-----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, D49uLFX9VETUW0YpFr3wDz+F2l+KhqF4DXzPB4QnWnN9i2w9ZU6Lt1aQ0pl3oIDg cjvwydhDBONC5OoEByxbWQ== 0000850994-02-000007.txt : 20021108 0000850994-02-000007.hdr.sgml : 20021108 20021108155933 ACCESSION NUMBER: 0000850994-02-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021108 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: 1934 Act SEC FILE NUMBER: 333-42147 FILM NUMBER: 02814309 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 lvsi3rd-10q_2002.txt LAS VEGAS SANDS INC - FORM 10-Q, 3RD QUARTER ================================================================================ 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 September 30, 2002 [ ] 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 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 Registrant's classes of common stock, as of November 8, 2002 Class Outstanding at November 8, 2002 - -------------------------------------- ----------------------------------- Common Stock, $.10 par value 1,000,000 shares ================================================================================ Table of Contents Part I FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets At September 30, 2002 (unaudited) and December 31, 2001 .............................................1 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 (unaudited) and September 30, 2001 (unaudited).................2 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 (unaudited) and September 30, 2001 (unaudited) ................................3 Notes to Consolidated Financial Statements.....................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............30 Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................................38 Item 4. Controls and Procedures.......................................39 Part II OTHER INFORMATION Item 1. Legal Proceedings.............................................40 Item 5. Other Information.............................................40 Item 6. Exhibits and Reports on Form 8-K..............................40 Signatures....................................................41 Certifications................................................42 LAS VEGAS SANDS, INC. Consolidated Balance Sheets (Dollars in thousands)
September 30, December 31, 2002 2001 ------------- ------------ Unaudited ASSETS Current assets: Cash and cash equivalents ............................... $ 95,642 $ 54,936 Restricted cash and investments ......................... 16,718 2,646 Accounts receivable, net ................................ 51,279 57,092 Inventories ............................................. 4,576 4,747 Prepaid expenses ........................................ 3,750 3,862 ----------- ---------- Total current assets ........................................ 171,965 123,283 Property and equipment, net ................................. 1,126,636 1,096,307 Deferred offering costs, net ................................ 39,080 18,989 Restricted cash and investments ............................. 140,614 -- Other assets, net ........................................... 30,767 33,207 ----------- ---------- $ 1,509,062 $ 1,271,786 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ........................................ $ 16,208 $ 36,353 Construction payables ................................... 17,284 26,115 Construction payables-contested ......................... 7,232 7,232 Accrued interest payable ................................ 30,693 10,008 Other accrued liabilities ............................... 66,250 70,035 Current maturities of long-term debt .................... 2,500 129,113 ----------- ---------- Total current liabilities ................................... 140,167 278,856 Other long-term liabilities ................................. 1,259 3,274 Long-term debt .............................................. 1,216,875 745,746 Long-term subordinated loans payable to Principal Stockholder -- 66,123 ----------- ---------- 1,358,301 1,093,999 ----------- ---------- Redeemable Preferred Interest in Venetian Casino Resort, LLC, a wholly owned subsidiary ............................... 206,108 188,778 ----------- ---------- Commitments and contingencies Stockholders' equity (deficit): Common stock, $.10 par value, 3,000,000 shares authorized, 1,000,000 shares issued and outstanding ............................... 100 92 Capital in excess of par value .......................... 140,760 140,768 Accumulated deficit since June 30, 1996 ................. (196,207) (151,851) ----------- ---------- (55,347) (10,991) ----------- ---------- $ 1,509,062 $ 1,271,786 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
1 LAS VEGAS SANDS, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 -------- -------- --------- --------- Revenues: Casino ................................................. $ 80,086 $ 61,392 $ 177,379 $ 174,133 Rooms .................................................. 47,592 43,688 156,605 159,702 Food and beverage ...................................... 15,305 11,731 54,838 49,088 Retail and other ....................................... 18,103 16,783 53,550 51,513 -------- -------- --------- --------- 161,086 133,594 442,372 434,436 Less-promotional allowances ............................... (8,330) (10,440) (25,018) (32,384) -------- -------- --------- --------- Net revenues ........................................... 152,756 123,154 417,354 402,052 -------- -------- --------- --------- Operating expenses: Casino ................................................. 31,878 33,814 86,742 109,970 Rooms .................................................. 13,502 12,415 40,128 39,271 Food and beverage ...................................... 8,329 6,333 27,049 23,581 Retail and other ....................................... 8,547 8,845 23,511 23,876 Provision for doubtful accounts ........................ 5,266 5,767 13,540 14,656 General and administrative ............................. 25,290 22,911 69,682 68,337 Corporate expense ...................................... 2,697 763 7,520 4,741 Rental expense ......................................... 2,006 2,074 5,535 6,287 Pre-opening and developmental expense .................. 1,026 -- 3,097 -- Depreciation and amortization .......................... 11,066 9,827 33,015 30,338 -------- -------- --------- --------- 109,607 102,749 309,819 321,057 -------- -------- --------- --------- Operating income .......................................... 43,149 20,405 107,535 80,995 Other income (expense): Interest income ......................................... 1,079 329 1,729 1,135 Interest expense, net of amounts capitalized ............ (29,466) (24,606) (81,531) (76,269) Interest expense on indebtedness to Principal Stockholder -- (2,107) (4,010) (6,747) Other income (expense) .................................. 280 -- 643 -- Loss on early retirement of debt ........................ (8,629) (1,383) (51,392) (1,383) -------- -------- --------- --------- Income (loss) before preferred return ..................... 6,413 (7,362) (27,026) (2,269) Preferred return on Redeemable Preferred Interest in Venetian Casino Resort, LLC (2001, as restated) ... (6,003) (5,343) (17,330) (15,423) -------- -------- --------- --------- Net income (loss) (2001, as restated) ..................... $ 410 $(12,705) $ (44,356) $ (17,692) ======== ======== ========= ========= Basic and diluted income (loss) per share ................. $ 0.41 $ (12.71) $ (44.36) $ (17.69) ======== ======== ========= ========= 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)
Nine Months Ended September 30, 2002 2001 --------- --------- Cash flows from operating activities: Net loss (2001, as restated) ............................ $ (44,356) $ (17,692) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................... 33,015 30,338 Amortization of debt offering costs and original issue discount ................................ 6,614 6,046 Non-cash preferred return on Redeemable Preferred Interest in Venetian (2001, as restated) ........................... 17,330 15,423 Loss on early retirement of debt ................ 51,392 1,383 Loss on disposition of fixed asset .............. 301 -- Non-cash interest on completion guaranty loan ... -- 1,940 Provision for doubtful accounts ................. 13,540 14,656 Changes in operating assets and liabilities: Accounts receivable ........................... (7,727) (4,683) Inventories ................................... 171 (545) Prepaid expenses .............................. 112 (1,592) Other assets .................................. 2,440 (4,626) Accounts payable .............................. (20,145) 2,865 Accrued interest payable ...................... 20,685 14,342 Other accrued liabilities ..................... (5,800) (22,137) --------- --------- Net cash provided by operating activities ............... 67,572 35,718 --------- --------- Cash flows from investing activities: Increase in restricted cash ($153.4 million for Phase IA) (154,686) (82) Capital expenditures .................................... (72,476) (42,220) --------- --------- Net cash used in investing activities ................... (227,162) (42,302) --------- --------- Cash flows from financing activities: Repayments on 12 1/4 % mortgage notes ................... (425,000) -- Proceeds from 11% mortgage notes ........................ 850,000 -- Repayments on senior subordinated notes ................. (97,500) -- Proceeds from secured mall facility ..................... 120,000 -- Repayments on mall-tranche A take-out Loan .............. (105,000) -- Repayments on mall-tranche B take-out Loan .............. (35,000) -- Repayments on completion guaranty loan .................. (31,124) -- Repayments on senior secured credit facility-term B ..... (625) -- Proceeds from senior secured credit facility-term B ..... 250,000 -- Repayments on bank credit facility-tranche A term loan .. -- (103,125) Repayments on bank credit facility-tranche B term loan .. -- (49,750) Repayments on bank credit facility-tranche C term loan .. -- (5,750) Proceeds from bank credit facility-tranche C term loan .. -- 5,750 Repayments on bank credit term facility ................. (151,986) (382) Proceeds from bank credit term facility ................. -- 152,750 Repayments on bank credit facility-revolver ............. (61,000) (8,000) Proceeds from bank credit facility-revolver ............. 21,000 48,000 Repayments on FF&E credit facility ...................... (53,735) (16,121) Repayments on Phase II Subsidary credit facility ........ (3,933) -- Repayments on Phase II Subsidiary unsecured bank loan ... (1,092) -- Proceeds from Phase II Subsidiary unsecured bank loan ... -- 1,092 Repurchase premiums incurred in connection with refinancing transactions .............................. (33,478) -- Payments of deferred offering costs ..................... (41,231) (4,997) --------- --------- Net cash provided by financing activities ............... 200,296 19,467 --------- --------- Increase in cash and cash equivalents ................... 40,706 12,883 Cash and cash equivalents at beginning of period ........ 54,936 42,606 --------- --------- Cash and cash equivalents at end of period .............. $ 95,642 $ 55,489 ========= ========= Supplemental disclosure of cash flow information: Cash payments for interest ............................ $ 59,689 $ 61,917 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
3 Notes to Financial Statements Note 1 Organization and Business of Company The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The year end balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In addition, certain amounts in the 2001 financial statements have been reclassified to conform with the 2002 presentation. In the opinion of management, all adjustments and normal recurring accruals considered necessary for a fair presentation of the results for the interim period have been included. The interim results reflected in the unaudited financial statements are not necessarily indicative of expected results for the full year. Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. On April 28, 1989, LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring the Sands Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the Sands and subsequently demolished the facility in order to construct a planned two-phase hotel-casino resort. The first phase of the hotel-casino resort (the "Casino Resort") includes 3,036 suites, casino space approximating 116,000 square feet, approximately 500,000 square feet of convention space, and approximately 475,000 gross leasable square feet of retail shops and restaurants. The consolidated financial statements include the accounts of LVSI and its subsidiaries (the "Subsidiaries"), including Venetian Casino Resort, LLC ("Venetian"), Mall Intermediate Holding Company, LLC ("Mall Intermediate"), Grand Canal Shops Mall Subsidiary, LLC (the "Mall Subsidiary"), Grand Canal Shops II, LLC (the "Mall II Subsidiary"), Grand Canal Shops Mall MM Subsidiary, Inc., Grand Canal Shops Mall Construction, LLC ("Mall Construction"), Lido Intermediate Holding Company, LLC ("Lido Intermediate"), Lido Casino Resort Holding Company, LLC, Lido Casino Resort, LLC (the "Phase II Subsidiary"), Lido Casino Resort MM, Inc., Venetian Casino Resort Athens, LLC ("Venetian Athens"), Venetian Venture Development, LLC ("Venetian Venture"), Venetian Venture Development Intermediate Limited, Venetian Macau Management Limited, Venetian Macau Holdings Limited ("Venetian Macau"), Venetian Marketing, Inc. ("Venetian Marketing"), Venetian Far East Limited and Venetian Operating Company, LLC ("Venetian Operating") (collectively, and including all other direct and indirect subsidiaries of LVSI, the "Company"). Each of LVSI and the Subsidiaries is a separate legal entity and the assets of each such entity are intended to be available only to the creditors of such entity. Venetian was formed on March 20, 1997 to own and operate certain portions of the Casino Resort. LVSI is the managing member and owns 100% of the common voting equity in Venetian. The entire preferred interest in Venetian is owned by Interface Group Holding Company, Inc. ("Interface Holding"), which is wholly-owned by LVSI's principal stockholder (the "Principal Stockholder"). Various Subsidiaries are guarantors or co-obligors of certain indebtedness related to the Casino Resort. See Note 4 - Long-Term Debt. The Mall II Subsidiary is an indirect, wholly-owned subsidiary of LVSI and owns and operates the retail mall in the Casino Resort (the "Mall"). The Mall II Subsidiary was formed on May 31, 2002 and became a successor to the Mall Subsidiary in connection with the refinancing of the Mall's indebtedness. See Note 4-Long-Term Debt. The Casino Resort is physically connected to the approximately 1.15 million square foot Sands Expo and Convention Center (the "Expo Center"). Interface Group-Nevada, Inc. ("IGN"), the owner of the Expo Center, is beneficially owned by the Principal Stockholder. Venetian, the Mall II Subsidiary and IGN transact business with each other and are parties to certain agreements. Restatement of Previously Reported Amounts ------------------------------------------ As more fully described above, Interface Holding (an entity controlled by the Principal Stockholder) owns a redeemable preferred interest in LVSI's wholly-owned subsidiary, Venetian. The preferred return on the redeemable preferred interest has not been paid, but it has been accrued by Venetian each year and historically accounted for as a charge against capital (See Note 5). Under guidance by the Emerging Issues Task Force of the Financial Accounting Standards Board, dividends on a subsidiary's preferred stock should be reflected as a minority interest and recognized as a charge against income. 4 Notes to Financial Statements (Continued) Note 1 Organization and Business of Company (Continued) The Company has recognized the preferred return as a charge against income in the accompanying 2002 financial statements. The Company has restated certain income statement items for the three and nine month periods ended September 30, 2001 to include the preferred return, which amounts were $5.3 million and $15.4 million, respectively. The restatement has no impact on the previously reported carrying balances of the redeemable preferred interest or on the previously reported financial position of the Company. In addition, because the preferred return was deducted from income available to common stockholders in calculating earnings per share, the restatement has no impact on previously reported amounts for earnings per share. New Accounting Pronouncement ---------------------------- In April 2002, the Financial Accounting Standards Board issued statement No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for losses on early retirements of debt in the statement of operations. The Company has adopted SFAS 145 and will no longer present losses on early retirements of debt as an extraordinary item. Additionally, prior period extraordinary losses have been reclassified to conform to this new presentation. Adoption of SFAS 145 had no impact on the Company's financial condition or cash flows. Note 2 Stockholders' Equity and Per Share Data The Company established a nonqualified stock option plan, which provides for the granting of stock options pursuant to the applicable provisions of the Internal Revenue Code and regulations. The stock option plan provides that the Principal Stockholder may assume the obligations of the Company under the plan and provides for the granting of up to 75,000 shares of common stock to officers and other key employees of the Company. As of December 31, 2001, no grants under the stock option plan had occurred. In the first quarter of 2002, options to purchase 49,900 shares, which represented approximately 5% of the Company's outstanding common stock, were granted from the Company to certain key employees of the Company. Immediately thereafter, the Principal Stockholder assumed the obligations of the Company under the stock option plan. On the date of grant, the exercise price of the options of $271 per share was higher than the fair market value of the Company's common stock based upon a determination of the fair market value of a per share minority interest in the common stock of LVSI, performed by an independent third-party appraiser. The options granted were fully vested and exercisable upon grant. All of the options were exercised immediately after issuance by the respective employees by delivery of a notice of exercise. There has been no change in outstanding shares of the Company and the notes receivable are not reflected in the accompanying financial statements because the shares issued were from the Principal Stockholder's existing holdings. The exercise price of the options (a total of approximately $13.5 million) was loaned to the optionees by the Principal Stockholder on a collateralized basis under full recourse notes. During the first quarter of 2002, the Company entered into a stockholders' agreement (the "Stockholders' Agreement") with the respective employees (the "Additional Stockholders") and the Principal Stockholder. The Stockholders' Agreement restricts the ability of the Additional Stockholders and any of their permitted transferees who have agreed to be bound by the terms and conditions of the agreement to sell, assign, pledge, encumber or otherwise dispose of any shares of common stock of LVSI, except in accordance with the provisions of the Stockholders' Agreement. All transfers are subject to certain conditions, including: o compliance with applicable state and foreign securities laws, o receipt of necessary licenses or approvals from the Nevada gaming authorities, and o compliance with all federal laws, rules and regulations relating to subchapter S corporations. If at any time before LVSI completes an initial public offering, the Principal Stockholder wishes to sell 20% or more of his ownership interest in LVSI to any third party transferee, each Additional Stockholder shall have the right to participate in such sale on the same terms as those offered to the Principal Stockholder. 5 Notes to Financial Statements (Continued) Note 2 Stockholders' Equity and Per Share Data (Continued) The Additional Stockholders also have certain piggyback registration rights. If at any time LVSI completes an initial public offering or proposes to register any shares of common stock, the Additional Stockholders may request registration of their securities. Common stock will be included in the registration statement in the following order of priority: first, all securities of LVSI to be sold for its own account, second, securities of stockholders (other than the Principal Stockholder) who have demand registration rights and third, such securities requested to be included in such registration statement by the Principal Stockholder and the Additional Stockholders (pro rata based on the number of registrable securities owned by such stockholders). Finally, if at any time prior to the completion by LVSI of an initial public offering LVSI wishes to issue any new securities, the Additional Stockholders will have the right to purchase that number of shares of LVSI common stock, at the proposed purchase price of the new securities, such that the Additional Stockholders' percentage ownership of LVSI would remain the same following such issuance. During the second quarter of 2002, options to purchase an additional 5,500 shares at an exercise price of $271 per share were reserved under the stock option plan. The granting of these options are subject to approval by the Nevada gaming authorities. The Company will determine if a charge to compensation is necessary at the date of actual grant of these options, depending on the estimated fair market value of a per share minority interest in the common stock of LVSI at that date. Basic and diluted income (loss) per share are calculated based upon the weighted average number of shares outstanding. In the first quarter of 2002, the Company completed a stock split whereby the number of shares of common stock outstanding was increased from 925,000 to 1,000,000. At the time of the stock split, the Principal Stockholder maintained 100% ownership of the Company's common stock. All references to share and per share data herein have been adjusted retroactively to give effect to the increase in shares of common stock outstanding to 1,000,000. Note 3 Property and Equipment Property and equipment consists of the following (in thousands):
September 30, December 31, 2002 2001 ----------- ------------ Land and land improvements $ 113,428 $ 113,309 Building and improvements 885,966 882,395 Equipment, furniture, fixtures and leasehold improvements 141,001 138,978 Construction in progress 125,853 68,542 ----------- ----------- 1,266,248 1,203,224 Less: accumulated depreciation and amortization (139,612) (106,917) ----------- ----------- $ 1,126,636 $ 1,096,307 =========== ===========
During the three and nine month periods ended September 30, 2002 and September 30, 2001, the Company capitalized interest expense of $0.7 million and $1.5 million, and $0.8 million and $1.4 million, respectively. As of September 30, 2002, construction in progress represented construction costs and project design for an approximately 1,000-room hotel tower on top of the Casino Resort's existing parking garage, an approximately 1,000-parking space expansion to the parking garage and approximately 150,000 square feet of additional convention center space on the Phase II Land (collectively, the "Phase IA Addition"), design and shared facilities costs for the planned second phase of the Casino Resort, to be owned by the Phase II Subsidiary (the "Phase II Resort"), design and pre-development costs for a casino in Macau, and on-going capital improvement projects at the Casino Resort. 6 Notes to Financial Statements (Continued) Note 4 Long-Term Debt
Long-term debt consists of the following (in thousands): September 30, December 31, 2002 2001 ------------ ------------ Indebtedness of the Company and its Subsidiaries other than the Mall II Subsidiary, the Mall Subsidiary and the Phase II Subsidiary: --------------------------------------- 12 1/4% Mortgage Notes, due November 15, 2004 - redeemed July 5, 2002 $ -- $ 425,000 14 1/4% Senior Subordinated Notes, due November 15, 2005 (net of unamortized discount of $3,607 in 2001) - redeemed July 5, 2002 -- 94,113 Bank Credit Facility-Revolver -- 40,000 Bank Credit Facility- Term Loan -- 151,986 FF&E Credit Facility -- 53,735 11% Mortgage Notes, due June 15, 2010 850,000 -- Senior Secured Credit Facility - Term B 249,375 -- Indebtedness of the Mall II Subsidiary: --------------------------------------- Secured Mall Facility 120,000 -- Indebtedness of the Mall Subsidiary: ------------------------------------ Mall Tranche A Take-out Loan -- 105,000 Indebtedness of the Phase II Subsidiary: ---------------------------------------- Phase II Subsidiary Credit Facility -- 3,933 Phase II Unsecured Bank Loan -- 1,092 Less: current maturities, including amounts redeemed on July 5, 2002 (2,500) (129,113) ---------- ---------- Total long-term debt $1,216,875 $ 745,746 ========== ========== Subordinated Owner Indebtedness: -------------------------------- Completion Guaranty Loan (Indebtedness of Venetian) $ -- $ 31,123 Subordinated Mall Tranche B Take-out Loan from Principal Stockholder (Indebtedness of Mall Subsidiary) -- 35,000 ---------- ---------- Total long-term subordinated loans payable to Principal Stockholder $ -- $ 66,123 ========== ==========
In connection with the construction financing for the Casino Resort, the Company entered into a series of transactions during 1997 to build the Casino Resort. In November 1997, the Company issued $425.0 million in aggregate principal amount of 12 1/4% Mortgage Notes (the "Old Mortgage Notes") and $97.5 million in aggregate principal amount of 14 1/4% Senior Subordinated Notes (the "Old Subordinated Notes" and, together with the Old Mortgage Notes, the "Old Notes") in a private placement. Also in November 1997, LVSI and Venetian and a syndicate of lenders entered into a Bank Credit Facility (the "Bank Credit Facility") providing for multiple draw term loans to the Company for construction and development of the Casino Resort. In December 1997, the Company entered into an agreement (the "FF&E Facility") with certain lenders to provide for $97.7 million of financing for certain furniture, fixtures, and equipment and an electrical substation. 7 Notes to Financial Statements (Continued) Note 4 Long-Term Debt (Continued) On November 12, 1999, an advance of approximately $23.5 million was made under the Principal Stockholder's completion guaranty (the "Completion Guaranty Loan"), a junior loan from the Principal Stockholder to Venetian. On December 20, 1999, certain take-out lenders funded a $105.0 million tranche A take-out loan to the Mall Subsidiary (the "Tranche A Take-out Loan") and an entity wholly-owned by the Principal Stockholder funded a $35.0 million loan to the Mall Subsidiary (the "Tranche B Take-out Loan" and, together with the Tranche A Take-out Loan, the "Mall Take-out Financing"), the proceeds of which were used to repay an existing mall construction loan facility. In February 2001, the Phase II Subsidiary entered into an unsecured bank line of credit (the "Phase II Unsecured Bank Loan") of $1.1 million for Phase II Subsidiary operating costs. On October 19, 2001, the Phase II Subsidiary also entered into a loan agreement providing for a $17.5 million term and revolving loan (the "Phase II Subsidiary Credit Facility") for Phase II Resort pre-development expenses and loans or distributions to the Company for other liquidity needs. On June 4, 2002, the Company completed a series of refinancing transactions (collectively, the "Refinancing Transactions") including (1) the issuance of $850.0 million in aggregate principal amount of 11% mortgage notes due 2010 (the "Mortgage Notes") in a private placement, (2) entering into a new senior secured credit facility (the "Senior Secured Credit Facility") with a syndicate of lenders in an aggregate amount of $375.0 million, and (3) entering into a secured mall facility (the "Secured Mall Facility") in an aggregate amount of $105.0 million, which was subsequently increased to $120.0 million on June 28, 2002. The Company used the proceeds of the Refinancing Transactions to repay, redeem or repurchase all of its outstanding indebtedness (including the Old Notes, the Bank Credit Facility, the FF&E Facility, the Completion Guaranty Loan, the Mall Take-out Financing, the Phase II Unsecured Bank Loan and the Phase II Subsidiary Credit Facility), to finance the construction and development of the Phase IA Addition and to pay all fees and expenses associated with the Refinancing Transactions. In addition, the Principal Stockholder's completion guarantee relating to the construction of the Casino Resort was terminated upon the consummation of the Refinancing Transactions and the remaining cash collateral was returned to the Principal Stockholder. In connection with the Refinancing Transactions, the Company incurred a loss on early retirement of indebtedness of $8.6 million and $51.4 million during the three and nine months ended September 30, 2002. As part of the Refinancing Transactions, the Company also commenced a cash tender offer on May 6, 2002 to repurchase the Old Notes. Upon the consummation of the Refinancing Transactions, the Company repurchased $316.6 million of the Old Mortgage Notes and $95.7 million of the Old Subordinates Notes and effected a covenant defeasance with respect to the remaining Mortgage Notes. The Company called all of the remaining Old Notes upon the closing of the Refinancing Transactions and redeemed the balance of the Old Mortgage Notes ($108.4 million) and the Old Subordinated Notes ($1.8 million) on July 5, 2002. Mortgages Notes - --------------- The Mortgage Notes bear interest at 11%, payable each June 15th and December 15th, beginning December 15, 2002. The Mortgage Notes are secured by second priority liens on certain assets of the Company (the personal property and the real estate improvements that comprise the hotel, the casino, and the convention space, with certain exceptions). The Mortgage Notes are redeemable at the option of LVSI and Venetian at prices ranging from 100% to 105.5% commencing on or after June 15, 2006, as set forth in the Mortgage Notes and the indenture pursuant to which the Mortgage Notes were issued (the "Indenture"). Prior to June 15, 2006, LVSI and Venetian may redeem the Mortgage Notes at their principal amount plus an applicable make-whole premium. Upon a change of control (as defined in the Indenture), each Mortgage Note holder may require LVSI and Venetian to repurchase such Mortgage Notes at 101% of the principal amount thereof plus accrued interest and other amounts which are then due, if any. Upon an event of loss or certain asset sales, the Company may also be required to offer to purchase all or a portion of the Mortgage Notes with the proceeds of such event of loss or sale. The Mortgage Notes are not subject to a sinking fund requirement. The Company is committed under a registration rights agreement to use its commercially reasonable efforts prior to 180 days after the closing date to effect a registered exchange offer for the Mortgage Notes or, subject to certain conditions, to provide a shelf registration for the Mortgage Notes. Should the Company not meet certain requirements of the registration rights agreement, liquidated damages in the amount of 0.25% to 2.00% per annum of the aggregate principal amount of the Mortgage Notes would accrue until such defaults are cured. 8 Notes to Financial Statements (Continued) Note 4 Long-Term Debt (Continued) Senior Secured Credit Facility - ------------------------------ The Senior Secured Credit Facility provides for a $250.0 million single draw senior secured term loan facility (the "Term B Facility"), a $50.0 million senior secured delayed draw facility (the "Term A Facility") and a $75.0 million senior secured revolving facility (the "Revolving Facility"). Term B Facility proceeds of $185.0 million were deposited into restricted accounts, invested in cash or permitted investments and pledged to a disbursement agent for the Senior Secured Credit Facility lenders. The $185.0 million will be used as required for Phase IA Addition project costs under disbursement terms specified in the Senior Secured Credit Facility. The disbursement account is subject to a security interest in favor of the lenders under the Senior Secured Credit Facility. The Term B Facility matures on June 4, 2008 and is subject to quarterly amortization payments in the amount of $625,000 from September 30, 2002 until September 30, 2007, followed by four equal quarterly amortization payments of $59.4 million until the maturity date. The Term A Facility is available from the closing date of the Senior Secured Credit Facility through the first anniversary of the closing date, subject to certain conditions. The Term A Facility matures on June 4, 2007 and is subject to quarterly amortization payments commencing on December 31, 2003 in the amount of $1,666,667 for three quarters, $2,500,000 for the succeeding four quarters, $3,750,000 for the next four quarters and $5,000,000 for the final four quarters. The Revolving Facility matures on June 4, 2007 and has no interim amortization. No amounts had been drawn under the Term A Facility or the Revolving Facility as of September 30, 2002. All amounts outstanding under the Senior Secured Credit Facility bear interest at the option of the Company at the prime rate plus 2% per annum, or at the reserve adjusted Eurodollar rate plus 3% per annum. After the Phase IA Addition is substantially complete, the applicable margin for amounts outstanding under the Term A Facility and the Revolving Facility will be determined by a grid based upon a leverage ratio. The leverage ratio will be calculated as the ratio of consolidated total debt as of the last day of each fiscal quarter to EBITDA (as defined in the Senior Secured Credit Facility) for the four-fiscal quarter period ending on such date. Commitment fees equal to 0.50% per annum of the daily average unused portion of the commitment under the Revolving Facility and 0.75% per annum of the daily average unused portion of the Term A Facility are payable quarterly in arrears. The Senior Secured Credit Facility is secured by a first priority lien on certain assets of the Company (the personal property and the real estate improvements that comprise the hotel, the casino, and the convention space, with certain exceptions). The Senior Secured Credit Facility contains affirmative, negative and financial covenants including limitations on indebtedness, liens, investments, guarantees, restricted junior payments, mergers and acquisitions, sales of assets, leases, transactions with affiliates and scope-changes and modifications to material contracts. Additionally, the Company is required to comply with certain financial ratios and other financial covenants including total debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum net worth covenants and maximum capital expenditure limitations. At September 30, 2002, the Company was in compliance with all required covenants and ratios under the Senior Secured Credit Facility. Secured Mall Facility - --------------------- In June 2002, the Company also entered into an agreement (the "Secured Mall Facility") with certain lenders to provide for a $105.0 million loan (subsequently increased to $120.0 million on June 28, 2002) to the Mall II Subsidiary. The initial $105.0 million of proceeds (net of financing costs) from the Secured Mall Facility, along with the proceeds of a $37.9 million capital contribution in Mall II Subsidiary by Venetian, were used to repay the Mall Take-out Financing and costs previously owed by the Mall Subsidiary. Upon the consummation of the Refinancing Transactions, the assets of the Mall were transferred to the Mall II Subsidiary, the borrower under the Secured Mall Facility. The additional $15.0 million of proceeds (net of financing costs) were distributed to Venetian and used for general corporate purposes. The indebtedness under the Secured Mall Facility is secured by a first priority lien on the assets that comprise the Mall (the "Mall Assets"). 9 Notes to Financial Statements (Continued) Note 4 Long-Term Debt (Continued) The amounts outstanding under the Secured Mall Facility bear interest at the adjusted one month Eurodollar rate plus 1.875% per annum. Interest is paid monthly and there is no scheduled principal amortization. The Secured Mall Facility is due in full on June 28, 2005 and provides for two one-year extensions at the option of the Company, subject to certain criteria. The Secured Mall Facility contains affirmative, negative and financial covenants including net operating income performance standards. Failure to meet these financial covenants in certain circumstances allows the lenders' agent to control collection of rents, to approve operating budgets and provides for a cash sweep of excess cash flow to reduce amounts outstanding under the Secured Mall Facility. The Company is required to enter into an interest rate cap agreement to limit the impact of increases in interest rates on its floating rate debt derived from the Secured Mall Facility. To meet the requirements of the Secured Mall Facility, the Company entered into a cap agreement during June 2002 (the "Mall Cap Agreement") that resulted in a premium payment to counterparties based upon notional principal amounts for a term equal to the term of the Secured Mall Facility. The provisions of the Mall Cap Agreement entitle the Company to receive from the counterparties the amounts, if any, by which the selected market interest rates exceed the strike rates stated in such agreement. There was no net effect on interest expense as a result of the Mall Cap Agreement for the three months ended September 30, 2002. If the Company had terminated the Mall Cap Agreement as of September 30, 2002, the Company would have received $0.2 million based on quoted market values from the various institutions holding the swaps. The notional amount of the Mall Cap Agreement (which expires on June 28, 2005) at September 30, 2002 was $120.0 million. Pursuant to the terms of the Secured Mall Facility, the Mall II Subsidiary is also required to maintain certain funds in escrow for debt service and property taxes. At September 30, 2002, $1.8 million was held by the lenders' agent in escrow for these purposes. The amounts in escrow are classified as restricted cash in the accompanying financial statements. The Company entered into interest rate cap and/or floor agreements related to the Bank Credit Facility (the "Bank Cap Agreement") during 1998 and the Tranche A Take-out Loan during 1999 (the "Mall Cap Agreement" and, together with the Bank Cap Agreement, the "Old Rate Cap Agreements"). The notional amount of the Bank Cap Agreement at September 30, 2002 was $76.0 million. The Bank Cap Agreement expires in June 2003, the maturity date of the Bank Credit Facility, unless terminated earlier by the Company. The notional amount of the Mall Cap Agreement at September 30, 2002 was $42.3 million. The Mall Cap Agreement expires on December 20, 2002, the original maturity date of the Tranche A Take-out Loan, unless terminated earlier by the Company. The net effect of the Old Rate Cap Agreements resulted in an increase of interest expense of $0.5 million for the quarter ended September 30, 2002. Currently, the Old Rate Cap Agreements remain outstanding. If the Company had terminated the Old Rate Cap Agreements as of September 30, 2002, the Company would have had to pay a net amount of $1.4 million based on quoted market values from the various institutions holding the swaps. In accordance with Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company has recorded the fair value of its obligations under the Old Rate Cap Agreements in the accompanying financial statements and will continue to do so while the agreements are in effect. Note 5 Redeemable Preferred Interest in Venetian Casino Resort, LLC During 1997, Interface Holding contributed $77.1 million in cash to Venetian in exchange for a Series A preferred interest (the "Series A Preferred Interest") in Venetian. By its terms, the Series A Preferred Interest was convertible at any time into a Series B preferred interest in Venetian (the "Series B Preferred Interest"). In August 1998, the Series A Preferred Interest was converted into the Series B Preferred Interest. The rights of the Series B Preferred Interest include the accrual of a preferred return of 12% from the date of contribution in respect of the Series A Preferred Interest. Until the indebtedness under the Senior Secured Credit Facility is repaid and cash payments are permitted under the restricted payment covenants of the Indenture, the preferred return on the Series B Preferred Interest will accrue and will not be paid in cash. Commencing June 30, 2011, distributions must be made to the extent of the positive capital account of the holder. During the second and third quarters of 1999, Interface Holding contributed $37.3 million and $7.1 million, respectively, in cash in exchange for an additional Series B Preferred Interest. During the three and nine month periods ended September 30, 2002 and September 30, 2001, $6.0 million and $17.3 million, and $5.3 million and $15.4 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. 10 Notes to Financial Statements (Continued) Note 6 Commitments and Contingencies Construction Litigation ----------------------- The Company is party to litigation matters and claims related to its operations and construction of the Casino Resort that could have a material adverse effect on the financial position, results of operations or cash flows of the Company to the extent such litigation is not covered by the Insurance Policy (as defined below). The construction of the principal components of the Casino Resort was undertaken by Lehrer McGovern Bovis, Inc. (the "Construction Manager") pursuant to a construction management agreement and certain amendments thereto (as so amended, the "Construction Management Contract"). The Construction Management Contract established a final guaranteed maximum price (the "Final GMP") of $645.0 million, so that, subject to certain exceptions (including an exception for cost overruns due to "scope changes"), the Construction Manager was responsible for any costs of the work covered by the Construction Management Contract in excess of the Final GMP. The obligations of the Construction Manager under the Construction Management Contract are guaranteed by Bovis, Inc. ("Bovis" and such guaranty, the "Bovis Guaranty"), the Construction Manager's direct parent at the time the Construction Management Contract was entered into. Bovis' obligations under the Bovis Guaranty are guaranteed by The Peninsular and Oriental Steam Navigation Company ("P&O"), a British public company and the Construction Manager's ultimate parent at the time the Construction Management Contract was entered into (such guaranty, the "P&O Guaranty"). On July 30, 1999, Venetian filed a complaint against the Construction Manager and Bovis in United States District Court for the District of Nevada. The action alleges breach of contract by the Construction Manager of its obligations under the Construction Management Contract and a breach of contract by Bovis of its obligations under the Bovis Guaranty, including failure to fully pay trade contractors and vendors and failure to meet the April 21, 1999 guaranteed completion date. The Company amended this complaint on November 23, 1999 to add P&O as an additional defendant. The suit is intended to ask the courts, among other remedies, to require the Construction Manager and its guarantors to pay its contractors, to compensate Venetian for the Construction Manager's failure to perform its duties under the Construction Management Contract and to pay the Company the agreed upon liquidated damages penalty for failure to meet the guaranteed substantial completion date. Venetian seeks total damages in excess of $100.0 million. The Construction Manager subsequently filed motions to dismiss the Company's complaint on various grounds, which the Company opposed. The Construction Manager's motions were either denied by the court or voluntarily withdrawn. In response to Venetian's breach of contract claims against the Construction Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3, 1999 against Venetian in the District Court of Clark County, Nevada. The action alleges a breach of contract and quantum meruit claims under the Construction Management Contract and also alleges that Venetian defrauded the Construction Manager in connection with the construction of the Casino Resort. The Construction Manager seeks damages, attorney's fees and costs and punitive damages. In the lawsuit, the Construction Manager claims that it is owed approximately $90.0 million from Venetian and its affiliates. This complaint was subsequently amended by the Construction Manager, which also filed an additional complaint against the Company relating to work done and funds advanced with respect to the contemplated development of the Phase II Resort. Based upon its review of the complaints, the Company believes that the Construction Manager has not provided Venetian with reasonable documentation to support such claims, the Construction Manager has materially breached its agreements with the Company and the Construction Manager's claims are without merit. The Company intends to vigorously defend itself and pursue its claims against the Construction Manager in any litigation. In connection with these disputes, as of December 31, 1999 the Construction Manager and its subcontractors filed mechanics liens against the Casino Resort for $145.6 million and $182.2 million, respectively. The Company believes that a major reason these lien amounts exceed the Construction Manager's claims of $90.0 million is based upon a duplication of liens through the inclusion of lower-tier claims by subcontractors in the liens of higher-tier contractors, including the lien of the Construction Manager. As of December 31, 1999, the Company had purchased surety bonds for virtually all of the claims underlying these liens (other than approximately $15.0 million of claims with respect to which the Construction Manager purchased bonds). As a result, there can be no foreclosure of the Casino Resort in connection with the claims of the Construction Manager and its subcontractors. However, the Company will be required to pay or immediately reimburse the bonding company if and to the extent that the underlying claims are judicially determined to be valid. If such claims are not settled, it is likely to take a significant amount of time for their validity to be judicially determined. 11 Notes to Financial Statements (Continued) Note 6 Commitments and Contingencies (Continued) The Company believes that these claims are, in general, unsubstantiated, without merit, overstated, and/or duplicative. The Construction Manager itself has publicly acknowledged that at least some of the claims of its subcontractors are without merit. In addition, the Company believes that pursuant to the Construction Management Contract and the Final GMP, the Construction Manager is responsible for payment of any subcontractors' claims to the extent they are determined to be valid. The Company may also have a variety of other defenses to the liens that have been filed, including, for example, the fact that the Construction Manager and its subcontractors previously waived or released their rights to file liens against the Casino Resort. The Company intends to vigorously defend itself in any lien proceedings. On August 9, 1999, the Company notified the insurance companies providing coverage under its liquidated damages insurance policy (the "LD Policy") that it has a claim under the LD Policy. The LD Policy provides insurance coverage for the failure of the Construction Manager to achieve substantial completion of the portions of the Casino Resort covered by the Construction Management Contract within 30 days of the April 21, 1999 deadline, with a maximum liability under the LD Policy of approximately $24.1 million and with coverage being provided, on a per-day basis, for days 31-120 of the delay in the achievement of substantial completion. Because the Company believes that substantial completion was not achieved until November 12, 1999, the Company's claim under the LD Policy is likely to be for the above-described maximum liability of $24.1 million. The Company expects the LD Policy insurers to assert many of the same claims and defenses that the Construction Manager has asserted or will assert in the above-described litigations. Liability under the LD Policy may ultimately be determined by binding arbitration. In June 2000, the Company purchased an insurance policy (the "Insurance Policy") for loss coverage in connection with all litigation relating to the construction of the Casino Resort (the "Construction Litigation"). Under the Insurance Policy, the Company will self-insure the first $45.0 million and the insurer will insure up to the next $80.0 million of any possible covered losses. The Insurance Policy provides coverage for any amounts determined in the Construction Litigation to be owed to the Construction Manager or its subcontractors relating to claimed delays, inefficiencies, disruptions, lack of productivity/unauthorized overtime or schedule impact, allegedly caused by the Company during construction of the Casino Resort, as well as any defense costs. The Company and the Construction Manager commenced a trial in state court in Clark County, Nevada to litigate certain of their respective claims in August 2002. Many of the remaining claims between the parties that are the subject of the state court action and the federal court action, will be proceeding concurrently in independent arbitration hearings. It is not yet possible to determine a range of loss or the ultimate outcome of the litigation. If any litigation or other lien proceedings concerning the claims of the Construction Manager or its subcontractors were decided adversely to the Company, such litigation or other lien proceedings could have a material adverse effect on the financial condition, results of operations or cash flows of the Company to the extent such litigation or lien proceedings are not covered by the Insurance Policy. Macau Joint Venture and Internet Gaming --------------------------------------- On June 26, 2002, the Company announced that a joint venture comprised of Venetian Macau and a group of Macau and Hong Kong-based investors had entered into a final concession contract with the Government of the Macau Special Administrative Region of the People's Republic of China to operate casinos in Macau. Through September 30, 2002, the Company had incurred developmental expenses of $4.7 million in connection with the proposed Macau project. Venetian Macau continues to negotiate the final terms of a joint venture and management expects that those negotiations will be concluded in the fourth quarter of 2002. The final terms of a joint venture agreement will likely include financial obligations to the joint venture and/or to the Government of Macau or Venetian Macau will likely be obligated to pay for certain costs of developing and constructing the contemplated casinos in Macau. Under the Indenture, the Company is permitted to make investments in the amount of $40.0 million in, and extend guarantees with respect to $90.0 million of indebtedness and/or obligations of, its Macau subsidiaries. The Company may use cash received from the following sources to fund the Macau venture: o borrowings by Venetian under the Revolving Facility; o additional debt or equity financings; and o operating cash flow (subject to certain limitations contained in the Company's debt instruments). Venetian Macau and the Company's other Macau subsidiaries are not guarantors under the Mortgage Notes or the Senior Secured Credit Facility and, subject to certain limited exceptions, are not restricted subsidiaries under the Indenture or the Senior Secured Credit Facility. 12 Notes to Financial Statements (Continued) Note 6 Commitments and Contingencies (Continued) The Company has also entered into a joint venture agreement to assess the feasibility of and develop an Internet gaming site. The Company has initiated the application process for an Internet gaming license in Alderney, but has not yet been granted such a license or established any operations. The Company estimates that it is committed to contribute approximately $1.0 million, approximately one-third of the required capital, to the joint venture during the next year. After recovery of each partner's initial capital contribution, the Company will receive 50% to 80% of the net profit of the joint venture, based upon an increasing scale of net profit (if any). The joint venture provides that the agreement will be automatically terminated should the Company fail to obtain or maintain any required regulatory approvals or existing gaming licenses from Alderney, the Nevada gaming authorities or any other applicable jurisdiction prior to launching its operations or determine that any such approvals or licenses could be jeopardized. Note 7 Summarized Financial Information LVSI and Venetian are co-obligors of the Mortgage Notes and the indebtedness under the Senior Secured Credit Facility and are jointly and severally liable for such indebtedness. Venetian, Mall Intermediate, Mall Construction, Lido Intermediate, Venetian Venture, Venetian Athens, Venetian Marketing and Venetian Operating (collectively, the "Subsidiary Guarantors") are subsidiaries of LVSI, all of the capital stock of which is owned by LVSI and Venetian. The Subsidiary Guarantors have jointly and severally guaranteed (or are co-obligors of) such debt on a full and unconditional basis. The Mall is owned by the Mall II Subsidiary, a non-guarantor subsidiary which is the borrower under the Secured Mall Facility. Separate financial statements and other disclosures concerning each of Venetian and the Subsidiary Guarantors are not presented below because management believes that they are not material to investors. Summarized financial information of LVSI, Venetian, the Subsidiary Guarantors and the non-guarantor subsidiaries on a combined basis as of September 30, 2002 and December 31, 2001, and for the three and nine month periods ended September 30, 2002 and September 30, 2001, is as follows (in thousands): 13 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS September 30, 2002 GUARANTOR SUBSIDIARIES --------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc Resort LLC Company LLC Company LLC LLC ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents ............... $ 76,819 $ 11,409 $ 3 $ 3 $ -- Restricted cash and investments ......... -- 14,908 -- -- -- Intercompany receivable ................. -- 11,079 -- -- -- Accounts receivable, net ................ 36,016 14,530 -- -- -- Inventories ............................. -- 4,576 -- -- -- Prepaid expenses ........................ 606 2,610 -- -- -- ----------- ----------- ----------- ----------- ----------- Total current assets .................. 113,441 59,112 3 3 -- Property and equipment, net ............. -- 909,905 -- -- 1,258 Investment in Subsidiaries .............. 951,443 109,959 -- -- -- Deferred offering costs, net ............ -- 36,197 -- -- -- Restricted cash and investments ......... -- 140,614 -- -- -- Other assets, net ....................... 3,868 23,493 -- -- -- ----------- ----------- ----------- ----------- ----------- $ 1,068,752 $ 1,279,280 $ 3 $ 3 $ 1,258 =========== =========== =========== =========== =========== Accounts payable ........................ $ 1,657 $ 14,353 $ -- $ -- $ -- Construction payable .................... -- 17,284 -- -- -- Construction payable-contested .......... -- 7,232 -- -- -- Intercompany payables ................... 9,486 -- -- -- -- Accrued interest payable ................ -- 30,501 -- -- -- Other accrued liabilities ............... 13,581 51,221 -- -- -- Current maturities of long-term debt (3) 2,500 2,500 -- -- -- ----------- ----------- ----------- ----------- ----------- Total current liabilities ............. 27,224 123,091 -- -- -- Other long-term liabilities ............. 1,201 -- -- -- Long-term debt (3) ...................... 1,096,875 1,096,875 -- -- -- ----------- ----------- ----------- ----------- ----------- 1,124,099 1,221,167 -- -- -- ----------- ----------- ----------- ----------- ----------- Redeemable Preferred Interest in Venetian -- 206,108 -- -- -- ----------- ----------- ----------- ----------- ----------- Stockholders' equity (deficit) .......... (55,347) (147,995) 3 3 1,258 ----------- ----------- ----------- ----------- ----------- $ 1,068,752 $ 1,279,280 $ 3 $ 3 $ 1,258 ----------- ----------- ----------- ----------- ----------- - --------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no assets and liabilities as of September 30, 2002. (2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by the Principal Stockholder during December 1999. (3) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian are co-obligors of certain of the Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above balance sheets.
14 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS (continued) September 30, 2002 NON-GUARANTOR SUBSIDIARIES ----------------------------------------- Other Non- Grand Canal Guarantor Consolidating/ Shops II Subsidiaries Eliminating LLC (1) (2) Entries Total ----------- ----------- ----------- ----------- Cash and cash equivalents ............... $ 7,309 $ 99 $ -- $ 95,642 Restricted cash and investments ......... 1,810 -- -- 16,718 Intercompany receivable ................. -- -- (11,079) -- Accounts receivable, net ................ 733 -- -- 51,279 Inventories ............................. -- -- -- 4,576 Prepaid expenses ........................ 534 -- -- 3,750 ----------- ----------- ----------- ----------- Total current assets .................. 10,386 99 (11,079) 171,965 Property and equipment, net ............. 132,804 82,669 -- 1,126,636 Investment in Subsidiaries .............. -- -- (1,061,402) -- Deferred offering costs, net ............ 2,883 -- -- 39,080 Restricted cash and investments ......... -- -- -- 140,614 Other assets, net ....................... 3,406 -- -- 30,767 ----------- ----------- ----------- ----------- $ 149,479 $ 82,768 $(1,072,481) $ 1,509,062 =========== =========== =========== =========== Accounts payable ........................ $ 198 $ -- $ -- $ 16,208 Construction payable .................... -- -- -- 17,284 Construction payable-contested .......... -- -- -- 7,232 Intercompany payables ................... 1,593 -- (11,079) -- Accrued interest payable ................ 192 -- -- 30,693 Other accrued liabilities ............... 1,375 73 -- 66,250 Current maturities of long-term debt (3) -- -- (2,500) 2,500 ----------- ----------- ----------- ----------- Total current liabilities ............. 3,358 73 (13,579) 140,167 Other long-term liabilities ............. 58 -- -- 1,259 Long-term debt (3) ...................... 120,000 -- (1,096,875) 1,216,875 ----------- ----------- ----------- ----------- 123,416 73 (1,110,454) 1,358,301 ----------- ----------- ----------- ----------- Redeemable Preferred Interest in Venetian -- -- -- 206,108 ----------- ----------- ----------- ----------- Stockholders' equity (deficit) .......... 26,063 82,695 37,973 (55,347) ----------- ----------- ----------- ----------- $ 149,479 $ 82,768 $(1,072,481) $ 1,509,062 =========== =========== =========== =========== - --------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no assets and liabilities as of September 30, 2002. (2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by the Principal Stockholder during December 1999. (3) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian are co-obligors of certain of the Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above balance sheets.
15 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS December 31, 2001 GUARANTOR SUBSIDIARIES ---------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc. Resort LLC Company LLC Company LLC LLC ----------- ----------- ----------- ----------- ------------ Cash and cash equivalents ............... $ 37,367 $ 7,806 $ 4 $ 4 $ -- Restricted cash and investments ......... -- 1,528 -- -- -- Intercompany receivable ................. 6,772 -- -- -- -- Accounts receivable, net ................ 37,416 18,240 -- -- -- Inventories ............................. -- 4,747 -- -- -- Prepaid expenses ........................ 546 2,953 -- -- -- ----------- ----------- ----------- ----------- ------------ Total current assets .................. 82,101 35,274 4 4 -- Property and equipment, net ............. -- 878,239 -- -- -- Investment in Subsidiaries .............. 692,100 86,657 -- -- -- Deferred offering costs, net ............ -- 16,250 -- -- -- Other assets, net ....................... 3,771 25,691 -- -- -- ----------- ----------- ----------- ----------- ------------ $ 777,972 $ 1,042,111 $ 4 $ 4 $ -- =========== =========== =========== =========== ============ Accounts payable ........................ $ 2,880 $ 33,105 $ -- $ -- $ -- Construction payable .................... -- 22,955 -- -- -- Construction payable-contested .......... -- 7,232 -- -- -- Intercompany payables ................... -- 7,345 -- -- -- Accrued interest payable ................ -- 9,125 -- -- -- Other accrued liabilities ............... 21,249 47,074 -- -- -- Current maturities of long-term debt (3) 23,021 23,021 -- -- -- ----------- ----------- ----------- ----------- ------------ Total current liabilities ............. 47,150 149,857 -- -- -- Other long-term liabilities ............. -- 3,274 -- -- -- Long-term debt (3) ...................... 741,813 741,813 -- -- -- Long-term subordinated loans payable to Principal Stockholder ................. -- 31,123 -- -- -- ----------- ----------- ----------- ----------- ------------ 788,963 926,067 -- -- -- ----------- ----------- ----------- ----------- ------------ Redeemable Preferred Interest in Venetian -- 188,778 -- -- -- ----------- ----------- ----------- ----------- ------------ Stockholders' equity (deficit) .......... (10,991) (72,734) 4 4 -- ----------- ----------- ----------- ----------- ------------ $ 777,972 $ 1,042,111 $ 4 $ 4 $ -- =========== =========== =========== =========== ============ - -------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any assets or liabilities as of December 31, 2001. (2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by the Principal Stockholder during December 1999. (3) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian are co-obligors of certain of the Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above balance sheets.
16 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED BALANCE SHEETS (continued) December 31, 2001 NON-GUARANTOR SUBSIDIARIES ---------------------------------------- Other Non- Grand Canal Guarantor Consolidating/ Shops II Subsidiaries Eliminating LLC (1) (2) Entries Total ----------- ----------- ----------- ----------- Cash and cash equivalents ............... $ 6,650 $ 3,105 $ -- $ 54,936 Restricted cash and investments ......... 1,118 -- -- 2,646 Intercompany receivable ................. -- 1,508 (8,280) -- Accounts receivable, net ................ 1,436 -- -- 57,092 Inventories ............................. -- -- -- 4,747 Prepaid expenses ........................ 363 -- -- 3,862 ----------- ----------- ----------- ----------- Total current assets .................. 9,567 4,613 (8,280) 123,283 Property and equipment, net ............. 136,167 81,901 -- 1,096,307 Investment in Subsidiaries .............. -- -- (778,757) -- Deferred offering costs, net ............ 1,903 836 -- 18,989 Other assets, net ....................... 3,745 -- -- 33,207 ----------- ----------- ----------- ----------- $ 151,382 $ 87,350 $ (787,037) $ 1,271,786 =========== =========== =========== =========== Accounts payable ........................ $ 368 $ -- $ -- $ 36,353 Construction payable .................... -- 3,160 -- 26,115 Construction payable-contested .......... -- -- -- 7,232 Intercompany payables ................... 935 -- (8,280) -- Accrued interest payable ................ 872 11 -- 10,008 Other accrued liabilities ............... 1,647 65 -- 70,035 Current maturities of long-term debt (3) 105,000 1,092 (23,021) 129,113 ----------- ----------- ----------- ----------- Total current liabilities ............. 108,822 4,328 (31,301) 278,856 Other long-term liabilities ............. -- -- -- 3,274 Long-term debt (3) ...................... -- 3,933 (741,813) 745,746 Long-term subordinated loans payable to Principal Stockholder ................. 35,000 -- -- 66,123 ----------- ----------- ----------- ----------- 143,822 8,261 (773,114) 1,093,999 ----------- ----------- ----------- ----------- Redeemable Preferred Interest in Venetian -- -- -- 188,778 ----------- ----------- ----------- ----------- Stockholders' equity (deficit) .......... 7,560 79,089 (13,923) (10,991) ----------- ----------- ----------- ----------- $ 151,382 $ 87,350 $ (787,037) $ 1,271,786 =========== =========== =========== =========== - -------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any assets or liabilities as of December 31, 2001. (2) Land with a historical cost basis of $29.2 million was transferred from Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a non-guarantor subsidiary, in October 1998 and land with a value of $11.8 million was indirectly contributed by the Principal Stockholder during December 1999. (3) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian are co-obligors of certain of the Company's indebtedness. Accordingly, such indebtedness has been presented as an obligation of both entities in the above balance sheets.
17 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS For the three months ended September 30, 2002 GUARANTOR SUBSIDIARIES ------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc. Resort LLC Company LLC Company LLC LLC ----------- ---------- ------------ ----------- ----------- Revenues: Casino ....................................... $ 80,086 $ -- $ -- $ -- $ -- Room ......................................... -- 47,592 -- -- -- Food and beverage ............................ -- 15,305 -- -- -- Casino rental revenues from LVSI ............. -- 10,632 -- -- -- Retail and other ............................. 164 8,642 -- -- -- --------- --------- --------- --------- --------- Total revenues ............................... 80,250 82,171 -- -- -- Less promotional allowances .................... -- (998) -- -- -- --------- --------- --------- --------- --------- Net revenues ................................. 80,250 81,173 -- -- -- --------- --------- --------- --------- --------- Operating expenses: Casino ....................................... 46,445 -- -- -- -- Rooms ........................................ -- 14,692 -- -- -- Food and beverage ............................ -- 10,397 -- -- -- Retail and other ............................. -- 5,221 -- -- -- Provision for doubtful accounts .............. 3,891 1,350 -- -- -- General and administrative ................... 534 24,360 1 1 -- Corporate expense ............................ 1,472 1,225 -- -- -- Rental expense ............................... 211 1,167 -- -- -- Pre-opening and developmental expense ........ -- (5) -- -- 1,031 Depreciation and amortization ................ -- 9,895 -- -- -- --------- --------- --------- --------- --------- 52,553 68,302 1 1 1,031 --------- --------- --------- --------- --------- Operating income (loss) ........................ 27,697 12,871 (1) (1) (1,031) --------- --------- --------- --------- --------- Other income (expense): Interest income ............................ 121 942 -- -- -- Interest expense, net of amounts capitalized -- (28,054) -- -- -- Interest expense on indebtedness to Principal Stockholder .................... -- -- -- -- -- Other income (expense) ..................... -- 202 -- -- -- Loss on early retirement of debt ........... -- (8,629) -- -- -- Income (loss) from equity investment in Grand Canal Shops II .................. 69 2,227 -- -- -- Income (loss) from equity investment in VCR and subsidiaries ..................... (27,477) (1,033) -- -- -- --------- --------- --------- --------- --------- Income (loss) before preferred return .......... 410 (21,474) (1) (1) (1,031) Preferred return on Redeemable Preferred Interest in Venetian ....................... -- (6,003) -- -- -- --------- --------- --------- --------- --------- Net income (loss) .............................. $ 410 $ (27,477) $ (1) $ (1) $ (1,031) ========= ========= ========= ========= ========= - -------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses as of September 30, 2002.
18 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued) For the three months ended September 30, 2002 NON-GUARANTOR SUBSIDIARIES -------------------------------------- Grand Canal Other Non- Consolidating/ Shops II Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ------------ --------- Revenues: Casino ....................................... $ -- $ -- $ -- $ 80,086 Room ......................................... -- -- -- 47,592 Food and beverage ............................ -- -- -- 15,305 Casino rental revenues from LVSI ............. -- -- (10,632) -- Retail and other ............................. 9,643 -- (346) 18,103 --------- --------- --------- --------- Total revenues ............................... 9,643 -- (10,978) 161,086 Less promotional allowances .................... -- -- (7,332) (8,330) --------- --------- --------- --------- Net revenues ................................. 9,643 -- (18,310) 152,756 --------- --------- --------- --------- Operating expenses: Casino ....................................... -- -- (14,567) 31,878 Rooms ........................................ -- -- (1,190) 13,502 Food and beverage ............................ -- -- (2,068) 8,329 Retail and other ............................. 3,672 -- (346) 8,547 Provision for doubtful accounts .............. 25 -- -- 5,266 General and administrative ................... 533 -- (139) 25,290 Corporate expense ............................ -- -- -- 2,697 Rental expense ............................... 628 -- -- 2,006 Pre-opening and developmental expense ........ -- -- -- 1,026 Depreciation and amortization ................ 1,171 -- -- 11,066 --------- --------- --------- --------- 6,029 -- (18,310) 109,607 --------- --------- --------- --------- Operating income (loss) ........................ 3,614 -- -- 43,149 --------- --------- --------- --------- Other income (expense): Interest income ............................ 16 -- -- 1,079 Interest expense, net of amounts capitalized (1,412) -- -- (29,466) Interest expense on indebtedness to Principal Stockholder .................... -- -- -- -- Other income (expense) ..................... 78 -- -- 280 Loss on early retirement of debt ........... -- -- -- (8,629) Income (loss) from equity investment in Grand Canal Shops II .................. -- -- (2,296) -- Income (loss) from equity investment in VCR and subsidiaries ..................... -- -- 28,510 -- --------- --------- --------- --------- Income (loss) before preferred return .......... 2,296 -- 26,214 6,413 Preferred return on Redeemable Preferred Interest in Venetian ....................... -- -- -- (6,003) --------- --------- --------- --------- Net income (loss) .............................. $ 2,296 $ -- $ 26,214 $ 410 ========= ========= ========= ========= - ------------ (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses as of September 30, 2002.
19 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS For the three months ended September 30, 2001 GUARANTOR SUBSIDIARIES --------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc Resort LLC Company LLC Company LLC LLC ---------- ---------- ------------ ------------ ----------- Revenues: Casino ....................................... $ 61,392 $ -- $ -- $ -- $ -- Room ......................................... -- 43,688 -- -- -- Food and beverage ............................ -- 11,731 -- -- -- Casino rental revenue from LVSI .............. -- 11,563 -- -- -- Retail and other ............................. 179 8,071 -- -- -- --------- --------- --------- --------- --------- Total revenues ............................... 61,571 75,053 -- -- -- Less promotional allowances .................... -- (1,662) -- -- -- --------- --------- --------- --------- --------- Net revenues ................................. 61,571 73,391 -- -- -- --------- --------- --------- --------- --------- Operating expenses: Casino ....................................... 50,052 -- -- -- -- Rooms ........................................ -- 13,535 -- -- -- Food and beverage ............................ -- 8,902 -- -- -- Retail and other ............................. -- 5,717 -- -- -- Provision for doubtful accounts .............. 5,501 266 -- -- -- General and administrative ................... 674 22,359 -- -- -- Corporate expense ............................ (233) 996 -- -- -- Rental expense ............................... 287 1,235 -- -- -- Depreciation and amortization ................ -- 8,667 -- -- -- --------- --------- --------- --------- --------- 56,281 61,677 -- -- -- --------- --------- --------- --------- --------- Operating income (loss) ........................ 5,290 11,714 -- -- -- --------- --------- --------- --------- --------- Other income (expense): Interest income ............................ 104 192 -- -- -- Interest expense, net of amounts capitalized -- (22,146) -- -- -- Interest expense on indebtedness to Principal Stockholder .................... -- (855) -- -- -- Loss on early retirement of debt ........... -- (1,383) -- -- -- Income (loss) from equity investment in Grand Canal Shops II ..................... (8) (269) -- -- -- Income (loss) from equity investment in VCR and subsidiaries ..................... (18,091) (1) -- -- -- --------- --------- --------- --------- --------- Income (loss) before preferred return .......... (12,705) (12,748) -- -- -- --------- --------- --------- --------- --------- Preferred return on Redeemable Preferred Interest in Venetian ....................... -- (5,343) -- -- -- --------- --------- --------- --------- --------- Net loss ....................................... $ (12,705) $ (18,091) $ -- $ -- $ -- ========= ========= ========= ========= ========= - ------------ (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or expenses as of September 30, 2001.
20 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued) For the three months ended September 30, 2001 NON-GUARANTOR SUBSIDIARIES --------------------------------------- Grand Canal Other Non- Consolidating/ Shops II Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ------------- --------- Revenues: Casino ....................................... $ -- $ -- $ -- $ 61,392 Room ......................................... -- -- -- 43,688 Food and beverage ............................ -- -- -- 11,731 Casino rental revenue from LVSI .............. -- -- (11,563) -- Retail and other ............................. 8,854 -- (321) 16,783 --------- --------- --------- --------- Total revenues ............................... 8,854 -- (11,884) 133,594 Less promotional allowances .................... -- -- (8,778) (10,440) --------- --------- --------- --------- Net revenues ................................. 8,854 -- (20,662) 123,154 --------- --------- --------- --------- Operating expenses: Casino ....................................... -- -- (16,238) 33,814 Rooms ........................................ -- -- (1,120) 12,415 Food and beverage ............................ -- -- (2,569) 6,333 Retail and other ............................. 3,371 -- (243) 8,845 Provision for doubtful accounts .............. -- -- -- 5,767 General and administrative ................... 369 1 (492) 22,911 Corporate expense ............................ -- -- -- 763 Rental expense ............................... 552 -- -- 2,074 Depreciation and amortization ................ 1,160 -- -- 9,827 --------- --------- --------- --------- 5,452 1 (20,662) 102,749 --------- --------- --------- --------- Operating income (loss) ........................ 3,402 (1) -- 20,405 --------- --------- --------- --------- Other income (expense): Interest income ............................ 33 -- -- 329 Interest expense, net of amounts capitalized (2,460) -- -- (24,606) Interest expense on indebtedness to Principal Stockholder .................... (1,252) -- -- (2,107) Loss on early retirement of debt ........... -- -- -- (1,383) Income (loss) from equity investment in Grand Canal Shops II ..................... -- -- 277 -- Income (loss) from equity investment in VCR and subsidiaries ..................... -- -- 18,092 -- --------- --------- --------- --------- Income (loss) before preferred return .......... (277) (1) 18,369 (7,362) Preferred return on Redeemable Preferred Interest in Venetian ....................... -- -- -- (5,343) --------- --------- --------- --------- Net loss ....................................... $ (277) $ (1) $ 18,369 $ (12,705) ========= ========= ========= ========= - -------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or expenses as of September 30, 2001.
21 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS For the nine months ended September 30, 2002 GUARANTOR SUBSIDIARIES -------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc Resort LLC Company LLC Company LLC LLC ---------- ---------- ----------- ----------- ----------- Revenues: Casino ........................................ $ 177,379 $ -- $ -- $ -- $ -- Room .......................................... -- 156,605 -- -- -- Food and beverage ............................. -- 54,838 -- -- -- Casino rental revenues from LVSI .............. -- 33,163 -- -- -- Retail and other .............................. 1,733 25,613 -- -- -- --------- --------- --------- --------- --------- Total revenues ................................ 179,112 270,219 -- -- -- Less promotional allowances ..................... -- (2,763) -- -- -- --------- --------- --------- --------- --------- Net revenues .................................. 179,112 267,456 -- -- -- --------- --------- --------- --------- --------- Operating expenses: Casino ........................................ 132,487 -- -- -- -- Rooms ......................................... -- 43,387 -- -- -- Food and beverage ............................. -- 33,053 -- -- -- Retail and other .............................. -- 14,257 -- -- -- Provision for doubtful accounts ............... 9,015 4,500 -- -- -- General and administrative .................... 1,954 66,729 1 1 -- Corporate expense ............................. 4,409 3,111 -- -- -- Rental expense ................................ 673 6,473 -- -- -- Pre-opening and developmental expense ......... -- -- -- -- 3,097 Depreciation and amortization ................. -- 29,499 -- -- -- --------- --------- --------- --------- --------- 148,538 201,009 1 1 3,097 --------- --------- --------- --------- --------- Operating income (loss) ......................... 30,574 66,447 (1) (1) (3,097) --------- --------- --------- --------- --------- Other income (expense): Interest income ............................. 281 1,404 -- -- -- Interest expense, net of amounts capitalized (17) (75,921) -- -- -- Interest expense on indebtedness to Principal Stockholder ..................... -- (1,914) -- -- -- Other income ................................ -- 565 -- -- -- Loss on early retirement of debt ............ -- (49,865) -- -- -- Income (loss) from equity investment in Grand Canal Shop II ............................. 67 2,162 -- -- -- Income (loss) from equity investment in VCR and subsidiaries ...................... (75,261) (809) -- -- -- --------- --------- --------- --------- --------- Income (loss) before preferred return ........... (44,356) (57,931) (1) (1) (3,097) Preferred return on Redeemable Preferred Interest in Venetian ........................ -- (17,330) -- -- -- --------- --------- --------- --------- --------- Net income (loss) ............................... $ (44,356) $ (75,261) $ (1) $ (1) $ (3,097) ========= ========= ========= ========= ========= - -------------- 1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses as of September 30, 2002.
22 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued) For the nine months ended September 30, 2002 NON-GUARANTOR SUBSIDIARIES -------------------------------------- Grand Canal Other Non- Consolidating/ Shops II Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ------------ ---------- Revenues: Casino ........................................ $ -- $ -- $ -- $ 177,379 Room .......................................... -- -- -- 156,605 Food and beverage ............................. -- -- -- 54,838 Casino rental revenues from LVSI .............. -- -- (33,163) -- Retail and other .............................. 27,262 3,333 (4,391) 53,550 --------- --------- --------- --------- Total revenues ................................ 27,262 3,333 (37,554) 442,372 Less promotional allowances ..................... -- -- (22,255) (25,018) --------- --------- --------- --------- Net revenues .................................. 27,262 3,333 (59,809) 417,354 --------- --------- --------- --------- Operating expenses: Casino ........................................ -- -- (45,745) 86,742 Rooms ......................................... -- -- (3,259) 40,128 Food and beverage ............................. -- -- (6,004) 27,049 Retail and other .............................. 10,303 -- (1,049) 23,511 Provision for doubtful accounts ............... 25 -- -- 13,540 General and administrative .................... 1,416 -- (419) 69,682 Corporate expense ............................. -- -- -- 7,520 Rental expense ................................ 1,722 -- (3,333) 5,535 Pre-opening and developmental expense ......... -- -- -- 3,097 Depreciation and amortization ................. 3,516 -- -- 33,015 --------- --------- --------- --------- 16,982 -- (59,809) 309,819 --------- --------- --------- --------- Operating income (loss) ......................... 10,280 3,333 -- 107,535 --------- --------- --------- --------- Other income (expense): Interest income ............................. 44 -- -- 1,729 Interest expense, net of amounts capitalized (5,057) (536) -- (81,531) Interest expense on indebtedness to Principal Stockholder ..................... (2,096) -- -- (4,010) Other income ................................ 78 -- -- 643 Loss on early retirement of debt ............ (1,020) (507) -- (51,392) Income (loss) from equity investment in Grand Canal Shop II ............................. -- -- (2,229) -- Income (loss) from equity investment in VCR and subsidiaries ...................... -- -- 76,070 -- --------- --------- --------- --------- Income (loss) before preferred return ........... 2,229 2,290 73,841 (27,026) Preferred return on Redeemable Preferred Interest in Venetian ........................ -- -- -- (17,330) --------- --------- --------- --------- Net income (loss) ............................... $ 2,229 $ 2,290 $ 73,841 $ (44,356) ========= ========= ========= ========= - -------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no revenues or expenses as of September 30, 2002.
23 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS For the nine months ended September 30, 2001 GUARANTOR SUBSIDIARIES ------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc Resort LLC Company LLC Company LLC LLC ---------- ---------- ----------- ----------- ----------- Revenues: Casino ....................................................... $ 174,133 $ -- $ -- $ -- $ -- Room ......................................................... -- 159,702 -- -- -- Food and beverage ............................................ -- 49,088 -- -- -- Casino rental revenue from LVSI .............................. -- 34,410 -- -- -- Retail and other ............................................. 620 26,072 -- -- -- --------- --------- --------- --------- --------- Total revenue ................................................ 174,753 269,272 -- -- -- Less promotional allowances .................................... -- (4,370) -- -- -- --------- --------- --------- --------- --------- Net revenues ................................................. 174,753 264,902 -- -- -- --------- --------- --------- --------- --------- Operating expenses: Casino ....................................................... 160,676 -- -- -- -- Rooms ........................................................ -- 42,972 -- -- -- Food and beverage ............................................ -- 30,705 -- -- -- Retail and other ............................................. -- 15,288 -- -- -- Provision for doubtful accounts .............................. 14,390 266 -- -- -- General and administrative ................................... 2,046 66,111 -- -- -- Corporate expense ............................................ 1,849 2,892 -- -- -- Rental expense ............................................... 566 4,085 -- -- -- Depreciation and amortization ................................ -- 26,721 -- -- -- --------- --------- --------- --------- --------- 179,527 189,040 -- -- -- --------- --------- --------- --------- --------- Operating income (loss) ........................................ (4,774) 75,862 -- -- -- --------- --------- --------- --------- --------- Other income (expense): Interest income ............................................ 491 541 -- -- -- Interest expense, net of amounts capitalized ............... -- (68,191) -- -- -- Interest expense on indebtedness to Principal Stockholder .. -- (3,031) -- -- -- Loss on early retirement of debt ........................... -- (1,383) -- -- -- Income (loss) from equity investment in Grand Canal Shops II (53) (1,730) -- -- -- Income (loss) from equity investment in VCR and subsidiaries (13,356) (1) -- -- -- --------- --------- --------- --------- --------- Income (loss) before preferred return .......................... (17,692) 2,067 -- -- -- Preferred return on Redeemable Preferred Interest in Venetian ....................................... -- (15,423) -- -- -- --------- --------- --------- --------- --------- Net loss ....................................................... $ (17,692) $ (13,356) $ -- $ -- $ -- ========= ========= ========= ========= ========= - ---------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or expenses as of September 30, 2001.
24 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENT OF OPERATIONS (continued) For the nine months ended September 30, 2001 NON-GUARANTOR SUBSIDIARIES -------------------------------------- Grand Canal Other Non- Consolidating/ Shops II Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ------------ --------- Revenues: Casino ....................................................... $ -- $ -- $ -- $ 174,133 Room ......................................................... -- -- -- 159,702 Food and beverage ............................................ -- -- -- 49,088 Casino rental revenue from LVSI .............................. -- -- (34,410) -- Retail and other ............................................. 25,680 -- (859) 51,513 --------- --------- --------- --------- Total revenue ................................................ 25,680 -- (35,269) 434,436 Less promotional allowances .................................... -- -- (28,014) (32,384) --------- --------- --------- --------- Net revenues ................................................. 25,680 -- (63,283) 402,052 --------- --------- --------- --------- Operating expenses: Casino ....................................................... -- -- (50,706) 109,970 Rooms ........................................................ -- -- (3,701) 39,271 Food and beverage ............................................ -- -- (7,124) 23,581 Retail and other ............................................. 9,315 -- (727) 23,876 Provision for doubtful accounts .............................. -- -- -- 14,656 General and administrative ................................... 1,204 1 (1,025) 68,337 Corporate expense ............................................ -- -- -- 4,741 Rental expense ............................................... 1,636 -- -- 6,287 Depreciation and amortization ................................ 3,617 -- -- 30,338 --------- --------- --------- --------- 15,772 1 (63,283) 321,057 --------- --------- --------- --------- Operating income (loss) ........................................ 9,908 (1) -- 80,995 --------- --------- --------- --------- Other income (expense): Interest income ............................................ 103 -- -- 1,135 Interest expense, net of amounts capitalized ............... (8,078) -- -- (76,269) Interest expense on indebtedness to Principal Stockholder .. (3,716) -- -- (6,747) Loss on early retirement of debt ........................... -- -- -- (1,383) Income (loss) from equity investment in Grand Canal Shops II -- -- 1,783 -- Income (loss) from equity investment in VCR and subsidiaries -- -- 13,357 -- --------- --------- --------- --------- Income (loss) before preferred return .......................... (1,783) (1) 15,140 (2,269) Preferred return on Redeemable Preferred Interest in Venetian ....................................... -- -- -- (15,423) --------- --------- --------- --------- Net loss ....................................................... $ (1,783) $ (1) $ 15,140 $ (17,692) ========= ========= ========= ========= - ---------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any revenues or expenses as of September 30, 2001.
25 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2002 GUARANTOR SUBSIDIARIES ------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc Resort LLC Company LLC Company LLC LLC ---------- ---------- ----------- ----------- ----------- Net cash provided by (used in) operating activities ... $ 23,194 $ 36,556 $ (1) $ (1) $ (3,097) --------- --------- --------- --------- --------- Cash flows from investing activities: Increase in restricted cash ($153.4 million for Phase 1A construction) .................................. -- (153,994) -- -- -- Capital expenditures ................................ -- (67,138) -- -- (1,258) Dividend from Grand Canal Shops II LLC .............. -- 21,590 -- -- -- Capital contributions to subsidiaries ............... -- (43,535) -- -- -- --------- --------- --------- --------- --------- Net cash used in investing activities ................. -- (243,077) -- -- (1,258) --------- --------- --------- --------- --------- Cash flows from financing activities: Dividend to Venetian Casino Resort LLC .............. -- -- -- -- -- Capital contribution from Venetian Casino Resort LLC -- -- -- -- 4,355 Repayments on 12 1/4% mortgage notes ................ -- (425,000) -- -- -- Proceeds from 11% mortgage notes .................... -- 850,000 -- -- -- Repayments on senior subordinated notes ............. -- (97,500) -- -- -- Proceeds from secured mall facility ................. -- -- -- -- -- Repayments on mall-tranche A take-out loan .......... -- -- -- -- -- Repayments on mall-tranche B take-out loan .......... -- -- -- -- -- Repayments on completion guaranty loan .............. -- (31,124) -- -- -- Repayments on senior secured credit facility-term B . -- (625) -- -- -- Proceeds from senior secured credit facility-term B . -- 250,000 -- -- -- Repayments on bank credit facility-term ............. -- (151,986) -- -- -- Repayments on bank credit facility-revolver ......... -- (61,000) -- -- -- Proceeds from bank credit facility-revolver ......... -- 21,000 -- -- -- Repayments on FF&E credit facility .................. -- (53,735) -- -- -- Repayments on Phase II Subidiary credit facility .... -- -- -- -- -- Repayments on Phase II Subidiary unsecured bank loan -- -- -- -- -- Repurchase premiums incurred in connection with refinancing transctions ........................... -- (33,478) -- -- -- Payments of deferred offering costs ................. -- (38,004) -- -- -- Net increase (decrease) in intercompany accounts .... 16,258 (18,424) -- -- -- --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ... 16,258 210,124 -- -- 4,355 --------- --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents ...... 39,452 3,603 (1) (1) -- Cash and cash equivalents at beginning of period ...... 37,367 7,806 4 4 -- --------- --------- --------- --------- --------- Cash and cash equivalents at end of period ............ $ 76,819 $ 11,409 $ 3 $ 3 $ -- ========= ========= ========= ========= ========= - --------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no cash flows as of September 30, 2002.
26 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS (continued) For the nine months ended September 30, 2002 NON-GUARANTOR SUBSIDIARIES -------------------------------------- Grand Canal Other Non- Consolidating/ Shops II Guarantor Eliminating LLC (1) Subsidiaries Entries Total ----------- ------------ ------------ --------- Net cash provided by (used in) operating activities ... $ 7,792 $ 3,129 $ -- $ 67,572 --------- --------- --------- --------- Cash flows from investing activities: Increase in restricted cash ($153.4 million for Phase 1A construction) .................................. (692) -- -- (154,686) Capital expenditures ................................ (152) (3,928) -- (72,476) Dividend from Grand Canal Shops II LLC .............. -- -- (21,590) -- Capital contributions to subsidiaries ............... -- -- 43,535 -- --------- --------- --------- --------- Net cash used in investing activities ................. (844) (3,928) 21,945 (227,162) --------- --------- --------- --------- Cash flows from financing activities: Dividend to Venetian Casino Resort LLC .............. (21,590) -- 21,590 -- Capital contribution from Venetian Casino Resort LLC 37,864 1,316 (43,535) -- Repayments on 12 1/4% mortgage notes ................ -- -- -- (425,000) Proceeds from 11% mortgage notes .................... -- -- -- 850,000 Repayments on senior subordinated notes ............. -- -- -- (97,500) Proceeds from secured mall facility ................. 120,000 -- -- 120,000 Repayments on mall-tranche A take-out loan .......... (105,000) -- -- (105,000) Repayments on mall-tranche B take-out loan .......... (35,000) -- -- (35,000) Repayments on completion guaranty loan .............. -- -- -- (31,124) Repayments on senior secured credit facility-term B . -- -- -- (625) Proceeds from senior secured credit facility-term B . -- -- -- 250,000 Repayments on bank credit facility-term ............. -- -- -- (151,986) Repayments on bank credit facility-revolver ......... -- -- -- (61,000) Proceeds from bank credit facility-revolver ......... -- -- -- 21,000 Repayments on FF&E credit facility .................. -- -- -- (53,735) Repayments on Phase II Subidiary credit facility .... -- (3,933) -- (3,933) Repayments on Phase II Subidiary unsecured bank loan -- (1,092) -- (1,092) Repurchase premiums incurred in connection with refinancing transctions ........................... -- -- -- (33,478) Payments of deferred offering costs ................. (3,221) (6) -- (41,231) Net increase (decrease) in intercompany accounts .... 658 1,508 -- -- --------- --------- --------- --------- Net cash provided by (used in) financing activities ... (6,289) (2,207) (21,945) 200,296 --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents ...... 659 (3,006) -- 40,706 Cash and cash equivalents at beginning of period ...... 6,650 3,105 -- 54,936 --------- --------- --------- --------- Cash and cash equivalents at end of period ............ $ 7,309 $ 99 $ -- $ 95,642 ========= ========= ========= ========= - --------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. The Mall Assets were transferred to the Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall, LLC and the Mall Subsidiary had no cash flows as of September 30, 2002.
27 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2001 GUARANTOR SUBSIDIARIES ---------------------------------------- Lido Mall Venetian Venetian Intermediate Intermediate Venture Las Vegas Casino Holding Holding Development Sands, Inc Resort LLC Company LLC Company LLC ---------- --------- ------------ ------------ ----------- Net cash provided by (used in) operating activities .... $ (12,587) $ 46,799 $ -- $ -- $ -- --------- --------- --------- --------- --------- Cash flows from investing activities: Increase in restricted cash .......................... -- (47) -- -- -- Capital expenditures ................................. -- (41,009) -- -- -- --------- --------- --------- --------- --------- Net cash used in investing activities .................. -- (41,056) -- -- -- --------- --------- --------- --------- --------- Cash flows from financing activities: Repayments on bank credit facility-tranche A term loan -- (103,125) -- -- -- Repayments on bank credit facility-tranche B term loan -- (49,750) -- -- -- Repayments on bank credit facility-tranche C term loan -- (5,750) -- -- -- Proceeds from bank credit facility-tranche C term loan -- 5,750 -- -- -- Repayments on bank credit facility-term .............. -- (382) -- -- -- Proceeds from bank credit facility-term .............. -- 152,750 -- -- -- Repayments on bank credit facility-revolver .......... -- (8,000) -- -- -- Proceeds from bank credit facility-revolver .......... -- 48,000 -- -- -- Repayments on FF&E credit facility ................... -- (16,121) -- -- -- Proceeds from Phase II Subsidiary unsecured bank loan -- -- -- -- -- Payments of deferred offering costs .................. -- (4,697) -- -- -- Net increase (decrease) in intercompany accounts ..... (6,424) 6,283 -- -- -- --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities .... (6,424) 24,958 -- -- -- --------- --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents ....... (19,011) 30,701 -- -- -- Cash and cash equivalents at beginning of period ....... 35,332 4,260 4 4 -- --------- --------- --------- --------- --------- Cash and cash equivalents at end of period ............. $ 16,321 $ 34,961 $ 4 $ 4 $ -- ========= ========= ========= ========= ========= - --------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any cash flows as of September 30, 2001.
28 LAS VEGAS SANDS, INC. Notes to Financial Statements (continued) Note 7 Summarized Financial Information (continued)
CONDENSED STATEMENTS OF CASH FLOWS (continued) For the nine months ended September 30, 2001 NON-GUARANTOR SUBSIDIARIES --------------------------------------- Grand Canal Other Non- Consolidating/ Shops II Guarantor Eliminating LLC Subsidiaries Entries Total ----------- ------------ ------------- --------- Net cash provided by (used in) operating activities .... $ 1,416 $ 90 $ -- $ 35,718 --------- --------- --------- --------- Cash flows from investing activities: Increase in restricted cash .......................... (35) -- -- (82) Capital expenditures ................................. (356) (855) -- (42,220) --------- --------- --------- --------- Net cash used in investing activities .................. (391) (855) -- (42,302) --------- --------- --------- --------- Cash flows from financing activities: Repayments on bank credit facility-tranche A term loan -- -- -- (103,125) Repayments on bank credit facility-tranche B term loan -- -- -- (49,750) Repayments on bank credit facility-tranche C term loan -- -- -- (5,750) Proceeds from bank credit facility-tranche C term loan -- -- -- 5,750 Repayments on bank credit facility-term .............. -- -- -- (382) Proceeds from bank credit facility-term .............. -- -- -- 152,750 Repayments on bank credit facility-revolver .......... -- -- -- (8,000) Proceeds from bank credit facility-revolver .......... -- -- -- 48,000 Repayments on FF&E credit facility ................... -- -- -- (16,121) Proceeds from Phase II Subsidiary unsecured bank loan -- 1,092 -- 1,092 Payments of deferred offering costs .................. -- (300) -- (4,997) Net increase (decrease) in intercompany accounts ..... 141 -- -- -- --------- --------- --------- --------- Net cash provided by (used in) financing activities .... 141 792 -- 19,467 --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents ....... 1,166 27 -- 12,883 Cash and cash equivalents at beginning of period ....... 2,972 34 -- 42,606 --------- --------- --------- --------- Cash and cash equivalents at end of period ............. $ 4,138 $ 61 $ -- $ 55,489 ========= ========= ========= --------- - --------------- (1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for the Refinancing Transactions. Neither Mall Construction nor Grand Canal Shops Mall, LLC had any cash flows as of September 30, 2001.
29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto and other financial information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. See "-Special Note Regarding Forward-Looking Statements." General - ------- The Company owns and operates the Casino Resort, a large-scale Venetian-themed hotel, casino, retail, meeting and entertainment complex in Las Vegas, Nevada. The Casino Resort includes the first and only all-suites hotel on the Las Vegas Strip (the "Strip") with 3,036 suites; a gaming facility of approximately 116,000 square feet; an enclosed retail, dining and entertainment complex of approximately 475,000 gross leasable square feet; and a meeting and conference facility of approximately 500,000 square feet of convention space. The Company is party to litigation matters and claims related to its operations and construction of the Casino Resort that could have a material adverse effect on the financial position, results of operations or cash flows of the Company to the extent such litigation is not covered by the Insurance Policy. See "Part II- Item 1 - Legal Proceedings." During the third quarter of 2001 and several quarters this year, the Company's operating results were negatively impacted by a decline in tourism following the terrorist attacks of September 11, 2001 and an economic downturn. Consolidated net revenues for the three months ended September 30, 2002, however, were $152.8 million, representing an increase of $29.6 million of consolidated net revenues from the quarter ended September 30, 2001. This favorable comparison of the net revenue in the third quarter of 2002 to net revenue in the third quarter of 2001 is partially the result of the decline in visitation to Las Vegas after the September 11, 2001 terrorist attacks. Despite the decline in tourism and economic downturn, several of the Company's financial indicators continue to improve, due in large part to: (1) forward hotel room and meeting space bookings from conventions and trade shows at the Casino Resort; (2) increased room occupancies; (3) a recurring revenue stream from the Mall; and (4) successful cost-cutting initiatives. Although the Company expects its results to continue to compare favorably with the third and fourth quarters of 2001 and early 2002, the extent to which decreased tourism and an economic downturn will directly or indirectly impact operating results in the future cannot be predicted, nor can the Company predict the extent to which future security alerts and/or additional terrorist attacks may impact operations. During 2001, the Company began designing, planning, permitting and constructing the Phase IA Addition. Due to the travel disruption to Las Vegas during the fourth quarter of 2001, the Company decided to suspend construction of the Phase IA Addition at that time. The Company continued certain designing, planning and permitting of the Phase IA Addition and, on June 4, 2002 upon the completion of the Refinancing Transactions, construction was re-commenced. The Company currently anticipates that the Phase IA Addition construction will be completed and the new facilities will be open for business in June 2003 with a remaining cost to complete of approximately $198.0 million. Due to the inherent risks in large construction projects, however, there can be no assurance that the Phase IA Addition will be constructed without any substantial delays or cost increases. The Phase IA Addition is being funded from the proceeds of the Senior Secured Credit Facility. On June 26, 2002, the Company announced that a joint venture comprised of Venetian Macau and a group of Macau and Hong Kong-based investors had entered into a final concession contract with the Government of the Macau Special Administrative Region of the People's Republic of China to operate casinos in Macau. Venetian Macau continues to negotiate the final terms of a joint venture and management expects that those negotiations will be concluded in the fourth quarter of 2002. The final terms of a joint venture agreement will likely include financial obligations to the joint venture and/or to the Government of Macau or Venetian Macau will likely be obligated to pay for certain costs of developing and constructing the contemplated casinos in Macau. Through September 30, 2002, the Company had incurred developmental expenses of $4.7 million in connection with the proposed Macau project. 30 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company has also entered into a joint venture agreement to assess the feasibility of and develop an Internet gaming site. The Company has initiated the application process for an Internet gaming license in Alderney, but has not yet been granted such a license or established any operations. The Company estimates that it is committed to contribute approximately $1.0 million, approximately one-third of the required capital, to the joint venture during the next year. After recovery of each partner's initial capital contribution, the Company will receive 50% to 80% of the net profit of the joint venture, based upon an increasing scale of net profit (if any). The joint venture provides that the agreement will be automatically terminated should the Company fail to obtain any required regulatory approvals from Alderney, the Nevada gaming authorities or any other applicable jurisdiction prior to launching its operations. Critical Accounting Policies and Estimates - ------------------------------------------ Management has identified the following critical accounting policies that affect the Company's more significant judgments and estimates used in the preparation of the Company's consolidated financial statements. The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company's management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairment, accruals for slot marketing points, self-insurance, compensation and related benefits, revenue recognition, allowance for doubtful accounts, contingencies and litigation. The Company states these accounting policies in the notes to the consolidated financial statements and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to the Company and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates. The Company believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of its consolidated financial statements: o The Company maintains an allowance for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments, which results in bad debt expense. Management determines the adequacy of this allowance by continually evaluating individual customer receivables, considering the customer's financial condition, credit history and current economic conditions. If the financial condition of customers were to deteriorate, or if a customer refuses to pay or disputes any such payment, additional allowances may be required. o The Company maintains accruals for health and workers compensation self-insurance, slot club point redemption and group sales commissions, which are classified in other accrued liabilities in the consolidated balance sheets. Management determines the adequacy of these accruals by periodically evaluating the historical experience and projected trends related to these accruals. If such information indicates that the accruals are overstated or understated, the Company will adjust the assumptions utilized in the methodologies and reduce or provide for additional accruals as appropriate. o The Company is subject to various claims and legal actions, including lawsuits with the Construction Manager for the original construction of the Casino Resort. Some of these matters relate to personal injuries to customers and damage to customers' personal assets. Management estimates guest claims expense and accrues for such liabilities based upon historical experience in the other accrued liability category in its consolidated balance sheet. Operating Results - ----------------- Three Months Ended September 30, 2002 compared to Three Months Ended September 30, 2001 Operating Revenues ------------------ Consolidated net revenues for the third quarter of 2002 were $152.8 million, representing an increase of $29.6 million when compared with $123.2 million of consolidated net revenues during the third quarter of 2001. The increase in net revenues was due primarily to an increase of casino, hotel, food and beverage, retail and other revenues at the Casino Resort. This favorable comparison of net revenues for the third quarter of 2002 with net revenues for the 2001 third quarter is partially the result of the decline in visitation to Las Vegas after the September 11, 2001 terrorist attacks. 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Casino Resort's casino revenues were $80.1 million in the third quarter of 2002, an increase of $18.7 million when compared to $61.4 million of casino revenues during the third quarter of 2001. The increase was attributable to an increase in table games win percentage during the third quarter of 2002 as compared to the table games win percentage in the third quarter of 2001, and an increase in table games drop (volume) to $243.3 million in the third quarter of 2002 from $214.1 million during the third quarter of 2001. As more fully explained below, casino expenses (primarily variable costs associated with casino marketing) decreased, thus improving the profitability of the casino department. The Casino Resort achieved room revenues of $47.6 million during the third quarter of 2002, as compared to $43.7 million during the third quarter of 2001. The increase in hotel revenues was the result of an increase in occupancy rates, partially offset by a decline in average daily room rates. The Casino Resort's average daily room rate was $178 in the third quarter of 2002, as compared to $181 during the third quarter of 2001. The occupancy of available guestrooms was 96.6% during the third quarter of 2002, as compared to 87.1% during the third quarter of 2001. Revenue per available room (REVPAR) was $172 in the third quarter of 2002, as compared to $157 during the third quarter of 2001. Food and beverage, retail and other revenues were $33.4 million during the third quarter of 2002, as compared to $28.5 million during the third quarter of 2001. The increase was primarily attributable to an increase in banquet revenue associated with increased hotel occupancy. Operating Expenses ------------------ Consolidated operating expenses were $109.6 million in the third quarter of 2002, as compared with $102.7 million during the third quarter of 2001. The increase was primarily attributable to an increase in hotel and food and beverage costs associated with higher hotel occupancy and increased general and administrative costs, offset by a decrease in casino marketing and incentive costs and casino payroll costs. The Company renewed its casualty and liability insurance coverage during April 2002 and incurred a substantial increase in premium cost. In addition, effective June 4, 2002, the Company was required by certain lenders in the Refinancing Transactions to obtain terrorism insurance coverage. The additional insurance premium costs are estimated to be $2.7 million per year. Corporate expenses totaled $2.7 million during the third quarter of 2002, as compared to $0.8 million during the third quarter of 2001. The increase in corporate expenses was the result of the adoption of an executive bonus program. Casino expenses were $31.9 million in the third quarter of 2002, as compared to $33.8 million during the third quarter of 2001. The decrease was primarily attributable to a reduction in casino marketing due to heightened selectivity of casino customers during the third quarter of 2002. Food and beverage, retail and other expenses during the third quarter of 2002 were $16.9 million as compared to $15.2 million during the third quarter of 2001. The increase was associated with an increase in banquet revenue during the third quarter of 2002, as compared to the third quarter of 2001. Rental expenses, primarily related to the Casino Resort's heating, ventilation and air conditioning plant and rental gaming devices, were $2.0 million for the third quarter of 2002, as compared to $2.1 million in the third quarter of 2001. Interest Income (Expense) ------------------------- Interest expense was $29.5 million in the third quarter of 2002, as compared to $26.7 million in the same period of 2001. Of the $29.5 million incurred during the third quarter of 2002, $28.1 million was related to the Casino Resort (excluding the Mall) and $1.4 million was related to the Mall. The increase in interest expense was attributable to additional borrowings from the Refinancing Transactions, offset by decreases in the average interest rates of outstanding debt and the capitalization of interest expense in connection with construction of the Phase IA Addition. Interest income for the quarter ended September 30, 2002 was $1.1 million, as compared to $0.3 million in the same period of 2001. The Company had other income of $0.3 million during the quarter ended September 30, 2002 resulting from a change in the market value of the Old Rate Cap Agreements. 32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Nine Months Ended September 30, 2002 compared to Nine Months Ended September 30, 2001 Operating Revenues ------------------ Consolidated net revenues for the nine months ended September 30, 2002 were $417.4 million, representing an increase of $15.3 million when compared with $402.1 million of consolidated net revenues during the nine months ended September 30, 2001. The increase in net revenues was primarily due to an increase of casino, food and beverage, retail and other revenue at the Casino Resort, which was partially offset by a decrease in hotel revenues. The Casino Resort's casino revenues were $177.4 million for the nine months ended September 30, 2002, an increase of $3.3 million when compared to $174.1 million during the nine months ended September 30, 2001. The increase was attributable to an increase in table games win percentage as compared to the same period of the prior year, offset by decreased table games drop (volume) as compared to the same period of 2001. Table games drop (volume) decreased to $642.1 million for the nine months ended September 30, 2002 from $782.4 million during the nine months ended September 30, 2001. The Casino Resort's hotel occupancy percentages were 97.4% during the nine months ended September 30, 2002, as compared to 94.4% during the same period of 2001. The Casino Resort achieved room revenues during the nine months ended September 30, 2002 of $156.6 million, as compared to $159.7 million during the nine months ended September 30, 2001. The Casino Resort's average daily room rate was $195 for the nine months ended September 30, 2002, as compared to $205 during the nine months ended September 30, 2001. The decrease in room rates was partially the result of the decline in tourism following the terrorist attacks on September 11, 2001. Revenue per available room (REVPAR) was $190 during the nine months ended September 30, 2002, as compared to $194 during the nine months ended September 30, 2001. Food and beverage, retail and other revenues were $108.4 million during the nine months ended September 30, 2002, as compared to $100.6 million during the nine months ended September 30, 2001. The increase was primarily the result of increased banquet business associated with the increase in hotel occupancy. Operating Expenses ------------------ Consolidated operating expenses were $309.8 million for the nine months ended September 30, 2002, as compared with $321.1 million during the nine months ended September 30, 2001. The decrease in operating expenses was primarily attributable to a reduction in casino marketing and incentive costs, promotional allowances and casino payroll costs associated with heightened selectivity of casino customers. Corporate expenses totaled $7.5 million during the nine months ended September 30, 2002, as compared to $4.7 million during the nine months ended September 30, 2001. The increase in corporate expenses was attributable to the adoption of an executive bonus program. Casino expenses were $86.7 million for the nine months ended September 30, 2002, as compared to $110.0 million during the same period of 2001. The decrease was primarily attributable to a reduction in casino marketing and incentive costs as well as decreases in payroll costs and gaming taxes. The decrease in marketing and incentive costs resulted from heightened selectivity of casino customers to improve casino operating margins and reduced table games drop (volume). Food and beverage, retail and other expenses during the nine months ended September 30, 2002 were $50.6 million as compared to $47.5 million during the nine months ended September 30, 2001. The increase was associated with an increase in banquet revenue during the nine months ended September 30, 2002, as compared to the nine months ended September 30, 2001. Rental expenses primarily related to the Casino Resort's heating, ventilation and air conditioning plant and rental of gaming devices for the nine months ended September 30, 2002 were $5.5 million. Rental expenses were $6.3 million for the nine months ended September 30, 2001. The decline in rental expenses was primarily attributable to reduced usage of rented or participation gaming devices during 2002. 33 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Interest Income (Expense) ------------------------- Interest expense was $85.5 million for the nine months ended September 30, 2002, as compared to $83.0 million in the same period of 2001. Of the $85.5 million incurred during the nine months ended September 30, 2002, $77.8 million was related to the Casino Resort (excluding the Mall), $7.2 million was related to the Mall and $0.5 million was related to Phase II Subsidiary. The increase in interest expense was attributable to increased interest expense associated with additional borrowings from the Company's Refinancing Transactions net of decreases in the average interest rates of the Company's outstanding debt during the nine months ended September 30, 2002 and the capitalization of interest expense in connection with the Phase IA Addition. Interest income for the nine months ended September 30, 2002 was $1.7 million, as compared to $1.1 million in the same period in 2001. The increase was the result of higher invested cash balances. Other Factors Affecting Earnings - -------------------------------- Depreciation expense for the three and nine months ended September 30, 2002 was $11.1 million and $33.0 million, respectively, as compared to $9.8 million and $30.3 million in the three and nine months ended September 30, 2001, respectively. Each of the increases was attributable to placing various capital improvement projects into service during the fourth quarter of 2001, including the Guggenheim Museum projects. During the three and nine month periods ended September 30, 2002 and September 30, 2001, $6.0 million and $17.3 million, and $5.3 million and $15.4 million, respectively, were accrued on the Series B Preferred Interest related to the contributions made. During the three and nine month periods ended September 30, 2002, the Company incurred $1.0 million and $3.1 million, respectively, of pre-development expenses for the proposed Macau project. During early 2000, the Company modified its business strategy as it relates to premium casino customers and marketing to foreign premium casino customers. The Company has generally raised its betting limits for table games to be competitive with other premium resorts on the Strip. There are additional risks associated with this change in strategy, including risk of bad debts, risks to profitability margins in a highly competitive market and the need for additional working capital to accommodate possible higher levels of trade receivables and foreign currency fluctuations associated with collection of trade receivables in other countries. The Company has opened domestic and foreign marketing offices as well as bank collection accounts in several foreign countries to accommodate this change in business strategy, thereby increasing marketing costs. The Company continually evaluates its costs associated with marketing to the various segments of the premium casino customer market and has recently increased selectivity of casino customers to reduce variable marketing and incentive costs. Liquidity and Capital Resources - ------------------------------- Cash Flow and Capital Expenditures ---------------------------------- As of September 30, 2002 and December 31, 2001, the Company held unrestricted cash and cash equivalents of $95.6 million and $54.9 million, respectively. Net cash provided by operating activities for the nine months ended September 30, 2002 was $67.6 million, as compared to net cash provided by operating activities of $35.7 million for the nine months ended September 30, 2001. Capital expenditures during the nine months ended September 30, 2002 were $72.5 million, of which $49.7 million was attributable to construction of the Phase IA Addition and $1.3 million was attributable to the Macau project. Capital expenditures for the nine months ended September 30, 2001 were $42.2 million, of which $18.2 million was attributable to construction of the Phase IA Addition. 34 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company also held restricted cash balances of $157.3 million as of September 30, 2002. Of this amount, $153.4 million was held in restricted accounts and invested in cash or permitted investments by a disbursement agent for the Senior Secured Credit Facility lenders until required for Phase IA Addition project costs under the disbursement terms of the Senior Secured Credit Facility. In addition to the cash in the disbursement account, the Term A Facility provides for a delayed draw term loan of $50.0 million which the Company expects to draw upon in full by June 4, 2003 to pay Phase IA Addition project costs. The Company estimated that the cost to complete the Phase IA Addition as of September 30, 2002 was $198.0 million. The Company expects substantial completion to occur by June 2003. From inception of the Phase IA project in 2001 to September 30, 2002, the Company had paid approximately $67.9 million to complete the Phase IA Addition. The Company currently anticipates that the funds in the disbursement account and the delayed draw facility will be sufficient to pay for all of the remaining costs of the Phase IA Addition. Due to the inherent risks in large construction projects, however, there can be no assurance that the Phase IA Addition will be constructed without any substantial delays or cost increases. Aggregate Indebtedness and Fixed Payment Obligations to the HVAC Provider - ------------------------------------------------------------------------- The Company's total long-term indebtedness and its fixed payment obligations to Atlantic Pacific Las Vegas, LLC, the provider of heating and air conditioning to the Casino Resort and the Expo Center (the "HVAC Provider"), are summarized below for the twelve month periods ended September 30:
2003 2004 2005 2006 2007 Thereafter ------- -------- -------- ------- -------- ---------- (Dollars in Thousands) Long -Term Indebtedness Mortgage Notes $ -- $ -- $ -- $ -- $ -- $ 850,000 Senior Secured Credit Facility 2,500 2,500 2,500 2,500 120,000 119,375 Secured Mall Facility -- -- 120,000 -- -- -- Fixed Payment Obligations to the HVAC Provider HVAC Provider fixed payments 7,657 7,657 7,657 7,657 7,657 13,400 ------- -------- -------- ------- -------- --------- Total indebtedness and HVAC fixed payment obligations $10,157 $ 10,157 $130,157 $10,157 $127,657 $ 982,775 ======= ======== ======== ======= ======== =========
Under the terms of its existing indebtedness, the Company has debt service payments due aggregating $2.5 million during the next twelve months, representing principal payments on the Senior Secured Credit Facility. Based on current outstanding indebtedness and current interest rates on the Senior Secured Credit Facility and the Secured Mall Facility, the Company has estimated total interest payments during the next twelve months (excluding noncash amortization of debt offering costs) of approximately $105.7 million for indebtedness secured by the Casino Resort and approximately $4.7 million for indebtedness secured by the Mall. The Company also has fixed payments obligations due during the next twelve months of $7.7 million under its energy service agreements with the HVAC Provider. The total remaining payment obligation under this arrangement is $51.7 million, payable in equal monthly installments during the period of October 1, 2002 through July 1, 2009. 35 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Refinancing Transactions ------------------------ On June 4, 2002, the Company issued $850.0 million in aggregate principal amount of Mortgage Notes in a private placement offering and entered into the Senior Secured Credit Facility in an aggregate amount of $375.0 million and the Secured Mall Facility in the aggregate amount of $105.0 million (subsequently increased to $120.0 million on June 28, 2002). The Company used the proceeds of the Refinancing Transactions to repay, redeem or repurchase all of its outstanding indebtedness (including the Old Notes, the Bank Credit Facility, the FF&E Facility, the Completion Guaranty Loan, the Mall Take-out Financing, the Phase II Unsecured Bank Loan and the Phase II Subsidiary Credit Facility), to finance the construction and development of the Phase IA Addition and to pay all fees and expenses associated with the Refinancing Transactions. In addition, the Principal Stockholder's completion guarantee relating to the construction of the Casino Resort was terminated upon the consummation of the Refinancing Transactions and the remaining cash collateral was returned to the Principal Stockholder. In connection with the Refinancing Transactions, the Company incurred a loss on early retirement of indebtedness of $8.6 million and $51.4 million during the three and nine months ended September 30, 2002, respectively. See "Item 1 - Financial Statements and Supplementary Data - Notes to Financial Statements - Note 4 Long-Term Debt." As part of the Refinancing Transactions, the Company commenced a cash tender offer on May 6, 2002 to repurchase the Old Notes. Upon the consummation of the Refinancing Transactions, the Company repurchased $316.6 million of the Old Mortgage Notes and $95.7 million of the Old Subordinates Notes and effected a covenant defeasance with respect to the remaining Mortgage Notes. The Company called all of the remaining Old Notes upon the closing of the Refinancing Transactions and redeemed the balance of the Old Mortgage Notes ($108.4 million) and the Old Subordinated Notes ($1.8 million) on July 5, 2002. For the next twelve months, the Company expects to fund Casino Resort operations, capital expenditures, the Macau joint venture, Internet gaming development activities and debt service requirements from existing cash balances, operating cash flow, borrowings under the Revolving Facility to the extent that funds are available, drawings under the Term A Facility and distributions of excess cash from the Mall II Subsidiary to Venetian to the extent permitted under the terms of the Company's indebtedness. The Company's existing debt instruments contain certain restrictions that, among other things, limit the ability of the Company and/or certain subsidiaries to incur additional indebtedness, issue disqualified stock or equity interests, pay dividends or make other distributions, repurchase equity interests or certain indebtedness, create certain liens, enter into certain transactions with affiliates, enter into certain mergers or consolidations or sell assets of the Company without prior approval of the lenders or noteholders. Financial covenants included in the Senior Secured Credit Facility include total debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum net worth covenants and maximum capital expenditure limitations. The financial covenants in the Senior Secured Credit Facility involving EBITDA are applied on a rolling four quarter basis. As of September 2002, the Company was in compliance with all required covenants and ratios under its current debt instruments. See "Item 1 - Financial Statements and Supplementary Data - Notes to Financial Statements - Note 4 Long-Term Debt." Litigation Contingencies and Available Resources ------------------------------------------------ The Company is a party to certain litigation matters and claims related to the construction of the Casino Resort. If the Company is required to pay any of the Construction Manager's contested construction costs (the "Contested Construction Costs") which are not covered by the Insurance Policy, the Company may use cash received from the following sources to fund such costs: (i) the LD Policy; (ii) the Construction Manager, Bovis and P&O pursuant to the Construction Management Contract, the Bovis Guaranty and the P&O Guaranty, respectively; (iii) third parties, pursuant to their liability to the Company under their agreements with the Company; (iv) amounts received from the Phase II Subsidiary for shared facilities designed and constructed to accommodate the operations of the Casino Resort and the Phase II Resort; (v) borrowings under the Revolving Facility; (vi) additional debt or equity financings; and (vii) operating cash flow. If the Company were required to pay substantial Contested Construction Costs, and if it were unable to raise or obtain the funds from the sources described above, there could be a material adverse effect on the Company's financial position, results of operations or cash flows. 36 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) If the Company is required to pay certain significant contested construction costs, or if the Company is unable to meet its debt service requirements, the Company will seek, if necessary and to the extent permitted under the Indenture and the terms of the Senior Secured Credit Facility or any other debt instruments then outstanding, additional financing through bank borrowings or debt or equity financings. Also, there can be no assurance that new business developments or unforeseen events will not occur resulting in the need to raise additional funds. There also can be no assurance that additional or replacement financing, if needed, will be available to the Company, and, if available, that the financing will be on terms favorable to the Company. Phase II Resort --------------- The Company has not yet set a date to begin construction of the Phase II Resort. If the Company determines to construct the Phase II Resort, it will be required to raise substantial debt and/or equity financings. Currently, the Company has no commitments to fund the hard construction costs of the Phase II Resort. In addition, the development of the Phase II Resort may require obtaining additional regulatory approvals. The Company's debt instruments limit its ability to guarantee or otherwise become liable for any indebtedness of the Phase II Subsidiary. These debt instruments also restrict the Company's and its subsidiaries' ability to sell or otherwise dispose of the capital stock of the Phase II Subsidiary, including a sale to the Principal Stockholder or to any of his affiliates. In addition, the Indenture allows the Company to make investments of up to $20.0 million for the development of the Phase II Resort and to incur up to $20.0 million of additional debt to fund such investment. The Phase II Subsidiary is an unrestricted subsidiary that is not subject to the terms of the Indenture or the Senior Secured Credit Facility and is not a guarantor under the Mortgage Notes or the Senior Secured Credit Facility. Macau Joint Venture ------------------- The Company is currently in the process of negotiating agreements to operate casinos in Macau. Through September 30, 2002, the Company had incurred developmental expenses of $4.7 million in connection with the proposed Macau project. Under the contemplated terms of Venetian Macau's agreements with its joint venture partners, Venetian Macau will likely have financial obligations to the joint venture and/or to the Government of Macau or it will likely be obligated to pay for certain costs of developing and constructing the contemplated casinos in Macau. Under the Indenture, the Company is permitted to make investments in the amount of $40.0 million in, and extend guarantees with respect to $90.0 million of indebtedness and/or obligations of, its Macau subsidiaries. The Company may use cash received from the following sources to fund the Macau venture: o borrowings by Venetian under the Revolving Facility; o additional debt or equity financings; and o operating cash flow (subject to certain limitations contained in the Company's debt instruments). Venetian Macau and the Company's other Macau subsidiaries are not guarantors under the Mortgage Notes or the Senior Secured Credit Facility and, subject to certain limited exceptions, are not restricted subsidiaries under the Indenture or the Senior Secured Credit Facility. Recent Accounting Pronouncements - -------------------------------- In July 2001, the Financial Accounting Standards Board issued Statement No. 141 ("SFAS 141"), entitled "Business Combination," and Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 141 provides as follows: (a) use of the pooling-of-interests method is prohibited for business combinations initiated after June 30, 2001; and (b) the provisions of SFAS 141 also apply to all business combinations accounted for by the purchase method that are completed after June 30, 2001. There are also transition provisions that apply to business combinations completed before July 1, 2001 that were accounted for by the purchase method. SFAS 142 is effective for fiscal years beginning after December 15, 2001 and applies to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. In August 2001, the Financial Accounting Standards Board issued Statement No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the Retirement of Long-Lived Assets". The objective of SFAS 143 is to establish accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 is effective for fiscal years beginning after June 15, 2002. 37 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) In October 2001, the Financial Accounting Standards Board issued Statement No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. In April 2002, the Financial Accounting Standards Board issued SFAS 145. SFAS 145 addresses the presentation for losses on early retirements of debt in the statement of operations. The Company has adopted SFAS 145 and will no longer present losses on early retirements of debt as an extraordinary item. Additionally, prior period extraordinary losses have been reclassified to conform to this new presentation. Adoption of SFAS 145 had no impact on the Company's financial condition, or cash flows. In June 2002, the Financial Accounting Standard Board issued Statement No. 146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal Activities." The provisions of SFAS 146 become effective for exit or disposal activities commenced subsequent to December 31, 2002 and the Company does not expect any impact on its financial condition, results of operations or cash flows. The adoptions of SFAS 141, SFAS 142 and SFAS 144 had no impact on the Company's financial position, results of operations or cash flows. The Company does not expect the impact of the adoptions of SFAS 143 or SFAS 146 to be material to its financial condition, results of operations or cash flows. Special Note Regarding Forward-Looking Statements - ------------------------------------------------- Certain statements in this section, the risk factors set forth in Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 and elsewhere in this Quarterly Report on Form 10-Q (as well as information included in oral statements or other written statements made or to be made by the Company) constitute "forward-looking statements." Such forward-looking statements include the discussions of the business strategies of the Company and expectations concerning future operations, margins, profitability, liquidity and capital resources. In addition, in certain portions of this Form 10-Q, the words: "anticipates", "believes", "estimates", "seeks", "expects", "plans", "intends" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Although the Company believes that such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risks associated with entering into new construction and new ventures, including the Phase IA Addition and the Macau joint venture, increased competition and other planned construction in Las Vegas, including the opening of a new casino resort on the site of the former Desert Inn and upcoming increases in meeting and convention space, the completion of infrastructure projects in Las Vegas, government regulation of the casino industry, including gaming license approvals and regulation in foreign jurisdictions, the legalization of gaming in certain jurisdictions, such as Native American reservations in the States of California and New York and regulation of gaming on the Internet, leverage and debt service (including sensitivity to fluctuations in interest rates and other capital markets trends), uncertainty of casino spending and vacationing at casino resorts in Las Vegas, disruptions or reductions in travel to Las Vegas, the September 11th attacks and any future terrorist incidents, new taxes or changes to existing tax rates, fluctuations in occupancy rates and average daily room rates in Las Vegas, demand for all-suites rooms, the popularity of Las Vegas as a convention and trade show destination, insurance risks (including the risk that the Company has not obtained sufficient coverage against acts of terrorism or will only be able to obtain additional coverage at significantly increased rates), litigation risks, including the outcome of the pending disputes with the Construction Manager and its subcontractors, and general economic and business conditions which may impact levels of disposable income, consumer spending and pricing of hotel rooms. Item 3. Quantitative And Qualitative Disclosures About Market Risk Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. The Company's primary exposure to market risk is interest rate risk associated with its long-term debt. The Company attempts to manage its interest rate risk by managing the mix of its long-term fixed-rate borrowings and variable rate borrowings, and by use of interest rate cap and floor agreements. The ability to enter into interest rate cap and floor agreements allows the Company to manage its interest rate risk associated with its variable rate debt. 38 Item 3. Quantitative And Qualitative Disclosures About Market Risk (Continued) The Company does not hold or issue financial instruments for trading purposes and does not enter into deliverable transactions that would be considered speculative positions. The Company's derivative financial instruments consist exclusively of interest rate cap and floor agreements, which do not quality for hedge accounting. Interest differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expense. To manage exposure to counterparty credit risk in interest rate cap and floor agreements, the Company enters into agreements with highly-rated institutions that can be expected to fully perform under the terms of such agreements. Frequently, these institutions are also members of the bank group providing the Company's credit facility, which management believes further minimizes the risk of nonperformance. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts and weighted average interest rates by contractual maturity dates for the twelve month periods ended September 30:
FAIR 2003 2004 2005 2006 2007 THEREAFTER TOTAL VALUE(1) ---- ---- ---- ---- ---- ---------- ----- -------- (Dollars In Millions) LIABILITIES Short-term debt Variable rate $2.5 -- -- -- -- -- $ 2.5 $ 2.5 Average interest rate (2) 4.8% -- -- -- -- -- 4.8% 4.8% Long-term debt Fixed rate -- -- -- -- -- 850.0 850.0 841.5 Average interest rate (2) -- -- -- -- -- 11.0% 11.0% 11.0% Variable rate -- 2.5 122.5 2.5 120.0 119.4 366.9 366.9 Average interest rate (2) -- 4.8% 4.3% 4.8% 4.8% 4.8% 4.7% 4.7% - ---------- (1) The fair values are based on the borrowing rates currently available for debt instruments with similar terms and maturities and market quotes of the Company's publicly traded debt. (2) Based upon contractual interest rates for fixed rate indebtedness or current LIBOR rates for variable rate indebtedness.
Foreign currency translation gains and losses were not material to the Company's results of operations for the quarter ended September 30, 2002. See also "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and " Item 1 - Financial Statements and Supplementary Data - Notes to Financial Statements - Note 4 Long-Term Debt." Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and its Vice President-Finance (its principal financial officer), after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this quarterly report on Form 10-Q (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report on Form 10-Q was being prepared. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of their evaluation, nor any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken. 39 Part II OTHER INFORMATION Item 1. Legal Proceedings The Company is party to litigation matters and claims related to its operations and the construction of the Casino Resort. For more information, see the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and "Part I, Item 1 - Financial Statements - Notes to Financial Statements Note 6 - Commitments and Contingencies." Item 5. Other Information The Company is not required to file this Quarterly Report on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The filing is required, however, pursuant to the terms of the Indenture. Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits None. (b) Reports on Form 8-K 1. On August 14, 2002, the Company filed a report on Form 8-K to announce the filing of certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 40 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. November 8, 2002 By: /s/ Sheldon G. Adelson ------------------------------------ Sheldon G. Adelson, Chairman of the Board, Chief Executive Officer and Director November 8, 2002 By: /s/ Harry D. Miltenberger ------------------------------------ Harry D. Miltenberger, Vice President-Finance (principal financial and accounting officer) 41 CERTIFICATIONS I, Sheldon G. Adelson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Las Vegas Sands, Inc. (the "Company"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. The Company's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 /s/ Sheldon G. Adelson ------------------------- Name: Sheldon G. Adelson, Title: Chief Executive Officer 42 CERTIFICATIONS I, Harry D. Miltenberger, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Las Vegas Sands, Inc. (the "Company"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. The Company's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 /s/Harry D. Miltenberger, ------------------------------------ Name: Harry D. Miltenberger Title: Vice President-Finance (principal financial and accounting officer) 43 -----END PRIVACY-ENHANCED MESSAGE-----