10-Q 1 p13331e10vq.htm 10-Q e10vq
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UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended September 30, 2008
     
o
  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 001-32373
 
LAS VEGAS SANDS CORP.
(Exact name of registrant as specified in its charter)
 
     
Nevada
(State or other jurisdiction of
incorporation or organization)
  27-0099920
(I.R.S. Employer
Identification No.)
     
3355 Las Vegas Boulevard South
Las Vegas, Nevada
(Address of principal executive offices)
  89109
(Zip Code)
 
(702) 414-1000
(Registrant’s telephone number, including area code)
 
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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
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, 2008.
 
LAS VEGAS SANDS CORP.
 
     
Class
 
Outstanding at October 31, 2008
 
Common Stock ($0.001 par value)
  355,476,161 shares
 


 

LAS VEGAS SANDS CORP.
 
Table of Contents
 
                 
PART I
FINANCIAL INFORMATION
      Financial Statements (unaudited)        
        Condensed Consolidated Balance Sheets at September 30, 2008 and December 31, 2007     3  
        Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007     4  
        Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007     5  
        Notes to Condensed Consolidated Financial Statements     6  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     37  
      Quantitative and Qualitative Disclosures about Market Risk     60  
      Controls and Procedures     62  
      Legal Proceedings     62  
      Risk Factors     62  
      Submission of Matters to a Vote of Security Holders     67  
      Other Information     67  
      Exhibits     68  
    69  
 EX-4.1
 EX-4.2
 EX-10.1
 EX-10.2
 EX-10.3
 EX-10.4
 EX-10.5
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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ITEM 1 — FINANCIAL STATEMENTS
 
LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
 
                 
    September 30,
    December 31,
 
    2008     2007  
    (Unaudited)
 
    (In thousands, except share data)  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 1,275,975     $ 857,150  
Restricted cash
    239,144       232,944  
Accounts receivable, net
    333,176       187,195  
Inventories
    27,284       19,902  
Deferred income taxes
    83,871       32,471  
Prepaid expenses and other
    37,525       49,424  
                 
Total current assets
    1,996,975       1,379,086  
Property and equipment, net
    11,275,621       8,574,614  
Deferred financing costs, net
    172,186       107,338  
Restricted cash
          178,824  
Deferred income taxes
    1,821        
Leasehold interests in land, net
    1,077,487       1,069,609  
Other assets, net
    235,322       157,046  
                 
Total assets
  $ 14,759,412     $ 11,466,517  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Accounts payable
  $ 96,345     $ 99,023  
Construction payables
    833,842       717,541  
Accrued interest payable
    13,305       11,465  
Other accrued liabilities
    679,176       610,911  
Current maturities of long-term debt
    99,314       54,333  
                 
Total current liabilities
    1,721,982       1,493,273  
Other long-term liabilities
    47,073       28,674  
Deferred income taxes
    7,145       1,553  
Deferred proceeds from sale of The Shoppes at The Palazzo
    243,928        
Deferred gain on sale of The Grand Canal Shoppes
    58,602       61,200  
Deferred rent from mall transactions
    151,195       103,546  
Long-term debt
    10,251,106       7,517,997  
                 
Total liabilities
    12,481,031       9,206,243  
                 
Commitments and contingencies (Note 10)
               
Stockholders’ equity:
               
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 355,465,886 and 355,271,070 shares issued and outstanding
    355       355  
Capital in excess of par value
    1,116,755       1,064,878  
Accumulated other comprehensive income (loss)
    15,975       (2,493 )
Retained earnings
    1,145,296       1,197,534  
                 
Total stockholders’ equity
    2,278,381       2,260,274  
                 
Total liabilities and stockholders’ equity
  $ 14,759,412     $ 11,466,517  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (In thousands, except share and per share data)  
    (Unaudited)  
 
Revenues:
                               
Casino
  $ 805,258     $ 508,522     $ 2,404,973     $ 1,433,135  
Rooms
    188,794       96,718       575,172       289,588  
Food and beverage
    91,025       50,032       272,315       162,129  
Convention, retail and other
    123,233       39,058       290,791       113,397  
                                 
      1,208,310       694,330       3,543,251       1,998,249  
Less-promotional allowances
    (102,876 )     (33,380 )     (246,680 )     (96,155 )
                                 
Net revenues
    1,105,434       660,950       3,296,571       1,902,094  
                                 
Operating expenses:
                               
Casino
    580,755       341,975       1,639,849       904,440  
Rooms
    36,436       23,574       116,663       67,219  
Food and beverage
    46,035       28,485       136,578       79,011  
Convention, retail and other
    69,013       22,939       164,622       59,511  
Provision for doubtful accounts
    8,859       4,283       22,960       24,516  
General and administrative
    130,192       80,244       421,051       198,915  
Corporate expense
    23,390       23,444       82,529       66,657  
Rental expense
    8,437       8,136       25,573       23,141  
Pre-opening expense
    40,777       90,447       105,470       153,224  
Development expense
    1,153       3,621       11,504       7,227  
Depreciation and amortization
    132,239       54,309       364,753       121,262  
(Gain) loss on disposal of assets
    (47 )     287       6,977       526  
                                 
      1,077,239       681,744       3,098,529       1,705,649  
                                 
Operating income (loss)
    28,195       (20,794 )     198,042       196,445  
Other income (expense):
                               
Interest income
    3,215       26,890       11,813       60,906  
Interest expense, net of amounts capitalized
    (90,535 )     (72,607 )     (293,709 )     (161,628 )
Other income
    7,209       17,052       11,624       7,715  
Loss on early retirement of debt
                (4,022 )     (10,705 )
                                 
Income (loss) before income taxes and noncontrolling interest
    (51,916 )     (49,459 )     (76,252 )     92,733  
Benefit (provision) for income taxes
    19,425       952       19,533       (15,928 )
Noncontrolling interest
    283             4,481        
                                 
Net income (loss)
  $ (32,208 )   $ (48,507 )   $ (52,238 )   $ 76,805  
                                 
Basic earnings (loss) per share
  $ (0.09 )   $ (0.14 )   $ (0.15 )   $ 0.22  
                                 
Diluted earnings (loss) per share
  $ (0.09 )   $ (0.14 )   $ (0.15 )   $ 0.22  
                                 
Weighted average shares outstanding:
                               
Basic
    355,393,259       354,856,121       355,344,306       354,716,730  
                                 
Diluted
    355,393,259       354,856,121       355,344,306       357,094,808  
                                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
 
                 
    Nine Months Ended
 
    September 30,  
    2008     2007  
    (In thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
               
Net income (loss)
  $ (52,238 )   $ 76,805  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
    364,753       121,262  
Amortization of leasehold interests in land included in rental expense
    19,982       16,117  
Amortization of deferred financing costs and original issue discount
    24,236       18,913  
Amortization of deferred gain and rent
    (3,792 )     (3,519 )
Deferred rent from mall transactions (Note 7)
    48,843        
Loss on early retirement of debt
    4,022       10,705  
Loss on disposal of assets
    6,977       526  
Stock-based compensation expense
    39,219       22,814  
Provision for doubtful accounts
    22,960       24,516  
Foreign exchange gain
    (20,432 )     (9,960 )
Excess tax benefits from stock-based compensation
    (1,626 )     (5,865 )
Deferred income taxes
    (47,629 )     (14,761 )
Changes in operating assets and liabilities:
               
Accounts receivable
    (168,161 )     (3,140 )
Inventories
    (7,339 )     (3,623 )
Prepaid expenses and other
    (63,783 )     (97,908 )
Leasehold interests in land
    (19,060 )     (208,604 )
Accounts payable
    (2,883 )     17,080  
Accrued interest payable
    1,802       198  
Other accrued liabilities
    71,292       271,979  
Income taxes payable
          (14,292 )
                 
Net cash provided by operating activities
    217,143       219,243  
                 
Cash flows from investing activities:
               
Changes in restricted cash
    174,297       694,682  
Capital expenditures
    (2,908,396 )     (2,722,067 )
Acquisition of gaming license included in other assets
          (50,000 )
                 
Net cash used in investing activities
    (2,734,099 )     (2,077,385 )
                 
Cash flows from financing activities:
               
Proceeds from exercise of stock options
    6,833       23,862  
Excess tax benefits from stock-based compensation
    1,626       5,865  
Proceeds from convertible senior notes from related party
    475,000        
Proceeds from long-term debt (Note 4)
    4,002,320       4,875,501  
Repayments on long-term debt (Note 4)
    (1,713,098 )     (1,766,189 )
Proceeds from the sale of The Shoppes at The Palazzo (Note 7)
    243,928        
Payments of deferred financing costs
    (92,547 )     (72,178 )
                 
Net cash provided by financing activities
    2,924,062       3,066,861  
                 
Effect of exchange rate on cash
    11,719       2,862  
                 
Increase in cash and cash equivalents
    418,825       1,211,581  
Cash and cash equivalents at beginning of period
    857,150       468,066  
                 
Cash and cash equivalents at end of period
  $ 1,275,975     $ 1,679,647  
                 
Supplemental disclosure of cash flow information:
               
Cash payments for interest
  $ 368,214     $ 311,516  
                 
Cash payments for taxes
  $ 290     $ 60,000  
                 
Non-cash investing and financing activities:
               
Changes in construction payables
  $ 116,301     $ 392,963  
                 
Changes in other accrued liabilities related to property and equipment asset acquisitions
  $ 13,000     $ 62,313  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
(UNAUDITED)
 
NOTE 1 — ORGANIZATION AND BUSINESS OF COMPANY
 
The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Current Report on Form 8-K of Las Vegas Sands Corp., a Nevada corporation (“LVSC”), and its subsidiaries (collectively the “Company”) filed on November 6, 2008. 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 (“NYSE”) under the symbol “LVS.”
 
Operations
 
The Company owns and operates The Venetian Resort Hotel Casino (“The Venetian Las Vegas”), a Renaissance Venice-themed resort; The Palazzo Resort Hotel Casino (“The Palazzo”), a resort featuring modern European ambience and design reminiscent of Italian affluent living; and an expo and convention center of approximately 1.2 million square feet (the “Sands Expo Center”). With the opening of The Palazzo in December 2007, these Las Vegas properties, situated on or near the Las Vegas Strip, form an integrated resort with approximately 7,100 suites; approximately 225,000 square feet of gaming space; a meeting and conference facility of approximately 1.1 million square feet; an enclosed retail, dining and entertainment complex located within The Venetian Las Vegas of approximately 440,000 net leasable square feet (“The Grand Canal Shoppes”), which was sold to General Growth Partners (“GGP”) in 2004; and an enclosed retail and dining complex located within The Palazzo of approximately 400,000 net leasable square feet (“The Shoppes at The Palazzo”), which was sold to GGP on February 29, 2008.
 
The Company also owns and operates the Sands Macao, the first Las Vegas-style casino in Macao, China, pursuant to a 20-year gaming subconcession. The Sands Macao offers over 229,000 square feet of gaming space and a 289-suite hotel tower, as well as several restaurants, VIP facilities, a theater, and other high-end services and amenities.
 
On August 28, 2007, the Company opened The Venetian Macao Resort Hotel (“The Venetian Macao”), which anchors the Cotai Striptm, a master-planned development of resort properties in Macao, China. With a theme similar to that of The Venetian Las Vegas, The Venetian Macao includes a 39-floor luxury hotel with over 2,900 suites; a casino floor of approximately 550,000 square feet; an approximately 15,000-seat arena; retail and dining space of approximately 1.0 million square feet; and a convention center and meeting room complex of approximately 1.2 million square feet.
 
On August 28, 2008, the Company opened the Four Seasons Hotel Macao (the “Four Seasons Macao”), which is located adjacent to The Venetian Macao. The Four Seasons Macao features 360 rooms and suites managed by Four Seasons Hotel Inc.; approximately 70,000 square feet of gaming space; several food and beverage offerings; conference and banquet facilities; and retail space of approximately 211,000 square feet, which is connected to the mall at The Venetian Macao. The property will also feature 19 Paiza mansions and the Four Seasons Private Apartments Macao, Cotai Striptm (the “Four Seasons Private Apartments”) consisting of approximately 1.0 million square feet of Four Seasons-serviced and -branded luxury apartment hotel units, which are currently expected to open in the third quarter 2009.
 
Development Projects
 
Given current conditions in the capital markets and the global economy and their impact on the Company’s ongoing operations, the Company has chosen to temporarily or indefinitely suspend portions of its development projects and will focus its development efforts on those projects with the highest rates of expected return on invested capital given the liquidity and capital resources available to the Company today. The continuing development plan, as outlined in further detail below, is dependent on the Company raising additional capital. If the Company is unable


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
to raise additional capital in the near term, the Company would need to consider further suspending portions, if not all, of its remaining global development projects.
 
United States Development Projects
 
St. Regis Residences
 
The Company has been constructing a St. Regis-branded high-rise residential condominium tower, the St. Regis Residences at The Venetian Palazzo (the “St. Regis Residences”), which is situated between The Palazzo and The Venetian Las Vegas on the Las Vegas Strip and is expected to feature approximately 400 luxury residences. On November 10, 2008, the Company announced the indefinite suspension of its construction activities for the project due to difficulties in the capital markets, reduced demand for Las Vegas Strip condominiums and the overall decline in general economic conditions. The Company will consider recommencing construction when these conditions improve and expects that it will take approximately 18 months from when construction recommences to complete the project. The cost to build the St. Regis Residences was expected to be approximately $600 million; however, the impact of the suspension on the estimated overall cost to build is currently not determinable. As of September 30, 2008, the Company has spent $86.0 million in construction costs and branding-related payments. The estimated cost to prepare the site for delay and to complete construction of the podium portion (which is part of The Shoppes at The Palazzo and includes already leased retail and entertainment space), which activities are expected to be completed during the first quarter of 2009, is approximately $95 million.
 
Sands Bethlehem
 
In August 2007, the Company’s indirect majority-owned subsidiary, Sands Bethworks Gaming LLC (“Sands Bethworks Gaming”), was issued a Pennsylvania gaming license by the Pennsylvania Gaming Control Board. The Company is in the process of developing a gaming, hotel, retail and dining complex called Sands Casino Resort Bethlehem (“Sands Bethlehem”), located on the site of the Historic Bethlehem Steel Works in Bethlehem, Pennsylvania, which is approximately 70 miles from midtown Manhattan, New York. Bethworks Now, LLC, the Company’s joint venture partner, contributed the land on which Sands Bethlehem is being developed to Sands Bethworks Gaming and Sands Bethworks Retail, LLC, the owner of the retail portion of Sands Bethlehem, in September 2008.
 
On November 10, 2008, the Company announced suspension of construction of a portion of Sands Bethlehem due to difficulties in the capital markets and the overall decline in general economic conditions. The Company will continue construction of the casino component of the 124-acre development, which will open with 3,000 slot machines (increasing to 5,000 six months after the opening date) and a variety of dining options, as well as the parking garage and surface parking. Construction activities on the remaining components, which include a 300-room hotel, an approximate 200,000-square-foot retail facility, a 50,000-square-foot multipurpose event center and a variety of additional dining options, have been suspended until capital markets and general economic conditions improve. The cost to build Sands Bethlehem was expected to be approximately $600 million (excluding furniture, fixtures and equipment (“FF&E”), pre-opening and other costs), of which $236.9 million had been spent as of September 30, 2008. The Company has spent an additional $79.5 million on other costs related to the project, which includes the gaming license and pre-opening and other costs, as of September 30, 2008. The Company expects to incur an additional $282 million to complete the construction of the casino and parking components, and to prepare the additional components for delay, which are expected to be completed during the second quarter of 2009. The Company also expects to incur $145 million of additional costs to open the casino component, including FF&E, pre-opening and other costs. The estimated cost to build the remaining components of the project is currently not determinable.
 
Macao Development Projects
 
The Company has submitted plans to the Macao government for its Cotai Strip developments, which represent five integrated resort developments, in addition to The Venetian Macao and the Four Seasons Macao on an area of approximately 200 acres (which are referred to as parcels 3, 5, 6, 7 and 8). The developments are expected to include hotels, exhibition and conference facilities, casinos, showrooms, shopping malls, spas, restaurants, entertainment


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
facilities and other amenities. The Company has commenced construction or pre-construction for these five parcels and plans to own and operate all of the casinos in these developments under its Macao gaming subconcession.
 
On November 10, 2008, the Company announced its revised development plans for these parcels due to difficulties in the capital markets and the overall decline in general economic conditions. The Company plans to temporarily suspend construction of phase I of parcels 5 and 6, which includes the Shangri-La and Traders tower and the first Sheraton tower, along with the podium that encompasses the casino, associated public areas, portions of the shopping mall and approximately 100,000 square feet of meeting space, while the Company pursues project-level financing. The Company is targeting to complete the financing within the next three to six months; however, there can be no assurance that such financing will be obtained. Once financing has been obtained, the Company expects it will take approximately nine months to complete construction of phase I. Construction of phase II of the project, which includes the second Sheraton tower and the St. Regis serviced luxury apartment hotel, has been suspended until conditions in the capital markets and general economic conditions improve. Starwood Hotels & Resorts Worldwide, the manager of the Sheraton hotels and St. Regis serviced luxury apartment hotel, has the right to terminate its management agreements if certain construction and opening obligations and deadlines are not met, and under the Company’s revised development plan, there is a significant risk that it will not meet at least some of these obligations and deadlines. The impact of the revised development plan on the estimated overall cost of the project is currently not determinable. The estimated total cost to build phase I and prepare the phase II components for delay is expected to be approximately $3.05 billion (excluding FF&E, pre-opening and other costs), of which $1.16 billion had been spent as of September 30, 2008. If the proposed project-level financing is unsuccessful, the Company expects to incur approximately $900 million in costs to prepare the project for delay. The Company has commenced pre-construction on parcels 7, 8 and 3, and will not commence construction until government approvals necessary to commence construction are obtained, regional and global economic conditions improve, future demand warrants and additional financing is obtained.
 
The impact of the delays or significant slow down of construction of the Cotai Strip developments on the Company’s overall estimated cost to build is currently not determinable. As of September 30, 2008, the Company has capitalized $4.33 billion in construction costs on the Cotai Strip, including The Venetian Macao and Four Seasons Macao. The Company will need to arrange additional financing to fund the balance of the Company’s Cotai Strip developments and there is no assurance that it will be able to obtain any of the additional financing required.
 
The Company has received a land concession from the Macao government to build on parcels 1, 2 and 3, including the sites on which The Venetian Macao (parcel 1) and Four Seasons Macao (parcel 2) are located. The Company does not own these land sites in Macao; however, the land concession, which has an initial term of 25 years and is renewable at the Company’s option, grants it the exclusive use of the land. As specified in the land concession, the Company is required to pay premiums, which are payable over four years or are due upon the completion of the corresponding resort, as well as annual rent for the term of the land concession. In October 2008, the Macao government amended the land concession to separate the retail mall and hotel portions of the Four Seasons Macao parcel, and allowed the Company to subdivide such parcel into four separate components, including the Four Seasons Private Apartments and retail mall portions. In consideration for the amendment, the Company paid an additional land premium of approximately $17.8 million and will pay adjusted annual rent over the remaining term of the concession, which increased slightly due to the revised allocation of parcel use.
 
The Company does not yet have all the necessary Macao government approvals that it will need in order to develop its planned Cotai Strip developments on parcels 3, 5, 6, 7 and 8. The Company has received a land concession for parcel 3, as previously noted, but has not yet been granted land concessions for parcels 5, 6, 7 and 8. The Company is in the process of negotiating with the Macao government to obtain the land concession for parcels 5 and 6, and will subsequently negotiate the land concession for parcels 7 and 8. Based on historical experience with the Macao government with respect to the Company’s land concessions for the Sands Macao and parcels 1, 2 and 3, management believes that the land concessions for parcels 5, 6, 7 and 8 will be granted; however, if the Company does not obtain these land concessions, it could forfeit all or a substantial part of its $1.45 billion in capitalized construction costs related to these developments as of September 30, 2008.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Under its land concession for parcel 3, the Company is required to complete the development of this parcel by August 2011. If the Company is unable to meet the August 2011 deadline and that deadline is not extended, the Company could lose its right to continue to operate The Venetian Macao, Sands Macao, Four Seasons Macao or any other facility developed under its Macao gaming subconcession, and its investment to date on these developments could be lost. The Company believes that if it is not able to complete the development of parcel 3 by the deadline, it will be able to obtain an extension of the deadline; however, no assurances can be given that an extension will be granted by the Macao government.
 
Singapore Development Project
 
In August 2006, the Company’s wholly-owned subsidiary, Marina Bay Sands Pte. Ltd. (“MBS”), 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. The Marina Bay Sands 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 1.3 million square feet, theaters and a landmark iconic structure at the bay-front promenade that will contain an art/science museum. The Company is continuing to finalize various design aspects of the integrated resort and is in the process of finalizing its cost estimates for the project. The Company expects the cost to build the Marina Bay Sands will be approximately 7.15 billion Singapore Dollars (“SGD,” approximately $4.99 billion at exchange rates in effect on September 30, 2008), which excludes FF&E, pre-opening and other costs but includes payments made in 2006 for land premium, taxes and other fees. As the Company has obtained Singapore-denominated financing and primarily pays its costs in Singapore Dollars, exposure to foreign exchange gains/losses is expected to be minimal. The Company has spent approximately SGD 2.59 billion (approximately $1.81 billion at exchange rates in effect on September 30, 2008) in construction costs as of September 30, 2008. Based on the Company’s current development plan, it intends to continue construction on its existing timeline with the majority of the project targeted to open in late 2009.
 
Hengqin Island Development Project
 
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 together 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. On November 10, 2008, the Company announced the indefinite suspension of the project because of the difficult global economic and credit market environment.
 
Other Development Projects
 
The Company is currently exploring the possibility of developing and operating additional properties, including integrated resorts, in other Asian and U.S. jurisdictions, and in Europe. In July 2008, the Company withdrew a previously submitted application to develop a casino resort in the Kansas City, Kansas, metropolitan area.
 
Development Financing Strategy
 
The Company held unrestricted and restricted cash and cash equivalents of approximately $1.28 billion and $239.1 million, respectively, as of September 30, 2008. As previously described, the Company has a number of significant development projects in the United States, Macao and Singapore, some of which it plans to temporarily or indefinitely suspend due to current conditions in the global capital markets and overall decline in general economic conditions, which have had an impact on the Company’s ongoing operations. Through September 30, 2008, the Company has principally funded its development projects through borrowings under the bank credit facilities of its operating subsidiaries, operating cash flows and proceeds from the disposition of non-core assets. In 2007, the Company began to execute its financing strategy to secure additional borrowing capacity to fund its existing and future development projects and operations in Asia, including Macao and Singapore, and the United


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
States. In the near term, the Company will seek to borrow significant amounts under its existing and potential future bank credit facilities, if available, or raise equity capital as the Company funds components of its revised development strategy and, as further described below, will require additional capital to fund the completion of its projects. If the Company is unable to raise additional capital in the near term, the Company would need to consider further suspending portions, if not all, of its remaining global development projects.
 
In April 2007, the Company increased the size of its Macao credit facility from $2.5 billion to $3.3 billion to continue funding the development of The Venetian Macao and the Four Seasons Macao as well as portions of its other Macao development projects. As of September 30, 2008, the Company has fully drawn the revolving facility of the Macao credit facility and had construction payables of approximately $385.5 million related to its Macao development projects. The Company expects to incur additional construction costs of $337 million to complete the Four Seasons Private Apartments and the remaining portions of the Four Seasons Macao by the third quarter of 2009. In addition, the Company expects to incur additional costs, including FF&E, pre-opening, land premium and other costs, of approximately $126 million (some of which relates to FF&E costs that will be recouped in connection with the sale of the Four Seasons Private Apartments). In the near term, cash balances at the Company’s Macao subsidiaries, operating cash flows from Sands Macao, The Venetian Macao and Four Seasons Macao, and cash from LVSC, if available, together with proceeds from borrowings under the U.S. senior secured credit facility, if available, will be used to fund these amounts. The Company was in the process of arranging up to $5.25 billion of secured bank financing, the proceeds of which would have been used to refinance the amount currently outstanding under the Macao credit facility and to provide incremental borrowings to fund the Four Seasons Private Apartments, the completion of the Four Seasons Macao and the development of parcels 5 and 6, and to continue funding its other Cotai Strip development projects; however, given the conditions in the global credit markets, the Company was unable to reach arrangements with its prospective lenders. As a result, the Company plans to temporarily suspend construction on parcels 5 and 6, until project-level financing is obtained, which it is currently pursuing and targets to complete in the next three to six months; however, there can be no assurance that such financing will be obtained. Additional financing will be required to complete the development and construction of parcels 7, 8 and 3, once those construction activities commence.
 
In May 2007, the Company entered into a $5.0 billion U.S. senior secured credit facility with respect to its Las Vegas operations. A portion of the proceeds from this facility was used to refinance the indebtedness collateralized by the Company’s Las Vegas integrated resort, including The Venetian Las Vegas, The Palazzo, The Shoppes at The Palazzo and Sands Expo Center, and to fund the design, development and construction costs incurred in connection with the completion of The Palazzo, The Shoppes at The Palazzo, St. Regis Residences and Sands Bethlehem. As of September 30, 2008, the Company had approximately $601.1 million of available borrowing capacity, net of outstanding letters of credit but including approximately $7.7 million committed to be funded by Lehman Brothers Commercial Paper Inc. The U.S. senior secured credit facility permits the Company to make investments in certain of its subsidiaries and certain joint ventures not party to the U.S. senior secured credit facility, including its foreign subsidiaries and other development projects outside of Las Vegas, in an amount not to exceed $2.1 billion, and also permits the Company to invest in its Sands Bethlehem project so long as no more than 30% of any such investment is in the form of an equity contribution to the project, with the balance to be in the form of a secured intercompany loan. As of September 30, 2008, the Company has invested approximately $1.7 billion of the permitted $2.1 billion to fund a portion of its required equity contribution to the Marina Bay Sands project and investments with respect to its other development projects, including in Macao. As announced on November 10, 2008, with the delayed development of the St. Regis Residences and the Company’s focus on the construction of the casino and parking components of Sands Bethlehem, the Company expects to incur additional construction costs of approximately $95 million and $282 million, respectively. The Company also expects to incur $145 million of additional costs to open the casino component of Sands Bethlehem, including FF&E, pre-opening and other costs. The Company will continue to use excess operating cash flows, proceeds from the sale of non-core assets, such as The Shoppes at The Palazzo, cash contributed by LVSC, if available, and proceeds from borrowings under the U.S. senior secured credit facility, if available, to fund its revised development strategy, as well as construction costs incurred in Macao and its required equity contributions to the Marina Bay Sands.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In December 2007, the Company entered into a SGD 5.44 billion credit facility (approximately $3.80 billion at exchange rates in effect on September 30, 2008) to fund development and construction costs and expenses at the Marina Bay Sands, which closed and funded in January 2008. A portion of the proceeds from this facility, together with a portion of the Company’s initial SGD 800.0 million (approximately $558.4 million at exchange rates in effect on September 30, 2008) equity contribution, were used to repay outstanding borrowings of $1.32 billion under the Company’s Singapore bridge facility. As of September 30, 2008, the Company had SGD 2.86 billion (approximately $2.0 billion at exchange rates in effect on September 30, 2008) available for borrowing under the Singapore credit facility, net of outstanding banker’s guarantees and undrawn amounts committed to be funded by Lehman Brothers Finance Asia Pte. Ltd., which will be used to fund a significant portion of the design, development and construction costs of the Marina Bay Sands project. Subsequent to September 30, 2008, the Company has drawn an additional SGD 161.5 million (approximately $112.7 million at exchange rates in effect on September 30, 2008) under the Singapore credit facility and has contributed additional equity of SGD 100.0 million (approximately $69.8 million at exchange rates in effect on September 30, 2008). Under the terms of the Singapore credit facility, the Company is obligated to fund at least 20% of the total costs and expenses incurred in connection with the design, development and construction of the Marina Bay Sands project with equity contributions or subordinated intercompany loans, with the remaining 80% funded with debt, including debt under the Singapore credit facility. Through September 30, 2008, the Company has funded its equity contribution requirement through borrowings under the U.S. senior secured credit facility and operating cash flows generated from the Company’s Las Vegas operations. Based on current development plans, the Company intends to continue construction on Marina Bay Sands on its existing timeline. Additional financings are planned to complete the development and construction of the Marina Bay Sands; however, there can be no assurance that such financing will be obtained when planned.
 
Commencing September 30, 2008, the U.S. senior secured credit facility and FF&E financings require the Company’s Las Vegas operations to comply with certain financial covenants at the end of each quarter, including to maintain a maximum leverage ratio of net debt, as defined, to trailing twelve-month adjusted earnings before interest, income taxes, depreciation and amortization, as defined (“Adjusted EBITDA”). In order to comply with the maximum leverage ratio covenant as of December 31, 2008, and subsequent quarterly periods, the Company will need to (i) achieve increased levels of Adjusted EBITDA at its Las Vegas properties; (ii) decrease the rate of spending on its global development projects; (iii) obtain additional financing at the parent company level, the proceeds from which could be used to reduce the Company’s Las Vegas operations’ net debt; (iv) elect to contribute up to $50.0 million of capital from cash on hand to the Las Vegas operations (such contribution having the effect of increasing Adjusted EBITDA by up to $50.0 million per quarter for purposes of calculating maximum leverage (the “EBITDA true-up”)); or in some cases (v) a combination thereof.
 
As the Company’s Las Vegas properties did not achieve the levels of Adjusted EBITDA necessary to maintain compliance with the maximum leverage ratio for the quarterly period ending September 30, 2008, the Company completed a private placement of $475.0 million in convertible senior notes with the Company’s principal stockholder and his family and used a portion of the proceeds to exercise the EBITDA true-up provision. The EBITDA true-up, by itself, would not have been sufficient to maintain compliance with the maximum leverage ratio as of September 30, 2008. Accordingly, the entire proceeds from the offering were immediately contributed to Las Vegas Sands, LLC (“LVSLLC”) to reduce the net debt of the parties to the domestic credit facilities in order to maintain compliance with the maximum leverage ratio for the quarterly period ending September 30, 2008.
 
Based upon current Las Vegas operating estimates for the quarter ending December 31, 2008 and quarterly periods during 2009, as well as the fact that the Company has continued to fund its development projects outside of Las Vegas, in whole or in part, with borrowings under the U.S. senior secured credit facility, the Company expects the amount of its material domestic subsidiaries’ indebtedness will be beyond the level allowed under the maximum leverage ratio. If the Company’s Las Vegas Adjusted EBITDA levels do not increase sufficiently, reduced spending on the Company’s revised global development projects, as described above, is not sufficient, and the EBITDA true-up is not sufficient or available to enable the Company to maintain compliance under the maximum leverage ratio, the Company will need to obtain significant additional capital at the parent level. As previously announced, the Company has been working with its financial advisor to develop and implement a capital raising program that the Company believes would be sufficient to address the Company’s current and anticipated funding needs;


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
however, no assurance can be given that the program will be successful. If none of the foregoing occurs, the Company would need to obtain waivers or amendments under its domestic credit facilities, and no assurances can be given that the Company will be able to obtain these waivers or amendments. If the Company is unable to obtain waivers or amendments if and when necessary, the Company would be in default under its domestic credit facilities, which would trigger cross-defaults under its airplane financings and convertible senior notes. If such defaults or cross-defaults were to occur and the respective lenders chose to accelerate the indebtedness outstanding under these agreements, it would result in a default under the Company’s senior notes. Any defaults or cross-defaults under these agreements would allow the lenders, in each case, to exercise their rights and remedies as defined under their respective agreements. If the lenders were to exercise their right to accelerate the indebtedness outstanding, there can be no assurance that the Company would be able to refinance any amounts that may become accelerated under such agreements. Under the terms of the U.S. senior secured credit facility, if a default or a material adverse change, as defined in the agreement, were to occur or exist at the time of borrowing, it would preclude the Company’s domestic subsidiaries from accessing any available borrowings (including the $400.0 million under the Delayed Draw II Facility, which expires November 23, 2008, and $201.1 million under the Revolving Facility). If the Company is not able to access these borrowings and raise sufficient additional capital, (i) the Company will not be able to fund its ongoing equity contributions under its Singapore credit facility, and as a result, will not be able to borrow any additional amounts under that facility which may limit its ability to complete construction of the project, (ii) as the Company has fully drawn the revolving portion of its Macao credit facility, the Company will not be able to pay the remaining construction costs of the Four Seasons Macao and Four Seasons Private Apartments if free cash flow from the Sands Macao, The Venetian Macao and Four Season Macao is not sufficient to pay those costs, (iii) the Company may be unable to comply with the maximum leverage ratio covenant under its Macao credit facility at the end of the first quarter of 2009, which would result in a default under the agreement and would allow the lenders to exercise their rights and remedies under the agreement including acceleration of the indebtedness outstanding, (iv) the Company may not be able to continue providing working capital to its ferry operations, and (v) the Company would need to immediately suspend portions, if not all, of its remaining global development projects. These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Recent Accounting Pronouncements
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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. In January 2008, the FASB deferred the effective date for one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company has adopted the provisions of this standard and such application did not have a material effect on its financial condition, results of operations or cash flows. See “— Note 9 — Fair Value Measurements” for disclosures required by this standard.
 
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


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
effective for financial statements beginning after November 15, 2007. The Company has adopted the provisions of this standard and did not elect the fair value option for eligible items that existed at January 1, 2008.
 
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which requires an acquirer to recognize the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of an entity’s fiscal year that begins after December 15, 2008. The Company is in the process of evaluating the impact of this standard; however, the Company does not expect the adoption of SFAS No. 141R will have a material effect on its financial condition, results of operations or cash flows.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51,” which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and also requires expanded disclosures regarding the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is in the process of evaluating the impact of this standard; however, the Company does not expect the adoption of SFAS No. 160 will have a material effect on its financial condition, results of operations or cash flows.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. The objective of the guidance is to provide users of financial statements with: an enhanced understanding of how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 also requires several added quantitative disclosures in financial statements. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company is in the process of evaluating the impact of this standard; however, the Company does not expect the adoption of SFAS No. 161 will have a material effect on its disclosures.
 
In April 2008, FASB issued Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets,” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R. FSP No. 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is in the process of evaluating the impact of this standard; however, the Company does not expect the adoption of FSP No. 142-3 will have a material effect on its financial condition, results of operations or cash flows.
 
In May 2008, FASB issued FSP Accounting Principles Board (“APB”) No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement),” which applies to convertible debt instruments, that by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement of the conversion option. FSP APB No. 14-1 requires bifurcation of the instrument into a debt component that is initially recorded at fair value and an equity component. The difference between the fair value of the debt component and the initial proceeds from issuance of the instrument is recorded as a component of equity. The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of interest expense. The equity component is not subsequently re-valued as long as it continues to qualify for equity treatment. FSP APB No. 14-1 must be applied retrospectively to


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
previously issued cash-settleable convertible instruments as well as prospectively to newly issued instruments. FSP APB No. 14-1 is effective for fiscal years beginning after December 31, 2008, and interim periods within those fiscal years. The Company is in the process of evaluating the impact of this standard.
 
Other First Quarter Charges
 
During the three months ended March 31, 2008, the Company recorded a net charge of $3.3 million to properly account for $3.9 million of convention, retail and other, pre-opening and general and administrative expenses that had not been accrued, offset by $0.6 million of convention, retail and other revenues that had not been recorded as of December 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 ending December 31, 2008, the Company recorded the cumulative effect of correcting these items during the three months ended March 31, 2008.
 
NOTE 2 — STOCKHOLDERS’ EQUITY AND EARNINGS (LOSS) PER SHARE
 
Changes in stockholders’ equity for the nine months ended September 30, 2008, were as follows (in thousands):
 
         
Balance at December 31, 2007
  $ 2,260,274  
Net loss
    (52,238 )
Stock-based compensation
    43,413  
Proceeds from exercise of stock options
    6,833  
Tax benefit from stock-based compensation
    1,631  
Change in accumulated other comprehensive income
    18,468  
         
Balance at September 30, 2008
  $ 2,278,381  
         
 
At September 30, 2008 and December 31, 2007, the accumulated other comprehensive income (loss) balance consisted solely of foreign currency translation adjustments. For the three and nine months ended September 30, 2008, comprehensive loss amounted to $44.7 million and $33.8 million, respectively. For the three and nine months ended September 30, 2007, comprehensive income (loss) amounted to $(43.7) million and $76.9 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:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Weighted-average common shares outstanding (used in the calculation of basic earnings (loss) per share)
    355,393,259       354,856,121       355,344,306       354,716,730  
Potential dilution from stock options and restricted stock
                      2,378,078  
                                 
Weighted-average common and common equivalent shares (used in the calculations of diluted earnings (loss) per share)
    355,393,259       354,856,121       355,344,306       357,094,808  
                                 
Antidilutive stock options and restricted stock excluded from calculation of diluted earnings (loss) per share
    10,580,996       6,974,935       10,580,996       965,900  
                                 


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 3 — PROPERTY AND EQUIPMENT
 
Property and equipment consists of the following (in thousands):
 
                 
    September 30,
    December 31,
 
    2008     2007  
 
Land and improvements
  $ 339,098     $ 297,678  
Building and improvements
    6,375,097       4,435,934  
Furniture, fixtures, equipment and leasehold improvements
    1,415,860       1,013,138  
Transportation
    316,235       176,897  
Construction in progress
    3,786,115       3,258,750  
                 
      12,232,405       9,182,397  
Less — accumulated depreciation and amortization
    (956,784 )     (607,783 )
                 
    $ 11,275,621     $ 8,574,614  
                 
 
Construction in progress consists of the following (in thousands):
 
                 
    September 30,
    December 31,
 
    2008     2007  
 
The Venetian Macao
  $ 27,782     $ 110,759  
Four Seasons Macao
    211,805       359,889  
Other Macao Development Projects (principally Cotai Strip parcels 5 and 6)
    1,657,261       714,701  
Marina Bay Sands
    1,189,218       552,850  
The Palazzo and The Shoppes at The Palazzo
    214,625       1,363,045  
Sands Bethlehem
    312,810       66,898  
St. Regis Residences
    71,768       5,436  
Other
    100,846       85,172  
                 
    $ 3,786,115     $ 3,258,750  
                 
 
As of September 30, 2008, portions of The Venetian Macao, The Palazzo and The Shoppes at The Palazzo remain under construction and are scheduled to be completed during 2008. Approximately $380.2 million in building and improvements, $30.2 million in furniture, fixtures, equipment and leasehold improvements (with total accumulated depreciation of $10.5 million) and $197.6 million in construction in progress as of September 30, 2008, related to The Shoppes at The Palazzo, which was sold to GGP (see “— Note 7 — Mall Sale”). The $100.8 million in other construction in progress consists primarily of projects in Las Vegas and airplane and other related refurbishment costs at corporate.
 
As of September 30, 2008, the cost of property and equipment that the Company is leasing to tenants as part of its Macao mall operations was $271.5 million with accumulated depreciation of $15.7 million.
 
During the three and nine months ended September 30, 2008, and the three and nine months ended September 30, 2007, the Company capitalized interest expense of $38.4 million, $100.6 million, $64.2 million and $169.0 million, respectively.
 
As described in “— Note 1 — Organization and Business of Company,” on November 10, 2008, the Company announced its plan to temporarily or indefinitely suspend portions of its development projects given the current conditions in the capital markets and the global economy and their impact on the Company’s ongoing operations. If circumstances change, the Company may be required to record impairment charges related to these developments in the future.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 4 — LONG-TERM DEBT
 
Long-term debt consists of the following (in thousands):
 
                 
    September 30,
    December 31,
 
    2008     2007  
 
Corporate and U.S. Related:
               
New Senior Secured Credit Facility — Term B
  $ 2,962,500     $ 2,985,000  
New Senior Secured Credit Facility — Delayed Draw I
    598,500        
New Senior Secured Credit Facility — Revolving
    775,860        
Convertible Senior Notes
    475,000        
6.375% Senior Notes
    248,551       248,380  
FF&E Financings
    150,300       61,416  
Airplane Financings
    86,719       89,484  
Other
    5,917       6,857  
Macao Related:
               
Macao Credit Facility — Term B
    1,800,000       1,800,000  
Macao Credit Facility — Term B Delayed
    700,000       700,000  
Macao Credit Facility — Revolving
    693,732       251,000  
Macao Credit Facility — Local Term
    100,408       100,000  
Ferry Financing
    176,739        
Other
    11,034       6,434  
Singapore Related:
               
Singapore Permanent Facility — A and B
    1,565,160        
Singapore Bridge Facility — Term Loan
          594,404  
Singapore Bridge Facility — Floating Rate Notes
          729,355  
                 
      10,350,420       7,572,330  
Less — current maturities
    (99,314 )     (54,333 )
                 
Total long-term debt
  $ 10,251,106     $ 7,517,997  
                 
 
Corporate and U.S. Related Debt
 
New Senior Secured Credit Facility
 
During the nine months ended September 30, 2008, the Company has drawn $775.9 million, net of repayments, under the Revolving Facility, which matures in May 2012 and has no interim amortization, and $598.5 million, net of repayments, under the Delayed Draw I Facility, which matures in May 2014 and is subject to quarterly principal amortization payments in an amount equal to 0.25% of the aggregate principal amount outstanding and a balloon payment of $566.4 million due May 2014. As of September 30, 2008, the Company had $201.1 million of available borrowing capacity under the Revolving Facility, net of outstanding letters of credit and including approximately $7.7 million committed to be funded by Lehman Brothers Commercial Paper Inc. No amount has been drawn under the $400.0 million Delayed Draw II Facility, which is available until November 23, 2008. Refer to “— Note 1 — Organization and Business of Company” regarding potential limitations on future borrowings under the facility.
 
Convertible Senior Notes
 
In September 2008, the Company sold, in a private placement transaction, $475.0 million of its 6.5% convertible senior notes due 2013 (the “Convertible Senior Notes”). The Convertible Senior Notes are subject to quarterly interest payments, commencing January 1, 2009, and will mature on October 1, 2013, unless earlier converted or repurchased by the Company. The initial conversion rate is 20.141 shares of common stock per $1,000


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
principal amount (equivalent to a conversion price of approximately $49.65 per share of common stock). The initial conversation rate will be subject to adjustment under certain circumstances. Following any fundamental change, as defined in the agreement, that occurs prior to the maturity date, the Company will be required to make an offer to purchase the Convertible Senior Notes. The Company’s principal stockholder and his family were granted pre-emptive rights with respect to any future proposed issuance or sale by the Company of equity interests (including convertible or exchangeable securities), pursuant to which they will be able to purchase a portion of the offered equity interests based on their fully diluted common stock ownership in the Company.
 
The Convertible Senior Notes will not be convertible until all necessary approvals have been obtained, including listing of the Company’s common stock issuable upon conversion of the Convertible Senior Notes on the NYSE and until the stockholder approval of the issuance of the common stock upon conversion of the Convertible Senior Notes is effective. If the Company does not obtain all required approvals within 120 days of the issuance of the Convertible Senior Notes, the Company will pay a fee based on a rate of 2.0% per annum on the aggregate amount of Convertible Senior Notes outstanding thereafter and until the Company receives all required approvals.
 
The Convertible Senior Notes were issued pursuant to an indenture, which contains covenants that, subject to certain exceptions and conditions, limit the ability of the Company to enter into sale and leaseback transactions in respect of its principal properties, create liens on its principal properties and consolidate, merge or sell all or substantially all of its directly held assets and includes certain default and cross-default provisions.
 
Macao Related Debt
 
Ferry Financing
 
In January 2008, in order to finance the purchase of ten ferries, the Company entered into a 1.21 billion Hong Kong dollar (“HKD,” approximately $155.7 million at exchange rates in effect on September 30, 2008) secured credit facility, which is available for borrowing for up to 18 months after closing. The proceeds from the secured credit facility were used to reimburse the Company for cash spent to date on the construction of the ferries and to finance the completion of the remaining ferries. The facility is collateralized by the ferries and is guaranteed by Venetian Macau Limited (“VML”). The facility matures in January 2018 and is subject to 34 quarterly payments commencing at the end of the 18-month availability period. Borrowings under the facility bear interest at the Hong Kong Interbank Offer Rate (“HIBOR”) plus 2.0% if borrowings are made in Hong Kong Dollars (5.7% as of September 30, 2008) or the London Interbank Offer Rate (“LIBOR”) plus 2.0% if borrowings are made in U.S. Dollars. All borrowings under the facility, which was fully drawn as of September 30, 2008, were made in Hong Kong Dollars.
 
In July 2008, the Company exercised the accordion option on the secured credit facility agreement that financed the Company’s original ten ferries and executed a supplement to the secured credit facility agreement. The supplement increased the secured credit facility by an additional HKD 561.6 million (approximately $72.3 million at exchange rates in effect on September 30, 2008), of which the Company has drawn HKD 163.3 million (approximately $21.0 million at exchange rates in effect on September 30, 2008) as of September 30, 2008. The proceeds from this supplemental facility are being used to reimburse the Company for cash spent to date on construction of four additional ferries and to finance the remaining progress payments on those ferries. The supplemental facility is secured by the additional ferries and is guaranteed by VML.
 
Singapore Related Debt
 
MBS entered into the Singapore bridge facility in August 2006 to pay the land premium to the STB under the Development Agreement and to commence construction of the Marina Bay Sands. As the facility was to mature in August 2008, the Company entered into the Singapore permanent facility agreement in December 2007. Upon closing in January 2008, a portion of the borrowings under the Singapore permanent facilities, as well as equity contributions made by the Company to MBS, were used to repay the outstanding balances on the Singapore bridge facility, and to pay fees, costs and expenses related to entering into the Singapore permanent facility agreement. The Company incurred a charge of approximately $4.0 million for loss on early retirement of debt in January 2008 as a result of refinancing the Singapore bridge facility.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Singapore Permanent Facilities
 
In December 2007, MBS signed a facility agreement (the “Singapore Permanent Facility Agreement”) providing for a SGD 2.0 billion (approximately $1.40 billion at exchange rates in effect on September 30, 2008) term loan (“Singapore Permanent Facility A”) that was funded in January 2008, a SGD 2.75 billion (approximately $1.92 billion at exchange rates in effect on September 30, 2008) term loan (“Singapore Permanent Facility B”) that is available on a delayed draw basis until December 31, 2010, a SGD 192.6 million (approximately $134.4 million at exchange rates in effect on September 30, 2008) banker’s guarantee facility (“Singapore Permanent Facility C”) to provide the bankers’ guarantees in favor of the STB required under the Development Agreement that was fully drawn in January 2008, and a SGD 500.0 million (approximately $349.0 million at exchange rates in effect on September 30, 2008) revolving credit facility (“Singapore Permanent Facility D” and collectively, the “Singapore Permanent Facilities”) that is available until February 28, 2015. As of September 30, 2008, the Company had SGD 2.86 billion (approximately $2.0 billion at exchange rates in effect on September 30, 2008) available for borrowing, net of outstanding banker’s guarantees and undrawn amounts committed to be funded by Lehman Brothers Finance Asia Pte. Ltd., under the Singapore Permanent Facilities.
 
The indebtedness under the Singapore Permanent Facility Agreement is collateralized by a first-priority security interest in substantially all of MBS’s assets, other than capital stock and similar ownership interests, certain furniture, fixtures, fittings and equipment and certain other excluded assets.
 
The Singapore Permanent Facilities mature on March 31, 2015, with MBS required to repay or prepay the Singapore Permanent Facilities under certain circumstances. Commencing March 31, 2011, and at the end of each quarter thereafter, MBS is required to repay the outstanding Singapore Permanent Facility A and Facility B loans on a pro rata basis in an aggregate amount equal to SGD 125.0 million (approximately $87.2 million at exchange rates in effect on September 30, 2008) per quarter. In addition, commencing at the end of the third full quarter of operations of the Marina Bay Sands, MBS is required to further prepay the outstanding Singapore Permanent Facility A and Facility B loans on a pro rata basis with a percentage of excess free cash flow (as defined by the Singapore Permanent Facility Agreement).
 
Borrowings under the Singapore Permanent Facilities bear interest at the Singapore Swap Offer Rate plus a spread of 2.25% per annum (3.5% as of September 30, 2008). MBS is required to pay standby interest fees of 1.125% per annum and 0.90% per annum on the undrawn amounts under Singapore Permanent Facility B and Facility D, respectively. MBS is required to pay a commission of 2.25% per annum on the bankers’ guarantees outstanding under the Singapore Permanent Facilities for the period during which any banker’s guarantees are outstanding.
 
To meet the requirements of the Singapore Permanent Facility Agreement, the Company entered into three interest rate cap agreements in June 2008, with notional amounts of $300.0 million, $235.0 million and $150.0 million, all of which expire in June 2011. The Company entered into four additional interest rate cap agreements in July and August 2008, with notional amounts of $200.0 million, $175.0 million, $175.0 million and $75.0 million, which expire in July or August 2011. The provisions of the interest rate cap agreements entitle the Company to receive from the counterparties the amounts, if any, by which the selected market interest rates exceed the strike rate (which range from 4.0% to 5.0%) as stated in such agreements. There was no net effect on interest expense as a result of the interest rate cap agreements for the three and nine months ended September 30, 2008.
 
The Singapore Permanent Facility Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations on liens, annual capital expenditures other than project costs, indebtedness, loans and guarantees, investments, acquisitions and asset sales, restricted payments, affiliate transactions and use of proceeds from the Singapore Permanent Facilities. The Singapore Permanent Facility Agreement also requires MBS to comply with financial covenants as of the end of the first full quarter beginning not less than 183 days after the commencement of operations of the Marina Bay Sands, including maximum ratios of total indebtedness to Adjusted EBITDA, minimum ratios of Adjusted EBITDA to interest expense, minimum Adjusted EBITDA requirements and maintaining a positive net worth. The Singapore Permanent Facility Agreement also contains events of default customary for such financings.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Cash Flows from Financing Activities
 
Cash flows from financing activities related to long-term debt are as follows (in thousands):
 
                 
    Nine Months Ended
 
    September 30,  
    2008     2007  
 
Proceeds from Singapore Permanent Facility
  $ 1,558,091     $  
Proceeds from Singapore Bridge Facility
          332,002  
Proceeds from New Senior Secured Credit Facility — Term B and Delayed Draw I
    600,000       3,000,000  
Proceeds from New Senior Secured Credit Facility — Revolving
    1,075,860        
Proceeds from Macao Credit Facility
    442,732       1,300,000  
Proceeds from Ferry Financing
    176,739        
Proceeds from FF&E Financings and Other Long-Term Debt
    148,898       37,249  
Proceeds from Airplane Financings
          92,250  
Proceeds from Senior Secured Credit Facility — Revolving
          62,000  
Proceeds from The Shoppes at The Palazzo Construction Loan
          52,000  
                 
    $ 4,002,320     $ 4,875,501  
                 
Repayments on Singapore Bridge Facility
  $ (1,329,737 )   $  
Repayments on New Senior Secured Credit Facility — Revolving
    (300,000 )      
Repayments on New Senior Secured Credit Facility — Term B and Delayed Draw I
    (24,000 )     (7,500 )
Repayments on FF&E Financings and Other Long-Term Debt
    (56,596 )     (7,349 )
Repayments on Airplane Financings
    (2,765 )     (1,844 )
Repayment on Senior Secured Credit Facility — Term B and Term B Delayed
          (1,170,000 )
Repayment on Senior Secured Credit Facility — Revolving
          (322,128 )
Repayment on The Shoppes at The Palazzo Construction Loan
          (166,500 )
Repayments on Sands Expo Center Mortgage Loan
          (90,868 )
                 
    $ (1,713,098 )   $ (1,766,189 )
                 
 
NOTE 5 — INCOME TAXES
 
The Company files income tax returns in the U.S. and various state 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 Internal Revenue Service is currently examining the U.S. federal income tax returns for the years ended December 31, 2005 and 2006. To date, there are no proposed adjustments that the Company believes will have a material impact on the Company’s financial condition or results of operations.
 
The Company recognizes interest and penalties, if any, related to unrecognized tax positions in the provision for income taxes on the statement of operations. At September 30, 2008 and December 31, 2007, the Company had approximately $0.8 million and $0.6 million, respectively, of interest accrued. No penalties were accrued for at September 30, 2008 or December 31, 2007.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
NOTE 6 — STOCK-BASED EMPLOYEE COMPENSATION
 
Stock-based compensation activity was as follows for the three and nine months ended September 30, 2008 and 2007 (in thousands, except weighted average grant date fair values):
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Compensation expense:
                               
Stock options
  $ 14,586     $ 9,139     $ 36,999     $ 21,117  
Restricted shares
    800       683       2,220       1,697  
                                 
    $ 15,386     $ 9,822     $ 39,219     $ 22,814  
                                 
Compensation cost capitalized as part of property and equipment
  $ 1,623     $ 1,045     $ 4,194     $ 2,326  
                                 
Stock options granted
    288       193       4,443       3,102  
                                 
Weighted average grant date fair value
  $ 18.49     $ 38.88     $ 29.82     $ 31.67  
                                 
Restricted shares granted
                27       51  
                                 
Weighted average grant date fair value
  $     $     $ 71.67     $ 86.56  
                                 
 
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:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Weighted average volatility
    35.85 %     30.17 %     35.85 %     30.67 %
Expected term (in years)
    6.7       6.0       6.3       6.0  
Risk-free rate
    2.96 %     4.75 %     2.96 %     4.53 %
Expected dividends
                       
 
NOTE 7 — MALL SALE
 
The Shoppes at The Palazzo opened on January 18, 2008, with some tenants not yet open and with construction of certain portions of the mall not yet completed. The Company contracted to sell The Shoppes at The Palazzo to GGP pursuant to a purchase and sale agreement dated as of April 12, 2004, as amended (the “Amended Agreement”). The total purchase price to be paid by GGP for The Shoppes at The Palazzo is determined by taking The Shoppes at The Palazzo’s net operating income, as defined in the Amended Agreement, for months 19 through 30 of its operations (assuming that the rent and other periodic payments due from all tenants in month 30 was actually due in each of months 19 through 30, provided that this 12-month period can be delayed if certain conditions are satisfied) divided by a capitalization rate. The capitalization rate is 0.06 for every dollar of net operating income up to $38.0 million and 0.08 for every dollar of net operating income above $38.0 million. On the closing date of the sale, February 29, 2008, GGP made its initial purchase price payment of $290.8 million based on projected net operating income for the first 12 months of operations (only taking into account tenants open for business or paying rent as of February 29, 2008). Pursuant to the Amended Agreement, periodic adjustments to the purchase price (up or down, but never to less than $250.0 million) are to be made based on projected net operating income for the then upcoming 12 months. Subject to adjustments for certain audit and other issues, the final adjustment to the purchase price will be made on the 30-month anniversary of the closing date (or later if certain conditions are satisfied) and will be based on the previously described formula. For all purchase price and purchase price adjustment calculations, “net operating income” will be calculated by using the “accrual” method of


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
accounting. Pursuant to the Amended Agreement, the Company received an additional $4.6 million in June 2008, representing the adjustment payment at the fourth month after closing. There was another required purchase price adjustment on October 15, 2008; however, no payment was made by GGP, and GGP and the Company disagree on this adjustment calculation and whether it results in an increase or a decrease (in which case the Company would owe money to GGP) in the purchase price. GGP and the Company are in discussions to attempt to resolve their disagreement. Due to the general downturn in national and local retail, economic and market conditions, there can be no assurance of what the final purchase price will be, although the Company currently believes that it will be in excess of costs incurred in constructing The Shoppes at The Palazzo; however, if circumstances change, the Company may be required to record an impairment charge in the future. Based on GGP’s current financial condition, there can be no assurance that GGP will make its future periodic payments.
 
In the Amended Agreement, the Company agreed to lease certain restaurant and retail space on the casino level of The Palazzo to GGP pursuant to a master lease agreement (the “Master Lease”). Under the Master Lease, which was executed concurrently with, and as a part of, the closing on the sale of The Shoppes at The Palazzo to GGP on February 29, 2008, The Palazzo leased nine restaurant and retail spaces on the casino level of The Palazzo, currently occupied by various tenants, to GGP for 89 years with annual rent of one dollar per year, and GGP assumed the various tenant operating leases for those spaces. Under generally accepted accounting principles, the Master Lease does not qualify as a sale of the real property covered by the Master Lease, which real property was not separately legally demised. Accordingly, $41.8 million of the mall sale transaction has been deferred as prepaid operating lease payments to The Palazzo, which is amortized into income on a straight-line basis over the 89-year lease term. An additional $7.0 million of the total proceeds from the mall sale transaction has been deferred as unearned revenues as of September 30, 2008. This balance will increase as additional purchase price proceeds are received.
 
In addition, the Company agreed with GGP to lease certain spaces located within The Shoppes at The Palazzo for a period of 10 years with total fixed minimum rents of $0.7 million per year, subject to extension options for a period of up to 10 years and automatic increases beginning on the second lease year. Under generally accepted accounting principles, a gain on the sale has not been recorded as the Company has continuing involvement in the transaction related to the completion of construction on the remainder of The Shoppes at The Palazzo, certain activities to be performed on behalf of GGP and the uncertainty of the final sales price, which will be determined in 2010 as previously described. Therefore, $243.9 million of the mall sale transaction has been recorded as deferred proceeds from the sale as of September 30, 2008, which accrues interest at an imputed interest rate offset by (i) imputed rental income and (ii) rent payments made to GGP related to those spaces leased back from GGP. The property sold to GGP will remain as assets of the Company (of which $597.5 million has been capitalized as of September 30, 2008) with depreciation continuing to be recorded until the final sales price determination has been made.
 
NOTE 8 — LAS VEGAS RESTAURANT JOINT VENTURES
 
The Company has entered into various joint venture agreements with independent third parties; whereby these third parties will operate a variety of restaurants in The Venetian Las Vegas and The Palazzo. The operations of these restaurants have been consolidated by the Company in accordance with FASB Interpretation (“FIN”) No. 46R, “Consolidation of Variable Interest Entities.” The Company evaluates its investments in joint ventures to assess the appropriateness of their consolidation into the Company when events have occurred that would trigger such an analysis.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The joint ventures had total current assets of $5.2 million and fixed assets of $53.6 million as of September 30, 2008. The following is summarized income statement data for our consolidated joint ventures for the nine months ended September 30, 2008 (in thousands):
 
         
Net revenues
  $ 37,458  
Operating expenses
    36,237  
Pre-opening expense
    3,442  
Depreciation and amortization
    3,797  
         
Operating loss
    (6,018 )
Interest expense, net
    (398 )
Noncontrolling interest
    4,481  
         
Net loss
  $ (1,935 )
         
 
NOTE 9 — FAIR VALUE MEASUREMENTS
 
As discussed in “— Note 1 — Organization and Business of Company,” the Company adopted the provisions of SFAS No. 157 with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. Under SFAS No. 157, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. SFAS No. 157 also establishes a valuation hierarchy for inputs in measuring fair value that maximizes the use of observable inputs (inputs market participants would use based on market data obtained from sources independent of the Company) and minimizes the use of unobservable inputs (inputs that reflect the Company’s assumptions based upon the best information available in the circumstances) by requiring that the most observable inputs be used when available. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the assets or liabilities, either directly or indirectly. Level 3 inputs are unobservable inputs for the assets or liabilities. Categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
The following table provides the assets carried at fair value measured on a recurring basis as of September 30, 2008 (in thousands):
 
                                 
    Total Carrying
  Fair Value Measurements at September 30, 2008 Using:
    Value at
  Quoted Market
  Significant Other
  Significant
    September 30,
  Prices in Active
  Observable Inputs
  Unobservable Inputs
    2008   Markets (Level 1)   (Level 2)   (Level 3)
 
Cash and cash equivalents(1)
  $ 706,827     $ 706,827     $     $  
Interest rate caps(2)
  $ 2,932     $     $ 2,932     $  
 
 
(1) The Company has short-term investments classified as cash and cash equivalents as the original maturities are less than 90 days.
 
(2) The Company has twelve interest rate cap agreements with an aggregate fair value of approximately $2.9 million, based on quoted market values from the institutions holding the agreements as of September 30, 2008.
 
NOTE 10 — COMMITMENTS AND CONTINGENCIES
 
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


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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.
 
The Palazzo Construction Litigation
 
Lido Casino Resort, LLC (“Lido”), formerly a wholly-owned subsidiary of the Company and now merged into Venetian Casino Resort, LLC (“VCR”), 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 claim 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 (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. In January 2008, the parties agreed to the dismissal of the District Court Case without prejudice. Prior to agreeing on that dismissal, Lido and Malcolm 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. In April 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, and a conforming order was entered in December 2007. Argument on the appeal of the denial of the lien motion in the State Court was heard by the Supreme Court in March 2008, but a decision has not yet been issued. In January 2008, Malcolm filed a series of three motions and again sought summary judgment on the counterclaim filed in the State Court Case and VCR, as successor in interest to Lido, and Taylor sought summary judgment on certain of Malcolm’s claims. The motions for summary judgment were all denied without prejudice except that claims of Malcolm totaling approximately $675,000 were dismissed. In May 2008, the Supreme Court vacated the order denying the motion to strike the mechanic’s lien and remanded to the trial court for a decision on the lien during the upcoming trial. The trial commenced in June 2008, was adjourned in early July 2008 and resumed on November 3, 2008. Management has determined that based on proceedings to date, an adverse outcome is not probable. VCR, as successor in interest to Lido, intends to defend itself against the claims pending in the State Court Case.
 
Litigation Relating to Macao Operations
 
On October 15, 2004, Richard Suen and Round Square Company Limited filed an action against LVSC, Las Vegas Sands, Inc. (“LVSI”), 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


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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. On May 24, 2008, the jury returned a verdict for the plaintiffs in the amount of $43.8 million. On June 30, 2008, a judgment was entered in this matter in the amount of $58.6 million (including pre-judgment interest). The Company has begun the appeals process, including its filings on July 15, 2008, with the trial court of a motion for judgment as a matter of law or in the alternative, a new trial and a motion to strike, alter and/or amend the judgment. The grounds for these motions include (1) insufficient evidence that Suen conferred a benefit on LVSI, (2) the improper admission of testimony, (3) the Court’s refusal to give jury instructions that the law presumes that government officials have performed their duties regularly, and that the law has been obeyed, and (4) jury instructions that improperly permitted the plaintiff to recover for the services of others. These motions were scheduled to be heard on September 29, 2008, but have been postponed to December 8, 2008. If the Company is unsuccessful in obtaining the relief sought from the trial court, it intends to continue to vigorously pursue available appeals. The Company believes that it has valid bases in law and fact to overturn or appeal the verdict. As a result, the Company believes that the likelihood that the amount of the judgment will be affirmed is not probable, and, accordingly, that the amount of any loss cannot be reasonably estimated at this time. Because the Company believes that this potential loss is not probable or estimable, it has not recorded any reserves or contingencies related to this legal matter. In the event that the Company’s assumptions used to evaluate this matter as neither probable nor estimable change in future periods, it may be required to record a liability for an adverse outcome.
 
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 (“Venetian Venture Development”) 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 Macao 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 matter and the case is currently set for trial in late spring or early summer 2009. Management believes that the plaintiff’s case against the Company is without merit. The Company intends to defend this matter vigorously.
 
On February 5, 2007, Asian American Entertainment Corporation, Limited (“AAEC”) filed an action against LVSI, VCR, 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 our 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 have appealed this decision. Management believes that the plaintiff’s case against the Company is without merit. The Company intends to defend this matter vigorously.
 
Singapore Development Project
 
On August 23, 2006, the Company entered into the Development Agreement with the STB, which requires the Company to construct and operate the Marina Bay Sands in accordance with the Company’s proposal for the integrated resort and in accordance with the agreement. The Company is continuing to finalize various design aspects of the integrated resort and is in the process of finalizing its cost estimates for the project. The cost to build the Marina Bay Sands is expected to be in excess of $4.5 billion, which is inclusive of the land premium, taxes and other fees previously paid. As discussed in “— Note 4 — Long-Term Debt — Singapore Related Debt — Singapore Permanent Facilities,” the Company entered into the SGD 5.44 billion (approximately $3.80 billion at


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
exchange rates in effect on September 30, 2008) Singapore Permanent Facility Agreement to fund a significant portion of the construction, operating and other development costs of the Marina Bay Sands.
 
Other Commitments
 
In January 2008, the Company entered into agreements to purchase an additional four ferries at an aggregate cost of approximately $72.0 million to be built for the Company’s Macao operations. As of September 30, 2008, the Company was obligated to make future payments of $52.3 million.
 
NOTE 11 — SEGMENT INFORMATION
 
The Company’s principal operating and developmental activities occur in three geographic areas: Las Vegas, Macao and Singapore. The Company reviews the results of operations for each of its key operating segments: The Venetian Las Vegas, which includes the Sands Expo Center; The Palazzo; Sands Macao; The Venetian Macao; Four Seasons Macao; and Other Asia (comprised primarily of the ferry operations). The Company also reviews construction and development activities for each of its primary projects: The Venetian Las Vegas; The Palazzo; Sands Macao; The Venetian Macao; Four Seasons Macao; Other Asia (comprised of the ferry operations and various other operations that are ancillary to the Company’s properties in Macao); Marina Bay Sands in Singapore; Other Development Projects (on Parcels 3, 5, 6, 7 and 8 of the Cotai Strip); and Corporate and Other (comprised primarily of the airplanes, St. Regis Residences and Sands Bethlehem). The Venetian Las Vegas and The Palazzo operating segments are managed as a single integrated resort and have been aggregated as one reportable segment, the Las Vegas Operating Properties, considering their similar economic characteristics, types of customers, types of service and products, the regulatory business environment of the operations within each segment and the Company’s organizational and management reporting structure. The information as of December 31, 2007, and


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
for the three and nine months ended September 30, 2007, has been reclassified to conform to the current presentation. The Company’s segment information is as follows (in thousands):
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Net Revenues
                               
Las Vegas Operating Properties
  $ 307,965     $ 212,103     $ 1,007,942     $ 725,459  
Macao:
                               
Sands Macao
    248,444       298,756       784,943       1,026,544  
The Venetian Macao
    522,409       150,091       1,471,823       150,091  
Four Seasons Macao
    20,303             20,303        
Other Asia
    6,313             11,560        
                                 
Total net revenues
  $ 1,105,434     $ 660,950     $ 3,296,571     $ 1,902,094  
                                 
Adjusted EBITDAR(1)
                               
Las Vegas Operating Properties
  $ 73,316     $ 60,183     $ 302,497     $ 255,506  
Macao:
                               
Sands Macao
    42,591       77,574       162,283       296,463  
The Venetian Macao
    135,737       26,520       386,227       26,520  
Four Seasons Macao
    2,963             2,963        
Other Asia
    (10,848 )           (34,086 )      
                                 
Total adjusted EBITDAR
    243,759       164,277       819,884       578,489  
                                 
Other Operating Costs and Expenses
                               
Stock-based compensation expense
    (9,615 )     (4,827 )     (25,036 )     (10,007 )
Corporate expense
    (23,390 )     (23,444 )     (82,529 )     (66,657 )
Rental expense
    (8,437 )     (8,136 )     (25,573 )     (23,141 )
Pre-opening expense
    (40,777 )     (90,447 )     (105,470 )     (153,224 )
Development expense
    (1,153 )     (3,621 )     (11,504 )     (7,227 )
Depreciation and amortization
    (132,239 )     (54,309 )     (364,753 )     (121,262 )
Gain (loss) on disposal of assets
    47       (287 )     (6,977 )     (526 )
                                 
Operating income (loss)
    28,195       (20,794 )     198,042       196,445  
Other Non-Operating Costs and Expenses
                               
Interest income
    3,215       26,890       11,813       60,906  
Interest expense, net of amounts capitalized
    (90,535 )     (72,607 )     (293,709 )     (161,628 )
Other income
    7,209       17,052       11,624       7,715  
Loss on early retirement of debt
                (4,022 )     (10,705 )
Benefit (provision) for income taxes
    19,425       952       19,533       (15,928 )
Noncontrolling interest
    283             4,481        
                                 
Net income (loss)
  $ (32,208 )   $ (48,507 )   $ (52,238 )   $ 76,805  
                                 
 
 
(1) Adjusted EBITDAR is net income (loss) before interest, income taxes, depreciation and amortization, pre-opening expense, development expense, other income, loss on early retirement of debt, (gain) loss on disposal of assets, rental expense, corporate expense, stock-based compensation expense included in general and administrative expense, and noncontrolling interest. Adjusted EBITDAR is used by management as the primary measure of operating performance of the Company’s properties and to compare the operating performance of the Company’s properties with those of its competitors.
 


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                 
    Nine Months Ended,
 
    September 30,  
    2008     2007  
 
Capital Expenditures
               
Corporate and Other
  $ 269,260     $ 96,161  
Las Vegas Operating Properties
    543,162       905,437  
Macao:
               
Sands Macao
    30,192       86,503  
The Venetian Macao
    109,114       883,427  
Four Seasons Macao
    471,955       128,023  
Other Asia
    58,021       97,341  
Other Development Projects
    851,929       306,242  
Singapore
    574,763       218,933  
                 
Total capital expenditures
  $ 2,908,396     $ 2,722,067  
                 
 
                 
    September 30,
    December 31,
 
    2008     2007  
 
Total Assets
               
Corporate and Other
  $ 653,301     $ 447,556  
Las Vegas Operating Properties
    5,135,133       4,139,040  
Macao:
               
Sands Macao
    603,731       550,479  
The Venetian Macao
    3,137,546       3,158,091  
Four Seasons Macao
    872,563       391,506  
Other Asia
    368,244       218,419  
Other Development Projects
    1,839,197       645,138  
Singapore
    2,149,697       1,916,288  
                 
Total assets
  $ 14,759,412     $ 11,466,517  
                 
 
NOTE 12 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
LVSC is the obligor of the 6.375% Senior Notes (the “Senior Notes”) due 2015, issued on February 10, 2005. LVSLLC, VCR, Mall Intermediate Holding Company, LLC, Venetian Venture Development, Venetian Transport, LLC, Venetian Marketing, Inc., Lido Intermediate Holding Company, LLC and Lido Casino Resort Holding Company, LLC (collectively, the “Original Guarantors”), have jointly and severally guaranteed the Senior Notes on a full and unconditional basis. Effective May 23, 2007, in conjunction with entering into the New Senior Secured Credit Facility, LVSC, the Original Guarantors and the trustee entered into a supplemental indenture related to the Senior Notes, whereby the following subsidiaries were added as full and unconditional guarantors on a joint and several basis: Interface Group-Nevada Inc., Palazzo Condo Tower, LLC, Sands Pennsylvania, Inc., Phase II Mall Holding, LLC and Phase II Mall Subsidiary, LLC (collectively with the Original Guarantors, the “Guarantor Subsidiaries”). On February 29, 2008, all of the capital stock of Phase II Mall Subsidiary, LLC was sold to GGP and in connection therewith, it was released as a guarantor under the Senior Notes. As described in “— Note 7 — Mall Sale,” the sale of The Shoppes at The Palazzo is not complete from an accounting perspective due to the Company’s continuing involvement in the transaction related to the completion of construction on the remainder of The Shoppes at The Palazzo, certain activities to be performed on behalf of GGP and the uncertainty of the final sales price. Certain of the assets, liabilities, operating results and cash flows related to the ownership and operation of the mall by Phase II Subsidiary, LLC subsequent to the sale will continue to be accounted for by the Guarantor

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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Subsidiaries until the final sales price has been determined, and therefore are included in the “Guarantor Subsidiaries” columns in the following condensed consolidating financial information. As a result, net assets of $350.9 million (consisting of $597.5 million of fixed assets, offset by $246.6 million of liabilities consisting primarily of deferred proceeds from the sale) and capital expenditures of $194.7 million as of September 30, 2008 and a net loss of $4.0 million and $9.1 million (consisting primarily of depreciation expense) for the three and nine months ended September 30, 2008, respectively, related to the mall and are being accounted for by the Guarantor Subsidiaries; however, these balances and amounts are not collateral for the Senior Notes and should not be considered as credit support for the guarantees of the Senior Notes.
 
As a result of the supplemental indenture related to the Senior Notes and the sale of the Phase II Mall Subsidiary, LLC, there has been a change in the group of subsidiaries that are the Guarantor Subsidiaries. Accordingly, the Company has reclassified prior periods to conform to the current presentation of the Guarantor Subsidiaries.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The condensed consolidating financial information of LVSC, the Guarantor Subsidiaries and the non-guarantor subsidiaries on a combined basis as of September 30, 2008 and December 31, 2007, and for the three and nine months ended September 30, 2008 and 2007, is as follows (in thousands):
 
Condensed Consolidating Balance Sheets
September 30, 2008
 
                                         
                      Consolidating/
       
    Las Vegas
    Guarantor
    Non-Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Cash and cash equivalents
  $ 4,660     $ 743,844     $ 527,471     $     $ 1,275,975  
Restricted cash
          4,683       234,461             239,144  
Intercompany receivables
    24,104       2,731       9,312       (36,147 )      
Accounts receivable, net
    2,173       126,743       207,519       (3,259 )     333,176  
Inventories
    970       13,475       12,839             27,284  
Deferred income taxes
    19,061       61,826       2,984             83,871  
Prepaid expenses and other
    3,968       7,784       26,088       (315 )     37,525  
                                         
Total current assets
    54,936       961,086       1,020,674       (39,721 )     1,996,975  
Property and equipment, net
    164,231       4,122,202       6,989,188             11,275,621  
Investment in subsidiaries
    2,747,277       1,609,607             (4,356,884 )      
Deferred financing costs, net
    6,339       50,234       115,613             172,186  
Intercompany receivables
    79,129       1,196,062             (1,275,191 )      
Intercompany notes receivable
    74,119       93,876             (167,995 )      
Deferred income taxes
    5,707       1,667       172       (5,725 )     1,821  
Leasehold interests in land, net
                1,077,487             1,077,487  
Other assets, net
    3,152       32,533       199,637             235,322  
                                         
Total assets
  $ 3,134,890     $ 8,067,267     $ 9,402,771     $ (5,845,516 )   $ 14,759,412  
                                         
Accounts payable
  $ 8,545     $ 46,152     $ 44,907     $ (3,259 )   $ 96,345  
Construction payables
          112,493       721,349             833,842  
Intercompany payables
    2,731       9,312       24,104       (36,147 )      
Accrued interest payable
    2,230       1,893       9,182             13,305  
Other accrued liabilities
    6,197       186,386       486,593             679,176  
Income taxes payable
                315       (315 )      
Current maturities of long-term debt
    3,688       57,399       38,227             99,314  
                                         
Total current liabilities
    23,391       413,635       1,324,677       (39,721 )     1,721,982  
Other long-term liabilities
    26,536       9,999       10,538             47,073  
Deferred income taxes
          12,870             (5,725 )     7,145  
Deferred amounts related to mall transactions
          453,725                   453,725  
Intercompany payables
                1,275,191       (1,275,191 )      
Intercompany notes payable
                167,995       (167,995 )      
Long-term debt
    806,582       4,429,761       5,014,763             10,251,106  
                                         
Total liabilities
    856,509       5,319,990       7,793,164       (1,488,632 )     12,481,031  
                                         
Stockholders’ equity
    2,278,381       2,747,277       1,609,607       (4,356,884 )     2,278,381  
                                         
Total liabilities and stockholders’ equity
  $ 3,134,890     $ 8,067,267     $ 9,402,771     $ (5,845,516 )   $ 14,759,412  
                                         


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Balance Sheets
December 31, 2007
 
                                         
                      Consolidating/
       
    Las Vegas
    Guarantor
    Non-Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Cash and cash equivalents
  $ 73,489     $ 129,684     $ 653,977     $     $ 857,150  
Restricted cash
          5,088       227,856             232,944  
Intercompany receivables
    195,675       520,761             (716,436 )      
Accounts receivable, net
    1,995       113,638       71,562             187,195  
Inventories
    132       10,086       9,684             19,902  
Deferred income taxes
    1,368       11,879       19,224             32,471  
Prepaid expenses and other
    19,960       15,792       14,004       (332 )     49,424  
                                         
Total current assets
    292,619       806,928       996,307       (716,768 )     1,379,086  
Property and equipment, net
    160,524       3,360,340       5,053,750             8,574,614  
Investment in subsidiaries
    2,105,436       1,516,585             (3,622,021 )      
Deferred financing costs, net
    1,556       58,584       47,198             107,338  
Restricted cash
                178,824             178,824  
Intercompany notes receivable
    73,562       55,992             (129,554 )      
Deferred income taxes
                1,581       (1,581 )      
Leasehold interests in land, net
                1,069,609             1,069,609  
Other assets, net
    116       26,885       130,045             157,046  
                                         
Total assets
  $ 2,633,813     $ 5,825,314     $ 7,477,314     $ (4,469,924 )   $ 11,466,517  
                                         
Accounts payable
  $ 4,881     $ 49,020     $ 45,122     $     $ 99,023  
Construction payables
          151,238       566,303             717,541  
Intercompany payables
          108,707       607,729       (716,436 )      
Accrued interest payable
    6,350       3,289       1,826             11,465  
Other accrued liabilities
    8,141       186,985       415,785             610,911  
Income taxes payable
                332       (332 )      
Current maturities of long-term debt
    3,688       36,141       14,504             54,333  
                                         
Total current liabilities
    23,060       535,380       1,651,601       (716,768 )     1,493,273  
Other long-term liabilities
    15,532       7,114       6,028             28,674  
Deferred income taxes
    770       2,364             (1,581 )     1,553  
Deferred amounts related to mall transactions
          164,746                   164,746  
Intercompany notes payable
                129,554       (129,554 )      
Long-term debt
    334,177       3,010,274       4,173,546             7,517,997  
                                         
Total liabilities
    373,539       3,719,878       5,960,729       (847,903 )     9,206,243  
                                         
Stockholders’ equity
    2,260,274       2,105,436       1,516,585       (3,622,021 )     2,260,274  
                                         
Total liabilities and stockholders’ equity
  $ 2,633,813     $ 5,825,314     $ 7,477,314     $ (4,469,924 )   $ 11,466,517  
                                         


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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, 2008
 
                                         
                      Consolidating/
       
    Las Vegas
    Guarantor
    Non-Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 113,175     $ 692,083     $     $ 805,258  
Rooms
          130,487       58,307             188,794  
Food and beverage
          46,067       44,958             91,025  
Convention, retail and other
          45,768       79,262       (1,797 )     123,233  
                                         
            335,497       874,610       (1,797 )     1,208,310  
Less-promotional allowances
    (224 )     (44,115 )     (57,780 )     (757 )     (102,876 )
                                         
Net revenues
    (224 )     291,382       816,830       (2,554 )     1,105,434  
                                         
Operating expenses:
                                       
Casino
          80,057       501,309       (611 )     580,755  
Rooms
          29,093       7,343             36,436  
Food and beverage
          20,933       26,856       (1,754 )     46,035  
Convention, retail and other
          19,936       49,077             69,013  
Provision for doubtful accounts
          4,799       4,060             8,859  
General and administrative
          68,486       61,895       (189 )     130,192  
Corporate expense
    13,537       90       9,763             23,390  
Rental expense
          1,746       6,691             8,437  
Pre-opening expense
    595       1,637       38,545             40,777  
Development expense
    (343 )           1,496             1,153  
Depreciation and amortization
    2,633       58,460       71,146             132,239  
(Gain) loss on disposal of assets
          (63 )     16             (47 )
                                         
      16,422       285,174       778,197       (2,554 )     1,077,239  
                                         
Operating income (loss)
    (16,646 )     6,208       38,633             28,195  
Other income (expense):
                                       
Interest income
    1,274       2,486       1,807       (2,352 )     3,215  
Interest expense, net of amounts capitalized
    (6,836 )     (50,424 )     (35,627 )     2,352       (90,535 )
Other income (expense)
          (873 )     8,082             7,209  
Income (loss) from equity investment in subsidiaries
    (12,200 )     13,519             (1,319 )      
                                         
Income (loss) before income taxes
    (34,408 )     (29,084 )     12,895       (1,319 )     (51,916 )
Benefit for income taxes
    2,200       16,884       341             19,425  
Noncontrolling interest
                283             283  
                                         
Net income (loss)
  $ (32,208 )   $ (12,200 )   $ 13,519     $ (1,319 )   $ (32,208 )
                                         


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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
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 83,094     $ 425,428     $     $ 508,522  
Rooms
          83,027       13,691             96,718  
Food and beverage
          27,300       22,915       (183 )     50,032  
Convention, retail and other
    12,924       28,309       11,300       (13,475 )     39,058  
                                         
      12,924       221,730       473,334       (13,658 )     694,330  
Less-promotional allowances
    (211 )     (18,674 )     (14,495 )           (33,380 )
                                         
Net revenues
    12,713       203,056       458,839       (13,658 )     660,950  
                                         
Operating expenses:
                                       
Casino
          46,487       295,625       (137 )     341,975  
Rooms
          20,524       3,050             23,574  
Food and beverage
          15,129       13,908       (552 )     28,485  
Convention, retail and other
          15,180       7,759             22,939  
Provision for doubtful accounts
          3,298       985             4,283  
General and administrative
          58,070       35,143       (12,969 )     80,244  
Corporate expense
    23,225       82       137             23,444  
Rental expense
          1,881       6,255             8,136  
Pre-opening expense
    2,272       3,720       84,455             90,447  
Development expense
    2,731             890             3,621  
Depreciation and amortization
    1,894       25,213       27,202             54,309  
Gain (loss) on disposal of assets
          (32 )     319             287  
                                         
      30,122       189,552       475,728       (13,658 )     681,744  
                                         
Operating income (loss)
    (17,409 )     13,504       (16,889 )           (20,794 )
Other income (expense):
                                       
Interest income
    2,602       16,622       9,464       (1,798 )     26,890  
Interest expense, net of amounts capitalized
    (5,730 )     (36,475 )     (32,200 )     1,798       (72,607 )
Other income (expense)
          (601 )     17,653             17,052  
Loss from equity investment in subsidiaries
    (24,751 )     (20,174 )           44,925        
                                         
Loss before income taxes
    (45,288 )     (27,124 )     (21,972 )     44,925       (49,459 )
Benefit (provision) for income taxes
    (3,219 )     2,373       1,798             952  
                                         
Net loss
  $ (48,507 )   $ (24,751 )   $ (20,174 )   $ 44,925     $ (48,507 )
                                         


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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, 2008
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 387,495     $ 2,017,478     $     $ 2,404,973  
Rooms
          409,153       166,019             575,172  
Food and beverage
          145,428       126,887             272,315  
Convention, retail and other
          133,290       162,198       (4,697 )     290,791  
                                         
            1,075,366       2,472,582       (4,697 )     3,543,251  
Less-promotional allowances
    (1,437 )     (105,516 )     (137,645 )     (2,082 )     (246,680 )
                                         
Net revenues
    (1,437 )     969,850       2,334,937       (6,779 )     3,296,571  
                                         
Operating expenses:
                                       
Casino
          235,777       1,405,858       (1,786 )     1,639,849  
Rooms
          93,371       23,292             116,663  
Food and beverage
          67,178       73,873       (4,473 )     136,578  
Convention, retail and other
          61,831       102,791             164,622  
Provision for doubtful accounts
          17,948       5,012             22,960  
General and administrative
          203,428       218,143       (520 )     421,051  
Corporate expense
    67,913       562       14,054             82,529  
Rental expense
          5,591       19,982             25,573  
Pre-opening expense
    2,716       7,827       94,927             105,470  
Development expense
    1,621             9,883             11,504  
Depreciation and amortization
    7,230       160,517       197,006             364,753  
Loss on disposal of assets
          5,915       1,062             6,977  
                                         
      79,480       859,945       2,165,883       (6,779 )     3,098,529  
                                         
Operating income (loss)
    (80,917 )     109,905       169,054             198,042  
Other income (expense):
                                       
Interest income
    3,995       7,485       6,200       (5,867 )     11,813  
Interest expense, net of amounts capitalized
    (15,389 )     (150,953 )     (133,234 )     5,867       (293,709 )
Other income (expense)
    (39 )     (1,305 )     12,968             11,624  
Loss on early retirement of debt
                (4,022 )           (4,022 )
Income from equity investment in subsidiaries
    41,848       57,759             (99,607 )      
                                         
Income (loss) before income taxes
    (50,502 )     22,891       50,966       (99,607 )     (76,252 )
Benefit (provision) for income taxes
    (1,736 )     18,957       2,312             19,533  
Noncontrolling interest
                4,481             4,481  
                                         
Net income (loss)
  $ (52,238 )   $ 41,848     $ 57,759     $ (99,607 )   $ (52,238 )
                                         


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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
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 288,125     $ 1,145,010     $     $ 1,433,135  
Rooms
          272,381       17,207             289,588  
Food and beverage
          105,057       57,451       (379 )     162,129  
Convention, retail and other
    38,909       100,018       14,566       (40,096 )     113,397  
                                         
      38,909       765,581       1,234,234       (40,475 )     1,998,249  
Less-promotional allowances
    (658 )     (55,241 )     (40,256 )           (96,155 )
                                         
Net revenues
    38,251       710,340       1,193,978       (40,475 )     1,902,094  
                                         
Operating expenses:
                                       
Casino
          142,619       762,105       (284 )     904,440  
Rooms
          63,985       3,234             67,219  
Food and beverage
          52,983       27,216       (1,188 )     79,011  
Convention, retail and other
          50,068       9,443             59,511  
Provision for doubtful accounts
          23,643       873             24,516  
General and administrative
          167,408       70,510       (39,003 )     198,915  
Corporate expense
    66,119       229       309             66,657  
Rental expense
          6,158       16,983             23,141  
Pre-opening expense
    2,272       6,366       144,586             153,224  
Development expense
    4,237             2,990             7,227  
Depreciation and amortization
    4,494       66,901       49,867             121,262  
Loss on disposal of assets
          158       368             526  
                                         
      77,122       580,518       1,088,484       (40,475 )     1,705,649  
                                         
Operating income (loss)
    (38,871 )     129,822       105,494             196,445  
Other income (expense):
                                       
Interest income
    7,127       35,074       23,983       (5,278 )     60,906  
Interest expense, net of amounts capitalized
    (13,258 )     (83,344 )     (70,304 )     5,278       (161,628 )
Other income (expense)
    (6 )     (727 )     8,448             7,715  
Loss on early retirement of debt
          (10,332 )     (373 )           (10,705 )
Income from equity investment in subsidiaries
    115,766       70,011             (185,777 )      
                                         
Income before income taxes
    70,758       140,504       67,248       (185,777 )     92,733  
Benefit (provision) for income taxes
    6,047       (24,738 )     2,763             (15,928 )
                                         
Net income
  $ 76,805     $ 115,766     $ 70,011     $ (185,777 )   $ 76,805  
                                         


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2008
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Net cash provided by operating activities
  $ 9,241     $ 71,747     $ 136,155     $     $ 217,143  
                                         
Cash flows from investing activities:
                                       
Change in restricted cash
          405       173,892             174,297  
Capital expenditures
    (10,937 )     (555,589 )     (2,341,870 )           (2,908,396 )
Intercompany notes receivable to non-guarantor subsidiaries
          (35,317 )           35,317        
Intercompany receivables to Guarantor Subsidiaries
    (35,000 )                 35,000        
Intercompany receivables to non-guarantor subsidiaries
    (25,000 )     (1,094,467 )           1,119,467        
Repayment of receivables from Guarantor Subsidiaries
    92,108                   (92,108 )      
Repayment of receivables from non-guarantor subsidiaries
          34,018             (34,018 )      
Capital contributions to subsidiaries
    (575,000 )     (9,201 )           584,201        
                                         
Net cash used in investing activities
    (553,829 )     (1,660,151 )     (2,167,978 )     1,647,859       (2,734,099 )
                                         
Cash flows from financing activities:
                                       
Proceeds from exercise of stock options
    6,833                         6,833  
Excess tax benefits from stock-based compensation
    1,626                         1,626  
Capital contributions received
          575,000       9,201       (584,201 )      
Borrowings from Las Vegas Sands Corp. 
          35,000       25,000       (60,000 )      
Borrowings from Guarantor Subsidiaries
                1,129,784       (1,129,784 )      
Repayments on borrowings from Las Vegas Sands Corp. 
          (92,108 )           92,108        
Repayments on borrowings from Guarantor Subsidiaries
                (34,018 )     34,018        
Proceeds from issuance of convertible senior notes from a related party
    475,000                         475,000  
Proceeds from Singapore permanent facility
                1,558,091             1,558,091  
Proceeds from new senior secured credit facility-delayed draw I
          600,000                   600,000  
Proceeds from new senior secured credit facility-revolving
          1,075,860                   1,075,860  
Proceeds from Macao credit facility
                442,732             442,732  
Proceeds from ferry financing
                176,739             176,739  
Proceeds from FF&E financings and other long-term debt
          105,584       43,314             148,898  
Repayments on Singapore bridge facility
                (1,329,737 )           (1,329,737 )
Repayments on new senior secured credit facility-revolving
          (300,000 )                 (300,000 )
Repayments on new senior secured credit facility-term B
          (24,000 )                 (24,000 )
Repayments on FF&E financings and other long-term debt
          (16,700 )     (39,896 )           (56,596 )
Repayments on airplane financings
    (2,765 )                       (2,765 )
Proceeds from the sale of The Shoppes at The Palazzo
          243,928                   243,928  
Payments of deferred financing costs
    (4,935 )           (87,612 )           (92,547 )
                                         
Net cash provided by financing activities
    475,759       2,202,564       1,893,598       (1,647,859 )     2,924,062  
                                         
Effect of exchange rate on cash
                11,719             11,719  
                                         
Increase (decrease) in cash and cash equivalents
    (68,829 )     614,160       (126,506 )           418,825  
Cash and cash equivalents at beginning of period
    73,489       129,684       653,977             857,150  
                                         
Cash and cash equivalents at end of period
  $ 4,660     $ 743,844     $ 527,471     $     $ 1,275,975  
                                         


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2007
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Net cash provided by (used in) operating activities
  $ (104,696 )   $ (168,614 )   $ 492,553     $     $ 219,243  
                                         
Cash flows from investing activities:
                                       
Change in restricted cash
    50,076       410,703       233,903             694,682  
Capital expenditures
    (82,095 )     (733,507 )     (1,906,465 )           (2,722,067 )
Acquisition of gaming license included in other assets
                (50,000 )           (50,000 )
Intercompany receivable to Guarantor Subsidiaries
    (79,902 )                 79,902        
Intercompany receivable to non-guarantor subsidiaries
    (32,068 )     (78,990 )           111,058        
Repayment of receivable from Guarantor Subsidiaries
    65,974                   (65,974 )      
Repayment of receivable from non-guarantor subsidiaries
    125,464       58,521             (183,985 )      
Capital contributions to subsidiaries
          (704 )           704        
                                         
Net cash provided by (used in) investing activities
    47,449       (343,977 )     (1,722,562 )     (58,295 )     (2,077,385 )
                                         
Cash flows from financing activities:
                                       
Proceeds from exercise of stock options
    23,862                         23,862  
Excess tax benefits from stock-based compensation
    5,865                         5,865  
Capital contributions received
                704       (704 )      
Borrowings from Las Vegas Sands Corp. 
          79,902       32,068       (111,970 )      
Borrowings from Guarantor Subsidiaries
                78,990       (78,990 )      
Repayment on borrowings from Las Vegas Sands Corp. 
          (65,974 )     (125,464 )     191,438        
Repayment on borrowings from Guarantor Subsidiaries
                (58,521 )     58,521        
Proceeds from Macao credit facility
                1,300,000             1,300,000  
Proceeds from Singapore credit facility
                332,002             332,002  
Proceeds from new senior secured credit facility-term B
          3,000,000                   3,000,000  
Proceeds from senior secured credit facility-revolving
          62,000                   62,000  
Proceeds from airplane financings
    92,250                         92,250  
Proceeds from The Shoppes at The Palazzo construction loan
                52,000             52,000  
Proceeds from FF&E credit facility and other long-term debt
          23,834       13,415             37,249  
Repayments on senior secured credit facility-term B and term B delayed
          (1,170,000 )                 (1,170,000 )
Repayment on senior secured credit facility-revolving
          (322,128 )                 (322,128 )
Repayment on The Shoppes at The Palazzo construction loan
                (166,500 )           (166,500 )
Repayments on airplane financings
    (1,844 )                       (1,844 )
Repayments on the Sands Expo Center mortgage loan
          (90,868 )                 (90,868 )
Repayment on new senior secured credit facility-term B
          (7,500 )                 (7,500 )
Repayments on other long-term debt
          (7,335 )     (14 )           (7,349 )
Payments of deferred financing costs
    (575 )     (54,824 )     (16,779 )           (72,178 )
                                         
Net cash provided by financing activities
    119,558       1,447,107       1,441,901       58,295       3,066,861  
                                         
Effect of foreign exchange rate on cash
                2,862             2,862  
                                         
Increase in cash and cash equivalents
    62,311       934,516       214,754             1,211,581  
Cash and cash equivalents at beginning of period
    69,100       94,146       304,820             468,066  
                                         
Cash and cash equivalents at end of period
  $ 131,411     $ 1,028,662     $ 519,574     $     $ 1,679,647  
                                         


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
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 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.”
 
Operations
 
We view each of our casino properties as an operating segment. The Venetian Resort Hotel Casino (“The Venetian Las Vegas”) and The Palazzo Resort Hotel Casino (“The Palazzo”) operating segments are managed as a single integrated resort and have been aggregated into our Las Vegas Operating Properties, considering their similar economic characteristics, types of customers, types of service and products, the regulatory business environment of the operations within each segment and the Company’s organizational and management reporting structure. Our Macao operating segments consist of the Sands Macao, The Venetian Macao Resort Hotel (“The Venetian Macao”), the Four Seasons Hotel Macao (the “Four Seasons Macao”) and other ancillary operations in that region (“Other Asia”).
 
Las Vegas
 
Our Las Vegas Operating Properties, situated on or near the Las Vegas Strip, consist of The Venetian Las Vegas, a Renaissance Venice-themed resort; The Palazzo, a resort featuring modern European ambience and design reminiscent of Italian affluent living; and an expo and convention center of approximately 1.2 million square feet (the “Sands Expo Center”). With the opening of The Palazzo in December 2007, our Las Vegas Operating Properties represent the world’s largest integrated resort with approximately 7,100 suites and approximately 225,000 square feet of gaming space. Our Las Vegas Operating Properties also feature a meeting and conference facility of approximately 1.1 million square feet; Canyon Ranch SpaClub facilities; Paiza Clubtm offering services and amenities to premium customers, including luxurious VIP suites, spa facilities and private VIP gaming room facilities; an entertainment center; an enclosed retail, dining and entertainment complex located within The Venetian Las Vegas of approximately 440,000 net leasable square feet (“The Grand Canal Shoppes”), which was sold to General Growth Partners (“GGP”) in 2004; and an enclosed retail and dining complex located within The Palazzo of approximately 400,000 net leasable square feet (“The Shoppes at The Palazzo”), which was sold to GGP on February 29, 2008.
 
We have received proceeds of $295.4 million from the sale of The Shoppes at The Palazzo as of September 30, 2008. This purchase price will be periodically adjusted after closing with a final adjustment based on net operating income of The Shoppes at The Palazzo for months 19 through 30 (see “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 7 — Mall Sale”). Due to the general downturn in national and local retail, economic and market conditions, there can be no assurance of what the final purchase price will be, although we currently believe that it will be in excess of costs incurred in constructing The Shoppes at The Palazzo; however, if circumstances change, we may be required to record an impairment charge in the future. Based on GGP’s current financial condition, there can be no assurance that GGP will make its future periodic payments.
 
Approximately 65.3% and 63.1% of gross revenue at our Las Vegas Operating Properties for the nine months ended September 30, 2008 and 2007, respectively, was derived from room revenues, food and beverage services, and other non-gaming sources, and 34.7% and 36.9%, respectively, was derived from gaming activities. The percentage of non-gaming revenue reflects the integrated resort’s emphasis on the group convention and trade show business and the resulting high occupancy and room rates throughout the week, including during mid-week periods.
 
Macao
 
We own and operate the Sands Macao, the first Las Vegas-style casino in Macao, pursuant to a 20-year gaming subconcession. The Sands Macao includes approximately 229,000 square feet of gaming space; a 289-suite hotel tower; several restaurants; a spacious Paiza Club; a theater; and other high-end services and amenities. Approximately 92.4% and 95.4% of the gross revenue at the Sands Macao for the nine months ended September 30, 2008


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and 2007, respectively, was derived from gaming activities, with the remainder primarily derived from room revenues and food and beverage services.
 
On August 28, 2007, we opened The Venetian Macao, the anchor property of our master-planned development of integrated resort properties that we refer to as the Cotai Striptm in Macao. The Venetian Macao, with a theme similar to that of The Venetian Las Vegas, features a 39-floor luxury hotel tower with over 2,900 suites; a casino floor of approximately 550,000 square feet; approximately 1.0 million square feet of retail and dining offerings; a convention center and meeting room complex of approximately 1.2 million square feet; an approximately 15,000-seat arena that has hosted a wide range of entertainment and sporting events; and an 1,800-seat theater that features an original production from Cirque du Soleil. Approximately 79.7% and 85.2% of the gross revenue at The Venetian Macao for the nine months ended September 30, 2008 and the period ending September 30, 2007, respectively, was derived from gaming activities, with the remainder derived from room revenues, food and beverage services, and other non-gaming sources.
 
On August 28, 2008, the Company opened the Four Seasons Hotel Macao (the “Four Seasons Macao”) which is adjacent to The Venetian Macao. The Four Seasons Macao, features 360 rooms and suites managed by Four Seasons Inc.; approximately 70,000 square feet of gaming space; several food and beverage offerings; conference and banquet facilities; and retail space of approximately 211,000 square feet, which is connected to the mall at The Venetian Macao. The property will also feature 19 Paiza mansions and the Four Seasons Private Apartments Macao, Cotai StripTM (the “Four Seasons Private Apartments”) consisting of approximately 1.0 million square feet of Four Seasons-serviced and -branded luxury apartment hotel units, which are currently expected to open in spring 2009. Approximately 69.1% of the gross revenue at the Four Seasons Macao for the period ended September 30, 2008, was derived from gaming activities, with the remainder primarily derived from retail and other non-gaming sources.
 
Development Projects
 
Given current conditions in the capital markets and the global economy and their impact on our ongoing operations, we have chosen to temporarily or indefinitely suspend portions of our development projects and will focus our development efforts on those projects with the highest rates of expected return on invested capital given the liquidity and capital resources available to us today. The continuing development plan, as outlined in further detail below, is dependent on our raising additional capital. If we are unable to raise additional capital in the near term, we would need to consider suspending portions, if not all, of our remaining global development projects.
 
United States Development Projects
 
St. Regis Residences
 
We have been constructing a St. Regis-branded high-rise residential condominium tower, the St. Regis Residences at The Venetian Palazzo (the “St. Regis Residences”), which is situated between The Palazzo and The Venetian Las Vegas on the Las Vegas Strip and is expected to feature approximately 400 luxury residences. On November 10, 2008, we announced the indefinite suspension of our construction activities for the project due to difficulties in the capital markets, reduced demand for Las Vegas Strip condominiums and the overall decline in general economic conditions. We will consider recommencing construction when these conditions improve and expect that it will take approximately 18 months from when construction recommences to complete the project. The cost to build the St. Regis Residences was expected to be approximately $600 million; however, the impact of the suspension on the estimated overall cost to build is currently not determinable. As of September 30, 2008, we have spent $86.0 million in construction costs and branding-related payments. The estimated cost to prepare the site for delay and to complete construction of the podium portion (which is part of The Shoppes at The Palazzo and includes already leased retail and entertainment space), which activities are expected to be completed during the first quarter of 2009, is approximately $95 million.
 
Sands Bethlehem
 
In August 2007, our indirect majority-owned subsidiary, Sands Bethworks Gaming LLC (“Sands Bethworks Gaming”), was issued a Pennsylvania gaming license by the Pennsylvania Gaming Control Board. We are in the process of developing a gaming, hotel, retail and dining complex called Sands Casino Resort Bethlehem (“Sands Bethlehem”), located on the site of the Historic Bethlehem Steel Works in Bethlehem, Pennsylvania, which is approximately 70 miles from midtown Manhattan, New York. Sands Bethlehem is also expected to be home to the


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National Museum of Industrial History, an arts and cultural center, and the broadcast home of the local PBS affiliate. We own 86% of the economic interest of the gaming, hotel and entertainment portion of the property through our ownership interest in Sands Bethworks Gaming and more than 35% of the economic interest of Sands Bethworks Retail, LLC (“Sands Bethworks Retail”), the owner of the retail portion of Sands Bethlehem. Bethworks Now, LLC, our joint venture partner, contributed the land on which Sands Bethlehem is being developed to Sands Bethworks Gaming and Sands Bethworks Retail in September 2008.
 
On November 10, 2008, we announced suspension of construction of a portion of Sands Bethlehem due to difficulties in the capital markets and the overall decline in general economic conditions. We will continue construction of the casino component of the 124-acre development, which will open with 3,000 slot machines (increasing to 5,000 six months after the opening date) and a variety of dining options, as well as the parking garage and surface parking. Construction activities on the remaining components, which include a 300-room hotel, an approximate 200,000-square-foot retail facility, a 50,000-square-foot multipurpose event center and a variety of additional dining options, have been suspended until capital markets and general economic conditions improve. The cost to build Sands Bethlehem was expected to be approximately $600 million (excluding furniture, fixtures and equipment (“FF&E”), pre-opening and other costs), of which $236.9 million had been spent as of September 30, 2008. We have spent an additional $79.5 million on other costs related to the project, which includes the gaming license and pre-opening and other costs, as of September 30, 2008. We expect to incur an additional $282 million to complete construction of the casino and parking components, and to prepare the additional components for delay, which are expected to be completed in the second quarter of 2009. We also expect to incur $145 million of additional costs to open the casino component, including FF&E, pre-opening and other costs. The estimated cost to build the remaining components of the project is currently not determinable.
 
Macao Development Projects
 
We have submitted plans to the Macao government for our Cotai Strip developments, which represent five integrated resort developments, in addition to The Venetian Macao and the Four Seasons Macao on an area of approximately 200 acres (which we refer to as parcels 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 amenities. We have commenced construction or pre-construction for these five parcels and plan to own and operate all of the casinos in these developments under our Macao gaming subconcession. In addition, we are completing the development of some public areas surrounding our Cotai Strip properties on behalf of the Macao government. We intend to develop our other Cotai Strip properties as follows:
 
  •  Parcels 5 and 6 are intended to include multi-hotel complexes with a total of approximately 6,400 luxury and mid-scale hotel rooms, a casino, a shopping mall and approximately 320 serviced luxury apartment hotel units. We will own the entire development and have entered into management agreements with Shangri-La Hotels and Resorts to manage two hotels under its Shangri-La and Traders brands, and Starwood Hotels & Resorts Worldwide (“Starwood”) to manage hotels under its Sheraton brand and a hotel and serviced luxury apartment hotel under its St. Regis brand. On November 10, 2008, we announced our revised development plan to sequence the construction of the project due to difficulties in the capital markets and the overall decline in general economic conditions. Phase I of the project which includes the Shangri-La and Traders tower and the first Sheraton tower, along with the podium that encompasses the casino, associated public areas, portions of the shopping mall and approximately 100,000 square feet of meeting space. We plan to temporarily suspend construction of phase I while we pursue project-level financing, which we target to complete within the next three to six months; however, there can be no assurance that such financing will be obtained. Once financing has been obtained, we expect it will take approximately nine months to complete construction of phase I. Construction of phase II of the project, which includes the second Sheraton tower and the St. Regis serviced luxury apartment hotel, has been suspended until conditions in the capital markets and general economic conditions improve. Starwood has the right to terminate its management agreements if certain construction and opening obligations and deadlines are not met. Under our revised development plan, there can be no assurance that we will meet all of these obligations and deadlines. The impact of the revised development plan on the estimated overall cost of the project is currently not determinable. The estimated total cost to build phase I and prepare the phase II components for delay is expected to be approximately $3.05 billion (excluding FF&E, pre-opening and other costs), of which $1.16 billion had been spent as of September 30, 2008. If the proposed


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  project-level financing is unsuccessful, we expect to incur approximately $900 million in costs to prepare the project for delay.
 
  •  Parcels 7 and 8 are intended to include multi-hotel complexes with a total of approximately 6,150 luxury and mid-scale hotel rooms, a casino, shopping malls and approximately 450 serviced luxury apartment hotel units that are physically connected to the hotel complexes. We will own the entire development and have entered into non-binding agreements with Hilton Hotels to manage Hilton and Conrad brand hotels and serviced luxury apartment hotels on parcel 7, and Fairmont Raffles Holdings to manage Fairmont and Raffles brand hotels and serviced luxury apartment hotels on parcel 8. We are currently negotiating definitive agreements with Hilton Hotels and Fairmont Raffles Holdings. We have commenced pre-construction and have capitalized approximately $122.4 million as of September 30, 2008, but will not commence construction until government approvals necessary to commence construction are obtained, regional and global economic conditions improve, future demand warrants and additional financing is obtained.
 
  •  For parcel 3, we have signed a non-binding memorandum of agreement with an independent developer. We are currently negotiating the definitive agreement pursuant to which we will partner with the developer to build a multi-hotel complex, which may include a Cosmopolitan hotel. In addition, we have signed a non-binding letter of intent with Intercontinental Hotels Group to manage hotels under the Intercontinental and Holiday Inn International brands, and approximately 205 serviced luxury apartment hotel units under the Intercontinental brand, on this site. We are currently negotiating definitive agreements with Intercontinental Hotels Group. In total, the multi-hotel complex is intended to include approximately 3,940 hotel rooms, a casino, a shopping mall and serviced luxury apartment hotels. We have commenced pre-construction and have capitalized approximately $37.2 million as of September 30, 2008, but will not commence construction until government approvals necessary to commence construction are obtained, regional and global economic conditions improve, future demand warrants and additional financing is obtained.
 
The impact of the delays or significant slow down of construction of our Cotai Strip developments on our overall estimated cost to build is currently not determinable. As of September 30, 2008, we have capitalized $4.33 billion in construction costs on the Cotai Strip, including The Venetian Macao and Four Seasons Macao. We will need to arrange additional financing to fund the balance of our Cotai Strip developments and there is no assurance that we will be able to obtain any of the additional financing required.
 
We have received a land concession from the Macao government to build on parcels 1, 2 and 3, including the sites on which The Venetian Macao (parcel 1) and Four Seasons Macao (parcel 2) are located. We do not own these land sites in Macao; however, the land concession, which has an initial term of 25 years and is renewable at our option, grants us exclusive use of the land. As specified in the land concession, we are required to pay premiums, which are payable over four years or are due upon the completion of the corresponding resort, as well as annual rent for the term of the land concession. In October 2008, the Macao government amended the land concession to separate the retail mall and hotel portions of the Four Seasons Macao parcel, and allowed us to subdivide such parcel into four separate components, including the Four Seasons Private Apartments and retail mall portions. In consideration for the amendment, we paid an additional land premium of approximately $17.8 million and will pay adjusted annual rent over the remaining term of the concession, which increased slightly due to the revised allocation of parcel use.
 
We do not yet have all the necessary Macao government approvals that we will need in order to develop our planned Cotai Strip developments on parcels 3, 5, 6, 7 and 8. We have received a land concession for parcel 3, as previously noted, but have not yet been granted land concessions for parcels 5, 6, 7 and 8. We are in the process of negotiating with the Macao government to obtain the land concession for parcels 5 and 6, and will subsequently negotiate the land concession for parcels 7 and 8. Based on historical experience with the Macao government with respect to our land concessions for the Sands Macao and parcels 1, 2 and 3, management believes that the land concessions for parcels 5, 6, 7 and 8 will be granted; however, if we do not obtain these land concessions, we could forfeit all or a substantial part of our $1.45 billion in capitalized construction costs related to these developments as of September 30, 2008.
 
Under our land concession for parcel 3, we are required to complete the development of this parcel by August 2011. If we are unable to meet the August 2011 deadline and that deadline is not extended, we could lose our right to continue to operate The Venetian Macao, Sands Macao, Four Seasons Macao or any other facility developed under


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our Macao gaming subconcession, and our investment to date on these developments could be lost. We believe that if we are not able to complete the development of parcel 3 by the deadline, we will be able to obtain an extension of the deadline; however, no assurances can be given that an extension will be granted by the Macao government.
 
Singapore Development Project
 
In August 2006, our wholly-owned subsidiary, Marina Bay Sands Pte. Ltd. (“MBS”), 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. The Marina Bay Sands 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 1.3 million square feet, theaters and a landmark iconic structure at the bay-front promenade that will contain an art/science museum. We are continuing to finalize various design aspects of the integrated resort and are in the process of finalizing our cost estimates for the project. We expect the cost to build the Marina Bay Sands will be approximately 7.15 Singapore Dollars (“SGD,” approximately $4.99 billion at exchange rates in effect on September 30, 2008), which excludes FF&E, pre-opening and other costs but includes payments made in 2006 for land premium, taxes and other fees. As we have obtained Singapore-denominated financing and primarily pay our costs in Singapore Dollars, our exposure to foreign exchange gains/losses is expected to be minimal. We have spent approximately SGD 2.59 billion (approximately $1.81 billion at exchange rates in effect on September 30, 2008) in construction costs as of September 30, 2008. Based on our current development plan, we intend to continue construction on our existing timeline with the majority of the project targeted to open in late 2009.
 
Hengqin Island Development Project
 
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 together 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, 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. On November 10, 2008, we announced the indefinite suspension of the project because of the difficult global economic and credit market environment.
 
Other Development Projects
 
We are currently exploring the possibility of developing and operating additional properties, including integrated resorts, in additional Asian and U.S. jurisdictions, and in Europe. In July 2008, we withdrew our previously submitted application to develop a casino resort in the Kansas City, Kansas, metropolitan area.
 
Recent Developments
 
Recent Corporate Governance Changes
 
On October 29, 2008, certain members of our management team, including Sheldon G. Adelson, Chairman of the Board and Chief Executive Officer, William P. Weidner, President and Chief Operating Officer, Bradley H. Stone, Executive Vice President, and Robert G. Goldstein, Senior Vice President (the “Senior Management Members”), recommended to our board of directors that it institute additional corporate policies and procedures. Upon such recommendation, our board of directors formed an executive committee (the “Executive Committee”) comprised of Irwin Chafetz, Michael A. Leven and Irwin A. Siegel, with Mr. Leven being the Chairman of the Executive Committee. The role of the Executive Committee is to exercise the powers of the board of directors in between scheduled board meetings, including the power to resolve disagreements among management. Also, the board of directors gave Mr. Stone the additional responsibilities of President of Construction and Operations. The board of directors adopted these measures to address governance concerns raised by the Senior Management Members, address a number of outstanding differences between our Chief Executive Officer and other Senior Management Members and in response to a loss of confidence by certain Senior Management Members in the management of the Company and our governance process.


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Critical Accounting Policies and Estimates
 
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 these critical accounting policies 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” presented in our 2007 Annual Report on Form 10-K filed on February 29, 2008, and “Notes to Consolidated Financial Statements” presented in our Current Report on Form 8-K filed on November 6, 2008.
 
There were no newly identified significant accounting estimates in the nine months ended September 30, 2008, nor were there any material changes to the critical accounting policies and estimates discussed in our 2007 Annual Report, with the exception of judgments related to the Suen litigation (see related disclosure at “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 10 — Commitments and Contingencies.”
 
Recent Accounting Pronouncements
 
See related disclosure at “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 1 — Organization and Business of Company.”
 
Summary Financial Results
 
The following table summarizes our results of operations:
 
                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
                Percent
                Percent
 
    2008     2007     Change     2008     2007     Change  
    (In thousands, except for percentages)  
 
Net revenues
  $ 1,105,434     $ 660,950       67.2 %   $ 3,296,571     $ 1,902,094       73.3 %
Operating expenses
    1,077,239       681,744       58.0 %     3,098,529       1,705,649       81.7 %
Operating income (loss)
    28,195       (20,794 )     (235.6 )%     198,042       196,445       0.8 %
Income (loss) before income taxes and noncontrolling interest
    (51,916 )     (49,459 )     5.0 %     (76,252 )     92,733       (182.2 )%
Net income (loss)
    (32,208 )     (48,507 )     (33.6 )%     (52,238 )     76,805       (168.0 )%
 
                                 
    Percent of Net Revenues  
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Operating expenses
    97.4 %     103.1 %     94.0 %     89.7 %
Operating income (loss)
    2.6 %     (3.1 )%     6.0 %     10.3 %
Income (loss) before income taxes and noncontrolling interest
    (4.7 )%     (7.5 )%     (2.3 )%     4.9 %
Net income (loss)
    (2.9 )%     (7.3 )%     (1.6 )%     4.0 %
 
Operating Results
 
Key operating revenue measurements
 
Operating revenues at our Las Vegas properties, The Venetian Macao and Four Seasons 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. Hotel revenues are not material for the Sands Macao as its revenues are principally driven by casino customers who visit the casino on a daily basis. Visitors to our Macao


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properties 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 (“drop”) and slot handle (“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. Based upon our mix of table games, our table games produce a statistical average win percentage (calculated before discounts) as measured as a percentage of drop of 20.0% to 22.0% and slot machines produce a statistical average win percentage (calculated before slot club cash incentives) as measured as a percentage of handle generally between 6.0% and 7.0%.
 
Casino revenue measurements for Macao:  Macao table games are 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 previously described. Rolling Chip volume and Non-Rolling Chip volume are not equivalent as Rolling Chip volume is a measure of amounts wagered versus dropped. Rolling Chip volume is substantially higher than table games drop. Slot handle 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 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 win percentage as measured as a percentage of drop of 18.0% to 20.0%. Similar to Las Vegas, our Macao slot machines produce a statistical average win percentage as measured as a percentage of handle of generally between 6.0% and 7.0%.
 
Actual win may vary from the statistical average.  Generally, slot machine play is conducted on a cash basis. Credit-based wagering for our Las Vegas properties was approximately 55.8% of table games revenues for the nine months ended September 30, 2008. Table games play at our Macao properties is conducted primarily on a cash basis with only 16.4% credit-based wagering for the nine months ended September 30, 2008.
 
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, 2008 compared to the Three Months Ended September 30, 2007
 
Operating Revenues
 
Our net revenues consisted of the following:
 
                         
    Three Months Ended September 30,  
                Percent
 
    2008     2007     Change  
    (In thousands, except for percentages)  
 
Casino
  $ 805,258     $ 508,522       58.4 %
Rooms
    188,794       96,718       95.2 %
Food and beverage
    91,025       50,032       81.9 %
Convention, retail and other
    123,233       39,058       215.5 %
                         
      1,208,310       694,330       74.0 %
Less — promotional allowances
    (102,876 )     (33,380 )     208.2 %
                         
Total net revenues
  $ 1,105,434     $ 660,950       67.2 %
                         
 
Consolidated net revenues were $1.11 billion for the three months ended September 30, 2008, an increase of $444.5 million compared to $661.0 million for the three months ended September 30, 2007. The increase in net revenues was due primarily to an increase in casino revenues and a 34-day operating period in the prior year due to the opening of the Venetian Macao in August 2007.


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Casino revenues for the three months ended September 30, 2008, increased $296.7 million as compared to the three months ended September 30, 2007. Of the increase, $301.6 million was attributable to The Venetian Macao, $30.1 million to our Las Vegas Operating Properties due primarily to the opening of The Palazzo, offset by a lower than expected table games win percentage, and $15.9 million attributable to the opening of Four Seasons Macao, offset by a decrease of $50.9 million at Sands Macao due primarily to increased competition, cannibalization by The Venetian Macao and lower rolling chip win as compared to the three months ended September 30, 2007. The following table summarizes the results of our casino revenue activity:
 
                         
    Three Months Ended September 30,  
    2008     2007     Change  
    (In thousands, except for percentages)  
 
Sands Macao
                       
Total casino revenues
  $ 243,524     $ 294,467       (17.3 )%
Non-Rolling Chip table games drop
  $ 652,252     $ 812,385       (19.7 )%
Non-Rolling Chip table games win percentage
    17.9 %     18.7 %     (0.8 )pts
Rolling Chip volume
  $ 7,256,360     $ 6,287,371       15.4 %
Rolling Chip win percentage
    2.35 %     2.85 %     (0.50 )pts
Slot handle
  $ 273,126     $ 297,910       (8.3 )%
Slot hold percentage
    7.3 %     6.6 %          0.7pts  
The Venetian Macao
                       
Total casino revenues
  $ 432,628     $ 130,962       230.3 %
Non-Rolling Chip table games drop
  $ 930,621     $ 257,089       262.0 %
Non-Rolling Chip table games win percentage
    19.7 %     16.7 %     3.0 pts
Rolling Chip volume
  $ 9,778,702     $ 4,727,325       106.8 %
Rolling Chip win percentage
    3.06 %     2.44 %     0.62 pts
Slot handle
  $ 549,895     $ 123,211       346.3 %
Slot hold percentage
    7.8 %     6.6 %     1.2 pts
Four Seasons Macao
                       
Total casino revenues
  $ 15,931     $       %
Non-Rolling Chip table games drop
  $ 16,748     $       %
Non-Rolling Chip table games win percentage
    18.4 %     %     pts
Rolling Chip volume
  $ 165,155     $       %
Rolling Chip win percentage
    8.33 %     %     pts
Slot handle
  $ 7,903     $       %
Slot hold percentage
    6.4 %     %     pts
Las Vegas Operating Properties
                       
Total casino revenues
  $ 113,175     $ 83,093       36.2 %
Table games drop
  $ 477,182     $ 356,353       33.9 %
Table games win percentage
    13.8 %     14.7 %     (0.9 )pts
Slot handle
  $ 976,577     $ 619,845       57.6 %
Slot hold percentage
    6.0 %     6.2 %     (0.2 )pts
 
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, 2008, increased $92.1 million as compared to the three months ended September 30, 2007, due primarily to the openings of The Venetian Macao and The Palazzo. The increase at our Las Vegas Operating Properties was offset as the ADR and occupancy rate were negatively impacted by a reduction of room rates in order to increase visitation to The Palazzo and excess suite inventory as the new resort ramps up its operations, respectively, and the overall decline in general economic conditions. The suites at Sands Macao are primarily provided to casino patrons on a complimentary basis and therefore revenues of


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$6.7 million and $1.6 million for the three months ended September 30, 2008 and 2007, respectively, and related statistics have not been included in the following table, which summarizes the results of our room revenue activity.
 
                         
    Three Months Ended September 30,  
    2008     2007     Change  
    (Room revenues in thousands)  
 
Las Vegas Operating Properties
                       
Total room revenues
  $ 130,486     $ 83,027       57.2 %
Average daily room rate
  $ 218     $ 234       (6.8 )%
Occupancy rate
    93.1 %     99.6 %     (6.5 )pts
Revenue per available room
  $ 202     $ 233       (13.3 )%
The Venetian Macao
                       
Total room revenues
  $ 51,085     $ 12,092       322.5 %
Average daily room rate
  $ 211     $ 208       1.4 %
Occupancy rate
    92.1 %     77.5 %     14.6 pts
Revenue per available room
  $ 194     $ 161       20.5 %
Four Seasons Macao
                       
Total room revenues
  $ 517     $       %
Average daily room rate
  $ 440     $       %
Occupancy rate
    31.4 %     %     pts
Revenue per available room
  $ 138     $       %
 
Food and beverage revenues for the three months ended September 30, 2008, increased $41.0 million as compared to the three months ended September 30, 2007. The increase was primarily attributable to an increase of $13.2 million at The Venetian Macao and $26.8 million at the Las Vegas Operating Properties, driven primarily by the opening of The Palazzo and several joint venture restaurants that opened in 2008.
 
Convention, retail and other revenues for the three months ended September 30, 2008, increased $84.2 million as compared to the three months ended September 30, 2007. The increase is primarily attributable to an increase of $44.9 million at The Venetian Macao, which consisted primarily of rental revenues from the mall, $18.5 million at the Las Vegas Operating Properties, driven primarily by the opening of The Palazzo and $15.3 million in Other Asia, driven primarily by our passenger ferry operations.
 
Operating Expenses
 
The breakdown of operating expenses is as follows:
 
                         
    Three Months Ended September 30,  
                Percent
 
    2008     2007     Change  
    (In thousands, except for percentages)  
 
Casino
  $ 580,755     $ 341,975       69.8 %
Rooms
    36,436       23,574       54.6 %
Food and beverage
    46,035       28,485       61.6 %
Convention, retail and other
    69,013       22,939       200.9 %
Provision for doubtful accounts
    8,859       4,283       106.8 %
General and administrative
    130,192       80,244       62.2 %
Corporate expense
    23,390       23,444       (0.2 )%
Rental expense
    8,437       8,136       3.7 %
Pre-opening expense
    40,777       90,447       (54.9 )%
Development expense
    1,153       3,621       (68.2 )%
Depreciation and amortization
    132,239       54,309       143.5 %
(Gain) loss on disposal of assets
    (47 )     287       (116.4 )%
                         
Total operating expenses
  $ 1,077,239     $ 681,744       58.0 %
                         
 
Operating expenses were $1.08 billion for the three months ended September 30, 2008, an increase of $395.5 million as compared to $681.7 million for the three months ended September 30, 2007. The increase in operating expenses was primarily attributable to the higher operating revenues associated with the openings of The


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Venetian Macao, Four Seasons Macao and The Palazzo, growth of our operating businesses in Las Vegas, and depreciation and amortization costs, as more fully described below.
 
Casino expenses for the three months ended September 30, 2008, increased $238.8 million as compared to the three months ended September 30, 2007. Of the increase, $142.7 million was due to the 39.0% gross win tax on casino revenues of The Venetian Macao, offset by a decrease in gross win tax at the Sands Macao of $17.4 million due to the decrease in casino revenues as noted above. An additional $68.1 million in casino-related expenses (exclusive of the aforementioned 39.0% gross win tax) were attributable to The Venetian Macao, primarily related to payroll-related expenses and commissions paid under the Rolling Chip program. Casino expenses at our Las Vegas Operating Properties increased $33.1 million primarily due to the opening of The Palazzo, consisting principally of payroll-related expenses, gaming-related taxes and an increase in costs of providing promotional allowances.
 
Rooms expense increased $12.9 million and food and beverage expense increased $17.6 million, as compared to the three months ended September 30, 2007. These increases were primarily due to openings of The Venetian Macao and The Palazzo, and the associated increases in the related revenue categories described above.
 
Convention, retail and other expense increased $46.1 million, as compared to the three months ended September 30, 2007, of which $18.9 million was attributable to The Venetian Macao and the remaining increase primarily attributable to our passenger ferry service operations.
 
The provision for doubtful accounts was $8.9 million for the three months ended September 30, 2008, compared to $4.3 million for the three months ended September 30, 2007. 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, 2008, increased $49.9 million as compared to the three months ended September 30, 2007. The increase was attributable to the growth of our operating businesses in Las Vegas and Macao, with $23.1 million of the increase being incurred at our Las Vegas Operating Properties and $28.0 million being incurred at The Venetian Macao.
 
Pre-opening and development expenses were $40.8 million and $1.2 million, respectively, for the three months ended September 30, 2008, as compared to $90.4 million and $3.6 million, respectively, for the three months ended September 30, 2007. Pre-opening expense represents personnel and other costs incurred prior to the opening of new ventures, which are expensed as incurred. Pre-opening expenses for the three months ended September 30, 2008, were primarily related to activities at our other Cotai Strip properties, Marina Bay Sands and Sands Bethlehem. Development expenses include the costs associated with the Company’s evaluation and pursuit of new business opportunities, which are also expensed as incurred. Development expenses for the three months ended September 30, 2008, were primarily related to our activities in Asia, Europe and the U.S.
 
Depreciation and amortization expense for the three months ended September 30, 2008, increased $77.9 million as compared to the three months ended September 30, 2007. The increase was primarily the result of the openings of The Venetian Macao (totaling $32.2 million), The Palazzo (totaling $35.2 million) and Four Seasons Macao (totaling $4.9 million).


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Adjusted EBITDAR
 
Adjusted EBITDAR is used by management as the primary measure of the operating performance of our segments. Adjusted EBITDAR is net income (loss) before interest, income taxes, depreciation and amortization, pre-opening expense, development expense, other income, loss on early retirement of debt, (gain) loss on disposal of assets, rental expense, corporate expense, stock-based compensation expense included in general and administrative expense, and noncontrolling interest. The following table summarizes activity related to our segments (see “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 11 — Segment Information” for discussion of our operating segments and a reconciliation of adjusted EBITDAR to net income (loss)):
 
                         
    Three Months Ended September 30,  
                Percent
 
    2008     2007     Change  
    (In thousands, except for percentages)  
 
Las Vegas Operating Properties
  $ 73,316     $ 60,183       21.8 %
Macao:
                       
Sands Macao
    42,591       77,574       (45.1 )%
The Venetian Macao
    135,737       26,520       411.8 %
Four Seasons Macao
    2,963             %
Other Asia
    (10,848 )           %
                         
Total adjusted EBITDAR
  $ 243,759     $ 164,277       48.4 %
                         
 
With the opening of The Palazzo, adjusted EBITDAR at our Las Vegas Operating Properties increased $13.1 million, or 21.8%, as compared to the three months ended September 30, 2007. This increase was primarily attributable to an increase of $95.9 million in net revenue, offset by an increase of $34.2 million in payroll-related expenses, increased operating expenses when compared with the related revenue categories, driven by lower table game win percentages and lower occupancy rates, and an increase in general and administrative expenses to support the growth of the Las Vegas Operating Properties.
 
Adjusted EBITDAR at Sands Macao decreased $35.0 million, or 45.1%, as compared to the three months ended September 30, 2007. As previously described, the decrease was primarily attributable to the decrease in casino revenues of $50.9 million, offset by a $17.4 million decrease in gross win tax on reduced casino revenues.
 
Adjusted EBITDAR at The Venetian Macao, Four Seasons Macao and our Other Asia segments do not have comparable prior-year periods. Results of the operations of The Venetian Macao and Four Seasons Macao are as previously described. Our Other Asia segment is composed primarily of our passenger ferry service between Macao and Hong Kong, which initiated evening sailings and increased its frequency of sailings during peak hours in June 2008.
 
Interest Expense
 
The following table summarizes information related to interest expense on long-term debt:
 
                 
    Three Months Ended September 30,  
    2008     2007  
    (In thousands, except for percentages)  
 
Interest cost (which includes the amortization of deferred financing costs and original issue discount)
  $ 128,896     $ 136,819  
Less — capitalized interest
    (38,361 )     (64,212 )
                 
Interest expense, net
  $ 90,535     $ 72,607  
                 
Cash paid for interest
  $ 128,254     $ 139,306  
Average total debt balance
  $ 9,247,382     $ 7,202,564  
Weighted average interest rate
    5.6 %     7.6 %


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Interest cost decreased $7.9 million as compared to the three months ended September 30, 2007, resulting from the decrease in our weighted average interest rate, offset by the increase in our average debt balance. The proceeds from long-term debt were primarily used to fund our various development projects. See “— Liquidity and Capital Resources” for further detail of our financing activities. Interest cost was offset by the capitalization of $38.4 million of interest during the three months ended September 30, 2008, as compared to $64.2 million of capitalized interest during the three months ended September 30, 2007. The decrease in capitalized interest is due primarily to the openings of The Venetian Macao and The Palazzo in 2007. 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.
 
Other Factors Effecting Earnings
 
Interest income for the three months ended September 30, 2008, was $3.2 million, a decrease of $23.7 million as compared to $26.9 million for the three months ended September 30, 2007. The decrease was attributable to a reduction in invested cash balances, primarily from our borrowings under the U.S. senior secured credit facility and the Macao credit facility, which were spent on construction-related activities.
 
Other income for the three months ended September 30, 2008, was $7.2 million as compared to $17.1 million for the three months ended September 30, 2007. The income was primarily attributable to the foreign exchange gains/losses associated with U.S. denominated debt held in Macao, offset by the change in fair value of our Singapore interest rate caps entered into in 2008.
 
Our reported income tax rate for the three months ended September 30, 2008, was (37.4%) as compared to (1.9%) for the three months ended September 30, 2007. The reported income tax rate changed due to geographic income mix and the temporary income tax exemption in Macao on gaming operations, which is set to expire at the end of 2013.
 
Nine Months Ended September 30, 2008 compared to the Nine Months Ended September 30, 2007
 
Operating Revenues
 
Our net revenues consisted of the following:
 
                         
    Nine Months Ended September 30,  
                Percent
 
    2008     2007     Change  
    (In thousands, except for percentages)  
 
Casino
  $ 2,404,973     $ 1,433,135       67.8 %
Rooms
    575,172       289,588       98.6 %
Food and beverage
    272,315       162,129       68.0 %
Convention, retail and other
    290,791       113,397       156.4 %
                         
      3,543,251       1,998,249       77.3 %
Less — promotional allowances
    (246,680 )     (96,155 )     156.5 %
                         
Total net revenues
  $ 3,296,571     $ 1,902,094       73.3 %
                         
 
Consolidated net revenues were $3.30 billion for the nine months ended September 30, 2008, an increase of $1.39 billion compared to $1.90 billion for the nine months ended September 30, 2007. The increase in net revenues was due primarily to an increase in casino revenues and the openings of The Venetian Macao and The Palazzo in August 2007 and December 2007, respectively.


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Casino revenues for the nine months ended September 30, 2008, increased $971.8 million as compared to the nine months ended September 30, 2007. Of the increase, $1.10 billion was primarily attributable to The Venetian Macao and $99.4 million to our Las Vegas Operating Properties due primarily to the opening of The Palazzo, offset by a decrease of $243.9 million at Sands Macao due primarily to increased competition, as compared to the nine months ended September 30, 2007. The following table summarizes the results of our casino revenue activity:
 
                         
    Nine Months Ended September 30,  
    2008     2007     Change  
    (In thousands, except for percentages)  
 
Sands Macao
                       
Total casino revenues
  $ 770,113     $ 1,014,049       (24.1 )%
Non-Rolling Chip table games drop
  $ 2,033,529     $ 2,750,121       (26.1 )%
Non-Rolling Chip table games win percentage
    19.2 %     18.6 %     0.6  pts
Rolling Chip volume
  $ 19,046,137     $ 20,406,862       (6.7 )%
Rolling Chip win percentage
    2.56 %     3.04 %     (0.48 )pts
Slot handle
  $ 787,118     $ 912,364       (13.7 )%
Slot hold percentage
    7.9 %     6.9 %     1.0 pts
The Venetian Macao
                       
Total casino revenues
  $ 1,231,434     $ 130,962       840.3 %
Non-Rolling Chip table games drop
  $ 2,662,242     $ 257,089       935.5 %
Non-Rolling Chip table games win percentage
    19.8 %     16.7 %     3.1 pts
Rolling Chip volume
  $ 28,378,526     $ 4,727,325       500.3 %
Rolling Chip win percentage
    3.01 %     2.44 %     0.57 pts
Slot handle
  $ 1,369,832     $ 123,211       1,011.8 %
Slot hold percentage
    8.1 %     6.6 %     1.5 pts
Four Seasons Macao
                       
Total casino revenues
  $ 15,931     $       %
Non-Rolling Chip table games drop
  $ 16,748     $       %
Non-Rolling Chip table games win percentage
    18.4 %     %     pts
Rolling Chip volume
  $ 165,155     $       %
Rolling Chip win percentage
    8.33 %     %     pts
Slot handle
  $ 7,903     $       %
Slot hold percentage
    6.4. %     %     pts
Las Vegas Operating Properties
                       
Total casino revenues
  $ 387,495     $ 288,124       34.5 %
Table games drop
  $ 1,341,985     $ 990,460       35.5 %
Table games win percentage
    19.8 %     21.4 %     (1.6 )pts
Slot handle
  $ 2,708,860     $ 1,771,085       52.9 %
Slot hold percentage
    5.8 %     6.1 %     (0.3 )pts
 
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 nine months ended September 30, 2008, increased $285.6 million as compared to the nine months ended September 30, 2007, due primarily to the openings of The Venetian Macao and The Palazzo. The increase at our Las Vegas Operating Properties was offset as the ADR and occupancy rate were negatively impacted by a reduction of room rates in order to increase visitation to The Palazzo and excess suite inventory as the new resort ramps up its operations, respectively, and the overall decline in general economic conditions. The suites at Sands Macao are primarily provided to casino patrons on a complimentary basis and therefore revenues of


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$20.2 million and $5.1 million for the nine months ended September 30, 2008 and 2007, respectively, and related statistics have not been included in the following table, which summarizes the results of our room revenue activity.
 
                         
    Nine Months Ended September 30,  
    2008     2007     Change  
    (Room revenues in thousands)  
 
Las Vegas Operating Properties