extremely low win percentage for certain quarters during the rolling measurement period. These covenants allow the Sole Stockholder to increase EBITDA for measurement purposes by issuing a standby letter of credit to the Company's lenders. The Company used this letter of credit mechanism in the amount of $10.0 million during the first quarter of 2001 to meet the covenant test. The Company anticipates that the win percentage will return to normal levels over time, and that it will cancel the standby letter of credit once it is no longer needed to meet the test. 6 LAS VEGAS SANDS, INC. 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 Sole Stockholder's completion guaranty (the "Completion Guaranty"). Advances made under the Completion Guaranty up to $25.0 million are treated as a junior loan from the Sole Stockholder to Venetian that is subordinated in right of payment to the indebtedness under the Bank Credit Facility, the FF&E Credit Facility and the Notes. Interest expense added to the principal balance increased the balance of the Completion Guaranty to $27.1 million as of March 31, 2001. On December 20, 1999, certain take-out lenders (collectively, the "Tranche A Take-out Lender") funded a $105.0 million tranche A take-out loan to the New Mall Subsidiary (the "Tranche A Take-out Loan"). The proceeds were used to repay indebtedness under the mall construction loan facility for the Mall. The indebtedness under the Tranche A Take-out Loan is secured by first priority liens on the assets that comprise the Mall (the "Mall Assets"). Also, on December 20, 1999, an entity wholly owned by the Sole Stockholder funded a tranche B take-out loan to provide $35.0 million in financing to the New Mall Subsidiary (the "Tranche B Take-out Loan" and, together with the Tranche A Take-out Loan, the "Mall Take-out Financing"). The proceeds, along with $105.0 million of proceeds from the Tranche A Take-out Loan, were used to repay the mall construction loan facility in full. In February 2001, the Phase II Subsidiary entered into an unsecured bank line of credit for $792,000, payable on May 31, 2001. This line of credit bears interest of LIBOR plus 100 basis points. The proceeds of the line of credit were used to fund payments of Phase II Subsidiary operating costs. Note 5. Redeemable Preferred Interest in Venetian Casino Resort, LLC During 1997, Interface Holding contributed $77.1 million in cash to Venetian in exchange for a Series A preferred interest (the "Series A Preferred Interest") in Venetian. By its terms, the Series A Preferred Interest was convertible at any time into a Series B preferred interest in Venetian (the "Series B Preferred Interest"). In August 1998, the Series A Preferred Interest was converted into the Series B Preferred Interest. The rights of the Series B Preferred Interest include the accrual of a preferred return of 12% from the date of contribution in respect of the Series A Preferred Interest. Until the indebtedness under the Bank Credit Facility is repaid and cash payments are permitted under the restricted payment covenants of the indentures entered into in connection with the Notes (the "Indentures"), the preferred return on the Series B Preferred Interest will accrue and will not be paid in cash. Commencing in November 2009, distributions must be made to the extent of the positive capital account of the holder. During the second and third quarters of 1999, Interface Holding contributed $37.3 million and $7.1 million, respectively, in cash in exchange for an additional Series B Preferred Interest. During the three month periods ended March 31, 2001 and March 31, 2000, $5.0 million and $4.4 million, respectively, were accrued on the Series B Preferred Interest related to the contributions made. Since 1997, no distributions of preferred interest or preferred return have been paid on the Series B Preferred Interest. Note 6. Commitments and Contingencies The Company is party to litigation matters and claims related to its operations and the construction of the Casino Resort. Except as described below, the Company does not expect that the final resolution of these matters will have a material impact on the financial position, results of operation or cash flows of the Company. 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"). 7 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 6. Commitments and Contingencies(Continued) On July 30, 1999, Venetian filed a complaint against the Construction Manager and Bovis in United States District Court for the District of Nevada. The action alleges breach of contract by the Construction Manager of its obligations under the Construction Management Contract and a breach of contract by Bovis of its obligations under the Bovis Guaranty, including failure to fully pay trade contractors and vendors and failure to meet the April 21, 1999 guaranteed completion date. The Company amended this complaint on November 23, 1999 to add P&O as an additional defendant. The suit is intended to ask the courts, among other remedies, to require the Construction Manager and its guarantors to pay its contractors, to compensate Venetian for the Construction Manager's failure to perform its duties under the Construction Management Contract and to pay the Company the agreed upon liquidated damages penalty for failure to meet the guaranteed substantial completion date. Venetian seeks total damages in excess of $50.0 million. The Construction Manager subsequently filed motions to dismiss the Company's complaint on various grounds, which the Company opposed. The Construction Manager's principal motions to date have either been 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 claim 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 preliminary review of the complaints, the fact that the Construction Manager has not provided Venetian with reasonable documentation to support such claims, and the Company's belief that the Construction Manager has materially breached its agreements with the Company, the Company believes that the Construction Manager's claims are without merit and 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 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. 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 right to file liens against the Casino Resort. The Company intends to vigorously defend itself in any lien proceedings. 8 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 6. Commitments and Contingencies(Continued) 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 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 insurance is in addition to, and does not affect, any scope change guarantees provided by the Sole Stockholder pursuant to the Completion Guaranty. All of the pending litigation described above is in preliminary stages and it is not yet possible to determine its ultimate outcome. If any litigation or other proceedings concerning the claims of the Construction Manager or its subcontractors were decided adversely to the Company, such litigation or other lien proceedings could have a material adverse effect on the financial position, results of operations or cash flows of the Company to the extent such litigation is not covered by the Insurance Policy. Note 7. Summarized Financial Information Venetian and LVSI are co-obligors of the Notes and certain other indebtedness related to construction of the Casino Resort and are jointly and severally liable for such indebtedness (including the Notes). Venetian, Mall Intermediate, Mall Construction, and Lido Intermediate (collectively, the "Subsidiary Guarantors") are wholly owned subsidiaries of LVSI. The Subsidiary Guarantors have jointly and severally guaranteed (or are co-obligors of) such debt on a full and unconditional basis. No other subsidiary of LVSI is an obligor or guarantor of any of the Casino Resort financing. Because the New Mall Subsidiary is not a guarantor of any indebtedness of the Company (other than the Mall Take-out Financing), creditors of the Company's entities comprising the Company other than the New Mall Subsidiary (including the holders of the Notes but excluding creditors of the New Mall Subsidiary) do not have a direct claim against the Mall Assets. As a result, indebtedness of the entities comprising the Company other than the New Mall Subsidiary (including the Notes) is, with respect to the Mall Assets, effectively subordinated to indebtedness of the New Mall Subsidiary. The New Mall Subsidiary is not restricted by any of the debt instruments of LVSI, Venetian or the Company's other subsidiary guarantors (including the Indentures) from incurring any indebtedness. The terms of the Tranche A Take-out Loan prohibit the New Mall Subsidiary from paying dividends or making distributions to any of the other entities comprising the Company unless payments under the Tranche A Take-out Loan are current, and, with certain limited exceptions, prohibit the New Mall Subsidiary from making any loans to such entities. Any additional indebtedness incurred by the New Mall Subsidiary may include additional restrictions on the ability of the New Mall Subsidiary to pay any such dividends and make any such distributions or loans. 9 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7. Summarized Financial Information Prior to October 1998, Venetian owned approximately 44 acres of land on or near the Las Vegas Strip (the "Strip"), on the site of the former Sands. Such property includes the site on which the Casino Resort was constructed. Approximately 14 acres of such land was transferred to the Phase II Subsidiary in October 1998. On December 31, 1999, an additional 1.75 acres of land was contributed indirectly by the Sole Stockholder to the Phase II Subsidiary. The Phase II Resort is planned to be constructed adjacent to the Casino Resort. Because the Phase II Subsidiary will not be a guarantor of the Company's indebtedness, creditors of the Company (including the holders of the Notes) will not have a direct claim against the assets of the Phase II Subsidiary. As a result, the indebtedness of the Company (including the Notes) will be effectively subordinated to indebtedness of the Phase II Subsidiary. The Phase II Subsidiary is not subject to any of the restrictive covenants of the debt instruments of the Company (including the Notes). Any indebtedness incurred by the Phase II Subsidiary is expected to include material restrictions on the ability of the Phase II Subsidiary to pay dividends or make distributions or loans to the Company and its subsidiaries. Separate financial statements and other disclosures concerning each of Venetian and the Subsidiary Guarantors are not presented below because management believes that they are not material to investors. Summarized financial information of LVSI, Venetian, the Subsidiary Guarantors and the non-guarantor subsidiaries on a combined basis as of March 31, 2001 and December 31, 2000 and for the three month periods ended March 31, 2001 and March 31, 2000 is as follows (in thousands): 10
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED BALANCE SHEETS March 31, 2001 (Unaudited) GUARANTOR SUBSIDIARIES -------------------------- Lido Mall Venetian Intermediate Intermediate Las Vegas Casino Resort Holding Holding Sands, Inc. LLC Company LLC Company LLC ----------- ----------- ---------- ----------- Cash and cash equivalents .................................. $ 29,098 $ 9,793 $ 4 $ 4 Restricted cash and investments ............................ -- 1,481 -- -- Intercompany receivable .................................... 42,119 -- -- -- Accounts receivable, net ................................... 47,109 20,063 -- -- Inventories ................................................ -- 4,098 -- -- Prepaid expenses ........................................... 388 2,544 -- -- ----------- ----------- ---------- ----------- Total current assets ..................................... 118,714 37,979 4 4 Property and equipment, net ................................ -- 841,054 -- -- Investment in Subsidiaries ................................. 126,022 67,120 -- -- Deferred offering costs, net ............................... -- 17,125 -- -- Other assets, net .......................................... 3,767 21,545 -- -- ----------- ----------- ---------- ----------- $ 248,503 $ 984,823 $ 4 $ 4 =========== =========== =========== =========== Accounts payable ........................................... $ 2,742 $ 15,432 $ -- $ -- Construction payable ....................................... -- 3,280 -- -- Construction payable-contested ............................. -- 7,232 -- -- Intercompany payables ...................................... -- 19,852 -- -- Accrued interest payable ................................... -- 28,492 -- -- Other accrued liabilities .................................. 21,527 42,726 -- -- Current maturities of long term debt ....................... -- 61,369 -- -- ----------- ----------- ---------- ----------- Total current liabilities ................................ 24,269 178,383 -- -- Other long-term liabilities ................................ -- 8,640 -- -- Long-term debt ............................................. -- 706,763 -- -- ----------- ----------- ---------- ----------- 24,269 893,786 -- -- Redeemable Preferred Interest in Venetian .................. -- 173,052 -- -- ----------- ----------- ---------- ----------- Stockholder's equity ....................................... 224,234 (82,015) 4 4 ----------- ----------- ---------- ----------- $ 248,503 $ 984,823 $ 4 $ 4 =========== =========== ========== ===========
11
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED BALANCE SHEETS (Continued) March 31, 2001 (Unaudited) NON-GUARANTOR SUBSIDIARIES --------------------------- Grand Canal Other Non- Shops Mall Guarantor Consolidating/ Subsidiary Subsidiaries Eliminating LLC (1) (2) (Entries Total ----------- ----------- ----------- ----------- Cash and cash equivalents .................................. $ 2,790 $ 78 $ -- $ 41,767 Restricted cash and investments ............................ 1,093 -- -- 2,574 Intercompany receivable .................................... -- -- (42,119) -- Accounts receivable, net ................................... 622 75 -- 67,869 Inventories ................................................ -- -- -- 4,098 Prepaid expenses ........................................... 292 -- -- 3,224 ----------- ----------- ----------- ----------- Total current assets ..................................... 4,797 153 (42,119) 119,532 Property and equipment, net ................................ 138,976 81,406 -- 1,061,436 Investment in Subsidiaries ................................. -- -- (193,142) -- Deferred offering costs, net ............................... 3,460 300 -- 20,885 Other assets, net .......................................... 3,792 -- -- 29,104 ----------- ----------- ----------- ----------- $ 151,025 $ 81,859 $ (235,261) $ 1,230,957 =========== =========== =========== =========== Accounts payable ........................................... $ 542 $ -- $ -- $ 18,716 Construction payable ....................................... -- 2,915 -- 6,195 Construction payable-contested ............................. -- -- -- 7,232 Intercompany payables ...................................... 22,267 -- (42,119) -- Accrued interest payable ................................... 1,216 4 -- 29,712 Other accrued liabilities .................................. 1,344 74 -- 65,671 Current maturities of long term debt ....................... -- 792 -- 62,161 ----------- ----------- ----------- ----------- Total current liabilities ................................ 25,369 3,785 (42,119) 189,687 Other long-term liabilities ................................ -- -- -- 8,640 Long-term debt ............................................. 140,000 -- -- 846,763 ----------- ----------- ----------- ----------- 165,369 3,785 (42,119) 1,045,090 Redeemable Preferred Interest in Venetian .................. -- -- -- 173,052 ----------- ----------- ----------- ----------- Stockholder's equity ....................................... (14,344) 78,074 (193,142) 12,815 ----------- ----------- ----------- ----------- $ 151,025 $ 81,859 $ (235,261) $ 1,230,957 =========== =========== =========== =========== - -------------- (1) The assets and liabilities of Mall Construction, a guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary on December 20, 1999. As a result, Mall Construction had no assets or liabilities as of March 31, 2001. (2) Land with a historical cost basis of $29,169 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
12
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED BALANCE SHEETS December 31, 2000 GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES ---------------------- --------------------------- Lido Mall Grand Canal Other Non- Venetian Intermediate Intermediate Shops Mall Guarantor Las Vegas Casino Holding Holding Subsidiary Subsidiaries Sands, Inc. Resort LLC Company LLC Company LLC LLC (1) (2) ----------- ----------- ----------- ----------- ----------- ------------ Cash and cash equivalents ............... $ 35,332 $ 4,260 $ 4 $ 4 $ 2,972 $ 34 Restricted cash and investments ......... -- 1,471 -- -- 1,078 -- Intercompany receivable ................. 42,917 -- -- -- -- -- Accounts receivable, net ................ 45,609 17,686 -- -- 973 60 Inventories ............................. -- 3,868 -- -- -- -- Prepaid expenses ........................ 458 2,897 -- -- 317 -- ----------- ----------- ----------- ----------- ----------- ----------- Total current assets .................. 124,316 30,182 4 4 5,340 94 Property and equipment, net ............. -- 840,960 -- -- 140,185 80,948 Investment in Subsidiaries .............. 126,022 67,120 -- -- -- -- Deferred offering costs, net ............ -- 18,335 -- -- 3,979 -- Other assets, net ....................... 4,928 22,120 -- -- 3,907 -- ----------- ----------- ----------- ----------- ----------- ----------- $ 255,266 $ 978,717 $ 4 $ 4 $ 153,411 $ 81,042 =========== =========== =========== =========== =========== =========== Accounts payable ........................ $ 4,794 $ 18,036 $ -- $ -- $ 1,005 $ -- Construction payable .................... -- 3,297 -- -- -- 2,915 Construction payable-contested .......... -- 7,232 -- -- -- -- Intercompany payables ................... -- 20,391 -- -- 22,526 -- Accrued interest payable ................ -- 11,498 -- -- 1,779 -- Other accrued liabilities ............... 27,939 47,380 -- -- 1,363 53 Current maturities of long term debt .... -- 50,119 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Total current liabilities ............. 32,733 157,953 -- -- 26,673 2,968 Other long-term liabilities ............. -- 10,494 -- -- -- -- Long-term debt .......................... -- 723,293 -- -- 140,000 -- ----------- ----------- ----------- ----------- ----------- ----------- 32,733 891,740 -- -- 166,673 2,968 Redeemable Preferred Interest in Venetian -- 168,012 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Stockholder's equity .................... 222,533 (81,035) 4 4 (13,262) 78,074 ----------- ----------- ----------- ----------- ----------- ----------- $ 255,266 $ 978,717 $ 4 $ 4 $ 153,411 $ 81,042 =========== =========== =========== =========== =========== =========== - ---------------- (1) The assets and liabilities of Mall Construction, a guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary on December 20, 1999. As a result, Mall Construction had no assets or liabilities as of December 31, 2000. (2) Land with a historical cost basis of $29,169 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 Sole Stockholder during December 1999.
13
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED BALANCE SHEETS (Continued) December 31, 2000 Consolidating/ Eliminating Entries Total ------------ ----------- Cash and cash equivalents ............... $ -- $ 42,606 Restricted cash and investments ......... -- 2,549 Intercompany receivable ................. (42,917 -- Accounts receivable, net ................ -- 64,328 Inventories ............................. -- 3,868 Prepaid expenses ........................ -- 3,672 ----------- ----------- Total current assets .................. (42,917) 117,023 Property and equipment, net ............. -- 1,062,093 Investment in Subsidiaries .............. (193,142) -- Deferred offering costs, net ............ -- 22,314 Other assets, net ....................... -- 30,955 ----------- ----------- $ (236,059) $ 1,232,385 =========== =========== Accounts payable ........................ $ -- $ 23,835 Construction payable .................... -- 6,212 Construction payable-contested .......... -- 7,232 Intercompany payables ................... (42,917) -- Accrued interest payable ................ -- 13,277 Other accrued liabilities ............... -- 76,735 Current maturities of long term debt .... -- 50,119 ----------- ----------- Total current liabilities ............. (42,917) 177,410 Other long-term liabilities ............. -- 10,494 Long-term debt .......................... -- 863,293 ----------- ----------- (42,917) 1,051,197 Redeemable Preferred Interest in Venetian -- 168,012 Stockholder's equity .................... (193,142) 13,176 ----------- ----------- $ (236,059) $ 1,232,385 =========== ===========
14
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED STATEMENTS OF OPERATIONS For the three months ended March 31, 2001 (Unaudited) GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES --------------------------- --------------------------- Lido Mall Grand Canal Other Venetian Intermediate Intermediate Shop Mall Non Las Vegas Casino Holding Holding Subsidiary Guarantor Sands, Inc. Resort LLC Company LLC Company LLC LLC (1) Subsidiaries ----------- ----------- ------------ ------------ ----------- ------------ Revenues: Casino ........................ $ 60,136 $ -- $ -- $ -- $ -- $ -- Room .......................... -- 59,586 -- -- -- -- Food and beverage ............. -- 18,829 -- -- -- -- Retail and other .............. 289 20,602 -- -- 8,034 -- ----------- ----------- ----------- ----------- ----------- ----------- Total revenue .................. 60,425 99,017 -- -- 8,034 -- Less promotional allowance ..... -- (12,286) -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net revenues ................... 60,425 86,731 -- -- 8,034 -- ----------- ----------- ----------- ----------- ----------- ----------- Operating expenses: ............ -- -- -- -- -- -- Casino ........................ 53,017 -- -- -- -- -- Room .......................... -- 13,171 -- -- -- -- Food and beverage ............. -- 8,307 -- -- -- -- Retail and other .............. -- 4,734 -- -- 2,746 -- Provision for doubtful accounts 3,718 -- -- -- -- -- General and administrative .... 982 20,659 -- -- 370 -- Corporate expense ............. 1,025 863 -- -- -- -- Rental expense ................ 193 1,452 -- -- 546 -- Depreciation and amortization . -- 8,910 -- -- 1,296 -- ----------- ----------- ----------- ----------- ----------- ----------- 58,935 58,096 -- -- 4,958 -- ----------- ----------- ----------- ----------- ----------- ----------- Operating income ............... 1,490 28,635 -- -- 3,076 -- ----------- ----------- ----------- ----------- ----------- ----------- Other income (expense): ........ -- -- -- -- -- -- Interest income ............ 211 171 -- -- 36 -- Interest expense ........... -- (24,746) -- -- (4,194) -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) .............. $ 1,701 $ 4,060 $ -- $ -- $ (1,082) $ -- =========== =========== =========== =========== =========== =========== - --------------- (1) The assets and liabilities of Mall Construction, a guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary on December 20, 1999. As a result, Mall Construction had no revenues or expenses as of March 31, 2001.
15 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED STATEMENTS OF OPERATIONS (Continued) For the three months ended March 31, 2001 (Unaudited)
Consolidating/ Eliminating Entries Total ----------- ----------- Revenues: Casino ........................ $ -- $ 60,136 Room .......................... -- 59,586 Food and beverage ............. -- 18,829 Retail and other .............. (11,550) 17,375 ----------- ----------- Total revenue .................. (11,550) 155,926 Less promotional allowance ..... -- (12,286) ----------- ----------- Net revenues ................... (11,550) 143,640 Operating expenses: ............ -- -- Casino ........................ (11,359) 41,658 Room .......................... -- 13,171 Food and beverage ............. -- 8,307 Retail and other .............. (191) 7,289 Provision for doubtful accounts -- 3,718 General and administrative .... -- 22,011 Corporate expense ............. -- 1,888 Rental expense ................ -- 2,191 Depreciation and amortization . -- 10,206 ----------- ----------- (11,550) 110,439 ----------- ----------- Operating income ............... -- 33,201 ----------- ----------- Other income (expense): ........ -- -- Interest income ............ -- 418 Interest expense ........... -- (28,940) ----------- ----------- Net income (loss) .............. $ -- $ 4,679 =========== ===========
16
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED STATEMENTS OF OPERATIONS For the three months ended March 31, 2000 (Unaudited) GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES ------------------------- --------------------------- Lido Mall Grand Canal Other Venetian Intermediate Intermediate Shop Mall Non- Las Vegas Casino Holding Holding Subsidiary Guarantor Sands, Inc. Resort LLC Company LLC Company LLC LLC (1) Subsidiaries ----------- ----------- ----------- ----------- ----------- ------------ Revenues: Casino ........................ $ 85,693 $ -- $ -- $ -- $ -- $ -- Room .......................... -- 46,980 -- -- -- -- Food and beverage ............. -- 18,781 -- -- -- -- Retail and other .............. 332 19,256 -- -- 7,064 -- ----------- ----------- ----------- ----------- ----------- ----------- Total revenue .................. 86,025 85,017 -- -- 7,064 -- Less promotional allowance ..... -- (10,933) -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net revenues ................... 86,025 74,084 -- -- 7,064 -- ----------- ----------- ----------- ----------- ----------- ----------- Operating expenses: Casino ........................ 52,391 -- -- -- -- -- Room .......................... -- 11,297 -- -- -- -- Food and beverage ............. -- 9,668 -- -- -- -- Retail and other .............. -- 4,147 -- -- 2,191 -- Provision for doubtful accounts 5,682 400 -- -- 200 -- General and administrative .... 815 20,548 -- 1 192 -- Corporate expense ............. 448 920 -- -- -- -- Rental Expense ................ 799 1,494 -- -- 557 -- Depreciation and amortization . -- 8,713 -- -- 1,132 -- ----------- ----------- ----------- ----------- ----------- ----------- 60,135 57,187 -- 1 4,272 -- ----------- ----------- ----------- ----------- ----------- ----------- Operating income (loss) ........ 25,890 16,897 -- (1) 2,792 -- ----------- ----------- ----------- ----------- ----------- ----------- Other income (expense): ........ -- -- -- -- -- Interest income ............ 84 356 -- -- 23 -- Interest expense ........... -- (25,171) -- -- (4,240) -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) .............. $ 25,974 $ (7,918) $ -- $ (1) $ (1,425) $ -- =========== =========== =========== =========== =========== =========== - --------------- (1) The assets and liabilities of Mall Construction, a guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary on December 20, 1999. As a result, Mall Construction had no revenues or expenses as of March 31, 2000.
17 LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED STATEMENTS OF OPERATIONS For the three months ended March 31, 2000 (Unaudited)
Consolidating/ Eliminating Entries Total ----------- ----------- Revenues: Casino ........................ $ -- $ 85,693 Room .......................... -- 46,980 Food and beverage ............. -- 18,781 Retail and other .............. (11,259) 15,393 ----------- ----------- Total revenue .................. (11,259) 166,847 Less promotional allowance ..... -- (10,933) ----------- ----------- Net revenues ................... (11,259) 155,914 ----------- ----------- Operating expenses: Casino ........................ (11,159) 41,232 Room .......................... -- 11,297 Food and beverage ............. -- 9,668 Retail and other .............. (100) 6,238 Provision for doubtful accounts -- 6,282 General and administrative .... -- 21,556 Corporate expense ............. -- 1,368 Rental Expense ................ -- 2,850 Depreciation and amortization . -- 9,845 ----------- ----------- (11,259) 110,336 ----------- ----------- Operating income (loss) ........ -- 45,578 Other income (expense): ........ Interest income ............ -- 463 Interest expense ........... -- (29,411) ----------- ----------- Net income (loss) .............. $ -- $ 16,630 =========== ===========
18
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2001 (Unaudited) GUARANTOR SUBSIDIARIES -------------------------- Lido Mall Venetian Intermediate Intermediate Las Vegas Casino Holding Holding Sands, Inc. Resort LLC Company LLC Company LLC ----------- ---------- ----------- ------------ Net cash provided by (used in) operating activities ........ $ (7,032) $ 20,779 $ -- $ -- ----------- ----------- ----------- ----------- Cash flows from investing activities: Proceeds from purchases of investments ................... -- (10) -- -- Capital expenditures ..................................... -- (9,021) -- -- ----------- ----------- ----------- ----------- Net cash used in investing activities ...................... -- (9,031) -- -- ----------- ----------- ----------- ----------- Cash flows from financing activities: Repayments on bank credit facility-tranche B term loan ... -- (125) -- -- Repayments on FF&E credit facility ....................... -- (5,374) -- -- Proceeds from Phase II Subsidiary unsecured bank loan .... -- -- -- -- Payments of deferred offering costs ...................... -- (177) -- -- Net increase (decrease) in intercompany accounts ......... 798 (539) -- -- ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities ........ 798 (6,215) -- -- ----------- ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents ........... (6,234) 5,533 -- -- Cash and cash equivalents at beginning of period ........... 35,332 4,260 4 4 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period ................. $ 29,098 $ 9,793 $ 4 $ 4 =========== =========== =========== =========== NON-GUARANTOR SUBSIDIARIES --------------------------- Grand Canal Other Shop Mall Non- Consolidating/ Subsidiary Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ----------- ----------- Net cash provided by (used in) operating activities ........ $ 179 $ 10 $ -- $ 13,936 ----------- ----------- ----------- ----------- Cash flows from investing activities: Proceeds from purchases of investments ................... (15) -- -- (25) Capital expenditures ..................................... (87) (458) -- (9,566) ----------- ----------- ----------- ----------- Net cash used in investing activities ...................... (102) (458) -- (9,591) ----------- ----------- ----------- ----------- Cash flows from financing activities: Repayments on bank credit facility-tranche B term loan ... -- -- -- (125) Repayments on FF&E credit facility ....................... -- -- -- (5,374) Proceeds from Phase II Subsidiary unsecured bank loan .... -- 792 -- 792 Payments of deferred offering costs ...................... -- (300) -- (477) Net increase (decrease) in intercompany accounts ......... (259) -- -- -- ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities ........ (259) 492 -- (5,184) ----------- ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents ........... (182) 44 -- (839) Cash and cash equivalents at beginning of period ........... 2,972 34 -- 42,606 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period ................. $ 2,790 $ 78 $ -- $ 41,767 =========== =========== =========== =========== - --------------- (1) The assets and liabilities of Mall Construction, a guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary on December 20, 1999. As a result, Mall Construction had no cash flows as of March 31, 2001.
19
LAS VEGAS SANDS, INC. Notes to Financial Statements (Continued) Note 7 Summarized Financial Information (Continued) CONDENSED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2000 (Unaudited) GUARANTOR SUBSIDIARIES ------------------------- Lido Mall Venetian Intermediate Intermediate Las Vegas Casino Holding Holding Sands, Inc. Resort LLC Company LLC Company LLC ----------- ------------ ----------- ------------ Net cash provided by (used in) operating activities ............. $ 15,068 $ 9,286 $ -- $ (1) ----------- ------------ ----------- ----------- Cash flows from investing activities: Proceeds from sale of investments ............................. -- 7,453 -- -- Capital expenditures .......................................... -- (2,205) -- -- Construction of Casino Resort ................................. -- (8,550) -- -- ----------- ------------ ----------- ----------- Net cash provided by (used in) investing activities ............. -- (3,302) -- -- ----------- ------------ ----------- ----------- Cash flows from financing activities: Repayments on bank credit facility-tranche A term loan ........ -- (5,625) -- -- Repayments on bank credit facility-revolver ................... -- (9,292) -- -- Repayments on FF&E credit facility ............................ -- (2,931) -- -- Payments of deferred offering costs ........................... -- -- -- -- Net increase and (decrease) in intercompany accounts (11,328) 12,067 -- -- ----------- ------------ ----------- ----------- Net cash used in financing activities ........................... (11,328) (5,781) -- -- ----------- ------------ ----------- ----------- Increase (decrease) in cash and cash equivalents ................ 3,740 203 -- (1) Cash and cash equivalents at beginning of period ................ 23,961 2,237 4 5 ----------- ------------ ----------- ----------- Cash and cash equivalents at end of period ...................... $ 27,701 $ 2,440 $ 4 $ 4 =========== =========== =========== =========== NON-GUARANTOR SUBSIDIARIES -------------------------- Grand Canal Other Shop Mall Non- Consolidating/ Subsidiary Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ----------- ---------- Net cash provided by (used in) operating activities ............. $ 2,531 $ -- $ -- $ 26,884 ----------- ------------ ----------- ---------- Cash flows from investing activities: Proceeds from sale of investments ............................. 1,185 -- -- 8,638 Capital expenditures .......................................... (95) -- -- (2,300) Construction of Casino Resort ................................. (61) 67 -- (8,544) ----------- ------------ ----------- ---------- Net cash provided by (used in) investing activities ............. 1,029 67 -- (2,206) ----------- ------------ ----------- ---------- Cash flows from financing activities: Repayments on bank credit facility-tranche A term loan ........ -- -- -- (5,625) Repayments on bank credit facility-revolver ................... -- -- -- (9,292) Repayments on FF&E credit facility ............................ -- -- -- (2,931) Payments of deferred offering costs ........................... (449) -- -- (449) Net increase and (decrease) in intercompany accounts .......... (739) -- -- -- ----------- ------------ ----------- ---------- Net cash used in financing activities ........................... (1,188) -- -- (18,297) ----------- ------------ ----------- ---------- Increase (decrease) in cash and cash equivalents ................ 2,372 67 -- 6,381 Cash and cash equivalents at beginning of period ................ -- 45 -- 26,252 ----------- ------------ ----------- ---------- Cash and cash equivalents at end of period ...................... $ 2,372 $ 112 $ -- $ 32,633 =========== =========== =========== =========== - --------------- (1) The assets and liabilities of Mall Construction, a guarantor, were transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon substantial completion of the Casino Resort on November 12, 1999, and subsequently transferred to the New Mall Subsidiary on December 20, 1999. As a result, Mall Construction had no cash flows as of March 31, 2000.
20 LAS VEGAS SANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto and other financial information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 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 all-suites hotel on the Strip with 3,036 suites; a gaming facility of approximately 116,000 square feet; an enclosed retail, dining and entertainment complex of approximately 445,000 net leasable square feet; and a meeting and conference facility of approximately 500,000 square feet. The Company is party to litigation matters and claims related to its operations and construction of the Casino Resort that it does not expect to have a material adverse effect on its financial position, result of operation or cash flows. See "Part II, Item 1 - Legal Proceedings." Operating Results - ----------------- First Quarter Ended March 31, 2001 compared to First Quarter Ended March 31, 2000. Operating Revenues ------------------ Consolidated net revenues for the first quarter of 2001 were $143.6 million, representing a decrease of $12.3 million when compared with $155.9 million of consolidated net revenues during the first quarter of 2000. The decrease in net revenues was due to a decline of casino revenue at the Casino Resort. The Casino Resort's casino revenues were $60.1 million in the first quarter of 2001, a decrease of $25.6 million when compared to $85.7 million during the first quarter of 2000. The decrease was attributable to an unusually low table games win percentage. The table games historical win percentage is reasonably predictable over time, but may vary considerably during shorter periods. Table games drop (volume) increased to $308.4 million in the first quarter of 2001 from $294.6 million during the first quarter of 2000. Slot revenue in the first quarter of 2001 increased to $27.0 million from $24.0 million reported during the first quarter of 2000, or an increase of 12.5%. The increase resulted from an increase in slot handle (volume) to $487.0 million in the first quarter of 2001 compared to $476.1 million during the first quarter of 2000, and an increase in slot win percentage. The Casino Resort's room rates and occupancy levels continued to increase during the first quarter of 2001. The Casino Resort achieved room revenues during the first quarter of 2001 of $59.6 million, compared to $47.0 million during the first quarter of 2000. The Casino Resort's average daily room rate increased to $220 in the first quarter of 2001 compared to $181 during the first quarter of 2000. The increase in room rates occurred in all major segments of the Casino Resort's hotel rooms business, including the mid-week, group and convention business, and the weekend retail business. The occupancy of available guestrooms was 99.6% during the first quarter of 2001 compared to 94.1% during the first quarter of 2000. Food and beverage, retail and other revenues were $28.4 million during the first quarter of 2001 compared to $27.2 million during the first quarter of 2000. The Mall generated rental and related revenues of $7.8 million during the first quarter of 2001 compared to $7.0 million during the first quarter of 2000. The increase was attributable to additional tenants and increased proceeds from rents calculated on tenant gross revenues. Operating Expenses ------------------ Consolidated operating expenses were $110.4 million in the first quarter of 2001, compared with $110.3 million during the first quarter of 2000. Corporate expenses totaled $1.9 million during the first quarter of 2001, as compared to $1.4 million during the first quarter of 2000. Rental expenses primarily related to the Casino Resort's heating, ventilation and air conditioning plant for the first quarter of 2001 were $2.2 million, including $1.6 million for the Casino Resort and $0.6 million for the Mall. Rental expenses were $2.9 million in the first quarter of 2000. 21 LAS VEGAS SANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Mall incurred operating expenses of $5.0 million during the first quarter of 2001 compared to $4.3 million during the first quarter of 2000. The increase in Mall operating expenses was attributed to increases in advertising, property taxes and utility cost during the first quarter of 2001. Interest Income (Expense) ------------------------- Interest expense was $28.9 million in the first quarter of 2001, compared to $29.4 million in the same period of 2000. Of the $28.9 million incurred during the first quarter of 2001, $24.7 million was related to the Casino Resort (excluding the Mall) and $4.2 million was related to the Mall. The decrease in interest expense was attributed to decreases in interest rates during the first quarter of 2001 and scheduled repayment of debt. Interest income for the quarter ended March 31, 2001 was $0.4 million compared to $0.5 million in the same period in 2000. Other Factors Affecting Earnings - -------------------------------- 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. Liquidity and Capital Resources - ------------------------------- As of March 31, 2001 and December 31, 2000, the Company held cash and cash equivalents of $44.3 million and $45.2 million, respectively. Net cash provided by operating activities for the first three months of 2001 was $13.9 million, compared with $26.9 million for the same period in 2000. The Company's operating cash flow in the first three months of 2001 was negatively impacted by a decrease in casino revenue. Net trade receivables were $67.9 million as of March 31, 2001 and $64.3 million as of March 31, 2000. Hotel receivables increased by $2.9 million from December 31, 2000 to March 31, 2001, as a result of higher room rates and occupancy. Capital expenditures paid from operating cash flow during the first three months of 2001 were $9.6 million. Capital expenditures for the same period in 2000 were $2.3 million and $8.5 million for construction of the Casino Resort. During the first three months of 2001, the Company paid principal payments of $5.4 million on the FF&E Credit Facility and $125,000 on the Tranche B Term Loan. On September 19, 2000, the Company announced plans to construct the Guggenheim Exhibition Hall, a 63,000 square foot structure adjacent to the Casino Resort (the "Exhibition Hall"), to house various exhibits in conjunction with the Guggenheim Museum Foundation. The Exhibition Hall is presently under construction and is expected to be completed in September 2001, at an estimated cost of $21.0 million. In addition, the Company announced plans to construct 8,000 square feet of display space within the Casino Resort to display art masterworks from the Guggenheim Museum and the State Hermitage Museum in St. Petersburg, Russia at an estimated cost of $6.0 million. The Bank Credit Facility and the FF&E Credit Facility each currently allow the Company to spend up to $25.0 million per year for capital expenditures along with unused amounts from previous years. The Company estimates total planned capital expenditures for the Casino Resort of approximately $46.4 million during 2001. The Company will seek approval from the lenders under the Bank Credit Facility and the FF&E Credit Facility to modify such capital expenditure limitations. If the Company does not receive approval for the increase in the capital expenditure limitations it will defer certain capital expenditures to comply with the limitations. 22 LAS VEGAS SANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company has also announced that it is in the preliminary feasibility and design stages of a capital improvement project to add an approximately 1,000 all-suite hotel rooms to the Casino Resort (the "Phase I-A Room Addition"). The preliminary plan provides for construction of the Phase I-A Room Addition above the Casino Resort's parking structure and the construction of an approximately 1,000 parking space addition to that parking structure. In addition, coinciding with the construction of the Phase I-A Room Addition, the Phase II Subsidiary will construct 100,000 square feet of meeting space with tentative plans to lease the space to the Casino Resort. For the Company to proceed with this project would require the Company and the Phase II Subsidiary to incur additional indebtedness. Depending upon the structure of such indebtedness, this may require the consent of certain existing lenders and modifications to certain existing lender financial covenants. As of this date, no final budget for this project has been determined and the Company has not entered into any agreements to fund such project. The Phase II Subsidiary has outstanding project payables in the amount of $2.9 million to be funded from future equity contributions or borrowings by the Phase II Subsidiary. During the first quarter of 2001, the Phase II Subsidiary borrowed $792,000 under a bank line of credit which is due and payable on May 31, 2001. The proceeds were used to fund payments of Phase II Subsidiary operating costs. As discussed in "Part I, Item 1 - Financial Statements - Notes to Financial Statements - Note 6 Commitments and Contingencies" above, the Company is a party to certain litigation matters and claims related to construction of the Casino Resort. If the Company is required to pay any of the Construction Manager's contested construction costs (the "Contested Construction Costs") which are not covered by the Insurance Policy, the Company may use cash received from the following sources to fund such costs: (i) the LD Policy, (ii) the Construction Manager, Bovis and P&O pursuant to the Construction Management Contract, the Bovis Guaranty and the P&O Guaranty, respectively, (iii) third parties, pursuant to their liability to the Company under their agreements with the Company, (iv) amounts received from the Phase II Subsidiary for shared facilities designed and constructed to accommodate the operations of the Casino Resort and the Phase II Resort, (v) the Sole Stockholder, pursuant to his liability under the Completion Guaranty, (vi) borrowings under the Revolver (vii) additional debt or equity financings, and (viii) operating cash flow. The Sole Stockholder has remaining liability of approximately $5.0 million under the Completion Guaranty to fund excess construction costs (which liability is collateralized with cash and cash equivalents). 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. For the next twelve months, the Company expects to fund its operations, capital expenditures (that are unrelated to the Phase I-A Room Addition) and debt service requirements from existing cash balances, operating cash flow and borrowings under the Revolver. As of March 31, 2001, none of the $40.0 million Revolver availability was drawn. The Company recently obtained an extension of the availability date of the Revolver from the lenders under the Bank Credit Facility, from March 15, 2001 to September 15, 2001. The Company anticipates the Revolver to be extended beyond September 15, 2001, however, there can be no assurance that such financing arrangement will be completed during 2001. The Company has significant debt service payments due during the next twelve months, including principal payments on its Bank Credit Facility and FF&E Credit Facility aggregating $62.2 million and estimated total interest payments (excluding noncash amortization of debt offering costs) of approximately $84.7 million for indebtedness secured by the Casino Resort and approximately $14.1 million for indebtedness secured by the Mall. In addition, the Company estimates total capital expenditures for the Casino Resort of approximately $46.4 million during 2001. The Company anticipates that its existing cash balances, operating cash flow and available borrowing capacity will continue to provide it with sufficient resources to meet existing debt obligations and foreseeable capital expenditures requirements. As mentioned above, construction of the Phase I-A Room Addition or additional plans for the Phase II Resort would require the Company to incur additional indebtedness. The Bank Credit Facility and FF&E Credit Facility contain certain covenants that require the Company to pass a number of financial tests relating to, among other things, a minimum EDITDA, a consolidated leverage ratio; and a fixed charge coverage ratio (all as defined in the respective credit agreements). Additionally, the 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. The Company is also a party to certain intercreditor arrangements. The intercreditor agreements set forth the lender's interests and claims in the Company's assets as collateral for borrowings. 23 LAS VEGAS SANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Consolidated EBITDA is dependent on the Company's results of operations, which in turn are partially dependent on table games revenues. While the table games win percentage is reasonably predictable over the long term, it can fluctuate significantly from quarter to quarter, affecting table games revenues. The financial covenants involving EBITDA are applied on a rolling four-quarter basis, and the Company's compliance with financial covenants can be temporarily affected if the Company experiences an unusually low win percentage in a particular quarter, which is not offset in subsequent quarters or by other results of operations. The Company has remained in compliance with these covenants, however, the Company was challenged to meet certain covenant tests in the first quarter of 2001 due to an extremely low win percentage for certain quarters during the rolling measurement period. These covenants allow the Sole Stockholder to increase EBITDA for measurement purposes by issuing a standby letter of credit to the Company's lenders. The Company used this letter of credit mechanism during the first quarter of 2001 to meet the covenant test. The Company anticipates that the win percentage will return to normal levels over time, and that it will cancel the standby letter of credit once it is no longer needed to meet the test. 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 Indentures and the terms of the Bank Credit Facility and the FF&E Credit Facility, additional financing through bank borrowings or debt or equity financings. Also, there can be no assurance that new business developments (such as the Phase I-A Room Addition) or unforeseen events will not occur resulting in the need to raise additional funds. There can be no assurance that additional or replacement financing, if needed, will be available to the Company, and, if available, that the financing will be on terms favorable to the Company, or that the Sole Stockholder or any of his affiliates will provide any such financing. New Mall Subsidiary and Transfer of Mall Assets ----------------------------------------------- On November 12, 1999, Grand Canal Shops Mall Construction, LLC transferred the Mall Assets to the Mall Subsidiary. Upon such transfer, the Mall Assets were released as security to the holders of the Mortgage Notes and for the indebtedness under the Bank Credit Facility, the indebtedness under the $140.0 million mall construction loan facility (the "Mall Construction Loan Facility") was assumed by the Mall Subsidiary and all entities comprising the Company, other than the Mall Subsidiary, were released from all obligations under the Mall Construction Loan Facility. On December 20, 1999, the Mall Construction Loan Facility was paid off in full with the proceeds of the Mall Take-out Financing. The Mall Take-out Financing is secured by a $20.0 million guaranty made by the Sole Stockholder (the "Mall Take-out Guaranty"). The annual interest rate on the Tranche A Take-out Loan is 350 basis points over 30 day LIBOR. The Tranche A Take-out Loan is due in full on December 20, 2002 and no principal payments are due thereunder until such date. The Tranche B Take-out Loan bears interest at 14% per annum. The initial maturity date is December 20, 2004 with a right of extension to December 20, 2007. No principal payments are due until maturity. Also on December 20, 1999, the Mall Assets were transferred from the Mall Subsidiary to the New Mall Subsidiary, the obligor under the Mall Take-out Financing. Because the New Mall Subsidiary is not a guarantor of any indebtedness of the Company (other than the Mall Take-out Financing), creditors of the Company (including the holders of the Notes but excluding creditors of the New Mall Subsidiary) do not have a direct claim against the Mall Assets. As a result, indebtedness of the entities comprising the Company other than the New Mall Subsidiary (including the Notes) is now, with respect to the Mall Assets, effectively subordinated to indebtedness of the New Mall Subsidiary. The New Mall Subsidiary is not restricted by any of the debt instruments of LVSI, Venetian or the Company's other subsidiary guarantors (including the Indentures) from incurring any indebtedness. The terms of the Tranche A Take-out Loan prohibit the New Mall Subsidiary from paying dividends or making distributions to any of the other entities comprising the Company unless payments under the Tranche A Take-out Loan are current, and, with certain limited exceptions, prohibit the New Mall Subsidiary from making any loans to such entities. Any additional indebtedness incurred by the New Mall Subsidiary may include additional restrictions on the ability of the New Mall Subsidiary to pay any such dividends and make any such distributions or loans. 24 LAS VEGAS SANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Phase II Resort and Transfer of Phase II Land --------------------------------------------- If the Phase II Subsidiary determines to construct the Phase II Resort, the Phase II Subsidiary will be required to raise substantial debt and/or equity financings. Currently, there are no commitments to fund any portion of the construction and development costs of the Phase II Resort. The Phase II Land was transferred to the Phase II Subsidiary in 1998. On December 31, 1999, an additional 1.75 acres of land was contributed indirectly by the Sole Stockholder to the Phase II Subsidiary. The development of the Phase II Resort may require obtaining additional regulatory approvals. The Company has not yet set a date to begin construction of the Phase II Resort. Because the Phase II Subsidiary is not a guarantor of the Company's indebtedness, creditors of the Company (including the holders of the Notes) do not have a direct claim against the assets of the Phase II Subsidiary. As a result, the indebtedness of the Company (including the Notes) is effectively subordinated to indebtedness of the Phase II Subsidiary. The Phase II Subsidiary is not subject to any of the restrictive covenants of the debt instruments of the Company (including, without limitation, the covenants with respect to the limitations on indebtedness and restrictions on the ability to pay dividends or to make distributions or loans to the Company and its subsidiaries). Any indebtedness incurred by the Phase II Subsidiary may include material restrictions on the ability of the Phase II Subsidiary to pay dividends or make distributions or loans to the Company and its subsidiaries. The debt instruments of the Company limit the ability of LVSI, Venetian or any of their subsidiaries to guarantee or otherwise become liable for any indebtedness of the Phase II Subsidiary. Such debt instruments also restrict the sale or other disposition by the Company and its subsidiaries of capital stock of the Phase II Subsidiary, including the sale of any such capital stock to the Sole Stockholder or any affiliate of the Sole Stockholder. In addition, prior to commencement of construction of the Phase II Resort, Venetian has the right to approve the plans and specifications for the Phase II Resort. Risk Related to the Subordination Structure of the Mortgage Notes - ----------------------------------------------------------------- The Mortgage Notes represent senior secured debt obligations of LVSI and Venetian, secured by second priority liens on the collateral securing the Mortgage Notes (the "Note Collateral"). However, the guarantees of the Mortgage Notes by its subsidiaries, Mall Intermediate and Lido Intermediate (collectively, the "Subordinated Guarantors"), are unsecured, subordinated debt obligations of such guarantors. The structure of these guarantees present certain risks for holders of the Mortgage Notes. For example, if the Note Collateral were insufficient to pay the debt secured by such liens, or such liens were found to be invalid, then holders of the Mortgage Notes would have a senior claim against any remaining assets of LVSI and Venetian. In contrast, because of the subordination provision with respect to the Subordinated Guarantors, holders of the Mortgage Notes will always be fully subordinated to the claims of holders of senior indebtedness of the Subordinated Guarantors. Other Matters - ------------- In June 1998, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133") entitled "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If specific conditions are met, a derivative may be specifically designated as a hedge of specific financial exposures. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and, if used in hedging activities, it depends on its effectiveness as a hedge. SFAS 133 as amended is effective for all fiscal quarters of fiscal years beginning after December 31, 2000. SFAS 133 should not be applied retroactively to financial statements of prior periods. The Company adopted SFAS 133 on January 1, 2001. Because of the Company's minimal use of derivatives, the adoption of SFAS 133 did not have a significant effect on the Company's earnings or financial position. 25 LAS VEGAS SANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Special Note Regarding Forward-Looking Statements - ------------------------------------------------- Certain statements in this section and elsewhere in this Quarterly Report on Form 10-Q (as well as information included in oral statements or other written 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, 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 a new venture and new construction, competition and other planned construction in Las Vegas, government regulation related to the casino industry (including the legalization of gaming in certain jurisdictions, such as Native American reservations in the State of California), leverage and debt service (including sensitivity to fluctuations in interest rates), uncertainty of casino spending and vacationing in casino resorts in Las Vegas, occupancy rates and average daily room rates in Las Vegas, demand for all-suites rooms, the popularity of Las Vegas as a convention and trade show destination, the completion of infrastructure projects in Las Vegas, including the current expansion of the Las Vegas Convention Center and the recent expansion of McCarran International Airport, 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 of consumers 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 under the Bank Credit Facility, the Tranche A Take-out Loan and the FF&E Credit Facility, and by use of interest rate cap and floor agreements. The ability to enter into interest rate cap and floor agreements will allow the Company to manage its interest rate risk associated with its variable rate debt. See "Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Part 1, Item 1 - Financial Statements - Notes to Financial Statements - Note 4 Long-Term Debt." 26 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, 2000 and "Part I, Item 1 - Financial Statements - Notes to Financial Statements Note 6 Commitments and Contingencies." 27 Part II OTHER INFORMATION Items 2 through 5 of Part II are not applicable. Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits Exhibit No. Description of Document None (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter ended March 31, 2001. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAS VEGAS SANDS, INC. May 10, 2001 By: /s/ Sheldon G. Adelson --------------------------- Sheldon G. Adelson Chairman of the Board, Chief Executive Officer and Director May 10, 2001 By: /s/ Harry D. Miltenberger -------------------------- Harry D. Miltenberger Vice President-Finance (principal financial and accounting officer) 29 -----END PRIVACY-ENHANCED MESSAGE-----