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Las Vegas Sands 10-Q 2007 Table of Contents
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C.
20549
Commission file number
001-32373
(702) 414-1000
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. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
Registrant’s classes of common stock, as of
October 31, 2007.
LAS VEGAS
SANDS CORP.
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
(Unaudited)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
(Unaudited)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
(Unaudited)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
(UNAUDITED)
The accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Annual Report on
Form 10-K
of Las Vegas Sands Corp. (a Nevada corporation) and its
subsidiaries (collectively the “Company”) for the year
ended December 31, 2006. 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 the United States of America. In the
opinion of management, all adjustments and normal recurring
accruals considered necessary for a fair statement of the
results for the interim period have been included. The interim
results reflected in the unaudited condensed consolidated
financial statements are not necessarily indicative of expected
results for the full year. The Company’s common stock is
traded on the New York Stock Exchange under the symbol
“LVS.”
The Company owns and operates The Venetian Resort Hotel Casino
(“The Venetian”), a Renaissance
Venice-themed
resort situated on the Las Vegas Strip (the “Strip”).
The Venetian includes the first all-suites hotel on the Strip
with 4,027 suites; a gaming facility of approximately
120,000 gross square feet; an enclosed retail, dining and
entertainment complex of approximately 440,000 net leasable
square feet (“The Grand Canal Shops”), which was sold
to a third party in 2004; and a meeting and conference facility
of approximately 1.1 million square feet (the
“Congress Center”). A subsidiary of Las Vegas Sands
Corp. owns and operates an expo and convention center with
approximately 1.2 million square feet (“The Sands Expo
Center”), which is connected to The Venetian and the
Congress Center.
The Company also owns and operates the Sands Macao, the first
Las Vegas-style casino in Macao, China, which opened in May
2004. The Sands Macao now offers over 229,000 square feet
of gaming facilities after its expansion, which was completed in
August 2006, as well as several restaurants, VIP facilities, a
theater and other high-end amenities. In addition, the
completion of the hotel tower in September 2007 increased the
number of suites from 51 to 289.
On August 28, 2007, the Company opened The Venetian Macao
Resort Hotel (“The Venetian Macao”) on the Cotai
Striptm,
a master-planned development of resort properties (the
“Cotai Strip”), in Macao, China. With a theme similar
to that of The Venetian in Las Vegas, The Venetian Macao
includes a hotel with over 2,900 suites; a casino floor of
approximately 550,000 square feet; a 15,000-seat arena;
retail space of approximately 1.0 million square feet; and
a convention center complex of approximately 1.2 million
square feet.
The Company is currently constructing The Palazzo Resort Hotel
Casino (“The Palazzo”), a second resort similar in
size to The Venetian, which is situated on a
14-acre site
next to The Venetian and The Sands Expo Center. The Palazzo will
consist of an all-suites, 50-floor luxury hotel tower with 3,066
suites, a gaming facility of approximately 105,000 square
feet and an enclosed shopping, dining and entertainment complex
of approximately 400,000 net leasable square feet (the
“Phase II mall”), which the Company has
contracted to sell to a third party. The Palazzo is expected to
open on December 20, 2007. The Company is also constructing
a high-rise residential condominium tower with approximately
1.0 million saleable square feet that will be situated
between The Palazzo and The Venetian. The condominium tower is
currently expected to open in fall 2009.
In addition, the Company is in the process of developing a
gaming, hotel, shopping and dining complex (the “Sands
Bethworks”) located on the site of the Historic Bethlehem
Steel Works in Bethlehem, Pennsylvania. The
126-acre
development is expected to feature a 300-room hotel,
200,000 square feet of retail space, 5,000 slot machines, a
50,000 square foot multipurpose event center and a variety
of dining options. In July 2007, the
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company paid a $50.0 million licensing fee to the
Commonwealth of Pennsylvania and was issued its Pennsylvania
gaming license by the Pennsylvania Gaming Control Board in
August 2007.
The Company has submitted development plans to the Macao
government for six casino-resort developments in addition to The
Venetian Macao on an area of approximately 200 acres
located on the Cotai Strip. The developments are expected to
include hotels, exhibition and conference facilities, casinos,
showrooms, shopping malls, spas, restaurants, entertainment
facilities and other attractions and amenities, as well as
public common areas.
In February 2007, the Company entered into a land concession
agreement with the Macao government pursuant to which the
Company was awarded a concession by lease for parcels referred
to as 1, 2 and 3 on the Cotai Strip, including the site on
which The Venetian Macao was built (parcel 1) and the site
on which the Company is building a Four Seasons hotel (“The
Four Seasons Macao” located on parcel 2). The Company has
made an initial premium payment of 853.0 million patacas
(approximately $106.7 million at exchange rates in effect
on September 30, 2007) towards the aggregate land
premium for parcels 1, 2 and 3 of 2.59 billion patacas
(approximately $323.9 million at exchange rates in effect
on September 30, 2007). Additionally, the Company received
a credit in the amount of 193.4 million patacas
(approximately $24.2 million at exchange rates in effect on
September 30, 2007) towards the aggregate land premium
related to reclamation work and other works done on the land and
the installation costs of an electrical substation. On
April 18, 2007, the land concession became effective when
it was published in Macao’s Official Gazette. In July 2007,
the Company paid 816.9 million patacas (approximately
$102.2 million at exchange rates in effect on
September 30, 2007) for the balance of the land
premium payment due on parcel 1. The Company is required to make
land premium payments on the remaining parcels 2 and 3, and
annual rent payments relating to all three parcels in the
amounts and at the times specified in the land concession. Each
parcel’s share of the remaining land premium balance will
either be due upon the completion of the corresponding resort or
be payable through seven equal semi-annual payments, bearing
interest at 5% per annum, to be made over a four year period,
whichever comes first. The Company has commenced construction on
its other Cotai Strip properties on land for which it has not
yet been granted land concessions. If the Company does not
obtain land concessions it could lose all or a substantial part
of its $475.1 million in capitalized construction costs as
of September 30, 2007, related to these other Cotai Strip
properties.
The Company has entered into a non-binding letter of intent with
the Zhuhai Municipal People’s Government of the
People’s Republic of China to work with it to create a
master plan for, and develop, a leisure and convention
destination resort on Hengqin Island, which is located within
mainland China, approximately one mile from the Cotai Strip. In
January 2007, the Company was informed that the Zhuhai
Government established a Project Coordination Committee to act
as a government liaison empowered to work directly with the
Company to advance the development of the project. The Company
has interfaced with this committee and is working actively with
the committee as it continues to advance its plans. The project
remains subject to a number of conditions, including further
governmental approvals.
In August 2006, the Company’s wholly-owned subsidiary,
Marina Bay Sands Pte. Ltd., entered into a development agreement
(the “Development Agreement”) with the Singapore
Tourism Board (the “STB”) to build and operate an
integrated resort called the Marina Bay Sands in Singapore,
which is expected to open in late 2009. The Marina Bay Sands
will be a large integrated resort that is expected to include
three 50+ story hotel towers (totaling approximately 2,600
rooms), a casino, an enclosed retail, dining and entertainment
complex of approximately 750,000 net leasable square feet,
a convention center and meeting room complex of approximately
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
1.2 million square feet, theaters, and a landmark iconic
structure at the bay-front promenade that contains an
art/science museum.
The Company is currently exploring the possibility of developing
and operating integrated resorts in additional Asian,
U.S. and European jurisdictions.
In July 2006, the Financial Accounting Standards Board
(“FASB”) issued Interpretation (“FIN”)
No. 48, “Accounting for Uncertainty in Income
Taxes,” which provides guidance for the accounting for
uncertainty in income taxes recognized in the financial
statements in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 109, “Accounting for
Income Taxes.” FIN No. 48 provides guidance on
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN No. 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosures and transition. FIN No. 48
requires entities to assess the likelihood that uncertain tax
positions will be accepted by the applicable taxing authority
and then measure the amount of benefit to be recognized for
these purposes which are considered greater than 50% likely to
be sustained. The Company adopted FIN No. 48 as of
January 1, 2007, and recorded a reduction to opening
retained earnings of $4.1 million.
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements,” which defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurement.
SFAS No. 157 does not require any new fair value
measurements. The provisions of SFAS No. 157 are
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years. The Company is still evaluating the
impact of this standard; however, it does not expect the
adoption of SFAS No. 157 will have a material effect
on its financial condition, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Liabilities
Including an Amendment of FASB Statement No. 115.”
Under SFAS No. 159, the Company may elect to measure
many financial instruments and certain other items at fair
value, which are not otherwise currently required to be measured
at fair value. The decision to measure items at fair value is
made at specific election dates on an irrevocable
instrument-by-instrument
basis and requires recognition of the changes in fair value in
earnings and expensing upfront costs and fees associated with
the item for which the fair value option is elected. Fair value
instruments for which the fair value option has been elected and
similar instruments measured using another measurement attribute
are to be distinguished on the face of the statement of
financial position. SFAS No. 159 is effective for
financial statements beginning after November 15, 2007. The
Company is still evaluating the impact of this standard;
however, it does not expect the adoption of
SFAS No. 159 will have a material effect on its
financial condition, results of operations or cash flows.
In May 2007, the FASB issued FASB Staff Position
(“FSP”)
No. FIN 48-1,
“Definition of Settlement in FASB Interpretation
No. 48.” FSP
No. FIN 48-1
provides guidance about how a company should determine whether a
tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. Under FSP
No. FIN 48-1,
a tax position could be effectively settled on completion of
examination by a taxing authority if the entity does not intend
to appeal or litigate the result and it is remote that the
taxing authority would examine or
re-examine
the tax position. FSP
No. FIN 48-1
shall be applied upon the initial adoption date of
FIN No. 48. The FSP
No. FIN 48-1
did not have a material impact on the Company’s condensed
consolidated financial statements.
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Changes in stockholders’ equity for the nine months ended
September 30, 2007, were as follows (in thousands):
At September 30, 2007, and December 31, 2006, the
accumulated other comprehensive loss balance consisted solely of
foreign currency translation adjustments. For the three and nine
months ended September 30, 2007, comprehensive income
(loss) amounted to ($43.7) million and $76.9 million,
respectively. For the three and nine months ended
September 30, 2006, comprehensive income amounted to
$95.2 million and $325.4 million, respectively.
The weighted average number of common and common equivalent
shares used in the calculation of basic and diluted earnings
(loss) per share consisted of the following:
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Property and equipment consists of the following (in thousands):
Construction in progress consists of the following (in
thousands):
As of September 30, 2007, portions of The Venetian Macao
were under construction and are scheduled to be completed later
this year and during 2008. The $89.9 million in other CIP
consists primarily of airplane-related purchases at corporate
and construction costs incurred at Sands Bethworks.
During the three and nine months ended September 30, 2007,
and the three and nine months ended September 30, 2006, the
Company capitalized interest expense of $64.2 million,
$169.0 million, $28.4 million and $57.7 million,
respectively.
During the three months ended June 30, 2007, the Company
recorded a charge of $4.8 million to properly account for
pre-opening expenses that had been previously capitalized on the
balance sheet during the years ended December 31, 2005 and
2006 and the three months ended March 31, 2007. Because the
amounts involved were not material to the Company’s
financial statements in any individual prior period, and the
cumulative amount is not material to the estimated results of
operations for the year ended December 31, 2007, the
Company recorded the cumulative effect of correcting this item,
which increased “Pre-opening expense” and reduced
“Property and equipment” by $4.8 million, during
the three months ended June 30, 2007.
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Long-term debt consists of the following (in thousands):
The Company is currently working to obtain long-term financing
to fund the construction of Marina Bay Sands and refinance the
Singapore credit facilities, which mature in August 2008. The
Company expects to obtain the long-term financing in 2007;
however, there is no assurance the Company will be able to
obtain the additional long-term financing or to obtain the
financing on terms agreeable to the Company. If the Company is
unable to complete the financing, it has the ability to use
borrowings under its new senior secured credit facility (as
defined below) to continue to fund its Singapore construction
activities for a period of time and repay the outstanding
balance. As no agreement has been signed, the $1.28 billion
outstanding balance on the Singapore credit facilities has been
classified as current as of September 30, 2007, resulting
in a $573.1 million deficit in working capital.
In February 2007, the Company entered into promissory notes
totaling $72.0 million to finance the purchase of one
airplane and to finance two others that were already owned. The
notes consist of balloon payment promissory notes and amortizing
promissory notes, all of which have ten year maturities and are
collateralized by the related aircraft. The notes bear interest
at three-month LIBOR plus 1.5% per annum (7.13% as of
September 30, 2007). The amortizing notes, totaling
$28.8 million, are subject to quarterly principal and
interest payments which began June 1, 2007. The balloon
notes, totaling $43.2 million, are subject to quarterly
interest payments which began June 1, 2007, with the
principal payments due in full on March 1, 2017. At
September 30, 2007, the book value of the aircraft
collateralizing the notes was $65.9 million.
In April 2007, the Company entered into promissory notes
totaling $20.3 million to finance the purchase of an
additional airplane. The notes have ten year maturities and
consist of a balloon payment promissory note and an
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amortizing promissory note. The notes bear interest at
three-month LIBOR plus 1.25% per annum (6.45% as of
September 30, 2007). The $8.1 million amortizing note
is subject to quarterly principal and interest payments which
began June 30, 2007. The $12.2 million balloon note is
subject to quarterly interest payments which began June 30,
2007, with the principal payment due in full on March 31,
2017. At September 30, 2007, the book value of the aircraft
collateralizing the notes was $21.4 million.
In March 2007, the $2.5 billion Macao credit facility was
amended to expand the use of proceeds and remove certain
restrictive conditions. In April 2007, the lenders of the Macao
credit facility approved a reduction of the interest rate margin
for all classes of loans by 50 basis points and the Company
exercised its rights under the Macao credit facility to access
the $800.0 million of incremental facilities under the
accordion feature set forth therein, which increased the funded
term loan portion by $600.0 million, the revolving credit
facility by $200.0 million, and the total credit facility
to $3.3 billion. As of September 30, 2007, the Company
had fully drawn $700.0 million under the delayed draw
facility, with no amounts outstanding under the revolving credit
facility.
In May 2007, the Company entered into a $5.0 billion senior
secured credit facility (the “New Senior Secured Credit
Facility”), which consists of a $3.0 billion funded
term loan (the “Term B Facility”), a
$600.0 million delayed draw term loan available for
12 months after closing (the “Delayed Draw I
Facility”), a $400.0 million delayed draw term loan
available for 18 months after closing (the “Delayed
Draw II Facility”) and a $1.0 billion revolving
credit facility (the “Revolving Facility”). A portion
of the proceeds of the Term B Facility was used to refinance the
existing U.S. credit facility, repay the Phase II mall
construction loan and The Sands Expo Center mortgage loan, pay
for certain construction and development related expenses
incurred in connection with The Palazzo, and for fees and
expenses related to the New Senior Secured Credit Facility.
The Term B Facility and the Delayed Draw I Facility mature on
May 23, 2014. The Term B Facility is subject to quarterly
amortization payments of $7.5 million, which began in
September 2007, followed by a balloon payment of
$2.80 billion due on May 23, 2014. The Delayed Draw I
Facility is subject to quarterly amortization payments of
$1.5 million, which begin on September 30, 2008,
followed by a balloon payment of $565.5 million due on
May 23, 2014. The Delayed Draw II Facility matures on
May 23, 2013, and is subject to quarterly amortization
payments of $1.0 million, which begin on March 31,
2009, followed by a balloon payment of $383.0 million due
on May 23, 2013. The Revolving Facility matures on
May 23, 2012, and has no interim amortization. As of
September 30, 2007, no amounts are outstanding under the
Revolving Facility and no amounts have been drawn under the
delayed draw facilities.
The New Senior Secured Credit Facility is guaranteed by certain
of the Company’s domestic subsidiaries (the
“Guarantors”). The obligations under the New Senior
Secured Credit Facility and the guarantees of the Guarantors are
collateralized by a first-priority security interest in
substantially all of Las Vegas Sands, LLC (“LVSLLC”),
and the Guarantors’ assets, other than capital stock and
similar ownership interests, certain furniture, fixtures and
equipment, and certain other excluded assets.
Borrowings under the New Senior Secured Credit Facility bear
interest, at the Company’s option, at either an adjusted
Eurodollar rate or at an alternative base rate plus a credit
spread. The initial credit spread is 0.5% per annum for the
Revolving Facility accruing interest at a base rate, 0.75% per
annum for term loans accruing interest at a base rate, 1.5% per
annum for the Revolving Facility accruing interest at an
adjusted Eurodollar rate, and 1.75% per annum for term loans
accruing interest at an adjusted Eurodollar rate (6.95% as of
September 30, 2007). These spreads will be reduced by 0.25%
if the Company’s “corporate rating” (as defined
in the New Senior Secured Credit Facility) is increased to at
least Ba2 by Moody’s and at least BB by
Standard & Poor’s Ratings Group, subject to
certain additional conditions. The spread for the Revolving
Facility will be further reduced by 0.25% if the Company’s
“corporate rating” is increased to at least Ba1 or
higher by Moody’s and at least BB+ or higher by S&P,
subject to certain additional conditions.
The Company will pay a commitment fee of 0.375% per annum on the
undrawn amounts under the Revolving Facility, which will be
reduced by 0.125% if certain ratings are achieved, subject to
certain additional conditions.
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company will also pay a commitment fee equal to 0.75% per
annum on the undrawn amounts under the Delayed Draw I Facility
and a commitment fee equal to 0.5% per annum on the undrawn
amounts under the Delayed Draw II Facility. The New Senior
Secured Credit Facility contains affirmative and negative
covenants customary for such financings, including, but not
limited to, minimum ratios of adjusted EBITDA to interest
expense and maximum ratios of total debt outstanding to adjusted
EBITDA. The New Senior Secured Credit Facility also contains
conditions and events of default customary for such financings.
In August 2007, the Company amended its FF&E term delayed
draw credit facility, which increased the facility to
$167.0 million. Borrowings under the facility bear
interest, at the Company’s option, at either an adjusted
Eurodollar rate or a base rate plus a credit spread (7.2% as of
September 30, 2007). The initial spread is 2.0% per annum
for loans accruing interest at the Eurodollar rate and 1.0% per
annum for loans accruing interest at the base rate. The spreads
may be reduced by 0.25% under certain circumstances and the
Company is required to pay a commitment fee equal to 0.5% per
annum on the undrawn amounts under the facility.
The Company adopted the provisions of FIN No. 48 on
January 1, 2007. As a result of the implementation of
FIN No. 48, the Company recognized a $4.1 million
increase in the liability for unrecognized tax benefits, which
was accounted for as a reduction to opening retained earnings.
At the adoption date of January 1, 2007, the Company had
$8.5 million of unrecognized tax benefits, of which
$6.1 million would affect the effective income tax rate if
recognized.
The Company files income tax returns in the U.S., various states
and foreign jurisdictions. The Company is subject to federal,
state and local, or foreign income tax examinations by tax
authorities for years after 2002. The Company is not presently
under examination by any major tax jurisdiction.
The Company recognizes interest and penalties, if any, related
to unrecognized tax benefits in the provision for income taxes
on the statement of operations. At January 1, 2007, the
date of adoption, and at September 30, 2007, the Company
did not accrue any significant interest or penalties. The
Company does not expect a significant increase or decrease in
unrecognized tax benefits over the next twelve months.
Stock-based compensation activity is as follows for the three
and nine months ended September 30, 2007 and 2006 (in
thousands, except weighted average grant date fair values):
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of each option grant was estimated on the grant
date using the Black-Scholes option-pricing model with the
following weighted average assumptions:
The Company is involved in other litigation in addition to those
noted below, arising in the normal course of business.
Management has made certain estimates for potential litigation
costs based upon consultation with legal counsel. Actual results
could differ from these estimates; however, in the opinion of
management, such litigation and claims will not have a material
effect on the Company’s financial condition, results of
operations or cash flows.
Lido Casino Resort, LLC (“Lido”), formerly a
wholly-owned subsidiary of the Company and now merged into
Venetian Casino Resort, LLC (“VCR”), another
wholly-owned subsidiary of the Company, and its construction
manager, Taylor International Corp. (“Taylor”), filed
suit in March 2006 in the United States District Court for the
District of Nevada (the “District Court”) against
Malcolm Drilling Company, Inc. (“Malcolm”), the
contractor on The Palazzo project responsible for completing
certain foundation work (the “District Court Case”).
Lido and Taylor claimed in the District Court Case that Malcolm
was in default of its contract for performing defective work,
failing to correct defective work, failing to complete its work
and causing delay to the project. Malcolm responded by filing a
Notice of a Lien with the Clerk of Clark County, Nevada in March
2006 in the amount of approximately $19.0 million plus
interest, costs and attorney’s fees (the “Lien”).
In April 2006, Lido and Taylor moved in the District Court Case
to strike or, in the alternative, to reduce the amount of, the
Lien, claiming, among other things, that the Lien was excessive
for including claims for disruption and delay, which Lido and
Taylor claim are not lienable under Nevada law (the “Lien
Motion”). Malcolm responded in April 2006 by filing a
complaint against Lido and Taylor in District Court of Clark
County, Nevada seeking to foreclose on the Lien against Taylor,
claiming breach of contract, a cardinal change in the underlying
contract, unjust enrichment against Lido and Taylor and bad
faith and fraud against Taylor (the “State Court
Case”), and simultaneously filed a motion in the District
Court Case, seeking to dismiss the District Court Case on
abstention grounds (the “Abstention Motion”). In
response, in June 2006, Lido filed a motion to dismiss the State
Court Case based on the principle of the “prior
pending” District Court Case (the “Motion to
Dismiss”). In June 2006, the Abstention Motion was granted
in part by the United States District Court, the District Court
Case was stayed pending the outcome of the Motion to Dismiss in
the State Court Case and the Lien Motion was denied without
prejudice. Lido and Malcolm then entered into a stipulation
under which Lido withdrew the Motion to Dismiss, and in July
2006 filed a replacement lien motion in the State Court Case.
The lien motion in the State Court Case was denied in August
2006 and Lido and Taylor filed a permitted interlocutory notice
of appeal to the Supreme Court of Nevada in September 2006. On
April 11, 2007, Malcolm filed an Amended Notice of Lien
with the Clerk of Clark County, Nevada in the amount of
approximately $16.7 million plus interest, costs and
attorney’s fees. In August 2007, Malcolm filed a motion for
partial summary judgment, seeking the dismissal of the
counterclaim filed in the State Court Case by Lido to the extent
the claim sought lost profits. After argument, the motion for
partial summary judgment was denied without prejudice on
October 23, 2007, with a conforming written order to be
issued. This matter remains in discovery. Based upon the advice
of legal counsel, management has determined that based on
proceedings to date, it is currently unable to determine the
probability of the outcome of this matter. Lido intends to
defend itself against the claims pending in the State Court Case.
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On October 15, 2004, Richard Suen and Round Square Company
Limited filed an action against Las Vegas Sands Corp.
(“LVSC”), Las Vegas Sands, Inc., Sheldon G. Adelson
and William P. Weidner in the District Court of Clark County,
Nevada, asserting a breach of an alleged agreement to pay a
success fee of $5.0 million and 2.0% of the net profit from
the Company’s Macao resort operations to the plaintiffs as
well as other related claims. In March 2005, LVSC was dismissed
as a party without prejudice based on a stipulation to do so
between the parties. On May 17, 2005, the plaintiffs filed
their first amended complaint. On February 2, 2006,
defendants filed a motion for partial summary judgment with
respect to plaintiffs’ fraud claims against all the
defendants. On March 16, 2006, an order was filed by the
court granting defendants’ motion for partial summary
judgment. Pursuant to the order filed March 16, 2006,
plaintiffs’ fraud claims set forth in the first amended
complaint were dismissed with prejudice as against all
defendants. The order also dismissed with prejudice the first
amended complaint against defendants Sheldon G. Adelson and
William P. Weidner. This action is currently set for trial in
February 2008. Based upon the advice of legal counsel,
management has determined that based on proceedings to date, the
probability of an unfavorable outcome in this matter is remote.
The Company intends to defend this matter vigorously.
On January 26, 2006, Clive Basset Jones, Darryl Steven
Turok (a/k/a Dax Turok) and Cheong Jose Vai Chi
(a/k/a Cliff
Cheong), filed an action against LVSC, LVSLLC, Venetian Venture
Development, LLC and various unspecified individuals and
companies in the District Court of Clark County, Nevada. The
plaintiffs assert breach of an agreement to pay a success fee in
an amount equal to 5% of the ownership interest in the entity
that owns and operates the Macau SAR gaming subconcession as
well as other related claims. In April 2006, LVSC was dismissed
as a party without prejudice based on a stipulation to do so
between the parties. Discovery has begun in this action. Upon
the advice of legal counsel, management has determined that
based on proceedings to date, it is currently unable to
determine the probability of the outcome of this matter. The
Company intends to defend this matter vigorously.
On February 5, 2007, Asian American Entertainment
Corporation, Limited (“AAEC”) filed an action against
Las Vegas Sands, Inc. (“LVSI”), VCR, Venetian Venture
Development, LLC (“Venetian Venture Development”),
William P. Weidner and David Friedman in the United States
District Court for the District of Nevada. The plaintiffs assert
breach of contract by LVSI, VCR and Venetian Venture Development
of an agreement under which AAEC would work to obtain a gaming
license in Macao and, if successful, AAEC would jointly operate
a casino, hotel and related facilities in Macao with Venetian
Venture Development and Venetian Venture Development would
receive fees and a minority equity interest in the venture, and
breach of fiduciary duties by all of the defendants. The
plaintiffs have requested an unspecified amount of actual,
compensatory and punitive damages, and disgorgement of profits
related to the Company’s Macao gaming license. The Company
filed a motion to dismiss on July 11, 2007. On
August 1, 2007, the Court granted defendants’ motion
to dismiss the Complaint against all defendants without
prejudice. The plaintiffs in the case filed a notice of appeal
of the decision of the Court on September 10, 2007. Based
upon the advice of legal counsel, management has determined that
based on proceedings to date, the probability of an unfavorable
outcome in this matter is remote. The Company intends to defend
this matter vigorously.
On August 23, 2006, the Company’s subsidiary, Marina
Bay Sands Pte. Ltd. (“MBS”), entered into the
Development Agreement, which requires it to construct and
operate the Marina Bay Sands in accordance with its proposal for
this integrated resort and in accordance with the agreement.
Although construction has started, MBS is continuing to work
with the Singapore Tourism Board to finalize various aspects of
the integrated resort and is in the process of revising its cost
estimates for the project. The cost to develop and construct the
Marina Bay Sands is expected to be in excess of the previously
disclosed $3.6 billion, which is inclusive of
$811.7 million paid in 2006 for the land premium, taxes and
other fees. In August 2006, MBS entered into the Singapore
credit facility to satisfy near-term development costs and to
satisfy some of its obligations under the Development Agreement.
MBS is currently working to obtain long-term financing.
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company reviews the results of operations based on the
following geographic segments: (1) Las Vegas, which
includes The Venetian, The Sands Expo Center and The Palazzo
(currently under construction), (2) Macao, which includes
the Sands Macao, The Venetian Macao (which opened on
August 28, 2007), The Four Seasons Macao (currently under
construction) and other development projects on the Cotai Strip,
and (3) Singapore, which includes the Marina Bay Sands
(currently under construction). The Company’s segment
information is as follows for the three and nine months ended
September 30, 2007 and 2006 (in thousands):
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
LVSC is the obligor of the 6.375% Senior Notes due 2015
issued by LVSC on February 10, 2005. LVSLLC, VCR, Mall
Intermediate Holding Company, LLC, Venetian Venture Development,
LLC, Venetian Transport, LLC, Venetian Marketing, Inc.,
Interface Group-Nevada, Inc., Palazzo Condo Tower, LLC, Sands
Pennsylvania, Inc., Lido Intermediate Holding Company, LLC, Lido
Casino Resort Holding Company, LLC, Phase II Mall Holding,
LLC, Phase II Mall Subsidiary, LLC and Lido Casino Resort,
LLC, which was merged into VCR in March 2007 (collectively, the
“Guarantor Subsidiaries”), have jointly and severally
guaranteed the 6.375% Senior Notes on a full and
unconditional basis. In conjunction with entering into the New
Senior Secured Credit Facility, LVSC, the Guarantor Subsidiaries
and the trustee entered into a supplemental indenture related to
the Senior Notes, whereby the following subsidiaries were
included as guarantors: Interface Group-Nevada, Inc., Palazzo
Condo Tower, LLC, Sands Pennsylvania, Inc., Phase II Mall
Holding, LLC, and Phase II Mall Subsidiary, LLC. As a
result of the change in Guarantor Subsidiaries and non-guarantor
subsidiaries, the Company has reclassified prior periods to
conform to the current presentation as these are all entities
under common control.
The condensed consolidating financial information of LVSC, the
Guarantor Subsidiaries and the non-guarantor subsidiaries as of
September 30, 2007, and December 31, 2006, and for the
three and nine months ended September 30, 2007 and 2006, is
as follows (in thousands).
16
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Balance Sheets
September 30, 2007
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LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Balance Sheets
December 31, 2006
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statements of Operations
For the Three Months Ended September 30, 2007
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statements of Operations
For the Three Months Ended September 30, 2006
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statements of Operations
For the Nine Months Ended September 30, 2007
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statements of Operations
For the Nine Months Ended September 30, 2006
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Cash Flow Statements
For the Nine Months Ended September 30, 2007
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Cash Flow Statements
For the Nine Months Ended September 30, 2006
Table of Contents
LAS VEGAS
SANDS CORP. AND SUBSIDIARIES
The following discussion should be read in conjunction with, and
is qualified in its entirety by, the condensed consolidated
financial statements, and the notes thereto and other financial
information included in this
Form 10-Q.
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.”
We own and operate The Venetian Resort Hotel Casino (“The
Venetian”), a Renaissance Venice-themed resort situated on
the Las Vegas Strip (the “Strip”). The Venetian
includes the first all-suites hotel on the Strip with 4,027
suites; a gaming facility of approximately 120,000 gross
square feet; an enclosed retail, dining and entertainment
complex of approximately 440,000 net leasable square feet
(“The Grand Canal Shops”), which was sold to a third
party in 2004; and a meeting and conference facility of
approximately 1.1 million square feet (the “Congress
Center”). A subsidiary of Las Vegas Sands Corp. owns and
operates an expo and convention center with approximately
1.2 million square feet (“The Sands Expo
Center”), which is connected to The Venetian and the
Congress Center. Approximately 36.9% of our gross revenue at The
Venetian, including The Sands Expo Center, for the nine months
ended September 30, 2007, was derived from gaming and 63.1%
was derived from hotel rooms, food and beverage, and other
non-gaming sources. The percentage of non-gaming revenue for The
Venetian reflects the resort’s emphasis on the group
convention and trade show business and the resulting higher
occupancy and room rates during mid-week periods.
We also own and operate the Sands Macao, a Las Vegas-style
casino in Macao, China, which opened in May 2004. The Sands
Macao now offers over 229,000 square feet of gaming
facilities after its expansion, which was completed in August
2006, as well as several restaurants, VIP facilities, a theater
and other high-end amenities. In addition, we completed our
hotel tower in September 2007, which increased the number of
suites from 51 to 289. Approximately 95.4% of the Sands
Macao’s gross revenue for the nine months ended
September 30, 2007, was derived from gaming activities,
with the remainder primarily derived from food and beverage
services.
On August 28, 2007, we opened The Venetian Macao Resort
Hotel (“The Venetian Macao”) on the
Cotai Striptm,
a master-planned development of resort properties (the
“Cotai Strip”), in Macao, China. With a theme similar
to that of The Venetian in Las Vegas, The Venetian Macao
includes a hotel with over 2,900 suites; a casino floor of
approximately 550,000 square feet; a 15,000-seat arena;
retail space of approximately 1.0 million square feet; and
a convention center complex of approximately 1.2 million
square feet. The casino has approximately 850 table games and
3,400 slot machines and is designed to have a final capacity of
approximately 1,150 table games and 7,000 slot machines.
Approximately 85.2% of The Venetian Macao’s gross revenue
for the period ended September 30, 2007, was derived from
gaming activities, with the remainder primarily derived from
room revenues and food and beverage services.
We are currently constructing The Palazzo Resort Hotel Casino
(“The Palazzo”), a second resort similar in size to
The Venetian, which is situated on a
14-acre site
next to The Venetian and The Sands Expo Center. The Palazzo will
consist of an all-suites, 50-floor luxury hotel tower with 3,066
suites, a gaming facility of approximately 105,000 square
feet and an enclosed shopping, dining and entertainment complex
of approximately 400,000 net leasable square feet (the
“Phase II mall”), which we have contracted to
sell to a third party. The Palazzo is expected to open on
December 20, 2007, at an estimated cost of approximately
$2.1 billion, of which the Phase II mall is expected
to cost approximately $580.0 million (exclusive of certain
incentive payments to executives made in July 2004). In
connection with the sale of The Grand Canal Shops, we entered
into an agreement with General Growth Partners
(“GGP”), the purchaser of The Grand Canal Shops, to
sell the Phase II mall upon completion of construction. The
ultimate purchase price that GGP has agreed to pay for the
Phase II mall is the greater of
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(i) $250.0 million and (ii) the Phase II
mall’s net operating income for months 19 through 30 of its
operations divided by a capitalization rate. The capitalization
rate is 6.0% on the first $38.0 million of net operating
income and 8.0% on the net operating income above
$38.0 million. Under the terms of the agreement, we expect
the opening of the Phase II mall in January 2008 to trigger
an initial payment of more than $500.0 million from GGP
with additional proceeds of more than $250.0 million, or
more than $750.0 million in total, over the thirty-month
period following the sale.
We are in the early stages of constructing a high-rise
residential condominium tower with approximately
1.0 million saleable square feet that will be situated
between The Palazzo and The Venetian. The condominium tower is
currently expected to open in fall 2009 at an estimated cost of
approximately $600.0 million.
On December 20, 2006, the Pennsylvania Gaming Control Board
announced that our indirect majority-owned subsidiary, Sands
Bethworks Gaming, LLC (“Sands Bethworks Gaming”), had
been awarded a Pennsylvania gaming license. Sands Bethworks
Gaming is a project venture in which we effectively own 86% of
the economic interest. In July 2007, we paid a
$50.0 million licensing fee to the Commonwealth of
Pennsylvania and were issued our Pennsylvania gaming license by
the Pennsylvania Gaming Control Board in August 2007. We are in
the process of developing a gaming, hotel, shopping and dining
complex (the “Sands Bethworks”) located on the site of
the Historic Bethlehem Steel Works in Bethlehem, Pennsylvania,
which is about 70 miles from midtown Manhattan, New York.
The 126-acre
development is expected to feature a 300-room hotel,
200,000 square feet of retail space, 5,000 slot machines, a
50,000 square foot multipurpose event center and a variety
of dining options. We currently expect the cost to develop and
construct the Sands Bethworks will be approximately
$800.0 million.
We have submitted development plans to the Macao government for
six casino-resort developments in addition to The Venetian Macao
on an area of approximately 200 acres located on the Cotai
Strip (which we refer to as parcels 2, 3, 5, 6, 7 and 8). The
developments are expected to include hotels, exhibition and
conference facilities, casinos, showrooms, shopping malls, spas,
restaurants, entertainment facilities and other attractions and
amenities, as well as public common areas. We have commenced
construction or pre-construction on these six parcels of the
Cotai Strip. We plan to own and operate all of the casinos in
these developments under our Macao gaming subconcession. More
specifically, we intend to develop our other Cotai Strip
properties as follows:
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The Four Seasons resort is currently planned to feature
approximately 130 table games and 400 slot machines. The casinos
on parcels 3, 5, 6, 7 and 8 are each currently planned to
include approximately 325 table games and 1,750 slot machines.
Upon completion, our developments on the Cotai Strip (including
The Venetian Macao) are currently planned to feature total
gaming capacity of approximately 2,900 table games and 16,000
slot machines.
Currently, we expect the total cost of development on the Cotai
Strip to be in the range of $11.0 billion to
$12.0 billion. We will need to arrange additional debt
financing to finance those costs and there is no assurance that
we will be able to obtain this additional debt financing.
In February 2007, we entered into a land concession agreement
with the Macao government pursuant to which we were awarded a
concession by lease for parcels 1, 2 and 3 on the Cotai Strip,
including the site on which we own and operate The Venetian
Macao (parcel 1) and the site on which we are building the
Four Seasons hotel (parcel 2). We have made an initial premium
payment of 853.0 million patacas (approximately
$106.7 million at exchange rates in effect on
September 30, 2007) towards the aggregate land premium
for parcels 1, 2 and 3 of 2.59 billion patacas
(approximately $323.9 million at exchange rates in effect
on September 30, 2007). Additionally, we received a credit
in the amount of 193.4 million patacas (approximately
$24.2 million at exchange rates in effect on
September 30, 2007) towards the aggregate land premium
related to reclamation work and other works done on the land and
the installation costs of an electrical substation. On
April 18, 2007, the land concession became effective when
it was published in Macao’s Official Gazette. In July 2007,
we paid 816.9 million patacas (approximately
$102.2 million at exchange rates in effect on
September 30, 2007) for the balance of the land
premium payment due on parcel 1. We are required to make land
premium payments relating to the remaining parcels 2 and 3, and
annual rent payments relating to all three parcels in the
amounts and at the times specified in the land concession. Each
parcel’s share of the remaining land premium balance will
either be due upon the completion of the corresponding resort or
be payable through seven equal semi-annual payments, bearing
interest at 5% per annum, to be made over a four year period,
whichever comes first.
We do not yet have all the necessary Macao government approvals
that we will need in order to develop our Cotai Strip
developments. We have commenced construction on our other Cotai
Strip properties on land for which we have not yet been granted
land concessions. If we do not obtain land concessions we could
lose all or a substantial part of our investment in these other
Cotai Strip properties. As of September 30, 2007, we have
capitalized approximately $475.1 million of construction
costs related to our other Cotai Strip properties.
We have entered into a non-binding letter of intent with the
Zhuhai Municipal People’s Government of the People’s
Republic of China to work with it to create a master plan for,
and develop, a leisure and convention destination resort on
Hengqin Island, which is located within mainland China,
approximately one mile from the Cotai Strip. We are actively
preparing preliminary design concepts for presentation to the
government. In January 2007, we were informed that the Zhuhai
Government established a Project Coordination Committee to act
as a government liaison empowered to work directly with us to
advance the development of the project. We have
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interfaced with this committee and are working actively with the
committee as we continue to advance our plans. The project
remains subject to a number of conditions, including further
governmental approvals.
In August 2006, our wholly-owned subsidiary, Marina Bay Sands
Pte. Ltd., entered into a development agreement with the
Singapore Tourism Board (the “STB”) to build and
operate an integrated resort called the Marina Bay Sands in
Singapore. The Marina Bay Sands will be a large integrated
resort that is expected to include three 50+ story hotel towers
(totaling approximately 2,600 rooms), a casino, an enclosed
retail, dining and entertainment complex of approximately
750,000 net leasable square feet, a convention center and
meeting room complex of approximately 1.2 million square
feet, theaters, and a landmark iconic structure at the bay-front
promenade that contains an art/science museum. Although
construction has started on the Marina Bay Sands, we are
continuing to work with the STB to finalize various aspects of
the integrated resort and are in the process of revising our
cost estimates for the project. We expect the cost to develop
and construct the Marina Bay Sands will be in excess of the
previously disclosed $3.6 billion, inclusive of
$811.7 million paid in 2006 for the land premium, taxes and
other fees. The Marina Bay Sands is expected to open in late
2009.
The United Kingdom government announced that the approval for
the country’s first regional super casino had been
rescinded. Should the government approve an alternative super
casino site, we intend to evaluate the efficacy of participating
in the tender process for that site. In addition, we have
existing agreements to develop and lease gaming and
entertainment facilities with the Sheffield United and Glasgow
Rangers football clubs in the United Kingdom. Our ability
to eventually develop and lease gaming and entertainment
facilities under these agreements is subject to a number of
conditions, including the passage of appropriate legislation and
our ability to obtain a gaming license.
We are currently exploring the possibility of developing and
operating integrated resorts in additional Asian, U.S. and
European jurisdictions.
The preparation of our condensed consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires our 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. These
estimates are based on historical information, information that
is currently available to us and on various other assumptions
that management believes to be reasonable under the
circumstances. Actual results could vary from those estimates
and we may change our estimates and assumptions in future
evaluations. Changes in these estimates and assumptions may have
a material effect on our results of operations and financial
condition. We believe that the critical accounting policies
discussed below affect our more significant judgments and
estimates used in the preparation of our condensed consolidated
financial statements. For a discussion of our significant
accounting policies and estimates, please refer to
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Notes to Consolidated Financial
Statements presented in our 2006 Annual Report on
Form 10-K
filed on February 28, 2007.
There were no newly identified significant accounting estimates
in the nine months ended September 30, 2007, nor were there
any material changes to the critical accounting policies and
estimates discussed in our 2006 Annual Report, with the
exception of the adoption of Financial Accounting Standards
Board issued Interpretation (“FIN”) No. 48,
“Accounting for Uncertainty in Income Taxes,” which is
described below.
We are subject to income taxes in the United States and in
several states and foreign jurisdictions in which we operate. We
account for income taxes in accordance with Statement of
Financial Accounting Standards (“SFAS”)
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No. 109, “Accounting for Income Taxes.” Under
SFAS No. 109, deferred tax assets and liabilities are
recognized based on differences between financial statement and
tax basis of assets and liabilities using enacted tax rates.
SFAS No. 109 requires the recognition of deferred tax
assets, net of any applicable valuation allowances, related to
net operating loss carryforwards, tax credits and other
temporary differences. The standard and guidance set forth by
FIN No. 48 require recognition of a future tax benefit
to the extent that realization of such benefit is more likely
than not; otherwise, a valuation allowance is applied.
Our income tax returns are subject to examination by the
Internal Revenue Service (“IRS”) and other tax
authorities. While positions taken in tax returns are sometimes
subject to uncertainty in the tax laws, we do not take such
positions unless we have “substantial authority” to do
so under the Internal Revenue Code and applicable regulations.
We may take positions on our tax returns based on substantial
authority that are not ultimately accepted by the IRS. We are
subject to income tax examination by tax authorities for years
after 2002. There are currently no income tax returns being
examined by the IRS or other major tax authorities.
We adopted the provisions of FIN No. 48 on
January 1, 2007. As a result of the implementation of
FIN No. 48, we recognized a $4.1 million increase
in the liability for unrecognized tax benefits, which was
accounted for as a reduction to opening retained earnings. At
the adoption date of January 1, 2007, we had
$8.5 million of unrecognized tax benefits, of which
$6.1 million would affect our effective income tax rate if
recognized. We do not expect a significant increase or decrease
in unrecognized tax benefits over the next twelve months.
See related disclosure at “Item 1 —
Financial Statements — Notes to Condensed Consolidated
Financial Statements — Note 1 —
Organization and Business of Company.”
The following table summarizes our results of operations:
Operating revenues of The Venetian and The Venetian Macao are
dependent upon the volume of customers who stay at the hotel,
which affects the price that can be charged for hotel rooms and
the volume of table games and slot machine play. The Sands Macao
is almost wholly dependent on casino customers that visit the
casino on a daily basis. Hotel revenues are not material for the
Sands Macao. Visitors to the Sands Macao and The Venetian Macao
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arrive by ferry, automobile, bus, airplane or helicopter from
Hong Kong, cities in China, and other Southeast Asian cities in
close proximity to Macao and elsewhere.
The following are the key measurements we use to evaluate
operating revenue:
Casino revenue measurements for Las
Vegas: Table games drop and slot handle are
volume measurements. Win or hold percentage represents the
percentage of drop or handle that is won by the casino and
recorded as casino revenue. Table games drop represents the sum
of markers issued (credit instruments) less markers paid at the
table, plus cash deposited in the table drop box. Slot handle is
the gross amount wagered or coin placed into slot machines in
aggregate for the period cited. Drop and handle are
abbreviations for table games drop and slot handle. Based upon
our mix of table games, our table games produce a statistical
average table win percentage (calculated before discounts), as
measured as a percentage of table game drop, of generally
between 20.0% to 22.0% and slot machines produce a statistical
average slot machine win percentage (calculated before slot club
cash incentives), as measured as a percentage of slot machine
handle, of generally between 6.0% and 7.0%.
Casino revenue measurements for Macao: We view
Macao table games as being segregated into two groups,
consistent with the Macao market’s convention: Rolling Chip
play (all VIP play) and Non-Rolling Chip play (mostly non-VIP
players). The volume measurement for Rolling Chip play is
non-negotiable gaming chips wagered. The volume measurement for
Non-Rolling Chip play is table games drop as described above.
Rolling Chip volume and Non-Rolling Chip volume are not
equivalent because Rolling Chip volume is a measure of amounts
wagered versus dropped and therefore Rolling Chip volume is
substantially higher than drop. Slot handle at the Macao
properties is the gross amount wagered or coins placed into slot
machines in aggregate for the period cited.
We view Rolling Chip table games win as a percentage of Rolling
Chip volume and we view Non-Rolling Chip table games win as a
percentage of drop. Win or hold percentage represents the
percentage of Rolling Chip volume, Non-Rolling Chip drop or slot
handle that is won by the casino and recorded as casino revenue.
Based upon our mix of table games in Macao, our Rolling Chip
table games win percentage (calculated before discounts and
commissions), as measured as a percentage of Rolling Chip
volume, is expected to be 3.0% and our Non-Rolling Chip table
games are expected to produce a statistical average table win
percentage (calculated before discounts and commissions), as
measured as a percentage of table game drop, of generally
between 18.0% to 20.0%. Similar to Las Vegas, our Macao slot
machines produce a statistical average slot machine win
percentage, as measured as a percentage of slot machine handle,
of generally between 6.0% and 7.0%.
Actual win may vary from the statistical average. Generally,
slot machine play at The Venetian, Sands Macao and The Venetian
Macao is conducted on a cash basis. The Venetian’s table
games revenue is approximately 61.1% from credit-based wagering
for the nine months ended September 30, 2007. Table game
play at Sands Macao and The Venetian Macao are conducted
primarily on a cash basis.
Hotel revenue measurements: Hotel occupancy
rate, which is the average percentage of available hotel rooms
occupied during a period, and average daily room rate, which is
the average price of occupied rooms per day, are used as
performance indicators. Revenue per available room represents a
summary of hotel average daily room rates and occupancy. Because
not all available rooms are occupied, average daily room rates
are normally higher than revenue per available room. Reserved
rooms where the guests do not show up for their stay and lose
their deposit may be re-sold to walk-in guests. These rooms are
considered to be occupied twice for statistical purposes due to
obtaining the original deposit and the walk-in guest revenue. In
cases where a significant number of rooms are resold, occupancy
rates may be in excess of 100% and revenue per available room
may be higher than the average daily room rate.
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Three
Months Ended September 30, 2007 Compared to the Three
Months Ended September 30, 2006
Our net revenues consisted of the following:
Consolidated net revenues were $661.0 million for the three
months ended September 30, 2007, an increase of
$107.7 million compared to $553.2 million for the
three months ended September 30, 2006. The increase in net
revenues was due primarily to the opening of The Venetian Macao
on August 28, 2007, offset by a decrease in casino revenues
at Sands Macao as more fully described below.
Casino revenues for the three months ended September 30,
2007, increased $83.5 million as compared to the three
months ended September 30, 2006. Of the increase,
$131.0 million was attributable to the opening of The
Venetian Macao, offset by a decrease of $41.2 million at
the Sands Macao and a slight decrease of $6.3 million at
The Venetian. The following table summarizes the results of our
casino activity:
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In our experience, average win percentages remain steady when
measured over extended periods of time but can vary considerably
within shorter time periods as a result of the statistical
variances that are associated with games of chance in which
large amounts are wagered.
Room revenues for the three months ended September 30,
2007, increased $15.1 million as compared to the three
months ended September 30, 2006. The increase was primarily
attributable to $12.1 million from the opening of The
Venetian Macao as well as an increase in the average daily room
rate and the occupancy rate at The Venetian, offset by fewer
room nights available due to our recently completed room
renovation project. The following table summarizes the results
of our room revenue activity:
Food and beverage revenues for the three months ended
September 30, 2007, increased $7.6 million as compared
to the three months ended September 30, 2006. The increase
was primarily attributable to the opening of The Venetian Macao
which generated $3.6 million, as well as slight increases
of $1.2 million at The Venetian and $1.4 million at
Sands Macao.
Convention, retail and other revenues for the three months ended
September 30, 2007, increased $9.2 million as compared
to the three months ended September 30, 2006. The increase
is primarily attributable to $7.1 million associated with
the opening of The Venetian Macao, which consisted primarily of
rental revenues from the mall.
The breakdown of operating expenses is as follows:
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Operating expenses were $681.7 million for the three months
ended September 30, 2007, an increase of
$262.0 million as compared to $419.8 million for the
three months ended September 30, 2006. The increase in
operating expenses was primarily attributable to higher
operating revenues, the opening of The Venetian Macao and
pre-opening activities as more fully described below.
Casino department expenses for the three months ended
September 30, 2007, increased $109.0 million as
compared to the three months ended September 30, 2006. Of
the $109.0 million increase, $59.1 million was due to
the 39.0% gross win tax on casino revenues from our properties
in Macao. An additional $28.2 million in casino-related
expenses (exclusive of the aforementioned 39% gross win tax)
were attributable to The Venetian Macao. Despite the higher
gross win tax, casino operating margins at the Sands Macao are
similar to those at The Venetian primarily because of lower
labor, marketing and sales expenses in Macao. The remaining
increase was primarily attributable to expenses incurred to
maintain our customer base at the Sands Macao.
Food and beverage department expenses for the three months ended
September 30, 2007, increased $7.9 million as compared
to the three months ended September 30, 2006, of which
approximately $4.6 million was attributable to The Venetian
Macao. The remaining increase was due to the increases in food
and beverage revenues at The Venetian and the Sands Macao as
noted above.
Convention, retail and other expenses for the three months ended
September 30, 2007, increased $6.8 million as compared
to the three months ended September 30, 2006, of which
$5.2 million was attributable to The Venetian Macao.
The provision for doubtful accounts was $4.3 million for
the three months ended September 30, 2007, compared to
$3.7 million for the three months ended September 30,
2006. The amount of this provision can vary over short periods
of time because of factors specific to the customers who owe us
money from gaming activities at any given time. We believe that
the amount of our provision for doubtful accounts in the future
will depend upon the state of the economy, our credit standards,
our risk assessments and the judgment of our employees
responsible for granting credit.
General and administrative expenses for the three months ended
September 30, 2007, increased $22.2 million as
compared to the three months ended September 30, 2006. The
increase was primarily attributable to $15.7 million at The
Venetian Macao and to a lesser extent, to the growth of our
businesses in Las Vegas and Sands Macao.
Corporate expense for the three months ended September 30,
2007, increased $7.8 million as compared to the three
months ended September 30, 2006. The increase was primarily
attributable to a $4.7 million increase in legal and
professional fees, as well as an increase of $2.0 million
in other corporate general and administrative costs as we
continue to build our corporate infrastructure to support our
current and planned growth.
Rental expense for the three months ended September 30,
2007, increased $4.8 million as compared to the three
months ended September 30, 2006. The increase is primarily
attributable to the amortization of Singapore’s leasehold
interest in land entered into in August 2006 and Macao’s
leasehold interests in land entered into in February and July
2007.
Pre-opening and development expenses were $90.4 million and
$3.6 million, respectively, for the three months ended
September 30, 2007, compared to $14.6 million and
$6.0 million, respectively, for the three months ended
September 30, 2006. Pre-opening expense represents
personnel and other costs incurred prior to the opening of new
ventures that are expensed as incurred. Pre-opening expenses for
the three months ended September 30, 2007, were primarily
related to The Venetian Macao and other Cotai Strip projects,
and to the Marina Bay Sands project in Singapore. Development
expense includes the costs associated with our evaluation and
pursuit of new business opportunities, which are also expensed
as incurred. Development expenses for the three months ended
September 30, 2007 were primarily related to our activities
in Hengqin Island, Asia and the U.S. We expect that pre-opening
expenses will continue to increase in 2007 compared to 2006 with
the scheduled opening of The Palazzo and as we progress with our
Cotai Strip projects, in Singapore and Pennsylvania; however, we
expect pre-opening expenses will decrease for the three months
ended December 31, 2007, compared to the three months ended
September 30, 2007, as The Venetian Macao is now open.
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Depreciation and amortization expense for the three months ended
September 30, 2007, increased $27.6 million as
compared to the three months ended September 30, 2006. The
increase was primarily the result of placing into service a
significant portion of the assets of The Venetian Macao in
August 2007, capital improvements being placed into service
related to the room renovation project at The Venetian and a
full quarter of depreciation expense related to the Sands Macao
podium expansion, which was placed into service in August 2006.
Additionally, there was $2.5 million in accelerated
depreciation expense during the three months ended
September 30, 2007, related to assets at The Venetian being
replaced in connection with the room renovation project.
The following table summarizes information related to interest
expense on long-term debt:
Interest expense, net of amounts capitalized, was
$72.6 million for the three months ended September 30,
2007, an increase of $27.3 million as compared to
$45.3 million for the three months ended September 30,
2006. This increase is primarily attributable to an increase in
our average long-term debt balances resulting primarily from the
completion of the $2.5 billion Macao credit facility in May
2006 (increased to $3.3 billion in March 2007), the
$1.49 billion Singapore bridge facility in August 2006 and
the $5.0 billion new senior secured credit facility in May
2007. We expect interest expense will continue to increase as
our long-term debt balances increase, while capitalized interest
will decrease as our projects are completed. This increase was
offset by the capitalization of $64.2 million of interest
during the three months ended September 30, 2007, compared
to $28.4 million of capitalized interest during the three
months ended September 30, 2006. Leasehold interest in land
payments made in Macao and Singapore are not considered
qualifying assets and as such, are not included in the base
amount used to determine capitalized interest. We expect that
the capitalized interest amount will also continue to increase
in 2007 as compared to 2006 as The Palazzo project approaches
its opening date later this year and as we continue our
construction activities on the Cotai Strip, at Marina Bay Sands
and Sands Bethworks.
Interest income for the three months ended September 30,
2007, was $26.9 million, an increase of $5.9 million
as compared to $21.0 million for the three months ended
September 30, 2006. The increase was primarily attributable
to additional invested cash balances, primarily from our
borrowings under the U.S. senior secured credit facilities
and the Macao credit facility that have not yet been spent.
Other income for the three months ended September 30, 2007,
was $17.1 million as compared to other expense of
$0.7 million for the three months ended September 30,
2006. The $17.1 million income amount was primarily
attributable to foreign exchange gains associated with
U.S. denominated debt held in Macao and the weakening of
the U.S. dollar.
Our effective income tax rate for the three months ended
September 30, 2007, was 1.9%. The effective tax rate for
the 2007 period was significantly lower than the United States
federal statutory rate due primarily to a zero effective tax
rate on our Macao net income as a result of a temporary income
tax exemption in Macao on gaming operations, which is set to
expire at the end of 2008, no tax benefit recorded on certain
losses in some foreign jurisdictions and geographic income mix.
The effective income tax rate was 10.4% for the three months
ended
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September 30, 2006, primarily due to the application of the
aforementioned Macao temporary income tax exemption.
Nine
Months Ended September 30, 2007 Compared to the Nine Months
Ended September 30, 2006
Our net revenues consisted of the following:
Consolidated net revenues were $1.90 billion for the nine
months ended September 30, 2007, an increase of
$301.5 million compared to $1.60 billion for the nine
months ended September 30, 2006. The increase in net
revenues was due primarily to an increase in casino revenues.
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Casino revenues for the nine months ended September 30,
2007, increased $254.3 million as compared to the nine
months ended September 30, 2006. Of the increase,
$131.0 million was attributable to the opening of The
Venetian Macao in August 2007, $93.0 million was
attributable to the growth of our casino operations at the Sands
Macao due primarily to the Rolling Chip program, which generated
an increase in Rolling Chip volume of $8.94 billion, and a
$30.3 million increase attributable to increases in table
games drop and slot handle at The Venetian as compared to the
nine months ended September 30, 2006. The following table
summarizes the results of our casino activity:
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